As the world stands at the start of 2022, consider this: Economic growth, if pursued sustainably and inclusively, could be a force for societal good.
The past two turbulent years have pressure-tested nearly every aspect of modern life with immense human and economic consequences—and uncertainties remain. As McKinsey wrote in a recent report, the months ahead will likely see risks ranging from the economic to the geopolitical; but those who successfully navigate the headwinds could unlock meaningful growth.
If business leaders respond strategically to the productivity and growth accelerants in front of them, we may see a post-pandemic boom with the potential to benefit society on a large scale.
Growth lays a foundation for a future where millions more could prosper. It is the springboard for progress toward inclusion, helping to create well-paid jobs for more people. And it is a critical enabler of sustainability, helping generate sufficient funding for the climate transition.
For CEOs, now is the time to consider seven questions that can help gauge your readiness for the critical moments ahead:
- Are you adopting a strong growth mindset in your medium-term strategy as the pandemic evolves? This may be the moment for CEOs to make bold decisions to reshape the direction of their organizations and realign capital and talent accordingly. Key actions will include staying responsive and flexible in resource allocation to meet changing market opportunities, including capital expenditure, operating expenditure, R&D, and employees.
- Are you spending as much time creating new businesses as you are improving your business? Building new businesses has emerged as the top priority for organic growth. In a recent McKinsey study, 74% of companies that chose business building as their main strategy grew at rates above their industry average. These companies allocated, on average, one-third of their organic-growth capital to business building — more than twice as much as the laggards.
- Is your organization ready for the energy transition and the immense economic impact it could carry? Average annual investments in energy and land-use system transformations may need to increase by 60% ($3.5 trillion) to meet a net-zero emissions goal by 2050. In this context, companies could consider measures to ramp down high-carbon businesses, grow new low-carbon ones, and manage changes to cost structure and supply chains. In tandem, they could build capabilities to regularly assess risks and opportunities while learning, adapting, and engaging continually with top teams and boards to set energy and sustainability agendas.
- Are you embracing new technology as quickly and holistically as you did new ways of working at the start of the pandemic? The impact of new technology on the bottom line is growing. Artificial intelligence gives us a powerful example: 27% of business leaders now report at least 5% of earnings before interest and taxes is attributable to A.I.. This may be especially true of companies following best practices, relying on cloud, and making incisive investments.
- Are you investing in human capital with the same discipline and intensity as your capital expenditures? Leading companies are getting creative to build the workforce they need. This includes hiring based on skills, not just degrees, and partnering with universities and ed-tech platforms to train employees in skills that complement automation. Some companies are using remote work to broaden recruiting efforts, while others are using “return to work” as a cultural reset.
- Are you re-mapping your global footprint in response to outside stressors? Supply chain resiliency has assumed new prominence in the wake of the pandemic, physical climate risks, and geopolitical shifts. As governments review critical supply chains, business leaders could take stock, too, and consider such actions as dual sourcing, holding more inventory, moving operations closer to consumers, diversifying supply chains across countries, and shifting focus from vertical integration to securing control points.
- Are you jump-starting a strong growth orientation in your leadership team and board? During the pandemic, the most adaptive boards increased focus on external risks and corporate purpose. Simultaneously, collaboration between boards and management teams grew, with improved ways of working that may outlast the health crisis. Companies can build upon this by aligning leadership teams and boards on their organizations’ medium-term stance on growth, new business building, capital reallocation, and investment in talent to deliver holistic impact.
Business leaders have the chance to enter this new year with eyes wide open to the risks ahead and manage them closely while, at the same time, forging the bold experimentation taken so far into potentially long-term sustainable and inclusive growth.
Asutosh Padhi is McKinsey & Company’s managing partner for North America, based in Chicago. Sven Smit is cochair of McKinsey Global Institute and a senior partner in Amsterdam.Anu Madgavkar, based in New Jersey, is a partner with the McKinsey Global Institute.
Never miss a story: Follow your favorite topics and authors to get a personalized email with the journalism that matters most to you.