What’s next? The Next Normal

Introduction

What’s next? That is the question everyone is asking. The future is not what we thought it would be only a few short months ago. In this article, we have set out seven actions that have come up repeatedly during discussions with business leaders. In each case, we discuss which attitudes or practices businesses should stop, which they should start, and which they should accelerate.

1. From ‘sleeping at the office’ to effective remote working

• Stop assuming that the old ways will come back

• Start thinking through how to organize work for a distributed workforce

• Accelerate best practices around collaboration, flexibility, inclusion, and accountability

Though there is some nostalgia for the “good old days,” when it was easy to bump into people at the coffee room. Those days are gone. There is also the risk, however, that companies will rely too much on remote working.

Remote working is about more than giving people a laptop. Some of the rhythms of office life can’t be recreated. But the norms associated with traditional work—for example, that once you left the office, the workday was basically done—are important. As, “It’s not so much working from home; rather, it’s really sleeping at the office.”

Collaboration, flexibility, inclusion, and accountability are things organizations have been thinking about for years, with some progress. But the massive change associated with the coronavirus could and should accelerate changes that foster these values.

2. Networks and teamwork

• Stop relying on traditional organizational structures

• Start locking in practices that speed up decision making and execution

• Accelerate the transition to agility

Companies have put together teams to deal with COVID-19-related problems. Operating with a defined mission, a sense of urgency, and only the necessary personnel at the table, people set aside the turf battles and moved quickly to solve problems, relying on expertise rather than rank. It was a revelation—and a common one.

“Agility” can be defined as the ability to reconfigure strategy, structure, processes, people, and technology quickly toward value-creating and value-protecting opportunities. Agile companies are more decentralized and depend less on top-down, command-and-control decision making. They create agile teams, which are allowed to make most day-to-day decisions; senior leaders still make the big-bet ones that can make or break a company. Agile teams aren’t out-of-control teams: accountability, in the form of tracking and measuring precisely stated outcomes, is as much a part of their responsibilities as flexibility is. The overarching idea is for the right people to be in position to make and execute decisions. One principle is that the flatter decision-making structures many companies have adopted in crisis mode are faster and more flexible than traditional ones. Many routine decisions that used to go up the chain of command are being decided much lower in the hierarchy, to good effect.

Finally, agility is just a word if it isn’t grounded in the discipline of data. Companies need to create or accelerate their analytics capabilities to provide the basis for answers—and, perhaps as important, allow them to ask the right questions. This also requires reskilling employees to take advantage of those capabilities: an organization that is always learning is always improving.

3. From just-in-time to just-in-time and just-in-case supply chains

• Stop optimizing supply chains based on individual component cost and depending on a single supply source for critical materials

• Start redesigning supply chains to optimize resilience and speed

• Accelerate ‘nextshoring’ and the use of advanced technologies

The coronavirus crisis has demonstrated the vulnerability of the old supply-chain model, with companies finding their operations abruptly halted because a single factory had to shut down. Companies learned the hard way that individual transaction costs don’t matter nearly as much as end-to-end value optimization—an idea that includes resilience and efficiency, as well as cost.

Instead of asking whether to onshore or offshore production, the starting point should be the question, “How can we forge a supply chain that creates the most value?” That will often lead to an answer that involves neither offshoring nor onshoring but rather “multishoring”—and with it, the reduction of risk by avoiding being dependent on any single source of supply.

One area of vulnerability the current crisis has revealed is that many companies didn’t know the suppliers their own suppliers were using and thus were unable to manage critical elements of their value chains. Companies should know where their most critical components come from. On that basis, they can evaluate the level of risk and decide what to do, using rigorous scenario planning and bottom-up estimates of inventory and demand. Contractors should be required to show that they have risk plans (including knowing the performance, financial, and compliance record of all their subcontractors, as well as their capacity and inventories) in place.

In some critical areas, governments or customers may be willing to pay for excess capacity and inventories, moving away from just-in-time production. In most cases, however, we expect companies to concentrate on creating more flexible supply chains that can also operate on a just-in-case approach. Think of it as “nextshoring” for the next normal. For example, the fashion industry expects to shift some sourcing from China to other Asian countries, Central America, and Eastern Europe.

Nextshoring in manufacturing is about two things. The first is to define whether production is best placed near customers to meet local needs and accommodate variations in demand. The second is to define what needs to be done near innovative supply bases to keep up with technological change. Nextshoring is about understanding how manufacturing is changing (in the use of digitization and automation, in particular) and building the trained workforce, external partnerships, and management muscle to deliver on that potential.

4. From managing for the short term to capitalism for the long term

• Stop quarterly earnings estimates

• Start focusing on leadership and working with partners to create a better future

• Accelerate the reallocation of resources and infrastructure investment

Because of the unprecedented nature of the pandemic, the percentage of companies providing earnings guidance has fallen sharply—and that’s a good thing. The arguments against quarterly earnings guidance are well known, including that they create the wrong incentives by rewarding companies for doing harmful things, such as deferring capital investment and offering massive discounts that boost sales to make the revenue numbers but hurt a company’s pricing strategy.

Business leaders love words like “flexible,” “agile,” and “innovative.” But a look at their budgets shows that “inertia” should probably get more attention. Year to year, companies only reallocate 2 to 3 percent of their budgets. But those that do more—on the order of 8 to 10 percent—create more value. In the coronavirus era, the case for change makes itself. In other areas, companies can use this sense of urgency to change the way they put together their budgets. Sales teams, for example, are used to getting new targets based on the prior year’s results. A better approach is to define the possible, based on metrics such as market size, current market share, sales-force size, and how competitive the market is. On that basis, a company can estimate sales potential and budget accordingly.

5. From making trade-offs to embedding sustainability

• Stop thinking of environmental management as a compliance issue

• Start considering environmental strategy as a source of resilience and competitive advantage

• Accelerate investment in innovation, partnerships, and reporting

The COVID-19 pandemic froze supply chains around the world. As companies reengineer their supply chains for resilience, they also need to consider environmental factors—for example, is a region already prone to flooding likely to become more so as temperatures rise. The principle to remember is that it is less expensive to prepare than to repair or retrofit.

As usual, information is the foundation for action. A data-driven approach can illuminate the relative costs of maintaining an asset, adapting it—for example, by building perimeter walls or adding a backup power supply—or investing in a new one. It is as true for the environment as any part of the value chain that what gets measured gets managed.

The principle at work is to make climate management a core corporate capability, using all the management tools, such as analytics and agile teams, that are applied to other critical tasks. The benefits can be substantial.

6. From online commerce to a contact-free economy

• Stop thinking of the contactless economy as something that will happen down the line

• Start planning how to lock in and scale the crisis-era changes

• Accelerate the transition of digitization and automation

The switch to contactless operations can happen fast. Healthcare is the outstanding example here. For as long as there has been modern healthcare, the norm has been for patients to travel to an office to see a doctor or nurse. Although we recognize the value of having personal relationships with healthcare professionals, but it is possible to have the best of both worlds—staff with more time to deal with urgent needs and patients getting high-quality care. In Britain, less than 1 percent of initial medical consultations took place via video link in 2019; under lockdown, 100 percent are occurring remotely.

It is hard to believe that healthcare would go back to its previous doctor–patient model. The same is likely true for education. With even the world’s most elite universities turning to remote learning, the previously common disdain for such practices has diminished sharply. There will always be a place for the lecture hall and the tutorial, but there is a huge opportunity here to evaluate what works, identify what doesn’t, and bring more high-quality education to more people more affordably and more easily.

“Digital transformation” was a buzz phrase prior to the coronavirus crisis. Since then, it has become a reality in many cases—and a necessity for all. Now, many industrial companies have embraced online applications to devise safety strategies, improve collaboration with suppliers, manage inventory, optimize procurement, and maintain equipment. Such solutions, all of which can be done remotely, can help industrial companies adjust to the next normal by reducing costs, enabling physical distancing, and creating more flexible operations. The application of advanced analytics can help companies get a sense of their customers’ needs without having to walk the factory floor; it can also enable contactless delivery.

7. From simply returning to returning and reimagining

• Stop seeing the return as a destination

• Start imagining the business as it should be in the next normal

• Accelerate digitization

The return after the pandemic will be a gradual process rather than one determined by government publicizing a date and declaring “open for business.” The stages will vary, depending on the sector, but only rarely will companies be able to flip a switch and reopen. There are four areas to focus on: recovering revenue, rebuilding operations, rethinking the organization, and accelerating the adoption of digital solutions. In each case, speed will be important. Getting there means creating a step-by-step, deliberate process.

For retail and entertainment venues, physical distancing may become a fact of life, requiring the redesign of space and new business models. For offices, the planning will be about retaining the positives associated with remote working. For manufacturing, it will be about reconfiguring production lines and processes. For many services, it will be about reaching consumers unused to online interaction or unable to access it. For transport, it will be about reassuring travelers that they won’t get sick getting from point A to point B. In all cases, the once-routine person-to-person dynamics will change.

Call it “Industry 4.0” or the “Fourth Industrial Revolution.” Whatever the term, the fact is that there is a new and fast-improving set of digital and analytic tools that can reduce the costs of operations while fostering flexibility. Digitization was, of course, already occurring before the COVID-19 crisis but not universally.

Conclusion

Businesses around the world have rapidly adapted to the pandemic. There has been little hand-wringing and much more leaning in to the task at hand. For those who think and hope things will basically go back to the way they were: stop. They won’t. It is better to accept the reality that the future isn’t what it used to be and start to think about how to make it work.

Hope and optimism can take a hammering when times are hard. To accelerate the road to recovery, leaders need to instill a spirit both of purpose and of optimism and to make the case that even an uncertain future can, with effort, be a better one.