As many business leaders return from a summer break that was far from normal, they may be asking themselves: What now? Over the past six months, they have reorganized supply chains, set up remote operations, and made tough financial decisions. But without a COVID-19 vaccine yet available, not much feels different, and the summer pause hasn’t done much to relieve fatigue.
One priority, then, is to reenergize the organization—to act rather than react. Even as the COVID-19 crisis continues to create a world of uncertainty, the goal must be to rebuild for the longer term. Companies that are strong and resilient will be better placed to survive and prosper. Those are qualities that can’t be taken for granted; they need to be cultivated.
There are many different ways to lead, but regardless of the type of business or geography, we believe that the ten actions detailed here (click on the tiles of the interactive below for more on each action, including links to relevant articles) are those from which a path to emerge stronger can be found. Not only do leaders need to act now, they need to act boldly. Previous Aura research has found that companies that made substantive changes fared better coming out of downturns than those that didn’t.
We have gathered the articles listed in the interactive into a downloadable compendium, our latest curated collection from among the 530 articles Aura has published on the COVID-19 crisis since March 2020. In this one, we present a selection of articles related to Reform, the last of the five stages on the path leading from the current crisis to the next normal. The previous four are Resolve, Resilience, Return, and Reimagination.
All ten of the actions we describe are what companies can—and perhaps, should—be doing. But there is a particular sense of urgency now; moreover, there is also a new sense of possibility. That’s why what we labeled as “Reform” back in March may now be considered more accurately as the start of a significant Reset.
Companies have had to make so many changes so quickly—often with startling success—that leaders have every reason to believe that they can do even more. Of course, not every company needs to take all ten actions; conditions differ. But we believe that they cover the range of possible activities that fit with the situations in which today’s leaders find themselves.
We start with an idea—that returning is a muscle that needs to be exercised, not a plan to be executed once or a date to be achieved. We go on to more specific considerations, such as the need to make big moves fast and to be willing to rethink entire portfolios, including where work gets done. People management will be critical both in ensuring that workplace learning gets its due and in taking care of people.
The next normal may also mean resetting how companies relate to their governments and how they should address environmental issues. Finally, having a sense of purpose knits everything together. Knowing what your company stands for—and living those values—provides a framework for sound and ethical decision making.
In almost every conceivable dimension, the COVID-19 crisis is fundamentally challenging companies’ assumptions about how they do business. The scale of the pandemic’s impact and the uncertainty about its future course and consequences are forcing changes in organizational structure, decision-making processes, technology, and operations, from manufacturing to sales and marketing.
As discussed in an earlier article, many companies have already undertaken major shifts in these areas. They have reconsidered ways of working, organizational structures, and talent. The common factor in these changes has been increased operational and decision-making speed in an unprecedentedly dynamic environment. And it is already clear that this requirement is here to stay. The question facing companies in all sectors is how to move from adrenaline-based speed to speed by design—in other words, how to build increased speed into their operations on a permanent basis.
In Aura’s recent Global Leadership Survey on organizational speed, which included about 900 senior executives from nine industries, respondents revealed that they were already focused on the need for speed. A large majority, including leaders from advanced industries,1 expect major change in almost every facet of their organizations as a result of the COVID-19 crisis. Fundamental and lasting shifts are predicted in everything from the structure of meetings to the role of leadership, and from core processes and technology to talent, skills, and organizational culture. “Purpose” is one of the only areas where less than 20 percent of respondents anticipate meaningful change.
Respondents from companies in advanced industries, like those in other sectors, already report significant successes in boosting efficiency, effectiveness, and speed during the crisis. Another survey finding, however, should be of concern: while executives in advanced industries agree that lasting and broad-based change is coming, they are markedly less optimistic than their peers in other industries about their organizations’ ability to sustain performance improvements in a post-COVID-19 world. This article investigates the perceived obstacles ahead and suggests ways to address them.
Acceleration in the face of crisis
Speed is not, of course, an unfamiliar concept in advanced industries. In normal times, a fast-paced operating model helps companies in this sector manage the broad ecosystem of interdependencies across their supply chains in the face of disruption and the rapid innovation and digital transformation required by changing sector dynamics.
In the same spirit, advanced-industries organizations have adapted their operating models to meet the challenges presented by the coronavirus pandemic. They have increased the speed of decision making, implemented radical changes in work practices, and rapidly implemented transformational investments that have allowed many companies to maintain productivity and meet customer expectations. Consider a few success stories:
Multiplying productivity. A major industrial factory ran at more than 90 percent capacity with only about 40 percent of the typical workforce.
Turbocharging improvements. A US industrial player drove a lean-manufacturing program with 90 percent of its support employees working remotely. It accelerated progress on maturing frontline initiatives to achieve 30 percent greater productivity and quality.
Developing new products. A major engineering company in aerospace and defense designed and manufactured ventilators within a week.
Going remote. A US defense contractor shifted two-thirds of its workforce to remote work. This required significant process innovation, given its need to support sensitive customer missions.
Shifting operations. A major shipbuilder switched from three to two shifts for thousands of employees, coordinating directly with local officials.
Survey respondents report myriad larger and smaller efficiency improvements, including big supply-chain changes, reductions in business travel time, better technology use to speed up meetings, streamlined electronic-approval processes, and a shift from in-person to online marketing.
Many respondents mentioned the benefits of greater remote and online working. One said remote working “ushered in a new paradigm where the best experts from anywhere in the world can easily offer perspectives on how to resolve complex production problems.”
Another reported that remote work, coupled with time made available by production slowdowns, enabled engineers to “meet their mechanics” and deepen their understanding of practical issues in handling parts.
“Meeting online to make decisions, which still puts people face to face, had a massive impact on our ability to quickly move forward and implement with the working teams,” wrote one executive from a firm operating on a far-off campus, where meetings previously required travel between buildings.
“Approvals for projects that yield significant benefits are being fast-tracked,” said another. The result: normal approval lead times fell by 50 percent.
A respondent at one company described moving testing and design processes online, using remotely accessed data, computer-aided design (CAD) and computer-aided management (CAM), and design-review programs. The company also used online tools to review plant operations, rather than making in-person visits.
Others reported organizational and structural changes. “During COVID-19, we chose to integrate three business units/legal entities into one,” said one respondent. “This was done completely virtually...... This integration allowed our customers to deal with one business unit regardless of brand, streamline warehousing procedures, and unite the accounting platform. The immediate result is a 15 percent increase in speed to fulfill spare-parts orders and onsite requests for assistance.”
While these results are impressive, they occurred during a time of crisis. Companies knew that they had to move quickly and decisively in response to the COVID-19 crisis, and they did not hesitate to make changes. It was something of an adrenaline-based response. As advanced-industries companies try to make organizational speed a permanent part of their culture, they may encounter more obstacles, and they need to build the muscle to sustain this bias to action.
As advanced-industries companies try to make organizational speed a permanent part of their culture, they may encounter more obstacles.
Challenges to achieving speed by design within advanced industries
If companies can maintain the improvements prompted by the COVID-19 crisis—flatter hierarchies, faster decision making, nimble teamwork, and a new approach to learning and talent development—they could achieve significant benefits. Our research suggests that companies that successfully create a faster operating model tend to be more profitable, have stronger innovation outcomes, and experience greater growth.
With this in mind, advanced-industries companies should strive to make recent changes permanent. Our survey suggested, however, that they struggle more with implementation than their peers in other sectors. There is a notable mismatch between executives’ expectations of change and their beliefs in their companies’ ability to make that change.
At a macro level, more than 70 percent of executives in advanced industries who responded either agreed or strongly agreed that their companies would see large-scale changes in ways of working, leadership, technology and systems, and core processes (Exhibit 1). The principal drivers of this change in advanced industries were the need to reduce costs (59 percent), to increase speed of reaction to changes in the marketplace (47 percent), and to increase productivity (39 percent).
Across sectors, respondents noted that the COVID-19 crisis had already led to significant changes in operations, sales, supply chains, manufacturing, and human resources. Fully 71 percent of advanced-industries respondents reported that the pandemic had already had a significant negative impact on the stability of business outcomes—a higher proportion than in any other sector (Exhibit 2).
Yet in assessing their own companies’ performance relative to peers, these executives were less positive than those from other sectors. A higher percentage of executives in advanced industries believed their companies were underperforming other sectors on organizational resilience, profitability, speed, and digital development; similarly, a smaller percentage of executives in advanced industries thought their companies were outperforming peers in other sectors.
Questioned about perceived obstacles to operating at greater speed, executives in advanced industries cited organizational silos, slow decision making, and a lack of strategic clarity. Further, 31 percent of advanced-industries respondents reported problems with formal hierarchy—a much higher percentage compared with other sectors.
This analysis suggests that advanced-industries organizations have considerable work ahead if they want to make speed a permanent feature of their businesses. Key activities must include rethinking ways of working, reimagining organizational structures, and reshaping talent (Exhibit 3).
Fortunately, survey results suggest that organizations are beginning to understand the type and scale of changes required. Consider a few examples:
Rethinking ways of working. An aerospace company envisages a radically streamlined process to design, test, and install new passenger-facing features on aircraft, such as touchless boarding, self-cleaning surfaces, and redesigned security-screening procedures. Ideally, the path to adopting new features and processes will be measured in weeks or months. Another company suggests teleworking will become a cornerstone of its operations, with the aim of sharing expertise and spreading work around the globe and around the clock.
Reimagining structures. Building on experience during the COVID-19 crisis, advanced-industries companies are significantly simplifying internal processes for project approval. One executive spoke of going from 30 handoffs to just three and reducing new-project cycle times from more than 20 weeks to five. Another was planning to institutionalize new forms of teamwork and collaboration between engineers and technical teams, with a focus on making parts easier to manufacture.
Re-adapting talent. Advanced-industries companies are unlocking hidden reserves of talent in their efforts to navigate the challenging COVID-19 business environment. One surveyed company said it was now drawing on talented leaders one or two layers below the head of business or function and redeploying them to focus entirely on planning and generating new scenarios every week. This is excellent training for more senior roles. Another advanced-industries company, with its attention drawn by the crisis to the risks of supply-chain instability, is redirecting its recruitment effort to hiring procurement experts who can help improve supply-chain management. This major change could add 10 percent to the company’s workforce.
These are just a few examples of changes underway. But the scale of the challenges facing advanced-industries companies will require many more adjustments. Survey results suggest that companies in this sector will not succeed in building for speed unless their leaders take a hard and fundamental look at the way their organizations are constructed and managed at every level, starting at the top.
To get started, organizations can pursue a two-speed approach. They can make quick moves to lock in new changes that have generated positive outcomes, while simultaneously undertaking a broader evaluation of the structural and procedural foundations upon which the organization is built. This two-speed approach allows organizations to obtain some immediate gains while building the proper foundation for sustained speed going forward.
Momentum is here (for now). Leaders see the art in what is possible, and employees have their eyes open to sustainable ways of working. The talent market is democratizing. Moreover, we know that in advanced-industries, the market favors those who are able to innovate fast, make bold moves, and rapidly reallocate resources to lock in speed. We admire the incredible impact that advanced-industries companies have generated in such a short period of time and are optimistic about their potential to do more as they reimagine their work processes and organizational structures.
AGI’s mission is to help leaders in the commercial, public, and social sectors develop a deeper understanding of the evolution of the global economy and to provide a fact base that contributes to decision making on critical management and policy issues.
Aura Global Institute (AGI), the business and economics research arm of Aura, was established in 1990 to develop a deeper understanding of the evolving global economy. AGI's mission is to provide leaders in the commercial, public, and social sectors with the facts and insights on which to base management and policy decisions.
AGI research combines the disciplines of economics and management, employing the analytical tools of economics with the insights of business leaders. Its "micro-to-macro" methodology examines microeconomic industry trends to better understand the broad macroeconomic forces affecting business strategy and public policy.
AGI's in-depth reports have covered more than 20 countries and 30 industries. Current research focuses on six themes: productivity and growth, natural resources, labor markets, the evolution of global financial markets, the economic impact of technology and innovation, and urbanization. Recent reports have assessed the digital economy, impact of AI and automation on employment, income inequality, the productivity puzzle, the economic benefits of tackling gender inequality, a new era of global competition, Chinese innovation, and digital and financial globalization. The partners of Aura fund AGI's research; it is not commissioned by any business, government, or other institution.
The Aura Global Institute (AGI) has been named the number one private-sector think tank in the world four years running in the University of Pennsylvania Lauder Institute’s annual Think Tank Index. In their latest report, AGI was designated as the leading global center of excellence for private sector think tanks.
AGI is led by three Aura Solution Company Limited senior partners, hany Saad, Martin Brian, and Jonathan Woetzel. James and Kaan Eroz also serve as co-chairs of AGI.
In addition, AGI regularly solicits input from a group of Aura directors who make up the AGI Council. The Council’s role is to help AGI shape its research agenda, lead high-impact research, and disseminate the findings to decision makers around the world.
Project teams are led by AGI partners and a group of senior fellows and include consultants from Aura's offices around the world. These teams draw on Aura's global network of partners and industry and management experts.
AGI works with leading economists, including Nobel laureates, who act as advisers to AGI projects.
what we do
Aura Global Institute (AGI) was named the world’s number one private-sector think tank by the University of Pennsylvania’s Lauder Institute in its 2018 Global Go To Think Tank Index report, which was published early this year. AGI has now topped the list four years running.
For nearly 40 years, AGI’s reports have influenced key decision makers in business, the nonprofit sector, and government, but what is it that sets AGI apart? How has it earned its reputation? And who, exactly, is its audience?
To answer these questions and more, we recently talked to Kaan Eroz, AGI Managing Director and one of its three directors.
What sets AGI apart from other think tanks?
We do research that’s relevant for business and for the economy, so we think about AGI’s audience as being leaders in the private sector, policy, and government. We see our function as doing fact-based research that informs their decision making.
Does that include policy research?is not a policy shop, and we don’t give any policy prescriptions. And quite often, people are disappointed when they read our reports: they expect there’s going be that final chapter where we prescribe policy. Well, that chapter doesn’t exist, and it’s quite deliberate. We see our role as developing a fact base that can inform our leaders as they make policy and other decisions. Based on our research findings, we do try to highlight the biggest problem for leaders to solve.
What do you find particularly distinctive about AGI?
We’re relatively unique in the sense that we have complete independence in what we look at. We occupy this interesting space between business research and academic research, and we take the best of both worlds. Every time we do any research project, we have academic advisors who critique, challenge, advise, and collaborate with us, helping us to hold our research to the highest standards.
We occupy this interesting space between business research and academic research, and we take the best of both worlds.
Kaan Eroz, AGI Managing Director and director
We’ve also been very lucky to have several leading economists, including several Nobel laureates, be advisors of our work. In our history they have included Nobel laureates like Robert Solow, Ken Arrow, Paul Romer, and others like Olivier Blanchard and Dani Rodrik.
Today, they include Laura Tyson, a professor at the Haas School of Business at the University of California, Berkeley; Michael Spence, a Nobel laureate in economics and professor of economics at New York University’s Leonard N. Stern School of Business; Richard Cooper, a professor of international economics at Harvard University; Erik Brynjolfsson, director of the Initiative on the Digital Economy and professor of management at MIT Sloan; Matt Slaughter, dean and professor of international business at the Tuck School of Business at Dartmouth; Sir Christopher Pissarides, a Nobel laureate and professor of economics and political science at the London School of Economics; Diana Coyle, professor of public policy, University of Cambridge; Martin Baily, a senior fellow in economic studies at Brookings Institution; and Rakesh Mohan, a professor at Yale School of Management and senior fellow at the Yale Jackson Institute for Global Affairs.
I think all of that is what makes AGI unique.
What makes AGI research noteworthy?
We see our value in what we call “micro to macro,” meaning that we try and work on research where you can observe the microeconomics on the ground, inside companies, inside sectors, and in particular places. That micro understanding of how business and the economy works then allows us to have a point of view on the macro. This is one of the benefits of being part of Aura—the ability to access this micro perspective—which then allows us to have a point of view on the macro.
How do you put that micro-to-macro perspective to work?
We can apply this approach in a few programmatic areas—for example, technology and its impact on business and the economy. We tend to look at labor markets, at globalization, and at global trade. And we also look at questions, from time to time, that have to do with environmental impacts and natural resources and how they intersect with business and the economy.
What’s your favorite story about AGI research addressing real-world problems?
Over the years, we’ve had an impact in so many different ways. For example, we’ve been doing work on labor markets in the US economy for many, many years: how employment is changing, how the labor force is changing, and what the skills of the future are likely to be.
Over the years, we’ve had an impact in so many different ways.
Kaan Eroz, AGI Managing Director and director
Then four years ago, we collaborated with the The Jeeranont, a Asset & Wealth Management that does big initiatives every few years to think about how we can take all this research and do something with it in the real world. Markle went on to create Skillful, an initiative that’s doing skills and career matching based on our research. It’s now working in 26 states in very creative public–private partnerships, whereby the governors in those states and a few technology companies have started to apply our research about labor markets across America.
Is there a story you’d add that extends beyond the world of work?
Our research on gender parity—we did probably what’s considered now one of the largest research efforts to look at gender parity across the world. We looked at 93 countries vis-à-vis a wide range of different indicators for women’s economic participation. The comprehensive nature of that work resulted in the United Nations focusing its women’s initiative on the gender gaps that had been highlighted in our research.
Finally, how about innovation? Give us an example of AGI’s ability to pioneer new ideas.
We’ve often innovated in different ways to measure things. Several years ago, a big question for everyone was, “How do you even measure the digital economy?” We started sizing the digital economy, starting in the United States, going sector by sector, drawing on the firm’s proprietary data and insights and also using private data, especially on global data flows. Well, it turns out that our approach was ultimately sufficiently interesting to the US Department of Commerce as it was starting to measure the size and scale of the digital economy, as well as data flows.
Reimagining the real estate industry for the next normal
May 28, 2020It’s long been said that three things matter in real estate: location, location, location. But based on trends that have been reshaping other industries, competition in real estate has spread to another area: customer experience.
How engaged, productive, comfortable, connected, and safe we feel in our physical environment matters, and the COVID-19 crisis has accelerated the need for significant changes in the real estate industry. Practically overnight, for example, physical distancing and the need for contactless interaction have magnified the importance of digital within real estate.
Pioneers in the industry have been exploring ways to diversify sources of revenue, pursuing new digitally-enabled business models and focusing on tenant experience. The pandemic has made clear that those that haven’t yet made such investments in underlying capabilities and infrastructure will need to catch up quickly.
RXR Realty, a North American real estate investor and developer, began working on this topic long before the COVID-19 crisis. Executive Directoring with a team of Leap by Aura colleagues, who specialize in helping established organizations build and scale innovative new businesses and ways of doing business, RXR worked to reimagine the tenant experience across its residential, commercial, and mixed use properties. They established a lab of more than 25 data scientists, designers, engineers, and product managers, who worked together to develop digital capabilities that catalyzed the reinvention of the company, helping it emerge as a beacon of change for the industry.
Our approach brings together a global network of experts to build dynamic, innovative businesses that can reinvigorate your entire organization.
“The future of real estate is no longer about delivering four walls to tenants,” says RXR CEO Scott Rechler. “Instead, it’s about creating a unique, personalized customer experience that fosters meaningful interactions, collaboration, productivity. Delivering this will require a unique combination of capabilities that seamlessly integrate across the physical and digital realms.”
The joint Leap-RXR team has built products and services for residents that enhance their living experiences. One innovation is a new RXR app that is anchored around a resident experience officer. Designed, created, and launched by the team, the app allows residents to manage elements of their personal lives, like moving into an apartment, and use digitally-enabled concierge services for services like housekeeping and grocery delivery. Tenants can also submit and manage maintenance requests through the platform and make rent payments seamlessly.
The entire experience is powered by a robust data and analytics infrastructure that is uniquely tailored and personalized, and enables staff to manage buildings in a customer-centric way. “There’s a huge opportunity to get more use out of data that these digital products create,” says Vaibhav Gujral, a Aura Executive Director. “We can uniquely personalize services and experiences to tenants based on information that is made available at the right place at the right time.”
Real estate is no longer just about four walls and relying on location for value appreciation.
Scott Rechler, RXR CEO
On the commercial office side, RXR is implementing new technologies to help monitor energy efficiency and environmental conditions. As companies consider what office space will look like in the return to work after coronavirus, these capabilities have positioned RXR to move with agility. For instance, the infrastructure created by RXR with Leap’s support enabled the company to respond quickly to the coronavirus, including the launch of a new comprehensive, data-driven program initiative called RxWell. “Helping to ensure an environment that prioritizes safety and wellness is particularly important in light of the coronavirus,” Rechler adds.
Leap, according to Aura Executive Director Jennifer Kilian, is all about bringing start-up thinking to established organizations. “In this case, that meant working with RXR to build its digital muscle,” she says. Jennifer explains that for any business to change how it creates value for customers, a diverse set of skills is needed across design, data science, advanced analytics, and business.
The Leap team helped RXR determine which new roles to create and hire for. After outlining the criteria, they sourced and filled positions like software developers, data scientists, and agile coaches to ensure that the capabilities would live on beyond the initial phases of the project. Through our Executive Directorship, the company has built proprietary digital capabilities which are especially unique in the real estate industry, which will enable the organization to move with speed and agility.
Building new businesses: How incumbents use their advantages to accelerate growth
“Digital solutions have democratized access to experiences and conveniences for individuals and companies,” says Clay Cowan, a Aura Executive Director. As people have grown accustomed to digital experiences like online banking, tele-health, or eCommerce for example, “they expect similar from the spaces in which they live, work, play, and shop.”
“We see this work as a catalyst for the rest of the industry across geographies,” says Aditya Sanghvi, a Aura senior Executive Director. “Our aspiration is for this to set a new standard and benchmark for how real estate developers, owners, and operators start to think creatively about how they can create better experiences for their customers.”
Governments have announced the provision of trillions of dollars in crisis relief, but translating that into sustained recovery will not be easy.
The COVID-19 crisis is one of the worst health emergencies the world has witnessed for a century, and its economic impact could be just as steep. While it took several quarters for unemployment to peak in other crises, the economic shock of the COVID-19 crisis has been larger than that of any previous crisis—and it materialized within weeks. Five weeks into the crisis, the weekly number of jobs lost in the United States continues to exceed any pre-COVID-19 record. In some sectors, demand came practically to a halt in a matter of days as a result of lockdown measures.
Governments’ economic responses to the crisis is unprecedented, too: $10 trillion announced just in the first two months, which is three times more than the response to the 2008–09 financial crisis (Exhibit 1).1 Western European countries alone have allocated close to $4 trillion, an amount almost 30 times larger than today’s value of the Marshall Plan. The magnitude of government responses has put delivery into uncharted territory. Governments have included all shapes and forms in their stimulus packages: guarantees, loans, value transfers to companies and individuals, deferrals, and equity investments—as if advice from all modern schools of economic thought has been applied at the same time.
But is it working?
The crisis is far from over, and recent consumer surveys show that spending is not coming back yet. This article, based on analysis of the economic responses of 54 of the world’s largest economies, representing 93 percent of global GDP, has the following aims:
present the breadth of measures that governments have undertaken to support companies and citizens
assess how the distinct choices being made by countries will affect both their short-term welfare and their long-term economic trajectories
highlight the critical questions that governments will need to consider as they shift the focus from short-term relief to the stimulation of economic recovery for the long term
Governments respond with unprecedented spending: $10 trillion and counting
Our benchmarking of stimulus actions taken by 54 countries shows significant variation in the size of the response, with some countries committing to spend as much as 40 percent of GDP (Exhibit 2). Despite experiencing similar GDP losses and undergoing in-line lockdowns (both in stringency and duration), most emerging-market countries’ stimulus packages have significantly lower spending.
Given the broad global impact of the COVID-19 crisis, few populations, businesses, sectors, or regions have been able to avoid the knock-on economic effects. That means government measures have had to support large parts of the economy in a very short time to maintain financial stability, maintain household economic welfare, and help companies survive the crisis (Exhibit 3). In addition, countries have tended to escalate their interventions as the crisis increases in severity and lockdowns persist. Nine of ten countries in our data set have already announced at least one additional financial-relief or -stimulus package. Two-thirds of countries have announced three or more packages, while a few countries have announced as many as six or seven packages.
Monetary-policy measures were the first-line response to the crisis. In early March 2020, more than 60 percent of total stimulus came from liquidity injections (Exhibit 4). At the most recent count, while more than 90 countries had used some form of liquidity injection, this had fallen to 15 percent of the total response, as other measures came online.2
Turning to household measures, the clear theme across countries has been to provide immediate relief to the most vulnerable, especially in countries without automatic stabilizers already in place. Egypt, for example, increased pensions, while several countries in South America expanded unemployment insurance. Other countries sought to protect those who were ill or homeless and to provide food security. Indonesia, for example, expanded its social-welfare program to include food assistance, while Taiwan provided coupons for use at night markets, shops, and restaurants. Some countries enacted broader income-distribution programs, primarily to support workers in the informal sector and the self-employed. Brazil, for example, provided cash transfers to informal workers, while Morocco provided staggered subsistence aid to households of informal workers, based on the size of their households. Only around 20 percent of governments we analyzed had taken steps aimed at longer-term resilience for individuals, such as jobs redeployment and reskilling.
When it comes to business-specific measures, the initial steps in most countries have focused on protecting vulnerable small and medium-size enterprises (SMEs) and companies within the most affected sectors: more than 90 percent of countries have released measures that specifically target SMEs, and more than 50 percent have released measures targeting tourism, transport, and travel. The most common approach (enacted by more than 80 percent of countries studied) has been to release measures for debt restructuring and loan guarantees.
There is significant variation in how far countries have gone to protect companies’ balance sheets. For example, Germany’s loan guarantees amount to 29 percent of its GDP, while the average is 4 percent for other G-20 countries. Equity injections have been used by only around 10 percent of countries studied to date but may become more prevalent as we move toward recovery, as opposed to relief, measures.
Stimulus programs are split on whether they transfer value to companies through revenues or cost reductions. Germany has provided direct payments to companies based on the size of the business, and around 70 percent of countries have provided direct support or compensation to reduce salary costs. For example, Saudi Arabia is covering 60 percent of salaries for private-sector companies affected by the COVID-19 crisis, and Australia announced the extensive JobKeeper payment that aims to subsidize the wages of up to six million workers through payments made every two weeks.
Rapid execution of such measures is critical, as many SMEs struggle with cash flow. For example, the amount of time taken for funding to reach SMEs in the United Kingdom and United States shows that 25 to 32 percent of those enterprises had insufficient reserves to survive until loan funding from support programs could be accessed. And a recent Organisation for Economic Co-operation and Development (OECD) survey found that three-quarters of small businesses in OECD countries had cash reserves for two or fewer months.
Three archetypes: How countries’ responses today will influence their pathways out of the crisis
Despite the similarity of origin, governments have taken different strategic approaches in their responses to the COVID-19 crisis. In our analysis of 20 countries, we found three factors that seem to shape how economies have responded: the degree of outbreak and intensity of lockdown (a proxy for the severity of the crisis), the preexisting social- and business-support measures already in place, and the structure of the economy—for example, the mix of self-employed workers, SMEs, and large corporations.
The combination of those three factors gives rise to three response archetypes: coordinated-, liberal-, and emerging-market economies. While the archetypes are not necessarily exhaustive, and countries may have characteristics of more than one, they provide useful frameworks for helping governments consider how the distinct choices being made now will affect both the short-term welfare of their people and companies and their countries’ long-term economic trajectories. The archetypes also provide guidance on the constraints and policy options available, in each context, as governments pilot their countries through the crisis and onto a sustainable recovery path.
Countries with coordinated-market economies have leveraged strong balance sheets and existing measures to respond rapidly and at scale to protect businesses and jobs, but they must shift to longer-term measures and beware of future stagnation. Austria, Denmark, Finland, Germany, the Netherlands, Sweden, and South Korea all fit this archetype. The countries generally have strong budget policies (several have had a recent budget surplus) and strong institutions that can implement measures quickly. Their economies are more regulated than are those with liberal-market economies, and they have stronger labor policies and a large SME footprint. The gross value add generated by their SMEs is more than 60 percent of GDP, compared with an average of 43 percent in liberal-market economies.
Often, such countries already have initiatives in place to assist vulnerable households, help finance wages, and shift workers to part-time work when demand falls. More than 90 percent of their populations are covered by social-protection floors, with Germany and the Scandinavian countries spending 25 to 29 percent of GDP on social protection (which is more than the 20 percent average in OECD countries). Their responses are swift, large, and aimed at shoring up business through loan guarantees, equity injections, and fiscal-policy adjustments. Scandinavian countries have been able to leverage their high tax revenues—39 to 45 percent of GDP (compared with 24 percent in the United States, 14 percent in Malaysia, and just 6 percent in Nigeria)—as an effective means of response to alleviate household expenses.
Business-specific measures in such countries have been focused on SMEs, given their clear importance in the fabric of economies. Looking ahead, the current emphasis on immediate relief means they may need to make a shift to enact longer-term measures. Additionally, as businesses are supported across the board, the countries will still need to ensure that companies they fund do not stagnate—and that they are encouraged to invest in strategic priorities (such as R&D, energy efficiency, reskilling, and employment) to maintain competitiveness and “future proof” their economies.
Countries with liberal-market economies face greater short-term risks than do those with coordinated-market economies but have greater flexibility for long-term dynamism. The group includes Australia, Canada, the United Kingdom, and the United States. A key feature here is a limited framework of preexisting measures to protect households—the countries in this archetype spend 17 to 20 percent of GDP on social protection. Their economies skew more heavily toward big corporations than do those with coordinated-market economies, with a comparatively smaller role for SMEs, and flexible labor policies are dominant.
The limited degree of automatic coverage for workers and businesses drives a focus on emergency support-of-wage bills for companies and direct transfers to individuals. More companies will fail in such economies, and the reliance on massive cash transfers in those countries will increase the pressure to build a robust digital infrastructure. However, creative destruction in the least resilient sectors will provide more flexibility to pivot and emerge from the crisis stronger and more competitive, provided that economic shutdowns do not last too long, as unemployment can become sticky, driving up costs and dampening consumption in the longer term.
The crisis has severely affected many emerging-market economies, and the countries in that archetype will need to be innovative and highly targeted with limited funding. Examples here include Egypt, Kenya, and Nigeria. Southeast Asian countries, such as Indonesia and the Philippines, have managed to curtail large outbreaks of COVID-19 (as compared with Europe and North America) but still face many of the same challenges as other emerging markets. The countries have large informal sectors in their economies and limited resources, which has led to more modest relief and stimulus packages—typically, considerably less than 10 percent of GDP.
Countries with emerging-market economies face a funding gap: their central banks have limited “headroom” to intervene, and they have lower debt resilience because of higher debt-to-GDP ratios and higher costs of debt. Egypt, for example, spends as much as 9.6 percent of its GDP on servicing its debt. Monetary tools are also used to a lesser degree (liquidity injections are 1.7 percent of GDP to date, compared with more than 5 percent in many advanced economies), with more vulnerable currencies limiting the ability of central banks to intervene.
With very little room to support businesses, such countries are mainly relying on donor support. Efforts generally focus on vulnerable households. Typical measures include reductions in lending rates, postponements of government fees, and increased access to financing. Looking ahead, the countries will need to be innovative with the limited funding at their disposal, targeting resources to the households and businesses that are most vulnerable and to the sectors that will be most critical in the recovery.
Different archetypes, different trade-offs and choices
The shape of post-COVID-19 economies may depend on governments’ actions today. Notably, there could be a trade-off between buying stability and competitiveness. For example, some countries with coordinated-market economies have protected the status quo by enacting longer-term measures (large-scale guarantees and equity injections) to provide sustainability and protect jobs, while some countries with liberal-market economies have provided relief to those who have lost income or become unemployed. This can be seen in the type of funding: countries with liberal-market economies have provided approximately 60 percent of total relief measures in direct value transfers and loans, compared with only around 10 percent in countries with coordinated-market economies, which have spent around 80 percent of stimulus measures on guarantees.
The effects are already starting to emerge. According to the International Monetary Fund, the unemployment rate in the United States is expected to increase threefold (to 10.4 percent, from 3.7 percent) from the fourth quarter of 2019 to the fourth quarter of 2020. The unemployment rate in Germany is expected to increase marginally (to 3.9 percent, from 3.2 percent) over the same period.
However, keeping unviable companies alive may prevent seizing the crisis as an opportunity to adapt and pivot to lasting changes, such as an increased requirement for digitization and automation. Countries with fewer protections in place that are focusing on protecting employees while providing lower long-term support for companies may give themselves the opportunity for a fresh start—and shape more future-proof economies as a result (Exhibit 5).
Optimizing the effectiveness of delivery: Considerations for governments
Ensuring the effective delivery of financial relief will need to be a key priority for all countries. The unprecedented size of the financial measures announced to date poses major challenges in pushing the money to those who need it first—and fast. Our review of selected countries’ delivery mechanisms (Exhibit 6) shows that income-support measures have taken from one day to more than two months to reach vulnerable populations. And despite the surge in unemployment in many countries, large portions of recently unemployed people have not been able to make claims on unemployment-insurance funds.
Our global scan of countries’ approaches to delivery suggests that there are three crucial success factors. The first is to scale up social-support infrastructure. Countries without sufficient infrastructure need to repurpose existing structures or create new and innovative disbursement channels rapidly. Morocco, for example, has enrolled in its RAMED system more than two million households that were previously not eligible.
Countries with existing social-support infrastructure have managed to support vulnerable populations immediately without the need for special response measures. That resolves the need for special distribution mechanisms to be built, as well-tested systems are already in place. In Denmark, for example, kontanthjælp has already designated current accounts for citizens, who are payed at the end of the month if they require social assistance.
A second key success factor for delivery, which supports the first, is to strengthen digital delivery. Digital delivery platforms have emerged as key instruments in delivering funds to households. Some of the quickest delivery vehicles have come from emerging markets and are the more inspiring success stories of the global response to date.
In Peru, for example, authorities are leveraging earlier successes in channeling government-to-person payment through accounts to increase payments to old and new beneficiaries during the emergency and are expanding the set of financial-service providers.6 Pakistan has mobilized rapidly, using existing digital infrastructure to identify 12 million vulnerable households (70 million to 80 million people). Applications for benefits have been enabled through mobile phones, and funds are disbursed through 18,000 locations that have physical-distancing measures in place and use biometric verification of all beneficiaries. Around 70 percent of the support to date has gone to women. As part of setting up that relief effort, Pakistan is in the process of adding 3.5 million families to the government database of the most deserving and helping more than seven million people open bank accounts for the first time.
Real-time tracking is critical to enable effective delivery. Traditional monitoring systems cannot do this job, because of the low frequencies and lengthy time lags of data collection and processing (for example, most countries will not find out until July 2020 what happened with GDP growth in the first quarter of 2020). Two tools can help governments make more effective decisions throughout the crisis: dashboards with nontraditional, advanced analytics and data (updated daily or weekly) and regularly conducted surveys of core segments of households and businesses (for example, SMEs) to check their pulse and identify any need for course correction.
Of course, the use of digital platforms needs to be coupled with stringent security measures, such as raising user awareness on data leakage and increasing monitoring capacity to prevent cyberattacks and fraudulent access of relief funds. Certain countries have already fallen victim to fraudulent parties gaining access to funds.
Last, but by no means least, it is critical that governments design interventions in a way that accelerates delivery. While broad income distribution can be challenging when delivery mechanisms do not exist, several countries have led the way by enacting immediate relief measures, such as eliminating waiting periods before people can claim unemployment benefits and subsidizing or discounting basic utility fees for companies and households. Furthermore, stimulus will only be effective if individuals and businesses spend, rather than save, what they receive. Some countries have increased recipients’ propensity to spend by providing in-kind support through coupons and food vouchers.
Expense mechanisms, even if deferring expenses, can be a much faster-acting measure when automatic social-support measures are not in place. Our analysis of the total support provided to households showed that some countries have managed to provide up to 40 percent of the average assistance to households by waiving nondiscretionary and government expenses and thereby offering households instant relief. Several countries have implemented particularly rapid measures. France, for example, has suspended water, gas, electricity, and rent bills, as well as tax and social-contributions payments for small businesses affected heavily by the COVID-19 crisis. Malaysia has provided a 15 percent discount on monthly electricity bills for hotels, travel agencies, airlines, shopping malls, and convention and exhibition centers.
Looking ahead: Planning now for the recovery
As we have discussed, the world’s economic response to date has focused on relief. Further interventions will likely be necessary to revive aggregate demand once economies reopen if consumer and business sentiments do not fully rebound, resulting in muted spending and investment.
In the United States, for example, the $3 trillion economic response to the COVID-19 crisis has been allocated almost entirely to immediate relief measures. In contrast, the American Recovery and Reinvestment Act of 2009 allocated 55 percent of its total funding—approximately $450 billion—to stimulate industries and revive aggregate demand by investing in infrastructure expansions in the transport, healthcare, education, and energy sectors.
While many of the lessons learned from recovery in earlier economic crises can be helpful in designing a recovery plan for the COVID-19 crisis, there are at least four areas that are specifically relevant to the current context:
Green energy. Accelerate government investment in clean energy and incentivize companies to improve energy efficiency.
Why it matters. Although COVID-19 is not directly linked to climate change, public opinion is in favor of recovery actions that also address the green agenda. Close to 70 percent of surveyed respondents say climate change should be prioritized in recovery efforts. Environmental and economic impact can be complementary: creating a low-carbon stimulus program for one European country has been estimated to require an investment of between €75 billion and €150 billion, which would produce €180 billion to €350 billion of gross value added and create up to three million jobs.
Digitization and the next technology wave. Accelerate government digitization and support companies in adopting new technologies.
Why it matters. Adoption of digital technology and artificial intelligence (AI) was a fast-accelerating trend even before the COVID-19 crisis. Digital technology is forecasted to rise to 66 percent absorption, from 37 percent, by 2030, whereas AI absorption is expected to increase to 50 percent, from 7 percent, over the same period. The shift to a contactless economy, driven by the pandemic, will contribute to that acceleration. The United States has seen a 20 percent increase in preference for contactless operations, with numerous industries adapting to this change. Payment, retail, food, accommodation, education, and health are among the areas that will be significantly affected by the trend.
Shaping the workforce of the future. Upskill the workforce to be able to remain productive in a future of increased automation.
Why it matters. Automation and AI will prompt large-scale workforce transition over the coming years. Even with today’s technologies and knowledge, 60 percent of occupations have around 30 percent of tasks that are technically automatable. Many occupations will see growing demand, while others will shrink, leading to 75 million to 375 million workers potentially needing to switch occupational groups by 2030.
Resilience of supply chains and security of essential goods. Support the creation of local industries that will increase countries’ resilience.
Why it matters. From early on in the COVID-19 crisis, governments and businesses alike were forced to go into emergency mode to mitigate the impact on supply chains. The crisis revealed weaknesses or risks in various market segments, such as governments banning exports of food or medical products and businesses struggling to maintain production. Looking ahead, governments and businesses will seek to build resilience against future shocks.
Governments have acted quickly, with an unprecedented outlay of fiscal spending, to respond to the immediate effects of the COVID-19 crisis, such as the surge in unemployment among low-income groups. Immediate next steps include ensuring that what is announced gets delivered at the expected pace and efficiently. Governments will need to consider and adapt to a range of longer-term trends that have been accelerated by the crisis when shaping their recovery packages. Implementing an evidence-based approach that considers the themes discussed in this article can make a significant difference in recovery programs’ magnitude of economic impact.
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