Book Brief: Strategy in the Digital Age
Mastering Digital Transformation
Brief Summary
Title: Strategy in the Digital Age: Mastering Digital Transformation
Author: Michael Lenox
Published: 2023 by Stanford Business Books
What It Teaches: Strategy in the Digital Age is based on the MBA class the author teaches at the University of Virginia’s Darden School of Business. It teaches how to develop strategy in light of the impact that digital technology has had on all industries. It does not teach the details of any given technology, nor does it provide step-by-step processes for performing key aspects of a digital transformation, rather it teaches how to think strategically about businesses, industries, and the changes necessary for success in the face of digital disruption.
When To Use It: Strategy in the Digital Age is especially well suited to those preparing to lead their organizations through a digital transformation. The book is divided into two parts. Part I is titled “What Impact Does Digital Transformation Have on the Nature of Competiton?” and Part II is titled “How Do I Digitally Transform My Organization To Flourish in the Digital Age?” In the closing chapter, the author lays out a 9 step roadmap for digital transformation.
Brief Review
I received an advance copy of Strategy in the Digital Age from the publisher for free to be able to write this review.
When the Public Relations firm representing this book contacted me about the opportunity to read and review it, it was a no-brainer. My career has closely paralleled the digital revolutions that have disrupted all industries and for more than a quarter of century I have been particularly focused on strategy. I’m not sure how unbiased my review will be since it seems that Dr. Lenox and I are similarly wired — focused on the digital age, strategy, and helpful tools for answering strategic questions. It almost feels like I’m reviewing the book I wish I’d written.
In short, although compact (138 pages of text), Strategy in the Digital Age provides an excellent introduction to digital disruption and how to think strategically.
Specifically, Chapter 1 (“Rise of the Digital Age”) provides an introduction to the digital age and to strategy. The author documents the exponential growth in processing power (transistors per microprocessor, aka Moore’s Law), storage capacity (bits per dollar), and bandwidth (bits per second). He observes how these advances have resulted in an explosion of data, and power resulting from aggregation and analysis of that data, culminating in machine learning, artificial intelligence, and the blurring of physical and digital worlds. However, the author emphasizes that AI may be excellent at prediction, but judgment remains a “distinctly human endeavor.”
That leads readers into the topic of strategy. The author introduces “The Strategist’s Challenge” which he defines as “to envision and secure value-competitive positions at the intersection of the organization’s values, the opportunities created in the marketplace, and the unique capabilities of the organization.” He briefly introduces environmental analysis, competitive analysis, and capabilities analysis and observes the digital challenge facing many companies: “what made you successful no longer works.” The rest of the book is largely about how companies need to transform to succeed in the face of this digital disruption.
The author also uses this chapter to introduce the rest of the book, which he has broken down into two parts (three chapters each) answering two critical questions:
- What impact does digital transformation have on the nature of competition?
- How do I digitally transform my organization to flourish in the digital age?
Unsurprisingly, the three chapters in Part I examine how digital technologies have impacted competition.
Chapter 2 introduces the concepts of platforms and network externalities. The author says “I always tell my students, if you remember only one thing from my course on strategy in the digital age, remember this concept.” He says “a network externality is present when the value of a good or service increases with the adoption of that good or service by others.” He uses Metcalfe’s Law as an example.
The author makes the case that network externalities can easily lead to “winner-take-all markets” — where the company that establishes a “critical mass” of participation creates an unstoppable flywheel of increasing value, thus drawing in even more participants (e.g. Facebook and Amazon). He points out that this phenomenon has also enabled the big tech companies to successfully move into adjacent markets and dominate them as well.
With this as backdrop, he introduces the Competitive Life Cycle for industries. During the Emergent and Growth phases there’s an opportunity for fair competition, but in the digital age these phases are often followed by a shakeout as the dominant player emerges. The chapter closes with the “Analyzing the Digital Environment” framework used to identify the industry stage, the organization stage, and the industry archetype.
Chapter 3 identifies how these changes in industry dynamics are translating into changes in the nature of competition. The author introduces the concepts of value chain deconstruction, new forms of value creation, and novel business models. He provides a brief tutorial on different views of competitive strategy including Michael Porter’s four generic strategies and Hamilton Helmer’s “7 Powers”. The author describes how these strategies work in the digital age. He then returns to the Strategist’s Challenge to explain how companies can search for viable valuable competitive positions in the new digital age. The chapter closes with the “Formulating a Digital Position” framework to bring it all together. Although not referenced, this framework reminds me of the core questions in Roger Martin’s “Where to Play/How to Win” strategy model.
Chapter 4 is titled “Appropriating in the Digital Age.” The title (and much of the chapter) is one of the few cases in the book where the author sounds like an academic, using big words unfamiliar to most business people. The chapter makes the case that not all innovators successfully appropriate (capture) the value from their innovations. The author makes the point that “the appropriability question is really a question of competitive advantage. Having a bold strategic vision is not enough.”
The author argues that trying to compete by having the best technology simply creates an unwinable arms race. He also explains that intellectual property (e.g. patents) have their place, but cannot be the sole basis of advantage in a rapidly changing technology environment. You need to think through upstream (e.g. supply), production, and downstream (e.g. distribution) capabilities surrounding the core technology. He makes the case that intangible assets that are complementary to digital capabilities may prove critical to success. He hints at organizational capabilities like agility, open innovation, and design thinking that may be critical to appropriating value in the digital age. He closes the chapter by introducing the “Specifying How to Capture Value” framework.
Having outlined the challenge of developing a successful strategy in the digital age, the author moves into Part II to address how to digitally transform the organization to face these challenges.
Chapter 5 begins the transition from strategy formulation to strategy execution. In it the author introduces the Digital Transformation Stack with infrastructure at the base, strategy at the top, and analytics and applications in between. Throughout the chapter he provides examples of the decisions to be made without dwelling on the details. He emphasizes the need to build a team strong enough to make those decisions well. Most important of all he reminds the reader that “your digital strategy should articulate a unique competitive position that is responsive to market opportunities and allows you to appropriate some of the gains from your efforts.” It’s not about achieving digital transformation, it’s about achieving market success by leveraging digital transformation. As part of achieving that success, the author dives a little deeper into agility and design thinking. To close out the chapter, he introduces the “Planning Your Digital Transformation” framework.
The remaining two chapters in the book feel somewhat anticlimatic. Chapter 5 covers all the key elements that we typically think of when considering digital transformation. However, it is often the things we fail to think of that rise up and challenge our best efforts.
Chapter 6 is titled “Policy in the Digital Age” and deals with what the author calls “nonmarket risks” — meaning that they arise outside the daily operating of the business. They may come, for example, from regulatory actions or from external activists (e.g. over privacy concerns). The author introduces Stakeholder Analysis to understand the impact of technology implementations on both internal and external parties and five Nonmarket Strategies (fight, flight, accomodate, partner, dual-purpose) for dealing with challenges that arise. Ultimately, the author points leaders back to the values that they hold dear — are their digital and nonmarket strategies aligned with their own values? The chapter closes with the “Preparing for Digital in Society” framework.
Chapter 7 serves more to wrap-up the entire journey outlined in the book than to introduce new concepts. This is captured in a 9 step “Roadmap for Digital Transformation” that ties back to each of the previously introduced frameworks:
- Articulate Your Mission and Values
- Set a Competitive Baseline
- Analyze Your Digital Environment
- Formulate Your Aspired Digital Position
- Specify Your Approach to Value Capture
- Plan Your Digital Transformation
- Prepare for Digital in Society
- Execute Your Digital Transformation
- Repeat as Necessary
Late in this final chapter the author, likely inadvertently, demonstrates the unending challenge of digital transformation. He includes a section called “The Future of Digital” which makes the point that technology is always advancing and the future is somewhat unpredictable. In this section it becomes clear that, although this book is being release in June 2023, the content was likely authored in the spring of 2022. The author uses a variety of examples of technology topics that were top-of-mind at that time that (unknown to him) have now largely fallen out of the spotlight: the metaverse, NFTs (e.g. The Bored Apes Yacht Club), cryptocurrencies, and early examples of generative AI that have now quickly been surpassed (e.g. DALL-E and Aiva). He closes with the observation that, while technology is always changing, a steadfast focus on an organization’s unchanging mission and values can lead to continuing success.
Bottom Line: Strategy in the Digital Age provides a powerful introduction to digital transformation through a strategic lens. It is a short book that focuses on the important decisions critical for success without getting bogged down in the specific (and always changing) details. Know who you are, decide who you want to become, hire great people, and decisively move forward in a manner consistent with your values. I recommend this book to leaders seeking to better understand either strategy or how technology is impacting all industries (or both).
