The 4th Industrial Revolution is here, yet many businesses and industries are being left behind. They either haven’t moved with the times or feel they don’t have the resources or expertise to enter the digital age and formulate a compelling digital strategy.
Indeed, only 60 Fortune 500 companies from 1955 are still in existence, a drop off of 88%. Today, five of the top six publicly-traded companies in the US are technology firms, with Berkshire Hathaway being only slightly bigger than Facebook, according to Forbes.
Our Digital Strategy practice is intended to help management teams build a long-term digital transformation roadmap, starting with critical priorities. We then help develop digital products, experiences, and value propositions. This isn't a technology exercise under the purview of the CTO; marketing, customer experience, sales, product, manufacturing, finance, operations, and HR all have to be involved.
Sausalito Technology Advisors has been operating in the digital space for more than a decade from Silicon Valley to Africa. We have worked with customers large and small from most industries including automotive, banking, insurance, media, public sector, and tech firms. Sometimes our clients just don’t know where to start, while others don’t have a clear framework in which to make decisions.
What makes us different is that we fill the gap between strategy and execution. We help you experiment rapidly and inexpensively with many different strategic options to validate the hypothesis behind each before full-blown execution. This approach prevents premature funding and de-risks your digital transformation efforts.
Digital Strategy Framework (McKinsey, 2016, Adapted)
We have found that the Digital Strategy Model to be highly effective in identifying and prioritizing digital initiatives. The X-axis is based on fundamental economic modeling, demand on the left and supply on the right. The Y-axis has a modest degree of change at the top and extreme degree of change at the bottom. In working through this model, some companies will conclude that they aren’t at risk of disruption, while others see a clear and present danger. This perspective alone leads to important strategic decisions.
Unpacking the Framework
The top left of our hexagon is Deconstructing Demand. In the analog world, there was a mismatch between products and markets. For example, once upon a time, newspapers came with all the sections; news, sports, local, business, lifestyle, etc., with crossword puzzles and sudoku in-between. The production model in those days (and a disregard for cutting down trees) made this business model work. That is no longer the case. Now we can buy exactly what we want, piecemeal.
The original iTunes was an excellent example of Product-Market alignment. In the DVD world, you had to buy the whole album. iTunes enabled us to download single songs for $1, legally, for the first time. Online streaming services from around the world now can parcel out programming content in accordance with interests, such as Sports. Now you can buy ESPN+ and Sky Sports, and Gamepass for the sports leagues of your choice. You can now buy Disney plus for $7 per month or include ESPN and Hulu for $13/month. There is no longer a reason to buy the full suite of satellite/cable services if you don’t want them. By better matching products and market needs, prices fall and demand increases.
New Market Making
In the middle of the supply-demand paradigm is New Market Making, and so the results of such initiatives impact both supply and demand to a fair degree. The most illustrative example of this is ride-sharing, as pioneered by Uber. Before Uber, the product-market match for taxis was very poor, whereas there wasn’t normally a taxi when you need one, while taxis were often sitting idle waiting for a call. Uber changed all that, making a new market in the process and increasing both supply and demand for lifts around town. Importantly, Uber didn't invent GPS, Smartphones, online purchases, or Apps. They simply used the new tools of the time to create a hugely valuable service.
Uber has since used its Digital Ecosystem Platform by offering Uber Pool, which is very popular with students and Millennials. They have launched a New Value Proposition in Uber Eats (which I loved until I learned that they eat 30% of the restaurant’s revenue), and sell location and user data. They now offer a fixed monthly delivery fee subscription or Uber Eats. By making a new market, Uber and many others around the world have increased both supply and demand for their products.
Unleashing Supply Constraints
The Internet makes unlocking supply possible. A great example is Airbnb. Every spare room, holiday home, and cottage can now be a hotel, drastically increasing the supply of hotel rooms available in most places around the world. Airbnb has a particularly dramatic impact during surges in visitors, such as Paris in summer and the annual Salesforce Dreamforce conference in San Francisco, which attracted 180,000 registrations last year.
Another example is the amount of entertainment that is being generated to fill demand from Netflix, YouTube, and the growing number of streaming services. The emerging distributed entertainment distribution model has led to a booming supply of movies, shows, and reality programming. This has created a flourishing supply of creative talent including fledging directors, starving actors, niche entertainers, and minor reality stars, and YouTube celebrities, both major and niche.
Deploying Digital Technologies
Amazon is the holy grail of automating and digitizing e-commerce business models. In a way, Amazon’s core retail business hasn’t changed much since it’s inception when they took orders for books and nothing else online and distributed by courier. They invented the first useful recommendation engine, which could be called ‘AI’, also pushing up demand. They ultimately created buying power, pushing down their costs. Today, you can buy most of what you need from Amazon, new or used, as well as streaming services and cloud hosting, all impacting each segment of this Digital Strategy Framework.
Nowadays, there are countless digital tools that can be utilized to improve your business, including AI, robotics, Virtual Reality (VR), Augmented Reality (AR), Digital Platforms, and more. Every deployment must be well-thought-out and deliberate.
Apple launched iTunes, the first platform for legal music purchases, back in 2001. They innovated digital delivery (Unleashing Supply and Digital Technologies), sold single song purchases rather than buying entire albums (Product-Market Matching), and a recommendation engine called Genius (Digital Technologies) to fulfill their promise of a Digital Ecosystem Platform that has expanded to entertainment and apps.
Google pioneered its search platform as a media business. All the major social media players are media titans these days, Amazon, Alibaba, TenCent and many others are disrupting retail and fintech, and not to be forgotten, Spotify, Apple Music, and Amazon Music to get access to most songs on earth on-demand.
While these multi-billion-dollar Goliath may make it seem impossible to get in on the platform game, it is very possible. Think of your industry – is anybody providing the digital ecosystem? Citymapper is a platform for getting around London and other major cities. I was recently involved in a project to provide a tourism ecosystem for a provincial tourism agency that looks at Tourism as a job creation and economic development tool as well as a promotional platform. If you think in terms of how you can build an ecosystem around your industry, product category, or geographic location, the possibilities are nearly endless.
New Value Propositions
What can you do to grow a manufacturing business in the digital age? You can enrich your product with digital information services. Fitbit and their now-leading rival, Garmin, and the fashion accessory, iWatch, provide fitness and health information that is captured on your mobile devices. The hardware is irrelevant; the value comes from the information that people can use to track fitness, diet, sleep, and more. It was perhaps Nike that pioneered digital services paired with their running shoes. Now everybody is getting in on the game.
Checkers Sixty60 has gone where no South African retailer has gone before - 60-minute home delivery of groceries. This is a game changer, and their vision is giving them a huge competitive advantage in the current environment. Online ordering and home delivery, especially on such a short timeline, requires complex digital systems to execute properly. The in-app ordering, the inventory control, the checkout, the delivery, and fraud prevention are all new processes for a bricks-and-mortar retailer.
For me, innovating new products and value propositions is by far the most fun of all the strategies contained in this framework. The innovation cycle is so fast now that few can stay on top for long. The aforementioned fitness trackers have been led by at least four companies in the last 10 years, and hundreds of startups in this space have failed, including former sector leader Jawbone.
We believe in a scientific approach to digital strategy, where gut-feel and HIPPOs (highest paid person’s opinions) are replaced with carefully planned experimentation to test a specific hypothesis and collect customer insights that inform decisions. The result is determining whether you require moderate or extreme change, then identifying and testing products, experiences, and value propositions that fit into the different sectors of the Digital Strategy hexagon.
Our process begins with unpacking our Digital Strategy framework in a half-day workshop, which aims to identify up to three potential digital initiatives to explore. We then enter a Design Sprint, an innovation acceleration methodology that builds prototypes and market tests the prototypes in 3–5 days. The initiatives that show promise then enter the Lean Startup product accelerator process, which builds and launches digital products and experiences into the market. Depending on the company and complexity, digital initiatives can go live in a matter of a few weeks. Imagine!
By Greg Serandos
Sausalito Technology Advisors