Monday, 18 May 2020

Post Pandemic: The Next Normal


As Ian Davis, a previous partner at McKinsey, wrote in 2009 in the midst of the global financial crisis:

‘For some organizations, near-term survival is the only agenda item. Others are peering
through the fog of uncertainty, thinking about how to position themselves once the crisis has passed and things return to normal. The question is, ‘What will normal look like?’ While no one can say how long the crisis will last, what we find on the other side will not look like the normal of recent years.’

The coronavirus crisis is shaping a new normal. McKinsey (April 2020) has listed seven (7) elements for business leaders to consider as they plan for the next normal:

1. More Distance

Even before Covid-19 hit, there were signs of unease, expressed in calls for protectionism and more restrictive immigration and visa policies. More distances were created from those unlike themselves.

Governments around the world have imposed severe restrictions on people and to deal with the pandemic. More than three billion people live in countries whose borders are now totally closed to non-residents.

Indeed, for businesses, the prospect of more border restrictions, a greater preference for local over global products and services, the need for resilience across supply chains driving a move to bring sourcing closer to end markets, and perhaps renewed resistance to globalization are all possible second-order consequences of the actions being taken now to cope with the coronavirus. Technology continues to shrink physical distance, but in other ways, it could be set for a return.

2. Resilience and Efficiency

Resiliency—the ability to absorb a shock, and to come out of it better than the competition—will be the key to survival and long-term prosperity. McKinsey research on the 2008 financial crisis found that a small group of companies in each sector outperformed their peers. They did get hurt, but recovered much faster. By 2009, the earnings of the resilient companies had risen 10 percent, while that of the non-resilient had gone down almost 15 percent. What characterized the resilient companies was preparation before the crisis—they typically had stronger balance sheets—and effective action during it—specifically, their ability to cut operating costs.

Indeed, in the wake of recent natural disasters, the impact of climate change was recognized increasingly by business leaders and investors, with consequent effects on decision making and valuations. Many companies will rebalance their priorities, so that resiliency—in all its manifestations—becomes just as important to their strategic thinking as cost and efficiency.

3. The Rise of the Contact-Free Economy

In three areas in particular—digital commerce, telemedicine, and automation—the Covid-19 pandemic could prove to be a decisive turning point.

Coronavirus is accelerating the change to online shopping habits. The figures for telemedicine and virtual health are just as striking. Teladoc Health, the largest US stand-alone telemedicine service, reported a 50 percent increase in service in the week ending March 20. The Federal Communications Commission is spending $200 million to improve connectivity between patients and virtual-healthcare providers.

Greater automation was already occurring before Covid-19. It is becoming possible to imagine a world of business—from the factory floor to the individual consumer—in which human contact is minimal.

4. More Government Intervention in the Economy

As of April 10, governments across the globe had announced stimulus plans amounting to $10.6 trillion—the equivalent of eight Marshall Plans. Most spending is directed to three areas—supporting citizens’ basic needs, preserving jobs, and helping businesses to survive another day. (What is Malaysia doing? Read more here)

At some point, governments may decide to get out of the business of business; how they do so will be complicated and differentiated. How much, how fast, and in what ways governments reduce their economic role will be one of the most important questions of the next decade.

5. More Scrutiny for Business

Now citizens all over the world could face higher taxes and/or fewer services in order to pay
for the $10.6 trillion committed so far. The public will expect—indeed, demand—that their money be used for the benefit of society at large.

And with many businesses likely to be operating to some extent with public money, the scrutiny will be intense. There will be real effects on the relations between government and business, and between business and society.

6. Changing Industry Structures, Consumer Behaviour, Market Positions, and Sector Attractiveness

As mentioned above, being more resilient and efficient are the keys for businesses to sustain. The changes to consumer attitudes toward physical distance, health, and privacy could last. Concern over the possibility of other “black swan” events could change how consumers approach financial security—saving more and spending less. Given the intensity of these pressures, it is reasonable to question whether existing market positions will be retained. It is possible that institutions may find new and enduring ways to collaborate to address the current crisis.

7. Finding the Silver Linings

If necessity is the mother of invention—and often it is—there could be some positive outcomes of the coronavirus crisis.

 For businesses, the consequences are profound. Many have learned how to operate remotely. The urgency of addressing Covid-19 has also led to innovations in biotech, vaccine development, and the regulatory regimes that govern drug development, so that treatments can be approved and tried faster. In many countries, health systems have been hard to reform; this crisis has made the difficult much easier to achieve. The result should be more resilient, responsive, and effective health systems.

One possible next normal is that decisions made during and after the crisis could lead to less prosperity, slower growth, widening inequality, bloated government bureaucracies, and rigid borders.

 Or it could be that the decisions made during this crisis lead to a burst of innovation and productivity, more resilient industries, smarter government at all levels, and the emergence of a reconnected world.

 Where the world lands, is a matter of choice—of countless decisions to be made by individuals, companies, governments, and institutions in the days ahead.


1.     The future is not what it used to be: Thoughts on the shape of the next normal, McKinsey, April 2020
2.     After Covid-19, a new normal, Free Malaysia Today, 28 April 2020

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