What is “digital strategy”?

Don’t miss the key point

Don’t miss the key point

On a sunny, warm September day, a board of directors of an insurance company nominated a new CEO. The company had been losing market and customers for several quarters in a row, and the board members were sick and tired of the ridiculous excuses the former CEO offered them. The new CEO was younger than the previous one, and during the very first meeting with the C-Suite managers, he declared a “digital era” for the company. “We need to change,” he asserted, “Whereas our competitors are about to finish digital revolutions in their businesses, we haven’t even started yet”.

And the digital revolution began. Project by project, the CEO and his team were changing the processes in the company, simplifying them, and making them cheaper and more efficient. The company almost stopped hiring new employees because workers who left the company were replaced with algorithms. Board members were happy. The company was still losing customers, though, making them nervous, but the new CEO assured them he needed some more time. “Sometimes it takes months to turn novelty into a routine”. A year and a half later, looking at the ongoing decrease in revenue at the board meeting, the board members thought that something apparently went wrong.

The source of income

Experienced CEOs, managers, and board members know that there is only one source of a company’s income — customers’ satisfaction. If a firm’s products fulfill customers’ needs and provide distinctive values for them, they are happy to open their wallets or pay the bills. Only monopolies or oligopolies can afford unsatisfied clients. But when it comes to digital transformation, some decision-makers magically forget about it.

Digital technologies are almost almighty. They can reduce costs, increase the speed of business operation, and the accuracy of the forecasts. They can decrease the number of mistakes and enhance products’ quality. There is not a department in a company that can’t benefit from AI or machine learning. Nearly everything may be “digitalized”.

Customers first

But if a company earns money by satisfying customers’ needs, customers’ experience must be a starting point of digital transformation. The first question business leaders should ask themselves is: “How could information technology improve our customers’ experience?”. And only when all the answers are given and all the decisions are made should they turn to other business aspects, such as supply chain or manufacturing performance.

That is one of the reasons why digital transformation is not a task for the IT departments. In some projects I have observed, a CMO was the one who was responsible for digitalization, and I believe this is a good idea. In truly customer-oriented organizations, people who know most about customers certainly should be involved in any significant decision-making. People from the IT departments see computers, clouds, servers, and software. People from the marketing department see customers with their pains, superstitions, desires, and needs.

It doesn’t mean the team can forget cost reduction and operational efficiency. The bottom line is also important, and clients won’t buy too expensive products, whatever attractive and valuable they are. But a company receives revenue first and only then turns it into profit. And there is no revenue if customers are dissatisfied.

I believe any strategy, including a digital one, should fulfill the expectations of five categories of stakeholders — customers, shareholders, employees, society, and critical partners. Net profit and operational efficiency growth suit the shareholder’s interests, but other stakeholders, and customers, first of all, are not particularly interested in it. They see what’s on the surface — interfaces, goods, services. And digital transformation should improve their experience.

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