NHH and Knowit:
Which type of strategic focus created the most fertile ground for profitability of digital investments?

For many decades, Norwegian companies have been characterised by cost focus. According to multiple studies, this focus continues to predominate when enterprises want to create value based on technology. This can be explained by the fact that a high cost level is regarded as the most significant threat a company faces. There is also little empirical evidence to show how digitalisation can best create values. Against this backdrop, the NHH, in collaboration with Knowit, has conducted a research project into management and digitalisation.

“The effect of strategic orientation on the commercial exploitation of digitalisation” is a paper about digitalisation in Norwegian companies. The study assumes that digitalisation is a resource for achieving a competitive advantage and that digitalisation comprises the two components of differentiation management and cost management. The study is a quantitative survey with respondents from medium-sized and large Norwegian companies across the service and production industry.

Previous studies have shown that digitalisation in Norwegian companies is primarily a process of efficiency and automation, which contributes to enterprises reducing their costs. This study shows that market-orientated companies are most concerned about utilising digital technology to increase revenue.

“Every business will sooner or later have to make important strategic decisions. Then it is important to identify areas of improvement that are significant enough to generate speed and momentum, yet manageable enough to be viable. Despite many external consultants being critical of the work of Nordic enterprises on digitalisation, Knowit's experience is that they work thoroughly and correctly to create value through digitalisation”, says Stein Opsahl, Director of Strategy at Knowit Experience. Digital transformation entails a company adjusting or reconfiguring its business model in order to increase turnover.

Different strategic orientations
The NHH survey defined four different strategic orientations: market, technology, contractor and learning. The study wanted to uncover why some companies are more successful than others in their digitalisation work and investigated whether there were certain combinations of strategic orientations that resulted in greater commercial exploitation of digitalisation. The following research questions were therefore developed:

1. In which way did the various strategic orientations influence the commercial exploitation of digitalisation?
2. In which way and to what extent did a combination of different strategic guidelines influence the commercial exploitation of digitalisation?
3. In which way and to what extent is the commercial exploitation of digitalisation moderated by inter-functional coordination of strategic orientations?

The survey confirms that the old ideas are not longer valid
The NHH paper shows that strategic orientation is crucial to enabling digitalisation to create value when companies wish to differentiate themselves and that market-orientated enterprises are more likely to succeed. When it comes to digital cost management, the study shows that strategic orientation has no effect.

“There is little empirical data on how digitalisation best creates value, but Knowit's experience is that you have to succeed in both differentiation and cost management. This is in strong contrast to older academic research into the field, for example by Michael Porter”, says Opsahl.

It becomes apparent in the study that cost management is no longer a strategic advantage but a prerequisite for being in the market. This could perhaps be explained by the fact that Norway is already at a high level of technological development, with advanced customers and user groups. Digital investment is not a strategy – it is a framework condition, and it is not sufficient to merely cut costs through new digital solutions. To achieve “digital differentiation” that provides genuinely improved financial results, it is market and customer orientation in particular that are crucial. If the company is also capable of technological orientation, then its financial edge will be further reinforced.

The main conclusion is that Norwegian companies must become more customer-orientated through the use of digital technology.

Background
Our target group was Norwegian companies with more than 20 employees. 535 companies were invited to participate and 117 companies responded. Around three quarters had more than 100 employees and half had more than 250 employees. Most of the companies represented service industries (68) and the remaining companies represented industry (48). 60 of the respondents were from Kapital's list of the largest Norwegian companies and 57 were obtained from Proff.no.

Weaknesses of the survey
The authors themselves noted weaknesses in the survey and emphasised that the respondents perhaps did not always manage to define themselves in the correct category with regard to strategic orientation. The survey also presents a snapshot
(“financial results” is a relative term over time). Also, financial results alone cannot be verified through digital investments. For example, banks and energy companies are regulated and, to some degree, controlled by statutory framework conditions.

As previously mentioned, theoretical frameworks and reference works are being challenged by more recent research. If the focus is on “either/or” when it comes to strategic orientation, we are inclined to think that successful digitalisation relies on having it both ways. In order to succeed in the digital world, the challenge is perhaps the necessity of having technological understanding, being market-orientated, entrepreneurial and open to new knowledge.

Please contact us to receive a PDF copy of the whole survey.

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