How Much Focus Is Appropriate for Digital Transformation?

As technology gains importance, strategic decisions about focus often entail issues related to digital transformation.  A narrower focus has long been known to have advantages over being spread too thin. On the other hand, however, businesses can often benefit from some degree of diversification. Thus, as companies pursue plans for digital transformation, they must weigh these kinds of issues and deal with the seeming contradictions. Companies must consider how much to emphasize new technology versus to what degree they should stick with pieces of their business that were in place prior to embarking upon digital transformation.

Thus, successful digital transformation is not always a case of merely shifting entirely toward the digital realm. Instead it’s important to determine what aspects of the pre-digital environment continue to add value to the business. And, the digital technology that a company adopts needs to be well integrated with the still valuable pieces of the business that originated in the pre-digital era. This means that, during digital transformation, businesses need to make wise strategic choices about which business pieces to put together.

The retail sector illustrates this well. Online sales, which is the digital side of retailing, has grown tremendously. So, retailers have been transforming their businesses with a shift toward digital transactions. Despite phenomenal growth in retail’s digital side, however, bricks and mortar locations still bring business value. Thus, the industry is often taking an omni-channel approach. Retailers that once were bricks and mortar entities now also have online capabilities that often comprise a substantial chunk of their business.

Yet, although digital is regarded as the future toward which the world must transform, successful retailers that started as online only are now opening physical stores. Why? Apparently, acquiring new customers has become harder for them to do online. Bricks and mortar locations are increasingly recognized as adding value such as brand awareness that can help stimulate online sales as well as providing locations for order fulfillment and receiving returns.

Macy’s is a recent example that illustrates the value of integrating the pre-digital with the newer technology.  Activist investors had been urging Macy’s to split itself in two with a spinoff of its online business, but Macy’s resisted the effort, according to the February 23, 2022 Wall Street Journal article “Macy’s Calls Off Breakup Plans”  by Suzanne Kapner and Kimberly Chin.  According to the article, “the board determined that a split would carry higher costs and risks and that an integrated company would deliver more value for shareholders and a more convenient shopping environment for customers.”

That same issue of the Wall Street Journal also had a second article about Macy’s decision titled “Macy’s Opts for Smaller Makeover.” That article said, “The original plan was to speed up the closure of stores in lower quality malls, but Macy’s has since delayed that to use stores as fulfillment hubs that could support digital operations.” The article reports that Macy’s “digital sales grew 36% compared with the same period in 2019” but “its bricks and mortar sales fell about 10%.”

In my view, Macy’s is an example of how companies move forward with digital transformation and see digital business as their growth area. Yet, while pursuing the higher growth digital business, they still recognize the value of non-digital pieces of the business. And, split up refusals like Macy’s often make sense because, as I’ve written about before, spinning off businesses is not necessarily the route to success and is often overdone.

Furthermore, it’s not just retailing that needs to carefully evaluate how digital transformation fits in with their existing business. In various industries, there have been instances where companies run into trouble because they pursued new technology in ways that were not a good strategic fit for their business.

So, in conclusion, as companies pursue digital transformation, they should recognize that there can still be value in their pre-digital businesses. After all, digital transformation is not just about technology. It must be thoroughly integrated into business strategy. Thus, companies need to carefully evaluate how to put together the pieces with the right degree of focus on digital versus non-digital aspects of the business.

This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *