Digital Strategy (AQA A-Level Business): Revision Notes
Use of Digital Technology
Digital technology is continuously evolving, and businesses must adapt to remain competitive. Organisations that fail to embrace technological advances risk missing significant opportunities for growth and development. Understanding how to strategically implement digital technology across different business functions is crucial for maintaining market position and achieving long-term success.
Pressure to update digital technology
Businesses operate in an environment where technological developments emerge constantly. This creates pressure to make strategic decisions about which technologies to adopt and when to implement them.
When considering new digital technology, businesses must evaluate two critical factors: the potential return on investment (ROI) and the likely impact on business operations. Making informed decisions about technology adoption requires careful analysis of costs versus benefits. If a business selects appropriate technology and implements it at the right time, it can establish a competitive advantage over rivals and potentially increase its market share.
Poor decision-making in technology adoption carries significant risks. Businesses that choose unsuitable technology or delay adoption for too long may lose ground to competitors. Once market share is lost, it can be extremely difficult or even impossible to recover that position. The timing of technology adoption is therefore just as important as selecting the right technology itself.
Digital technology and innovation
Creating innovative new products
Digital technology opens up exciting possibilities for product development and innovation. Research and development (R&D) departments can incorporate cutting-edge digital technology into new products, creating innovative products that have the potential to transform the marketplace and generate substantial revenue for the business.
Beyond revolutionary new products, digital technology also enables small upgrades to existing products. These incremental improvements help businesses maintain their competitive position. For instance, smartphone manufacturers regularly enhance their devices with improved cameras, more powerful processors, and expanded features. These ongoing upgrades allow businesses to retain market share by meeting evolving customer expectations.
The internet has created opportunities for businesses to monitor updates to digital technology on a global scale. An R&D department in the UK, for example, might discover an innovation developed in Japan and find ways to incorporate similar features into their own products. This global awareness helps businesses stay at the forefront of technological development.
Disadvantages of digital technology for innovation
Despite the opportunities, using digital technology for innovation involves several significant challenges that businesses must consider:
Four Key Disadvantages of Digital Innovation:
High development costs represent a major concern. Developing new products based on emerging digital technology is often very expensive. If these products fail to reach the market successfully, the business may incur substantial financial losses with no return on investment.
Insufficient testing poses another risk. New technology hasn't always been thoroughly tested before businesses incorporate it into their products. Using untested technology creates the risk that products will contain numerous bugs or fail to function properly, leading to customer dissatisfaction and damage to the business's reputation.
Diagnosis difficulties can frustrate customers. Problems with digital technology can be challenging to identify and resolve. When customers cannot get products to work properly, they become frustrated with the company, potentially leading to negative reviews and lost sales.
Market rejection is always a possibility. Sometimes new technology simply fails to gain customer acceptance. For example, Sony launched the MiniDisc player in 1992, but it was too expensive for most consumers and never achieved significant market success. This demonstrates how even established companies can misjudge market readiness for new technology.
Improving production efficiency
How digital technology transforms production
New technology can fundamentally change how products are manufactured, often leading to substantial improvements. Digital technology in production processes can result in better quality products, increased capacity to produce more units, and increased efficiency in how resources are used.
However, businesses must carefully evaluate whether the expense of implementing new digital technology in production will actually be profitable over the long-term. This cost-benefit analysis is essential before making significant investments in production technology.
Implementation of new production technology typically requires considerable time. By the time new technology is fully integrated and the process is running efficiently, even more advanced technology may already be available in the market. Businesses must accept that technological investment is an ongoing process rather than a one-time decision.
Staff training and adaptation
To use new technology efficiently, staff often require specialised skills. This means employees will need to be retrained to develop the competencies necessary for working with new systems and equipment. During the training period, efficiency typically decreases as workers are not yet fully competent with the new processes.
When businesses introduce excessive new technology to their production process, staff can become overwhelmed and resistant to changes. This resistance can further reduce efficiency and create workplace tensions. Businesses must therefore balance the pace of technological change with their workforce's capacity to adapt.
Examples of digital technology in production
Practical Applications of Digital Technology in Production:
3D printing technology has revolutionised product development. Businesses can now produce prototypes of new products quickly and cheaply. This technology also makes it much easier to modify and refine aspects of the product during development, significantly reducing the time from concept to final design.
Software developments have transformed inventory and supply chain management. Businesses can now easily track inventory levels and monitor deliveries from suppliers. This enhanced visibility allows production processes to run more smoothly and efficiently, reducing delays and waste.
Increased machinery and automation have resulted in businesses shifting away from labour-intensive production methods. This transition saves substantial money in wages over time. However, it's important to note that reducing the workforce can have a negative impact on the company's reputation and the remaining workers' morale, which businesses must carefully manage.
New opportunities from digital technology
Big data and data mining
Improvements in digital technology have enabled businesses to gather big data - vast quantities of information collected from numerous sources including social media, loyalty cards, and other digital touchpoints. Some companies even purchase big data from other businesses to enhance their information resources.
Once collected, this big data can be analysed using computers and specially designed digital software to identify correlations and trends. This analytical process is known as data mining. Through data mining, businesses can extract useful information about customers and competitors that informs decision-making across functional areas of the business.
How Different Departments Use Data Mining:
The R&D department can use data mining insights to develop new products that better meet customer needs.
The marketing department can use this information to make informed decisions about the marketing mix.
The finance department can use data trends when making cash-flow forecasts and other financial projections.
E-commerce opportunities
Improvements in digital technology have made e-commerce the primary way for many businesses to trade goods and services. This shift has created numerous strategic advantages:
Businesses don't need to invest as heavily in physical stores because they can reach a much bigger customer base through a website. This significantly reduces overhead costs whilst expanding market reach.
E-commerce growth has given businesses greater access to international markets. Companies can translate their websites into different languages and arrange worldwide delivery, allowing them to expand their markets far beyond their local area.
Manufacturers can use their own website or online marketplaces to sell directly to consumers rather than selling through agents or retailers. This direct sales model allows them to keep all of the revenue for themselves, improving profit margins.
Companies can track the online order history of their customers, enabling them to make personal recommendations based on individual preferences. This personalisation increases the likelihood of additional purchases.
Businesses can interact more directly with their customers through social media, allowing them to regularly update customers about improvements to their goods and services and maintain ongoing engagement.
Customer service has become more efficient through digital technology. Businesses can handle customer complaints more effectively by switching from traditional telephone services to live online assistance. A customer service assistant can deal with multiple customers simultaneously through online chat systems.
Competitive Pressures from Transparency:
However, customers also have access to these technologies, which creates additional competitive pressure. Customers can quickly look up reviews of products and find prices of similar products within seconds. This transparency means businesses must offer genuinely competitive pricing and quality, as customers can easily compare alternatives.
Enterprise resource planning (ERP) systems
Enterprise Resource Planning (ERP) is business management software that enables a business to monitor activities in every department through the collection and interpretation of data. ERP systems provide benefits across all functional areas:
ERP Benefits Across Business Functions:
The HR department can use ERP to track work rates of staff, identifying who needs extra training or when productivity drops. For instance, in a supermarket, managers can monitor the scan speed of checkout operators to identify performance issues.
The finance department might use data from previous infrastructure changes to budget for upcoming changes, helping to improve financial planning accuracy.
The marketing department can track how well promotional products are selling and compare sales before and after promotion, enabling them to evaluate campaign effectiveness and refine future strategies.
The system helps track stock levels, distribution networks, and productivity, allowing businesses to see how well the operations department is functioning and identify any improvements needed.
Key Points to Remember:
- Businesses face constant pressure to update their digital technology, and timing is crucial - adopting too late can result in permanent loss of market share
- Digital technology enables both revolutionary innovation and incremental improvements, but comes with risks including high costs, insufficient testing, and potential market rejection
- New production technology can improve quality, capacity, and efficiency, but requires significant investment in staff retraining and time for implementation
- Big data and data mining provide valuable insights about customers and competitors that inform decision-making across all business functions
- E-commerce creates opportunities for reduced costs, international expansion, and direct customer relationships, whilst ERP systems enable integrated monitoring across all departments