The emerging resilients: Achieving ‘escape velocity’
The experience of the fast movers out of the last recession teaches leaders emerging from this one to take thoughtful actions to balance growth, margins, and optionality.
By Cindy Levy, Mihir Mysore, Kevin Sneader, and Bob Sternfels – In 2019, McKinsey asked companies to prepare for the possibility of a recession. Of course, we had no idea then that the COVID-19 pandemic would be the trigger, nor that the recession would cut as deeply as it has. But it was clear then that the foregoing growth cycle was already of unusual duration. The pace was slowing, furthermore, and the potential for shocks was greater than for renewed growth. In the same article, we discussed what top-performing companies had done in the previous downcycle, the financial crisis of 2008–09. We looked at 1,500 public companies in Europe and the United States, analyzing performance on a sector-by-sector basis. Companies in the top quintile of their peers through that crisis were dubbed the “resilients.”
Once economic and business results of the second quarter of 2020 became known, we began to hunt for the clues that were contained in nearly 1,500 earnings releases across Europe and the United States. This article seeks to understand whether the shape of the next class of resilients is visible in the data, and what lessons this would hold for companies within each sector.
The present downcycle: Six times faster than the previous one
Today, we are in the middle of the deepest recession in living memory. As pandemic-triggered lockdowns took hold around the world in early 2020, economies contracted quickly. The International Monetary Fund and World Bank foresee a global contraction in economic output in 2020 of around –5 percent; the Organization of Economic Cooperation and Development estimates an even worse result, at –7.6 percent. At any rate, the drop will far exceed the last global contraction, which was –1.7 percent in 2009.
The distress has hit all industry sectors, some harder than others. Yet even in the relatively protected sectors of healthcare, pharmaceuticals, and technology, companies are seeing moderate declines in revenue. Heavily affected sectors have experienced revenue declines of between 25 percent and 45 percent. These include transportation and tourism, automotive, and oil and gas—sectors containing some of the largest employers in Europe and the United States. more>