Why DX Needs Strategy
For transformation to succeed, you must first define where to compete and create value
I just returned from Japan, where I led a series of digital transformation (DX) workshops with 10 of the country largest established companies—Toyota, Japan Airlines, MUFG bank, Daiichi-Sankyo, and the like.
Our main focus in the workshops was on the first two steps of The DX Roadmap framework.
In the first step, each company team worked to define a shared vision of the digital future for their particular firm.
In the second step, we turned our attention to strategy—defining a few key priorities to guide their digital transformation across a large and sprawling enterprise.
I have written previously in this newsletter on Step 1: Define a Shared Vision and its importance for aligning employees and defining your direction for DX. And I have written about the four elements of a truly effective shared vision.
Today, I would like to turn our attention to Step 2 of the DX Roadmap—which focuses on strategic priorities.
Picking the Problems That Matter Most
In the second step of the DX Roadmap, your goal is to define the strategic priorities that will guide your digital growth agenda.
Here, you will build on your shared vision by defining specific priorities for investment of time and resources.
The question to answer is: What are our biggest digital priorities for the future of our business?
The goal is to focus on the needs of the business, rather than on specific technologies (an AI initiative, a cloud initiative, etc.)
You may think of these needs as problems to be solved for your customers and your business, and as opportunities for your firm to create and capture new value.
Together, they will give focus to your digital efforts—defining the scope of where you will compete and seek to create value with your DX.
Done right, this step will enable you to:
ensure digital transformation delivers growth—and not just efficiency;
focus digital efforts on the business—rather than technologies; and
accelerate change—by providing direction to teams across the organization.
DX Without Strategy
Defining strategic priorities might seem like an obvious early step in DX. But strategy is often overlooked.
As one seasoned CDO confided to me,
“This is what makes it so difficult to find peers to talk to [at other firms]. They haven’t done that exercise. They went a different route: doing digital projects, but without a strategic focus.”
In too many organizations, DX operates in a strategic vacuum, as little more than a collection of technology projects. The symptoms of this lack of priorities are many.
Without a clear set of priorities, DX lacks strategic direction —
Rather than starting from business needs, DX is defined by technologies (AI, blockchain, metaverse, cloud computing, etc.). This makes it easy for digital efforts to be hijacked by the latest shiny new thing. (Remember, “ChatGPT is not a strategy!”)
Without clear priorities, many organizations are quickly overwhelmed with ideas for digital projects and innovations, with no criteria to judge them. DX can quickly become a series of scattered and disconnected pilot projects.
Without a strategic focus on growth, in many companies DX becomes limited to cost cutting and optimization of legacy processes. Digital efforts are devoted solely to optimizing the current business, rather than looking beyond it to new opportunities.
In other cases, DX may be handed off to a “digital team” that focuses on blue-sky ideas while the rest of the firm continues their work unchanged. Over time, their efforts grow disconnected from the needs of the business and lose support of key stakeholders.
Why Strategy Matters to DX
No company will survive long in the digital era if it lacks a strategy for growth.
This is why DX cannot be just a series of low-risk investments with clear benchmarks and best practices. It cannot be only about upgrading and digitizing the core.
Digital transformation is first and foremost about using digital tools and business models to solve new problems and capture new value. It must be laser-focused on customers and the business.
This is why the DX Roadmap framework takes a holistic, growth-focused approach—one that is integrated with your work on strategy, innovation, governance, and culture as much as with your IT planning.
For DX to succeed, you need a clear and focused strategy to make the link from your broad vision for the future… to the continuous experimentation and innovation that will drive real change.
The table below shows some of the key symptoms of success versus failure in Step 2 of the DX Roadmap.
Strategy Examples: Walmart and The New York Times
Where can we see some good examples of digital transformation guided by clear strategic priorities?
As Walmart has pursued its own digital transformation, it has been guided by a clear focus on strategic priorities such as one to “Define the e-commerce future of grocery purchases.”
(You can read more in my recent article and keynote speech on this effort.)
Another great case example comes from The New York Times.
I have written about how the Times struggled in its early efforts at DX due to a focus on simply “digitizing” the core business that it had always had.
But eventually, the failure of that early approach became clear to everyone at the Times.
At that critical turning point, the Times’s leadership released a strategic document titled “Our Path Forward.”
The document laid out a shared vision of the future: With the internet continuing to disrupt the advertising market, the only hope for the Times Company’s survival was to reinvent its business model. Instead of a business run primarily on advertising revenue, it would become a business based primarily on subscription revenue.
To translate that vision into action, the “Our Path Forward” document laid out five strategic priorities to focus and guide its digital efforts:
Transform the product experience to make a New York Times subscription as indispensable to readers’ lives as a Netflix or Amazon Prime account.
Expand the Times’s global reach and international readership.
Grow digital advertising by creating new and compelling ad formats.
Organize employees’ work around digital platforms and the reader experience.
Shift energy from the print edition while still maintaining quality for its audience.
With its strategic priorities in place, the Times accelerated its pace of digital experimentation and new ventures.
In four years, this led to the fulfillment of the Times’ vision for the future: with subscription revenue overtaking advertising, digital revenue overtaking print, and a milestone reached of $800 million in digital revenue—enough to cover reporting costs and secure its journalistic mission in the digital era.
What Is, and Is NOT, a “Strategic Priority”
As we think about strategy and DX, it is important to be clear what we do and do not mean by a “strategic priority.”
Firstly, these are not your key performance indicators (KPIs).
In seeking to achieve its future vision, The New York Times’ strategic priorities were NOT:
“Grow subscriptions”
“Grow ad revenue”
“Reduce operating costs” and
“increase employee productivity”
Instead, the five priorities were an explanation of where and how the Times’ hoped to achieve the growth that would yield those KPI results.
In defining strategy, we should not be talking about technology (“we need to leverage machine learning”).
And we are not looking for a list of ideas for new digital products or solutions (not quite yet!).
Instead, you are defining, at the start, where you will look for such innovations—that is, the scope of ideas you will explore.
To make the link between strategy and innovation, you must first define the problems that matter most, before seeking ideas for solutions.
Next Up: Two Lenses for Strategy
For any digital transformation to succeed, we must define where it will compete and seek to create value. This is the aim of Step 2 of the DX Roadmap.
In articles to come, I will dive into how you can go about defining strategic priorities for your own business.
We will learn to look at strategy through two lenses—problems and opportunities—and discover the power of each to help define your strategic priorities.
I will introduce practical tools to identify the most valuable problems and opportunities for your business.
And we will see how a well-crafted “problem/opportunity statement” can not only define your strategy, but can spark ideas for digital innovation at every level of your enterprise.
More to come!
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