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The 2021 Digital Investment Imperative
January 5, 2021 |

The changes to business and everyday life wrought by COVID-19 and the subsequent economic downturn, should be accelerating digital transformation for every organization on the planet. 

We should be seeing investment in efforts to redefine and reimagine traditional offerings.

 While I have certainly read journal articles paying homage to this orientation, what I am seeing as the CEO of a digital agency, is a lot of pre-pandemic thinking.

  • I see organizations rebuilding the websites they have to;
  • I see organizations rebranding themselves and reworking their web presence to align;
  • I see organizations retooling and replatforming.

What I don't see enough of are organizations rethinking their digital strategy and positioning themselves differently for the world to come.

Perhaps 2020 was just the initial reaction to crisis?

For most of 2020, businesses were in reaction mode. In my experience, in the face of crisis, businesses take a series of self-protective responses that follow a fairly predictive pattern:

Step 1. They retreat from ambitious strategic plans.

  • “That acquisition we were planning has to be scrapped so we can focus on handling this.” 
  • “That expansion strategy into a new market should be tempered and scaled back so we don't expose ourselves to risk.” 
  • “That aggressive hiring strategy will just have to wait.” 

Step 2. They postpone Capital Expenditure (CAPEX) spending.

  • “That new factory or store buildout will have to wait.” 
  • “That budget to build a new product must be redirected.” 
  • “That new IT system can’t happen this year.” 

Step 3. They cut Operating Expenses (OPEX).

  • “We have to trim our IT costs - get rid of those servers and software licenses.”
  • “We have to lower our rent”
  • “We have to eliminate vendors, consultants, and contractors.”

These reactions are logical, rational, and in many cases necessary to preserve focus, capital, and cash (in that order). But, they may also be leading the business into a fatal trap - accelerating a process of retraction and postponing the creation of competitive advantage and innovation.

From a purely financial perspective, the rationale of these leaders is to coast for a while and weather the storm. Spending (and doing) less and saving resources for some point in the future when they can begin to grow again. But unlike “The Dude” in The Big Lebowski, businesses do not just “abide.” Every business I can think of is either subject to digital disruption or at best, suffering from a lack of digital innovation in the meantime and the real leaders will be gaining.

What will make digital investment an imperative?

It is an undeniable fact that every business and industry will eventually accelerate its digital transformation as a result of the changes brought about by this pandemic. According to McKinsey, “Even before COVID-19 hit, 92 percent of companies thought their business models would need to change given digitization.”

Accepting the inevitability of an exponentially more digital world, my quandary is, “what will it take for businesses to begin to invest more heavily in digital to match our new reality?” I believe the answer will be unsurmountable pressure stemming from two factors: competitive threats and shifting customer expectations.

Competitive Threats

This could take the form of a direct competitor who is using the intervening time to strengthen their own digital offerings to gain an advantage. While the cautious business hunkers down, savvy competitors are using the time to re-invest and innovate new products, new marketing strategies, and new channels of delivering their product. 

Competitive threat can also take the form of an alternative product or service that emerges to compete with new markets realities. For example, a network of gyms that relies on physical presence to drive membership without a viable digital alternative to their offering could be losing valuable market share to an alternative way of staying healthy. Customers could become accustomed to Zoom workouts or home workouts or even a completely new form of exercise like running or cycling that competes to serve the same “job to be done” for the customer.

Shifting Customer Expectations

The longer our work, schools, and social lives operate out of our living rooms, the greater the expectation will be set by consumers that everything they do in their lives must be digitally optimal. I am not talking about having a website where you can reach an organization, but real, meaningful interaction - I can pay my bills, schedule my appointments, get help, content, and services online. 

Together, these two factors will result in a fait accompli on digital channels. Soon enough, life will be digital first, physical second. Those that cannot adapt their business models to this paradigm risk obsolescence.

My hopeful and simplistic prediction for digital investment

For sure, we have all become armchair economists in the time of COVID-19. I confess right now I am indulging in this type of conjecture like everyone else. We pontificate about which businesses will be the winners and losers coming out of this pandemic, but the vast majority of us lack the complete context to predict what will really happen.

My hopeful, albeit simplistic, prediction is that meaningful digital investment that leads to true transformation will follow a sort of “stages of grief”-type pattern.

Stage 1. Shock 

When COVID-19 hit, businesses began the predictable cycle I explained earlier of 1) Retreating from ambitious strategic plans, 2) Postponing CAPEX spending, and 3) Cutting OPEX spending. This created a superpression of valuable digital investment.

Stage 2. Normalizing

I believe we are now in a state of normalizing, where survival mode wears off and businesses begin to react to the new reality. There is now some degree of discretionary spending capacity to direct (or redirect) towards digital investment.

Stage 3. Change

When in time, the realities of 1) competitive threats and 2) shifting customer expectations are properly processed by leadership teams charged with strategy, they will inevitably double down on the necessity for new digital strategies which will create a rebound in digital investment.

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Chart showing potential digital investment in 2021

 

I believe it is our responsibility as digital strategists, leaders, and consultants to help businesses in all industries make the case for this investment to ensure their survival and future success. 

If you have your own observations or ideas about the patterns I am describing, I am interested in hearing from you. I can be reached on Twitter or LinkedIn.

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Jeff brings over 25 years of Internet, software, and consulting experience to leading Phase2. In his role as CEO, he sets vision, focus, and direction for the company and leads efforts to define the services we offer and markets we serve. He plays key roles in strategic partnerships, client acquisition, client success, and talent development.

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