Different Realities Playing Out in a K-Shaped Recession and Recovery

Learn about the implications of a K-Shaped Economic Recession and how to navigate the challenges presented by the pandemic over the short and medium-term with IDC Canada's Lars Goransson

By: Lars GoranssonManaging Director, IDC Canada

What will a k-shape recession and recovery mean for you?

Recently my colleagues Tony Olvet and Nigel Wallis provided an update on the impact of COVID-19 on the Canadian ICT market. As I was listening, the notion of a K-shaped economic recession and recovery sector resonated strongly. The alphabet soup of predicted recovery scenarios over the last few months keeps evolving, from a V to an L to a W. We now seem to have landed quite firmly on the K-shaped recession and recovery.

What does that mean? Well, the impact of COVID varies significantly depending on what industry you are in and what type of work you do. Some industries were either less affected like Utilities or transitioned to digital very successfully like Financial Services. Some struggled initially, but are beginning to trend upwards, such as Manufacturing. Others, such as Airlines and Hospitality, will continue to struggle and will only start to recover when we can restore confidence among customers, whether through a successful vaccine deployment or social controls like facial masking.

From an individual point of view, many, mostly urban white-collar workers, and some specific regions such as Atlantic Canada – have only suffered minimal financial pain. For other Canadians, primarily in the services sector, incomes and job security dropped dramatically as unemployment skyrocketed. If the K-shaped recession and recovery remains in effect, that has meaningful political and economic implications.

Will the Recovery be Linear?

Given that different industry segments and consumer segments have very different experiences this year, technology providers need to think about using a two or three-pronged marketing and sales approach to address customers' needs. Just looking at ICT spending by industry sectors, the following chart very clearly highlights the challenges. Almost all sectors show declining spending on technology in 2020. But some much worse than others. For example, IDC predicts that Transportation and Business Services (contains hospitality, restaurants, tourism, arts and entertainment, and many other personal and consumer services) will decrease by $200M and $1B, respectively from our pre-pandemic forecasts.

The recovery will be very uneven - a few examples. The public sector will be hit hard in 2021 as local governments deal with their fiscal crisis, which will outweigh any increases in spending from healthcare and education sub-sectors.  The pandemic has not been kind to the overall Transportation sector, and this is not likely to change in 2021, as demand for public transit, passenger trains, and planes will remain low until the infection rate drops noticeably. Financial Services have come through mostly unscathed, and ICT spending will bounce back, as we expect to see a continued push towards digital workflows, staff reductions, and reduced physical footprints. We anticipate the beginnings of a bounce-back in the retail and personal services sectors in 2021 – of course, growing off a smaller base. Still, those that survive 2020 will have entrenched digital processes into their workflows and cultures, meaning a higher per employee spend on ICT than before 2020.

The 5-Stage Model of the Road to Recovery

In addition to the different underlying dynamics playing out across the various industry and consumer sectors, organizations are also at different stages on their recovery and digital transformation journeys, which has massive implications for their technology investment decisions. 

IDC has developed a 5-stage model of the COVID-19 Road to Recovery. It provides useful guidance to business and IT leaders to look ahead and refine their approach to thrive in the digital economy post-pandemic. The five economic stages at the bottom of the chart have parallel business focus areas shown at the top. In the context of reducing the impact of the recession, the concept of flattening the curve refers to accelerated investments in digital technologies to build business resiliency, intending to better and quicker adapt the enterprise and thrive in the Next Normal.  

IDC's most recent survey of Canadian business decision-makers, somewhat surprisingly, indicate that over 50% of respondents expect to be Returning to Growth or be in The Next Normal by Q4 2020. Of course, this varies quite a bit by industry, size of organization, and region. Construction was most likely to indicate a Return to Growth in Q4. Public sector respondents had the highest percentage who said they expect to be in the Next Normal in Q4 – which is remarkable given the significant shifts in the workplace of hospitals, government offices, and schools. Small businesses had the bleakest outlook. Companies in Saskatchewan and Atlantic Canada were far more likely to expect to be in growth mode; Quebec respondents were more likely to expect to be in a slowdown or recession late in the year.  

Are Organizations Slipping Back on their Road to Recovery?

Furthermore, a recent resurgence in COVID infections – the so-called second wave – creates additional uncertainty, and the transition through the stages is not expected to be linear for many organizations. Today, this is especially relevant since the latest statistics show a rise in new cases across many provinces. We may see even more organizations slipping back to focus on business continuity.

Given the K-shaped recession and recovery and wildly varying stages of enterprise recovery, technology suppliers need to be mindful of their customers' current circumstances and adapt marketing and sales strategies to meet their needs at their corresponding stage. Ultimately, IDC believes accelerating digital technology investments will help move Canadian businesses towards Business Reliance and the Next Normal. But it will be a very bumpy road over the next year and a half, and clearly, many Canadian organizations will struggle to make the transition to the Next Normal. 

How to Navigate the Challenges Over the Short and Medium-Term?

For business decision-makers required to navigate the challenge of improving business resilience and driving their organizations to the Next Normal, I invite you to join IDC Canada's new live virtual event experience, IDC Connections 2020: Future Enterprise Strategies, taking place on October 15, 2020, at 12:30 pm. Reflecting on our future choices, many of us have similar questions as we weigh the many critical strategic challenges, choices, and opportunities before us over the short and medium-term. Our event will discuss these issues through the lens of leadership experiences, tempered with best practices by IDC analysts, and learnings from extraordinary Canadian CIOs.

I hope to see you at IDC Connections 2020.


With hope for a rapid transition to the Next Normal,


About the Author

Lars Goransson
Managing Director, IDC Canada
IDC Canada

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Cristina Santander

Manager, Marketing & Customer Experience