The disruption impacted everyone but not everyone responded equally well. The pandemic, like any crisis, created winners and losers that ultimately can be traced back to a few factors. Here is my summary of what drove the changes in remote value creation.
The story of business during the pandemic was the story of disruption but also ingenuity. The businesses that came out stronger took advantage of the disruption to completely reset their business models. They created leaner, more customer-centric operations. They focused on the customer's needs and eliminated all other distractions. From a value creation perspective, there were great lessons in how remote work became remote value creation and a complete reset for business.
Here is how.
The disruption impacted everyone but not everyone responded equally well. With the benefit of hindsight, we can now see the patterns that were hard to see in the middle of the chaos.
Accenture's Trend 2021 report speaks of the experience as Collective displacement and Do It Yourself Innovation when the known business playbooks and processes no longer work and people scramble to adopt.
Covid was the perfect storm that accelerated some of the value creation trends that emerged with telecommuting, self-directed work-teams, labor arbitrage, and digital transformation.
The pandemic, like any crisis, will create winners and losers that ultimately can be traced back to a few factors. Here is my summary list of what drove the changes in remote value creation:
1) Business Model Reset
The disruption affected every business and the traditional playbooks were useless. Whether your demand disappeared overnight like in the travel industry or your demand quadrupled like in sports equipment - you had to take immediate steps to change your business model or you would be out of control. Oftentimes figuring out the necessary pivot came from the edges of the enterprise and not from a central bureaucracy. Buyers started fixing the supply chain with creative vendor arrangements.
Customer-facing teams reset customer expectations, negotiated new remote service and delivery models. Often all this happened in a decentralized fashion. Localized actions replaced centralized playbooks. Companies where such localized innovation and action were encouraged fared much better than those where employees expected all answers to come from corporate.
2) Productivity Boost
The first few months of the crisis caused productivity drop as employees moved remote, customers and supplier interactions became virtual and everyone learned to conduct basic business. What is interesting that after 6 months remote employee productivity was up to 40% higher than in normal times according to some studies. Absenteeism dropped by 40% and labor-related profitability surged by over 20%. A lot less time wasted in the office and commute. Also, people found digital communication and task collaboration more efficient than those from before the crisis.
3) Massive cost savings
Many companies saw massive cost savings especially in SG&A. Travel and marketing costs were reduced by as much as 30-50% due to remote work. When employees could work from anywhere then they could be hired anywhere.
There was a significant opportunity in global talent sourcing and remote labor arbitrage by as much as 10-15%. The productivity increase mentioned earlier allowed for fewer staff across the same processes. Also, processes were digitized at a rapid scale during the crisis. All of this led to 20-30% process-related labor cost savings reported at some companies. In urban areas eliminating an hour or two commute time increased overall labor capacity by 10-15%.
Now, cost savings can be quite sticky. Think about it, very few companies want to increase their costs again by 20-30%. There is a massive incentive to sustain the savings, digitize and automate the new reinvented workflows.
4) Workflow innovation
When the normal playbooks got discarded businesses came up with new ways to service customers and keep their supply chains or service teams operating. A lot of the innovation happened at the edges of the company by those interacting on the front lines so to speak. We have seen the emergence of new, more efficient workflows as remote workers invented new ways of producing results.
These new workflows are the value creation gold because they sustain the productivity gains and cost savings. Making them digital and automated is the key to keeping the new higher-level profitability sustainable. This is the key to remote value creation.
5) Trust in Remote Work
What was amazing is not only that businesses pivoted and were thriving in the crisis. It was amazing that trust in remote workers actually increased in high-performing companies.
The numbers of check-in meetings and task inspections gave way to Slack or Teams channels for transparency and to better analytics for information updates.
Businesses learned to trust their remote workers to get things done. And when they did deliver the results then leadership started to trust the new lower-cost processes to deliver the same customer outcomes as before. Trust in the processes will make them sustainable.
So will the productivity gains and lower cost operations lead to long-term value? Is there a permanent shift in the value creation calculus?
My prediction is that companies that digitize and automate the new ways of operation will never go back to the pre-Covid inefficient processes.
More importantly, they will have a lower cost and more digital business model which is really hard for competitors to beat.