Monthly Archives: September 2011

It’s Time for a Digital Strategy Audit

And it should be part of your annual planning process. Why do you need a digital strategy audit? Here are five compelling reasons from a recent Chief Executive article that presented what it thought were 11 Reasons Why It’s Time for a Digital Strategy Audit.

  • Digital Mistakes are for the World to See
    Most companies’ topline digital strategies are transparent to an experienced analyst, and readily available for analysis and scrutiny. As a result, mistakes are impossible to conceal and any attempt to do so will cause a media pile-on that makes the torch-bearning lynch mobs of old look like a Sunday picnic.
  • Digital is Cross-Function
    Even a simple e-mail marketing campaign involves sales, marketing, operations, and IT. Only supply chain is as far reaching, and if the digital supply chain strategy doesn’t complement the physical supply chain strategy, you have a disaster waiting to happen.
  • Numbers Tell a Story
    An organization’s spending on R&D tells a lot about its viability in the long term. Plus, digital strategy performance benchmarks can identify competitor strategies and threats and allow a company to make a proactive, rather than a reactive, response.
  • Digital Investments are Probably Higher Than You Think
    And probably generating less of a return than you think. In some enterprises, digital investments account for 5% of operating costs and 20% of marketing spend, and run in the eight digits in Fortunate 1000 companies. But without a coherent strategy, the returns in digital investments are often dismal to none. Consider the emerging mobile market with average click through rates on ads of 0.1%, for example.
  • Digital Affects Everything
    As the article says, no industry is unaffected by digital trends. But, few companies have formal, well-defined digital strategies that articulate the vision and govern investments and behavior. Typically, it’s an afterthought and pushed down to IT to figure out. But if IT is only a support organization in the company …

And, more importantly, unless you do a digital audit:

  • You Still Don’t Know How Unprepared You Are for the Digital Age
    Unless you are an IT company, chances are your infrastructure doesn’t have the scalablity, reliability, falut-tolerance, and, more importantly, the security to go all-out with a digital strategy. If even the Sony Playstation Network can be hacked and taken down for a week, and Sony has a very strong IT division operating a very large on-line service, how long do you think it would take a hacker or organized underground hacking group to your network down if you got in their cross-hairs. Assuming you could even scale up to support a superbowl size response. Online service leaders have experienced network overloads for years. AOL in its heyday had scalability problems and had to offer customers refunds to keep them in late 1996, Toys “R” Us was hit with a class action lawsuit in 2000 for taking orders for Christmas it could not deliver, Nintendo could not keep up with Wii orders in 2006 and Sony could not keep up with Playstation 3 orders in 2006, and the Playstation Network has hacked earlier this year.

Before you launch a digital initiative, you need to make sure that IT is ready to support it, and if you are selling something, that the supply chain is ready to supply any expected spikes in demand. Forget the meaningful opportunities for cost-savings, new revenue channels, and/or competitor vulnerabilities the Chief Executive author promotes. Chances are that you’re not even ready for that.

McKinsey Just Gave Us the Best Argument for Next Practices

From a recent McKinsey Quarterly newsletter:

Spurious frameworks and torrents of data often obscure the basic principles of good strategy. To beat the market, companies must exploit imperfections that stop (or at least slow) its workings. Such competitive advantages are scarce and fleeting because markets drive a reversion to mean performance … . Good strategies therefore emphasize difference …
     From “Why best practice isn’t the best strategy”

But more importantly, an analysis of ROIC and EV/IC for top, middle, and bottom quintile companies from 2001 to 2009 shows an drop in ROIC of almost 75% (from above 15% to below 4%) and a drop of EV/IC of almost 85% (from about 3.2 to 0.5).

Best practices aren’t enough anymore. We need next practices.

As a side-note, the next Next Practices Xchange, hosted by the Mpower Group and one of the few forums dedicated to the discussion of next practices, is November 4, 2011.

Headline from the Land of D’oh: Technology is Closing — and Widening — the Gap

A recent issue of Apparel leads with the headline that Technology is Closing — and Widening — the Gap. Needless to say, this is a headline that I had to read twice to believe I was reading it. It then goes on to say that mobile can be viewed as both a great threat and a great opportunity. Really? Smartphones create interaction much more dynamic than it was back in the days when customers were restricted to flipping through print catalogs. Who’d a thunk it? Mobile also poses a threat allowing customers to hop on Amazon.com or any number of other sites for a quick cost or brand comparison. A browser works on more than one site? Wow!

But seriously, this article is ridiculous. It’s common sense drivel for anyone with half a brain and a memory that remembers more than 10 years of history. (What am I saying? It’s only the last quarter that matters! Thank you Wall Street MBAs for ruining not only innovation but the importance of history. But that’s another rant.) First of all:

Mobile may be new, but it’s just another technology.
It’s going to go through the growing pains of every new technology that came before. There were growing pains with the Web. There were growing pains with television. There were growing pains with radio. And if you study your history (as one of my blogging counterparts will gladly point out as important), you’ll realize that each had the same growing pains, opportunities, and threats. The only difference is that with each generation of new technology, the time frames become more and more compressed. Right now, most minitrends last about five years. In the future, some may only last five months.

The difference between the rich and the poor is $$$.
How much $$$ you have in business depends on market share. It’s a knowledge economy, and how much knowledge you have depends on how fast you can distill it from information. How much information you have depends on how much data you have and how fast you can extract information from it. And both of these steps depend on technology. So, as a corollary, how much technology you have, or have access to, directly affects how rich or how poor you are.

Any change in your situation relative to someone else either narrows or widens the gap.
So if your technology changes, or your competitors’ technology changes, then the gap between you and your competition is going to change as well. D’oh!

Tell me something useful — like how to take advantage of this technology as a retailer. Otherwise, stop wasting my pixels and my time.