10 Aug Digital Strategy Basics: The What, the Why, & the How
By: Craig Bradford
Strategy is hard enough if you understand it. It’s even harder if you don’t.
If you understand it, you realize it’s made up of many moving parts. If you don’t, the best you’ll come up with is some version of operational efficiency: building more links, writing more blog posts, making more video. Those activities aren’t strategies — and if you fail to differentiate your plan, you’ll find yourself forever chasing those who started before you, or falling behind better-funded competitors.
I enjoy strategy, both on the academic and theoretical side of things and in more practical opportunities helping our clients at Distilled. Below are some of the things I’ve learned along the way that you might find useful, especially if you’re a business owner, setting up marketing strategies, or a consultant. If you’re in more of an individual contributor role, you’ll receive the background and basis you need to understand how it all fits together and create a personal development plan towards building strategy.
Read on and you’ll have a better understanding of what strategy means, what type of strategy you need and how to make good decisions. For each section, I’ve included a reading list too.
What is strategy?
Good strategies are compounds, not elements.
A good starting point for understanding strategy is an infamous article by Michael E. Porter – “What is Strategy?” It’s quite academic, but covers a lot of the key points. I recommend reading it a few times; it’s worth it.
To understand what strategy is, I like to use a chemical analogy of elements and compounds. A compound is a combination of two or more elements. In the case of a strategy, the activities would be the elements and the strategy would be the compound. I like this analogy for a few reasons:
Reverse-engineering a compound can be challenging
Many people fall into the trap of trying to copy a competitor’s strategy. This is bad for a number of reasons, but one in particular that I’d like to highlight: even if you think you know what a competitor’s strategy is from the outside, it can be very hard to copy successfully unless you know all of the individual details.
Much like a chemical reaction, different quantities of the same elements combined in different ways can produce very different results. Often, when people try to copy a strategy, they’re really just copying an element or activity.
Compounds are only as strong as their weakest link
Different strategies take different levels of energy to crack. In What is Strategy?, this idea is referred to as “activity systems” and “fit.” The example used is Southwest Airlines. Some people would try and describe a strategy as a slogan: “Southwest Airlines services price- and convenience-sensitive customers.” That might be true, but there’s not anything particularly advantageous about that idea. The competitive advantage comes from how they integrate:
“Through fast turnarounds at the gate of only 15 minutes, Southwest is able to keep planes flying longer hours than rivals and provide frequent departures with fewer aircraft. Southwest does not offer meals, assigned seats, interline baggage checking, or premium classes of service. Automated ticketing at the gate encourages customers to bypass travel agents, allowing Southwest to avoid their commissions. A standardized fleet of 737 aircraft boosts the efficiency of maintenance.”
This is what those individual pieces look like as part of a system:
The more stable the compound, the slower it reacts
A stable compound with lots of bonds, while strong and hard to copy, is slow to adapt if the market changes unexpectedly. Change forces managers to dismantle their existing resource systems and reassemble them in new strategic positions.
“For example, Liz Claiborne, an apparel company, relied on a positioning strategy in which production, distribution, marketing, design, presentation and sales resources were all tightly linked. But when the industry changed, the company’s relationships with department stores were disrupted. In an effort to adapt, Claiborne executives changed resources such as their “no reordering” process that had antagonized department stores. But since this process was synergistically entwined with other resources like overseas logistics and distant manufacturing locations, the “no reordering” process could not be undone without damaging system coherence. Financial performance sank precipitously. Only after Claiborne executives dismantled their existing resources and started reconnecting new ones did positive performance begin to return.”
All of the above is to say that the key to an effective and sustainable strategy is to focus on the integration of activities. Operational efficiency alone isn’t a strategy. A good way to sanity-check this is by asking why you’re doing an activity.
I like this slide from fellow Distiller Rob Ousbey, which puts some of theory into context in marketing strategy:
What type of strategy do you need?
The type of marketing strategy you use can (and should) change as the business requirements change. Two questions that are a good place to start:
- How predictable is your market?
- How malleable is the market (can you influence demand, needs, etc.)?
Based on your answers to those questions, there are choices. I like the wording from “Which Strategy When?”:
- Position (fortress) – Positional-based strategies are best when you’re trying to defend a long-term position in the market. Strategies in this space involve deepening the activities and resources that you have within a particular area. This is best in markets where there isn’t a lot of change.
- Leveraging strategy – Leveraging strategies are useful in markets where you have some influence on how the market moves and there’s less predictability. A chess analogy is a good one, since it’s not just about having the right pieces; it also requires making smart moves. A recent example that I love is the example of Google using Deepmind AI to reduce data center costs by 15%. That’s a pretty big deal.
- Opportunity (surfing) – Opportunity strategies can be compared to surfing and waves; it’s hard to predict when they’ll come or how long they’ll last. Timing is important, and occasionally you get a good one. Being set up in a way that allows you to capitalize on opportunities as they arise is crucial.
It’s possible, probably recommended, to have some mix of all three. I like the graph that our R&D team use to explain this, shown below. The idea is that there are always trade-offs between the chance of success and reward. View Full Article >>