Erica Spinoni (Research Analyst)
Danielle Hernandez (Senior Research Analyst)
Philip Carter (Chief Analyst, IDC Europe)

The impact of COVID-19 will be felt in European business for some time. This pandemic has created unprecedented turmoil in the economy at a time when authorities in the region have limited financial firepower to ease its negative consequences. The deadly combination of a large amount of outstanding debt and interest rates close to zero is limiting the capacity of monetary policy to stimulate growth. The impact is an accentuated downward trend of European GDP growth. In the last quarter, the economy grew only 0.1% — the weakest growth since 2013 — and the rest of 2020 looks increasingly concerning. IDC believes that this situation will force European organizations to develop their digital strategies with “bottom-line obsession”.

 

Figure1: European GDP Growth

European GDP Growth rate

 

COVID-19 Has a Minor Impact on Digital Investments

Moving forward, technology will play a critical role in the recovery of the European economy. As the pandemic has highlighted the potential of digital to multiply our productivity with automation, intelligence, and connectivity. Therefore, regardless of the imminent economic downturn in Europe, organizations in the region will continue to invest in their digital initiatives — but the pressure on financial outcomes will increase.

IDC’s research shows that the growth of spend on digital technologies will be a third of our pre-corona–crisis forecast (Dec 2019), but the recovery will be fast, since the increase of spend on cloud, 5G, and collaborative tools will make up for the decrease in investment in other digital technologies.

 

Figure2: European Enterprise Spend on Digital Technologies

European Enterprise Spend on Digital Technologies

 

Bottom-line Obsession: Every Single Dollar Counts!

The imminent economic downturn in Europe has only a slight impact of the nominal spend on digital technologies, but it is sending a clear message to business leaders: the era of digital experimentation is over. What comes next? The Era of the Bottom-line Obsession.  It is time to bring financial discipline to digital initiatives!

Over the past decade European firms have invested billions on pilot projects to test the potential of digital technologies. However, the majority of these projects never scaled because they were created in isolation, with little or no coordination with the broader organization. The outcome is a massive waste of resources. In 2019 alone, companies in the region invested $256 billion on digital initiatives, but only 26% of those organizations delivered ROI from digital investments. Nonetheless, the economic downturn is refocusing digital strategies in the region towards the delivery of profit growth.

 

The Ultimate Balancing Act: Profit & Risk

Profit is of utmost importance, but even in the era of bottom-line obsession, profit growth isn’t the only metric that matters. The coronavirus pandemic has showcased the weakness of global value chains. The just-in-time approach that business schools swore by in the 90s enables cost efficiencies but is not fit for the new normal. When global pandemics, trade wars, political upheaval and climate changes become the norm, just-in-time practices leave organizations unprotected against sudden shocks and supply shortages – unless they can adapt in real-time to these conditions.

Covid-19 has a tangible impact on production in European organizations due to a lack of flexibility of their logistic processes. Manual processes have stopped most companies in the region from shifting suppliers and order volumes when COVID appeared on the horizon. The manual nature of inventory management also impairs end-to-end visibility along the value chain, obstructing business leaders from reacting to threads beyond the first tier of suppliers.

IDC believes that value chain digitization will become a top priority for European organizations. The confluence of IoT, Cloud, 5G, AI and RPA has the potential to optimize the whole process from raw material to product/service delivery, in order to reduce cost and risk along the value chain.

 

The Key to Success in Times of Uncertainty – Unwavering focus on Business Outcomes

The era of digital experimentation has given us some valuable lessons, but big question marks on the business value delivered by digital initiatives. If you are a digital leader, your sphere of influence will potentially grow in 2020 and beyond, but the new normal requires a new mindset. In case you are still wondering which areas of your business are ideal for adoption of disruptive technologies, we invite you to start asking different questions to uncover the potential value that digital initiatives can deliver around three critical areas: profit, risk, and time to market.

The figure below shows that only a few organizations in Europe have generated value across profit, risk and time to market.

Figure 3: Limited Delivery of Business Value across Profit, Risk and Time to Market linked to Digital Transformation

IDC Digital Executive Sentiment Survey

Source: IDC Digital Executive Sentiment Survey, 2019 N=379

Source: IDC EMEA, Multicloud Survey, Multiclient, August 2019 N=664

 

IDC recommends that organizations ensure that every new digital use case that is being discussed in these uncertain times has the potential to deliver on at least one of these business metrics in a significant fashion by the end of 2020.

Conclusion

As Covid-19 fundamentally shakes up how we live, learn, socialize and work, governments across Europe are taking drastic measures to keep citizens safe and healthy. IDC believes that the response of organizations in these uncertain times will shape the market perception of their brand in the next 10 years. Therefore, Corona-Kindness has emerged as a theme in the European enterprise context, as many firms are proactively looking for innovative ways to help their customers in this situation. IDC believes that organizations will have to redefine value at three levels:

  1. Financial Value: As highlighted earlier – the bottom-line obsession for organizations linked to digital investments will become the new normal in this time of crisis. By the end of 2020, there will be a requirement to deliver top-line and bottom-line performance in line with market expectations. CEOs will continue to be measured at this level, regardless of the current circumstances.
  2. Ecosystem Value: Relevance (and performance) in the digital era is not just about capitalizing on unique core competencies. It is also about linking with key partners, suppliers, emerging start-ups and even competitors in the ecosystem to get to scale.
  3. Societal: It is becoming clearer that it is not just about doing well (i.e., financially) as an organization but also doing good. Examples of Corona-Kindness leveraging technology are proliferating the industry. And this is a fantastic development. But it goes beyond COVID-19. It needs to become part of environmental, social impact and broader sustainability discussions to deliver the required effect over the longer term.

Delivering business value at these three levels will only be possible for organizations that leverage the power of technology to maximize productivity, drive collaboration with the ecosystem and share resources with the community. Hence, IDC believes that Digital Transformation initiatives will accelerate post COVID-19 as the new normal will increasingly be ‘Tech Everywhere’.

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If you want to know more about how COVID-19 will affect the European IT Market, see more resources here.

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