2020/04/29

Emerge from the Crisis Strengthened for Competition

The coronavirus crisis has shaken the entire economy. Many companies have been overwhelmed by the unexpected consequences of the pandemic and have had to act quickly. One thing is certain: the world will be a different place after the pandemic. But what does this crisis demonstrate to many companies? In this interview, our experts Steffen Roos, Chapter Head Business Technology, and Björn Menden, Chapter Head Digital Operations & Performance, describe how companies can make effective use of the precarious situation so that they will be able to enter the competitive arena stronger than ever after the crisis.

Gestärkt aus der Krise in den Wettbewerb einsteigen

Both federal and state governments are issuing relief packages to support many companies monetarily through these difficult times. The coronavirus crisis makes it clear how important digitalization and new technologies are. Why is now the right time for companies to invest in digitalization despite all the difficulties they are facing?

Roos: The crisis is forcing many companies to deal with new business scenarios. Crisis management has been triggered because many companies have all they can do just to survive. Yet it is also an opportunity for analysis and to determine which core processes are absolutely vital and need to be expanded or reinforced and which processes can be cast aside. Moreover, the crisis centers in companies are struggling mightily to cope with manifold external factors that can vary tremendously from one country to the next, from one region to the next. The crisis is a catalyst, so to speak, and is sparking the rapid implementation of completely unexpected solutions. One striking phenomenon in this sense is the significant increase in the number of people working from home, even in companies that still rely heavily on the physical presence of their staffs. In politics, too, decision-making frameworks that had been in place for decades have become completely obsolete. If it were not for the crisis, the very idea of the “central government” organizing medical care would be rather bizarre in our complex and strongly market-based German health care system. We can see that companies that took advantage of digitalization early on will encounter significantly fewer obstacles in the battle for survival. The pandemic is clearly putting the fundamental economic, political, and social structures to a severe test. But I also see opportunities in all this struggle and stress for people and systems.

Do individual employees even accept this higher degree of digitalization? Aren’t there some with hostile attitudes?

Menden: While in recent years the question of whether to participate in digitalization has been debated by both individuals and organizations, we have now reached a point where there is no alternative to digitalization. Analog has become a risk factor in many business models. Digitalization can become the savior of business models, added-value networks, and ultimately even jobs. A hostile attitude is no longer an option.

Roos: In my view, a certain first-world idea has emerged over the years to the effect that digital transformation must be accepted by all people, be explained to them, be beneficial to every single individual, and be kept very simple. Even though many people have a basic understanding of how to use a wide variety of IT tools in their personal lives, many of them come up with all kinds of excuses when they do not want to be bothered with learning other tools, an attitude that can indeed be justified solely from a position of luxury. I remember how one of my college professors used to describe behavioral change: “When it gets cold, people put on a jacket, even if it scratches.” Or, to quote  our colleague Stefan Weigand from China: “We have been pushed two stages further along in the digitalization process without being asked.” Because excuses are no longer acceptable.

What will follow the crisis?

Menden: One of the fascinating questions will revolve around how we deal with globalization and cost-driven efficiency in the future. The pandemic has made it clear that global added-value chains can also fail globally. Added-value chains have been disrupted in many industries and not just in the automotive supply industry, which is suffering from the lack of supplier parts from China. In particular, we would point to the pharmaceutical industry that is at this time so very important; the majority of the necessary raw materials also come from China. We see that the impact experienced by so many will lead to efforts to integrate added-value chains. The topic of mergers and acquisitions will also be approached from a different angle. Digitalization in the sense of data-based management of added-value chains will continue to gain in importance as a means of maintaining the efficiency gains of globalization while simultaneously ensuring stability and resilience. This step will secure additional flexibility and reliability. A fundamental reconstruction from the ground up will be unavoidable in many parts of the economy.

Roos: Absolutely right. One of the consequences I expect to see will be much improved predictability. Acquired data about what events are taking place in what region and in what country can be used for a far better analysis of the consequences of such events and what they could mean for the company’s own process and supply chains. We can adapt much better to change when we have this kind of information. At the moment, we see how an entire economy was taken by surprise and was almost totally unprepared. The existence of a “digital twin of an organization” would have been extremely helpful in improving the resilience of companies.

By approaching digitalization from the perspective of digital efficiency, you are driving the topic in terms of efficiency. But there have been waves of automation in the past. What is different about this approach, and why is it becoming so urgent in the present situation? Can processes and procedures be identified and optimized in such a way as to mitigate the effects of disruptions in the long term?

Menden: We have developed the Digital Efficiency Index to depict the differences in digitalization and efficiency in different industries, making these differences transparent so that they can be addressed. Once this has been established, we can develop measures to achieve specific goals and raise our clients’ operations to a higher level of digitalization, especially in critical areas, because digital positioning is becoming a key competitive factor. The index uncovers heterogeneity. This observable heterogeneity in different industries will be decisive for success in competition in the future and lead to a new Darwinism. The more companies succeed in anchoring digital efficiency in their business models, the more resistant and capable of survival they will become.

Have companies become sensitized to new forms of collaboration? And how can companies successfully establish and realize them now?

Menden: This is where Darwinism becomes evident. On the one hand, we see a number of midsize industrial companies that certainly hold significant positions on the world market, but for which digital forms of collaboration are uncharted territory. We see clients here and there who must order large numbers of laptops before they can even take the first step towards remote working capability. Then there are companies that are more advanced in the digitalization of their added-value networks. They have now begun to think about the post-coronavirus time so that they will be able to start the race with a competitive advantage and to contribute to the development of a new reality. Enterprises should now view the crisis as an opportunity that will enable them to enter the competitive arena with greater strength once it has passed.

Do you know of any clients who have already found creative solutions for dealing with this critical situation?

Roos: One that has acted in an exemplary and reasonable fashion is Deutsche Telekom. The operation of critical infrastructures was secured in good time by resolute action. Experts from these areas have no longer been allowed to work simultaneously in the same room or building since as early as the middle of February. Preparations such as the rollout of infrastructural programs, the enabling of customer service employees to work from home, or the clear and continuous communication of pertinent regulations and behavioral standards were made at an early stage. Management based on plenty of pragmatism and creativity in combination with a good structure was excellent.

Menden: Companies that are adapting to the market and redirecting their production to meet current needs are also responding creatively. The clothing manufacturer Trigema, for example, is exploiting its core competence and unused capacities to produce washable protective masks, contributing to the efforts to satisfy the extraordinary demand.

The crisis is making the benefits of digitalization visible. As the use of digital technologies and tools continues to spread, our social landscape will change. What would the social implications of increased digitalization be?

Menden: Increasing digitalization would certainly entail a massive restructuring of our society. We cannot even begin to predict just how far this will go. Social contracts that were concluded in the past would have to be examined, renewed, and perhaps even fundamentally modified. Current challenges are evident in the digital divide – the disparity in access to digital media and the required skills. It exists among companies or countries, but is apparent as well in the fabric of our society. For example, children from low-income families often lack the infrastructure equipment that would enable them to participate in digitalized instruction. Some elements of formal education must be rethought. The opportunities to avoid digitalization are dwindling. Ideas that were once utopian have now become much more conceivable. Another example is package delivery. Requiring people to sign for deliveries has been removed from the process to avoid direct contact between delivery personnel and customers. Why not take the next step and eliminate drivers from the process and have the package delivered by a self-driving car that honks the horn when it's at my door? To go even further, drones could be used for deliveries.

Roos: We have barely scratched the surface in many areas. Basics have often not yet been standardized, much less realized. What will be needed, however, is a lot of trust – trusting employees who are currently working from home, for instance. Small businesses will not disappear from our landscape as we know it now. In this crisis, online trade is even experiencing a decline. There are no indications in retail food trade to suggest that people are switching over completely to online shopping. However, supply chains and availability of goods will be viewed differently and adapted more flexibly. Similarly, online-offline interaction – something like Click&Collect, the procedure of ordering products online and picking them up immediately over the counter in the store – may attract more attention and gain in significance. We have taken only the first steps on a truly interesting and exciting journey.

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