The Covid Effect
The word “pandemic” is derived from the Greek root words pan (all) and demos (people), and essentially means “as pertains to all people.” We have become acutely aware that we are all in this together as we follow the news about the COVID-19 virus, attempt to manage our businesses and remote teams, attend to our families and loved ones, and greet our neighbors across a gaping 2-meter divide.
Few individuals and institutions are immune to the effects of the virus. Current efforts are focused on preserving the health and safety of our society. At the same time, attempts are underway to mitigate the significant disruptive effects to institutions and financial systems resulting from an unprecedented sudden-stop in global economic activity. We are witnessing, in real time, the most dramatic and sobering job losses in decades, and business owners are navigating extremely choppy waters to protect the businesses that they steward.
Companies are laser-focused on managing cash flow and liquidity as they confront significant headwinds caused by market dislocations and business interruptions. They are executing on contingency plans, preparing cash flow forecasts, renegotiating financing agreements, reassessing cost structures, tapping into government stimulus incentives where applicable, and building up liquidity reserves to help weather the storm. Those companies that had the foresight to transition to cloud-based communication and collaboration solutions are faring better, as they become accustomed to managing a remote workforce. Predictive models are being updated to support tactical decision making and to understand key dependencies and potential vulnerabilities in business operations, to ensure that businesses can be brought back to recovery after the crisis.
BDO is monitoring national government stimulus incentive programs through our Global COVID-19 Crisis Hub, as many of our clients operate in multiple countries and need information from all jurisdictions where they operate. National BDO Crisis Resource Centres have been assembled and virtual teams have been mobilized. My TMT colleagues around the world are working together with clients to navigate these difficult circumstances, sharing best practices and keeping informed of the rapidly evolving business landscape. People helping people is a key feature of our Firm that I am truly proud of.
Most governments have instituted colossal stimulus packages to support financial markets, companies and their employees, who have been furloughed following the sudden-stop—a monumental task that dwarfs the efforts made during the last global financial crisis. From here we can expect a much greater entanglement of government in private sector activity as we traverse the crisis. Those businesses that manage the shock, build resilience, plan effectively for recovery and understand the implications of an altered future will emerge stronger and fitter.
Past economic downturns, such as the dot-com bubble and the Great Recession, were generally accelerants to technological change. What changes are we then to witness as this crisis dissipates and we gradually regain our equilibrium in a changed world?
As we peer into a foggy future, it is difficult to distinguish between short-term anomalies and longer-term trends. However, we can make a few preliminary observations:
- Accelerating digital transformation
One can only surmise what our world would be like at this moment in time if we did not have at our disposal the information and communication technologies and platforms created over the past several decades. To quote my Partner, Tony Spillett, who leads our Technology and Media practice in the UK, “As millions of us adapt to working from home for an extended period of time, we can thank our innovative technology industry for disrupting and improving the business models of the past such that we can work, communicate, bank, learn, purchase and generally operate our business and personal lives in a way unthinkable as recently as the global financial crisis.”
COVID-19 is dragging us from our comfort zone and forcing us to re-evaluate our assumptions about the way we live, work, interact, and support one another. As we emerge from this crisis, there will be tremendous resolve from governments, corporations, investors and society at large to strengthen our digital infrastructure and create new, more resilient business models, not just for the benefit of companies, their shareholders and employees, but also for the benefit of external stakeholders.
Technologies, products and services that will underpin further digital transformation include, amongst others:
- Advanced computer chip design and manufacturing
- Supercomputers and exascale computing
- Advanced materials science and engineering
- Open source operating systems such as Linux
- Modern cloud computing ecosystems
- 5G network equipment and deployment
- Unlimited connectivity
- Edge computing in highly distributed systems
- Connected IoT devices
- Software as a service (SaaS)
- Cybersecurity software
- AI, such as deep reinforcement learning incorporating novel deep architectures and training frameworks
- Distributed ledger technology
- Quantum computing (although on a more extended time horizon)
Some of these technologies are currently on display to help advance the pace of scientific discovery in the fight to stop the COVID-19 virus. For example, computing resources have recently been deployed through the COVID-19 High Performance Computing Consortium in the US, assisting researchers worldwide by giving them access to the world’s most powerful high-performance computing resources.
2. Harnessing insight from of an abundance of data
Modern economies are integrated globally through the exchange of ideas, goods and people. Accelerating digital transformation and computational power, along with a rapidly growing network of connected devices and greater connectivity speeds, is driving a significant increase in volume, velocity and variety of data. The speed at which knowledge is evolving is humbling in these extraordinary times. New digital platforms and exchanges, increasingly perceived as critical infrastructure by governments and society, will enhance collective wisdom and insight, and amplify further global collaboration in research and shared knowledge.
Our economy and heath care systems are straining under the weight of COVID-19. Public officials are desperate for more information and data to help better understand the virus and its propagation, protect their constituents, manage overstretched public health care systems, and mitigate adverse long-term effects on the economy. Researchers and public health authorities are hoping to more quickly identify and isolate potentially infected people and corral a pandemic that is outpacing their efforts, despite unprecedented restrictions on our daily lives.
Examples of active or rapidly evolving digital collaborative technologies and protocols that will enhance our understanding of, and enable us to combat, COVID-19 include:
- Open-access research datasets to apply AI techniques to generate new insights (such as the COVID-19 Open Research Dataset available to the global research community)
- Open-access electronic repositories of scientific knowledge (such as arXiv, hosted principally by Cornell University, which allows researchers to quickly share their findings)
- Aggregated insights from anonymized community mobility reports, released by Google to help manage risk related to human congestion during the COVID-19 crisis
- Development of a Bluetooth-enabled COVID-19 contact tracing platform by Apple and Google to help manage exposure to the virus
- Chinese researchers collaborating with their counterparts in western countries to share best practices related to communication and data exchange methodologies used in China to screen for infection and control outbreaks
We will overcome COVID-19 with the help of scientific insight, digital technologies and the collaborative capabilities described above. We now have at our disposal digital resources that we could only have dreamt of during previous pandemics. However, we must do better on the proactive side of the ledger.
Bill Gates gave a prescient TED talk in 2015, where he urged world leaders to prepare for a pandemic in the same way that they would prepare for war, by running simulations to identify weaknesses in our systems. As quoted in the Washington Post on March 31, 2020, Gates stated, “As we’ve seen this year, we have a long way to go. But I still believe that if we make the right decisions now, informed by science, data and the experience of medical professionals, we can save lives and get the country back to work.”
3. Designing for greater resiliency and sustainability
The work of Charles Darwin influenced the statement, “It Is not the strongest of the species that survives, but the most adaptable.”
New, more resilient business models and social constructs will be created following this pandemic as we accelerate through further digital transformation and knowledge creation. However sustainability must continue to be addressed, for resilience without sustainability is but a short-term play. Securing a social license to operate will not be sidelined after this crisis has passed, it will only intensify. Society is demanding it.
Digital resiliency will likely supplement environmental, social, and governance (ESG) factors relied upon by investors and society to measure the sustainability and societal impact of a business. Are we witnessing the birth of the acronym ESG+D?
The most resilient and fundable companies will be those whose mission/values inspire a strong sense of purpose. By necessity, this will include the following features:
- Strong corporate vison underpinned by core purpose
- Ability to leverage automation across every component of the business
- Knowledge sharing, open source design
- Robust remote-work technologies and digital infrastructure at scale
- Inspired and empowered talent pool
- Collaborative and flexible work environments
- High-value products and services creating sticky customer relationships
- Well-trained employees, who are deeply aware of every aspect of the company’s product and service offering
- De-risked end-to end value chains
- New ways to sell products and provide services to customers, with self-service becoming increasingly important
- For scaling companies, clear revenue milestones and pathway to profitability
- Identification of M&A opportunities to enhance technology capabilities and acquire innovative assets
- Innovation, R&D
Companies that thrive will attract the most qualified and motivated employees, engage with collaborative business partners, and develop the most innovative products and services, creating significant value for a loyal customer base. They will be agile and able to adapt to new business conditions, as they will inevitably arise. Less compelling companies will struggle to attract talent and funding, and their clients will be less engaged in their products and services.
We will emerge from this difficult crisis shocked, bruised and profoundly changed. None of us will be untouched by the present upheaval in global economic dislocations. No company is recession proof; however, some business models will prove to be more recession resilient. Those that harness rapid digital transformation to help extract knowledge for the benefit of their teams, key customers and partners will thrive. These companies will also adopt a long-term focus on sustainability and will be better prepared to weather future economic shocks.
Please follow our BDO techandmediawatch blog in the weeks and months ahead, as we dig deeper into the more significant trends in our sector during the gradual return to equilibrium in a profoundly changed world.