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Digital Led Recovery

The world will never be quite the same again. Not sure what it will look like. Pretty sure that digital will drive new behavior. Take a look at Teledoc, for example. It took a pandemic for a common sense idea to take hold. Here is what our friends at McKinsey and Company have to say on this topic:

There’s a popular meme going around that neatly captures the tipping point of digital. It’s a short questionnaire asking who is driving your digital transformation. The first two options are “CEO” and “chief digital officer.” Below that, highlighted with a bright red circle, is “COVID-19.”

The coronavirus pandemic is a humanitarian crisis that continues to take a tragic toll on people’s lives. There’s no denying it is also acting as a catalyst for change—economic, societal, personal, and corporate—on a scale not seen since wartime. The scale of the change and the speed at which it’s happening is shining a bright light on the fact that companies are facing a once-in-a-generation shift. And for all the uncertainty about what the future will look like, it’s clear already that it will be digital.

The challenging economic outlook and continued uncertainty are forcing CEOs to contemplate some difficult choices. Some are pulling in, making cuts, and focusing on riding out the storm. Others, however, are taking decisive action to make sure that when the crisis ends, they’ll be stronger than they are today.

Research and experience show that those acting with a through-cycle mindset will be best positioned to accelerate out of the downturn. In the recessions of 2007–08, the top quintile of companies was ahead of their peers by about 20 percentage points as they moved into the recovery in terms of cumulative total returns to shareholders (TRS). Eight years later, their lead had grown to more than 150 percentage points. One key lesson from that experience is the companies that move early and decisively in a crisis do best.

Accelerating your digital transformation

We believe the COVID-19 crisis is likely to significantly accelerate the shift to digital and fundamentally shake up the business landscape.

Even before COVID-19 hit, 92 percent of companies thought their business models would need to change given digitization. The companies listed on the S&P 500 Index have an average age of 22 years, down from 61 years in 1958.

Despite herculean efforts and significant accomplishments at many businesses, the pandemic has brought into sharp relief how vulnerable companies really are. One consumer-packaged-goods (CPG) company saw its online orders go through the roof, only to have its operations descend into chaos in an effort to process and fulfill the surge. Tech-enabled businesses, on the other hand, were able to move at speed, such as India food-tech business Zomato, which used its platform to work with grocery start-ups to meet surging online-order demand.1

For many companies, the only option is to accelerate their digital transformation. That means moving from active experimentation to active scale-up supported by ongoing testing and continuous improvement. These moves should happen across two dimensions: at the core of the company and through the development of new businesses. Top-performing digital companies take this twin approach.

Despite the immense challenges CEOs are managing today, now is the time to act. In fact, we’ve seen that the reduction in time spent traveling has given CEOs and their top teams more time to focus on new initiatives. One leader at a large bank, for instance, said recently that it was finally getting around to launching an important customer-relationship-management (CRM) program that it had no time for before. Given how fast change is happening, waiting until you see signs of recovery will be too late.

There is much we don’t know. But drawing on our experience and lessons learned from companies that are moving ahead—particularly in China—we believe that CEOs should ask the following questions to help prepare their businesses for the recovery when it finally comes.

By Matt Fitzpatrick, Isha Gill, Ari LibarikianKate Smaje, and Rodney ZemmelOpen interactive popup