European companies that accelerate both their digital and sustainability transitions are likely to recover faster and emerge stronger from the COVID-19 crisis, according to a new report from Accenture.
“The European Double Up: A twin strategy that will strengthen competitiveness,” launching during The Davos Agenda week, finds that European business leaders expect to return to their pre-pandemic profit levels in 18 months on average.
According to the report, the COVID-19 crisis has resulted in a divergence in European companies’ resilience and growth prospects:
- Half (49 percent) of European companies have been reporting revenue or profit decline for the past 12 months and don’t expect any improvement in the next 12 months.
- One-fifth (19 percent) of European companies had strong financial performance before the pandemic but now expect negative revenue or profit growth in the next 12 months. The report refers to these companies as “falling angels.”
- One-third (32 percent) of European companies expect to deliver profitable growth in the next 12 months. The report refers to these companies as “tomorrow’s leaders.”
The report indicates that companies leading in both digital adoption and sustainable practices are nearly three times more likely than other companies to be among “tomorrow’s leaders,” thereby recovering faster and emerging stronger from the crisis.
“Digital transformation defined the business landscape in the 2010s, and companies that led this transformation at speed and scale won the day,” said Jean-Marc Ollagnier, CEO of Accenture in Europe. “We are entering a decade that ushers in a new wave of business change defined by the sustainability transition. How European companies manage this ‘twin transformation’ will determine how quickly they will recover from the crisis and how well they will be positioned to sustain growth in the post-pandemic world.”
According to the research, nearly half (45%) of European businesses are prioritizing investment in both digital transformation and sustainability. Specifically, 40% of European respondents plan to make large investments in artificial intelligence, 37% plan to make large investments in cloud, and 31% are rebalancing their investments to focus more on sustainable business models.
European companies uncertain about 2021 growth targets
The report notes that less than half (45%) of European businesses expect to achieve their 2021 growth targets. Those in the United Kingdom, France and Germany are among the most optimistic, with 59%, 52% and 51% of respondents in those countries, respectively, expecting to achieve their 2021 targets. Respondents in Italy and Spain are among the most pessimistic, with only 34% and 31% of them, respectively, expecting to hit their 2021 growth targets.
“Even companies that recognize the business opportunity to accelerate their digital and sustainable transitions face barriers at different stages of this twin transformation journey,” Ollagnier said. “Those challenges include defining a viable business model around sustainable practices and products, freeing up resources to better mobilize the organization, and moving rapidly from pilot and siloed projects to large-scale and enterprise-wide initiatives.”
The report suggests several strategic steps a company must take to overcome these obstacles and successfully execute a twin transformation. These include:
- Fostering ecosystem-based business models driven by sustainability and enabled by technology: Twin transformation leaders already generate more than 10% of their revenues this way.
- Combining resources to scale technology applications to sustainable practices: Twin transformation leaders invest more in innovation across the board, allocating more than 10% of their annual revenue to research and development. They also recognize that sustainability and technology are not separate priorities.
- Leading, empowering and nurturing talent: Twin transformation leaders take responsibility for the continued employability of their people. They spare no effort in reskilling/upskilling their workforce, understanding that building and nurturing talent is essential to turning transformation into tangible business value.
“There is a reason why DNA is a double helix,” Ollagnier said. “The spiralling structure of the molecule that is the basis of life is critical for replication, adaptation — and flourishing. It is a powerful metaphor for business amid two parallel transitions twisting the laws of evolution in dynamic yet unstoppable ways: digital transformation and sustainability. European businesses that continue down a well-trodden path will watch others gain a competitive edge by exploiting dynamic interactions at the heart of their DNA. Or they can join them by unlocking the value that lies in blending innovative technology with Europe’s traditional strengths of sustainability, solidarity and purpose.”