Driving Digital Strategy: A Guide to Reimagining Your Business

Sunil Gupta is the Edward W. Carter professor of business administration and chair of the general management program at Harvard Business School. He's also the co-chair of the school's executive program on driving digital strategies.

Gupta's spent 10 years studying digital strategy and he draws on this wealth of research throughout this book. It's jam-packed with examples, best practices and case studies from companies who've reinvented the way they do business. These include The Weather Company, The New York Times, Adobe and Amazon.

The book will be of interest to anyone involved in digital transformation, although it'll be of most use to change managers and other people shaping and leading business strategy.

So, keep listening to find out how to convert your razor to blades, the true value of a Facebook "like," and why landing docks are better than speedboats.

Now, let's learn more about digital transformation, and how this book helps.

Gupta's framework for reinvention has four key components. These are: reimagining your business, re-evaluating your value chain, reconnecting with customers, and rebuilding your organization. The book is organized into four parts, each with three chapters, exploring these components in detail.

Chapter One tells the story of one company that's excelled at transforming itself to stay ahead of the digital curve: Amazon.

The online giant was founded in 1995 to sell books at prices lower than bookshops. When this proved successful, more lines were added, including DVDs, CDs and toys.

Five years later, the site opened to third-party sellers, who paid Amazon a fee to sell their products. This transformed Amazon from a retailer to a platform for other retailers. You'll hear more about this platform model later.

Back to 2001, and Apple's iTunes was transforming the way people listened to music, spelling the end of disc-delivered entertainment. Amazon responded to this shift in customer behavior by launching its own video-on-demand service.

In 2011, Amazon partnered with the movie giant Warner Brothers to create Amazon Studios, and began competing with Hollywood studios as a film and TV producer.

Then there's the Amazon Kindle, a digital device for buying, reading and storing e-books, which came along in 2007, three years before Apple's iPad. This brought Amazon into the hardware business.

Using the author's analogy of the razor and blades, the Kindle serves as a razor: the necessary, but fairly inexpensive base product. The e-books are the blades: bought individually and in great numbers, this is where the product's true profit lies. It's a very different model from traditional book buying.

Examples of razor-to-blade business conversions can also be found in the music and newspaper industries. Music albums used to be the blades and live performances the razors to promote and sell them. But when music became available online and often for free, this reversed. Albums are now promoting expensive concert tickets.

For decades, The New York Times sold its subscriptions at a low price, and generated 70 percent of its revenue through advertising. When it lost a lot of that advertising to online competition, it survived by transforming its business model. Subscriptions, which had been the cheap razor, became the profit-making blade. Now 70 percent of its income comes from subscriptions, a large proportion of which are digital subscribers.

But let's return to Amazon, whose expansion continues. In recent years, the voice-activated assistant Amazon Echo has entered homes across the globe. Amazon Web Services is a big player in the cloud computing market, and the company also has its own advertising network. We haven't even mentioned all of its services, but you get the idea!

By not defining itself by one product or service, Amazon's thrown out the traditional rule book and followed the golden rule for sustainable competitive advantage in today's connected world: it focused on understanding the needs of its customers, and then developed a platform of connected and complementary products that give value.

Amazon exemplifies all that's possible for companies created in the digital age. But what about older organizations and industries founded decades before the digital revolution?

The Weather Company started in 1982 as a 24-hour TV weather channel. By 2012, it faced increasing competition from apps and online sites, and suffered a sharp decline in advertising revenue.

But its CEO recognized that the Weather Company's forecasts influenced what people bought. So it focused on telling retailers what products to promote when. For example, the hair products company Pantene started running location-specific ads on the Weather Company's mobile app, recommending the best products for that day's weather. Pantene saw sales of these products rise 28 percent.

The Weather Company also partnered with the car manufacturer BMW to provide weather data in its new vehicles. In return, BMW fitted sensors into its windscreen wipers, giving The Weather Company data to improve the accuracy of its reports.

Another way of reimagining your business in an increasingly demand-based economy is to transition from selling a product to selling a service. In other words, to shift your strategy from asking customers to own a product to giving customers access to it, when they need it.

For example, what if the lighting company Philips owned and took responsibility for the maintenance of its light bulbs and fixtures, and your company only paid for the light it uses? This is what happens at Amsterdam's Schiphol Airport, the fourth largest in Europe, and at parking facilities around Washington, DC.

Similarly, the tire company Michelin runs a pay-per-mile program. Cadillac and Porsche offer monthly subscription services that allow customers to change models according to their needs throughout the year. And BMW has launched an hourly rental service too.

Gupta says the future's not about owning assets, but about making them as accessible and productive as possible. In Chapter Three, he examines the power of the platform model, which Amazon developed so successfully.

Platforms work by bringing buyers and sellers together. The platforms themselves don't own the product or service they offer – the taxi service Uber doesn't own any cars, and the rental site Airbnb doesn't own a single property.

In the same way, the Norwegian company Gelato has reinvented the printing industry by bringing together buyers and suppliers. Buyers upload their designs, and Gelato identifies a convenient printing company with the capacity to print and deliver those materials. Its customers benefit from a 90 percent decrease in transport costs and a 50 percent reduction in paper waste.

Another advantage of platforms is that they tend to be self-promoting. The more buyers there are on a platform, the more sellers are attracted to it, and vice versa. This network effect creates its own "virtuous circle."

In Chapter Four, Gupta explores the recent move away from traditional research and development, by in-house industry experts, toward more open models, like crowdsourcing, which can provide quick solutions with not much investment.

For example, when Proctor and Gamble wanted to launch a new line of Pringle chips with pictures and words printed on them, but didn't know how, it used the open innovation approach. The solution was provided by a small bakery in Italy, run by a university professor who had invented an inkjet method for printing cookies. Only in a digital world could this connection be made.

A common challenge for organizations is how best to link their digital and physical channels without creating a conflict of interest. This is discussed in Chapter Six, where we learn how the two can serve complementary functions for customers. Gupta says that customer acquisition typically happens in physical locations, while customer retention takes place online. Yes, customers are likely to research and purchase online, but in between these stages they often like to visit a store to view and test the product in person.

It's interesting that Amazon has decided to branch out into physical stores. As you might expect, they're innovative in the way they're run. But it seems that even Amazon sees the value in providing customers with an offline purchasing experience.

Chapters Seven to Nine look at the best ways to connect with customers in the digital world. Marketing strategies have long identified two key "moments of truth" for customers on their purchasing journey. The first is when they choose to buy one brand over another. The second is when they use it and find out if they like it or not.

Now there's a third moment of truth, termed the "zero moment of truth" by Google in 2011. This crucial zero stage refers to the online research stage, and it's the target of digital marketing strategies everywhere.

It's understandable that social media seems like a dream for marketing teams. After all, a viral video can promote a product to millions for a very small cost. But the author cautions that there's a lot of misinformation out there about the true value of online interaction. Do your Facebook "likes" boost sales? Apparently not so much.

Gupta cites one study that found a Facebook "like" has no influence on the buying habits of customers or their friends. Another study, about sharing posts on Twitter and Yahoo, found that only 4 percent were shared at all, and barely 1 percent were shared more than seven times.

This section also discusses the value of "freemium" products – that's short-term online offers and discounts, as well as dynamic pricing where the price changes depending on demand and supply. There's a lot of great stuff here, and plenty that could save you throwing money into areas of digital marketing that may not be as fruitful as you think.

The final part of the book is packed with helpful case studies related to managing your digital transition.

In one example, Ajay Banga, the CEO and president of the financial services company Mastercard, uses the metaphor of a landing dock onboard the mother ship to explain his approach to encouraging innovation.

Mastercard offers innovative start-ups the funding and infrastructure to trial new technologies and approaches. In return for offering this "landing dock," the mother ship gains access to ventures it may wish to invest in or adopt long-term.

Digital transformation inevitably brings changes to the workforce, and the book's closing chapter discusses the impact of digital on the way companies recruit, develop and manage their talent.

Knack, a start-up recruitment company based in Silicon Valley, uses mobile games and analytics as a recruitment tool. Candidates play a 10- or 20-minute game, during which over 2,500 micro-behaviors are tracked and analyzed. The resulting score is based on their decisions, reactions, learning, and exploration. These predict real-world attributes such as job performance, leadership impact, and learning success.

Knack has an impressive track record of successful recruitment, and is used by numerous big clients, such as Nestlé, IBM, Daimler, and Citigroup.

Data is the new oil and, regardless of your industry, people with skills in analytics, computer science, and coding are now in high demand. But that may change. Repetitive, predictable and routine tasks can – and will – become automated. It's cheaper, quicker and more accurate than having humans do them.

In 2017, a study by McKinsey showed that 30 percent of tasks in 60 percent of jobs could be computerized. The author suggests people concentrate on the non-repetitive aspects of their jobs, to future-proof their value.

So, what's our last word on this book?

Gupta provides an intelligent and detailed account of digital opportunities in today's market, and cuts through some of the hype, fears and reservations that surround it. Although he calls the book a "guide," it's not a how-to manual full of practical steps. Rather, it's an incredibly comprehensive overview of digital trends, which treads a reassuring line between starry-eyed enthusiasm and realistic objectivity.

Digital is here to stay and it's having more and more influence on the way people select, buy and use products and services. But more than that, it's rapidly changing every aspect of our organizations, from recruitment to innovation, from operations to sales. So whatever "mother ship" you lead, we're certain you'll benefit from reading a copy, cover to cover.

"Driving Digital Strategy: A Guide to Reimagining Your Business" by Sunil Gupta is published by Harvard Business Review Press.

That's the end of this episode of Book Insights. Thanks for listening.