Top Digital Transformation Trends in Europe for 2021

Europe, like the rest of the world, faced the severe impact of the COVID-19 pandemic. The damages inflicted by the pandemic are worse compared with any other calamity over the last three decades. In 2021, enterprises and service providers are focusing on growth to reverse the business repercussions of COVID-19 and build a new future. This article highlights the top 10 trends in digital transformation that will help businesses in Europe grow in this recovery year.

The year gone by has tested the mettle of businesses across industries and regions, posing a challenge for the strongest of the strong. The new year has brought hope across the globe with approvals for COVID-19 vaccines. Many economies are seeing signs of recovery. The recovery rate is expected to be slow, due to a trade-off between policies that empower businesses to grow and managing restrictions to curtail the pandemic in the region.

After a recession, a sustained period of improving business activity is considered an economic recovery stage, and the general direction in which gross domestic product (GDP) grows is the shape of recovery, including U-, V- and K-shaped recoveries, among other letter designations. Many economies around the world are projected to see a V-shaped recovery, in which a sharp decline in economic activity is followed by a rapid recovery, or a K-shaped recovery, in which different parts of the economy recover at different rates. However, according to World Economic Forum, Europe is projected to see a U-shaped recovery, with an economy that stagnates for a time before a healthy rise. In all these scenarios, it could take more than a year for businesses to dream of normalcy. The approaches adopted in the new future will define the new normal in the post COVID-19 era. With the need to adopt new ways of sustainability, compounded by geo-political tensions worldwide, businesses are seeking new avenues of growth.

Service providers are helping clients by delivering digital products and services, with quicker turnaround times, as well as guiding them to build their COVID-19 strategy and post-COVID-19 roadmaps. In Europe, businesses are trying the recover from the multiple lockdowns in 2020 that resulted in a drop in sales. Hence, they are finding innovative ways to deliver services, mainly through digital media.

The top trends in Europe that will have the most traction in 2021 and the areas in which service providers can deliver value to their clients are:

1. Data-driven, analytics-based customer experience will be a priority.
2. Emergence of new online business models will drive growth.
3. A strong focus on resilient supply chains will emerge through leveraging analytics.
4. The growth of a flexible work culture will drive benefits for both employees and employers.
5. Remote talent management will be a key requirement.
6. Providers will focus on building 5G infrastructure.
7. A major focus on cybersecurity will continue.
8. AI will be seen as a complementary technology for diverse use cases.
9. The cloud and Internet of Things (IoT) will act as strong growth imperatives.
10. Blockchain will increasingly be considered as a mainstream technology.

Data-driven, analytics-based customer experience will be a priority

With most businesses striving to retain and grow their respective customer base, customer experience has become a priority. Digitalization has redefined customer experience, and business leaders are recognizing the benefits of leveraging a data-driven approach, with the use of analytics, to improve customer experience, and as a definitive roadmap to expanding customer base. With restrictions expected to continue ― including lockdowns as well as restrictions on movement of goods across the supply chain due to limited availability of labor and other challenges ― delivery of analytics-based customer experience is expected to gain traction to help businesses in their growth journeys.

Analytics-based services help enterprises assess the needs of their target customer base and deliver specific experiences, alongside managing inventory and supply chain, thereby providing differentiated customer experience. For instance, during the pandemic, Ocado, in the U.K., quickly adapted its delivery network and used AI and analytics to manage its inventory in the rapidly changing business environment of 2020, thereby logging increased revenues at a time that was challenging for most businesses. This trend, of reliance on analytics, is expected to continue.

Emergence of new online business models will drive growth

In a desperate attempt to sustain and grow in the post COVID-19 world, businesses worldwide are exploring additional revenue streams. This has resulted in the emergence of new online business models ― mainly using digital platforms and digital ecosystems ― that either complement the existing business models or function as a completely new business. These new models are either driven by flexibility in regulatory structures, including the ability to introduce a digital channel in a quicker turnaround time without too many regulatory restrictions, or triggered by socio-economic factors in a specific region. These models could be specific to an industry or encompass multiple industries, with a high focus on customer-centricity and profitability.

New online business models have emerged during the pandemic due to flexibility in regulatory structures or due to socio-economic factors in the region

While many businesses have turned to online business models, the most adopted use case is video consultation by doctors. With restrictions on in-person, face-to-face interactions and diagnosis in many regions, this use case was widely adopted and accepted when the COVID-19 pandemic was at its peak in 2020. Some healthcare organizations continue to use such video consultations to improve the reach of healthcare expertise across regions. Hence, as-a-Service business models have grown during the pandemic in the healthcare sector as well as other sectors. ISG believes that these business models will grow and increase in complexity to provide better services to their customers.

Stronger focus on resilient supply chains by leveraging analytics

Supply chains faced extreme stress in 2020 due to restrictions in movement. Businesses recovering from such disruptions have managed to repair the broken sections of the supply chain with more resilient networks and a focus on local sources. Service providers, too, have been extremely active in rebuilding these broken sections. Re-routing supply chain networks, replacing local sources as required and using technology to manage supply chains have enabled enterprises to return to business as usual.

To ensure resiliency in logistics, enterprises and service providers will continue to focus on further strengthening supply chains, both local and international. The use of analytics to forecast demand and manage supply has been a focus area and is expected to gain traction with the help of automation as a supporting technology. A focus on logistics is particularly relevant in Europe as supply chains between the U.K. and the rest of Europe need to be re-aligned based on regulations related to Brexit. Hence, building strong supply chain networks, using automation, analytics and artificial intelligence will be a focus area for enterprises.

Growth of a flexible work culture will drive benefits for both employees and employers

Most businesses provided flexible working models to employees to adhere to the restrictions imposed by governments in response to the COVID-19 pandemic. While businesses were prepared, in terms of infrastructure, to provide a flexible working environment, many required a shift in perception to implement a remote work model last year. Despite the improved technology infrastructure required to ensure a secure working environment for employees, the consequent savings on real estate infrastructure was a beneficial proposition for businesses.

The business units where digital technologies could be adopted to enable employees to work remotely have made this shift permanent or have adopted a hybrid working model. While employers have envisaged and gained stable productivity at reduced costs, employees have benefited in terms of work-life balance, reduced commuting time and increased productivity. According to estimates from a study commissioned in the European Union, 40 percent of workers in the EU began teleworking because of the pandemic. Some professions might revert to the older, on-site way of working, but many prefer the hybrid working model. With many employees and employers successfully embracing the hybrid working culture, this model is expected to continue to realize benefits for both the parties.

Remote talent management will be a key requirement

Guidelines for managing talent remotely slightly differ from the physical world and will involve embracing the digital culture

In Europe, most of the skilled workers in the financial services sector and some in the manufacturing industries have moved to remote working and will be able to continue with this working model in the new future. Managing and nurturing talent in a virtual world has created many opportunities for learning and development. However, the guidelines for managing talent remotely slightly differ from the physical world and will involve organizations completely embracing the digital culture as well as managing human connections, well-being and productivity. As digital workplaces increase the ability and flexibility to create virtual worlds, managing talent remotely will become crucial for business growth and employee retention.

Strong focus on building 5G infrastructure

With increased focus on building connected services across industries, the need to deploy IoT edge devices has consequently increased, leading to a high focus on providing 5G services for the end consumers. Toward the end of 2020, the EU decided to spend one-fifth of its €750 billion (US$914 billion) recovery fund to improve digital capabilities. With this, the telcos are planning to extend their infrastructure to enable 5G services that can provide up to 20 times faster internet speeds than what is currently available.

For instance, 5G is an integral part of Telefonica’s plans for the year. Similarly, Sweden-based equipment manufacturer, Ericsson, forecasts that Europe's 5G coverage would grow from around 1 percent of the mobile subscriptions across the continent in 2020 to 55 percent in western countries and 27 percent in central and eastern countries in the next five years. An increase in edge computing devices, connected homes and connected cities, together with a growth in number of employees working from home are some of the factors driving the demand for high bandwidth. With many telcos focused on delivering 5G services to their clients, the expansion of 5G infrastructure across the region is expected in 2021.

High continued focus on cybersecurity

There have been numerous cyberattacks with businesses moving to the virtual world. Subsequently, the focus on cybersecurity has increased substantially and will be seen as the highest priority in 2021. It is imperative for businesses to secure their work environments and their IT landscapes. An enterprise survey presented in ISG Index 2020 Q3 identifies network security, fraud prevention, payment security and web security as the top strategic challenges for organizations, with a significant talent gap expected in 2021. Therefore, hiring a workforce with the requisite security skills and training the existing workforce to be resilient in the face of cyberattacks continue to be a focus area for organizations.

AI will be seen as a complementary technology for diverse use cases

AI has effectively complemented technologies such as automation, IoT, data analytics, robotics, cloud and chatbots across a wide range of application areas

The adoption of AI has increased in the recent years with this technology helping businesses in generating positive results. AI has effectively complemented advanced technologies such as automation, IoT, data analytics, robotics, cloud and chatbots across a wide range of application areas such as AIOps, governance, compliance, customer experience, operations, decision making and forecasting, and this trend will continue in the coming years. The impact of AI will be experienced the most when leveraged with a complementary technology and not as a technology to replace existing technology. The use cases have diversified to leverage AI as a complementary technology rather than using it in silos, which was the case a few years ago. The use of AI as a complementary technology also allows scalability, enabling users leverage the strengths of other technologies alongside AI.

Cloud and IoT will act as strong growth imperatives

With the COVID-19 pandemic accelerating digital transformation, the cloud and IoT have emerged as the most preferred technologies for growth and business expansion. Enterprises are moving applications to the cloud to increase the flexibility of business functions. This trend is expected to continue in the coming years. Implementing IoT to expand the services provided to customers as well as improve operational excellence is also a focus area for many enterprises in Europe. With connected devices and services increasingly being preferred in the region and with the corresponding expansion of infrastructure to support such inclinations, the cloud and IoT have become important for businesses. Hence, in 2021, these two technologies are expected to be much sought after as business growth imperatives in Europe.

Blockchain will increasingly be considered as mainstream technology

There have been many sermons about the potential of blockchain and its implications over the last few years. This year will be the time where impact of blockchain applications will be realized by the businesses. With many organizations and regulatory bodies realizing the potential of blockchain and implementing it across different functional areas, it will be a mainstream application in the next two years.

Germany-based deep tech startup Peaq has raised €750,000 to launch a full-scale blockchain platform for the automotive industry. The company has developed its blockchain hybrid technology in-house and offers its platforms to groups of megafirms as a Software-as-a-Service (SaaS) model, helping clients to drastically reduce costs, create new revenue streams and automate processes, while making their systems faster and more secure. Germany-based company MYNXG holds essential patents for secure industrial IoT architecture, including multimode communication, real time industrial blockchain and secure access control technologies. The firm introduced a blockchain technology to enable privacy-compliant pandemic tracking on smartphones. While there is enough progress still sought for in the blockchain space, with multiple organizations and business leads realizing the impact that blockchain brings to the table, this technology is one of the most sought after among the emerging digital technologies.

With the hope of a COVID-19 vaccine reaching all corners of Europe, technology has played a key role in handling the repercussions of the pandemic for businesses across industries ― so much so that there could be only one motto for the coming years, “Keep Calm and Keep the Technology On”. The top 10 trends highlighted here are the most lucrative propositions for business growth. For in-depth understanding of digital business by regions, refer to the following ISG Provider Lens™ Digital Business 2020 studies:

• U.K. – Digital Business – https://research.isg-one.com/reportaction/Quadrant-DBSS-UK-2020/Marketing;
• Nordics – Digital Business – https://research.isg-one.com/reportaction/Quadrant-DBSS-Nordics-2020/Marketing;
• Germany – Digital Business – https://research.isg-one.com/reportaction/Quadrant-DBSS-Germany-2020/Marketing;
• Australia – Digital Business – https://research.isg-one.com/reportaction/Quadrant-DBSS-Australia-2020/Marketing;
• U.S. – Digital Business – https://research.isg-one.com/reportaction/Quadrant-DBSS-US-2020/Marketing;
• Brazil – Digital Business - https://research.isg-one.com/reportaction/Quadrant-DBSS-Brazil-2020/Marketing.

About the author

Akhila Harinarayan is the Lead Analyst focusing on Digital Business Transformation and SAP services. She has more than 12 years of experience across research and consulting including provider strategy, enterprise strategy, industry roadmaps, point-of-view papers, service provider assessment across regions. She brings in her expertise on strategy and transformation, digital insights, thought leadership, benchmarking, market assessments and go-to-market strategies. She has authored many thought leadership papers, digital insight studies, devised go-to-market strategies across products, industries and regions, and built frameworks and maturity models across industries.