Business Strategy

2020, the moment of change in the digitalization of companies

Investment in Innovation, Research and Development, key to new company strategies.

 

José A. Miranda, Sebastián Morales

 

Innovation is a concept that needs time to be consolidated to get results in the medium and long term; it is undoubtedly a change in the way that companies shall be managed.

No company, anywhere in the world, was prepared to face the unforeseen tsunami caused by COVID-19 in our society. Therefore, no manager can be held directly responsible for the impact that the pandemic is having on businesses. However, they are responsible for the business plans they prepare during the last quarter of each year, generally with a view of increased turnover, based on the same parameters.

But the market is moving on due to the new specialized competitors that were born with a solid and strong base of technology and innovation, breaking the actual value chains. And this innovation, without a doubt, tends to bring a higher degree of dynamism and impact on business development.

In this context, many managers are already being forced to adapt or entirely rethink their business strategies; or to develop new strategies in those companies that had not done previously so they can face the new challenges from now on. In any case, the questions to be made all over the strategic process must be much more demanding from a commercial perspective, cost structure, talent and financial management.

In other words, the current demand implies thinking about reshaping the value chain.

Investment in Innovation, Research and Development, key to face the new company strategies.

If there is something that this crisis is probably bringing out is the lack of data across all the business management to make data-driven decisions with a greater degree of objectivity. This is mainly due to the slow-motion all over the digitalization process of companies that directly affect the execution of tasks.

Even though there are some companies that truly believe they are “digitally advanced “, the reality is that on many occasions there are only isolated tactical tasks developed, lacking robust strategic thinking that allows accelerating the process of integrating people, technology, and data. This demand requires innovative ideas from those who are responsible for managing resources, both human and technological. 

In markets with a high internet penetration above 85%, those countries that stake investment in R&D will have a lower impact of COVID-19 on GDP during 2020.

 

In the world of businesses, digitalization is often associated with innovation and development. For instance, taking such as a reference in markets with a high internet penetration, above 85%, it can be seen how the impact of COVID-19 on GDP by 2020 is 1.5% average lower in those countries that stake a higher level of investment in R&D.

South Korea will represent the smallest decline by 1.2% of GDP. In contrast, Italy and Spain, with lower rates of investment in R&D, will suffer the greatest negative impact, with a sharp drop between [8% – 9%] of GDP by 2020. And although France has a similar behavior as these two countries, the higher investment (above 60%) in R&D will enable them to face the crisis under the best of circumstances.

Meanwhile, China with a lower internet penetration, but with an investment in R&D as the same level as Australia, will be able to continue growing by 1.2%, under the worst-case scenarios.

On the other hand, the group of emerging markets formed by Mexico, Brazil and the rest of the Latin American countries, Nigeria and South Africa will suffer a joint negative impact of -4.2%, less than the more developed countries. The lower investment in R&D, far below average, will make it difficult to recover them at a faster pace during 2020.

In other words, company’s managers have the task of thinking differently, with a much more strategic focus and looking at the value chain from another angle by staking on innovation and development as a way of making companies sustainable in the medium and long term.

Those companies that continue using the digitalization concept as tactical and not implementing it in a strategic way, are at risk that any unexpected event erodes their business more than it should. And that is under the responsibility of the top management.

José A. Miranda is Managing partner at Naawa, Sebastián Morales is Analytics Partner at Naawa.

Copyright © 2020 Naawa Consulting. All rights reserved.

 

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