Digital Reality Episode 14: Accelerating a Smart Recovery | Blog

In this podcast, we examine the approaches to post-pandemic recovery being undertaken by leading companies. We examine three key priorities in creating a future-ready operating model – smart savings, smart agility, smart resilience.

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Jimit Arora:

Welcome to the 14th episode of Digital Reality, Everest Group’s monthly podcast that moves beyond theory and beyond technology to discuss the realities of doing business in a digital-first world. I’m Jimit Arora.

Cecilia Edwards:

And I’m Cecilia Edwards. Each month we bring you a discussion that digs into the details of what it means fundamentally to execute a digital transformation that creates real business results.

As we rapidly march toward the end of 2020, we thought this would be a good time to focus on some of the shifts in digital transformation strategies that we’ve seen throughout the year and take a look ahead to the role that digital strategies are likely to play as businesses think about planning for the recovery from this crisis. So, let’s take a minute and step back to think about digital, kind of at the beginning of this pandemic.

During the second quarter of this year – probably March is a little early, we were just getting into it – but by the time we got to April, I think that’s primarily when the world recognized that we were fully in a pandemic. During that quarter, we were just entering it. We were making a mad scramble to figure out how to enable as many people as possible to efficiently and effectively work from home. And, really, that might be a little high of an aspiration just to be able to work from home and figure out how to serve customers remotely.

There were a number of digital strategies that were critical during that stage of the pandemic. Cloud-based SaaS solutions, especially those geared toward collaboration, such as Zoom. Right? I mean, that’s the big joke now, right? Everybody’s like, “Did you hear me?” Everybody’s kind of full of Zoom. So it’s Zooms, Teams and really the entire Office 365 Suite that allows you to collaborate on documents and collaborate with your teams. All of that was critical to keeping workers engaged remotely.

JA:

Hey, Cecilia, I can’t hear you … I’m just kidding.

CE:

I know. Are you on mute? That’s funny because I did check my mute button just right now.

Exactly. So, there’s a T-shirt that says you’re on mute. So to support their customers though, enterprises made sure that their e-commerce sites were functional and that they were able to handle additional capacity. So in general, during this time period, we saw that those who had already made the investments in their digital transformation and were further along in those journeys, those folks were able to better weather kind of this early stages of the transformation.

I think in one of our earlier podcasts, we talked about Domino’s Pizza – they’d gone on a 10-year transformation journey that left them really as an e-commerce company that happened to sell pizza. So, that entire decade’s worth of investment and transformation that that company went through meant that they were extremely well positioned to serve a socially distanced customer base during this pandemic – people who obviously still had a pretty high demand for pizzas to be delivered to them.

JA:

Let’s just say I’ve been indulging in a lot of e-commerce and it just happened to be pizza, right?

CE:

Exactly.

JA:

Yeah, I think we’ve seen a pretty significant shift. And one of the things that’s been interesting is we’ve spoken about how e-commerce is an important channel from a retail perspective. If you look across the manufacturers, the consumer goods companies, most of them have been kind of upping their game, driving more focus in helping their e-commerce partner succeed. Right? So the whole e-commerce thesis has definitely played out significantly.

One of the other things that we are seeing more as a lead indicator in some ways is that there’s a lot of transformation activity, which has actually accelerated? So most of the larger, smarter companies are doubling down on their efforts to drive transformation because they see this as a critical enabler not just for the short term but in terms of how the market has truly shifted. So, we’ve definitely seen a lot more progress over the last few months – 10 years’ worth of digital transformation in two months, I think that’s playing out quite well.

CE:

And I, for one, am very pleased because our team’s experience has improved dramatically over the past few months.

JA:

When you said teams, do you mean Microsoft Teams or do you mean people teams?

CE:

Probably a little bit of both but specifically Microsoft Teams.

JA:

I think the whole new way of working has been quite interesting, but just to kind of bring us back to thinking about the examples and how we’ve seen them, Cecilia, you spoke about Domino’s. Lululemon is another company that we spoke about and part of this whole journey has been to see how these companies we profile pre-pandemic, what have they done in a post pandemic environment? And if you think of Lululemon, the RFID tags that they put on all of their clothing, including all of the merchandise that was not just in their warehouses but also in the retail stores, this simple RFID tagging allowed them to shift order fulfillment for an expanded e-commerce channel, not just from the warehouse, but also from the retail store, especially in an environment where a lot of the retail stores were closed.

CE:

Yes, definitely Lululemon’s performance has shown it compared to other companies.

JA:

Yep. And if you think back, many other companies have scrambled to figure out how to truly enable their workforces to operate remotely.

The bare necessities were in place, but we didn’t really plan for this to be a sustained environment of remote operations because, hey, this wasn’t … I mean, nobody planned for how long this might go on. And as the pandemic has lasted far longer than the initial six to eight weeks we anticipated, we are definitely seeing a pretty significant financial impact, which in some ways begs the question of what’s really going to be the role of digital in the whole recovery process.

CE:

Yeah. And that’s interesting, you know, as we talk about recovery, there was a lot of debate. Are we in a recession? Are we not in a recession? Right? Because if you think about a typical recession, there are some business factors, the business cycle has driven the economy down. Well, we didn’t really have that situation. We just shut down the whole economy, which is a really different kind of situation.

JA:

And I think that’s a very important piece of context as we think through the role that digital needs to play in this recovery, which in some ways is going to be a bit of an abrupt one, right? And there’s all this conversation. Is it V-shaped? Is it W-shaped? Are we going to have another wave? We really don’t know, which is why what we wanted to do was to diagnose how you really create structural impact, which can not just give you some short-term relief, but also allow you to, in some ways, future-proof the operating model by leveraging digital transformation to ensure longer term success. So as usual, as we think about it, it’s always important to link digital efforts back to the business objectives. Cecilia and I always speaking about the fact that technology is the easy part of the digital transformation exercise but aligning the business goals is really important.

And what we do know from companies that performed well in the recoveries that followed the last two recessions is that there are specific strategies that deliver winning performance. And the companies that focus on nailing these three business objectives, which we are going to talk about in a minute, have the best chances of recovering well. And in today’s discussion, we want to call these three strategies, smart strategies. So the smart savings, the smart agility, and the smart resilience.

Start with smart savings. Yes, cost savings have been really important, but what are some of the strategies that can allow a company to change the longer term cost base that allows the business to emerge more competitive once we are on the other side of the recession? Last time, for example, we spoke about strategies for increasing productivity. This can have a significant impact on a company’s cost structure when you’re able to deliver more, faster, with less. If you expand that thinking to include efficiency and automation strategies, you start to unlock additional benefits and outcomes.

So, I think the broad message you’re trying to say is, yes, savings are going to be important. You do want to emerge leaner and more efficient, but don’t just think about savings in terms of, “Hey, what can I cut in the near term?” Think also about some of the more structural aspects, which allow you to emerge healthier. So some organizations think of this as an emerging fit for growth. We are an emerging fit for the future. So, it’s not just going to be a simple cut, but thinking about how automation plays in. Process automation, for example, can dramatically reduce the cost of operation, improve accuracy, also free up employees to do higher value activities. So yes, savings are going to be important, but there’s a smarter way to think about those savings. And the smart savings will allow these companies to grow without growing their costs at the same rate.

CE:

Yeah. You know, Jimit, I think that that’s really important because I think the knee jerk reaction of most enterprises when there’s a downturn in the economy is to cost cut. Right? And that’s kind of different than what we’re talking about with smart savings. Cost cutting, that whole idea of we’re going to stop all discretionary spending. We’re going to slash budgets equally across the entire organization. The studies that looked at the past two recessions show that companies that followed that strategy actually emerged from the recessions with the worst performance. They jeopardized their current customer experience and limited their ability to be prepared or ready to serve the customers in the future. Anytime you do a cost cutting measure that inhibits your ability to deliver value, that’s not smart. And so we like to talk about it as smart savings. And those things that you mentioned will actually result in a lowered cost base but will position you well kind of coming out of it.

So, let’s talk about smart agility. If there’s anything that we know is that we don’t know what’s coming up in this whole pandemic. We talked about agility before, but this level of uncertainty in the business market has really taken things to a new height. And the shifts in customer expectations in many instances can vary by week. And that wreaks havoc on a company’s ability to predict demand and channel engagement.

If you think about it a couple of ways, let’s talk about it from the demand perspective. Pants. If you’re an apparel manufacturer, you’ve got models that show based on the season, et cetera, what the demand for pants is going to be. Well, in the last nine months, that demand has plummeted. Lululemon’s doing well because people are looking for leggings and people are wearing sweat pants and things like that because so many people are working from home and dressing just the upper halves of their body for these Zoom and Teams calls that we’re on all day long.

And so that creates this real like fundamental shift. But here’s the deal. What happens when you lift the shutdown? What happens when people are asked to go back into the office? The demand for those pants is going to spike because, remember, we’ve all been eating Domino’s pizza for months so nothing that we have in our closet fits. So, we’re all going to have this huge spike in our business clothes. Right? And so how do you actually plan for that? Because they don’t know how long that’s going to be. They don’t know when it’s going to be. Companies are announcing every day that they’re going to extend work from home to the end of the year, to the middle of next year, or for good. So you have all of these things that really eliminate your ability to predict what the demand is going to be.

If you think about a physical branch of a bank, once this whole thing is over, who’s coming back into a bank? We just don’t know. And I think that a lot of those things around the demand are really going to be uncertain.

And then you have the channels. No one really knows what channel will be used. In the past, many businesses have looked at this kind of generationally. Oh, the boomers are all going to want in-person and we have to tailor to them, but gen X, Y, and Z are going to want to do everything digital. And it was believed that you just kind of slowly do the digital to handle that group as they start to have more buying power. And nobody expected the 60-plus crowd to be digital. Well, in this pandemic, kind of everybody is digital. All of a sudden, everyone has a demand for the digital channel. So that means that companies now need more mature omni-channel strategies. And they have to assume digital-first is going to be the priority across their entire customer base, because that’s the only thing that’s going to enable those enterprises to be able to handle the shifts in channel preferences more effectively.

Our third strategy is really around smart resilience. So, one of the scariest reports that I’ve heard lately, I think Dr. Fauci mentioned this, is that the Coronavirus may just be a dress rehearsal for future such viruses. If you think about that, like, “Oh boy, we keep talking about getting back to normal.” Well, back to normal might actually look a little bit different. Back to normal might actually look like some mix of what we’re doing today, in smarter ways hopefully.

So what that means is that we have an opportunity now to rethink what we know about business continuity. Jimit, you mentioned future-proofing a little bit ago. Future-proofing a business takes on a whole new meaning when the goal is to ensure that your business can keep operating at some level if the world shuts down again. So when we talk about this digital-first mantra, that has to be a must for as many portions, not only of the customer-facing part of your business, but for your business operations in order to keep your employees working through the next inevitable but unknown wave of shutdowns that we are most likely going to face.

JA:

Thank you, Cecilia. That last part really, really made my day. I needed that new report about all future viruses ….

CE:

Sorry about that.

JA:

I think you are spot on. That is that uncertainty is going to be the nature of how business models need to evolve. I think one of the things that we are starting to see, especially as we think about new budget cycles in the technology groups and the strategic planning season for most companies, it’s going to be an interesting year for strategic planning, by the way. What assumptions do you factor in? But the one consistent theme that we are seeing is what we call is the whole concept of “the genius of the AND versus the tyranny of the OR.” In the past when we were thinking about IT, there were trade-offs. So you could choose agility or savings.

You could choose agility or resilience, but one of the beautiful things about digital transformation and the structural changes you make to the cost profile is that you can actually get savings and agility and resilience and business outcomes at the same time. So, the one important thing that we want people to take away as we think through what’s going to happen in the future is don’t compromise. Don’t think of the assumptions as OR assumptions, because, done correctly, digital transformation can enable a lot of these AND attributes.

So like we do with every podcast, we talk about digital reality checkpoints. I already mentioned how the business planning process for 2021 is going to be unprecedented given all of the uncertainty. So, let’s talk through the major checkpoints that we wanted you to take away. One, continue the broader transformation journey for long-term success. Don’t put it on pause. In fact, if you can find ways to potentially accelerate it and see how you can support more immediate business needs.

Second, assume the uncertainty of 2020 will continue and use digital strategies to drive efficiency, productivity, and agility.

And then finally, let’s take the warning in good faith and assume that COVID-19 is just a dress rehearsal for the shocks that we are going to see in global events, which are going to create massive uncertainty and define the playbooks, which allow you to really create resilience in your business.

And finally, remember it’s an END, right? It’s not an OR, it’s an AND.

CE:

Great. Thank you for listening to this episode of Digital Reality. Please check us out at www.everestgrp.com.

 

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