Professor Irene Bertschek, head of the ZEW Research Department “Digital Economy”, explains in an interview what role the digitalisation of companies plays in their resilience to the crisis, and how different industries can react to the markedly changed conditions.
Companies were not prepared for the COVID-19 pandemic and the resulting months of emergency measures. What role does digitalisation play in crises?
The coronavirus crisis has shown that digitalised companies can react more easily and much faster to rapidly changing conditions. Digital companies have been able to offer and sell products and services online more quickly, allowing their employees to continue working from home, and video conferencing has effectively become the gold standard for business communication during the crisis. This crisis resilience via digitalisation was, however, already observable in the financial crisis of 2008/09, as one of our ZEW studies has shown. Back then, highly digitalised companies had experienced significantly lower productivity losses than companies with a low level of digitalisation.
Highly digitalised companies are proving to be more resilient to crises. What does this mean for the coronavirus crisis?
This means that digitalised companies are more adaptable both at the beginning and during a crisis and when economic activity picks up again, as is now the case after the lockdown. But this is not the case in all industry sectors. The business-related services sector has an advantage here, for example. An engineering office or insurance company can stay in touch with their customers by offering their services online; working from home facilitates this model quite well. Consumer-related industries on the other hand, such as the restaurant trade or hairdressers, have a much harder time, as their services are created in-person with the customer.
Some sectors are obviously worse off than others. What opportunities do consumer-related service providers such as innkeepers and hairdressers have?
Innkeepers and hairdressers experienced a complete collapse in demand, as they had to wait until they could resume their business activities in compliance with protective measures. Digitalisation can help them remain visible via online advertising or, as has sometimes happened in the catering sector, by offering food and drinks for delivery, but digitisation isn’t as big of a benefit here as it is for the business-related services sector.
And what does this mean for manufacturing companies?
In the manufacturing sector, companies that had already automated their processes (e.g. by using robots in production or in warehouse logistics) definitely had an advantage. Otherwise often spurned as job killers, robots help to maintain distance between colleagues during the coronavirus crisis. However, many manufacturing companies are having to contend with a sharp drop in demand at home and abroad, or with supply difficulties; digitalisation can at best cushion the effects of the crisis here.
So, can the crisis be a catalyst for more digital work and technology improvements in other companies?
The coronavirus crisis has clearly given the German economy a push towards digitalisation, and much of this, such as remote work arrangements, video conferencing and online sales, will probably continue – at least in part – even after the lockdown. This is, however, not enough. Companies should be taking this opportunity now to make necessary investments and restructure accordingly. Digitalisation alone cannot prevent the negative effects we are currently experiencing, but it can cushion the blow, contributing to overall crisis resilience.