Labour market change

Reinventing business models in a pandemic: Necessity is the mother of invention

The COVID-19 pandemic presented companies with a sudden and unpredictable set of events that put their revenue sources in peril. Faced with lockdown, some had no option but to shut up shop. Others saw a way through by reinventing themselves to respond to physical distancing requirements, changed customer demands or disrupted supply chains. Necessity being the mother of invention, these businesses rapidly revised their business models. Interestingly, this happened not only among young, agile enterprises in innovative sectors, where nimble-footed solution-finding is expected, but also among long-established and large market players whose reaction times are often slowed by path dependency and rigid decision-making structures.

The profit formula: Keeping a revenue stream

One response was to focus on adjusting the business to maintain revenue, which happened most visibly in the hospitality sector. Restaurants, prevented from providing sit-in meals, shifted to offering just takeaway or delivery service during the lockdown, aided in some countries (Ireland, for one) by the easing of regulations that had previously limited such services. Successful food providers were those quick to reorganise their kitchens, the type of dishes on offer (not everything tastes or looks good after a bike-trip!) and the way the workers moved in the workspace.

With the lifting of lockdowns, many restaurants are trying to create sustainable business models compatible with the physical distancing requirement, which looks like staying in place for the foreseeable future. Coffee shops in Dublin, for instance, can be profitable only if they cater for takeaway exclusively or if they reopen at full capacity, especially given high rents in some areas, according to a representative of the Specialty Coffee Association. Anything in between is not profitable for many. One clever innovation by Vilnius restaurants to comply with COVID-19 regulations has been the placing of mannequins on seats, helping to ensure customer distancing while making the restaurant seem busy. In some, the mannequins have been dressed by local designers to advertise their clothing lines, showing some potential for cross-industry cooperation to keep business afloat. [1] They may fall foul of the health and safety authority, however, because of the difficulty keeping them clean.

Customer value proposition: What do customers want and how do they want it?

Another response was to focus on identifying changing customer needs and readapting rapidly. The most obvious example is the fast shift in the textile and clothing industry – one of the most traditional manufacturing industries, which is struggling to survive in the global market – to producing personal protective equipment (PPE). In Austria, textile companies (such as Herka and Wirtex) helped to alleviate the shortage of face masks for medical staff and for the general public. [2] In the Veneto region of Italy, 36 factories had converted part of their production to either PPE or hand sanitiser by the start of April. [3] The need for more rigorous sanitisation regimes prompted the Tyrol-based waste-disposal company DAKA to repurpose snow cannons for disinfecting large areas like train stations or production halls. Customers also want to see hygiene measures in place, and consumer associations are recommending shopping or dining only in places that clean regularly and encourage physical distancing.

Hotels expanded their offering by renting out rooms on an hourly basis, previously unimaginable because of the reputational risk. During the lockdown, however, the option was taken up by ‘home office-workers’ who could not concentrate at home or who did not want to disturb their neighbours (such as opera singers needing to practise). However, the hotels do not see hourly rentals as a long-term solution and put these arrangements in place more as a service to the community rather than a sustainable income stream.[4]

Even companies with developing business models – like those operating in the platform economy – were compelled to review their service offer. Faced with a substantial drop in demand for taxi rides, Uber, for example, has expanded the services on offer and is now delivering products such as medication.

The rise of online

The switch to online delivery has been one of the most striking responses to changing customer need. We’ve seen an explosion in the internet experience of education and culture as education providers, conference organisers, the creative industries (museums, operas and so on) and leisure industry actors (gyms, dance coaches and yoga instructors, for example) have migrated their offering online, initially for free to entice an audience and after as a paid service. [5] This has not come without a cost, however, and the investment that businesses have had to make in professional technical support and content production as well as promotion should not be neglected. With the easing of lockdowns and a progressive return to face-to-face activities, these companies will have to revaluate their cost structure and balance their online and offline offerings.

Healthcare has followed other sectors into the virtual world. Despite reservations about their ability to diagnose remotely and the lack of a legislative framework, GPs widely switched to phone or videocall consultations. Doctolib, a growing French tech company that develops appointment-scheduling software, reported that use of video consultations soared on their platform during the pandemic when the company offered free-of-charge service to French and German doctors, leading to 2.5 million online appointments. After the easing of the restrictions, in-person appointments returned to February levels. [6]

Back in the physical world, one characteristic of the lockdown and post-lockdown retail experience is the outdoor queue: people are expected to wait in line for their turn in almost every shop. Digital solutions such as apps allowing customers to book a slot and avoid the queue have been mushrooming (and will also be used in amusement parks such as Eurodisney). Queue-management has not been limited to bricks-and-mortar shops: during the lockdown, online retailers selling high-demand products used virtual queues to avoid visitor overload on their servers.

Key processes and resources: Keeping the jigsaw together

Many of the front-end innovations described above require adaptations to internal processes. A good example is the redeployment of staff. Retail outlets, for instance, need to optimise customer flow in front of and through their premises, which means assigning staff to the task of directing customers. Staff also need to be reallocated to hygiene duties – cleaning high-contact surfaces and shopping carts, ensuring the store is ventilated and so on. The other example of redeployment, of course, was the shift of staff to their homes in the mass switch to telework.

Some e-commerce companies were able to scale their activity quickly, chiefly the e-commerce giant Amazon, by increasing their technical capacity, adapting their website and improving other key processes like logistics. However, this was not immediately feasible for smaller market players lacking expertise or financial and human resources. But even Amazon, under pressure of escalating demand, had to review some of its processes, such as temporarily suspending coupons, product recommendations and promotional deals in an effort to diminish the amount of goods to be shipped and the number of workers needed in warehouses. [7]

China becoming the single point of failure in the global supply chain system for many products has prompted some firms to reshore production of certain items. For example, the French company Biosynex, a manufacturer of rapid diagnostic testing, has moved part of the assembly of its COVID-19 screening tests to its Illkirch-Graffenstaden site in the Bas-Rhin region, creating 100 new jobs. The company has already signed a purchase agreement for a manufacturing robot, which alone will produce one million tests per month. According to the CEO, this will bring the site productivity on par with Chinese competition. China will continue to supply the raw material, nevertheless – the antibodies at the heart of the system.

The big question: What do we learn for the future?

European businesses are often criticised for being old-fashioned and having limited innovation potential, particularly when compared to other regions of the world. Traditional industries have lost much competitiveness in the global market, and in the transition to the digital age, Europe is seen as lagging behind other world leaders in the development and deployment of advanced technologies.

As bad as it is from a health, societal, economic and labour market perspective, the COVID-19 pandemic has illustrated that both the long-established market players as much as those at the cutting edge can quickly adapt and find solutions to provide products and services to the market and make them accessible to their customers. The potential of digitalisation has come to the fore. Digital solutions have enabled companies and workers to keep working in a way that would have been unthinkable even 20 years ago.

But more generally, the crisis has shown that innovation potential is not lacking in European business and can be activated when the need arises. From a policy perspective, it would be a worthwhile exercise to explore how these adaptations were made so swiftly during the emergency and to identify the factors that enabled and hindered change, to learn how to capitalise on this often-dormant potential. The knowledge acquired could be used to foster creativity in normal times and not just when there is no other choice.

Image © Jennifer M. Mason/Shutterstock


References

  1. ^ Euronews (2020), Coronavirus: Vilnius restaurants use mannequins to encourage social distancing, 21 May.
  2. ^ NÖN.at (2020), Textilfirmen helfen mit Masken aus: Mitarbeiter gesucht, 25 March.
  3. ^ Il Mattino di Padova (2020), Ecco la mappa interattiva delle aziende venete che si sono convertite all'economia da Coronavirus, 6 April.
  4. ^ ORF.at (2020), Hotel als Alternative fürs Homeoffice, 8 April.
  5. ^ Panorama Audiovisual (2020), Nueve claves sobre la adaptación de los modelos de negocio de las empresas culturales por el COVID-19, 15 April.
  6. ^ Doctolib (2020), Forte hausse de la prise de rendez-vous médicaux depuis le 11 mai, en raison notamment d’un ‘effet rattrapage’ après 2 mois de confinement (PDF), press release, 19 May.
  7. ^ Wall Street Journal, Amazon targets fall for Prime Day as it tries to return to pre-pandemic operations, 21 May.

A investigação realizada antes da saída do Reino Unido da União Europeia, em 31 de janeiro de 2020, e posteriormente publicada, pode incluir dados relativos aos 28 Estados-Membros da UE. Após esta data, a investigação apenas tem em conta os 27 Estados-Membros da UE (UE28 menos o Reino Unido), salvo especificação em contrário.

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