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In the fields of strategic management, marketing strategy, and operational strategy, digital strategy is the process of specifying an organization's vision, initiatives and processes in order to deploy their online assets (as of 2007, these include: web sites, mini-sites, mobile sites, digital audio and video content, rich Internet applications, community groups, banner ads, search engine marketing, affiliate programs, etc.) in a manner which maximizes the business benefits they provide to the organization.

Overview

There are numerous approaches to conducting digital strategy, but at their core, all go through three stages: identifying the key opportunities and/or challenges in a business where online assets can provide a solution; identifying the unmet needs and goals of the customers that most closely align with those key business opportunities and/or challenges;^[1] and developing a vision around how the online assets will fulfill those business and customer needs, goals, opportunities and challenges ^[2] and prioritizing a set of online initiatives which can deliver on this vision. Within each of those stages, a number of techniques and analyses may be employed.

Identifying the key opportunities and/or challenges in a business

Includes one-on-one interviews, group interviews and workshops with a company's senior management, marketing and sales, operations and service stakeholders with a goal of understanding the business strategy, challenges and opportunities, products, organization, processes, supply chain and vendors, distributors, customers, and competitive landscape, as well as the potential role of their online assets.

Includes evaluations of a companies main competitors and potential substitutes with the goal of understanding a companies strengths and weaknesses relative to their competitors and potential substitutes. While this often includes steps found in traditional marketing competitive analysis, such as products, prices, etc. Competitive analysis for Digital Strategy includes two unique items:

An analysis of a companies financial data (which may include everything from public financial statements to private ERP data) with the goal of understanding the financial impact (positive and negative) that certain changes would have on a company.

Identifying the unmet needs and goals of the customers

Includes one-on-one interviews and focus groups with a company's customers with a goal of understanding customers behaviors, needs, goals and perceptions of the company and their industry both in the broadest business context as well as specifically online. In addition to standard marketing strategy methodologies and questions, customer interviews for Digital Strategy may includes usability testing, an analysis of how effective customers are at using the online assets developed by a company for their intended purposes. In digital strategy this is used to uncover usability barriers in the present state that may prevent the accomplishment to the online vision.

An analysis of customer behaviors in their environment, for example: field observations of shoppers at a store. In addition to standard ethnographic research, digital strategy may include video taping of a customer using their computers or specific computer applications or web sites.

An analysis of the usage patters of a company's online assets with the goal of better understanding customer behavior as well as identifying strengths and weakness of the company's current online offerings. This may include understanding how many people are visiting a web site, what are the most popular pages, what are the most popular paths, where are people coming from, where do they drop off, how long do they stay, etc.

A specific methodology for web analytics where the company's online assets are modeled as a sales funnel, with a visit or impression representing a new leads, a certain page or action in the web site considered a conversion (such as a user hitting the purchase confirmation page) and specific pages in the web site representing specific stages of the sales funnel. The goal of the analysis is to provide insight into the overall conversion rate as well as the key weak points of the funnel (the stages in which the largest percentages of users drop out of the funnel).^[4]

An analysis of a company's customer databases and information repositories with the goal of segmenting customers into homogeneous groups across one or more dimension of behavior, demographics, value, product or marketing message affinity, etc. In digital strategy this often includes the online customer registration database which companies use to provide access to their customer specific, protected areas.

An analysis of a customers behavior (such as their purchase behavior or their service behavior) that looks across all the different channels in which customers interact with a company's products or information. There are lots of different ways to do this, be a representative example would be, a company focuses on the customer purchase process (how a customer becomes aware of a product, how a customer develops the intent to purchase a product, and how a customer actually purchases the product). The analysis would look at which channels (example: phone, catalog, retail store, web site, 3rd party search engine, etc.) a customer uses at which stage of the purchase process, attempts to understand why each channel is used, and evaluates the company's strengths or weaknesses in that particular channel for that particular stage of the process.^[5]

An approach to collection customer feedback in a quantitative manner from a large population. In digital strategy, surveys may be used to validate or invalidate key questions raised in more qualitative exercises such as customer interviews and focus group. Depending on the breadth of the survey population and the degree of variation within the population, survey results may be segmented to form homogeneous groups across one or more dimension of behavior, demographics, value, product or marketing message affinity, etc. Surveys are often conducted online using web intercepts, e-mail lists, or 3rd party panels, although phone surveys or other offline means may sometimes be used when they are questions as to the online savvy-ness of a particular target population.

Developing a vision and prioritizing a set of online initiatives

A spreadsheet with supporting documentation that quantifies the investments and returns over time that will result from the execution of the online strategy. The Business plan also defines the Key Performance Indicators (KPIs) that will be used to measure and evaluate the success of the online strategy.

A design of a technical architecture which will meet the needs of the business vision and conform to the business plan and roadmap. This is often done as a gap analysis where the current technical architecture is assessed. A future technical architecture, which meets the needs of the online vision, is designed. The gaps between the current state and future state are identified, and a series of initiatives or projects to fill those gaps are developed and sequenced.

Similar to a technical assessment, organizational and process assessments look at the changes that need to be made to an organization and its processes in order to achieve the online vision. They may involve a series of business process reengineering projects focused on the areas of an organization most affected by the online initiatives.

A way of prioritizing various initiatives by comparing their cost of implementation to their expected business benefits. This is often done by creating a two by two matrix where cost of implementation runs along the x-axis (from high cost to low cost) and expected business benefit runs along the y-axis, from low benefit to high benefit. Individual initiatives or projects are then plotted on the matrix in terms of their calculated costs and benefits and priorities are determined according to which projects will provide the greatest benefit for the least amount of cost.

A plan detailing the allocation of media spending across online media (as of 2007, this includes: search engine marketing, banner advertising, and online affiliate networks) usually as part of the customer acquisition or retention portions of the digital strategy.

Graphics representations or comps of key ideas or processes of the digital strategy. These are often created in order to better communicate a key concept or to build excitement among stakeholders when building consensus or socializing a digital strategy.

A high-level project plan which details the durations and dependencies of all the initiatives in the digital strategy. The roadmap will often include checkpoints to assess the progress and success of the digital strategy.

A description of the key performance indicators used to measure the effectiveness of the digital strategy as well as the process for collecting and sharing the information. The measurement plan usually covers the financial, operational, and e-business metrics and their relationships.^[6] ^[7]

The organizational structure, roles, and process description of the operational entity the will manage the initiatives in a digital strategy. The governance model describes who is responsible for what, how decisions are made, how issues are escalated, and how information on the performance of the projects is communicated within the organization.

Role of personas in digital strategy

As of 2007, a trend in digital strategy is the use of personas as a framework for using customer information to prioritize online initiatives. Personas are character sketches which represent a typical member of one customer segment and highlights their needs, goals and behaviors. Because it is representative of a customer segment, it allows decision makers to prioritize various features based on the needs of the segment. Because it is a character sketch, it is sometimes easier for decision makers to internalize the key needs of the segment than it would be by reading reams and reams of data. A typical approach is to create the segment based on customer analysis such as customer interviews, ethnographic research, and statistical surveys. Then assemble key decision makers or stakeholders, present the findings of the personas, and use them to kick start a brainstorming session around different online initiatives which can meet the personas needs and goals.^[8]

Execution of a digital strategy

Historically, execution of a business or digital strategy is done as a big bang, with large initiatives such as site redesigns and transactional systems taking 6-12 months to develop and often an additional 6-12 months before they delivery any results. As of 2007, a trend has emerged where companies adopt a more iterative approach to rolling out their strategies, one which leverages a series of smaller tests, which are carefully measured and analyzed and used to modify or optimize the digital strategy. An example of this test-measure-optimize-scale approach is that a company might take some key pages on their site and test a number of versions of those pages with different marketing messages, design approaches, user experience optimizations, navigation optimizations, and even new features and functions using a multivariate or A/B test. The company would then identify the page which had the best combination of changes in terms of some key business metric (such as conversion), analyzing the results to understand which changes where most instrumental in affecting the high conversion rate, and applying those learnings to future pages and future tests. The advantage of this approach is that in the long run, it tends to be more successful in delivering business results, because each step is measured and adjusted for. In addition, it tends to favor smaller (less risky, less expensive) steps rather than larger (more risky, more expensive) initiatives before getting the payback.[9] The disadvantage is that over time this approach tends to converge on a solution (local optimum), not necessarily the best solution (global optimum) that might have been reached if a company starts from scratch instead of building each step on the previous one. Another disadvantage is that although this solution tends to favor smaller, more incremental changes, there is often a larger up front cost to setting up all the measurement systems and staffing a company with the right analysts and change processes to react to these tests in a timely and effective manner. As a result, companies often adopt a mix of big bang efforts augmented by some smaller, more iterative efforts as part of their overall strategy.

Digital strategy vs. online strategy

As of 2007, these two terms tend to be thrown out somewhat interchangeably. However, there is beginning to emerge consensus around the differences between digital strategy and online strategy. Digital strategy is beginning to refer to the strategy a company takes to become a digital company, where digital connotes deeper interactions with their customers, more customized and personalized offerings and interactions, data driven decision making, and an organizational models and processes which are more nimble and reactive to changes in the company's environment. When digital strategy is the imperative, companies tend to look to well regarded digital companies such as Google, Amazon, and eBay as their aspirational models. In this context, a company may use the term online strategy to be limited to the development of plans to deploy their online assets to maximize business results and digital strategy to be the more transformative step of changing the organization.

References

^ Borg (2003): Enabling a Customer-Focused Organization: Thought Leadership Summit on Digital Strategies, Center for Digital Strategies at the Tuck School of Business and Cisco Systems
^ Quinn (2006): Ready for the Digital Future?,pg. 30-31, Supply Chain Management Review.
^ Nielsen (2004): How Big is the Difference Between Websites?, Jakob Nielsens Alertbox.
^ McFadden (2005): Optimizing the Online Business Channel with Web Analytics, Tactical Uses of Web Analytics, Web Analytics Association.
^ Bean (2001): The Application of Technology to Marketing: A Twenty Year Perspective,pg. 5, Center for Digital Strategies at the Tuck School of Business.
^ Kim (2006): Reinventing The Marketing Organization: Customer Groups Should Trump Channels, Products, Or Geography. Forrester.
^ Burns (2006): Leaders Take A Strategic Approach To Web Analytics. Forrester.
^ Manning (2006): Lessons From AD TECH Persona Panel, Forrester.
^ Davenport (2006): Competing on Analytics, Harvard Business Review, January 2006.

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