What Differentiates Digital Strategy?

The digital era marks a seismic shift in business strategy. In their 2019 study Adner, Puranam, and Zhu suggest that this transition can be understood as a shift from the quantitative advances that have historically characterized digital progress (e.g., Moore’s law, Metcalf ’s law) to qualitative changes embodied in three core processes underlying modern digital transformation: representation, connectivity, and aggregation.

The research highlights three core processes shaping modern digital strategies:
1️⃣ Representation: The transformation of data into actionable insights through algorithms redefines decision-making and predictive capabilities.
2️⃣ Connectivity: Increased connectivity fosters real-time collaboration, dissolves traditional organizational silos, and enhances network effects.
3️⃣ Aggregation: The integration of diverse data sources enables hyper-personalization, scalability, and the development of new business models.

The authors illustrate these concepts with the evolution of the music industry:
💿 Representation: The shift from analog formats (LPs, cassette tapes) to digital formats (CDs) marked a change in how music was represented. Digital representation improved fidelity, replicability, and durability but operated within traditional business models.
📶 Connectivity: The move from physical CDs to downloadable MP3s (e.g., via iTunes) introduced a new level of connectivity. Music distribution became network-based, enabling instant access and redefining governance, such as unbundling albums into individual tracks.
🎶 Aggregation: The current era of music streaming platforms (e.g., Spotify) leverages aggregation. By analyzing user behavior and preferences across vast data sets, these platforms provide personalized, predictive recommendations. This transition fundamentally reshaped the relationship between producers and consumers, influencing demand and choice.

Implications for Executives:
💡Data and algorithms are emerging as scale-free, self-generating strategic resources.
💡Firms are leveraging digital assets to expand their scale, scope, and market presence, often crossing traditional industry boundaries.
💡Digital transformation also introduces challenges, including data ownership disputes, ethical considerations, and the need for human-algorithm collaboration.

The study underscores the need for businesses to adapt strategies to account for the evolving role of representation, connectivity, and aggregation in driving competitive advantage.

Source:

Adner, R., Puranam, P., & Zhu, F. (2019). What is different about digital strategy? From quantitative to qualitative change. Strategy Science, 4(4), 253–261. https://doi.org/10.1287/stsc.2019.0099