On being a digital company

Lots of pre-digital companies want to be digital companies. I work with some, and I know plenty of others. Any such company has had their business undermined by the web and digital-era competitors, and they want to adapt and compete. They say they “want to be a digital company”. So what does that mean?

It helps to make a list of companies we (or, since I’m the author here, I) consider to be digital: Amazon, Google, Facebook and Salesforce are some big ones. Songkick, Moo, Medeley and Skimlinks are some smaller ones. What makes them different from their pre-digital counterparts: Waterstones, SAP, KallKwik and others?

One CTO of an e-commerce company said to me “Our tech team thinks we’re a digital company; our sales people think we’re a retailer”. I think both views might be legitimate; you needn’t be digital to the exclusion of all else.

Measured by influence

One major differentiator is the influence the digital technologists have in the business. I think we can safely say that all the digital companies listed above are heavily influenced, if not actually run, by digital technologists such as developers and digital visionaries. By contrast, inside their non-digital counterparts the influence of those people will be much lower.

One sign of being a digital company is having a CTO on the board. That’s not the same as having a CIO on the board, by the way, and it would be wrong to say having a CTO is a necessary requirement — it’s just a hint. But equally, having a CTO is not a sufficient requirement, either — if they’re there then it’s how much that person or their function can influence direction and strategy. I know companies with a legal director on the board but that doesn’t make them law companies.

Another sign of being a digital company in this regard is that the digital technologists are not (just) considered operational. They are not considered a service function, nor merely a cost centre, but a full and influential partner in the company’s direction and strategising.

The balance of digital influence on company direction is also worth considering. Suppose you’re a pre-digital company trying to transition to a new digital world (and among others I picture Faber & Faber, here, whose position was insightfully described by its CEO, Stephen Page). I would imagine that if there is regularly a board-level either/or decision to be made, and real uncertainty over the outcome, with pre-digital thinkers on one side and digital thinkers on the other, and if the digital thinkers thought the pre-digital option was holding back the digital side, then it’s questionable as to how digital that company can consider itself to be. Which is not to say that all digital thinking is good thinking, of course. Many (most?) digital companies are not profitable. (Or in their language: not yet profitable.)

Leveraging digital tools

Another CTO I spoke to considered that “being a digital company” meant leveraging digital tools to solve business problems. He meant tools in the widest sense of the word — ways of thinking, of how to bring the power of the internet and digital engineering to address issues of scale. The antithesis of this, in his view, is Groupon, which is decidedly non-digital because its approach to scaling up is to hire more sales people. A properly digital company would seek to scale up by evolving its technology offering to produce a disproportionately high return/investment ratio.

Digital forever?

I’ll also make a prediction: most companies we today consider digital we will not consider digital in ten years’ time, if they’re still around.

Most of the successful ones will have found their niche (and maybe even profitability) and their exciting digital functions will have settled down into an operational status quo, serving the once-elusive, now cherished, reliable business model. For all that Yahoo! did to kill Flickr, it was never going to turn itself into Instagram.

In that scenario there may also be newer up-starts (or start-ups) coming along to eat their lunch. And the once-digital companies will find themselves thinking “how can we be more like them…?”