The Investment Paradox during the COVID-19 Pandemic: Cut Spending or Continue to Invest in Digital Transformation?

Fri 07 August 2020, Erik Meijer
The Investment Paradox during the COVID-19 Pandemic: Cut Spending or Continue to Invest in Digital Transformation

The digitalization of all aspects of modern life means that digital transformation is no longer just a suitable innovation strategy, but the key to an organization’s survival.

However, a successful digital transformation requires major changes to a company’s culture. And many organizations are wondering whether digital transformation is the right step to take while struggling to adapt to overcome the various challenges caused by the COVID-19 pandemic.

The current uncertainty in the market and society in general, gives rise to several – seemingly contrary – schools of thought.  It is interesting to see that when it comes to technology spending, the key motivator for 32% of CFOs in the US is still to drive growth, according to PwC’s COVID-19 Pulse Survey. Conversely, one in five CFOs sees technology spend as a pathway to cost reduction. In another paradox, many CFOs have just put the brakes on almost any discretionary spending, especially large-scale investment projects, in an effort to try and survive in a period of uncertainty and reducing revenues. Whereas not investing in critical projects that will keep their companies competitive and relevant in the current and future stages in the market, might actually significantly harm their survival, especially in the medium term.

So what to do? What will changes to the business world look like and what are the challenges?

At a recent webinar organized by Telkomtelstra Commissioner, Suryatin Setiawan, on ‘Business Operations during and after the New Normal’, Director-General Ismail, of the Information and Communication Ministry of Indonesia, explained that the COVID-19 pandemic has forced people to drastically change their behavior; by working from home, studying online, and interacting online. As a result of these shifts and limited direct interaction, the business world must be responsive in its attitude. The best way for the business world to respond to the current circumstances is to be able to adapt to survive, rather than hibernate. And the most suitable adaptation method for business survival is to go digital. Especially since your customers have already done so on a massive scale.

In the short term, COVID-19 has disrupted the dynamics of life and business, and many companies are struggling to cope. However, on the other hand, there are big opportunities. Organizations that are able to transform challenges into opportunities are those that are quick to adapt digitally. Therefore, it must be emphasized that digital transformation is not a burden, but an opportunity.  In a shrinking competitive landscape, the survivors will be the ones using this period to ready themselves for their next phase of growth, adapt to the changing customer needs, and build their business model on the new realities and operational efficiencies.

In response to this, Director-General Ismail called for the need for quick investments that can provide a foundation for leapfrogging and capturing new potential (explore new/untapped markets, drive new efficiencies, and/or launch new services).

Acknowledging current conditions, he identified that the winners in this race will be those that embrace digital technology through:

1. Senior Management Commitment

Top management must change its mindset to be more willing to invest in digital technology to be able to survive and even to leapfrog.

2. Digital Talent Ecosystem

Digital talent is a must. This can be grown through things like the training of your potential internal talent and/or the recruitment of existing professionals.

3. Rethinking Business Processes

Review your existing – and develop new – business processes by applying a digital mindset.

The Indonesian government’s efforts to overcome challenges facing the information and communication technology (ICT) sector during and after COVID-19, use the same principles. The government has identified four main challenges faced by the ICT sector, as their current priorities:

1. Completion of telecommunication infrastructure

Telecommunication services have become extremely important for society during the pandemic, and will remain so after. Indonesia needs to provide connectivity to all its sovereign areas as soon as possible. According to Information and Communication Ministry data, 9,113 remote, underdeveloped, and outermost villages/urban villages are not yet covered by 4G. Meanwhile, 3,435 villages/urban villages that are not classified as being remote, underdeveloped, or outermost are also not covered by 4G. Tackling this problem, on the 3rd of August 2020, Indonesia’s President issued a directive to speed up the provisioning of internet services to these 12,500 still unserved villages across the archipelago.

2. Maintaining data sovereignty

With an increasing number of transactions, an increasing amount of Indonesian data is being generated, used and stored by digital platforms. It is important to protect this data.

3. Encouraging the growth of local platforms and applications

There is still a lot of space that can be filled by local platforms and applications across sectors.

4. Building competencies of digital talent

According to Tan & Tang in a World Bank report in 2016, Indonesia needs 600,000 new digital talents each year. The total number of digital talents needed in the country will reach 9 million by 2030.

Continued Investment

Keep in mind that before the COVID-19 pandemic crisis happened, most businesses recognized the importance of digital transformation to enhance competitiveness to grow in an increasingly digital society. Although a number of companies did not feel the pressure to undergo a digital transformation, they still created business plans accordingly. However, digital investment has become even more of a necessity during the pandemic, as businesses are required to adapt to safer working conditions, either remotely or through flexible working hours.  Technology has become the backbone supporting company operations, enabling distributed work and the shift to digital processes wherever possible.

The ongoing COVID-19 pandemic has underscored the importance for organizations to go digital and be adaptable, for example by connecting employees to flexible work solutions in remote situations such as Microsoft 365 or shifting customer service centers to cloud contact centers. This demand for flexibility will encourage organizations to continue to invest in digital transformation also after the pandemic.

If organizations evaluate their performance during the pandemic, gaps that need to be anticipated will be revealed. These weaknesses will determine the priorities for technological investment for years to come. The necessary adoption of several technologies during the pandemic has given some organizations the impetus to overcome investment barriers and has provided learning curves that might not have been seen before. Companies that have not developed a future plan to continue digital transformation will surely be left behind in the face of fast-paced market development, shifts, and competition.

This article originally published on our CEO’s LinkedIn pulse here