The speed and scale of the pandemic’s spread and the resulting lockdowns are shocking. While governments have strived to control the transmission and put in place vital medical and economic support, the private sector also has a critical part to play in helping everyday life go on. As much of Europe moves from the early firefighting to the next stages of the response, the role of business innovation will continue to be important both in reconfiguring the economy and in supporting the state.
More than two months passed between the outbreak of Covid-19 in China (December 2019) and the World Health Organization’s declaration of the disease as a global pandemic by on 11 March 2020. As of today, more than a third of the world population is in lockdown of some sort. Despite having more than two months to prepare, the fast spread of the coronavirus took almost all of us by surprise.
In the early weeks policymakers focused on controlling the spread of the disease, increasing the provision of medical care and developing packages of economic support. No segment of the economy has been untouched by the crisis. Some businesses have had to shut down operations entirely, others have had to scale up massively, and many have sought to redeploy people, inventory and productive capacity in hitherto unthought of ways. Many have had to transform their operations at lightning speed while safeguarding their employees. As a result, the private sector has played a critical role in ensuring that the bulk of the population have access to food, essential supplies and money and are able to stay in contact with each other and the outside world.
Since the financial crisis in 2008 much has been made of the failings of capitalism. Concerns about the power of big businesses have been widespread. Yet across much of Europe the public perception of supermarkets, banks, broadband providers, mobile phone networks, social media platforms, online retailers, food delivery services, courier networks and (a surprising number of) video-calling applications has changed abruptly. In the UK many frontline staff in these businesses have rightly been awarded “key worker” status in recognition of the essential role they are playing.
We are used to hearing about the ways in which agile working practices, a fast-fail mentality and the ability to pivot business models have enabled rapid innovation and growth in the tech sector. In recent weeks we have seen the same – if not greater – speed of change and flexibility brought to more traditional supply chains and physical operations. A few examples of what has been achieved to keep the supply of food and money flowing show the scale of these changes.
Keeping the shelves stocked
The shifts in demand faced by retailers and the rapid operational changes needed have been unprecedented.
- As restaurants and bars have closed and people have taken to working from home, between 20% and 30% of calories consumed have migrated from the hospitality sector to grocery. Adding this to customers’ stockpiling in advance of a lengthy period of lockdown or full isolation means that supermarkets have had to reconfigure supply chains to meet weeks and weeks of pressure far in excess of the annual peaks for which they were designed.
- At the same time, they have had to manage this challenge with rising levels of staff sickness and sweeping changes in working practices to safeguard their staff and customers. Recruitment and training processes that used to take weeks have been boiled down to hours in order to keep food shelves resupplied.
- While grocery retailers have been dealing with massive increases in demand, other sectors have been forced to close stores and outlets. In some cases businesses have been able to move staff to other roles (in the UK the John Lewis Partnership has transferred employees from its department stores to its supermarkets), and we have seen innovative attempts at mass secondments from hospitality businesses into grocery.
- The shutdown of the hospitality sector has stranded large quantities of food destined for bars and restaurants in the wrong place. Rapid action and coordination between different businesses has enabled much of this food to be repurposed, repacked and redirected into the retail supply chain.
- Demand for home delivery of grocery and other goods has increased vastly. In the early days of lockdown few anticipated the spikes in demand for office chairs, home exercise equipment and colouring pencils. Keeping staff safe in distribution centres and doing doorstep deliveries has needed new working practices, while the volumes moving through home channels have grown substantially. Many online retail platforms have had to cope with levels of demand more usually associated with denial-of-service attacks. Simply keeping the websites and apps running has been challenging in itself.
- Many retailers continue to look for innovative way to give precedence to customers most in need. These range from reserved time windows for vulnerable customers and key workers to prioritising home delivery slots. Retailers have also stepped in to fill the gap faced by food banks and charities supporting the most disadvantaged.
More money, less cash
Providing financial services under lockdown, responding to customers’ fast-changing habits and safeguarding employees is a huge challenge. Doing so while shifting very large numbers of office-based workers to home working makes it even more so. As large numbers of customers have faced loss of income and the government has announced support packages, the urgency of ensuring that everyone can access enough money to buy food and essentials has been acute. Banks and other financial service providers have had to re-engineer processes in hours and days rather than the weeks and months they are used to.
- Like online groceries, many financial service providers have faced spikes in demand well beyond the levels their systems were designed for. Telephone and online banking services have been rapidly scaled up across Europe to deal with the surge.
- Branch and ATM networks are staying open longer to cater to those clients whose needs cannot be met online. Ensuring access for those who are unable to bank remotely remains vital, but it requires careful planning to keep staff and customers safe by minimising unnecessary contact.
- The gradual move away from cash has accelerated, as people have come to appreciate the benefits of contactless payments and more spending has shifted online and to cards. Increasing spending limits and keeping the back-end systems running smoothly has been essential. The card networks and the banking sector acted within days to increase the limit for contactless payments..
- Banks have had to maintain critical functions, including the capacity to trade in wholesale financial markets. This ensures they can attend to corporate and sovereign needs at a time of shifting demand and carry out daily liquidity operations without which the banking system cannot survive. Trading floors at banks do not lend themselves to physical distancing: owing to regulatory, compliance and IT requirements, trading cannot be done from the safety of home. So many banks have made significant adjustments to allow trading to continue while guaranteeing the safety of employees.
- In addition to keeping the cash flowing and the banking system running smoothly, banks have taken on responsibility for implementing, almost overnight, the mechanisms and products designed by public policymakers to help individuals and companies hit by the crisis. In many cases the finer details of these schemes are not fully developed, but banks have prioritised getting support to those that need it most.
- Some banks have gone further to help customers in urgent need. Some of the steps are highly visible – payment holidays, loans, increased credit limits and so on. Others, such as reviewing the order in which payments are made or the timing of direct debits for essential services, are more subtle. The implementation of these measures requires fine-tuning to avoid the long-term damage that would result if clients were unable to repay.
- Banks have quickly realised that cyber-criminals are trying to profit from the change in consumption patterns induced by the pandemic. They have been proactive in identifying the risks of phishing and cyber-attacks and in providing recommendations to customers on how to avoid them.
Of course, innovation and speed of adjustment are not exclusive to financial services and retail. These examples are just intended to show the speed and scale of change in everyday services. Similar stories of flexibility, innovation and rapid adjustment can be seen across the whole economy.
- Telecoms companies have seen dramatic shifts in patterns of demand. Many have removed data limits and adjusted services to help ensure everyone has good access.
- Many utilities have put in place systems to help customers defer payments, to prioritise assistance for service disruption and to keep telephone services running.
- Courier and postal networks have been handling surges in parcel deliveries with reduced staffing numbers while making operational changes to safeguard employees.
- Streaming services and communications platforms have had to respond to levels of demand orders of magnitude greater than seen before, requiring rapid action to scale up their systems.
- The airline industry has had to cope with the mass cancellation of scheduled flights, grounding hundreds of aircraft, alongside the need to repatriate hundreds of thousands of stranded passengers.
- In some countries taxi firms have ferried health professionals for free and removal business have collaborated in setting up field hospitals.
- Manufacturers have rapidly retooled. Household names and smaller innovators alike are exploring ways to shift to producing ventilators; luxury perfume factories are switching to making hand sanitiser; and high-end fashion brands are swapping fancy frocks for facemasks.
Operational changes that would normally take months of planning - many of them unthinkable only a few weeks ago - have been made in days by thousands of businesses across the economy.
The next stages
With lockdowns in place, the focus of government policy is shifting to exit strategies and to the further support packages that will be required to restart paused economies. The need for businesses to innovate and adapt will remain immense. And the private sector will continue to have a key role in restoring our society to full health by delivering critical goods and services, developing technological solutions to new problems and helping to target economic support.
We have sketched out the part played to date by businesses in ensuring access to food, essential goods, money and communications. As governments assess how to relax the shutdowns, companies will need to ensure this access is maintained regardless of whether the restrictions are removed gradually or segmented geographically or demographically,.
The role for technology development has been widely discussed. South Korea’s handling of the coronavirus is one of the few success stories. Its approach rests on three pillars: early detection of cases through extensive testing, widespread resort to face masks to avoid spreading the infection, and the use of data. In particular, South Korea has used positioning data from mobile phones to track the interactions of infected individuals and to focus testing on those at higher risk of catching the disease, well before they become aware they are carrying the virus. Similar strategies are being explored across Europe. Further advances in data tracking and sharing – and the questions about privacy they raise - look inevitable.
Targeting economic support and healthcare is difficult. Before Covid-19 many were worried about the exponential growth of firms’ holdings of customer data and their power to analyse it. Such concerns often centred on the digital economy and its dominant tech giants. But the simple truth is that simply by transacting with customers every day, many tech firms have far better data on the general population than policymakers do. National statistics and surveys have their place, but in a rapidly shifting situation access to real-time data on what money people have, what their needs are and how to reach them could be invaluable. For example, financial institutions are probably best placed to track the evolution of the economy in real time and thereby generate insights that allow governments to make swift course corrections. Armed with timely data, officials could evaluate whether or not policies are working and what adjustments are required to help families and companies in need. If a way can be found for businesses to share their findings with governments the benefits to all are potentially substantial.
In five years’ time the economics textbooks will still tell us that market economies can significantly raise innovation and efficiency. There is every chance that many of the case studies will be inspirational and widely celebrated. Until then we offer our support and extend our gratitude to all those on the front line of business, as well as their counterparts in the public sector.