Podolny Joel M. - HBRs 10 Must Reads on Leading Digital Transformation

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WHATS YOUR DIGITAL STRATEGY? That simple question often throws the CEOs of traditional companies into a panic. They believe that digital technologies and business models pose an existential threat to their way of doing businessand of course theyre right. But the pressure they feel often leads them to make big bet-the-farm movesand thats usually wrong.

Veon, a large multinational provider of telecommunications services, is a case in point. Its new digital platform, introduced in 2017, was a huge project, involving 100 staff members in Amsterdam and another hundred or so in its London office. The idea was to create a mobile app that would offer users rich localized experiences and serve as a sales channel for Veons commercial partners (such as Mastercard). Management considered the project its top priority. But after being launched with much fanfare, the app got a lukewarm response from customers, and the effort to build a new ecosystem around it was scrapped. The failure led to a management exodus, layoffs, and a back-to-basics strategy with digital efforts sidelined to pilot-project stage.

Veon still needs a new business model, though, and clearly cant afford to make many more large investments in searching for one.

It doesnt have to. Just because a threat is huge doesnt mean that a response has to be. To the contrary, companies like Veon would actually be much better off taking a more incremental approach to transformation over time. While they should always have a vision of where they want to go, they should work their way toward it by continually finding opportunities to digitize problematic processes in their core operations. When they tackle those projects, theyll learn what metrics to use, which assumptions to revise, where they can introduce new business models, and who their new competitors might be. And as they absorb those lessons, their understanding of their competitive landscapeand the long-term goals they set for themselveswill inevitably change.

Theres already a process for this kind of ongoing learning approach to strategy: discovery-driven planning (DDP). One of us, Rita, and Ian MacMillan developed it in the 1990s as a product innovation methodology, and it was later incorporated into the popular lean start-up tool kit for launching businesses in an environment of high uncertainty. At its center is a low-cost process for quickly testing assumptions about what works, obtaining new information, and minimizing risks.

In the following pages well describe how an adapted form of DDP can help incumbent firms confront digital challenges and learn their way toward a new business model. Lets begin by looking in more detail at why a step-by-step transformation works better for traditional firms than the all-or-nothing approach that characterizes a start-ups pivot.

Economists have long puzzled over why firms exist at all and, at a more granular level, which tasks belong within the boundaries of a given firm. One line of thought, begun by Ronald Coase in the 1930s, suggests that under certain conditions, market transactions often are not satisfactory for individuals: when it is difficult or expensive to get information about what you want to buy, when bargains are hard to strike because information is asymmetrical, and when its costly or challenging to enforce agreements. If any of those conditions apply, it makes sense to keep the activities involved within a firm.