Pandemic meets Digital Transformation

Hannah M. Mayer

As a forceful enemy widely referred to as COVID-19 entered the global stage, companies found themselves in the field of fire, torn between the demands of radically new realities imposed by Coronavirus and the deep-rooted necessity (and oftentimes, long-prepared ambition) to digitally transform. The pandemic brought with it a transformational (and often painful) impact on the nature of work, the structure of firms and the economic realities of people, businesses, and countries, and it gave rise to many questions: What does Coronavirus mean for digital transformation? How can the two be reconciled? Who ends up a (relative) winner, and who ends up losing the most in this nexus of transformations amidst a public health disaster and a global economic crisis? While there is no crystal ball to answer any of these questions, one thing is undisputed: Coronavirus and digital transformation are intimately linked. Here’s what this means.

One, the pandemic is like a stress test to past digital transformation efforts and bears learnings on how well companies have digitally transformed.

The COVID-19 pandemic is not unlike a benchmark for firm’s digital transformation to date. Those firms whose digital transformation was well underway before the COVID-19 outbreak are at an advantage now, as are firms that managed to swiftly rally digitization efforts at the onset of the crisis. Organizations that missed their ticket onto MS Digital Transformation are poised to be left behind. This means that companies whose value-add is generated and rendered through digital means (or that have managed to morph into this profile quickly) will, on average, weather the Corona storm better than those whose value generation lies purely offline. Though in a global recession, which economists agree we are headed into, none are real but only relative winners. So, the question is not so much who ends up a winner but rather who will lose the least.

Naturally, digital pure players are well positioned to reap the benefits of a virtually powered economy, particularly when they don’t rely on human involvement to complete transactions. Think, for instance, of ZOOM, which has managed to grab a large share of the delicious and oh-so-topical virtual conferencing pie, with share prices more than doubling in a matter of weeks.

Foot traffic, unfortunately, is equal to a Corona-infested death bed: when there’s no feet, there’s no business. Companies that have adamantly focused on non-digital business only hence are at a disadvantage. They will find themselves cash-strapped after the crisis. Traditional firms relying on in-person interaction to render services are thus hit the hardest, though if they manage to entertain or quickly set up a digital channel, they may be able to dampen negative effects.

One such example is Domino’s, where delivery makes up 55% of total orders. Domino’s is thus well positioned to thrive during Corona, as proven by its call to hire 10,000 workers due to increased demand. This is in stark contrast to the unprecedented numbers of US citizens who have filed for unemployment  amidst the worrying economic downtown. Meanwhile, Domino’s is one of the only big chains that refuses to work with outside delivery apps such as DoorDash or Grubhub, which promise to boost restaurant sales but take a cut of that money. Having its own delivery app, drivers, and pick-up infrastructure – and thus full control over value chain and customer service – is a winning strategy for Domino’s in times of social distancing. A focus on the Corona minded customer who cares for the contact-less delivery paired with increased profits thanks to avoiding DoorDash and Grubhub proves a viable strategy to accelerate digital business.

Even among those entities that are system-critical, the digitally transformed ones will fare best. One example is governments, who are center stage amidst the crisis. South Korea and Singapore are praised as the flagship nations to bring the spread of the virus under control, harnessing surveillance-camera footage, smartphone location data and credit card purchase records to help trace the recent movements of Coronavirus patients and establish virus transmission chains. These countries have long been able to monitor and analyze such data – and Western jurisdictions are considering following suit, though with adaptations to alleviate some of the privacy concerns. Known as a digital front-runner, Singapore has remarkable transparency over individual citizens’ details, including not only their own whereabouts and movements but relationships to other patients. The widely hailed digital transformation of Singaporean government serves their people well, now more so than ever.

Two, while digitally transformed companies will, on average, weather the Corona storm better, some of the digital transformers will fare better than others.

Among the digitally transformed organizations, some will take away big chunks of the overall smaller pie that’s being generated now, owing to their industry or business model.

Industry-wise, the Corona crisis is summoning a bifurcation of economic sectors, where some are at a disadvantage because demand is eradicated, and others are at an advantage because demand is relatively unaffected or even boosted. Among the starkest losers is the travel and hospitality industry, with cruise ships and airlines taking the hardest hit. But even the digitally transformed players in that sector, that even enjoy low fixed costs (such as Airbnb, which doesn’t pay rent for its property listings) are hit hard because when travel is discouraged or altogether banned, demands and bookings plunge. Among the relative winners are, for instance, grocery retailers, though sales of higher margin products (such as clothing) have declined sharply and been substituted for lower margin shopping (think, toilet paper). Grocery retailers have a pivotal role to play and those that are geared to fulfill this responsibility are poised to serve more customers as compared to their peers. Walmart is doing particularly well, with investments in its eCommerce infrastructure is paying off.

But industry affiliation should be seen as fluid in times like these, and leaders are well advised to explore opportunities outside their core industry, leveraging their existing capabilities for new ventures. Consider Bosch and their rapid Corona virus test: known as one of the largest suppliers in the automotive world – an industry that has been hit particularly hard – Bosch decided to use their technology and healthcare capabilities to bring forth a much needed rapid Corona virus test. This is an example for the courage, adaptability, decisiveness and entrepreneurial spirit that leaders need to muster in order to grasp lesser intuitive business opportunities (outside of their core industry) by the forelock.

This diversification away from core products and services (particularly when these are eliminated in times of Corona) has also proven a winning strategy for Uber. Ride-hailing services aren’t exactly experiencing a high right now. That’s because when people are staying home, they don’t exactly need rides – a painful truth Uber, Lyft, and other ride-hailing companies know all too well. Uber, however, is in the position of being able to hedge some bets more favorable to a Corona-ridden economy. Think Uber Eats for food delivery, Uber Health for scheduling healthcare-related rides, or Uber for shipping. While these were started before the onset of Corona, it is never too late for leaders to consider which levers for diversification they can pull now to contain the disaster.

If venturing outside of a core industry is hard to fathom, leaders must at least take the measures necessary to adjust their business models in line with the Corona-conomy. For instance, where applicable and possible, they should consider switching from ads-based to subscription-based revenues. Subscription-related digital business models will likely do better than ads-based ones because when a recession hits, companies typically reduce ad spending to a significant degree, while individual consumers likely will still splurge on that $9/month Netflix subscription.

Three, the pandemic spurs an increased push toward digital transformation for all firms.

Efforts to accelerate both digital business and digital work will become more commonplace, following extended periods of time where all parties involved have gotten used to new practices and offerings.

On the digital business side, even beyond Corona customers will appreciate the new digital value propositions and channels that are becoming standard. At the same time, organizations are well advised to continue to maintain and extend these digital offerings and sales channels, building on learnings from the Corona crisis and knowing that customers have morphed into digital aficionados. Think gym classes: luxury workout chain Barry’s is keeping people engaged with free online until in-person Barry’s workouts return . But would there be a reason to discontinue online gym classes even when gyms have reopened? Probably not, given this turning into everyone’s daily routine. Similarly, Walmart e-grocery delivery accounted for only a fraction of the turnover, but it’s probably here to stay. Ping An’s “Do It At Home” offering launched in February, allowing customers to access a series of financial and non-financial services on the Ping An Pocket Bank App, including lending, credit cards, FX, medical counselling, doctors’ appointments, and auto services. There’s a good chance consumers will continue to value this well beyond Corona. If there was ever a time to digitize the core business or fast-track the disruptive digital business, then this is it.

On the digital work side, continuing to allow people to work remotely after extended periods of time where they have gotten accustomed to that will make sense. It stands to reason that we are at the onset of new work realities. With leading management consultants now advising their clients remotely, will strategy consulting as a whole become more accommodating to remote work? With schools and universities bringing their curricula online in a matter of days, will remote learning supersede (or be on par with) in-presence classes? With much experience in doing all of this in tow, businesses will likely hold on to these practices post-Corona, catapulting them all several years forward in their evolution toward digital transformation.

Hannah M. Mayer is a PhD Fellow at Harvard Business School. She is also author of the upcoming book, The Digital Transformer’s Dilemma: How to Energize Your Core Business While Building Disruptive Products and Services, co-authored with Karolin Frankenberger, Andreas Reiter and Markus Schmid. The book will be published in September 2020 by Wiley.

In the book, the authors show companies how to go digital while also advancing their core business. Emphasizing how to strike a balance between establishing a new digital business and re-vitalizing the legacy business, the book focuses on the implementation of a digital transformation across both businesses. It provides concrete tips, tricks, tools and action plans for running a digital transformation, drawing on insights from 100+ interviews with senior executives at globally leading organizations, which are featured as mini cases. Please check out the book on Amazon or the book website.

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