In the near term, nations have been mostly focused on surviving the massive disruptions caused by Covid-19. But, what about the longer term? What will the post-pandemic new normal be like for societies and economies? More specifically, how will the pandemic impact the world of business? How can enterprises leverage the crisis to accelerate their journey toward what most everyone agrees will be an even faster changing future? As Rahm Emanuel famously said in a 2008 WSJ interview: “You never want a serious crisis to go to waste.”
“The future is not what we thought it would be only a few short months ago,” said a recent McKinsey article, From thinking about the next normal to making it work. “As businesses step into the post-coronavirus future, they need to find a balance between what worked before and what needs to happen to succeed in the next normal.” The article offers 21 concrete recommendations for succeeding in the next normal, organized into seven major areas. Let me summarize a few of these recommendations.
Rather than assuming that the old ways will return, start thinking through how to organize for a distributed workforce
While there’s some nostalgia for the good-old pre-pandemic days circa January 2020, - when you could bump into people over lunch or coffee, - most executives told McKinsey that they’re pleased with how well remote working has gone. However, there’s also the risk that companies will rely too much on remote working for the roughly one third of mostly white collar office jobs for which it might apply. “Remote work isn’t a panacea for today’s workplace challenges, such as training, unemployment, and productivity loss,” notes the article.
Working from home may well have succeeded during the pandemic because it was viewed as temporary rather than permanent. It worked particularly well for groups that had already built up a reservoir of social capital through countless hours of meetings, informal conversations and other social interactions. But, corporate cultures may well erode over time with mostly remote interactions. Newer employees, in particular, may feel isolated rather than part of a kind of extended family, - an important attribute of a well-functioning organization.
Companies should take the lead to redefine what the workplace now means, including how to best organize a more distributed, remote workforce, - where it works well and where it does not. Properly organized, remote work “could contribute to building a more diverse, more capable, and happier workforce.” Remote work can, for example, help companies draw on a much wider talent pool, make work more accessible for people with disabilities, and offer much needed flexibility to parents and caregivers. But, if not properly managed, working from home will exacerbate work-life balance and burnout issues. Office life has relatively well defined boundaries. But when your home becomes your workplace, “It’s not so much working from home; rather, it’s really sleeping at the office.”
Post-pandemic, companies should lock in those practices that helped speed up decision making and execution. Agile methods are a prominent example. Surveys have repeatedly shown that organizations that embraced agile practices to better respond to fast changing technology and market requirements, have performed significantly better than their counterparts. But, only a minority of companies have done so. The pandemic has now forced many more organizations to embrace agile practices, and for the most part, they’ve have seen positive results.
Similarly, “collaboration, flexibility, inclusion, and accountability are things organizations have been thinking about for years, with some progress. But the massive change associated with the coronavirus could and should accelerate changes that foster these values.”
From just-in-time to just-in-time and just-in-case supply chains
The pandemic has surfaced vulnerabilities in supply-chains around the world. How should enterprises manage their supply chains in such uncertain times? As business executives tried to determine how to best do so, they were largely flying blind because Covid-19 caused disruptions unlike anything seen in over seventy years. The article offers three key recommendations:
Optimize supply chains based on end-to-end values, - e.g., resiliency, efficiency, responsiveness - rather than on individual transaction costs. This often argues for more flexible, shorter supply chains whose competitive advantage comes from speed and reliability.
Redesign supply chains to reduce risk by avoiding being too dependent on any single supplier. This enables companies to react quickly to changes in supply or demand as well as to serious disruptions.
Accelerate next-shoring and the use of advanced technologies. Next-shoring, - building production capacity closer to the ultimate markets, - may well become the new normal. Companies have already been moving away from just-in-time production to more flexible supply chains that can also operate on a just-in-case mode. Digital and AI capabilities, flexible robotics, additive manufacturing, and other technologies can help quickly adjust output levels and product mixes at reasonable costs.
Create longer term value and a better future for all stakeholders
Last year, the Business Roundtable (BRT), - an association of CEOs of major US companies, - released an updated statement on the Purpose of a Corporation. The BRT moved away from its previous commitment to shareholder primacy to now emphasize a “Commitment to All Stakeholders” and “An Economy that Serves All Americans.” This new statement now places shareholder interests on the same level as the interests of all its other stakeholders, including customers, employees, suppliers, and communities.
Corporations clearly have fundamental responsibilities to make money and reward their investors. But, as a 2011 HBR article, Capitalism for the Long Term, points out, “in truth there was never any inherent tension between creating value and serving the interests of employees, suppliers, customers, creditors, communities, and the environment. Indeed, thoughtful advocates of value maximization have always insisted that it is long-term value that has to be maximized.”
Businesses that work to be good citizens create superior value for shareholders over the long term. McKinsey defines long term as five to seven years, - “the period it takes to start and build a sustainable business. That period isn’t that long. As the current crisis proves, huge changes can take place in much shorter time frames.”
Accelerate the transition of digitization and automation
While the need for digital transformation has long been a buzz phrase, a 2018 McKinsey survey found that 85% of respondents wanted their operations to be mostly or fully digital, but less than 20% actually were. Another recent study found that the average digitization level across all industry sectors was only around 25% of the ultimate potential.
Digital infrastructures have kept nations and economies going during Covid-19, - the biggest shock the world has experienced since WWII. The pandemic has now made the case for accelerating the rate and pace of a company’s digital transformation. Enterprises should embrace and scale the changes they were forced to make to help them cope with the crisis. “Companies that accelerate these efforts fast and intelligently, will see benefits in productivity, quality, and end-customer connectivity. And the rewards could be huge - as much as $3.7 trillion in value worldwide by 2025.”
“Businesses around the world have rapidly adapted to the pandemic,” said the article in conclusion. “There has been little hand-wringing and much more leaning in to the task at hand. For those who think and hope things will basically go back to the way they were: stop. They won’t. It is better to accept the reality that the future isn’t what it used to be and start to think about how to make it work.”
“Hope and optimism can take a hammering when times are hard. To accelerate the road to recovery, leaders need to instill a spirit both of purpose and of optimism and to make the case that even an uncertain future can, with effort, be a better one.”
Great recommendations from 20 to a few key ones focused on the economy actors such as employees, stakeholders, supply chain leaders, and the innovation leader in the digital economy space. I still worry about the healthcare system offering protection to the poor & minorities who can't afford to get sick. and the "hit" service and travel industries have suffered such as small shops, restaurants and hotels. there is much to be said about improving the quality of ventilation and air systems to create a clean environment for these activities. and until a vaccine arrives, these businesses will suffer. Welcome environmental engineers & even architects who will be required to install and refurbish outdated ventilation systems to make indoors safe again. Just like populations at risk of hurricanes and earthquakes, the entire world now has to focus on planning ahead for a pandemic risk beyond just COVID-19. Let's definitely learn from this crisis as you quote Irving. Thanks for this piece.
Posted by: elena fernandez | June 15, 2020 at 01:50 PM