Three Questions to Ask About Your Digital Strategy

Leaders who are shaping digital strategy face a fundamental dilemma: Should they try to disrupt the market, using digital technologies to reshape both the value chain and performance expectations? Or should they try to adapt, using digital technologies to enhance the company’s existing value chain? This choice has critical implications for an organization’s performance, yet many leaders struggle to frame the decision.

It is tempting to think that a digital disruption strategy is always the best choice. Netflix famously redefined customer expectations in the movie rental market by making content accessible immediately and ended up rewiring the industry value chain by moving away from mail-order DVDs and toward platform streaming. But other examples illustrate the potential pitfalls of a disruption strategy, such as elusive or significantly delayed profits. For example, Peloton set out to disrupt the home fitness industry, but company performance plummeted as customers canceled subscriptions and logistics operations failed. And Uber — another poster child of digital disruption — had $32 billion in cumulative losses over 14 years before it finally turned a profit.

What about the companies that have succeeded with an adaptation digital strategy? Our research studied both adapters and disrupters. Consider Australia’s leading retailer, Woolworths: It adeptly incorporated digital technologies to bolster its logistics operations and enrich customers’ mobile shopping experience, but it also remained a classic brick-and-mortar retailer (one that is profitable to this day). Other established retailers, such as Carrefour, Tesco, and Walmart, also implemented successful digital strategies that focused on adapting instead of disrupting traditional retail operations. Yet one does not need to look far to see the risks of an inadequate adaptation strategy. Bed Bath & Beyond, Borders, Circuit City, Pier 1 Imports, and Toys R Us are all examples of retail companies that failed to adapt well enough.