By Carolina Valencia
This article is from the Q3 2017 issue of Fi|r|st: The CEB Journal of Finance|Risk|Strategy
It has become virtually impossible to check a business news site or journal without running into a story about how companies are digitalizing. It may be exotic, like Amazon’s new patent for beehive-shaped loading docks for drones. Or it may be less dramatic, like Virgin Atlantic’s decision to equip a fleet of Boeing 787s with connected devices that can detect and solve mechanical issues.
However, most digital investments organizations are making are small and incremental. A business unit will develop an app because all competitors are doing it, a CEO will assign a “tiger team” to pilot slightly faster service delivery, or several functions will, separately, invest in big data analytics. About 7 out of 10 heads of Strategy report their organizations have too few large digital investments (67%) and too few transformational digital investments (71%). This is a mistake.
By 2020, companies will spend an average of 17% of their revenue on technology, according to a Cognizant study. In 2016, these expenditures already reached 12%. Historically, this number has ranged between 5% and 7%.3 Those companies that ensure enough resources flow to transformational and large digital investments are seven times more likely to extract value from their current digital investments, and their digital investments are 6.7 times more likely to help them hit five-year revenue goals.
Strategy must step in to help organizations make the right digital investments. One specific (and rare) form of support, which we call the “digital navigator,” is much more effective than the typical approach, which we call the “digital enabler.” Business leaders who aren’t getting the navigator form of support should seek it from their Strategy teams.
Navigators are four times more likely than enablers to gain sufficient large and transformational digital investments. As more parts of the organization increase spending on digital, it’s imperative for strategists to manage the proliferation of small and scattershot initiatives by guiding the organization toward digital investments that support critical strategic objectives.
How Navigators Are Different
The two approaches are differentiated by the way strategists help senior leaders with the following three activities (figure 1):
- Understanding what is happening in the external environment
- Identifying what the organization’s options are
- Determining where the organization should focus its actions
Where digital enablers expose senior leaders to new and emerging technologies, digital navigators expose them to digital market shifts.
Where digital enablers identify new digital investment opportunities, digital navigators test and validate new business models.
Where digital enablers show the value (e.g., ROI) of potential digital investments, digital navigators demonstrate the insufficiency of the existing digital portfolio.
While only 11% of strategists are digital navigators, you will find them at companies of all ages, sizes, and industries. You may—or may not— recognize their employers as digital leaders. Their presence does not depend on the level of senior leader buy-in to the value of digital.
Exposing Senior Leaders to Digital Market Shifts
Instead of monitoring and identifying technologies for consideration, strategists should play to their strength and identify the digital shifts that will have the biggest effect on their organization.
We asked 2,400 business leaders and employees and 500 IT leaders and employees about the digital-related trends that are more likely to impact their organizations by 2020. Analysis of the results revealed that technology advancements have created six market shifts (figure 2).
To help senior leaders understand the impact of each shift on their organization, strategists should plot all trends—colored according to their corresponding shift—in a matrix (figure 3). The x-axis should be proximity to core; the y-axis, disruptive potential.
The organization should first address the shifts closest to the core and with the highest disruption potential. External experts can help strategists and senior leaders at this stage
Helping to Identify New Business Models
Strategists must stop being overly focused on ensuring digital investments have a clear purpose and on building momentum with small wins. If they continue to do so, the organization will fail to capitalize on the big opportunities digital can deliver. Strategists must demonstrate to senior leaders the possibility of incorporating a new business model.
The chief strategist at Moog talks with senior leadership about the business model components that can be different in a digital environment (figure 4).
The leadership team then establishes a list of knowns and unknowns and a plan to resolve all uncertainties.
Helping Senior Leaders Recognize the Insufficiency of Their Existing Digital Portfolio
Strategists’ focus on demonstrating the potential value of digital investment often leads to limited action because the business cases are too difficult to establish—the pace of change is too rapid, and it’s hard to find similar use cases on which to base evaluations.
Instead, strategists must help senior leaders realize that the existing portfolio of digital investments will fail to achieve the organization’s strategic goals. The chief strategist at Lennox asks senior leaders to create an inventory of all digital investments and classify them as tactical or strategic. He then has a series of conversations about the comprehensiveness of the existing digital investments and how they support long-term corporate goals. This process lets senior leaders recognize that while they have many digital investments, too many are tactical and, more importantly, the existing portfolio won’t realize the strategic objectives they themselves have set.
When digitalization was in the experimental stages, strategists could get by with playing the enabler role. Now that it has blossomed, strategists must evolve as well. All three elements of the navigator role are essential for reaping the full benefits of technology (figure 5).
- Kaya Yurieff, “Amazon Parent Reveals Drone Delivery ‘Beehives,’” CNN, 23 June 2017, http://money.cnn. com/2017/06/23/technology/amazon-drone-beehives/ index.html.
- Finbarr Toesland, “Internet of Things Shaking Up Product Production,” Raconteur, 22 June 2017, https:// www.raconteur.net/business/internet-of-things- shaking-up-product-pr
- Paul Roehrig and Benjamin Print, “The Work Ahead: Mastering the Digital Economy,” Cognizant, 20