3 Digital Strategy

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In a world where every swipe, search and sensor creates data, an organisation’s ability to turn digital information into intelligent action will define whether they lead or get left behind.

Chapter 3 explores techniques to realise the strategic trajectory introduced in Chapter 2 by exploring how organisations operate and compete in increasingly digital environments.

Digital transformation is not optional. As data volumes grow exponentially, technologies accelerate, and customer expectations rise, organisations must embrace new ways of generating information, honing capabilities, rethinking value chains, and appropriating value from innovation.

This chapter covers three core topics based on the work of Michael Lenox (2023):

  1. How digital transformation pressures organisations to adapt, and how leaders can use data, information and intelligent prediction to make better strategic decisions.

  2. How the digital exchange of information restructures value chains and demands new organisational capabilities to compete in a digital world.

  3. How organisations capture value from innovation, build first-mover advantage, and adapt in an era of rapid technological change. This is referred to by Lenox as ‘appropriating’.

Together, these topics equip organisations to thrive in a digital world by exploiting the strategic potential of information and innovation.

3.1 Information

⚽️  Topic Goals

  1. Explore the pressures and opportunities presented by digital transformation.
  2. Highlight why every organisation must embrace this change,
  3. how it can be leveraged for success,
  4. and the crucial role of intelligent prediction in navigating the evolving landscape.

3.1.1 Pressure to Transform

Every organisation faces the pressure to digitally transform. The alternative is digital exclusion: gradual irrelevance as customer behaviour shifts, competitors innovate, and digital natives reshape markets.

Examples of digital exclusion abound. Retailers such as Debenhams and Sears, or mobile pioneers such as BlackBerry, each failed to adapt and were overtaken by more agile firms. In essence they failed to confront their ‘Default Future’ as explored in the previous chapter.

Digital disruption is unforgiving and occurs when organisations can’t adapt their innovation processes to cope with rapidly changing digital tech. This paves the way for digital natives to ‘eat their lunch’. We think of digital natives as Amazon, Apple, Google and Meta, but digital natives are present in all sectors (e.g., challenger banks in finance) and all sizes (e.g., start-up organisations leveraging Generative AI for rapid growth).

Digital natives understand the power of data and leverage it to create value-added offerings. No better example of this is that most of us prefer to do day to day banking operations via a smartphone rather than visiting a bank branch.

The digital world offers a fundamental shift as to how organisations can operate. Specifically:

  1. Digital infrastructure evolves to produce vast, continuous data flows.
  2. AI and machine learning convert these datasets into insights.
  3. This speeds up the innovation cycle
  4. Customer expectations evolve toward instant, personalised digital experiences.

This creates a strategic fork: adapt, or slip into the organisation’s default future where competitiveness steadily erodes.

3.1.2 Exponential Data Growth

The digital world operates on exponential curves as opposed to linear growth.

Processing power, storage, and bandwidth expand exponentially,  so data volumes explode. In 2020, Lenox estimates that 60 trillion gigabytes of data existed, 90% of it generated in just the previous two years. Data is continuously generated by Google searches, WhatsApp messages and connected devices. Cloud computing means that this information is accessible via affordable storage. Internet of Things (IoT) devices are small, internet connected devices that measure something (e.g., temperature) or effect a mechanical change. There are billions of such devices constantly generating data.

Did you know that each Nest camera generates around 400GB of data per month? Or that every Tesla vehicle collects about 4GB of sensor data every day? These numbers cited by Lenox (2023) show concrete examples underpinning the exponential growth of data.

Organisations can become data rich but intelligence poor because they lack the capability to aggregate, normalise, and analyse exponentially growing data at scale. To avoid this they must:

  1. Build systems to collect and normalise huge, diverse datasets in different formats with different levels of veracity (truthfulness).

  2. Convert raw data into information through adding context.

  3. Convert information into intelligence through analysis.

When this all works correctly, we humans can make informed decisions, using this intelligence to transform our organisation.

3.1.3 Intelligent Prediction

Artificial intelligence (AI), specifically Machine Learning (ML) are key tools for analysing vast datasets and making accurate predictions. ML identifies patterns in vast datasets and offers suggestions that help leaders make better decisions.

Examples:

  • Spotify generates personalised playlists (Discover Weekly) based on user behaviour.

  • Monzo surfaces spending insights, budgeting suggestions, and fraud warnings via its app.

  • AI supports industrial robots, autonomous vehicles, medical imaging analytics, and cybersecurity systems.

But never forget that:

AI does not replace human judgment, but can help humans be more efficient.

Humans remain essential for creativity, critical thinking, contextual understanding, and ethical decision-making. AI becomes more sophisticated, the demand for human judgment will only increase. Leaders who can effectively combine AI-powered insights with their own strategic thinking will be best positioned for success.

3.1.4 Practical Application

Practical approach to leveraging information includes:

  1. Identify digital pressures: what risks digital irrelevance? what ‘big questions’ offer the opportunity for accelerated growth?

  2. Audit available data sources: customer touch points, sensors, systems, partners. Essentially anywhere (internal or external to our organisation – where we can gather information to help mitigate the risks and answer our ‘big questions.

  3. Invest in analytics: bring together the tools, talent and data governance disciplines to answer the questions and mitigate the organisation’s risks.

  4. Bring in human expertise:  specifically boosting prediction and adding judgment, including critical thinking.

3.1.5 Case Study (Synthetic) — RetailFuture

RetailFuture, a mid-sized apparel retailer, faces shrinking footfall and digital-native competitors. Their stores generate point-of-sale data, CCTV imagery, heat-mapping, loyalty data, and inventory reports — but none are integrated.

By linking these datasets and adding simple predictive analytics, the organisation:

  • Forecasts product demand more accurately.

  • Optimises store layouts.

  • Personalises promotions.

  • Identifies stock anomalies.

Digital pressures are thus turned into a digital opportunity.

3.1.6 👍 Topic Summary

Organisations face rising pressure to transform. Exponential data growth drives new opportunities, but only if data is converted into usable intelligence. Intelligent prediction strengthens strategic decisions — when combined with human judgment.

  • Every organisation faces the pressure to digitally transform, or risk becoming irrelevant (e.g., Nokia, Blackberry).
  • Exponential tech growth accelerates data emergence, can be used to generate information and intelligence.
  • Intelligent prediction (using AI) can help leaders execute smarter judgement in their strategic decisions.

3.1.7 Topic Quiz

Please complete this anonymous knowledge check by scanning the QR code. The quiz app tells you the right answer once you have made your choice.

QR Code for topic 1 quiz
Topic 3.1 Quiz. Scan the QR code or visit the accompanying resource.

3.1.8 Reflection Questions

  1. What pressurises your organisation to adopt digital transformation and avoid digital exclusion?
  2. What are the obvious – and not so obvious – sources of data and information that your organisation can use to drive intelligence?
  3. How could AI be used to improve decision making? What role should the human continue to take?

3.1.9 🤖 GenAI Usage

💡 To try:

  1. Brainstorming Friend: Use GenAI to help brainstorm diverse data sources (e.g., IoT, social media) that your specific organisation could leverage to drive intelligence.
  2. Question Refinement: Ask GenAI to help refine the ‘big questions’ your organisation needs to answer to avoid digital exclusion, providing ‘devils advocate’ challenges.
  3. Scenario Exploration: Get GenAI to help explore scenarios where intelligent prediction combined with human judgement could help your organisation achieve their strategic aims.

⛔️ To avoid:

  1. Prediction Validation: Never replace human judgement with unverified AI-generated predictions. Predictions, in particular must be built using human judgement.
  2. Veracity Checking: Not exploring / validating the veracity (truthfulness) and availability of data sources suggested by GenAI.
  3. Blindsided by Bias: Failing to critically evaluate how AI might exclude information sources due to bias.

3.2 Competing

⚽️  Topic Goals

  1. Explore the transformative impact of digital technologies on organisational value chains and business models.
  2. Highlight how the digital exchange of information is restructuring value chains,
  3. the need for organisations to adapt their capabilities,
  4. and the emergence of novel business models in the digital age.

3.2.1 Value Chains

Value chains are defined as the sequence of interconnected activities delivering value through products and services. These can be radically reshaped by digital information exchange.

The characteristics of digital value chains compared with their traditional counterparts is summarised in Figure 3-1.

 

Comparison of traditional and digital value chains, showing a shift from linear, producer-to-consumer transactions to continuous, digitally connected collaboration with bidirectional information exchange.
Figure 3-1: The Evolving Dynamics of Supply by John Palfreyman is licensed under a CC BY-NC-SA 4.0 licence.

For example, autonomous vehicles (self driving cars, robotic vacuum cleaners or lawn mowers) rely on manufacturers, sensor companies, software firms, mapping providers, cloud analytics, and regulators all working together.

All members of the business network are coordinated through constant data exchange. Each party contributes their expertise to deliver a seamless, quality user experience.

3.2.2 Honing Capabilities

Technical and human capabilities must be proactively developed and honed to remain competitive in the digital world. Organisations must embrace more collaborative and agile models to replace the traditional silo’d ‘buyer – supplier’ relationships of the past. Organisations will need to develop:

  1. Data and analytics skillsets

  2. Cloud, API, and platform integration capability

  3. Cybersecurity and privacy competence

  4. Human skills: creativity, adaptability, critical thinking

Digital competition rewards continuous learning and experimentation. This is a vital part of being able to compete in a digital world, recognising that past success is no guarantee of future prosperity!

Essentially, organisations will need to focus on developing technological expertise alongside human-centric skills. Technical proficiency is essential for navigating the digital landscape whilst human qualities such as critical thinking, creativity, adaptability, and emotional intelligence are increasingly valuable as machines take on more routine tasks.

3.2.3 Building New Business Models

Organisations capture value by embracing new digitally-enhanced business models, offering new approaches to getting customers and driving up revenue. Hence new business models emerge, such as:

  • Advertisement-driven (e.g., Facebook): free use in exchange for user data.

  • Freemium (e.g., Spotify): basic tier free; premium tier paid.

  • Partnering platforms (e.g., Airbnb): value generated through marketplace coordination.

Business model choice must be made based on complete awareness, to realise the organisation’s strategic intent. The choice of new business model needs to take into account: the organisation’s strategic trajectory and the target audience that the organisation is looking to attract

Careful choice of business model should be made after thoroughly analysing:

  • Capabilities required to support the model

  • Value creation and capture mechanisms at play.

3.2.4 Case Study (Synthetic) — AgroFlow

AgroFlow supports farmers with crop optimisation. Historically, value flowed from suppliers to farmers to markets. Through use of sensors, drones, and satellite data, AgroFlow now offers:

  1. Real-time crop assessment

  2. Predictive yield analytics

  3. Automated irrigation recommendations

Its role shifts from supplier to data-driven partner, creating a premium analytics business model and deeper customer engagement.

3.2.5 👍 Topic Summary

Value chains are increasingly digital and interconnected. Organisations must hone capabilities and embrace new business models to remain competitive.

  1. Cross organisational value chains are now constructed around the digital exchange of information.
  2. Organisations must hone capabilities to ensure their competitive positioning remains relevant.
  3. Organisations must consider emerging business models including advertisement-driven, ‘freemium’ and partnering.

3.2.6 Topic Quiz

Please complete this anonymous knowledge check by scanning the QR code. The quiz app tells you the right answer once you have made your choice.

QR code for quiz 3-2
Topic 3.2 Quiz. Scan the QR code or visit the accompanying resource.

3.2.7 Reflection Questions

  1. Which parts of your value chain could be improved through information exchange?

  2. What new capabilities must your organisation develop to remain competitive?

  3. Which new business models could leverage digital information to support your strategic intent?

3.2.8 🤖 GenAI Usage

💡 To try:

  1. Brainstorming Partner: Use GenAI to help brainstorm value chain improvement through information exchange.
  2. Capability Refinement: Outline the new capabilities that your Org should develop to keep competitive. Get GenAI to challenge these for completeness and clarity.
  3. Clarity on Intent: GenAI can help add clarity on business model outlines, or challenge your assumptions.

⛔️ To avoid:

  1. (Un) balanced Brainstorm: Never abdicate the brainstorm to GenAI – it will never make the ‘creative leaps’ that humans can.
  2. Capability Invention: Don’t let GenAI make up capabilities for you. This is best left to human judgement.
  3. Business Model Invention: Don’t be fooled by GenAI created business models. They will sound convincing but always need human scrutiny.

3.3 Appropriating

⚽️  Topic Goals

  1. Examine the concept of appropriating value in the context of digital transformation.
  2. Explain why simply having the best technology isn’t enough,
  3. the evolving role of intellectual property,
  4. and the critical importance of adaptability and continuous innovation for success in the digital age.

3.3.1 Capturing Value

Appropriating refers to how organisations capture value from innovation.

A common myth is that the organisation with the best technology wins.  The ‘Red Queen Effect’ is an observed phenomenon where organisations invest heavily, the rivals do the same resulting in no change in relative competitive position. Examples range from the Pharma investment in Covid-19 vaccine (e.g., Pfizer/BioNTech, Oxford-AstraZeneca, Moderna) and more recently the big tech investment in Generative AI (E.g., Google, Meta, Apple).

VRIO is a well known strategic framework used to assess whether an organisation’s resources and capabilities can provide sustained competitive advantage. It considers whether they are Valuable, Rare, Inimitable and Organised for use as shown in Figure 3-2.

VRIO decision tree for assessing competitive advantage.
Figure 3-2: The VRIO Tool by John Palfreyman is licensed under a CC BY-NC-SA 4.0 licence.

To realise competitive advantage in a digital world we must move away from a tech-centric view of innovation to building a complementary ecosystem of assets and capabilities, building on the concept of Open Innovation which we will explore in Chapter 6.

3.3.2 First-Mover Advantage

In the past, intellectual property protection realised through instruments such as patents or copyrights have been critical to sustaining competitive advantage. In total contrast, first-mover advantages combined with openness may offer a more robust protection in the digital world.

First-mover advantage (FMA) is defined as ‘the benefits gained by being an early entrant into a market or an early adopter of a new technology’.

First Mover Advantage can manifest itself in many ways including:

  • Switching costs, where customers reluctant to change vendor due to cost or convenience

  • Network economies where value grows as more members join the network creating positive feedback that in turn attracts new users.

  • Brand salience or association, where a particular brand comes to mind for the consumer, for example ChatGPT for Generative AI.

  • Rapid scaling, where momentum combined with demand leads to explosive growth, for example the Covid-19 Oxford AZ vaccine was used in more than 185 countries.

Openness can strengthen FMA by allowing third-party developers to build on platforms — increasing reach and adoption. We will explore this in detail in Chapter 6.

3.3.3 Experiment, Adapt and Never Stop!

Rapid change in the digital age necessitates that organisations embrace adaptability and continuous innovation as core competencies.
Forward looking organisations move from trying to sustain static advantages to developing dynamic capabilities.

So organisations need to be adept at sensing, seizing (opportunities) and reconfiguring, as shown in Figure 3-3.

 

Dynamic capabilities framework: sense, seize, and reconfigure.
Figure 3-3: Sense, Seize and Reconfigure by John Palfreyman is licensed under a CC BY-NC-SA 4.0 licence.

To thrive in the digital age, organisations must embrace experimentation, agility and rapid learning as core capabilities rather than viewing them as optional extras. Progress depends on a culture of constant curiosity where new ideas are continuously tested, refined, or rapidly discarded.

Failure becomes a source of intelligence rather than blame. When teams are encouraged to ‘fail fast, learn fast,’ insights accumulate and innovation accelerates.

Organisations that adopt this adaptive mindset are best positioned to navigate disruptive technologies, shifting customer expectations and intense competition. Different organisations respond in different ways: tech giants must scan the horizon and invest ahead of the curve, while start-ups must harness technology to rapidly innovate business models that deliver compelling user value.

In every case, long-term advantage belongs to those who experiment boldly, learn continuously and evolve faster than the world around them.

3.3.4 Case Study (Synthetic) — MediSense

MediSense develops diagnostic devices. Rather than protecting early prototypes tightly, they release APIs and partner with app developers.

This openness accelerates innovation and adoption. Within a year, MediSense becomes the default ecosystem platform — achieving first-mover advantage not by secrecy but by strategic openness.

3.3.5 👍 Topic Summary

Appropriating value needs more than great technology. First movers succeed when they build ecosystems, innovate continuously, and combine openness with rapid iteration.

  1. Appropriating refers to how the Org captures value from innovation, being mindful that having the best tech does not guarantee success.
  2. First mover advantage and openness may afford better protection than traditional Intellectual Property-driven approaches.
  3. Success is more likely for Orgs that can adapt to changing market conditions and are constantly innovating. Willing to experiment, fail fast, and pivot to new opportunities.

3.3.6 Topic Quiz

Please complete this anonymous knowledge check by scanning the QR code. The quiz app tells you the right answer once you have made your choice.

QR code for quiz 3-3
Topic 3.3 Quiz. Scan the QR code or visit the accompanying resource.

3.3.7 Reflection Questions

  1. Where could your organisation gain first-mover advantage? And what practical methods could they use to realise this?

  2. What complementary assets strengthen your organisation’s ability to appropriate value?

  3. What should be your Org’s approach to innovation and experimentation?

3.3.8 🤖 GenAI Usage

💡 To try:

  1. First-mover opportunities: Leverage GenAI to scan markets, users, and competitors to identify emerging needs and early signals.
  2. Identify complementary assets: Use GenAI to map info, partnerships, capabilities, and brand strengths to help find approaches to value capture.
  3. Speed up experimentation:  Use to generate ideas, test assumptions, and refine options quickly to support “fail fast, learn fast”.

⛔️ To avoid:

  1. GenAI making strategy decisions: Use it to inform judgement, not replace leadership or accountability.
  2. Focusing only on technology: Avoid tech-centric analysis that ignores ecosystems, capabilities, and adoption.
  3. Using GenAI to avoid risk or action: Don’t substitute analysis for real experimentation and learning.

3.4 Chapter Summary

Chapter 3 explores how information, competition and innovation shape strategic implementation in the digital age.

Chapter summary showing the roles of information, competition, and innovation in achieving success in the digital age.
Figure 3-4: Chapter Summary by John Palfreyman is licensed under a CC BY-NC-SA 4.0 licence.

To thrive in a digital world all organisations must:

  1. Transform or decline: as digital disruption accelerates; organisations must embrace digital change to avoid sliding into their default future.
  2. Turn data into intelligence: build systems, skills, and governance to convert data flows into actionable insight through analytics and AI.
  3. Compete through connected value chains: redesign operations around continuous digital information exchange whilst strengthening technical and human capabilities.
  4. Adopt modern business models: leverage digital platforms and innovative partnering models to capture new value.
  5. Appropriate value through agility: build first-mover advantage, openness, rapid experimentation, and dynamic capabilities (sense–seize–reconfigure) to stay ahead.

Success depends on a balanced combination of technology with human judgment, organisational adaptability, and a commitment to constant experimentation and learning.

3.5 References

Breene, S. (2020) CRODA Covid-19 vaccine. LinkedIn.

Kaitin, K.I. (2024) The Landscape for Pharmaceutical Innovation.

Lenox, M. (2023) Strategy in the Digital Age. Stanford University Press.

UK GOV (n.d.) A review of the Vaccine Taskforce. GOV.UK.

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Implementing Strategy in a Digital World Copyright © 2026 by University of Leeds is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.

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