What is the right operating model for Digital Strategy

Operating model for digital strategy

In this blog, we shall discuss on what is the winning operating model for a digital strategy as Digital is driving major changes in how enterprises drive and execute strategy.
Successful companies include four crucial elements in their digital strategy operating model.As digital continues to disrupt the business, the pace at which the business models are digitalized remain either the same or seeing very slow pace of evolution, which clearly indicates that companies are getting stuck in their digital transformation initiatives.

Focus areas for Digital Strategy

An agile digital strategy is required for the companies not only to survive the digital disruption, but also to thrive.
Four areas that successful companies embrace are:

  1. Improve agility in their digital strategy practices in order for them to gain first mover advantage.
  2. Leverage digital platforms to access broader ecosystems to come up with innovate digital products and business models.
  3. Using M&A to build new digital capabilities and businesses.
  4. Strong investments in digital talent

Let us delve deeper to each of these above focus areas in detail.

Increasing the Agility of executing and adjusting digital strategy

Successful companies are highly flexible in their approach and show remarkable agility in creating, executing and adjusting their digital strategies.
This agility and flexibility approach enables them to enjoy the benefits of first mover advantage that can be a huge source of economic advantage in this highly competitive markets.
Following areas where higher agility is shown are:

  1. Using multiple sources of customer data to identify the unmet needs.
  2. Business leaders dedicating time to learn about digital technology.
  3. Share test and learn findings across organization.
  4. Evaluate the right business model for digital productivity opportunities.
  5. Reallocate digital talent and capital expenditures across the right businesses.
  6. Evaluate current business portfolio to assess the need to add new services or divest the existing offerings
  7. Evaluate profit pools based on the shifts in competitive landscape.
  8. Use processes to defund underperforming initiatives.

As pace of digital changes accelerates, enterprises need to place larger bets to reallocate capital and resources quickly.This approach of adapting quickly helps successful companies to place bets on emerging technologies and then also withdraw immediately in case of losses, which enables higher profitability and revenue growth.

Investments in ecosystems, digital strategy products and Operating models

  • Successful companies take advantage of new digital ecosystems, focusing product development efforts on new digital offerings and innovating the business model.
  • Digital platforms have enabled creation of new market places, sharing of data resulting in benefits of network effects at scale.This has blurred market boundaries and changed how firms evaluate their business models, their customer needs and who their competitors/partners are.
  • Revenues enabled through ecosystems are going to increase as companies can access new customers/partners, which makes platforms a critical element of digital strategy.
  • As customer needs becomes more broader and integrated, companies with defined ecosystems are in a better position to cater to the customer needs either on their own or with their partners through innovative product offerings.
  • Companies that have embraced digital are more innovative in their business models by investing more digital capital in new digital businesses.These companies have invested in digital much earlier are realizing higher benefits than compared to their peers who are forced to make similar investments late in the game.

Using M&A to build digital strategy

  • Successful companies spend more on M&A to build digital capabilities as they realize that growth through organic approach is not sufficient.
  • In terms of M&A, investments to acquire digital capabilities and businesses give an higher return on investment to companies when compared to acquisitions on non-digital ventures.

Investing ahead of peers in digital talent

  • Companies struggle to find resources with right digital talent as qualified digital talent becomes a scarce commodity.
  • Successful companies handle this issue by reallocating their talent to the digital initiatives.
  • The agility to reallocate the employees to digital initiatives enables better utilization of resources thus ensuring alignment between resources and strategies.

Final comments on digital strategy

  • Successful companies have an agile digital strategy that can adapt to the rapid pace of digital driven changes within and outside the company.The nimbleness with which these companies can adjust their digital strategy to keep up with the digital changes give them the first mover advantage over its peers in adding revenues and market share.
  • As digital talent is a scarce commodity, companies reallocate their employees to the digital initiatives or use M&A to access new digital capabilities. M&A is seen as a faster approach to access digital capability when compared to taking the slower organic route.
  • With digital ecosystems blurring industry boundaries, market share as a measure to assess a company performance is no longer relevant.A better indicator of digital success would be “The first to market with innovation” and better working with other businesses in ecosystem with a partnership approach.

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