What strategy consultancy McKinsey says about the coronavirus

16 March 2020 Consultancy.asia 3 min. read
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As businesses across the globe struggle due to the unfolding coronavirus pandemic, the services of the world’s leading strategy consulting firms may become more important than ever. Here’s what they’ve had to say to date: McKinsey & Company.

In an age of globalisation and complex supply chains, the unfolding coronavirus pandemic is an unprecedented situation for international business, with the continuing uncertainty already rocking global markets and the ultimate economic impact for now unknown. One thing is for certain though, businesses both big and small will feel the brunt – including many which are unlikely to survive the disruption. Here, strategy consultants may be more important than ever.

McKinsey & Company

The undisputed king of the management consulting realm, McKinsey & Company last week released its latest briefing note on COVID-19, describing the outbreak as first and foremost a human tragedy. Intended to aid business leaders by providing a perspective on the implications for companies, McKinsey notes the rapidly evolving situation, but suggests that with a range of outcomes still possible then decision-makers shouldn’t necessarily assume the worst.

“In our view, the prevalent narrative, focused on pandemic, to which both markets and policy makers have gravitated as they respond to the virus, is possible but underweights the possibility of a more optimistic outcome,” McKinsey notes, while acknowledging the next phases of the outbreak are ‘profoundly uncertain’. In an attempt to distinguish the things “we know from those we don’t,” and the potential implications, the firm outlines three potential economic scenarios.

Global economic modeling of impact from coronavirus

Firstly the firm outlines the basic facts; the virus is more infectious than influenza and highly transmissible, and disproportionately affects older people with underlying conditions. Meanwhile, we’re still awaiting a clearer picture on several factors, including the extent of milder cases, its seasonality, and questions around incubation periods and asymptomatic transmission – that is, whether people can pass on the virus without showing symptoms.

With that current framework in place, McKinsey outlines three broad economic scenarios which might unfold: a quick recovery, a global slowdown, and a pandemic-driven recession. In the best case quick recovery scenario, case numbers continue to grow, but the inevitable drop in demand and strong public reaction quickly peaks and subsides as other countries get across the issue in the same manner as authorities in China. Concern may also ebb as the disease spreads.

Under this scenario, McKinsey’s economic modeling (developed in partnership with Oxford Economics) suggests that global GDP growth falls from previous estimates of around 2.5 percent to about 2.0 percent in 2020, with East Asia among the most heavily hit. In the pandemic-driven recession scenario however – which assumes the virus isn’t seasonal and that other countries cant replicate the rapid control witnessed in China – global growth could drop to just 0.5 percent.

McKinsey is quick to reiterate that these are just the one perspective, in a highly fluid situation. But the firm has some free advice for businesses of all kind, outlined in seven steps that can be taken now – including protecting employees, setting up a cross-functional response team, stabilising the supply chain, staying close to customers, practicing the plan, and ‘demonstrating purpose’ – such as by supporting response efforts through money, equipment, or expertise.