It is time to prepare for “the next normal”, write Kevin Sneader and Shubham Singhal for Mckinsey & Company.
The authors believe that dealing with the aftermath of the coronavirus pandemic will be “the imperative of our times” and that it will result in an “imminent restructuring of the global economic order”.
Let that message settle in. Take a deep breath. How are you going to prepare?
FUTURE TRENDS
Sneader and Singhal have considered the lessons of past crises, including the global financial crisis of 2008, and highlighted seven elements that will shape “the next normal”.
1) Distance is back. In 1997, Frances Cairncross, a journalist for The Economist, published The Death of Distance: How the Communications Revolution Will Change Our Lives and Our Work. Thanks to new technologies, distance was no longer the obstacle to progress it once was. Globalisaton was the new paradigm.
Prior to COVID-19, the rise of Donald Trump in the United States and the vote to leave the European Union in the United Kingdom were seen as a revolt against globalisation. Protectionism and tougher controls on immigration were no longer taboo.
In response to the coronavirus pandemic, governments have imposed restrictions on both goods and people. More than three billion people live in countries whose borders are closed to non-residents, and 93% live in countries with tough new restrictions on entry.
It is unlikely these restrictions will remain in place post-coronavirus, but Sneader and Singhal foresee the possibility of tighter border restrictions, a preference for local products and services, sourcing being brought closer to end markets, to strengthen supply chains, and continued and greater resistance to globalisation.
“Technology continues to shrink physical distance, but in other ways, it could be set for a return,” they write.
2) Resilience and efficiency. “COVID-19could end up dwarfing the financial crisis in economic damage,” write Sneader and Singhal.
Following the global financial crisis of 2008, the most resilient companies turned out to be those that went into the crisis with the strongest balance sheets and, in response, cut operating costs most efficiently.
Resilience in the wake of the coronavirus pandemic will take more than that. For example, weaknesses in both just-in-time (JIT) manufacturing and succession planning have been revealed.
In the future, investors are likely to consider resilience when making their valuations.
3) The rise of the contact-free economy. Three pre-coronavirus trends are likely to continue and pick up pace post-coronavirus: e-commerce, telemedicine and automation.
“What the coronavirus has done is to accelerate a change in shopping habits that was already well established,” write Sneader and Singhal. For example, e-commerce transactions in Italy have risen 81% since the end of February.
In the United States, virtual healthcare company Teladoc Health reported a 50% increase in sales in the week ending March 20. In Sweden, KRY International, one of the biggest telemedicine providers in Europe reported a 200% increase in registrations.
In 2017, the McKinsey Global Institute estimated 60% of all jobs could see more than 30% of their key tasks automated by 2030 – and according to the Brookings Institute the last three recessions have increased the pace of automation.
4) More government intervention in the economy. “As of 10 April, governments across the globe had announced stimulus plans amounting to US$10.6 trillion – the equivalent of eight Marshall Plans,” write Sneader and Singhal.
This level of government intervention in business is unprecedented – with most of the money targeted at supporting individual citizens and preserving jobs and businesses – and its effects will be felt long after lockdown is over.
How long will government intervention last? How will it impact you? When long will it last? How will its end impact you?
Sneader and Singhal also suggest that post-coronavirus widespread reform of public health might be a priority, just as reform of the financial sector was following the financial crisis of 2008.
5) More scrutiny for business. In order to cover the US$10.6 trillion governments have pumped into their economies, citizens are likely to have to pay higher taxes and live with fewer public services post-coronavirus. People will expect their sacrifice to benefit the whole of society – and they will expect business to be on the same page.
In response to this new “we’re all in this together” mentality, business will no longer be able to operate solely for the benefit of shareholders. It is time to embrace the “triple bottom line” (profit, people and planet).
HOW WILL YOU RESPOND?
1) Changing industry structures, consumer behaviour, market positions and sector attractiveness. How will your industry look post-coronavirus? How resilient will your company prove to be? Look back over the previous five points and you should be able to attempt to answer these questions.
How will consumers behave post-coronavirus? This is a harder question to answer. But it is reasonable to assume the coronavirus pandemic will change consumer behaviour permanently.
For example, increased health awareness could change people’s eating habits or force citizens and governments to rethink their attitudes to data sharing. The hospitality, tourism and travel industries could see fundamental change. People could start saving more and spending less. And institutions could find new ways to collaborate.
2) Finding the silver linings. It might not seem like it at the moment – but Sneader and Singhal believe there could be some positive outcomes of the coronavirus crisis.
We are all learning new ways to connect. Who hasn’t attended a “meeting” via Zoom in the past couple of months?
Businesses have had the opportunity to test out flexible and remote working. “Business leaders now have a better sense of what can, and cannot, be done outside their companies’ traditional processes,” write Sneader and Singhal.
Health systems across the globe have been tested to their limits (and beyond). In many countries, healthcare reform has proved difficult; the coronavirus pandemic has forced change. “The result should be more resilient, responsive, and effective health systems,” write Sneader and Singhal.
A MATTER OF CHOICE
The future is uncertain; “the next normal” is yet to be decided.
If the wrong decisions are made, it could mean less prosperity, slower growth, widening inequality, increasing support for isolationism and protectionism, and ineffective political systems.
If the right decisions are made, it could mean a more connected world, an explosion of innovation, increased productivity, more resilient industries, and better government.
“The point is that where the world lands is a matter of choice – of countless decisions to be made by individuals, companies, governments and institutions,” write Sneader and Singhal.