Here is an excerpt from a conversation involving Celia Huber and Kevin Sneader for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out others, learn more about the firm, and sign up for email alerts, please click here.
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McKinsey’s global managing partner discusses the new ideas and business models transforming industry landscapes.
Kevin Sneader: I want to begin with the caveat that business forecasting exists to make astrology look good. Forecasts are always difficult, particularly at a time like this when a high level of uncertainty remains. But if I had to put a stake in the ground, I would point to eight trends that will shape the landscape ahead.
The first one is innovation. This has been a period of incredible innovation and we can go all the way back to the 17th century to understand why. The first great work-from-home experiment occurred after the bubonic plague struck London and the south of England. It led the University of Cambridge to send its students home, and that was when a young student by the name of Isaac Newton sat in his garden and watched an apple fall. From there, the concept of gravity and other theories flowed that the world put into application. We are finding similar levels of amazing innovation now. The number of new patents being granted in the US is running at twice the levels we saw in 2019, and many other countries have also seen significant increases. Much of that, of course, is because traditional employment has been affected, which speaks to the notion of necessity being the mother of invention. I think what will happen in the years to come will occur because of the innovations taking place here and now.
The second trend is around consumer behavior. A recent McKinsey report featured a stickiness index that looked at which of the many new consumer behaviors will stick. We have seen ten years of digital innovation in roughly three months and e-commerce across the globe has increased by two to five times from the levels prior to the pandemic. That will have a profound impact in a number of sectors. E-grocery, for example, we don’t think will turn back. The incredible increase in virtual healthcare we don’t think will turn back. The increased investment people are making in their homes will not go back. On the other hand, remote education does not feel so great, and live entertainment will return. But there has been a fundamental shift, and that shift will be greatest for the lower-income groups that have been most affected by the pandemic.
Of course, there is much talk about the environment—the third trend—particularly in the run-up to the COP26 [UN Climate Change Conference] in my hometown of Glasgow, and what type of recovery we will have. I think the answer, in the words of Mark Carney, will be “50 shades of green.” It will be a green recovery but the shade will vary depending on each region’s starting point. But we have to change the way we think about this. Climate change is an existential risk but it is also probably the biggest opportunity of our generation in terms of the scale and scope of investment needed to ensure the recovery is more green than brown. The numbers are staggering: about $3.5 trillion in energy infrastructure investment every year. The question for business leaders is, how do we participate in and shape a recovery that has 50 shades of green?
Another trend that will shape the future is the one that has been shaping our lives over the past 15 months: healthcare. There will be a health revolution. It’s already under way. In-person visits to the doctor’s office have given way to telehealth and that will continue. But science is not standing still. While the recent spending on healthcare may get dialed back, it has nevertheless been a massive step change. The COVID-19 pandemic has led to $180 billion being spent on research to get us to vaccines and other tools. The previous healthcare crisis involving the Zika virus saw $1.1 billion in spending, so this is 180 times the level of investment. We will see sustained investment increases and scientific progress, which is why the “bio revolution” is so important.
Throughout this crisis, government has become the lender, payer, and owner of last resort across a whole swath of industries. And with increased involvement comes increased government scrutiny.
Much of it, of course, is funded by government. Throughout this crisis, government has become the lender, payer, and owner of last resort across a whole swath of industries. And with increased involvement comes increased government scrutiny, so the fifth trend for businesses will be coping with that increased involvement.
The sixth trend is around the restructuring of corporate portfolios. Last year saw a significant shift in value, with the top quintile of companies gaining $240 billion of economic profit while the bottom 20 percent lost $400 billion. That is now being reflected in how portfolios are shifting and deal volumes are at record levels.
The seventh trend involves shifting supply chains. Geopolitics is part of that, especially the US–China relationship, but many other forces are at work. For one, the past year highlighted the need for greater resilience. At that same time, you cannot change your supply chain overnight—in fact, fewer than 25 percent of all supply chains could relocate over five years—but we will nevertheless see changes in supply chains.
Finally, for the eighth trend, we will see a return to air travel, although it may not be what we experienced before. Global air traffic has fallen dramatically and we expect it will not it return to prior levels until 2024. Business travel may be even slower, and 20 percent of the traffic may never return. But just as we have seen “revenge” shopping, I think we are all looking forward to revenge travel.
As I reflect on these trends, it is clear that the pace of change will never be this slow again. If anything, we will see an increase in the pace of change, because many of these trends were already there before the pandemic and have accelerated.
Celia Huber: I am certainly looking forward to some revenge travel. You spoke about innovation and a lot of that has been digital. How do you see those innovations affecting jobs?
Kevin Sneader: The rise of digital will affect the future of work in several ways, and it is important to understand each of them. The work-from-home experiment sometimes gets discussed as if it applies to everybody, but let’s remember that it primarily pertains to advanced economies. Only about 25 percent of workers can do their jobs three days a week or more without being on-site. This is a group that takes a shower before they go to work. We cannot forget that most people take a shower after they have been at work, and there is a risk of a growing divide between those two groups. As somebody at an industrial company said to me the other day, “We work in the tower next to a manufacturing facility. I can’t tell the people in the tower it is okay for them to work from wherever they want and at the same time tell the manufacturing people I expect them to return to the plant.” This will require collectively and consciously developing a hybrid model.
The second way digital is affecting work is, of course, e-commerce. We are going to see a continued rise in delivery, transportation, and warehouse jobs, but we have to understand that in the context of something else digital is driving, which is automation. Automation has been accelerated because of this pandemic. Our surveys show that roughly 70 percent of companies have increased their commitment to automate at least parts of what they do. Before the pandemic, we projected that two-thirds of jobs would see roughly 30 percent of their component tasks being automated and because of that, we anticipated a significant shift in the workforce. We now think that shift is at least 25 percent greater than we previously forecast.
Only about 25 percent of workers can do their jobs without being on-site. This is a group that takes a shower before work. We cannot forget that most people take a shower after work, so there is a risk of a growing divide between those two groups.
Ultimately more jobs will be created than lost because of the forces I just described. In the near term, however, we have a problem because the sectors that many thought would pick up the slack, such as retail and hospitality, have been very severely affected and will not quickly bounce back. And the transportation, delivery, and logistics jobs will not make up for the shortfall. For example, we estimate that in the United States, customer and food service jobs could fall by around 4.3 million employees while transportation can add 800,000 jobs.
This is an issue the private and public sectors need to address jointly. The fact that we will see an even greater level of employment displacement creates social challenges that are part of the context for some of the disruptions and protests around the world.
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