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The path to the next normal

Reform

This ongoing global challenge will help identify existing faultlines and widespread practices that are toxic and are degenerating the environment but were neglected in the past due to the absence of a ‘black-swan’ event like the pandemic. 

  • Certain sectors which were neglected earlier, like better healthcare in third-world (or even developed) countries, will now be in focus. 
  • Economists and financial managers will need to work towards strengthening the system to withstand global shocks.
  • Education systems will need to reform their existing practices and modernize the classroom.

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The path to the next normal

The path to the next normal

https://www.mckinsey.com/industries/healthcare-systems-and-services/our-insights/beyond-coronavirus-the-path-to-the-next-normal

mckinsey.com

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Key Ideas

State Of Emergency

The ongoing pandemic is more than just a gigantic health crisis. The global economic order, for the first time in several decades, is on the path to an imminent restructuring.
There are several questions that leaders around the world are grappling with, like how long this will last, and what will the new ‘normal’ look like. In this war-like situation, they need to act across five stages for leading their industries from crisis and into the new normal: Resolve, Resilience, Return, Reimagination, and Reform. 

Resolve

The measures to stop the spread of the virus are well-known by now: staying home in lockdown, working from home as a default option, schools switching from physical classrooms to e-learning models.

Not every country has been able to make these choices fast, due to a combination of hesitation, inaction, and paralysis. Before any decision is made, the first thing to do is determine what needs to be done and at what pace and scale.

Resilience

As the current health crisis steamrolls into an economic crisis unparalleled for the last 100 years, the decline in economic activity is already at par with the great depression.

This crisis of global proportions requires resilience, both for near-term issues like liquidity and cash flow, as well as long-term issues like uncertainty, personal financial stress and recovering from multiple challenges that were already present and are now further complicated due to the pandemic.

Return

Returning to operative environments is extremely challenging, with reactivation of disrupted supply chains at multiple points and widespread disruption overall.

Leaders should reassess their entire business logistics and supply chain, planning for contingent actions. There is also an added threat of the resurfacing of the virus during winter, even if it subsides in the coming months, which can lead to a renewed crisis if we do not have a vaccine or any effective treatment in place by then.

Reimagination

As we can see most of our interactions, learnings and commercial transactions moving into online and virtual models, many other aspects of our daily lives will have to be reimagined and the leaders who have better insight and foresight will succeed. Many industries will have their existing business models completely disrupted, revealing vulnerabilities and new opportunities.

Luxurious but unessential items may have to change their business models or shut shop.

Reform

This ongoing global challenge will help identify existing faultlines and widespread practices that are toxic and are degenerating the environment but were neglected in the past due to the absence of a ‘black-swan’ event like the pandemic. 

  • Certain sectors which were neglected earlier, like better healthcare in third-world (or even developed) countries, will now be in focus. 
  • Economists and financial managers will need to work towards strengthening the system to withstand global shocks.
  • Education systems will need to reform their existing practices and modernize the classroom.

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  • In Europe, The north of Italy, which is the main tourist hub, is seeing a collapse in economic activity, along with Germany, which is falling at a steeper rate than the United States. Even countries like Japan, which are not hit that hard, are about to witness an apocalyptic fall.
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The effects of being isolated

Consider unexpected risks associated with the response to the outbreak, for example, poor mental health that is related to social isolation. Steps to take into account:

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The hope is for a deep, short recession, to show that people have shut the economy down to limit the spread of disease.

A living wage

Asking millions of able-bodied workers to stop working creates a crisis of unemployment.

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Restarting the economy

The economy shut down almost overnight. But reopening it will not happen the same way. It may take months and possibly years to fully open, even under the most optimistic estimates.

Implementation is complicated

The proposed three-phase plan will allow many businesses to open in the first phase.

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Partial reopening

In the early phases of reopening, businesses could be required to operate at a reduced capacity.

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Compounding

Compounding is exponential growth. We tend to see the immediate linear relationships in the situation, e.g., how one test diagnoses one person.

The compounding effect of that relationship means that increased testing can lead to an exponential decrease in disease transmission because one infected person can infect more than just one person.

Probabilistic thinking

In the absence of enough testing, we need to use probabilistic thinking to make decisions on what actions to take. Reasonable probability will impact your approach to physical distancing if you estimate the likelihood of transmission as being three people out of ten instead of one person out of one thousand.

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Continued remote work
  • Before the pandemic, a lot of company management and leaders were skeptical regarding remote work. But the skepticism will go away because companies recognize that remote work does work.
  • The economic impact of the pandemic will likely force employers to cut costs. They may reduce their rent by letting workers work from home instead of layoffs.
  • Employers had to spend money on new technology and equipment to work from home - a departure from the norm.
  • Employees themselves are also spending more money to create better home offices.

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  • At the time of the 2009 financial crisis, Time Magazine declared that conspicuous consumption is now over. In reality, the economy made record gains after the 2009 dip.

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  • Carmakers slashed production of SUVs, a symbol of excess, and just a ‘bubble’ according to an expert. In reality, Carmakers are slashing sedan production due to the high demand for SUVs.

The Unpredictability Factor

Predictions are inherently inaccurate because in the time horizon of 10 to 12 years many other things happen which cannot be foreseen, and which cause all kinds of good and bad effects. Speculation is useful and starts interesting discussions (like death rate predictions and economic consequences), helping us make the right steps.

The Prediction that can’t go wrong: The future is always unpredictable.

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Venting our fears and concerns with others can reduce their intensity. Others may provide support and care and soother our negative feelings. We can do the same in turn for them.

We learn we are not alone and may learn how others cope with their frustration and fear, which can help us adopt those methods.

When to know the limits

Venting should not become a habit as it won't fix the problem. When to stop negative emotions:

  • When venting becomes the main coping style cause delays in adaptive action.
  • When sharing with others stresses them.
  • When you don't feel better, and one or both of you feel worse.
  • Young children are not there to listen to our problems, and their job is not to soothe us.
  • Talk to your doctor if you experience signs of clinical depression (depressed mood, low energy, poor or increased appetite, insomnia, and poor concentration).

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The regression phase is uncomfortable

Regression as a phenomenon comes from developmental psychology and relates to how people go back to a less mature stage when faced with pressure.

It is the most dangerous phase for teams, but it cannot be skipped.

Getting through the regression phrase
  • Identify how deep you and your team are into the regression phase.
  • Disrupt the team and create a new “day one.”
  • Learn how to adjust your team’s emotions. Maintain an environment where it is safe to be honest about their state of mind.
  • Aim beyond business as usual, prepare to face and anticipate the future in order to provide the most value.

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During periods of heightened uncertainty, leaders reflexively reduce investment, stop hiring, slash marketing, refrain from entering new markets, or stop making decisions.

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Attributes to succeed in uncertainty

Organizations should be inclined toward action. As a baseline, companies must strive to be fit for growth. This can be done by aligning costs with priorities and strategy, investing in varied capabilities, and using traditional and digital levers to execute.

They must regularly engage in scenario planning with an array of options. They must build the capacity to be agile. They must learn to become more resilient to withstand strong external forces and quickly recover from setbacks.

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