"Quick, hire some data scientists!" "Let's fix our mobile app!" "Let's accumulate data—we will use it later."
When facing the threat of disruption, companies usually respond with a cacophony of digital initiatives—a mixture of big bets for the future and little bets that might yield a win to report on the next quarterly earnings call. These efforts won't be enough to buffer the company from the next Silicon Valley upstart, but the company will "feel" more digital, at least.
Half measures are the telltale signs of a company that lacks a digital strategy to steer it toward its long-term vision. In the first blog post of our series, we discussed the importance of developing a strong inner game—the culture, data analytics and IT systems—to support the company's outer game, its digital strategy and business objectives. But a company can't succeed in a digital world without both. In our experience, setting a digital strategy starts with confronting two questions: Where is my industry headed, and what will be my company's role?
Where is your industry headed?
Henry Ford is often quoted (incorrectly) as having said, "If I had asked people what they wanted, they would have said a faster horse." There’s no evidence that he actually uttered those words, but the popularity of this quote among business pundits underscores the challenge: Now, companies must simultaneously build a cheaper, better, faster horse and imagine the car—with vast advances in digital technology creating complications and opportunities. Computing power is constantly expanding to keep pace with the explosion of data available on a proliferating number of connected devices. Throw in the promise of artificial intelligence and machine learning, and new uses that emerge daily, and it's no wonder that companies are struggling to figure out where they fit on the technology curve, especially if they're not digital natives.
That said, most executives can see where their industries are headed. If you had asked auto executives 10 years ago to imagine the future of their industry, they would have rightly said, "autonomous and electric." And the few that took actual steps toward a future of autonomous and electric cars are now seeing the payoff.
Everyone expected Tesla to be the first carmaker to produce a mass-market electric vehicle, one that could travel 200 miles on one charge at a price of around $30,000. But General Motors saw where the market was heading and started investing early, introducing the Chevrolet Volt in 2011. While the Volt didn't take over the market, it set the foundation for the improved Chevrolet Bolt, a car that could travel 238 miles per charge at a price of $29,995, after federal tax credits. Motor Trend named it the 2017 Car of the Year. Tesla will start delivering its competitor, the Model 3, next year.
GM could easily have focused on its top-selling SUVs and sedans, especially as it recovered from an economic recession that pummeled the auto industry, but that would have put the company on the road to oblivion. Instead, GM plans to introduce at least 20 new electric models by 2023, with plans to shift to an all-electric fleet.
Every single industry has its own version of "autonomous and electric," and yet most companies have yet to ask the question.
What is my company's role?
Even when you know where your industry is heading, it's not always easy to decide the role your company should play in the future. There are almost limitless digital ideas to pursue, tempting companies to run in too many directions. To be effective, leaders need to narrow the aperture by understanding where their company is starting and where they want to go—the company's digital vision. Setting a vision requires leaders to wrestle with challenging questions: Is it better to be a future maker or a future taker? Where and how fast to follow? Will the capabilities that differentiate my company now be the same ones that differentiate it in the future?
Ahead of Facebook's 2012 initial public offering, the company indicated in a filing that its ability to generate revenue from mobile devices was "unproven," a possible risk for investors. After all, the smartphone market was growing, and many Facebook users considered their phones their primary means of communication. "Mobile-first" quickly became a key tenet of the company's vision. CEO Mark Zuckerberg called on Facebook's product teams to bring forth their best mobile ideas. This mindset helped the company ultimately expand the mobile share of its total revenue from 25% in 2012 to more than 80% in 2017.
Moving in a clear direction while retaining flexibility
Present forward and future back. Many companies that are heading toward digital leadership got there by thinking present forward and future back—they pursue specific goals with near-term value while adopting a clear future vision. Digital leaders convey a sense of direction to those inside the company, while articulating the concrete steps the organization needs to follow to reach its digital destination. They also focus on near-term activities, giving them flexibility to pivot as their needs and their industries evolve.
Waves. Executives need to translate their vision into interim stages, defining how successive generations of the business might look in the next 3, 5 and 10 years. These "waves" serve as successive incarnations for an aspirational vision that may even feel unattainable today. The goals of Wave 1 one tend to be very concrete, while those of Waves 2 and 3 might be more conceptual, allowing for the inevitable changes a company will face.
Stepping-stones. Executives need to identify the specific activities that will bring the company closer to its goals during the next 1-2 years. Rather than set a long-term plan that commits a company to unrealistic forecasts, we recommend that companies start with articulating the concrete, immediate actions—stepping-stones—along eight critical pathways. Four pathways focus on what the company does: customer and channel experience, products and services, operations, new business models. The next four pathways describe how the company delivers: platforms and partners, data and analytics, IT, operating model and people. Over time, the roadmap and stepping-stones will need to adjust—sometimes you don't see Step 2 until you've taken Step 1. This approach enables a company to constantly reassess its path forward as the world around it changes.
The Home Depot set out to upgrade its omnichannel experience a decade ago, hoping to reverse years of revenue declines. Some of the required steps were obvious, like expanding the hours of store staff to improve the shopping experience, while others involved long-term investments that would lay the foundation for bigger innovations later, such as upgrading its data systems and architecture. Ultimately, the company invested heavily over several years to improve its data infrastructure so that it could eventually speed up shipping times, offer a mobile checkout option and radically expand its online inventory. These investments also set the foundation to offer customers a "buy online, pick up in store" option. The Home Depot increased its online sales by 10 times between 2009 and 2016, and improved customer satisfaction. By the end of the effort, customers were picking up half of online purchases in stores.
When companies devise a digital strategy, a sense of direction and nimbleness should be the goal—never perfection. Flexibility and adaptability should trump the long-term precision that's rooted in today's technology. After all, market conditions will change and new competitors will emerge, but a sound digital vision and strategy will position a company to turn disruption into opportunity.
Ouriel Lancry is a coleader of Bain's Global Digital practice and is based in Chicago.