The Jakarta Composite Index slumped to around 3,900 in March 2020 – when the first COVID-19 cases were detected in Indonesia – compared to 6,300 at the beginning of the year.
Although the index managed to rebound, Indonesia has been hard hit by the global pandemic and firms have had to drastically reinvent how they conduct their business.
The pandemic has been different from other financial crises, such as the 2008 global financial crisis and the 2001 tech bubble.
It has tried and tested the innovative capabilities of firms around the globe as it required firms to interact with consumers with limited mobility.
So firms have increasingly been using e-commerce, digital platforms, track-and-trace procedures and iterations of traditionally face-to-face product lines to maintain sales.
Our study, funded by the Australia Indonesia Centre, showed internal advice from front-line employees and middle managers was crucial for devising these digital adaptive responses.
Seeking advice from the inside
Our research surveyed top management teams from about 30% of the 668 firms listed on the Indonesia stock exchange.
Our aim was to study their strategies on seeking advice on digital innovation and their broader adaptive response to the pandemic. We observed two categories of advice – internal and external.
For external advisers, we considered advice from consultants and consumers. For internal advice we focused on insights from middle managers (those immediately below the senior decision makers) and advice from front-line employees.
Our research showed that internal sources, such as front-line employees, may offer more actionable advice on digital solutions than external consultants due to their first-hand experience interacting directly with consumers.
For instance, front-line employees would be well placed to grasp and outline immediate requirements for continued trading as they deal with the impact of restrictions on a daily basis – insights those higher up in the organisational ranks find difficult to observe.
With their valuable and deep knowledge on how the company operates and how to interact with consumers effectively, front-line employees may give the best advice to improve digital innovation needed during the crisis.
A total of 40% of firms scoring high on digital innovation displayed a strong focus on their top management team and front-line employees in their response to COVID-19 compared to only 17% of firms scoring low on digital innovation.
In addition, we found around 48% of firms with a high digital innovation focus strongly on how top management liaises with middle managers for advice on strategic and operational issues.
Only 30% of firms scoring low on digital innovation have active policies to allow regular liaison between the senior suite and middle managers.
Middle managers were especially well-positioned to influence digital innovation as they informed top managers about activities and policies that could potentially aid continued trading in the face of lockdowns and social distancing. In addition, they were able to add local nuances to top managers’ directives implemented across the firm.
Internal advice from middle managers and front-liners was of great importance in swiftly devising innovative digital solutions. It helped sustain companies’ interaction with customers and thereby greatly impacted the overall adaptive response to COVID-19.
The importance of external advice
External advice was found not to have a direct influence on digital innovation. However it did impact the overall adaptive response to COVID-19. This included for instance, changes to products and services in a non-digital capacity, production processes, as well as reassigning staff in the company.
We found 23% of firms with a high overall adaptive response to COVID-19 sought advice from external consultants compared to only 6% of firms with a low adaptive profile.
Similarly, 24% of firms with a high overall adaptive response to COVID-19 asked consumers for their input compared with only 8% of firms with low adaptive reactions.
External advice is helpful for the overall adaptive response but not specifically for digital innovation. A potential reason is that the digital part should follow the intricate inner workings of the firm closely. Suggestions from outside may not fit the distinctive processes of the firm.
Moving forward with front-line employees
The situation that emerged during the pandemic gave a unique role to front-line employees.
Transformative change is usually the domain of top management teams, with notable input from middle managerial ranks; front-liners are largely left out of the strategic dialogue that precedes transformative change.
However, the level of urgency during the COVID-19 pandemic and the substantial impact on operations made front-line employees’ input more prominent.
This occurs as front-line employees obtain more context-specific and real-time information reflecting customers’ tendencies and desires.
The fact that top management teams of Indonesian listed firms have reached out to their front-line employees is telling.
First, it underlines the severity of the crisis firms found themselves in.
Second, it shows the remarkable flexibility of top management teams.
Indonesia is predominantly a hierarchical society with power differences between senior managers and the general workforce. Looking to input from front-line employees isn’t the usual way of doing business. It may be one of the positive takeaways from the pandemic.
Our finding suggests now is the time to reinforce and retain this trend.
Companies can add front-liners to existing multi-functional teams working closely with the top management teams. Alternatively, firms can formalise bottom-up advice procedures and allow monthly or quarterly liaison meetings.
Finally, firms can experiment with input from front-line employees to innovative systems and strategies they work with daily. Companies can achieve this by allocating them a fixed amount of time (for example, 5-10% of their working hours) to contribute to innovating how the firm should face customers.