Leading digital strategy

Saeed Khanagha

Summary

The current business environment is affected by rapid and radical technological advances. This chapter focuses on how companies formulate and execute digital-based strategies. Digital technologies create new possibilities regarding how companies may develop new strategies as they broaden the pool of potential participants (e.g., employees, customers, and suppliers) in the strategy making and provide increased processing power. Moreover, new technologies change the actual content of strategy to account for new competitive dynamics, such as platform competition and ecosystem development. The chapter discusses the topics revolving around the key tensions that firms need to overcome when attempting to embrace digital technologies to upgrade their strategy process and contents.

Case: digital transformation at Ericsson AB

Ericsson has been in the midst of its digital transformation journey, from the introduction of new managerial practices to the adoption of new digital business models. The telecommunication industry has traditionally been populated by a few infrastructure providers that enable mobile service providers (mobile operators) in different countries and regions to provide telecommunications services to individuals and enterprises. The infrastructure providers have some degree of control over technological development and deployment because of their installed-base (i.e., the number of units of Ericsson products in use) and the dependence of mobile service providers on their technologies. The so-called 'digital disruption', due to technologies such as artificial intelligence (Al), cloud, and internet-of-things (loT), is expected to put an end to many of the existing business models and technologies in the telecommunication sector and engender new ones. Ericsson's experience of digital transformation indicates several changes in companies' approaches towards strategy making and implementation, approaches that increasingly become critical for effective management during and after digital transformation.

Digital transformation mandates quick responses to external market changes and preparation for the highly uncertain future. Like many other incumbents, Ericsson utilizes planning cycles, growth plans, business plans, and roadmaps that are on a yearly basis or longer. With the increased speed of change on the one hand and complexity of interactions in digital ecosystem on the other, these cycles increasingly become ineffective. Managers feel an ever-increasing need for real-time analysis of internal and external information to make decisions and allocate resources. Under such conditions, a constrained and top-down approach to strategy making is likely to make the company blindsided to the rapid changes that are happening in different markets and technologies. Thanks to the advances in IT tools, it has become possible for Ericsson to engage a large group of middle managers in the process of corporate level strategy formulation.

Competitiveness and survival in the new landscape requires interactions, communication, and collaboration with numerous actors across different industries and institutions. The need for engagement with a wide scope of industries and institutions requires many new capabilities and competences. Hence, there will be a need for partnerships with other players, including competitors, in order to succeed in the digital ecosystems. Similarly, acquisition of smaller firms is essential for securing access to competences that do not exist in the firm. Strategy managers at Ericsson increasingly feel the need for dedicating a larger proportion of their time to thinking and acting beyond the organizational boundaries. Collaborations with many different actors requires new processes and practices to deal with the challenges associated with such interactions.

Separating future-oriented activities from old businesses has been Ericsson’s conventional approach for dealing with new trends. In such settings, one part of the organization continues to drive the core business as is, catering for existing customers with existing values in a more traditional way; the other part adapts to new ways of working with more risk-taking to expand into new areas. The problem is that no ‘core business' is expected to remain safe from disruption by new digital competitors. So, Ericsson follows an integrative approach to ensure organic transformation of its core businesses. The inflexibility of the traditional hierarchical command and control culture is increasingly taking its toll on Ericsson.

Traditionally, for Ericsson, there have been two paths to growth and to respond to pressures to perform. Either ongoing planning processes seeking new technology or market opportunities to invest in them for internal development, or to perform acquisitions within the telecommunication industry. As digital transformation unfolds, in order to cope with the uncertainties and speed of change, Ericsson finds it more effective to run hundreds of parallel experimental projects with small cross-organizational teams to see what gains traction. These experiments are not chosen because of potential market size, existing assets, or a view of adjacent markets; they are chosen based on factors such as passion of the people wanting to run them, how cheaply they can be run, how quickly success or failure can be decided, or how disruptive they can be in the marketplace.

Engagement with numerous ecosystem actors for a large company like Ericsson with in-house assets and employees is becoming expensive, slow, and cumbersome. Traditionally Ericsson operated with a few thousand registered suppliers. This number is expected to increase exponentially during the coming years and as a result of digital transformation. Ericsson finds it crucial to have application programming interfaces (APIs) for tens of thousands of partners to make it easy for them to co-create and automate business together with Ericsson. This will create a remarkable change in Ericsson’s processes and systems. Google, for example, has access to millions of website owners and advertisers (such as customers) and conducts a more or less automated API business with them, which is the reason why it has outperformed the legacy advertising industry.

The approach towards standardization is an important aspect of change in managerial practices revolving around innovation processes. It is widely believed that finding a new approach to standardization is the key to realizing the full potential of loT, in terms of data, analytics, and artificial intelligence. Traditional standardization facilitated by standardization bodies is not suitable for all businesses within the broad realm of loT. Working with alliances and open source are two other, potentially guicker and more effective, ways of setting best practices for technology.

Ericsson’s measure of growth had traditionally emphasized metrics such as subscribers, bandwidth, and traffic (and their market share tied to those metrics). Prevalence of this approached proved to be problematic in seizing opportunities that come with digital transformation because of the excessive focus on providing wireless connectivity as the main means for value creation. There are examples at Ericsson today where a new kind of metric has given a different perspective on the business. For example, in connection with the company's m-commerce activities, a new way for looking at success has been developed by transitioning from a model of systems installed to a model that counts both active wallets and actual transactions. Ericsson has realized the need for incentive systems that focus on entrepreneurial behavior and initiative taking to seize opportunities associated with digital transformation. Through new managerial innovation, such as Ericsson Garage, Ericsson’s leadership attempts to foster an environment in which entrepreneurs can make a difference.

Questions:

  • 1 What were the reasons for Ericsson’s digital transformation?
  • 2 In which areas did Ericsson make major changes in its digital transformation?
  • 3 What were some key challenges Ericsson faced in its digital transformation?
 
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