Home / Blog / Lights and Shadows of Covid-19 on Digital Transformation – XVIII

Lights and Shadows of Covid-19 on Digital Transformation – XVIII

The graphic shows the expected GDP variation across European Countries in 2020 and 2021. The decrease expected in 2020 is sharp and the recovery in 2021 may not be sufficient to restore the 2019 GDP in several countries. Moreover, there is the expectation os a significant shift in investment and in revenues that will be affecting jobs and values, including competitiveness value for companies and individuals. Image credit: EU

In the previous posts I highlighted the acceleration to Digital Transformation, DX, caused by Covid-19 resulting in both upsides and downsides.

However, what is seen today as a DX acceleration, the uptake of home working, home eduction, digital health care and so forth may end up in a slow down over time as GDP growth slows and less money is available to support investment.

A recent IDC study indicates a 10.4% growth of DX investment in 2020, a nice figure but actually almost half the growth experienced in 2019 (18%). Overall the expectation is a loss of 500 billion $ investment in DX over the next 3 years.

The problem, of course, is not DX per se rather the impact of a decreasing GDP on DX. As shown in the figure European Countries GDP is expected to decrease in 2020 between 4 and 10% (some observers are even suspecting greater decrease values) and the rest of the world is not going to fare much better. According to the IMF 160 Countries were expected to show an increase in their GDP in their January forecast. In their latest forecast (April 2020) they expect a decrease of GDP for 170 countries…

Actually, one might say that the decrease of investment in DX is lower than the decrease of investment in other market sectors, so all in all, DX is faring better than the other sectors.

My concern is that what we are seeing now, and for the coming months in 2020, is a rush to transfer business processes to the cyberspace as these have been stopped in the world of atoms. This is not being done with a strategic view, rather as a patch, quick and (who cares if it is) dirty. It is a bit like saying that we are experiencing a flooding and we have rushed to get rafts to manage the current. We are not investing in building bridges or true solid ships. We have probably no time for doing that and -possibly- no vision. This is true at the level of companies (understandable, the mantra is “first survive”) but, unfortunately, it is also true for Government.  Most of the money that is now being “invented” (i.e. created out of nothing) is being spent to patch up a very dire situation. I do not see a plan to spend the money to change the production fabric of the Country, to transform this emergency into an opportunity.

Some companies are starting to learn from seeing patches that actually not just work, they can become stable parts of a new business and production environment. Companies like Twitter are seeing the advantage of teleworking and are considering to keep it once the pandemic will fade away.

Other companies are leveraging on the pandemic containment to deliver services that haven’t been so successful when people were used to move around freely but that now have been forced to adopt. The increased adoption is not just increasing their revenues, it is increasing their understanding of scaling, of what customers really value and learn how to streamline their processes. Their target market has suddenly expanded and their audience has become used to their services. Think about on line groceries, on line restaurant and the e-commerce in general. All of this may require a new regulatory framework and I do not see Governments paying real attention in terms of a vision where the shift to the cyberspace of many services may become a normal way of life.

As business and culture move to the cyberspace plenty of jobs are lost, and in a very short period of time. Some will recover, but many will not. According to the Becker Friedman Institute for Economics at the University of Chicago 42% of the jobs lost in the pandemic will not be recovered. That means that of the 20.5 million jobs lost in April in the US 8.5 million jobs will not be restored after the epidemic! In Italy we have just moved into phase 2 with the reopening of all stores and restaurants (although enforcing social distancing). As of today 90,000 restaurants haven’t reopened.

This is leading to an unprecedented reshuffle of jobs (and skills) that I do not see in the Governments focus. It seems to me, at least from the Italian point of view, that Governments are focussing their actions to “restore” the status quo, not realising that the accelerated DX has changed the status quo!

 

About Roberto Saracco

Roberto Saracco fell in love with technology and its implications long time ago. His background is in math and computer science. Until April 2017 he led the EIT Digital Italian Node and then was head of the Industrial Doctoral School of EIT Digital up to September 2018. Previously, up to December 2011 he was the Director of the Telecom Italia Future Centre in Venice, looking at the interplay of technology evolution, economics and society. At the turn of the century he led a World Bank-Infodev project to stimulate entrepreneurship in Latin America. He is a senior member of IEEE where he leads the Industry Advisory Board within the Future Directions Committee and co-chairs the Digital Reality Initiative. He teaches a Master course on Technology Forecasting and Market impact at the University of Trento. He has published over 100 papers in journals and magazines and 14 books.