The Tech Strategy Podcast

Master These 4 Topics to Win in Digital (264)

• Jeffrey Towson • Season 1 • Episode 264

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This week’s podcast is a summary of my approach to digital strategy.

You can listen to this podcast here, which has the slides and graphics mentioned. Also available at iTunes and Google Podcasts.

Here is the link to the TechMoat Consulting.

Here is the link to our Tech Tours.

The two key strategy questions are:

  • Where to play?
  • How to win?

The four topics discussed are:

The mentioned graphics are here.

——–

I am a consultant and keynote speaker on how to accelerate growth with improving customer experiences (CX) and digital moats.

I am a partner at TechMoat Consulting, a consulting firm specialized in how to increase growth with improved customer experiences (CX), personalization and other types of customer value. Get in touch here.

I am also author of the Moats and Marathons book series, a framework for building and measuring competitive advantages in digital businesses.

This content (articles, podcasts, website info) is not investment, legal or tax advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. This is not investment advice. Investing is risky. Do your own research.

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Welcome, welcome everybody. My name is Jeff Townsend and this is the Tech Strategy Podcast from Techmoat Consulting.  And the topic for today, four topics to master to win in digital.  So, for those of you who've been listening for a while, I mean this is podcast 264.  There's seven, eight books about this stuff. I don't know how many articles, 700, something like that.  It's a lot.  And I thought I would just sort of boil it down to look, if you understand these four topics, you're going to get 80 % of what matters, or at least you're going to be asking the right questions to dig into.  And yeah, I thought I'd sort of boil it out to that level. And this is really how I think about it. And I think it's the same four topics of four questions, whether you're an executive. where usually we're talking about playbooks. Here's a digital playbook, here's an AI playbook.  Or whether you're an investor, where we usually talk about checklists.  Here's the standard questions to think about and go through to sort of take apart a company or an industry or whatever. It's pretty much the same four topics. So anyways, that's what I thought I'd go through today.  Now some housekeeping stuff. We have our Shenzhen, Greater Bay Area Tour coming up at the end of November. going to be three to four days in Shenzhen, some conferences at the Four Seasons, going around visiting some companies, really sort of much more investor-focused definitely, looking at things at the company level, and then at the same time looking at sort of the whole region, the greater Bay Area region, which is really important. So, if you're interested in that, we got about, I don't know the exact number, 70-something people going at this point.  You can go over to TechMoteConsulting.com, look up the details there, including price, or you just send us a note and we'll send you the information. But yeah, that's coming up.  Let's see, standard disclaimer here.  Nothing in this podcast from my writing or website is investment advice. The numbers and information from me and any guests may be incorrect. If views and opinions expressed may no longer be relevant or accurate.  Overall, investing is risky. This is not legal investment or tax advice. Do your own research. And with that, let's get into the topic.  Now about 10 years ago, maybe 12 years ago, I set out with sort of one question. I was going to focus on one question, just take it apart.  And the question I chose, which really I took from Warren Buffett, well, I adjusted it, was how do you build or sustain a competitive advantage in a digital business? Which could be a pure digital native, Amazon, Google, or... you know, more likely it's a traditional business that's increasingly being digitized, which is pretty much everybody. Although some are much more than others. You know, what does it mean to build a competitive advantage in that? And it went down that path for a long time, reverse engineered lots of companies.   But really, kind of, it expanded from there because it's hard to talk about a moat or a barrier to entry or something like that without starting to talk about sort of the digital operating basics. Because someone like Elon Musk will say, motes don't matter anymore. What all that matters is your operating speed. How fast can you innovate? How fast are you as a company? So, you know, there's sort of this back and forth between operating performance and then structural advantages. So, I know most of my books break things into those two buckets. Operating performance is like how you are getting faster, better, smarter every year, which you can think about in terms of tactics.  You can think about it in terms of digital operating basics, which I talked a lot about. Or you can talk about competitive advantages, structural advantages, which I break into a couple buckets, digital marathons, uh barriers to entry and competitive advantages. So overall, there's basically six levels. You know, okay, and then it’s kind of, well, then it expanded a bit more because it's like, look, that's really the back end.  None of that stuff matters if you aren't building good products and really growing. mean, growing is kind of question number one. You have products, you have services, you're innovating, you're advancing them, and you're growing. That's kind of problem number one. If you haven't solved problem number one, these other questions of structural advantages versus digital operating behavior basics. they don't matter that much. So that kind of expanded to really three and now we're ultimately at basically, I boiled my whole digital strategy down to four questions, which basically line up with the four topics I'm going to sort of list.  But that's kind of how I got there.  I found I couldn't draw the line that starkly.  One thing depends on the other too much. So, but that's about where I am is I sort of boiled this to four questions. And if you can get some intellectual depth on the concepts and the companies in those four areas, four topics, I think that's most of what you need. So that's what I'm going to go through, but that's kind of how I got there.  So, with that, let's sort of just start at the beginning. Digital strategy. What does that mean?  Strategy is one of these words people use, but it’s kind of vague. No one really knows what it means. Everyone has strategy meetings. I don’t actually like it. I kind of like the word plans better. I think having a clear plan for what you're doing in digital, having a clear plan for how you're going to win is very useful.  And the planning process, as they say, is more valuable than the plan.  But for me, that's always sort of two questions.  Number one is, where do you want to play? You got to kind of assess the playing field. Look at the industry, look at the ecosystem.  Decide where you want to play on the field. Now for investors, that's a very big deal because you're obviously choosing companies. For most executives, you’re probably where you are in the business already and your ability to move is limited. You can, but you know where to play is generally not uh a big question for them. So, question number one is where you're to play, which means assessing the playing field and looking for where maybe the control points are. looking for where usually you'll see choke points. You know, you could say, okay, this comes from competitive advantages and things. But generally, if you see 50 suppliers selling to two buyers, okay, you kind of know who you want to be. There's a choke point there. So, industry structure kind of tells you where you want to play.  And all investors will do industry maps.  Question number two is, okay, where do you want to win? No, sorry, how do you win? Question one. Where do you want to play? Question two, how do you win?  90 % of what I've written about is about question two. I don't usually do much industry analysis stuff and most companies are just sort of where they are. So anyways, my models are all about question two, not entirely, but mostly.  Now, for question two, I have this down to one simple graphic, which is basically how do you win? and that's the digital strategy playbook which has four goals and I'll put this slide in the show notes but it's all over my webpage. I try to get everything basically down to one slide. And the four questions on that are question number one, know, we're not question, let's say goals. Goal number one, you've got to improve your products and services and you have to grow. And I've sort of described that as the Steve Jobs goal. He was very good at launching new products. He was very good at, you know, sort of this explosive growth. He was very good at adding features, constantly iterating, improving, things like that.  I don't really talk too much about that one. uh Question number two would be, how do you improve, goal number two, how do you improve your operating performance? How do you get quicker, uh smarter, better every single year?   I call that the Elon Musk goal. He's arguably better at that than probably anybody. And that guy just moves at lightning speed in frontier level tech, which is pretty crazy. Now within there, that's where you get all the digital operating basics. You get the tactics, things like that. And goal number three is, know, build them out. That's Warren Buffett land. Structural advantages. So, you can kind of see it's what I was talking about. Now there's one other which I've added recently, which is kind of between one and two. which is make constant customer improvements. As you move more into digital, as things become more digitized, the volume of sellers and competing products, substitutes, it just keeps increasing. And the ability to control the market or have some sort of competitive power on the production side seems to be fading more and more. and all the power, most of the power is shifting to the demand side. You have to control the customer. You have to capture them in some form. And that, as part of that, yeah, you need to be constantly improving whatever you're offering to your customers. So, growth by innovation, continually increasing customer value.  So, I call that sort of 1A. So those are sort of the, I call that the four goals.  of a standard digital strategy playbook. Number one, improve your products and services and grow. Steve Jobs Land. Number 1.2 or 1A, we'll call that constant customer improvements. uh Two, you know, that's, and I don't have a person to symbolize constant customer improvements. I don't have anyone I really point to. Yeah. Number two then is improved operating performance. That's Elon Musk Land. And then number three is build a moat. That's Warren Buffett land. That's basically the four goals. And when I take apart companies, what I'm generally looking at is I'm looking at the intersection of that. Everything I just said, you could say that's standard for any business, not a digital one. I'm looking for the intersection of that framework and new digital tools or technologies or business models. I could do that same framework looking at cable companies and then look at Netflix.  as sort of a new business model that was enabled by digital tools over the top streaming. And I could sort of go piece by piece in those four goals and see where it mattered and see where it didn't matter. So, I do a sort of a granular approach of any digital evolution, new tool, whatever, and I put it against those four and I try and get a very detailed understanding of what matters and what doesn't. So, you can go to cable companies and say, yeah, you're... you're going to get disrupted by this new digitally enabled business model. It's going to hit you hard on question one, goal one. The customer offering is really compelling because a cable package is $15. I'm cable package is $100 and a Netflix subscription is $10. That's a major problem. It's going to hit you on constant customer improvements because Netflix is able to move very quickly as sort of an integrated offering. The other stuff's not that powerful. Actually, the Netflix business model is not that strong relative to cable They don't really have that much of a moat in my opinion So it hits you on number one other stuff is fine now. We could do the same thing with Starbucks Run all four goals look at the digital tools and it's like Yeah, this doesn't seem to impact your business much at all You should have a membership program fine. You should have on-demand delivery fine, but it doesn't really hit anything core. So, you can kind of make an assessment of when digital innovation is a major problem or when it's not that big of a deal. That's kind of how I do it. And I have checklists for each of those four. Now, what does that mean if you're a CEO? You you're doing your strategy question. Well, I just have a couple questions. always, you know, meeting with execs, I basically say, look, against those four goals, you really just have to sort of answer a question of what are you going to be doing in the next six months under each of those goals? And so, let's say number one, improve your products and grow. Great, let's work through that question, but the end result is, what are the three to four growth initiatives you're going to do over the next three to six months? That's it. Let's just decide that. We'll do a workshop, whatever. Constant customer improvements, 1A. Okay, what are our next three to four customer experience, CX, customer improvement initiatives that we're going to make? Fine. Two, how do we improve our operating performance? What next, what three to four digital operating basics are we going to improve and how are we going to do it? And then number three, what moat are we ultimately building? We got to kind of know where winning is. We have to have a pretty clear picture of if we can get that business model, we are going to be stronger in a year than we are today. That's pretty much it in practice and then you meet every three to six months and you go through the same questions. But generally, for that to be effective, everyone has to sort of have the same framework in mind. And this is kind of one of the things I actually find very satisfying is you meet with companies and over a year or two, they all start talking about their problems using my terminology. So, they're arguing and I'm sort of sitting there now, instead of being in the center, talking a lot, I'm sort of more off to the side and all the executives are arguing with each other. No, no, no, no, no, we got to work on the digital operating basics here. know, DOB2 is our problem. No, need to, you and it’s, kind of like not making myself obsolete, but kind of, but once you get people with the same framework and the same terminology, all there, you know, decades of expertise really start to come out. But you can't get that until you get sort of everyone on the same page of how we're going to take this apart. I actually find that really satisfying.  So anyways, that's the basic, you know, my sort of digital strategy playbook. Let me go through the four buckets and talk about, okay, these are the four topics I think you need to master, which line up with those four points, but not exactly. So, topic number one, yeah, growth. Now, if you're a venture capitalist, it's a lot about product market fit and things. I don't do that. I'm always looking at businesses. Look, you have your product, you have your service. How are we going to grow this thing? Growth is like oxygen for a business. It gives you a sense of momentum. Your employees are sort of leaning forward. Your cash flow increases, which gives you the ability to do more things, to invest in more products, to do more R &D, to make expansions. know, growth is oxygen, more or less. Okay, a month or two ago, I published a digital growth playbook. It's on the website. I sent it out to subscribers.  That's kind of my thinking about it. You can go look it up. A lot of my thinking in this area, the growth playbook. There's kind of two I tend to go back to over and over. One is Chris Zook, who was a Bain uh senior consultant. I think he's still there. Maybe he's retired. He wrote several books about growth beyond the core, profit from the core, repeatability.  Those are for more traditional, not digital businesses. So, if you look at my sort of digital growth playbook, you'll see I've adapted some of his ideas. which were based on more traditional companies. But I think that's a great place to start.  The other one that's worth thinking about is McKinsey writes these large valuation textbooks. I think they release a new one every year, the McKinsey Valuation Book. It's, I don't know, it's like 400 pages. They've been, they’re on version like 19 or something like this. They've been releasing a new version every year. It's actually a pretty good book. it's worth going through. But there's a section on growth where they talk about the different types of growth and why some create economic value and some don't.  Depending on the ROIC, things like that, why some have a higher probability of success and some have a lower.  Their section on growth in that book is quite good. Those are kind of my two go-to points. And I’ll put these in the show notes if you want to look them up.  But yeah. you know, topic number one you got to get good at is you got to be really good at growth. I've sort of changed my tune on that over the years. I used to think about defensibility first and growth second. Now I've kind of flipped it. So that's number one. Number two, if we look at operating performance, Elon Muckland. Now I break that into the digital operating basics and tactics. And you know, my standard thing is always looking every year, you got to get smarter, faster and better. Your quality improves. And that's really a process. know, companies that are super-fast. that make decisions quickly, that can roll out initiatives quickly, that can try things and get feedback quickly.  They didn't get there quickly, ironically. No, they sort of got a little bit faster every couple month. And over time, they got up to real lightning-like speed. But one of my standard questions with companies is always, how many trials did you run this month?  How many new initiatives did you do? How fast are you making decisions? Do you have the data to make quick decisions? And then every three to six months, we just want to go a little faster and a little faster. And then you look back after a year or two and they're dramatically faster as a company than they used to be. So, you think about that.  Now within that, the digital operating basics, a book that's good to read there, there's a McKinsey book called Rewired. McKinsey has like two books they've written that I would describe as textbooks. Now they publish articles all the time. Some of them are good, a lot of them aren't. But they have published two major textbooks.  One is the valuation book I just mentioned and the other one is a company called Rewired, which is basically their digital transformation playbook. Because they work with company after company after company doing digital transformation for 20 years.  They write up that over time and they sort of, you know, it's really directly usable. So, the Rewired book is really great in terms of the detail of the thinking. I don't think it's terribly easy to implement. I think my digital operating basics are much more usable, but it is a pretty deep well you can go into to look at. So, for me, I sort of go by the digital operating playbook, digital operating basics, which I've talked about and within there, I published something about a month ago called the digital operation, I'm sorry, the data operations playbook. which is within all of this, how to think about data, which is kind of a separate topic. I put it as digital operating basics three, which is the digital core, which is a lot about gathering data.  So, I wrote up a separate playbook for digital, I'm sorry, data operations last month.  You can find that on the website.  I was spending a lot of time reading about Huawei in the last month and I visited them a couple of weeks ago. I'm going to write this up in the next week. going through their data centers because they are really leaning into this idea of building AI first data centers, which is kind of freaking out the West, their cloud matrix. They're basically stringing together XPUs, not GPUs, but different types of CPU, GPU, NPU into these pods, which they connect with basically optic cables, and then they put them into clusters. So given that Chinese companies, especially Huawei, can't really access top of the line Nvidia chips, they're stringing together lower-level chips into these highly connected matrices that are basically peer to peer computing as an architecture.  And it takes a lot of energy. It's not as cost or energy efficient, but the performance is actually really good. So anyways, I'm going to write all that up, but I spent a lot of time.  literally reading their publications on all the mechanics of how they're building these data centers.  It's really impressive.  But yeah, for topic number two, if you want to become in depth in that, would say my digital operating basics are pretty solid.  I have adapted that from various people. Most of it's not mine.  The McKinsey book is quite good. That's probably a good place to start. Maybe look at the data operations playbook if you're curious. Okay, next topic would be basically constant and continuous customer improvements. Now this is under my digital operating basics number two, which more and more as I thought about that one, that’s where the action is. Okay, we're going to improve our operating performance, digital operating basics. We're going to use data for various things. Our employees are going to be more productive. We're going to make our supply chain better.  But in all of that, where the rubber really hits the road is how can we use all these digital tools, all our data to improve what the customer experiences? How can we add value to the customer? That's the sharp end of the spear. So, I pulled that out as sort of a separate goal.  And we have a whole consulting playbook basically on how do you improve the customer experience? How do you continually add value to the customer?  And this is really kind of the Alibaba playbook. I really got this from Alibaba. When I, you know, I kind of go through their strategy, which they talk a lot about, their strategy is actually not that complicated. It's really just two things. Like number one, they build business models that have natural structural advantages like marketplaces. Pretty much everything they build is a platform. Usually, it's a marketplace they get switching costs they get network effects So they're always building a business models if it succeeds. It's going to be inherently very powerful So that's four. They're always building a moat the other end the other thing they do is They are constantly trying to add value to their customers literally every three months because the argument is It used to be enough in a non-digital world if you had a strong moat like Coca-Cola. That was enough. Because these industries don't get disrupted, they don't change that quickly.  But if you have a digital business or a digitizing business, having a moat is not enough. You need to pair that moat with constant customer improvements.  So even if someone is coming at you, offering something similar to you, using a new technology to disrupt your moat, you're always moving forward. And in theory, you're always ahead of them. And that's really their playbook. Build a moat and constantly be adding value to the customer year after year after year, never stop. That's how they will describe their strategy. So that's kind of what that one is. I don't really have any books to describe for that one.  I'm trying to sort of be the guy for that topic. So, I'm writing a lot about that.  you know, we have our consulting playbooks for that, but... That's kind of the sharp end of the spear for a lot of this. So, third one there, constant customer improvements, always be adding value to the customer, usually experience, customer experience. Digital is very good at doing this in a way that Coca-Cola cannot. And then the last topic, which I already kind of mentioned was, yeah, motes, structural advantages, competitive advantages, barriers to entry, digital marathons, hence motes and marathons, my books. Yeah, that's the fourth topic. I don't really have any great books to point to on this. I'm trying to be that guy. You my seven books are all pretty much about that topic.  So, I'm kind of trying to live on those last two points. And then the other two topics.  Yeah, a lot of people talk about those. So those are kind of my four topics. Always be growing. Have a digital growth playbook.  Always be improving your operating performance, digital operating basics. and tactics to a lesser degree, then always be adding value to the customer, constant customer improvements, and then always be building your moat, which is structural advantages, competitive advantage of that sort of thing. That's pretty much it.  And I'd put, that's kind of the digital strategy playbook.  Now there's a problem with all of this is two years ago, I would have said that's the playbook. That's the strategy.  I kind of feel like it's complete.  I think I've filled in all the missing pieces over the last several years. And then generative AI comes along. And now agentic AI is coming along and now embodied intelligence is coming along. And there's this idea that the digital age has been, is now evolving and moving into the agentic age or the AI age.  And maybe what's next will be a transition to something new. Now, I don't really think that's true.  I it's sort of an evolution of what we've already been doing.  don't think software is going away. I don't think data is going away. I think it’s, we’re just adding to what we have. But that raises the question, okay, within that playbook, digital strategy, is that the same thing as a generative AI and agentic strategy? Or is that something new? And for those of you who are subscribers, I sent you a long email this morning. mean, really pretty long. And I was actually kind of proud of it. I think it's really good. Like oftentimes I send the emails out and then I feel, oh, that wasn't that good. I literally feel bad about it for weeks. Sometimes I thought this was really good. It was basically if we take the digital operating basics, these are the basic things every company should do in digital. What would be the equivalent of that for generative AI and agentic AI? That's basically what I sent out this morning. Here’s, think I've called this the, know, the degenerative AI, agentic AI operating basics. These are the things that every company should do. And there's a nice little summary called four levels, four stages, four pillars.  That's kind of my little summary acronym for the whole thing. That's a really long article. I actually do it, like encourage you to go through it and maybe go through it a couple of times. I think that is a very solid first pass for what the operating performance goal, number two, what that looks like for AI. I think that's a pretty solid first pass, but we're in the early days, so this is all going to evolve, but I feel pretty good about that one. The question that would then go with that is, okay, what about building a moat? What about building a moat in an agentic AI age?  And the answer there is I don't know yet. I have some theory, but the difference between this and the digital strategy is the digital strategy we can look back for 20 years, 25 years and see the companies and what happened over time and what had a competitive advantage and what really didn't even though it looked like it.  We're so early in generative AI we don't really know how things are going to play out. In fact, you have to go back to the question I started with.  Strategy is where are we going to play? question number one, and then two, how do we win? Question number two. Well, we don't even know what the playing field is going to look like. In the digital world, I'm able to focus on the second question, how do we win? Because everyone kind of knows what the playing field looks like. We know where to play. We know what positions are going to be good. Marketplaces are good. Content creation is generally not very good. But all of the generative AI tools, they are going to reshuffle industries. and they're going to reshuffle uh ecosystems. So, this question of where you want to play is not clear yet.  There was a Sanjit Chowdhury book that just came out which I talked about a couple weeks ago called Reshuffle.  And that's basically what he talks about. Like the whole industry and ecosystems are going to get reshuffled.  So where do you want to play is not clear. And that'll be a whole another question, but I think the operating basics part is pretty clear at this point. But yeah, I don't know exactly where you want to be yet, let alone what modes are going to exist and what modes are going to get wiped out. Keep in mind, before the digital age, people didn't really talk about network effects. That wasn't a big thing in the physical world. And then digital and network effects are very powerful. We don't know what the competitive advantages in agentic AI are going to be. it looks like it's going to wipe out some network effects that people are counting on today. So, we might see entirely new competitive advantages emerge.  Anyways, that's most of what I wanted to go through. I hope that's helpful.  I am going to try and I'm rewriting the Motes and Marathons books uh now and I'm boiling it down to something simpler and more usable, but it's pretty much along the lines I just said.  And everything I just said, I'm going to put in the show notes as basically three graphics. The whole thing fits in three graphics more or less.  So hopefully that will make it more usable, whether you're an investor or an executive. Anyways, that's it for me. I'm starting to work on new topics. I've been sort of working on this for the last couple of months.  The big topic actually maybe to keep on your radar, uh Singles Day is now kicking off in uh China. Well, it's Southeast Asia as well. It used to be one day, now it's pretty much a month.  Alibaba is going to make some big moves. they are deploying. Singles Day is really cool for a company like Alibaba because it’s like a giant stress test. So, when they implement new tools and new workflows, they always know that we have Singles Day coming up in a couple months and the volume is going to spike. So, these things have to work really well or they're going to break. Well, they've been implementing their AI tools into e-commerce over the last six months. And it looks like their big focus for Singles Day this year is the deployment of all their AI tools into e-commerce. And then obviously the volume is going to spike and it'll be a giant stress test. So, this is going to be a really good thing to study in terms of the question of how does generative AI impact e-commerce? I think we're going to get a really good answer to that in the next two weeks, pretty much. And it was keeping an eye out for that. And I'm also working on some articles about uh basically Huawei's data centers and really the topic is AI first infrastructure. And what does that look like?  Huawei's a pretty good example of that.  Tencent cloud is pretty good too. Anyways, that's what I'm working on right now.  Other than that, it’s been a pretty good couple of weeks. was just down in Koh Kood, the island sort of south of Koh Chang on the east side of Thailand. That was a lot of fun. It's really empty. mean there is very little there. There's a handful of hotels.  There's one road pretty much that goes along one side of the island.  You can't get on the other side. It was much larger than I thought. I really did enjoy Koh Kut. was...  I've heard the reason I went down there is because I heard it was like the one place in Thailand that looks the most like the Philippines. And I really like the nature side of the Philippines. The city's... eh They're kind of a bit strange; the nature is absolutely beautiful. The provinces are amazing.  The water is very clear and it’s very green, which I like. And so, I had heard this was similar in Thailand and to Philippines. And truth is it was. It was the clearest water I've seen in Thailand. uh Much greener than most of the country. You go south and you go on an island. Usually, Thailand gets pretty green.  It was great.  But after a day or two, I really didn't know what to do.   I'm an urban creature.  So, sitting in a pretty much deserted remote island. I'm only good for a couple days and then I go little buggy.  Anyways, that's it for me. I hope everyone is doing well and I'll talk to you next week.  Bye bye.