May 10 2021

Q&A: Are Businesses Doing Digital Strategy Wrong?

Harvard Business School’s Sunil Gupta argues that too many digital initiatives are about creating short-term efficiency rather than building for the future.

Digital transformation is no longer news — it’s a necessity in every industry. In his new book, Driving Digital Strategy: A Guide to Reimagining Your Business, Harvard Business School professor Sunil Gupta describes how companies succeed in tr­ansforming their businesses with technology.

In a conversation with BizTech, Gupta discussed the most common digital strategy mistakes businesses make today, described the three phases of digital transformation and identified common themes that businesses of all sizes and in every industry can learn from.

BIZTECH: Your research has found that ­companies don’t always go about tech adoption in the right way. What are they missing?

Gupta: The first thing most companies do is use technology to cut costs and improve efficiency. That’s not a bad idea. The trouble is when you stop there. I often use the example of a bank moving to mobile banking because it will reduce the cost structure of brick-and-mortar branches. That’s a good idea — but if that’s all you do, you’re assuming the future will be the same as the present, just transferred to  mobile. You could become the most efficient, most irrelevant bank around.

I’ve seen many companies talk about the future less than they talk about what we can do here and now, and I don’t blame them, because you need to show ROI if you’re a CIO. However, what I tell businesses is that digital transformation is a three-phase journey. The first phase may be efficiency improvement, cost reduction, productivity improvement. But we also have to think about phase two and phase three at the same time.

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BIZTECH: What are phases two and three?

Gupta: Phase two is about growing top-line revenue instead of just cutting costs. Revenue growth happens when you go into adjacent businesses and additional businesses that you never thought of, because the technology allows you to do that. Phase three is about completely reimagining your business, because the future of any industry will be totally different than what it was yesterday.

If you have that three-phase horizon in mind, then focusing on cutting costs for what you think will still be valuable in the future is perfectly reasonable.

BIZTECH: What are the big things companies should think about as they formulate digital strategies?

Gupta: It should be part of the fundamental strategy of the business. It’s no longer this separate part of the organization. It has to be a holistic story. There are a handful of things that should be looked at constantly by the senior executives of a company as to how they shape the industry and how they shape the company. It might be technology. It might be shifts in consumer behavior. There could be changes in regulations. There could be macroeconomic factors. There are always four or five broad trends that affect every organization.

Technology tends to touch on many different aspects of most of those trends: how consumers behave, how they get information, how they purchase things, etc., and that’s why you need to look at how the business is affected by technology, which is only an enabler to where the overall strategy is going.

WATCH: Learn how to build a digital strategy that works for your organization.

BIZTECH: How has the pandemic affected companies’ digital strategies?

Gupta: It has certainly accelerated things. Digital innovation is about changing the organization and how it operates, and I think there were two barriers to that change: one from the customer side, the other from the organization side. On the customer side, especially for older consumers, they’re used to doing things in a certain way — going to the store to shop, for example. So, it’s been much harder for them to get their heads around buying online. That has changed. My 80-plus-year-old father is now doing online shopping, and he enjoys it and he doesn’t see any way to go back.

The second change is within the organization. Take telehealth: Many healthcare organizations have been trying telehealth for a long time, but the challenge has been that patients felt the experience would not be the same, and physicians didn’t feel it would be the same level of care. Now, the dynamic has forced both the patient and they physician to use telehealth, and both of them are saying, “Hey, actually, it’s better.” The patient doesn’t have to sit in the doctor’s waiting room for half an hour, and the doctor doesn’t have to fill in paperwork while the patient is in the office.

Also, senior executives told me that they actually changed processes within their organizations, dramatically, that they couldn’t change before. Companies have suddenly become agile where they never could before, because they have to sell online. People are trying new things. If our dean at Harvard Business School had told us before the pandemic that we had to teach online, there would have been a revolt. Then, we all suddenly had to learn to teach online — and we did. Now we’re saying, “What can we learn from the online experience to bring into the offline environment?”

This has been a forced experiment that has allowed organizations to see how quickly things can be done, how entrenched processes can be changed and how people can see the benefit of this environment. That’s been a great boon.

BIZTECH: Are there differences in how smaller and midsized businesses should think about digital strategy versus enterprise companies?

Gupta: Most of the same principles apply. Startups have the advantage of agility. They start with a clean slate and don’t have any baggage. The large enterprises have the baggage, the legacy IT systems. It takes time for them to implement change, but they have resources, customers and brands. The midsized businesses are in the sweet spot. They’re not encumbered by legacy systems as much as enterprises, but they have some resources and customers and some identity.

The challenge for midsized businesses is that if they want to do a major IT change, they may not have the resources, but that’s changed too, with cloud computing. So, I think small and midsized businesses really have a great advantage. 

Photography by Webb Chappell

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