| This week, why the stress isn’t going away for global value chains. Plus, the link between business and GDP, and countering sleep loss. |
|
|
|
| Global companies’ supply chains are vulnerable to surprises, as the pandemic and the latest spate of hacks have made abundantly clear. Leaders from C-suites to the White House are now busy trying to restore pipelines of parts and materials. The current shortages of semiconductors, minerals, and medical supplies may be temporary, but disruptions of one sort or other are here to stay. Our latest global survey on economic conditions shows that supply-chain disruptions are top of mind for respondents. |
| Climate factors. Flooding in Thailand and hurricanes in the US Gulf Coast contributed to just a few big supply problems in the past decade or so, and climate-related disruptions are expected to rise in number and severity. Forty weather disasters in 2019 caused damage exceeding $1 billion each—and in recent years, the economic toll caused by the most extreme events has been escalating. Of course, there’s also a drumbeat of supply disruptions from ransomware attacks and, in one recent curveball, from a stranded container ship that threatened to snarl global trade. |
| Sobering numbers. As bad as those setbacks have been, the most severe shocks to date could be dwarfed by large-scale military conflict or a systemic cyberattack beyond what we’ve already seen. McKinsey recently assessed potential shocks—including pandemics, flooding, cyberattacks, and trade disputes—to companies’ global value chains to determine which industries were most vulnerable. The five value chains most exposed to the set of shocks we examined represent, collectively, $4.4 trillion in annual exports, or roughly a quarter of global goods trade. |
| Now what? Companies have found success with various types of supply chains (here are three archetypes). When they understand the magnitude of the losses they could face from supply-chain disruptions, they can weigh how much to invest in mitigation. And with artificial intelligence, they can now find new suppliers in days, not months. |
| Clothes calls. Our survey of the vulnerability of industries to supply-chain shocks put the apparel sector toward the top. In an interview with McKinsey, Shekar Natarajan, head of global inventory, supply chain, and logistics at American Eagle Outfitters, explained how the company has retooled its supply-chain approach to increase flexibility and speed. A key part of its digital strategy is pulling inventory from stores and reducing in-store fulfillment. |
| Beyond the chain. Whether these adjustments succeed has much to do with the organizations behind them. There was little correlation between any given strategy—a centralized chain or one organized by region or business unit—and a company’s bottom-line performance, according to a McKinsey analysis of the supply-chain organizations of more than 50 global companies. Instead, success was linked to organizational mechanisms, including the quality of end-to-end coordination, clarity about who makes decisions, and even factors like employees’ social cohesion and job mobility. More broadly still, companies need an outlook tailored to an interconnected world with an uncertain geopolitical future. |
| There is good news. The pandemic has underscored manufacturing’s role in providing products critical to health, safety, national security, and the continuity of multiple industries. Countries are joining companies in shoring up supply chains to strengthen the manufacturing base. That can only help turn risks into resilience. |
|
|
|
| OFF THE CHARTS |
| How companies help households |
| The role of companies in the economy, and their responsibilities to stakeholders and society at large, have become major topics of debate. Yet there is little clarity or consensus about how business affects the economy and society. In a new study, the McKinsey Global Institute looked at OECD economies and found that business activity—the value added from businesses of any size or level of formality, including corporations, partnerships, and sole proprietorships—accounts for 72 percent of GDP. The remainder comes mainly from government, nonprofit activity, and household incomes from real estate. |
|
|
|
|
|
|
|
|
| INTERVIEW |
| How cutting down on ‘noise’ affects bias |
| By now, most people understand how biases can creep into important decisions. Most are much less aware of the ways that noise can affect the choices they make, according to psychology and strategy experts Daniel Kahneman and Olivier Sibony. In this case, noise refers not to aural clatter but to the high variability in inputs and the cognitive processing that people must contend with when making individual and collective judgments. In a recent interview, Kahneman and Sibony explain what noise is, how it relates to bias, and what people can do about it. |
|
|
|
|
| MORE ON MCKINSEY.COM |
| Sleep on it: Tech can help you | Up to 45 percent of people around the world don’t get enough sleep. The burgeoning sleep-tech industry, which is drawing new entrants from start-ups to big tech companies, is trying to better understand sleep and find ways to counter sleep loss. |
| Electromobility’s impact on powertrain machinery | The shift to electric powertrains has implications for underlying automotive production technologies and required vehicle components. Here’s what manufacturers need to know about the changes ahead. |
| Will brick-and-mortar supermarkets survive in Europe? | In a fragmented customer landscape full of pandemic-related disruptions, supermarkets must adapt to remain competitive and rediscover their distinctive offering. |
|
|
|
|
|
| THREE QUESTIONS FOR |
| Laura Furstenthal |
| Laura Furstenthal, a senior partner in San Francisco, leads innovation transformations—including digital, analytics, agile organization, and new business-model development—across industries.
|
|
|
|
|
| One of the silver linings of the COVID-19 crisis has been that it has spurred innovation, as companies have been forced to make decisions quickly. Who will benefit most from this innovation wave? |
| McKinsey looked at stock-market performance for the year beginning in February 2020 (the prepandemic peak), and found that 25 companies—dubbed the “Mega 25”—had market-capitalization gains that translated into a whopping 40 percent of total market gains. This group largely consists of digital leaders, semiconductor manufacturers, and platforms for interaction and transactions. These companies benefitted directly from the urgent needs created by the crisis—including computing power and digital platforms to enable working from home and the shift to digital transactions. |
| Going forward, we expect to see innovation investments coming to fruition among companies that were inspired or forced by the crisis to transform their business models. Beneficiaries include more traditional industries (healthcare, consumer, industrials, education) that are transforming their customer experiences to be hybrid/virtual and reengineering their ways of working to shorten development and manufacturing cycles. |
| These longer-term winners will be customer problem solvers and ecosystem shapers or disruptors, not just purveyors of enabling technologies and platforms. |
| We saw how the healthcare sector’s response to the virus demonstrated its ability to bring innovations to market quickly. How can the industry continue to rise to the challenges presented by COVID-19? |
| During the pandemic, many people have delayed receiving care for their basic needs, such as checkups, routine screening, and nonurgent procedures. At the same time, this period placed significant stress on the overall population, from the physical and mental toll of isolation to the added “home care burden” of schooling and caring for family members while working, all the way to the anxiety caused by pervasive uncertainty about our lives and livelihoods. |
| While many people are slowly resuming routine medical visits, the seriousness of their health challenges has intensified. The urgent question for the industry is how to achieve better outcomes for more people facing more acute conditions with fewer resources because of strained medical systems. |
| Solutions will involve resetting expectations for how the healthcare industry operates, empowering organizational boldness to focus on the most important outcomes, leveraging digital/virtual tools, and speeding the timeline and lowering the cost to develop solutions.
| | What gives me hope is that the industry operated at scope, scale, and speed in developing vaccines, standing up testing and partnering with nontraditional players to meet demand. Hopefully, the industry will remember and apply these lessons to accelerate the next S-curve of innovation and transformation. |
| You began compiling a list of women innovators after seeing that women were being overlooked because of traditional metrics, like having a CEO title. What have you learned so far about this list and who is on it? |
| We were humbled and amazed to see how much positive energy can be unleashed by highlighting these women innovators. Although we couldn’t find any good lists before we started crowdsourcing, ours actually wasn’t hard to compile. Hundreds of people reached out to suggest names, making it abundantly clear that women innovators are everywhere but are rarely highlighted or celebrated. |
| We were also pleasantly surprised by the diversity of the nominations we received, across race/ethnicity, country of origin, age, sexual orientation, and industry focus. The common element of the women on the list is that they have chosen to work on the toughest problems of our time: artificial intelligence, machine learning, CRISPR, COVID-19, and social disparities and the wealth gap. What makes them stand out is a combination of passion and purpose that triumphs over ego and recognition. We hope to continue collecting and sharing their stories so we can educate and inspire our mothers, daughters, and friends. |
| — Edited by Barbara Tierney |
|
|
|
| BACKTALK |
| Have feedback or other ideas? We’d love to hear from you. |
|
|
|
|
Did you enjoy this newsletter? Forward it to colleagues and friends so they can subscribe too.
Was this issue forwarded to you? Sign up for it and sample our 40+ other free email subscriptions here.
|
|
|
|
|
Copyright © 2021 | McKinsey & Company, 3 World Trade Center, 175 Greenwich Street, New York, NY 10007
|
|
|
|
