The lessons we’ve learned from COVID-19 are still emerging, but one thing is clear: organizations are quickly realizing the need to virtualize their value chain.
Progressive businesses started the trend toward virtualizing their value chains long before the impacts of COVID-19. Late last year, IDC predicted that spending on digital transformation globally would reach $23 trillion by 2023, which believe it or not, was a relatively slow rate of adoption. That prediction was quickly upended as organizations were forced to accelerate their digital transformation programs almost overnight.
So how does virtualization differ from digital transformation?
Digital transformation typically consists of an orderly move through three distinct phases: digitizing assets, digitizing processes, and then finally, reaching digital maturity with digital offerings. This final phase is where the majority of virtualization needs to happen.
But the pandemic created a virtual imperative, requiring companies to quickly finish the first two phases, and begin work immediately on the third (digital offerings). The requirement to take an in-person or physical portion of the value chain and make it 100 percent virtual has created an existential threat to companies that are slow to respond.
Is your company at risk of falling behind?
What is a value chain?
First, let’s start with defining what we mean by “value chain.” The concept was first introduced in Michael Porter’s influential book Competitive Advantage, where he described the value chain as a “set of activities that an organization carries out to create value for its customers.”
Businesses with virtualized value chains not only offer digital products and services, but they optimize operations with cloud-based infrastructure and collaboration tools, and they close loops between customers and products using virtual sales and marketing tactics.
While companies have been moving towards the concept of a virtual value chain—offering this value in the digital environment—COVID-19 created new urgency. Now even virtual value chain frontrunners like Uber, Airbnb, and Amazon are facing additional challenges to their models that entail in-person delivery. As consumers developed an aversion to in-person activities, the physical quickly became virtual for companies that wanted to survive and thrive.
On the other hand, traditionally non-virtual businesses in fields like healthcare, education, and events, have been forced to create fast and immediate solutions. We’ve seen these shifts happen across a multitude of industries from marketing, which moved to virtual events, virtual showrooming, and virtual consultations; to services, such as the pivot to telehealth, tell advice, and tile repair.
Making the virtual value chain work for you
The companies able to pivot the fastest were those that had already begun the work. But as many consumers remain wary of personal encounters—whether that’s in consuming goods or services or going to their workplace—the evolution must be accelerated.
Here are four areas that companies need to address for a successful virtual value chain:
Technology
The first step to virtualization is ensuring you have an adequate technology infrastructure in place. First, you have to assess whether your team has the tools needed to develop the necessary digital products and services. Then you have to ensure that you’ve adopted robust solutions for team collaboration in an asynchronous environment.
One company that has done this extraordinarily well is Citrix, which is developing solutions that make remote work more secure from an IT perspective. As they are a distributed organization, they can easily adapt to a 24/7 model. And not only have they mastered how to perform in a video-first culture, but they have created a predictable communication cadence with their team, from managers down to the service they provide, to ensure that remote work isn’t a jarring experience.
“Companies have to overcome the difficulty that lies in trying to replicate the casual nature and nonverbal nuances you would find through in-office conversations,” says Tim Sanders, Upwork’s VP of Customer Insights. He adds that companies need to experiment, but eventually they will start to find the right cadence and channel based on message urgency and complexity, whether that’s hosting a virtual meeting, posting a message on Slack, or sending an email.
Process redesign
How will your product or service be offered in the digital environment? Will you pivot an existing design so that it’s cloud-based? Or is your model “digital by design,” as in virtual classrooms or virtual workouts like those offered by Peloton as an alternative to the physical gym? Virtualizing your value chain means creating a product that is specifically oriented toward the unique needs of the digital environment
Change management
This component encompasses both leadership and culture, which can be tricky to optimize in a virtual environment at first. When you consider all the physical events we’ve relied on in the past, it’s easy to realize there’s a change management issue.
For example, there are challenges inherent in pivoting from daily in-person huddles and chance encounters in the hall. But companies will soon learn their norms, such as how to balance micromanaging with under-communication. “Leaders must be clear that work-life integration is paramount to productivity,” says Sanders, offering communication as one example. “Sending email 24/7 can be a signal that leaders don’t value their colleagues’ time.”
Talent
To embrace virtualization, companies have to expand their talent network. It takes a wide number of specialized skills on tap to integrate, implement, manage and maintain technology. No matter what you do, virtualization is inherently technical. These skills are hard to find in the traditional labor market.
The companies that are having the hardest time virtualizing their business, have a very traditional FTE-heavy talent model. They define the bulk of the work that they do as something that can only be done by core employees. They don’t have competency in engaging independent, on-demand talent because they believe everything needs to be done core. This puts them at the mercy of the hiring market, onboarding processes, and reskilling to implement changes.
Agile companies that are quickly embracing virtualization know how to capture the value of leveraging on-demand independent specialists. The secret to virtualization, or digital transformation in general, is being able to embrace on-demand independent talent.
With on-demand talent, you can immediately achieve the scale you need, without being locked into a certain ZIP code or adhering to a lengthy hiring process. “Ask yourself if the best people for a certain function already sit with you, or if you need to use online platforms like Upwork to find them quickly. When you master the process of using these types of platforms, you can unlock on-demand talent from all over the world that will deliver within your budgets,” says Sanders.
How can you improve your virtual value?
The change management expert, Ralph Coverdale, said you have to make the leap from resistance and shock to exploration and trial.
Think about the things you hold so dear in the physical world, then think about how you can arrive ‘back to better’ using technology, and let that be a mental challenge. We don’t have to have a new normal. We can get back to better if we’re optimistic. Use your most innovative powers to make cherished physical experiences better in the digital world, and you’ve embraced change.
When it comes right down to it, the virtual value chain is just a design challenge, and legacy thinking is as bad as legacy technology.
