Covid-19 recovery patterns discussion is hot
Why K-shaped recovery pattern
Because of this Covid-19 health crisis everything around has changed. Schooling, studying, enjoying, buying, working becomes a virtual and indoor activity. Consumer’s attention heads to different type of product/services and distribution channels.
As a result, organizations and overall financial markets were seriously affected.
Organizations already take particular actions, trying to survive to the new normal.
Governments, Institutions, Organizations and Financial markets experts are looking to the next day and trying to explore and make predictions regarding the Recovery Patterns of this unprecedented condition.
L, U, V, W — shaped recovery paths, are the most common predictions/proposals by the economy experts around the globe.
But after almost 12 months of pandemic “experience” and considering the approximate timelines of approved treatments and vaccines, we have foreseen an extended period with social & markets «limitations». It’s crystal clear that governments are not able to give assistance to the markets with adequate liquidity, to fully cover the financial gap caused. Taking into account all those facts, finance markets specialists and opinion leaders introduce a new recovery path called K-shaped recession.
Economists suggest that K-recovery is happening when economy is getting back to normal, in an uneven way, by following two different trajectories. Some segments following the top up-line of K and getting better and some other the bottom down-line and getting worse.
Even Joe Biden, next president of the USA, mentioned the “unusual K shape” during a recent speech in Wilmington, Delaware
K-shaped recession pattern assumes that organization starts from the same point just for typification reasons. Undoubtedly, the majority of organizations have years of pre Covid-19 operations history, with diverse growth strategies. We believe this does not have major effect on the Covid-19 caused, up-line and down-line progress paths.
It is worth to mention that in K-shaped recession template there is no “keep your position” situation. Organizations either prosper or decline. So change is an inherent element of this approach.
A circumstance that engages our attention is that after almost 10 months of pandemic presence and catastrophic consequences, for people and markets, we see that stock/financial markets are getting better or even grow. Instead, people are seriously frustrated as their social and professional life is still bounded. Supply chain of goods and services around the globe are stuck in the Covid-19 mud. That’s arising serious concerns, as according to IMF 85% of the stock market is owned by 12% of households. Markets prosperity, in an environment of pandemic outage and negative employment and GDP indexes, is not a healthy sign for our society’s welfare.
K-shaped recovery pattern classifications
The one million dollar question now is who is going up and who is going down. Additionally, we may ask ourselves if it’s possible to shift from downside to upside and what it takes to succeed on this transition.
The answer here is no straight forward and for sure is multivariate.
Some experts (i.e. Elise Gould, senior economist at the Economic Policy Institute) propose the “haves and have not” approach.
By this approach the “up-line” segment, possesses all the assets that are needed, to protect and feed its progress, until the markets return to a normal situation. For example, people of high income or organizations with liquidity and access to particular knowledge, can maintain their business prosperity. Wealth assets can help to obtain specific attributes (i.e. digital distribution tools, remote working set up) and succeed to pandemic battle. The “down line” segment seems to be in a hard position, as lack of appropriate resources and knowledge access cannot help to adjust its strategy to the new “normal” and consequently have a downstream progress.
Other Institutional experts, following a different approach recommend a “vertical industries preference” pattern.
Organizations from Technology, Software Services, and online Retail seem that can overcome the Covid-19 obstacles and finally have a significant growth by following the “up line” of K-shaped recovery path. During this pandemic period we can find companies from e-Commerce (i.e. Amazon), Communication (i.e. Zoom), Education (i.e. CiscoWebEx), Remote Working (i.e. MS Teams) that not only manage to overcome pandemic new normal but showed an astonishing growth.
Industry verticals like Travel, Entertainment, Hospitality and traditional Retail showed a “down-line” behavior. Their business model was not flexible enough to be harmonized with the new normal, and pandemic restrictions hit those organizations hard. Even if some of those are trying to introduce innovations, like online entertainment events or online gym training, the results are poor and cannot switch from down-line to up-line of K-shaped pattern, or even maintain a neutral position.
K-shaped recovery is not “one size fits all” pattern
Market observations disclose some points of anomalies in K-shaped pattern, always considering “haves and have not” and “vertical industries preference” explanations.
One observation comes from food/hospitality vertical industry.
Let’s deep dive on Domino’s Pizza and Pizza Express organizations behavior during pandemic period. Both organizations belong to the same vertical (food/hospitality) and have more or less the same financial footprint. If we carefully check we will see that Pizza Express closed 73 restaurants and putting 1,100 jobs at risk. At the other side Domino’s Pizza has announced plans to hire 5,000 workers and 1,000 apprentices.
It is a reality that Covid-19 imposes a severe limitation on the store physical presence and strongly boosts orders from home.
In Pizza Express and Domino’s Pizza case we see that one player manages to be harmonized with the new circumstances by using “digital enabled deliveries” and follow the up-line of K-shaped pattern. The other instead, does not manage to shift its core business model from physical stores to digital presence and finally goes the down- line.
Another observation comes from banking industry.
A UK study shows that consumer’s trust in Digital-Only Banks falls during lockdown 3x faster than High Street Banks (14% vs 5%). This is an important observation considering that digital banks were in a better pre Covid-19 position and still have a better customer sentiment score, compared to banking incumbents.
It is worth to mention that according to Brandseye, a social media research organization, Monese (-19,34%) and Barclays (-41,52%) are the negative champions in customer sentiment drop during pandemic,considering digital only and traditional banks.
Consumer’s trust drop, for a fully digitized bank,in the course of a social distancing period, it’s a really surprising discovery.
From Brandseye research becomes clear that throughout pandemic saving rates policies frustrate customers of both digital and incumbents. Communication is the other critical issue particularly for digital banks, with major impact on their consumer sentiment score.
Our initial thought that digital is far better than physical in isolation circumstances now becomes blurry.
A first sight explanation may be that this entire digital automation infrastructure was not able to cover the crowding of consumer’s requests in this short Covid-19 period of time. A more insightful explanation may be that in critical circumstances and for sensitive tasks like those around finance or health, consumers are always looking for a second level of human flavor assistance. Digital banks that support their operations through mobile apps and chabot’s virtual assistants seem to have disadvantages and create frustration to their consumers.
A relevant interesting initiative is this of Google Cloud and Cynergy Bank. Here the idea is to build a cloud platform that will mix the personal relationships of traditional banking with the infrastructure of a digital bank.
From a business model perspective we can find fintech service providers that focus on a niche market and eventually manage successfully to climb the up-line of K-shape recession model. OakNorth bank business model which is focusing on digital lending for particular segments and working in parallel with traditional banks infrastructure, seems to be quite efficient in abnormal periods.
We can say that K-shaped recovery pattern for banking industry in lockdown circumstances is complex and non-comparable for different jurisdictions and product bundles. But in any case we see a clear recovery behavior distinction between digital-native, uninterrupted and seamless banking services and banking organizations with legacy infrastructure and digital-based “heavy” operations. K-shaped pattern can easily interpret Covid-19 behavior of those two banking segments where digital-native follows the up-line and digital-based the down-line.
To conclude we believe that “Digitalization and new Business models” is another K-shaped recovery pattern proposal next to “haves and have not” and “vertical industries preference”. Someone may consider that is very similar to “haves and have not” pattern. We are convinced that “Digitalization and new Business models” pattern is based primarily on corporate culture, then on specific knowledge and finally on assets/resources possession. According to our perspective, a simple ownership of assets is too poor to justify up-line and down-line segmentation
The three sides of K-shaped recovery pattern coin
No matter what is the recovery pattern, our purpose with this article is to discover and better understand what differentiates successfully recovered organizations from the others that are still trying to find their way.
There were always most or least efficient organizations in the markets. Irrelevant to the innovations iterations or the different business evolution paths, we see that organizations with specific business behavioral patterns manage to thrive. An abnormal situation like this of Covid-19 makes things more tense and urgent and usually magnifies obstacles, but does not affect the overall business momentum. The transition from physical to “phydital” and then, for some markets, to pure digital, introduction of intelligent organization through AI deployments and platform business models innovations is a matter of time. Covid-19 gave a lack of time for unprepared organizations.
We are convinced that intelligent digital-native organizations with innovative platform business model approaches fit the up-line path. Digital services portfolio, digital distributions and finally digital accomplishment seems to be the right path to successfully overcome Covid-19 obstacles.
Organizations that are not digital-ready and still based on physical presence, are in the red down-line zone and have to reconsider their fundamentals. If they take no actions they will have existence issues and many probabilities to lose postCovid-19n era.
There are many organizations that are digital-based but their business model is inflexible and struggles to adjust to the Covid-19 restrictions. Companies with complex and/or confusing mobile or web processes are in trouble. Those organizations are in amber zone and upon their strategy modifications can go up-line or down-line. We should not forget that this delicate balance runs out of time. If organization does not take immediate actions will drive to the down-line zone.
Finally, governments should support and boost society and organizations efforts to successfully recover. The best way to do this is by primarily supporting occupation and secondary by helping promising organizations to keep their economic figures healthy.
George Spanos
Digital Strategy & Technology Executive
Platforms Designer / Ecosystems Nurturing
