Digital strategy in a time of crisis by Space Dreamer (episode 5)

04.05.2020

Author: M.Temel Aygün

Now is the time for bold learning at scale.

If the pace of the pre-coronavirus world was already fast, the luxury of time now seems to have disappeared completely. Businesses that once mapped digital strategy in one- to three-year phases must now scale their initiatives in a matter of days or weeks.

In one European survey, about 70 percent of executives from Austria, Germany, and Switzerland said the pandemic is likely to accelerate the pace of their digital transformation. The quickening is evident already across sectors and geographies. Consider how Asian banks have swiftly migrated physical channels online. How healthcare providers have moved rapidly into telehealth, insurers into self-service claims assessment, and retailers into contactless shopping and delivery.

The COVID-19 crisis seemingly provides a sudden glimpse into a future world, one in which digital has become central to every interaction, forcing both organizations and individuals further up the adoption curve almost overnight. A world in which digital channels become the primary (and, in some cases, sole) customer-engagement model, and automated processes become a primary driver of productivity—and the basis of flexible, transparent, and stable supply chains. A world in which agile ways of working are a prerequisite to meeting seemingly daily changes to customer behavior.

If a silver lining can be found, it might be in the falling barriers to improvisation and experimentation that have emerged among customers, markets, regulators, and organizations. In this unique moment, companies can learn and progress more quickly than ever before. The ways they learn from and adjust to today’s crisis will deeply influence their performance in tomorrow’s changed world, providing the opportunity to retain greater agility as well as closer ties with customers, employees, and suppliers. Those that are successfully able to make gains “stick” will likely be more successful during recovery and beyond.

Now is the time to reassess digital initiatives— those that provide near-term help to employees, customers, and the broad set of stakeholders to which businesses are increasingly responsible and those that position you for a postcrisis world. In this world, some things will snap back to previous form, while others will be forever changed. Playing it safe now, understandable as it might feel to do so, is often the worst option.

A crisis demands boldness and learning

Every company knows how to pilot new digital initiatives in “normal” times, but very few do so at the scale and speed suddenly required by the COVID-19 crisis. That’s because in normal times, the customer and market penalties for widespread “test and learn” can seem too high, and the organizational obstacles too steep. Shareholders of public companies demand immediate returns. Finance departments keep tight hold of the funds needed to move new initiatives forward quickly. Customers are often slow to adjust to new ways of doing things, with traditional adoption curves reflecting this inherent inertia. And organizational culture, with its deeply grooved silos, hinders agility and collaboration. As a result, companies often experiment at a pace that fails to match the rate of change around them, slowing their ability to learn fast enough to keep up. Additionally, they rarely embrace the bold action needed to move quickly from piloting initiatives to scaling the successful ones, even though McKinsey research shows bold moves to adopt digital technologies early and at scale, combined with a heavy allocation of resources against digital initiatives and M&A, correlate highly with value creation (Exhibit 1).

As the COVID-19 crisis forces your customers, employees, and supply chains into digital channels and new ways of working, now is the time to ask yourself: What are the bold digital actions we’ve hesitated to pursue in the past, even as we’ve known they would eventually be required? Strange as it may seem, right now, in a moment of crisis, is precisely the time to boldly advance your digital agenda.

A mandate to be bold

What does it mean to act boldly? We suggest four areas of focus, each of which goes beyond applying “digital lipstick” and toward innovating entirely new digital offerings, deploying design thinking and technologies like artificial intelligence (AI) at scale across your business, and doing all of this “at pace” through acquisitions (Exhibit 2).

New offerings

By now you’ve likely built the minimally viable nerve center you need to coordinate your crisis response. This nerve center provides a natural gathering point for crucial strategic information, helping you stay close to the quickly evolving needs of core customer segments, and the ways in which competitors and markets are moving to meet them. Mapping these changes helps address immediate risks, to be sure, but it also affords looking forward in time at bigger issues and opportunities—those that could drive significant disruption as the crisis continues. Just as digital platforms have disrupted value pools and value chains in the past, the COVID-19 crisis will set similar “ecosystem”-level changes in motion, not just changes in economics but new ways of serving customers and working with suppliers across traditional industry boundaries.

In the immediate term, for example, most organizations are looking for virtual replacements for their previously physical offerings, or at least new ways of making them accessible with minimal physical contact. The new offerings that result can often involve new partnerships or the need to access new platforms and digital marketplaces in which your company has yet to participate. As you engage with new partners and platforms, look for opportunities to move beyond your organization’s comfort zones, while getting visibility into the places you can confidently invest valuable time, people, and funds to their best effect. Design thinking, which involves using systemic reasoning and intuition to address complex problems and explore ideal future states, will be crucial. A design-centric approach focuses first and foremost on end users or customers. But it also helps make real-time sense of how suppliers, channel partners, and competitors are responding to the crisis, and how the ecosystem that includes them all is evolving for the next normal emerging after the immediate crisis fades.

Reinvent your business model at its core

Going beyond comfort zones requires taking an end-to-end view of your business and operating models. Even though your resources are necessarily limited, the experience of leading companies suggests that focusing on areas that touch more of the core of your business will give you the best chance of success, in both the near and the longer term, than will making minor improvements to noncore areas. Organizations that make minor changes to the edges of their business model nearly always fall short of their goals. Tinkering leads to returns on investment below the cost of capital and to changes (and learning) that are too small to match the external pace of disruption. In particular, organizations rapidly adopting AI tools and algorithms, as well as design thinking, and using those to redefine their business at scale have been outperforming their peers. This will be increasingly true as companies deal with large amounts of data in a rapidly evolving landscape and look to make rapid, accurate course corrections compared with their peers.

While the outcomes will vary significantly by industry, a few common themes are emerging across sectors that suggest “next normal”  changes to cost structures and operating  models going forward.

 — Supply-chain transparency and flexibility. Neardaily news stories relate how retailers around the globe are experiencing stock-outs during the crisis, such as toilet-paper shortages in the United States. It’s also clear that retailers with full supply-chain transparency prior to the crisis— as well as algorithms to detect purchase-pattern changes—have done a better job navigating during the crisis. Other sectors, many of which are experiencing their own supply-chain difficulties during the crisis, can learn from their retail counterparts to build the transparency and flexibility needed to avoid (or at least mitigate ) supply-chain disruption in the future.

 — Data security. Security has also been in the news, whether it’s the security of people themselves or that of goods and data. Zoom managed to successfully navigate the rapid scaling of its usage volume, but it also ran into security gaps that needed immediate address. Many organizations are experiencing similar, painful lessons during this time of crisis.

 — Remote workforces and automation. Another common theme emerging is the widely held desire to build on the flexibility and diversity brought through remote working. Learning how to maintain productivity—even as we return to office buildings after the lockdown ends, and even as companies continue to automate activities—will be critical to capturing the most value from this real-world experiment that is occurring. In retail, for example, there has been  widespread use of in-store robots to take over more transactional tasks like checking inventory in store aisles and remote order fulfillment. These investments won’t be undone postcrisis, and those that have done so will find themselves in advantaged cost structure during the recovery.

Boldly evolve your business portfolio

No company can accelerate the delivery of all its strategic imperatives without looking to mergers and acquisitions (M&A) to speed them along. This is particularly true with digital strategy, where M&A can help companies gain talent and build capabilities, even as it offers access to new products, services, and solutions, and to new market and customer segments.

More broadly, we know from research into economic downturns that companies that invest when valuations are low outperform those that do not. These companies divested underperforming businesses  10 percent faster than their peers early on in a crisis (or sometimes in anticipation of a crisis) and then shifted gears into M&A at the first sign of recovery.

In more normal times, one of the main challenges companies face in their digital transformations is the need to acquire digital talent and capabilities through acquisitions of tech companies that are typically valued at multiples that capital markets might view as dilutive to the acquirer. The current downturn could remove this critical roadblock, especially with companies temporarily free from the tyranny of quarterly earnings expectations. Because valuations are down, the crisis and its immediate aftermath may prove an opportune time to pick up assets that were previously out of reach. We are already seeing many private-equity firms actively looking to deploy large swaths of capital. 

See you in next blog with the following topics :

  • Learning at the pace of crisis

03.05.2020

Kadıköy, İstanbul – TURKEY

M. Temel AYGÜN, Ph. D. in Aerospace Eng.

https://www.linkedin.com/in/mehmet-temel-aygün-1066a514/

Copyright:https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/digital-strategy-in-a-time-of-crisis

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