Ravi: Hello to all the listeners, we welcome you to our discussion on the topic Digital strategy: what

portfolio you should have to win

I am Banoth Ravi Kumar and I have with me my groupmates Avinash Topno and Utkarsh for today’s
discussion.

Guys, I think we should structure our discussion so that we are able to cover all the key points
thoroughly.

Avinash: Yes, we should do that.

Ravi: Ok, then let’s start our discussion with the definition and description of Digital strategy and
why Digital strategy is important.

After that we will ponder over the questions the organization needs to ask before adopting a digital
strategy,

After that we will go through the rules which govern the decisions to go for a digital transformation.

With some real business examples, we will observe the importance these rules play in the success of
the organization.

and finally, we will close our discussion with the factors which govern the portfolio decisions, and
the different execution paths for the digital initiatives, ending our discussion with a conclusion.

Let’s first talk about the definition of the term digital strategy for a business.

Digital strategy is the application of digital technologies to business models to form new
differentiating business competencies and capabilities. I would say in the future; all business strategy
will be digital strategy.

Avinash: Digital strategy focuses on using technology to improve business performance, whether
that means creating new products or services or reimagining current processes. It specifies the
direction an organization will take to create new competitive advantages with technology, as well as
the methods it will use to achieve these changes.

As computerized innovation gets to be more inescapable and companies move encourage within
the travel of computerized change, advanced technique and trade technique will be the same thing.
For presently, it is still valuable to utilize the term “digital strategy” to center the exertion behind
computerized activities.

Ravi: It’s vital to keep in mind that advanced technique is both a concept and a thing — that’s, an
advanced technique ought to inevitably lead to the creation of a concrete arrange or roadmap.
While you'll be able keep changing the particular strategies, you’ve chosen to seek after, there ought
to too be a clear commitment to your understanding of what advanced implies for your company.

Let’s take an example, for an organization digital strategy (ultimate goal) is to monetize basic
productivity software that their business has already developed and uses internally. Originally, you
set out a strategy (plan) for packaging it as a mobile app and marketing it to individual users. Later,
you realize that it has more value if you sell it to businesses to integrate into their own mobile apps.
Your (ultimate goal) strategy has not changed, but your (plan) strategy has changed. Changing the
guiding idea of your digital strategy should amount to a big shift or reorientation for your company,
but ideally, the actual steps will be flexible enough to allow you to pivot as needed.

Avinash: an article from Harvard suggests some questions to understand before thinking about
digital strategy for any business

Those are:

1. Does digital technology transform the businesses you should be in?

2. How could digital technology enhance the way you add value to the firms you are in?

3. Can digital technology change your target customer?

4. Does digital technology influence the value proposition to your target customer?

5. How can digital technology improve the enterprise abilities that differentiate you from your
competitors?

Some companies may have answer for these questions, but some companies may not.

Ravi Kumar:

Common Elements of Digital Strategy

1. Choose a Leader: This can be apparently the foremost critical portion of making an advanced
procedure but choosing the correct individual will depend on company culture, structure and needs.
Whether companies place leadership with the CEO or an appointed Chief Digital Officer, the leader’s
impact will need to match the scale of digital strategy; or else, it will be difficult to create the full
buy-in from each department necessary to make useful changes.

2. Take a Measured Approach: Digital strategy frequently includes a process for evaluating
whether new technology will really match or grow the current business. If you are already being
afraid about your company which you think it is behind on digital, it can be attractive to rush into a
project without looking at how it fits your current strategy. By taking a reasonable approach, you can
avoid misusing resources on initiatives that don’t align with your business’s requirements and
priorities.

3. Future Proof: The goal of digital transformation is to create a suitable basis for digital
business. This means creating an organization that can continue to reinvent itself as necessary to
keep up with changes in technology and customer expectations. Digital strategy should be visionary
enough to carry companies through changes in the digital economy, in a way that continues to bring
a digital edge to the business.

4. Attack vs. Defend: McKinsey emphasizes that companies would do well to categorize their
potential threats and opportunities in digital business, then compare these against their own
purpose. This clarifies whether a proactive or defensive stance needs to guide new initiatives.

Avinash: Now let us talk about digital transformation.

There is a difference between digital transformation and digital strategy. coming to the digital
transformation it drives change in three areas.

First is customer experience

Second is operational processes

And finally, the business models.

The process of digital transformation requires synchronization across the entire organization, and it
also involves business culture changes in the organization.

Digital strategy, on the other hand, focuses on technology, not culture. Digital strategy is most
relevant to changes in business models and uses technology to create the resources a company
needs to become a digital business.

Utkarsh: Now let us look at the rules which govern the decisions to design their digital
transformation.

1. Impact of the strategy

A proper understanding of competitive environment and its likelihood of changing is a must for
designing a good digital strategy. By implementing a new technology, consumers, suppliers, and
other channel partners are affected apart from its direct impact on the organization and the
business economics. Thus, it is essential to think through all these implications before moving with a
strategy. Other questions like what new offerings can the company promise to deliver with the
digital implementation, and will this strategy empower any new competitors, need to be answered.

Digital implementations have different impacts and opportunities depending on the industries
where it is implemented, and its functional use within the organization. Digital implementation can
reinvent and enhance core business processes. Digital platforms can expand the reach of businesses
offering them global markets to capture. Services can be streamlined and quantitatively analysed to
improve customer relationship with a suitable digital implementation. For example, companies like
Airbnb and Domino’s Pizza have achieved global presence by adopting a strategy relevant for their
businesses.

Ravi: In the present phase of industrial revolution, Industry 4.0, where automation and machine
learning are shaping the manufacturing processes, technologies like CPS, IOT, IIOT, cloud computing
and AI are giving opportunities to companies to reconfigure their supply chains. Companies can
optimize their supply chain strategies, by making better forecasts and by creating more flexible or
more reliable supply chains depending upon the demand trends.

Utkarsh: Similarly, capabilities like providing customized customer experience tailored to local
demand patterns are also made possible with these digital implementations. Leading businesses
today can outsource majority of their non – core competencies beyond geographical boundaries
without affecting profitability, and technology gives them a tool to efficiently monitor the value
chain.
Avinash: So, the key idea is to know the range of strategic possibilities these digital technologies
bring, and their associated risks. What are the available technologies, their position in their life cycle,
different types of costs associated with them, the company’s growth strategy for future; all these
questions need to be addressed.

Utkarsh: Yes Avinash. Now wo come to the second rule.

2. Aim high

One thing which can be generalized for successful organizations, when it comes to formulating
digital strategies, is that they all started by thinking big. The rate of adoption and advancements in
technology domain has increased rapidly in the recent years. Companies, in order to tap most
advantage out of these technologies, need to think beyond the current requirements and
capabilities which these technologies can foster. This is even more relevant in many of today’s
businesses, since phenomena like network effect create winner-takes-all situations where first
movers and fast followers have a clear edge over competitors.

Historically we have seen successful businesses fail, not because they did not go digital at the right
time, but because they did not invest much on thinking beyond the current needs these
technologies were meant to serve. Companies tend to resist changes in their legacy businesses. This
resistance results in competitors adapting and reinventing their businesses to make them future
ready.

Avinash: One Such example is Blockbuster. It was one of the early adaptors of technologies in its
domain. But over reliance on their legacy business, lack of funding, and lack of organizational focus
on changing markets resulted in their failure.

Utkarsh: Exactly, on the other hand, Netflix has successfully adapted a digital technology and made
optimal utilization of its opportunities in different business processes, by not only creating an online
movie platform, like Blockbuster, but also using this platform along with analytical techniques to
further improve customer experience.

Avinash: Now coming to the third rule.

3. Place Big Bets

While implementing a digital strategy, it is important that companies focus on some key use cases
where it can be implemented to create value both in short as well as long term. Managing priority
initiatives as a portfolio and rolling out the ones with short-term impact first, can help in clearing the
road for more strategic high-impact priorities in the future. The short-term wins can be in areas like
precision marketing, digitally driven pricing and cost reductions, etc. Companies can use these short-
term wins to obtain key stakeholders’ confidence in the greater digital strategy and motivate them
to fund further strategic implementations.

Unilever, for example, has invested hugely in digital across its value chain, with a strategic focus on
utilizing data as an asset that supports different aspects of business management - precision
marketing, manufacturing, distribution, and performance management. The company plans to have
24 digital hubs in 24 countries by 2020.
While identifying the right set of bets, it is important for a company to have a customer-centric view
point focusing on creating value and keeping a watch on the competitive advantage it has/is
expected to get in future. The company needs to identify those customer pain points and
compromises which the digital capabilities can address, those which are uniquely positioned to
address, and those which have the greatest value proposition with respect to competitors.

Utkarsh: Now coming to the fourth rule.

4. Build new strategic muscles

Building a digital strategy to transform a business calls for new capabilities and cultural shifts within.
The company needs to form a synergy between traditional capabilities and the digital initiatives to
achieve its goal. For this, companies need to build new strategic muscles to ensure that the
traditional business processes are evolved to work together with the new implementations in an
agile and coordinated manner.

The key to have a successful digital strategy is the resources/talent needed to build and maintain
them. However, having access to digital talent, and letting go of the existing digitally under-
developed ones is both an expensive and tiresome job with many direct and indirect costs
associated with it. Moreover, existing talent can be utilized much better if trained regularly because
of their better understanding of the processes.

Hence, it is better to redeploy existing talent and skills to the areas where they can be optimally
utilized. A combination of existing and new talent can help create a workforce that is constantly
evolving as per the organizational needs and pace of emerging digital initiatives.

It should be kept in mind that digital transformation implemented in a multistage process based on
experiences and digital maturity is more sensible.

Avinash: Now the fifth and final rule.

5. Manage Transformation Actively

The rate at which the technologies evolve varies and so does their relevance for different industries.
Companies need to keep a track of those technologies which hold critical importance for their
respective industries. Alongside, they should decide on the points of time when their underlying
strategies need to be readdressed and the transformation plan needs to be refreshed accordingly.

For industries where technological progress is slower (i.e. linear or discontinuous), traditional top-
down strategy development approaches work fine. However, if the rate of progress and the market
dynamics move more rapidly, such a strategy will fail. For such situations, companies need to have a
more agile approach to planning which balances strategic ailments with the market insights.

It is essential to maintain a strong centre for implementing a digital transformation in an

organization. A transformation office with a chief digital transformation office is advisable, for
tracking of progress against predetermined goals and requisite adjustments can be made. Proper
standardization of processes, data management, and talent acquisition also need to be controlled
centrally for proper digital transformation.
Ravi: Now, we have gone through the rules which companies can follow for designing their digital
strategies or going through a digital transformation. By aligning one’s digital strategies with the
critical moves that drive competitive advantage and superior results, one can attain success.

To sum up our discussion till now, we’ll have a look at the 3 the tips for the companies to become
digital leaders.

1. Invest significantly in building a digital infrastructure. The latest technology trends and
innovations can be leveraged by these investments to make business processes more
efficient.
2. A talent strategy must be developed by companies to evaluate the requirements for
different types of roles across the organization. A digital recruitment strategy must be in
place for fulfilment of role requirements with ease. A properly planned upskilling strategy
must be in place for upskilling the current workforce and fast fulfilment of any requirements.
These strategies must be reviewed and update periodically.
3. In order to improve services and achieve efficiency through digitization, a company must
invest in data capabilities and new technologies like, blockchain, AI, IOT, etc. and transform
into a data-driven company.

Avinash: Talking about portfolio strategies to implement digital transformation in an organization,

companies have realized the importance of being in the forefront of digital transformation, they
have also incorporated digital transformation at the top of their strategic agenda. Still, organizations
falter to understand the multidimensional complexities of incorporating a successful digital strategy
into their businesses. Whether to prioritize short-term improvements over long-term strategic goals,
what would be the rate of disruption expected in the industry, the relevance of first mover
advantage in different types of businesses, outsourcing/in-house development vs. partnering for
digital initiatives etc., are some of the questions which senior executives find tough to answer.

Utkarsh: The correct way of crafting any digital strategy is form a balanced approach between
strategic risk and speed of execution.

In order to achieve success, businesses need to consciously manage their digital transformations as a
strategic portfolio over time.

Avinash: Now we will see the three questions needed to be addressed for designing a digital
strategy.

The first question:

1. The Why

Two ways to move forward with addressing this question are defensive and offensive approach.

Offence approach deals with questions about our understanding of the digital transformation and
the value additions the company can reap out of it. Opportunities of value addition, both in internal
efficiency and customer experiences are explored.

The Defensive approach on the other hand deals with the risks and vulnerabilities the company is
exposed to when it decides to implement a digital transformation. The threats posed by
competitors, gaps between self-capabilities and strategic goals, chances of further disruptions in the
industry, the time of expected threats to emerge, etc. are addressed in this approach.

Depending upon the types of scenarios pertaining to the level of uncertainty in digital trends in the
industry, the companies can shape their digital strategies accordingly:

 Digital trends with high certainty: In industries like consumer banking, service expectations
of consumers – consider a segment of millennials for instance – are very certainly known –
here consumers will expect a smooth digital interface for connecting with bank interface.
 Digital trends with strong likelihood: Considering the same example of consumer banking, it
is highly probable that the workforce size is to reduce over time, and new job roles are to be
created as most services go digital in future.
 Digital trends with unknown certainty: In the same example of consumer banking industry,
we can not be certain about the effect cryptocurrencies can have in banking industry.

After understanding the digital landscape, company needs to create a digital transformation
program accordingly. A right balance needs to be created between different goals and aspirations
concentrating on maximum value creation over the long run. For example, to what extent should the
focus be on achieving short-term targets so that long-term strategic goals are not compromised.

Now coming to the next question.

2. The What

After addressing the first question, the company needs to design a transformation program. The
digital initiatives need to be framed according to their impact on the current operations of the
organization. Two factors are critical to design your portfolio.

 First, with many opportunities which digital technologies bring, the company needs to
determine the reconfigurations it should make to the current value chain to optimally utilize
the benefits.
 Second, as digital implementations can alter the existing business model as well as the core
offerings, the company needs to determine the level of change it can expect to make.

Utkarsh: Considering these two parameters, we arrive at four dimensions of a portfolio.

A. First, initiatives which have a narrow scope within the value chain, and which cannot have
much effect on the current business model or core offerings, require Digital Reengineering.
One example is when a company is implementing a digital initiative to improve operational
efficiency of a single process without having any impact on others. In such situations, there
is a need to zero-base, and digitally reconfigure the process throughout. Such initiatives are
essential components of the digital portfolio to fuel investments and demonstrate short-
term successes.
B. Second, initiative which require substantial changes across the core business processes and
whose implementation has higher risk profiles and associated time to value, require Value-
Chain Transformation. For example, an initiative which must be implemented across the
organization – across the geographical boundaries – and which will impact multiple
 operation. Such initiatives are complex endeavours and have strong unvarying impact on
processes, systems, people and the organization overall.
C. Third, initiatives which do not require substantial changes to business models or offerings
but have high impact on value chain, require Digital Value Proposition. One example is
initiatives which involve changing the product and service offerings in innovative ways
utilizing digital techniques like digital analytics. Such initiatives can be developed in a
reasonable time as they do not require any fundamental restructuring of existing processes.
The risks associated with these initiatives can be managed by experimenting with pilot
projects or by using proof of concepts.
D. Fourth, initiatives which will have substantial effect on current value chain as well as the
existing business model, require Business Model Reinvention. Such initiatives are either
company’s reactions to major industry disruptions or its proactive measures to disrupt the
business before competitors. Implementing such initiatives is a time taking high risk process
involving partnerships with external players, reskilling and acquiring talent, and changes to
the existing business model.

Avinash: Now for the third question which needs to be addressed for deciding a digital strategy

3. The How

Here we try to find the right balance between the risks associated with our portfolio strategies and
the speed of execution needed to implement them considering all the internal and environmental
factors. The strategic dilemma of whether going with acquiring resources to build capabilities or
forming partnerships with other players for attaining digitization are addressed.

Two factors are needed to be considered before executing a digital initiative:

 Finding the right time to implementation. The speed at which a strategy is to be executed is
influenced by several external and internal factors. External factors include – rate of
adoption od the industry, competition, new players, etc. Internal factors include – current
competencies, suitability of current business model to attain competitive advantage,
familiarity of core concepts of the technology to be implemented, etc.
 Deciding on whether to make/buy/partner. This decision will depend on factors like the
current capabilities the company possesses, and the need for acquisitions for attaining
future competencies, among others.

Utkarsh: Now, we will look at the four execution paths of the digital initiatives based on the two
factors we have discussed.

A. First, when there is uncertainty about the technology impact and its applications are yet to
be proved, the company should go with Edge exploration strategy. For this, corporate
incubation can be built by collaborating with third parties like universities, start-ups etc. to
test the technologies in controlled environment. Edge Exploration is a speculative approach
and slow process.
B. Second, when there is full certainty about the need for a change, but it requires huge
alterations and rebuilding of core processes, the company should go with Radical core
simplification strategy. Some situations when this strategy will be applicable is when cost
 reduction is a must to remain sustainable, or when a technology platform has become
obsolete for the industry. In order to succeed, proper attention of top leadership, and strong
commitment – both financially and at program management level, is needed.
C. Third, when building internal capabilities is risky due to excessive competition, the company
should go with acquisition and partnership strategy. Some of the reasons to do so may be –
huge gap between internal competencies and expectations, shortage in supply of resources,
the new business model not matching the existing one, threat of future competition, etc.
There are huge risks and expenses – both cost and time, involved in this strategy.
D. Fourth, when core business simplification is too difficult to implement or when technological
changes make the adoption of new digital culture extremely important, the company should
go with Greenfield strategy. This involves creating a business operation parallel to the
existing one with the goal of transferring of the whole business to the new operations over
time. It requires huge investment in terms of talent and resources, along with strong
leadership for proper execution.

The four execution paths discussed here are not exclusive and many times companies go with
multiple portfolio options.

Ravi: Now we come to the end of our discussion. To conclude, companies need to develop strategies
keeping the constant disruptive and evolving nature of digital technologies. Companies need to
balance the strategic and competitive risks with the speed of execution necessary for successful
implementation. To succeed, senior executives should develop a balanced portfolio of digital
initiatives with well-defined short- and long-term results. Companies must use a collection of
execution models available, to cope with the pressures of different stakeholders while implementing
digital strategies.

I would like to thank my teammates Avinash and Utkarsh and all the listeners for attending our
podcast.