1. (Advance) planning: short- & long-term strategies
Return to June 2021 Update
Includes the following three subcategories:
- 1.a) Businesses (economy sectors) / projects
- 1.b) Individuals
- 1.c) Sustainability; Green future – opportunity to address climate change
Length: 21 min read; 4,307 words.
Note: The following paragraphs summarize the category of (Advance) planning: short- & long-term strategiesobserved in June. More information about the specific category from June (and previous months) can be found in the downloaded report(s). The number in square brackets (e.g., [X]) refers to a reference where the reader can find more information about a specific statement. The references can be found in the References list below, on the Systematized References page or in the downloaded report.
The interest in this category increased in June in comparison to March and December lows (33% in June vs. 29% in March vs. 26.3% in December ‘20) as companies are working on reopenings and post-pandemic new normal. We do not expect this topic ever to reach the number one position from June ‘20. Strategic planning remains among the three most discussed topics in June ‘21, due to a higher interest in Sustainability/ Green future – opportunity to address climate change (14.9% representativeness). Climate change is becoming again the number one crisis. The two remaining subcategories (Individuals and Businesses (economy sectors)) have stayed at the same level of interest as in March.
a) Businesses (economy sectors) / projects
According to Patrick Finn, a leader in McKinsey’s Healthcare Systems and Services Practice, the pandemic tested organizations’ ability to find the right balance between overreacting and underreacting. Capturing lessons from this crisis will help leaders navigate uncertainty in the future. The pandemic has been unique as well in that there is a large degree of daily change over a long period of time. That is very different from a typical corporate crisis where an event may have some knock-on effects but the uncertainty is largely contained to a short period. On the other extreme are crises of long duration but low daily magnitude of change, which you can see in how climate change is playing out. The COVID-19 pandemic has entailed a high degree of change over a long period. Management teams see their assumptions change weekly and even daily, and most management systems do not deal well with that level of uncertainty. “Creating the space within the management team to revisit assumptions, celebrate changing direction, and admit that a conclusion was wrong is critical when you are in extremely uncertain situations.” In extreme uncertainty, there is no such thing as a forecast; there are only scenarios. The way to approach informational instability is to get grounded in the scenario-based thinking. It is difficult to predict a crisis, but it is generally not that hard to lay out two or three possible paths along which the crisis could evolve based both on stakeholder actions and resolution pathways, e.g., here is how the legal pathway might evolve, or the financial pathway or the operational pathway. “For the bigger decisions, we typically construct triggers. In other words, if this happens, what decision would we take then?” One of the most undervalued tools in managing extreme uncertainty is the concept of an early-warning system. The term conjures up an image of people analyzing high-tech, fast-moving data, but in reality the vast majority of crises that go on to become existential do not come out of the blue, even COVID-19. Similar things have happened in the past. The second tool is an integrated nerve center, where a small group of decision makers, frequently in near-constant connection with board members, can make large decisions fast on behalf of the whole organization. One of the critical roles of the integrated nerve center is to discover, to ask questions, to doggedly try to understand the assumptions that need to be pressure-tested. No assumption can become sacred. Those on the team need that mindset of discovery, because if you narrow down your scenarios too quickly, you can miss the evolution of the crisis. You cannot rely on the nerve center to continue that pace because they will burn out. It is important not to get overly enthralled with the speed of decision making in the nerve center team. It is more about, how do you start to get that decision-making culture broadly into the organization. Signaling to the organization that you can stand down the nerve center is a watershed moment of celebration. But the combination of monitoring, thinking about scenarios, maintaining transparency within the management team about issues facing the organization, and avoiding analysis paralysis; those are more of the art. [117]
Some companies are using their plans for a COVID-19 as the basis for complete strategy overhauls. But not every company wants or needs to do that. Instead, they can use strategy inserts or short interventions. In particular, companies should examine opportunities to allocate resources to growth pockets, get ahead of climate risks, and adopt new technologies. McKinsey looked at the value generated by eight kinds of companies. Worldwide, the patterns are quite different. One example: “Makers” are by far the biggest value creators in Germany, Japan, and South Korea. The US gets more balanced contributions from the corporate sector, including a big push from Technologists. [118] "Rollercoaster" is one term that’s been used to describe the performance of capital markets during the pandemic. After the big market drop last year, a handful of companies, mostly in the tech, electric vehicle, and semiconductor industries, began diverging from the market. The result is the Mega 25, companies that accounted for 40% of the total market cap added in one year. The experts discuss how sustainable these valuations are and whether the word “bubble” applies. A McKinsey Global Institute survey of 860 executives found that companies in the top quartile for growth invested 2.6 times as much in intangibles as those in the bottom two quartiles. Intangibles include research, technology, software, advertising and branding, and human capital. [5] During pandemic companies tried to cut costs everywhere except digital technology, where most increased their spending. [119] Profit structures, the ability to bundle products and services, and operations are the soft spots for digital disruption. [120] Agile for all is coming, although the shift to agile ways of working is happening fastest and most thoroughly in telecom and financial services. [121] Organizations that were “born” using agile practices may have gotten a jump-start on the concept, but companies that undergo highly successful agile transformations have a competitive edge when it comes to operating-model maturity. For some, the agile transformations led to better technology tools and architecture. [122]
Mergers and acquisitions are common, especially as part of strategic plans for expansion [123], digitalization [124] and sustainability [5]. For example, Epiroc Group, an infrastructure and mining equipment manufacturer is to acquire geophysical data technology company Kinetic Logging Services (KLS). [124] Companies are also entering joint ventures and partnerships to address supply chain issues [125], such as lumber prices [126], or engineer growth [127]. Business travel is making a comeback. With some companies allowing employees to travel again, the pace of business-travel bookings has been picking up. Still, corporate trips remain 70% or more below prepandemic levels. And although more business travel is expected this fall, a full rebound could be years away. [59][128]
Part of the great reset, as companies and countries envision a post-COVID-19 future, is rethinking how technology can serve our needs. For example, robust digital financial infrastructure proved its worth during the COVID-19-crisis, helping governments cushion people and businesses from the economic shock. The economies that embrace data sharing for finance could see GDP gains of 1- 5% by 2030, with benefits flowing to both consumers and financial institutions. The COVID-19 pandemic created significant challenges for financial institutions in both modeling and model-risk management. Institutions should use strategies to update their models, including using agile modeling, upgrading data architecture, and embracing automation. [5] Innovation implementation requires business strategy: 1) get the right people involved; 2) have a clearly defined strategic vision; 3) develop a standard decision-making process (such as, a) pipeline of technology companies, b) identify and discover (including test & pilot, track KPIs and feedback, develop recommendations, implement in loops) and c) monetization.) [129]
The post-pandemic world will be much different with changes in the market and consumption patterns. Procurement should reassess the organizational priorities, business plans and carry out risk management to be better prepared to tackle the situation in the future. Supply chain has long been considered a cost center in most companies. But during the pandemic, when systems came to a standstill for months, organizations realized the importance of supply chain as a value creator in cost savings. Disruptions, price hikes and shortages have roiled so many commodities, from paperboard, to semiconductors, to lumber. Procurement should focus on market dynamics by: 1) having a relationship with the supplier’s supplier; 2) identifying alternate supply sources (it helps to have a strong bargaining power); 3) identifying alternate material (which can act as a backup in crisis time); and 4) reassessing inventory norms. [130][131] Initiatives to improve supplier diversity are commonplace. [132] [133] Supply chains that don't prioritize DEI risk losing out. [134]
The SMART Practice Method program for running an architectural office includes 3 F's: Fulfillment, Freedom and Finances. “Fulfillment” means having a business that allows you to do the work that aligns with your ethos; you get great satisfaction and feel luck to work on the projects you’re working on. “Freedom” in this context is defined as the power to chart one’s own destiny, whether that is what kind of projects and clients you take on, how often you take vacation, or your personal schedule. “Finances” means that every architect and design profession can (and should) be handsomely rewarded for their creative effort. The SMART Practice Method is made of 3 primary pillars of practice: people, process and psychology. If you’re missing one of these pillars you may struggle unnecessarily. [135]
b) Individuals
A McKinsey research showed though numerous skills are associated with having a university degree, for “self-confidence,” “courage and risk-taking,” and “empathy,” there is no such association. Scholars can puzzle over this: more education was associated with lower proficiency of some valuable traits, such as “humility.” The combination of increased burnout among women and the hold placed on diversity and inclusion initiatives has put consumer-goods and retail companies at a greater risk of losing diverse talent. Companies should ensure flexible work and employee wellbeing and create programs to promote diverse hiring and promotion. Companies can future-proof themselves, making them more able to handle disruptions like the one they just went through. Leaders should examine their company’s value agenda as though they were a private-equity firm scrutinizing a potential deal. Being clear about what everyone is trying to accomplish helps leaders choose the right talent, create a project-oriented organization, and build up speed. [5]
Leaders must be willing to revisit assumptions, change direction, and admit mistakes in crisis. Key is an integrated nerve center of decision makers who can think and act quickly. Above all, leaders who have lived through hardships are essential in such circumstances. A way of getting a handle on the ever-morphing human landscape: we all need to become anthropologists, skilled in recognizing the cultural patterns around us. HR leaders believe their profession has transformed in the wake of the COVID-19 pandemic. After years of pressure to digitize their roles and move employees into “self-serve” solutions, McKinsey’s interviews with more than 70 chief HR officers in Europe revealed an impulse to revive human interaction. These leaders believe they must engage personally to bring in and retain strategic talent and improve morale. One reason for the pivot: they learned during the pandemic, when decisions had to be made at lightning speed, that leadership talent is everywhere and just needs the right support to flourish. Pressure can accelerate change, but sometimes reverses it. That’s the sad story behind the 2.3M US women who left the workforce in the first year of the pandemic. The latest US Bureau of Labor statistics show that recent employment gains dramatically favor men. This “shecession” brought the lost paychecks, stalled careers, and lower lifetime earning that could reverberate for decades to come. Women also lost purpose by leaving the workforce (research shows that 70% of people say they derive their purpose in life through their work). Companies should serve as conduits for the unique purpose of each of their employees, rather than imposers of a collective purpose. The pandemic has made employees contemplate these questions more than ever, with millennials the most concerned that work provides a sense of meaning. [5]
Stakeholder capitalism is a rediscovery of the history of capitalism. Companies need to satisfy more than just shareholders. 50% of consumers who are disappointed with a brand’s stance on a social issue stop buying it. Workers increasingly consider an organization’s social and environmental commitments when deciding where to work. And governments can intervene. Governments can choose to make things more difficult if they feel the business community is not listening. The art of leadership and management is always about balancing choices: multiple choices for investment, multiple choices in how you spend your time, and multiple choices in terms of how you think about success. Business leaders have had the opportunity to connect far more directly with people. “I understand much more, not less, what is happening because I am now able to reach out directly to the sales team or an operational site.” People are going on drone visits to manufacturing locations. On any given day, you can be on four continents. Think about what that means in terms of connection. The irony is that at a time when we feel less connected because we miss the in-person experience, we are more connected in terms of what gets accomplished. I think some of that will be retained. The other part that will be retained is speed. Speed is a choice, not an outcome. One can choose to make decisions rapidly or not, and many CEOs and other executives have made the choice for speed. [136]
HR leaders believe that return to people-centric policies, especially those aimed at allowing employees to bring their whole selves to work, are key to attracting top talent. [137] The deep division between US rural and urban communities could get worse. McKinsey survey of 25,000 Americans finds that rural workers in industries susceptible to automation are less interested in moving to find other jobs, switching occupations, or getting training. [138] Jobs in warehousing and transportation may increase as a result of the growth in e-commerce and the delivery economy, but those increases are unlikely to offset the disruption of many low-wage jobs. In the US, for instance, customer service and food service jobs could fall by 4.3M, while transportation jobs could grow by nearly 800,000. Demand for workers in the healthcare and STEM occupations may grow more than before the pandemic, reflecting increased attention to health as populations age and incomes rise as well as the growing need for people who can create, deploy, and maintain new technologies. Going forward, more than half of displaced low-wage workers may need to shift to occupations in higher wage brackets and requiring different skills to remain employed. As many as 25% more workers may need to switch occupations than before the pandemic. [139]
The Great Resignation [140]: 4M Americans quit their jobs in April, a record high, according to the Labor Department. More than a quarter, or 27%, plan to leave their employer as the pandemic subsides, a survey from Eagle Hill Consulting found. Before quitting an employee should be aware of: 1) spending matters (the pandemic has lasted enough time to have actually changed people’s spending habits); 2) having savings for an emergency; 3) health care can cost; 4) 401(k); 5) totaling up other employer perks; and 6) you can negotiate. [141] restaurants and stores in the us are finally starting to raise salaries. [142] If you earn $200,000 or less,' use the 1% spending rule to save money, says finance expert. If you want to spend on something, a non-necessity, that costs or exceeds 1% of your annual gross income, you must wait one day before buying. [143]
The safety of those you lead will always come first, but as the worst ravages of COVID-19 come under control and more and more offices reopen, the attention, virtual and real, will naturally fall on how people have changed during the pandemic and how they must continue to change. Managing people and their talents is at once the leader’s essential task and leadership’s defining test—one whose degree of difficulty has soared. New business models are everywhere, technology has swept away work boundaries, skills are in hyper-demand, and values such as purpose, equality, and inclusion have risen on the talent-management agenda. 69% of organizations have stepped up skill building since the beginning of the pandemic. Skill building is red hot as a talent-management strategy, far outpacing other actions to close skill gaps. And leaders from the C-suite to the shop floor should take special note: most of the skills that companies are focused on developing are social, emotional, and advanced cognitive. “We’re learning more and more that the only way to truly build strong capabilities is by doing the hard work. You build capabilities while building the future. You don’t do it in a classroom on the side.”; Bjӧrn Annwall, the leader of Volvo Cars in Europe, the Middle East, and Africa. [144]
Work-life balance, flexibility, clear vision and mental health are front-of-mind for employees as they look to their employers for certainty about the future. [145] To be more productive at work, one should: 1) identify your motivations and then define what productivity means to you (set aside time to plan); 2) prioritizing tasks will help you achieve better work productivity, as well as time efficiency; 3) increase your productivity by getting to the root of procrastination and taking steps to make your assignments more manageable (block off time to focus on tasks, develop habits that suit your work pace, create a culture of trust). [146] Presenteeism wins out over productivity because of the ‘mere-exposure effect’, (which holds that the more a person is exposed to someone or something, the more they start to grow affinity) and the ‘halo effect’ (associating positive impressions of someone with their actual character). [147] 5 ways to spend money that can actually make you happier include: 1) buy experiences (such as travel); 2) make it a treat (we get used to the things we have all the time, but when they’re a treat, they tend to bring more happiness); 3) buy time; 4) pay now, consume later; and 5) invest in others. [148] 10 signs of persuasiveness and influence: 1) you share big ideas; 2) you talk about the positive and negative side of your ideas...; 3) ... and you eventually draw positive conclusions; 4) you're not afraid to take a stand; 5) sometimes you swear; [149] 6) you decide how quickly to speak; 7) you establish common ground first; 8) you understand how your audience prefers to process information; 9) you choose the right way to communicate; 10) you don't just think you're right - you can prove you're right. [40]
c) Sustainability; Green future – opportunity to address climate change
Efforts to address climate change are increasing and accelerating in parallel with climate change disasters (such as wildfires [14], heatwaves [71] and hurricanes). More frequent, severe wildfires threaten California's growing logistics network. [72] Europe is planning to tax imported goods based on the greenhouse gases emitted to make them. [27] The costs of renewables are dropping. [31] Investor enthusiasm remains high for exchange-traded funds that track renewable-energy indexes and ESG investing strategies are attracting more investments than ever. Up to June, $6.2B has been invested in green-energy ETFs in 2021- in comparison to last year’s record of $7.2B. [40] Amazon is set to buy 1.5 gigawatts of production capacity from 14 new solar and wind plants around the world. The new commitments are part of the company’s push to purchase enough renewable energy to cover all of its activities by 2025. [69] Japan is planning to shift a big chunk of its power to hydrogen, in one of the world’s biggest bets on an energy source long dismissed as too costly and inefficient to be realistic. [14] Sweden to host world’s first carbon-neutral cement plant. [73]
Some financial managers are stretching the definition of green in how they deploy investors’ funds. [12] Time is running out for business leaders who don’t have a net zero strategy. The best-performing low-carbon energy businesses also enjoy a lower cost of capital than their oil and gas peers. Reducing greenhouse-gas emissions and achieving a net-zero transition will have far-reaching implications for businesses. Companies with carbon-intensive product portfolios and low levels of technological sophistication will end up paying the most. The distance between low-carbon leaders and high-carbon laggards will widen, and those in the latter group may find they no longer have a viable business. Leaders in finance and government understand that the only way to stop physical hazards from increasing is to halt emissions of carbon dioxide and other greenhouse gases, which cause climate change. And while companies come in different shades of brown and green, the real economy as a whole remains carbon intensive, and must be decarbonized rapidly. Over half of global GDP is now generated in countries that have net-zero mandates. Low-carbon innovation has accelerated as capital has poured into deployment, causing green technology costs to plunge. To enter the “green” arena: 1) management and directors will want to take a crash course in climate science and economics; 2) management should plan early and often: build an agenda for reaching net-zero emissions by 2050 into the business’s strategy and update it frequently to keep up with fast-changing conditions; 3) a climate-optimized business strategy will combine elements of both defense and offense, but more offense than defense (defense involves moves like retiring and repurposing assets with high carbon intensity to shift a company from brown to green, while building resilience against physical climate hazards; offense means building new low-carbon businesses, pursuing M&A opportunities, and scaling up the use of nature-based climate solutions, such as reforestation); 4) innovation will be essential (forming or joining an innovation ecosystem of peers, academic institutions, and investors will be helpful); 5) climate action should be carried out at speed. [74]
Net zero design is the key to building a resilient, post-pandemic future. The pandemic demonstrated how the natural world can bring the global economy to its knees. Climate change effects such as rising seas and warming temperatures our planet is facing could do the same. To avoid disaster, forward-thinking real estate leaders are seeking strategies to reduce the energy consumption of their portfolios. With the following 10 steps developers and designers together can elevate a typical project to net zero energy: 1) understand your building’s energy profile (determine energy demands and plan to use on-site or grid renewables to cover them); 2) create an energy budget (assess the energy use goal for each space, then consider how much electrical power the space can generate); 3) orient your building to its surrounding climate (seek out building forms and placement that minimize heat gain, passively reduce energy demand, and maximize renewable energy generation); 4) use building energy modeling to select your envelope (early in the design, collaborate with engineers and energy modelers to optimize the building shell, integrate progressive mechanical systems, and assess opportunities for renewable generation); 5) introduce exterior shading; 6) design for daylight (strategically place windows, light shelves, and solar tubes to reduce the need for electric illumination); 7) consider outdoor programming ( placing atriums, staircases, and other areas outside of the conditioned space can significantly reduce cooling requirements); 8) boost natural ventilation (plan for fresh air to offset costs of heating and cooling for 4 - 6 months out of the year, depending on local climates; this also offers health and wellness benefits to users, especially in the post-pandemic world); 9) reduce plug loads (smart sensors and digital controls give tenants control over thermostats, lighting, and more and can help reduce usage when spaces are vacant); and 10) prioritize whole systems over localized solutions (considering resilience from the start, incorporate closed-loop and recovery systems that can harvest waste from one system to use as an energy source for another). [151]
Supply chains, even in heavy industry and other energy- and resource-intensive sectors, can decarbonize. Companies should focus on improving carbon accounting, filling in data gaps, and forming alliances to create new supply ecosystems. Once they have reduced energy and materials waste, they need to examine the “Scope 3” emissions that occur up and down their value stream. [5] For example, Levi’s COO wants to transform the brand's supply chain by having consumers wear its products for longer. Levi's recent Buy Better, Wear Longer campaign delves into the subject of overproduction and overconsumption to deliver a call to action for ourselves, our consumers and our industry to be more intentional about how we design, make, sell and buy clothes. “Sustainability is not just the right thing to do. It's good business.” [152]
McKinsey highlighted batteries and fuel cells as the technology to go to, but hydrogen combustion is a nascent zero-emissions technology that some automotive original equipment manufacturers, component suppliers, and start-ups are reconsidering. Low capital-expenditure requirements for combustion engines, decreasing hydrogen prices, and the relative efficiency of some types of vehicles are making this technology, once considered too expensive, increasingly relevant. Another technology ripe for reinvention is photonics. Although the laser market has steadily increased since the 1970s, innovation and revenue growth have slowed over the past decade. The creation of integrated devices combining lasers, sensors, and optics could usher in a new age of opportunity. [5]
One way landlords and employers are taking action on these priorities is by investing in ESG goals. ESG, short for Environmental, Social, and Corporate Governance, is a way an organization can focus and measure the sustainability and societal impact of their investments. Instead of measuring an investment based on cost or financial impact alone, with ESG, overall health is measured by the balance of these three categories: a) social (work policies, employee experience, universal design, wellness & safety); b) environmental (environmental policy, performance, climate change, resource depletion, biodiversity); and c) governance (ethics, policy, diversity, equity and inclusion (DEI), accountability). [153] The majority of businesses around the world, including across the supply chain and industrial sector, have embraced sustainability reporting standards. Approximately 80% of companies in 52 countries now report on sustainability, an increase of 5% since 2017, according to a December KPMG Impact survey that analyzed a one-year period ending June 2020. While North America has the highest reporting rate on this key metric, 90%, there has been a surge in integrated reporting around the world, including France, Malaysia, India and Japan. [154]