Monday, August 30, 2021 by Hermawan Kartajaya
Article from the 2021 ICSB MSMEs Report
Digital transformation has been a buzzword in the last 5 years. Along with the development of increasingly advanced technology —artificial intelligence, big data, 3D printing, blockchain, augmented reality, and so on— the trend of digitalization is slowly but surely impacting almost all lines of life.
Even though many business organizations—including small business players—just follow the euphoria, the benefits of digital transformation certainly cannot be doubted. Kaur & Bath (2019) mentions at least 4 benefits of adopting digital technology: reduced costs, increased accuracy, increased speed, and efficiency.
However, the substantial benefits do not guarantee that all organizations are willing to carry out digital transformation seriously. Before the COVID-19 pandemic, complacency inhibited digital transformation more than any other organizational barriers.
A survey conducted by Fitzgerald et al. (2013) in higher education discovers that lack of urgency is the biggest single obstacle to digital transformation. And then, all of a sudden, the world is shocked by the COVID-19 outbreak. It has disturbed many things and has forced humans to adopt new kinds of behavior. But behind the anxieties that have arisen from this pandemic, there are also blessings in disguise. One of the biggest opportunities created by the pandemic is a burning platform for digital transformation.
A survey conducted in 2020 by McKinsey & Company reported that during COVID-19 digital adoption has taken a quantum leap at both the
organizational and industry levels (LaBerge et al., 2020). Beforehand, I need to clarify that the term “digital transformation” itself tends to oversimplify this phenomenon. The transformation process that occurs actually is not only in the technological aspect. It is much broader and deeper than that. Technology is only one small part.
In small businesses, transformations that have occurred due to the adoption of digital technology can be categorized into 4 major groups:
– Product transformation Traditional products are polished or revamped to make them more digital. Digital technology is “injected” into the product to provide greater value (benefits) to customers.
– Customer management transformation Digital technology has also changed the way small businesses connect with customers. Digital technology makes customers get new ways of getting product information, placing orders, making purchases, making payments, and even submitting complaints.
– Business model transformation Simply put, it’s a change in how companies get their money and make spending. Digital technology does allow small business players to generate additional revenue. They can even capitalize digital technology to do business pivot (leaving the old business for a new, more profitable one).
– Structural transformation Sometimes, digital adoption must also be followed by changes in work patterns within the company, formation of new functions, or creation of new roles. This is the transformation of the organizational structure.
Are all the above transformations enough? I don’t think so. I believe that they only touch the “hardware” of the organization. At the core of this change process, there is the human transformation that touches the “software” of an organization.
Tabrizi et al. (2019) argue that digital transformation works for organizations because their leaders go back to the basics: they focus on changing the mindset of their people as well as the organizational culture before they decide what digital technology to use and how to use them. Another researcher also states that the main challenges to a company’s digital transformation are not technologies, but human factors, cultural dimensions, employees’ resistance to change, lack of relevant knowledge, and lack of motivation (Schwertner, 2017).
There are several important questions that small businesses need to answer to carry out the human transformation process: who, where, and what. – Who are the digital talents you need to support the transformation?
– Where you can get them? Can you grow them internally or you need to recruit them from external sources? – Beyond the technical skills, what mindset or attitude that you need to equip your people during the digital transformation?
By answering the questions above, hopefully, you will be better prepared to lead your business during the digital transformation. Finally, please remember what George Westerma—Principal Research Scientist in MIT Sloan—once said: “You need to lead the technology — don’t let it lead you”
Fitzgerald, M., Kruschwitz, N., Bonnet, D., & Welch, M. (2013, October 7). Embracing digital technology: A new strategic imperative. MIT Sloan Management Review. https://sloanreview.mit.edu/projects/embracingdigital-technology/
Kaur, H., & Bath, A. K. (2019). Digital transformation strategies in different areas: A review. International Journal of Scientific & Technology Research, 8 (12).
LaBerge, L., O’Toole, C., Schneider, J., & Smaje, K. (2020). How COVID-19 has pushed companies over the technology tipping point—and transformed business forever. McKinsey & Company. https://www.mckinsey.
Schwertner, K. (2017). Digital transformation of business. Trakia Journal of Sciences, 15 (1), 388-393