Digital Transformation in 2020 — Insights from Alacrity Global

It will surprise no one to read yet again that COVID-19 changed the global business and economic landscape dramatically. Some changes have been devastating, as we know, but some have actually been positive. There is one in particular that we want to highlight here.

Digital Transformation — the process of companies introducing new or updated automation to evolve their business operations — and the industry that provides such technologies, has seen dramatic growth so far in 2020. The increased demand is happening across the private  and public sectors and is being driven by several factors. Certainly, the need to better support a workforce now operating out of their homes instead of corporate offices is easily recognizable. But the need to support customers who are shopping from the same remote environment is as important. By extension, the need to deliver those products and services efficiently has been felt by virtually every company. And the reality is, almost none of this has been optional — it has become the difference between success and failure for many.

Depending  on  location,  programs  by  local, regional and federal governments have provided support and incentives to help companies through such a dramatic transformation. For others, the challenges have meant an acceleration of  steps  already planned for at some point in the future. Regardless, the market for ‘digital transformation’ products and services was already projected to grow at a rate of more than 20% annually, reaching US$3.3B by 2025, but it is safe to say those projections are now being revised upwards.

The primary drivers of growth heading into 2020 were identified as intensified global competition  and  emerging   structural and enabling technologies such as cloud computing platforms/applications, new 5G wireless networking capabilities, and the emergence of evermore internet-enabled devices. While the shift to digital has been underway at various rates for many years now, the difference in the current climate is that the core motivators are occurring at the same time, making phased implementations much less palatable. As Microsoft CEO Satya Nadella put it recently, the technology markets are seeing “two years of digital transformation in less than six months”.

These digitization efforts are progressing on several fronts, including cost-oriented process automation, cloud IT migration, workforce optimization, customer experience automation and adoption of digital business models overall. The needs for transformation apply regardless of whether the organization is large or small. Many in the Small Business segment have been hit particularly hard because they were not digitized in any way already, nor did they have an existing digital strategy.

According to the World Economic Forum (WEF), small-to-medium enterprises (SMEs) deliver 40–60% of GDP in most countries, yet many operate apart from the digital economy. Across Europe for example, only 20% of SMEs are estimated to have any significant digital operations. Before COVID-19 hit, companies with an established  digitization  strategy were already seeing twice the revenue growth of those without, and that trend  is only expected to accelerate as a result of the pandemic. Internet usage has risen by 70% and the use of communication apps has doubled. Consumer behaviour has changed out of necessity, but much of that change is likely to be permanent. As a result, digitally enabled organizations are likely to be better placed to compete, now and in the future.

The WEF has also observed  the  following changes in the Retail, Education and Healthcare sectors:

  • North American online retail sales grew 146% year-over-year in April.
  • Venture capital investment in Education Technology companies globally grew 22% in the first quarter of this year.
  • The demand for telemedicine products and services is expected to grow by more than 20% annually from 2020 through 2024.
  • In all these industries, 48% of employees will likely work remotely at least part time post-COVID, up from 30% prior to the pandemic.
  • Some of these changes were expected over time, however those time  horizons  were not as short-term as they now are expected to be.

While global health issues can and do occur with some regularity today (e.g., H1N1, SARS), they rarely achieve the scale and severity COVID-19 has. This pandemic exposed significant weaknesses in societal structures, institutional practices, business models, supply chain arrangements, industrial capabilities and more, in countries around the world. Societies, governments and businesses of all sizes have had to endure and learn from some hard lessons, and they are now taking steps to try and insulate themselves from any similar events in the future. As the saying goes, it is probably not a case of if but  of when. And better digital capabilities are being embraced as a potential insulator.

So what does this all mean for start-up companies? As in most lessons, there are pains as well as opportunities to be real- ized from COVID. Here are some factors that entrepreneurs should realize are more important now:

  • Understand where digital transformation is going today and in the mid-term. Ensure your proposed solution fits in the business model and road map your target customers are going to embrace, and that it will help them get there faster.
  • Ensure your solution can become part of a digital moat for your customer – a business protection and continuity tool rather than a one-off or nice-to-have solution.

Strive for a fast yet nimble product creation culture. COVID hit with no warning and immediate impact. Consumers changed, businesses changed, supplier plans had to change overnight. Those able to adapt in the shortest time possible not only survived, but many seized new, previously unrecognized opportunities. Be that sort of company.