[Sponsored Article] By Professor GONG Yaping, Fung Term Professor of Management, Head and Chair Professor, Department of Management, HKUST Business School The COVID-19 outbreak was unexpected and highly disruptive. It continues to impact all walks of life, and the human and economic cost is colossal. Global travel came to a halt as countries imposed travel restrictions and lockdowns (e.g., in Wuhan in China, New York in the US, and Lombardy in Italy). According to World Health Organization, the COVID-19 virus had infected 18,614,177 and caused 702,642 deaths as of August 7, 2020. According to an Asian Development Bank report released on May 16, the global economy could suffer from a US$5.8 to $8.8 trillion loss due to the outbreak. This loss could become even greater as the crisis drags on. Hong Kong’s GDP in the first quarter contracted 8.9% from a year earlier. There is also an immeasurable mental health and psychological cost (e.g., due to the rising domestic violence caused by stay-home and lockdown orders). The Chinese character for “crisis” ( wei-ji ) implies both “danger” and “opportunity”. So what opportunities are available during a time of crisis? Research provides some clues to this question. Crisis and Employee Creativity Crises pose a serious threat to the survival of individuals and organizations. In a crisis situation, individuals often experience anxiety, and organizations experience restrictions in information processing and the constriction of control. Individuals and organizations rigidify rather than act in a flexible manner. So when can a crisis stimulate creativity? Our ongoing research provides a glimmer of hope. We conducted field interviews and identified major crisis events in R&D teams. For instance, a team suddenly discovered that a competitor matched or exceeded the product, technology, or design that it was specifically working on, or unexpectedly suffered a budget cut relative to the demand of the task(s). Does that sound familiar to you? Think about this. If you were a software programmer and have worked on a project for years, and the project is under final user acceptance test. But then you discovered that a similar software has just been launched and available in the market. How devastating! What happens to creativity when individuals experience a crisis? An individual’s mindset matters. Those with a fixed mindset regard competence and resources as fixed, and they tend to see a crisis as threat to their self-image. On the other hand, those with a growth mindset regard competence and resources as malleable and tend to see crisis as an opportunity for growth. For those with a fixed mindset, a team crisis invokes heightened anxiety and subsequently stifles creativity. For those with a growth mindset, a team crisis stimulates engagement with the creative process, and that leads to creativity. Crisis management deals with reality, the management of a rapidly unfolding situation, whereas crisis communication deals with the message, the management of the perception of that reality. It is critical to be transparent in crisis communication, and it is equally important to shape the perception through such communication. To tap into the upside of crisis, employees must have a growth mindset and managers must shape the perception of crisis as an opportunity. Crisis and Organizational Change Organizational change refers to the alteration of a major component of the organization (e.g., culture, strategy, structure, and work method). Such change may or may not represent an innovation. Crisis is an important driver for organizational change. For the brick-and-mortar universities, online delivery of teaching is a major organizational change. What was the initial reaction when COVID-19 hit and the decision was made to teach online? Concern and skepticism. Some students resisted online teaching due to the lack of face-to-face interaction and perceived it to be of a lower quality. They requested face-to-face teaching despite the public health risk. These are understandable human reactions during a crisis situation. The university had no choice but to switch to online, and subsequent reactions were more positive than expected. According to Mini-SFQ (Student Feedback Questionnaire) data for our Business School in March 2020, 62.58% respondents found Zoom teaching to be effective or highly effective, and only 7.95% found it to be ineffective or highly ineffective. Some students participated more online and felt that they were always in the front row. The COVID-19 outbreak, and the move to online teaching, illustrates the number one principle of organizational change, i.e., to create a sense of urgency. Crisis creates a sense of urgency by seriously disrupting the taken-for-granted routine, and threatening the organization’s survival. Other elements must be in place in order to make change happen. Organizations must clearly communicate to stakeholders the need for change (e.g., from face-to-face teaching to online teaching), and provide support for change through incentives and effective communication. Addressing the knowledge gap is critical. This involves knowledge about how to change (i.e., what to do during transition) and how to perform tasks in new ways. In responding to the COVID-19 outbreak, our University quickly switched to online teaching. More importantly, it acquired a Zoom license for faculty, and conducted intensive training workshops in two weeks to prepare faculty for online teaching. To ensure the change will stick, and that individuals do not revert to their old ways, organizations provide positive feedback and rewards to reinforce the new ways. As the COVID-19 situation improved and full online teaching was no longer necessary, our University provided the opportunity to continue online teaching, subject to approval. Crises and Educational Innovation Christensen (1997) suggests there are two types of innovation: sustaining innovation and disruptive innovation. Sustaining innovation makes an existing product, service or process better, and provides them to customers at a better price in the mainstream market. Disruptive innovation departs from and replaces an existing product, service or process. Disruptive innovation provides cheaper and easier-to-use products, services or processes to customers outside the mainstream market. Here’s an example, a mainframe computer costed US$2 million and required a high skill level to operate it. Its customers were large corporations and government agencies and only professionals could use it. A personal computer today costs only US$2,000 and ordinary people can operate it. It targets customers like you and me. A PC has a lower profit margin, but it can generate a larger profit because it makes computing accessible and affordable to the greater population. Importantly, disruptive innovations like the PC stimulate economic growth, because the large demand creates many jobs to sell and service the product. What does the theory of disruptive innovation tell us about online education? When seeing an online education program, one may conclude that it is not as good. Most likely, that is correct. But that is actually the correct answer to the wrong question. The correct question is: will online education become as good as, and better than, face-to-face education? The answer is “Yes”. Look at how much it has been improved. And more improvements are in sight. History shows that many disruptive innovations were initially not as performance competitive, but improved over time. When a disruptive innovation became performance competitive, customers in the mainstream market switched to the new product, because it was also cheaper and easier to use. Amazon disrupted Barns & Noble. Online education will disrupt brick-and-mortar education too. It is unpredictable when it will happen. It is predictable that it will happen. “Crisis creates a sense of urgency by seriously disrupting the taken-for-granted routine, and threatening the organization’s survival.” We have witnessed rising education costs in the last decade. There is a real chance for disruption if one can offer the same quality education, but at a much lower price. Online education technology is one potential candidate for such disruption. As the technology improves, we may be able to teach as effectively as in the face-to-face mode. Equally important, we can offer education at a lower price, because of lower physical assets investment (e.g., buildings and classrooms) and greater economies of scale (e.g., reaching more students from geographically distant areas). Hong Kong is in a dire need for such technology because of its expensive real estate and its shrinking student population. When such technology is good enough for education, it would be good enough for business as well. If people can work effectively from home as they do in Central, the reliance on office buildings decreases, potentially disrupting the commercial estate sector too. The COVID-19 outbreak may well be a turning point. The pandemic makes it crystal clear that there is a market for distance education and technology. Investors are pouring resources into developing such technology and the advancement is accelerating. When more people use the technology due to the pandemic, the opportunity to improve and perfect it is vast. As a case in point, Zoom Video Communications, Inc. provides a platform for teleconferencing, telecommuting, and distance education. Its share price soared. The company improved the technology quickly, because many across the globe adopted it, and then complained about it. The COVID-19 crisis and the switch to online teaching also call into question the business model of business schools. One much embraced model is to offer elite programs to elite customers at an elite price. It is unknown when business schools began to give up on the lower segment. It is known that business schools are continuously climbing up the price ladder. Schools strive to provide better programs to better customers at a higher price. The upper market movement makes total sense except for one problem. Disruptors often attack from the bottom of the market, the segment that successful incumbents look down upon and are ready to give away. If this theory is correct, educational disruptors will come from underneath and attack successful incumbents by making education accessible and affordable to a larger population. If business schools do not disrupt themselves, others will. We are not out of the woods yet. Nobody has a crystal ball. History will tell what positives will come out of the COVID-19 crisis. Reference Christensen, C. (1997). The innovator’s dilemma: when new technologies cause great firms to fail. Boston, Massachusetts: Harvard Business School Press.