COVID-19: BRIEFING MATERIALS - GLOBAL HEALTH AND CRISIS RESPONSE UPDATED: MARCH 25, 2020 - MCKINSEY
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COVID-19: Briefing materials Global health and crisis response Updated: March 25, 2020 Copyright McKinsey & Company, Inc. 2020
Current as of March 25, 2020 COVID-19 is, first and foremost, a global humanitarian challenge. Thousands of health professionals are heroically battling the virus, putting their own lives at risk. Governments and industry are working together to understand and address the challenge, support victims and their families and communities, and search for treatments and a vaccine. Companies around the world need to act promptly. This document is meant to help senior leaders understand the COVID-19 situation and how it may unfold, and take steps to protect their employees, customers, supply chains, and financial results. Read more on McKinsey.com
Executive summary
The situation now Actions that institutions can take
At the time of writing, COVID-19 cases have exceeded 380,000 and are
1 2 3
increasing quickly around the world, with concerns that a 15% hospitalization
rate could drive hospital system overload. Resolve Resilience Return
To reduce growth in cases, governments have moved to stricter social Address the immediate Address near-term Create a detailed
distancing, with “shelter in place” orders in many areas in the U.S., Europe, challenges that cash management plan to return the
India, and other countries. This has driven rapid demand declines—among the COVID-19 represents challenges, and business back to
deepest in recent times—that are being met by attempts at bailouts. to the workforce, broader resiliency scale quickly
customers and partners issues
Some Asian countries, e.g. China, have kept incremental cases low, and
are restarting economies. So far, there is little evidence of a resurgence
in infections. 4 5
Reimagination Reform
Re-imagine the “next Be clear about how
How the situation may evolve normal”—what a discon- the environment in your
tinuous shift looks like, and industry (regulations,
There is a limited window for governments to drive adequate public-health implications for how the role of government)
responses and meet demand drawdowns with proportionate economic institution should reinvent could evolve
interventions. Without this, the possibility of a deeper effect on lives and
livelihoods is more likely.
Scaled-up testing will soon clarify the extent and distribution of spread in the
U.S., and Europe.
Learnings from other countries and recent innovations (strict social distancing Establishing a Nerve Center can ensure
rules, drive through testing, off-the-shelf drugs that can address mild cases, speed without sacrificing decision
telemedicine enabled home care) could provide basis for a restart. quality across these five dimensions.
McKinsey & Company 3Contents
01 02 03 04 05
COVID-19: Scenarios and Sector-specific Planning and Leading
The situation path forward impact managing indicator
now COVID-19 dashboards
responses
McKinsey & Company 4Current as of March 26, 2020
The global spread Impact >480,000 >20,000
is accelerating to date
with more Reported confirmed Deaths
reports of local cases
transmission
Latest as of March 26, 2020 199 >130 >30
Countries or territories Countries or territories Countries or territories
with reported cases1 with evidence of local with more than 1000
transmission2 reported cases1
~0.3% >10,000 35
China’s share of new New cases per day New countries or
1.Previously counted only countries; now aligned with WHO reports to include reported cases in the U.S. territories with cases
territories and dependencies; excluding cruise ship
2.Previously noted as community transmission in McKinsey documents; now
March 18–24 March 18–24
aligned with WHO definition
Sources: World Health Organization, John Hopkins University, CDC, news reportsCurrent as of March 26, 2020
Europe
The virus has spread Total cases >250,000
Total deaths >13,900
worldwide despite
containment efforts China
Total cases >81,000
Total deaths >3,200
Africa
Total cases >1,900
1
North America Total deaths >30
Total cases >87,000
Total deaths >1,000
Oceania
Propagation trend Total cases >13,000
>10,000 reported cases South America Total deaths 6,500
250-999 Total deaths >100
50-250
Middle East3
32,000
Total >2,100 Total cases >19,500
1. Johns Hopkins data used for U.S., all other North America countries reporting from WHO deaths Total deaths >320
2. Includes Western Pacific and South–East Asia WHO regions; excludes China; note that South Korea incremental cases are
declining, however other countries are increasing
3. Eastern-Mediterranean WHO region
Source: World Health Organization, Johns Hopkins University, McKinsey analysisCurrent as of March 26, 2020
Greatest share of recent cases comes from Europe,
although U.S. cases are rapidly accelerating
Asia
Incremental cases for China
Cumulative number of cases since March 1 – March 26 and South Korea are now down to
~100 per day with continued focus on
Thousands disease surveillance and management
of imported cases and localized
500 transmission.
U.S.
450 Italy1 .
Spain Europe
400 Germany Cases and deaths continue to
increase across the region. Effects
350 Iran
of national lockdowns are beginning
France to show effect in Italy (which
300 Switzerland recorded relatively flat incremental
UK cases for the past 3-4 days); close
250 monitoring should continue in
South Korea
upcoming days to understand the
200 Rest of world
impact of distancing measures
China across European states.
150
100 United States
Dramatic rise in cases in the past
50 week have led the U.S. to exceed all
other countries (including China) in
0 total cases; incremental cases are
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 now above 10,000 per day with
March highest concentrations in New York,
New Jersey and California.
1. U.S. data from Johns Hopkins University CSSE (March 26 data point from live tracker from 1600PT); all other data from WHO Situation Reports
Sources: WHO situation reports, Johns Hopkins University, press searchCurrent as of March 26, 2020
Countries begin with similar trajectories but
curves diverge based on range of measures taken
Cumulative number of cases Select country detail
Cumulative number of cases
90,000 Italy Italy: After more than two weeks of
national lockdown, incremental cases
Iran and deaths are flattening, indicating
80,000
South Korea initial effects of public health
70,000 Spain measures on transmission.
France
60,000
Germany South Korea: Aggressive testing,
US contact tracing and surveillance, and
50,000 mandatory quarantines are helping
UK isolate virus clusters and dramatically
40,000 slow spread of outbreak.
30,000
United States: Cases and deaths
20,000 are accelerating rapidly amidst
containment responses that vary at
10,000 state and local levels; U.S. now has
the highest number of confirmed
0 cases in the world.
0 3 6 9 12 15 18 21 24 27 30 33 36
Days since 100th case
1. U.S. data from Johns Hopkins University CSSE (March 26 data point from live tracker from 1600PT); all other data from WHO Situation Reports
Sources: WHO situation reports; Johns Hopkins University, press search McKinsey & Company 8Current as of March 26, 2020
South Korea: Rigorous investigation of outbreak clusters
and rapidly scaled testing capabilities limited spread
Incremental cases per day and tests performed in South Korea Number of tests performed New reported cases per day
Number of reported cases
Feb 4 – Feb 9, 16 – Feb 24 –
Government ‘Patient-31’ 15 countries Mar 20 – Localized outbreaks,
approves first exposes ~1000 impose travel Mar 3 – Korea pioneers Mar 9 – including another infected church
test kit after 16 congregants in restrictions on drive-through testing ~180,000 congregation, point to ongoing
reported cases Daegu church South Korea inspired by fast food chains individuals tested need for surveillance and response
Tests
performed
1,400 Feb 20 – Daegu Mar 1 – Government 20,000
residents clear streets begins investigation
1,200 in response to outbreak of Daegu church
15,000
1,000
800
10,000
600
400
5,000
200
0 0
16 29 01 26
February March
Source: WHO situation reports, CNN, New York Times, Korean CDC, press search McKinsey & Company 9Current as of March 26, 2020
China: Rapid lockdowns were employed to manage
outbreak before ramping up testing and response capabilities
Incremental cases per day and total reported cases in China Total reported cases New reported cases per day
Number of reported cases per day
Jan 23 – City of Feb 7 – All students Feb 21 – Government Mar 1 – 28 provinces (more
Wuhan is locked down asked not to return eases traffic restrictions, than 4/5ths of total) have
and travel from nearby to school following encourages work to resume resumed normal inter-provincial
cities is restricted Chinese New Year in less-affected areas passenger transport
Feb 3 – Hong Kong Feb 19 – China begins Feb 24 – 320,000 Mar 10 – Closure
closes all but 3 of 14 to sustain daily new case tests conducted to of last of 16 Total reported
cases
border control points reports below 2,000 date in Guangdong temporary hospitals
20,000 90,000
Jan 24 – All
tourist activity in
4,000 Hubei canceled
60,000
3,000
2,000
30,000
1,000
0 0
23 31 01 29 01 24 25 26
January February March
1. Changes in new case tracking and reporting methodology yield spike in reported cases
Source: WHO situation reports, New York Times, Chinese government official notices and reports, press search McKinsey & Company 10Current as of March 26, 2020
Italy: The effects of national lockdown on viral transmission are
beginning to show as new case growth flattens
Incremental cases and tests per day Number of tested persons per day New reported cases per day
Number of reported cases
Feb 21 – Cluster of 16 Feb 26 – Testing criteria are Mar 8 – Lockdown extended Mar 20 – Italy testing at rate
cases identified in relaxed, allowing contacts of to all of Lombardy and 14 of ~3500 per million, amongst
northern Italy confirmed cases to be tested other northern provinces highest in western Europe
Tests
Feb 23 – performed
Officials lock
10,000 down 10 towns 42,000
9,000 in Lombardy Mar 6 – Authorities begin testing Mar 9 – Italy begins
after spike in all 3,300 residents of northern national lockdown; 35,000
8,000
cases town of Vò (new cases now zero) travel banned
7,000 28,000
6,000
5,000 21,000
4,000
14,000
3,000
2,000 7,000
1,000
0 0
19 29 01 26
February March
Source: WHO situation reports, CNN, New York Times, press search McKinsey & Company 11Current as of March 25, 2020
Western countries are largely instituting the “Early China model,”
focused on immediate containment while ramping up testing
Most appropriate Most appropriate
for high-burden settings for low-to-medium
burden settings
Contain and restrict movement Test, track, and isolate
“Early China model” “South Korea model”
Characteristic Border closures and city-level lockdowns, quarantines Aggressive testing of suspected cases,
actions “Shelter-in-place” restrictions on individual movement clusters (5000+ tests per million population)
Mandatory closures of businesses Contact tracing and isolation via surveillance
Quarantine enforced by government monitoring
5,000 10,000
Testing
U.S. France Spain UK Italy Norway
XX = tests per
million people1 ~310 ~560 ~640 ~960 ~3,500 ~8,000
Countries’ State and National lockdown National lockdown Early strategy Imposed strict regional and national Quickly scaled testing,
city-level with strict police limiting non-essential focused on lockdowns early; testing per capita is e.g. drive-through
responses closures; enforcement; has movements; reported scaling testing vs. ~4x most peer EU countries with some testing available 7 days
testing performed targeted initial logistical issues lockdowns, though regions testing nearly full population after first confirmed case;
lagging vs. widespread limiting testing officials began instituted punishment for
other testing capabilities enforcing quarantine violations
countries lockdown March 20
1.Based on University of Oxford, "Our World in Data- How many tests for COVID-19 are being performed around the world?", accessed March 20, 2020. U.S., Italy and Norway figures from March 20, Spain from March 18,
UK from March 17, France from March 15.
Sources: University of Oxford, Sante Publique France, Istituto Superiore di Sanità (ISS), UK Department of Health and Social Care, Ministerio de Sanidad, Consumo y Bienestar Social, U.S. CDC, press searchContents
01 02 03 04 05
COVID-19: Scenarios and Sector-specific Planning and Leading
The situation path forward impact managing indicator
now COVID-19 dashboards
responses
McKinsey & Company 13Current as of March 25, 2020
Imperatives for “timeboxing” the virus and the economic shock
Suppress the virus
as fast as possible Expand treatment
and testing capacity
Find “cures”: treatment,
1b drugs, vaccines
1a
1c
Safeguard our lives
“Timebox” Safeguard our
livliehoods
Approx.
-8 to -13%
economic
shock 2a 2c
Support people and
businesses affected 2b Prepare to scale the
by lockdowns recovery away from a
Prepare to get back -8 to -13% trough
to work safely when
the virus abates
Source: McKinsey analysis, in partnership with Oxford Economics McKinsey & Company 14Current as of March 25, 2020
Scenarios for the economic impact of the COVID-19 crisis
GDP impact of COVID-19 spread, public health response, and economic policies
Rapid and effective control
of virus spread
B1 A3 A4
Virus contained,
Strong public health response succeeds but sector Virus contained;
Virus contained,
in controlling spread in each country damage; lower strong growth
slow recovery
within 2-3 months long-term trend rebound
growth
Virus spread and
public health Effective response, but
response (regional) virus resurgence B2 A1 A2
Public health response initially succeeds Virus Virus resurgence; Virus resurgence;
Effectiveness of the public but measures are not sufficient to prevent resurgence; slow long-term return to trend
health response viral resurgence so social distancing slow long-term growth growth
in controlling the spread continues (regionally) for several months growth
Muted World Recovery Strong World Rebound
and human impact
of COVID-19
Broad failure of public health
interventions B3 B4 B5
Pandemic Pandemic Pandemic
Public health response fails escalation; escalation; slow escalation;
to control the spread of the virus prolonged progression towards delayed but full
for an extended period of time downturn without economic recovery economic recovery
(e.g., until vaccines are available) economic recovery
Partially effective Highly effective
Ineffective interventions interventions interventions
Self-reinforcing recession dynamics Policy responses partially offset Strong policy responses prevent
kick-in; widespread bankruptcies and economic damage; banking crisis structural damage; recovery to pre-
credit defaults; potential banking crisis is avoided; recovery levels muted crisis fundamentals and momentum
Knock-on effects and economic policy response
Speed and strength of recovery depends on whether policy moves can mitigate
self-reinforcing recessionary dynamics (e.g., corporate defaults, credit crunch)
Source: “Safeguarding our lives and our livelihoods: The imperative of our time,” Sven Smit, Martin Hirt, Kevin Buehler, Susan Lund, Ezra Greenberg, and Arvind Govindarajan McKinsey & Company 15Current as of March 25, 2020
Scenario A3 virus contained
Real GDP growth—COVID-19 crisis World Eurozone Real GDP
Local currency units indexed, 2019 Q4=100 USA China drop 2019 2020 GDP Time to return
111 Q4–2020 Q2 growth to pre-crisis
% change % change Quarter
108
105 China -3.3% -0.4% Q3–2020
102
99 USA -8.0% -2.4% Q4 –2020
96
93 World -4.9% -1.5% Q4–2020
90
87 Eurozone -9.5% -4.4% Q1–2021
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2019 2020 2021
1. Seasonally adjusted by Oxford Economics
Source: McKinsey analysis, in partnership with Oxford Economics McKinsey & Company 16Current as of March 25, 2020
COVID-19 U.S. impact could exceed anything since the end of WWII
United States real GDP
%, total draw-down from previous peak
0
-5
-8% Scenario A3
-10
-13% Scenario A1
-15
-20
-25
-30
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020
Pre-WW II Post-WW II
Source: Historical Statistics of the United States Vol 3, Bureau of economic analysis; McKinsey team analysis, in partnership with Oxford Economics McKinsey & Company 17Current as of March 25, 2020
Scenario A1 muted recovery
Real GDP, local currency indexed
Real GDP
drop 2019 2020 GDP Time to return
Real GDP growth—COVID-19 crisis World Eurozone
Q4–2020 Q2 growth to pre-crisis
Local currency units indexed, 2019 Q4=100 USA China
% change % change Quarter
111
108
China -3.9% -2.7% Q2 – 2021
105
102
99 USA -10.6% -8.4% Q1 – 2023
96
93
World -6.2% -4.7% Q3 – 2022
90
87
84 Eurozone -12.2% -9.7% Q3 – 2023
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2019 2020 2021
1. Seasonally adjusted by Oxford Economics
Source: McKinsey analysis, in partnership with Oxford Economics McKinsey & Company 18Current as of March 25, 2020
What business leaders should look for in coming weeks
There are three questions business leaders are asking, and a small number of indicators that can give clues
Depth of disruption Length of disruption Shape of recovery
How deep are the demand reductions? How long could the disruption last? What shape could recovery take?
• Time to implement social distancing after • Rate of change of cases • Effective integration of public health measures
community transmission confirmed • Evidence of virus seasonality with economic activity (e.g. rapid testing as
Epidemiological
• Number of cases – absolute (expect surge as pre-requisite for flying)
• Test count per million people
testing expands) • Potential for different disease characteristics
• % of cases treated at home over time (e.g. mutation, reinfection)
• Geographic distribution of cases relative to
economic contribution • % utilization of hospital beds (overstretched
system recovers slower)
Indicators
• Availability of therapies
• Case fatality ratio vs. other countries
• Cuts in spending on durable goods (e.g., cars, • Late payments/credit defaults • Bounce-back in economic activity in countries
appliances) that were exposed early in pandemic
Economic
• Stock market & volatility indexes
• Extent of behavior shift (e.g., restaurant spend, • Purchasing managers index • Early private and public sector actions during
gym activity) the pandemic to ensure economic restart
• Initial claims for unemployment
• Extent of travel reduction (% flight
cancellations, travel bans)
McKinsey & Company 19Contents
01 02 03 04 05
COVID-19: Scenarios and Sector-specific Planning and Leading
The situation path forward impact managing indicator
now COVID-19 dashboards
responses
McKinsey & Company 20Current as of March 25, 2020
Market capitalization has declined across sectors, with
significant variation to the extent of the decline
Weighted average year-to-date local currency total shareholder returns by industry in percent1. Width of bars is starting market cap in $
Apparel, Fashion & Luxury
Chemicals & Healthcare Facilities & Services
Agriculture
Transport & Infrastructure
Conglom- Health- Business Defense
erates care Services Personal & Office Logistics &
Consumer Durables Goods Trading
Real Payors
Commercial Electric Power &
Estate Natural Gas Medical Healthcare Supplies Consumer
Aerospace Air & Travel Other Technology & Distributions services
Automotive Financial Basic Food & Advanced
Oil & Gas Insurance Banks & Assembly Services Materials Beverage Electronics Telecom Media Pharma High Tech Retail
0
-5
-10
-15
-20
-25
-30
-35
-40
-45
-50
1. Data set includes global top 3000 companies by market cap in 2019, excluding some subsidiaries, holding companies, companies with very small free float and companies that have delisted since
Source: Corporate Performance Analytics, S&CF Insights, S&P Global McKinsey & Company 211.
10
20
30
40
50
60
-80
-70
-60
-50
-40
-30
-20
-10
0
Oil & Gas
Aerospace & Defense
Air & Travel
Healthcare Payors
Other Financial Services
and companies that have delisted since
Insurance
Conglomerates
Banks
Source: Corporate Performance Analytics, S&CF Insights, S&P Global
between companies
Automotive & Assembly
Chemicals & Agriculture
Real Estate
Business Services
Apparel, Fashion, & Luxury
Transport & Infrastructure
Healthcare Facilities & Services
Basic Materials
Medical Technology
Electric Power & Natural Gas
Advanced Electronics
Data set includes global top 3000 companies by market cap in 2019, excluding some subsidiaries, holding companies, companies with very small free float
Distribution of year-to-date total shareholder returns by industry percent1
Consumer Durables
Food & Beverage
Even within sectors, there is significant variance
Logistics & Trading
Media
Personal & Office Goods
High Tech
Telecom
Healthcare Supplies & Distribution
Pharmaceuticals
Retail
McKinsey & Company
Consumer Services
Current as of March 25, 2020
22Current as of March 25, 2020
The hardest hit sectors may not see restart until 2021
Preliminary views on some of hardest hit sectors based on partially effective scenario—subject to change
Commercial Air & travel Insurance Oil and gas Automotive Apparel/fashion/
aerospace carriers luxury
Estimated degree
of impact, in terms Longest
of duration
Estimated
global restart
Q3/Q4 2021 Q1 / Q2 2021 Q4 2020 Q3 2020 Q3 2020 Late Q2/Q3 2020
Average change
in stock price -44% -44% -33% -48% -32% -28%
Industry specific Preexisting industry Deep, immediate demand US insurers have been Oil price decline driven by Existing vulnerabilities Overall decline in private
examples challenges, a quick drop in shock 5–6x greater than strongly affected, both short-term demand (e.g., trade tensions, consumption and exports
possible revenue, and high Sept 11; ~70–80% near- especially reinsurers and impact and supply declining sales) amplified of services
fixed costs cause near- term demand erosion due life and health insurers overhang from OPEC+ by acute decline in
Demand for apparel
term cash flow and long- to international travel bans decision to increase Chinese demand,
Reduced interest rates categories down sharply
term growth uncertainty and quarantines now production continued supply chain and
and investment overall and expected to
prevalent in 130+ nations production disruption (in
It may take years to performance impacting Oversupply expected to take longer to return than
China, rest of Asia, EU) to
recover from production Northern hemisphere returns—especially for remain in the market economic restart; online
amplify impact despite
and supply chain summer travel peak longer-tail lines even after demand growth exists (though
ongoing Chinese economic
stoppages, due to critical season deeply impacted recovery, and post 2020, hampered by labor
Disruptions expected in restart
vendors located in areas since pandemic fears unless OPEC+ decides to shortage)
new business and
impacted by the virus coincide with peak booking cut production Headwinds to persist into
underwriting processes Retail stores temporarily
period Q3 given tight inventories
Long order backlogs due to dependence on closed in many parts of
Recovery pace faster for paper applications and (Contents
01 02 03 04 05
COVID-19: Scenarios and Sector-specific Planning and Leading
The situation path forward impact managing indicator
now COVID-19 dashboards
responses
McKinsey & Company 24Leaders need to think and act
across 5 horizons
1 2 3 4 5
Resolve Resilience Return Reimagination Reform
Address the immediate Address near-term Create a detailed plan Re-imagine the “next Be clear about how
challenges that cash management to return the business normal”—what a the regulatory and
COVID-19 represents challenges, and back to scale quickly, discontinuous shift looks competitive environment
to the institution’s broader resiliency as the virus evolves like, and implications for in your industry may shift
workforce, customers, issues during virus- and knock on effects how the institution
technology, and related shutdowns and become clearer should reinvent
business partners economic knock-on
effects
Nerve center
Managing across the 5Rs requires a new
architecture based on a team-of-teams approach.
McKinsey & Company 251
Resolve
Address the immediate social and mental challenges
that COVID-19 represents to the institution’s
workforce, customers, and business partners, and
take basic steps to protect liquidity.
McKinsey & Company 26Resolve
Resolve: Making hard decisions on immediate challenges
Resolve employee, customer, supply chain, immediate liquidity, and technology concerns
Employees Supply chain Customers Immediate liquidity Technology
Emerging Current mix of work-from-home and at-work social distancing Supply chain shifting from initial concern Extreme demand reduction Revenue drops raising Need to sustain
concerns & worker safety concerns combined with economic anxiety is about China restart, to, continuing logistics raising need to assuage need to manage operations and
driving stress and reducing productivity issues, and concern about macro- customer concerns and put in immediate liquidity enable remote
environment impact on demand planning place strict protections working
Example, new New team structures that work remotely: smaller, cross Conduct scenario planning to Build a plan to prioritize & Understand current Strengthen the
ideas that functional network-of-teams vs. rigid top-down organization understand how inventory buffer changes protect valuable customers: available cash and service desk to
leading in various disease scenarios Understand what matters project change over prepare for
New rules for leading remotely: clearly defined outcomes,
organizations to them—and how their extended shutdown higher call
multi-channel team communication; clear milestones or Task S&OP team to build 3–6 plans
situation will evolve frequency (e.g.,
are decision points; transparency under a range of demand scenarios Identify and execute
home work
experimenting month to determine required supply Focus on cultivating the immediate, low-risk
setup, remote
Investing in the right collaboration processes: active use
with most important segments levers to improve
of joint whiteboarding, polling, doc sharing, channel based Leverage direct communication access, VPN)
(e.g., highest margin, cash position (e.g.,
communications channels with direct customer when
continuous customers, capital projects, Design
determining demand signals
Leveraging technology team to empower remote work community needs, voluntary spend, working model
capability: online articles, collaboration tools, training on Use market insights/external databases contractual obligations) inventory working (people and
appropriate channels to estimate demand for customer’s Build customer trust capital) processes) to
customers through transparency: “keep the lights
Caring culture: acceptance of WFH realities such as “always Stand up teams to run
on” in critical IT
on” professionalism; informal socializing (virtual “water cooler” Identify critical functions and roles and Don’t pursue “revenue at rolling 13-week cash
functions
chats); authenticity develop back-up plans any cost”—judiciously forecasts, plan further
(particularly
choose where to invest, action (e.g., monetize
Tighter routines for productivity: commit to norms, have incident
based on analysis and balance sheet), and
team launches, clarify most critical meetings, set aside coordination)
planning control spend
personal time & routine
Establish a rhythm of
Enact “pods” for on-site personnel and leadership to updates & engagement,
minimize employee exposure while on site offering more frequent
Agree on adaptations required for collective bargaining update, targeted content,
units (e.g., unions) and contractors and/or individual outreach
Increase personal protective equipment where employees
come in close contact with surfaces that can spread the virus
McKinsey & Company 27Resolve
Employee work from home deep dive (1/2)
Key challenge of remote teams (if left unmitigated) is Productivity decay
reduced efficiency and cohesion with # of sites
Complexity units per man-week,
Structure • Any lack of clarity in roles and responsibilities, decision rights or objectives is indexed
amplified in a remote environment
• Difficult of navigating large or hierarchical organizational structures
100
People • Sense of lack of direction / isolation can degrade morale and performance
• Misunderstandings or lack of clarity on priorities leading to wasted work
• Isolation and lack of social interaction leading to lower employee motivation and less 76
cohesion as a team
Process • Lower communications efficiency due to missing in-person touch, time it takes to 48
write vs. talk, finding time together, or bad connectivity
• Difficulty in self-organizing to address real-time challenges
• Risk to overlook dependencies and create island solutions
Technology • Outdated architecture, slow VPN access
• Missing tooling (e.g. for VC, co-creation, DevOps) exacerbate collaboration challenges 1 site 2 sites 6 sites
• Impractical security inhibits remote work, leads to team members adopting insecure
workarounds
Sources: Press searches; Web pages; Interviews; McKinsey Numetrics; Team analysis McKinsey & Company 28Resolve
Employee work from home deep dive (2/2)
Approach to building effective teams in a distributed, online environment
Structure People Processes Technology
Nature of work (e.g. real-time Leadership’s increased role in Cadence of meetings to synchronize work Technology setup and
collaborative, vs. standardized providing direction, energizing and remove blockers across teams infrastructure for remote work (e.g.
individual; type of data teams & connecting the dots home office setup, VPN bandwidth,
accessed) influencing work- Clear decision and escalation paths, remote application access)
from-home arrangements and Focus on cultural elements at stage/quality-gates, workflows with roles &
structure individual and group level that responsibilities to facilitate handovers Adoption of suite of SaaS digital
drive performance in remote tools to facilitate effective co-
Smaller, cross-functional work (e.g. proactiveness) Tailored communication tools catering to creation, communication and
teams with clear roles and different scenarios and accounting for topic decision making (e.g. VC, file-share,
responsibilities as well as Investment into soft aspects to complexity, output, reaction time, and team real-time communication, document
synchronization mechanisms form a cohesive group identity preference co-editing, task management, etc.)
despite social remoteness (e.g.
A mixture of OKRs and KPIs through role-modeling, 1:1s, Single digital source of truth across people Automated delivery pipelines and
used to communicate goals to townhalls, retrospectives) (e.g. face book), content (e.g. standards, collaboration tools to enable a
the team and track progress OKRs), performance (e.g. KPI dashboards) remote product development
against deliverables & process (e.g. task management boards) environment
Result-oriented performance Strong and practical security
management on all levels: individual, team standards and practices
and tribe enabled by digital dashboards
Sources: Press search; interviews; McKinsey Numetrics; team analysis McKinsey & Company 29Resolve
On-site employee safety—Manufacturing example (1/2)
Manufacturing workforce safety can be increased by creating operating pods, but design considerations apply
Design considerations General guidance on how to apply
to building a pod levers Example actions
Who to group into pods Define the minimum size group to achieve • Remove any floating workers from potential pods
desired production levels and minimize
• Group pods vertically along production line and break inter line (workers working on multiple lines) and beginning/end of line
contact between employees and product
transfer points (line employee picks up raw materials instead of a rover dropping off material)
What job is done Reclassify jobs/roles to improve ability to • Reclassify jobs (can be temporary) vertically along production line so one worker does multiple jobs on same production line
form pods and decrease inter-pod contact versus horizontally across multiple lines (line may need to slow)
• Remove or adjust unnecessary line contact (quality checks done by line employees versus central quality)
How the pod works Add additional safeguards within the pod • Ensure job tasks within pod protect the pod from itself, including additional PPE and separation throughout the shift (tasks can
together to further limit exposure be adjusted to ensure 6 ft. separation)
• Institute increased sanitation of pod and workplace (hand washing, deep cleaning after shift, etc…)
• Stagger break and lunch times/locations
When the pod performs Change shift time and structure to limit • Adjust start/end times to avoid inter-pod contact for pods working at same time, if site has only day shifts for multiple lines –
work exposure consider going to 24 hrs operation to limit lines on site at a time
• Adjust weekly schedule including going to 12-hr shifts and 2 week on/off to minimize the number of people on site over a
day/week
Where the pod Move the location of work to create social • Modify non-work arrangements to minimize exposure including where pod is housed and how they get to work (critical
performs work separation between pods operations such as power plants and refineries are considering housing employees on site)
• Restrict access between pods, ideally with social barriers (card access, temporary walls)
• Move production lines to ensure adequate separation and consider temporary options (tents)
• Close public spaces (cafeterias, gyms) and find alternate locations for workers to eat and move around
Plan for pod event Develop response scenarios for likely • Practice and train on likely scenarios (immediate and long-term response)
events such as a pod test positive
• Define production flexibility and back-up options if line goes down
• Define backup pod staffing (refresh skills matrix to see who could cover, consider keeping backup pod available in case of event)
Note: Certain actions must be implemented together to ensure mitigation of risk
McKinsey & Company 30Resolve
On-site employee safety—Manufacturing example (2/2)
Manufacturing workforce safety can be increased by creating operating pods, but design considerations apply
Current situation – 3 shifts Option 1 – Reduction in shifts Description Pros Cons
Day M T W T F 16h x 5day model Incremental change, easy to Daily ramp ups and downs
implement causing inefficiencies
24 hours x 5 days model 5 ramp ups per week
Line 1 Dedicated people to each line Process cycle time must be
Operators dedicated to either Line 1 or Allows for deep cleaning on shorter than 16h if cannot be
Line 2 3rd shift Maintenance can be done in
interrupted
3rd shift
Line 2
Flexible
Day M T W T F
Option 2 – Reduction in pace
Day M T W T F 24h x 5day model Incremental change, easy to Depending on process, can
Line 1
implement result in inefficiencies
Production run at lower speed
Line 1 (less FTEs assigned to lines) Dedicated people to each line
Flexible
Line 2 Line 2
One ramp-up and down per
week
Option 3 – Dedication to a line
Production “lines” are used for
illustrative purposes but the reasoning Day M T W T F
can be extrapolated to manufacturing 24h x 5day model Machines productive Cross training is needed for
sites with the same products, different time/running time ratio is whole staff, more difficult to
Operators are dedicated to
parts of a site, different steps in a Line 1 maximized implement
line 1 and then to line 2 –
process, etc. creating time barrier for inter- One ramp-up and down per Needs good demand forecast
Line 2 line contact week
Source: Adapting production shifts to low demand in asset-heavy industries McKinsey & Company 312
Resilience
Address near-term cash management challenges,
and broader resiliency issues
McKinsey & Company 32Resilience
Sector-specific power curves show dramatic differences in
performance during the recession
Resilience: Mean TRS for automotive sector, 2007–11
30
Speed + 25 The top 20% of companies that
discipline is key 20 emerged from the recession
are called the Resilients
15
“The Resilients” 10 These Resilients didn’t have
Teams seeking to boost 5 any particular starting
advantage (e.g., existing
resilience during COVID-19 0
portfolio). Instead, they
need to learn lessons from the -5 managed to achieve a small
companies that survived and
-10 lead, which they then extended
thrived in the last recession
-15 over the next 10 years.
-20 Two words that define their
-25 success: Speed + discipline.
-30
Non-Resilients Resilients
McKinsey & Company 33Resilience
Speed + discipline—how the
Resilients stood apart
How Resilients performed
EBITDA Resilients companies sustained1 relative to Non-Resilients:
and revenues organic revenue growth early
and throughout the recession
outperformance
and on revenue in recovery 30%
Speed
Increase in revenue
Early and hard Resilients moved faster, harder
moves on productivity; preserved
growth capacity
3x
Reduction in operating costs; they
also moved 12–24 months earlier
M&A activities Resilients divested more during
1.5x
outperformance the downturn and acquired more
Discipline
in the recovery
Divestiture in the downturn
De-leveraging Resilients cleaned-up their
outperformance balance sheets ahead of the
downturn ~5% pts.
Deleveraged before trough
1 Resilients only lost 1% of organic revenue vs. 2007 level during 2009
McKinsey & Company 34Resilience
6 steps toward end to end resilience plan
01 02 03
Identify and prioritize key Develop tailored scenarios Conduct stress testing of
risks financials
Identify and prioritize key macro, sector Develop company specific scenarios Stress test the P&L, Balance Sheet,
and company idiosyncratic risks based on based on the range of outcomes of the Statement of Cash Flows to assess and
exposure and impact highest priority risks frame the potential gaps for planning
04 05 06
Establish portfolio of Set up a cash war room / Build the resilience
interventions dashboard dashboard
Identify an end to end portfolio of Improve cash transparency and Build the dashboard of key leading
interventions and trigger points implement tighter cash controls to indicators to monitor that can be
mitigate downside scenarios dynamically updated
McKinsey & Company 35Resilience
Not exhaustive
Bubble size represents typical cash impact
Receivables Inventory Payables Cross-cutting
Typical EBIT impact
(% of cash release)
6
“Structural changes”
Enforce late
Positive to payment interest E2E customer
neutral credit risk mgmt
5 Stoc segmentation,
(≥ 0%) Payment and Automate reorders,
reorder algorithm
payments, billings
Example
Collect overdues billing runs
4
prioritization
“Immediate cash Standardise
opportunities” Bad payors parts
Payment terms Reduce
of initiatives Somewhat 3
negative
re-negotiation Production
batch size,
SKUs
related to cash (1-5%) Reorder freeze, Inventory pooling just in time
smaller batches
2
“Fast but Factoring Outsource some Supply
painful” receivables production chain
Substantia Sell
inancing
l 1 old
(>5%) Write off stock
old stock1
0
Fast (< 90 days) Medium (3-6 months) Slow burn (6-12 months)
Time to cash release
McKinsey & Company 363
Return
Create a detailed plan to return the business back to
scale quickly
McKinsey & Company 37Return
Return: Companies must prepare
Look for some of the following…
Sustained decline in the number of cases in your area without rebound
Decline in cases No community transmission/very low levels in your area
Relaxation of shelter-in-place/quarantine orders
Health response ready Testing widely available with fast turnaround
Availability of antibody testing—available workforce who have immunity
Herd immunity (will take time) Availability of an effective vaccine (Spring 2021 soonest)
Then start thinking about…
Controlled access to all job locations: mandatory temperature checks, hand-washing
Protect employees Targeted measures based on job function and “risk profile” instead of blanket shutdown
Invest in a “safe environment”: pre-flight tests of passengers and crew for airlines, in-store
Reassure customers sanitizers for retail, transparent safety record e.g. “X days since last infection”
Diversify supply chain and critical vendors to different geographic locations
Restore supply chain Explore contractual features like take-or-pay to pool risk while rebuilding demand
Consider the effects of business interruption or work-from-home—what business practices
Reinstate or revise? should be reinstated, revised, or even removed?
McKinsey & Company 384 5
Reimagination
and reform
Re-imagine the “next normal”—what a discontinuous
shift looks like, and implications for how the
institution should reinvent
Be clear about how the regulatory and competitive
environment in your industry may shift
McKinsey & Company 39Reimagination
Reimagination: Could we
really emerge in a new normal?
The facts today (examples) Why a “new normal” may be possible
‘Shelter at home’ moves are causing the largest A self-sustaining recession may occur if governments
demand drawdowns modern economies have seen in are not able to respond effectively to the new threats
decades that economies face
The virus spread, and public health and economic The speed and effectiveness of countries response
response vary widely across countries today could reshape political and economic relationships
globally
Consumers are recalibrating on spend, having When consumer demand returns, it may be for
experienced a new model of lower in-person & even different categories than what existed previously, and
higher virtual connections, while learning new skills virtual services could get adopted far faster than
originally expected
Doctors are pointing to the inherent challenges of The world may move closer to a more community or
providing hospital-centered care during pandemics patient centered model of healthcare, aided by newer
advances in AI, health monitoring, telemedicine
McKinsey & Company 40Reimagination
Resetting to new Needs appetite for big moves
normal is hard
Much like Resilients’ research,
our research on companies more
broadly (Strategy Beyond the Hockey M&A Reallocation Capex
Stick) shows that most companies Conduct deals adding Reallocate 50% of Top 20% in sector on
(80% of all corporations) did not add to 30% of market cap capital among BUs capital spending per
economic value beyond their cost of over a decade over a decade unit of sales
capital
Only 8% of the companies studied
were able to successfully move
towards adding economic value
consistently
Productivity Differentiation
The ones that did so, did it through 5
moves that may be critical for Increase productivity Increase gross margin
to be in top 30% of to be top 30% of
companies to consider
industry industry
McKinsey & Company 41Reform
Will healthcare go through a regulatory driven reform movement,
similar to the financial sector after 2008/09 financial crisis?
How will pre-existing concerns on trade barriers play out in the
Reform: post-COVID environment?
What does the “day
after” look like? To what degree will bailouts of sectors come with conditions that
meaningfully change the landscape of that sector in the future?
The need for governments
to intervene could drive Will concerns around supply chain resilience spur a large-scale
meaningful changes to nearshoring or en masse qualifications of other suppliers, partly a
regulatory environment result of regulatory and government considerations?
across sectors globally
Will the twin trends of remote work and gig economy mean that a
move towards a new organizational social contract is accelerated,
with new regulatory implications for worker rights?
McKinsey & Company 42Nerve center
Managing across the 5Rs requires a new
architecture based on a team-of-teams approach.
McKinsey & Company 43Managing across 5Rs requires a new architecture: Nerve Center
“Team of teams” with clear roles, responsibilities, and decision authority
Team 1 - Discover Team 2 - Design Team 3 - Decide Team 4 - Deliver
Scenario planning team Strategic moves team Integrated operations team Workforce, SC, customer, cash
Maintains multiple scenarios; Uses planning assumptions (& Maintains operating cadence, risk Ensures extreme clarity & builds
provides one planning scenario. scenarios) to craft trigger based maps, situation reports, tracks a cross-functional team to
Facilitates future state exercises portfolio of strategic moves progress, and ensures ownership achieve outcome
Owns Owns Owns Owns
Reform Resilience • Timing & facilitation of Resolve
Input to Reimagination strategic decision-making Return
• Reimagination Input to Input to
• Resolve • Resolve • All 5 Rs
Divergent / creative thinking Divergent / creative thinking Mix – Divergent / convergent Convergent / linear thinking
5% 5% 10% 80%
of Nerve Center capacity of Nerve Center capacity of Nerve Center capacity of Nerve Center capacity
McKinsey & Company 44Managing across 5Rs requires a new architecture: Nerve Center
“Team of teams” with clear roles, responsibilities, and decision authority
Decide COVID-19 board sub-committee
Integrated operations Advisory Panel
Elevated decision authority Epidemiological
Operating cadence COVID-19 leadership team Economic/ Business projections
Risk maps and situation reports Political
Technology response Legal
Scenario planning Strategic moves Workforce Supply chain Customer Cash and financial
Planning scenario Portfolio of actions (incl. protection and stabilization transparency and stabilization
Issue maps strategic moves; productivity Supplier engagement support 13 week cash workout
immediate, medium-
Policies and Inventory management Customer outreach Account receivables
term, long-term)
Management Production and B2B customer and payables
Leading indicators
Two-way operations transparency Inventory
(decision triggers)
communications Demand management On-site customer Procurement
Contractors Logistics protection Organization
Facilities management Balance sheet
Tech and security restructuring/ external
backbone funding
Health and govt.
engagement
Remote work morale
and productivity
Discover Design Deliver
McKinsey & Company 45Leaders should expect Nerve Center
to evolve as crisis shifts
1 2 3 4 5
Resolve Resilience Return Reimagination Reform
Gets most leadership Most critical post the Starts to become critical
attention in early phase earliest phase of the post the earliest phase
crisis (once the extent of of crisis, as well as once
Can be integrated into impact is clearer, and early signs of a return
‘day to day’ operations rate of new news slows begin to reappear
over time down)
Basic structure and operating principles of Nerve Center remain
unchanged, but leadership time dedication changes
McKinsey & Company 46Contents
01 02 03 04 05
COVID-19: Scenarios and Sector-specific Planning and Leading
The situation path forward impact managing indicator
now COVID-19 dashboards
responses
McKinsey & Company 47Current as of March 25, 2020
Supply chains are being disrupted around the world, Impact High
but the full impacts have not yet been felt Medium
Low
Supply—production Logistics—transportation Customer demand
or or
Situation ~80% plants restarted 1.4M idle containers 60% China flights suspended5 60% truck staff available 20.5% decline in retail sales
today Across China, ex-Hubei, with large 5.5% of global container capacity Commercial flights account for ~50% 1–14 day quarantine- and capacity- China consumer sentiment since
enterprises restarting, albeit with affected by reduced demand of air cargo capacity, some airlines induced increase in freight transport January sharply lower;
partial capacity, at much higher rate converting flights for cargo6 times online/express deliveries up
than smaller ones
66% BDI increase 2x TAC index Medium Medium
Baltic Dry Index1 66% higher since TAC index rate +27% for U.S.– Demand for express last-mile Europe and U.S. sentiments
CLNY3 but at 10% lower levels China, +93% EU–China2, +37% delivery has spiked in China due to evolving, but localized
compared to March 2019 China–U.S., and +45% for China– quarantine and social distancing
EU since CLNY3
What Medium 7,000 TEU/week reduction 5% global air traffic decrease4 High High
to expect Parts and labor shortages leading to Volumes will return as factories Decline in capacity available due to Trucking capacity constraints in Demand slump may persist
further supply chain disruptions (e.g., restart, may see peak for restocks travel ban on commercial flights China likely to ease
decreased production capacity) Inventory “whiplash”—7–8 weeks for
Future capacity 2.3% reduction for a YoY global air freight belly capacity Declines at U.S. ports foreshadow auto, 2–4 weeks for high-tech
Other regions will be facing Asia-U.S. route from May due to sea reduction of 14% in March 20204 declines in U.S. intermodal (rail)
production capacity reductions Inventory hoarding and demand
freight alliance revisions
Rates likely to continue to increase spikes due to uncoordinated actors
Customer pressure for prioritization
exacerbate supply chain
Medium
Impact on freight will take an extended period of time to correct with slower ramp-up
Logistics capacity returns but faces constraints; near-term price increases
1.Assessment of risk premium to ship raw materials on a number of shipping routes, data as of 3/13 4. Estimated prior to implementation of EU-US travel ban
2.Frankfurt (FRA) to Shanghi (PVG) used as a proxy 5. Commercial flights from China
3.End of extended Chinese Lunar New Year holiday (2/7-3/13 for BDI, 2/10-3/2 for U.S.–China 6. Companies such as Cathay Pacific and Singapore Airlines now starting
TAC, 2/10–3/9 for other TAC routes) to fly empty passenger aircrafts as dedicated cargo planes
Source: Baidu, WSJ, Bloomberg, Alphaliner, Quartz, TAC index, IATA, Seabury Consulting, A.P. Moller-Maersk Group of Denmark, Agility Logistics, Press search McKinsey & Company 48Current as of March 25, 2020
COVID-19 Leading indicator dashboard for China
Tracking toward economic restart
Hubei impact China economic restart China consumer confidence
How deep is the impact, and when could economic activity When could economic activity restart in China (ex-Hubei)? When will Chinese consumer confidence and purchasing activity
restart? return?
Late Hubei remains deeply impacted; return to Late Restart has begun, especially for larger Q2 Consumer spending in China spend may lag behind
economic activity tough to foresee until companies, despite challenges such as labor economic restart
Q2 mid Q2 Q1 shortages and movement of goods
Tourism and some other sectors impacted well into Q2
Labor availability Return to work index
(movement of workers (largest manufacturing Air Earliest Example consumer
Recovery Daily infection Crude case to major industrial cities by output in pollution PMI Congestion school behavior metrics
milestones rate, per million fatality ratio1 provinces)2 mainland China3) (NO2 level) manufact. in major cities5 restarts (anecdotal)
Steady decline in 8% 14pt Retail passenger car
confirmed cases 8 12 56% sales down 78% in
Jiangsu 02/25 decline in decline Shenzhen
61% February
28 31 Beijing4 in Feb
New suspected and ~0.02
~0.02 ~4.6%
43% 16
confirmed cases 8 18 Beijing Smartphone sales
rates consistent Shandong 03/03 26% 63%
expected to be down
11 54 decline in
with other 38% 40% Q1
provinces Shanghai4 Shanghai
4 19 58% 3
Zhejiang 03/10 Sales decline of
Quarantine lifted 13 63 50% 86% for mid and
~1x >4x Nanjing
51% high end hotels
Public transport 7 21 12
Guangdong 03/17 6%
resumes 17 69 Wuhan Food & drink spend
47%
down $60 billion in
Factory activity January & February
returns to pre- ~0.02
outbreak levels ~1.1% 03/24/2020 Hubei 03/25/2020 Started with online lessons
Same day 2019 China ex-Hubei (avg.) Same day After March 31
TBD
Hubei China other Small businesses face more labor disruption
(avg.)
Source: WHO Situation Reports; National Bureau of Statistics of China; McKinsey Global Institute; OCED data, Johns Hopkins CSSE, press research, TomTom traffic index, Baidu QianXi, CDC, New York McKinsey & Company 49
Times, Reuters, The Economist, Peking University, HSBC Business School, Tencent News, Sina News, Beijing Environmental Protection Monitoring Center, Shenzhen Environment NetworkCurrent as of March 25, 2020
COVID-19 leading indicator dashboard Click on buttons for more detail
Propagation of COVID-19 across new transmission complexes
Europe
Americas
Asia (ex-China)1
Middle East2
1.Includes Western Pacific (excl China) and Southeast Asia WHO regions
2.Eastern-Mediterranean WHO region
Note: All countries and regions have documented 3rd-generation cases
Source: WHO situation reports, TomTom traffic index, Baidu QianXi, CDC, IATA, BBC, New York Times, Japan Times, NPR, Reuters, press search McKinsey & Company 50Current as of March 25, 2020
Middle East
Example
country Epidemiological Indicators7 Economic/policy indicators
Number of
Number of airlines
Date of Total New cases countries/ suspending
initial number in last 14 Crude case territories service to Traffic School
case of cases days 5-day new case trend fatality ratio1 restricting travel country3 congestion4 closures
1,411
1,046 966 1,028
23,049 15,007 7.3%6 142 x9 Data N/A Country-wide
Iran 02/20 1,237
678
359 348 429
Rest of region 02/15 4,166 3,630 195 1.3%
Current phase CDC travel health notice Traffic congestion5
Stage 1: Small number of cases identified; no sustained local transmission Stage 4: Case growth and stretched Warning level 3 03/25/2019
health systems Alert level 2 03/25/2020
Stage 2: Disease spread and sustained local transmission
Stage 3: Government action and shifts in public behavior. Not all affected regions Stage 5: New cases drop, activity None
enter stage 3, but interventions and economic impact signal prolonged recovery resumes
Source: WHO Situation Reports, TomTom traffic index, Baidu QianXi, CDC, IATA, BBC, NYT, Japan Times, NPR, Reuters, press research McKinsey & Company 51You can also read
