Three Questions to Ask About Your Digital Strategy

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Three Questions to Ask About Your Digital Strategy

By Murat Tarakci et al., | MIT Sloan Management Review | July 16, 2024

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Leaders who are shaping digital strategy face a fundamental dilemma: Should they try to disrupt the market, using digital technologies to reshape both the value chain and performance expectations? Or should they try to adapt, using digital technologies to enhance the company’s existing value chain? This choice has critical implications for an organization’s performance, yet many leaders struggle to frame the decision.

The authors’ research shows that there is no silver bullet for choosing the optimal blend of digital strategy.  Instead, the effectiveness of a digital strategy depends on three key questions you must ask yourself:  

1. What are our performance goals in the short or long term?  To put this another way, do you want to make waves or sail better? When shaping a digital strategy, understanding your company’s performance goals and the time horizon for achieving them is crucial. Are you aiming to improve internally — or race past the competition?  The key insight from research is that digital disruption strategies yield superior relative performance for companies — but at the expense of absolute performance. You must deploy digital technologies in ways that align with your company’s specific goals.  The relative performance advantage of a digital disruption may, in the long run, translate into absolute performance advantages, provided the company drives competitors out of the market. Hence, your digital strategy must be based on your organization’s performance objectives.
2. What digital strategies are our competitors pursuing?  When competitors launch a digital disruption, your company might feel like the game is over. However, you should remember that digital disruption is risky. It comes at the expense of absolute performance, especially in the short run. Disruptive companies may face resistance from consumers and regulators, as well as technological uncertainty.  Adopting a second-mover strategy in the face of digital disrupters can be advantageous.
3. How receptive is our market to digital disruption?  Another risk: Not all marketplaces welcome digital disruptions with open arms. Customers, regulatory environments, and the surrounding ecosystems have varying levels of receptiveness to digital disruptions. Markets with low openness are characterized by customer resistance, rigid regulatory bodies, and a lack of complementary infrastructure — all of which make it tough for digital disruptions to take effect.  You must carefully gauge market openness before committing to a digital disruption strategy. This means analyzing markets and putting yourself in the shoes of a broad range of stakeholders. If a market shows low openness, you should evaluate a more cautious approach (and certainly avoid going all in on digital disruption).

3 key takeaways from the article

1. Leaders who are shaping digital strategy face a fundamental dilemma: Should they try to disrupt the market, using digital technologies to reshape both the value chain and performance expectations? Or should they try to adapt, using digital technologies to enhance the company’s existing value chain? This choice has critical implications for an organization’s performance, yet many leaders struggle to frame the decision.
2. Crafting a successful digital strategy involves carefully considering your performance objectives, your competitors’ moves, and market openness.
3. Whether you aim to make waves with digital disruptions, sail better by enhancing existing capabilities with digital innovations, or even blend both strategies, your choice should be informed by a deep understanding of your goals and the competitive landscape. Despite the popular appeal of a digital disruption strategy, it might not be the solution. For a more careful approach to digital strategy, you should start by agreeing on a planning horizon, analyzing your rivals’ strategies, and setting your own performance goals.

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Topics:  Strategy, Business Model, Disruption, Adaptation