The five pitfalls
In their article, the authors list five key reasons why digital strategies fail. They can be summarized as follows:
- Fuzzy definitions: companies don’t really understand what digital means and what people inside and outside the company refer to when using the word. Only very few have clear and holistic definitions.
- Misunderstanding the economics of digital: in the digital world different economics apply than in the physical world. Digital, for example, destroys traditional economies of scale, drives winner-takes-all economics and increases the importance of first movers and fast followers.
- Overlooking ecosystems: many companies don’t look far enough beyond the boundaries of their firm. Digital enables platform and ecosystem economics and requires a holistic view over the entire ecosystem, value chain or network.
- Overindexing on “the usual suspects:” companies are especially afraid of new, technology based startups and other newcomers, thereby ignoring the threat imposed by incumbents that adopt digital solutions.
- Missing the duality of digital: companies can’t just switch to digital and radically transform their business. They need to digitize their current businesses as well as innovate new, digitally-driven business models.
Together, these five pitfalls provide an insightful understanding of some of the key reasons why digital strategies fail. They focus particularly on the nature of digital and how it can impact business—a company’s own business, as well as the partners and customers in its ecosystem and the competition. But there is more.
Pitfall 0: not knowing why to go digital
Next to these five pitfalls I repeatedly experience a sixth one in my training and consulting work. I number it pitfall “0” because it precedes the previous ones.
Going “digital” is trendy. Along with blockchain, big data, artificial intelligence, augmented reality, robotization, virtualization and a whole bunch of related trends, “digital” represents a bandwagon which all companies need to jump on as soon and as far as possible.
That is, at least, what many people think. The reasoning is simple: if everyone else is doing it, I should probably be doing it as well. And they may even be right. If competitors, partners and customers are increasingly going digital, then there is significant chance that you cannot stay behind.
But the issue is that the adoption of digital—or of any technology or trend—is only relevant for a company if it helps protecting or improving its position towards its customers and relative to the competition. Or in other words, whether or not any specific digital strategy is a good idea depends on the organization’s overarching business strategy.
How to know?
As argued elsewhere, strategy can be defined as an organization’s unique way of sustainable value creation. This means that an organization’s strategy expresses what value it creates, for whom, and how it does this in a unique way that can be maintained for some time.
Along the lines of this definition, the single question that should drive any decision in the company is this: “Does it improve the way I create value for my customers?” Subsequently, organizations can build the various elements of which their strategy is composed around this single question.
The same applies to digital. Whether or not going digital is the right move for a company depends on the answer to this same question. If going digital improves the way value is created for customers or makes it more unique or sustainable, then the answer is yes. And if it doesn’t, the answer is no, or at least not yet. This also applies to evaluating any particular technology used or way of going digital, thereby guiding the company which technologies to adopt and how to use them.
Therefore, with the question as guiding question, companies can make better decisions on going digital and thereby create more successful digital strategies.
This post was published earlier here on my forbes.com page.
Image credit: Getty