Part 1 in the “Digital Optionality” series
Digital disruption is occurring with greater speed and impact across the global business landscape, impacting all industries and companies. Emerging digital technologies such as social, mobile, analytics, cloud, Internet of Things, and artificial intelligence (“SMACITA”) are driving this disruption.
While your company’s strategy and roadmap are key deliverables for planning, deploying, and integrating digital solutions, they are not enough to ensure that your company can quickly take advantage of opportunities and mitigate disruptions as digital technologies emerge, given business considerations such as:
- Challenges of organizational responsiveness for re-aligning business models and defining new business requirements
- Multi-year technology initiatives that have a complex scope, lack agility, and are resource-constrained
- Lack of dynamic and timely decision analysis, such as cost/benefit assessments, to help reprioritize initiatives as situations change
- Digital “fragmentation” of effort that results from many disconnected digital initiatives that lack a holistic approach or unifying digital vision.
Is your technology roadmap at risk?
The typical three- to five-year digital roadmap visually represents a company’s digital transformation journey and worked well in the past, when the speed of technology innovation was slower and the static roadmap remained accurate for several years (see below). However, in the face of rapidly emerging digital technologies and numerous business constraints, assessing and improving the “digital optionality” of your roadmap will increase flexibility, reduce risk, and position your company for digital transformation success.
In the financial world, optionality describes the value of follow-on investment decisions that are available after an initial investment is made. More generally, optionality is used to describe a situation or culture of flexibility, with numerous decisions and alternatives that increase value and reduce risk. Simple, everyday examples of optionality include a car lease with an option to buy, or a driving navigation app that provides dynamic route updates.
What is digital optionality?
We define digital optionality as the intrinsic value of a digital road map that enables the company to take advantage of emerging digital technologies and to reduce business risk for digital disruption.
- “High” digital optionality means that the digital road map, including initiative scope and prioritization, enables flexibility for the company to respond to current and future business opportunities and digital disruptions
- “Low” digital optionality means that the digital road map leaves the company exposed to capability deficiencies, threats of disruptions, and delays in responding to opportunities
Digital optionality is essentially an additional characteristic in assessing the priority of initiatives and the overall viability of the roadmap. Digital optionality can and should be assessed for the initial roadmap as well as periodically to ensure the roadmap remains viable as digital technologies emerge, opportunities arise, threats materialize, and business models change.
How is digital optionality assessed?
It can be challenging to estimate a monetary value on optionality, but there is no doubt that greater flexibility and reduced risk from digital disruption are of tremendous value to any company.
As a quick test of the digital optionality of your company’s roadmap, consider the following questions:
- Does your company’s digital vision require a new business model with capabilities that are not yet proven in your industry?
- Does your company’s digital roadmap include emerging technology initiatives for which the digital opportunities or disruptive threats are not yet fully understood?
- If digital opportunities or disruptive threats were to rapidly present themselves, would your company find it difficult to rapidly acquire or develop the required skills and experiences to be successful?
If the answer is “Yes” to any of these questions, then applying digital optionality to your company’s roadmap offers value in reaching its objectives for digital transformation. If the answer is “Yes” to all these questions, then it is imperative that your company leverages digital optionality concepts to improve its ability to address market opportunities and/or to mitigate the risks of digital disruption.
In our next blog in this Digital Optionality series, we will discuss more detailed approaches and specific examples for assessing digital optionality value and improving the digital optionality of a company’s digital roadmap.
For more insight on digital strategy, see “Comparing Two Approaches To Digital Transformation.”