[The Editors' Verdict] The Digital New Deal Policy and the Trap of Success

Professor Shin Minsu, Department of Business Administration, Hanyang University. / Photo by Hyunmin Kim kimhyun81@

[Professor Shin Minsu, Department of Business Administration, Hanyang University] As the novel coronavirus disease (COVID-19) continues, the global economy is facing the worst economic shock since the financial crisis. In response, the government announced the Digital New Deal policy to accelerate the transition to a digital economy, including non-face-to-face services. The main points of this policy are to strengthen the D.N.A. (Data-Network-AI) ecosystem for digital innovation, promote the digital transformation of educational infrastructure, and advance the digitalization of infrastructure such as transportation, water resources, cities, and logistics. Building related infrastructure for the transition to a digital economy is a timely approach. However, it is questionable whether this approach alone can promote digital innovation and dynamism across the entire economy. What meaning can automating outdated business models hold?

The late Clayton Christensen, professor at Harvard Business School, explained through the theory of disruptive innovation how companies that believe in their existing success formulas fall behind in competition when trying to maintain competitive advantage in the same way. For example, Intel earned high profits for decades by selling chips for laptops and desktops. However, Intel designed chips without seriously considering power consumption. At that time, laptops and desktops were used plugged into power or equipped with large batteries that could last for long hours without charging. In that context, chips designed by ARM, a small British company, which consumed less power, did not attract much market attention. However, with the smartphone revolution in the 2000s, the market changed. Consumers wanted lightweight mobile devices that could be used all day long. Consequently, Intel’s product weaknesses became starkly apparent, while ARM’s efficiency emerged as a new quality standard. Despite this situation, Intel decided to improve only the functions of existing products to create new ones, and as a result, Intel became like the early ARM in the huge mobile device chip market.

In contrast, the German steel distribution company Kl?ckner & Co, when faced with a crisis in the steel industry, not only digitalized the steel industry but also embraced the spirit and practices of startups to efficiently utilize internal resources. As a result, it succeeded in transforming into a global steel distribution company.

Business models in the digital economy era are creating new inflection points in existing industries. When major market changes are expected, companies generally cling to their existing strengths, ignoring the strong possibility of change and focusing on changes within the existing framework. Alternatively, they overreact upon witnessing market changes. Without considering the direction and nature of change, they pour massive capital and time into entering the changing market. Such reactions make it difficult to approach the innovation they aim to achieve.

The Digital New Deal policy must also be designed and operated in this context. The limitations of innovation that supply-driven policies can bring are clear. It is necessary to consider what is needed from the demand side and how to innovate the entire industry. The supply of IT solutions helps solve immediate problems, but without being intricately combined with working processes such as manufacturing, sustained effects cannot be expected. The role of policy should be to protect consumer benefits amid conflicts arising during the transition to a digital economy, not merely to mediate them. Moreover, it is difficult to expect policy fruits without reforming laws and systems that hinder innovation. Innovation cannot grow under supervision and control.

There is much to learn about how to compete in a world changing at the speed of digital technology, not only for companies but also at the national level. I hope that the value of the Digital New Deal policy will increase by reflecting broad and rapid learning and insights gained through it.

This content was produced with the assistance of AI translation services.