DIGITAL SPECIAL.... Digital strategy: The four fights you have to win PART I

DIGITAL SPECIAL Digital strategy: The four fights you have to win PART I

Yesterday’s tentative approaches won’t deliver; you need absolute clarity about digital’s demands, galvanized leadership, unparalleled agility, and the resolve to bet boldly.

If there’s one thing a digital strategy can’t be, it’s incremental. The mismatch between most incumbents’ business models and digital futures is too great—and the environment is changing too quickly—for anything but bold, inventive strategic plans to work.

Digital strategy: The four fights you have to win

Unfortunately, most strategic-planning exercises dogenerate incrementalism. We know this from experience and from McKinsey research: on average, resources don’t move between business units in large organizations. A recent book by our colleagues, Strategy Beyond the Hockey Stick, seeks to explain what causes this inertia (strategy’s social side, rooted in individual interests, group dynamics, and cognitive biases) and to suggest a way out (understanding the real odds of strategy and overhauling your planning processes to deliver the big moves that can overcome those long odds).

All this holds doubly true for digital strategy, which demands special attention. Leaders in many organizations lack clarity on what “digital” means for strategy. They underestimate the degree to which digital is disrupting the economic underpinnings of their businesses. They also overlook the speed with which digital ecosystems are blurring industry boundaries and shifting the competitive balance. What’s more, responding to digital by building new businesses and shifting resources away from old ones can be threatening to individual executives, who may therefore be slow to embrace (much less drive) the needed change.

In our experience, the only way for leaders to cut through inertia and incrementalism is to take bold steps to fight and win on four fronts: You must fight ignorance by using experiential techniques such as “go-and-sees” and war gaming to break leaders out of old ways of thinking and into today’s digital realities. You must fight fear through top-team effectiveness programs that spur senior executives to action. You must fight guesswork through pilots and structured analysis of use cases. And you must fight diffusion of effort—a constant challenge given the simultaneous need to digitize your core and innovate with new business models.

In this article, we will describe how real companies are winning each of these fights—overcoming inertia while building confidence about how to master the new economics of digital. You can join these companies in that effort, thereby giving your digital strategy a jolt and accelerating the shift of your strategy process as a whole, from old-fashioned annual planning to a more continuous journey yielding big moves and big gains even when the end point isn’t entirely clear.

1. Fighting ignorance

Many senior executives aren’t fully fluent in what digital is, much less up to speed on the ways it can change how their businesses operate or the competitive context. That’s problematic. Executives who aren’t conversant with digital are much more likely to fall prey to the “shiny object” syndrome: investing in cool digital technologies (which might only be relevant for other businesses) without a clear understanding of how they will generate value in the executives’ own business models. They also are more likely to make fragmented, overlapping, or subscale digital investments; to pursue initiatives in the wrong order; or to skip foundational moves that would enable more advanced ones to pan out. Finally, this lack of grounding slows down the rate at which a business deploys new digital technologies. In an era of powerful first-mover advantages, winners routinely lead the pack in leveraging cutting-edge digital technologies at scale to pull further ahead. Having only a remedial understanding of trends and technologies has become dangerous.

Raising your technology IQ

For inspiration on how to raise your company’s collective technology IQ, consider the experience of a global industrial conglomerate that knew it had to digitize but didn’t think its leadership team had the expertise to drive the needed changes. The company created a digital academy to help educate its leadership about relevant digital trends and technologies and to provide a forum where executives could ask questions and talk with their peers. Academy leaders also brought in external experts on a few topics the company lacked sufficient internal expertise to address.

Supplementing the academy effort (aimed at leaders) was an organization-wide assessment of digital capabilities and an evaluation of the company’s culture. This provided a fact base, which everyone could understand, about what the organization needed to build over the course of the digital transformation. As business leaders developed digital plans, they were accountable for explaining and defending them to other executives. They also had to help gather those plans into an enterprise-wide digital strategy that every business leader understood and had helped to create.

Overcoming competitive blind spots

If your company resembles many we know, it’s still stuck in some old ways of thinking about where money gets made and by whom. You’re also likely to be overlooking ways digital is changing both the economics of the game and the players on the field in your industry. If any of this sounds familiar, you probably need a jolt—something that forces you to think differently about your business. More specifically, you need to start thinking about it as digital disruptors do. In our experience, this demands a process that begins with a sprint to get everything moving, to see what your industry (and your company’s role in it) could look like if you started from scratch, and to redraw your road map.

The financing division of a European financial-services company went through such a process when it tried to understand digital’s impact on its current lines of business. For example, a conversation began in the auto-loans division with the question “how can we make it easier for people to get their loans online?” It turned into a deeper examination of “how does our business model change if people stop buying cars and start buying mobility?” Similarly, an auto insurer might move from asking “how can I sell car insurance online better” to “what does car insurance mean in the context of autonomous vehicles?” There’s no substitute for exploring such questions, which emerge when digital, regulatory, and societal trends collide with today’s value chain.

Once the new realities are discovered, companies should speed up the process of understanding how other players—including nontraditional ones—will respond. The financial-services provider jump-started things by holding a series of war-gaming workshops. It divided its leadership team into groups and assigned them to role-play potential attackers such as Amazon, Google, or small, cherry-picking start-ups. Seeing through the eyes of “baggage-free” attackers inspires an awareness of how players with very different core competencies are likely to act in the new landscape. It can also propel a shared sense of urgency to change the old ways of thinking and acting.

These sessions radically changed the way the company’s leaders thought about their business, their industry, and the digital shifts remaking both. The end result was a set of leading-edge ideas for deploying digital to make the current operating model faster and more effective, for investing in new digital offerings, for designing and launching a new digital ecosystem to meet the emerging needs of digital consumers, and for partnering with start-ups beginning to emerge as leading players in advanced mobility.

2. Fighting fear

Getting left behind by digital first movers can be hazardous to your company’s future. But many of your executives may perceive responding to digital—making the big bets, building new businesses, shifting resources away from old ones—as hazardous to their own future. As we’ve noted, that exacerbates the social side of strategy and breeds strategic inertia. If you want to make big digital moves, you must fight the fear that your top team and managers will inevitably experience.

From what we have seen, this kind of fight doesn’t happen organically. You need to design a programmatic effort with the same rigor you would insist on to redesign key processes across your organization. This typically involves making a clear case that executives can’t hide from the changes digital is bringing and that encouraging and accelerating change—rather than chasing it—can create more value. Then you need to give executives the tools and support network they must have to succeed as leaders of that journey. Many companies focus on the extensive detailing of digital-initiative plans but skip the critical step of building an equally rigorous program to sustain the leaders driving change.

Honest dialogue

At the industrial company we discussed earlier, the move to digital implied significant change in the characteristics leaders required to be effective. Naturally, concerns about waning influence, or worse, followed for many of the company’s 20 or so business-unit leaders. The industrial conglomerate confronted these fears head-on by organizing a top-team effectiveness program to surface anxieties, build awareness of how they were affecting decision making, and define how leaders could remain relevant. In workshops, executives discussed the specific mind-sets and behavioral shifts needed to gain “ownership” of digital initiatives as a group and to become role models for their organizations.

Support networks

Leaders also formed communities that cut across their businesses, initially to share best practices and coordinate the timing of implementation. Over time, the role of these communities grew to include skill-building activities, such as bringing in speakers with specialized capabilities and motivational messages and organizing Silicon Valley go-and-sees that reinforced the importance of leading digital change. The communities also provided peer support to help teams navigate the new landscape.

We have seen other organizations similarly coalesce around digital-leadership training (sometimes supported by digital advisory boards) that helps executives to become comfortable with—even embrace—the uncertainty of the destination and the career trade-offs needed for a well-executed digital strategy. These support networks dovetail with, and bolster, the digital IQ–raising efforts we described earlier. Indeed, we find that leaders who understand the shifting economics also understand that their careers will be affected one way or another.

CONTINUES IN PART II