Strategy: What Digital Business Service Providers Mean When They Say It

Strategy Consulting Service Definition

We have long proclaimed that vendors should have formal business and well-vetted processes in place in order to lay claim to having the service (see for example, So Does your e-Business Provider have Internationally Recognized Tools in its Digital Business Consulting Toolkit?). This is particularly true of strategic consulting.

Many Digital Business Service Providers (DBSPs) still use on-the-fly methodologies to accomplish the strategic examination of an e-business plan prior to executing processes to achieve digital business capabilities. However, it should be understood that what is meant by strategy consulting by a DBSP can differ markedly from the traditional role of say a McKinsey process. DBSP strategists take over where the McKinsey process lets go (see figure Phase I). DBSPs serve largely in the operational strategic role by taking the business idea to the step of design and architect to achieve deliverable capabilities.

Obviously, some overlap of the McKinsey-like and Operational strategic consulting functions is inevitable, and the realities of implementation can further enforce change on the original model. The nature of the mix is often dependent on the type of client. Dot-coms are likely to need more business model strategy from the DBSP than an established traditional company. Traditional Bricks and Mortar (B&M) companies face other issues (internal and external) in blending the online world with their existing brick and mortar.

As the operational model is executed, DBSP strategists must obtain feedback in the development and early deployment phases to assess the validity of the market.

Once a business model is executed in the real world, a third component of market and brand validation and refinement comes to the fore. Thus in essence there are three potential steps where the strategists of a DBSP can play a role. We divide them into three phases.

Phase I: Operational Implementation

In this phase the DBSP strategists work with the client to translate the business concept into a workable reality as an operational strategy, and define the technological requirements of the business, its branding, marketing, functional, technical architecture and artistic structure. A digital market review, including surveys, focus groups, and other marketing tools, can be employed to define the market environment and viability of the business proposition. When this phase is largely complete, as shown in Phase I, this can lead to the 'Heavy Lifting' of coding, systems integration and the other components needed to affect the business solution.

Phase II: Pre-Release Validation and Testing

For Phase II, the solution is tested for human response factors as well as usability, often during the development process, and shortly after. The work of the Phase II strategist is to assimilate the information from the various tests and make changes - usually leading to tweaking of the designs and implementation. In this stage, most of the 'heavy lifting' where systems are integrated, built and tested, is executed.

Phase III: Post Release

The final phase is open ended in the sense that continual market monitoring and feedback of the effectiveness of the solution may cause further tuning and changes made to the operational strategy. Some modifications to the solution may be needed, which can involve additional 'heavy lifting'. In this post-execution phase the Phase III strategist serves as the feedback to the client to improve performance and validate the market.

Although these basic strategy components provide a basis for 'birth to adulthood' online business creation, when it comes to specific requirements there are a number of additional points to consider.

These points include:

• Vertical industry/market experience. Vendor experience in a vertical market is an important component.
  
  
• Vendor internal management structure in which the strategy steps exist to provide a smooth flow.
  
  
• Workflow provides adequate documentation to enable monitoring of progress, and appropriate measures enable performance and performance trends to be covered.

It would be a mistake to consider that DBSPs provide the same strategy as a McKinsey, Deloitte, or Andersen. The focus here is on digital media implementation and operational strategies. Many pure plays have hired from the traditional strategy houses to bolster their capabilities in the area. This is not simply a question of increasing the revenue value of an engagement: it is also one that provides the tools and know-how needed to carry through an effective digital business launch, and can distinguish a pure play from that of a more generalist consulting organization.

Example of a DBSPs Approach to Strategy

By way of example, Razorfish has developed what it calls User Intelligence™. User Intelligence provides Razorfish with the three phases of the Strategy development, composed into four parts which are:

• Segmentation and Value proposition development
  
  
• Early Usability and value proposition testing
  
  
• Psychometric and Functional Usability Testing
  
  
• Post-launch validation and review

The first two items above correspond with Phase I strategy components, the third and fourth with Phases II and III respectively. In connection with these phases are four functional consulting units consisting of, respectively:

• Strategy including value needs analysis for users of the business, branding
  
  
• User Experience group which develops the user experience of the website ranging from sounds to other multimedia and image
  
  
• Technology - hardcore architects, systems analysts and programmers
  
  
• Producers - as with a movie set, these are the people who coordinate web designers and marketing, and orchestrate the creation of the e-business

Currently, Razorfish has 35 people dedicated to its User Intelligence team, with regional centers in London and New York. The expertise of these associates are linked through Razorfish's internal network. When necessary, these core personnel will travel to bolster local teams. Each office generally has at least one proponent familiar with User Intelligence tools and methodologies.

Regional Differences in Services

The user may find that there are regional differences in services largely due to the environment and the way in which the DBSP has grown up. One way to acquire talent in the areas of strategy is through acquisition of companies with digital management consulting expertise. As many pure play DBSPs started as creative web designers, they still have that image. Now that they offer end-to-end services, the message probably still has to permeate the user community. This is part of the pure play DBSPs challenge.

Another example of a regional difference is in systems integration. Much of the heavy lifting in Europe to integrate customer systems to web-enabled products may be outsourced to other vendors, partly because this may not always be what the DBSP finds value in doing. In the US, they may have a larger capacity to deliver systems integration solutions. Pure plays are keen to ensure their market niche, and will not (or should not) try to be everything for everyone, though this message can get somewhat confused because of regional capabilities and histories.

In theory at least, globalization should not cause a geographic fragmentation of services the DBSP can deliver. The internal capabilities of the global company should appear as one seamless whole. In practice it is not always practical because of cost, time and talent availability. The strategy component is one of the most financially leveragable components of the service offerings, and therefore it can make sense for a vendor to fly in a strategist specialist from another part of the globe for a particular engagement. Technical expertise, on the other hand, may not be worth the added cost, and could also provide service remotely if necessary. Scient, for example, has been known to fly specialist strategists from as far away as Singapore and Japan to the US on major engagements.

Most DBSPs have instituted knowledge management and control systems to ensure that they even the skill set playing field across their organizations. Setting up core teams to distribute skills among the organization, or encouraging interest / self-learning groups are methods that have been employed. Razorfish, for example, has an internal knowledge management system, and claims to integrate acquired companies - technically encompassing their knowledge base - within 90 days of a signed contract.

Analysis

We regard a DBSP as having digital strategy by the following characteristics:

• Defined and documented methodologies
  
  
• An internal practice group consisting of an adequate number of personnel in the geographic region covered, where coverage may depend on internal knowledge sharing capabilities being considered.
  
  
• Demonstrated applications of the methodologies which have made a difference to at least two clients
  
  
• At least two out of the three above strategy phases are covered
  
  
• Additional points are given if there are measures of the effectiveness of the digital strategy

There are positives and negatives to a company adopting acquisition and integration strategies to achieve strength in providing strategy consulting. On the positive side acquisitions mean the company quickly gains expertise and can deliver services. The negative side is the need to quickly integrate and disseminate skills throughout the company, and ensure there is one 'face' to the company's offerings - this is particularly difficult across continental distances and consequent markets environments. This can be particularly daunting if two similar organizations are acquired with dissimilar processes. It may take some time to sort out and integrate processes into an overall company set of methodologies. This may not however, be a major issue, depending on the extent of the cultural gap. More importantly are the cultural divides that must be bridged.

DBSP pure plays have to recognize further that to deliver services in particular industries they must gain and/or import the experience. Razorfish, for example, recently completed an engagement with Thomas Cook, thus gaining experience in the Travel & Tourism industry. In Thomas Cooke's case, part of the User Intelligence gathered was how people buy tourist packages and travel plans. The information becomes part of the expertise available to future clients. Eventually, with a few more engagements of this nature under its belt, Razorfish will be able to lay claim to expertise in the travel booking industry, and will create a Travel Industry group. Once the latter is formed, Razorfish can truly present a compelling competitive case as having digital Travel Industry vertical expertise

Confusion with strategy 'images' in the service provider space can be clarified when one compares Razorfish to another, more management oriented pure play in the area such as Scient or Sapient. Scient, for example, has the capability of delivering McKinsey-like strategy engagements through what it calls its Conceive step. This is provided to brick and mortar companies as much as to dot-coms, and Scient has bred its brand to reflect this. Razorfish, however, through its acquisition of i-Cube can do more heavy legacy coding than Scient in the US. In Europe, the difference may not be so profound, though it still exists. As these pure plays develop, we predict they will find their niches and reputations just as the legacy management consultants formulated their capabilities and brands 20-30 years ago. We only hope they keep their innovative cultures!

DBSP Pure Play Predictions

The international oriented DBSP pure plays will continue to develop along well planned lines into a number of vertical industries. notably healthcare and travel. They will continue to build up their strengths, rapidly expanding particularly in Europe and Asia. In order to achieve this however, they must continue to generate high revenues, and to acquire their way to new markets and talent.

The acquisition path, however, is expensive with a real effect on net earnings and potential share dilution. Hence we expect expansion to slow as a need will be apparent to show better earnings to shareholders. Further, internal adjustments may have to be made to ensure smooth operations as a company continues to absorb its acquisitions and unify its offerings.

With time, the DBSP pure plays will find themselves facing a stiffer market as other organizations ramp up services (such as Andersen, Cap Gemini Ernst & Young, Deloitte, KPMG, and so forth). However, we believe they will hold their own, partly because the reputation of the legacy consultants have soured many users in the past. Also the pure plays have a better reputation and track record as specialized digital business developers. This is based on a limited TEC survey of 18 experienced and senior executives who were (and are) clients of one or more DBSPs, including (and still are in some cases) clients of the legacy consultants. Most of these senior executives have had multiple engagement experiences with legacy as well as pure play. In some cases, they have used both legacy and pure play companies on one engagement, generally utilizing the legacy companies for either the strategic goal setting or the heavy legacy lifting work.

We believe there is a trend to the specialized pure plays when it comes to strategy. As digital strategy increases its role in the business development of a company, so should the tendency toward the pure play involvement increase. Further, the pure plays, as illustrated by Razorfish, are moving to more comprehensive coverage of the strategy realm, depending on the market niche and brand they want to develop.

There is also a trend to division of strategy from the heavy lifting consulting provided by traditional IT outsourcers. It would not be surprising to see this division create a tendency for at least some of the major DBSPs splitting the integration work away, to focus on the more lucrative end of strategy. Arthur Andersen recognizes the value as is demonstrated when comparing its more traditional accounting offerings to IT and strategy consulting of Andersen Consulting (see Implications and Attitudes As the Andersen's Split under the ICC Ruling: Consulting To Go for a Name Change).

User Recommendations

In selecting your vendor for an engagement that is to include strategic elements as defined in this article the user should ensure:

1. That the vendor has well defined and documented processes
   
   
2. That the data the vendor gathers is utilized for your benefit, at least within a fixed grace period
   
   
3. That you can continue to benefit from the feedback from the vendor. Sometimes, sharing data in the industry is a means of collecting intelligence to understand where you sit. Your DBSP is very unlikely to grant exclusivity to you in your industry for eternity - if ever - of course.
   
   
4. That the service provider supplies the strategic elements you want covered in entirety. Make a checklist of your requirements. If the service provider cannot cover all elements, seek a second source, or ask the service provider who they recommend. If the service provider is used to outsourcing in this area, it means they are also are familiar with their own holes. At the least they should be able to resolve the issue prior to an engagement start. It also generally means you are dealing with an honest provider with outsource associations, and further, that you need not single source everything. However, check out the suggested outsource company.