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The Next Normal: Trends That Will Define 2021 and Beyond

By Kevin Sneader and Shubham Singhal

COVID-19 has changed the world. But with good leadership, we can ensure it is change for the better.

Businesses have spent much of the past 12 months scrambling to adapt to extraordinary circumstances. While the fight against the COVID-19 pandemic is not yet won, with vaccines in hand, there is light at the  end  of the  tunnel — along  with the  hope  that  another train isn’t heading our way.

The year 2021 will be one 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 ‘pre-war’ and ‘post-war’ are commonly used to describe the 20th century, generations to come will likely discuss the pre-COVID-19 and post-COVID-19 eras.

In a recent article for, we identified 13 trends that leaders should consider as they prepare for the next normal. In this adapted excerpt, we will present seven  of them and  indicate how they will affect the direction of the global economy.

Trend 1: The Return of Confidence Unleashes a Consumer Rebound

There are lines outside stores, but they are often due to physical-distancing requirements. Theatres are dark. Fashions are in closets rather than on display. If the Musée du Louvre were open, the lack of tourists might  even  create the  opportunity for an unobstructed view of the Mona Lisa. In these and other ways, consumers have pulled back.

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.

That isn’t to say that consumers will act uniformly. A recent McKinsey survey  found  that  countries with  older  demographics, such as France, Italy and Japan, are less optimistic than those with  younger populations, such  as India  and  Indonesia. China was an exception: It has an older population but is conspicuously optimistic.

But China’s profile proves a larger point. The first country to be hit by the COVID-19 pandemic, it was also the first to emerge from it. China’s consumers are relieved — and spending accordingly.  On  Singles  Day,  November 11, 2020,  the  country’s  two largest online  retailers racked up record sales. That wasn’t just a holiday phenomenon. While manufacturing in China came back first, by September 2020, so had consumer spending. Except for international air travel,  Chinese consumers have  begun to act and spend largely as they did in pre-crisis times.

Open Door Illustration

Theoretically, up to 60 per cent of the physical inputs to
the global economy could be produced biologically.

Australia also offers hope.  With  the  pandemic largely  contained in that country, household spending fuelled a faster-than-expected 3.3 per cent growth rate in the third quarter of 2020, and spending on goods and services rose 7.9 per cent.

How fast and deep confidence will recover is an open question.  In September 2020,  for example, the  U.S. consumers surveyed  were  more  optimistic than  before but  still cautious, reporting that  they  planned to buy holiday gifts for fewer  people and keep an eye on discretionary spending. Only around a third had resumed out-of-home activities, compared with 81 per cent of consumers in China, 49 per cent  in France — and  just 18 per cent in Mexico. New lockdowns and, critically, the rollout of COVID-19 vaccines have and will affect those numbers. The point is that 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.

Trend 2: The Crisis Sparks a Wave of Innovation and Launches a Generation of Entrepreneurs

Plato was  right:  necessity is indeed the  mother of invention. During the COVID-19 crisis, one area that has seen tremendous growth is digitization, meaning everything from online customer service to remote working  to supply-chain reinvention to the use of artificial  intelligence (AI) and  machine learning to improve operations. Healthcare, too, has changed substantially, with tele-health and biopharma coming into their own.

Disruption creates space  for  entrepreneurs —  and  that’s what is happening in the U.S., 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  U.S. — almost double the figure for the same period in 2019.

Yes, many  of those  businesses are single-person establishments that could well stay that way — think of the restaurant chef turned caterer or the recent college graduate with a cool new app. So it’s intriguing that  the  volume of ‘high-propensity-business applications’ (those that are likeliest  to turn into businesses with payrolls)  has also risen  strongly — more  than  50 per cent  compared with 2019. Venture-capital activity  dipped only slightly  in the first half of 2020.

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 U.S.). That said, France saw 84,000 new business formations in October 2020, the highest ever recorded, and 20 per cent more than  in the same  month in 2019. Germany also saw an increase in new businesses compared with 2019; ditto  for Japan.  Britain  was somewhere in between. A survey  published in November 2020 of 1,500 self-employed  people  found  that  20 per cent  say they are likely to leave self-employment when they can. At the same time, however, the number of new businesses registered in the UK in the third quarter of 2020  rose  30 per cent  compared with 2019 — the  largest increase seen since 2012.

On  the  whole,  the  COVID-19  crisis  has  been  devastating for small businesses. In the U.S., for example, there were 25.3 per cent fewer of them open in December 2020 than at the beginning of the  year  (the  bottom was in mid-April, when  the  figure  was almost half ). U.S. small-business revenue fell more  than  30 per cent  between January and  December 2020. But we’ll take good news where we can get it, and the positive trend in entrepreneurship could bode  well for job growth and economic activity  once recovery takes hold.

Trend 3: The Future of Work Arrives, Ahead of Schedule

Before  the  COVID-19  crisis,  the  idea  of remote working  was in the air but not proceeding very far or fast. But the pandemic changed that,  with  tens  of millions  of people  transitioning to working  from home, essentially overnight, in a wide range of industries. For example, according to Michael Fisher, president and  CEO of Cincinnati Children’s Hospital Medical Center, there were 2,000 telehealth visits recorded at the organization in all of 2019 — and 5,000 a week in July 2020. Fisher thinks telehealth could account for 30 per cent of all healthcare visits in the future. In Japan, fewer than 1,000 institutions offered remote care in 2018; by July 2020, more than 16,000 did.

The McKinsey Global Institute (MGI) estimates that more than  20 per cent  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. Not everyone who can, will; even so, that  is a once-in-several-generations change. It’s happening not  just  because of the COVID-19 crisis but also because advances in automation and digitization made it possible, and the use of those  technologies has accelerated during the pandemic.

There are two important challenges related to the transition to working  away from the office. One is to decide the role of the office itself,  which  is the  traditional centre for creating culture and a sense of belonging. Companies will have to make decisions on everything from real estate (Do we need this building, office or floor?) to workplace design (How much  space between desks? Are pantries safe?) to training and professional development (Is there such a thing as ‘remote mentorship’?). 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; it’s a challenge across  the  board, even  in sectors not associated with  remote work.  For example, major  retailers are increasingly automating checkout. If salesclerks want  to  keep their  jobs, they will need to learn  new skills. In 2018, the World Economic Forum estimated that  more  than  half of employees would need significant reskilling or upskilling by 2022.

Evidence shows  that  the benefits of reskilling 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.

Workforce development was a priority  even before the pandemic. In a McKinsey survey conducted in May 2019, almost 90 per  cent  of the  managers surveyed said  their  companies faced skill gaps or expected to in the  next  five years.  But only a third said they were prepared to deal with the issue. Successful reskilling starts with knowing what  skills are needed, both  right  now and in the near future; offering tailored learning opportunities to meet them; and evaluating what does and doesn’t work. Perhaps most important, it requires commitment from the top that inculcates a culture of lifelong learning.

Trend 4: The Biopharma Revolution Takes Hold

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. Not only was the COVID-19 genome sequenced in a matter of weeks,  rather than months, but the vaccine rolled out in less than a year — an astonishing  accomplishment given that  normal vaccine development has often  taken a decade. Urgency has created momentum, but the  larger  story  is how a wide and  diverse range of capabilities — among them, bioengineering, genetic sequencing, computing, data analytics, automation, machine learning and AI — have come together.

Regulators have  also reacted with speed and  creativity, establishing clear  guidelines and encouraging thoughtful collaboration. Without relaxing safety  and  efficacy requirements, they have shown  just how quickly they can collect  and evaluate data. If those  lessons are applied to other diseases, they  could  play a significant role in setting the foundation for the faster development of treatments.

The  development of COVID-19  vaccines is just  the  most compelling example of the potential of what  MGI calls the ‘Bio Revolution’ — biomolecules, biosystems, biomachines and biocomputing. In a report published in May 2020,  MGI estimated that 45 per cent of the global disease burden could be addressed with  capabilities that  are  scientifically conceivable today.  For example, gene-editing technologies could  curb  malaria, which kills more  than  250,000 people  a year; cellular therapies could repair or even replace damaged cells and tissues; and new kinds of vaccines could be applied to noncommunicable diseases, including cancer and heart disease.

The potential of the Bio Revolution goes well beyond health: according to MGI, as much  as 60 per cent of the physical  inputs to the global economy, 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). Those and other applications feasible through current technology could  create trillions of dollars in economic impact over the next decade.

Trend 5: Portfolio Restructuring Accelerates

The  COVID-19  crisis provoked divergent, even  dramatic, reactions, with some industries taking off and others suffering badly. When  the  economy settles into  its next  normal, such  sectoral differences can  be expected to narrow, with  industries returning to somewhere around their previous relative positions. What is less obvious  is how the  dynamics within  sectors are likely to change. In previous downturns, the  strong came  out  stronger, and  the  weak  got weaker, went  under or were  bought. The  defining difference was resilience — the  ability  not  only to absorb shocks but to use them to build competitive advantage.

Open Door Illustration

The COVID-19 crisis foreshadows what a climate crisis could look like:
systemic, fast moving and global.

In  October 2020,  McKinsey   evaluated 1,500  companies by ‘Z-Score’, which  measures the probability of corporate bankruptcy. The  higher the  score,  the  stronger the  company’s financial position. The  research found  that  the  top 20 per cent of  companies (the  ‘emerging resilients’) that  had  improved their   Z-Scores   during the  current  recession had   increased their earnings before interest, taxes, depreciation and amortization by five per cent; the others had lost 19 per cent. The emerging resilients, the  evidence shows,  are  pulling  away  from  the pack.

The implication is that there is a ‘resiliency premium’ on recovery. Top performers 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.

A second factor  that  tilts the odds  in favour  of portfolio restructuring is the availability of private capital. Special-purpose acquisition companies, which  merge with  a company to  take it public,  ‘had a moment’ in 2020.  Through August  2020,  they had accounted for 81 out of 111 U.S. IPOs.

Much  more  important is private equity  (PE). Globally,  PE firms are sitting  on almost US$ 1.5 trillion  of ‘dry powder’ — unallocated capital that’s ready  to be invested. The COVID-19 crisis has  hurt  in some  ways,  with global  deal  value  down  12 per cent  compared with  the  first  three quarters of 2019 and  deal counts down 30 per cent.

On the other hand, global fundraising has stayed strong — US$ 348.5 billion through September 2020, on par with the previous five years — and deal making in Asia has more than doubled. 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.

Trend 6: Green is the Colour of Recovery

All over the world,  the costs  of pollution — and  the benefits of environmental sustainability — are increasingly recognized. China, some of the Gulf States  and India  are investing in green energy on a scale that  would have been  considered improbable even  a decade ago. Europe, including the UK, is united on addressing climate change. The  U.S. is transitioning away  from coal  and  is innovating in a wide  array  of green technologies, such as batteries, carbon-capture methods and electric vehicles.

To cope with the 2008–09 financial crisis, there were  substantial government stimulus programs, but few of them incorporated climate or environmental action. This time is different. Many (though by no means all) countries are using their recovery plans to push through existing environmental policy priorities:

  • The European Union  plans to dedicate around 30 per cent of its US $880  billion plan for COVID-19-crisis plan to climate-change-related measures, including the  issuance of at least US $240 billion in ‘green bonds’.
  • In September 2020, China pledged to reduce its net carbon emissions to zero by 2060.
  • Japan has pledged to be carbon neutral by 2050.
  • South Korea’s Green New Deal, part of its economic-recovery plan, invests in greener infrastructure and technology, with the stated goal of net-zero emissions by 2050.
  • While campaigning, President Joe Biden pledged to invest US $2 trillion  in  clean  energy related to  transportation, power and building.
  • Canada is linking its recovery to climate goals.
  • Nigeria plans  to phase out  fossil-fuel subsidies and  to install solar-power systems for an estimated 25 million people.
  • Colombia is planting 180 million trees.

The  imperative for businesses is clear  along  two fronts. First, they  need to respond to the  sustainability concerns of investors.  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.

More  significantly, the  growth opportunities that  a green economy portends could  be substantial. BlackRock, a global investment company with  around $7  trillion  in  assets under management, noted in its 2021 Global  Outlook that,  “contrary to past consensus,” it expects that the shift to sustainability will “help  enhance returns” and that  “the  tectonic shift towards sustainable investing is accelerating.” Green growth opportunities abound across massive sectors such as energy, mobility and agriculture. Just as digital-economy companies have  powered stock-market returns in the  past  couple  of decades, so green-technology companies could  play that  role  in the  coming decades.

13 Trends That Will Shape The Next Normal

1. The return of confidence unleashes a consumer rebound

2. Leisure travel bounces back , but business travel lags

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

4. Digitally-enabled productivity gains accelerate the Fourth Industrial Revolution

5. Pandemic-induced changes in shopping behaviour forever alter consumer businesses

6. Supply chains rebalance and shift

7. The future of work arrives, ahead of schedule

8. The biopharma revolution takes hold

9. Portfolio restructuring accelerates

10. Green is the colour of recovery

11. Healthcare systems take stock — and make changes

12. The hangovers begin as governments tackle rising debt

13. Stakeholder capitalism comes of age

From “ The Next Normal: Trends that will Define 2021 and Beyond” (available online).

Trend 7: Healthcare Systems Take Stock—and Make Changes

Healthcare system reform is difficult.  While  caution is necessary when  lives are involved, one consequence is that  modernization is often slower than it needs to be. Learning from the experiences associated with COVID-19 can show the way to build stronger post-pandemic healthcare systems.

Consider the  case  of South  Korea.  When  the  MERS virus struck in 2015, resulting in the deaths of 38 Koreans, the government was stung  by widespread public  criticism that  it had  not responded well. As a result, it took  action to improve its pandemic  preparedness — and it was ready  when  COVID-19 hit in January 2020. Large-scale testing, as well as tracing and  quarantine measures, began almost immediately. And  it worked. While  the  country began seeing  a significant increase in new cases in December, fewer than  1,000 South Koreans died from COVID-19 in all of 2020.

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.

Being better prepared for the next  pandemic, on both  national  and  international levels,  has  to be a high  priority.  Too often, investments in prevention and public-health capabilities are undervalued; the experience of COVID-19 demonstrates how costly, in both lives and livelihoods, such thinking can be. An upgrade of public-health infrastructure and the modernization of healthcare systems, including the wider use of telemedicine and virtual health, are two areas to address.

Business will also have a role. Employers should take the opportunity to learn from the pandemic how to redesign workplaces, build healthier work environments, and invest effectively in employee health.

In closing

In March 2020, some of our colleagues argued that the COVID-19 crisis could be the “imperative of our time.” A month later, we noted that it could bring a “dramatic restructuring of the economic and social order.” We stand by those assertions. The pandemic has been an economic and human catastrophe, and it is far from over. But with vaccines rolling out, it’s possible to be cautiously optimistic that the next normal will emerge this year or next.

We believe that, in some ways, that normal could be better. With good leadership from both business and governments, the changes we describe herein can provide an enduring foundation for the long term. 

Kevin Sneader is McKinsey & Company’s Global Managing Partner and a member of the Creative Destruction Lab’s Vision Council. Shubham Singhal is a Senior Partner at McKinsey. The complete article on which this adapted excerpt is based can be found online.

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