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Covid-19 – Fuelling the next wave of innovation?

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A pandemic that will reshape business

There is a perception that due to the current Covid-19 pandemic we are living in unchartered times and that the outlook for both the domestic and global economies are uncertain.

For sure, the economic outlook is gloomy and it seems almost certain that most countries including the UK will see a significant downturn, recession or in some cases even depression over the coming year(s).

Does this mean that business opportunity is less than it was prior to Covid-19?

We do have a great deal of historical evidence where events of similar magnitude have reshaped the economic landscape, including more recent seismic events such as the SARS pandemic of 2002-2004 and the financial crisis of 2008, which we can use to draw conclusions as to where key business opportunities may present themselves.

The Black Death of the 1300s broke the feudal system in Europe and resulted in a more modern employment contract, and the 100 years war saw a revolution in agricultural productivity.

The 2008 crisis saw Airbnb and Uber shoot up in popularity across as the subprime crises meant lower savings and income for the masses, forcing people to share assets in the form of spare rooms and car rides whilst the meteoric growth of Ali Baba established it at the forefront of retail in Asia. This growth was fuelled by underlying anxiety around traveling and human contact, similar to what we see today with Covid-19.

With Covid-19, we are already seeing early signs of a shift in how consumers and businesses behave. Remote working is being encouraged by tech and non-tech companies alike, airline profitability is being hugely impacted, supply chains are getting disrupted globally and retail stores are in crisis. Some of these changes are direct, short-term responses to the pandemic and will revert to regular levels once Covid-19 is contained.

However, some of these shifts will continue on, creating a long-term digital disruption that will shape businesses for decades to come.

 

The three dimensions of impact

Pandemics have a direct impact on biological, psychological and economic dimensions.

For Covid-19, the biological impact has been quick to escalate and has been the hardest-hitting for the elderly.

The psychological impact can be observed in stock markets and business sentiment across the world with concern about the future as its impact on global productivity. UK GDP is forecast to contract by 6.8% in 2020 before returning to positive growth of 4.5% in 2021. However no matter where you look or who you consult these figures vary wildly further fuelling uncertainty.

We also face a psychological impact with low morale and increased isolation as human contact and freedom to travel are heavily curtailed.

Last, and definitely not least, the economic impact has been nothing short of dramatic. In the short term, the supply of various essential products has been disrupted, the demand for various products and services have dropped, Government borrowing is off the charts, the housing market has stalled and so on.

Longer-term innovation and changes in buying behaviour will come about as consumers and businesses try to minimise the impact on the psychological and economic factors.

Recessions usually bring about a quickening in business change, helping to driving down manufacturing and supply costs to serve and consumer pricing.

Equally pandemics tend to enable entirely new categories of businesses as we mentioned earlier. Looking at past events it’s clear that pandemics and recessions accelerate innovation rather than being direct causes of it.

Bearing this in mind, and trying to learn from history, we predict three macro innovations that will remain in play as the Covid-19 threat diminishes.

 

Supply chains will merge into resilient ecosystems

Supply chains have long been engineered towards keeping quality constant while driving costs lower which, with hindsight, has increased risk for vendors and most companies.

For example, China scaling down production and supply due to Covid-19 created a swift knock-on impact and exposed the lack of resilience.

There is a sharp need for a more distributed, coordinated and trackable supply of components across geographies and vendors while maintaining economies of scale. This would require global platforms that use sophisticated technologies such as 5G, robotics, IoT and blockchain to help link multiple buyers and multiple vendors reliably across a network of supply chains.

This will have a variety of knock-on effects such as the need to adopt delivery drones and alternate fulfilment processes as the demand for consumer logistics will far outstrip the number of drivers needed to fulfil them. The usual B2B platform suspects such as Amazon and Ali Baba are most likely to step up and compete for the ownership of this more sophisticated supply chain ecosystem in the next decade.

 

Digital bureaucracy will become the norm

Covid-19 breakout has caused governments to react quicker than ever before.

China broke records by constructing a 645,000 square foot hospital in just 10 days whilst South Korea drove rapid testing of over 200,000 of its citizens and used smartphones to tag the movement of the infected.

All of our efforts, as well as a much higher level of transparency regarding the biological impact, could have been attained if there were more smart cities in the world.

According to the latest study by the University of Glasgow, only 27 out of 5,500 large cities are considered as being advanced in this area.

As governments learn from the current crisis , investment will shift in favour of smart cities and key beneficiaries from this shift will be companies such as Cisco, Microsoft, and Siemens with plenty of opportunity for digital startups across Europe.

 

Supporting workers will be provided at scale and online

It’s not rocket science to predict that Covid-19 will change remote working and online education for ever. What is harder to understand is what are the effects if – or more likely when – the majority of knowledge-based workforce needs to work together, but remotely and indefinitely.

It seems likely that this shift will impact morale, productivity and the mental well-being of workers across all economies and businesses will need to prepare for it.

Companies looking to add the value to remote team elan have a limited number of choices as of today.

A handful of tech companies, such as Github and much of the Fintech sector that run predominately on a remote collaboration basis might choose to capitalise on their experience and capabilities in order to help other companies provide their own infrastructure. There is a clear gap in the market here, which Microsoft Teams and Zoom are not capable of filling, at least with their current offerings.

 

The post-coronavirus world

Covid-19 is of course a terrible disaster to the thousands of individuals and families it has affected, not just to the economy.

Companies will need to ensure that the health and safety of its workers, partners and suppliers are key priorities in the immediate future.

In the long term, Covid-19 will have irrevocably changed the way businesses will need to compete and operate over the next decade.

Companies that choose to focus on solving the underlying issues these changes bring are likely to succeed regardless of any downturn, whilst those that don’t adapt are likely to find the new landscape a very challenging one.

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