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COVID-19 Catalyzes a New Wave of Digital Transformation

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LightCastle Analytics Wing
May 22, 2020
COVID-19 Catalyzes a New Wave of Digital Transformation

The COVID-19 pandemic has put everyone in a quagmire no one knows the way out of. In order to survive the sudden economic shift from physical to digital, people are adopting innovative ways of doing business and connecting with everyone. 

Now, digital transformation is not just a prospect but a much-needed action for many industries and economies to survive. This applies to both how interactions occur with consumers (online marketing and sales channels, digital products) and the way companies operate (remote working). 

Under current circumstances, organizations have to choose whether to invest in digital innovation or close their doors for good. Instead of planning for growth, branding, and business improvement, these organizations now have to focus on ensuring business continuity and resilience.

Besides the necessary shift in operations for survival, opportunities lie for companies to work on future business models with a view to staying competitive when the crisis ends.

Looking Back at Past Crises and Changes that Followed 

FIGURE: Crises in the past leading to long-lasting changes
FIGURE: Crises in the past leading to long-lasting changes / Source: BCG Henderson Institute

Throughout the years, several crises led to long-lasting changes in societies. The Black Death ushered power-shift to increasingly scarce labor resources, World War II accelerated female workforce participation, the 9/11 attacks reshaped transportation and security policies worldwide, and the SARS outbreak paved the way for the rise of Alibaba and other digital giants in e-commerce.[13] All these crises led to changes in how businesses and consumers interact. This time is no exception. 

Companies and communities today have to adopt changes not planned previously. Chinese e-commerce giant JD.com has deployed drones to conduct surveys and design flight corridors. Tech giants like Google, Slack, Microsoft, and Facebook are adopting agile working methods and have instructed their employees to work from home until the end of 2020.[14][15]


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Global Shift in Consumer Behavior towards Digital Markets

With a third of the global population under some type of lockdown, consumers still expect reduced income and less discretionary expenses in foreseeable future.[1] However, there are still some areas of spending, brands of choice, channels, and behaviors that consumers are adopting and are planning on maintaining even after the end of the lockdowns. 

Adoption of Digital Activities in Day-to-day life

Activities powered by digital elements are attracting new users and increasing the use of previous users manifolds. Consumers expect some of these activities to stay with them in the “next normal”.[2]

FIGURE: Adoption of digital options in day-to-day life by people across different countries of the world
FIGURE: Adoption of digital options in day-to-day life by people across different countries of the world / Source: McKinsey & Company

Long-term Changes in Consumer Behavior 

Even after the effects of COVID-19 subside, consumers remain hesitant to go back to some of their old buying behaviors e.g. traveling. With more than 90% of the world population living with travel restrictions, consumers are not planning to go for international traveling anytime soon with reliable health safety protocols yet to be defined.[12] 

Besides this, consumer behavior is expected to change as they plan on avoiding shopping in physical stores for grocery and non-grocery items and keeping visits to the mall to a minimum.[2] 

FIGURE: Expectations regarding consumer shopping behavior in a post-COVID-19 world
FIGURE: Expectations regarding consumer shopping behavior in a post-COVID-19 world / Source: McKinsey & Company

McKinsey & Company conducted research where they asked consumers about the shopping behaviors they will continue to exhibit. In the illustration above, zones marked black indicate consumers’ aversion, and the ones marked blue indicate the behaviors they expect to carry on. The numbers signify the degree of aversion or inclination to a specific shopping behavior.

As the graph shows, consumers will be less likely to visit physical stores (especially for non-grocery items), malls, or even go for domestic traveling in some countries. This indicates a shift in demand toward the online markets. 

Investing in Digital Transformation is a Key to Survival 

Research by McKinsey & Company — done before the coronavirus crisis — shows that less than 30% of companies succeed in digital transformation.[3] And in some cases, businesses that failed in transforming are still recovering. But now, the crisis has given the world no choice and the cost of failure is much more than it was under normal circumstances. 

Illustrated below are some companies which prioritized digital investments for transformation which later proved to be one of the key factors behind their success.    

FIGURE: Companies that emerged stronger after investing in digital and technological infrastructure during or immediately after economic downturns
FIGURE: Companies that emerged stronger after investing in digital and technological infrastructure during or immediately after economic downturns / Source: Bain analysis

Key Principles for Digital Transformation

According to KPMG, the following are the key underlying principles that, if followed, will yield effective digital transformation for a company.[4]

CloudTo remove dependencies on physical data centers and increase accessibility by creating an online secure platform
Anything-as-a-serviceTo identify parts of an organization that are less critical and do not need to be operated internally. These parts can be outsourced or bought as-a-service.
AutomationTo reduce man-hours used in doing repetitive tasks. The workforce can be repurposed to more valuable work backed by technology investment priorities.
Agile operating modelsTo future-proof organizations by enabling them to accommodate changes in services, products, channels, and locations. 
TABLE: Key principles for digital transformation / Source: KPMG

Industries in Bangladesh Navigating the Digital Transformation

The government of Bangladesh has been planning to march forward with the vision of transforming the country into a digital economy by 2021 and a knowledge-based economy by 2041.

Four pillars e.g. Human Resource Development, Connecting Citizens, Digital Government, and Promotion of the ICT Industry are playing central roles in this growth story. More than 120 Bangladeshi companies exported ICT and digital products worth nearly USD 1 billion to 35 countries in 2019.[5] 

Despite the potential, many industries are currently inadequately equipped for the huge share of the population willing to go digital to have their needs met. 

Healthcare and Related Solutions

The digital or e-health ecosystem in Bangladesh has a limited number of startups with considerable potential. Few of them have strong cash runways. Some of these companies are experiencing growth in demand due to the current coronavirus situation.

Tonic, owned by Grameenphone Limited, has been experiencing a 30% increase in telephone consultations and is planning on launching video consultations soon. The company has also launched a symptom checker in Bangla.[11] 

E-commerce 

As of December 2019, the e-commerce market of Bangladesh stood at USD 1.6 billion and is expected to double by the year 2023.[6] 

Since the advent of COVID-19, the industry has been facing similar challenges as the other industries. The companies saw a huge spike in demand as most of the urban population has been put into isolation. The sale of daily essentials online has increased by 3-4 times.[7] For example, Sheba.xyz, a platform for home services, has seen more demand for deep cleaning services.[11] 

Despite such growth in demand, companies have been failing to cater to this huge demand of a lack of deliverymen and limited postal service available.

Food and Grocery Delivery

Some of the platforms like Foodpanda, Pathao Foods, Uber Eats, and Shohoz Foods are still operational but have been suffering as most of the restaurants have closed down. The demand for such services still exists and has increased to some extent which is evident from the regular flow of orders from some of the restaurants that have decided to stay open for deliveries. 

In the grocery delivery business, Chaldal.com has recently experienced a record rise in daily average orders of 15,000 per day, increasing from 5,000 on a normal day.[10] An average order on the platform now amounts to more than BDT 3000 whereas, it was BDT 1500 before the pandemic.[8] To meet the growing demand, these online delivery service providers are planning on setting up more warehouses.

Companies from other industries are diversifying into this sector to capture market share. Pathao, an online ride-sharing platform, has launched innovative services such as Pathao Tong and Pathao Pharma to serve as a platform for buying groceries, medicines, and essentials as these are the services being sought by consumers mostly.  

Mobile Financial Services

Mobile Financial Services like bKash, Rocket, Nagad, and many others have become the most reliable options for money transfer with a large portion of the population practicing social distancing. The pandemic has kept the agents from opening their shops and has shown how the industry needs to be even more digitized to avoid these vulnerabilities in the future.

The Bangladesh Bank has been encouraging people to go cashless and has removed transaction charges while purchasing daily essentials and groceries, increased the P2P transactions ceiling from BDT 75,000 to BDT 200,000, and removed all charges for MFS cash-out of up to BDT 1,000 at a time.[9] 

Moreover, the Payment Systems Department of Bangladesh Bank has instructed the RMG factories to pay their employees through MFS accounts. As a result, bKash, Rocket, and Nagad have registered 1.92 million RMG workers by May 5, 2020.[9] 

Despite the growth in user demand, these companies have been reporting lower transactions due to operational challenges resulting from dependence on field-level workers.

Since the government declared general leave on March 27, bKash has been managing an average of BDT 4.5 billion per day whereas the amount was approximately BDT 10 billion before the COVID-19 situation.[9]

Looking Ahead to the Next Normal for Bangladesh

  • By this time, it is evident that this pandemic will change the way people go about their personal and professional lives in Bangladesh. For the companies that are already digitally agile, there will be adaptations in business segments they were already focusing on. The other companies that survive, however, will have to go for transforming what business as usual looks like.
  • On a macro-level, trends driven by states such as the US-China competition or the global economy, will continue to influence digitization through 2020 and beyond.  
  • Although some of the digital organizations in the country technically can operate remotely, the pandemic is still affecting them due to dependence on physical outlets and shops that have been at a deadlock, rendering the supply inadequate for growing demand.  
  • Although some companies are adopting remote working options, data protection and access to the internet still remain to be major challenges for many in the country. Large companies have their own protected servers. However, the protection of data in an open system is still a big challenge for most. 
  • In order to successfully establish the digital transformation, the availability of proper internet bandwidth is a must. Currently, it is still a systemic challenge as the infrastructure has been strained owing to the sudden spike of demand for internet in households. 
  • Moving forward, going digital will also necessitate collaboration with other countries at the regional and global levels. The recent conclusion of the Digital Economy Partnership Agreement (DEPA) between Singapore, Chile, and New Zealand can be considered an example of such collaboration.[11]  

Saim Ahmed Shifat, Content Writer at LightCastle Partners, has prepared the write-up. For further clarifications, contact here: [email protected].

The LightCastle team has been analyzing the macro and industry level picture and possible impacts wrought about by the Covid-19 crisis. Over the following days, we’ll be covering the major sectors shedding light on the possible short and long term ramifications of the global pandemic. Read all the articles in the series.

References


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WRITTEN BY: LightCastle Analytics Wing

At LightCastle, we take a data-driven approach to create opportunities for growth and impact. We consult and collaborate with development partners, the public sector, and private organizations to promote inclusive economic growth that positively changes the lives of people at scale. Being a data-driven and transparent organization, we believe in democratizing knowledge and information among the stakeholders of the economy to drive inclusive growth.

For further clarifications, contact here: [email protected]

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