Digital Strategy is Dead! Long Live Digital Innovation!

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by John Ivory

Photo courtesy of wikipedia commons

Every day, client executives come to Razorfish asking how they can develop digital strategies. They may ask for strategies for specific types of digital user experiences, such as mobile strategies and social strategies, or they may ask for more-holistic strategies that encompass a number of digital experiences. Whether the head of a functional area within an organization or a C-level executive (e.g., a CMO or CIO), their ask boils down to, “How can I build a better digital mousetrap than my competitors?”

This is a worthy question to ask, with commensurately difficult challenges to surmount, even at a given point in time. However, competitive organizations continue to develop their own strategies to solve for these same challenges. And time and time again, organizations spend months and years developing and executing these digital strategies only to find that their competitors have not only quickly matched their new features and functions, but also have developed their own innovations that must be matched.

So long as these executives and their organizations think of “digital” strategy as something that can be developed in isolation from their organizational strategies, they will never develop sustainable strategies that differentiate them from their competitors. And as tools improve to make for easier and faster development of digital experiences, cycle times decrease, and the length of time they can profit from their innovations narrows.

Direct competitors are not the only drivers of this one-upmanship. Customers now (justly) expect that customer experiences in one industry will quickly be adopted by all organizations with which they interact. And they expect all facets of company interactions to be integrated, be they marketing, sales, customer service or any other experience, and whether they be online, offline or any combinations in between.

Digital strategies have become too important to develop in isolation from organizational strategy. They have become too important not to help drive the development of sustainable, competitive strategies with which organizations go to market. And they have become too important to delegate solely to functional managers who do not have the broad organizational and industry knowledge and experience to leverage digital innovations in the context of their organizational capabilities and the demands of the marketplace.

As an example, a large consumer financial provider, whose primary distribution channel is personal financial advisors, asked Razorfish to develop a digital strategy. Razorfish began down the path of considering a number of innovations that would enable its clients to interact through its website and through social media; to increase its online commerce, and to partner with other organizations through the internet. However, we soon realized that the client could never get the upper-hand through digital alone. Companies like E-Trade, Geico and Ing, whose core distribution channels are digital, would always match our innovations and leap ahead. Only innovations that were linked to their core capabilities, and especially their personal financial advisors, could give them a sustainable advantage over their competitors. The strategy was no longer a digital strategy, but a digital driver of corporate strategy.

Type Walgreens.com into your browser and you’ll likely be unimpressed. Walgreens could have spent millions improving merchandising on their website. However, they developed simple, yet powerful, digital innovations into their core business of dispensing pharmaceuticals from their retail locations.  Beyond using the telephone or their website to order a refill, customers can now easily use their smartphones to scan a barcode on their prescription labels, thereby ordering refills without even having to log-into a website. A date and time pops up on the screen, along with the customer’s preferred location, and they’re ready to go. Billing is automatic, if they so choose.

The digital execution of this can be easily copied only if you ignore the larger organizational hurdles: barcodes must be added to prescription labels, new processes developed and employees trained. Furthermore, Walgreens must have retail locations that are close to customers, which Walgreens has been expanding for some time. Even without acquiring new customers, Walgreens can increase revenues by increasing the spend of existing ones: with this convenience and Walgreens refill reminders (sent by e-mail and SMS), patients are more-likely to fill prescriptions on time and not miss doses. Customers not only gain convenience, but also potential health benefits through better adherence to their therapies.

Digital innovations have become a driver of the Walgreens’ corporate strategy of being the most convenient place to fill prescriptions.

Best Buy could have simply used its website as a separate channel with which to compete with Amazon in addition to using its retail locations to compete with general and specialty retail locations. However, it continues to integrate digital into its multi-channel commerce strategy, whereby everything it does makes it easier for customers to buy from them. There is no “digital strategy,” digital is but one important driver of their organizational strategy.

Even for companies that are considered pure-play digital successes, there is more to digital that meets the eye. Netflix has always been presented as an internet pure-play; however its rise came from the insight that DVDs could be sent for the cost of a first class stamp, that warehousing and operations could ensure a quick turnaround of DVDs to its customers, and that content deals with studios would give Netflix a much broader and deeper offering than retail locations can offer. It will be interesting to watch how Netflix tries to compete in a “cloud”-based landscape.

The press covers Groupon as a technology company; however at its core it is a more like a local coupon provider. Its advantage lies not only in its online experience and brand equity, but in its sales force that makes develops deals with merchants.

And even the iPod, which catapulted digital music players into must-have products, was not simply successful because of its innovation in its user experience and integration with iTunes on the personal computer. Success was equally dependent on long-negotiated licensing deals, which also depended on the innovation of a simple pricing model that Apple fought labels for and won.

And so, I proclaim that “Digital strategy is dead! Long live digital innovation!” and its new role as a driver of organizational strategy!