The Power Of Digital Strategy In The Digital Age

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0:52Hello and welcome to another episode of the Duct Tape Marketing Podcast. This is John Chance. My guest today is Mike Lennox. He is the Talo Murphy Professor of Business at the University of Virginia's Darden School of Business. He's served on the faculty at Duke and NYU and is a visiting professor at Harvard, Stanford and Oxford. He holds a Ph.D. from MIT in technology management and policy. We're going to talk about his new book today, Strategy in the Digital Age, Mastering Digital Transformation. So, Mike, that was a mouthful, but welcome to the show. So, John, thank you so much for having me.

1:29You spend a lot of time with textbooks, I think. I do enjoy writing. So my first question is going to sound like a silly question, but I think it's legitimate based on all the conversations I have with people about strategy and their confusion about what the term actually means. I thought I'd start there. How do you define strategy? Oh, that's an excellent question. You know, in our MBA classes, we always start with what we refer to as the strategist challenge. And so to me, the strategist challenge is about finding valuable positions at the intersection of three things. Your values and mission as an organization, absolutely critical.

2:11That's your North Star, defining who you are and what you aspire to be. The opportunities that the market provides to you. So this is competition, it's demand, it's all those things that influence what is available to you. And then last but not least, your capabilities as an organization. And so the key for strategy is how do you identify and then achieve and protect those valuable competitive positions at the intersection of those three things. So it's not really just a list of tactics. Is that what you're saying? Absolutely not. No, it's about trying to figure out where to point the ship. It's kind of like how you're going to, you're marking the market, right?

2:47Right. So again, in the title, strategy in the digital age, how would you define the change or how somebody might look at digital strategy versus, I don't know, regular strategy? Or is it really just become such a significant component? It's just part of the overall strategy. I think that's right. I mean, I think in many ways, digital strategy is just strategy. In the same way digital marketing is really just marketing in this day and age. And I think one of the points that I make in the book is that the digital age is having impacts not only in those sectors that we might call technology sectors or technology companies, but it's really pervasive.

3:29I am hard pressed to find an industry in a sector that is not being impacted by digital technologies. Now, at one level, strategy stays the same basis for kind of understanding markets and competition don't fundamentally change just because we're in this digital age. But there are certain ways in which the digital age is having maybe differential impacts than what we've seen in the past. And a lot of what the book is about is really trying to understand how fundamentally are these digital opportunities transforming those market opportunities. Yeah. And I have to admit, when I first saw the book and the title of the book, in my mind, maybe it's my own bias, kind of leapt to, oh, we're talking about websites.

4:10social media and all the digital stuff. But you really, as you started to allude to there, it's really more about how digital technologies enable the creation of services and products and maybe entire industries. So talk to me a little bit about, I mean, that's a much bigger conversation, isn't it? Yeah. In the book, we talk about a number of kind of fundamental things that digitization is doing in a variety of industries. One, fundamentally changing the customer value proposition. Now we find that you are constantly engaging your customers, collecting data, using that to refine the products and services that you're offering.

4:49It has ways that fundamentally changes the operations and the ways you deliver value and creating opportunities to both increase value and simultaneously lower costs through various kind of efficiency opportunities. And then perhaps even more fundamental, we're seeing things like what we call the deconstruction of the value chain, that what used to be more vertically integrated efforts by different companies are being picked apart by especially entrepreneurs coming in and taking various pieces of their value chain, again, leveraging digital. But really at the heart of it, that we really kind of center most of the book on is this idea that data has really gained primacy.

5:28People talk about data as the new oil in our economy here, and that the economics of data, especially the scalability of data and what that does for you can really change, again, the nature of competition within an industry. I'm going to jump around a little bit here, based since you opened that up. I mean, AI is essentially a technology that is massaging data. So what are some of the, let's go on both sides of that. What are some of the opportunities, but then what are some of the threats? Yeah, absolutely. Well, obviously, Generative AI in particular with ChatGPT is on everybody's mind these days, but we should observe that AI has been around for a while.

6:08It has many different forms and is affecting many different things, including autonomy. It's impacting the use of industrial processes, not just the fun language generators that we've been all playing with over the last few months here. I think it is quite disruptive and has a lot of potential in a lot of different directions. And again, I think it goes to maybe even the fundamental construction of some of our industries there. But it's not just generative AI. I point out blockchain is another one that gets a lot of excitement and buzz. If you listen to Mark Zuckerberg, the metaverse is coming soon.

6:41The use of VR, things like digital twins. There's a whole host of kind of interesting applications and technologies that we're seeing. And in many ways, these are all kind of overlapping and intersecting in interesting ways. that again, the forward thinking businesses are figuring out how to capitalize on. So the book does present a framework for somebody who is thinking, gosh, I need to get on board here. Talk to me a little bit about what would be a typical way that you would work with an organization? Because I'm sure that, I mean, there's still people that cryptocurrency is like an unknown word to them.

7:17But then there certainly are people that are, as the buzz around, say, chat GPT comes, you know, there's more and more people at least saying, I need to figure out what this is. How would you work with somebody to help them uncover where their opportunities might be or where they might actually be in real danger of being disrupted? Yeah. And I think, you know, the one side, while I believe that we're seeing disruption in many different ways, we also have to be careful of kind of a hype cycle, right? Some of these technologies get ahead of themselves. The world is ending to certain pundits and then, you know, it never really comes forward.

7:50One of the things we talk about or I talk about in the book is industry life cycles. You know, we have a long history of kind of studying how industries evolve over time. And there's patterns we can look at that help us understand when new technologies come about, how are they going to play out? So in the simplest case, you know, S-curves, the simple idea that early in the stage of a technology, you might see a lot of investment, but not much improvement. But if it's going to be disruptive, you go through these exponential growth periods in which the technology really begins to improve and change the marketplace.

8:25And then eventually you get a kind of lessening of that impact as we kind of figure things out over time. That has huge impacts for entrepreneurial entry, how incumbent firms respond, being responsive to these kind of timing and trends. I think in this day and age, trying to always be on the cutting edge, know exactly what's coming down the pipeline is a very hard task to do. And I think this is where the strategy piece comes in. I always talk about, you know, strategy is never meant to be static. It's not meant to be kind of set in stone and off you go. It's a constant process of reflection where you have to be thinking about.

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11:18Yeah. So, you know, what's the approach for, and I know that you are passionate about climate change and have written some other works directly related to that. So what's the strategy for that young startup to take on a really big entrenched industry that doesn't want to go away? Yeah, as you mentioned, this is another passion of mine, another area I've written some books. And they do overlap, actually. There are some things and advances of digital technology that could help us advance clean technology as well. I think there's a couple of ways to answer your question. One, not to be too cute about it.

11:52What we often see when we see these massive disruptions and kind of major shifts in technology is often incumbent firms fail. They go out of business. And of course, that's not great advice to those incumbent firms. So what do you do? I think the key is trying to understand what capabilities you currently exist that you can transform to the new market opportunities that are emerging, recognizing it's really hard to just completely reinvent yourself. I run into a lot of companies who say, you know, they want to be the Google of X, you know, and they have this vision for who they're going to be.

12:25And my quick response is often, Google's going to be the Google of X. They're a better position than you are to occupy that position. So while we call it, starting where I began with the strategist challenge, the reason it's a challenge is understanding that as the market shifts and those opportunities maybe move from where they historically been, how do you evolve your capabilities? And I say evolve because again, you can't just re-event wholesale typically to where the market goes. So using your example for oil, I'm doubtful that the oil companies and fossil fuel companies will transform into clean energy companies just simply because they're just radically different.

13:00They're not even different technology. They're different marketplaces in many cases here. But there are opportunities for them, and maybe in some cases leveraging digital technology, to improve their operations, do better at exploration and extraction, you know, increase efficiencies, maybe reduce some of their direct environmental impact they have from extracting fossil fuels. So, again, there's a role for digital. There's a role for even clean with those companies. But I don't expect them to all become digitally, you know, AI companies tomorrow for any reason. But at some point, you know, a lot of entrenched industries, you know, hang on because it's so expensive to change or because they have to gut the cash cow in order to change.

13:45But at some point, they get replaced. So how does it, and again, I'm not dreaming the oil companies are going away anytime soon, but how does a company that might, an example I love to use is the classifieds for newspapers. That was the cash cow for newspapers, the classified ads, right? And they closed their eyes to Craigslist and that business went away and where they could have owned it. They could have transformed at a moment, but it would have literally meant throwing money out the window, which nobody had the appetite to do. So how does a company who sees, maybe sees this coming, how do they brace for the impact that's not going to be that positive?

14:28Yeah, and I think this, problems of incumbency, if you will, are very common, right? And I have so many examples that I share with companies that I work with of the failed attempts. And I'm always asked the question, where are the successes? And in fact, they're few and far between. They are harder to find those companies who can radically transform themselves in the face of some of these trends that we're seeing. I go back to, again, this notion that you have to build your strategy off of at least some elements of your current capabilities. What can you bring to the marketplace that provides value in this digitally transforming world?

15:03The other thing the book spends a lot of time on, and I have different frameworks to help businesses think through, gets back to this. Where is the position that you can best occupy and appropriate some value for your shareholders and for your stakeholders in this evolving marketplace here? And it might be somewhat different than where you've occupied in the past. It might not be exactly how you envisioned yourself to start off with. Just give you two examples of companies who used to play in the smartphone market, BlackBerry and Qualtron. Both of them made different decisions, right? One, Qualcomm moved upstream and became more of an innovator with patents and the like that provide some of the core technology for your smartphones and the like.

15:48And then BlackBerry, recognizing that their old handset model wasn't going to work, moved into digital security, cybersecurity protection and the like. So, again, it was kind of a reflection that the marketplace was changing. They needed to shift their capabilities to kind of a new position, a new part of the value chain where they could actually continue to survive and thrive. So I'm with you. I think the media, particularly new technologies, likes to kind of say, oh, here's the scary scenario. But there really are. I mean, there are some social implications, some policy, some governing, some regulations, antitrust.

16:25You know, when you start talking about the Googles and the metas of the world, you know, where does that fit into, you know, the sort of enthusiastic rush to all things digital? Yeah, I have a whole chapter basically on these kind of broader societal issues with tech. And I think from a company standpoint, my main point is you need to be thoughtful and proactive about this. You know, going back to data and the primacy of data, you know, what do you feel comfortable and not comfortable doing with user data? critical question that every company needs to address. When it comes to AI, what types of decisions are you willing to, in essence, seed to the AI?

17:07And where do you feel that's not appropriate? One of the things I talk about in the book that I'm borrowing from colleagues of mine at the University of Toronto is this idea that what AI does for you at the end of the day is give you really good predictions, but predictions are only half of what you need. You also need judgment on top of that. And so to the extent that AI is lowering the cost of the prediction, a complementary like judgment actually becomes even more valuable in that world. And so companies really need to be thoughtful about, again, what do they feel comfortable with and where are there opportunities for them to kind of layer on that higher order judgment to what these machines, in essence, can do for you.

17:47Yeah, I've actually of late been, I don't, at least the technology I'm working with, I don't feel like it's artificial intelligence. I kind of switch it around and say it's IA, it's informed automation is kind of what I feel like, at least for our uses in the marketing industry currently. Give me, and you already kind of alluded to the fact that this was a hard one to do, But I was going to ask you for some examples of companies that you think are at least doing maybe they haven't hit some big home run here, but are at least approaching the thoughtfulness of this in a way that you think is appropriate.

18:24Well, I'll give you a historical example that has arguably transformed themselves two, maybe three times as someone like IBM, you know, who went from originally making business machines to making computers to then being more of a software and services company. who tried to embrace AI and the like. Early on with Watson really was kind of one of the original models, wasn't it? Yeah, exactly. And we can debate whether they're, you know, well-positioned now moving forward. But again, they've done a fairly good job kind of repositioning themselves over the years. Awesome. Well, Mike, I appreciate you showing up and spending a little time with my listeners on the Duct Tape Marketing Podcast.

19:05You want to tell people where certainly they can get a copy of Strategy in the Digital Age or connect with you in any way that you want to invite them? Yeah, absolutely. Of course, you can get it on Amazon and Barnes & Noble or any really online retailers. The book is coming out from Stanford University Press. So you can, of course, look for it from them as well. And then on a personal note, I'm easy to reach at just simply michaellenox.com. Just one N in Lenox there. And that's another way you can engage and connect with me. Awesome. Well, again, thanks for taking a little time out of your day.

19:36And hopefully we'll run into you one of these days out there on the road. Well, thank you so much for having me, John. Hey, and one final thing before you go. You know how I talk about marketing strategy, strategy before tactics. Well, sometimes it can be hard to understand where you stand in that. What needs to be done with regard to creating a marketing strategy? So we created a free tool for you. It's called the Marketing Strategy Assessment. You can find it at marketingassessment.co, not.com,.co. Check out our free marketing assessment and learn where you are with your strategy today. That's just marketingassessment.co.

20:14I'd love to chat with you about the results that you get.