THE DOUBLE GAME OF

DIGITAL STRATEGY
By Philipp Gerbert, Christoph Gauger, and Sebastian Steinhäuser

This is the first in a series of articles on set- Even sharp minds can fail to grasp the
ting and executing digital strategies with power of sustained exponential forces.
speed, foresight, and savvy. The wunderkind-turned-futurist Ray
Kurzweil has famously used the “second

D igital is often compared to electricity.

Both are pervasive, and each has been a
fuel for broad-based economic transforma-
half of the chessboard” as an illustrative
metaphor. The expression evokes an an-
cient fable in which the ruler of India
tion. But the comparison is misleading. agreed to reward the inventor of chess
with rice. One grain on the first square
Today’s production, distribution, and uses of the chessboard, two on the second,
of electricity, in spite of significant im- with each successive square getting twice
provements in efficiency, would be familiar the number of grains as the previous
to Tesla and Westinghouse. By contrast, the square until all 64 squares were filled.
possibilities and economics of digital— (See Exhibit 1.)
driven by sustained exponential trends like
Moore’s law for processing power and its On the first half of the board, the reward
various derivatives for bandwidth, storage, was large but manageable. By the thirty-
and more—are constantly changing, en- second square, the cumulative compensa-
abling new moves and sparking the trans- tion amounted to about 4 billion grains, or
formation of industries. about a football field covered with rice.
The ruler ran into trouble in the second
As a result, digital strategies need to continu- half, when growth failed to diminish. The
ally adapt to and seize new opportunities. pile kept doubling, square after square,
Executives have to play a “double game”: quickly surpassing the ruler’s resources and
making the most out of today’s contests eventually reaching a mound the size of
while positioning themselves to win in Mount Everest—or more than the cumula-
tomorrow’s. tive rice production on earth.

For more on this topic, go to bcgperspectives.com

 Exhibit 1 | The Second Half of the Chessboard Has Arrived

263 PROCESSING
PERFORMANCE

SECOND HALF:
MOUNT EVEREST
OF RICE

4bn

FIRST HALF:
FOOTBALL FIELD  33 x 18 months = ~50years
OF RICE

1 2 4 8 16 32 64 128 ~2005 2015

Sources: Ray Kurzweil; BCG analysis.

Digital has entered the second half of the What can I forecast? To prepare and open
chessboard, and its growth shows no signs of the mind, analyze the breadth of digital
abating. The technology, media, and telecom- trends, their expected time frames, and po-
munications sectors are already approaching tential tipping points as what is possible
the base camp of Everest, while financial ser- evolves. Then be very explicit in stating
vices, health care, and consumer goods are your most likely scenarios and conclusions.
still on the early slopes. Energy, industrial Only with this level of clarity can you be
goods, construction, and public services are productively surprised by new develop-
arguably just beyond the football field, about ments—and prepared to act on them with
to start their steepening ascent. And every- decisive speed. It’s important to have a
one’s future remains shrouded in clouds. view on both the “usual suspects” and la-
tent discontinuities.
Moreover, industries are increasingly collid-
ing as digital moves beyond screens and Automotive companies have been contem-
software to enter the world of things and plating a future with autonomous vehicles
businesses. We will use the fast-changing for decades. But their business focus has
landscape of mobility and transportation been on efficiency, global expansion, and
to illustrate how automotive, technology, electric cars—as well as assisted driving
and start-up companies are both comple- and connected cars in the digital realm. So
menting and competing with one another. they were surprised by the rapid emer-
Their strategies suggest new ways to think gence of an autonomous-vehicle prototype
about mapping the landscape, deciding by an outsider, Google, and the broad em-
where to play, and embarking on the jour- brace of the concept that it generated.
ney of digital transformation.
The industry is suddenly awash in debate
about when autonomous vehicles will
Mapping the Landscape reach a tipping point. Will the next decade
Preparing for the double game is inherent- bring innovative fully autonomous vehicles
ly challenging but essential. As the great to consumers? Or will traditional vehicles
French scientist Louis Pasteur said, “For- simply add an increasing number of auton-
tune favors the prepared mind.” The best omous features in an evolutionary and po-
companies ask three questions to under- tentially slower process? Whatever the out-
stand and map the strategic landscape for come, autonomous vehicles are now on the
today’s and tomorrow’s digital plays. radar of automakers, which have incorpo-

| The Double Game of Digital Strategy 2

 rated them into their forecasting efforts strengths to shape a market and when you
and strategic plans. need to acquire new capabilities or adapt
to ambient forces. A word of caution: our
Where can I be disrupted? A chat between research shows that CEOs often overesti-
an auto executive and an executive build- mate their ability to predict and shape
ing an autonomous vehicle is revealing: their environment, and consequently lead
their companies astray.1
Auto executive: “Why no steering wheel?”
You might have to make unconventional
Autonomous-vehicle executive: “Because plays in order to shape the market. Consid-
it’s about mobility services, not driving.” er the decision by fierce competitors Audi,
BMW, and Daimler to jointly buy Nokia’s
It’s essential to follow the lead of the auto HERE mapping business. Mapping and geo-
executive above and explore the attacker’s positioning will be essential to value-added
perspective. Venture capitalists, like the location-based auto services and to the ulti-
corporate raiders of the past, search for mate success of autonomous vehicles.
vulnerable profit pools. So should all suc- Through that acquisition, the automakers
cessful companies. The best ones probe mitigated the strategic risk of being depen-
competitive moves from adjacent indus- dent on Google’s or Apple’s cartography
tries that could endanger their current platform.
business—and examine how their own as-
sets and capabilities could be disruptive in
other sectors. Deciding Where to Play
Charting the current and future playing
What can I shape and where do I need to fields is necessary but insufficient. It’s also
adapt? Brands, distribution networks, sup- essential to frame, explore, and prioritize
plier relationships, strong capabilities, and strategic choices. An intuitive tool is BCG’s
superior cost positions do not disappear in digital opportunity matrix, which compris-
a digital world. The trick is to figure out es two axes: reengineer the value chain and
when you can draw on existing or latent reimagine the offering. (See Exhibit 2.)

Exhibit 2 | The Digital Opportunity Matrix

REENGINEER THE VALUE CHAIN

VALUE CHAIN ECOSYSTEM

TRANSFORMATION TRANSFORMATION

EXPLORATION

Enhancement
Exploration

OFFERING
Transformation
ENHANCEMENT
TRANSFORMATION

REIMAGINE THE OFFERING

Source: BCG analysis.

| The Double Game of Digital Strategy 3

 Reengineer the value chain. It based on car and train sensor data, for in-
would be negligent to forgo the stance, offers the opportunity to enhance
many opportunities that digital existing maintenance. So do simple ser-
provides to optimize company processes. vices, such as crowdsourced real-time traf-
To some, this may sound like an old story, fic information provided by Waze or Inrix.
dating back to the reengineering mantra of
the 1990s. But things have changed. State- Other new offerings are spurring more
of-the-art IT—although not necessarily far-reaching industry changes. Uber, for ex-
your IT department—has become flexible, ample, is seeding and shaping the sharing
intuitive, powerful, and even accessible to economy for the transport of people (and
general managers. soon goods), blurring the difference be-
tween contractors and employees. None of
Digital reengineering can vary in complexi- these developments are fundamentally
ty and impact, ranging from a single val- transforming the core offering of tradition-
ue-chain step to processes that cross multi- al automakers, but they do start affecting
ple corporate functions and even the demand and supply. Peripheral industries,
organization’s boundaries. Data analytics however, are being transformed by these
that improve sales effectiveness across developments. The new- and used-car-deal-
physical, mobile, and online channels can er markets are under threat from all-digital
promote significant value creation. Another pricing platforms such as TrueCar and
obvious opportunity is the development of all-inclusive online consignment services,
entirely automated order-to-delivery pro- such as Beepi or Shift.
cesses. In the back office, HR and finance
processes typically offer opportunities for
immediate optimization. Playing the Double Game
Striving to sustain a competitive advan-
Consider how Tesla has reconfigured auto- tage demands a perpetual process of
motive distribution with single-car show- transformation as today’s game quickly
rooms, all-online sales, and home delivery of morphs into tomorrow’s. The ongoing cy-
vehicles. But it’s not just a story of newcom- cle has three stages that are represented
ers. Incumbents are also reaping the bene- along the diagonal in the digital opportu-
fits of digital. A major European automotive nity matrix.
supplier is rapidly achieving a step-change
improvement in productivity by embracing a Enhancement. Strategically, en-
digital transformation of its production pro- hancement is about extrapolating
cesses, ranging from quick wins such as auto- from your current position. Start
mated material handling to investments in with where you can create immediate val-
collaborative robotics. New digital tools that ue. While this is the least radical stage of
facilitate fast prototyping enabled the com- digital opportunities, it can improve the or-
pany to pilot the most promising concepts in ganization’s digital skills and provide tre-
less than three months. mendous and immediate value creation
that can fund the broader digital journey.
Reimagine the offering. Whereas Examples include predictive maintenance,
reengineering is largely a linear streamlined digital links to suppliers and
process in search of efficiency and customers, and recommendation engines.
effectiveness, reimagining is more open
ended, requiring creativity and vision. Exploration. Exploration requires
Digital also creates ample opportunities for investigating offerings adjacent to
novel products and services. These innova- the current business or pursuing
tions typically exploit new data and larger adjustments of the value chain.
powerful analytics. Starting down the path to full autonomy by
adding advanced assisted-driving features
In the mobility industry, examples of re- to a car and reshaping distribution on the
imagination abound. Condition monitoring basis of innovative geoanalytics capabili-

| The Double Game of Digital Strategy 4

 ties are examples. Exploratory digital strat- new and growing exponentially. In fact, the
egies become C-suite topics. Companies most valuable data doesn’t rest in dusty da-
need to invest significant resources in digi- tabases but has yet to be created. Data is a
tal businesses and closely track their per- classic example of one of tomorrow’s
formance. In many cases, companies can highly dynamic multilevel games.
develop a portfolio of venture investments
to establish beachheads in promising areas. Practice playing the double game. Sus-
tained success requires actively managing a
Transformation. Transformation is portfolio of initiatives across time. A useful
an all-encompassing strategic analogy might be the famous Nash equilib-
move that has the greatest poten- rium in game theory: The optimal strategy
tial to generate competitive advantage, of- is always to focus on each action for a part
ten over several years, but also the greatest of your time. Your strengths and weakness-
risk. From a strategic standpoint, execu- es will determine their relative weight.
tives need to envision a target state five to
ten years out and then “retropolate” from Daimler, for example, is enhancing both
that vision back to the present. Transfor- the connected-car and autonomous-driving
mative change by its nature becomes the features of its vehicles. It is also exploring
top CEO priority. Transformation requires car sharing with car2go and has acquired
major investments and often the develop- mytaxi, an innovative ride-matching plat-
ment of new partner ecosystems. form in the German cab market. Through
its Moovel platform—which integrates car-
In working with clients, we have found that 2go and mytaxi into a broader route-plan-
a firm grasp of these stages helps execu- ning ecosystem—it is striving to shape in-
tives weigh short-term versus long-term ap- termodal travel. And, of course, Daimler is
proaches and balance reengineering and working on strategies for fully autonomous
reimagining. In setting priorities, three premium vehicles.
pieces of advice are in order.
Executives can use a simple checklist to as-
Ultimately, strategy is about choice. You sess and shape their strategies for confront-
cannot do everything. And you cannot ing second-half-of-the-chessboard challeng-
even do all the things you should do es. (See the sidebar, “A Checklist for
simultaneously. You have to make con- Action.”)
scious choices to prioritize and stage
initiatives. In fast-paced digital markets The strain posed by the accelerating pace
that your company lacks the ability to of digital transformation is unprecedented.
shape, for instance, the best strategy may Not even digital natives, born in the early
be to focus on complements—providing foothills, are prepared for further ascent.
the shovels for the digital gold rush—to “After the game is before the game,” as
take advantage of the exponential decrease they say in soccer. In other words, you need
in digital costs. to focus on winning the next game even as
you are finishing the current contest. Con-
Conventional wisdom can be generally versely, you have a chance to recover even
right but specifically wrong. The digital era if you lose one round. Just look at Apple
has produced several conventional wis- and IBM.
doms, such as “winner takes all” and “data
is the oil of the twenty-first century.” In a Next up: how to execute a coherent set of ac-
fast-moving environment, however, even tions in order to play the double game.
winners stay vulnerable. Remember the
warning about the inertia of incumbents:
“God created the world in seven days
because he did not have an installed base.” Note
Likewise, data is the opposite of oil in that 1. See “Your Strategy Needs a Strategy,” BCG article,
October 2012.
one is ancient and scarce and the other is

| The Double Game of Digital Strategy 5

 A CHECKLIST FOR ACTION
The following questions may help you prepare to play the double game

Have we explicitly mapped the Do we know how to play in the

digital landscape? opportunity matrix, along each axis
and the diagonal?
•• What will our industry look like after
ten squares—a performance factor of •• Where is resistance—the hidebound
about 1,000? “car dealer” in the organization—to
reengineering the value chain?
•• What are the anchoring beliefs for
the future upon which we can build •• What immediate steps can we take to
our forecast scenarios? address our pain points and enhance
processes?
•• Where would we attack our business?
What source of value creation is most •• How would we reimagine our prod-
vulnerable? ucts without legacy?

•• Where do we go against the grain in •• What opportunities demand explora-

shaping digital strategies? Are we tion? Which ones could become
overestimating our abilities? transformative?

About the Authors

Philipp Gerbert is a senior partner and managing director in the Munich office of The Boston Consulting
Group. He also coleads the Strategy practice in Europe and is the global topic leader for digital strategy.
You may contact him by e-mail at [email protected].

Christoph Gauger is a partner and managing director in the firm’s Stuttgart office and an expert in
digital transformation in the automotive and mobility sector. You may contact him by e-mail at
[email protected].

Sebastian Steinhäuser is a consultant in BCG’s Munich office. You may contact him by e-mail at
[email protected].

Acknowledgments
The authors would like to thank Michael Grebe, Thomas Gumsheimer, Jan Justus, Andrej Müller, Michael
Rüßmann, Daniel Schlecht, and Manuela Waldner for inspiring discussions and comments.

The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advi-
sor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all
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visit bcg.com.

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