by David Raab
Technology strategy is how a company uses technology to achieve its business goals. The business goals themselves are determined by corporate strategy: typical goals are customer intimacy, lower prices, or superior product quality.
Those business goals imply business requirements. For example, a strategy based on customer intimacy requires comprehensive, detailed information about each customer’s activities, preferences, and needs. This in turn creates functional requirements such as capture customer identifiers as they interact across all channels, combine interactions from multiple channels in a central database, link interactions that relate to the same customer, and forecast future customer needs from their past behaviors.
Technology strategy is about selecting a technical approach and making sure all technology decisions support that approach.
Functional requirements can be met through different technical approaches. A company might deploy separate channel systems that feed into a separate, central marketing database or it might deploy a unified system that manages interactions across all channels using its own consolidated database.
Technology strategy is about selecting a technical approach and making sure all technology decisions support that approach. A company that had decided on separate systems for each channel would look for best-of-breed digital systems that could easily connect to the central database, while a company that had chosen a single-system strategy would look for a system with broad multi-channel capabilities and a flexible core database.
The technology choices must also be consistent with other parts of the business strategy. A company whose business strategy included minimal capital investment might favor cloud-based systems that can be deployed and expanded in small steps. One whose strategy depended on unique capabilities might choose to build custom systems despite the higher cost and longer lead time. The key to an effective marketing technology strategy is understanding the larger business strategy and making sure that the marketing systems support it on all levels.
Beyond specific enhancement projects, there are warning signs that your company’s core marketing technology may itself need replacement. These include fragmented data, uncoordinated responses to customer needs, and difficulty in making changes to keep up with new business requirements.
The appropriate response to these symptoms will depend on your company’s technology strategy. You may need to replace a large central system or simply to upgrade a disconnected component. Because new technology is often cheaper than previous versions of similar systems, this won’t necessarily involve an increase in technology investment. But few firms would replace a well-functioning marketing system simply to reduce technology costs. System change creates too much disruption and risk.
Digital Strategy Drives Technology Strategy
The digital strategy is one part of the company’s larger business strategy. The strategic roles assigned to digital marketing will drive many technology requirements. This means that the technology strategy can only be created after the basic digital strategy is set and the company has defined its interaction strategy across the entire customer life cycle, from reaching new prospects through strengthening relationships with satisfied customers. Technology will also largely determine what data is available to measure ROI and which tools used in those measurements.
Like digital marketing itself, the technology strategy will evolve over time as new opportunities appear and as the company adjusts its business plan. However, changing technology platforms is costly, difficult, and time-consuming. Companies must therefore pick their technology strategy carefully so they can adapt to new conditions without major changes in their core systems. In situations where the future themselves are highly uncertain, such as a start-up company in a new industry, this flexibility is itself a core requirement that the technology strategy must meet. In more stable situations, technology strategy can focus on other goals such as lower cost or higher productivity.
Business Case for Technology Investments
Unlike “above the line” marketing expenses such as advertising, technology investments rarely generate revenue directly. This means technology is generally acquired on a project-by-project basis as the company identifies specific opportunities that require technology to exploit.
Companies whose digital strategy includes consistent, coordinated cross-channel marketing must ensure that any on-demand systems can be properly integrated with the larger marketing process.
Funding for those projects is usually treated as a capital expense with a traditional Return on Investment justification. Or, increasingly, new technical capabilities are added through on-demand services that are purchased on a month-by-month basis without a formal investment review. This can be dangerous because such purchases are often not managed within the framework of the company’s technology strategy, leading to short-term benefits but long-term fragmentation, inefficiency, and lost opportunities. Companies whose digital strategy includes consistent, coordinated cross-channel marketing must ensure that any on-demand systems can be properly integrated with the larger marketing process.
Technology is often viewed as a cost item, so the formal business case for new technology investments is often based on reductions in staff time or system operating costs. But these calculations often ignore the hidden costs of the disruption caused by changing systems. The real benefits of new technology are usually related to improvements in other marketing areas, such as better segmentation or more productive advertising purchases. While the precise benefits from these improvements are often not known in advance, it’s worth making a conservative rough estimate to ensure the project is likely to be worth the effort.
Improving Technology ROI
Your return depends greatly on the nature of the technology investment and, as previously noted, often depends on results from the marketing activities managed by the system rather than the system itself. For example, a $500,000 marketing mix optimization project might result in a 20% improvement in advertising efficiency – but whether that’s worthwhile depends on the advertising budget: on a $1million budget, that $500,000 returns just $200,000, for a $300,000 loss; but on a $10 million budget, it returns $2 million, for a $1.5 million profit.
Similarly, it’s not enough to know that marketing automation frequently doubles or triples the conversion rate of nurtured leads. The ROI depends on how many leads are running through the system. System costs themselves are just slightly related to volume.
The most expensive system is the one you don’t use. The key to improving returns is to make sure you acquire systems that will actually contribute to your business. That means systems which enable worthwhile marketing programs, can be integrated with the rest of your marketing infrastructure, and can be operated effectively by your staff.
The critical constraint in most marketing departments is the time and attention of marketing managers, who can pursue only a few new initiatives at a time. As a result, the key to improving your returns on technology is to rigorously assess the available opportunities and make sure you pursue the ones with the largest long-term potential.