Covid-19 forced businesses to experiment

By Vijay Vaitheeswaran: US business editor, The Economist

IT WAS INNOVATION at warp speed. The best firms in many industries responded to the outbreak of covid-19 with impressive agility. Employees adapted to new working methods such as video-conferencing from the kitchen table. Suddenly unprofitable business lines were swiftly replaced by once-risky approaches like “click and collect” shopping. Digitisation went into ­hyper-drive, sending e-commerce, online entertainment, telemedicine, e-learning and food delivery soaring. This outpouring of enthusiasm and ingenuity is impressive, but the hard truth is that a lot of it is unsustainable.

In 2021 chief executives face a year of reckoning, as they deal with innovation fatigue inside their firms and a complex business environment outside. An analysis for The World in 2021 by superforecasters at Good Judgment, a forecasting firm, predicts that an effective covid-19 vaccine will not be widely available during much of 2021 (see charts). There are also lots of conflicting views on how quickly the global economy will recover. Bridgewater, the world’s biggest hedge fund, reckons the pandemic will cost companies around $20trn globally.

If firms are to survive the difficult year ahead, the executive mindset must shift from innovation to transformation. In particular, bosses must address three geographic dilemmas for which there are no easy answers.

First, where should firms make their products? Companies find themselves on the front line of political fights over tariffs, technology, climate change and racial injustice. In part, this reflects a failure of leadership from politicians, which has prompted consumers and employees to demand that bosses step up instead. It also reflects the fact that firms are now pawns in wider geopolitical battles—just ask Huawei, TikTok, Harley-Davidson, America’s tech giants or the French wine industry, all of which have been caught up in trade, tax and technology spats beween America, China and Europe.

In this fast-changing and uncertain regulatory landscape, deglobalisation seems an obvious response. But Kevin Sneader, global managing partner at McKinsey, a consultancy, challenges the notion that supply-chain efficiency must be traded off against resilience, arguing that “over time these ‘resilience costs’ could be innovated away” by new ways of doing things. That will require bosses and company boards to make hard decisions about how to modify their global supply chains to make them shorter, faster, smarter and safer.

The second geographic quandary is: where will customers want to buy things? The rise in e-commerce during the crisis has clearly boosted online retailers like Amazon but there may be other, more surprising beneficiaries too. Mauro Guillén of the Wharton School predicts that companies like Canada’s Shopify, which serves as the online back-end for smaller businesses, will enable sustainable e-commerce “within 25 miles of your home, which didn’t exist before”. In America and Britain, which have strong digital infrastructure but underdeveloped ­e-commerce when compared with China, the shift towards online shopping could prove permanent.

But the picture varies greatly by industry and market. Although 60% of Italians shopped online during the pandemic, only 10% found it satisfying. In many parts of continental Europe, which have poorer infrastructure for delivery and online engagement, some consumers will revert to in-person purchasing after the pandemic.

The trickiest question is: where should employees work? Remote working, forced on firms by the pandemic, has proved popular. Jonas Prising, the boss of Manpower, a human-resources consultancy, says his clients report high worker satisfaction and surprisingly strong productivity. “A shift toward remote hiring liberates us to get a whole new level of talent, and for sure will lead to a greater diversity in hiring,” says David McCormick, Bridgewater’s chief executive. KPMG, a consultancy, says nearly three-quarters of chief executives agree.

Even so, remote working can be a double-edged sword. Gary Hamel of the London Business School says it can magnify management problems such as tyrannical bosses, excessive bureaucracy and resistance to new ideas. Christian Ulbrich, CEO of JLL, a property-management giant, thinks employees who have a decent home-office arrangement, or who have care-giving responsibilities, will not want to come back to headquarters.

That could be problematic. Many bosses are less effective at communicating electronically than in person, and prolonged separation is reinforcing departmental silos and entrenching elite power. Younger employees already miss socialising at work. Older ones will tire of staring at screens in cramped apartments—especially if Zoom calls invade their evenings and weekends. Even a senior executive at a tech giant that makes remote-­collaboration software longs for the in-person “ideation” sessions and water-cooler gossip of yesteryear.

So bosses should prepare themselves, and their companies, for a hybrid future with a mix of remote working, smaller headquarters and co-working hubs in satellite locations. They will have to adapt their management styles and pay closer attention to morale and well-being. In KPMG’s survey of bosses, “talent risk” has shot up from number 12 on its list of risks to long-term growth before the pandemic struck to number one now. That means bosses who want their firms to emerge stronger from the crisis must be ready to compete harder for talent in a world turned upside down.

Vijay Vaitheeswaran: US business editor, The Economist ■

This article appeared in the Business section of the print edition of The World in 2021 under the headline “The new geography of business”