Fresh takes on big issues
| | | | Welcome to Re:think, a new newsletter from the McKinsey Quarterly. Twice monthly, we’ll bring you fresh ideas from our partners in 700 words or less. This is the sound of McKinsey thinking out loud. No frameworks, no long stories—just inspiration from people devoted to solving some of the world’s toughest business problems.
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ON OPTIONALITY:
Mix boldness and humility
| | | | | | | | | | | There's one piece of research we did that just keeps ringing in my mind. When we looked at who came out of the 2008 crisis—who won and who didn't—the startling thing was that the outperformance stuck with them: the winners kept winning for about seven to ten more years, and the losers kept struggling for seven to ten more years. And what separated the winners from the losers? The winners hit the gas harder early on. They got organic growth back, and they started spending money again. They went harder and more fundamental in their costs. They churned their deal portfolios more. And they got their balance sheets in order much more quickly.
| | | That’s a strong call to arms because it shows that the exit path you take out of the pandemic is going to define you for potentially a decade. Yet the current environment is one of disequilibrium and uncertainty. So the challenge for leaders is to get on with it in a way that demonstrates unusual boldness and humility. You need optionality in your strategy like never before. You’ve got to think hard through how you're going to be flexible.
| | | The cheapest and most obvious line of optionality—and often the most underused—is “plan B.” If you don’t know how difficult your environment’s going to be, for example, you have to be ready to pull your labor cost a bit harder, or you may need to be ready to build up inventory quickly because of order behavior. You are going to need a plan B, C, or D on the shelf—even if you never have to use them.
| | | | | | | of CFOs say their forecasts are not particularly accurate and the process takes too long
| | | | For a generation of managers growing up in the good times, who were always evaluated on their ability to deliver a plan, this will be confusing and different. Managers love scenario planning at planning time but not so much at evaluation time. And now you're going to have to get used to making plans that you won’t deliver on—including scenarios that might feel ugly or scary.
| | | Finally, there’s speed. In a high-uncertainty environment, decision making gets pushed down, and the time horizon for reevaluating decisions gets pushed back. That means it's going to be tougher than ever to have a one-year budget. You might consider a rolling budget that's updated every quarter or contingency budgets that are triggered by certain events. The speed of decision making and the speed of resource allocation is going to challenge many managers, particularly those used to playing the annual corporate budget game. High-level advice like “be fast” and “be agile” won’t help you much. Instead, focus on your financial systems: can you make your resource allocation and budgeting—and the decision making around it—more nimble? Can you build in optionality and scenarios? | | | | | | | | | | | | | | | | | | | | | | The COVID-19 crisis has intensified existing trends, widening the gap between those at the top and bottom of the power curve of economic profit. Will your strategy keep you ahead of the accelerated pace of change? | | | | | | |  | | | | | | | | What I learned about empirical analysis, dominant hypotheses, and the value of a clean workshop while crossing Australia on my bike. | | | | | | | | | | | Erica Coe on mental health | | Whether we like it or not, the COVID-19 pandemic has thrust mental health into the spotlight, so now is our chance to do something about it.
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