While coronavirus certainly is a health crisis of unprecedented proportions, it brings forth an impending restructuring of the economic order. Now, when we look back on this period, we will see it divided into two stark eras: pre-COVID-19 and the “next normal” that is currently surfacing.
Across public, private, and social sectors, leaders are attempting to answer one question: now that our traditional metrics and assumptions have become irrelevant, what will it take to navigate this crisis?
McKinsey attempts to solve this query by putting forth a call to act across five stages that it says will emerge during the next normal that follows the control of this pandemic: Resolve, Resilience, Return, Reimagination, and Reform. These five stages represent the most important factor of our time: the war being waged against COVID-19, which is one that leaders today must win if the path to the next normal will be economically and socially possible.
Across the world, crisis-response efforts are taking place, with a large variety of public-health interventions being deployed. Healthcare systems are under stress to increase their staffs, capacity of beds, and supplies. Though efforts are underway to reduce shortages of much-needed medical supplies, sometimes, these actions fall short. Further, employee-safety and business continuity plans have been increased and remote work has been established as the default operating mode. Many operations are navigating through significant slowdowns, with some attempting to meet demand in critical areas like paper goods, food, and household supplies. Physical classrooms remain shut down, with many educational institutions debating whether students will return in-person this fall. This is the stage upon which leaders are currently focused. Unfortunately, an unhealthy combination of paralysis and inaction remains at a crossroads between choices like lockdown or not and isolation or quarantine. McKinsey recognizes this attitude with its first stage, Resolve, which is the need to determine the pace, scale, and depth of action required at business and state levels.
With trepidation, we all have realized by now that the pandemic has culminated into a burgeoning crisis for the economy and financial systems. While the pullback in economic activity was necessary to protect the public’s health, it’s also threatening the economic wellbeing of citizens and institutions. Central banks and governments are finding it increasingly difficult to keep the financial system functioning due to the rapid succession of liquidity and solvency challenges currently slamming into multiple industries. As uncertainty about the duration, size, and shape of the decline in employment and GDP, a health crisis is turning into a financial crisis, undermining what is left of business confidence. A McKinsey Global Institute analysis, which draws from multiple sources, reports that this economic impact could be the biggest in nearly a century. When we zoom in on Europe and the United States, we find that this decline in economic activity in a single quarter is much greater than the loss of income experienced during the Great Depression of the 1930s. Since these challenges are overwhelmingly daunting, McKinsey notes that resilience is of vital necessity. Near-term issues of cash management for liquidity and solvency are clearly important. Yet, in the near future, businesses will need to act on broader resilience plans as the shock begins to reset competitive positions forever, turning established industry structures on their heads. As businesses attempt to navigate this challenge, most of the population will experience personal financial stress and uncertainty. Public-, private-, and social-sector leaders will need to make difficult “through cycle” decisions that balance social and economic sustainability. Now more than ever, to make and enact these difficult decisions, resilience is key.
As it slowly returns to business as usual, China is showing the rest of the world that getting businesses back to operational health after a severe shutdown is rife with challenges. As global supply chains face disruption in geographies across the world due to the differential scale and timing of the impact of COVID-19, most industries are finding they need to reactivate their entire supply chain. As we examine the chain, we find that its weakest point will determine the success of the return to rehiring, training, and attaining previous levels of workforce productivity. Therefore, in order to return their business to effective production at pace and at scale, leaders must reassess their entire business system and plan for contingent actions. Further complicating this challenge is the fact that winter will bring about a renewed crisis for many countries due to the lack of an effective prophylactic treatment or vaccine, which will likely result in a return to the virus’ rising spread. Governments will face an intensely difficult choice: try to get the economy back on track, but face another sharp economic pullback, or prioritize citizens’ healthy while trying to figure out a way to support the economy.
The preferences and expectations of individuals as consumers, employees, and as citizens will create a discontinuous shift, which will impact how we live, work, and how we use technology. Those that succeed will be entities that reinvent themselves to make the most of better insight and foresight as preferences evolve. For example, the online world of no-contact commerce could be leveraged in ways that reshape consumer behavior forever. However, other effects could, in the long run, prove to be even more significant as the pursuit of efficiency gives way to the requirement of resilience. For instance, the end of supply-chain globalization could bring production and sourcing move closer to the end user. Further, the crisis will reveal opportunities that could improve business’ performance. Leaders will have to reconsider which costs are truly variable versus fixed since the shutting down of huge swaths of production shines a light on what is required versus nice to have. The experience of closing down a lot of global production will influence decisions about how far to expand operations without losing efficiency. Rapid learning about what it takes to drive productivity when labor is unavailable will accelerate opportunities to push the boundaries of technological adoption. The resulting attitude is a stronger sense of what makes businesses more productive, more resilient to shock, and better able to deliver to customers.
Thanks to having undergone the global shock of coronavirus, governments are likely to feel better supported by their citizens to take a more active role in shaping economic activity. As society seeks to mitigate, avoid, and preempt a future public health crisis, business leaders need to anticipate popularly supported changes to policies and regulations. Healthcare systems around the world are determining how to meet the rapid surge in patient volume by combining in-person and virtual care. In this interconnected and highly mobile world, public-health approaches must rethink the global coordination and speed with which they need to react. Aspects that need to be addressed include strategic reserves of key supplies, policies on critical healthcare infrastructure, and contingency production facilities for critical medical equipment. Having learned from the economically induced failures of the last global financial crisis, managers of the financial system and the economy must now deal with strengthening the system to withstand localized and global shocks. One of the positive aspects of this viral pandemic is the opportunity to learn from a multitude of social innovations and experiments, from large-scale surveillance to working remotely. When we come to understand which innovations could provide a substantial uplift to economic and social welfare, we might come out the other side of this crisis with a better understanding of how to build a better society while halting the spread of the virus.
While coronavirus has certainly brought about a significant number of detrimental challenges to the world and our global economy, it also presents some far-reaching opportunities. According to consultancy firm EY, there are several principles that organizations can adopt to get through these challenging times:
You can no longer go about your daily business without considering the impossible. Rather than being dismissible, you should integrate these scenarios into your strategic planning process.
Continuously monitor the situation as it unfolds. Most likely, we will see enormous swings in economic recoveries, public-health outcomes, political stability, investor attitudes, public policy responses, and more. Scan the situation widely as you identify tipping points and other important metrics for your organization.
Right now, organizations need flexibility so they can move quickly when they need to. Examples of these types of changes include moving from physical to virtual or creating more flexible supply chains. By adopting these changes, not only will you weather the crisis, but you will be able to respond to the world of the future.
No matter the industry from which you hail, you likely have had to adapt to the crisis, albeit with varying degrees of severity. While some organizations were better prepared for the challenges presented by COVID-19, others are struggling to adapt to the constantly shifting “normal.”
Different regions, markets, and governments are responding differently to the COVID-19 crisis while consumer demand patterns have been shifting and global supply chains have been disrupted. It’s clear that in order to come out on the other side of this crisis, organizations need to be future-thinking and be flexible to continuously adapt to new and uncertain market conditions.
At Stefanini, we have brainstormed and enacted several solutions that specifically respond to the COVID-19 situation. Be it supporting remote workers, integrating hyper automation in business processes, or paying special attention to cyber security, we offer digital solutions that will bring your company to the next normal. Interested in checking out our answers to COVID-19? Visit our website today!
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