As COVID-19 fundamentally challenged the global economy, organisations scrambled to keep the lights on, and collectively, they conducted a giant remote working experiment. Despite some early underestimations, governments injected unprecedented fiscal stimulus, providing vitally necessary confidence ensuring capital flowed and trade occurred.
Putting aside the health tragedy, knowledge workers managed well. Their resilience was actionable in part because supply chains were flexible enough to adapt and coordinate the methods of production and distribution. A key factor was that the technology enablers were mature enough, with sufficiently established networks to cope with this black swan event. They were able to perform work on cyber-safe platforms and successfully collaborate with colleagues, suppliers and clients virtually.
Extraordinary change accelerates existing trends and innovation
Each company, whether they only survived or, thrived, did so by relying heavily on technology inputs and enablers. Now, as they look to operate in the next phase in the pandemic, many will need to re-evaluate and revise their long-term operating models. Some will need to lower their costs and adjust their prices. Regulators will mandate new requirements which in turn drives searches for new enablers. Simultaneously, valuations may become unexpectedly more attractive for acquisition or re-financing.
What each company will need to do will vary. What will be shared is that business leaders will need to be laser-focused on their technology-reliance. Investors expect them to convey their revised vision and risk mitigation strategies, re-prioritise their projects and initiate necessary changes as well as identify and create new market opportunities while still reacting swiftly and decisively to manage future challenges.
Technology and proposition teams’ development and design efforts will generate different types of projects, all seeking to create greater value, and requiring additional expertise and approaches from lawyers to support them effectively.
Here are some examples.
With less demand visibility, the need for greater agility makes cloud more compelling
The crisis has reduced visibility into future demand, so firms will likely need to prioritise operational flexibility to ensure they can react to changes with sufficient speed to market. This need will drive the acceleration of the adoption of cloud services.
With this need to operate more agile business models; firms will struggle to justify the high cost of maintaining the sufficient flexibility required within self-operated data centres. While these are complex activities to entrust with third parties, the cost, scale and flexibility advantages and innovation scale opportunities are too substantial to resist. However, with greater third-party reliance, these quickly become complex commercial arrangements to manage and strength in depth is required to mitigate the execution risks. The major cloud providers have considerable leverage and provide a one-size-fits-all approach, so understanding this and their operating model will help focus on what’s essential and must be achieved.
As remote working works so well, expect more outsourcing (and fourth-party risk)
Networking and collaboration success have proved that even highly remote teams can often be as productive as collocated ones. The success of remote working during COVID-19 will likely strengthen the will to outsource global functions and accelerate this trend.
While the benefits of outsourcing are clear and powerful, complex outsourcing requires robust operational due diligence of the entire end to end service delivery model. Besides, moving even commoditised activities elsewhere means vulnerability to risks that outsourcers have weak or untested business continuity and disaster recovery plans. Lawyers supporting these deals must work with business teams through the rigorous process of issue identifying and mitigating as well as negotiation with the outsourcer to ensure their strategies and financial business cases are reflected in robust commercial arrangements.
In response to market demand, increasingly, primary providers are asked to provide a complex service which necessarily needs to package a set of different services which may require a group of secondary specialist providers. A firm must also meaningfully assess all fourth-party providers to have the same level of compliance with all applicable requirements as the primary provider.
Clients and regulators will focus more on business continuity planning, resulting in a steep rise in third-party scrutiny
With a greater focus on supply chain risk, lawyers must help support a range of compliance issues which must be addressed, from meeting enhanced internal security requirements to ensuring adherence to external regulatory requirements mandated due to the nature of the client base. For example, providing services to governments will require compliance with a range of policies and standards that are imposed on them which will flow down to you as a provider and some of which may be very challenging to meet.
Supporting a regulated client requires established governance structures and processes managed by a cross-functional group with well-defined processes and metrics. Often, lawyers can help such teams with defining the obligations, so the firm is well prepared to respond to audits.
If Goldman Sachs employed more engineers than Facebook had total employees, COVID-19 will likely accelerate that broader technology reliance
It was reported that computer engineers made up a quarter of Goldman Sachs’ then workforce of 36,000. While the percentage may surprise many, this makes sense as they seek to keep up with their larger competitors to stay on the cutting edge of financial technology.
More broadly, as all businesses plan for the ongoing impact of COVID-19, digital transformation will accelerate in every organisation. Online delivery and consumption of services will rise with remote teams here to stay.
In part two, we will continue the discussion of how as businesses race to stay competitive, technology will play a critical role and lawyers must try to understand these issues, and still be experts in their core disciplines as well.