How COVID-19 accelerates digital transformation

Out of every crisis, there will be opportunities. Where the current pandemic has acted as a black swan event in some cases, it accelerates several of the trends already pushing towards a digital future.

In an age where incumbents already are facing a perfect storm of changes that challenge existing business models and processes, COVID-19 has proven to accelerate some of the trends that have been pushing this storm towards a reality. According to a senior executive at Gartner, “This is a wake-up call for organizations that have placed too much focus on daily operational needs at the expense of investing in digital business and long-term resilience.

Customer behavior is changing rapidly. Where early adopters sought simplicity and lower friction, the majority of customers on the technology adoption curve are changing their habits rapidly out of necessity. As an example, online grocery shopping has seen a seismic shift. While it is early to say how this will play out in the long run, it is plausible that this shift in customer behavior is irreversible as more customers get used to the convenience of ordering food from the comfort of their own homes. According to a wide selection of research, online grocery shopping has surged across the world online grocery shopping has surged, but the intent for future habits is mixed across geographies.

According to a recent study by Absolunet, e-commerce sales have doubled for Canadian merchants since, while on the other hand, online sales of non-essential items have dropped in nearly all categories across Western Europe, showing a decline in most categories except fresh food, pharmaceuticals, and other essential items.  

Tracking app popularity also paints a picture where some categories show strong growth in popularity across geographies, while others have big variations depending on geographical regions.

One possible explanation for variations in customer behavior could be the severity of the outbreaks across countries, as well as how strict limitations are imposed ion the population. However, one trend remains constant across regions. An already struggling brick- and mortar industry is facing a future where even fewer customers is predicted to return to physical stores,  favoring the bigger online players like Amazon.

The sudden surge in eCommerce and on-demand delivery has also put a strain on logistics and supply chains, magnifying existing bottlenecks and pain points. One potential outcome is a significant growth in driverless delivery options for last-mile logistics, as well as an impact of mobility as a whole. Early data out of Wuhan shows accelerated auto sales as people emerge from quarantine less inclined to take public transportation. Covid-19, and what lies beyond has the power to push the already ongoing trend towards autonomous mobility into new heights.

Another aspect that has been exposed is the vulnerability of complex global supply chains. To create long-term resilience we will likely see further robotic automation and artificial intelligence applied to manufacturing in order to bring production closer to home markets, as technology is able to reduce the cost difference. Just as the first waves of digital was utilized to spread out our supply chains, existing and emerging technologies can be used to shorten them.

Home entertainment and streaming services are also seeing an uptake in usage. Netflix reports that they have doubled the number of new subscribers, and Disney+ doubles down on total subscribers. Research shows that 43% of consumers are considering paying for a subscription service they didn’t have before the outbreak of COVID-19. However, Netflix expects this growth to slow down as we enter the second half of the year. However, a study by Nielsen, shows that all forms of home entertainment have experienced a significant uptake during the crisis, but when compared to previous crises, this growth has proven to be short-lived. Another factor that is set to affect the streaming and entertainment industry in the long term is the fact that a vast majority of media productions are suspended until further notice, meaning that there is likely to be a shortage of future content.

This paves way for another form of content that is already experiencing significant growth among younger consumers. 58% of Gen Z audiences reporting greater use of social media, and viral video content on platforms like YouTube and TikTok is in high demand. For online marketers, these changes in media consumption patterns represent an opportunity for customer outreach and brand building similar to what we saw in the early days of social media.

The way we pay will also be affected by the current crisis. The use of cash is already on the decline, but will likely accelerate as people fear that cash may act as people far that banknotes may spread the disease and many stores encourage customers to use cards or mobile payments. According to Nets, contactless adoption rates in the Nordics are increasing at a never before seen rate. Mobile payments in physical retail have proven to be a slow train coming so far, but the option to authenticate a payment on your own phone rather than handling a potential germy PIN-pad may be the spark that accelerates mobile payments. Combined with the rise in eCommerce, mobile wallet dominance over digital payments is likely to solidify even further.

Just as different customer segments show different behavioral changes amidst the crisis, an analysis by EY predicts that few consumers expect to go back to their old behaviors any time soon when we look past the immediate effects of the pandemic. As with many of the shocks we encounter in life, people are in a mood to pause and reflect, and those reflections will shape our future behavioral patterns. 

These are just some examples of how changing customer behavior accelerates already existing trends like on-demand delivery, autonomous mobility, media consumption through streaming and social platforms, and digital payments.

From customer behavior to company operating models, digital collaboration has suddenly become the lifeline of almost every organization (except those who have been forced to shut down). The use of collaboration tools like Microsoft Teams, Slack, and Zoom has exploded during the crisis, replacing endless meetings and lengthy emails. This shift in our professional lives life will undoubtedly shape the future of organizational development as well as the need for digital transformation, also internally in every organization. Just like the use of technology changed how corporations interact with their customer base, the crisis has forced corporations to digitize the relationship between employers and employees.

However, IDC predicts that IT spending to decline by 2.7% in 2020 because of the pandemic, forcing organizations to better prioritize their digital initiatives. Rather than obeying a traditional cost-cutting playbook, where new projects are sacrificed to bring IT costs to a minimum, companies should prioritize their digital efforts in order to maintain a fair balance between keeping the lights on, building resilience through the crisis as well as continue to invest in future revenues.

This is where we are likely to see an increased divide between frontrunners in digital and laggards. According to Harvard Business Review, the stakes for digital transformation have increased dramatically. Now, digitizing the operating architecture of the firm is not simply a recipe for higher performance, but much more fundamental for worker employment and public health. This is creating a new digital divide that will deepen fractures in our society.

Big tech represented by companies like Google, Facebook, Apple, Amazon was already before the crisis deemed as a threat to many incumbent industries and through the crisis hey have gotten even bigger and more powerful. Facebook states that messaging activity has increased by 50% in those countries hit hard by the virus and Amazon is planning to increase its staff by 100,000 employees to keep up with higher e-commerce orders.

In what should almost be considered a law of nature, history has shown us that out of every crisis in modern times, new regulations will emerge. Just like the banking and finance industry has been required to comply with a vast amount of regulatory changes following the financial crisis and airline travel changed post-9/11, we should expect no less as we approach a post-pandemic society.

One thing this crisis has proven is the importance of digital infrastructure, as well as the need to continue to invest in maintaining and developing robust and secure fundamental digital services like access to high-speed internet, network security, digital identities, and APIs for data sharing and cross-sector collaboration. This is certainly not the last crisis we will face, and we now have an opportunity to strengthen our defense against future pandemics and other crisis scenarios.   

When attempting to predict what comes next, it is important to take note that we are still in the middle of it all. These are just some of the trends that are clearly accelerating through the crisis and are likely to continue as we approach a new normal. But when and how the new normal will occur and look still has still too many open-ended prerequisites that shape potential scenarios for the future to predict with any level of certainty. The only thing I am certain of is that technology will play an even more important part of our society and our lives.