Research funded by the Australia-Indonesia Centre (AIC) and conducted on a panel of 200 IDX listed firms, found that employee digital proficiency as well as digital human capital investments (in the form of digital training) are key indicators of their sustained performance.

Firms lagging in employee digital proficiency (comparing low and high digital proficiency by a mean split) scored 11 percent lower on digital Innovation. This is problematic in an environment that requires swift and flexible approaches to implementing new digital products and services to overcome the hurdles presented by COVID-19 in terms of restrictions to trade.

However, there is a solution, firms that score low on employee digital proficiency are evidenced to offset initial deficiencies by engaging in digital training pathways. In fact, those firms scoring in the bottom 50 percent for digital proficiency can elevate their digital innovation efforts by as much as 13 percent through investments in their digital human capital through training.

Digital training (e.g. repurposing face to face sales staff to manage e-commerce activities or the training of employees to deal more efficiently with e-solutions such as track and trace procedures) then provides opportunities for firms that are traditionally less versed in the digital sphere and allows them to rapidly build digital capacities and meet COVID-19 induced market demands.

Importantly, the impact of skill maintenance and development of employees in the digital space does not stop with digital innovation. Digital innovation itself is evidenced to impact (industry adjusted) firm financial performance, with firms scoring high on digital innovation (comparing high to low digital innovation by a mean split) enjoying 10 percent higher performance.

In addition these firms also score 13 percent higher on their market facing adaptive response to COVID-19. This latter category shows that much of the digital efforts are geared at restoring the obstructed paths to market as caused by lockdown and social distancing. For instance, firms conducted higher levels of digital innovation will aim to respond closer to changing customer needs (e.g. e-commerce and delivery options) and associated required changes to products and service offerings.

What can firms learn from these findings and how do these lessons translate to the small and medium enterprises (SMEs) context?

First, digital proficiency is a key performance indicator in the COVID-19 aftermath. Firms need to recognize the importance of this core competency and confirm adequate focus is placed on either the maintenance of existing digital skills or the build-up of digital skills in areas where current employees are lacking. Firms can, for instance, focus on narrowing the gap of employee digital proficiency (e.g. in-house training, blockchain, UX/UI interface).

Our research showed that branch associations play a key role in pinpointing sector specific gaps and skill building approaches.

Second, firms need to be mindful of evolving market demands as these are likely to be more sticky than previously assumed, i.e. the focus on digital ways of working, and bringing products to market is expected to remain with us. Efforts should then be made to adapt current business models to account for these changes (e.g. digital platforms, cloud computing, AI and big data). In line with this, government could implement policies to smoothen the transition, e.g. tax benefits for firms that invest in the digital skills of their employees.

Third, while this study focused solely on IDX listed firms, lessons on how digital skills can be built-up could be extremely valuable for SMEs. Typically, smaller businesses may find they have greater gaps to fill when it comes to digital skills of employees and investments in the training of employees should follow similar returns on investment rationales when it comes to their financial performance and adaptive response to COVID-19.

As SMEs might not have the resources to invest heavily in digital human capital, governments could play an important facilitating role in supporting these SMEs not only through the building of digital infrastructure but also the creation of programs to build digital proficiency in the post-COVID-19 environment (e.g. by organizing programs that outline how to leverage new digital opportunities and upskill and reskill employees accordingly).

Branch associations could also identify the needs of their members to inform government in creating more suitable policies and ecosystems that would strengthen the development of the Industrial Revolution 4.0.

Finally, the government could work together with all stakeholders to increase digital readiness and innovation of SMEs (e.g. communities of practice) in order to venture beyond the post pandemic perspective and consider opportunities with a more extended timeline, e.g. Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA).

Digital skills and attention for digital innovation will be key for leveraging the position of Indonesia in bilateral trade relationships.

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Arnold Japutra and Sebastiaan van Doorn are senior lecturers at University of Western Australia and Industry fellows at Australia-Indonesia Centre. Irwan Adi Ekaputra is a professor of finance at University of Indonesia. Ami Fitri Utami, a PhD candidate at University of Indonesia, contributed to the article.

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