Money Matters

Going digital!

Money Matters
By Kamran Hafeez
Mon, 08, 21

Over the last year, the pandemic has caused the global economy to shrink at an unprecedented level. At the same time, one trend has accelerated worldwide: Going Digital! As countries face repeated lockdowns, school closures, and shutdowns of entire industries, digital capabilities — whether for online schooling, e-commerce or work from home are the new essentials.

Going digital!

Over the last year, the pandemic has caused the global economy to shrink at an unprecedented level. At the same time, one trend has accelerated worldwide: Going Digital! As countries face repeated lockdowns, school closures, and shutdowns of entire industries, digital capabilities — whether for online schooling, e-commerce or work from home are the new essentials.

If there were any lingering doubts about the necessity of digital transformation to business longevity, the pandemic has silenced them. In a contactless world, the vast majority of interactions with customers and employees must take place virtually. With rare exception, operating digitally is the only way to stay in business through mandated shutdowns and restricted activity. It’s go digital, or go dark. The pandemic is a reality check for businesses that have been reluctant to embrace digital transformation and now find themselves woefully unprepared.

In years to come, we will look back at 2020 as the moment that changed everything. Nowhere else has unprecedented and unforeseen growth occurred as in the digital and e-commerce sectors, which have boomed amid the Covid-19 crisis. Pakistan has been no exception to these trends and its e-commerce market size posted a growth of over 35 percent in the first quarter of the fiscal year 2021 increasing to Rs96 billion compared to Rs71 billion over the corresponding period of last year, as per recent estimates given by the Ministry of Commerce.

This digital mandate isn’t new; it’s simply been brought into sharp focus. Prior to the pandemic, a paradigm shift towards digitization and servitization of the economy was already underway. Current events have accelerated the paradigm, as evidenced by the marked shift in spending towards digital businesses. In recent months, many companies have rushed to build digital businesses to overcome pandemic induced disruptions and address shifts in customer behavior.

The biggest challenge is the concept of business building as a company ponders on Going Digital. Business building used to be viewed as an experiment, innovation off to the side. Now, it has become a necessity for incumbents — a differentiating capability needed for long-term success. Consumer behaviors are changing and behaviors of business clients in many industries are changing. Most companies when going digital require a different and new set of needs. Business building is a requirement to meet these new sets of needs at a pace that may not be possible if a company was trying to transform the core.

There are several new challenges for going digital. It requires the right type of interactions and touch points with consumers whom the business managers may never meet. It requires bringing resilience into their supply chain in a way that does not sacrifice agility. Some assumptions that have long been held by the managers are also being turned upside down in terms of how to operate a business, sell products, and serve customers.

Building businesses is hard, especially for larger companies regardless of the sector in which they operate. Their leadership teams are good at managing large organizations but building a new business requires an entrepreneurial mindset and a different way of working. The bureaucracy that often exists in large companies it not suited to build a new culture that has a higher metabolic rate. There is a need to hire completely different types of people to form at least part of the new organization. The real challenge is leveraging the strength of the existing business but with the flexibility and speed of a start-up. If an organization can get those two things together, it can leverage the advantages and start to scale the business.

The balance of bringing in new talent with existing employees is one of the biggest challenges that companies going digital face. It is also one of the most important levers, because with the right team and the right operating model, key challenges for the transition can be managed. Using a large group of people from the core business and having them essentially form the new management team is not a good idea. The culture of a large, mature company cannot be recreated in going digital which is similar to a start-up that needs to operate very differently. On the other hand, a totally new team, is also not suitable as this is not a stand-alone venture. If a company has a strong brand, customers, a distribution network, data, and industry know-how then it would want to leverage those elements strategically in the new business. Often times, successful transition in going digital requires having a small number of executives who know the industry and those executives build around them a team with a healthy mix of older and newer faces with fresh thinking and new skills.

Another key challenge is the expectation and performance evaluation of both the organization and its team in terms of going digital. Performance management systems for the digital business cannot be similar to the conventional business model. Majority of the companies require substantial transformation in their systems and processes to effectively be able to manage the digital transition or build the digital business in parallel. However, the chances of success are better when they are in a sink-or-swim environment. When something seems to be a luxury, it may not get the same attention as when it is a necessity. For more companies now going digital is a necessity.

If we look back over the last century, we saw some of the world’s most successful businesses form during moments of crisis. For example, during the financial crisis, some fundamental assumptions were questioned. Do we need to own houses? Do we need to own cars? Out of that came the the new digital only business models such as Uber, Airbnb, etc. The question now is, how do existing well established companies use this crisis as a catalyst to drive forward some innovations and redefine what the new normal is before it defines them. We can still however expect to see a number of well established businesses simply disappear in the next few years.

The most critical challenge in going digital is the buy in of the top management team. Effective business building for digital needs dedicated teams not distracted by activities happening in the existing organization, since the rules of success for both may be different regardless of the competitive advantage the existing business might have had.

Within the new operating model, processes become critically important. Sometimes management think of processes as not compatible with agile start-ups, but they are in fact complementary. It is critical that the core business functionality is recognized and not missed when going digital as that is what the existing business brand and reputation had been based upon. Linked to that is culture: it is critical to perpetuate the culture not just in the existing business but also to reflect the same when going digital. Is it possible for a bank that prides in its customer service quality not offering the same service culture when offering digital banking?

Many companies find, when they build these new businesses going digital, that they do not have all the capabilities they need in-house, so many decide to establish ecosystems of joint ventures or partnerships to access talent and capabilities that may not be their core competencies. Sometimes they even acquire start-ups to keep them on the cutting edge.

Having said that, it does make things harder from an execution perspective because now there are multiple parties involved. There are also cross sector opportunities that going digital offers and can be witnessed such as telecom with retail, with consumer banking or healthcare with pharmaceutical. Such opportunities are created to meet holistic customer needs but also create multiple challenges due to lack of synergy and the inability to find the right partners. There are some exciting success stories, but it can be complicated.

Going digital must be managed as a new business and the focus in the initial period must be to make the transition successful. There may be divergent needs and preferences with the existing business but ultimately, it must be treated as a single company and the objective must be to maximize value for the integrated company.

The writer is a staff member