Digital Business or Broke

I wrote a blog in February 2023 that explored the "rise and fall" of digital business. ?See The Digital Dance Music Stops - the Story of Peloton. Behind that blog were some observations. For a number of years, we have all seen:

• A small number of firms seem to have done very well with digital strategies in many industries. ?Business advantage and great benefits have accrued.
• In those same industries, many other firms have completed digital pilots, but for the most part, have not been able to scale digital successfully or reap similar benefits as the firms at the digital frontier.
• While we (and others) publish case studies covering digital efforts, the secret sauce to success remains hidden. ?

Related to these observations, and the trigger of the original blog:

• Several firms who were held up as digital success stories during the COVID period started to struggle after we all went back to work. ?
• Over many years you may have read the same hot and popular management and leadership books that I read, that include examples of firms that succeed and dominate. ?Yet in any 20-year cycle, most dominant firms become laggards. ?In other words, strategies and tactics that worked in one era rarely persist as reliable secrets of success in another.

The Hidden Learning Behind the Case Studies

Emulating case studies has not worked. ?Some clients tell us they want models and best practices instead. ? ?We synthesize these from the case studies and many inquiries with clients, and then we hear clients want real world examples, not what is perceived as theory.

We seem to be stuck. ?Yet the market is demanding digital at scale. ?With hype related to generative AI added to the mix, the demands for impact and real business value are at fever pitch. Might this next couple of years be digital’s last chance? Is the answer just to run or peddle faster?

Looking at Peloton this week I saw its stock ‘plunges 23% amid loss warning’ (WSJ, August 24th, 2023). ?Disclosure: I am a very happy, subscribing customer of Peloton. ?But the news suggests (as I said in the original blog), going or being digital does automatically bring success and it does not suspend business basics. And too many firms do that even while they increase investment in more digital technologies.

Back to Basics

In Peloton's case, and in any other organization so managed, there are some basics around revenue and costs that can't be digitized to irrelevance. There are other basics too - about how firms decide when, where and on what to invest its capital. See More on ‘Where You Invest Your Firms’ Capital Matters’.

I think this decision-making is the root to our main challenge with scaling digital. Something fundamental has changed, and case studies and best practices based on those case studies do not capture that change. ?I believe the root issue is so fundamental most firms are totally missing it. ?Given the fundamentals for developing investment plans for digital are based on the exact same decision-making model we used to justify building a factory that made the Model T, one might ask, ‘Why is this?’ ??

The fundamentals of profit making have not changed. ?The Peloton story proves that, as does every other struggling digital or analog business. ?The fundamentals of cost and growth accounting however have changed. ?Firms that have done well with their digital transition and have taken decisions differently that led to different investments. ?That is where I think we need to study. I also believe the secret sauce to digital at scale has a big dependency on the value (and residual value) of intangible (dare I say digital) assets and the investments in them over time. In other words, the digital stock.

The New Basics

Our CFO team extended our research with digital cohesion. ?The research exposes that investment discipline is not the answer per se. It is perhaps the set of investment decisions made in a period that a) may relate to each other and b) provide residual or complementary value to another investment. See the following:?

• Build Digital Cohesion to Maximize Return on Digital Investments
• How CFOs Can Drive Better Business Outcomes From Enterprise Digital Spending
• Quick Answer: Why Are Digital Investments Underperforming?

I really like the idea of digital cohesion. In our Data and Analytics and CDAO research, as well as our CIO and digital business research, the case studies suggest that an alignment challenge exists across the discrete investments made. The complementary nature of assets and their potential for reuse seems to pop up in many situations. Yet the fundamental capital decision making model does not yet reflect this insight. That is where I think we need to go.