Master Four Types of Strategy to Perfect Your Digital

Transformation
in

Published: 13 April 2017 ID: G00326340

Analyst(s): Frank Buytendijk | Mike Rollings | Thomas W. Oestreich

Summary
One of the key questions facing CIOs when creating and executing a
comprehensive strategy is, "How do we achieve our strategic objectives?" The
answer lies in identifying which type of strategy is best-suited to your initiative —
one based on experiments, options, choices or improvements.

Overview
Key Challenges
 CIOs and other executives often struggle to find the best way to address strategic
transformation toward digital business. However, strategy is often not very well understood,
and there is no single template or method for how to "do" strategy.
 Strategy can be looked at as conducting experiments, creating options, making choices or
improving the status quo. Each type of strategy requires different skills, best practices,
metrics, governance and, sometimes, organizational structures.
 Specific organizational needs require a combination of the four strategy types.

Recommendations
As a CIO leading innovation and strategic business change, you should:
 Dispense with personal beliefs or traditional views on how strategy "should be." Instead,
master the four types of strategy and learn when to apply each by considering the level of
certainty in your environment and how reversible decisions are.
 Map each of the initiatives in your portfolio to a strategy type, and course correct existing
strategies where the current type doesn't match the need.
 Work with your business and technology peers to make sure that all parts of the business
strategy align to one of the strategy types, and that there is consensus on this.

Table of Contents
 Introduction
 o How the Four Types of Strategy Relate

 Analysis
o Master Strategy as Conducting Experiments
o Master Strategy as Creating Options
o Master Strategy as Making Choices
o Master Strategy as Improving the Status Quo

 Gartner Recommended Reading

Tables
 Table 1. Reversible and Irreversible Decisions — Examples
 Table 2. Characteristics — Strategy of Conducting Experiments
 Table 3. Characteristics — Strategy of Creating Options
 Table 4. Characteristics — Strategy of Making Choices
 Table 5. Characteristics — Strategy of Improving the Status Quo

Figures
 Figure 1. Four Types of Strategy
 Figure 2. The Four Types of Strategy Form a Process of Uncertainty Reduction
 Figure 3. Tier 1 Talent — Future Scenarios
 Figure 4. Strategy Initiative 1: Building the Tier 1 Talent Ecosystem Play
 Figure 5. Strategic Initiative 2: Embrace Robotization
 Figure 6. Strategic Initiative 3: Get Out!

Introduction
Like your national sport, strategy can be a strongly divisive topic. The simplest definition of strategy
is "how we succeed." Consequently, strategy in the field of technology is "how we succeed with
technology," or "the role of technology in how we succeed" (see Note 1).
We recognize that there are different approaches to strategy, dictated by:
 Personal preference, corporate culture and risk appetite
 The overall business objective
 The existing organization and its investments
 The level of irreversibility of the decisions that need to be made
 The level of uncertainty in the market
Consequently, we take the position that strategy should not always be seen as a single, agreed-
upon, top-down-designed plan or position that describes clear choices of what to do or not do.
Instead, you should adopt a different position on strategy — one that embraces some, if not all, of
the following aspects:
  Strategy is not a high-level plan or position per se. It is a concrete and hands-on combination
of diagnoses of risks and constraints, guiding policies, decisions, actions, waiting periods,
and feedback loops.
 Strategy needs to fit to the organization's leadership style and corporate culture. It is not
always a rational and detached planning process.
 In uncertain environments, strategy formulation, execution and evaluation are a continuous
mix without clear boundaries. There is no single planning exercise that translates into an
overall program defining its implementation. Instead, strategy can — often should — be
messy, based on serendipity, learning/growing insight and new opportunities (often driven by
new technologies). This not only allows for strategic uncertainty, it also means thriving on that
uncertainty by being superior in strategic adoption. Strategy is a struggle.
Different situations require different strategic approaches, and in complex organizations these
different approaches coexist (see Note 2 and Note 3).

How the Four Types of Strategy Relate

Sometimes you make strategic decisions under high levels of uncertainty; at other times you are
fairly certain about the stability of your environment for the midterm or even long term. Sometimes
your strategic decisions are highly irreversible; at other times they are very reversible (see Table 1).

Table 1. Reversible and Irreversible Decisions — Examples

Reversible Decisions Irreversible Decisions

 The decision to "not do" something  Architectural decisions

 Conducting an experiment with an
open-source tool
 A list of prioritizations within a portfolio
of activities
 Anything with low switching cost and
effort
 Large technology investments
 Reorganizing the business
 Investing in joining an ecosystem with combined
products and services
 Anything with high switching cost and effort

SOURCE: GARTNER (APRIL 2017)

These represent two dimensions that help you visualize various types of strategy that you can
deploy: certainty versus uncertainty, and reversibility versus irreversibility. As a result, four types of
strategy emerge, each of which applies under certain conditions. As shown in Figure 1, strategy can
be seen as making choices, creating options, conducting experiments or improving the status quo. 1
Figure 1. Four Types of Strategy
 SOURCE: GARTNER (APRIL 2017)
For each type of strategy, we provide:
 A description of what this decision model looks like
 Appropriate mode(s) of IT (see Note 4); best practices versus next practices 2
 A set of characteristics
 Some examples
 Analysis
Master Strategy as Conducting Experiments
In highly uncertain and complex environments, it is hard to get it right first time. Success is often the
sum of previous failure. Trying a few things to see what works and specifically allowing for
serendipity can be a strong strategic approach. Far from being clueless, this approach should be
seen as strategic probing to build a picture of how to influence a highly dynamic environment. Each
of these probes is small, but together they provide a comprehensive (albeit changing) picture. This
approach is especially suited to decisions with high reversibility; for less-reversible decisions, the
options-based approach is better.
Mode of IT and Best Practices vs. Next Practices:
 This type of strategy benefits most from a Mode 2 approach. Using Mode 1 would stifle
innovation and demand too much overhead.
 As there is significant uncertainty, best practices do not generally exist. Next practices fit best
to this experimental approach.

Table 2. Characteristics — Strategy of Conducting Experiments

Strategic Aspects Characteristics

Leadership and culture  Influence-based rather than control-based

 Engaging and open
 Improvisational and empowering
 Entrepreneurial
 Risk-tolerant and forgiving

Process  Dynamic
 Bottom-up
 Opportunistic
 Hypothesis-led

Success metrics  Distribution of success (60% of such activities are discontinued, 30%
solve a particular problem and 10% are transformative)
 Time to complete

Organizational form  Market-centric

 Hackathon-based
 Emphasizes citizen development
 Collaborative
 Table 2. Characteristics — Strategy of Conducting Experiments

Strategic Aspects Characteristics

Governance practices  Governance of the experimental process and the use of outcomes
rather than restricting data access
 Portfolio funding, seed funding, trust-based funding

Business/technology  Agile, sandboxing

capabilities  Ad hoc composition of technologies

SOURCE: GARTNER (APRIL 2017)

Examples
 Digital labs: Having a digital lab in which it is possible to play with new technologies without
having an immediate business case. Think of the Internet of Things (IoT), 3D printing or
advanced analytics. In this lab new possibilities are shown.
 Evolving customer experience and engagement: This may have an overarching objective, but
the way forward is likely murky and requires constant experimentation, validation and nimble
thinking.
 The commercial aspects of digital business models: These are not always easy to determine.
What is the right price to charge? Beta tests with customers and other stakeholders help
determine what truly adds value, substantiating a pricing strategy and market acceptance.

Master Strategy as Creating Options

Making large investments in an uncertain environment is challenging. How do you know that your
choice will still be the right choice when the environment changes? Given the often irreversible
nature of large investments such as setting up a digital platform, the gap between the technology
planning horizon (two to three years) and the investment life cycle (five to 10 years) poses significant
strategic risk.
Options-based types of strategy are based on the idea that the future is uncertain. Such strategies
are necessarily highly adaptable and flexible. The thinking behind options-based types of strategy is
not new — it is based on "real option theory" 3 (also see "The Four Pillars of an Options-Based
Information Strategy" ).
As specific use cases are assumed to be unpredictable, this strategy just describes the principles for
each emerging use case to adhere to. New strategic initiatives can be added to, moved or removed
from the list at any moment. Such initiatives are always introduced in phases that each bring
valuable results, so one can pause or even stop at any time.
Any resource, including technologies, people and facilities, must be multifunctional so that the model
works under multiple scenarios. Such resources must also be reconfigurable under changing
circumstances.
Mode of IT and Best Practices vs. Next Practices:
 An options-based strategy requires both Mode 1 and Mode 2 operation. The initial
implementation may be done in a Mode 1 fashion, carefully crafting a set of capabilities and
an agile platform. This "platform" then brings Mode 2-style capabilities to enable quick
change.
 Both best practices and next practices can work. As options-based strategies become more
accepted, more best practices will emerge.

Table 3. Characteristics — Strategy of Creating Options

Strategic Aspects Characteristics

Leadership and culture  Based on strong conceptual thinking

 Self-reflective
 Open for change
 Based on scenario thinking

Process  Resource-based
 Collaborative
 Change-led

Success metrics  Time to change

 Cost of creating options versus options value
 Degree of reconfigurability and multifunctionality of technology,
process and people capabilities
 Degree of overlap between capabilities

Organizational form  Activity- and competence-based

 Quick organizational reconfigurations possible

Governance practices  Principle-based

 No details but providing guidelines to handle new situations

Business/technology  Multifunctional
capabilities  Reconfigurable
 Staging commitments

SOURCE: GARTNER (APRIL 2017)

Examples
Many of the new approaches in digital are options-based:
  Business moments: Instead of defining digital processes as a sequence of steps toward a
predetermined goal (a choice-based approach), "business moments" are defined as sets of
interactions toward a negotiated goal. Not all actors and negotiations are known. A business
moment sets the conditions in which unscripted interaction can take place.
 Creating a two-sided platform business: This defines how value is created between market
and platform participants. Some of the choices to create the platform will be highly
irreversible, but incorporating open-source analytical algorithms can provide more Mode 2
flexibility to change platform behavior.
 The cloud: This provides an options-based approach because it can scale elastically. It keeps
your compute and storage options open.
 Data virtualization technologies: These allow data to be left where it lives, without having to
build elaborate data integration structures. Data can be accessed and integrated, given the
proper master data, on the spot. Should this be too slow or cumbersome, a more thorough
process can follow later.

Master Strategy as Making Choices

The classic view of strategy — that it's based on clear choices over what you do and what you don't
do — fits well in situations where there is high certainty — for instance, where you have clear control
over your environment, and where decisions are highly irreversible. Think of a global implementation
of a new business system, or introducing a new enterprise architecture, or — if you have the market
power — introducing a new market standard. There can be a clear separation between strategy
formulation, execution and feedback, as the roadmap is clear. In fact, a straightforward, sequential
waterfall implementation is most probably the fastest and least-expensive method.
Mode of IT and Best Practices vs. Next Practices:
 The choice-based decision model aligns very well with Mode 1 delivery of bimodal IT, aimed
at predictability, security and efficiency.
 Both best practices and next practices can be applied. Organizations often innovate by
looking at what is happening in other industries, then apply it in their own environment.

Table 4. Characteristics — Strategy of Making Choices

Strategic Aspects Characteristics

Leadership and culture  Being able to shape your environment

 Long-term perspective
 Design-driven
 Goal- and plan-oriented
 Doing things right in one go

Process  Top-down
 Structured
 Table 4. Characteristics — Strategy of Making Choices

Strategic Aspects Characteristics

Success metrics  Results on time and budget

 Improving organizational efficiency
 Match between long-term perspective and the reality created

Organizational form  Project-and program-based

 Has a clear set of information and analytics priorities

Governance practices  Based on roles and responsibilities

 Based on policy and principles
 Standardized

Business/technology capabilities  Project management-oriented

 Software implementation-focused
 Data and execution integration between initiatives

SOURCE: GARTNER (APRIL 2017)

Examples
Most of IT is used to working like this, including when implementing enterprise business applications,
data warehouses and office automation. These practices have not gone away, but the number of
projects that operate under choice-based conditions — high certainty, high irreversibility — is
decreasing. The most irreversible technology choices that organizations need to make are about
technology stacks, where they connect to other parties.

Master Strategy as Improving the Status Quo

Keeping the status quo — actively deciding to not change something — often sounds like an
antistrategy. But it can be the best choice, for two reasons.
First, keeping your existing solutions allows you to focus on improving efficiency and thereby drive
down cost, allowing for more resources in other, more important, priorities. It makes most sense to
spend as little time as possible on some activities, as they do not differentiate. For instance, if the
overall business strategy does not require a heavy focus on analytics but does require different
capabilities, the analytics substrategy should be based on adopting best practices that improve the
existing function.
This approach works best in environments with high levels of certainty (so that there is less
opportunity to differentiate) and where decisions are reversible (so that the switching cost may be
low). For instance, organizations may use lean to remove waste from an existing approach. If those
changes do not yield the intended result, they can be backed out of or addressed in another
improvement iteration.
Second, as you can reverse your decision at any time, it allows you to "wait and observe." 4 Steve
Jobs once said, "I am going to wait for the next big thing." This was in 1998. A few years later, the
iPod was introduced — the starting point for Apple's renewed success. Jobs maintained the status
quo, waited and observed the market, and, when the time was right, focused on the new opportunity.
Mode of IT and Best Practices vs. Next Practices:
 Given the certainty of the environment, this strategy is best-served by a Mode 1 approach.
 Have a clear focus on best practices. Coming up with your own ways is overshooting the
problem.

Table 5. Characteristics — Strategy of Improving the Status Quo

Strategic Aspects Characteristics

Leadership and culture  Detail-orientated and observational

 Efficiency-conscious
 Risk-averse and stability-minded
 "Keeping the lights on"
 Patient

Process  Top-down
 Structured
 Operations-led

Success metrics  SLAs

Organizational form  Hierarchical or process-based

Governance practices  Compliance-oriented

 Short-term ROI-based
 Risk management-oriented

Business/technology capabilities  Focused on best practices

 Standardized
 Simple
 Partner management

ROI = return on investment; SLA = service-level agreement

SOURCE: GARTNER (APRIL 2017)

Examples
Every organization needs functions such as financial consolidation, management reporting,
traditional data management, and other things to keep the lights on. By minimizing the cost and
effort it takes to maintain these functions, organizations can free up the resources for more-valuable
initiatives.

Gartner Recommended Reading

Some documents may not be available as part of your current Gartner subscription.
"The Four Pillars of an Options-Based Information Strategy"
"Information and Technology Strategy for the Enterprise on the Cusp of Digital Business"
"Toolkit: IT Strategy Template 2.0 — Embedding Information and Technology in Business Strategy"
"How to Create an Information and Technology Strategic Plan"
"Toolkit: Information and Technology Strategic Plan Template"

Evidence
1
As evolved from F. Buytendijk, "Dealing with Dilemmas: Where Business Analytics Fall Short,"
Wiley, 2010.
2
"Column: Best Practices Get You Only So Far," Harvard Business Review, April 2010.
3
L. Trigeorgis (ed.), "Real Options and Business Strategy: Applications to Decision Making," Risk
Books, 1999.
4
"Strategy's Strategist: An Interview With Richard Rumelt," The McKinsey Quarterly, August 2007.

Note 1
Technology vs. IT
There is a difference between technology and the IT department. Close to 50% of technology
spending in the business is not part of the IT budget.
The essence of strategy in the field of technology — "how we succeed with technology" — is broader
than IT strategy. It means partial strategies for making technology work. "The role of technology in
how we succeed" is a clear reference to the overall business strategy, and the role of technology in
it.

Note 2
Strategy Cannot Always Simply Be Changed
Current or previous strategies often lead to barriers or obstacles. This can often be witnessed
through statements like:
 "We have invested so much in vendor XYZ, now that is what we will use."
 "Interesting idea, but this vendor is not on our strategic blueprint."
 "First, we will finish our data architecture in the next two years, then we will think about next
steps or new initiatives."
 "We would love to invest in innovative ideas, but we do not have a budget for it."
The common thread throughout all these statements is that the current or previous strategy has led
to the creation of a barrier, limiting you to drive and adapt a new strategy.

Note 3
The Fine Art of Strategy
The four types of strategy are not mutually exclusive. In fact, finding the right combination is the fine
art of strategy.
The four types form a process of uncertainty reduction (see Figure 2), very much like the
traditional Boston Consulting Group (BCG) Growth Share Matrix.
Figure 2. The Four Types of Strategy Form a Process of Uncertainty Reduction
 SOURCE: GARTNER (APRIL 2017)
Consider the fictional company Tier 1 Talent — an agency for temporary workers. The company has
identified three future scenarios (see Figure 3):
 Boom : AI applications will allow temporary workers to perform jobs that were once
unreachable by pairing with AI-based domain knowledge, leading to new types of demand.
For instance, see the advancements with AI in the legal profession or in computer-assisted
medical diagnoses.
 Steady : Business will be steady, and there is opportunity for improving margins and
operational efficiency.
 Bust : AI applications will take over the repetitive and mundane that was once performed by
temporary workers, and business overall will shrink, as has been witnessed in other markets.
For instance, the internet has affected the postal market heavily.
Figure 3. Tier 1 Talent — Future Scenarios
 SOURCE: GARTNER (APRIL 2017)
Consider how the four types of strategy play roles in a number of strategic initiatives (see Figures 4,
5 and 6).
Figure 4. Strategy Initiative 1: Building the Tier 1 Talent Ecosystem Play
 SOURCE: GARTNER (APRIL 2017)
Tier 1 Talent realizes that it is part of a wider ecosystem, and wants to take a leading role. It
experiments with obtaining data from a job board to improve data profiling of candidates, within
current business practices. If this turns out to work, it can expand the exchange with the ecosystem
and start routing all applicant interactions through a handful of popular job boards.
Tier 1 Talent thus connects itself, but this is nothing it can't back out of. This initiative may turn out to
be very successful and lead to actually acquiring a job board, meaning the company will move
deeper into the digital space.
Now it has the opportunity to also improve the status quo, by introducing its own smart matching
technology to the self-service job board, for instance.
This strategic initiative, moving through various stages of uncertainty, would prove worthwhile in the
event of the "steady" or "bust" scenario, where the company would need to reinvent itself.
Figure 5. Strategic Initiative 2: Embrace Robotization

SOURCE: GARTNER (APRIL 2017)

Tier 1 Talent starts with conducting market intelligence to find out how much robotization is already
affecting factories. This will give a better understanding and less uncertainty on how big the market
for Tier 1 Talent can be. The goal of obtaining information is to reduce uncertainty. At the right
moment, Tier 1 Talent may choose to train a small pool of engineers in robot maintenance, to get
closer into the market.
Given the size of the initiative and that customers will pay for the services, the risk is limited. Having
built experience with how to maintain robots, Tier 1 Talent can turn this into a business model and
lease out robots as "temporary workers," including the maintenance: robot as a service. Over time
the business model can optimize a little, from monthly fees to fees based on the reliability and
productivity of the robot.
This initiative would play out well in the "boom" scenario.
Figure 6. Strategic Initiative 3: Get Out!
MOOC = massive open online course

SOURCE: GARTNER (APRIL 2017)

Tier 1 Talent feels that, if it invests in its pool of temporary workers, it benefits clients, the
perspective of temporary workers and the company itself, because of higher rates. The company
experiments with massive open online courses (MOOCs) to provide training.
Through learning analytics, this experiment also teaches the company about educating working staff;
what works and what doesn't. If the economy goes bust, and Tier 1 Talent finds itself in a shrinking
market, it has now built a critical capability — it can help people get retrained in all the other markets
that are shrinking. It has a new business model. Over time, the company can de-emphasize its
traditional cash-cow business and reinvent itself as a digital training institute.
This initiative would play out well in the "bust" scenario.

Note 4
Bimodal IT
Bimodal IT is the practice of managing two separate, coherent modes of IT delivery — one focused
on stability and the other on agility.
 Mode 1 is traditional and sequential, emphasizing safety and accuracy
 Mode 2 is exploratory and nonlinear, emphasizing agility and speed
Globally, 37% of organizations currently have some bimodal capabilities, and we expect this to grow
to 75% in the next two years.