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A leader’s guide to dealing with economic uncertainty

Harmony Internal - McKinsey

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  Edited by Rama Ramaswami
  Senior Editor, New York

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.

71%

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.”

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.”

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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by "McKinsey Leading Off" <publishing@email.mckinsey.com> - 03:52 - 10 Oct 2022