What will 'normal' look like in 2021?

With a vaccine for COVID-19 beginning to circulate, some Americans are feeling more hopeful for a return to normal. However, a report from McKinsey & Company warns that the next normal “will not mean going back to the conditions that prevailed in 2019.”

The report notes that Americans should prepare for 2021 as a year of transition. There are changes yet to come that will affect all facets of life, globally and in the United States. The authors, Kevin Sneader, Global Managing Partner, and Shubham Singhal, Healthcare Global Leader and Senior Partner, share some of the ways that society and industry will be changed as a result of the pandemic.

Rebounding consumer confidence

The authors predict a wave of “revenge shopping” as consumers who haven’t had the same purchasing needs over the last 10 months let loose. That post-crisis bump has happened in other recessions, but the organization notes that this one will likely happen in the service industry, as that’s where consumers have been most deprived.

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Countries like China and Australia, where the virus is largely under control, are already seeing increased consumer spending. However, “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.”

A boom in entrepreneurship

History is a less useful guide here, as the authors note that new business formation has tended to fall or show only slight growth during recessions. “This time, though, there is a veritable flood of new small businesses,” according to the report, as more than 1.5 billion new small business applications were filed in the third quarter of 2020.

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Those aren’t just sole enterprises adapting to new business conditions following last year’s huge rise in unemployment. The volume of high-propensity-business applications, or “those that are likeliest to turn into businesses with payrolls,” increased 50% compared to 2019, according to the report.

The Fourth Industrial Revolution

With a warning that researchers need “several more quarters of data” before they can draw solid conclusions about how increased digitization will impact long-term productivity, the authors note that in the U.S., third-quarter productivity increased 4.6%, on top of a 10.6% increase in the second quarter.

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After the rush to digitize as much of their processes as possible in the early days of the pandemic, businesses will now turn their focuses to making those processes smoother, the authors predict.

“The COVID-19 crisis has created an imperative for companies to reconfigure their operations—and an opportunity to transform them. To the extent that they do so, greater productivity will follow,” the authors write.

A downside to digitization is that it replaces some workers, forcing them to learn new skills quickly or be left behind. The authors noted that reskilling instead of rehiring is less expensive, and helps build loyalty within the workforce and among customers.

Remote work whiplash

On one hand, widespread remote work that doesn’t hamper productivity helps businesses reduce what they spend on office space and other logistics when they have workers in a physical office. On the other, it makes it harder for companies to build an organizational culture, the authors pointed out. Much of a company’s culture and sense of belonging happens when workers are actually together, and businesses that want to continue allowing employees to work from home will have to address that.

Increased consolidation in multiple industries

Some industries have been hit much harder than others by the pandemic, a disparity that the authors expect to even out over time. In the meantime, companies with strong balance sheets will take advantage of “discounted assets and lower valuations” of companies within the same industry to continue their own growth.

Green growth

The green industry is a significant growth opportunity, as many countries are pushing energy efficiency efforts in their COVID recovery plans. Even businesses that don’t serve the green industry should address their resilience to climate risk, the authors write.

Meanwhile, consumers are increasingly vocal in demanding accountability from the companies they do business with. Since 2007, more than 3,500 companies have been certified as B Corporations, making them legally obligated to consider all stakeholders’ interests when making business decisions. The authors cite research from MGI that found companies with a long-term view outperform peers in earnings, revenue, investment and job growth.

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“Stakeholder capitalism isn’t about being the most woke or about fending off pesky activists. It’s about building the trust—call it the ‘social capital’—that businesses need to keep doing business,” they write.