The Effect of Digital Technology on Business Strategy
Everything in today's economy is evolving and improving, both worldwide and at the level of the individual organization. Systems, processes, products, strategies, business models, and so on are all changing and improving, and these changes are all dependent on digital technology.
So, how does a company's strategy change as a result of its digital context? For companies, this question comprises two crucial elements: strategy and digital technology.
First, we must define what constitutes a good strategy. A good strategy has two components. For starters, it's making wise decisions about how the firm will produce value, how it will benefit customers, and how well it will solve their problems and meet their demands. The second consideration is differentiation, or how the company will set itself apart from its competitors in the marketplace. In a hyper-competitive climate, distinction not only allows for the creation of value for customers, but also for the long-term benefit of that value. To differentiate itself commercially and successfully, a company must be able to protect its differentiation, which means that it must be able to build a barrier against being copied by its competitors and have a unique business model.
Now we'll get to the meat of the matter: the impact of digital technology on business strategy. There are two crucial components to the solution to this issue. The first component is about the opportunity that digital technology provides for the firm, and the second is about how the company should respond and what it should do in an environment of rising technological innovation and competition.
So, what are the advantages of digital technologies for business? In this context, digital technology is not seen as a singular or local process, such as automation, but as a whole, including the Internet of Things, Predictive Analytics, Blockchain, Big Data, Cloud Technology, Artificial Intelligence, and so on, and new opportunities are influenced by digitization and connectivity. They are then transformed into data, which is then analyzed and utilized to generate decisions based on Artificial Intelligence models, Machine Learning, and this, in turn, profoundly transforms every part of the firm, both internally and outside.
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Digital technology has three levels of impact on a company's strategy. The first level is related to optimization, which means that organizations at this level use technology to improve the processes they already have in place. The value proposition and differentiator remain unchanged at this level, while existing procedures are optimized. The next phase is innovation, which occurs when a firm begins to bring something new to market, thereby boosting its competitiveness. The third stage is transformation: as market conditions change, new value propositions emerge, and so on, the company's business model and strategy must evolve, with digital technology serving as the base. As a result, the last two layers have a big influence on customer value generation and differentiation, as well as the company's strategy.