Point of View

Solve the Digital Dilemma in the Pandemic Economy – Three approaches to doing more with less

October 19, 2020

The need for digital deployment is skyrocketing post the pandemic shock, but spending appetite is falling to subsistence levels as we enter a recessionary economy. In 2020, in survey after survey conducted by HFS, over half of major enterprises expressed the need to accelerate digital deployment significantly in light of COVID-19 (See Exhibit 1). Acceleration incorporates a mix of underlying technologies (AI, RPA, machine learning, cloud, IOT, and 5G) often applied to a combination of process improvement, analytical applications, and data access and transformation initiatives. The COVID-19 pandemic is accelerating this existing trend, especially as it relates to using digital to support an explosive increase in hybrid global working environments. Some industries had already been moving aggressively before the pandemic, most notably financial services; now all are.

These trends are an instantiation of HFS’ Digital OneOffice concept, where teams function autonomously across front-middle-, and back-office functions to promote broader and seamless processes with real-time data flows that support rapid decision making. But the question arises: How do you pay for and manage this complex undertaking in an environment focused on efficiency and cost-cutting for at least the next 12 to 18 months? The benefits are not always quantifiable, especially relating to personal productivity improvement, which adds more difficulty. Indeed, in a recent survey conducted in May 2020, only 13% of respondents expect to increase investments in emerging technologies due to COVID-19 (see Exhibit 1).

Exhibit 1 – Digital Disruption and COVID-19

Thinking specifically about how COVID-19 has impacted our new working environments, how much do you agree or disagree with the following statements?

Sample: 300 executives across Global 2000 enterprises

Source: The 2020 Enterprise Reboot Study, HFS Research in partnership with KPMG

Our surveys over the last six months indicate that new standalone technology investments across all digital technologies have been cut by 20% to 50% (see Exhibit 2), and there is little indication investments will increase soon. So, companies must subsist doing increasingly complex work with fewer resources. In another recent HFS survey of 150 C-level executives, 37% perceived a stronger top-line growth post the pandemic shock than in mid to late 2019. Digital investments can be the lifeline for near-term survival and, ultimately, for this renewed growth. How should enterprises effectively digitally transform in a cost-cutting environment with totally new working arrangements?

Exhibit 2 – Average investments in emerging technologies have taken a dive post the pandemic shock

What is your current level of investment for these emerging technologies in your organization (or business unit)?

*Calculated using mid-point of each scale category

Sample: 300 executives (May-June 2020) and 600 executives (March-April 2020) across Global 2000 enterprises

Source: The 2020 Enterprise Reboot Study, HFS Research in partnership with KPMG

Do not reinvent the wheel

Cash-flow constraints will continue to limit new internal investments in technology. In this new reality, enterprises must first make better use of existing investments and assets, including both infrastructure and data, whether they reside on-premise or in the cloud. Some remediation may be necessary to fully align these assets to digital delivery, but this approach can quickly fill some gaps while management contemplates a more comprehensive set of investments. Companies must keep in mind what elements constitute and support a truly digital workforce and the aspiration of end-to-end automation. Using existing infrastructure and applications for narrowly focused task automation, for example, is not enough to move the digital agenda forward.

Likewise, there are many third-party platforms and ecosystems that can provide needed services at a fraction of the cost of building them from scratch. A platform ecosystem is characterized by relationships that are neither as independent as arm’s-length market contracts nor as dependent as those within a hierarchical organization. It is, in essence, a hybrid organizational form. There are some tradeoffs involving a lack of control in these platform environments. Yet, it is the willingness to solve investment constraints with new business models that will separate winners from losers in the next 12 months.

Make better use of existing talent

An example of using cloud services more effectively is the use of low-code and no-code tools, which allow non-programmers to develop business workflow applications via drag-and-drop interfaces. This simple interface allows users to craft tools that reflect specific data inquiries and workflow processes; they can also integrate their low-code and no-code-crafted programs into larger business processes. Cloud providers like Google, Amazon, and Microsoft all offer low-code platforms.

While not applicable to all enterprise application environments, low-code deployment complements the shift from a multi-cloud to a hybrid-cloud environment, which provides access across different operating systems. Like low-code, hybrid-cloud application development both reduces the costs and increases the productivity of enterprise application development. Low-code and hybrid app deployment can start the process of digitization for many horizontal processes. Finally, access to data across disparate computing environments underscore the need for enterprises to go “all in” on hybrid cloud migration.

Some studies have indicated development costs using low-code tools can be a fraction of the cost of legacy programming environments. While not a complete panacea, HFS estimates that aggressive use of low-code and hybrid app development can lower overall development costs by 5% to 10%. Pre-COVID-19, these savings may not have been substantial enough to justify the effort; now, they can spell the difference between just surviving and prospering.

Change the cost-benefit calculus

The longer the return horizon on an investment, the greater the risk, even if it generates returns three to five times greater than a company’s hurdle rate. A portfolio of focused investments that generate ROI in the 20% to 30% annualized range in less than one year (and hopefully in 6 months) is a new strategy worth evaluating. Larger projects with transformational business goals and outsized returns that materialize over three to five years may be a luxury few can afford.

It becomes a case of hedging bets and diversifying investment strategies, always with the goal of achieving outsized returns, which contribute to moving the digital agenda forward with an eye to have-to-have technology with accelerated ROI.

Executives need to look at benefits beyond just traditional cost-cutting to generate returns. These sources can be addressing incremental revenue from new segments, deferral of hiring, and accelerated time to market for new products and services. Indeed, the hardcore cost-cutting approach may be played out, and creative ways to justify investments will be more the norm—pandemic or not. Albeit, these strategies sometimes involve greater risk because of the softness of financial benefits.

Down the road, there may be a greater need for integration efforts of these bite-sized initiatives, but the alternative is no progress in the near term and a lost opportunity. Business case development is now the number one challenge to enterprises, moving up from number six less than 12 months ago.

But companies need to contend with a new set of considerations, including the requirement for fast and outsized return, a reluctance to take on large transformation projects, and project horizons of not five years, not three years, but 12 months or shorter. Small companies, which are typically capital constrained, have always taken this approach; large enterprises will now have to adjust to the new reality.

The Bottom Line: It’s time to throw away the old playbooks. Be bold or prepare to die a death of thousand cuts.

These new combinations of leveraging third-party platforms and resources, reorganizing roles, and reevaluating financial investment profiles are radical departures for many large enterprises. End-to-end control, financial predictability, and managing staff activity the same old ways are going out of the window for companies that need to reinvent themselves as digital enterprises. To implement this digital transition fully requires a seismic shift in cultural norms, not just an emphasis on building new platforms. There is a growing appetite for experimentation and a willingness to throw out old playbooks, engendered in part by the work-from-home shift. Forced by the crisis, enterprises may finally start to take the steps that build the path to a digital future.

 

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