McKinsey: The next normal arrives – Trends that will define 2021 and beyond

McKinsey & Co logoThe following article is an abridged version of the full article on the Next Normal to be found here (4th Jan 2021)  I am not the author of this article. The authors are Kevin Sneader, Global Managing Partner, New York Shubham Singhal, Healthcare Global Leader, Senior Partner, Detroit. I would like to thank them for their excellent original post.

2021 will be the year of transition. Barring any unexpected catastrophes, individuals, businesses, and society can start to look forward to shaping their futures rather than just grinding through the present. The next normal is going to be different. It will not mean going back to the conditions that prevailed in 2019. Indeed, just as the terms “prewar” and “postwar” are commonly used to describe the 20th century, generations to come will likely discuss the pre-COVID-19 and post-COVID-19 eras.

How the COVID-19 crisis and the recovery are shaping the global economy

The return of confidence unleashes a consumer rebound

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.

However, spending will only recover as fast as the rate at which people feel confident about becoming mobile again – and those attitudes differ markedly by country.

Leisure travel bounces back but business travel lags

History shows that, after a recession, business travel takes longer than leisure travel to bounce back. After the 2008-09 financial crisis, for example, international business travel took five years to recover, compared with two years for international leisure travel. While business travel will return at scale, and global economic growth will generate new demand, executives in the field think that it may never recover to the 2019 level.

The crisis sparks a wave of innovation and launches a generation of entrepreneurs

Disruption creates space for entrepreneurs – and that’s what is happening in the United States, in particular, but also in other major economies. We admit that we didn’t see this coming. After all, during the 2008-09 financial crisis, small-business formation declined, and it rose only slightly during the recessions of 2001 and 1990-91. This time, though, there is a veritable flood of new small businesses. In the third quarter of 2020 alone, there were more than 1.5 million new-business applications in the United States – almost double the figure for the same period in 2019.

The European Union has not seen anything like this response, perhaps because its recovery strategy tended to emphasize protecting jobs (not income, as in the United States). That said, France saw 84,000 new business formations in October, the highest ever recorded, 7 and 20 percent more than in the same month in 2019.

On the whole, the COVID-19 crisis has been devastating small business. In the United States, for example, there were 25.3 percent fewer of them open in December 2020 than at the beginning of the year.

Digitally enabled productivity gains accelerate the Fourth Industrial Revolution

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. 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 in the ‘next normal’.

How businesses are adjusting to the changes prompted by the COVID-19 crisis

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.

Supply chains rebalance and shift – three lessons from the pandemic

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. In manufacturing, companies that adopt Industry 4.0 principles (meaning the application of data, analytics, human–machine interaction, advanced robotics, and 3-D printing) can offset half of the labor-cost differential between China and the United States.

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. That is also where most disruptions originate, but two-thirds of companies say they can’t confirm the business-continuity arrangements with their non-tier-one suppliers. With the development of AI and data analytics, companies can learn more about, audit, and connect with their entire value chains.

The above does not mean that multinationals are going to ship all or most of their production back to their home markets in this ‘next normal’. But questions on security and resiliency mean that those companies are likely to be more thoughtful about the business cases for doing so.

The future of work

The twin challenges of returning to the office

Firstly, 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. Returning to the office shouldn’t be a matter of simply opening the door. Instead, it needs to be part of a systematic reconsideration of what exactly the office brings to the organization.

The other challenge has to do with adapting the workforce to the requirements of automation, digitization, and other technologies. This isn’t just the case for sectors such as banking and telecom; instead it’s a challenge across the board. Evidence shows that the benefits of re-skilling current staff, rather than letting them go and then finding new people, typically costs less and brings benefits that outweigh the costs. Investing in employees can also foster loyalty, customer satisfaction, and positive brand perception.

The biopharma revolution

Just as businesses have sped up their operations in response to the COVID-19 crisis, the pandemic could be the launching point for a massive acceleration in the pace of medical innovation, with biology meeting technology in new ways.

The potential of the Bio Revolution goes well beyond health; as much as 60 percent of the physical inputs to the global economy, according to MGI, could theoretically be produced biologically. Examples include agriculture (genetic modification to create heat- or drought-resistant crops or to address conditions such as vitamin-A deficiency), energy (genetically engineered microbes to create biofuels), and materials (artificial spider silk and self-repairing fabrics).

Portfolio restructuring accelerates

There is a resiliency premium on recovery. Top performing companies won’t sit on their strengths; instead, as in previous downturns, they will seek out ways to build them – for example, through M&A. That’s why we expect to see substantial portfolio adjustment as companies with healthy balance sheets seek opportunities in a context of discounted assets and lower valuations.

The other factor favouring restructuring is Private Equity. The PE industry has a reputation of zigging when others are zagging, making deals in difficult times. And it has history on its side: returns on PE investments made during global downturns tend to be higher than in the good times. Put it all together, and we don’t think the PE industry is going to keep its powder dry for much longer; there are simply going to be too many new investment opportunities.

Climate change

It’s possible, albeit speculative, that the COVID-19 crisis foreshadows what a climate crisis could look like: systemic, fast moving, wide ranging, and global. There is a case, then, for businesses to take action to limit their climate risks – for example, by making their capital investments more climate resilient or by diversifying their supply chains.

How the COVID-19 crisis could change society

Healthcare systems take stock – and make changes

No doubt, governments all over the world will set up task forces, inquiries, and commissions to examine their actions related to the COVID-19 crisis. The key is to go beyond the temptation simply to assign blame (or credit). Instead, the efforts need to be forward thinking, with an emphasis on turning the painful lessons of COVID-19 into effective action.

The hangovers begin as governments tackle rising debt

The scale of the fiscal response to the COVID-19 crisis was unprecedented – and three times bigger than seen for the 2008-09 financial crisis. In the G-20 alone, fiscal packages are estimated at more than $10 trillion.

As the pandemic recedes, governments will have to figure out how to address their fiscal difficulties. Although interest rates are generally low, that could mean raising taxes or cutting spending – or both. Doing so could risk slowing the recovery and stimulating political backlash. But high levels of public debt carry their own costs, crowding out private debt and limiting the resources available to governments as they service their debt.

While interim measures, such as improving government operations, monetizing assets, and reducing fiscal leakages, can be helpful, the long-term answer is growth and productivity. That’s largely how the United States managed to reduce its national debt from 118 percent of GDP in 1946 to a low of 31 percent in 1981.

Stakeholder capitalism comes of age

There is widespread distrust for business as usual, as a number of surveys and elections have shown. That’s where stakeholder capitalism comes in – as a bridge between businesses and the communities of which they are a part. The COVID-19 crisis has highlighted the inter-connectedness of business and society.

We do not believe there is a conflict between the pursuit of profit, and a sense of purpose. In a study that looked at 615 large- and midcap US publicly-listed companies from 2001 to 2015, MGI found that those with a long-term view – something that’s a core of stakeholder capitalism – outperformed the rest in earnings, revenue, investment, and job growth.

Stakeholder capitalism is about building the trust – call it the “social capital” – that businesses need to keep doing business. And it’s about recognizing that creating long-term shareholder value requires more than just focusing on shareholders.

Edited by Richard Fullerton

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Australia Tourism’s new ad ‘Matesong’ pitches short


Oh dear. I don’t like the new ad promoting Australia to us Brits, called Matesong. I wish I did but I just can’t. Firstly, the music. It’s awful, quite frankly. Even worse than the score from a dismal Andrew Lloyd Webber musical. It’s not even forgettable because it’s so bad that the tune just hangs around in my head, like the smog from the bushfires hangs around Sydney harbour. It is migraine music.

Then there’s Kylie Minogue’s nasally voice. I get why she is fronting this – she’s an Australian icon in the UK and ultra clean with no scandals to speak about, which is more that you could say for one of her co-stars, Shane Warne. But the song just doesn’t suit her vocal range or style. Why couldn’t they have created a boppy song like the ones she’s famous for (such as Can’t Get You Out Of My Head of 2001 which is so brilliant)? Sadly she just has to whine along to the tune and it sounds like one of those early auditions in X-Factor which Simon Cowell massacres. Continue reading

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HTTPS (High Time To Protect Sites)

HTTPS url grab

Two years ago, Google made a pledge to name and shame websites with unencrypted connections as part of a strategy to get domain owners to embrace HTTPS. In the past few months it appears that many brands have heeded this threat. But first…

What exactly is HTTPS?

A good explanation is given on GitHub: ‘HTTPS, or HyperText Transfer Protocol (HTTP) + Secure Sockets Layer (SSL), is a TCP/IP protocol used by web servers to securely transfer and display content over the internet. While traditionally used mostly for websites hosting online transactions and customer banking data, HTTPS is now being deployed across a wide variety of websites even if no such sensitive data is involved, mainly for authentication purposes. HTTP is less secure as it transmits data as unencrypted plaintext, which can be viewed by anyone spying on the network traffic and is also vulnerable to a variety of malicious attacks.’ Continue reading

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The RAC and its car-crash attitude to customer loyalty reflects marketing’s wider problem

Marketoonist - Customer loyalty cartoonI’ve had RAC breakdown cover since 2012. Their basic Roadside Assistance service means that if you break down, a patrolman will come out and try and fix your car, and if he (or she) cannot then you will be towed back to your home or your nearest garage to a maximum distance of 10 miles. This basic service is fairly standard now in the market.

So when I got my renewal letter recently which asked me for £50.98 (notice the price point there – why not £51?) for another year of cover I blanched, recalling how my premium has increased way above inflation over the years. When I first signed up in 2012, the price was £29. By 2015, it had risen to £40.82 for another year. In 2016 it rose to £46.40. Last year it went down to £45.79. But my latest bill represents an 11% increase in price. Last time I checked, inflation over the past year was 2.3%. Continue reading

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Direct Response Press, Attribution, and the Rise of Local Media

Picture of a Hillarys Blinds press ad

Hillarys Blinds – a good example of direct response press advertising

I had cause recently to undertake some research into the state of direct response press. Because of the ‘dash for digital’, it had been some time since we (at MCS) had looked at this medium and when we did, we were surprised that there was so little data ‘out there’ about it. We talked to media agencies, publishers, marketing bodies, local media organisations, and past exponents of direct marketing who led the boom of the 1990s. And yet very little data emerged.

Although we know how to create effective direct response press ads, we wanted to know answers to key questions, such as does Direct Response press advertising still work? What response rates should brands expect? Or is most of the audience online, and should brands put all their ad spend into digital? And has direct response been made redundant by the infinitely more measurable pay-per-click, online display and affiliate advertising? Continue reading

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The Conundrum of Brand Slogans

Unilever logo

Unilever – Bringing vitality to life.

The agency I work for, MCS, recently exhibited at the Suffolk Business Exhibition in Ipswich and we held a competition for visitors to our stand whereby they had to recall the slogans of 17 top brands. Most were flummoxed and the eventual winner ‘only’ got 11 correct (probably with a little help from the internet). Try these three (I’ve reversed them so you have to guess the brand from the slogan): 1) Trusted everywhere, 2) Looking after your world, 3) Bringing it all together.

Unless you work in strapline development, I’d be very surprised if you got all three correct. (The answers are Duracell, British Gas and BT). And this is why I suggest that brand slogans present a conundrum for organisations – how to get it right. Continue reading

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The Decline of the Agency and Rise of the Client: Part 2

In Part 1 yesterday, I explored how the empowerment of the client, the negative impact of overheads on agency fees, and the forced distintermediation of agencies from their clients, have contributed to a seismic shift in fortunes and status. In this second of a two-part blog on the decline of the agency and the rise of the client, I examine the evolution of the agency-client relationship, the impact of media fragmentation, and the paucity of creativity. Continue reading

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The Decline of the Agency and Rise of the Client: Part 1

Last week an MCS colleague emailed me a link to an recent article called How clients are de-skilling the UK advertising industry which mourns how marketers (the clients) have forced agencies to cut their fees so much in the past decade that it has affected the quality of the work. But the author doesn’t just blame the clients, he blames agencies as well because they have failed to demonstrate to brands where their value really lies – in their ideas and creativity.

Because MCS operates via a different agency model that mitigates the problems outlined above, it gives us an authority to contribute to this topic and examine further how and why agency primacy has been eroded over the years. In this first of a two-part blog on the topic, I explore the empowerment of the client, how many agency fees are inflated by the need to recover overheads, and how agencies are being distintermediated from their clients in three ways. Continue reading

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Why so many American TV ads are crap

Grab of US TV ad for Androgel showing a man

Androgel: Stop using it if your wife starts growing body hair and develops acne!

I have just returned from a holiday in Cuba where we were able to get some American TV channels in our hotel room. We loved watching the US channel TBS, which seems to show never-ending comedy, (its strapline is ‘Very funny’). But I couldn’t help but notice the nature and quality of the TV ads (which were also never-ending). Apart from the fact that every other ad was for pizzas, all-you-can-eat pancakes with maple syrup, or burgers – everything you need to pile on the pounds if you’re a couch potato whose idea of exercise is watching comedy all day – I didn’t really think much of the creativity of the ads.

Now I’m a great admirer of American comedy, indeed TV, and I think that in general it is far superior to ours. They are an extremely creative nation but this creativity doesn’t seem to extend to their TV ads which generally avoid the sophistication – and humour – of ads for UK audiences. The ads seem to patronise their audience or treat them as dumb, whereas I’d say the opposite is true here in the UK. Of course there are some great exceptions (watch out for the imminent Superbowl ads) but generally this was my impression. Continue reading

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The Battle of the Christmas 2012 ads

Screengrab of Delia Smith and Heston Blumenthal in Waitrose's Xmas 2012 ad

Waitrose Christmas 2012 TV ad –
cheap and cheerful.

The battle of the Christmas 2012 ads has reached a crescendo. Not only is the advertising industry buzzing about it, even consumers are, with Netmums publishing research into families’ reactions to the superstore ads. According to the Yummy Mummies who were interviewed, 83% say their families look forward the seasonal ads of the big brands, and 55% claim they help foster the Christmas spirit in the family. Also, 23% get gift ideas from the ads while 20% admitted that their favourite ad influenced where they buy their presents. And when it comes to festive food, almost 30% of mums claim the ads influence where they shop. If all this is true then it is no wonder that the big brands spend so much effort on their Xmas TV advertising. Continue reading

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