This article discusses the impact of Covid-19 on the security industry in terms of business models, product features and business practices.
For millions of people, the coronavirus pandemic will be a life-changing event. Even if they are untouched by the virus itself, the changes and disruption caused by it, it will have a deep impact on people’s lives and on the global economy. The pandemic might be compared to a state of war: borders are closed, whole industries shut down, people are locked in their homes and consumer demand dropping.
Lockdowns and travel restrictions have led to the near-collapse of many business sectors like tourism, aviation and retail. These have affected supply chains, education and created a chain reaction that keeps hurting more and more businesses and also created significant changes in customer and consumer behavior.
Covid-19 is unique in several ways:
- Simultaneous supply and demand crisis (usually there is either a demand crisis or a supply crisis, now both are in critical condition)
- Hitting many countries at the same time (and not individual countries or regions)
- The duration is still unknown – making it more difficult to come up with a policy or SOP for the future.
Two major factors will impact businesses the most
Across the globe, there are significant concerns about the economy and continued discussion about the financial impact of Covid and possible stimulus plans.
According to research done by consulting firm Mckinsey, nearly 50 percent of the companies in the B2B segment have cut short-term spending in response to the crisis and declining demand, and a similar portion expects to reduce their long-term budgets as well. The forecasts for recovery range from 6 quarters to 3 years, and no one knows how long it will take.
The financial constraints are a major blow to small and medium companies, the longer this situation continues, only the big companies will be able to sustain their business and survive. This is a problem for the security industry that has witnessed consolidation and commoditization in recent years, so the smaller players now feel the squeeze even more.
In addition, there are also other risk factors like protectionism and export/import restrictions. Political bans on companies and products are another risk factor for the economy.
The rapid adoption of digital technologies driven by the pandemic will continue into the recovery. Many people will keep their newly adopted digital habits.
Companies will go through the digital transformation that will impact business models and will require re-alignment of sales, marketing and operations.
The lockdowns have shown that digital communication with customers is becoming key to continued survival. Customers are increasingly online and companies need to engage them with good messaging.
The biggest challenge of digitization is how to keep human interaction. Idea generation and human contact are more effective and fulfilling when done in person. It is easy to adopt using Zoom, but it might not be the best fit for roles that require a high level of communication.
The path to the next normal is uncertain and will for sure be different for each country, sector and company. I would like to point to a few changes that are likely to stay and impact how we do business in the security industry. In this sense, the COVID-19 crisis can be used as a change catalyst to increase digitization of services and change to existing business models.
How will this impact the security industry? What changes can we expect?
Covid-related changes can be broadly divided into two: features we will see in products, and also -- and this is where Covid will initialize the most change -- how we do business.
- The most obvious will be contactless systems. This feature will move from being a “nice-to-have” to a standard feature. Buyers would like to be prepared for future scenarios like pandemics that will limit contact.
- Faster and increased adoption of cloud technology. The lockdown and limited travel highlighted one of the key benefits of cloud systems – the ability to control and monitor systems from off-premises. For example, it is possible to deploy updates across a system all at once, without service calls to sites.
- Remote viewing: access to real-time, mobile data has proved highly valuable and in demand. This feature is not new, but I believe the demand to be able to view and manage remotely will increase significantly after Covid.
An important point is here is that the change will be on how we do business, rather than changing our business.
- Financial constraints of clients: due to lack of funds from buyers, we will see a shift to OPEX models to cut costs. Security vendors will need to move to a recurring revenue or subscription model, or find ways to lower the up-front fees to reduce customers’ near-term outflows.
- Impact on channel structure and sourcing: Over the last 40 years, the global value chain expanded dramatically to the east. Production has shifted to relatively low cost of labor emerging economies. This was made possible and supported by better and cheaper communication and transportation costs. However, the damage to supply chains will lead countries and companies to reduce their reliance on overseas manufacturing. There will be an increase in local sourcing and manufacturing close to the buyer. This can also be a new business opportunity for many SMEs that are now closer to the buyers and can answer a pressing need for products.
- Increased digital presence: Digitalization doesn’t mean only having a website. Companies must reimagine customer journeys, relying on their digital platforms to educate the client. Since digitally-enabled sales interactions are now more important than traditional sales interactions, companies will need to rethink their approach to their online presence: from how to introduce their products, how to collect leads and manage them during the sale process. Demonstrations, training and other activities usually done face-to-face will have to switch online. Suppliers need to focus on education, not a promotion for successful results.
The security industry will not disappear as a result of Covid19. If anything, recent developments have shown that manufacturers are agile and quick to respond to new requirements. The need for security remains but lack of liquidity and new projects might impact demand and unforeseen events like lockdowns will push it to change, but some of these changes might be for the better.