What Now?

Decisive Actions to Emerge Stronger in the Next Normal | 159 pages

What now? Decisive actions to emerge stronger in the next normal. September 2020

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      Cover images Getty Images: Jetta Productions Inc, RichLegg, Xsandra, Hybrid Images, Klaus Vedfelt, Phil Boorman, 4x6, Maskot, Maria Fuchs, LaylaBird Copyright © 2020 McKinsey & Company. All rights reserved. This publication is not intended to be used as the basis for trading in the shares of any company or for undertaking any other complex or significant financial transaction without consulting appropriate professional advisers. No part of this publication may be copied or redistributed in any form without the prior written consent of McKinsey & Company.

      What now? Decisive actions to emerge stronger in the next normal Six months into the COVID-19 pandemic, it is time for companies to act, not react. September 2020

      Introduction As many business leaders return from a summer that was far from normal, they may be asking themselves: What now? Over the past six months, they have reorganized supply chains, set up remote operations, and made tough financial decisions. But without a COVID-19 vaccine yet available, not much feels different, and the summer pause hasn’t done much to relieve fatigue. One priority, then, is to reenergize the organization—to act rather than react. Even as the COVID-19 crisis continues to create a world of uncertainty, the goal must be to rebuild for the longer term. Companies that are strong and resilient will be better placed to survive and prosper. Those are qualities that can’t be taken for granted; they need to be cultivated. There are many different ways to lead, but regardless of the type of business or geography, we believe that the ten actions detailed here are those from which a path to emerge stronger can be found. Not only do leaders need to act now, they need to act boldly. Previous McKinsey research has found that companies that made substantive changes fared better coming out of downturns than those that didn’t. In this compendium, our latest curated collection from among the more than 530 articles McKinsey has published on the COVID-19 crisis since March 2020, we present a selection of articles related to Reform, the last of the five stages on the path leading from the current crisis to the next normal. The previous four are Resolve, Resilience, Return, and Reimagination. All ten of the actions we describe in this compendium what companies can—and perhaps, should—be doing. But there is a particular sense of urgency now; moreover, there is also a new sense of possibility. What we labeled as “Reform” back in March may now be considered more accurately as the start of a significant Reset. Companies have had to make so many changes so quickly—often with startling success—that leaders have every reason to believe they can do even more. Of course, not every company needs to take all ten actions; conditions differ. But we believe that they cover the range of possible activities that fit with the situations in which today’s leaders find themselves. We start with an idea—that returning is a muscle that needs to be exercised, not a plan to be executed once or a date to be achieved. We go on to more specific considerations, such as the need to make big moves fast and to be willing to rethink entire portfolios, including where work gets done. People management will be critical both in ensuring that workplace learning gets its due and in taking care of people. The next normal may also mean resetting how companies relate to their governments and how they should address environmental issues. Finally, having a sense of purpose knits everything together. Knowing what your company stands for—and living those values—provides a framework for sound and ethical decision making. You can download the other compendiums we curated on the first four stages on the path to the next normal from McKinsey.com/pathbeyondcovid-19. Our entire collection of individual insights related to the next normal is at McKinsey.com/thenextnormal. Kevin Sneader Shubham Singhal Bob Sternfels Managing Partner Senior Partner Senior Partner Hong Kong Detroit San Francisco 2

      Contents 1 Think of the return as 5 Make bold 8 Take the lead on climate a muscle portfolio moves and sustainability 5 Return: A new muscle, not just 59 A blueprint for M&A success 95 Confronting climate risk a plan 106 Addressing climate change in a Focus on high-impact 6 Reset technology plans postpandemic world 2 actions 66 Building the vital skills for the 12 The COVID-19 recovery will be future of work in operations 9 Think about the digital: A plan for the first 90 days role of regulation and government 7 Rethink the global 113 ‘And now win the peace’: Ten 3 Rebuild for speed footprint lessons from history for the next normal 21 Ready, set, go: Reinventing the 75 Supply-chain recovery in organization for speed in the coronavirus times—plan for now post-COVID-19 era and the future 127 COVID-19: Strategies for getting ahead of the pandemic crisis 29 Rapid Revenue Recovery: A road 83 From thinking about the next map for post-COVID-19 growth normal to making it work: What to stop, start, and accelerate 10 Make purpose part of everything 4 Reimagine the 133 Igniting individual purpose in workforce from the times of crisis top down 144 The CEO moment: Leadership for a new era 37 Adapting workplace learning in the time of coronavirus 43 Reimagining the postpandemic workforce 51 HR says talent is crucial for performance—and the pandemic proves it 3

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      1 Think of the return as a muscle 5 Return: A new muscle, not just a plan 4

      © Maskot/Getty Images Return: A new muscle, not just a plan Return is not a phase; it’s a way of operating. A nerve center can help build the capabilities that businesses need in the “next normal.” by Mihir Mysore, Bob Sternfels, and Matt Wilson Return: A new muscle, not just a plan 5

      In less than four months, COVID-19 has upended it’s unclear whether once the pandemic recedes, almost all expectations for 2020. Beyond the loss of these customers will return to their old ways or if the life and the fear caused by the pandemic, businesses pandemic will create new types of consumers. around the world have faced disruptions at a speed and scale unprecedented in the modern era. Given these and other uncertainties and the need for experimentation and fast learning to navigate Companies everywhere are now wrestling with the through them effectively, we believe that the next question of how to reach the next normal safely. step in the response of businesses cannot be Many talk about a return to the workplace as a plan thought of as a phase at all. It will be open ended that needs to be implemented: a series of systematic rather than fixed in time. A better mental model steps to reach some kind of stable operating model, is to think about developing a new “muscle”: an in a world where vaccines are adequately available enterprise-wide ability to absorb uncertainty and or herd immunity has been reached. In many cases, incorporate lessons into the operating model these plans suggest a return to some relatable quickly. The muscle has to be a “fast-twitch” one, version of the past. characterized by a willingness to change plans and base decisions on hypotheses about the future— Yet the intrinsic uncertainties that might scupper supported by continually refreshed microdata such plans continue to mount. Executives readily about what’s happening, for example, in each retail admit, for instance, that it is tough to write a deter- location. And the muscle also needs some “slow- ministic return plan because of the likelihood of twitch” fibers to set long-term plans and manage a resurgence, discoveries about how the virus is through structural shifts. transmitted and whom it affects, the nature and duration of immunity, and continued changes in Many companies are trying to hang on until a full the quality and availability of testing and contact reopening, perhaps made possible by a vaccine tracing. The best possible plan today is merely or herd immunity. Meanwhile, they are configuring a strawman that will need near-continuous their resources to be ready by then. That’s risky; recalibration and change. despite promising news from early clinical trials, a full reopening could be many months away—months Another critical uncertainty is the future of remote when companies must adapt to reality if they are to work. Some feel that recent events have driven survive. Already, signs of viral resurgence in Asia a real productivity gain they do not want to lose. are causing companies fixated on plans to rewrite However, they recognize that a wholesale shift to them hurriedly. remote work has had many false dawns. Silicon Valley has experimented with it most extensively, but In this article, we will outline four forces whose after many attempts to implement telecommuting, uncertain outcomes will shape the years to come, as our research found that at 15 top firms, only 8 well as the steps needed to build the return muscle percent of the employees work remotely. These to grapple with these forces—especially the nerve companies do not want to try this again only to roll it center that powers the muscle. Once the center has back in a few years. been built and incorporated into a new operating model across the organization, muscular companies Customer behavior is a third unknown. Companies will be ready for a new era of competition. We won’t see the clear shift to digital among consumers and say that this work will make companies future proof; its inevitable impact: online shopping has expanded the pandemic has exposed the folly of that idea. But by up to 60 percent in some categories, and up to we argue that building a return muscle is the right 20 percent of online consumers in the United States discipline for these times. have switched at least some brands recently. But 6 What now? Ten actions to emerge stronger in the next normal September 2020

      With tens of millions of jobs lost, and more to come, the workforce is absorbing the brunt of the economic blow. Four forces that will mold the fallen not only as a result of this greater economic next normal uncertainty but also continuing concerns about Out of the chaos of the first few months of COVID-19, personal health and an increased preference four forces that could shape the next era in business for simpler connections with family rather than are emerging. expensive items or experiences. The economic recovery in China has been one of the world’s The metamorphosis of demand fastest—yet its consumption is still more than No one has failed to notice how the pandemic has 20 percent lower than before the outbreak. shifted demand online. Twice as many consumers now shop online for groceries. Across categories, Rapid changes in the workforce the number of consumers who now use digital With tens of millions of jobs lost, and more to channels has increased by an average of about come, the workforce is absorbing the brunt of the 20 to 25 percent. And first-time digital consumers economic blow. A new McKinsey Global Institute account for almost 40 percent of the growth in study finds that up to one-third of US jobs may be digital goods and services. As consumers shift vulnerable to furloughs, pay cuts, and layoffs. Low- income workers hold 80 percent of those jobs.2 to digital, loyalties are also in play: some 15 to 20 percent of US shoppers have switched websites The single biggest challenge facing employers since COVID-19 started. may be deciding how and when to add workers to the payroll. Yet the shift to digital is by no means universal. In banking, recent McKinsey surveys find that Strangely, with so many sidelined, some industries 13 percent of retail customers expect to use mobile are experiencing shortages. Many people cannot banking services more, 7 percent to use them less.1 return to their jobs because of health-related issues, including workers who are ill, quarantined, Planning for demand is extraordinarily challenging. caregivers, or vulnerable to infection. But employers Many macroeconomic recovery scenarios are on the are also finding that newly needed skill sets are table, from late 2020 to beyond 2023. Each sector in short supply, such as digital sales skills in B2B has its own particular effects from the pandemic field sales forces, productivity-based management and the government response. That translates techniques at a time when productivity is tougher to into wide variations in the timing and strength of measure, and many others. a recovery in demand. Overall consumption has 1 Kevin Buehler, Miklós Dietz, Marie-Claude Nadeau, Fritz Nauck, Lorenzo Serino, and Olivia White, “Stability in the storm: US Banks in the pandemic and the next normal,” May 2020, McKinsey.com. 2 Susan Lund, Kweilin Ellingrud, Bryan Hancock, James Manyika, and André Dua, “Lives and livelihoods: Assessing the near-term impact of COVID-19 on US workers,” April 2020, McKinsey.com. Return: A new muscle, not just a plan 7

      Other changes are roiling the workforce. Among to show; at that point, some form of aerosolization white-collar workers, remote work has become the expands the reach of the virus.3 Other studies point new norm. Some are thrilled about their greater to the prevalence of asymptomatic patients. And productivity and flexibility, as well as the time and the sharing of major transmission events affords sanity reclaimed from long, stressful commutes. another window of learning from the virus. A recent Others cannot wait to get back to the office: for case involved an unwitting COVID-19 carrier in a them, the lack of a home-office setup and the restaurant who sneezed into an air-conditioning inability to separate work from life are major sources duct and spread the infection to everyone there. of stress. Dual-career couples have additional stresses, which may increase if schools cannot Other critical recent findings focus on seasonality. open in a few months. Finally, as companies try Hopes for a rapid fall in COVID-19 cases as summer new models of remote and on-site work, novel approaches in the Northern Hemisphere have challenges may arise, such as widely different subsided: in Asia the resurgent virus is once again subcultures for these two groups of workers—with taking hold, despite the onset of summer, and very different norms, expectations from employers, its transmission is increasing in warmer climates and team health. around the world. More economic activity and reduced physical distancing have also driven a Shifts in regulation resurgence of the virus. These developments Regulators and governments around the world are have important lessons for companies: any regime using varied philosophies of public health; Sweden, of interventions that they set up cannot ignore for example, is focusing on achieving herd immunity. presymptomatic and asymptomatic patients. There Many countries do not have consistent national should be a real focus on facilities and how they are health standards; for instance, 13 US states today configured. ban all gatherings, 24 ban gatherings of over ten people, ten or so let about 20 to 50 people gather. Early concerns about significant bottlenecks in The rest have completely lifted their bans or have testing are, slowly but surely, starting to ease. This taken no action. Variation among cities and counties welcome news is coinciding with the arrival of a is even starker. A wide range of societal beliefs, broader range of testing options. Testing will be a economic realities, and political challenges underlie critical question in coming weeks and months as these choices. increasing numbers of employers try to ensure a safe return to the workplace—the core task—by For leaders whose businesses span multiple looking to new polymerase chain-reaction (PCR) geographies, ensuring consistency is highly tests, more informative serological tests (current challenging. Business leaders are understandably versions have known issues), and other new anxious to protect their employees while ensuring developments. All the new information should compliance. They know that they need to establish help companies set distancing guidelines, stagger some level of productivity to preserve the future of shifts, develop new hybrid on-site/remote models, their companies. and so on. Every move will have to be evaluated immediately and refined as necessary—a tough task, Increasing information about protocols for safety but one that the nerve center can accept in stride. The gargantuan medical and scientific effort focused on COVID-19 has already produced important insights that directly affect how Building the muscle for response — companies respond. For instance, newer and resilience studies have suggested that the point of highest Most companies have already established “war transmissibility is the day before symptoms begin rooms” to coordinate the recovery and the return 3 Xi He et al, “Temporal dynamics in viral shedding and transmissibility of COVID-19,” Nature Medicine, April 15, 2020, nature.com. 8 What now? Ten actions to emerge stronger in the next normal September 2020

      from the pandemic. But these are not sufficient, others can provide clues about which digital and because they focus, for example, on tactical plans physical journeys people are starting to choose. to get people back into offices, to reopen their retail As stores reopen, microdata can provide granular stores once the lockdown is lifted, or to get their information on footfall at specific sites and on sales reps back on the road. Instead, companies spending there. These data can inform decisions should expand their war rooms into fully fledged about reopening retail locations and ideas for return nerve centers. improving the digital experience. Such a nerve center is a flexible structure that Companies also need some way of understanding concentrates crucial leadership skills and the capability gaps of their sales forces (such as organizational capabilities and gives leaders the digital sales, for reps who work primarily in the best chance of getting ahead of events rather than field). They should then address these gaps quickly reacting to them. It has enterprise-wide authority through virtual training, mentoring, and other levers. and enables leaders and experts to test approaches There is no established playbook on effective quickly, to preserve and deepen the most effective sales in a pandemic. Companies will need to solutions, and to move on ahead of the changing experiment, see what works, and then disseminate environment.4 the findings on their learning platforms. To deliver In the following, we sketch out what the nerve center does, how it works, the technology what customers want, companies will need to it requires, and some of the benefits. build smooth digital and contactless customer experiences, which might require updates to the Anticipation: How the nerve center sees underlying IT architecture. around corners Nerve centers will probably be in place for the Two teams next 12 to 18 months. Their core mission is to listen Nerve centers can realize these needs through two closely for the signals emitted by the four forces. core teams. First, a delivery team works toward a Consider the shifting sands of consumer demand. clearly defined objective and then learns from it. As contradictory signals emerge, companies need to That’s different from the typical approach: crafting know, for example, if they face sandbars up ahead, a supposedly perfect plan and then trying to where the channels are, and where the open ocean execute it. Second, a plan-ahead team learns from is. To plot a course, executives have to monitor the the experience of the delivery team (especially the signals of a digital shift and decide how deeply their failures) and complements this with fast lessons categories are affected. from other sources. A critical role for the plan-ahead team involves basing medium-term strategic moves Other signals might emerge from brand loyalty: the on clear trigger points and pushing the organization propensity of consumers for some brands versus to implement these ideas more quickly than might Companies will need to experiment, see what works, and then disseminate the findings on their learning platforms. 4 Mihir Mysore and Ophelia Usher, “Responding to coronavirus: The minimum viable nerve center,” March 2020, McKinsey.com. Return: A new muscle, not just a plan 9

      normally feel comfortable. Examples could include The reward is resilience standing up new sales channels, accelerating new- Getting the return muscle right will be the key to product launches, creating new business models, building resilience throughout the organization. or M&A. Today, for instance, investors and companies are asking increasingly probing questions about The plan-ahead team can also stress-test core parts whether their business partners can truly deliver in of the enterprise operating model by focusing on the more extreme circumstances that seem possible the supply chain’s resiliency, liquidity, assumptions over the next few years. Genuine investments in about customer demand, and the robustness of the resiliency may be an essential part of survival for operating model. many businesses, providing the cushion required by further setbacks that might be in store over the next Processing the signals: The data platform year or two. To function well, nerve centers will need to collect data from a wide range of sources (not only their Many companies are sweating the details of their own operations but also public-health agencies, return plans rather than building the capabilities policy announcements, and economic indicators), needed for a return. They are running spreadsheets synthesize this information in real time, and translate to see how many people spaced six feet apart will it into action. A nerve center with a nimble information fit in an office, planning one-way paths through system can help a company to keep up with rapid the workplace, and figuring out adaptations to rest change in the virus’s spread; to answer questions rooms, lunch rooms, and entrances. All of those are about, for example, what holiday shopping will look critical tasks, but they are not enough. The ability like without a vaccine; or to cope with a resurgence in of top leaders to refocus on the task of building the fall. Companies need an information platform that sustainable capabilities will define the companies captures such data, flags them if certain thresholds that emerge intact from the pandemic over the next are breached, and helps generate responses to two years. problems. Many companies have most of what’s needed; they can organize these resources to form an agile technology capability in a few weeks—not months or years. Mihir Mysore is a partner in McKinsey’s Houston office, Bob Sternfels is a senior partner in the San Francisco office, and Matt Wilson is a senior partner in the New York office. Copyright © 2020 McKinsey & Company. All rights reserved. 10 What now? Ten actions to emerge stronger in the next normal September 2020

      Focus on high-impact actions 12 2 The COVID-19 recovery will be digital: A plan for the first 90 days 11

      © Dani3315/Getty Images The COVID-19 recovery will be digital: A plan for the first 90 days The rapid migration to digital technologies driven by the pandemic will continue into the recovery. Here’s how to accelerate your organization’s digital capabilities to keep pace. by Aamer Baig, Bryce Hall, Paul Jenkins, Eric Lamarre, and Brian McCarthy 12 What now? Ten actions to emerge stronger in the next normal September 2020

      By now, most C-suite executives have led Second, as the economy lurches back, demand their companies to digitize at least some part of recovery will be unpredictable; uneven across their business to protect employees and serve geographies, sectors, product categories, and customers facing mobility restrictions as a result customer segments; and often slow to return of the COVID-19 crisis. As one CEO of a large tech to precrisis levels. While a few sectors will face company recently stated, “We are witnessing what unusually strong demand, leaders in many will surely be remembered as a historic deployment industries must deal with periods of structural of remote work and digital access to services overcapacity. Those companies face the painful across every domain.” need to rightsize the cost base and capital of their operations, supply chains, and organizations overall Indeed, recent data show that we have vaulted five and to transition their fixed costs to variable costs years forward in consumer and business digital aggressively wherever possible. Complicating adoption in a matter of around eight weeks. Banks matters for leaders as they grapple with ways to have transitioned to remote sales and service teams deal with an uneven recovery is that historical data and launched digital outreach to customers to and forecasting models will be of little use to predict make flexible payment arrangements for loans and where pockets of demand will emerge and where mortgages. Grocery stores have shifted to online supply will be necessary. New data and completely ordering and delivery as their primary business. rebuilt analytical models will be essential to steer Schools in many locales have pivoted to 100 percent operational decisions. online learning and digital classrooms. Doctors have begun delivering telemedicine, aided by more Finally, many organizations have shifted to remote- flexible regulation. Manufacturers are actively working models almost overnight. A remote-first developing plans for “lights out” factories and setup allows companies to mobilize global expertise supply chains. The list goes on. instantly, organize a project review with 20—or 200—people immediately, and respond to customer As some regions begin reopening, businesses inquiries more rapidly by providing everything from are considering how to return to some semblance product information to sales and after-sales support of full speed in an unstable environment in which digitally. In effect, remote ways of working have, at lockdowns will ease (and potentially be reinstated) in least in part, driven the faster execution drumbeat waves. In doing so, they will need to confront three that we’re all experiencing in our organizations. structural changes that are playing out. And this step change in remote adoption is now arguably substantial enough to reconsider current First, customer behaviors and preferred interactions business models. have changed significantly, and while they will continue to shift, the uptick in the use of digital Quickly pivoting the business agenda to address services is here to stay, at least to some degree these changes will be critical for a successful (Exhibit 1). Fully 75 percent of people using digital recovery. Digital will undoubtably play a center- channels for the first time indicate that they stage role. We offer suggestions for a 90-day will continue to use them when things return to plan to realign the digital agenda and implement “normal.”1 the enablers for acceleration during the recovery Companies will need to ensure that their digital channels are on par with or better than and beyond. those of their competition to succeed in this new environment. If China offers us any lessons, digital laggards will be substantially disadvantaged during the recovery. 1 McKinsey COVID-19 US Digital Sentiment Survey, April 2020. The COVID-19 recovery will be digital: A plan for the first 90 days 13

      Article type and Year Article Title Exhibit X of X Exhibit 1 US consumers are accelerating adoption of digital channels, a trend seen across global regions. Digital adoption, by industry, … of digital access ‹egular users Firsttime users †an‡ing ˆntertainment ‰rocery  arel tilities Šelcom Šrael Insurance 73 carriers 21 64 61 24 31 45 13 39 38 37 35 9 11 6 8 51 40 30 31 30 27 31 27 1 Note: Figures may not sum to listed totals, because of rounding. Source: McKinsey COVI1 S igital Sentiment Surey,  r ­€–­ƒ, ­„­„ Based on data from countries already in the recovery phase, consumption patterns will be uneven and unlikely to return to pre-CO- levels uickly. Average daily China offline consumption,… Ž1„„… ˜ daily aerage consum tion in ec ­„1” ›rior to COVIœ1 ›rior to CŒinese uring COVIœ1 ea‡ fter COVIœ1 ea‡ 100 žunar Ne• –ear 39 79 ­€„ 125 ­„„ 1€„ 1„„ €„ „ ec ­„1 Ÿan ­„­„ Feb ­„­„ Mar ­„­„ First šuŒan CŒinese žunar žo•ered emergency confirmed loc‡do•n Ne• –ear res onse leel in case in most localities1 šuŒan 1 On Mar ƒ, ­„­„, ­1 CŒinese roinces Žinoling ‘’„… of country’s o ulation” announced lo•ering of e idemicres onse leel. Source: MI–— McKinsey analysis he levels of remote working have skyrocketed during lockdowns and are likely to remain higher than precrisis levels for some time. Share of employees working remotely full time, … Information¥ ›rofessional and Financial Manufacturing ˆducation and ŠMŠ serices1 business serices actiities ŒealtŒ serices 84 74 70 61 ­ ¦’€ ¦§ ¦§€ ¦€ 36 ¦¢£ 9 5 5 2 2 1 ŠMŠ ˜ tecŒnology, media, and telecom. ›reCOVI1 figures for remote•or‡ fre¡uency in sector sourced from internal surey Žunaailable in merican Šime se Surey”. ­ ›ercentage oints. Source: merican Šime se Surey, S †ureau of žabor Statistics, n ˜1¢£— e¤ ert interie•s— ress searcŒ— McKinsey analysis 14 What now? Ten actions to emerge stronger in the next normal September 2020

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      The digital agenda for recovery Refocus digital efforts toward For many companies, customers have already changing customer expectations migrated to digital. Employees are already working Many companies are accelerating their shifts toward fully remotely and are agile to some degree. digital-first models—at warp speed. One European Companies have already launched analytics variety-store chain, for example, established a fully and artificial-intelligence (AI) initiatives in their functioning e-commerce business in just three operations. IT teams have already delivered months. The online business was interconnected at a pace they never have before. But for most across all functions (warehousing, merchandising, companies, the changes to date represent only the marketing, customer support, et cetera) and first phase of the changes that will be necessary. improved basket size over physical stores by three times as well as delivering nearly 3 percent like-for- We have laid out an agenda that focuses on like revenue growth in its main market. four efforts: refocusing and accelerating digital investments in response to evolving customer But it’s not just about digitizing. Companies must needs, using new data and AI to improve business also reimagine customer journeys to reduce friction, operations, selectively modernizing technology accelerate the shift to digital channels, and provide capabilities to boost development velocity, and for new safety requirements. For example, an increasing organizational agility to deliver more automobile manufacturer now handles functions quickly. For each one, we outline a practical 90-day GES 2020 traditionally performed by dealers, such as trade- plan to make it happen (Exhibit 2). ins, financing, servicing, and home delivery of COVID Digital Exhibit 2 of 3 Exhibit 2 A plan for the first 90 days has four efforts to launch immediately. Refocus digital efforts Use new data Selectiely ncrease 1 toward changing and A to improe modernie technology organiational customer expectations usiness operations capailities drumeat Sprint 1: Align organization to Assess performance of Create rightsizing plan Assess where days 129 new digital priorities critical decision-support for shifting to variable organizational velocity is models cost structure and begin needed and where assessing cyberrisks remote-work models could drive productivity Sprint 2: Bring digital channels ecalibrate andor et up cloud-based data eploy new models days  9 to parity or better vs rebuild models platform and automate leveraging agile and competition software-delivery pipeline remote Sprint : aunch new digital evelop net-generation Begin strengthening ­pskill organization days ­9 offerings or channels data sets and models for technology talent bench for accelerated digital optimal performance world 1 Artificial intelligence. The COVID-19 recovery will be digital: A plan for the first 90 days 15

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      cars. Airlines are rapidly reinventing the passenger Use new data and artificial intelligence experience with contactless journeys focused on to improve business operations traveler health and safety to make customers feel Hundreds of operational decisions get made on comfortable flying again (Exhibit 3). daily, weekly, and monthly bases. Take an airline, for example, that must make many decisions: In the next 90 days. CEOs should ask their business Which routes should we operate? What crew size leaders to assess how the needs and behaviors of is optimal for each flight? How many meals should their most important customers have changed and we order? What staffing level is necessary in the benchmark their digital channels against those of contact center? their competition. This information should form the basis of a renewed digital agenda that should take Modern businesses have several forecasting no longer than 30 days to establish. and planning models to guide such operational decisions. Organizations will need to validate these Chief digital officers and chief information officers models. In the same way that many companies (CIOs) can then quickly stand up (or refocus) agile had to rebuild risk and financial models that failed teams to execute the most urgent priorities. A during the 2008 financial collapse, models will consumer-electronics company, for example, recently similarly need to be replaced because of the launched an agile war room to improve conversion massive economic and structural shifts caused by rates on its website traffic. That type of project can the pandemic. For example, models that use time- deliver meaningful results in weeks. Changes that series, oil-price, or unemployment data will need to require more fundamental work, like setting up a be rebuilt entirely. The data must be reevaluated new e-commerce channel, will typically take longer. as well. Continually measuring digital-channel performance during the 90 days will be critical so that companies As companies construct these models, analytics can quickly adapt as they learn more. Consider teams will likely need to bring together new data GES 2020 setting up a weekly forum for senior business sets and use enhanced modeling techniques to COVID Digital and technology leaders to process the learnings forecast demand and manage assets successfully. Exhibit 3 of 3 coming in and drive the full agenda at pace and in a One automotive-parts supplier, for example, coordinated fashion. developed a forecasting model that incorporated Exhibit 3 The travel industry is mapping out the customer journey to identify points of health risk and design a contactless experience. Illustrative customer journey with ideas for mitigating risks “Safe-o-meter” Visible Robot using Touch-free ully digital hotels to plan security-tray UV1 cleaning end-to-end medical serices options sanitization for transport journey lined to hotel 1 Ultraiolet 16 What now? Ten actions to emerge stronger in the next normal September 2020

      What Now? - Page 18

      previously unused third-party data. The model will Many companies have found they have the potential help the supplier spot potential issues with its own to free up as much as 45 percent of their IT costs suppliers’ ability to deliver needed items, offering over the course of a year. Our experience suggests a chance to reach out to its suppliers to work out that roughly two-thirds of this potential can be logistics or find another source. achieved through measures such as extending hardware- and software-refresh cycles, rapidly Other business areas can benefit from more renegotiating vendor contracts, and restricting cloud sophisticated modeling as well. A leading financial- workloads by turning off noncritical jobs. Additional services provider, for example, stood up an cuts get deeper into the cost structure and risk AI-powered solution to generate leads for its hamstringing future growth. The right balance will sales agents, with models calibrated to handle the vary by industry, but under any scenario, rightsizing current environment. should expose much needed investment capacity as quickly as possible to fund the 90-day plan. In the next 90 days. As a first step, the chief analytics officer (or equivalent) should mobilize As CIOs consider upgrading their tech stacks, two an effort to inventory core models that support features of a modern technology environment business operations and work with business leaders are particularly important and can be rapidly to prioritize them based on their impact on key implemented: a cloud-based data platform and an operations and their efficacy drift. This assessment automated software-delivery pipeline (commonly is urgent and should be completed as quickly as called “continuous integration and continuous possible. It will essentially define a program of delivery”). Without these, development velocity quick fixes that the data and analytics team can stalls and becomes mired in complexity. The good undertake, working hand in hand with business and news is that cloud technologies make it possible to functional leaders. Once the situation stabilizes, deploy these quickly and at relatively low cost. CEOs and business leaders should push their data and analytics teams to develop next-generation In the next 90 days. First, develop the plan to models that leverage new data sets and modeling rightsize and create a more variable cost structure— techniques better suited for fast-changing the faster the better to free up resources for the environments. The more advanced companies are digital agenda. already creating synthetic data sets using advanced machine-learning techniques, such as generative In the second 30-day sprint, choose your cloud adversarial networks (GANs) to train new analytical partners. While speed is of the essence, CIOs should models when historical data are of little use. thoughtfully consider the contractual structures offered by technology providers. Carefully review those that appear too good to pass up to ensure Selectively modernize that the providers aren’t capturing all the value. And technology capabilities remember to launch appropriate internal efforts Successfully executing the described agenda to train and prepare teams to operate in the new requires investment capacity and development environment. During this sprint, it’s also time to velocity. CIOs can contribute to both by rightsizing modernize the tech stack selectively—“selectively” the IT cost structure to new demand levels and being the operative word. Most companies won’t reinvesting the freed-up resources into customer- have the management bandwidth and resources to facing digital solutions and critical decision-support take on a full-scale modernization in the next 12 to systems, first and foremost. Companies can also 18 months. By focusing on setting up or enhancing dedicate some of the savings to modernizing a cloud-based data platform and equipping agile selectively the technology stack and software- teams with automated software delivery, CIOs can development tooling. double, or even triple, development velocity in the short term. The COVID-19 recovery will be digital: A plan for the first 90 days 17

      Remote working can help organizations move at a faster clip as companies tap into new labor pools and specialized remote expertise. (And, yes, agile can be executed remotely.) In the final sprint, it’s a no-brainer to launch the What can realistically be done in 90 days to increase recruiting of additional digital talent and accelerate the organizational drumbeat? Standing up a digital digital upskilling of the entire organization. These factory is largely the best approach right now steps will prepare organizations well for a more because it can be constructed and scaled in three substantive modernization of their application months or less. Many organizations, from banks to landscapes after recovery. Finally, continue to pay mining companies, have accelerated and scaled attention to cybersecurity. Much of the rapid IT work their digital delivery by establishing these internal carried out during the COVID-19 crisis might have factories, with interdisciplinary teams aligned to created new cyberrisk exposures. businesses’ digital priorities. One large global bank, for example, built five such factories to support several locations across the Americas. Increase the organizational drumbeat The current crisis has forced organizations to adapt As previously mentioned, remote working can rapidly to new realities, opening everyone’s eyes also help organizations move at a faster clip as to new, faster ways of working with customers, companies tap into new labor pools and specialized suppliers, and colleagues. Many CEOs wonder remote expertise. (And, yes, agile can be executed what it will take to maintain the quickened remotely.) Remote working can also enable new organizational drumbeat. productivity opportunities, especially for companies with large field forces. One leading provider of Companies that have led the way in adopting residential solar services recently documented flatter, fully agile organizational models have shown record sales using a more remote sales model. substantial improvements in both execution pace and productivity. This has held true during the crisis, In the next 90 days. During the first sprint, identify as we see a direct correlation between precrisis the business areas where digital-execution agile maturity and the time it has taken companies velocity is needed and map out plans for digital to launch a first crisis-related product or service. factories to support them. In parallel, assess where While many companies have at least a few agile remote work models could unleash productivity teams in place, few have successfully scaled to benefits. These two lenses should set the table hundreds of teams staffed with many more “doers” for targeted changes to the operating model. In than “checkers,” which is what’s needed to drive the second 30-day sprint, design the new models the accelerated organizational pace the crisis—and with consideration for staffing level, expertise mix, even the next normal—demands. governance, and operating procedures. Finally, in 18 What now? Ten actions to emerge stronger in the next normal September 2020

      the third month, implement and operationalize the support systems, and tune their organizational new designs. We know from experience that three models and tech stacks to operate at the highest months is sufficient to implement and scale a digital effective speed. In other words, C-level executives factory. We have also seen banks, pharmaceutical must point their digital firepower at the right targets companies, and insurance companies pivot entire and quickly execute against them. It’s essential field forces to a remote model in a few weeks. to set these targets at the outset and regularly measure progress against them. Achieving parity or better across digital channels to win the revenue race, rebuilding the most critical decision-support Leaders who want to succeed in the digital-led models, and doubling development velocity are recovery must quickly reset their digital agendas to goals that are all within reach. The 90-day plan will meet new customer needs, shore up their decision- help organizations get there. Aamer Baig is a senior partner in McKinsey’s Chicago office; Bryce Hall is an associate partner in the Washington, DC, office; Paul Jenkins is a senior partner in the Oslo office; Eric Lamarre is a senior partner in the Boston office; and Brian McCarthy is a partner in the Atlanta office. Copyright © 2020 McKinsey & Company. All rights reserved. The COVID-19 recovery will be digital: A plan for the first 90 days 19

      Rebuild for 3speed 21 Ready, set, go: Reinventing the organization for speed in the post-COVID-19 era 29 Rapid Revenue Recovery: A road map for post-COVID-19 growth 2020

      © Kurmyshov/Getty Images Ready, set, go: Reinventing the organization for speed in the post-COVID-19 era The need for speed has never been greater. Here are nine ways companies can get faster. by Aaron De Smet, Daniel Pacthod, Charlotte Relyea, and Bob Sternfels Ready, set, go: Reinventing the organization for speed in the post-COVID-19 era 21

      When the coronavirus pandemic erupted, “I asked on Monday, and by Friday we had a companies had to change. Many business-as-usual working prototype.” approaches to serving cus tomers, working with suppliers, and collaborating with colleagues—or “We have increased time in direct connection just getting anything done—would have failed. with teams—resetting the role and energizing They had to increase the speed of decision making, our managers.” while improving productivity, using technology and data in new ways, and acceler ating the scope “We adopted new technology overnight— and scale of innovation. And it worked. Organi- not the usual years—as we have a higher zations in a wide range of sectors and geographies tolerance for mistakes that don’t threaten have accomplished difficult tasks and achieved the business.” positive results in record time: “We’re putting teams of our best people on Redeploying talent. A global telco redeployed 1,000 the hardest problems. If they can’t solve it, no store employees to inside sales and retrained them one can.” in three weeks. Because of the pandemic, leadership teams have Launching new business models. A US-based embraced technology and data, reinventing retailer launched curbside delivery in two days versus core processes and adopting new collaboration the previously-planned 18 months. tools. Technology and people interacting in new ways is at the heart of the new operating Improving productivity. An industrial factory ran model for business—and of creating an effective at 90-percent-plus capacity with 40 percent of postpandemic organization. the workforce. So is speed. An organization designed for speed Developing new products. An engineering company will see powerful outcomes, including greater designed and manufactured ventilators within a week. customer responsiveness, enhanced capabilities, and better performance, in terms of cost efficiency, Shifting operations. Coordinating with local officials, revenues, and return on capital. The speedy a major shipbuilder switched from three shifts to company might also find it has a higher sense of two, with thousands of employees. purpose and improved organizational health. These outcomes are possible, but not inevitable. Organizational successes forged during the crisis The need for speed: No turning back need to be hardwired into the new operating At the heart of each of these examples is speed— model; and leaders must ensure their organizations getting things done fast, and well. Organizations do not revert to old behaviors and processes. have removed boundaries and have broken down That requires making permanent structural changes silos in ways no one thought was possible. They that can sustain speed in ways that will inspire have streamlined decisions and processes, empow- and engage employees. ered frontline leaders, and suspended slow-moving hierarchies and bureaucracies. The results, CEOs from a wide range of industries have told us, Reinventing the organization for speed have often been stunning: As companies adopt new ways of working at speed, executives are also interested in moving “Decision making accelerated when we cut to flatter, nonhierarchical structures, taking more the nonsense. We make decisions in one radical approaches to decision making and ways meeting, limit groups to no more than nine of working. Gone are the days of waiting around for people, and have banned PowerPoint.” best practices to emerge. CEOs recognize the need 22 What now? Ten actions to emerge stronger in the next normal September 2020

      to shift from adrenaline-based speed during is the new annual.” Holding just-in-time, fit-for- COVID-19 to speed by design for the long run. The purpose planning and resource allocation on winners are experimenting now, and boldly. a quarterly instead of annual basis is not only faster Here are nine actions to unleash sustainable but also makes the organization more flexible. speed (exhibit). Finally, non-mission-critical decisions can be The first three actions aim to rethink ways of delegated, so that top leaders focus on fewer, more working. Many leaders have had to do this during important decisions: think “assign to the line” the pandemic and are keen to keep those that have rather than “go to the top.” That means tolerating worked well: mistakes that don’t put the business at risk; a slow decision can often be worse than an imperfect 1. Speed up and delegate decision making. The one. The principle is simple: organizations that pandemic has shown that it is possible to make deci- want to move faster must motivate their employees sions faster without breaking the business. What to be willing to act. this means in practice is fewer meetings and fewer decision makers in each meeting. Some organizations 2. Step up execution excellence. Just because the are taking to heart the “nine on a videoconference” times are fraught does not mean that leaders principle. Others are keeping larger 30- to 40-person need to tighten control and micromanage execution. meetings (so the people that need to implement Rather the opposite. Because conditions are the decisions are present) but cutting the number so difficult, frontline employees need to take on of people with a vote. There is also less detailed more responsibility for execution, action, preparation for each meeting, with one- to two- and collaboration. page documents or spreadsheets replacing lengthy PowerPoint decks. But this isn’t always easy and requires that organi- zations focus on building execution muscle Organizations are also increasing the cadence of throughout the workforce. Leaders must assign decisions, taking on the mantra that “quarterly responsibility to the line, and drive “closed-loop Exhibit Unleashing sustainable speed is a process. Unleashing sustainable speed is a process. Rethink ways of working Reimagine structure Reshape talent 1. Speed up and delegate 4. Flatten the structure . Field tomorro s leaders today decision making 5. Unleash nimle ­. €earn ho to learn 2. Step up execution excellence empoered teams ‚. ƒethink the role o„ C…†s 3. Cultivate extraordinary . ake hyrid ork ork and leaders partnerships Ready, set, go: Reinventing the organization for speed in the post-COVID-19 era 23

      What Now? - Page 25

      accountability.” That is, everyone working on The two were able to rapidly form a partnership to a team must be clear about what needs to get done manufacture the devices at scale, and the Food by whom, when, and why. Employees must also and Drug Administration gave it an emergency- be equipped with the right skills and mindsets to use authorization. solve problems, instead of waiting to be told what to do. And there must be disciplined follow-up As this example illustrates, partners are increasingly to make sure actions were taken and the desired important in dealing with the pace of change, results achieved. complexity, and disruptions that are becoming the norm. The rate of technological and business- CEOs who are serious about execution excellence model innovation alone makes it nearly impossible are investing in helping their workforces up for any single organization to do everything itself. their execution game—through targeted programs, Furthermore, the connected world is breaking down realigning incentives, and directing rewards and the traditional boundaries between buyers recognition to teams that execute with speed and and suppliers, manufacturers and distributors, and excellence. Building execution excellence does employers and employees. not have to come at the expense of innovation. Quite the contrary: it can help discover powerful ideas For partnerships to be successful, the relationship and innovation from the frontline teams that are must be built on deep trust, for example by adopting closest to the customer. And it can drive excitement a more open-source approach to innovation and and loyalty among the employee base. embedding the partner into everything from strategy- setting to routine operations. Trust allows the Consider the example of a chemical company that is parties to integrate their systems and processes, undergoing an enterprise-wide transformation of enabling them to find solutions, make decisions its business. Every meeting begins with a statement quickly, and execute efficiently. In the case of J&J of objectives and ends with a list of actions to and Prisma Health, they had a shared mission to take, including those who are responsible for help patients and medical professionals. each. Outcomes and milestones are tracked, and employees are rewarded for achieving their goals. The next three actions aim to reimagine structure Leaders communicate the purpose of these actions to go beyond the traditional “boxes and lines” and (the why behind the what and the how) and build toward the development of the kinds of teams that conviction in their employees to do the right thing. work together to deliver value: Employees, in turn, are motivated by a sense of personal ownership and pride. By knowing who 4. Flatten the structure. A speedy organization has exactly is doing what when, at all times, the pace more people taking action and fewer people feeding of execution can be accelerated. Such an approach the beast of bureaucracy—briefing each other, both speeds up and improves execution. reporting, seeking approvals, sitting in unproductive meetings (and then huddling up in the meeting 3. Cultivate extraordinary partnerships. Working after the meeting to have the real conversation). with partners is routine. But the speed of action only Rigid hierarchies must give way to leaner, flatter goes so far if other players in the ecosystem fail structures that allow the system to respond quickly to move just as fast. During the pandemic, we have to emerging challenges and opportunities. There seen companies work with partners in new ways are fewer middle managers and span-breakers to achieve extraordinary impact. For example, Prisma and more doers and deciders. Creating this new Health, a South Carolina–based not for profit, organism requires reimagining structure not as a had a design for an emergency ventilator-expansion hierarchy of bosses, per the traditional organization device but lacked the capacity to build and chart, but rather as a dynamic network of teams. distribute as many as were needed. Johnson & As one CEO told us, “We can finally turn the page on Johnson’s Ethicon division, on the other hand, the traditional matrix and reinvent how we organize had the capacity and distribution infrastructure. and how work gets done.” 24 What now? Ten actions to emerge stronger in the next normal September 2020

      Having one fast, agile team is helpful, but having many of them across an enterprise, and enabling them with the right structures, processes, and culture, makes it possible for the entire system to move faster. Real-time collaboration and co-location become Research by McKinsey and the Harvard Business more important, and have even extended to School found that companies that had launched agile the virtual world. For example, putting engineering transformations pre-COVID-19 performed better and product-development specialists on the and moved faster post-COVID-19 than those that had same team can speed up innovation and boost not. Agile organizations had an edge because they output. The role of the corporate center must already had processes and structures available also be rethought. In many cases, central functions to them, such as cross-functional teams, quarterly could become capability platforms deploying business reviews, empowered frontline teams, and skills, tools, and talent where they are needed most, clear data on outputs and outcomes, that proved while also acting as a catalyst for learning and critical to adapting to the COVID-19 crisis. They best-practice sharing. Centers of excellence could adjusted faster, and with less employee turmoil. The be established, with the goal of bringing same was true within companies: those business leading-edge capabilities—such as analytics and units that had gone agile before the pandemic per- artificial intelligence, digitization and process formed better than those that had not on customer automation, and Industry 4.0—to a broad range satisfaction, employee engagement, and opera- of performance units and thus delivering tional performance. “If we had not done this [agile] measurable value. transformation,” one European banking executive told us, “our development would have completely 5. Unleash nimble, empowered teams. The stalled during COVID-19.” pandemic has seen the large-scale deployment of fast, agile teams—small, focused cross-functional For example, telecom companies and banks teams working together toward a common set of that were agile before the crisis were twice as fast objec tives that are tracked and measured. Leaders in releasing new services in response to it. One have made this work by charging each team with European bank tasked cross-functional teams to a specific mission: an outcome that matters for deploy new online services; they did so in a customers or employees, empowering each team to matter of days. Just setting up the teams could have find its own approach, and then getting out of taken weeks, but in this case the bank was ready the way. Having one fast, agile team is helpful, but to act—and to let the team make the decisions having many of them across an enterprise, and it needed to. The study also found that the crisis enabling them with the right structures, processes, forced nonagile organizations to experiment with and culture, makes it possible for the entire the concept. The speed that resulted, including system to move faster. faster decisions, reduced bureaucracy, and better Ready, set, go: Reinventing the organization for speed in the post-COVID-19 era 25

      communication, are attributes that many organiza- make decisions and execute rapidly; who is able tions are now working to maintain. to take on new challenges and lead in the face of uncertainty; and who has the grit to persevere. 6. Make hybrid work, work. The next normal will see In many cases leaders have found emerging talent significantly more people working in a hybrid two-to-three layers down, people who rose to way—sometimes in person with colleagues on-site, the occasion and helped lead crisis-response and sometimes working remotely. This model can plan-ahead strategies. In other cases, they unlock significant value, including more satisfied have found that some leaders have become too employees and lower real-estate costs. There comfortable with the slower-moving bureaucracy are other benefits to a hybrid working model, includ- of the past. As one CEO told us, “We have learned ing access to a broader range of talent, greater more about our people in the last 12 weeks than flexibility, and improved productivity. through our traditional HR processes from the last 12 months.” Not only have CEOs gained To achieve these gains, employers need to ensure insight into who the future leaders are, but that the basics are in place to digitally enable remote they have also seen the value of rapidly deploying working and collaboration, while taking care to top talent to the most important work. Organi- create working norms that foster social cohesion. zations that do both things—find future leaders They should precisely define the optimal approach and redeploy talent skillfully—will be able to for each role and employee segment. That move faster. requires understanding when on-site work is better compared with remote interaction or independent One recent example comes from the Ford Motor work. Perhaps more important, hybrid organizations Company. In March, the automaker announced must adopt new ways of working that help build that it would produce face shields for healthcare a strong culture, cohesion, and trust even when workers—something it had never done before. To many employees are working remotely. Companies do so, a team of “unlikely characters” organized that were “born virtual,” many out of Silicon Valley itself and got to work, tapping into their own networks such as GitLab and Mozilla, and have sustained it to solve problems on the fly. One lesson: those successfully have very intentional policies, tech- who step up in a challenge, wrote one team member, nology, and working norms. These include open- “might not be who you expect.” Stepping up to source collaboration models, for instance, for this kind of challenge requires courage and a mind- software development; remote-first practices, set that encourages innovation and learning to such as videoconference by default; and rigorous come together—fast. “We came as beginners, and documentation of everything, from decisions to got smart on the job,” the team member wrote. meeting output to work in progress. Moreover, “Being a band of beginners means if you think of it, they make an effort to bring colleagues together you do it. There is no time for rank.” in person at least a couple of times per year to facilitate more connectivity and deepen relationships. 8. Learn how to learn. Consider the US Navy’s Top talent will leave companies with bad cultures newest “littoral combat ship.” These vessels can and slow responses. complete myriad tasks, such as hunting sub- marines or sweeping mines while operating in the The next three actions aim to reshape talent in shallows. One might think they therefore have a order to get tomorrow’s leadership team operational large crew of highly trained specialists. Not so. In today and to build the workforce capabilities of fact, these ships are run by just 40 “hybrid sailors,” the future. who have proved capable of mastering a wide variety of skills, from handling ropes to firefighting to 7. Field tomorrow’s leaders today. One of the monitoring remote sensors. They need to be skilled, unexpected consequences of the pandemic is that of course—mishandling a rope can cause serious CEOs have seen into a window that shows who injury—but their chief skill is the ability their future leaders are. They have seen who can to adapt and learn quickly. They learn continuously, 26 What now? Ten actions to emerge stronger in the next normal September 2020

      and are open to new experiences and flexible in to strengthen the skills related to learning how to their thinking. And that, COVID-19 has demonstrated, learn—just as the US Navy has done with its is what business needs, too. hybrid sailors. Learning and adaptability has been on the CEO 9. Rethink the role of CEOs and leaders. COVID-19 agenda for some time, but even more so during the has brought a fundamental change in leadership in pandemic. In the last few months, some of the many organizations. The leaders that stand out have best leadership teams have been on a steep shifted from directing a command-and-control learning curve: learning how to lead in a time of crisis response to building and unleashing winning crisis, learning to manage rapidly forming agile teams. Several CEOs described their role in the teams, making decisions at a much faster pace, and last few months as energizing, empowering, and learning to adapt. Forward-thinking companies are “unblocking” their leadership teams. They also now accelerating their capability-building efforts overinvest in communicating clearly and regularly by developing leadership and critical thinking skills to build trust, and constantly link their actions at different levels of the organization, increasing to the purpose of the institution. their employees’ capacity to engage with technology and use advanced analytics, and building functional To maintain the speed the COVID-19 crisis has skills for the future, such as next-generation unleashed, organizations need more of this kind of procurement, Industry 4.0 manufacturing, and leadership. The future requires leaders to act digital marketing and sales. as visionaries instead of commanders—focused on inspiring their organizations with a clear vision These companies recognize that the pace and scale of the future, and then empowering others to realize of learning must keep up with that of innovation the vision. It will require leaders who build winning and changes in technology. Skills can and do expire. teams; they coach their players but let them make Organizations need people who can continually the decisions and execute. These leaders will learn and adapt. In many cases, companies will need need to bring energy and passion to catalyze to reskill large portions of the workforce. That will innovation, change, and growth. One CEO told us, require expanding the learning content available to “I measure how I feel every day, because ultimately employees and using technology to deliver what my job is to give energy and empowerment to is needed to each person. It also will mean building the organization.” the organizational and institutional muscle Skills can and do expire. Organizations need people who can continually learn and adapt. Ready, set, go: Reinventing the organization for speed in the post-COVID-19 era 27

      Now is the time however, that for many, returning to work will be The coronavirus pandemic is the challenge of our a process that could take a year or more, and that times. The time for organizations to build for speed they cannot go back to the way they were. is now. This will be a long process and leaders must leap into the arena and recognize that many of Instead, companies will want to seize the moment their familiar organization constructs will need to to reimagine and reinvent the future, building new be reimagined. muscle and capabilities to come back strong. Even well-run companies may find that they need to Many companies, at least initially, thought of the reinvent themselves more than once. postpandemic return as an event; they would turn the lights on and go back to work just as they Fortune will favor the bold—and the speedy. has done before. It is becoming increasingly clear, Aaron De Smet is a senior partner in McKinsey’s Houston office; Daniel Pacthod is a senior partner in the New York office, where Charlotte Relyea is a senior partner; and Bob Sternfels is a senior partner in the San Francisco office. The authors wish to thank Elizabeth Mygatt for her contributions to this article. Copyright © 2020 McKinsey & Company. All rights reserved. 28 What now? Ten actions to emerge stronger in the next normal September 2020

      © Getty Images Rapid Revenue Recovery: A road map for post-COVID-19 growth Speed, agility, and a new understanding of customer values are the keys to navigating the next normal. by Brian Gregg, Eric Hazan, Aimee Kim, Rock Khanna, Jesko Perrey, and Dennis Spillecke Rapid Revenue Recovery: A road map for post-COVID-19 growth 29

      COVID-19 continues to have a far-reaching effect who is left standing when the crisis finally abates. on people’s lives, families, and communities as During the downturn, for example, consumers and well as on the global economy. Amid the bleak customers are likely to “trade down,” that is, buy economic reality, companies in response are less expensive products, resulting in big changes focused on driving a dual agenda: protecting lives at both the high and low ends of the market. Brands and livelihoods. As the crisis continues to upend will be repositioning themselves and shifting to lives, companies are struggling to understand its digital channels, products, and services, opening full impact on their businesses and how best to up another front in the battle for new and existing respond. According to our recent B2B Decision customers. Maker Pulse survey, about a quarter of companies surveyed say they are redirecting and increasing In this context, it’s not enough to capture revenue; spend toward emerging opportunities. it has to happen quickly. We’re already seeing first movers reap significant rewards. As we outlined in our article Leading with purpose, marketing and sales leaders need to operate simultaneously across three horizons: navigating A mental model to enable Rapid the crisis now, planning for the recovery, and Revenue Recovery leading the next normal. This article will focus What really stands out is how leaders approach the on the second horizon and how companies can activities needed to drive revenue at a scale that accelerate what they do and how they work to makes a difference. The most effective leaders have capture revenue quickly for the recovery (Exhibit 1). a mental model built around SHAPE, an approach with five core elements: That element of speed and agility in particular is crucial because this once-in-a-generation — Start-up mindset. The start-up mindset biases challenge is likely to have a profound impact on action over research and testing over analysis. Web

      Exhibit of Exhibit 1 Three horizons for effective marketing-and-sales responses to the COVID-19 crisis. Three horizons for effective marketing-and-sales responses to the COVID-19 crisis. 1. avigate the no . lan for the recover . ead in the ne­t normal Lead with purpose Accelerate digital ambition and Rethink ecosystems analytics engines Take care of employees and Be ready to capture early Virtualization customers demand Build up cash reserves €apid €even‚e €ecover 30 What now? Ten actions to emerge stronger in the next normal September 2020

      What Now? - Page 32

      We’ve seen companies, for example, make — Ecosystems to drive adaptability. The sizable allocations of marketing budget disruptions in supply chains and offline in days and even hours, and launch new buying channels have made adaptability ecommerce businesses in a matter of weeks. crucial not just to survival but to accessing Start-up leaders establish an agile cadence opportunities quickly. In the short term, through daily team check-ins, weekly adaptability may mean how companies 30-minute CEO reviews, and biweekly work with agencies and partners, but in the hourlong sprint reviews. long-term, it will require new partnerships and non-traditional collaborations, — Human at the core. To drive rapid action, including strategic M&A. companies will need to rethink their operating model, building it around how their people work best. Our B2B Decision Maker Pulse Three steps to get started on Rapid survey research has shown that more than 50 Revenue Recovery percent of businesses find a new remote sales Capturing revenue rapidly requires taking a model to be of equal or greater effectiveness combination of actions. What those are will than the old one. Enabling people will clearly depend on each company’s situation. Top require a new set of skills and capabilities, performers, however, take three steps with from facility with tech to working remotely. rigor and discipline: Successful pivots to a remote sales model, for example, will require an entirely new level of 1. Identify and prioritize collaboration and coaching between front- Commercial leaders will need to plan for line sales reps and leadership in order to meet recovery based on a clear understanding of consumer expectations. their starting point and insights into demand patterns ahead of and during the recovery. This — Accelerate digital, tech, and analytics. It’s is crucial for knowing what to do and when. We almost become a cliché to say that the have identified more than a dozen marketing crisis has become an inflection point in the and sales activities that can capture revenue shift to digital, but the best companies are quickly (Exhibit 2). Some are more relevant to moving quickly to enhance and expand their B2C companies, while others make more sense digital channels. They’re successfully using for B2Bs. advanced analytics to combine new and innovative sources of data, such as satellite Once identified, these measures need to imaging, with their own insights to derive be rigorously assessed by their impact on “recovery signals.” EBIT and the company’s ability to execute quickly. That starts with a clear view of — Purpose-driven customer playbook. Putting the market and thoughtful forecasting of customers at the center of the business demand across channels, based on granular is a long-established principle, but post- views of the customer and of the possible coronavirus businesses will need a deep economic scenarios. These will require a recalibration of how customers make more sophisticated approach than those used decisions. Companies will need to rethink traditionally to develop deeply granular insights. decision journeys to understand what Leading organizations are using advanced customers now value and design new use analytic models with multiple sources of cases and customer experiences based on insights (for example, point-of-sale data, those insights. That means a more nuanced primary consumer research, social listening, approach to segmenting customers. Rapid Revenue Recovery: A road map for post-COVID-19 growth 31

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      Exhibit of Exhibit 2 Rapid Revenue Recovery is based on taking a core set of commercial actions. Rapid Revenue Recovery is based on taking a core set of commercial actions. Strategy Digital channels Brand repositioning caled digital sales & services M&A moves Ecommerce Netored ecosystems igital mareting effectiveness leansheet demand planning Productivity Customer experience & Insights Mareting efficiency ustomer experience‚customer ƒourneys ales productivity „ersonali…ation† loyalty† & ‡M €nside sales „roduct value propositions atadriven performance management Analyticsdriven sales ynamic pricing and promotion optimi…ation Driven by data and analytics and online search trends) to forecast growth In our experience, companies can develop clear scenarios at a granular level. This dashboard of targets for growth and profitability in just a week. opportunities needs to be continuously updated (Exhibit 3). 2. Act with urgency Once there is a granular map of prioritized Against this view, analysis is needed of how well activities, companies need to quickly and decisively developed the available commercial capabilities reallocate resources accordingly to capture growth. are. A company in the advanced-industries sector, The focus should be on launching the biggest and with low maturity in price and margin management, readiest initiatives, whether by adjusting sales- for example, may want to reinforce measures coverage models, tailoring product features to to avoid margin leakage, such as a shift to specific customer use cases, or shifting marketing manual price approval to avoid low-margin sales. spend to high-performing channels. The necessity Commercial leaders should then overlay growth of acting with urgency has allowed businesses to forecasts on their marketing and distribution accomplish incredible things in short periods of capabilities, product and service portfolio, and time that would have seemed impossible just six competitive activity. months earlier. They have demonstrated the agility of start-ups, an ability to look at their customers in Within these calculations, commercial leaders new ways, a commitment to data-driven decisions, should consider “now or never” moves—actions and a relentless focus on iterative execution to that may have been too difficult to undertake continually improve. during normal times but are now essential for moving forward. These could include making Take one leading car-rental company with more significant reallocations of resources or ratcheting than 5,000 locations in China. Like its competitors, back popular but underperforming programs. the business saw its momentum come to a 32 What now? Ten actions to emerge stronger in the next normal September 2020

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      Exhibit of Exhibit 3 Prioritized measures for Rapid Revenue Recovery. Prioritized measures for Rapid Revenue Recovery. ILLSAI Structural shifts Short-term/high-impact moves igh M&A moves ricing and promotions Brand repositioning E-commerce Analytics- Customer driven sales EBIT experience, Marketing/ impact safety sales Scaled digital sales & services productivity Demand Data-driven planning performance management o lo Time to impact ast screeching halt and order volume collapse by could then use the car for two more days on the 95 percent in February, as the coronavirus surged. weekend. In response, the company invested in microlevel customer segmentation to guide personalization The company also called first-time customers who and in social listening to track the latest shifts in had cancelled orders because of health concerns consumer sentiment. This led them to develop new to reassure them of the various safety steps it use cases. They discovered, for example, that many was taking, such as “no-touch” contactless car tech companies in southern China, in response to pickup. They also used geolocation analytics to the virus, were telling employees not to use public identify customers most likely to need a car and transportation. The company used this insight to their destination. To help manage the program, send targeted campaigns to promote car rentals. they pulled together three agile teams with They tested two campaigns—rent for two days cross-functional skills and designed a recovery and get one free versus rent for five days and get dashboard so the senior executive team could two free—and learned that the second offer was track progress in real time. This approach helped more attractive because customers could rent five them streamline their working process so they days for work purposes and get reimbursed, but could launch a new campaign in two to three days Rapid Revenue Recovery: A road map for post-COVID-19 growth 33

      What Now? - Page 35

      as opposed to the normal two to three weeks it Marketing return-on-investment (ROI) took before the crisis. Within only seven weeks, approaches that use data to make rapid spend the company had recovered about 90 percent of reallocations can often yield great returns in their business compared with 2019 level—almost the shortest amount of time. One large retailer twice the rate of recovery of the number-one freed up millions by eliminating distribution of company in the market. Campaign conversion circulars after granular response data showed rates were five times the normal amount. that 40 percent of customers didn’t change their behaviors because of the circulars. The company That focus on the customer also provided clear reinvested the funds into more successful digital insights for a number of technology companies targeting practices. There are also pockets of with overseas manufacturing. After fielding opportunity in shifting the product mix to more surveys of customers, they learned that “supply- productive stock-keeping units (SKUs), pausing chain assurance” had become a top buying or eliminating promotions known to be inefficient, factor. Their sales teams used this insight to and reinforcing performance-based trade communicate the latest supply-chain status, thus relationships. As consumers increasingly try alleviating customer concerns, and provided new brands, companies should consider shifting some customers with supply guarantees after promotional spend to defend share in categories consulting with their newly established pricing war with surging demand and where there is a risk of room. There are enterprise-software companies switching. that have created three-month promotional offers of virtually unlimited product use for a minimal 3. Develop a rapid-fire agile operating model start-up fee. This has helped the companies gain One important way to speed up decision making market share, preserve the long-term price points is to give agile teams highly focused tasks and of its value proposition, and assist customers in a clear key performance indicators (KPIs), such as critical time of need. This approach helped solve click-throughs or open rates. Instead of waiting a business problem and address customer cash- for approvals and input, these agile squads, which flow concerns. should include agency partners, have the ability to make their own decisions. In our current remote The start-up mindset provides the impetus for world, we’ve found people more able and willing to significant growth, often through the thoughtful embrace agile methods, sometimes by necessity use of digital channels. One company, for but also because they are becoming acclimated to example, was able to launch an entirely new jumping on videoconferences to solve problems or e-commerce business in just 13 weeks by make decisions quickly. focusing closely on what customers cared about most, standardizing features, and building on The various squads are then assigned to specific what they already had. This resulted in twice as areas of focus, from consumer/customer insights many orders as anticipated, a tripling of basket to digital marketing. The sales squad could size compared with in-store purchases, and 2 to steward large and strategic deals and oversee 3 percent revenue growth. execution, speeding deal review for impacted segments and maintaining discipline. Another In another example, one furniture retailer was squad could focus on developing a long-term able to drive a 60 percent improvement in sales view to avoid panic reactions and develop clear in digital channels over just four weeks. It took guidelines and objectives for the commercial team a portfolio approach to campaigns, launching (Exhibit 4). These cross-functional teams or multiple versions to test and learn along the way. squads bring together people with key skills such Through their analysis, they discovered demand as data analytics, sales operations, and design, for baby beds and tailored campaigns to that tailored to the specific area and supplemented customer segment, even offering free child beds with additional experts in legal, finance, risk, HR, for those who had babies born during the as needed. A scrum master oversees the squads, COVID-19 pandemic. allocating and coordinating resources to initiatives 34 What now? Ten actions to emerge stronger in the next normal September 2020

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      Exhibit of Exhibit 4 An agile-squad model can raise a company’s metabolic rate. An agile-squad model can raise a company’s metabolic rate. Consumer- and market- Marketing cash- insights squad liberation squad Central hub for monitoring changes in riorities immediate revie of cost consumer sentiment/behavior, market base and budget and regulations Contributes to comany stability  Feeds information to other squads and other marketing efforts eg, enables quick resonse to market changes communications­ Digital marketing Post-CD- Growth squad and sales squad growth squad €hares in‚market learnings hub ‡dats current digital ˆ€ Ševelos clear lan for next ƒdentifies and riorities sales activities to ne reality eg, normal green shoots digital marketing­ ‰alances resourcing ith …timies channel management ‰uilds / evolves digital selling short‚term squad eg, actions to be taken ith latforms Š‹C or through offline retailers, inventory / stock artners­ management­ with the highest value through weekly sprint- collectively understands how to win each type of progress reviews. customer. Similarly, fast decision making between local sales and global business units and the rapid “Agile” does not just mean putting in place iterative, reallocation of resources among them require a test-and-learn working practices. It means putting stable sales-pipeline management process that in place a new operating model, built around the they both use. customer and supported by the right processes and governance. Agile sales organizations, for example, continuously prioritize accounts and deals and decide quickly where to invest. But this Rapid Revenue Response isn’t just a way to survive is effective only if there is a clear, granular growth the crisis. What companies do today to capture plan developed by a cross-functional team that revenue quickly lays the foundation for future growth. Brian Gregg is a senior partner in McKinsey’s San Francisco office; Eric Hazan is a senior partner in the Paris office; Aimee Kim is a senior partner in the Seoul office; Rock Khanna is a senior partner in the Chicago office; Aimee Kim is a senior partner in the Seoul office; Jesko Perrey is a senior partner in the Düsseldorf office; and Dennis Spillecke is a senior partner in the Cologne office. The authors wish to thank Alexander Dierks and Ryan Gavin for their contributions to this article. Copyright © 2020 McKinsey & Company. All rights reserved. Rapid Revenue Recovery: A road map for post-COVID-19 growth 35

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      Reimagine the workforce from the top down 37 Adapting workplace learning in the time of coronavirus 43 Reimagining the postpandemic workforce 51 HR says talent is crucial for performance—and the pandemic proves it 4 3636

      © Jose Luis Pelaez Inc/Getty Images Adapting workplace learning in the time of coronavirus Managers can’t push the pause button on capability building, so the moment 4 belongs to virtual learning. Some tactics and strategies can help. by Alok Kshirsagar, Tarek Mansour, Elizabeth McNally, and Marc Metakis Adapting workplace learning in the time of coronavirus 37

      As businesses around the world postpone and Set up a COVID-19 learning- cancel in-person meetings in response to the novel response team coronavirus (or SARS-CoV-2), which causes the To create a comprehensive picture of learning COVID-19 disease, workplace learning is emerging offerings and how to adapt them to this new as one of the earliest and hardest-hit business environment, build a cross-functional response activities. Based on our observations as of early team composed of members from all relevant March, roughly one-half of in-person programs stakeholder groups. These include HR business through June 30, 2020, have been postponed or partners, learning-delivery personnel, IT and canceled in North America; in parts of Asia and platform technologists, and vendors. Establish a Europe, the figure is closer to 100 percent. regular operating cadence, and coordinate work with the company’s broader COVID-19-response However, businesses can’t afford to put capability effort. Define clear decision points and be trans- building on hold. Whether the effort is reskilling parent about the criteria for canceling or deferring at the business-unit level or a company-wide a program, including who will make the calls. aspirational transformation, companies can’t Line up the entire team on how communication of simply push the pause button on critical workplace these decisions will happen—for example, centrally learning, even as they move rapidly to put employee or locally. safety first. Conduct a rapid triage of the entire portfolio of To continue enabling and delivering value-creating learning offerings, and set priorities for what will be efforts, learning leaders have a number of tactical necessary to adapt to a virtual or digital-only format. steps they can consider to protect employees, Once you have a clear view of the entire portfolio, adapt programs and delivery, and establish and prioritize what to build. This is important because expand virtual live learning. Digital and virtual you can’t create digital versions of everything, and learning programs were already on the rise before you need to be strategic about the allocation of COVID-19 struck, and we already see a marked scarce design resources. Set triage criteria around increase in such learning programs, which many a combination of impact metrics (How critical is the younger employees embrace. topic? How soon will effects be felt? How many will be affected?) and feasibility (How suitable is the Beyond tactical steps, there are strategic measures, topic for digital delivery?). Right out of the gate, give such as exploring alternative digital learning priority to must-have programs (such as employee strategies, that managers can develop during this onboarding), and then roll out topical programs time of physical distancing. The stronger learning (such as teaching remote-working skills, remote- capabilities that emerge could stand as a positive management skills, and leadership skills in time 1 long-term outcome from this sobering period. of crisis). Six best-practice actions, ranging from the Good decision making in this initial period requires immediate and tactical to the strategic, can help appropriate information and data. We recommend maintain the momentum and benefits of workplace- developing several minimum viable products: a learning programs and help build a new foundation rolling six-week calendar of upcoming programs for effective virtual learning. These actions are and milestones, an exposure heat map (for example, establishing a learning-response team, protecting the number of affected participants by region or employees in in-person programs, adapting delivery, program type), a prioritized list of programs for promoting digital learning, exploring alternative redesigning, and a dashboard showing progress, digital strategies, and practicing and preparing for key indicators, and decision triggers. multiple outcomes. 1 This article reflects a contemporaneous perspective on how COVID-19 could and should impact workplace learning. It is based on McKinsey’s experience in delivering learning programs to our global workforce, as in well as our work supporting clients through McKinsey Academy, which is our entity for client-facing leadership development and functional capability building. 38 What now? Ten actions to emerge stronger in the next normal September 2020

      Protect employees in delivery to reduce participant risk. For example, in-person programs consider decentralizing in-person events. This Start by designing and executing a plan to support might mean replacing global kickoff events with employees that is consistent with the most multiple regional kickoff events or replacing a conservative guidelines available from leading large in-person event with multiple small-group local and global health authorities, such as the videoconferencing sessions. US Centers for Disease Control and Prevention and WHO. Communicate clearly and often with If travel restrictions mean corporate in-person employees on upcoming learning programs and facilitation teams are unavailable, consider using include specific criteria for when programs will be local employees, such as managers or alumni of deferred, modified, and canceled. previous programs. Prepare them by using a train- the-trainer approach. This entails would-be trainers If you are moving ahead with in-person learning first going through the program as participants, programs, communicate in advance the precautions being trained on how best to facilitate the sessions, you will take, such as physical distancing, alternatives and finally receiving feedback from an experienced to shaking hands, and enhanced cleaning and trainer after their first facilitating experience. sanitization procedures. For those participating remotely, ensure that they have—and are familiar Recognize that there are limits to what can be with—the available virtual collaboration tools, addressed when using virtual live sessions such including videoconferencing and cloud-based as webcasts, virtual classrooms, and video- and document sharing. audioconferencing. For example, such platforms Insights 2020 may not work well for deep socioemotional- and interpersonal-skill building. To address this shortfall, Adapting workplace learning in the time of coronavirus Exhibit 1 of 1 consider what you can do before, during, and after Adapt in-person learning delivery For those ongoing learning programs with the session to maximize its impact (exhibit). an in-person delivery component, adapt the Exhibit Creating engagement and community feel in virtual live sessions requires planning and follow-up. Tips for delivering an “in person” feel Before the session During the session After the session • Ensure you are comfortable with, • everage technology features to • Distribute any work products or and have tested, the technology keep participants engaged follow-up information as needed • Make participation easy by • eep video on, look at the webcam, • Solicit participant feedback providing local-access dial-ins, as and use gestures as in person on content, delivery, and needed, in addition to any weblink • se online tools such as polling technical eperience • Dedicate a moderator to manage and chat to gather input • Escalate any technical issues and speakers and discussion • onsider features such as virtual identify workarounds or solutions • Send materials in advance via file breakout rooms to encourage sharing, and remind participants participation prior to starting Learning and collaboration technologies for virtual delivery irtual ebcasts ideo- and audio- irtual ­ile ontent classrooms conferencing coaching sharing co-creation €eg, whiteboards‚ Adapting workplace learning in the time of coronavirus 39

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      What is clearly different today is that keeping people safe and reducing risk has, for now, displaced cost as the key driver behind digital learning. Good learning sessions of all types begin with a good together and collaborate in virtual formats (such as participant experience. Ensure that the technology videoconferencing and instant messaging). These has been tested, local dial-in numbers are provided are good arguments for placing additional emphasis as needed, roles are clear (consider assigning a on digital learning as the number of people working moderator to manage speakers and participants), remotely because of COVID-19 increases. and prereading materials are distributed well in advance. During the session, use technology to It is too early to say how COVID-19 will ultimately keep participants engaged and energized. For affect the accelerated adoption of digital learning. instance, keep the video option on participants’ What is clearly different today is that keeping people computers active to create a community feel, set safe and reducing risk has, for now, displaced ground rules up front, and use online input tools to cost as the key driver behind digital learning. For facilitate engagement, such as chat and polling. Also learning leaders, that opens an opportunity to consider features such as virtual breakout rooms promote existing digitally enabled portfolios of and postsession feedback to simulate the in-person learning offerings as a way to help colleagues during experience as much as possible. challenging times. Targeted communication that reminds employees that learning doesn’t stop when travel is curtailed, for example, may boost attention Promote and enhance digital learning to available digital offerings. A substantial increase in the use of digital delivery globally is under way across all segments of the The uptake in virtual delivery also provides learning workforce, from frontline managers to senior leaders with an opportunity to enhance the digital leaders. In regions such as Asia, where travel experience of employee learners. One way is restrictions and work-from-home policies for leaders to tie communication to the learners’ have been in place for weeks, digitally enabled individual motivations, such as a sense of personal, experiences have also created new benefits. community, or company purpose. Another is to These include an increased sense of community, have senior leaders model desired behaviors purpose, and focus for people who are no longer through active participation in digital courses. connecting with their colleagues in a co-located When possible, include social-learning components. workplace. Around the world, organizations are These can include discussion boards, along with using digital learning to increase collaboration participant journeys that focus on cohorts of among teams that are working either remotely or people undertaking programs together on a set across different time zones, as they take courses schedule rather than on individuals working at their 40 What now? Ten actions to emerge stronger in the next normal September 2020

      own pace. Also consider small (potentially virtual) intentional, meaningful interactions. Finally, support group projects to drive engagement, connectivity, a seamless learning experience from first contact to and application. last and ensure the same learning experience for all participants. Finally, it is important in these rapidly evolving times to reinforce the link between business outcomes As organizations explore the longer-term impli- and longer-term capability building. Learning cations of an increasingly digital environment for doesn’t occur only in one-off, discrete events; it workplace learning, it may be worth considering should be thought of as part of broader learning (or reconsidering) nonmainstream technology journeys that last 12 to 18 months and tie clearly to solutions that could reduce the need for face-to-face business outcomes. Travel restrictions may affect interaction. Some examples include virtual-reality in-person learning programs in today’s environment, training simulations and higher-end moderated but capability building needs to continue in order to virtual classrooms. All of these can enable new and advance long-term goals. different ways to engage learners. Implementing such solutions may take longer than other action items we previously listed, and companies will have Explore alternative digital- to weigh possible outcomes against the evolving learning strategies long-term implications of events such as COVID-19 As organizations increasingly promote their existing on their workplace learning. portfolios of digital-learning options, a handful indicate that they are also considering migrating Practice and prepare for some existing in-person training programs to an all-digital format. Such efforts go beyond merely multiple outcomes applying existing technology solutions to offer In any extraordinarily uncertain environment, virtual classrooms. Rather, they represent a more scenario-planning techniques should be part fundamental rethinking of the learning experience of any approach. A cross-functional COVID-19 to enable collaborative, interactive social-learning learning-response team should focus on practicing experiences for groups of learners. Digital-learning decision making and communication under a providers recognize that COVID-19 is a catalyst for variety of potential scenarios. Is the virus seasonal? this transition and are looking to help their corporate Is it possible that travel restrictions may be lifted customers accelerate their transformation. Some by May or so? If so, the team might consider are even offering reduced or complimentary prebooking post-May capacity to deliver programs services to help encourage new customers to then—perhaps with generous cancellation policies accelerate such a transition. attached. Similarly, if demand for digitally delivered learning shows a sustained increase, the team Adhering to several principles can help migrate an should make sure it understands the underlying in-person course to a fully digital experience. Start capacity needs to deliver it and to address any by reframing the “learning problem” as a design technology limitations in advance. opportunity and rethink the learner’s end-to-end experience as a designer would. Set priorities for To get a sense of how such planning can play out, the essential learning objectives and focus intently consider evaluating the scenarios described in on selecting the content that will meet them. Design “COVID-19: Implications for business,” available for shorter interactions and provide more time on McKinsey.com, and establish a plan for what between sessions to strengthen learning. Focus on workplace learning looks like under each. Practicing human connections whenever possible, creating responses under different assumptions will enable Adapting workplace learning in the time of coronavirus 41

      teams to pressure test response plans for COVID-19 Learning leaders who implement a thoughtful and may boost confidence when the time comes to response plan for COVID-19 can minimize the execute them. disease’s impact on capability building and ensure the safety of learners. Expanding learning opportunities—and improving learning overall— can also ultimately serve as a bright spot for organizations through this difficult period. Alok Kshirsagar is a senior partner in McKinsey’s Mumbai office; Tarek Mansour is a senior partner in the Dubai office; and Liz McNally is a partner in the New York office, where Marc Metakis is an associate partner. Copyright © 2020 McKinsey & Company. All rights reserved. 42 What now? Ten actions to emerge stronger in the next normal September 2020

      © Sunyixun/Getty Images Reimagining the postpandemic workforce Pandemic-style working from home may not translate easily to a “next normal” mix of on-site and remote working. by Andrea Alexander, Aaron De Smet, and Mihir Mysore Reimagining the postpandemic workforce 43

      As the pandemic begins to ease, many companies Now is the time, as you reimagine the postpandemic are planning a new combination of remote and organization, to pay careful attention to the effect on-site working, a hybrid virtual model in which of your choices on organizational norms and culture. some employees are on premises, while others work Focus on the ties that bind your people together. from home. The new model promises greater access Pay heed to core aspects of your own leadership to talent, increased productivity for individuals and and that of your broader group of leaders and small teams, lower costs, more individual flexibility, managers. Your opportunity is to fashion the hybrid and improved employee experiences. virtual model that best fits your company, and let it give birth to a new shared culture for all your While these potential benefits are substantial, employees that provides stability, social cohesion, history shows that mixing virtual and on-site identity, and belonging, whether your employees working might be a lot harder than it looks—despite are working remotely, on premises, or in some its success during the pandemic. Consider how combination of both. Yahoo! CEO Marissa Mayer ended that company’s remote-working experiment in 2013, observing that the company needed to become “one Yahoo!” again, Cutting the ties that bind or how HP Inc. did the same that year. Specific If you happen to believe that remote work is no reasons may have varied. But in each case, the threat to social ties, consider the experience of downsides of remote working at scale came to Skygear.io, a company that provides an open- outweigh the positives. source platform for app development. Several years ago, Skygear was looking to accommodate several These downsides arise from the organizational new hires by shifting to a hybrid remote-work norms that underpin culture and performance— model for their 40-plus-person team. The company ways of working, as well as standards of behavior soon abandoned the idea. Team members who and interaction—that help create a common culture, didn’t come to the office missed out on chances to generate social cohesion, and build shared trust. To strengthen their social ties through ad hoc team lose sight of them during a significant shift to virtual- meals and discussions around interesting new working arrangements is to risk an erosion over the tech launches. The wine and coffee tastings that long term of the very trust, cohesion, and shared built cohesion and trust had been lost. Similarly, culture that often helps remote working and virtual GoNoodle employees found themselves at virtual collaboration to be effective in the short term. happy hour longing for the freshly remodeled offices they had left behind at lockdown. “We had It also risks letting two organizational cultures this killer sound system,” one employee, an extrovert emerge, dominated by the in-person workers and who yearns for time with her colleagues, told the managers who continue to benefit from the positive New York Times. “You know—we’re drinking coffee, elements of co-location and in-person collaboration, or maybe, ‘Hey, want to take a walk?’ I miss that.”1 while culture and social cohesion for the virtual Successful workplace cultures rely on these kinds of workforce languish. When this occurs, remote social interactions. That’s something Yahoo!’s Mayer workers can soon feel isolated, disenfranchised, and recognized in 2013 when she said, “We need to be unhappy, the victims of unintentional behavior in an one Yahoo!, and that starts with physically being organization that failed to build a coherent model of, together,” having the “interactions and experiences and capabilities for, virtual and in-person work. The that are only possible” face-to-face, such as sense of belonging, common purpose, and shared “hallway and cafeteria discussions, meeting new identity that inspires all of us to do our best work people, and impromptu team meetings.”2 gets lost. Organizational performance deteriorates accordingly. 1 Clive Thompson, “What if working from home goes on … forever?,” New York Times, June 9, 2020, nytimes.com. 2 Kara Swisher, “‘Physically together’: Here’s the internal Yahoo no-work-from-home memo for remote workers and maybe more,” All Things Digital, February 22, 2013, allthingsd.com. 44 What now? Ten actions to emerge stronger in the next normal September 2020

      Or consider how quickly two cultures emerged decision: Which part of the hybrid virtual continuum recently in one of the business units of a company (exhibit) is right for your organization? The decision we know. Within this business unit, one smaller rests on the factors for which you’re optimizing. Is it group was widely distributed in Cape Town, Los real-estate cost? Employee productivity? Access Angeles, Mumbai, Paris, and other big cities. The to talent? The employee experience? All of these larger group was concentrated in Chicago, with a are worthy goals, but in practice it can be difficult to shared office in the downtown area. When a new optimize one without considering its effect on the global leader arrived just prior to the pandemic, the others. Ultimately, you’re left with a difficult problem leader based herself in Chicago and quickly bonded to solve—one with a number of simultaneous factors with the in-person group that worked alongside her and that defies simple formulas. in the office. As the pandemic began, but before everyone was sent home to work remotely, the new That said, we can make general points that apply leader abruptly centralized operations into a crisis across the board. These observations, which keep nerve center made up of everyone in the on-site a careful eye on the organizational norms and ways group. The new arrangement persisted as remote of working that inform culture and performance, working began. Meanwhile, the smaller group, address two primary factors: the type of work your which had already been remote working in other employees tend to do and the physical spaces you cities, quickly lost visibility into, and participation need to support that work. in, the new workflows and resources that had been centralized among the on-site group, even though First let’s eliminate the extremes. We’d recommend that on-site group was now working virtually too. a fully virtual model to very few companies, and Newly created and highly sought-after assignments those that choose this model would likely operate in (which were part of the business unit’s crisis specific industries such as outsourced call centers, response) went to members of the formerly on-site customer service, contact telesales, publishing, group, while those in the distributed group found PR, marketing, research and information services, many of their areas of responsibility reduced or IT, and software development, and under specific taken away entirely. Within a matter of months, key circumstances. Be cautious if you think better employees in the smaller, distributed group were access to talent or lower real-estate cost—which unhappy and underperforming. the all-virtual model would seem to optimize— outweigh all other considerations. On the other The new global leader, in her understandable rush hand, few companies would be better off choosing to address the crisis, had failed to create a level an entirely on-premises model, given that at least playing field and instead (perhaps unintentionally) some of their workers need flexibility because of favored one set of employees over the other. For work–life or health constraints. That leaves most us, it was stunning to observe how quickly, in the companies somewhere in the middle, with a hybrid right circumstances, everything could go wrong. mix of remote and on-site working. Avoiding these pitfalls requires thinking carefully about leadership and management in a hybrid virtual The physical spaces needed for work—or not world, and about how smaller teams respond to new Being in the middle means sorting out the arrangements for work. Interactions between leaders percentage of your employees who are working and teams provide an essential locus for creating the remotely and how often they are doing so. Let’s say social cohesion and the unified hybrid virtual culture 80 percent of your employees work remotely but that organizations need in the next normal. do so only one day per week. In the four days they are on premises, they are likely getting all the social interaction and connection needed for collaboration, Choose your model serendipitous idea generation, innovation, and Addressing working norms, and their effect on social cohesiveness. In this case, you might be fine culture and performance, requires making a basic with the partially remote, large headquarters (HQ) model in the exhibit. Reimagining the postpandemic workforce 45

      Exhibit Optimizing the hybrid virtual continuum Optimizing the hybrid virtual continuum Six models reflecting a mix of on-site and remote working ‹esirable outcome Ability to Productivity Cost of ­ost to be managed access talent (individual and real estate team) Almost imited ­ompany leaders entirely on remote work, and employees are premises large  centrali€ed in 1–ƒ big principal offices artially ­ompany leaders and most remote work, employees spend ma„ority, large  but not all, of their time in 1–ƒ principal offices artially ultiple proportionate-si€e remote work, offices with leadership and multiple hubs employees dispersed among Hybrid all offices models ultiple eadership and employees microhubs dispersed across small- footprint “microhubs” located in ‡arious geographies artially remote ˆo permanent offices‰ rented work, with flex flex spaceŠ used for periodic space1 in-person collaboration (but not connecti‡ity) Almost ostly remote entirely off work, no office premises sites 1Flex space includes temporarily (eg, monthly) rented space used in select cities for periodic gathering and collaboration If, instead, a third of your employees are working culture less monolithic. Moreover, microhubs can remotely but doing so 90 percent of the time, the often be energizing, fun, and innovative places in challenges to social cohesion are more pronounced. which to collaborate and connect with colleagues, The one-third of your workforce will miss out on which further benefits organizational culture. social interaction with the two-thirds working on-premises—and the cohesion, coherence, and Productivity and speed cultural belonging that comes with it. One solution Now let’s begin to factor in other priorities, such as would be to bring those remote workers into the employee productivity. Here the question becomes office more frequently, in which case multiple less straightforward, and the answer will be unique hubs, or multiple microhubs (as seen in the exhibit), to your circumstances. When tackling the question, might be the better choice. Not only is it easier to be sure to go beyond the impulse to monitor inputs travel to regional hubs than to a central HQ, at least and activity as a proxy for productivity. Metrics for employees who don’t happen to live near that focused on inputs or volume of activity have always HQ, but more dispersed hubs make the in-person been a poor substitute for the true productivity 46 What now? Ten actions to emerge stronger in the next normal September 2020

      that boosts outcomes and results, no matter how two cultures emerge. When this happens, our soothing it might be to look at the company parking experience—and the experience at HP, IBM, and lot to see all the that employees who have arrived Yahoo!—is that the in-person culture comes to early in the day, and all those who are leaving late. dominate, disenfranchising those who are working Applied to a hybrid model, counting inputs might remotely. The difficulty arises through a thousand leave you grasping at the number of hours that small occurrences: when teams mishandle employees are spending in front of their computers conference calls such that remote workers feel and logged into your servers. Yet the small teams overlooked, and when collaborators use on-site that are the lifeblood of today’s organizational white boards rather than online collaboration tools success thrive with empowering, less-controlling such as Miro. But culture can split apart in bigger management styles. Better to define the outcomes ways too, as when the pattern of promotions favors you expect from your small teams rather than the on-site employees or when on-premises workers specific activities or the time spent on them. get the more highly sought-after assignments. In addition to giving teams clear objectives, and Some things simply become more difficult when you both the accountability and autonomy for delivering are working remotely. Among them are acculturating them, leaders need to guide, inspire, and enable new joiners; learning via hands-on coaching and small teams, helping them overcome bureaucratic apprenticeship; undertaking ambiguous, complex, challenges that bog them down, such as and collaborative innovations; and fostering the organizational silos and resource inertia—all while creative collisions through which new ideas can helping to direct teams to the best opportunities, emerge. Addressing these boils down to leadership arming them with the right expertise, and giving and management styles, and how those styles and them the tools they need to move fast. Once approaches support small teams. Team experience teams and individuals understand what they are is a critical driver of hybrid virtual culture—and responsible for delivering, in terms of results, managers and team leaders have an outsize impact leaders should focus on monitoring the outcome- on their teams’ experiences. based measurements. When leaders focus on outcomes and outputs, virtual workers deliver Managers and leaders higher-quality work. As a rule, the more geographically dispersed the team, the less effective the leadership becomes. In this regard, you can take comfort in Netflix Moreover, leaders who were effective in primarily (which at the time of this writing is the 32nd largest on-site working arrangements may not necessarily company in the world by market capitalization), prove so in a hybrid virtual approach. Many leaders which thrives without limiting paid time off or will now need to “show up” differently when they specifying how much “face time” workers must are interacting with some employees face-to-face spend in the office. Netflix measures productivity by and others virtually. By defining and embracing outcomes, not inputs—and you should do the same. new behaviors that are observable to all, and by deliberately making space for virtual employees No matter which model you choose for hybrid to engage in informal interactions, leaders can virtual work, your essential task will be to carefully facilitate social cohesion and trust-building in manage the organizational norms that matter most their teams. when adopting any of these models. Let’s dive more deeply into those now. More inspirational. There’s a reason why military commanders tour the troops rather than send emails from headquarters—hierarchical leadership Managing the transition thrives in person. Tom Peters used to call the Organizations thrive through a sense of belonging in-person approach “management by walking and shared purpose that can easily get lost when around”: “Looking someone in the eye, shaking their Reimagining the postpandemic workforce 47

      hand, laughing with them when in their physical check-ins. These norms cultivate the habit of presence creates a very different kind of bond than connecting informally. can be achieved [virtually].”3 Role model the right stance. It might seem obvious, But when the workforce is hybrid virtual, leaders but research shows that leaders consistently fail need to rely less on hierarchical and, by doing to recognize how their actions affect and will be so, more on inspirational forms of leadership. The interpreted by others.4 Consider the location from dispersed employees working remotely require new which you choose to work. If you want to signal leadership behaviors to compensate for the reduced that you tolerate virtual work, come into the office socioemotional cues characteristic of digital every day and join meetings in-person with those channels. who happen to be in the building. This will result in a cultural belief that the HQ or physical offices Cultivate informal interactions. Have you ever are the real centers of gravity, and that face time is run into a colleague in the hallway and, by doing what’s important. so, learned something you didn’t know? Informal interactions and unplanned encounters foster Come into the office every day, though, and your the unexpected cross-pollination of ideas—the remote-working employees may soon feel that exchange of tacit knowledge—that are essential their choice to work virtually leaves them fewer to healthy, innovative organizations. Informal career opportunities, and that their capabilities interactions provide a starting point for collegial and contributions are secondary. By working from relationships in which people collaborate on areas home (or a non-office location) a couple days a week, of shared interest, thereby bridging organizational leaders signal that people don’t need to be in the silos and strengthening social networks and shared office to be productive or to get ahead. In a hybrid trust within your company. virtual world, seemingly trivial leadership decisions can have outsize effect on the rest of the organization. Informal interactions, which occur more naturally among co-located employees, don’t come about Don’t rely solely on virtual interactions. By the same as easily in a virtual environment. Leaders need token, despite big technological advancements new approaches to creating them as people work over the years, nothing can entirely replace face-to- both remotely and on-site. One approach is to face interactions. Why? In part because so much of leave a part of the meeting agenda free, as a time communication is nonverbal (even if it’s not the for employees to discuss any topic. Leaders can 93 percent that some would assert), but also also establish an open-door policy and hold virtual because so much communication involves equivocal, “fireside chats,” without any structured content at all, potentially contentious, or difficult-to-convey to create a forum for less formal interactions. The subject matter. Face-to-face interactions create goal is for employees, those working remotely and significantly more opportunities for rich, informal in-person, to feel like they have access to leaders interactions, emotional connection, and emergent and to the kind of informal interactions that happen “creative collision” that can be the lifeblood of trust, on the way to the company cafeteria. collaboration, innovation, and culture. Further approaches include virtual coffee rooms Media richness theory helps us understand the and social events, as well as virtual conferences in need to match the “richness” of the message with which group and private chat rooms and sessions the capabilities of the medium. You wouldn’t let your complement plenary presentations. In between nephew know of the death of his father by fax, for time, make sure you and all your team members are instance—you would do it in person, if at all possible, sending text messages to one another and that you and, failing that, by the next richest medium, are texting your team regularly for informal probably video call. Some communication simply 3 See Tom Peters blog, “The heart of MBWA,” blog entry by Shelley Dolley, February 27, 2013, tompeters.com. 4 Tomas Chamorro-Premuzic, “How to work for a boss who lacks self-awareness,” Harvard Business Review, April 3, 2018, hbr.org. 48 What now? Ten actions to emerge stronger in the next normal September 2020

      proceeds better face-to-face, and it is up to the relationships within those priority areas—and leader to match the mode of communication to the then tracking the changes in those relationships equivocality of the message they are delivering. over time. Options for obtaining the necessary information include tracking email, observing In other cases, asynchronous communication— employees, using existing data (such as time cards such as email and text—are sufficient, and even and project charge codes), and administering better, because it allows time for individuals to short (five- to 20-minute) questionnaires. It is process information and compose responses after likely that leaders will need to intervene and create some reflection and thought. However, when connections between groups that do not naturally developing trust (especially early on in a relation- interact or that now interact less frequently as a ship) or discussing sensitive work-related issues, result of the hybrid virtual model. such as promotions, pay, and performance, face- to-face is preferred, followed by videoconferencing, which, compared with audio, improves the ability Hybrid virtual teams for participants to show understanding, anticipate Leadership is crucial, but in the hybrid virtual responses, provide nonverbal information, enhance model, teams (and networks of teams) also need to verbal descriptions, manage pauses, and express adopt new norms and change the way they work if attitudes. However, compared with face-to-face they are to maintain—and improve—productivity, interaction, it can be difficult in video interactions collaboration, and innovation. This means gathering to notice peripheral cues, control the floor, have information, devising solutions, putting new side conversations, and point to or manipulate approaches into practice, and refining outcomes— real-world objects. and doing it all fast. The difficulty rises when the team is part virtual and part on-site. What follows Whatever the exact mix of communication you are specific areas on which to focus. choose in a given moment, you will want to convene everyone in person at least one or two times a Create ‘safe’ spaces to learn from mistakes and year, even if the work a particular team is doing voice requests can technically be done entirely virtually. In person Psychological safety matters in the workplace, is where trust-based relationships develop and obviously, and in a hybrid virtual model it requires deepen, and where serendipitous conversations and more attention. First, because a feeling of safety connections can occur. can be harder to create with some people working on-site and others working remotely. And, second, Track your informal networks. Corporate because it’s often less obvious when safety erodes. organizations consist of multiple, overlapping, and Safety arises as organizations purposefully create a intersecting social networks. As these informal culture in which employees feel comfortable making networks widen and deepen, they mobilize talent mistakes, speaking up, and generating innovative and knowledge across the enterprise, facilitating ideas. Safety also requires helping employees feel and informing cultural cohesiveness while supported when they request flexible operating helping to support cross-silo collaboration and approaches to accommodate personal needs. knowledge sharing. Mind the time-zone gaps Because the hybrid virtual model reduces face-to- The experience of a hybrid virtual team in the face interaction and the serendipitous encounters same time zone varies significantly from a hybrid that occur between people with weak ties, social virtual team with members in multiple time networks can lose their strength. To counter that zones. Among other ills, unmanaged time-zone risk, leaders should map and monitor the informal differences make sequencing workflows more networks in their organization with semiannual difficult. When people work in different time refreshes of social-network maps. Approaches zones, the default tends toward asynchronous include identifying the functions or activities where communications (email) and a loss of real-time connectivity seems most relevant and then mapping connectivity. Equally dysfunctional is asking or Reimagining the postpandemic workforce 49

      expecting team members to wake up early or stay Keeping track up late for team meetings. It can work for a short Once you have your transition to a hybrid virtual period of time, but in the medium and longer run model underway, how will you know if it’s working, it reduces the cohesion that develops through and whether you maintained or enhanced your real-time collaboration. (It also forces some team organization’s performance culture? Did your access members to work when they’re tired and not at to talent increase, and are you attracting and inspiring their best.) Moreover, if there is a smaller subgroup top talent? Are you developing and deploying strong on the team in, say, Asia, while the rest are in leaders? To what extent are all your employees North America, a two-culture problem can emerge, engaged in driving performance and innovation, with the virtual group feeling lesser than. Better gathering insights, and sharing knowledge? to simply build teams with at least four hours of overlap during the traditional workday to ensure The right metrics will depend on your goals, of time for collaboration. course. Be wary of trying to achieve across all parameters, though. McKinsey research shows that Keep teams together, when possible, and hone winning performance cultures emerge from carefully the art of team kickoffs selecting the right combinations of practices (or Established teams, those that have been working “recipes”) that, when applied together, create superior together for longer periods of time, are more organizational performance.⁵ Tracking results against productive than newer teams that are still forming these combinations of practices can help indicate, and storming. The productivity they enjoy arises over time, if you’ve managed to keep your unified from clear norms and trust-based relationships—not performance culture intact in the transition to a new to mention familiarity with workflows and routines. hybrid virtual model. That said, new blood often energizes a team. In an entirely on-premises model, chances are you would swap people in and out of your small teams We’ll close by saying you don’t have to make all the more frequently. The pace at which you do so will decisions about your hybrid virtual model up front likely decline in a hybrid virtual model, in which and in advance. See what happens. See where your working norms and team cohesion are more at best talent emerges. If you end up finding, say, risk. But don’t take it to an extreme. Teams need 30 (or 300) employees clustered around Jakarta, members with the appropriate expertise and and other groups in Kuala Lumpur and Singapore, backgrounds, and the right mix of those tends to ask them what might help them feel a socially evolve over time. supported sense of belonging. To the extent that in-person interactions are important—as we guess Meanwhile, pay close attention to team kickoffs as they will be—perhaps consider a microhub in one of you add new people to teams or stand up new ones. those cities, if you don’t have one already. Kickoffs should include an opportunity to align the overall goals of the team with those of team members Approached in the right way, the new hybrid model while clarifying personal working preferences. can help you make the most of talent wherever it resides, while lowering costs and making your organization’s performance culture even stronger than before. 5 See Chris Gagnon, Elizabeth John, and Rob Theunissen, “Organizational health: A fast track to performance improvement,” McKinsey Quarterly, September 2017, McKinsey.com. Andrea Alexander is an associate partner in McKinsey’s Houston office, where Aaron De Smet is a senior partner and Mihir Mysore is a partner. Copyright © 2020 McKinsey & Company. All rights reserved. 50 What now? Ten actions to emerge stronger in the next normal September 2020

      ©Ayagiz/Getty Images HR says talent is crucial for performance—and the pandemic proves it Five talent-management practices can help steer organizations through new ways of working and into the post-COVID-19 era. by Bryan Hancock and Bill Schaninger HR says talent is crucial for performance—and the pandemic proves it

      To say that chief HR officers (CHROs) are busy in this article, we look at how CHROs can take action the COVID-19 era would be an understatement. Now, in those areas to craft a strong and durable talent more than ever, they are central to how companies strategy for the postpandemic world. are reimagining their personnel practices to build organizational resilience and drive value. Finding and hiring the right people In the earliest days of the crisis, CHROs kept During the COVID-19 crisis, changes in customer people safe while fostering connectivity and caring demand have caused a temporary spike in hiring in an intensely stressful time. In planning for and in areas such as grocery while leading to massive implementing the restart, they have been working layoffs in sectors such as hospitality. Even with to maintain morale and productivity for remote those shifts and an overall rise in unemployment, workforces while trying to figure out how and when efficient and effective hiring will continue to be to get folks back into office settings. important—especially for the scarce skills required for the next normal in areas such as IT. Those responses were to circumstances that no one had ever faced before. Now, though, the COVID- In May 2020, we surveyed more than 190 chief 19 crisis is accelerating preexisting trends in five officers and functional leaders across industries areas of talent management that are part of the to find out how they were thinking about spending CHRO playbook: finding and hiring the right people, allocation in the months ahead. Of those leaders, learning and growing, managing and rewarding 67 percent say they anticipate spending less on performance, tailoring the employee experience, permanent hiring in the next 12 months (Exhibit 1). and optimizing workforce planning and strategy. In Web <2020> Exhibit 1 Exhibit <1> of <3> Leaders say they anticipate spending less on permanent hiring in the next Leaders say they anticipate spending less on permanent hiring in the next 12 12 months. months. Expected HR-activity investment for next 12 months, % of respondents¹ Recruiting and „earning and Recogni…ing and †ngaging and Wor‡force planning‚ onƒoarding developent rewarding connecting strategy‚ and change 5 5 5 ’nsure 2 2 2 2 ‹‹ ˆnvest ore ‹‹ Ž‹ Ž‹ Ž‹ Hold flat ‰Š ‹Œ 2 2Ž 1 ˆnvest less „† “”R† 1Question: What are your expectations for how HR will invest over 5 categories in next 12 onths urvey of chief officers and functional leaders across industries n  15 ­igures ay not su to 1€€%‚ ƒecause of rounding 1 Online Labour Index, Oxford Internet Institute, 2020, ilabour.oii.ox.ac.uk. 52 What now? Ten actions to emerge stronger in the next normal September 2020

      What Now? - Page 54

      While some of that decline is related to a reduction in Learning and growing labor demand, organizations are also rethinking their Learning organizations face a tension between hiring processes more broadly. For example, given continuing cost pressures in a downturn and the successful experiments in remote hiring during the need to deliver training to help workers adapt to a COVID-19 crisis, companies are reconsidering the changing organization and business environment. need to go on campus for interviews (which would That tension was reflected in our survey, which admittedly be more difficult now, with many colleges shows that 29 percent of learning and development and universities planning to use remote learning in organizations plan to invest more in the next 12 the fall). That is an acceleration of a preexisting trend: months and that 38 percent plan to invest less. companies such as Goldman Sachs were using remote interviewing for on-campus hiring before the Our research on reskilling shows that CHROs pandemic. We expect that trend to continue in the need to think about the effects of large workforce postpandemic era. transitions being accelerated by the COVID-19 crisis and how reskilling plays a key role in helping close In addition, temporary labor, which shrank faster talent gaps while keeping employees connected to than overall jobs did (a 29 percent reduction from jobs. The agenda for postpandemic learning and February to May, compared with a 13 percent development extends beyond reskilling, however, to employment drop overall, according to the US three categories of cost-effective training: Bureau of Labor Statistics), is poised for a faster recovery. Organizations should be ready to use that — Broad-based digital training in essential skills. flexible labor in additional ways. Many organizations are expanding remote training to address challenges, such as effective Of surveyed leaders, 63 percent expect to spend leadership of remote teams (a new skill set for the same amount or more on IT-staff augmentation most managers) and building personal resilience in the coming months. The number of online in difficult circumstances. McKinsey Academy, freelancers in software and tech jobs has actually for instance, has updated its Ability to Execute increased significantly during the pandemic, platform with a COVID-19-related edition according to the Online Labour Index. that provides a series of training modules on remote working, leadership during a crisis, and Digital skills are still in short supply, and remote executional capabilities that matter. working for all employees places remote and online freelancers on a more equal footing with — Focused upskilling rooted in changing work. full-time employees. Even in other talent categories, Such forms of upskilling are function and temporary labor usually responds more quickly in a work-group specific and tied to different ways crisis recovery, as employers value flexibility during of working. For example, a sales force that is its early (and uncertain) stages. moving from a largely in-person to a hybrid remote model will need to be upskilled in the Across both permanent and contingent hiring, practices that drive remote success. The right CHROs should take a fresh look at the range of data-driven approach can bolster sales-force tools, including assessments and platforms, that are performance—and help HR departments draw a making it easier to connect people to work. There direct line from talent to revenue. are a large number of up-and-coming organizations in the prehire ecosystem, and innovation is making it According to recent McKinsey research, easier to connect people to employment based on a 77 percent of leaders indicate that retraining deeper understanding of their skills and how those salespeople is very or moderately important. match with available jobs. To do that, some companies are retraining HR says talent is crucial for performance—and the pandemic proves it 53

      field sales reps for inside sales roles, including behavior that would be required to keep them those that require an increased use of data and moving in a more focused way. Leaders who analytics and those that provide customers with are working on these skills can spend a small technical expertise via a website’s chat function. amount of their learning time in formal settings In our survey of leaders, IT, marketing, and (in classroom, online, or with a coach) and the supply chain were among the most cited areas majority of it working on real project-based for specific upskilling. That holds true for HR: business problems (which the COVID-19 crisis 61 percent of respondents believe that upskilling naturally provided). will be very or moderately important in the area (Exhibit 2). Managing and rewarding performance — Leadership development. In response to The COVID-19 crisis is speeding up needed shifts the current crisis, the slow pace of corporate in how organizations manage and reward bureaucracy has been replaced by clear goals, performance. As our previous research has focused teams, and rapid decision making. shown, the majority of business leaders don’t CHROs have a key role to play in making sure believe that their performance-management that the change sticks. Leadership-development system accurately identifies top performers—and programs can provide support for faster, more the majority of employees don’t feel that the agile organizations. In particular, organizations performance-management process accurately can identify the three to five shifts in leadership reflects their contributions. Web <2020> Exhibit 2 Exhibit <2> of <3> Leaders say reskilling is very important, but they are focusing on certain areas. Leaders say reskilling is very important, but they are focusing on certain areas. Reskilling importance by function, % of respondents¹ Hˆ inance ‚arketing Supply chain ”• …egal ’ommunications Quality “rocurement Sales 1‰ Œ Ž  Ž Œ Œ Œ ‘ Š „nsure  1 ‰‹ ‰Œ ŠŒ ŠŽ ‹1 ƒery ‹ ‹‘  important Š ‹‰ ‹  ŠŒ ŠŽ ‹ Š1 ‰ ‚oderately ‰ important ‹1 ŠŠ ‰ 1 ‰ 1 €ot 1Š 1‹ 1‹ 1Š important …†SS ‚‡ˆ† 1Question: How important will reskilling employees be in this function? Survey of chief officers and functional leaders across industries n  1 igures may not sum to 1 %­ because of rounding 54 What now? Ten actions to emerge stronger in the next normal September 2020

      What Now? - Page 56

      It is important for CHROs to craft a talent strategy that calls out and recognizes the truly distinctive and the truly lagging. The current crisis has dramatically affected goals The COVID-19 crisis has amplified how hard it is and performance plans, with the added wrinkle of to make distinctions “in the middle,” but those making the people who are working remotely even distinctions have always been hard to make for more reliant on performance management to tell knowledge workers. As a result, a movement them how they are doing. That makes three CHRO toward recognizing the broad range of good actions more relevant now: performance is welcome. At the same time, it is important for CHROs to craft a talent — Transparently link employee goals to business strategy that calls out and recognizes the truly priorities and maintain a strong element distinctive (to motivate and retain them) and of flexibility. Managers should have regular the truly lagging (to boost morale and conversations with their employees to set organizational performance). priorities jointly in a changing environment. Annual “set it and forget it” goal setting was already seeing declining relevance among Tailoring the employee experience knowledge workers before the pandemic, given Employee experience and connectivity have taken the pace of change and need to adapt. And the on whole new meanings as extended work-from- radical shifting of priorities during the COVID- home policies have required organizations to be 19 crisis highlights how challenging the annual intentional about building each. In blunt terms, work system has become. can’t be another source of anxiety or uncertainty for employees right now. They have more than enough — Invest in managers’ coaching skills. Coaching going on. is the heart of managing performance, which is even more critical when workers are remote. The blurring of the line between work and life while Organizations need to invest in managerial working remotely means that employee experience skills—and mindsets—around coaching and is even more critical. For virtual workers, there’s feedback as a continuing process. no commute to the office, no coffee- or snack- room chat, and no in-person gathering after work. — Keep ratings for the very highest—and lowest— Tethered video (or phone) interactions during the performers but also celebrate the broad range course of the work day are going to make it or break of good performance. Instead of investing it for most people. time and energy in making small differentiations in ratings (and pay) for those in the broad One way to handle employee experience in a remote range of good performers, organizations environment is to tailor the approach to individuals should be focused more on having robust or segments of people. Our research shows that development conversations. HR says talent is crucial for performance—and the pandemic proves it 55

      experiences vary widely. That is also true for the tools (such as mobile text platforms) to gather and hybrid work environment, with some employees analyze employee sentiment, organizations must be back in the office and others remaining at home. thoughtful about how they track and comprehend employee well-being—beyond an annual CHROs will need to help establish norms of working engagement survey. that foster engagement and inclusion for all employees. There is no one-size-fits-all solution. The answer, different for every organization, will Optimizing workforce planning be based on what talent is needed, which roles and strategy are most important, how much collaboration is Given the shifts in how value is being created in necessary for excellence, and where offices are the post-COVID-19 world (for instance, the shift located today, among other factors (Exhibit 3). to contactless experience in grocery, retail, and restaurants and the change from in-person sales HR departments should also consider the range meetings to remote sales calls), the talent base of analytics tools they can use to understand and required to deliver that value may need to shift as promote connectivity and engagement. From using well. As such, it is natural that workforce planning, social-network analyses to map interactions and strategy, and change is the category of HR spending prompt needed connectivity to using listening that survey respondents cite as the most likely to Web <2020> Exhibit 3 Exhibit <3> of <3> HR is central to helping people across an organization adapt to new roles. HR is central to helping people across an organization adapt to new roles. Communicating change in a remote workplace Individual contributors Managers Senior executives Understanding of and comfort in Effective leadership of virtual teams €lear communication with using virtual meeting platforms through various platforms in lieu of remote and in-person (eg, Zoom) in-person meetings colleagues on changes in working models Adaptation to role-specific trong -wa communication components of virtual work (eg, a skills—clear communication to teams ‚romotion of cohesion and sales rep used to in-person visits and clear channels for teams to unified culture, even while to clients learns how to use other communicate with managers workforces ma have avenues to communicate) in-person and remote le ibilit and willingness to adapt to components Establishment of comfortable team-member needs in conte t of working environments (eg, setting virtual work acilitation of regular virtual up personal preferences for gatherings and town halls work hours, creating phsical ­ole modeling of new norms and to recogniƒe individual and environment comfortable to work in) policies of new working environments team contributions 56 What now? Ten actions to emerge stronger in the next normal September 2020

      What Now? - Page 58

      increase over the next 12 months, with 76 percent people to jobs. Artificial-intelligence-enabled reporting that they will spend the same or more. tools can help assess an individual’s skills, and There are three important components of workforce performance-management systems can be planning and strategy: realigned to track skills alongside performance. Longer term, interoperable learning records — Critical roles. Our research suggests that can serve as skills transcripts that track the a small subset of roles (less than 50) is skills employees develop across educational disproportionately important to delivering a institutions and employers. business-value agenda. For each of those roles, it is critical to identify the core jobs to be done, In an example of matching talent to jobs, Talent the qualities needed of the leaders, and whether Exchange, an online job marketplace powered the role is set up for success. Given the shifts by Eightfold AI, was launched in April 2020 in the value agenda during the pandemic, it is to help people who are out of work during the important that organizations reassess the roles COVID-19 crisis find the right employment. that are most critical in the current stage of the Based on an understanding of skills across an crisis (for example, new product development organization (and beyond), “smart slates” can and innovation) and in the recovery. be developed for critical roles, agile teams can be staffed dynamically based on matching skills, — Skill pools. In addition to individual roles, and redeployment opportunities can meet talent organizations should look at their major skill gaps while preventing layoffs. Such tools, in the pools (for instance, digital coders) to understand early stages of deployment now, will become the skills required for the future and whether increasingly critical for CHROs and other they are long or short on the required talent. leaders as they meet the challenges ahead. That means embracing a more expansive and dynamic view of their talent supplies—one that tosses out the usual preoccupation with titles and traditional roles, looking instead at the The COVID-19 pandemic has imposed a tremendous underlying skills that people have. Indeed, we cost on people’s lives and livelihoods, and it has find that when companies start with skills (the forced businesses to adjust rapidly to survive. We ones they need, the ones they have, and how the have seen “HR’s finest hour” in managing the radical mix may change over time), they can free up their shifts facing workforces during the pandemic, and thinking and find more creative ways to handle we are excited to see how CHROs reimagine core the mismatches. talent practices during the recovery—and beyond. — Talent systems. CHROs now have more workforce-planning tools to help them match Bryan Hancock is a partner in McKinsey’s Washington, DC, office, and Bill Schaninger is a senior partner in the Philadelphia office. The authors wish to thank Andrea Alexander, Raffaele Breschi, Alexander DiLeonardo, Bonnie Dowling, Neel Gandhi, Talha Khan, Kate Lloyd George, Miriam Owens, and Tom Welchman for their contributions to this article. Copyright © 2020 McKinsey & Company. All rights reserved. HR says talent is crucial for performance—and the pandemic proves it 57

      5 Make bold portfolio moves 59 A blueprint for M&A success 58

      © Cherezoff/Getty Images A blueprint for M&A success Programmatic M&A can help companies build resiliency, but this approach to deal making requires a solid game plan—one that will guide proactive deal sourcing and opportunistic deal evaluation. by Sophie Clarke, Robert Uhlaner, and Liz Wol A blueprint for M&A success 59

      Large mergers and acquisitions (M&A) tend to get The CEO was pushing for a big bet on digital given the biggest headlines, but, as McKinsey research the company’s superior financial position. indicates, executives should be paying attention to Some senior leaders proposed expansion in greater all the small deals, too. These smaller transactions, China, the fastest-growing market for premium when pursued as part of a deliberate and systematic cosmetics. Other business-unit leaders saw poten- M&A program, tend to yield strong returns over the tial in the markets for organic products and men’s 1 grooming. All had their own agendas (see sidebar, long run with comparatively low risk. And, based on our research, companies’ ability to successfully “Undue influences”). manage these deals can be a central factor in their 2 ability to withstand economic shocks. Propelled by a healthy dose of FOMO (or fear of missing out) but lacking a clear set of priorities, the The execution of such a programmatic M&A strategy M&A team made multiple small bets on a range is not easy, however. Consider the situation at of businesses—even on some unexpected targets one global cosmetics company (a hypothetical case in adjacent markets (such as pet grooming). But MoF74 2020 based on real-world experiences). Enthusiastic the team did not have a clear plan for creating value executives all had different ideas about which M&A from these targets nor for integrating them A blueprint for M&A success Exhibit 1 of 1 opportunities the company should pursue (exhibit). into the current business structure. The result? Exhibit When there is no clear connection between M&A strategy and corporate strategy, deals may falter. Enthusiastic ideas Let’s leverage our Let’s epand our business Let’s acuire an organic Let’s enter the men’s for acquisitions … superior financial to greater hina. hat beauty company. grooming business. €en position (healthy balance is the astest-groing onsumers ant organic need products too. sheet) vis-à-vis peers market or premium and e have nothing to make a “big bet” on cosmetics. to offer. digital channel. … wither due to his digital target could „e acuired a e ‡ kno e eren’t ˆur bank managed to lac of underlin have alloed us to eciting high-groth planning on buying a pet- find a ton o targets in all rationale and do online sales … it as targets in …sia. grooming company but it the adƒacent businesses interation plans ƒust too epensive. †nortunately integration turned out to be a great e ere interested took longer than e deal and had a surprising in (organics and men’s had hoped as scaling our amount o synergy ith grooming) and e eisting processes in …sia our business. acuired one o each. as very complicated. 1 Jeff Rudnicki, Kate Siegel, and Andy West, “How lots of small M&A deals add up to big value,” July 2019, McKinsey.com. 2 Martin Hirt, Sven Smit, Chris Bradley, Robert Uhlaner, Mihir Mysore, Yuval Atsmon, and Nicholas Northcote, “Getting ahead of the next stage of the coronavirus,” April 2020, McKinsey.com. 60 What now? Ten actions to emerge stronger in the next normal September 2020

      What Now? - Page 62

      The M&A blueprint prompts business leaders to conduct a thorough self-as- sessment along with a comprehensive market assessment. The organization ended up wasting time and M&A to achieve our corporate strategy? Answering resources on deals that were mostly unsuccessful, these questions will require asking still more and its executives unintentionally created an clarifying questions about specific organizational unwieldy portfolio of businesses. strengths and capabilities, resources available, and other inputs to effective deal making. As this example illustrates, success in programmatic M&A requires much more than just executing on Understanding ‘why’ and ‘where’ a long string of deals. Acquirers must articulate The M&A blueprint prompts business leaders to exactly why and where they need M&A to deliver conduct a thorough self-assessment along with on specific themes and objectives underlying their a comprehensive market assessment. The self- overarching corporate strategies. In addition, they assessment helps establish the baseline from which must give careful thought as to how they plan to to identify gaps in corporate ambitions as well pursue programmatic M&A—including constructing as the opportunities for M&A to fill these gaps. It a high-level business case and preliminary involves examining a company’s key sources integration plans for each area in which they want of competitive advantage and testing their scalability to pursue M&A. to determine whether they would still play to the company’s advantage after a transaction. For its Taken together, these factors combine into what part, the market assessment acts as a “sense we call an M&A blueprint. In this article we discuss check” for business leaders, ensuring that the com- how it can be implemented to help organizations pany’s M&A strategy capitalizes on the most remain unrelentingly focused on their investment recent and relevant trends, accounts for potential thesis throughout the deal process. Having a disruptions, and acknowledges competitors’ likely clear M&A blueprint is even more critical as com- actions and reactions. panies begin to consider how to rebound from COVID-19. Without an M&A blueprint, it will be An M&A blueprint should also define any boundary more difficult for companies to distinguish between conditions, or limits to the company’s use of through-cycle opportunities that are consistent M&A. These conditions, which are typically imposed with their corporate strategy and “low hanging, dis- by the CFO or the board investment committee, tressed asset” deals that are not. provide an important reality check: they define the con straints on certain types or sizes of deals, thereby further narrowing the scope of potential M&A blueprint: The building blocks targets. In setting these conditions, business The M&A blueprint can help executives answer leaders should account for preexisting financial three main questions: Why and where should we hurdles—for instance, a rule that “deals must use programmatic M&A to achieve our corporate be accretive in the first year” likely would not apply strategy? And how should we use programmatic to deals targeting growth and might therefore A blueprint for M&A success 61

      overly constrain M&A activity. Establishing these information, organizations and M&A deal teams can boundary conditions at the outset—with explicit continually cultivate potential targets within agreement from the CFO and the board—can help focused M&A themes while still being opportunistic put teeth into investment commitments and align about deals that present themselves. everyone on negotiable and nonnegotiable terms. Once these themes have been identified, business Taken together, the self-assessment, market leaders should test them to ensure that they assessment, and review of boundary conditions can execute against them—for instance, are there can help executives understand the circumstances enough targets available, and do the right targets under which the pursuit of M&A makes the most exist to fill gaps in the company’s capabilities? sense, as well as the markets they are best The M&A blueprint will be particularly critical in positioned to enter. Indeed, the output of business target-rich environments to help narrow down leaders’ discussions about “why and where” will the list of potentials. be a set of M&A themes that reflect the company’s best value-creation opportunities—those A “gold standard” M&A blueprint is detailed and for which the company has the capabilities and focused on critical competitive information resources to achieve intended strategic goals. (value-creation levers, company capabilities, and so on). To understand whether their companies’ What does a good M&A theme entail? For each M&A themes are detailed enough, business leaders theme, senior leaders should identify important deal should consider whether they would be comfortable criteria (categorizing potential targets by geog- broadcasting those themes to competitors. The raphy, sales channel, product type, and so on) as answer should be “no.” If the answer is “yes,” more well as standard screening metrics like company work on the blueprint will be needed, as it and size, number of employees, revenue growth, product the related themes are likely not specific enough to port folio, ownership, and so on. With this detailed be useful to M&A teams. Undue influences The hypothetical case of the global The M&A team at the cosmetics company, if it were a nail.” This is the approach the cosmetics company points to two common for instance, was reactive. It was swayed by cosmetics company favored—establishing cognitive biases that can emerge when deals sourced by third parties, and a well-organized M&A team but then using any company attempts to pursue program- it ended up inventing growth strategies it to drive almost all growth rather than matic M&A: the shiny-object syndrome around possible, exciting targets applying it only to those opportunities best and Maslow’s hammer. without a clear understanding of how suited to be bought, not built. they could generate value. The shiny-object syndrome—also known Without an M&A blueprint to provide as extreme distraction. Companies that Maslow’s hammer. In his 1966 book an incontrovertible fact base and action continually chase down the next new thing The Psychology of Science (HarperCollins), plan, the cosmetics company’s efforts run the risk of pursuing initiatives in the psychologist Abraham Maslow stated, to implement programmatic deal making wrong order, skipping foundational tasks, “I suppose it is tempting, if the only tool you turned into a quixotic, time-wasting effort. or duplicating efforts and investments. have is a hammer, to treat everything as 62 What now? Ten actions to emerge stronger in the next normal September 2020

      Understanding ‘how’ M&A blueprint: Putting it all together An M&A blueprint also prompts senior leaders to An M&A blueprint cannot and should not be come up with a plan for “how” they will use M&A developed based on “gut instinct” by a single to further their overarching corporate strategies. execu tive or defined post hoc to validate the theory Specifically, the M&A blueprint should delineate the behind an exciting deal. An executive or business- high-level business case and preliminary integration unit leader should lead its development but plans associated with each M&A theme. should be supported by corporate-strategy and corporate-development executives. The blue- The business case should explain how the acqui- print itself can take the form of a frequently updated ring company plans to add value to the target or and disseminated written report, or it can be a targets within a given M&A theme—for instance, the standing agenda item in every M&A and corporate- capital and operating expenditures needed (beyond strategy meeting. Regardless of format, it can the acquisition price) to integrate and scale the help decision makers assess critical factors relating asset or assets. It should also outline the operational to deal sourcing, due diligence, and integration changes and capabilities that will be required to planning before making any moves and taking steps integrate the new assets—for instance, the creation to identify targets. of a new business unit or a set of new business processes to manage an acquired digital platform. Looking back at the case of the cosmetics company, it becomes clear how an M&A blueprint could One large US healthcare company had committed have helped the organization prioritize a bunch of to a strategy of building scale in its services scattershot ideas into a comprehensive program- businesses through M&A. First, it consolidated matic M&A strategy. existing disparate service businesses under a new brand and organized them into three distinct With its market assessment, for instance, it might units: pharmacy-care services, diversified health have seen that the market for digital cosmetics is and wellness services, and data-analytics and tech- projected to grow five times faster than the market nology services. These became their three M&A for nondigital cosmetics. What’s more, market themes. Then, over a ten-year period, this program- data might have revealed that customers want and matic acquirer closed more than 60 deals, spending expect to buy cosmetics through digital channels, well over $20 billion, as it sought to fill out its and that there is no clear leader in the space. In its portfolio along these three themes. The organization self-assessment, the M&A team might also knew where it wanted to play and how. have seen a gap in the company’s product portfolio com pared with peers. And a look at boundary Of course, the business case should include a condi tions might have revealed the time and latitude preliminary integration plan for the acquired asset required to pay off initial acquisition investments, or assets that is consistent with the deal’s value- enabling the team to look beyond “base hit” deals creation thesis—for instance, all shared services with lower acquisition costs. will be absorbed by the acquirer, and the target company’s product portfolio will be cross-sold to The M&A blueprint would have led the cosmetics the acquirer’s existing customers. company to a different outcome—perhaps a laser focus on acquiring the set of assets and Through their use of the M&A blueprint, business capabilities needed to build a digital platform leaders can stay focused on those parts of the deal for selling cosmetics. that can create the most value—especially impor- tant when companies are pursuing multiple deals within the same M&A theme. What’s more, they can prepare functional leaders, suppliers, and others Spending time up front creating an M&A blueprint well in advance for the actions they may need to will pay off over the long term—particularly given take to integrate an asset or multiple assets. the volume of deals associated with a programmatic A blueprint for M&A success 63

      M&A strategy. With M&A themes and criteria well value. Integration planning can begin early, with defined and understood by all, companies can a focus on realizing the strategic intent of the deal not only be more proactive but also more opportu- rather than just stabilizing companies, people, nistic. The top team will be aligned on strategy and processes in the wake of change. Most impor- and focused on deal must-haves prior to reaching tant, the M&A blueprint can help executives tell out to potential targets. Negotiations with a compel ling story (inside and outside the company) potential targets can be grounded in the business about its deal-making strategy and its vision case. Diligence processes can be accelerated for the future. and focused only on the most critical sources of Sophie Clarke is a consultant in McKinsey’s New Jersey office, where Liz Wol is an associate partner; Robert Uhlaner is a senior partner in the San Francisco office. The authors wish to thank Anthony Chui, Jack Gordon, Steve Santulli, and Lexi Wang for their contributions to this article. Copyright © 2020 McKinsey & Company. All rights reserved. 64 What now? Ten actions to emerge stronger in the next normal September 2020

      Reset technology plans 66 Building the vital skills 6 for the future of work in operations 65

      © Tashi-Delek/Getty Images Building the vital skills for the future of work in operations Operationally intensive companies have entered a new wave of automation and digitization. That will have a big impact on the skills they need to remain competitive. by Kweilin Ellingrud, Rahul Gupta, and Julian Salguero 66 What now? Ten actions to emerge stronger in the next normal September 2020

      Technological progress is enabling machines to makes them particularly suitable for automation complete many of the tasks that once required or digitization. human beings. That new automation revolution will have a major effect on employment in the Our analysis suggests that 39 to 58 percent of the coming years. Nearly every job will change, many worldwide work activities in operationally intensive quite profoundly, and the overwhelming majority sectors could be automated using currently of today’s employees will need to develop new demonstrated technologies. That is 1.3 times the skills. Preparing for the future of work is one of the automation potential of activities in other sectors defining business problems of our time—yet it is one (Exhibit 1). that most organizations are not ready to address. Beyond the scale of the coming changes in work- The transition to the automation revolution has place roles and activities, what matters most is the been accelerated by the COVID-19 pandemic. nature of those changes. Increasing automation will Companies are emerging from the crisis into a world significantly shift the skill profiles of tomorrow’s jobs. of workplace physical distancing and major changes That has implications for employers and employees in customer behaviors and preferences. Recovery is alike. Companies will need people with the right skills forcing organizations to reimagine their operations to develop, manage, and maintain their automated for the next normal. Manufacturing companies equipment and digital processes and to do the jobs are reconfiguring their supply chains and their that machines cannot. Workers will need the skills production lines. Service organizations are adapting that enable them to access employment. to emphasize digital-first customer journeys and contactless operations. Those changes will In Europe and the United States, for example, have significant effects on the requirements for demand for physical and manual skills in repeatable workforce skills and capabilities, from a dramatic and predictable tasks is expected to decline by increase in home-based and remote working to a nearly 30 percent over the next decade, while need for shop-floor personnel to master new tools demand for basic literacy and numeracy skills and newly urgent health and safety requirements. would fall by almost 20 percent. In contrast, the demand for technological skills (both coding and The future of work will require two types of changes especially interacting with technology) is expected across the workforce: upskilling, in which staff to rise by more than 50 percent, and the need for gain new skills to help in their current roles, and complex cognitive skills is set to increase by one- reskilling, in which staff need the capabilities third. Demand for high-level social and emotional to take on different or entirely new roles. Our skills, such as initiative taking, leadership, and research suggests that the reskilling challenge entrepreneurship, is also expected to rise by more will be particularly acute in operationally intensive than 30 percent (Exhibit 2). sectors, such as manufacturing, transportation, and retail, and operations-aligned occupations, such as maintenance, claim processing, and warehouse Leaders are unprepared 1 order picking. Those sectors and occupations will In operationally intensive sectors, leaders recognize experience a magnitude of change greater than the that automation and digitization will likely create global average because they often employ large significant skill gaps, but most report feeling numbers of people and because the predictable unprepared for the challenge. In a 2017 McKinsey and repetitive nature of many operational tasks 1 To investigate the impact of automation on operationally intensive activities, we looked at specific sectors and occupations. Operationally intensive sectors include construction, finance and insurance, food service and accommodation, manufacturing, mining, oil and gas, retail, transportation, utilities, and wholesale trade. Operations-aligned occupations include facilities management, frontline customer service and sales, frontline equipment repair and installation, frontline production, frontline trade work, logistics transportation and warehousing, order and claim processing, procurement, and skilled operations work. Building the vital skills for the future of work in operations 67

      Exhibit 1 Operations-intensive sectors have 1.3 times the automation potential of other Operations-intensive sectors have 1.3 times the automation potential of sectors. other sectors. Technologically automatable activities by sector,  o total activities ƒperationally intensive sectors verage operationally intensive sectors 1.3× ƒther sectors verage other sectors difference in automation 1 potential Manuacturing 58 ccommodation and ood services 53 etail trade 51 griculture orestry fishing and hunting 50 Mining 48 onstruction 46 ­tilities 43 €inance and insurance 41 Wholesale trade 40 rts entertainment and recreation 39 ‚ransportation and warehousing 39 dministrative support and waste management 37 eal estate rental and leasing 37 ƒther 35 normation 33 „roessional scientific and technical 33 Management o companies and enterprises 33 …ealthcare and social assistance 32 †ducational 25 1We define automation potential by the work activities that can be automated by adapting currently demonstrated technology. Source: McKinsey Global nstitute analysis survey of 116 executives at large organizations, issue, they cited three main barriers. More than nearly two-thirds of respondents said skills were one in four respondents said they lacked a clear a top ten issue for their companies. Only 7 percent understanding of the impact that future automation of respondents thought that their companies were and digitization would have on skill requirements. fully prepared to address the skill gaps that they Nearly one in four said they lacked the tools or the expected over the subsequent five years. knowledge to quantify the business case for efforts to reskill their workforces. And almost one-third When we asked executives in the survey why their thought that their current HR infrastructure would organizations were not yet ready to tackle the skill not be able to execute a new strategy designed 68 What now? Ten actions to emerge stronger in the next normal September 2020

      Web <2020> Exhibit <2> of <5> Exhibit 2 Automation will have a significant impact on skill requirements Automation will have a significant impact on skill requirements. Skill shift in US and Western Europe by category, % of time spent asic €iger Social and ysical and manual cogniti­e cogniti­e emotional ecnological 01 48 12 17 12 12 –„% –1„% …†% …‚‚% …‡ˆ% 0‚0 35 10 21 16 1 100% Note: Figures may not sum to 100%, because of rounding. Source: McKinsey Global nstitute analysis to address emerging skill gaps (Exhibit 3). Across required for the digital era, and 80 percent say industries, our latest survey data indicate that these at least half of all new roles should be filled by problems persist today. reskilling existing workers. That question reveals some important geographical differences, however. Among European respondents, 94 percent think The central role of reskilling that the balance between hiring and reskilling would Companies can use several different approaches be either equal or tipped in favor of reskilling, but to address skill gaps. They can look outside the the equivalent figure is only 62 percent among US organization, hiring new staff with the right skills. executives. That may reflect differences in local They can build skills internally, retraining their employment cultures and legal provisions. existing workforces to prepare people for new roles. Or they can take a hybrid approach, including using a To make good on their large-scale reskilling skilled contract workforce to fulfil short-term needs aspirations, most organizations will need to while developing the necessary skills internally. significantly ramp up their employee training and capability-building efforts. A number of Most organizations are likely to adopt a mix of those large organizations have already begun to do so. models. They may look to the external market to fill Global retailer Walmart, for example, is investing certain specialized, highly technical roles such as $4 billion over four years to help staff in frontline data scientists, while aiming to fill new frontline roles, and back-office jobs transition to new customer- such as robot controllers and production-exception service-oriented roles. E-commerce giant Amazon handlers, from their existing workforces. We believe has pledged to spend $700 million on technology that ongoing shifts in societal attitudes will increase training by 2025 to help employees move to the expectation that companies do more to retain higher-skill jobs. Professional-services company and retrain their current workers wherever possible. ManpowerGroup has entered a partnership with education company Pearson and others to upskill Executives in our survey are broadly united in the 130,000 workers over the next five years. view that their organizations have a significant role to play in the skill transition. Two-thirds of It may take several years for these global reskilling respondents think that corporations should take programs to pay back, but they are visible and the lead in the development of the new skills important investments. Some companies are Building the vital skills for the future of work in operations 69

      Web <2020> Exhibit <3> of <5> Exhibit 3 Large-scale reskilling efforts must overcome significant barriers. Large-scale reskilling efforts must overcome significant barriers. Reported barriers to reskilling by sector type, ƒperationally intensive sectors 1 ƒther sectors % of respondents „urrent …† infrastructure ‰on’t have a good ‰on’t know how to ‰on’t know how to can’t eˆecute a new understanding of how ‹uantify the usiness evaluate or compare strategy for addressing automation and digitization case for addressing various solutions for potential skill gaps will affect future skill needs potential skill gaps potential skill gaps 30 28 26 32 28 20 18 27 Potential skill gaps keptical of ot aware of any internal aren’t seen as a the return on ‰on’t eˆpect or eˆternal solutions for high-priority issue retraining investments skill gaps potential skill gaps 15 13 8 10 6 10 9 3 1Private-sector organizations with >$100 million in annual revenue that view the skill gap as a top 10 priority. ource cinsey survey ovem er ­01€‚ cinsey analysis already reaping returns from smaller-scale digital transformation has many moving parts, with reskilling efforts. Tata Steel’s plant in Ijmuiden, multiple elements that must be addressed together the Netherlands, for example, established an to ensure that new approaches deliver real value, advanced-analytics academy to train and certify are accepted by the wider organization, and can be hundreds of engineers on the application of new implemented and sustained at scale. analytical approaches to manufacturing-process improvement. Using the new techniques helped the In our work with the World Economic Forum’s Global plant to boost its earnings before interest, taxes, Lighthouse Network of advanced manufacturing depreciation, and amortization by more than 15 companies, for example, we found that while percent, despite significant cost pressures across such companies make extensive use of smart the global steel sector. technologies in their operations, they pay equal attention to their business processes, their management systems, and their people. Preparing for the future of work Our analysis of companies that have embarked Second, the programs address every level of the on large-scale, systematic efforts to address organization. Successful companies approach future skill requirements suggests that the automation and digitization as a comprehensive most successful programs share certain core transformation program, driven by top management elements. Above all, they are integral parts of their and involving the majority of the organizations’ organizations’ overall digital strategies. In fact, managerial workforces. senior executives cite talent as the biggest barrier to achieving their digital strategies—those two factors Third, most successful companies tailor and must be deeply connected for success in both. customize their training to match both the Many companies have learned the hard way that a organizations’ goals and the needs of individual 70 What now? Ten actions to emerge stronger in the next normal September 2020

      What Now? - Page 72

      learners, from CEOs to frontline operators. Training Once an organization understands the combination content is made as specific as possible, covering of skills it requires for future roles, it can match the technologies, tools, and business scenarios that those requirements against the skills available individuals will face in their new or changing roles. in its current workforce to plan how staff can be redeployed over time and identify the gaps that Finally, content is delivered using adult-learning must be filled to meet the needs of both existing principles via a combination of classroom or online and new roles (Exhibit 5). During the planning phase, learning and real, on-the-job experience. In addition companies should also assess the underlying to making use of technical content, successful factors that can make or break a reskilling program. reskilling programs are designed to help learners Those include the capabilities of an organization’s alter their mindsets: they teach employees about new existing HR and training infrastructure, as well as ways of working and emphasize the personal- and the willingness of its workforce to embrace change. professional-growth opportunities available to them. Next, an organization should prioritize the skills that affect the largest number of employees and Scout, shape, and shift the roles that require the largest skill shifts and In the coming years, almost every operations- develop content and delivery mechanisms for intensive organization will need a systematic each of its priority cohorts. JPMorgan Chase has approach to the challenge of shifting skill introduced several schemes to develop the digital requirements. Designing, building, and executing skills of current and future workers as part of its such an approach requires three broad steps: scout, five-year, $350 million commitment to skill building. shape, and shift (Exhibit 4). They include a ten- to 14-week immersive coding academy for high-performing technology staff The first step is workforce planning. Companies and a degree apprenticeship that allows people to must scout their future skill needs, analyzing earn a degree while working within the company’s the skills required to deliver on their strategic technology business. A large integrated energy ambitions. As we noted previously, skill demands are company uses a gamification approach to train determined by an organization’s wider technology operational staff in new, digitally enabled working strategy, so understanding the potential impact of methods. Staff are given access to a library of online automation and digitization across an organization apps in which they complete progressively more and developing a robust strategy to capture those challenging tasks. Their results are recorded in an opportunities is a necessary precursor to any individual training account, and high performers “rightskilling” program. receive both public recognition and financial reward. Web <2020> Exhibit 4 Exhibit <4> of <5> An end-to-end skill transformation follows a three-phase approach. An end-to-end skill transformation follows a three-phase approach. Scout Shape Shift Analyze skill demand vs supply Design program architecture Stand up infrastructure and to deliver on strategic ambitions to close demand–supply gap capabilities to reskill at scale Building the vital skills for the future of work in operations 71

      What Now? - Page 73

      Web <2020> Exhibit 5 Exhibit <5> of <5> Creating the right talent pool for a digital and analytics transformation Creating the right talent pool for a digital and analytics transformation combines in-house capability building and hiring for specific roles. combines in-house capability building and hiring for specific roles. Shift in roles ain talent source In-house capabilty building ‰iring external talent  Current role Dn role Senior Management team management eneral managers DnA champion Operational roduction and management technology managers ˆunctional-team leaders Production Maintenance- and DnA aare units production-team leaders ection managers ­ocal I team €uality and process technologists ranslator ‚entral maintenance team Data scientist Functions ‚ontinuous-improƒement- Data engineer pro„ect roles I architect ‚entral supply-chain roduct oner mar…eting and sales agile coach and and technology roles scrum master †ontechnical roles 2 U/UI designer and External ‡xternally hired talent softare engineer 1Digital and analytics 2User experience and/or user interface. At the center of a skill-shaping effort should be a The relationship between an organization and its talent-transition hub and a corporate academy that people is a two-way street, and the design phase oversee the delivery of reskilling programs, allocate of a future-of-work program should also focus on employees to learning journeys, and provide a business’s offer to its staff. Companies need to reskilled staff to the parts of the business that develop clear and compelling value propositions need them most. The hub will also be responsible for employees to ensure that their existing staffs for ensuring that an organization’s reskilling system see the benefits of developing new skills—and so grows and adapts to suit the needs of the business, the organizations can attract external talent to fill tracking the performance and impact of the the specialized roles for which there are insufficient program and using agile techniques to test, adapt, internal candidates. and refine curricula and learning systems. 72 What now? Ten actions to emerge stronger in the next normal September 2020

      The relationship between an organization and its people is a two-way street, and the design phase of a future-of-work program should also focus on a business’s offer to its staff. Finally, companies need to shift the skill profiles — How will your digital transformation ensure that of their entire organizations by developing and your people are equipped to meet future skill deploying the infrastructure and capabilities demands? necessary to reskill at scale. While all employees may need to upskill themselves in broad topics, such — Is your reskilling program evolving to make as the business value and applications of digital effective use of new technologies and and analytics, some may need much deeper and approaches to learning? targeted reskilling for particular new roles. — What is your organization offering existing and potential employees to ensure that it can attract and retain the talent it needs? Preparing for the future of work is set to become an integral part of every organization’s digital and automation strategy. The imperative for action in operationally intensive companies and sectors is particularly strong, as technology profoundly alters the way their work is done. Is your organization ready to respond? Kweilin Ellingrud is a senior partner in McKinsey’s Minneapolis office, Rahul Gupta is an expert in the Boston office, and Julian Salguero is a partner in the Miami office. The authors wish to thank Aaron De Smet, Katy George, James Hale, Kate Lazaroff-Puck, Susan Lund, Angelika Reich, and Andrea Westervelt for their contributions to this article. Copyright © 2020 McKinsey & Company. All rights reserved. Building the vital skills for the future of work in operations 73

      Rethink the global footprint 75 Supply-chain recovery in coronavirus times—plan for now and the future 83 From thinking about the next normal to making it work: What to stop, start, and accelerate 7 7474

      © Westend61/Getty Images Supply-chain recovery in coronavirus times—plan for now and the future Actions taken now to mitigate impacts on supply chains from coronavirus can 7 also build resilience against future shocks. by Knut Alicke, Xavier Azcue, and Edward Barriball Supply-chain recovery in coronavirus times—plan for now and the future 75

      Even as the immediate toll on human health What to do today from the spread of coronavirus (SARS-CoV-2), In the current landscape, we see that a complete which causes the COVID-19 disease, mounts, the short-term response means tackling six sets of economic effects of the crisis—and the livelihoods issues that require quick action across the end-to- at stake—are coming into sharp focus. Businesses end supply chain (Exhibit 1). These actions should be must respond on multiple fronts at once: at the same taken in parallel with steps to support the workforce time that they work to protect their workers’ safety, and comply with the latest policy requirements: they must also safeguard their operational viability, now increasingly under strain from a historic supply- 1. 1. Create transparency on multitier supply chains, chain shock. establishing a list of critical components, determining the origin of supply, and identifying Many businesses are able to mobilize rapidly and set alternative sources. GES 2020 up crisis-management mechanisms, ideally in the COVID Supply-chain form of a nerve center. The typical focus is naturally 2. Exhibit 1 of 4 2. Estimate available inventory along the value short term. How can supply-chain leaders also chain—including spare parts and after-sales prepare for the medium and long terms—and build the stock—for use as a bridge to keep production resilience that will see them through the other side? running and enable delivery to customers. Exhibit 1 There are multiple immediate, end-to-end supply-chain actions to consider in response to COVID-19. Supply-chain actions Create transparency on multitier Optimize production and Assess realistic final-customer supply chain distribution capacity demand Determine critical components Assess impact on operations and ƒork wit sales and operations and determine origin of supply available resource capacity mainly planning to get demand signal to Assess interruption risk and identify workforce determine re„uired supply likely tier-2 and onward risk nsure employee safety and clearly Leverage direct-to-consumer Look to alternative sources if communicate wit employees cannels of communication suppliers are in severely affected onduct scenario planning and …se market insigts‚e†ternal regions assess impact on operations based databases to estimate for on available capacity customer’s customers ­ptimi€e limited production according to uman-ealt impact margin and opportunity cost‚ penalty Tier-2 supplier Tier-1 supplier Plant Distribution center ustomer ustomer’s customer Estimate available inventory Identify and secure logistics Manage cash and net oring stimate inventory along te value capacity capital cain including spare parts‚ stimate available logistics capacity ˆun supply-cain stress tests vs ma‡or remanufactured stock Accelerate customs clearance suppliers’ balance seets to …se after-sales stock as bridge to ange mode of transport and understand wen supply issues will keep production running prebook air‚rail capacity given start to stress financial or li„uidity current e†posure issues ollaborate wit all parties to leverage freigt capacity ‡ointly 76 What now? Ten actions to emerge stronger in the next normal September 2020

      What Now? - Page 78

      3. Assess realistic final-customer demand lead times and inventory levels as an early-warning 3. and respond to (or, where possible, contain) system for interruption and establish a recovery shortage-buying behavior of customers. plan for critical suppliers by commodity. 4. In situations in which tier-one suppliers do not 4. Optimize production and distribution capacity to ensure employee safety, such as by supplying have visibility into their own supply chains or are personal protective equipment (PPE) and not forthcoming with data on them, companies can engaging with communication teams to share form a hypothesis on this risk by triangulating from infection-risk levels and work-from-home a range of information sources, including facility options. These steps will enable leaders to exposure by industry and parts category, shipment understand current and projected capacity impacts, and export levels across countries and levels in both workforce and materials. regions. Business-data providers have databases that can be purchased and used to perform this 5. triangulation. Advanced-analytics approaches 5. Identify and secure logistics capacity, estimating capacity and accelerating, where possible, and network mapping can be used to cull useful and being flexible on transportation mode, information from these databases rapidly and when required. highlight the most critical lower-tier suppliers. 6. Combining these hypotheses with the knowledge 6. Manage cash and net working capital by running stress tests to understand where supply-chain of where components are traditionally sourced issues will start to cause a financial impact. will create a supplier-risk assessment, which can shape discussions with tier-one suppliers. In the following sections, we explore each of these This can be supplemented with the described six sets of issues. outside-in analysis, using various data sources, to identify possible tier-two and onward suppliers in Create transparency affected regions. Creating a transparent view of a multitier supply chain begins with determining the critical For risks that could stop or significantly slow components for your operations. Working with production lines—or significantly increase cost of operations and production teams to review your bills operations—businesses can identify alternative of materials (BOMs) and catalog components will suppliers, where possible, in terms of qualifications identify the ones that are sourced from high-risk outside severely affected regions. Companies will areas and lack ready substitutes. A risk index for need to recognize that differences in local policy each BOM commodity, based on uniqueness and (for example, changing travel restrictions and location of suppliers, will help identify those parts at government guidance on distancing requirements) highest risk. can have a major impact on the need for (and availability of) other options. If alternative suppliers Once the critical components have been identified, are unavailable, businesses can work closely with companies can then assess the risk of interruption affected tier-one organizations to address the from tier-two and onward suppliers. This stage of risk collaboratively. Understanding the specific planning should include asking direct questions of exposure across the multitier supply chain should tier-one organizations about who and where their allow for a faster restart after the crisis. suppliers are and creating information-sharing agreements to determine any disruption being faced Estimate available inventory in tier-two and beyond organizations. Manufacturers Most businesses would be surprised by how much should engage with all of their suppliers, across all inventory sits in their value chains and should tiers, to form a series of joint agreements to monitor estimate how much of it, including spare parts and Supply-chain recovery in coronavirus times—plan for now and the future 77

      remanufactured stock, is available. Additionally, — finished goods held in warehouses and blocked after-sales stock should be used as a bridge to keep inventory held for sales, quality control, production running (Exhibit 2). and testing This exercise should be completed during the — spare-parts inventory that could be repurposed supply-chain-transparency exercise previously for new-product production, bearing in mind the GES 2020 trade-off of reducing existing customer support described. Estimating all inventory along the value Supply-chain COVID versus maintaining new-product sales chain aids capacity planning during a ramp-up Exhibit 2 of 4 period. Specific categories to consider include the following: — parts with lower-grade ratings or quality issues, which should be assessed to determine whether Exhibit 2 Built-in inventory in the supply chain will delay the full impact of halted production. Expected stockout for companies in EU/US with suppliers ƒo„range †ighrange in China, by industry, illustrative estimate estimate utomotive …harmaceuticals Consumer Retail (mass Retail (fashion †igh tech emiconductors ar 22 pr ay une uly ug ept ­ct €ov ‚ec an 221 Inventory, days of stock (including supply in transit utomotive …harmaceuticals Consumer Retail (mass Retail (fashion †igh tech emiconductors 2ndtier 3040 3570 2030 N/A N/A 4060 N/A supplier (China) (China) (China) (China) 1sttier 717 120140 6090 6090 1535 5570 70110 supplier (EU/US) (EU/US) (China) (China) (China) (China) (China) ssembly‡ 212 55100 1017 1017 1529 1945 6090 packaging (EU/US) (EU/US) (EU/US) (EU/US) (EU/US) (China) (Philippines) 1 R‚Cs N/A 8090 14 1517 1523 N/A N/A (EU/US) (EU/US) (EU/US) (EU/US) arket 030 N/A N/A 7 2128 2440 2030 buffer (EU/US) (EU/US) (EU/US) (EU/US) Toal 4070 230320 6090 70100 70110 40100 130200 ineno as2 1 Regional distribution centers. 2 Figures for total inventory buffer and expected stockout are calculated assuming production stop at latest link based in China. 78 What now? Ten actions to emerge stronger in the next normal September 2020

      the rework effort would be justified to solve — Use advanced statistical forecasting tools to quality issues or whether remanufacture with generate a realistic forecast for base demand. used stock could address supply issues — Integrate market intelligence into product- — parts in transit should be evaluated to see what specific demand-forecasting models. steps can be taken to accelerate their arrival— particularly those in customs or quarantine — Ensure dynamic monitoring of forecasts in order to react quickly to inaccuracies. — supply currently with customers or dealers should be considered to see if stock could be With many end customers engaging in shortage bought back or transparency could be created buying to ensure that they can claim a higher for cross-delivery fraction of whatever is in short supply, businesses can reasonably question whether the demand Assess realistic final-customer demand signals they are receiving from their immediate A crisis may increase or decrease demand for customers, both short and medium term, are particular products, making the estimation of realistic realistic and reflect underlying uncertainties in final-customer demand harder and more important. the forecast. Making orders smaller and more Businesses should question whether demand signals frequent and adding flexibility to contract terms they are receiving from their immediate customers, can improve outcomes both for suppliers and their both short and medium term, are realistic and customers by smoothing the peaks and valleys reflect underlying uncertainties in the forecast. The that raise cost and waste. A triaging process that demand-planning team, using its industry experience prioritizes customers by strategic importance, and available analytical tools, should be able to find margin, and revenue will also help in safeguarding a reliable demand signal to determine necessary the continuity of commercial relationships. supply—the result of which should be discussed and agreed upon in the integrated sales- and operations- Optimize production and distribution capacity planning (S&OP) process. Armed with a demand forecast, the S&OP process should next optimize production and Additionally, direct-to-consumer communication distribution capacity. Scenario analysis can be channels, market insights, and internal and external used to test different capacity and production databases can provide invaluable information in scenarios to understand their financial and assessing the current state of demand among your operational implications. customers’ customers. When data sources are limited, open communication with direct customers Optimizing production begins with ensuring can fill in at least some gaps. With these factors in employee safety. This includes sourcing and mind, forecasting demand requires a strict process engaging with crisis-communication teams to to navigate uncertain and ever-evolving conditions communicate clearly with employees about successfully. To prepare for such instances infection-risk concerns and options for remote and effectively, organizations should take the home working. following actions: The next step is to conduct scenario planning to — Develop a demand-forecast strategy, which project the financial and operational implications includes defining the granularity and time of a prolonged shutdown, assessing impact based horizon for the forecast to make risk-informed on available capacity (including inventory already decisions in the S&OP process. in the system). To plan on how to use available Supply-chain recovery in coronavirus times—plan for now and the future 79

      capacity, the S&OP process should determine As the finance function works on accounts which products offer the highest strategic value, payable and receivable, supply-chain leaders can considering the importance to health and human focus on freeing up cash locked in other parts safety and the earnings potential, both today of the value chain. Reducing finished-goods and during the future recovery. The analysis will inventory, with thoughtful, ambitious targets draw on a cross-functional team that includes supported by strong governance, can contribute marketing and sales, operations, and strategy substantial savings. Likewise, improved logistics, staff, including individuals who can tailor updated such as through smarter fleet management, macroeconomic forecasts to the expected can allow companies to defer significant impact on the business. Where possible, a digital, capital costs at no impact on customer service. end-to-end S&OP platform can better match Pressure testing each supplier’s purchase production and supply-chain planning with the order and minimizing or eliminating purchases expected demand in a variety of circumstances. of nonessential supplies can yield immediate cash infusions. Supply-chain leaders should Identify and secure logistics capacity analyze the root causes of suppliers’ nonessential In a time of crisis, understanding current and purchases, mitigating them through adherence future logistics capacity by mode—and their to consumption-based stock and manufacturing associated trade-offs—will be even more models and through negotiations of supplier essential than usual, as will prioritizing logistics contracts to seek more favorable terms. needs in required capacity and time sensitivity of product delivery. Consequently, even as companies look to ramp up production and Building resilience for the future make up time in their value chains, they should Once the immediate risks to a supply chain have prebook logistics capacity to minimize exposure been identified, leaders must then design a to potential cost increases. Collaborating with resilient supply chain for the future. This begins partners can be an effective strategy to with establishing a supply-chain-risk function gain priority and increase capacity on more tasked with assessing risk, continually updating favorable terms. risk-impact estimates and remediation strategies, and overseeing risk governance. Processes To improve contingency planning under rapidly and tools created during the crisis-management evolving circumstances, real-time visibility will period should be codified into formal documen- depend not only on tracking the on-time status of tation, and the nerve center should become freight in transit but also on monitoring broader a permanent fixture to monitor supply-chain changes, such as airport congestion and border vulnerabilities continuously and reliably. Over closings. Maintaining a nimble approach to time, stronger supplier collaboration can likewise logistics management will be imperative in reinforce an entire supplier ecosystem for rapidly adapting to any situational or greater resilience. environmental changes. During this process, digitizing supply-chain Manage cash and net working capital management improves the speed, accuracy, As the crisis takes its course, constrained and flexibility of supply-risk management. By supply chains, slow sales, and reduced margins building and reinforcing a single source of truth, will combine to add even more pressure on a digitized supply chain strengthens capabilities earnings and liquidity. Businesses have a habit in anticipating risk, achieving greater visibility of projecting optimism; now they will need a and coordination across the supply chain, and strong dose of realism so that they can free up managing issues that arise from growing product cash. Companies will need all available internal complexity. For example, Exhibit 3 shows how a forecasting capabilities to stress test their capital digitally enabled clustering of potential suppliers requirements on weekly and monthly bases. shows the capabilities they have in common. 80 What now? Ten actions to emerge stronger in the next normal September 2020

      GES 2020 Supply-chain COVID Exhibit 3 of 4 Exhibit 3 Estimating a medtech company’s degree of Cluster maps reveal alternative sourcing connectiveness helped it expand its supplier options for all the materials affected. base by 600 percent, while an industrial-tools maker identified request-for-qualifications-ready Cluster map, durable speaker suppliers, suppliers for highly complex parts that it had been illustrative (n = 87 suppliers) previously unable to source. Company Common capabilities Finally, when coming out of the crisis, companies and governments should take a complete look at their supply-chain vulnerabilities and the shocks that could expose them much as the coronavirus has. Exhibit 4 describes the major sources of vulnerability. The detailed responses can reveal major opportunities—for example, using scenario analyses to review the structural resilience of critical logistics nodes, routes, and transportation Cluster characteristics, % modes can reveal weakness even when individual components, such as important airports or rail Automotive Multimedia speaker Marine hubs, may appear resilient. speakers systems audio GES 2020 27 25 25 14 9 Supply-chain COVID Mobile-phone Exhibit 4 of 3 Professional audio equipment speakers Exhibit 4 Supply-chain vulnerability occurs across five dimensions. Drivers of potential vulnerability Typical focus Full-picture focus Planning and Transportation Financial Product Organizational supplier network and logistics resiliency complexity maturity • How predictable is • How resilient is the • How much financial • re components • How proactive vs demand planning? physical-flow and flexibility does the in the products reactive is the logistics network? company have or substitutable? organiation in • How complex or increased supply- identiying and concentrated is the chain cost or • How flexible is mitigating supply- supply network, sustained the design i chain disruptions? and how resilient is disruption? components are it to disruption? no longer available? • How exposed is the • How vulnerable network to tariffs is the product to and other trade regulatory disruptions? changes? Supply-chain recovery in coronavirus times—plan for now and the future 81

      What Now? - Page 83

      Organizations should build financial models that Triaging the human issues facing companies and size the impact of various shock scenarios and governments today and addressing them must be decide how much “insurance” to buy through the the number-one priority, especially for goods that mitigation of specific gaps, such as by establishing are critical to maintain health and safety during the dual supply sources or relocating production. The crisis. As the coronavirus pandemic subsides, the analytical underpinnings of this risk analysis are tasks will center on improving and strengthening well understood in other domains, such as the supply-chain capabilities to prepare for the financial sector—now is the time to apply them to inevitable next shock. By acting intentionally today supply chains. and over the next several months, companies and governments can emerge from this crisis better prepared for the next one. Knut Alicke is a partner in McKinsey’s Stuttgart office, Xavier Azcue is a consultant in the New Jersey office, and Edward Barriball is a partner in the Washington, DC office. The authors wish to thank Viktor Bengtsson, Chris Chung, Curt Mueller, Hilary Nguyen, Ed Paranjpe, Anna Strigel, and Faaez Zafar for their contributions to this article. Copyright © 2020 McKinsey & Company. All rights reserved. 82 What now? Ten actions to emerge stronger in the next normal September 2020

      © Peter Cade/Getty Images From thinking about the next normal to making it work: What to stop, start, and accelerate 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. by Kevin Sneader and Shubham Singhal From thinking about the next normal to making it work: What to stop, start, and accelerate

      What’s next? That is the question everyone is quick phone call, not a videoconference. It may also asking. The future is not what we thought it would be help to set “office hours” for particular groups, share only a few short months ago. tips on how to track time, and announce that there is no expectation that emails will be answered after a In a previous article, we discussed seven broad certain hour. ideas that we thought would shape the global economy as it struggled to define the next normal. In Accelerate best practices around collaboration, this one, we set out seven actions that have come up flexibility, inclusion, and accountability repeatedly in our discussions with business leaders Collaboration, flexibility, inclusion, and around the world. In each case, we discuss which accountability are things organizations have been attitudes or practices businesses should stop, which thinking about for years, with some progress. But they should start, and which they should accelerate. the massive change associated with the coronavirus could and should accelerate changes that foster these values. 1. From ‘sleeping at the office’ to effective remote working Office life is well defined. The conference room is in use, or it isn’t. The boss sits here; the tech Stop assuming that the old ways will come back people have a burrow down the hall. And there are In fact, this isn’t much of a problem. Most executives also useful informal actions. Networks can form we have spoken to have been pleased at how well spontaneously (albeit these can also comprise the sudden increase in remote working has gone. closed circuits, keeping people out), and there At the same time, there is some nostalgia for the is on-the-spot accountability when supervisors “good old days,” circa January 2020, when it was can keep an eye from across the room. It’s worth easy to bump into people at the coffee room. Those trying to build similar informal interactions. TED days are gone. There is also the risk, however, that Conferences, the conference organizer and companies will rely too much on remote working. webcaster, has established virtual spaces so that In the United States, more than 70 percent of jobs while people are separate, they aren’t alone. A can’t be done offsite. Remote work isn’t a panacea software company, Zapier, sets up random video for today’s workplace challenges, such as training, pairings so that people who can’t bump into each unemployment, and productivity loss. other in the hallway might nonetheless get to know each other. Start thinking through how to organize work for a distributed workforce There is some evidence that data-based, at-a- Remote working is about more than giving people distance personnel assessments bear a closer a laptop. Some of the rhythms of office life can’t be relation to employees’ contributions than do recreated. But the norms associated with traditional traditional ones, which tend to favor visibility. work—for example, that once you left the office, the Transitioning toward such systems could contribute workday was basically done—are important. As one to building a more diverse, more capable, and CEO told us, “It’s not so much working from home; happier workforce. Remote working, for example, rather, it’s really sleeping at the office.” means no commuting, which can make work more accessible for people with disabilities; the flexibility For working from home to be sustainable, associated with the practice can be particularly companies need to help their staff create those helpful for single parents and caregivers. Moreover, boundaries: the kind of interaction that used to remote working means companies can draw on a take place in the hallway can be taken care of with a much wider talent pool. 84 What now? Ten actions to emerge stronger in the next normal September 2020

      Remote working means no commuting, which can make work more accessible for people with disabilities; the flexibility can be particularly helpful for single parents and caregivers. 2. From lines and silos to networks technology quickly toward value-creating and and teamwork value-protecting opportunities. In a 2017 McKinsey survey, agile units performed significantly better Stop relying on traditional than those who weren’t agile, but only a minority organizational structures of organizations were actually performing agile “We used to have all these meetings,” a CEO recently transformations. Many more have been forced to told us. “There would be people from different do so because of the current crisis—and have seen functions, all defending their territory. We’d spend positive results. two hours together, and nothing got decided. Now, all of those have been cancelled—and things didn’t Agile companies are more decentralized and fall apart.” It was a revelation—and a common one. depend less on top-down, command-and-control Instead, the company put together teams to deal decision making. They create agile teams, which are with COVID-19-related problems. Operating with a allowed to make most day-to-day decisions; senior defined mission, a sense of urgency, and only the leaders still make the big-bet ones that can make or necessary personnel at the table, people set aside break a company. Agile teams aren’t out-of-control the turf battles and moved quickly to solve problems, teams: accountability, in the form of tracking and relying on expertise rather than rank. measuring precisely stated outcomes, is as much a part of their responsibilities as flexibility is. The Start locking in practices that speed up decision overarching idea is for the right people to be in making and execution during the crisis position to make and execute decisions. The all-hands-on-deck ethos of a pandemic can’t last. But there are ways to institutionalize what One principle is that the flatter decision-making works—and the benefits can be substantial. During structures many companies have adopted in crisis and after the 2008 financial crisis, companies that mode are faster and more flexible than traditional were in the top fifth in performance were about 20 ones. Many routine decisions that used to go up percentage points ahead of their peers. Eight years the chain of command are being decided much later, their lead had grown to 150 percentage points. lower in the hierarchy, to good effect. For example, The lesson: those who move earlier, faster, and more a financial information company saw that its decisively do best. traditional sources were losing their value as COVID-19 deepened. It formed a small team to Accelerate the transition to agility define company priorities—on a single sheet We define “agility” as the ability to reconfigure of paper—and come up with new kinds of data, strategy, structure, processes, people, and which it shared more often with its clients. The From thinking about the next normal to making it work: What to stop, start, and accelerate 85

      story illustrates the new organization paradigm: The argument for more flexible and shorter supply empowerment and speed, even—or especially— chains has been building for years. In 2004, an when information is patchy. article in the McKinsey Quarterly noted that it can be better to ship goods “500 feet in 24 hours [rather Another is to think of ecosystems (that is, how all than] shipping them 5,000 miles across logistical the parts fit together) rather than separate units. and political boundaries in 25 days … offshoring Companies with healthy ecosystems of suppliers, often isn’t the right strategy for companies whose partners, vendors, and committed customers can competitive advantage comes from speed and a find ways to work together during and after times of track record of reliability.”1 crisis because those are relationships built on trust, not only transactions. Start redesigning supply chains to optimize resilience and speed Finally, agility is just a word if it isn’t grounded in Instead of asking whether to onshore or offshore the discipline of data. Companies need to create or production, the starting point should be the accelerate their analytics capabilities to provide the question, “How can we forge a supply chain that basis for answers—and, perhaps as important, allow creates the most value?” That will often lead to them to ask the right questions. This also requires an answer that involves neither offshoring nor reskilling employees to take advantage of those onshoring but rather “multishoring”—and with it, the capabilities: an organization that is always learning reduction of risk by avoiding being dependent on is always improving. any single source of supply. Speed still matters, particularly in areas in which 3. From just-in-time to just-in-time consumer preferences change quickly. Yet even and just-in-case supply chains in fashion, in which that is very much the case, the need for greater resilience is clear. In a survey Stop optimizing supply chains based on conducted in cooperation with Sourcing Journal individual component cost and depending on a subscribers, McKinsey found that most fashion- single supply source for critical materials sourcing executives reported that their suppliers The coronavirus crisis has demonstrated the wouldn’t be able to deliver all their orders for the vulnerability of the old supply-chain model, with second quarter of 2020. To get faster means companies finding their operations abruptly adopting new digital-planning and supplier-risk- halted because a single factory had to shut down. management tools to create greater visibility Companies learned the hard way that individual and capacity, capability, inventory, demand, and transaction costs don’t matter nearly as much risk across the value chain. Doing so enables as end-to-end value optimization—an idea that companies to react well to changes in supply or includes resilience and efficiency, as well as cost. demand conditions. The argument for more flexible and shorter supply chains has been building for years. 1 Ronald C. Ritter and Robert A. Sternfels, “When offshore manufacturing doesn’t make sense,” McKinsey Quarterly, 2004 Number 4. 86 What now? Ten actions to emerge stronger in the next normal September 2020

      One area of vulnerability the current crisis has placed near customers to meet local needs and revealed is that many companies didn’t know the accommodate variations in demand. The second suppliers their own suppliers were using and thus is to define what needs to be done near innovative were unable to manage critical elements of their supply bases to keep up with technological value chains. Companies should know where their change. Nextshoring is about understanding how most critical components come from. On that basis, manufacturing is changing (in the use of digitization they can evaluate the level of risk and decide what and automation, in particular) and building the to do, using rigorous scenario planning and bottom- trained workforce, external partnerships, and up estimates of inventory and demand. Contractors management muscle to deliver on that potential. It should be required to show that they have risk plans is about accelerating the use of flexible robotics, (including knowing the performance, financial, and additive manufacturing, and other technologies to compliance record of all their subcontractors, as create capabilities that can shift output levels and well as their capacity and inventories) in place. product mixes at reasonable cost. It isn’t about optimizing labor costs, which are usually a much Accelerate ‘nextshoring’ and the use of smaller factor—and sometimes all but irrelevant. advanced technologies In some critical areas, governments or customers may be willing to pay for excess capacity and 4. From managing for the short term to inventories, moving away from just-in-time capitalism for the long term production. In most cases, however, we expect companies to concentrate on creating more flexible Stop quarterly earnings estimates supply chains that can also operate on a just-in- Because of the unprecedented nature of the case approach. Think of it as “nextshoring” for the pandemic, the percentage of companies providing next normal. earnings guidance has fallen sharply—and that’s a good thing. The arguments against quarterly For example, the fashion industry expects to shift earnings guidance are well known, including that some sourcing from China to other Asian countries, they create the wrong incentives by rewarding Central America, and Eastern Europe. Japanese companies for doing harmful things, such as carmakers and Korean electronics companies were deferring capital investment and offering massive considering similar actions before the coronavirus discounts that boost sales to make the revenue outbreak. The state-owned Development Bank numbers but hurt a company’s pricing strategy. of Japan is planning to subsidize companies’ relocation back to Japan, and some Western Taking such actions may stave off a quick hit to the countries, including France, are looking to build stock price. But while short-term investors account up domestic industries for critical products, such for the majority of trades—and often seem to as pharmaceuticals. Localizing supply chains and dominate earnings calls and internet chatrooms—in creating more collaborative relationships with fact, seven of ten shares in US companies are critical suppliers—for example, by helping them owned by long-term investors. By definition, this build their digital capabilities or share freight group, which we call “intrinsic investors” —look capacity—are other ways to build long-term well beyond any given quarter, and deeper than resilience and flexibility. such quick fixes. Moreover, they have far greater influence on a company’s share price over time than Nextshoring in manufacturing is about two things. the short-term investors who place such stock in The first is to define whether production is best earnings guidance. From thinking about the next normal to making it work: What to stop, start, and accelerate 87

      Moreover, the conventional wisdom that missing an replace their CEOs. The average tenure of a CEO at estimate means immediate retribution is not always a large-cap company is now about five years, down true. A McKinsey analysis found that in 40 percent from ten years in 1995. A recent Harvard Business of the cases, the share prices of companies that Review study of the world’s top CEOs found that missed their consensus earnings estimates actually their average tenure was 15 years.3 One critical rose. Finally, an analysis of 615 US public companies factor: close and constant communication with their from 2001 to 2015 found that those characterized boards allowed them to get through a rough patch as “long-term oriented” outperformed their peers in and go on to lead long-term success. earnings, revenue growth, and market capitalization. Even as a way of protecting equity value, then, Like Adam Smith, we believe in the “invisible earnings guidance is a flawed tool. And, of course, hand”—the idea that self-interest plus the network there can be no bad headlines about missed of information (such as the price signal) that helps estimates if there are no estimates to miss. economies work efficiently are essential to creating prosperity. But Adam Smith also considered the Along the same lines, stop assuming that pursuing rule of law essential and saw the goal of wealth shareholder value is the only goal. Yes, businesses creation as creating happiness: “What improves have fundamental responsibilities to make money the circumstances of the greater part can never and to reward their investors for the risks they be regarded as an inconveniency to the whole. No take. But executives and workers are also citizens, society can surely be flourishing and happy, of parents, and neighbors, and those parts of their which the far greater part of the members are poor lives don’t stop when they clock in. In 2009, in and miserable.”4 A more recent economist, Nobel the wake of the financial crisis, former McKinsey laureate Amartya Sen, updated the idea for the managing partner Dominic Barton argued that 21st century, stating that the invisible hand of the there is no “inherent tension between creating market needs to be balanced by the visible hand of value and serving the interests of employees, good governance. suppliers, customers, creditors, communities, and the environment. Indeed, thoughtful advocates of Given the trillions of dollars and other kinds value maximization have always insisted that it is of support that governments are providing, long-term value that has to be maximized.”2 We governments are going to be deeply embedded agree, and since then, evidence has accumulated in the private sector. That isn’t an argument that businesses with clear values that work to be for overregulation, protectionism, or general good citizens create superior value for shareholders officiousness—things that both Smith and over the long run. Sen disdained. It is a statement of fact that business needs to work ever more closely with Start focusing on leadership and working with governments on issues such as training, digitization, partners to create a better future and sustainability. McKinsey research defines the “long term” as five to seven years: the period it takes to start and build Accelerate the reallocation of resources and a sustainable business. That period isn’t that long. infrastructure investment As the current crisis proves, huge changes can take Business leaders love words like “flexible,” “agile,” place in much shorter time frames. and “innovative.” But a look at their budgets shows that “inertia” should probably get more attention. One implication is that boards, in particular, should Year to year, companies only reallocate 2 to 3 start to think about just how fast, and when, to percent of their budgets. But those that do more— 2 Dominic Barton, “Capitalism for the long term,” Harvard Business Review, March 2011, hbr.org. 3 “The best-performing CEOs in the world, 2019,” Harvard Business Review, November–December 2019, hbr.org. 4 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, London, UK: W. Strahan and T. Cadell, 1776. 88 What now? Ten actions to emerge stronger in the next normal September 2020

      Environmental management is a core management and financial issue. on the order of 8 to 10 percent—create more value. to be a core skill—one that current systems, mostly In the coronavirus era, the case for change makes designed for a different era, aren’t very good at. itself. In other areas, companies can use this sense of urgency to change the way they put together their budgets. Sales teams, for example, are used to 5. From making trade-offs to getting new targets based on the prior year’s results. embedding sustainability A better approach is to define the possible, based on metrics such as market size, current market Stop thinking of environmental management as share, sales-force size, and how competitive the a compliance issue market is. On that basis, a company can estimate Environmental management is a core management sales potential and budget accordingly. and financial issue. Lloyds Bank, the British insurer, estimated that sea-level rises in New York increased In previous economic transitions, infrastructure insured losses from Hurricane Sandy in 2012 by 30 meant things such as roads and pipelines. In percent; a different study found that the number democratic societies, governments generally drew of British properties at risk of significant flooding up the plans and established safety and other could double by 2035. Ignore these and similar regulations, and the private sector did the actual warnings—about cyclones or extreme heat, for building. Something similar needs to happen now, example—and watch your insurance bills rise, as in two areas. One is the irresistible rise of digital they did in Canada after wildfires in 2016. Investors technologies. Those without access to reliable are noticing too. In Larry Fink’s most recent letter to broadband are being left out of a sizable and CEOS, the BlackRock CEO put it bluntly: “Climate surging segment of the economy; there is a clear risk is investment risk.”5 He noted that investors case for creating a robust, universal broadband are asking how they should modify their portfolios infrastructure. to incorporate climate risk and are reassessing risk and asset values on that basis. The second has to do with the workforce. In 2017, the McKinsey Global Institute estimated that as Start considering environmental strategy as a much as a third of workplace activities could be source of resilience and competitive advantage automated by 2030. To avoid social upheaval—more The COVID-19 pandemic froze supply chains around high-wage jobs but fewer middle-class ones— the world, including shutting down much of the displaced workers need to be retrained so that United States’ meat production. Rising climate they can find and succeed in the new jobs that will hazards could lead to similar shocks to global supply emerge. The needs, then, are for more midcareer chains and food security. In some parts of Brazil, the job training and more effective on-the-job training. usual two-crop growing season may eventually only For workers, as well as businesses, agility is going yield a single crop. 5 Larry Fink, “A fundamental reshaping of finance,” BlackRock, January 2020, blackrock.com. From thinking about the next normal to making it work: What to stop, start, and accelerate 89

      As companies reengineer their supply chains for costs of maintaining an asset, adapting it—for resilience, they also need to consider environmental example, by building perimeter walls or adding a factors—for example, is a region already prone to backup power supply—or investing in a new one. flooding likely to become more so as temperatures It is as true for the environment as any part of the rise? One of the insights of a McKinsey climate value chain that what gets measured gets managed. analysis published in January is that climate risks This entails creating sound, sophisticated climate- are unevenly distributed, with some areas already risk assessments; there is no generally accepted close to physical and biological tipping points. standard at the moment, but there are several works Where that is the case, companies may need to think in progress, such as the Sustainability Accounting about how to mitigate the possible harm or perhaps Standards Board. going elsewhere. The principle to remember is that it is less expensive to prepare than to repair or The principle at work is to make climate retrofit. In January 2018, the National Institute for management a core corporate capability, using all Building Sciences estimated spending $1 to build the management tools, such as analytics and agile 6 resilient infrastructure saved $6 in future costs. To teams, that are applied to other critical tasks. The cope with the COVID-19 pandemic, companies have benefits can be substantial. One study found that shortened their supply chains, switched to more companies that reduced their climate-change- videoconferencing, and introduced new production related emissions delivered better returns on processes. Consider how these and other practices equity—not because their emissions were lower, but might be continued; they can help make companies because they became generally more efficient. The more environmentally sustainable, as well as correlation between going green and high-quality more efficient. operations is strong, with numerous examples of companies (including Hilton, PepsiCo, and Procter Second, it makes sense to start thinking about the & Gamble), setting targets to reduce use of natural possible similarities between the coronavirus crisis resources and ending up saving significant sums and long-term climate change. The pandemic has of money. created simultaneous shocks to supply chains, consumer demand, and the energy sector; it has hit It’s true that, given the scale of the climate challenge, the poor harder; and it has created serious knock- no single company is going to make the difference. on effects. The same is likely to be true for climate That is a reason for effort, not inaction. Partnerships change. Moreover, rising temperatures could also directed at cracking high-cost-energy alternatives, increase the toll of contagious diseases. It could be such as hydrogen and carbon capture, are one argued, then, that mitigating climate change is as example. Voluntary efforts to raise the corporate much a global public-health issue as dealing with game as a whole, such as the Task Force on Climate- COVID-19 is. related Financial Disclosures, are another. The coronavirus crisis has been a sudden shock that essentially hit the world all at once—what we 6. From online commerce to a contact- call “contagion risk.” Climate change is on a different free economy time frame; the dangers are building (“accumulation risk”). In each case, however, resilience and Stop thinking of the contactless economy as collaboration are essential. something that will happen down the line The switch to contactless operations can happen Accelerate investment in innovation, fast. Healthcare is the outstanding example here. partnerships, and reporting For as long as there has been modern healthcare, As usual, information is the foundation for action. A the norm has been for patients to travel to an office data-driven approach can illuminate the relative to see a doctor or nurse. We recognize the value 6 “National Institute of Building Sciences issues new report on the value of mitigation,” National Institute of Building Sciences, January 11, 2018, nibs.org. 90 What now? Ten actions to emerge stronger in the next normal September 2020

      of having personal relationships with healthcare diminished sharply. There will always be a place professionals. But it is possible to have the best for the lecture hall and the tutorial, but there is a of both worlds—staff with more time to deal with huge opportunity here to evaluate what works, urgent needs and patients getting high-quality care. identify what doesn’t, and bring more high-quality education to more people more affordably and more In Britain, less than 1 percent of initial medical easily. Manufacturers also have had to institute consultations took place via video link in 2019; under new practices to keep their workers at work but lockdown, 100 percent are occurring remotely. In apart—for example, by organizing workers into self- another example, a leading US retailer in 2019 contained pods, with shift handovers done virtually; wanted to launch a curbside-delivery business; staggering production schedules to ensure that its plan envisioned taking 18 months. During the physically close lines run at different times; and by lockdown, it went live in less than a week—allowing training specialists to do quality-assurance work it to serve its customers while maintaining the virtually. These have all been emergency measures. livelihoods of its workforce. Online banking Using digital-twin simulation—a virtual way to interactions have risen to 90 percent during the test operations—can help define which should be crisis, from 10 percent, with no drop-off in quality continued, for safety and productivity reasons, as and an increase in compliance while providing a the crisis lessens. customer experience that isn’t just about online banking. In our own work, we have replaced on-site Accelerate the transition of digitization ethnographic field study with digital diaries and and automation video walk-throughs. This is also true for B2B “Digital transformation” was a buzz phrase prior to applications—and not just in tech. In construction, the coronavirus crisis. Since then, it has become a people can monitor automated earth-moving reality in many cases—and a necessity for all. The equipment from miles away. consumer sector has, in many cases, moved fast. When the coronavirus hit China, Starbucks shut Start planning how to lock in and scale the down 80 percent of its stores. But it introduced crisis-era changes the “Contactless Starbucks Experience” in those It is hard to believe that Britain would go back to that stayed open and is now rolling it out more its previous doctor–patient model. The same is widely. Car manufacturers in Asia have developed likely true for education. With even the world’s most virtual show rooms where consumers can browse elite universities turning to remote learning, the the latest models; these are now becoming part of previously common disdain for such practices has what they see as a new beginning-to-end digital There are four areas to focus on: recovering revenue, rebuilding operations, rethinking the organization, and accelerating the adoption of digital solutions. From thinking about the next normal to making it work: What to stop, start, and accelerate 91

      journey. Airlines and car-rental companies are also For offices, the planning will be about retaining developing contactless consumer journeys. the positives associated with remote working. For manufacturing, it will be about reconfiguring The bigger opportunity, however, may be in B2B production lines and processes. For many services, applications, particularly in regard to manufacturing, it will be about reaching consumers unused to online where physical distancing can be challenging. In interaction or unable to access it. For transport, it the recent past, there was some skepticism about will be about reassuring travelers that they won’t get applying the Internet of Things (IoT) to industry. Now, sick getting from point A to point B. In all cases, the many industrial companies have embraced IoT to once-routine person-to-person dynamics devise safety strategies, improve collaboration with will change. suppliers, manage inventory, optimize procurement, and maintain equipment. Such solutions, all of which Accelerate digitization can be done remotely, can help industrial companies Call it “Industry 4.0” or the “Fourth Industrial adjust to the next normal by reducing costs, Revolution.” Whatever the term, the fact is that enabling physical distancing, and creating more there is a new and fast-improving set of digital flexible operations. The application of advanced and analytic tools that can reduce the costs of analytics can help companies get a sense of their operations while fostering flexibility. Digitization was, customers’ needs without having to walk the factory of course, already occurring before the COVID-19 floor; it can also enable contactless delivery. crisis but not universally. A survey in October 2018 found that 85 percent of respondents wanted their operations to be mostly or entirely digital but only 18 7. From simply returning to returning percent actually were. Companies that accelerate and reimagining these efforts fast and intelligently, will see benefits in productivity, quality, and end-customer Stop seeing the return as a destination connectivity. And the rewards could be huge—as The return after the pandemic will be a gradual much as $3.7 trillion in value worldwide by 2025. process rather than one determined by government publicizing a date and declaring “open for business.” McKinsey and the World Economic Forum have The stages will vary, depending on the sector, but identified 44 digital leaders, or “lighthouses,” in only rarely will companies be able to flip a switch and advanced manufacturing. These companies created reopen. There are four areas to focus on: recovering whole new operating systems around their digital revenue, rebuilding operations, rethinking the capabilities. They developed new use cases for organization, and accelerating the adoption these technologies, and they applied them across of digital solutions. In each case, speed will be business processes and management systems important. Getting there means creating a step-by- while reskilling their workforce through virtual step, deliberate process. reality, digital learning, and games. The lighthouse companies are more apt to create partnerships Start imagining the business as it should be in with suppliers, customers, and businesses in the next normal related industries. Their emphasis is on learning, For retail and entertainment venues, physical connectivity, and problem solving—capabilities distancing may become a fact of life, requiring that are always in demand and that have far- the redesign of space and new business models. reaching effects. 92 What now? Ten actions to emerge stronger in the next normal September 2020

      Not every company can be a lighthouse. But all Businesses around the world have rapidly adapted companies can create a plan that illuminates to the pandemic. There has been little hand- what needs to be done (and by whom) to reach a wringing and much more leaning in to the task at stated goal, guarantee the resources to get there, hand. For those who think and hope things will train employees in digital tools and cybersecurity, basically go back to the way they were: stop. They and bring leadership to bear. To get out of “pilot won’t. It is better to accept the reality that the future purgatory”—the common fate of most digital- isn’t what it used to be and start to think about how transformation efforts prior to the COVID-19 to make it work. crisis—means not doing the same thing the same way but instead focusing on outcomes (not favored Hope and optimism can take a hammering when technologies), learning through experience, and times are hard. To accelerate the road to recovery, building an ecosystem of tech providers. 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. Kevin Sneader, the global managing partner of McKinsey, is based in McKinsey’s Hong Kong office; Shubham Singhal, the global leader of the Healthcare Systems & Services Practice, is a senior partner in the Detroit office. Copyright © 2020 McKinsey & Company. All rights reserved. From thinking about the next normal to making it work: What to stop, start, and accelerate 93

      Take the lead on climate and sustainability 8 95 Confronting climate risk 106 Addressing climate change in a postpandemic world 94

      © Getty Images Confronting climate risk The changing climate is poised to create a wide array of economic, business, and social risks over the next three decades. Leaders should start integrating climate risk into their decision making now. Confronting climate risk 95

      After more than 10,000 years of relative stability— potential impact on their organizations in different the full span of human civilization—the Earth’s locales around the world. climate is changing. Since the 1880s, the average global temperature has risen by about 1.1 degrees Celsius, driving substantial physical impact in The new climate reality regions around the world. As average temperatures Some climate change is locked in. rise, acute hazards such as heat waves and floods grow in frequency and severity, and chronic The primary driver of temperature increase over hazards such as drought and rising sea levels the past two centuries is the human-caused rise intensify. These physical risks from climate change in atmospheric levels of carbon dioxide (CO2) and will translate into increased socioeconomic risk, other greenhouse gases, including methane and presenting policy makers and business leaders with nitrous oxide. Since the beginning of the Industrial a range of questions that may challenge existing Revolution in the mid-18th century, humans have assumptions about supply-chain resilience, risk released nearly 2.5 trillion metric tons of CO models, and more. 2 into the atmosphere, raising atmospheric CO 2 concentrations by 67 percent. Carbon dioxide To help inform decision makers around the world lingers in the atmosphere for hundreds of years. so that they can better assess, adapt to, and As a result, nearly all of the warming that occurs is mitigate the physical risks of climate change, the permanent, barring large-scale human action to McKinsey Global Institute (MGI) recently released a remove CO2 from the atmosphere. Furthermore, report, Climate risk and response: Physical hazards the planet will continue to warm until we reach and socioeconomic impact. (For more on the net-zero emissions. methodology behind the report, see sidebar “About the research.”) Its focus is on understanding the If we don’t make significant changes, scientists nature and extent of physical risk from a changing predict that the global average temperature may climate over the next three decades, absent possible increase by 2.3 degrees Celsius by 2050, relative to adaptation measures. the preindustrial average. Multiple lines of evidence suggest that this could trigger physical feedback This article provides an overview of the report. We loops (such as the thawing of permafrost leading explain why a certain level of global warming is to the release of significant amounts of methane) locked in and illustrate the kinds of physical changes that might cause the planet to warm for hundreds or that we can expect as a result. We examine closely thousands of years. Restricting warming to below four of the report’s nine case studies, showing 1.5 or 2.0 degrees would reduce the risk of the earth how physical change might create significant entering such a “hothouse” state. socioeconomic risk at a local level. Finally, we look at some of the choices most business leaders will have to confront sooner than later. The nature of climate-change risk Stakeholders can address the risk posed by climate Our hope is that this work helps leaders assess change only if they understand it clearly and see the the risk and manage it appropriately for their nuances that make it so complicated to confront. company. The socioeconomic effects of a changing We find that physical climate risk has seven climate will be large and often unpredictable. characteristics: Governments, businesses, and other organizations will have to address the crisis in different and often — Increasing. Physical climate risks are generally collaborative ways. This shared crisis demands a increasing across the globe, even though shared response. Leaders and their organizations some countries may find some benefits (such will have to try to mitigate the effects of climate as increased agricultural yields in Canada, change even as they adapt to the new reality it Russia, and parts of northern Europe). The imposes on our physical world. To do so, leaders increased physical risk would also increase must understand the new climate reality and its socioeconomic risk. 96 What now? Ten actions to emerge stronger in the next normal September 2020

      About the research need to adjust assumptions about long-term mortgages. This article was adapted from the McKinsey Global Institute — Nonlinear. Physiological, human-made, and (MGI) report Climate risk and response: Physical hazards and ecological systems have evolved or been 1 socioeconomic impacts. Its authors are Jonathan Woetzel (a optimized over time to withstand certain director of MGI and a senior partner in McKinsey’s Shanghai office), thresholds. Those thresholds are now Dickon Pinner (senior partner in the San Francisco office and global being threatened. If or when they are breached, leader of McKinsey’s Sustainability Practice), Hamid Samandari the impact won’t be incremental—the systems (senior partner in the New York office and chair of McKinsey’s may falter, break down, or stop working knowledge council), Hauke Engel (partner in the Frankfurt office), altogether. Buildings designed to withstand Mekala Krishnan (senior fellow at MGI), Brodie Boland (associate floods of a certain depth won’t withstand partner in the Washington, DC, office), and Carter Powis (consultant floods of greater depths; crops grown for a mild in the Toronto office). climate will wither at higher temperatures. Some The 131-page MGI report, released in January 2020, measures the adaptation can be carried out fairly quickly (for impact of climate change based on the extent to which it could affect example, better preparing a factory for a flood). human beings, human-made physical assets, and the natural world. But natural systems such as crops may not Most of the climatological analysis performed for the report was be able to keep pace with the current rate of completed by the Woods Hole Research Center. There are a range temperature increase. The challenge becomes of estimates for the pace of global warming; we have chosen the even greater when multiple risk factors are Representative Concentration Pathway (RCP) 8.5 scenario because it present in a single region. enables us to assess physical risk in the absence of further — Systemic. Climate change can have knock-on decarbonization. Action to reduce emissions could delay projected effects across regions and sectors, through outcomes. Download the full report on McKinsey.com. interconnected socioeconomic and financial systems. For example, flooding in 1 See “Climate risk and response: Physical hazards and socioeconomic impacts,” McKinsey Global Florida might not only damage housing but also Institute, January 2020, McKinsey.com. raise insurance costs, lower property values, and reduce property-tax revenues. Supply chains are particularly vulnerable systems, since they prize efficiency over resilience. They might quickly grind to a halt if critical production hubs are affected by intensifying hazards. — Spatial. Climate hazards manifest locally. There are significant variations between countries — Regressive. The poorest communities and and even within countries. The direct effects of populations of the world are the most vulnerable. physical climate risk must be understood in the Emerging economies face the biggest increase context of a geographically defined area. in potential impact on workability and livability. The poorest countries often rely on outdoor work — Nonstationary. For centuries, financial markets, and natural capital, and they lack the financial companies, governments, and individuals means to adapt quickly. have made decisions against the backdrop of a stable climate. But the coming physical — Unprepared. Our society hasn’t confronted climate risk is ever-changing and nonstationary. a threat like climate change, and we are Replacing a stable environment with one of unprepared. While companies and communities constant change means that decision making are already adapting, the pace and scale of based on experience may prove unreliable. adaptation must accelerate. This acceleration For example, long-accepted engineering may well entail rising costs and tough choices, parameters for infrastructure design may need as well as coordinated action across multiple to be rethought; homeowners and banks may stakeholders. Confronting climate risk 97

      How climate risk plays out on a lead to more frequent breaches of these thresholds, local level making outdoor work far more challenging and There is already plenty of evidence of the extensive threatening the lives of millions of people. damage that climate risk can inflict. Since 2000, there have been at least 13 climate events that have As of 2017, some 380 million of India’s heat-exposed resulted in significant negative socioeconomic outdoor workers (75 percent of the labor force) impact, as measured by the extent to which it produced about 50 percent of the country’s GDP. disrupted or destroyed “stocks” of capital—people, By 2030, 160 million to 200 million people could physical, and natural. The events include lethal heat live in urban areas with a nonzero probability of such waves, drought, hurricanes, fires, flooding, and heat waves occurring. By 2050, the number could depletion of water supply. rise to between 310 million and 480 million. The average person living in these regions has a roughly More frequent and more intense climate hazards 40 percent chance of experiencing a lethal heat will have large consequences. They are likely to wave in the decade centered on 2030. In the decade threaten systems that form the backbone of human centered on 2050, that probability could rise to productivity by breaching historical thresholds roughly 80 percent. for resilience. Climate hazards can undermine livability and workability, food systems, physical India’s productivity could suffer. Outdoor workers assets, infrastructure services, and natural capital. will need to take breaks to avoid heatstroke. Their Some events strike at multiple systems at once. bodies will protectively fatigue, in a so-called self- For example, extreme heat can curtail outdoor limiting process, to avoid overheating. By 2030, work, shift food systems, disrupt infrastructure diminished labor productivity could reduce GDP by services, and endanger natural capital such as between 2.5 and 4.5 percent. glaciers. Extreme precipitation and flooding can destroy physical assets and infrastructure while India does have ways to adapt. Increased access to endangering coastal and river communities. air-conditioning, early-warning systems, and cooling Hurricanes can damage global supply chains, and shelters can help combat deadly heat. Working biome shifts can affect ecosystem services. hours for outdoor personnel could be shifted, and cities could implement heat-management efforts. At The best way to see how this will play out is to look the extreme, coordinated movement of people and at specific cases. MGI looked at nine distinct cases capital from high-risk areas could be organized. of physical climate risk in a range of geographies These would be costly shifts, of course. Adaptation and sectors. Each considers the direct impact and to climate change will be truly challenging if it knock-on effects of a specific climate hazard in a changes how people conduct their daily lives or specific location, as well as adaptation costs and requires them to move to areas that are less at risk. strategies that might avert the worst outcomes. Let’s look at four of those cases (see also sidebar Will mortgages and markets stay afloat in “Global problem, local impact”). Florida? Florida’s expansive coastline, low elevation, and Will it get too hot to work in India? porous limestone foundation make it vulnerable The human body provides one example of the to flooding. The changing climate is likely to bring nonlinear effect of breaching physical thresholds. more severe storm surge from hurricanes and The body must maintain a relatively stable core more tidal flooding. Rising sea levels could push temperature of approximately 37 degrees Celsius salt water into the freshwater supply, damaging to function properly. An increase of just 0.9 of a water-management systems. A once-in-100-years degree compromises neuromuscular coordination; 3 hurricane (that is, a hurricane of 1 percent likelihood degrees can induce heatstroke; and 5 degrees can per year) would damage about $35 billion in real cause death. In India, rising heat and humidity could estate today. By 2050, the damage from such 98 What now? Ten actions to emerge stronger in the next normal September 2020

      an event could be $50 billion—but that’s just the To adapt, Florida will have to make hard choices. beginning. The accompanying financial effects may For example, the state could increase hurricane be even greater. and flooding protection, or it could curtail—and perhaps even abandon—development in risk-prone Real estate is both a physical and a financial areas. The Center for Climate Integrity estimates store of value for most economies. Damage, and that 9,200 miles of seawalls would be necessary the expectation of future damage, to homes and to protect Florida by 2040, at a cost of $76 billion. infrastructure could drive down the prices of Other strategies, such as improving the resilience exposed homes. The devaluation could be even of existing infrastructure and installing new green more significant if climate hazards also affect infrastructure, come with their own hefty price tags. public-infrastructure assets such as water, sewage, and transportation systems, or if homeowners Can supply chains weather climate change? increasingly factor climate risk into buying decisions. Supply chains are typically optimized for efficiency over resilience, which may make them vulnerable Lower real-estate prices could have significant to extreme climate hazards. Any interruption of knock-on effects in a state whose assets, people, global supply chains can create serious ancillary and economic activity are largely concentrated in effects. Let’s focus on two such supply chains: coastal areas. Property-tax revenue in affected semiconductors, a specialty supply chain, and heavy counties could drop 15 to 30 percent, which could rare earths, a commodity. lower municipal-bond ratings and the spending power of local governments. Among other things, The risk to each is slightly different. Key parts of that would make it harder for cities and towns to semiconductor supply chains are located invest in the infrastructure they need to combat in the Western Pacific, where the probability of climate change. a once-in-100-years hurricane occurring in any given year might double or even quadruple by The impact on insurance and mortgage financing in 2040. Such hurricanes could potentially lead to high-risk areas could also be significant. There’s a months of lost production for the directly affected duration mismatch between mortgages, which can companies. Unprepared downstream players—for be 30 years long, and insurance, which is repriced example, chipmakers without buffer inventories, every year. This mismatch means that current risk insurance, or the ability to find alternative signals from insurance premiums might not build suppliers—could see revenue in a disaster year in the expected risk over an asset’s lifetime, which drop by as much as 35 percent. could lead to insufficiently informed decisions. However, if insurance premiums do rise to account Mining heavy rare earths in southeastern China for future climate-change risk, lending activity for could be challenged by the increasing likelihood new homes could slow, and the wealth of existing of extreme rainfall. The probability of downpours homeowners could diminish. so severe that they could trigger mine and road closures is projected to rise from about 2.5 percent When home values fall steeply with little prospect of per year today to about 4.0 percent per year in 2030 recovery, even homeowners who are not financially and 6.0 percent in 2050. Given the commoditized distressed may choose to strategically default. One nature of this supply chain, the resulting production comparison point is Texas: during the first months slowdowns could result in increased prices for all after Hurricane Harvey hit Houston, in 2017, downstream players. the mortgage-delinquency rate almost doubled, from about 7 to 14 percent. Now, as mortgage Mitigation is relatively straightforward for both lenders start to recognize these risks, they could upstream and downstream players. Securing raise lending rates for risky properties. In some semiconductor plants in southeast Asia against cases, they might even stop providing 30-year hazards, for example, might add a mere 2 percent mortgages. to building costs. Downstream players in both the Confronting climate risk 99

      Global problem, local impact Will it get too hot to work in India? Increasing risk: in India, the probability of anyone experiencing a lethal heat wave is effectively 0 today, but by 2030, 160 million to 200 million people could be at risk Degree of exposure: as of 2017, heat-exposed work in India produced ~50% of GDP, drove ~30% of GDP growth, and employed ~75% of the labor force Effect on labor productivity: by 2050, some parts of India may be under such intense heat and humidity duress that working outside would be unsafe for ~30% of annual daylight hours Adaptation: adaptation measures for India could include providing early-warning systems, building cooling shelters, shifting work hours for outdoor laborers, and accelerating the shift to service- sector employment © uniquely india/Getty Images Will mortgages and markets stay afloat in Florida? Increasing risk: rising sea levels, increased tidal flooding, and more severe storm surges from hurricanes are likely to threaten Florida’s vulnerable coastline Physical damage to real estate: in 2050, a once-in-100-years hurricane might cause $75 billion worth of damage to Florida real estate, up from $35 billion today Knock-on effects: in Florida, prices of exposed homes could drop, mortgage rates could rise, more homeowners may strategically choose to default, and property-tax revenue could drop 15–30% in directly affected countries Adaptation: adaptation measures in Florida could include improving the resilience of existing structures, installing new green infrastructure, and building seawalls © Warren Faidley/Getty Images 100 What now? Ten actions to emerge stronger in the next normal September 2020

      Case studies based on the Representative Concentration Pathway (RCP) 8.5 scenario Can supply chains weather climate change? Increasing risk: a once-in-100-years hurricane in the western Pacific, which will be 4x more likely by 2040, could shut down the semiconductor supply chain Potential damage: supply chains are optimized for efficiency, not resilience, so production could halt for months; unprepared downstream players could see revenue dip 35% in 1 year Upstream mitigation: protecting semiconductor plants against hazards could add 2% to building costs Downstream mitigation: increasing inventory to provide a meaningful buffer could be cost-effective © Design Pics/The Irish Image Collection/Getty Images Can coastal cities turn the tide on rising flood risk? Increasing risk: increased flooding and severe storm surges threaten to cause physical damage to coastal cities, while knock-on effects would hamper economic activity even more Infrastructure threats: ports, low-lying train stations, and underground metros could be at risk, as could factories close to the coast Total damage: in Bristol, England, a once-in-200-years flood in 2065 could cause ≤$3 billion in damage; in Ho Chi Minh City, Vietnam, a once-in-100-years flood in 2050 could wreak ~$10 billion in damage Adaptation: it would take up to $500 million for Bristol to protect itself now from that scenario; Ho Chi Minh City might need seawalls, which could be very costly © Tan Dao Duy/Getty Images Confronting climate risk 101

      rare-earth and semiconductor pipelines could overwhelm the defenses, in which case water would mitigate impacts by holding higher inventory levels reach infrastructure that was previously safe. and by sourcing from different suppliers across multiple regions. This can be done efficiently. We estimate that a 200-year flood today (that is, a For buyers of semiconductors, for example, flood of 0.5 percent likelihood per year) in Bristol raising inventory to provide a meaningful buffer would cause infrastructure-asset damage totaling could be cost effective, with estimated costs for between $10 million and $25 million. This may rise warehousing and working capital increasing input to $180 million to $390 million by 2065. The costs costs by less than 1 percent. Nonetheless, the of knock-on effects would rise even more, from price of climate prudence will almost always be $20 million to $150 million today to as much as $2.8 some decrease in production efficiency—for billion by 2065, when an extreme flood might shut example, by creating limitations on lean or just-in- down businesses, destroy industrial stores, and halt time inventory. transportation. Can coastal cities turn the tide on rising We estimate that protecting the city from this 2065 flood risk? scenario would cost $250 million to $500 million Many coastal cities are economic centers that have today. However, the actual costs will largely depend already confronted flood risk. But the potential on the specific adaptation approach. direct and knock-on effects of flooding are likely to surge dangerously. Vietnam’s Ho Chi Minh City is prone to monsoonal and storm-surge flooding. Today, the direct Bristol is a port city in the west of England that has infrastructure-asset damage from a 100-year flood not experienced major flooding could be on the order of $200 million to $300 for decades. But without major investment in million, rising to $500 million to $1 billion in 2050. adaptation, extreme flood risk there could grow Here, too, the knock-on costs in disrupted economic from a problem potentially costing millions of dollars activity are expected to be more substantial, rising today to a crisis costing billions by 2065. During very from between $100 million and $400 million today high tides, the Avon River becomes “tide locked” to $2 billion to $8.5 billion in 2050. and limits land drainage in the lower reaches of the river-catchment area. As a result, Bristol is Many new infrastructure assets in the city, vulnerable to combined tidal and pluvial floods, particularly the local metro system, were designed which are sensitive to both sea-level rise to tolerate an increas