14: Road Map for a Digital Edge

An edge forms where two sides meet. In the case of a digital edge, the combination of digital and physical resources forms a set of tools to create value and revenue. As we’ve discussed, the five models of a digital edge represent a toolbox of these combinations, what they can do, and how others have used them for their success. These models help define what it means to go beyond feeling digital.

Another type of edge represents a frontier, the border where one country gives way to another, where certainty meets opportunity. This edge requires a strategy and a map to navigate a new world, because crossing a frontier changes the rules, competitors and expectations. Similarly, new ways of thinking about value, revenue, capability and the need to start outside-in from an outcome represent behaviors for living in a digital world. This chapter combines the key points of the book with evolving digital developments into a road map for companies to navigate the digital world and create a digital edge.

Looking Beyond the Edge

Digital density, measured by the number of devices, the connections between these devices and the volume of information, is continually increasing. Eric Brynjolfsson and Andrew McAfee point out in their book, Race Against the Machine, that Moore’s Law, or the doubling of technology capacity and ability, is reaching “the back half of the chessboard,” where future doubling opens the door to real possibilities.1 We are starting to see those possibilities in the case examples explored in this book and those we will see in the future.

Creating a digital edge involves taking advantage of technology capacity to create new solutions that bring together physical and digital resources. Digital opportunity grows as digital density increasingly puts everyone at the edge of a new frontier. What lies beyond the digital edge as we currently understand it? How are the forces that create a digital edge moving and changing the shape of commerce, the behavior of customers, the pace of technological change and the sources shaping a digital edge?

Digital Capability Will Continue to Break Down Borders Everywhere

Digital capability collapses traditional borders by flooding them with information, communications and new capacities. A digital capability describes the solutions created by extracting and infusing digital and physical resources. Examples of digital capability include IONX’s use of remote sensors to give rail cars a voice, CHLA’s infusion of information into patient care and Royal Caribbean’s use of information to augment passenger experiences.

Distinctions between industries, customers and innovation break down with digitalization. Distinctions between players in a value chain blur, such as between local resellers and the government in United Stationers’ “winning from the middle” strategy, when manufacturers like IONX become service providers and when divisions across the supply chain fade at CDW. The result is creating new connections and combinations of information — mashups that create value.

Expect more business mashups where integrating disparate information connects previously disparate processes, products and activities. Already, telematics information from automobiles is mashed up with automobile insurance, creating a form of pay-by-the-minute insurance. Tomorrow, a company moving hazardous materials might update a fire department in real time to ensure safety in case of a fire.

Digitalization Will Accelerate Consumerization

Consumerization is everywhere. Digital capability equips individuals with tools previously reserved for companies. The result is that everyone wants to be a consumer, not a step in a process: B2B (business to business) becomes B2C (business to consumer). In IT, people want to bring their own devices (BYOD); in the workplace, employees seek greater participation and control (consumerization of management); citizens want better levels of government service (consumerization of government); and customers are using social media to take control of company brands (consumerization of the brand).

Digitalization drives consumerization by reducing technology and information costs while at the same time raising information availability and technical capacity. Simply put, digitalization gives people more powerful tools and the expectations to match them. It is not possible to take these tools away from consumers. Companies that try will only find customers creating tools on their own.

As B2B becomes B2C, more attention will be paid to the customer experience within the business process; expect companies to provide higher-touch service through technology, like CDW did, as a competitive differentiator. Also expect industrial products to take on more consumer characteristics, capabilities and marketing, as evidenced by all the ads on TV for pharmaceuticals. What was once strictly a B2B market is now being targeted to consumers.

Value Will Be More Personal

Digital technology opens the door to a broader definition of value, as discussed in prior chapters. Value is evolving beyond product, price and performance to incorporate how customers look and feel about associating themselves with products and services. How do you feel when you demo a new app on your smartphone to a colleague? That is part of the value of owning a smartphone.

Digital technologies enable customers to draw value from their experience in ways that go beyond imprinting or associating with a brand. Sharing experiences and being recognized in a peer community represent new sources of value (look at Craigslist, Amazon reviews and Yelp, for example). Imagine a near future when customer content is embedded in the product itself, marketing is augmented in real time with recommendations, and products share tips, best practices and innovations. How a company’s offer connects with people at a personal level and how it makes them feel to others can make a difference in an increasingly crowded digital world.

Behavior Is Part of the Next Competitive Frontier

Behavior in business is either the subject of investigation (bad behavior) or gentle coercion (marketing and business processes). Before digital technology, behavior was part of customer segmentation or corporate culture. Companies assumed that it was slow or difficult to change.

Digital technologies such as social media, mobile, analytics and transparency make behavior an accessible and addressable source of competitive advantage by combining information, choice and brain science. This fusion is the subject of excellent books by Dan Ariely2 and Jonah Lehrer3 among others.

Behavior means nothing without choice, and people favor choice. Companies must give it to them. Digital technologies like social media, digital signage and analytics create an environment defined by choice. Rather than fighting it, choice should become a central part of a company’s value proposition. Choice reinforces the buying decision and desired behavior, as customers actively associate themselves with products and services rather than passively accept an offer. When choice is artificially restricted it becomes coercion, eroding commitment and loyalty simply because companies do not recognize and reward it.

Behavior is part of the next competitive frontier not only because technology provides new tools to influence behavior, but also because behavior is a source of difference and advantage. How you feel, what you choose and what you tell others is individual, unique and not easy to duplicate.

Forge Ahead — Build a Digital Strategy and Digital Edge

The time to create a new digital strategy is before competition sets the strategy for the industry. Ten years ago, organizations slow to adopt the Internet found themselves forced to move online and follow the patterns set by others. That is one reason why company websites, e-stores and online support for the most part look the same. That cycle is starting to repeat itself in the digital world, particularly when it comes to mobile applications and social media.

Following digital leaders like Google, Facebook, Apple, Amazon or LinkedIn, among others, provides few answers. Their revenue models rely on digital scale, advertising and freemium-based offerings to make money in a digital world. Most firms do not have the digital scale to attract advertising revenue or the product margins to support giving away products and services.

A New Type of Strategy

Many things are possible with digital technology, but only a few are profitable. The temptation to pursue technology-led strategies, such as a mobile strategy or an online strategy, is real, but it’s not a real business strategy. Recognizing the difference requires taking a fresh look at the value of customer outcomes and their ability to turn into revenue.

It’s counterintuitive to recommend a strategy based on simple statements of outcomes and goals, but that is the essence of building a digital edge. Rather than creating a grand digital strategy filled with platitudes and broad statements, start with critical customer outcomes and goals. These outcomes set the domain of action and scope for strategy execution. They make digital execution manageable and accelerate time to market.

Anchor digital strategies in simple outcome-based statements, like eliminating lines, reducing information-based sources of patient harm or delivering high-touch customer service. These statements set the strategy on a path to achieve results rather than remaining stuck in appropriating resources and responsibilities. Outcome statements provide the basis for creating the combinations that forge a digital edge. They provide a focus that starts from the outside in and builds from the inside out.

A New Type of Organization

Getting an edge and getting ahead of the competition involves adopting new ways for managing and working that reflect the realities of digital technology. Digital technology relies on connections and combinations. In isolation, technologies like mobile phones, tablets, big data and social media mean little. Imagine the value of a mobile phone without apps, analytics without operational information or social media in which only a few people participate. The connections between digital technologies support innovative and disruptive solutions. Realizing those solutions involves creating similar connections within the organization.

It is difficult to build a broad, integrated solution with a narrow technical team. The digital leaders highlighted in this book altered their organizations to manage and work in ways that were as connected as the technology. This starts at the top by managing technology as a critical resource with a dedicated board committee rather than treating it as an audit-based expenditure. This connected approach extends to the teams designing, building and operating digital solutions, as exemplified by the cross-clinical team at CHLA or the cross-operational team at Royal Caribbean Cruises. By assembling a broad team, you broaden the scope and increase the team’s ability to discover, design and deliver powerful digital capabilities.

A Different Game Plan

The digital edge starts with recognizing current resources and how those resources combine to create new capability. It finishes with building and operating these capabilities as part of an evolving and expanding digital business platform. Here are some suggestions for getting started on building a digital edge:

• Assess opportunities for digitalizing the business by identifying customer outcomes and current contradictions that exist in the business. These form the simple outcome statements that are the basis for digital solutions. Pay attention to situations where current operations limit customer value, where applying information releases physical resources, or where encouraging customer behavior changes customer experience and value.

• Consider the value and revenue implications of each opportunity. Creating a new capability should address an issue, achieve an opportunity or generate recognizable customer value. Assess how that value turns into revenue, either directly through greater sales or pricing power or indirectly by opening a new market, increasing resource utilization or controlling costs.

• Inventory the physical and digital resources involved in each of these opportunities. Where is the opportunity, when does it happen, to whom and in what context, are all questions that generate a resource palette to start the development process.

• Prepare the organization to collaborate on bringing digital capability to market in terms of the cross-organizational design and development teams. Pay particular attention to IT performance and capacity — the more effective the IT organization, the more effective the digital solution.

• Listen and design outcomes from the outside in and build them from the inside out to achieve a balance between risk, scale, speed and cost. Working in both directions creates a cycle of idea generation, refinement and innovation best able to take advantage of digital technology.

• Accept that digital capabilities will evolve over time as digital solutions build on each other and new digital technologies come online. No one can predict the future set of digital technologies, but we can predict that they will be different from what we work with today. Plan for this evolution by recognizing that it’s a natural part of working with emerging technologies. Avoid deep investments in particular technologies in favor of investing in the one thing that does not change — the information involved in running the business.

• Leave the door open for the future, the unknown experiences that lead to new sources of advantage and new digitally intensive resources. It’s hard to see the future, much less move toward it, with predetermined and prescriptive plans.

The Opportunity Beyond the Edge

Digital technology, at the time of this book, is just beginning to work its way into organizations. Initial waves of mobile applications, social media, big data analytics and enhanced e-commerce solutions form the technology agenda for many organizations. However, today’s agenda items are rarely the basis for tomorrow’s sources of competitive advantage.

In this book, we took a hard and actionable look at how leaders are applying digital technology to do more than create virtual copies of their current business models. The attraction of this form of digital mimicry is strong: It offers a simple, safe and easy-to-implement approach to digitalization. Playing “follow the leader” in the digital world gives an organization market-matching capabilities that may be viable in the short run, but raises vulnerabilities to digital disruption.

Digital technologies represent more than an upgrade or shift in the way we work. They offer more than a “third industrial revolution” that upgrades performance without resolving persistent issues and challenges. Many of the fundamental challenges of the industrial revolution persist in today’s information-based economy.

Digital technology has the potential to do more. That potential lies in how digital capability reconnects physical and digital resources in ways that could not have been imagined when substituting bits for atoms constituted the core of a digital strategy. Rather, having a strategy based on the different relationships between physical and digital resources gives an organization an edge grounded in building a viable and valued digital business.