The Impact Of COVID-19 On Supply Chains

 

by Mark Tuinstra

Social & Economic Hardships

As the coronavirus has spread around the world over the past four months, the pandemic has brought unimaginable devastation with the loss of over one hundred thousand lives and millions of confirmed cases of the disease. Globally we are self-isolating and staying away from meeting places and events to avoid contracting or spreading the disease. In addition, widespread policies mandating social distancing are in effect, and most US states have shut down non-essential businesses like sit-down restaurants, gyms, and boutiques as well as schools, parks, and other public places.

The COVID-19 outbreak has upended our day-to-day life and significantly impacted the global economy. In the US, an analysis by Moody’s estimates the daily US economic output has fallen 29% compared with the first week of March1 prior to extensive closures. Industries like travel and hospitality face a devastating impact from the virus.

With large portions of the workforce laid off or working fewer hours, over 20 million Americans filed unemployment claims during the weeks between March 21 and April 11, according to the Labor Department. At the other end of the spectrum, some industries are scrambling to find workers to meet increased demand. Unfortunately, there are indications that illnesses and fears associated with the virus are leading to workforce shortages and strains on supply chains. The roles most impacted at this point in the crisis are truck drivers, grocery store staff, and workers in meat processing plants, and shortages of these workers may lead to delays or shortfalls in certain products in the coming weeks.

Adapting To Huge Changes In the Channel Mix

A striking aspect of the COVID-19 crisis is the degree to which some industries have been entirely shut down while others are surging. Indeed, even similar products within related sectors of the economy have been impacted in very different ways. The clearest example of this may be in food manufacturing and processing.

Data from the USDA shows just over half (54%) of the $1.7 trillion in US food sales in 2018 involved away from home meals. However, due to the coronavirus, most of the nation’s one million restaurants have closed entirely or moved to exclusively takeout/delivery, and 95% of Americans are under some form of stay-at-home order. Significantly more at-home meal preparation, along with consumers stockpiling as they prepare for spending more time at home, have meant a major spike in demand in retail channels, particularly grocery and ecommerce. Food service sales have subsequently plummeted, with the shift representing a massive challenge for the food supply chain.

Nowhere is the difficulty of adapting to a new channel mix more obvious than with dairy and other farm fresh products. At the same time as panic-buying has resulted in limits on items like milk, butter, and eggs at stores, farmers are dumping their excess supplies of milk and eggs. Differences in product and packaging requirements for food service compared to retail channels mean producers cannot easily pivot to serve consumers.

For example, grocery stores generally stock wedges from cheese blocks, not the sliced barrel cheeses used by fast food restaurants. In addition, products headed to food service are mostly sold in bulk and not distributed in consumer-facing packaging. Think of a 10lb bag of shredded cheese versus the 8-ounce package shoppers buy for home.

In cases where processors might be able to modify production and acquire the packaging to sell in the grocery channel, they often lack relationships with stores to negotiate for shelf space.

For some consumer packaged goods companies, the surge in demand has meant sharpening their focus to produce key SKUs at the needed volume. One example is Coca-Cola which is seeing a spike in demand in grocery and ecommerce as consumers stock up, and the brand is aiming to deliver its best-selling beverages while smaller SKUs may go unstocked for now2.

The Impact Of COVID-19 On Transporting Goods

Even when manufacturers are able to get the needed product in the right packaging and secure space on the shelf, transporting goods represents another major challenge.

Carriers in general do not have extra capacity to meet the spike in demand brought about by the crisis, and the delivery of goods has slowed in many cases due to several factors. First, a chronic shortage of freight truck drivers has existed for several years as the aging workforce of drivers retire without sufficient numbers of new workers joining the industry to replace them. As the coronavirus spreads, there are even fewer as some drivers are not working due to illness. Meanwhile, others fear contracting a virus that is particularly dangerous to those over 60 and have opted to not take the risk of working in a job where they interact with many others along their routes.

In addition to the shortage of drivers, logistical limitations are preventing the efficient distribution of products to meet surging demand. Delays and backlogs at plants may result from overloaded delivery docks and storage areas that lack the space to handle the increased output. A shortage of refrigerated trucks has slowed shipment of products like meats and grains as well.

Managing The Supply Chain To Meet Health & Safety Needs

Arguably the most critical supply chain during the crisis serves the healthcare industry, ensuring sufficient supplies of medical devices like ventilators, sanitizers/cleaners, and personal protection equipment (PPE), including masks, gloves, and gowns.

Export controls have been imposed in many markets, and in the case of medical equipment and PPE, governments are re-routing deliveries. Officials have seized products at the border to keep them in the country and in some cases sent PPE to hospitals instead of the original buyer.

Ansell, a leading manufacturer of PPE, says demand for their products has doubled and their supplies are sold out3. It is unclear how much they can boost supply due to raw material shortages and supply chain disruptions.

Pharmaceutical manufacturing is another vital area where supply chains are strained. Critical medications are in increasingly short supply as drug manufacturers in China and India, which the US relies heavily on for its drug supply, have largely shut down plants and blocked exporting active pharmaceutical ingredients used in drug manufacturing.

As the coronavirus first spread, the initial challenges were related to reduced supplies from China. Now supply chains are challenged everywhere, and with unemployment rising and consumer spending reduced, demand is plummeting. Outside of companies making essential medical/PPE goods or products for the defense industry, few large manufacturers can keep operating at full capacity. Automakers and their suppliers have in most cases closed manufacturing facilities. However, some companies are adapting and have shifted to produce different goods in order to meet the surge in demand for medical-related products. In one case, a producer of oil/gas equipment has moved to making medical visors.

For manufacturers finding their raw materials in short supply, local suppliers and 3-D printing are being used more. Local sourcing allows producers to avoid rising import costs, export restrictions, and delays in shipping times due to fewer flights, overextended trucking companies, closed ports, among other barriers.

Over the past few years, 3D printing solutions have offered advantages to companies looking for greater agility in manufacturing, such as in the production of spare parts allowing companies to maintain smaller inventories. During the pandemic, 3D printing is a valuable tool to support supply chains and address product shortages. NASCAR, which typically uses 3D printing to build composite parts for stock cars, is producing PPE to donate to hospitals4

Preparing For Future Supply Chain Challenges

Following the current crisis, organizations will have an opportunity to learn from the challenges they experienced and take steps that will strengthen their supply chain. For many, the crisis will serve as a “wake-up call” that better preparation is needed, and supply chain management experts say mapping out supply networks is key5. The process should include not just a company’s immediate suppliers but their suppliers’ suppliers and their global footprint.

Many companies still rely on personal relationships and anecdotes when sourcing and tracking their suppliers. The lack of systematic collection of this information means that when procurement personnel leave, change roles, or retire, their knowledge leaves with them.

While supply network mapping can be resource intensive and difficult, companies may discover the value of the map is greater than the cost and time to develop it. Knowing which suppliers, sites, parts, and products are at risk during a crisis allows organizations to put themselves first in line to secure constrained inventory and capacity at alternate sites.

Companies should also explore new ways to make their sourcing more agile, and some of these may run counter to conventional wisdom. For instance, over recent decades global companies have concentrated production geographically to save money6. Organizations should re-examine the marginal benefits of this kind of concentration since the additional cost of a large company operating plants in different locations is often not more than the cost of having one huge plant. At a certain point, companies may reach the maximum (or near maximum) incremental improvements in efficiency. That is, they may not lose much in terms of gained economies of scale at half the size. By running two plants, businesses lose little in efficiency, but make tremendous gains in flexibility with a supply chain that could better handle future pandemics and other natural disasters.

Other emerging technologies such as Blockchain and driverless vehicles can offer solutions to help governments and businesses respond to COVID-19. Blockchains are already supporting in various ways by certifying the origin of PPE and other sanitary products to ensure authenticity and limiting the privacy impact of tracing and immunity tracking apps. In Italy, blockchain technology has enabled donations to the Red Cross to go through and has been used to certify a news on a publishing platform to combat fake news.7

Meanwhile, autonomous vehicles can help address a shortage of drivers and solve delivery issues including new requirements for touchless deliveries. There are signs deployment of the technology is accelerating due to the pandemic. In fact, automated vehicles distributed groceries and medical supplies in China during the coronavirus lockdown. JD.com delivered goods in early February with workers loading autonomous logistic vehicles which could each deliver dozens of packages to destinations including hospitals.8

Shortages of essential medicines and equipment during the crisis have exposed the dependency of the US on China and other nations. This has led to calls for the US to move away from reliance on importing these types of essential goods and strengthen domestic capabilities to manufacture drugs and medical supplies.

What Comes Next

As the number of infections and coronavirus-related deaths appear to have reached an apex or at least a plateau in some areas, officials have begun to assess lifting restrictions and re-opening businesses. Leaders in the US are looking to countries like China and Italy where the outbreak hit earlier to understand how to avoid potential dangers of lifting shutdown orders prematurely.

As guidelines are prepared in the coming weeks, it is clear that many aspects of daily life in the areas hardest hit by the virus will be significantly altered at least in the near-term until widespread testing is undertaken, and perhaps even longer still until a vaccine is brought to market. In the meantime, supply chains, particularly those with the healthcare and food sectors, will undoubtedly be strained and companies forced to adapt to a new reality.

1https://www.wsj.com/articles/state-coronavirus-shutdowns-have-taken-29-of-u-s-economy-offline-11586079001
2https://www.cnbc.com/2020/03/24/coronavirus-coca-cola-ceo-says-supply-chain-is-creaking.html
3https://www.ft.com/content/140c9875-2c57-4e54-a4c4-e8518645887c
4https://www.forbes.com/sites/stevebanker/2020/04/13/covid-19-and-3d-printing/#7fb6317a3f7a
5https://hbr.org/2020/03/coronavirus-is-a-wake-up-call-for-supply-chain-management
6https://insight.kellogg.northwestern.edu/article/coronavirus-upended-supply-chains-how-companies-can-prepare-disruption
7https://cointelegraph.com/news/eu-founded-task-force-to-study-how-blockchain-may-help-covid-19-response
8https://www.weforum.org/agenda/2020/03/china-covid-19-coronavirus-mobility-solutions/

https://cutt.ly/P3VM2rc

COVID-19 Tracker: Remote Working – Time and Productivity Gains Mean More Opportunity to Focus on Creative Thinking and Complex Tasks

 

by Taylor Wray

As businesses begin formulating return to office strategies, how concerned are they about current productivity levels? And what downsides and potential upsides have they seen since making the shift to remote working? In this latest article we find that while there have been plenty of productivity challenges, many businesses are seeing some interesting opportunities arising from remote working.

Productivity Currently a Top Concern for Businesses

Data from our latest wave of research shows worries over ability to cope with flexible working and with productivity of colleagues and employees topping the list of concerns for businesses around the globe. More than four in 10 business decision-makers are very or extremely concerned about these issues, placing them at first and second, respectively, among all operational concerns we’ve asked about since the second week of May:

While productivity is a pressing concern for all businesses right now, the burden of ensuring that workers remain active and industrious are not shared equally across different regions: Concern over productivity of colleagues and employees seems especially high among organizations based in the Asia-Pacific region, where 53% are “very” or “extremely” worried about the issue. By contrast, organizations in the Americas seem significantly less troubled, as only one-third (33%) rated it very or extremely concerning.

This reflects the different stages of the pandemic that these regions are at right now – with Asia-Pacific significantly further through its initial phase of the crisis. What this suggests is that productivity may remain a persistent issue as we move toward recovery.

Reasons to Worry: Negative Impacts on Productivity

To understand the reasons behind these significant concerns over productivity, we asked businesses about a range of negative impacts they have seen to their business since early May, as well as how significant or extreme each of these impacts has been over this timeframe:

The results above indicate that productivity concerns are driven by a range of perceived problems. Altogether, 95% of concerned decision-makers indicated that at least one of the productivity problems listed above has impacted their business to some extent. Enterprises (those with 250 or more employees) generally register significantly higher proportions that have seen any impact from these challenges on their business, versus SMEs (<250 employees).

So what have the main issues been?

Top Challenges to Productivity

1. Motivation – Problems with staff morale and motivation top the list in terms of prevalence and impact, with nearly 8 in 10 (78%) citing this problem. Given the duress many have endured in balancing professional responsibilities with striving to protect themselves and loved ones from health impacts of COVID-19, it would be a surprise not to see morale as an issue. Job security created by economic uncertainty is also likely to be part of these worries.

   The fact that this issue tops the list of productivity challenges should serve as a stark reminder to organizations that they are only as strong as their people: Making employees’ mental wellbeing a top priority is likely to become an even bigger focus in future in the context of productivity.

   This need to focus and support employee mental health may, in part, be addressed by a growing array of mobile mental health and therapy apps that companies can encourage their employees to use. This includes apps such as Kite and Talkspace, as well as other mental health tools and resources. A further example of this is the free “Innen Leben” downloadable flashcard set recently developed and made available for free by a psychologist and psychiatrist in Germany.

2. Utilization – Simply having enough work to keep all employees occupied throughout the workday is problem for around two-thirds (66%) of businesses with concerns about productivity. And 3 in 10 see this as exerting a major negative impact.

   Initiatives based around shortened working hours have started to be considered by some companies and governments. New Zealand’s prime minister, Jacinda Ardern, recently floated the idea of a national 4-day workweek aimed at both helping to bolster domestic tourism and also helping employees strike better, healthier work/life balance as the global crisis continues.

3. Distraction – “Difficulties balancing work and childcare commitments” and “general distractions at home” are significant, and linked, issues. The melding of work and home lives brings with it everyday distractions that impinge on working time. Whether it’s deliveryman ringing doorbells, construction workers jackhammering nearby or furry familiars leaping across keyboards, virtually everyone has a harder time staying focused and engaged when removed from their regular business environment. Given the diversity of home settings of employees, it has been challenging for many firms to devise an overarching strategy to mitigate this problem.

4. Supervision – The inability to monitor and manage employees represents the fourth and final major drawback for productivity that the working world has had to grapple with. This obstacle can make it difficult for managers to effectively delegate to and checking on their direct reports. It also directly exacerbates the two previously discussed issues of distraction and (lack of) utilization, since managers can no longer “catch” and refocus distracted employees, nor optimally allocate workloads across their various reports. Now more than ever, managers must be able to trust the initiative of employees.

Other Struggles with Productivity

5. Sub-optimal Setups – One less severe, but common issue with productivity is the issue of sub-optimal working environments – i.e. a lack of suitable workspaces and/or equipment. This issue has had a major impact on only around one-fifth of firms with productivity problems, although around 6 in 10 have seen it have some negative impact. While firms can do little to provide for a better room or space in which their employees can work remotely, they can certainly help in the form of better technology, tools and equipment. This is especially so if working from home is likely to continue for a significant while longer, as expected in many economies.

6. Time Management – The final challenge is individual and collective time management. Around 55% of firms to have seen their productivity negatively impacted report a surfeit of meetings that take up too much time and/or long working hours impinging on individual productivity. With so many organizations operating with reduced staff or reduced hours, being careful not to overload those employees becomes a priority. However, this is a difficult balance to strike given the pressures many firms face.

Looking on the Bright Side: Positive Impacts on Productivity

As ominous as the commercial horizon has become, business decision-makers still recognized a range of positive impacts on productivity across their organizations in recent weeks.

• Extra Time Means More Time for Reflection and Creativity: First, workers have had the benefit of extra time to get their jobs done, not least in terms of time saved on business travel and commuting to work. Less time spent commuting has had a major positive impact on more than 4 in 10 organizations (42%), and some positive impact on around three-quarters (74%).

  Having this extra time and space to themselves has allowed workers to put more thought and creativity into their outputs and deliverables. Around 3 in 10 (29%) reported major positive benefits here, with around two-thirds (68%) of companies surveyed saying this has had at least some impact. More time doesn’t always lead to more productivity, of course – However, gaining a significant chunk of extra time at the start and end of the working day, in particular, has likely helped in this regard.

• Extra Flexibility: Many workers have recently gained additional flexibility to work preferred hours and patterns. Around a third (34%) of our sample cited this as a major positive impact, and even more (39%), cited it as having a minor positive impact on their business over the past few weeks. The closely related issue of changing routines was also cited as a major benefit by 25%.

• Extra Responsibilities: A third and distinct benefit that more than half (56%) cited as exerting some positive impact on productivity is that of extra experience – i.e. employees being asked to do a wider variety of tasks than normal. Theoretically, if a given organization can accomplish a wider variety of things with the same or fewer resources, productivity will increase. One caveat here is that asking individuals to learn new processes or take on additional responsibilities may still have a time and productivity cost: They’ll need additional time to learn these new skills and even then may not be as efficient as those that previously specialized in these tasks.

• Extra Intensity & Room to Focus on Complexity: The fourth and final productivity benefit since the advent of COVID-19 has been that of extra intensity or focus. For many roles, having solitary workspace away from the distractions of the usual, bustling workplace appears to have improved focus for some. While this benefit was only seen as having a major positive impact by around one-fifth of organizations, this was significantly higher in technology firms – here, 33% stated there had been major positive impacts. This aligns closely with software development or coding tasks.

Taken together, these results portray a complex and double-edged array of impacts to organizational productivity during COVID-19 so far. The ability of organizations to get work done has been hampered by issues of motivation, occupation, distraction, and supervision. At the same time, companies have seen many gains in productivity due to their workforces utilizing the benefits of extra time, flexibility, experience, and intensity.

These enforced changes to working patterns are, however, likely to provide strong pointers for businesses and policy-makers in helping to crack the “productivity puzzle” that many firms in mature economies had encountered even prior to the pandemic.

https://cutt.ly/C9AIbeJ

Infographic: 4 Key Changes to Business Strategies Post-COVID

 

https://bit.ly/3aboLab

Looking beyond the pandemic: Could the world economy gain more than it lost to COVID-19?

 

Safeguarding lives and livelihoods in the next phase could usher in an age of health and prosperity.

For more than a year, the world has been battling SARS-CoV-2 and the economic impact of this great pandemic. While there is an enormous amount of work left to do across the globe, countries leading the COVID-19 exit have given us a glimpse of how hearts and minds can shift to reunions with friends and family, and a return to more normal work and life. As we emerge, what is the right paradigm to guide our collective effort of transitioning through the end of the pandemic to a better future for all?

In March 2020, we suggested that the imperatives of our time were the battles needed to flatten two curves: the curve of the viral spread and the curve of the economic shock. Today, after two terrible peaks of viral spread, and with the vaccine rollout progressing, some regions are finally close to flattening both curves (Exhibit 1). Many others have seen three or even four peaks; their situation remains difficult, and in some countries is as bad as it has ever been. Even some countries that flattened their curves early are again at risk, as new variants spread and vaccination rates are low. The battle is far from over.

Exhibit 1

Of course, governments have applied public-health measures and economic stimulus with varying intensity, and experienced different impacts on mortality and their economies. But one thing is now clear. In early 2020, there was a debate on the trade-off between the virus and the economy. At that time, we suggested that the question was off the mark: there was no trade-off. The facts are now clear: as this article will show, no country kept its economy moving well without also taking control over the virus spread.

The big question now is what should public- and private-sector leaders focus on next? Is the agenda still about how we deliver on the twin imperatives of safeguarding lives and livelihoods? We think so. But what do the twin imperatives mean when we translate them into the current reality and the possibilities for the next decade? Three broad beliefs shape our answers.

• First, 3 to 4 percent global economic growth is achievable with available technology—a “productivity miracle” is not needed.

• Second, we do not have to choose between sustained and inclusive growth—quite the opposite, these goals can be complementary. Past periods of sustained growth have shown across countries and over time that “a rising tide” is a tried and true way to “lift all boats.”1

• Third, the medical advances and process accelerations achieved in response to this pandemic open the possibility that we spark a renaissance in public-health innovation and delivery and make rapid and unprecedented progress tackling persistent health problems.

If global leaders set the expectations that these outcomes are possible, and act on them, then the world could be on the cusp of a new age of prosperity: an economic recovery that will add 30 to 50 percent to GDP over the next decade, with better quality of life for more people, and a more sustainable future for the planet. If not, then the recovery could end up adding only 10 to 20 percent to GDP, less equitably distributed, less sustainable, and with worse outcomes for global health and the environment.

It’s an extraordinary opportunity—and a commensurate challenge. The road ahead will be rough in places. The first year of the pandemic and the policies designed in response have had a profound impact on how people regard their governments, on how well economies are positioned to rebound from the crisis, and how much public and private debt has been accumulated through weathering the economic disruption. However, provided the world’s public- and private-sector leaders make the right moves, a new age of prosperity for all could become a reality.

Reality check: The costs of the pandemic

One year on, how did the world fare in containing the spread of the virus, and in cushioning the economic impact it had on people everywhere? As Exhibit 1 shows, despite early optimism, even OECD countries experienced at least two peaks of COVID-19 cases and related deaths, and economic activity is not yet fully back.

Exhibit 2

While OECD countries managed to cap the exponential spread of the virus, they weren’t able to crush it. Depending on the effectiveness of their response, countries and regions wound up with distinctly different economic outcomes (Exhibit 2). No country grew its economy while also suffering high mortality. The best economies are found in countries with the lowest mortality and the most economic stimulus.

Many factors played a role in shaping the outcomes of the pandemic, including how early the outbreak happened, the readiness to respond, the need for lockdowns, as well as the degree of economic support provided to the economy through fiscal and monetary interventions. Initial conditions also mattered—the underlying health and age of populations as well as the momentum of economies prior to the pandemic.

Countries and regions that controlled the virus, and those that supported their economies the most, fared better. A few that were well prepared and had the means to act swiftly weathered the crisis best. The often-mentioned trade-off between the virus and the economy did not materialize (for more on these outcomes, see the sidebar “Four pandemic outcomes”).

Four pandemic outcomes

Our analysis of mortality and economic growth shows four distinct clusters of GDP outcomes, depending on their public-health and economic responses:

Box 1: Effective total response. These countries and regions either controlled the virus from the onset or crushed it after an initial outbreak with one massive lockdown. Those that resorted to a big lockdown also intervened heavily with stimulus to mitigate negative individual and economic outcomes. This fast response produced better health and economic outcomes. For one of these countries, its economy in 2020 was stronger than before the pandemic.

Box 2: Effective total response, with external shock. In these countries, the viral impact was more limited, but they suffered the consequences of global lockdowns (such as the collapses in goods trade, tourism, and remittances).

Box 3: Ineffective total response. In these countries and regions, severe virus outbreaks produced a high toll on lives that required multiple stringent lockdowns and other tough and recurring public-health measures. Stimulus packages were either ill-timed or insufficient, the underlying pre-COVID-19 economy was weak, or additional factors exacerbated the situation.

Box 4: Ineffective public-health response, but effective stimulus. In these countries, the virus had a moderate to severe impact on lives. But they were able to limit the economic damage with stimulus programs that complemented the incoming momentum in their economies. One large economy suffered from high viral impact, but a large stimulus combined with a strong prepandemic economy to deliver a smaller decline in GDP than countries with a similar disease profile. Another large country saw a moderate viral impact and had slower underlying economic momentum, but a significant stimulus program and better health preparedness similarly limited the extent of GDP decline.

What can we learn from the events of 2020? While there are many lessons, the overriding insight is that acting with determination and speed mattered most. That’s true for protecting lives from the virus, and for the vigor required to protect livelihoods from the subsequent economic shock. The faster governments moved, and the greater the scale of the intervention, the better outcomes for citizens were. How we convert these learnings to better manage future pandemics will undoubtedly be the subject of many debates.

A crossroads for lives and livelihoods?

Fortunately—and this was by no means a given—COVID-19 vaccines were developed in record time, and they work. In early 2021, real-world data from Israel and the United Kingdom validated the clinical-trial results by showing a sharp reduction in hospitalizations and deaths. Other countries are now experiencing similar results. The vaccines also appear to be effective in reducing transmission and against the variants of concern encountered thus far. Furthermore, the global vaccine rollout has made real strides in scaling production and setting up supply chains to support massive inoculation programs that are now accelerating in many countries. Just as important: sentiment about vaccine adoption is improving.

To be sure, there have been setbacks, and risks abound; the formation of new virus mutations is of particular concern. Endemicity is almost certain in various parts of the world, most likely in places where vaccine access is limited, where few people choose to be vaccinated, or where virus variants reduce vaccine efficacy. Endemicity might include cyclic, seasonal waves of disease, broadly like the flu, or even a multiyear cycle of resurgence. But on balance, safe, effective vaccines are changing the game. We are witnessing one of the true miracles of modern science.

On the economic front, government support through fiscal and monetary policies has also unequivocally worked. Employment is recovering in all countries, though at different rates. As a result, uncertainty is receding and losing the paralyzing grip it took in the early part of the pandemic (Exhibit 3).

There now is a keen sense that the world is moving steadily to the next stage of the pandemic. Progress on reducing the virus spread differs depending on where you live. But it seems that in some countries, such as the United States and the United Kingdom, the transitional return to normal is under way. Herd immunity in some regions might be reached well before the end of 2021. Most of Europe is on a similar path, though on a slightly slower timetable.

The outlook for economic progress is also brightening for countries leading the COVID-19 exit, with positive results now being reported for Q1. But the virus still dictates the economy—Japan, which has experienced a recent resurgence and a set of lockdowns, reported negative growth in Q1. Even some countries that have yet to fully reopen and are currently facing challenges are likely to see strong headline GDP growth in 2021 in the scenarios that will most likely bound the outcomes during the next two years (Exhibit 4). (For more on our scenarios, see sidebar “Nine scenarios for COVID-19.”)

The real question is not so much about whether and when economies around the world will exit from the disruptive crisis—they will—but whether the exit will be strong enough to reinvigorate widespread growth in jobs and income and avoid a return of inflation or debilitating burdens from increased debt.

Nine scenarios for COVID-19

In March 2020, we published a set of nine COVID-19 scenarios to gauge developments in public health and the economy (exhibit). Recently, the global executives we surveyed have favored scenario A1; A2 and other scenarios also get votes.

Are we heading for a 20 percent or 40 percent economic expansion?

Not all businesses, industries and economies face the same circumstances today and will certainly fare differently in the years ahead. But some fundamental questions that will affect almost everyone are now emerging with more clarity:

• Will the pace of economic growth return to its pre-COVID-19 path, even if the composition of the next-normal economy turns out to be different?

• Will the pandemic have lasting negative impact on growth, for entire economies and specific sectors in particular?

• Is it possible that the pandemic will have a galvanizing positive impact on growth and productivity in the global economy?

History suggests that there are essentially two types of economic expansions after recession: those that see GDP grow by 10 to 20 percent cumulatively in postcrisis years, and those that see 30 to 50 percent cumulative growth (Exhibit 5).

Exhibit 5

In the United States, the expansions in the 1960s, 1980s, and 1990s all delivered cumulative increases of total GDP of 30 to 50 percent. Call them “40 percent recoveries.”2 Other countries performed similarly during some or all of these periods including Australia, Canada, Singapore, South Korea, and the United Kingdom. All were aided by some combination of demographic tailwinds, higher investment, and productivity surges, underpinned by supportive economic and business policies.

Other US recoveries, like those in the 1970s, 2000s, and 2010s, have delivered only half that growth. The tepid pace of recovery coming out of the financial crisis was not limited to the United States; GDP in France and Germany did not return to 2008 levels for three to four years, the United Kingdom took five years, Spain nearly nine years, and Italy’s GDP was still 5 percent below its 2008 level when the pandemic hit in 2020.

Forty percent recoveries do not happen by accident. They are the result of choices made by leaders in government and business and by individuals, families, and households.

Regression to pre-COVID-19 limitations

A 40 percent recovery is by no means guaranteed. Any near-term spending surge could easily prove temporary, returning the global economy to a 2 to 3 percent growth trajectory, mirroring our worst performance over the past decade. In this case, growth would be constrained in new and old ways:

• Vaccination campaigns avert the worst outcomes, but COVID-19 becomes endemic in most countries, causing cyclic, seasonal waves of disease.

• Productivity gains from accelerated digitalization trigger layoffs to save costs, not new opportunities for job creation. The transition toward sustainability is halting.

• Labor-market tensions persist, driven by skill mismatches, rising unemployment (especially among the young), and stagnant wages. Social tensions over the distribution of a limited and shrinking set of resources remain a polarizing force.

• Innovation slows to “below COVID-19 speed,”—the rapid pace of progress defined by vaccine development—thus limiting advances in health and technology.

Millions of workers have dropped out of the labor force. Some industries have been left with significant and persistent overcapacity. The rise of the digital economy could suppress investments in physical assets as companies capitalize on productivity gains. The global economy could be stuck in a mediocre growth trajectory. But a 20 percent recovery is also not preordained.

The possibility of a new age of prosperity for all

Imagine a recovery that delivers 3 to 4 percent sustained global GDP growth over at least a decade. Such a recovery starts with a well-managed exit from the pandemic that masters the tricky hand off from demand led by government stimulus to private-sector-led spending, income, and job creation. If we make good choices, it might look like this:

• Increasing vaccination rates drive uncertainty even lower and unleash the large cache of accumulated savings and pent-up demand to engage in “real life” again.

• Accelerated digitization and important transitions toward sustainability trigger new demand, new jobs, and higher productivity growth.

• Significant reskilling and smart assistance to vulnerable populations support a broad-based recovery in workforce participation, human capital, and wages. The economy becomes more inclusive.

• Better public health and lower mortality rates become the norm as many positive new behaviors from the COVID-19 crisis are incorporated into everyday lives (better hygiene, more concern for the health of others, faster and more decisive reactions to public-health threats).

• Medical innovation accelerates, for example by bringing mRNA-related and other cures to major diseases like cancer and malaria (a new malaria vaccine has reported promising data from its Phase 2 trial).

Our analysis shows that in a new age of prosperity for all, global growth reaches 3.6 percent annually by 2030, nearly 1.5 percentage points above the “limitations” scenario at that time (Exhibit 6). It’s a seemingly small difference, but from acorns grow mighty oaks. Momentum builds as businesses invest and create jobs in response to rising demand and the need to catch up on postponed upgrades to equipment, structures, and training. About 30 percent of net new growth comes from investment and another 20 percent from more people working with better skills. This kind of recovery is sustained by the higher living standards of households and profits of businesses that stronger productivity, which accounts for the remaining 50 percent of growth, delivers.

Exhibit 6

Concerns about debt and inflation

To deliver on a new age of prosperity for all, the global economy will have to deal with two concerns raised as part of the debate about “going for growth”: first, that newly accumulated debt will become unsustainable and constrain growth, and, second, that there is a potential for higher inflation. Both are a possibility—but both can also be dispatched.

Problems from a debt overhang are not inevitable. In the United States, for example, outstanding debt in 2020 reached 133 percent of GDP, topping the previous record of 123 percent in 1946, just after World War II. But in the post-war years, and in many other examples over time, the debt burden was reduced by driving nominal growth, not by cutting debt (Exhibit 7).

Exhibit 7

Similarly, in a new age of prosperity for all, the debt burden could again fall, as nominal GDP growth exceeds debt growth and the nominal interest rate (Exhibit 8).

Exhibit 8

The second issue is inflation. The stimulus pumped into the system by fiscal authorities and central banks is creating a snapback in spending and raising concerns about an uncontrolled rise in inflation. We are seeing price increases and higher wages in many geographies and markets and will likely see more as supply scrambles to catch up with surging demand. But as major central banks have continued to emphasize, these near-term shifts are not expected to turn into an ongoing inflationary threat. Inflation may well be above ~2 percent targets for the near term in major economies including the eurozone, the United Kingdom, and the United States, but this is viewed as tolerable and potentially even desirable, given the deflationary pressures of the past several years. If inflation surprises and threatens to become more persistent, major central banks will “take away the punch bowl from the party” and move to keep inflation expectations in check. They have the tools to do so. Central banks in countries with less credible inflation-fighting track records could be forced to tighten policy earlier to manage near-term price increases and long-term expectations.

Safeguarding lives and livelihoods beyond the pandemic—an age of health and prosperity

It’s time to shift the conversation again—and with the same intensity as the world did a year ago when it pivoted from the single imperative of safeguarding lives to the twin imperatives of safeguarding lives and livelihoods. The world now needs to focus on the next battleground.

For the first imperative of safeguarding lives, it was clear before the pandemic that longer, healthier lives for vast portions of the world’s population is a realistic goal. Medical advances and the process acceleration achieved in response to this pandemic have only increased our ability to accomplish this. We now know that it’s possible to spark a renaissance in public-health innovation and delivery, and to make unprecedented progress in tackling persistent health problems.

For the second imperative, safeguarding livelihoods, the impact of shifting to a higher growth path would raise global GDP to about $122 trillion by 2030, 45 percent above the $84 trillion recorded in 2019—a strong acceleration even when compared with our pre-COVID-19 trajectory. A bigger global income does not by itself solve the problems of inequality and sustainability, but it opens a wide range of possibilities for families, businesses, and governments to consider. With it comes a hope to alleviate some of the societal tensions and polarization that have become common within and across countries.

Similarly, faster economic growth need not slow down the drive toward sustainability; it might even accelerate it as we mobilize the investment required to make the transition to clean energy. If we play our cards right, the world might well come to a point where clean energy is fully deployed at a truly global scale. All of this will take enormous resources. But the interest and ability to organize for more sustainable growth are markedly higher in wealthier economies.

We are not dismissing the potential risks to a sustained and sustainable recovery. And the next few years are critical for sustainability. If businesses and governments don’t climb aboard the transition to the net-zero economy, they risk being left behind, unable to reap the advantages of sustainable growth. But, based on our observations across countries and over time, the prosperity scenario is possible if we make the right choices. This optimism is bolstered by the unprecedented actions that were taken during the pandemic. There was no trade-off between the virus and the economy in the pandemic, and there might very well not be one between growth and sustainability, and equality.

For business leaders this is an urgent call to action, too. It’s now that strategic moves will be made to propel companies ahead of these mega trends; it’s now that the direction will be set for years to come; and it’s now that many organizations, “unfrozen” by the pandemic, are ready to adapt to the new requirements for future success. Plenty of business leaders are already eagerly stepping up to help shape our societies and build a new age of health and prosperity for all. Many more will have to join the fight.

This is a true strategy moment for governments and businesses alike, a chance to set the switches for the next decade. Depending on their choices, the outcomes could not be more different.

The trauma of this pandemic will be with us for a long time to come. The big question for humanity is whether we can now turn this crisis into a pivotal moment, where we harness the innovations, the new insights, and the crisis-fortified determination to improve the world. The time for these choices is now. It’s up to all of us whether we will move into the 2020s with a new paradigm for safeguarding lives and livelihoods: a new age of health and prosperity for all.

ABOUT THE AUTHOR(S)

Sven Smit is a senior partner in McKinsey’s Amsterdam office and a coleader of the McKinsey Global Institute; Martin Hirt is a senior partner in the Greater China office; Ezra Greenberg is a partner in the Stamford office; Susan Lund is a partner in the Washington, DC, office; Kevin Buehler is a senior partner in the New York office; and Arvind Govindarajan is a partner in the Boston office.

The authors wish to thank colleagues Jeffrey Condon, Krzysztof Kwiatkowski, and Tomasz Mataczynski, and Neil Walker of Oxford Economics, for their contributions to this article.

https://mck.co/3yohFG8

This article was edited by Mark Staples, an executive editor in the New York office.

6 steps for retailers in this crisis and the next

 

Ed Valdez, partner and CMO with Chief Outsiders, shares six steps and additional strategies that retailers should use to lead their business through the COVID-19 and economic crisis.

The global challenges unfolding across the country in the past few weeks have presented a huge humanitarian and economic challenge. While medical professionals, governments and industry leaders are tirelessly working towards containment and stabilization, business leaders and owners have a similar challenge: leading your business through the coronavirus crisis and beyond.

One of the best articles published about how to navigate the road ahead stems from Harvard Business Review: Lead Your Business Through the Coronavirus. While the authors outline 12 lessons for "Responding to unfolding events, communicating, and extracting and applying learning," the infographic below recaps six of the most pressing actions you can take to:
• Ensure the health/safety of your employees.
• Centralize communications.
• Stabilize operations to bolster a way forward toward recovery.

The summary below also augments the strategies with a few supportive tactics gleaned from prior client engagements that required immediate and decisive action.
1. Update intelligence daily: Since virtually all firms have had to operate remotely through networked teams, mobilizing your leadership team daily can help you and your teams make the most out of rapidly changing information. It's also important to separate the signal from the noise: to identify what is essential for the wellbeing, efficiency and effectiveness of employees. Decide what channels to use (Microsoft Team, Google Hangouts Chat, Zoom, Slack, etc.) for real-time, daily and weekly communications for now, near-term and your next priorities.
2. Constantly reframe and adapt: A Chinese proverb reminds us to be like bamboo: "The higher you grow, the deeper you bow." Balance the big picture with the tactical: decide what's urgent versus what's important. Be open to change: what was first priority yesterday may be the second priority today.
3. Choose agility vs. bureaucracy: Large firms need to embrace an agile mindset not only for software development, but also for marketing, sales and operations. Regularly evaluate what you need to stop doing, start doing or continue to do (if the latter is still working well). Encourage your teams to ask their respective leaders what barriers they can remove (or what they can do differently) to help streamline what's best for the customer.
4. Balance response in seven areas: Communications, employee needs, travel, remote work, stabilizing the supply chain, business tracking/forecasting, being part of the broader solution. (See the HBR article for more detail.) While all teams need to regroup to determine the "new normal," constantly reassess marketing/sales alignment and alignment across all operations - especially, customer support.
5. Use six resilience principles: Redundancy, diversity, modularity, evolvability, prudence, embeddedness. Encourage teams or sub-teams to be modular in their problem solving and encourage diverse thinking. As Einstein said, \"We cannot solve our problems with the same thinking we used when we created them." Rise up to look beyond your own company ecosystem to look at your team's ecosystem in your community: are there some ways in which you or your team can help those around you?
6. Prepare for the next crisis: Establish a new cadence for scenario planning: What else can happen that we haven't expected? And what other contingency plans do we need to minimize risk? What do these plans look like from the view of the supply chain, partners, operations/logistics, our customers and all stakeholders and/or investors? Be transparent inside and out to identify critical paths and backup plans to minimize future disruptions and increase cross-functional team proficiencies.

Ed Valdez is partner and CMO with Chief Outsiders, a leading fractional CMO firm focused on mid-size company growth.

https://bit.ly/34k5o8H