That simple question often throws the CEOs into a panic. Some CEOs believe that digital technologies and business models pose an existential threat to their way of doing business—and of course they’re right. But the pressure they feel often leads them to make big bet-the-farm moves—and that’s usually wrong.
Lets take a case in point. A company is designing a new digital platform, a huge project, involving 100s of staff members. The idea was to create a mobile app that would offer users rich localized experiences and serve as a sales channel for the company and their commercial partners. Management considers the project as its top priority. But after being launched with much fanfare, the app just got a lukewarm response from customers, and the effort to build a new ecosystem around it was scrapped. The failure led to a management exodus, layoffs, and a back-to-basics strategy with digital efforts sidelined to pilot-project stage.
The company still needs a new business model, though, and clearly can’t afford to make many more large investments in searching for one.
It doesn’t have to. Just because a threat is huge doesn’t mean that a response has to be larger than the threat. To the contrary, companies could actually be much better off taking a more incremental approach to transformation over time. While they should always have a vision of where they want to go, they should work their way toward it by continually finding opportunities to digitize problematic processes in their core operations. When they tackle those projects, they’ll learn what metrics to use, which assumptions to revise, where they can introduce new business models, and who their new competitors might be. And as they absorb those lessons, their understanding of their competitive landscape—and the long-term goals they set for themselves—will inevitably change.
There’s already a process for this kind of ongoing learning approach to strategy: discovery-driven planning (DDP). Developed by researchers in the 1990s as a product innovation methodology, and it was later incorporated into the popular “lean start-up” tool kit for launching businesses in an environment of high uncertainty. At its center is a low-cost process for quickly testing assumptions about what works, obtaining new information, and minimizing risks.
Idea in Brief
Established companies spend billions trying to turn themselves into digitized orchestrators of some new ecosystem, only to fall flat on their faces.
Why It Happens
The CEOs believe that the existential threat posed by digital disrupters requires a gigantic, model-busting response.
Adopt an incremental experimental approach: discovery-driven digital transformation. Look for problems to fix with digital technology, but exploit your rich knowledge of customers, broad operational scope, and deep talent pools while learning your way to a new business model.