Prioritizing your digital investments


Digital strategy is one of the key topics in business today. The digital technologies pervade to different areas in an organization starting from customer interaction to inventory tracking. The power of digital technology cannot be understated and will remain the priority of chief executives and chief information officers for at least the next 5 to 7 years. However, developing a comprehensive 5-7 years digital strategy is not an easy task either. There are several constraints that an organization faces in developing a solid digital strategy (including legacy IT systems and overcoming cultural issues). Besides all these challenges, prioritizing organization’s digital investments will be one of the key differentiators between a winning organization and laggard. The article is not focused on developing a comprehensive digital strategy but on an important strategic area: Prioritizing the digital investments

Given that digital technologies permeate into different areas in an organization, how does a CEO or CIO prioritize the digital investments? To unlock this question, it is important to go back to some basic strategy tools such as Porter’s 5 forces and value chain analysis. But before that it is important to visualize the ecosystem of the business with a bird’s view. Prioritizing the investments after taking a bird’s view of the ecosystem will provide long-term positive results.

The ecosystem of any business can be reviewed by looking into the three areas (in order of importance):
  1. The business model  
  2. Customers and  
  3. Internal Operations
From my perspective, business model is the most important area because any business needs to have a strong strategic defence against competition and new entrants. Think of a firm as a nation with weak powers but abundant resources – It will be exploited by other nations or entrenched interests. The same applies to an organization as well. An organization with weak business model will be exploited by competition. A sound business model is absolutely important to thwart the competition and new entrants. The second important factor is customers. It is important to realize that customers can be broadly divided into two parts – current customers and future customers. The CEO or the CIO needs to make investments to retain current customers and attract new customers.  Last but not the least is the internal operations. A well-oiled machine keeps you running long and far ahead of other peer group organizations.

Currently, there are changes happening in all these areas in every industry. It has to be said that some of the changes are yielding great results either through well thought of ideas or through random hits. In either case, the business has to be robust enough to defend attacks. My suggestion will be to first focus on the business model and ensure that you have adequate defence to protect your company. Once we have a strategic defence, we can play with customer interaction and internal operations. 

The following content provides a listing of strategic tools that can be employed to prioritize the digital investments. 

Business Model – Porter’s 5 forces and PESTEL. The combination of these two is probably one of the best ways to analyse the external ecosystem. Porter’s 5 will provide a good view on what is happening with the buyers or suppliers – e.g. can buyers reach out to manufacturers directly cutting out the middle man? It can also provide a view on new entrants and how they are changing industry structure (Read: Evolution of markets by Paul Geroski). PESTEL provides a view on other external factors that may affect your business – It can be combined with Social media trend analysis to understand sentiments of stakeholders and create suggested action. Digital technologies affecting business model can have significant impact on the future of business. These needs to carefully evaluated and in conjunction with business strategy. For e.g. Pepsi developing online channel to sell to pepsi to customers does not make sense (because customers need more options in online channel). But Pepsi developing online channel to gather product feedback makes sense)
Technologies that will affect business models: Mobile channels, 3D technologies, Cloud technology, robotics, artificial intelligence.


 Customers – When analysing customers look for trends in current customer preferences and new customers. Secondly, understand the channel and customer value chain – decision maker to buyer to consumer. Social media and analytics can be effectively used to analyse these information and employ appropriate digital technologies.
Technologies that will affect customer interaction: Responsive Web designs, Social media, Analytics, Big Data, Internet-of-Things

 Internal Operations – Value chain analysis, benchmarking, and lean process design can be employed to analyse internal operations.
Technologies that will affect internal operations: Responsive Web designs, Enterprise social media/collaboration, analytics, business process modelling, Robotic process automation (RPA)

Once the areas of improvements are identified, all that CIO needs to do is a simple options analysis and create a list of short-term wins and long-term wins. 

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