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Updates from McKinsey

How payments can adjust to the coronavirus pandemic—and help the world adapt
The challenges are immediate, with long-term implications for global, regional, and local economies—and for the payments industry itself. Here’s what to expect.
By Philip Bruno, Reet Chaudhuri, Olivier Denecker, Tobias Lundberg, and Marc Niederkorn – As the catastrophic human costs of the coronavirus come into clearer focus, so too do the consequences for people’s well-being beyond the immediate imperative to safeguard lives. Taking care of our families and friends, our neighbors and communities, our employees and coworkers comes first. For that reason, companies across industries and geographies have scrambled to establish remote-working conditions—and continue to improve them as the health crisis continues. Those that can, including most banks and financial-services companies, have taken swift action to protect both their customers and their employees.

The next focus of all the professionals involved with the transactions infrastructure must be the stability of systems, for both payments and securities. At this writing, despite the scale of the emergency measures underway, no major outages of core infrastructure have been reported. Payments systems have proved resilient and reliable, as they have in earlier crises. Payments systems and providers, which enable companies and their customers to transfer funds in return for goods and services, continue to enjoy a high level of trust from the general public.

At the same time, we all realize that the economic disruption will be profound and the short-term drop in activity for economies under lockdown will be severe. Quarterly GDP in the second quarter of 2020 could decline by as much as 35 to 40 percent—and the payments industry’s financial outlook reflects that uncertainty in the short term. But the industry’s stability will play an invaluable role in rebooting the global economy, and the potential for innovation can support functioning economies as a “new normal” emerges. Below, we observe how the payments industry can adapt now—and suggest ten fundamental changes to the payments ecosystem that will help all of us find a new normal.

How will the coronavirus crisis affect payments economics?
There is no definitive answer. Much depends on the complex interplay between economic activity, the interest-rate landscape and associated liquidity patterns, and the evolution of individual and collective behavior. Taking these factors into account, we expect revenue growth in global payments to turn negative.

Instead of growing by 6 percent, as projected by our 2019 global payments report, activity could drop by as much as 8 to 10 percent of total revenues, or a reduction of $165 billion to $210 billion—comparable to the 10 to 11 percent revenue reduction in the wake of the global financial crisis in 2008–09. more>

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Updates from McKinsey

Coronavirus: Five strategies for industrial and automotive companies
To rebound from the coronavirus pandemic, industrials must undertake a journey that begins with resolve and ends with fundamental reform.
By Joe Dertouzos, Heike Freund, Michael Mischkot, Asutosh Padhi, and Andreas Tschiesner – We are still in the early stages of a global health crisis resulting from the coronavirus pandemic. Protecting lives is the first priority, but we must also protect our livelihoods. For automotive and industrial companies, surviving and emerging stronger at the far end of this crisis will require thinking beyond the next fiscal quarter. Success in the long run will require a journey across five stages: Resolve, Resilience, Return, Reimagination, and Reform.

The first stage, Resolve, involves determining the scale, pace, and depth of action required. To do so, companies in advanced industries must take the following steps:

  • establishing a nerve center to steer the organization, serve as the information hub, manage risk and responses, and align all stakeholders
  • protecting employees by making their health the paramount concern and adjusting production as needed
  • screening and safeguarding the supply chain by understanding risks and taking action to address disruption
  • adapting marketing and sales by identifying and mitigating the risks of declining sales while meeting critical customer needs
  • maintaining financial health by improving liquidity, reducing costs, and establishing a spend control tower

During the Resolve phase, companies must also make difficult choices, such as suspending production facilities, suspending discretionary spending, and furloughing workers. These decisions will require a comprehensive understanding of the situation, including data-driven scenarios for market evolution.

Consider the automotive industry. It is difficult to predict how the pandemic will affect sales in the European Union and the United States, two regions where coronavirus penetration is still emerging. We draw insights about potential developments by looking at the evolution of auto sales in China over the first quarter, since this country has already “bent the curve” and begun to recover from the coronavirus.

As industrials experience virus-related shutdowns and economic pressures, they should move quickly to address near-term cash management challenges and broader resiliency issues. more>

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Updates from McKinsey

We’re not going back to the ‘normal’ we had before coronavirus
Our global managing partner Kevin Sneader joined Andrew Ross Sorkin on CNBC’s “Squawk Box” Wednesday, March 25, to talk live about the business implications of the coronavirus pandemic. The full interview is available now at CNBC.com. You can read all of our material on the crisis at our coronavirus insights page.
By Kevin Sneader – One thing is clear from all the conversations I’ve had: nothing is going to be the same. This is a new normal, a different way of operating.

I think for our clients, they’re worried about their employees, their customers, and cash—in that order. And they are worried about cash. Even in the health care sector, there are providers who are not getting paid right now, and they’re worried about cash flow just as players in several other sectors are.

Another reality they’re all dealing with is that people keep sending them scenarios as to how this could play out. The message we’re hearing is that the scenarios are helpful, but leaders are wondering what’s going to be true across all these scenarios. Because if it’s not going back to the way it was before, what’s the next normal? What’s the way in which we’re going to have to operate?

The reality is that consumer behavior is changing fundamentally, and so much else is changing, and the question is, “will it go back?” I think the answer in many cases is “no.”

If you think about a lot of what’s happened in the last few years, some of it’s going to be reinforced. The shift [to working] online has now been given a boost, and it’s hard to see that being taken back to where it was before.

At the same time, I think one of the biggest shifts will be the way that products reach us. For many years, we and others have been focused on efficiency: how efficiently can I run my supply chain? I think now there’s going to be a lot of conversation about, how resilient is my supply chain? more>

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Updates from McKinsey

COVID-19: Implications for business
By Matt Craven, Linda Liu, Mihir Mysore, and Matt Wilson – The coronavirus outbreak is first and foremost a human tragedy, affecting hundreds of thousands of people. It is also having a growing impact on the global economy.

At the time of writing, there have been more than 160,000 confirmed cases of COVID-19 and more than 6,000 deaths from the disease. Older people, especially, are at risk. More than 140 countries and territories have reported cases; more than 80 have confirmed local transmission. Even as the number of new cases in China is falling (to less than 20, on some days), it is increasing exponentially in Italy (doubling approximately every four days). China’s share of new cases has dropped from more than 90 percent a month ago to less than 1 percent today.

Our perspective is based on our analysis of past emergencies and our industry expertise. It is only one view, however. Others could review the same facts and emerge with a different view.

Many countries now face the need to bring widespread community transmission of coronavirus under control. While every country’s response is unique, there are three archetypes emerging—two successful and one not—that offer valuable lessons. We present these archetypes while acknowledging that there is much still to be learned about local transmission dynamics and that other outcomes are possible:

  • Extraordinary measures to limit spread. After the devastating impact of COVID-19 became evident in the Hubei province, China imposed unprecedented measures—building hospitals in ten days, instituting a “lockdown” for almost 60 million people and significant restrictions for hundreds of millions of others, and using broad-based surveillance to ensure compliance—in an attempt to combat the spread. These measures have been successful in rapidly reducing transmission of the virus, even as the economy has been restarting.
  • Gradual control through effective use of public-health best practices. South Korea experienced rapid case-count growth in the first two weeks of its outbreak, from about 100 total cases on February 19 to more than 800 new cases on February 29. Since then, the number of new cases has dropped steadily, though not as steeply as in China. This was achieved through rigorous implementation of classic public-health tools, often integrating technology.
  • Unsuccessful initial control, leading to overwhelmed health systems. In some outbreaks where case growth has not been contained, hospital capacity has been overwhelmed. The disproportionate impact on healthcare workers and lack of flexibility in the system create a vicious cycle that makes it harder to bring the epidemic under control.

Based on new information that emerged last week, we have significantly updated and simplified our earlier scenarios. more>

Updates from McKinsey

How to restart your stalled digital transformation
Most digital initiatives sputter before they take full effect. A new survey finds that organizations stand a good chance of recovering lost momentum because slowdowns typically happen for reasons within their control.
McKinsey – At organizations pursuing digital transformations, more than seven in ten survey respondents say the progress of these efforts has slowed or stalled at some point. In the latest McKinsey Global Survey on the topic, we set out to understand what organizations can do to prevent burnout or to restart their engines if burnout occurs during these transformations, which previous research has found have a lower success rate than do more traditional transformations. The good news is that in most cases, organizations can prevent or overcome a loss of momentum.

More than 60 percent of respondents who report stalled digital transformations attribute the problem to factors that—with the right discipline and focus—organizations can control in the near term to medium term. This finding runs counter to widespread assumptions that external pressures, such as market disruptions or regulatory changes, pose the biggest threats to digital initiatives. More commonly reported sources of derailed progress include resourcing issues, lack of clarity or alignment on a company’s digital strategy, and poor quality of the digital strategy to begin with.

If a digital transformation stalls, the results suggest that organizations can regain momentum by implementing rigorous change-management and internal-communications programs and clarifying the transformation’s projected impact, which can help build alignment and commitment. For scaling digital programs beyond the pilot phase—the first stumbling block in a transformation’s execution—clarity on the time frame and expected economic impact is important, as is partnering with operations. Should an intervention be needed to reenergize a transformation, having the CEO step in appears to be advantageous. Further lessons come from respondents at companies that avoid stalling in the first place. They often say their organizations maintain momentum by obtaining strong alignment and strategic clarity before a transformation gets under way. more>

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Updates from McKinsey

Bubbles pop, downturns stop
Economic downturns are impossible to predict and sure as sunrise. Build resilience now, because when the sun comes up, you’d better be moving.
By Martin Hirt, Kevin Laczkowski, and Mihir Mysore – Waste no time trying to predict the next economic cycle. The running joke is that “experts” correctly anticipated seven out of the last three macroeconomic events. Unfortunately, it is unlikely that the hit rate will be any better next time around.

Geopolitics, economic cycles, and many other forces that can have substantial effects on the fortunes of your business are inherently uncertain. Higher volatility in our business environment has become the “new normal” for many. And while scenario analysis is a worthwhile exercise to rationally assess some of the uncertainties you are facing, there is no guarantee for getting it right.

So if you are concerned about the economic outlook, and if you get challenging questions from your board about the resilience of your business performance, how do you best respond?

It turns out that in times of crisis and in times of economic slowdown, not everybody fares the same. When we traced the paths of more than 1,000 publicly traded companies, we found that during the last downturn, about 10 percent of those companies fared materially better than the rest. We called those companies “resilients”—and we were intrigued. What made them different? Was it sector related? Did they simply get lucky?

As we investigated more deeply, we found some noteworthy characteristics in how resilients weathered the storms: how they prepared for them, how they acted during tougher periods, and how they came out of them.

We will share some of the more specific findings with you below, but let’s start with the core insight right here: Resilients moved early, ahead of the downturn. They entered ahead, they dipped less, and they came out of it with guns blazing.

In short, your business context is and will remain uncertain. But if you get moving now, you can ride the waves of uncertainty instead of being overpowered by them. more>

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Updates from McKinsey

Resilience in transport and logistics
The transportation-and-logistics sector is especially susceptible to economic shocks. Here’s how to prepare your operations for a smoother ride.
By Sal Arora, Wigbert Böhm, Kevin Dolan, Rebecca Gould, and Scott Mcconnell – The transportation-and-logistics (T&L) sector has benefitted from many of the most important business trends of the past half century. Globalization, the evolution of sophisticated just-in-time supply chains, and the rise of e-commerce have all helped the sector grow at a rate broadly similar to the overall economy.

But it hasn’t all been smooth sailing. Economic downturns tend to hit the sector particularly hard. Our analysis of the past five US recessions shows that T&L companies suffer more on average than the economy as a whole. And in recent cycles, the problem may have worsened. Truck transportation, for example, experienced little contraction in the recessions of 1980, 1982 and 1991. In 2001, by contrast, the industry shrank by 6 percent, and the 2008 recession triggered an 18 percent contraction.

As in all industries, sector averages don’t tell the whole story. Some companies ride out downturns much more successfully than others. When McKinsey analyzed the performance of around 1000 large, publicly traded companies through the 2007-2008 global recession, we identified a subgroup of “resilient” organizations that outperformed their peers by a significant margin over the cycle. The performance of these companies dipped less overall during the recession and improved faster during the ensuing economic recovery.

By 2017, resilient companies had delivered a cumulative total return to shareholders (TRS) that was more than 150 percent higher than their non-resilient counterparts. Among the logistics and transportation players in the study, the gap was even starker, at 267 percent. more>

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Updates from McKinsey

Digital disruption at the grocery store
Five trends are shaping the transformation of the US grocery industry. Understanding them is key for grocers to achieve profitable growth in this new competitive environment.
By Steven Begley, Eric Marohn, Sabah Mikha, and Aaron Rettaliata – In the past two decades, e-commerce has altered customer shopping behaviors and transformed the US retail landscape from brick and mortar to omnichannel. Grocers have remained largely immune to digital disruption—until recently.

Powerful trends, including new competitive pressures, technological advances, and evolving consumer attitudes and behaviors, will disrupt the grocery business from coast to coast in the next few years. Some grocers are learning from other retail sectors and countries, recognizing threats early, seizing opportunities, and catching a wave of profitable growth. Others are struggling, and some may disappear.

Until relatively recently, the US grocery sector has remained sheltered from the forces of e-commerce for a couple of reasons: Most American shoppers still prefer to choose their own food (especially meat, produce, and other perishable goods), and few grocers have had the financial capacity to invest in the highly efficient, large-scale cold chains required to make home deliveries at a profit. That is changing.

While online sales accounted for anywhere from 3 to 4 percent of the US grocery market in 2019, the share could be greater than 10 percent by 2025 as major retailers—including well-funded entrants from outside the sector—invest in automation and innovative operating models to solve challenges in fulfillment and last-mile delivery. As quality rises and online grocers make more compelling offers, millions of shoppers will get comfortable offloading a task that only about 15 percent say they enjoy. We have seen that online grocery is supply driven, and as online grocers provide more supply, customers will adopt the new method of grocery shopping. more>

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Updates from McKinsey

Skill shift: Automation and the future of the workforce
Demand for technological, social and emotional, and higher cognitive skills will rise by 2030. How will workers and organizations adapt?
By Jacques Bughin, Eric Hazan, Susan Lund, Peter Dahlström, Anna Wiesinger, and Amresh Subramaniam – Skill shifts have accompanied the introduction of new technologies in the workplace since at least the Industrial Revolution, but adoption of automation and artificial intelligence (AI) will mark an acceleration over the shifts of even the recent past. The need for some skills, such as technological as well as social and emotional skills, will rise, even as the demand for others, including physical and manual skills, will fall. These changes will require workers everywhere to deepen their existing skill sets or acquire new ones. Companies, too, will need to rethink how work is organized within their organizations.

his briefing, part of our ongoing research on the impact of technology on the economy, business, and society, quantifies time spent on 25 core workplace skills today and in the future for five European countries—France, Germany, Italy, Spain, and the United Kingdom—and the United States and examines the implications of those shifts.

  1. How will demand for workforce skills change with automation?
  2. Shifting skill requirements in five sectors
  3. How will organizations adapt?
  4. Building the workforce of the future

Over the next ten to 15 years, the adoption of automation and AI technologies will transform the workplace as people increasingly interact with ever-smarter machines. These technologies, and that human-machine interaction, will bring numerous benefits in the form of higher productivity, GDP growth, improved corporate performance, and new prosperity, but they will also change the skills required of human workers.

To measure skill shifts from automation and AI, we modeled skill shifts going forward to 2030—and found that they accelerated. While the demand for technological skills has been growing since 2002, it will gather pace in the 2016 to 2030 period. The increase in the need for social and emotional skills will similarly accelerate. By contrast, the need for both basic cognitive skills and physical and manual skills will decline. more>

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Updates from McKinsey

Nudge, don’t nag
With such a fine line between a nudge and a nag, it’s important to acknowledge and understand the subtle differences between the two.
By Bill Schaninger, Alexander DiLeonardo and Stephanie Smallets – In recent years, nudging has been hailed as the latest trend in HR and a novel, new scientific management approach. And for good reason: using nudges has improved everything from customer retention and employee safety to organizational commitment and innovation.

When nudges are executed with care, they have remarkable results. However, in many cases there is a misconception about what a nudge actually is – organizations often launch initiatives that either miss the mark or are just reminders in disguise. When that happens, the nudge is actually a nag, and it risks losing its impact and becoming downright annoying. What can you do to ensure you’re using nudges and not nags?

If your nudges check the three boxes below, you’re well on your way.

Before we dive into what makes a good nudge, it’s important to note what a nudge is. According to Harvard professor Cass Sunstein and Nobel prize winner Richard Thaler, a nudge guides choice without removing options or changing incentives. It’s like leading a horse to the water and framing its options such that the horse is empowered to and actively chooses to drink it – rather than eat the grass or lay in the sunshine.

It’s also just as important to highlight what a nudge is not. A nudge is not a reminder to do something, nor is it a call to action. Nudges aren’t mandatory and they don’t have consequences. If you’re constantly reminding or commanding the horse to drink, it’s not a nudge. It’s also not a nudge if the horse isn’t brought to the water the next day for forgoing the water the day before.

A good nudge is all about choice. At its core, nudging is all about choice. The reason why nudging is so impactful is that it gives people control over their destiny: They can choose whether or not they proceed with the “desirable” option.

A good nudge is easy to follow. Good nudges are easy to understand and empower people to be well-informed. Providing irrelevant, complex or confusing information is difficult to process and can make people feel like they were hoodwinked into making the choice.

A good nudge is personal. By far, the best nudges are those that use technology and analytics to tailor them to the audience. Nudges that take into account individuals’ mindsets, preferences and behaviors ensure that the most desirable option overall is also the most desirable option for that specific individual – a true win-win. more>

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