The coronavirus crisis has shown that firms who bounce back first are the ones who have embraced digital transformation.
Chance favors the prepared. And that includes times of crisis. One way to understand the pandemic’s impact is knowing how it speeds up business trends. These trends are neither seasonal nor cyclical; they are consistent over time. They have been evident to senior executives for a long while.
Carmakers have to de-emphasize mechanical engineering, aware of the need to increase software capabilities for self-driving vehicles. Retail banks must evolve from a physical branch network of human bankers. They understand the need to advance mobile services based on AI. These are long-term trends that have been articulated, researched, and generally accepted. Similar examples abound across industries.
You may ask if a company has embraced change ahead of time, would they be more resilient during crises? The short answer is yes.
At the Centre for Future Readiness at IMD, we have been tracking companies’ readiness. This year, we partnered with CommonWealth in Taiwan to survey executives about their progress in digital transformation. We had responses from more than 3,000 executives from three comparable economies: Sweden, Switzerland, and Taiwan. With this data, we were able to determine why some companies are more resilient than others.
We first asked if their corporate strategies explicitly mentioned digital transformation. The assumption is if you are serious about building up new capabilities around digital technology, you would state it.
For retailing, it could be advanced data analytics and e-commerce. In banking, it could be robo-advisory services, AI, or mobile services. For traditional manufacturers, it is often advanced automation. While the exact capabilities differ across sectors, executives and CEOs recognize they are all part of one journey towards “digital transformation”.
The result is clear. Companies that include digital transformation in their official strategy suffer less. During this crisis, companies that didn’t do so have suffered more. For them, the pandemic has had a more negative impact.
Then of course, putting something on a strategy statement is different from actually doing it. So we asked executives to describe the results of their digital initiatives. Again, we saw varying degrees of impact from the coronavirus. The more prepared a company, the further they are along with the digital transformation. Then they might even see businesses improve during crisis time.
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This shouldn’t be a surprise. It affirms the wisdom of Warren Buffett who, in a letter to our shareholders in 2001, said: “You only find out who is swimming naked when the tide goes out.” He was referring to the economic consequences of 9/11. The aftermath of the terrorist attacks exposed the weak players, especially within the financial sector.
Today, the pandemic has exposed firms across a wider swathe of industries. It has had a much deeper and long-lasting impact. It has revealed companies who underestimated or ignored the speed of digitization. They now realize the enormous cost of such ignorance.
So yes, resilience matters. It is about your readiness for future capabilities. Some have been aggressive in their investment during good times. They don’t just talk about digital transformation – they allocate resources aggressively, set goals, and then deliver. At first glance, this does not seem relevant to crisis management.
But it is. When disaster struck, they were able to kick into high gear to pivot. At the minimum, if you have invested in a digital supply chain, it’s easier to shift suppliers. You would know what’s missing when you have all the information at your fingertips. If you didn’t, you are probably calling local managers on the phone, asking them to fill out Excel spreadsheets by hand.
Similarly, if you have invested in digital sales and marketing, it’s easier to shift your market focus. You can quickly estimate the drop in demand. You can spend your time strategizing the right move. But if you’re doing stuff manually, it’s just hard to cope.
This is how the great pergence arrives. By the time the crisis has passed, those who end up unscathed will move on to their next conquest. That’s why chance favors the prepared and the ready.
PS. Have you seen any traditional companies that do especially well during the pandemic? Did the pandemic speed up your company’s digital transformation? If so how? Join the discussion below. We’ll love to hear your thoughts.
This article is co-authored with Jialu Shan, a research fellow at the Global Center for Digital Business Transformation, an IMD-Cisco initiative. Originally published by SCMP.