Why Covid-19 will be an extinction event for many incumbent companies

One of the most striking features of the global business response to Covid-19 has been the resulting rapid adoption of new-breed digital services, such as Zoom and Slack, by born-analogue incumbent businesses.

Born-digital businesses, built on cloud services, mobile e-commerce, machine learning and agile methods, have long taken such services and capabilities for granted.

Today’s start-ups and scale-ups are weaned on software-as-a-service (SaaS) stack: Zoom and Slack and the couple of hundred other SaaS tools that make them so staggeringly productive and innovative.

By contrast, economies of scale no longer confer big businesses any competitive advantage; incumbents are encumbered rather than empowered by their enormous investments in legacy infrastructure.

Born-digital businesses take remote working for granted, delegate authority and empower people to make decisions in small, agile, multifunctional teams, and strongly support lifelong learning.

Collectively, these new and very different digital ways of working might be thought of as a form of technology – a technology that is efficient and empowering. It also wins the talent war, easily; scarce talent with relevant skills in today’s workforce will tolerate no other type of business environment.

In this world, it can be argued that the single most important technological innovation that the technology sector has ever produced is not some remarkable piece of hardware, or creative and compelling software, but rather its approach to leadership and management.

Coronavirus tech will keep on improving lives long after pandemic ends

Tech companies have long operated in an environment that required them to be dedicated to both continuous renewal, and unceasing resilience.

Apple and Samsung replace their complete product portfolio every couple of years and derive negligible profit from any product lines more than a couple of years old. Their growth has come despite several severe shocks along the way. Continual renewal and tough resilience.

Nokia’s rise and fall illustrates both sides of this. Its rise was fuelled by how well it responded to a brutal supply chain shock that affected both it and its key competitor, Ericsson, 20 years ago.

A fire at a plant in Albuquerque, New Mexico found Ericsson wholly unprepared, destroying its strong market position and ultimately exiting the market altogether.

Nokia’s demise a decade later was driven by how poorly it then responded to the foreseeable shock of Apple’s entry into the mobile phone business.

In many other established enterprises, it has taken this unprecedented Covid-19 emergency to trigger action on adopting digital technologies, and they have not yet adapted effectively to this new era of the digital economy.

Covid 19 may seed the next big thing in tech – but you’ll never guess what

For the unfolding humanitarian and economic disaster that is Covid-19, the situation is quite different. This will be an extinction event – like the Chicxulub meteor impact – for many companies.

Covid-19 will have an impact on the economic and business ecosystems similar to the impact that Chicxulub had on the natural ecosystem – exterminating 75 per cent of plant and animal species – as it dramatically accelerates major shifts already underway.

The shutdown and subsequent radical reshaping of the economy creates a new economic climate that favours small, smart, social organisations over even the largest and most fearsome incumbents.

It may be an existential threat for many established enterprises.

There is hope, however. There is a well-defined way forward that makes it much more likely that companies will survive and thrive, and at the same time, this path can create widespread prosperity and a more sustainable future for the planet.

Successful post Covid-19 businesses will do two key things well. First, become highly effective digital explorers and entrepreneurs, harnessing these powerful digital technologies to create new value.

Second, companies will need to build their enterprises in an empathetic and ethical manner. This involves innovating to create better solutions to the world’s problems, while also being mindful of the broader impact that you and your business have on people, and on the planet.

The present pandemic is of course triggering its own economic epidemic, and with it is accelerating the adoption of digital technologies.

We may get rid of coronavirus, but what about the robots we used to fight it?

We have seen this with consumers, even those averse to technology, embracing digital communications to stay in touch with friends and family, and in the most rapid business transformation that we’ve ever seen: more change in weeks than we’ve seen in years.

It is also reshaping business innovation. One digital technology, 3D printing, has already shown its mettle early on in Italy: Cristian Fracassi and Alessandro Romaioli used their 3D printer to create unofficial copies of a patented valve, which was in short supply at Italian hospitals.

In the US, it typically takes tech giant Apple a couple of years to design a new product and set up the supply chain. In just a couple of weeks it reimagined the face mask, spooled up production, and in a striking departure, published the blueprints for anyone to use.

It’s not just tech giants. In rural Shropshire in the UK, Ricoh 3D has collaborated with a community benefit society to quickly produced a vital piece of PPE gear – its own version of a face mask. In another example, seven Formula One companies came together in Project Pitlane to conceive of and create a breathing aid in less than a hundred hours.

This is just the leading edge of a shift towards more virtual cooperation, open innovation and the use of new digital technologies for rapid protoypting and even volume production.

This may become one of the keys to success in the post-pandemic epoch as supply side shocks see some specialist suppliers fail, with the shock from this reverberating back down the supply chain.

Sustaining this revolution in behaviour and technology adoption won’t be easy. Things that are worthwhile rarely are. Change is hard.

It is worth remembering that in the aftermath of the extinction event 66 million years ago, not all the dinosaurs became extinct – the birds survived.

It is time to take flight.

Michael Davies is visiting lecturer for Strategy and Entrepreneurship at London Business School