Europe’s digital leap

Since most people agree that the pandemic has acted like a pressure cooker accelerating the digital transformation across the world, one question is this: After the pandemic, will the gap between digital leaders and laggards be smaller, larger, or the same?

Assuming that the digital learning curve has an exponential shape, then given the same amount of effort, those companies that were ahead on the curve will make greater leaps forward than those lagging behind. Therefore, other things being equal, it is reasonable to expect that the gap between digital leaders and laggards will be greater than it was before the pandemic.

There is a silver lining to this pessimistic prediction. It is the fact that the pandemic has shattered the last remaining bastions of denial or resistance: nobody can any longer say that “digital disruption does not concern us”, or that “digital transformation cannot be implemented here”. 

Having said that, not all businesses have the same experience during the pandemic. In particular, we can classify industries according to two factors. First, the opportunity offered by digital technologies to react and rebound. And second, according to the external pressure to transform. For example, both the hospitality and retail sectors faced enormous stress as a result of the lockdowns, but digital technologies offered greater opportunity for the retail sector to react and rebound.

Going forward, the next challenge is to avoid complacency and sustain the commitment to building digital capabilities. This will require re-imagining the operating models and the business models for agility and competitiveness after the pandemic. One hypothesis is that those sectors facing the greatest stress during the pandemic – and survive to fight another day – they have the greatest incentives to experiment with new ideas. For example, whereas live entertainment has halted, some venues and artists are trying live formats online and are experimenting with virtual reality and various forms of audience interaction. In contrast, the education sector is facing less urgent pressure to transform its models of teaching, learning, and certification and therefore, for the most part, it has adapted in a more incremental fashion.

In general, service sectors with extensive physical infrastructures, such as entertainment or higher education, may have to find ways to repurpose some of their assets while investing more on digital service models. Yet other service sectors such as hospitality and logistics will probably have to revisit their place in the value chain and develop explicit ecosystem strategies, potentially seeking to become platforms themselves, even at a local level. Sectors such as manufacturing or agriculture are finding that an increasing proportion of their value proposition will not be in the physical product, but in complementary software, data, and content. Car manufacturing is a case in point.

Furthermore, digital leaders rely for their operations on end-to-end automation and data-driven decision making – including machine learning. In this way they are able to achieve levels of productivity and strategic agility that are unfathomable for traditional businesses. Therefore, even though the end of the pandemic will bring an end to this visceral sense of urgency to take action, the risks of inaction will be far greater. Partly because the competition will be more fierce and partly because the end of the pandemic will also bring the end to government support.

Finally, businesses hopefully realize that investing in digital skills and capabilities is a necessary but not sufficient condition for digital transformation. They also need new leadership capabilities and a different model of governance if they are to exploit the potential of technology for sustained advantage.

* Associate Professor of Digital Business, Alba Graduate Business School, The American College of Greece