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

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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 mid-sized 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 last 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 mid-sized 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 outsized 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 decisionmakers 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 –
Revenue 21 22 57 -36
Supply chain 15 37 47 -32
Growth initiatives 21 28 52 -31
Demand 26 21 54 -28
Business operations 19 25 46 -27
Capital spending 16 42 42 -26
Employment 20 35 45 -25
Hours 19 38 43 -24
Working capital/cash 18 40 42 -24
Access to capital 18 53 29 -11
Digital transformation 27 48 25 +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 last 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 outsized 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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Lyron Foster is a Hawaii based African American Musician, Author, Actor, Blogger, Filmmaker, Philanthropist and Multinational Serial Tech Entrepreneur.

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