COVID-19 accelerating digital transformation: McKinsey

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COVID-19 accelerating digital transformation: McKinsey

Much has been written about how the COVID-19 coronavirus pandemic has accelerated the pace of digital transformation, including rapid migration to the cloud and the move to work from home. McKinsey & Company, the New York-based management consulting firm focused on helping its clients create change, recently moved to quantify that pace across a wide spectrum of businesses.

McKinsey recently published the results of a survey titled, “How COVID-19 Has Pushed Companies Over The Technology Tipping Point—And Transformed Business Forever.” The survey was conducted on-line from July 7 to July 31, 2020, and received responses from 899 C-level executives and senior managers across a wide range of geographies, industries, and company sizes.

The McKinsey survey found that the COVID-19 pandemic has significantly accelerated the pace of adoption of digital transformation technologies, as well as other speeding up other business changes. The survey measured how businesses changed their investments post-pandemic vs. what they had planned to invest before the pandemic started. The survey also found that companies significantly shortened their reaction time to changes in the business environment due to the coronavirus.

For many solution providers that found themselves playing a critical role in helping customers make these changes when the pandemic hit, the McKinsey findings may not come as a big surprise. But the survey helps quantify the scale and scope of the sudden changes that businesses and their solution providers implemented and provides the channel with insights about how lasting these changes may be.

For insights into the new pace at which businesses are changing and moving through their digital transformations, turn the page.

COVID-19 has accelerated digitisation of customer relations

The COVID-19 coronavirus pandemic has moved consumers to increasingly adopt on-line channels, and businesses have quickly responded, McKinsey said. The speed of that response has increased dramatically compared to the adoption of digitised customer interactions.

Worldwide, 58 percent of customer interactions were digital as of July 2020, McKinsey found. That compares to only 36 percent of customer interactions as of December 2019, which was before the pandemic impacted business, and only 20 percent in May 2018. For North America, the shift towards digitized customer interactions has been more dramatic, with 65 percent of all customer interactions being digital in July 2020 compared to 41 percent in December 2019 and 25 percent in May 2018.

“Respondents are three times likelier now than before the crisis to say that at least 80 percent of their customer interactions are digital in nature,” McKinsey wrote.

Globally, about 55 percent of products and/or services are fully or partially digitized as of July 2020, compared to 35 percent in December 2019 and 28 percent in May 2018, both before the pandemic. About 60 percent of products and/or services in North America were fully or partially digitized as of July 2020, compared to 41 percent in December 2019 and 34 percent in May 2018.

Rates of change are uneven

McKinsey found industry variances in the adoption of digitisation since the pandemic started. Where manufacturing is an important part of the business, the change in the adoption of digitisation was not as significant. However, in industries such as healthcare, pharmaceuticals, financial services, and professional services, the jump in digitisation was almost twice that of consumer packaged goods industries.

Within a company, both the consumer-facing parts of the business and the internal operations, including back-office, production, research and development, and supply chains had similar rates of digital transformation.

Response to COVID-19-related changes accelerated greatly

The speed at which businesses change their organizations has accelerated dramatically because of the COVID-19 coronavirus pandemic.

McKinsey asked companies how quickly they implemented changes since the beginning of the pandemic, and how quickly they might have made those same changes if the pandemic had not occurred, for several potential changes in their organizations and industries.

The most dramatic change, not surprisingly, came from the work from home transformation. Businesses surveyed by McKinsey said that it took an average of 10.5 days to implement work from home after the pandemic started, compared to an expected 454 days to execute that change.

For seven organizational areas of change, McKinsey found that, after the pandemic hit, it took businesses an average of:

* 10.5 actual days to increase remote working and/or collaboration vs. the 454 days the changes were expected to take if there were no pandemic.

* 26.5 actual days to increase the use of advanced technologies in operations vs. the 672 days it would have taken to use those technologies if there were no pandemic.

* 25.4 actual days to increase the use of advanced technologies in business decision making vs. the 635 days it would have taken to use those technologies if there were no pandemic.

* 23.2 actual days to increase the migration of assets to the cloud vs. the 547 days it would have taken to migrate those assets if there were no pandemic.

* 26.6 actual days to increase near-shoring and/or insourcing policies vs. the 547 days it would have taken to implement those policies if there were no pandemic.

* 23.6 actual days to increase data security spending vs. the 449 days it would have taken to increase that spending if there were no pandemic.

* 29.6 actual days to build redundancies into supply chains vs. the 537 days it would have taken to build those redundancies if there were no pandemic.

For three types of industry-wide changes, McKinsey found that, after the pandemic hit, businesses took an average of:

* 21.9 actual days for customer demand for on-line purchasing and services to increase vs. the 585 days that demand would have increased if there were no pandemic.

* 21.3 actual days for customer needs or expectations to change vs. the 511 days such changes would have happened if there were no pandemic.

* 24.4 actual days for the ownership of last-mile delivery to change vs. the 585 days that change would have happened if there were no pandemic.

Why those digital changes didn’t happen before the pandemic

McKinsey found that just over half of respondents to the survey said they didn’t implement those digital transformations before the pandemic because they were not top business priorities. However, after the pandemic hit, only 14 percent of businesses responded that implementation was hindered by lack of leadership alignment.

Almost one-third of business-to-business companies cited the fear that clients would resist the changes as a barrier to change, compared to about one-quarter of consumer-facing businesses.

Stickiness of digital transformation after recovery

McKinsey also asked businesses if they expect the digital changes they are making in response to the pandemic will continue as business eventually recovers from the pandemic.

* Of the 63 percent of businesses that are seeing changing customer needs or expectations, such as increased hygiene awareness, 62 percent of them believe the changes will stick after the pandemic ends vs. 18 percent who feel those changes will not stick.

* Of the 93 percent of businesses who experience an increase in remote working and/or collaboration, 54 percent feel that those changes will stick vs. 23 who feel they won’t.

* Of the 34 percent of businesses which saw an increased migration of assets to the cloud as a result of the pandemic, 54 percent expect those changes will stick vs. 27 percent who feel they won’t.

* Of the 62 percent of businesses who saw increased customer demand for on-line purchasing and/or services, 53 percent expect that demand to stick vs. 27 percent who expect it won’t.

* Of the 37 percent of businesses who reported increased data security spending because of the pandemic, 53 percent expect that spending increase to stick vs. 27 percent who don’t.

“The results also suggest that companies are making these crisis-related changes with the long term in mind,” McKinsey wrote. “For most, the need to work and interact with customers remotely required investments in data security and an accelerated migration to the cloud. Now that the investments have been made, these companies have permanently removed some of the pre-crisis bottlenecks to virtual interactions.”

This article originally appeared at crn.com

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