Newsletters: Managing in an uncertain economy: A leader’s guide

ESSENTIALS FOR LEADERS AND THOSE THEY LEAD

Edited by Rama Ramaswami
Senior Editor, New York

It's a leader's job to be prepared for anything, but today's economic uncertainty contains shocks for which even the best resilience playbooks may not have solutions. Relentlessly rising inflation, a burgeoning climate crisis, extreme natural disasters, steady worker attrition, and the prospect of a global economic slowdown batter leaders with increasing frequency. Those who come out on top will manage to develop a comfortable relationship with uncertainty that enables them to spot opportunities and threats even amid a crisis. Here's a survey of the economic landscape you'll be exploring.

AN IDEA

Image of a man holding an umbrella and looking out across New York Harbor to the Statue of Liberty

Decode the economy's mixed signals

Admittedly, this can be a difficult task. "As contradictory evidence pours in, the US economy remains too tricky to forecast easily," state McKinsey's Stephan Görner , Ida Kristensen , Asutosh Padhi , and others in this article on how US companies can survive a possible downturn and succeed amid uncertainty. As core inflation continues to increase, the private sector is entering a new era of "higher for longer" interest rates and cost of capital; revenues are up, but profits may take a dip. Under these conditions, companies should consider structural solutions that not only manage costs but also build resilience and can spur long-term value creation. Four effective strategies emerge: prioritizing growth, strengthening workforces, investing in sustainability, and rebuilding disrupted supply chains. "Companies should rely on scenario planning and prepare a set of long-term moves that will help them thrive in a higher-for-longer environment," the authors suggest.

A BIG NUMBER

71%

That's the percentage of respondents to McKinsey's September 2022 survey of global economic conditions who expect their companies' operating expenses to be higher in 2023 than they were last year. Most companies across the globe have been slammed by rising prices for energy and materials; wage increases are a particular concern in India and North America, surging by 25 percent and 37 percent, respectively, in the past six months. Just 51 percent of respondents expect profits to increase in the coming months, down from 65 percent six months ago.

A QUOTE

"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."

That's McKinsey's Kevin Laczkowski and Mihir Mysore , with coauthor Martin Hirt, in this article on the futility of trying to predict the next economic cycle. Rather, they say, focus on specific preparations to endure and come out of disruptions. Resilient companies—those that deliver total shareholder returns higher than the median in their sector—did just that during the downturn of 2007–11: they divested underperforming businesses earlier than their peers, cut costs ahead of the curve, continued to focus on growth, and, at the first sign of recovery, used their financial buffers to acquire assets. Today's economic environment may demand more balanced interventions, but the principle remains the same: keep moving. As the popular quote has it, "It doesn't matter whether you are a lion or a gazelle: when the sun comes up, you'd better be running ."

A SPOTLIGHT INTERVIEW

Image of a worker in a manufacturing plant

Pursuing unexplored growth opportunities can help leaders offset the impact of economic uncertainty. Revitalizing manufacturing can accelerate economic equality and drive sustainable and inclusive growth, according to McKinsey's Eric Chewning and André Dua in this McKinsey Future of America podcast. Despite its decline in some sectors, manufacturing has an outsize impact on the US economy—currently accounting for 30 percent of productivity growth—and plays a major role in economic expansion. "While manufacturing may not provide the kind of mass employment it once did, no other sector plays the same role in supporting middle-income jobs across the country, especially outside of large cities," Chewning says. "Job growth in the United States, driven through manufacturing, [has] the opportunity to incorporate folks from diverse backgrounds . . . to really get that broad-based economic growth."

SHUSH

Image of a person sitting on a large desk

Just when you were getting used to the Great Attrition, along comes "quiet quitting." Defined as doing the bare minimum of work required by your job description , the term, which is all over social media these days, has generated much debate about work–life balance, especially among young professionals. Quiet quitters disengage from their work for a variety of reasons—including burnout and feeling underappreciated by employers —and may constitute as much as 50 percent of the US workforce : a discouraging trend at a time when employee engagement is declining and most jobs require extra skills and effort to enable companies to stay competitive. It may be an uphill climb to reverse the trend, but exploring alternative sources of labor, such as nontraditional workers , can help leaders make some headway.

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Managing in an uncertain economy: A leader’s guide

﻿Decode the economy's mixed signals

﻿"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."

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Decode the economy's mixed signals

"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."