COVID-19 and Digital Transformation: Key Things to Keep in Mind
“The United States was careening toward a global depression when President Barack Obama named me his first chief of staff, and in those dark days, I uttered a phrase that’s followed me ever since: ‘Never allow a good crisis go to waste. It’s an opportunity to do the things you once thought were impossible’.” — Rahm Emanuel, Chief of Staff to US President Barack Obama, 2008.
Emanuel repeated this statement in March 2020 at the onset of the pandemic urging authorities as well as businesses to prepare for a change so that next time we aren’t caught unawares. He was spot on. If necessity is the mother of invention, then a crisis can surely be called a catalyst for change. It is true that COVID-19 has fundamentally altered many facets of the way we live our lives, forcing businesses — both private and public — to fast-forward their digital transformation.
“If businesses don’t adapt to digital now, they may not be able to survive the long road ahead. The pandemic is the catalyst for businesses to make the switch to digital,” says George Leith, Chief Customer Officer, Vendasta.
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However, to stay relevant, and thrive in the post-COVID digital age, organizations must first transform themselves to connect digitally with customers, suppliers and employees. This means addressing some key challenges.
Digital acceleration
The digital mandate isn’t new. There was a marked shift towards digitalization even prior to the pandemic. Current events have simply brought the issue under the spotlight and forced a dramatic acceleration, both in the speed of change and the required investment in digital transformation. A commissioned study by Forrester Consulting on behalf of KPMG found that organizations are investing heavily in technology, to address immediate concerns like falling revenue and interrupted supply chains, and to build longer-term competitiveness and resilience.
Source: Going Digital, Faster study done by Forrester Consulting on behalf of KPMG
In many ways, the pandemic is a reality check for businesses that have been reluctant to embrace digital transformation and now find themselves woefully unprepared. Agrees Paul Plant, Co-Founder & Director at BigFive Digital: “One of the real telling factors about this current crisis we are in is just how unprepared many countries and many governments were around the world.”
Source: The Harvey Nash / KPMG CIO Survey 2020
In a contactless world, marked by lockdowns, travel restrictions, declining sales, and remote work, companies had no other way but to shift to digital, as evidenced by the marked shift in spending towards digital businesses in the past year. The Harvey Nash / KPMG CIO Survey 2020, with more than 4,200 responses from CIOs and technology executives across 83 countries, found that from May to August 2020, technology spend grew at a greater rate than at any point in history, as technology leaders reported a median additional spend of 5 percent to deal with the crisis. They survey also found that majority of leaders said the pandemic has created a culture of inclusivity in the technology team; increased the influence of the technology leader; and increased collaboration between the business and technology teams.
“There were companies tiptoeing around the digital transformation topic for a while. That kind of process has gone on in many companies… not just small companies, but also very large organizations,” Plant tells Leith during a Conquer Local Academy podcast.
In fact, the bigger the organization, the harder it was to pivot and change.
“And now suddenly they are behaving as if they are in a come-to-Jesus session!” he adds.
Plant would know. An experienced strategic marketer, digital thought leader and change agent, he has spent years advising companies of all sizes on how to bring about sustainable and profitable change. His company BigFive Digital champions and promotes digital enablement for local businesses throughout Africa and The Middle East.
The customer is king
In an age of declining revenues where the customer is king, digital enablement is more than just cutting costs. It means building complete workflow solutions — connecting the marketplace; more reliable and responsive supply chain and operations, and aligning the front, middle and back office — to deliver a seamless customer experience. A pre-COVID study by KPMG, The Connected Customer, found that 35 percent of customer-focused companies plan to adopt ‘commerce everywhere’ business models by 2022.
Plant points to the airline industry, the one sector which perhaps suffered the maximum impact of the pandemic, and will continue to for some time now, because of travel restrictions and changes in consumer behavior. Some airlines handled this well in terms of quickly realigning their fleet and operations and becoming extremely customer service focused. “However, look at how British Airways has been pilloried left, right and center, not just for the way it treated its staff, but also the treatment of its customers,” he says. It is not only the British national flag carrier, but pretty much every other flag carrier failed the customer service test during the crisis, especially when it came to refunds, even forcing people to file class action suits.
“It’s about all sorts of companies and how they respond to this. But those that end up with the focus on their customer and rebuilding their business are the ones who will survive."
Businesses must understand that revenue and profit come as a by-product of doing something good for customers. The World Economic Forum, which coined the term Fourth Industrial Revolution, also warns that the extraordinary technology advances commensurate with those of the first, second, and third industrial revolutions, represents a fundamental change in the way we live, work and relate to one another. “The Fourth Industrial Revolution is more than just technology-driven change; it is an opportunity to help everyone, including leaders, policy-makers, and people from all income groups and nations, to harness converging technologies in order to create an inclusive, human-centred future,” it says.
The real opportunity here is to look beyond the technology, and find ways to give the greatest number of people an ability to positively impact their families, organizations, and communities.
Survival of the fittest
Darwin’s theory of survival of the fittest underlining the natural selection process has become a hot topic since the outbreak. This is not just true for when it comes to human health but also for businesses. “It’s not the biggest companies, it’s not the wealthiest or the strongest that will come out of this successfully. It’s the ones that are able to adapt to change and demands of the situation that will survive in the long run,” Plant says.
Many companies around the world have been prepared and adapted to the crisis. Many actually grabbed the opportunity and thrived.
The developments in the retail and ecommerce sectors point to an interesting trend. Amid slowing economic activity, COVID-19 has led to a surge in ecommerce and accelerated digital transformation. This led to the rise of ecommerce’s share of global retail trade from 14 percent in 2019 to approximately 17 percent in 2020, according to a new report, COVID-19 and E-Commerce: A Global Review, by UNCTAD and eTrade for all partners. Even for many major brands digital became the lifeline.
Some of the best learning from this churning is to look at small businesses — because of their size and agility, many of them could make a change and focus their efforts on customers swiftly. Of course, as Plant points out, the biggest casualty of this crisis would still be small local businesses worldwide, and it would take a lot of different actions just to re-stimulate economies. A Statistics Canada report finds small businesses are not only more likely to experience a year-on-year decrease in revenue, they are also less likely to be able to adopt various technologies.
But that is for lack of funds and not lack of intention.
Consider this, a new study by PayPal Canada in November 2020 found that 67 percent of small businesses in the country now accept payments online and 47 percent of them only started doing so in 2020. Of all small businesses selling online, one third (34 percent) turned to digital payments only after COVID-19 was declared a global pandemic in March. A vast majority of small businesses (84 percent) say they are doing some type of preparation for future waves of COVID-19 and 64 percent say the pandemic has motivated them to consider new ways to grow their business.
Another research report, Cisco’s 2020 Small Business Digital Maturity Study, conducted by IDC, found that 70 percent of small businesses are accelerating their digitalization rates to address COVID-19 challenges and the most digitally mature small businesses can respond faster to changing market conditions and grow their revenue. The study took into account more than 2,000 small businesses from eight global markets including the United States, Canada, Germany, Mexico, United Kingdom, Brazil, Chile, and France. By increasing digitization efforts, these eight global markets could experience a 42 percent faster rate of growth and increase their economies by 5.5 percent, it forecasts.
Source: Cisco 2020 Small Business Digital Maturity Study, conducted by IDC
“The COVID-19 pandemic has exacerbated the digital divide that was already present in the small business market, and it is forcing companies to accelerate their digitalization,” says Daniel-Zoe Jimenez, AVP, head digital transformation and SMB research at IDC. “Small businesses are realizing that digitalization is no longer an option, but a matter of survival.”
If run properly, small businesses can be quick-footed and agile, and, as Plant says, can “spin on a sixpence.” They can quickly pivot and refocus. There is a lesson for big businesses here.
Reboot, refocus, reskill
With digitalization changing the age-old ways in which work gets done, organizations must now adapt to become nimbler, scaling up or down swiftly, entering new geographies or businesses and exiting old ones. With the ‘workforce of the future ecosystem’ becoming more and more digital, increasingly augmented by automation as well as contingent workers, KPMG sees the need for companies to ‘shape’ their workforces, to ensure they can access the skills they need as required.
The pandemic has forced a lot of companies to structure their organizations around customers as opposed to levels of spend or product or process. Plant sees this trend as another paradigm shift as a consequence of digitization. “Silo-based businesses are slowly moving into the sunset, and you are seeing businesses with flatter structures, built around customer cohorts, with cross channel and cross-functional teams that can react and respond quickly to customer needs, shift forward,” he adds.
There is a need for businesses to radically change their shape, size, and structure, and to acquire a range of new skills. KPMG suggests that companies benefit themselves as well as employees through strategic reskilling initiatives, and by embracing the professional ‘gig’ economy. Additionally, shared services, partnerships, alliances, and strategic use of retired staff, brings access to vital talent on a short-to-medium term basis. There is also a need to increase investments in automation and reshoring production to shield against supply chain disruption.
“We naturally feel sad for those businesses that don’t make it. But the reality is many will survive and will come out of this perhaps even stronger. And it will be those who were probably the most prepared, and managed the conditions better than others.”
A post-pandemic future
COVID-19 isn’t the first crisis the world is facing, and going by the warnings will surely not be the last. In fact, the second report from the Independent Panel for Pandemic Preparedness and Response for the WHO Executive Board, which came out in January this year, warns that the worst of the pandemic and its impact are yet to come. While underlining that the global pandemic alert system is not fit for purpose, the report also notes that the crisis has exposed major gaps in the global supply chain, including lack of frameworks to ensure equitable access, and logistics limitations.
Plant, who is co-authoring a book, Aftershocks And Opportunities: Scenarios for a Post-Pandemic Future, reveals many of the authors in the book actually said this is just a dress rehearsal for the next one.
Given how far the pandemic pushed us into the digital world in the past one year, it’s difficult to even imagine going back to pre-COVID alternatives. In many fields, the disruptions will only accelerate existing trends, for instance, digitalization of construction processes or industrial automation. In other fields such as ecommerce vs brick-and-mortar retail, the crisis may prompt a complete directional change.
This isn’t about just the pandemic. As Leith says, businesses need to always look around the corner and prepare for disruptions. While charting the road to recovery this time, businesses — and governments — must keep in mind the state of change that our society and our business climates are going through is only accelerating. There is a continuous need to look around the corner.
Leith’s final words on the subject may sound brutal, but they are absolutely on the ball. “Adapt to digital or die.”