How leading companies chart a full-potential COVID-Exit 

How leading companies chart a full-potential COVID-Exit 

Half measures won’t work when your company emerges from a crisis.

Digital article by Kevin LaczkowskiMartin Hirt, Justin Sanders, Becca Bauman, and Keith Martin

As CEOs look ahead to 2021 and develop their COVID-Exit strategies, one concern looms largest: “How do we get this right?”, McKinsey spoke with multiple CEOs across industries, geographies, and situations, from companies that are still in survival mode, to those that have regained their footing and are ready to leap, to those that have found ways to thrive during this period of unprecedented adversity. Almost to a person, these leaders spoke about how they are now looking to hit the right trajectory out of the pandemic, and make the right COVID-Exit.

Like so much relating to COVID-19, “heading for the exit” is not straightforward. Achieving the right trajectory calls for making tough choices, including whether to transition from survival mode to normalcy—or, ideally, to something even better: an “optimized state” for the post-COVID-19 world. How much should your organization pivot, and how fast? Amidst so much tumult and disruption, how far should you go to change your steady ship to adopt faster and more agile approaches? In fact, as we’ve found, agility and stability go hand in hand. If your organization doesn’t move quickly, it will lose balance; the race, especially over the long term, is to the quick.

All of which begs the question: If you are ready to transform, what does change actually look like? Our research on the “all in” approach to transformation illuminates what we’ve found to almost always be the best way forward: full speed ahead. Our findings from past downturns confirm, as well, that companies that take an all-in approach emerge stronger and sustain that competitive advantage for almost a decade afterward. Whether your organization’s transformation should be primarily or equally about portfolio moves or performance improvements misses the point. To succeed, you need to consider both, and your transformations need to go big.

In this article, we dive deeper into the “how” of a successful COVID-Exit strategy and highlight two organizations that found success by going all in on their holistic transformations.

Three steps toward successfully optimizing for a post-COVID-19 future

Organizations that successfully manage portfolio and performance moves simultaneously in a transformation begin the process by investing in three foundational steps:

  • Attaining an unvarnished, no-holds-barred view of the full potential of the business across both portfolio and performance moves.
  • Understanding the interdependencies and implications of timing for those moves.
  • Structuring a program with thoughtful sequencing that maximizes value creation.

In assessing a business’s full potential, empirical evidence clearly shows the importance of setting a high aspiration. Our recent research has shown that companies that set gross transformation targets at 75 percent of trailing earnings (or higher) were more likely to create value in a sustainable way.

As counterintuitive as this may seem, incrementalism is especially risky, particularly for organizations trying to break out of what feels like a COVID-19 perpetual crisis. Management teams seek safety to confront the prevailing uncertainty and, as a result, drift toward the familiar and avoid the discomfort associated with choosing this time to go for big moves. This might well be your best chance to put the “full” in “full potential,” challenge assumptions, and overcome the social factors that so often block bold moves.

It’s essential to your transformation that you follow through on the hard questions, particularly:

  • Which businesses are the company no longer the natural owner of? And which businesses could be lifted by trends accelerated by COVID-19?
  • What efficiencies and new-business models have been generated out of necessity as a result of COVID-19, and how can the organization capitalize on these in the next normal?
  • Has the organizational health of the company changed? What elements of organizational health and capability building will be required to maximize the impact of the COVID-Exit?

As you mind the balance between portfolio and performance moves, you’ll also need to mind the sequencing. In practice, portfolio and performance initiatives need to be complementary—each move must be considered by defining the magnitude of impact, understanding the timing of impact, and evaluating the potential risk of impact.

Across a large sample of companies, we’ve found that stand-alone portfolio moves capture less than half of the value creation, typically through areas such as performance upside, deal premiums, or by growing new businesses. Even so, stand-alone performance moves still present an opportunity to capture significant upside, although they can take time and may be outweighed by acquiring the wrong businesses if your strategy is ill-conceived. 

Read the full report here.

2021-01-12T18:30:22+00:00

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