Surviving and thriving post Covid-19
Whilst the focus of companies was to survive in the face of the pandemic, we are now seeing increasing numbers of Saudi firms ask the question: how can they thrive in the post COVID-19 era?
As we emerge from lockdowns and the associated economic damage, firms are increasingly looking at what strategic and transformational steps they can take to ensure that they come out from this crisis stronger, leaner, and better able to capture the opportunities that are being presented before them.
According to a recent IBM study which surveyed nearly 3,500 global businesses, 38% of executives had said cost management was a priority two years ago, we now see 87% of executives focused on this over the next two years; and similar percentages focused on cash flow and liquidity management. So it’s not about cost-cutting. Rather, it’s about cost and value transformation.
For many of us, COVID-19 was a wake-up call, forcing organizations to review their inefficiencies, dependence on manual labor, and an unwillingness to apply the productivity levers, such as outsourcing. As revenues declined and market uncertainty increased, firms are being forced to challenge many of these long-standing assumptions in order to remove cost and become more agile and efficient.
It is evident that the global pandemic has forced businesses and governments to speed up digital transformation – in many cases, completing in weeks what may have in the past taken months or even years. We have all seen how some retailers were brought suddenly into the digital world and, conversely, how those firms that were already engaging with the market via a digital channel were able to continue to operate and, in some cases, even grow.
Many of our larger firms in Saudi Arabia have evolved organically, through acquisition and expansion, to reflect conglomerate-like structures: many operating companies doing many things whilst all ultimately reporting to a common ownership structure. As a result of this organic growth, there is often a tremendous amount of overlap and redundancy in the back-office functions of these firms. For example, there might be Human Resources teams in all of the subsidiaries along with dedicated finance and even procurement organizations. By moving to a shared services model, these functions can be consolidated, driving economies of scale, process standardization, better compliance, and, if outsourced or moved to a lower cost center, labor arbitrage. This is something that many firms, around the world, have benefited from and which I believe Saudi firms, particularly conglomerates and family-owned businesses, can benefit from.
Similarly, the adoption of artificial intelligence, machine learning and automation is growing. Many firms are applying these technologies to their companies’ core business processes, making them more efficient, responsive and intelligent. For example, companies can automate business processes that are labor intensive and requires many manual steps, thus freeing up their people to focus on higher value activities and achieving greater throughput, scaleability, and resiliency.
Historically, many firms have been able to achieve savings through outsourcing: using labor arbitrage to reduce the cost of delivering non-differentiating services and functions to the firm. However, as IBM, we are seeing clients increasingly take advantage of a new generation of outsourcing capabilities that brings together digital platforms, hybrid cloud, and advanced automation – delivered by global pools of specialized talent provided by companies such as IBM Services. This combination can deliver not just significant cost savings but also give firms access to a rich portfolio of capabilities that can also deliver, for example, improved resiliency or faster time to markets for digital products.
This then brings me to the cloud; another technology that I am seeing increasing numbers of Saudi firms adopt. In the immediate aftermath of COVID-19, all of us, in some sense, moved to the cloud: using cloud-based video conferencing, cloud-based education platforms, cloud-based document sharing and signing, and more. For companies that had to quickly establish distributed call centers or chatbots, the cloud provided them with a fast path to do so, without needing to procure hardware or go through a lengthy procurement cycle with vendors. We are seeing more and more firms of all sizes look at how they can move more and more workloads to the cloud.
By doing so, they do not only shift from CAPEX to OPEX but can also take advantage of the elasticity that cloud offers. Whereas before, they would have procured hardware, rented or provisioned some data center space, and managed it, they can simple access "on demand" now in the cloud. This is particularly impactful when we consider that, in many cases, the infrastructure that we have in our data centers isn't fully used. This might be due to over provisioning or due to the seasonality of demand: for example, we buy enough hardware for eid surges but it isn't fully used for the rest of the year. Cloud is allowing firms to reimagine the cost structures associated with IT at the infrastructure level and, if we think higher up the value chain, by moving more and more functions to the cloud, firms can get immediate value.
It would, of course, be short-sighted to characterize the cloud as merely an enabler of cost optimization. Increasingly, the cloud gives us access to the building blocks for our businesses; allowing us, using a consumption-based model and a credit card, to access the most advanced computing capabilities on the planet without having to invest in the underlying technology or skills to build and operate them. For example, the next generation of computing technology known as Quantum, is today available from the cloud for anyone to access and use. The benefit for Saudi firms here is more profound as it will allow us not to just survive but to thrive: using all these exponential technologies to reimagine our businesses and drive a higher level of digitisation and global reach at lower marginal cost.
As a country, we are well-placed to not only survive but thrive post the pandemic. This is, of course, not by accident but truly due to the investments made previously by the private and public sector, in infrastructure such as high-speed broadband or a business-friendly regulatory environment; as well as the effective leadership of our government in responding to the crisis. COVID-19 was, however, an accelerant: forcing us to move faster and with more confidence into new technologies and business models.