Council Journal looks at paradoxical dilemma of getting a digital strategy that doesn’t get bogged down in inertia and becomes another public policy chore.
If there’s one thing a digital strategy can’t be, it’s incremental. The mismatch between most public service delivery models and digital futures is too great—and the environment is changing too quickly—for anything but bold, inventive strategic plans to work. Unfortunately, most strategic-planning exercises do generate incrementalism. On average, resources don’t move quickly enough between departments in large organisations.
What causes this inertia? Any strategy also has social side, rooted in individual interests, group dynamics, and cognitive biases. Finding a way out of this conundrum comes down to 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 organisations lack clarity on what “digital” means for strategy. They underestimate the degree to which digital is disrupting the foundation of their organisations. 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 launching new programmes 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.
The only way for leaders to cut through inertia and incrementalism is to take bold steps to fight and win on four fronts:
Fight ignorance by using experiential techniques such as “go-andsees” and war gaming to break leaders out of old ways of thinking and into today’s digital realities.
- Fight fear through top-team effectiveness programmes that executives to action.
- Fight guesswork through pilots and structured analysis of use cases.
- Fight diffusion of effort—a constant challenge given the simultaneous need to digitise your core and innovate
In this article, we will describe how real organisations are winning each of these fights— about how to master the new economics of digital. You can join these organisations in that effort,
Overcoming inertia while building confidence will give your digital strategy a jolt and accelerate 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.
Many senior executives aren’t fully fluent in what digital is, much less up to speed on the ways it can change how their enterprises operate or the competitive context.
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 organisations) without a clear understanding of how they will generate value in the executives’ own service delivery 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.
This lack of grounding ultimately 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 organisation’s collective technology IQ, consider the experience of a global industrial conglomerate that knew it had to digitise 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. They 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 organisation-wide assessment of digital capabilities and an evaluation of the organisation’s culture.
This provided a fact base, which everyone could understand, about what the organisation 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 organisation is still stuck in some old ways of thinking about where, how and why services are delivered, you’re also likely to be overlooking ways digital is changing both the rules of the game and the players on the field. This demands a process that begins with a jolt to get everything moving, to see what public service delivery could look like if we had to start from scratch, and to redraw the road map.
There’s no substitute for exploring questions which emerge when digital, regulatory, and societal trends collide with today’s service delivery value chain. Once the new realities are discovered, organisations should speed up the process of understanding how other enterprises—including nontraditional ones—will respond.
The potential council disruptor can jump start things by holding a series of war-gaming workshops.
It could divide 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.
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, launching new programmes, 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. This kind of fight doesn’t happen organically.
You need to design a programmatic effort with the same rigour you would insist on to redesign key processes across your organisation.
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 organisations focus on the extensive detailing of digital initiative plans but skip the critical step of building an equally rigorous programme to sustain the leaders driving change.
The move to digital implies significant change in the characteristics executives require to be effective. Naturally, concerns about waning influence and a feeling of being left behind will be to the fore.
The best way to deal with these is to confront these fears head-on by organising an executive effectiveness programme to surface anxieties, build awareness of how they were affecting decision making, and define how executives remain relevant.
In workshops, executives can discuss the specific mind-sets and behavioural shifts needed to gain “ownership” of digital initiatives as a group and to become role models for their organisations.
Executives must actively form support networks that cuts right across their organisation, sharing best practices and coordinating the timing of implementation.
Over time, the role of these networks can grow to include skill-building activities, such as bringing in speakers with specialised capabilities and motivational messages and organising site visits to other leading digitally pioneering organisations that reinforce the importance of leading digital change.
The networks can also provide peer support to help teams navigate the new landscape. Some organisations could even 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.
Pursuing an aggressive digital strategy involves leaps into the unknown: simultaneously, you are likely to be moving into new areas and overhauling existing departments with new technologies.
What’s more, as is the case with many digital strategies, the premium of being a first mover makes it necessary not only to shift direction but also to do so faster than your peers.
The combination of ambiguity and the need for speed sometimes gives rise to guesswork and moves that are hasty or poorly thought out—and to anxiety about whether a move isn’t going to work or just needs more time.
Building Proof Points as you Go
One way to fight guesswork is to anchor your strategy decisions to a thesis about the business outcomes that different digital investments will produce. This is less about elaborate business-school modeling and more about thinking that draws fast, ground-level lessons from the data to determine whether your logic is correct.
Put another way, it means figuring out if there is sufficient value to make it worthwhile to invest something—as part of a process of learning even more.
This approach increases the odds of successful implementation: a well-articulated view of the outcomes means that you can track how well the strategy is working. It also makes it easier to assess whether the new direction is worth it in terms of both financial capital and organisational pain.
Those proof points must be grounded in digital reality. Consider the experience of a global oil and gas company investigating the potential impact of several advanced technologies on its business. Rather than develop theoretical value-creation scenarios, the company’s digital center of excellence got busy exploring: How might sensors, robots, and artificial intelligence improve productivity and safety in unmanned operations? What operating hurdles, such as skill gaps among managers and frontline workers, would need to be overcome? “Skunkworks” efforts began to give the company sharper insights into the timetables and financial profiles of different investments, so it avoided both the “finger in the air” syndrome (which dooms some digital efforts) and excessive modeling (which bogs down others).
The end result was a value thesis projection of budgetary savings exceeding 20 percent by 2025. That built the confidence of senior leaders and the board alike.
Pilots and Stage Gates
A second way to reduce the need for guesswork is to take full advantage of real-time data and the opportunities they provide for experimentation. Digital does amplify the gut-wrenching uncertainty by multiplying the strategic choices leaders face while reducing the time frame for making and implementing those decisions. But it also contains a silver lining: the potential for gaining rapid, data-driven insights into how things are going. Information on the progress of a service launch, for example, is available in days rather than months. That makes rapid course corrections possible and, ultimately, considerably improves the chances of success. The oil and gas company mentioned earlier got a rapid bead on the impact that its digital initiatives were having on its business performance when it automated the evaluation of several business cases. Testing was more or less continuous, which reduced the level of anxiety about the investments, because executives had hard data on how things were performing rather than relying on guesses or intuition in realms they didn’t know extremely well. It also gave them more confidence to push cutting-edge solutions: they didn’t need to see how organisations did things when they could move first and see, in near real time, what worked and what didn’t.
An important element of this nimble approach was breaking up big bets into smaller, staged investments. While the organisation was ready to invest in digital, it was decidedly uncomfortable with throwing money at a problem and hoping for the best. It therefore developed a series of rigorous stage gates for investments managed by a new, central digital transformation office. The office was charged with overseeing the portfolio of digital investments to ensure that the most promising projects were funded and others defunded before they soaked up valuable resources. In tandem, the head of the company’s digital efforts was vested with the responsibility for approving which ideas would move to initial development, basing these decisions on the organisation’s overall vision for digital. The ideas, which originated mostly with the various departments, included clear requirements for testing.
The “fail fast” mind-set was embedded from the outset because it allowed the company to learn quickly from mistakes and to minimise wasted funding. Another payoff was that the central team could identify synergies, which allowed the development costs of some investments to be shared rather than be borne by a single business. These processes helped temper some of the risks of the bold investments the company was making, gave leaders the confidence to venture ahead as first movers, and kept open the option to correct course quickly when the data pointed in another direction.
Effective strategy requires focus, but responding to digital inevitably risks diffusion of effort, or “spreading the butter too thinly.”
Most organisations try, and struggle, to do two things at once: to reinvent the core by digitising and automating some of its key elements, for example, and to create innovative new digital services.
The challenge is acute because of the dizzying pace of digital change and the uncertainty surrounding the adoption of new technology. Even if the technology for autonomous vehicles pans out, for instance, when will the majority of people really begin to use them?
Given the impossibility of knowing, it’s easy to wind up with an unfocused hodgepodge of digital initiatives—a far cry from a strategy.
Two concepts can help you navigate.
First, view your organisation as a portfolio of initiatives at different stages of seeding, nurturing, growing, or pruning.
This is more relevant than ever in our digital age because the opportunities, time frames, and economics of core businesses can be very different from those of new ones—so resources and efforts shouldn’t be applied uniformly.
Second, embrace the necessity of “big moves,” such as the dramatic reallocation of resources, sustained capital investment and radical productivity improvements.
Successful strategies nearly always rest on such moves. Making them mutually reinforcing, so that developments in the core help to support new digital businesses and vice versa, is a critical part of managing the risks of diffusion.
To understand what the application of these ideas looks like in practice, consider the proposal of how much to invest in digital over the next five years.
That means scrutinising which traditional services face obsolescence as a result of digital, whether digital could stretch any of those lifetimes, which new digital services to invest in, and how much to invest.
A Portfolio Approach
As a first step, go through the organisation’s portfolio of services, one by one.
Focus on three questions:
- Which emerging digital products and services are missing from the portfolio?
- Which product offerings and elements of the existing operating model should be digitised or fully digitally re-engineered to improve customer journeys?
- And what areas should be abandoned?
The answers will differ for each services and you must become comfortable with hard choices and more attuned to new opportunities by tying all decisions to clear use cases. As part of this exercise, the develop scenarios for how the benefits in each of the services can probably shift across component customer chains. Try and get a sense of the types of services that customers were likely to demand and thus might try to obtain from new suppliers or IT outsourcers.
For organisations where more demand would be likely to increase, then organisation needs to be comfortable placing bigger bets on new digital offerings in that area.
Big, Mutually Reinforcing Moves
Improving the ROI of digital investments requires precise targeting along the dimensions where digitisation is proceeding. Digital has widely expanded the number of available investment options, and simply spreading the same amount of resources across them is a losing proposition.
There are five separate dimensions of digitisation’s advance: products and services, marketing and distribution channels, business processes, supply chains, and new entrants acting in ecosystems.
How fully each of these dimensions has advanced, and the actions organisations are taking in response, differ according to the dimension in question.
And there appear to be mismatches between these dimensions. Those mismatches reflect advancing digitisation’s uneven effect because of differences among dimensions as well as among different service delivery organisations.Today’s average level of digitisation differs for each dimension. Products and services are more digitised, supply chains less so.
Recent surveys by global consultants McKinsey also suggest that organisations are not sufficiently bold in the magnitude and scope of their investments. Their research suggests that the more aggressively they respond to digitisation —up to and including initiating digital disruption—the better the effect on their service delivery and revenues. The one exception is the ecosystem dimension: an overactive response to new hyperscale competitors actually lowers projected growth, perhaps because many incumbents lack the assets and capabilities necessary for platform strategies.
As executives assess the scope of their investments, they should ask themselves if they have taken only a few steps forward in a given dimension—by digitising their existing customer touchpoints, say. Others might find that they have acted more significantly by digitising nearly all of their business processes and introducing new ones, where needed, to connect suppliers and users.
The research found that more than twice as many leading organisations closely tie their digital and corporate strategies than don’t. What’s more, winners tend to respond to digitisation by changing their corporate strategies significantly. This makes intuitive sense: many digital disruptions require fundamental changes to business models. Further, 49 percent of leading organisations are investing in digital more than their counterparts do, compared with only 5 percent of the laggards, 90 percent of which invest less than their counterparts.
Leading organisations not only invested more but also do so across all of the dimensions mentioned above. In other words, winners exceed laggards in both the magnitude and the scope of their digital investments. This is a critical element of success, given the different rates at which these dimensions are digitising and their varying effect on economic performance.
Strengths in organisational culture underpin these bolder actions. Winners were less likely to be hindered by siloed mind-sets and behaviour or by a fragmented view of their end users. A strong organisational culture is important for several reasons: it enhances the ability to perceive digital threats and opportunities, bolsters the scope of actions organisations can take in response to digitisation, and supports the coordinated execution of those actions across functions, departments, and business units.
“The research found that more than twice as many leading organisations closely tie their digital and corporate strategies than don’t.”
Bold Strategies Win
The first path to digital success emphasises strategies that change an organisation’s scope, including the kind of pure-play disruptions larger organisations can generate.
Large organisations like county councils and local authorities lack a disruptive strategic posture but can compensate by being quick to move on the back of successful smaller enterprise with unique game-changing offerings that can be adapted to suit their end user service delivery models.
This fast-follower profile allows more room for strategic error—you don’t have to place your bets quite so precisely. It also increases the premium on how well you execute.
This is probably good news for large incumbent organisations, since many of them are carefully watching tech start-ups (such as those in fintech) to identify the winning plays and then imitating them at their own bigger scale. That approach, to be sure, demands cutting-edge agility to excel on all the operational and organisational aspects of digital maturity.
In the quest for coherent responses to a digitising world, organisations must assess how far digitisation has progressed along multiple dimensions and the impact that this evolution is having—and will have—on service delivery performance. And they must act on each of these dimensions with bold, tightly integrated strategies. Only then will their investments match the context in which they compete.
This systematic evaluation of service demand opportunities across the organisation’s portfolio will generated debate of how the organisation’s risk appetite will have to change to keep up with changing customer and end user behaviour.
Investment in automation, advanced analytics, and big data are a requisite and not something that can be long fingered until a better solution comes along or the problem goes away.
These capabilities are the key building blocks for the new digital organisations.
By deploying these capabilities at scale across existing services, the organisation will better able to stretch the life of its core offerings.
Any successful digitally-enabled organisation—the ones you really need to follow— don’t take small steps to get there.
This doesn’t mean that a digital strategy must be designed or put to work with any less confidence than strategies were in the past, though. Strategy has always required closing gaps in knowledge about complex situations, inspiring executive teams (and employees) to go beyond their fears and reluctance to act, and calibrating risks when you bet boldly. The good news is that the digital era, for all its stomach-churning speed and volatility, also serves up more information about the service delivery environment than yesterday’s strategists could ever imagine.
Simultaneously, analytically backed, rapid test-and-learn approaches have opened up new avenues to help organisations correct course while staying true to their strategic goals. Today’s leaders need to step up by persuading their organisations that digital strategies may be tougher than other strategies but are potentially more rewarding—and well worth the bolder bets and cultural reforms required, first, to survive and, ultimately, to thrive.
All of these forces and factors come together to provide a comprehensive road map for potential digital disruptions. Executives can use it to take into account everything at once—their own business, supply chain, sub-industry, and broader industry, as well as the entire ecosystem and how it interacts with other ecosystems. They can then identify the full spectrum of opportunities and threats, both easily visible and more hidden.
Digital disruption can be a frightening game, especially when some of the players are as yet out of view. By subjecting the sources of disruption to systematic analysis solidly based on the fundamentals of supply and demand, executives can better understand the threats they confront in the digital space—and search more proactively for their own opportunities.
Additional reporting by McKinsey & Company