What we have observed in the early phases of the COVID-19 crisis provides us with some useful insights for the longer term challenges that digital transformation will create and some of the pitfalls and weaknesses we must be aware of.
Much will be written on this topic in the future, but some of the early observations of the way in which organizations have adapted to COVID-19 tell an interesting story about the broader challenges of digitization and digital transformation.
Consider this as some of the first (quick and dirty) observations from the last months.
First, a word of caution: an analysis like this risks downplaying the individual contributions and the human impact of recent months. People in all walks of life and in all professions have been heroic in keeping our society functioning. In the cases below I believe that good and bad outcomes are separated by the structural aspects of the environment that they operate in. The people have always been amazing and this is more an analysis of the nature of firms.
A few examples of what we have seen in the field of digital transformation:
Restaurants were some of the first and still best examples. Overnight many businesses began offering curb-side pickup, some as creative as offering “cocktails for your evening stroll & exercise”. Zoos started live streaming the animals and offering online info sessions. Services such as hairdressers started offering online instruction and equipment. Business models that were unchanged forever got creative.
Challenges with scalability
We saw that businesses designed around the Internet such as pure online retailers struggled with surges in demand, but operated largely as normal. Boxes were arriving at my house on an almost daily basis. Whereas traditional retailers with digital add-ons such as grocery stores not only had issues scaling from a logistical standpoint, but struggled as well to provide a basic digital service – before getting in line for the delivery queue you had to get in line for the website queue. These challenges go beyond simple infrastructure.
Some people thrived during remote working. Colleagues with natural structure and clear communication remained effective, their message and approach not significantly dampened by distance. Others struggled, particularly when relying on old habits that don’t translate well in to digital methods. Today some people are impatient to return to the office, while others wonder why they ever had an office in the first place. This is not just a case of introvert vs extrovert, but a realization there there are new paths towards collaboration and productivity.
Business models that have already been somewhat disrupted by technology have struggled more than others as COVID-19 accelerates trends that were already in motion. For example. cinemas face an uncertain future due to popularity of home streaming, improvements in the home theatre experience, but particularly due to the erosion of the “theatrical window” barrier now that many film studios are negotiating direct-to-streaming contracts for big ticket films. The contraction of the travel industry may be the last straw for many traditional travel agents. Cash payment looks even more obsolete compared to contactless alternatives.
I could go on, and I am sure that others will have more and better examples.
Not surprisingly, it was usually the smaller businesses that tended to be more agile during the crisis, despite typically having fewer resources and smaller potential idea pools to call on than larger firms.
This is partly explained by inertia – but in my experience it is better explained by the gravitation of larger organizations towards a transactional vs transformational mindset where previous success becomes a significant barrier to change.
Transactional organizations make change incrementally. It is what happens when the focus is on doing the same things, but on doing them much better. This is usually a result of success and the urge to preserve winning formulas. In my experience this is the most common type of setup, because it occurs naturally as people get better and better at what they do over time.
In such organizations the conversations and team structures tend to be based on operations and processes, as opposed to opportunities and skills. The focus is more on the now than on the future. Projects and processes run vertically in teams (where they are efficient because they are integrated in to single silos) as opposed to horizontally (where they are inherently less efficient because of the need to communicate and coordinate across teams).
Incremental change is good – it leads to excellent execution and we all need that. However, it comes with a fundamental trap: the tendancy to focus on the great job we are doing and the belief that improving on what we do today is the same thing as transforming for tomorrow while the world around us starts doing something completely different. And there was no more an extreme example of the world suddenly doing something different overnight than COVID-19.
Meanwhile, transformation organizations or teams care more about doing different things, differently. With good reason this is less common because the old things are usually the things that pay the bills, and few organizations have the luxury of being able to focus exclusively on transformation while the customers wait patiently outside.
A team meeting in a transformational organization will focus less on daily operations and more on the needs of the future. Instead of vertically integrated teams that focus on topics or outputs or segments teams are structured horizontally by competency. Such organisations are inherently more flexible – instead of having a team called “Product A Team” that is really good at product A, and which needs retooling for Product Z, you instead have multiple teams at each stage of the value chain that are already used to dealing with a variety of products or services. Pushing your new product through the organization requires no structural change.
Transformational teams are inherently more adaptable to new situations for this reason. They can scale better because there is less legacy in their design. They will have fostered superior lateral communication abilities across the organization and their more externally focused discussions ensure that there are more attended to changing relevance.
However, the perfect outcome needs a balance. The ability to implement a strategy will be based entirely on having the credibility and capacity that comes from having a team that can get their daily jobs done well. And the ability to deliver the daily work (the transactional end of things) will long term be highly dependent on having a strategy that keeps the organization relevant to the world in which it exists.
My suspicion is that the companies that will most successfully adapt to the new normal and the structural changes that COVID-19 will create over the longer term are those that can achieve this mix. Adaptability, scalability, communication and the ability to remain relevant are all direct outcomes of having a transformational setup combined with strong execution. We are likely to see great companies fail because they are too good at what they do today, and others will burn out because they don’t have the massive executional competence that they need to survive in the harsh environment of the new normal.
So what does this mean?
In many cases COVID-19 is not creating a completely new reality on its own, but it is accelerating trends that were already happening. Digital change that would have been 10 years in the making is happening in weeks and months out of necessity.
Most businesses will be aware of these trends, and adaption is more a matter of timing and speed of execution – which makes COVID-19 not a question of complete new strategies but of the ability to execute on change by having the right organizational setup.
Obviously, saying that is the easy part and that the challenges ahead are complex and manifold, but getting a setup that is ready for this is the first and most urgent step on the long road ahead. It is important that we look carefully at what we have learned about organizational resilience in this first phase since the converging forces of digitalization and the new normal are going to create a new reality that we must adapt to.