Businesses Prepared For Touchless Transactions, Delivery, Automation Beating Covid

From telehealth to pizza order and delivery to manufacturing, enterprises that had already begun to digitize services are outperforming, even as the pandemic disrupts the economy.

And as business starts to reopen, those companies are finding that their advantages are sustainable. JL

Greg Ip and Angus Loten report in the Wall Street Journal:

The companies best positioned for the Covid era had technology that allowed them to adapt quickly to changing times: touchless transactions, robotics, online commerce or the infrastructure needed to support a decentralized workforce. They are emerging as winners in an economy where customers and workers must avoid contact, offices are empty and travel is limited. Changes brought on by Covid-19 look permanent as customers, workers and companies actually prefer the new ways of doing things.

Last year Domino’s Pizza Inc. DPZ 1.47% began testing a new service aimed at time-pressed customers: a way to pick up a pizza without entering the store. Upon arrival, you check in via the Domino’s app on your phone or text message, and an employee deposits the pie in the trunk of your car. You never make contact.

Then the pandemic hit, and suddenly customers either couldn’t or wouldn’t enter stores. Domino’s quickly rolled out “Carside” pickup to its stores. It is one reason why the pizza delivery giant thrived during the pandemic. Its sales and stock price surged while other restaurants struggled.

The companies best positioned for the Covid era had technology that allowed them to adapt quickly to changing times: touchless transactions, robotics, online commerce or the infrastructure needed to support a decentralized workforce. They are emerging as winners in an economy where customers and workers must avoid contact, offices are empty and travel is limited.

Even as the economy slowly returns to normal, those business models may continue to define and reshape the business world for a long time to come. That is because many changes brought on by Covid-19 are starting to look permanent as customers, workers and companies actually prefer the new ways of doing things. The shift to internet commerce, already underway before the pandemic, will stay. Companies who sent workers home may keep the arrangement because it can raise productivity and cut costs. Once-niche services like telehealth and online education that came into their own during lockdowns will be more important in the future.

Yet not every company will successfully negotiate these transitions—and not every company will have to. There are limits to how far digitization and decentralization can go. After an initial rush of enthusiasm for work-from-home, many firms have found it makes collaboration, recruitment and integration of new employees harder. And people are social animals who crave the in-person experience, whether that means going to the theater, a restaurant or a doctor.

Even Domino’s acknowledges that there is still something special about interacting with customers in the old-fashioned way. “There’s something to the actual experience of a pizza handoff that is a personal connection,” said Dennis Maloney, the company’s chief innovation officer. “That will probably come back.”

The Pizza That Defied a Pandemic

Few industries have suffered more during the pandemic than restaurants. More than 15,000 restaurants have failed during the coronavirus pandemic, according to statistics from Yelp’s website. NPC International (a Pizza Hut and Wendy’s franchisee) and California Pizza Kitchen have filed for bankruptcy protection. Sales at stores open at least a year plummeted 37% in the second quarter from a year earlier according to Black Box Intelligence, which tracks the industry.

Domino’s, however, didn’t have those problems. Its U.S. sales in the same period leapt 16%.

In part it was lucky: it has little dine-in business. But it has also perfected order-in and delivery through intensive innovation. While many restaurants depend on multiple systems from outside suppliers for technology such as online ordering, Domino’s developed its own, single proprietary point of sale system for all of its stores (there are now more than 6,000 in the U.S., 94% franchise owned).

“All that work of the past decade has got us to a pretty good place for using technology to pivot to a new function on the fly,” said Mr. Maloney.

While the pizza is made by hand, everything before and after that stage has undergone relentless innovation. Since 2007, the range of channels through which to order digitally has steadily expanded: via desktop, then mobile, apps for the iPhone, iPod Touch and Android, Samsung televisions, Pebble, Android and Apple smartwatches, Twitter and text with a pizza emoji, Amazon Echo, Google Home, Slack, and Facebook Messenger. Mr. Maloney said order time reached its minimum with “zero click ordering”: Open the app, do nothing and in 10 seconds your favorite pizza is ordered.

All were developed to make ordering and delivery faster and more convenient. And because digital ordering obviates the need for cash to change hands, it also aided in physical distancing when the pandemic began.

Digital ordering is key to growth for food-service establishments because it yields valuable data for better targeting customers and expedites pickup, said Andrew Charles, a restaurant analyst at Cowen & Co. He estimated 5% to 10% of the typical quick service chain’s orders are digital. Domino’s share was 65% last year and has since climbed to 75%.

“This pandemic just accelerated the trends that were already in place,” said Mr. Charles.

Domino’s also benefited from new concepts it was able to introduce as the pandemic rolled across the U.S. One was “Carside” pickup, which was already under development at the company’s “Innovation Garage” in Ann Arbor, Mich. GPS order tracking, introduced late last year, was rapidly expanded so that customers who didn’t want to interact with a driver could confirm the driver was in front of the house.

Other Domino’s innovations also came in handy. One of its lowest-tech features is a cardboard foldout “pizza pedestal” on which drivers can place the pie to avoid contact with customers. It also contracted with a manufacturer to supply its stores with e-bikes adapted to carrying pizzas and is working on driverless pizza delivery vehicles, which would remove the possibility of any contact with a human being.

The Doctor Will Webstream You Now

Health care, unlike retail, was relatively resistant to digital delivery before the pandemic. Patients still generally saw the doctor in person. One important reason was financial. “Fee-for-service” insurance plans made it harder to bill for telehealth than in in-person visits, discouraging providers from offering them.

Many providers had to scramble to offer telemedicine options when the pandemic made in-person visits difficult and the federal government relaxed restrictions on billing for telehealth.

Kaiser Permanente had a head start. Why? Because it never faced the same disincentives to invest in telehealth. The Oakland, Calif.-based nonprofit is both insurer and provider: Members pay a flat monthly premium that covers all care delivered by Kaiser’s own doctors, pharmacists, therapists, nurses, specialists and hospitals, in person or via telehealth.

“Our business model is made for this technology,” said Arthur Southam, executive vice president of health plan operations for Kaiser Permanente.

Kaiser Permanente invested in telehealth technology well before the pandemic, giving it a head start over rivals when lockdowns began. Pictured here is an empty Kaiser exam room in Pasadena.

PHOTO: HANS GUTKNECHT/ZUMA PRESS

In the 1990s Kaiser opened call centers through which members could make appointments or talk to a nurse or doctor 24 hours a day. Last year, they handled 50 million calls from Kaiser’s 12 million members. In the 2000s, Kaiser implemented electronic medical records throughout the organization and created a web-based portal through which members could get advice, check their records, and with the spread of high-speed broadband internet, consult a nurse or doctor.

Still, last year, video represented less than 1% of scheduled visits throughout the Kaiser network; telephone represented about 16%. When the pandemic hit, Kaiser’s volume shifted dramatically: In April, 74% of its visits were by telephone and 7% via video. By comparison, 44% of all Medicare fee-for-service visits that month were via telehealth, according to a federal study.

As restrictions have lifted, in-person visits at Kaiser rebounded to 44% of the total in mid-July while telephone receded to 42% but video continued to climb, to 14%.

Even after the pandemic passes, “We think telehealth will continue to play a huge role in how we provide care,” Mr. Southam said. “People have become much more used to using a digital portal to get services, decide what they need and really help themselves get to the right care.”

An on-call doctor responding to a 2 a.m. telephone call can access the same records as the patient’s regular physician and instantly order lab or radiology tests or prescriptions. A patient can show his primary physician a mole using his smartphone, who can then schedule a follow up with a dermatologist, if necessary. For routine monitoring, patients can take their own temperature, blood pressure, glucose and oxygen levels with instruments provided by Kaiser or a smartphone app.

Kaiser found 85% of patients completed cardiac rehabilitation with remote monitoring compared with 50% when they have to travel to in-person checkups.

Telehealth could reduce capital outlays in waiting rooms, examining rooms and parking lots, saving time and money for both patients and providers. Mr. Southam said, “The nuts and bolts of telehealth come to full life when you think, ‘How can I rethink my underlying consumer interactions when I’m not depending on two human beings in the same physical space?”

Robotics and artificial intelligence were already performing a growing range of tasks more cheaply and reliably than humans. With the pandemic, they demonstrated another advantage: They don’t spread the virus.

One company that learned this lesson was Stanley Black & Decker Inc., SWK 1.13% which invested heavily in systems of autonomous robots in the months before the pandemic. Also known as cobots—because they operate alongside shop-floor workers—each system includes a robot equipped with 3-D sensors and designed to stack boxes of finished power tools coming off the assembly line. A mobile robot then delivers the pallets to nearby distribution centers, replacing forklift operators.

By chance, multiple systems were slated to roll out in mid-March at the company’s 345,000-square-foot plant in Fort Mill, S.C., said Sudhi Bangalore, the company’s global vice president overseeing technology innovation. The plant makes drills, saws and wrenches for the North American market, under the Craftsman, DeWalt and Mac Tools brands. Though most of the company’s 48 U.S. plants use some automation, less than a dozen have cobots—and none at the scale of the South Carolina plant, Mr. Bangalore said.

The original goal was to cut costs and boost output to better compete with a rising number of tool manufacturers in Mexico, he said. But the pandemic highlighted another benefit. Many manufacturers had to shut down factories and reorganize to space out workers. For Stanley, the robotic systems, made by Rockwell Automation Corp. for a total of $1.5 million, kept the South Carolina plant from shutting down at the height of the outbreak.

That enabled the company to seize on a sudden surge in demand for hand-held power tools, as homeowners with extra time on their hands dove into home improvement projects.

In July Stanley reported that U.S. sales of its tools and storage products at retailers such as Lowe’s Cos., Home Depot Inc. and Amazon.com Inc. hit an all-time high in the second quarter. The company is on track to beat its best-case scenario for 2020 revenue, CEO James Loree said in an earnings call.

When Geography Is No Longer a Restraint

Many companies and their employees turned to telecommuting by necessity during the pandemic. Some discovered it had advantages: higher productivity and lower costs such as office space. But over time, its most important edge is likely to be the greater access to talent when geography is no longer a constraint.

This isn’t a new insight; the information technology outsourcing industry figured it out decades ago. The companies would often employ thousands of workers in big call centers with dedicated high-speed data lines in places like India or the Philippines where wages are lower. They are a model of how a decentralized workforce can become a strategic advantage.

IT outsourcing has evolved from relatively simple tasks to much more complex software development. EPAM Systems Inc. EPAM -1.11% has honed this model. Founded in 1993 by Arkadiy Dobkin with a business partner in Minsk, the capital of their native Belarus, the Pennsylvania-based software engineering company sought to bridge the shortage of software talent in Western Europe and North America with the ample supply in Eastern Europe and the former Soviet Union.

Now it has 32,300 professionals spread across its offices, some with just a handful of employees, around the world. They design software systems for businesses, from ticket booking in the travel industry to conducting genomics analysis in biotech. There is little correlation between the location of its employees and its clients: The former Soviet Union accounts for just 4% of sales but 68% of employees.

Today EPAM developers scattered across more than 160 offices in multiple time zones using Microsoft’s collaboration software, Teams, routinely work on a single project. For example, developers in Hungary, Belarus, Ukraine, and the U.S. are working on booking platforms for a major online travel company.

This turned out to be optimal for the world of Covid-19 with its restrictions on physical presence, travel and immigration. “When we had to convert to remote we were already partly there,” said chief marketing officer Elaina Shekhter. “They were already in different time zones, not at the next desk or in the same city or country.” Though stay-at-home orders forced EPAM’s developers to relocate from offices to homes, work proceeded uninterrupted on most contracts. After a dip in the second quarter EPAM expects revenue to resume growing in the third quarter.

While Covid has disrupted demand, the supply of engineers and computer scientists is usually the bigger constraint for IT services, said Jason Kupferberg, who covers the industry for Bank of America. Work-from-home could be a boon by opening up a bigger range of talent for IT consultants. In that, EPAM might have an advantage, he said: a good reputation among recruits and a lower-than-average attrition rate. Mr. Dobkin said he sees a “completely different level of opportunity for a diversified work force.” Another boon for EPAM, he said, is that many companies, having succeeded at work-from-home, are more comfortable working with developers based overseas.

McKinsey & Co. has estimated that global output could be significantly increased simply by better matching talent to jobs through internet based platforms. Christy Johnson, who left her job as a consultant at McKinsey when her daughter was born, said many talented professionals are overlooked because they can’t work 60 to 100 hours a week out of offices in New York or San Francisco. She started Artemis Connection, which provides business strategy advice to midsize companies, to tap this underutilized pool. All 40 of her employees work from home, from California to Wisconsin to Turkey.

“If you go to nonurban areas, there’s amazing talent hanging out,” she said.