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September 23, 2020

How the Covid crisis has been good for business

By Rick Pastore  – Senior Director, IT Research Advisor

Finance transformation initiatives planned for 2020

How the Covid crisis has been good for business

There is light at the end of the pandemic tunnel for businesses, even if no one is certain how long that tunnel might be, and how many more curves, dips and inclines will be encountered along the way. Most companies are not dwelling on the train wreck that was 2020, but looking forward to 2021. The Hackett Group polled clients across the G&A functions (IT, HR, finance and procurement) about their 2021 outlook – 70% expect operations to stabilize next year, and 16% say it will happen even sooner (by end of 2020, no less).

These predictions are great to hear, but stabilization doesn’t generate top- or bottom-line growth. The thinking is much more downbeat in those areas: Only 19% anticipate a positive impact on operational and financial performance in 2021. Eighty percent of our G&A leaders say they expect lower economic growth to be an enduring characteristic of the post-Covid business environment.

I understand the pessimism there, but what we need to realize is that there have been several upsides for business from this disruption, and if we embrace them fully, it will make businesses better able to adapt to whatever lies beyond the tunnel. Here are six positive developments triggered or accelerated by the pandemic disruption, and the potential lasting impacts they could have on business:

  1. A real-world test of business continuity plans at a global level. Companies will be better prepared for future disasters, and more resilient because of it.
  2. Exposure of supply chain and sourcing shortcomings. Companies will suffer fewer shortages through diversification of suppliers and optimization of supply chains.
  3. An opportunity for G&A function heads to step out of their silos and lead collaboratively and decisively. Bureaucracies and hierarchies are giving way to inclusive but streamlined governance and faster, but more informed decision making.
  4. Validation of cloud-hosted infrastructure strategy. Companies will be less dependent on the limitations and vulnerabilities of on-premise technology.
  5. More generally, a fire was lit under the cause of digital transformation – many business functions have advanced their digital capabilities more in the last six months than they had in the past three years. Companies will be better able to compete in the digital era.
  6. An overdue acknowledgement by managers that knowledge workers can be effective working from home. This leads to the most significant impact for business – access to a global talent pool that was previously not considered a viable resource for most companies.

I want to consider the last two upsides more closely, starting with No. 6. Think about what a game-changer it is that organizations are now fully accepting of full-time remote workers. Companies that struggled to find local talent can now hire people working virtually anywhere. Consider what this means to businesses struggling to hire and competitively pay technical talent in the shadows of digital giants like Google and Microsoft.

Now they can hire a data scientist or RPA programmer in Iowa or Indiana for far less than it would have taken in San Jose or Seattle. Public sector and nonprofit organizations suddenly have a new hope of hiring the people they need without having to fight inflexible institutional pay scales.

Executives are already becoming aware of these implications. Of G&A leaders responding to The Hackett Group’s recent survey on coping with extreme uncertainty, 75% said that globalization of the talent pool would be an enduring characteristic of the post-crisis new normal, and half of them said it would have significant impact on their businesses.

But will they actually avail themselves of this new talent access? Will HR organizations adjust their recruitment methods and research pay scales in potentially dozens of new localities? Will corporate benefits organizations do the extra work to find local health plans to serve solitary remote workers? Time will tell. But several data points from our survey portend that they will –

  • 100% of respondents across G&A functions (which includes HR) said they will increase virtualization of work (work from home).
  • 95% said it was likely they will update their talent management strategies and plans.
  • 81% plan to redesign the physical footprint of the company.

Adaptive workforce responses planned for 2021

Finance transformation initiatives planned for 2020

There will certainly be problems with having solitary individuals hired and scattered across the country or planet. How do you build and spread the corporate culture across such a landscape? How will working relationships and trust form and grow when workers rarely if ever spend significant time together? And how many managers will successfully adapt to taking care of their people and leading teams that are remote? Time will tell.

But there is another approach to tapping the global talent pool that is a compromise between the solitary worker from home scenario and the traditional idea of requiring everyone to be in the corporate office. That is, to open a new satellite office in a low-cost location that would not have been considered in the past. CIOs are already familiar with this model, having opened captive offshore IT centers. Can the model work for finance or procurement teams? Probably. HR or operations? Seems less likely.

But again, we will see how this too good to ignore opportunity plays out.

Now, on to upside No. 5 – acceleration of digital transformation. I’m not going to speculate why it required a full-scale derailing of business operations to propel companies toward a digital operating model. We work with several large global companies that have been aggressively transforming since 2010. But we also have data about business functions that have a woefully brief history with transformation – even IT functions. As of the start of 2020, 26% of IT leaders said they had completed only one-to-two years of transformation of their own functions. Worse, 41% had either just started or had not even started. I’d like to think that this is a “cobbler’s children” – IT has been too darn busy helping other functions transform. But I can’t state that with certainty, unfortunately.

Then comes the pandemic’s global business shutdown, and companies that had made the most digital progress fared the best. The rest had to scramble to limit operational damage. Not one CIO I talked with in April or May had said “I told you so” to their digital-delaying and bean-counting peers, though it was justified. Instead, they said “never let a good crisis go to waste,” and throttled up their digital roll outs.

Desktop PCs were replaced by laptops and virtual desktops over the span of a mere 5 business days. VPNs multiplied like rabbits, securing access from homes. 20th century paper-pushing processes were replaced with 21st century electronic document management. Improved digital order and delivery systems sprung up or kicked into high gear. Supply-chain data analytics grew more sophisticated and timely, and data dashboards appeared on more screens. Manual-task bottlenecks were exposed for the risks they represent, and are being excised by smart automation.

Now, virtually all the G&A leaders are on the digital train, with 92% saying they will likely accelerate digital transformation, and 84% say they will accelerate the implementation of their current technology roadmap (below).

Adaptive digital transformation responses planned for 2021

Finance transformation initiatives planned for 2020
Source: 2020 Extreme Uncertainty Poll, The Hackett Group

The upshot: By the end of 2021, the digital profile of most businesses should look very different than it did at the beginning of 2020.

There are likely other positive effects on business that will emerge from the wreckage of 2020, though we may not appreciate them or see their real impact until late 2021. Certainly, office rents could be lower, and T&E budgets will shrink. There will also be greater variety and customization of business-to business and business-to-consumer delivery channels. (Feel free to comment with your own thoughts on upsides.)

If businesses embrace and operationalize these positives, then there will be lasting upsides from this disaster. If this year was the train wreck, then let 2021 be the year we lay new tracks, fire up a stronger engine, and accelerate into the light beyond the tunnel.