Evolution and opportunity in the postpandemic economy – McKinsey

The COVID-19 pandemic has changed the way the world works, which has made planning for the future a question of vital importance. In this episode of the McKinsey on Government podcast, Susan Lund, a McKinsey partner and a leader of the McKinsey Global Institute, discusses the changes brought about in the pandemic, which of these changes might stick around, and how the workforce will need to evolve in the postpandemic landscape.

Audio

Francis Rose: Welcome to McKinsey on Government. Every episode examines one of the hardest problems facing government today, and solutions from McKinsey experts and other leaders. Im the host of McKinsey on Government, Francis Rose. The economic impact of the pandemic is slowing. The stock market is going up. Unemployment is going down. This has economists and government leaders thinking about how the postpandemic economy will work.

Thats the subject of McKinsey on Government this week with Susan Lund, partner with McKinsey and a leader of the McKinsey Global Institute. Susan, welcome. Thanks very much for coming on the program. What patterns do you see in the way that people want to work, the way people want to spend, and the way people want to consume and deliver services as a result of what weve been through over the past 18 months, and where it appears were headed, say, over the next 18 months?

Susan Lund: Well, there are three big groups of trends that we think the pandemic accelerated and that are going to persist at varying degrees at an accelerated rate compared to what we thought a year and a half ago. I think that if this pandemic had lasted just two or three months, we wouldve gotten through it and all gone back to business as usual.

But the fact that weve been here now working from home and operating in different ways for the last 14 or 15 months, weve all learned new behaviors, and weve found some silver linings. The first group of changes has to do with how companies adopted technology.

Usually in a recession, companies cut back on capital expenditures. They hold onto cash while they wait to see what demand does and when the economy recovers. But in this pandemic, technology was one of the key ways that companies kept operations going. We saw an uptick in adoption of everything from automation and robotics, to virtual chatbots issuing customer refunds, to service robots delivering supplies in hospitals, to virtual-reality headsets enabling technicians to repair very complicated machinery remotely.

From here on, we think that technology adoption will just continue, but from this new, higher level. So this is something that had been happening. We foresaw that work would change and skills would change. But the pandemic has really sped up that adoption of technology.

The second big group of changes, of course, is remote work. Before the pandemic, only 5 to 6 percent of Americans regularly telecommuted for their jobs. During the pandemic, up to about 35 to 40 percent of people were working from home. Now, in many cases, weve learned that not everything weve done working from home was as productive. I think if you ask most teachers and parents, they would agree that online schooling for young children really didnt work out so well. So when schools reopen and were all vaccinated, we think that working from home will drop away.

But in many office settings, weve found some silver linings to remote work. Employees like giving up the commute time. There was less hierarchy and faster decision making. Many companies said that the relationships between field offices and headquarters or international offices and headquarters is stronger because everyone was on a level playing field on their cameras. And companies adopted new types of technology to enable virtual collaboration that has actually increased efficiency.

So for all these reasons, we think that some types of hybrid remote work are probably here to stay. At the same time, the flip side is that some business travel may not come back, because weve learned that virtual meetings, in some instances, can replace what we used to get on an airplane and travel for.

The third big set of changes has to do with consumers and digital or virtual transactions. Whether it was online banking, e-commerce, digital payments, telemedicine, or grocery delivery, all types of consumer digital transactions took off because there was really no alternative. A lot of users of these digital channels that hadnt tried it before were forced to. Now that they have, our consumer pulse surveys indicate that they find them efficient and convenient. They say theyre going to continue operating in these new ways to some degree after the pandemic.

Francis Rose: I want to walk through each of those three items and think about them through the lens of the federal government in particular, as well as regarding governments broadly. The first, the technology adoption, it strikes me. Every single executive that I talk to in the government from March of last year through this moment has said we are taking this as an opportunity to accelerate what we were already doing in the technology adoption and technology modernization refresh cycle. Is that what youre seeing more broadly across the economy? Or is there some other opportunity that maybe people in government havent seen yet and might be missing out on, Susan?

Susan Lund: Mostly, it is an acceleration of existing technology and digitization plans. I know for government services, online transactions and e-government are areas of investment. Another area is what we call robotic process automation, where you take paperwork processes, for instance, that put together financial reports that draw data from several sources. This can be automated.

So with all of these things, the silver lining could mean that the economy could see higher productivity growth, not just in government but more broadly in the three to five years to come. And that would be very welcome because we need to remind ourselves that before the pandemic, and for the last ten years, productivity growth in the United States and in other advanced economies was actually low and falling.

Francis Rose: I guess the thing that people are thinking aboutnot just the technologists in government but the practitioners, the frontline managers are thinking it: What sticks? And what sticks relates to the other two items that you lay out here. What are we going to do about remote work? And what are we going to do about the way that we interface with the citizens, customerswhatever word you want to use to meet the mission of our agencyto meet the mission of our organization?

The remote-work element that I scribbled down as you were talking about ittheres a bunch of them, but the one that jumped out at me is the faster decision-making process. Whats facilitated that? And what is the implication of the faster decision-making process, do you think, for organizations moving forward? Is that something that will even stick in what people perceive, at least, to be a more bureaucratic environment, like a government agency, as opposed to a private-sector company or an academic institution?

Susan Lund: We hope that it will stick. It really has to do with agile ways of working. One of the reasons I think that decision making sped up is simply because people arent traveling as much. It was easier to get people around a Zoom, look each other in the eye, and make decisions. One CEO said, Ive learned to limit the number of people on a Zoom call. On his particular screen, he could see 12 at once. And he said no meeting is going to have more than 12 people. Lets figure out who really needs to be part of this decision.

It goes to this broader concept of agile ways of working that companies have been adopting. The idea there is to put together teams of people working across boundaries to try what we call the minimum viable product, and then to iterate, to learn fast. This has all been enabled by virtual meetings because you dont have to connect people walking between different buildings or traveling to different locations. Its simply made the ability to meet and make decisions much faster. Thats something that we would hope would continue.

I think that many companies have found that we dont need all those layers of decision making that we thought we needed or the five-month or two-year approval process for an IT project. In the early days of the pandemic, we just did it because we had to, and that worked out well. Its really been an unlock, I think, for many executives in realizing that you can move a lot faster than you thought you could and still get to quality outcomes.

Francis Rose: From a risk-management perspective, a lot of those decisions, whether they were human-capital decisions or whether they were IT decisionsthe ones that didnt work out as well still werent horrible. Is that a fair representation?

Susan Lund: It is. I think that what most organizations have learned over the past 14 months is to move quickly but also to adjust course often. See how it works. Of course, we had a changing external condition regarding the ability to go to an office or travel. We had to deal with the external environment. But this really reinforced the notion that weve got to be nimble. We need to listen actively and then adjust course quickly when needed.

I think that in 2021 and into 2022, since now organizations are thinking about a return to the office and what types of flexible work will be possible going forward, theyre going to need to take that same pilot and experimentation approach. Im often asked which companies are doing this best. Who are the leaders? And I say, Unfortunately, there are none. Everybody is figuring this out together.

The most successful organizations will be the ones that try something and set a policy, because employees certainly want to know what the expectation is going forward. Whether its three or four days a week in the office or full time in the office, or some people can continue to work remotely on a permanent basis, employees are craving information about what to expect over the next few months. But beyond that, everybody has to realize were cocreating this together. And were going to try some things. If we find out that there are pitfalls and it doesnt work, then well adjust course as needed.

Francis Rose: If we take that description that you just gave and extrapolate it over an entire enterpriseto make fast decisions and adjust course quicklythats almost the textbook definition of resilience, too, which is what every organization is aspiring to, especially in an environment like weve seen over the past 15 months.

Susan Lund: Thats right. The interesting thing for manufacturing companies and supply chains is that COVID-19 was only the first shock. Then we had a freak Texas deep freeze that disrupted the plastics industry. We have a global semiconductor shortage. We had a massive container ship get stuck in the Suez Canal. The disruptions and the shocks just keep coming. And you cant try to predict these black-swan events. The next big global disruption will likely not be a pandemic. It will be something different. But the ability to adjust very quickly and react nimbly is what differentiates.

Francis Rose: I also scribbled down a note about the comment you made about business travel when it came to remote work, about whether that will come back or not. And I wonder what that means in the private sectorbut especially, obviously, in the government spaceabout the ability of people and organizations to collaborate in person moving forward.

I recall that a number of years ago, there was a conference freeze. Nobody could go to any conferences for a period of time. It was especially profoundly difficult for the scientific community in the federal government. Do you expect at some point in time that people will say, as they did after thatessentially, a complete shutdown like we saw as a result of the pandemicNo, no. Theres some middle ground here. And some of this has to come back. Or do you think a lot of this is going to go virtual moving forward, and there will just be almost a zero level like were seeing now?

I think that many businesspeoplewho traveled, or government peoplewho traveled, will look back andrealize there was some of what I call low-value travel.

Susan Lund: Well, my crystal ball is broken at the moment. But I would say that I think conferences will come back. I think that innovation and collaboration, negotiations between parties, learning eventsthese are the types of things where you really do benefit from being across a table from someone, looking in their eyes, reading their body language, having the little conversations in and out of the room, the chance encounters with someone where you learn a new idea that you werent expecting. These are the things that we cant schedule in a Zoom meeting.

Those are the activitiesas people go back to the office, this is what people should be and will be doing in the office. If youre going to an office and sitting alone at a desk on your computer all day, that can be done from anywhere. But its really that collaboration. So I dont think the future of business conferences is dead. I do think we will go back.

But, in reflection, I think that many businesspeople who traveled, or government people who traveled, will look back and realize there was some of what I call low-value travel. You went to meetings that really werent that important or could have easily been done virtually. So its certainly not to say were not going to conferences, or were not going to meet customers or suppliers in person. Those things are really important. And I think, more than ever, many of us or most of us are really craving those in-person interactions again. Well find it very energizing. But on the margins, people were traveling at the drop of a hat. And those are the types of things that I think many companies are thinking theyll cut back on some.

Francis Rose: You mentioned something there, Susan. And I dont even think it was intentional on your part. But it jogged something in my mind regarding remote work. One of the issues that a lot of human-capital people in government are telling me theyre struggling with is kind of the second phase of onboarding, which [happens after] a new employee has been with the organization for a period of time. They kind of have their sea legs underneath them.

But theres not a watercooler opportunity. Theres not the walking-down-the-hallway check on you. Susan, youve been here for two weeks. Hows everything going? Youve been here for a month. Hows everything going? Or the call into the office just for a five-minute checkup. Those kinds of things are not happening as much, except where organizations are superconscious of it and superdeliberate about it. Is that just something people are going to have to get used to doingbeing superdeliberate about it? Or is that something that maybe you think organizations should rethinkthe way that they interact with those people and help train those people up?

Susan Lund: Yeah, well, I think that onboarding and training and mentoring younger, more junior colleagues are some of the reasons we will go back to the office, because those things happen in person. Its great for professionals like myself whove been at my company for more than 20 years. I have a vast network.

But its very different for people who are newer to the organization who want to build new relationships but who also want to have that coaching and real-time mentoring. The quick comments like, Good job on that presentation, or, You answered that question really well, or, You couldve thought about x, y, zthose sort of little interactions, microinteractions that happen when youre working together that dont happen over Zoom. So I do empathize with newer employees, and particularly those who joined during the pandemic who havent had that experience of getting to know their colleagues in the office yet.

Francis Rose: The third item that you laid out at the beginning of this conversation, Susan, was the way that consumers want to do business with organizations. This is the area where my sense, at least, is the federal government is still catching up with the trajectory of the pandemic. And a lot of it has to do with technology adoption we talked about in your first point, where I think a lot of government organizations started behind private sector and academia.

Is there any secret sauce to catching up in that trajectoryto providing this equivalence that if Im going to do business with the government, it works the same way as it does to do business with my bank? Or is this just a matter of the government having toI dont mean it in a pedestrian waygo through the motions? Is it that theyre just going to have to take step, step, step, step, step and get there when they get there?

Susan Lund: There have been big investments in digital delivery of government services for a long time. But increasingly, it is what suppliers and citizens and individuals want. They want things easy, quick, seamless, flawless, on demand, whenever they want to interact, whether its on a weekend or late at night, not constrained by office hours.

And so there are new opportunities now, of course, with cloud to build out better digital channels. I think for every agency, its going to take on a different flavor of what the next horizon will be. But increasingly, this is how people want to operate. It can lead to a lot of operational efficiencies. And, obviously, interacting digitally also generates a wealth of data, so you can get to know your customers and your suppliers much better and actually start to use data analysis to track patterns of behavior and what they want and anticipate what those interactions will be, rather than just being reactive.

Francis Rose: I think that concept, though, is far newer for the federal government than it is for the private sector. The private sector has understood, I think, for decades the value of being able to anticipate customer needs. I think the federal government has understood it. I think their access to the tools and data to be able to leverage that has been more of a challenge. Is there any way to shorten that curve? Or is that curve also just going to happen at whatever pace an agency is able to drive it?

Susan Lund: Well, look, its always faster to be the follower than the innovator. So now that Netflix knows exactly which TV shows and movies to recommend to me, right, the AI [artificial intelligence] algorithms are there. Now how do we apply that to various federal agencies? I think that there should be opportunities to leapfrog ahead, particularly in use of big data and AI algorithms, now that many different private-sector players have shown how to build those, train the algorithms, and implement them.

Francis Rose: Something else I think organizations are figuring out now is how all of these changes, all three of these changes and other things that organizations are dealing with, will impact what they need out of their workforces, the skills that they will want their people to have moving forward. Is there a dramatic difference in your view, Susan, in what the workforce skill set is today broadly versus what it will be, say, two years from now or five years from now?

Susan Lund: Yeah. I think that the summation of the trends we just talked about will spur a faster evolution of the jobs that are in demand in the economy and the skills that people need to fill them. So, economy-wide, we may see declines in demand for a lot of low-skill service jobsfor instance, in food service, retail cashiers, customer service agents in banks or hotelsgiven all this digital adoption and everything we just talked about.

And that will create policy challenges. How do we make sure that people currently in those jobs have opportunities to pursue training programs or short-term credential programs to get jobs that are in demand? Because there are many jobs in demand. The healthcare sector is booming. We have a nursing shortage already thats been amplified by the pandemic. We need more people with digital skills and IT skills to maintain and run the technology.

So theres lots of demand for work. But the shifts in the mix of occupations in the economy could be much larger than we foresaw before the pandemic, and its increasingly skewed toward jobs that require specific skills. That will be a challenge for federal policy and state policy to rethink education and training programs for the workforce and for individual government agencies and organizations to think about their own workforce. How are they going to reskill or upskill their current workforce to enable them to succeed in what will be needed in the next three to five years?

Francis Rose: The federal government has already undertaken a couple of reskilling and upskilling initiatives. The Office of Management Budget drove that within the last year and a half or so. Theres a cyber-reskilling academy. Theres a coding-reskilling academy and those kinds of things.

The challenge there is scale. I think the first cohort in the cyber-reskilling academy was in the mid to low double digits, when there are thousands, at least, of potential jobs just across the enterprise of the federal government. Forget the rest of the economy. What are the potential opportunities for scaling those kinds of reskilling? Is there something out there beyond each organization just depending on itself to be able to improve the skills of the people that work for it?

Susan Lund: Yes. I think that there are opportunities both within organizations and within working with colleges and universities and community colleges. So, on the former, we have companies with tens of thousands of employees across the United States who have expanded academies like the cyberacademy to encompass many more. Many companies are finding now that through reskilling, they can fill 50 percent or more of open positions internally. So thats a benchmark you can aim for.

Francis Rose: Were starting to run out of time, Susan. Its a great conversation. What are the potential mistakes that you could see leaders making as they try to anticipate or execute on the postpandemic economy? What could somebody really goof up if they dont stop and think about it?

Susan Lund: Well, I think that all organizations, as we talked about, are going to need to be nimble, test, listen to your workforce, listen to employees, see whats working and whats not, and then adjust course as necessary. Also understand theres not going to be a one-size-fits-all solution for large organizations.

What were finding is that companies will set an overall policy about the expectation of amount of time in the office versus flexible time elsewhere, but it will be up to individual departments and teams to figure out exactly what cadence of interaction and collaboration together makes sense for them. I think that from a broader government perspective, it would be a big mistake if we dont seriously start to invest more in modernizing some of the workforce training programs that already exist and in what education models of the future should look like.

Every great technological revolution in the pastwhen we transition from agriculture to manufacturingthats the moment that more Americans started completing secondary school or high school. And then in the transition from manufacturing to a knowledge economy, it coincided with the GI Bill after World War II. Then youve got more people going on to college and getting a tertiary degree. Were going to need, I think, an equivalent step-up in how we think about education and training to meet the demands that will be coming in the next five to ten years with the current AI and digital revolution.

Francis Rose: Does that mean an extra thing, the way that we added college onto high school 50 or 60 years ago? Or does it mean a different thing?

Susan Lund: Probably both. Certainly, its not the case that everybody needs to go to college or even needs a two-year associates degree at a community college. I think that we need a lot more creativity and flexibility about short-term credentials that people can earn.

We also need a way to recognize skills that people have learned on the job. After youve been in the workforce five or ten years, youve accumulated many different skills. But we dont have a way for people to easily demonstrate this in a way that other employers might understand.

Weve got amazing human capital and experience out there. There are some new innovations around how we recognize this and open opportunities for people to show what theyve learned on the job. And thats an exciting and promising area, for instance, that could be the equivalent of this step-up in how we think about workforce skills and human capital.

Francis Rose: What do you think is within the realm of government policy makers to establish that framework? And what would maybe not be advantageous for those policy makers to try to build? Or is that maybe not part of the discussion right now?

Susan Lund: I think policy makers can do a lot to promote innovations and race-to-the-top, race-for-the-top-type programs. Theres also funding at every level of government already for workforce development, so making sure that that goes to a wider variety of programs.

Francis Rose: Susan Lund, thanks very much for the conversation. I really appreciate it, and Ive enjoyed it immensely. Thanks for your time today.

Susan Lund: Thank you.

Francis Rose: Youve been listening to McKinsey on Government, a presentation of McKinsey. Our next episode is in a couple of weeks. You can subscribe to get McKinsey on Government everywhere you get your shows. Im the host of McKinsey on Government, Francis Rose. Thanks very much for listening.

Go here to see the original:

Evolution and opportunity in the postpandemic economy - McKinsey