A strong digitalization strategy may help companies survive the coronavirus pandemic.
By Associate Professor KOH Tat Koon,
Department of Information Systems, Business Statistics and Operations Management
In recent years, many organizations have undertaken digital transformations such as creating online customer touchpoints, leveraging digital platforms, and applying the Internet of Things (IoT) and Artificial Intelligence (AI) in value chain activities. Digitalization can help SMEs, large corporations, and public agencies become more accessible, agile, and competitive in the increasingly dynamic environments that they operate in.
But we have noticed that, despite digitalizing, not all organizations have been able to respond effectively to the new situation that has resulted from the COVID-19 pandemic. Therefore, we need to ask what digital transformations can help organizations during this abnormal time. Insights garnered from this question can contribute to an organization’s long-term competitiveness as well as its short-term, immediate performance and survival.
While it is difficult to meaningfully compare digital transformation initiatives across different organizations in the context of COVID-19, we can gain general takeaways by examining the three broad mindsets which underlie many digitalization efforts: Digital Sub, Digital First, and Digital Only.
“Inaction could prove to be a riskier strategy whereas digitalizing could improve organizational survival during COVID-19 and after it.”
Digital Sub
The Digital Sub mindset is adopted when organizations complement their workflow and business processes in physical settings with IT-based substitutes and alternatives. A common example is when retailers use online stores and mobile apps to provide additional channels for customers. A Digital Sub transformation typically does not involve much reengineering of current workflow and activities. Instead, IT implementations are largely based on existing workflow and processes.
Digital Sub is a low-hanging fruit in digital transformation, and it can create value in normal circumstances. But this mindset is unlikely to be useful when workflows, processes, and customer journeys are significantly disrupted, as they have been during the pandemic. One major reason is that moving digital substitutes from a peripheral role to a more central role in key value chain activities is particularly challenging during a crisis.
As a result, Digital Sub may not give organizations the buffer it needs to cope with sudden shocks. We have seen examples of this during COVID-19, where many retailers, including those with a well-established digital presence and accessibility, have experienced a severe impact, with some reporting store closures, and even facing liquidation.
Digital First
The Digital First mindset is similar to Digital Sub in that it involves a hybrid of online and offline options. What differentiates Digital First is that it places the digital alternatives as the priority, so workflow, processes, and customer touchpoints are reengineered with these alternatives in mind. Non-digital initiatives play supplementary roles, such as providing a human touch or improving customer convenience.
Compared to Digital Sub, Digital First can help organizations to cope with significant disruptions more effectively. This is because organizations with a Digital First mindset often have the digital quotient, capabilities, and experience to adapt existing digital solutions and/or improvise using available IT to respond to unexpected events on-demand.
Digital Only
The Digital Only mindset, where key value chain activities are solely IT-based, is a relatively radical form of digitalization. While Digital Only is the core strategy for many pure-play tech companies (e.g., virtual banks), it is not as prevalent among traditional organizations. For these organizations, Digital Only can be perceived to be a risky proposition as it is often not practical or feasible to fully digitalize all activities and processes. While this is true, such organizations can still push towards Digital Only by focusing on processes or activities, rather than on the enterprise as a whole.
For a start, organizations should be prepared to rethink their business model and identify core aspects in their value chain which can be fully digitalized (while allowing others to remain non-digital or partially digital). To illustrate, consider a typical F&B business. Due to high rental and operating costs, it is common for F&B operators to have long opening hours and offer a variety of menu items (breakfast, lunch, tea, and dinner) to meet different customer needs throughout the day.
However, instead of serving walk-in customers in physical outlets, F&B operators can consider a Digital Only model and cater only to online delivery orders by operating in ghost kitchens. This allows for shorter operating hours and greater specialization, such as targeting the weekday lunch crowd. This Digital Only model could be ideal for F&B operators in locations where rent is high and demand is concentrated within specific hours during the day (e.g., CBD).
A key concern about moving towards Digital Only is whether the market is ready for such a drastic approach. Customers might be used to non-digital, offline environments and are thus unwilling to be restricted to using digital-only channels. Customers could also be concerned about product and service quality in a fully digitalized environment, especially when an in-person interaction is essential.
Interestingly, COVID-19 could have cleared the path towards Digital Only for organizations in such situations. Over the past few months, as we have gone fully online to carry out various daily activities—including shopping, working, and socializing—we may have become more open to Digital Only offerings than ever before. For example, mobile food delivery platforms have reported substantial increases in delivery orders since the outbreak of COVID-19, suggesting there is a potentially larger F&B market that is ready for Digital Only business models going forward.
Shifts in Expectation
As another example, consider online courses. Due to reservations about the quality of learning and synchronous interactions in online classes, many people have not been keen to give online learning a try. But COVID-19 has forced educational institutions to bring classes online, and many students have realized that the online learning experience, while not perfect, is not as bad as they had thought. In fact, some students are more satisfied with online classes than traditional in-person classes.
With these shifts in attitudes and expectations, institutions could further explore and enhance their online offerings and their delivery of online programs. Institutions should also take this opportunity to reexamine their strategy and target markets for existing programs. For example, the market for in-person executive courses is often restricted to managers and leaders who live in, or willing to come to, a particular city (e.g., Hong Kong). By going Digital Only through offering synchronous online executive courses, institutions can redefine and widen their market by targeting executives in a particular time zone instead (e.g., UTC +8, which includes Hong Kong and other cities in East Asia, Southeast Asia, and Oceania).
Now or Never?
During COVID-19, organizations may be tempted to keep the status quo in term of digital transformation, until better days return. But with no end currently in sight, inaction could prove to be a riskier strategy whereas digitalizing could improve organizational survival during COVID-19 and after it. Strategically speaking, as shown above, it is critical for organizations to adopt the appropriate digitalization mindsets given the disruption and shifts that they face.