How to develop a digitalization strategy

“Every company is a software company.” The odds are, your company is not a software company today, but needs to become one.

At the heart of becoming a software company is the digitalization strategy, often also called the IoT strategy. Creating one is not easy as every business and every company is unique. No general answers exist, you will need to create a digitalization strategy that fits your particular situation.

This article describes two ways to develop a digitalization strategy and shows how modern, agile way of developing the strategy will be both faster and cheaper than the traditional way.

The big question in strategy work is: where do you find the value your customers will be willing to pay for?

Digitalization strategy needs to answer this question. Everything is possible but what is worth doing?

Traditional approach

The traditional way to develop the strategy is heavy with strategy rounds, workshops, drafts and reviews. The strategy typically contains big vision and big ideas. These sort of strategies are defined by company visionaries, top management and external consultants in their closed circle, somewhere in the woods.

Eventually the strategy creation process is over, the strategy is finally “ready”. It can can be shared and execution starts. Products, processes and services dictated by the strategy are implemented and launched. Big ideas mean big budgets in implementation. When everything is ready, you can finally measure how customers react.

Typically it fails.

There are two major reasons why ideas and strategies typically fail. First of all, good ideas are hard to come up with. Failure rates as high as 80% have been reported, so it is naïve to think any one idea will be a success.

Secondly, customers typically can’t tell you what they really (really) want, or more specifically, what they will find so valuable they will actually pay for.

With traditional strategy approach and big ideas, you will find the truth only after spending the big budget in implementation.

Agile approach

An agile approach in developing digitalization strategy will make learning faster and less expensive. This is a critical competitive advantage to you.

Obviously, to start with, you need to know the general direction you will be going to. In practice sketching one or two slides will be enough to get started. You don’t need a grand masterplan to cover everything. What you need to figure out is the one thing to try first.

The key is to get something for customers to try as fast as possible. This is the fastest way to learn real insights from your customers. The initial strategy should be just big enough to tell you what is the one thing to try first.

In practice, you need to develop a prototype service or product and give it to your customers to try. You can also try and sell the service or product and only implement it after someone has actually bought it. If no-one buys your service or product, there’s no need to spend anything on implementing it. This is the least expensive way of learning. Why risk building something no-one wants?

Once you have the prototype at the hands of your customers, you will learn new insights. While it is difficult for your customers to say what they want, it is incredibly easy for them to say if they like something you built for them to see and use. And there is not just liking, they can also see (and preferably) measure what benefits they are getting (or not getting).

With this learning, you are in a much better position to adjust your initial strategy sketch. Again, instead of big changes, making small adjustments and building a new prototype will speed you up. The key is to learn as fast as possible.

Conclusion

With the agile approach, your strategy will improve in each iteration round, and most importantly, you will avoid big and costly mistakes. You will also be delivering value to your customers as early as possible, making your investment payback time shorter. Letting your customers drive the strategy is the fastest way to have digital services or products your customers will actually want and need.

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