57 percent of Croatian companies do not feel ready to use digital technologies in order to respond to the crisis

 Even today, nine months after the beginning of the pandemic crisis, 57 percent of Croatian companies still do not feel ready to respond to the crisis by applying digital technologies. The least ready for strategic change are companies from the service sector. In general, half of the companies have implemented some form of “work from home”, but Croatian companies expect that business will recover in the spring of 2021 and are not inclined to a thorough business transformation.

Zagreb, December 2020 – At the moment when we are once again in uncertain times and when governments across the EU and the world are making decisions that have a huge impact on business, it is worrying that as many as 57 percent of Croatian companies do not feel ready to respond to the current crisis by applying digital technologies. The biggest challenge of the Croatian economy is in the transformation of smaller companies from the service sector, according to the latest research conducted by the Ernst&Young and Algebra University College.

In order to adapt to the new situation and continue with business, almost 50 percent of Croatian companies and organizations have introduced work from home or more flexible working hours, and 20 percent of companies do their work using digital platforms. But at the same time, some companies did not have to significantly change the way they work due to the pandemic, because they considered their business models to be sufficiently resilient to the new circumstances – this mainly concerns marketing agencies and the ICT sector.

The survey, which involved more than 200 companies, sought to find out the extent to which Croatian organizations have embraced digital transformation as a response to the challenges of the business during pandemic. In addition, the research reveals to which activities and processes companies pay the most attention in this transition period.

Changes as a development strategy

According to the results of the EY & Algebra Survey, only a quarter of organizations have a clear vision of digital transformation, but most of them are aware that only timely adaptation can ensure the future of business. Disregarding the pandemic, the main drivers of digital transformation of organizations are the need for greater efficiency (25 %), raising the quality of user experience (22 %) and creating new digital business models (13 %).

This is supported by the fact that a third of respondents see customer pressure and the development of new products and services as the main drivers of digital transformation. Therefore, it is not surprising that 15 percent of organizations have already successfully introduced new models of product or service development during the pandemic.

Nearly 70 percent of respondents point out that their priorities in future development are the following technological paradigms: process automation, cloud technologies, data management, and advanced analytics.

“What the results of the survey and conversations with the clients show us, is that the application of technological solutions has accelerated significantly. In the beginning of the pandemic it was necessary to enable the continuation of business. After the adjustment, all the technological shortcomings were shown, as well as the need for a quick reaction. Some organizations were already ready, some intensified existing efforts, and some managed along the way. It is important that everyone saw the need to adapt and the importance of digitalization of business and I believe that everything undertaken will have a positive impact on their business results and future business,” said Majda Pavleković, partner and Head of Business Consulting at EY Croatia, commenting on the results of the survey.

Education and new knowledge

However, modern technological solutions have their complex side. Despite the fact that they make our private life and business easier, they also require certain knowledge and skills. This is especially evident when it comes to the introduction of new technologies and digitalization in business processes. The fact is that a large number of employees are still not sufficiently familiar with various innovations, so almost half of the leading people of the companies, who participated in the survey, plan to educate employees through classic or online seminars to develop digital competencies. To implement the digitization process, 16 percent of the leading people of the companies plan to use external consultants for educations. This suggests that employees have solid knowledge that needs to be upgraded with external experience and leadership.

“Research shows that companies have at least become aware of the need to change their business models if they want to survive on the market – in general but especially in the conditions of a pandemic – but we also see that these changes will not be easy and quick in all sectors. Sectors have their differences regarding the need for change because those who have invested more so far or who are naturally doing well in the environment of digital technologies are better prepared to face this crisis. There are also large differences in the perceived capabilities of individual sectors to implement the digital transformation of companies, which is not necessarily always related to their desire for strategic changes – for example, the service sector wants strategic change but is not sure how to implement it or if they have appropriate knowledge, people and technologies”, said Arsen Šolić, Algebra.

Unprepared for the introduction of digital technologies

Faster acceptance of new technologies in business, changing the way of working and faster development of new products and services are the main changes that organizations expect as a permanent consequence of the crisis, and 60 percent of respondents estimated that they will not need more than six months to normalize business and reach pre-crisis level.

The willingness of service industries (such as rental, employment, travel agencies, maintenance and other ancillary and administrative activities) to make changes is low. These activities and industries are perhaps most affected by the current situation. As many as 62 percent of the surveyed companies from this sector think that they are unprepared or marginally unprepared for the application of disruptive trends and digital technologies in business, which is a worse result than the research average (57 percent). Nevertheless, two-thirds of companies in the service sector are ready to move in the direction of strategic repositioning, which shows a great awareness of the need for change – the largest in this study.

The manufacturing industry, although also aware of the need to invest in digital transformation, does not actually have a clear vision of investing in digital transformation or the transformation is still being planned and prepared, as many as 50 percent of surveyed companies from this sector declared. If it will invest in digital technologies, this sector will primarily invest in marketing and sales, as well as the digitalization of procurement and other internal processes. As many as 40 percent of respondents from the manufacturing industry believe that process automation is a top priority for the development of their companies in the future, but at the same time a quarter of companies (26 percent) believe that lack of employees’ competencies in digital technologies is the biggest obstacle.

Unsurprisingly, companies in the information and communication (ICT) sector feel most ready to do business in the new situation and they have had to minimally change their business processes and the role of technology in them. Nearly 80 percent of ICT companies continued to use existing business models, showing they feel that they are already adapted to the new situation, while only 10 percent started with development of new models. How ready the ICT industry feels is best shown by the fact that 73 percent of the surveyed companies stated that they feel ready, which is far above the research average (43 percent). Even if they had to change something, 71 percent of ICT companies feel ready to take that step, again – high above the research average (49 percent).

Companies in the financial and insurance industries are also above average in this survey because 72 percent of them said that the digital transformation was part of their business plan anyway, but 68 percent believe they can still improve it. With a slightly worse result than the ICT sector and in line with the overall average of the survey, 68 percent of the companies from the financial sector did not change their existing approaches due to the new situation, but two thirds of companies in this sector do not even feel ready for such changes. It can be concluded that in this sector fear of future change and a certain restraint exists.

Source: EY, Algebra University College