The “Next Normal”: Trends That Will Define 2021 — and Beyond
The pandemic has radically changed the world and its impact on businesses, on society, and on the global economy will persist for years to come. According to an analysis published by McKinsey earlier this year, 2021 will be a year of transition. Barring any unexpected catastrophes, individuals, businesses, and society should start to look forward to shaping their futures rather than just grinding through the present. The “next normal” is going to be different. And we should not expect a full return to the conditions of 2019.
Just as the terms “prewar” and “postwar” are commonly used to describe the 20th century, generations to come will likely discuss the pre-COVID and post-COVID periods. In the article, some of the trends that, according to McKinsey, will shape the “next normal” are identified. Here we provide a brief excerpt for your convenience. To access the full article, please click on the link at the end of this post.
The article is interesting in and of itself; it is a good summary of some of the implications and changes forced or accelerated by the pandemic. It is also of interest in that it, to some degree, celebrates the “successes of the pandemic”, very much in line with the ideas and vision of Klaus Schwab’s Great Reset and his WEF consortium. The “Building Back Better” initiatives are well and thriving for all to see...just as if they had planned and orchestrated it!?!?
The return of confidence unleashes a consumer rebound
There are lines outside stores, but they are often due to physical-distancing requirements. Theaters are dark. Fashions are in closets rather than on display. If the Musée du Louvre were open, the lack of tourists might even create the opportunity for an unobstructed view of the Mona Lisa. In these and other ways, consumers have pulled back.
As consumer confidence returns, so will spending, with “revenge shopping” sweeping through sectors as pent-up demand is unleashed. That has been the experience of all previous economic downturns. One difference, however, is that services have been particularly hard hit this time. The bounce back will therefore likely emphasize those businesses, particularly the ones that have a communal element, such as restaurants and entertainment venues. How fast and deep confidence will recover is an open question.
Leisure travel bounces back but business travel lags
By definition, leisure travel is discretionary. Business travel is less so. People who travel for pleasure will want to get back to doing so. That has been the pattern in China. The CEO of one major travel company told us that, beginning in the third quarter of 2020, business was “pretty much back to normal” when referring to growth. But it was a different normal: domestic travel was surging, but international travel was still depressed given pandemic-related border restrictions and concerns about health and safety.
In China as a whole, hotel occupancy and the number of travelers on domestic flights were more than 90 percent of their 2019 levels at the end of August, and over the October Golden Week holiday, more than 600 million Chinese hit the road, around 80 percent of last year’s figure. Because of confidence in the country’s health and safety measures, domestic travel is almost back to the level seen prior to the pandemic, and high-end domestic travel is actually ahead of it.
The crisis sparks a wave of innovation and launches a generation of entrepreneurs
Plato was right: necessity is indeed the mother of invention. During the COVID-19 crisis, one area that has seen tremendous growth is digitization, meaning everything from online customer service to remote working to supply-chain reinvention to the use of artificial intelligence (AI) and machine learning to improve operations. Healthcare, too, has changed substantially, with telehealth and biopharma coming into their own.
Disruption creates space for entrepreneurs—and that’s what is happening in the United States, in particular, but also in other major economies. Yes, many of those businesses are single-person establishments that could well stay that way—think of the restaurant chef turned caterer or the recent college graduate with a cool new app.
Digitally enabled productivity gains accelerate the Fourth Industrial Revolution
The COVID-19 crisis has created an imperative for companies to reconfigure their operations—and an opportunity to transform them. To the extent that they do so, greater productivity will follow.
There’s no going back. The great acceleration in the use of technology, digitization, and new forms of working is going to be sustained. Many executives reported that they moved 20 to 25 times faster than they thought possible on things like building supply-chain redundancies, improving data security, and increasing the use of advanced technologies in operations.
How all that feeds into long-term productivity will not be known until the data for several more quarters are evaluated. But it’s worth noting that US productivity in the third quarter of 2020 rose 4.6 percent, following a 10.6 percent increase in the second quarter, which is the largest six-month improvement since 1965.
Pandemic-induced changes in shopping behavior forever alter consumer businesses
In nine of 13 major countries surveyed by McKinsey, at least two-thirds of consumers say they have tried new kinds of shopping. And in all 13, 65 percent or more say they intend to continue to do so. The implication is that brands that haven’t figured out how to reach consumers in new ways had better catch up, or they will be left behind. We expect that, in developing markets—Brazil and India, for example—the pandemic will accelerate digital shopping, albeit from a low base.
Consumers in continental Europe have bought more online but aren’t as enthusiastic as those in Britain and the United States to continue doing so. The first half of 2020 saw an increase in e-commerce equivalent to that of the previous ten years.
Supply chains rebalance and shift
Think of it as “just in time plus.” The “plus” stands for “just in case,” meaning more sophisticated risk management. The COVID-19 pandemic revealed vulnerabilities in the long, complicated supply chains of many companies. When a single country or even a single factory went dark, the lack of critical components shut down production. Never again, executives vowed. So, the great rebalancing began.
Once businesses began to study how their supply chains worked, they realized three things. First, disruptions aren’t unusual. Any given company can expect a shutdown lasting a month or so every 3.7 years. Such shocks, then, are far from shocking: they are predictable features of doing business that need to be managed like any other. Second, cost differences among developed and many developing countries are narrowing. And third, most businesses do not have a good idea of what is going on lower down in their supply chains, where subtiers and sub-subtiers may play small but critical roles. With the development of AI and data analytics, companies can learn more about, audit, and connect with their entire value chains.
The future of work arrives ahead of schedule
Before the COVID-19 crisis, the idea of remote working was in the air but not proceeding very far or fast. But the pandemic changed that, with tens of millions of people transitioning to working from home, essentially overnight, in a wide range of industries. The McKinsey Global Institute (MGI) estimates that more than 20 percent of the global workforce (most of them in high-skilled jobs in sectors such as finance, insurance, and IT) could work the majority of its time away from the office—and be just as effective. Not everyone who can, will; even so, that is a once-in-several-generations change. It’s happening not just because of the COVID-19 crisis but also because advances in automation and digitization made it possible; the use of those technologies has accelerated during the pandemic.
The biopharma revolution takes hold
The announcement of several promising COVID-19 vaccines has been a much-needed shot of good news. There will be challenges to rolling out these vaccines on the scale needed, but that does not lessen the accomplishment.
Regulators have also reacted with speed and creativity, establishing clear guidelines and encouraging thoughtful collaboration. Without relaxing safety and efficacy requirements, they have shown just how quickly they can collect and evaluate data. If those lessons are applied to other diseases, they could play a significant role in setting the foundation for the faster development of treatments.
God grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference. ~ Reinhold Niebuhr
Green, with a touch of brown, is the color of recovery
All over the world, the costs of pollution—and the benefits of environmental sustainability—are increasingly recognized. China, some of the Gulf States, and India are investing in green energy on a scale that would have been considered improbable even a decade ago. Europe, including the United Kingdom, is united on addressing climate change. The United States is transitioning away from coal and is innovating in a wide array of green technologies, such as batteries, carbon-capture methods, and electric vehicles.
The imperative for businesses is clear along two fronts. First, businesses need to respond to the sustainability concerns of investors. More significantly, the growth opportunities that a green economy portends could be substantial. BlackRock, a global investment company with around $7 trillion in assets under management, noted in its 2021 Global Outlook that, “contrary to past consensus,” it expects that the shift to sustainability will “help enhance returns” and that “the tectonic shift towards sustainable investing is accelerating.
Now isn’t that just grand?!