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Research Briefing

How to Create a Great Digital Strategy

To leverage digital opportunities, business leaders must rethink their business strategies and create what we refer to as a digital strategy.
By Jeanne W. Ross, Ina M. Sebastian, and Cynthia M. Beath
Abstract

Companies experience disruption from SMACIT and other digital technologies as a result of competitors combining business value propositions with technology and information to undermine either the companies’ relationships with customers or their product service portfolio. To counter these threats and leverage digital opportunities, business leaders must rethink their business strategies and create what we refer to as a digital strategy. In this briefing we describe findings from our research to highlight three characteristics of an effective digital strategy: it is (1) focused on one clear competitive strength, (2) directional rather than targeted at an end state, and (3) enabled by strong digital capabilities.

For over a year, MIT CISR and The Boston Consulting Group have been studying the opportunities and challenges presented by SMACIT (social, mobile, analytics, cloud, and Internet of Things). The convergence of these and other digital technologies has certainly smacked away any lingering comfort with status quo approaches to doing business. Accordingly, business leaders must rethink their business strategies and develop what we refer to as a digital strategy.

A digital strategy is a business strategy inspired by the capabilities of powerful,readily accessible technologies (like SMACIT), intent on delivering unique, integrated business capabilities that are responsive to constantly changing market conditions.

In this briefing we describe findings from our research to help you define an executable digital strategy.[foot]The MIT CISR research on Designing Digital Organizations, conducted in collaboration with The Boston Consulting Group, involved interviews with three senior executives—at least one each within IT and in a business function—in twenty- seven companies. A full discussion of the results and the company vignettes are part of the report: J.W. Ross, I.M. Sebastian, C.M. Beath, S. Scantlebury, M. Mocker, N.O. Fonstad, M. Kagan, K. Moloney, S.G. Krusell, and the Technology Advantage Practice of The Boston Consulting Group, “Designing Digital Organizations,” MIT Sloan CISR Working Paper No. 406, March 2016.[/foot] We highlight three characteristics of an effective digital strategy: it is (1) focused on building one clear competitive strength, (2) directional rather than targeted at an end state, and (3) enabled by existing or readily developed digital capabilities.

A digital customer engagement strategy transforms a company’s go-to-market approach. A digitized solutions strategy transforms a company’s business model by reformulating what the company is selling.

Customer Engagement

A digital customer engagement strategy trans- forms a company’s go-to-market approach. The strategic focus is on creating loyalty and trust and in the best cases, passion by providing superior, innovative, personalized customer experiences. In many cases, a customer engagement strategy targets a seamless omni-channel experience so that customers can order, inquire, pay, and receive support in a consistent way from any channel at any time. But the goal is customer loyalty, so you’ll need to constantly raise your game as you identify new opportunities to connect.

The non-profit integrated healthcare organization Kaiser Permanente (KP) is an example of a company with a customer engagement strategy.[foot]For a detailed discussion, see M. Kagan, I.M. Sebastian and J.W. Ross, “Kaiser Permanente: Executing a Consumer Digital Strategy,” MIT Sloan CISR Working Paper 408, March 2016.[/foot] Fueled by what it calls its “consumer digital strategy,” KP approaches healthcare as a collaboration between providers and members. Digital technologies provide seamless, low-cost access to care teams as the company tries to facilitate both preventative and traditional patient care.

Kaiser Permanente capitalizes on opportunities created by SMACIT by:

  • Offering digital channels to increase opportunities for patient interaction with care delivery teams
  • Applying data analytics to identify the need for—and most effective approach to—personalized medical outreach
  • Leveraging social media both to develop communities of patients with similar interests and needs and to create care circles where patients and their families can engage with care providers

Ten years ago Kaiser Permanente was widely disparaged for inconsistent customer service.[foot]Jeff Goldsmith, “An Interview With George Halvorson: The Kaiser Permanente Renaissance, And Health Reform’s Unfinished Business,” Health Affairs Blog, September 30, 2014.[/foot] As it delivers on its consumer digital strategy, Kaiser Permanente is earning the healthcare industry’s highest net promoter scores. In addition, 70 percent of members are actively engaged online, and KP studies have shown that members who engage digitally are healthier, more adherent with medications, more satisfied, and twice as likely to stay with the organization.

Digitized Solutions

A digitized solutions strategy transforms a company’s business model by reformulating what the company is selling. Digitized solutions enhance products and services with information or expertise to help solve customer problems. The strategic focus of a digitized solutions strategy is adding value to customers not just from selling a product or service but also from offering on- going value-added involvement in the use of that product. Over time, digitized solutions often change a business model by moving the revenue stream from the sale of an asset to recurring revenue from the sale of a sophisticated service.

The Schindler Group, a global provider of elevators, escalators, and related services, is an example of a company with a digitized solutions strategy.[foot]For a detailed discussion, see I.M. Sebastian and J.W. Ross, “The Schindler Group: Driving Innovative Services and Integration with Schindler Digital Business AG,” MIT Sloan CISR Working Paper 411, April 2016.[/foot] Over the last decade, Schindler has redefined its value proposition from product-focused engineering to urban mobility solutions. Schindler leverages the Internet of Things to collect real-time data on customers’ elevators and escalators. It then analyzes this data to improve the quality of both the assets the company sells and the services it provides for those assets.

A digital strategy addresses a perceived customer need; leaders adapt the strategy based on market response. Therefore, a digital strategy must be directional rather than targeting an end state.

Initially, Schindler focused data and analytics on operational excellence— helping service technicians diagnose problems, identify needed parts, and repair assets quickly. More recently, data and analytics are helping Schindler develop predictive models and new products and services. Complex algorithms apply sensor data to predict equipment failure and spare part demand. In addition, Schindler’s elevator control technology applies authentication and smart algorithms to optimize elevator routes. At morning and evening peak times, this technology helps manage the efficient movement of as many as ten thousand people in large buildings. It also helps visitors gain authorization to enter buildings using their mobile phones, allowing them to bypass lobby security stations when they arrive.

Staying Focused

Digitized solutions strategies and customer engagement strategies address two different types of digital disruption, product development vs. go-to-market. Companies can choose their strategy based on which opportunity [threat] holds the most promise [concern]. You may be tempted to address both strategies simultaneously—and indeed, ultimately you probably need to be great at both. However, our research suggests that companies must focus on one of these strategies to drive their transformation. This focus is necessary because both customer engagement and digitized solution strategies require business integration.

Companies that pursue two strategies at once during a transformation will head in two different directions and start creating business silos. If you clearly prioritize one strategy, you can easily expand your strategic initiatives to include either (a) products and services that fit into your customer engagement strategy or (b) customer engagement initiatives that help sell and service your digitized solutions.

For example, while pursuing a customer engagement strategy, Kaiser Permanente recognized the potential value of remote monitoring services to expand its digitized solutions that emphasize preventative care and wellness. Similarly, as Schindler innovates around elevator control technology, it has deployed a mobile app that communicates real-time status of a facility’s elevators and escalators to facility managers. In both cases, the primary strategy guides the choice and timing of initiatives in the other strategic area, thus allowing tighter integration of digital initiatives.

Aim for Direction—Not at a Target

A great digital strategy adopts a kind of start-up mentality about business success. This means that the strategy addresses a perceived customer need as a starting point. Leaders then adapt the strategy based on market response, seizing additional opportunities that present themselves. Because market response cannot be predicted, your digital strategy must be directional rather than targeting a given end state (e.g., earnings per share, market penetration).

For example, Kaiser Permanente is constantly searching for the next best opportunity to assist the joint efforts of providers, patients, and families to enhance patient health. The company’s vision adapts as it progresses on a journey of continually enriched patient experiences. Similarly, Schindler is attempting to become a provider of urban mobility solutions without clearly defining what that means. It is working to improve the efficiency of people movement within buildings while being open to possibilities beyond buildings.

Build Digital Capabilities

The success of digital strategies depends on your ability to execute flawlessly. In other words, every company needs digital capability to ensure predictable products, transactions, and inter- actions. An operational backbone is essential to delivering this kind of consistency. Common characteristics of operational backbones include capabilities for end-to-end transaction processing, shared customer or product data, efficient execution of back office transactions, and visibility into core processes (e.g., supply chain processes).

While these characteristics do not make a company digital, they are essential for operational excellence. And in most industries, operational excellence is table stakes for competing in the digital economy.

Kaiser Permanente’s operational backbone starts with its electronic health record (EHR) system. EHR systems have been implemented at many health- care organizations. However, KP committed early on to the EHR system as a backbone for clinical record keeping and collaboration. With this focus, the organization rolled out an integrated EHR system that supports organizational integration and facilitates services that depend on accurate, accessible patient data.

Schindler’s operational backbone comprises global business technology and process standards, particularly as they relate to supporting field technicians. In addition, Schindler’s backbone supports technology standards and value chain optimization across formerly independent subsidiaries. Technology and process standardization have made it possible for Schindler to enrich processes and products with sensor data. (See figure 1 for comparative approaches to digital strategy as executed at Kaiser Permanente and Schindler Group.)

Executing Your Digital Strategy

Defining a digital strategy is an essential first step in the journey to becoming a digital company. It starts with clear thinking about both the opportunities and risks that new digital technologies pose to your business. Then it requires constant adaptation as new opportunities emerge—and various experiments succeed or fail.

The toughest challenge in achieving digital business success, however, is not defining a strategy. It’s executing the strategy. You’ll start by making sure your core capabilities are wired into your operational backbone. But the operational backbone will not provide the agility you need to become digital. Start designing a digital services backbone to enable a constant flow of digital innovations and connections with partners. In our next briefing, we’ll explore the nature of this digital services backbone and how successful companies go about building one.

Figure 1: Comparative Approaches to Digital Strategy
  Kaiser Permanente Schindler Group
Type of Digital Strategy Customer Engagement Digitized Solutions
Strategic Direction (Vision) Collaborative Healthcare Urban Mobility Solutions
Most Important Capability Built into Operational Backbone Access to shared electronic health record Standardized global business processes and technology
Supporting Initiatives (beyond strategic focus) Use of new technologies to expand portfolio of services Mobile app to convey asset status to facility managers
 

© 2016 MIT Sloan CISR, Ross, Sebastian, Beath. CISR Research Briefings are published monthly to update MIT CISR patrons and sponsors on current research projects.

About the Authors

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Jeanne W. Ross, Research Director & Principal Research Scientist, MIT Center for Information Systems Research

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Ina M. Sebastian, Research Associate, Research Director & Principal Research Scientist, MIT Center for Information Systems Research

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Cynthia M. Beath, Professor Emeritus University of Texas, Austin

MIT SLOAN CENTER FOR INFORMATION SYSTEMS RESEARCH 

Founded in 1974 and grounded in the MIT tradition of rigorous field-based research, MIT CISR helps executives meet the challenge of leading dynamic, global, and information-intensive organizations. Through research, teaching, and events, the center stimulates interaction among scholars, students, and practitioners. More than ninety firms sponsor our work and participate in our consortium. 

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