Innovation & Technology
• 13 minute read

Using Digital Technology to Navigate the 3 New Normals

Sivan, Yesha Y.

By Prof. Yesha Sivan and Yonatan Rabinovitch

This article is republished courtesy of the Cutter Consortium, a U.S.-based information technology research company. The original feature can be viewed here.

In many ways, COVID-19 is accelerating change. Digital leaders, such as a “digital” owner or board member, “digital” CEO or CIO, chief digital officer, or VP of digital — have a special role. They must steer their organisations to master changes brought about by the pandemic.

To fully harness the power of digital technology to both defend against threats to businesses and take advantage of new opportunities, leaders must communicate, convince and, if need be, coerce organisations to take the right measures.

To assist leaders to rise against the challenge that has arisen from this black swan event, we present the Three New Normals (3NN) framework. Using this framework, and based on specific risk appetites and external market conditions, organisations can (and must) choose how to lead. We list three methods of operation – defense, offense, and differentiate – and how they can be applied on three levels: individual, organisational, and national.

Problem: The Mental Challenge of a Black Swan

The rise in COVID-19 fatalities has given cause for many to change their thinking. For many, the question is whether their response, which can range from being defensive (e.g., selling stocks), and offensive (e.g., re-aligning business plans to be more online) – made enough of a difference and differentiated themselves from the competition. How to react in such situations is a mental challenge that calls for readjustment of our “operating system.”

Let us explore this needed readjustment. Until February 2020, the popular perception in places like Tel Aviv, London, and Washington DC was that COVID-19 is over-hyped, and would soon diminish like SARs, MERS, or Ebola. But, as flights were cancelled, people began to take notice; then came Italy; then came toilet paper; then came working from home; then COVID-19 hit the U.S. hard; and then came almost-global lockdowns.

For many individuals and organisations, even as a broad consensus emerged that COVID-19 was bigger than another that came before it, they continued to treat it as just another crisis. It was something that was tough, but things would be back to routine shortly, everyone thought. Indeed, reprogramming the “operating system”, or the way people think, can be difficult.

In reality, what we are faced with is a black swan event, a term first coined by Nassim Nicholas Taleb. This is a once-in-one-hundred-year tectonic change on the scale of the Spanish Flu, World War II, and conversely the discovery of the Americas, or the invention of the automobile. An event from which, for better or worse, there is no going back. Understandably, it is difficult for people to internalize the change when they lack similar experiences in their living memories. This is the cognitive bias posed by a black swan.

Corona-Related Cognitive Bias

We are fighting an uphill battle against a powerful force — our own brains. The mind is full of psychological biases that can lead us not to take seriously enough warnings of impending doom. On a recent podcast streamed on the U.S.-based National Public Radio (NPR), two such biases were discussed:

Normalcy bias is a psychological phenomenon describing the actions of people who in catastrophic circumstances underreact, and fail to grasp the magnitude of the catastrophe. People under the influence of the normalcy bias will act surprisingly calm, even when they should be taking very prompt action. One example of this is the eruption of Mount Vesuvius in the year A.D. 79, when Pompeii residents watched the eruption for hours instead of evacuating the city — until the moment they were buried under its ash clouds.

Optimism bias is the tendency of people to believe that even if disaster is upon them, they won’t be affected, (and therefore, do not adequately prepare). For example, Arnold Schwarzenegger, when governor of California, invested in a fleet of mobile hospitals. There were going to be tens of thousands of beds. There were to be respirators and large stockpiles of masks, should California face an earthquake, wildfires or, in particular, a pandemic. Of course, about three or four years later, his successor Jerry Brown cut the funding for the scheme. No one complained at the time, and the stockpile is nowhere to be found.

 

What: The Three New Normals

The key to addressing this cognitive problem is to describe the coming changes to our lives, as three levels of “normals” of existence, each extending for a certain period of time.

  • New Normal 1 (Home) – The first normal was the present in most of the world starting with the initial lockdown in the Chinese city of Wuhan, with similar measures spreading to cities in Europe, and then New York and across the U.S. This was followed by 20%, then 30%, even 50% unemployment in some places and industries, empty streets, school closures, and social distancing.
  • New Normal 2 (Transition) – The second normal came later in May 2020 first in China, Korea or Singapore: Partial back-to-business, schools remaining closed, restrictions on movement, disillusionment with the old normal, and relapses – recurring outbreaks causing local paralysis.
  • New Normal 3 (Emerging) – The third normal is the new world. There will be some winner-industries like healthcare, agriculture, and digital, which will thrive. Other industries, like hospitality, travel, and real estate will forever change, or will be wiped out entirely. We will have new winners and losers across geographic areas, social classes, and types of firms. For example, what will be the future of small and medium businesses or gig workers? In this third normal, we will also see a value shift that takes people “back to basics”; perhaps to a slower, deeper, more mindful world.

It should be noted that the line between winners and losers may not be completely clear. Consider healthcare: Although it is understood that there will be more investments in healthcare, small rural hospitals in the U.S. are closing, as their financial models are based on procedures that are not emergencies, most of which have been curtailed during the pandemic. Or consider travel: While many hotels may never again open their doors, in New Normal 3 there could be an increased demand for destinations that offer eco-tourism experiences.

There are a few more key points regarding this model:

  • The move from New Normal 2 to New Normal 3 relies on the development of a vaccine or effective treatment.
  • There is no return to the way things were before the pandemic. In some ways, the debate over whether initial government actions were exaggerated is no longer important. Were all restrictions to be lifted immediately, many of the changes that have taken place are irreversible.
  • We already have concrete examples of how the New Normals will look globally. The new normals in China, Israel, and the U.S. demonstrate how stark the differences can be. Countries which were affected by COVID-19 in later periods can look to other places that have been dealing with the pandemic for longer to better manage their response.

When: Three Timescales

Assuming we adopt the notion of the three new normals (and there is a wide agreement on nature of New Normals 1 and 2, and some debate and aspirations for New Normal 3), the questions turn to how long will each normal last? The problem is that we simply do not know. Here are three options for the length of each new normal:

The first option (A) describes the best-case scenario, which is approximately similar to China’s. It involves three months of New Normal 1 lockdown conditions, an estimated six months of New Normal 2, and an ongoing New Normal 3. Options (B) and (C) would describe progressively longer scenarios. Some key points here:

  • Different locations even within the same country may take different time to recover.
  • The longer New Normals 1 and 2 takes, the bigger the economic and societal changes. In many ways the biggest issue now is developing a new economy and getting ready for New Normal 3.
  • It is challenging to deal with New Normals 1 and 2 and at the same time think about New Normal 3.

How: Three Coping Strategies (Defense, Offense, Difference) to Deal with the Three New Normals

With an agreed understanding of New Normals 1, 2 and 3, as well as how timescale vary in how different place deal with the pandemic, we can turn into action. These can be divided into three modes of operation – defense, offense and difference.

  1. Defense – Organisations must gain a foothold against the onslaught. Assess, make painful cuts, renegotiate, and create an emergency toolkit – anything to keep their heads above water.
  2. Offense – Organisations must go on the short-term offensive. Expand as much as they can with the tools already at their disposal, in their own markets with their own products. In other words, to make the most out of available resources within their chosen ecosystem. This could include, for example, by buying a struggling competitor, giving a good deal to clients or negotiating a good deal with suppliers.
  3. Difference – Finally, organisations can and should seek to set themselves apart, with new products, strategies, marketing, outlooks etc… They should seek to utilise their core competencies and learn new core abilities. Organisations that do not adapt to the changes brought by COVID-19 will quickly drift into irrelevancy. This stage presents as many opportunities as it does threats. The key challenge with these methods is that they call for conflicting mindsets. However, to be effective – defense, offense and difference – must be considered as a unified set of actions. A company that focuses too much on one method may fail its overall survive and thrive mission.

Who: Three levels (Individuals, Organisations, and Nations)

Lastly, we need to consider that the changes affect all of us on three levels.

  • Individuals — as leaders, managers, workers, suppliers and customers. The individual human factor is important. In such times, it is a must to put people first, with the needed empathy.
  • Organisations — as one CEO of a large firm told me: “We lost our entire yearly profit in the month of March. And we will go into debt based on April results.” There will be major changes in the coming 12 months. Many organisations will have to re-align themselves. Some will collapse, others will restructure, and still others will merge or be acquired. It is a time for big changes.
  • Nations — We see different patterns in China, U.S. and Europe. This ushers in several challenges. Different countries may pursue different policies to deal with the pandemic, ranging from working hours and methods, requiring visitors to quarantine, closing businesses, etc… Multinational organisations face an even more complex challenge of managing in an environment where different nations are in different phases of their response. Suppose a company’s support function is in Texas — which goes into lock-down. Suddenly, their entire support function is affected.
Defense, Offense, and Difference — via Digital Technology
The three basic coping strategies of defense, offense and difference can be applied in regular times and for most black swan events. But how they are implemented depends on the specific circumstances. For COVID-19, the key circumstance is the widespread practice of social distancing, which is the driving force behind most of the changes witnessed by different industries. Other types of black swan — consider an unprecedented and large-scale cyberattack — may very well push consumers away from the use of digital tools. However, social distancing is something that technology, with its power to bring people together across vast distances, is best placed to help deal with.Let us now explore how digital can be used in each of the three methods.

  1. Digital for Defense
    Cost-cutting actions can be as simple as disconnecting office phone lines. Phone lines are unnecessary, and can be easily replaced with services like Zoom Phone, a cloud-based service offered by the videoconferencing giant. Other examples include project management software that can allow employees to work from home — reducing rent. Remote work (and part-time work via the gig economy) is set to be one of the biggest trends in coming years. Digital technology can enable this with secure connectivity and relevant work-related software — coupled with reasonable management of the work itself.
  2. Digital for Offense
    Companies that have invested in going digital before COVID-19, but had a hard time encouraging consumer adoption, may find an opportunity to make a renewed push using these platforms. Video conferencing, ecommerce, and remote customer support can both save direct costs, and enable a higher level of services. For example, if companies have a strong enterprise resource planning, or ERP, function, then they can do faster and more painless M&As. Remember: What used to take months can now take weeks.
  3. Digital to Differentiate
    For the survivors of Normals 1 and 2 (and let’s must face it — not all will survive), digital technology for differentiating a businesses’ offerings is the most important of the three methods. Digital differentiation will have the largest and longest impact on an organisation. It also has more varied applications. Digital is essential to accelerating the rate of innovation needed for each differentiation strategy. In addition, digital can address the evolving consumer habits being bred in New Normals 1 and 2 that may stay with us in as well as shape New Normal 3 (e.g., growing demand for e-commerce). Thus, Digital can both drive differentiation, and be what differentiates.

Digital Driving Differentiation
Creating strong digital infrastructure enables a company to innovate at a faster pace. Digital innovation enhances the digital infrastructure and thus allows other forms of innovation. Consider a company which is looking to innovate in the way it interacts with its customers. A manager proposes using a new customer relationship management, or CRM, software. At a company that has a weak digital infrastructure, such a move could take months. Yet in a company with a strong digital culture, an initial CRM system could even be implemented overnight with cloud-based tools and the entire change can be completed within days.If companies have not invested in their digital infrastructure and culture — then this is the time for laying a digital groundwork such as a robust directory services (e.g., Microsoft Active Directory), or embarking on cloud-based storage and then applications by the likes of Amazon, Microsoft and Google.

Digital as Differentiator
In most cases, building new digital products and digitally integrated business models is the ultimate differentiator. We are already seeing creative manifestations of this phenomenon. Take museums as an example. With museum-goers forced to stay at home, many have launched digital exhibitions (offense). To set themselves apart from competitors, they must differentiate by incorporating these virtual exhibitions into their longer-term models (assuming attending digital exhibits is a consumer habit which will last).

 

In Conclusion

Using the 3NN framework, and based on internal risk appetites and external market conditions, organisation can (and should) choose how to act.

Historically, humanity has confronted – and adapted to – similar black swan challenges. It behooves our generation, for the benefit of ourselves and those around us, to first understand and then act, and hopefully, lead towards progress. We hope that the 3NN framework presented here can guide us in this journey.

Yonatan Rabinovitch is a Product Manager at i8 Ventures, a consultancy specialising in digital transformation leadership.


Sivan, Yesha Y.

Visiting Professor (Digital, Innovation and Venture)

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