The COVID-19 crisis has caused years of change in the way companies in all sectors and regions do business in just a few months. According to a new McKinsey Global Poll of executives1, their organizations have accelerated the digitization of their customer and supply-chain interactions, as well as internal operations, by three to four years. And the proportion of digital or digitally enabled products in their portfolios has increased by a startling seven years.2 Well almost all respondents stated their companies have put in place at least temporary approach to satisfy many of the fresh demands placed on them, and much more quickly than they had anticipated before the crisis.
Furthermore, respondents anticipate that the majority of these changes will be long-lasting and are already making the types of investments that will almost certainly ensure their persistence. In fact, when we asked executives about the impact of the crisis on a variety of measures, they said that funding for digital initiatives has increased more than anything else—more than costs, the number of people in technology roles, and the number of customers.
To remain competitive in this new business and economic environment, new strategies and practices are required. Our findings indicate that executives are paying attention: the majority of respondents recognize technology’s strategic importance as a critical component of the business, not just a source of cost efficiencies.
At both the organizational and industry levels, digital adoption has skyrocketed.
Consumers have shifted dramatically toward online channels during the pandemic, and businesses and industries have responded in kind. The results of the survey confirm the rapid shift toward interacting with customers via digital channels. They also show that adoption rates are years ahead of where they were in previous surveys, and even higher in developed Asia than in other regions (Exhibit 1). Respondents are three times more likely now than before the crisis to say that at least 80% of their customer contact are digital.
Technology and urbanization as key retail business drivers
The developing world’s urbanization has been dramatic. Between 1950 and 2015, the total urban population in developing countries increased tenfold, from 300 million to 3 billion, with the urban share tripling from 17 percent to 50 percent (United Nations, 2013). Jedwab et al. (2015) examined the rate of urbanization in developed and developing countries. Overall, there are many parallels with the urbanization process of developed countries in the nineteenth century. However, the author points out significant differences. For starters, urbanization has accelerated in today’s developing world.
With the advent of the Industrial Revolution, urbanization in Europe accelerated, rising from 15% in 1800 to 40% in 1910. Africa and Asia both achieved the same rate in half the time. Second, while income growth and urbanization are highly correlated (Henderson, 2010), higher levels of urbanization are now observed at low income levels (Glaeser, 2014). In 1960, for example, the 35 countries with per capita incomes of less than $2 per day had an average urbanization rate of 15%. (Wdi, 2013). In 2010, the average urbanization rate in the 34 countries with comparable incomes was 30%.