[Viewpoint] Digital Innovation and the Essence of Business in Traditional Companies

The shock of the novel coronavirus infection (COVID-19) has accelerated digital transformation. Companies are experiencing mixed fortunes depending on their accumulated capabilities in non-face-to-face (untact) responses. Digital innovation, which has emerged as a core element in the post-COVID-19 industrial landscape restructuring, has now shifted from being a matter of direction to one of speed. The sense of distance that traditional analog business model companies felt between digital trends and their actual businesses has quickly turned into a sense of crisis. However, rushing blindly out of impatience is not the solution. Traditional companies need a perspective that redefines the so-called 'essence of their business' and integrates digital technology. In this regard, it is necessary to pay attention to actual cases where analog businesses are reborn by integrating digital technology.

The parking lot business is generally perceived as a backward industry attached to building management. It overlaps with the image of idle urban land and elderly people. However, in reality, it is evolving into an independently operated IT-based advanced platform business. I had a personal experience that made me feel this change. Several years ago, I parked in the basement of a building in downtown Seoul and went about my work. When I tried to settle the parking fee and leave the parking lot, the barrier gate did not open. When I pressed the intercom, I heard the voice of a young staff member. After explaining the situation and asking him to come down quickly to open the barrier, I received an unexpected reply: 'I am currently at the data center in Gyeonggi-do, so please wait in the car, and I will check it.' Shortly after, as I left the parking lot, I realized the change to an IT-based remote integrated management system. Since the early 2000s, I have experienced the trend of parking lot businesses in advanced countries being reorganized into IT-based specialized companies, now witnessed in Seoul. The parking lot, once a typical analog business, has transformed into a digital platform business based on information and communication technology and big data.

The butcher shop is a representative small business of the analog era. It first brings to mind declining traditional markets or small neighborhood stores. Although the distribution of livestock products has been streamlined with the emergence of large retail companies, the basic structure of the multi-stage value chain from slaughter to sales has remained unchanged. However, an innovative business model based on digital untact has emerged. Jeongyookgak, a startup advocating 'super fresh,' delivers slaughtered meat to consumers within four days. This significantly shortens the distribution stage, which previously took an average of over ten days. This change is due to the shift to a Direct to Customer (D2C) structure, where meat is sold directly from the processing company after slaughter to consumers. The challenging tasks arising in this process were solved by a young entrepreneur with a background in applied mathematics, who integrated digital technologies such as artificial intelligence (AI) machine learning, big data analysis, and demand forecasting algorithms. The butcher shop business, once seen as outdated, is opening new horizons by integrating digital technology.

The term digital upheaval appeared over 20 years ago, but sensitivity varied by industry. While media, telecommunications, and distribution sectors underwent changes that altered market order, industries such as steel, chemicals, and food often viewed digital technology merely as a tool to improve existing business efficiency. Moreover, it was mainly an issue for large corporations, and small and medium-sized enterprises and small business owners did not feel its impact strongly. However, recently, digital innovation has been actively advancing in typical small-scale, dispersed analog business areas such as parking lots, butcher shops, laundries, restaurants, and disinfection services. In this pattern, one can truly feel the all-encompassing digital upheaval spreading regardless of sector or scale.

Traditional companies find it difficult to survive in the future with their current analog business models alone. However, it is also realistically challenging to catch up by simply imitating digital companies. This is why existing companies need a paradigm shift that integrates digital technology based on the 'essence of their business.' This concept can be condensed into the word Deeptact, which fuses the analog inherent value of Contact with the digital technology of Untact to build deep customer relationships. In this era of upheaval, a convergent approach that pursues 'competitive elements present in analog but absent in digital' is an effective response strategy.

Kyungjoon Kim, Vice Chairman, Deloitte Consulting