January 11, 2021
The Next Normal
by Paul Carroll
Among the predictions: that 20% could work most of their time away from the office and that we are at the beginning of a new wave of innovative startups.
While I’m less optimistic than I was a week ago about the speed of a return to normal — a riot in the U.S. Capitol building will do that to a guy, as will a week of record deaths from COVID-19 and growing concerns about the rollout of the vaccine — I remain confident that we’ll get there some time in 2021 and that we all need to be ready for the next normal.
Having read everything I can find about how that next normal will take shape, I commend to your attention this article from McKinsey, which draws on surveys and on evidence from nations that are further along in the recovery from the pandemic than the rest of us. Among the predictions: that 20% of people could work the majority of time away from the office and that we are at the beginning of a new wave of innovative startups — while the risk of failure for established businesses has increased.
The McKinsey Global Institute isn’t saying that 20% WILL spend most of their time away from the office, merely that they could, while remaining just as effective. The McKinsey research arm says the switch to remote work will, in any case, be “a once-in-several-generations change.”
The authors add that a survey finds that business travel in 2021 will be roughly half what it was in 2019 and may never recover to 2019 levels.
Trying to take advantage of the disruption — not just in the work environment, but in shopping behavior, in supply chains, etc. — small-business formation is surging, the article reports. The authors acknowledge that the numbers surprised them. In the 2008-09 financial crisis, small-business formation tumbled, and in other recessions in recent decades it has risen only slightly. But 1.5 million new-businesses applications were filed in the U.S. just in the third quarter of 2020, nearly double the number in the year-earlier quarter. The number of “high-propensity” applications (those considered likely to lead to businesses with payrolls) grew 50% year over year. France, German, Japan and Britain have also seen surges in new businesses, albeit smaller than in the U.S.
The innovators are coming.
They will benefit from what McKinsey sees as a burst of “revenge shopping” once the vaccine kicks in and it’s safe to move around freely again. That burst will mostly occur in services, where demand has been hit so hard, and less so for physical products, which Amazon and others have delivered to our doorsteps in such impressive fashion. The authors cite Australia, which has largely contained the pandemic and where “household spending fueled a faster-than-expected 3.3% growth rate in the third quarter of 2020, and spending on goods and services rose 7.9%.” The authors say leisure travel will rebound quickly even though business travel won’t — in China, domestic travel is almost back to where it was before the pandemic, and what they call “high-end” travel is actually ahead.
The article does warn about what it euphemistically labels “portfolio restructuring.” Basically, that term means: You’d better be getting stronger in these turbulent times or… look out.
A McKinsey survey of 1,500 companies in October found that the top 20% had seen their earnings before interest, taxes, depreciation and amortization increase 5% during the recession, while those not in that top tier had registered a 19% decline. The article argues that those thriving will be able to lock in their advantage by buying weaker rivals.
Private equity is also on the prowl, looking for bargains. Firms are sitting on $1.5 trillion of “dry powder” that is ready to invest, and the authors say that “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.”
We still have to make it through these next weeks and months; at this point, I’ll be happy just to get to Inauguration Day on the 20th. But the next normal looks reasonably promising — as long as we stay among the innovators or that top tier of incumbents and don’t get numbered among the prey.
P.S. For those of you who’ve stuck with me to this point, here is a bonus, a thought-provoking piece about Brexit from Peter Gumbel, who is the editorial director of the McKinsey Global Institute and who was a longtime colleague of mine at the Wall Street Journal. I met Peter when, as a smart, young Brit with a facility for languages, he became a correspondent for us in Germany in the mid-1980s. I followed his career through other posts in Europe and more than a decade in the U.S. What I didn’t know until his piece ran last week in the New York Times is that Peter’s grandparents had fled Nazi Germany just before the outbreak of World War II. I also learned that, despite pride in his British roots and deep gratitude to the country that took his family in, he was wrestling with his homeland’s choice to withdraw from the Continent and was heading toward a gut-wrenching personal decision. (I won’t spoil his punchline here.) In case you find the piece as moving as I did, here is a link to the book-length ruminations he recently published on the topic, “Citizens of Everywhere: Searching for Identity in the Age of Brexit.”
P.P.S. Here are the six articles I’d like to highlight from the past week:
The solution for 2021? Reframing digital transformation as an iterative process as opposed to a one-off, wholesale solution.
A few months, 50 million views and almost 100,000 followers of our channel later, we think Tiktok may be the next big thing.
Controversy relating to workers’ comp premium audits existed long before COVID. However, the pandemic made things much worse.
Have events of 2020 permanently altered the trajectory of the insurtech movement and thrown predictions out the window?
Adapting to carriers’ new technology is a challenge, but it gives agents the opportunity to move from distributors to true business partners.
There are three key forces that the cloud can unleash: speed of operations, an intelligence premium and innovation.