From the evolution of business models to the redefinition of market boundaries and organizational structures, digital technologies have a profound impact on corporate strategy. Data are the catalyst of these transformations and we describe 4 ways data shape corporate strategy in the digital age.
New economics with digital technologies
The cost of producing digital information is significantly high, reflecting the substantial investment in research, development, and technology required to generate new digital products and services. However, once this information is created, the costs associated with sharing and distributing it are remarkably low, enabling widespread dissemination with minimal incremental expense. This dynamic has profound implications for market structures, particularly in the encouragement of network externalities. Platforms and marketplaces thrive under these conditions, as the value of the service increases with every new user, creating powerful incentives for user growth and platform dominance. Moreover, this environment fosters a distinctive industry structure, characterized by a concentration of infrastructure providers—those who build and maintain the digital highways—and an explosion of companies leveraging this infrastructure to offer diverse services. This bifurcation points to a transformation in how companies strategize, compete, and succeed in the digital realm.
Three impacts on corporate strategy
The advent of digital technologies has precipitated profound shifts in corporate strategy. As illuminated by Menz et al.’s research, these impacts manifest primarily through alterations in competitive advantage, the scale and scope of firms, and their internal structure and design.
Digital technologies have diversified competitive landscapes, introducing a variety of business models which compete in the same industry. Consequently, corporations have engaged in managing a portfolio of business models to fight against digital players. These models emphasize value creation over traditional value capture strategies and prioritize fast growth over building barriers to entry. Amazon’s platform-centric approach and Uber’s rapid growth model are two good examples of such strategies.
Furthermore, digitalization has facilitated a transition from vertical integration to specialization, significantly lowering transaction costs and enhancing efficiency, with PayPal serving as a prime example. This shift opened also for an increased importance of business ecosystems where companies combine their offerings to serve clients with more developed value propositions. This evolution has also led to the blurring of firm boundaries and scaling of massive platforms that thrive on connecting a diverse set of partners, the value being provided by external parties which engage in very flexible commitments with the platform. Shein exemplified this platform strategy.
Additionally, the negligible cost of information sharing has rendered traditional bureaucratic structures less pertinent, paving the way for more decentralized organizational frameworks and a reimagining of task and workforce design, principles that are at the heart of the Agile Manifesto.
The four roles of data
Data transcends its traditional role to become a cornerstone of corporate strategy, serving four pivotal functions:
- Data is the linchpin in enhancing customer experience and driving value creation, exemplified by the ‘Data Flywheel Effect,‘ where each customer interaction improves the service, attracting more users and thus more data.
- Data underpins the development of platforms, acting as a critical resource that enables these ecosystems to thrive by facilitating interactions and transactions and enabling products and offerings to be connected.
- Data catalyzes the emergence of new business models, particularly service-oriented ones that leverage data from connected devices to offer unprecedented value.
- Data serves as a distinctive resource to enter and compete in new markets with speed. E-commerce companies use data to enter advertising markets and big tech companies use data as a Trojan horse to enter regulated markets like education or healthcare.
This multifaceted role of data underscores its significance as not just a resource but as a strategic asset central to the formulation and execution of corporate strategy in the digital landscape. However, data stands not just as a solitary beacon but as part of a broader constellation of corporate assets. Its true potential is unlocked not in isolation but when harmoniously integrated with talents, processes, brand equity, and technological capabilities. The fusion of data with diverse resources emerges as the quintessential strategy for forging sustainable competitive advantages.
Photo de Shayne Inc Photography sur Unsplash
