Purpose of this article: This article aims to provide a non-exhaustive summary of the impact of the health crisis on the digital transformation of businesses.
Summary :
- The health crisis has confirmed the importance of digitalization in businesses. COVID-19 has accelerated digital transformation, the robustness of which has been put to the test during lockdown.
- The urgent need for action in the face of the pandemic has given companies the opportunity to innovate and accelerate their digital transformation in order to respond to the critical effects on their business. Unsurprisingly, companies that were able to undertake their digital transformation before the crisis are those that are able to stay ahead of their less agile competitors.
- However, speed must go hand in hand with sustainability, and in times of crisis, responses to short-term needs have been favored over long-term ones, and risks must be considered.
- Uncertainty about the future is an opportunity to implement innovative, sustainable digital transformation strategies that take into account supply- and demand-side trends that will remain relevant in the world to come.
When the trilogy of articles devoted to the digital economy and digital transformation was published on the BSI Economics website in 2015, companies were questioning the real effectiveness of new digitization strategies and their impact in terms of improving overall factor productivity. Today, nearly five years later and with a pandemic underway, it is clear that not only was digital transformation essential before Covid-19 in order to respond to new demand by adapting/creating supply, but it has also become essential for the survival of businesses, especially in times of health crisis.
Until now, the path to digital transformation has varied considerably depending on the profile of the company, its size, its sector of activity, etc. Nevertheless, the concept of Industry 4.0 and digital transformation—with its accompanying technological, process, and organizational changes—was already part of the reality for business leaders.
Then the health crisis hit, highlighting the importance of this digital transformation and accelerating the strategies already in place in companies. Those that have been able to master the digitization of production and organizational processes, that have been able to adapt their operations quickly and agilely while prioritizing people, will be the ones with the most options in a vulnerable, changing, and uncertain market.
1) Pandemic and digitalization: a brief overview
The Covid-19 crisis has caused an economic shock to demand and supply that is unprecedented in history. Business production, investment, trade, household consumption, institutions… everything has been affected by the sudden halt in economic activity. However, despite this unprecedented situation, one strategic factor has enabled most activities in certain sectors, particularly the service sector, to continue: digital transformation.
A recurring theme in corporate strategies for more than two decades, the majority of companies have embarked on their digital transformation, driven in particular by the increase in internet penetration rates worldwide, new technologies, innovations such as ICT, connected objects, but also encouraged by the demand of increasingly tech-savvy consumers… all of which have disrupted the market.
Digital transformation has become an essential and ongoing strategy that companies must develop over the long term to ensure smooth production and organizational operations, respond to new consumer demands, and offer the best customer experience to build customer loyalty.
Overnight, with the implementation of lockdown measures, millions of people were forced to work remotely. The first observation was the decentralization of work. Teleworking was a godsend for companies that developed it, allowing a large part of their business to continue remotely. According to the Acemo survey conducted by Dares, teleworking employees in April 2020 represented about a quarter of employees during the first lockdown.
Teleworking was more common in sectors where it was already widespread before the crisis, such as information and communication, with 63% of employees, and finance and insurance, with 55% of employees teleworking.
According to the Acemo survey conducted by Dares in December 2020, after the second lockdown, teleworking remains significant in these same sectors of activity, with 55% and 66% of employees respectively in financial and insurance activities and information and communication. It is also notable in real estate activities (37%), transport equipment manufacturing (31%), other service activities (25%), capital goods (28%), and business services (34%). It is particularly more significant compared to the first lockdown in the manufacture of transport equipment (31% at the end of November compared to 23% at the end of April) and transport and storage (16% compared to 14% at the end of April), and also less significant in private education and private healthcare (9% compared to 20% at the end of April). In total, 22% of employees are teleworking.
Source: BSI Economics, Dares
Other factors have emerged from this remote working, such as the importance of improving and digitizing tasks that are so simple to do in person but so complex to do remotely, such as administrative processes, paper transactions, everyday operations that are no longer considered « normal, » business travel, and various operational meetings and gatherings.
However, key issues such as server capacity, insufficient VPN licenses, and cybersecurity quickly arose and remain relevant today.
Another observation is that companies in almost all sectors of activity, but particularly those for which face-to-face contact with customers is important, such as real estate, found themselves « selling » without a point of sale and accelerating their virtual presence.
Communication with customers, prospecting, loyalty building, and follow-up all materialized overnight in the digital sphere. Traditional retailers had to accelerate their distribution strategies by integrating the digital channel, despite their past resistance, in order to ensure the sustainability of their business and the viability of their model.
2) The pandemic as an accelerator of digitalization
Twilio’s report on the digital transformation of businesses and their customer engagement strategy during Covid-19 states that Covid-19 has been the digital accelerator of the decade for businesses.
In fact, 97% of the panel of business decision-makers surveyed for the study indicate that the pandemic has accelerated their digital transformation.
While the pandemic forced us to slow down many aspects of our lives, it did not have the same effect on businesses, which had no choice but to do everything they could to accelerate their digital transformation. For example, digital communication strategy, which is essential to ensuring customer experience, has become a vital element for businesses. According to Twilio, the coronavirus crisis has caused digital communication to leap forward by an average of six years, and by 6.7 years in France. This communication channel proved to be extremely important during the peak of the pandemic and will remain one of the main responses of businesses to this health crisis. Ninety-two percent of executives surveyed say that the transformation of digital communication is critical to addressing the business challenges that have arisen with Covid-19.
In just a few months, companies have made great strides in terms of digitalization, whereas previously these same strategies took years to deploy. This progress can be explained, apart from the urgency of the health crisis, by the highlighting of « barriers to digital transformation » that have been broken down.
One of the main obstacles that has undoubtedly been removed is the time required to deploy a digital transformation strategy. Depending on the size of the company, the scale of the change, and above all, regulatory requirements, digital transformation is a strategy planned over several years, during which needs change and unforeseen events arise.
It is clear that a long-term strategy must undoubtedly be accompanied by a well-established roadmap and a clearly detailed plan, but it has also proven true that aspects of the digital transformation strategy can be launched without harming the overall strategy; on the contrary, they can support its acceleration and deployment.
The lack of budget, another frequently cited obstacle, was quickly overcome, with 79% of executives saying that the health crisis encouraged an increase in the budget dedicated to digital transformation. In France, one-third of the companies surveyed saw their budget for digital transformation increase significantly.
The urgent need for action has given companies the opportunity to innovate and accelerate their digital transformation in response to the pandemic. However, it is also important to mention the other side of this reality. A digital transformation precipitated by the pandemic has highlighted some weaknesses in companies’ digital strategies, where the role of employees is essential because they hold the power to change; they are the agents of innovation and transformation.
3) People as key players in the success of digital transformation strategies
According to the APPDynamics study, the pandemic is a challenge for organizations in terms of infrastructure, development or integration of new applications, and security.
However, the health crisis has also put additional pressure on the workforce. These employees suddenly found themselves working from home, without optimal connectivity, without the devices and software they need to be more efficient, and often with little skill or knowledge to solve problems.
Obviously, the stress has been felt most acutely in IT departments, which, according to the panel of IT professionals surveyed, are under pressure from all sides. Between the sudden acceleration of digital transformation projects, the mobilization of a large number of remote workers, the management of network capacity and bandwidth, and the security requirements of the entire technology pillar, they are under pressure and must respond effectively from a distance.
61% of IT professionals say they feel under significant pressure due to the impact of COVID-19 on their business. They have had to adapt radically to respond to changes in business processes and, above all, to changes in technology priorities. 88% of technologists report that the digital customer experience is now the priority. 64% of them are performing tasks they had not done before.
The pandemic has highlighted the shortage of IT specialists. According to the report, these expert technologists accounted for only 9% of IT staff in 2018. In the face of the health crisis, the need to increase the number of these experts has been confirmed, as their expertise is essential to successfully carry out a digital transformation, particularly when it is urgent.
Furthermore, shorter project delivery times are not necessarily a guarantee of quality and sustainability. Although it has accelerated digital transformation, the health crisis has introduced a sense of urgency. Faced with this urgency, projects have not been able to go through the necessary validation stages, and their robustness is therefore uncertain.
More alarmingly, in the face of this unprecedented situation, 65% of technologists report having already implemented digital transformation projects during the pandemic that were previously considered unnecessary.
Moreover, 59% admit to spending time managing fixes and providing short-term solutions to technological problems. 76% of technologists express concern about the long-term impact of digital transformation initiatives implemented during Covid-19.
4) Digitalization and Productivity
In November 2020, the Banque de France published a study whose main objective was to shed light on the impact of the use of external and internal Information and Communication Technology (ICT) specialists and the use of digital technologies (via the cloud and big data) on productivity and the share of labor in the added value of companies in France.
The results show that the employment of ICT specialists and the use of digital technologies have a significant impact on productivity. Indeed, the external or internal employment of ICT specialists improves a company’s total factor productivity (TFP) by 23%, and the use of the cloud and big data improves TFP by 17%.
The study also highlights the existence of a learning effect, with the employment of ICT specialists and the use of digital technologies only having a beneficial effect on business productivity after five years of use.
Furthermore, it is the « late adopters » who benefit indirectly from the experience of the « early adopters, » who face the costs of appropriation associated with being the first to adopt digital technologies and employ ICT specialists.
On the other hand, both factors have a negative impact on the share of labor in value added of around 2.5% each. An additional explanation for the characteristics of the model could be that ICT and digitalization reduce the bargaining power of workers. The Banque de France asserts that if this explanation is confirmed, we are entering a third industrial and technological revolution.
Although the effect of the pandemic could not be studied in this analysis, Banque de France experts suggest that the positive effect (if any) would be to accelerate the spread of ICT and digital technologies in businesses and households.
Conclusion
The health crisis has confirmed the importance of digitalization in businesses of all sizes and sectors; it is a crucial strategy and not an optional extra. The exponential acceleration of the digital transformation of businesses as a result of Covid-19 comes with some rather positive news, but also with risks.
Access to technology is essential, as it has not only enabled many businesses to continue operating, but above all has allowed people to stay in touch with their family and social circles during a period of enforced isolation.
Speed must not come at the expense of risk. The quality of infrastructure, human skills, and security are essential elements in ensuring the sustainability of such digital transformation strategies.
Companies must now also focus on the long term. Uncertainty about the future and the post-COVID-19 world is an opportunity to implement innovative, sustainable digital transformation strategies, taking into account trends on both the supply and demand sides that will remain relevant, such as teleworking, the digitization of customer service, e-commerce will remain the essential distribution channel, the amplified development of self-service, contactless delivery, outsourced IT services, increased health measures, and the use of online platforms.
Opportunities for innovation are present and prove to be strategic for continuing to operate in the world of tomorrow.
Bibliography
BSI Economics Coronavirus Report
Coronavirus Crisis: What About Value Chains, BSI Economics
The Agents of the Transformation Report 2020: COVID-19 Special Edition, APPDynamics
26 things we already know about the Coronavirus, Transforma Partnering
Covid-19 Digital Engagement Report, Twilio 2020
Covid-19 is accelerating the rise of the digital economy, BDO United States
The Acceleration of Digitization as a Result of COVID-19, Deloitte
Coronavirus: Accelerating Digital Transformation, emarketig.fr
Workforce activity and employment conditions during the Covid-19 health crisis, Summary of flash survey results – April 2020, Dares-Acemo
Workforce activity and employment conditions during the COVID-19 health crisis, Summary of flash survey results – December 2020, Dares-Acemo
