August 17, 2020
The coronavirus pandemic and economic lockdown has laid bare, with ruthless efficiency, the differences between digital natives and brick-and-mortars. In short, companies that are either entirely online or have figured out a way to emulate them are winning and gaining share, while those dependent on physically being present in buildings are losing. That’s leading experts to recommend that businesses hit the gas pedal on their digital transformation plans, or risk permanent dislocation.
It’s tough to overestimate the impact that COVID-19 is having on the American way of life, for both work and play. Entire industries, such as travel and hospitality, have basically been put on ice. Here in the Southwest U.S., logistics airports are full of idled jets. Other industries, like oil and gas, are also struggling mightily thanks to reduced demand.
It’s not all negative, as some sectors are seeing a surge in activity. Paper goods manufacturers, for example, are still having trouble keeping up with demand for toilet paper six months in. But the net impact during the second quarter was a 33 percent drop in gross domestic product, an unprecedented collapse in economic activity that we haven’t seen since the Great Depression. The collapse in the travel, hotel, and entertainment industries shows just how much of the economy is focused in these pursuits.
The good news is that the economy is coming back, albeit in dribs and drabs. The worst (hopefully) is over. In New York, which was inundated with COVID-19 patients this spring, students are preparing to go back to school. There are large pockets of rural America that have not seen widespread infections and lockdowns, including in the Great Plains, which practice a stately form of social distancing.
But without a vaccine for the pneumonia-like disease caused by the novel coronavirus, experts do not expect American society – or civilization in any part of the modern world – to return to the “old normal.” And even when a vaccine is available, some groups may find that they prefer the new way. Telework was thrust upon millions as a requirement to continue receiving a paycheck, and some companies and workers have come to prefer it. The short of it is that companies must adapt to COVID-19’s “new normal” if they want to continue being companies.
The level of business competition was already increasing before COVID-19. One hundred years ago, average lifespan of an S&P 500 company was 67 years. By 2017, companies lasted an average of 15 years on the S&P 500. Factor in the added entropy of a viral pandemic, and COVID-19 looks like an extinction-level event for businesses in many industries and geographies. It already has been for J.C. Penney, Sears, Pier 1 Imports, J. Crew, Niemen Marcus, Garden Fresh Restaurants, and GNC.
Hundreds of thousands of American companies – including many that run IBM i servers and applications – are literally fighting for their commercial lives. It’s bad enough to have to run a business during a viral pandemic like COVID-19 during the best of times. But companies today have the added difficulty of navigating commerce during a period of great technological change.
The so-called “digital native” companies have managed to expand their businesses under COVID-19. Amazon.com is perhaps the best example. It was already a behemoth in e-commerce before the novel coronavirus, but demand for its online delivery soared thanks to the economic lockdown. The company hired 100,000 more employees during the pandemic just to keep up.
Amazon CEO Jeff Bezos travelled to Washington D.C. to testify before Congress last month along with the CEOs of Facebook, Apple, and Alphabet (Googles’ parent company), which are four of the five most valuable companies in the world (Microsoft, with a $1.6 trillion market capitalization, is currently the second most valuable company in the world, after Apple at $1.97 trillion).
These FANG CEOs (minus Netflix and Microsoft) were grilled on many topics, including alleged unfair business practices. In the end, nothing much came of it, and less than a week later, three of four companies stocks ballooned by billions, thanks to record revenues reported during the brutal second quarter.
KPMG International released a study last week that analyzed the technological investments that tech 900 executives at Global 2000 companies planned to make, before and after COVID-19. The survey found that 60 percent of execs agree that COVID-19 has created an impetus to accelerate digital transformation initiatives at their organizations, which includes things like cloud, artificial intelligence, smart analytics, blockchain, 5G, and low-code development platforms.
However, not every business is actually able to make those investments at this time. “This crisis isn’t affecting all industries equally, but for many of the industries facing crisis, managing the transition to a digital business model is imperative,” said Cliff Justice, KPMG’s global lead for intelligent automation and its U.S. lead for digital capabilities. “However, doing so is made more complicated in a time where investments are critical, but cash must be preserved.”
COVID-19 has forced many offices and schools to operate in a work-from-home (or learn-at-home) model. Video conferencing apps, like Zoom and WebEx, as well as collaboration apps like Slack and Microsoft Teams, have become regular pieces of daily life in a very short amount of time. The idea is to replicate that sort of digital transformation for the other elements of business, including more digital deliverables (not applicable for the paper-goods supply chain) and a shift to Web-based apps.
Without real investments in digital transformation, many companies will struggle to survive, according to KPMG. “Mature digital-first companies are thriving during COVID-19. Their businesses are accelerating and their immediate focus is on scaling faster,” the company says in its report, which is called Enterprise Reboot. “Meanwhile, companies that have failed to execute digital transformation are on a downward spiral, losing customers, market share, and employees.”
IBM i shops in some industries and geographies may be better off than others, if for no other reason than they tend to be in the business of making, moving, and maintaining things (which was the gist of Intentia’s M3’s product, now owned by Infor). There’s only so much online stuff you can do when your business is moving vegetables and meat to market or building earth-moving equipment.
But that bubble of being an “essential business” is not impermeable, and the digital barbarians will eventually be at your gates. Companies that don’t find a way to adapt to the new business expectations – whether it’s something as simple as just being able to submit an order online, or something as complex as being able to anticipate a surge in customer demand through advanced data collection and machine learning models – will eventually lose business to companies that can deliver those things.
Digital transformation means different things to different people. It can mean a shift to cloud computing for core ERP systems, adoption of AI and advanced analytics, or full robotic process automation (RPA). The pace of change is different for each industry, and companies must adapt their specific strategies to what the market demands.
But in case you haven’t noticed, the market just lurched uncontrollably with COVID-19, and it’s unlikely to ever go back to the same state that it was in February 2020. The IBM i shops that recognize that shift and adapt accordingly have a higher chance of still being around when February 2030 arrives.