Clichéd usage aside, the concept has clear relevance for firms operating in difficult times – and of course, even when the current crisis is over there will always be more danger on the horizon. Nonetheless, there are already signs that digitally mature firms are a step ahead of their rivals in reacting to this crisis, as evidenced by Nike offsetting impacts from Chinese store closures with a 30% increase in digital revenues.
Work by business professors at MIT identified 9 areas that firms focus on when starting digital transformation, sorted into 3 categories: Customer Experience, Operational Processes and Business Models. Though the authors originally envisioned digital transformation as a way to drive value growth, it is clear that each element can be linked to improving levels of operational and commercial resilience as well:
1. Customer Understanding
Using big data and analytics to help understand what customers like and dislike is perhaps the most prominent source of transformation efforts for firms, with even slow moving firms likely tracking social media engagements and online heatmaps.
But how does this contribute to resilience? The answer comes from reaction time. Take the recent supermarket shortages, for example. The law of one price tells us that price gouging should not exist as long as prices rise to the market price, but retailers failed to react quickly enough when lockdowns began, which led to hoarding activity and opportunistic price gouging. Had they been able to raise prices on goods such as toilet paper and hand sanitizer, retailers could likely have prevented hoarding behavior and the subsequent shortages that entailed, all of which would have prevented reputation damage and supply chain waste.
Had sales data and shopping activity been monitored closer, supermarkets could have been in a position to adjust to demand much quicker.
2. Top-Line Growth
The use of technology to enhance sales is one of the oldest uses of digital technology – after all, a PowerPoint presentation is an example of this. Still, there is ample room for innovation here, and many of these innovations can help increase resilience as well. The use of virtual or augmented reality is a good example of this, allowing sales to proceed for goods even without direct contact, a tactic previously only available to services.
3. Customer Touch Points
The more options there are the communicate with customers, the more redundancy is built into the firm’s operations. This is a lesson many are learning currently as they struggle to keep customers abreast of changes in the light of COVID-19. Predicting how your customers will get in touch with you is simply not possible, thus a resilient firm will seek a variety of options to ensure every customer can find the information they need.
4. Process Digitization
The relevance of this element to resilience is obvious, as moving processes away from a physical point has been a boon for firms that have had to lockdown. As technology improves, automation and artificial intelligence will allow for businesses to avoid damage to human capital.
5. Worker Enablement
Another element with huge implications for the current situation, Westerman, Bonnet and McAfee describe this as “separating the work process from the location of work”. As we have all seen, firms that were ready for home working have had no trouble adjusting to lockdowns, and this is likely to be an element that every firm focuses on in the near future.
6. Performance Management
This element is perhaps the most loosely connected to resilience, given that enhanced understanding of performance will be applicable to all parts of the business. Nevertheless, as more information becomes available to firms so too does the ability to better invest and divest in parts of the business, leading to a leaner, stronger firm overall. For example, Orbus have seen how firms being able to start application rationalization have slashed their software costs.
However, Performance Management is perhaps the riskiest of digital transformation drivers, as unfettered data collection can lead to firms drowning in data and missing key insights.
7. Digitally Modified Business
There are no shortage of examples of new business models arising from COVID-19 and enabled by technology – one of the more inventive being the sport of darts, which has been able to carry on competitions by having players live stream matches from their homes.
Of course, a sport like darts has a fairly unique business model that isn’t applicable elsewhere, and for other businesses this element will just mean expanding e-commerce or augmenting physical experiences. Realistically, any diversity in a business model will increase resilience, but few are quite so profitable as digital avenues.
8. New Digital Businesses
Sport provides another good example of new, resilient business models; a number of sporting institutes have already branched out into e-sports, taking control of teams or starting branded teams in the rapidly growing segment. As with any movement into a new business segment, what is key is utilizing the firm’s strengths correctly. Diversifying into digital business is pointless if a business has no innate advantages in that area.
9. Digital Globalization
Making a product globally available is far easier for small and medium firms than in the past. Any service which can be delivered remotely is functionally global, while for goods the rise of the likes of Amazon and Alibaba allows global availability with almost no effort. Globalization has not been without problems in the recent crisis, in particular for supply chains reliant on Chinese manufacturing, but firms that can rely on revenues from a variety of markets are likely to weather the storms much better in the coming months.
Firms have already placed a premium on digital transformation efforts, as demonstrated by Westerman, Bonnet and McAfee, trusting digital to help create value. As the world grows more uncertain, protecting value already created has become equally important, which requires resilient firms. Fortunately, digital transformation has the power to both create new value and ensure that it lasts.
The one drawback that firms face is the difficulty of leading digital transformation initiatives. Many of the world’s largest and most successful firms have turned to enterprise architecture tools such as iServer to help lead their transformation efforts.