Why COVID-19 hasn’t stopped digital transformation at midsize companies

July 13, 2020, 7:00 PM UTC
covid-19 hasn’t stopped digital transformation at mid-sized companies
The COVID-19 pandemic fortunately hasn't stopped digital transformation at mid-sized companies, writes Thomas A. Stewart. Westend61/Getty Images
Westend61/Getty Images

As the COVID-19 pandemic rages across the country, causing serious or fatal illness, uncertainty, and job loss for millions of Americans, it is also infecting business income statements, stanching cash flow, and threatening balance sheets. The National Center for the Middle Market (NCMM) is tracking the pandemic’s effect on midsize companies. These are the 200,000 or so American businesses that collectively account for a third of private sector GDP and employment, and that historically have produced the fastest growth and created the largest number of new jobs—about 60% of net new private sector jobs in the past decade.

Most companies, of course, have been hurt by the pandemic; a few have gained, because their products or services suddenly became more in demand. But where is COVID-19 affecting midsize companies most—and where least? The answer is important, because the impact of COVID-19 on these companies, and what they do to respond and recover, will have an outsize effect on national prosperity. We went to find out.

In June, the NCMM—part of the Ohio State University Fisher College of Business—surveyed financial decision-makers at 1,000 middle market companies in all industries and from coast to coast. This survey is part of the NCMM’s regular Middle Market Indicator, a pulse check we have been conducting since 2012 that tracks growth, employment, investment and innovation, confidence, and other results, sentiments, and forecasts. The June survey asked a special set of questions about the pandemic’s path. We published some highlights here, and on July 22 will release the full Middle Market Indicator. There’s a wealth of information and insight in the full data set.

One discovery: Amid falling revenue and employment, capital spending cuts, growth initiatives put on hold, tight cash, and disrupted operations, middle market companies are maintaining and even slightly accelerating their digital transformation. 

The data below summarize these findings, showing the difference between positive and negative impact for a selection of company activities and initiatives. For example, 57% of middle market companies have seen revenue fall, while 21% brought in more, a difference of 36 points. By a 31-point margin, companies are more likely to have seen a negative than a positive effect on growth initiatives. 

Immediate impact of COVID-19 on various middle market company activities and initiatives

 Positive impact %No impact %Negative impact %Net  of + and –
Supply chain153747-32
Growth initiatives212852-31
Business operations192546-27
Capital spending164242-26
Working capital/cash184042-24
Access to capital185329-11
Digital transformation274825+2

Digital transformation stands out: Alone on this list, it hasn’t been negatively affected; indeed, by a small (probably statistically insignificant) margin, middle market executives are giving digital transformation a forward push. 

Explanations for this exception to the rule aren’t hard to find. The case for digital transformation is especially strong for middle market companies. Digitally transformed marketing and sales can help them find, serve, and market to customers on a more equal footing with large competitors; digitalized operations improve efficiency and cut costs; and cloud computing, digital platforms, and other services can enable them to scale and grow with much less capital than before.

In stressful times, all those benefits and more come into play. We know of one warehousing company that in the past three months digitized its entire inventory system to keep operating with minimal staff. A San Diego life sciences company, Equillium, is conducting clinical trials using telemedicine so as not to require patients to travel to overstressed hospitals for tests. In New York, Baldor, a restaurant food supplier, has redesigned its website, logistics, and service offerings to open a new direct-to-consumer delivery service. All of them expect these changes to be permanent—and each has the potential not just to shore up the business, but to transform it. 

As these and similar efforts take hold, we’ll see a post-COVID landscape that’s not back to normal and not a new normal: It’ll be a new different. More than eight out of 10 middle market companies say it is likely that they will make significant and long-lasting changes in how they organize work and how they interact with customers. Digitalization will play an outsize role in shaping those changes.

Thomas A. Stewart is executive director of the National Center for the Middle Market at the Ohio State University Fisher College of Business.

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