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March 30th, 2020
Virtual roundtable – post-event summary
Value Creation and Transformation in Advanced Industries
McKinsey & Company 2
Attendees (1/3)
March 30, 2020
Paula HJ CholmondeleyCEO at The Sorrel Group, BoD – Nationwide Mutual Funds,
Terex Corp., Bank of the Ozarks
Tony EarleyBoD – Ford, Southern Company
Jim BemowskiBoD – Hyster-Yale Material Handling
William J. AmelioCEO of Avnet, BoD– S&P Global
Martin FlemingVice President and Chief Economist – IBM Corp
Dave BurrittPresident and CEO – United States Steel Corp
Deborah A. FarringtonCo-Founder and Managing Partner – StarVest Partners and BoD
NCR
Samih ElhageSenior Advisor – McKinsey & Company and to Madison
Dearborn Partners; BoD – Cogeco
Bob BruggeworthPresident and CEO of Qorvo, BoD – MSA Safety,
Semiconductor Industry Association
Lynda ClarizioBoD – CDW
McKinsey & Company 3
Attendees (2/3)
March 30, 2020
Kathleen LigockiBoD – Lear Corporation, Carpenter Technology, Farmers
Business Network
Betsy HoldenBoD – National Retail Properties, Western Union, Dentsply
Sirona
Mike NevensChairman – NetApp,
BoD – Ciena, Senior Advisor – Permira
Robert HanserBoD – LKQ Corporation, Hitched Holdings
Kai Haakon E. LiekefettPartner and Co-Chair – Sidley’s Shareholder Activism
Practice
Linda Fayne LevinsonChair of the Board – Hertz, Ind. Lead Director – Jacobs
Engineering Group and a Director of Ingram Micro, and NCR
Sanjay MehrotraCEO – Micron Technology
Frank JaehnertBoD – Nordson Itron, Briggs & Stratton, NMLP
Tom GrecoPresident and CEO – Advance Auto Parts
Jonathan GrahamPartner in Industrial Practice – Heidrick & Struggles
McKinsey & Company 4
Attendees (3/3)
March 30, 2020
Sheila TaltonBOD - Deere & Company, OGE Energy Corporation, Sysco
Corporation; President and CEO – Gray Matter Analytics
Dominick ZarconePresident & CEO – LKQ Corporation;
BoD – Generac Power Systems
Cindy NiekampBoD – Ball Corporation, Magna International
Neil NovichBoD – Grainger, Analog Devices,
Leslie VaronBOD – Dentsply Sirona
McKinsey & Company 5
Institutions represented
>1.5 Million Employees
>$100 Billion EBITDA
>$600 BillionRevenue
>$1 TrillionMarket Cap
20% to 80%% Decline in Stock Price after
COVID-19
McKinsey & Company 6
Your McKinsey Partners
Asutosh Padhi
Senior Partner, Chicago
Global leader Advanced
Industries
Sven Smit
Senior Partner, Amsterdam
Leader McKinsey Global
Institute
Nick Santhanam,
Senior Partner, Silicon Valley
Americas leader Advanced
Electronics & Semiconductors
Jannick Thomsen
Partner, New York
Leader Strategy and
Corporate Finance
Harsha Krishnamurthy
Partner, Chicago
Leader Operations and
Advanced Analytics
Susan Lund,
Partner, Washington DC
Leader McKinsey Global
Institute
Varun Marya
Senior Partner, San Francisco
Americas leader Aerospace &
Defense
McKinsey & Company 7
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
McKinsey & Company 7
Current as of March 25, 2020
McKinsey & Company 8
Market capitalization declined across sectorsWeighted average year-to-date local currency total shareholder returns by industry in percent1. Width of bars is starting market cap in $
-20
-50
-30
-40
0
-10
-45
-35
-25
-15
-5
Source: Corporate Performance Analytics, S&CF Insights, S&P Global
Oil & Gas
Air & Travel
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
AS OF MARCH 25 2020
BanksAutomotive
& AssemblyRetail
Advanced
ElectronicsPharma
Electric Power
& Natural Gas
Basic
Materials
Commercial
Aerospace Defense
Transport &
Infrastructure
McKinsey & Company 9
The hardest hit sectors may not see restart until 2021Preliminary views of hardest hit sectors based on delayed recovery scenario - subject to change
Current as of March 25, 2020
Source: IHS Market, McKinsey Global Institute, Subject matter experts, press reports, Corporate Performance Analytics, S&CF Insights, S&P Capital IQ
Estimated
global restart
Industry specific
examples
Avg. change in
stock price
Longest
Automotive
Q3 2020
-35%
Existing
vulnerabilities
amplified by acute
decline in
Chinese demand
Headwinds to
persist given tight
inventories and
supply chain
complexity
Oil and gas
Q3 2020
-48%
Oil price decline
Oversupply
expected to
remain in the
market even after
demand
recovery,
Air & Travel
Q1 / Q2 2021
-51%
Deep, immediate
demand shock
Recovery pace
faster for domestic
travel
Aerospace/defense
Q3 / Q4 2021
-47%
Aircraft delivery
shocks
Aftermarket
maintenance will be
deeply impacted
Advanced
Electronics
Q3 / Q4 2020
-26%
Price increase on
components
Delayed R&D or
product launch
Late delivery and
installation of
equipment
Limited technical
support for
customers
McKinsey & Company 10
The Imperative of our Time“Timeboxing” the Virus and the Economic Shock
Source: McKinsey analysis, in partnership with Oxford Economics
~ -8 to -13%
Economic
Shock
1a1b
1c
2a
2b
2c
Imperative 1: Safeguard Our Lives
1a. Suppress the virus as fast as possible
1b. Expand treatment and testing capacity
1c. Find “cures”; treatment, drugs, vaccines
Imperative 2: Safeguard Our Livelihoods
2a. Support people and businesses affected by
lockdowns
2b. Prepare to get back to work safely when the
virus abates
2c. Prepare to scale the recovery away from a
-8 to -13% trough
McKinsey & Company 11
Virus contained, but sector damage;
lower long-term trend growth
Virus recurrence; slow long-term growth
Pandemic escalation; prolonged
downturn without economic recovery
Virus contained, growth rebound
Virus recurrence; slow long-term growth
Muted World Recovery
Pandemic escalation; slow progression
towards economic recovery
Virus contained; strong growth rebound
Virus recurrence; return to trend growth
Strong World Rebound
Pandemic escalation; delayed but full
economic recovery
A3
A1 A2
A4B1
B2
B3 B4 B5
Scenarios for the Economic Impact of the COVID-19 CrisisGDP Impact of COVID-19 Spread, Public Health Response, and Economic Policies
Virus Spread & Public Health Response
Effectiveness of the public
health response
in controlling the spread
and human impact
of COVID-19
Effective Response, but
(regional) Virus recurrence
Public health response initially succeeds
but measures are not sufficient to prevent
viral recurrence so social distancing
continues (regionally) for several months
Broad Failure of
Public Health Interventions
Rapid and effective
Control of Virus Spread
Strong public health response succeeds
in controlling spread in each country
within 2-3 months
Public health response fails
to control the spread of the virus
for an extended period of time
(e.g., until vaccines are available)
Knock-on Effects & Economic Policy ResponseSpeed and strength of recovery depends on whether policy moves can mitigate
self-reinforcing recessionary dynamics (e.g., corporate defaults, credit crunch)
Ineffective
Interventions
Policy responses partially offset
economic damage; banking crisis
is avoided; recovery levels muted
Partially Effective
Interventions
Self-reinforcing recession dynamics
kick-in; widespread bankruptcies and
credit defaults; potential banking crisis
Strong policy responses prevent
structural damage; recovery to pre-
crisis fundamentals and momentum
Highly Effective
Interventions
McKinsey & Company 12
Scenario A3Virus containedReal GDP, Local Currency Indexed
105
100
110
85
95
90
Q2 Q3 Q4Q3Q1 Q4 Q4Q2Q1 Q3Q2Q1
Real GDP Growth – COVID-19 CrisisLocal Currency Units Indexed, 2019 Q4=100
Eurozone
United states China1
World
2019 2020 2021
Source: McKinsey analysis, in partnership with Oxford Economics
1. Seasonally adjusted by Oxford Economics
-3.3% 2020 Q3-0.4%China
-8.0% 2020 Q4-2.4%USA
-4.9% 2020 Q4-1.5%World
-9.5% 2021 Q1-4.4%Eurozone
Time to Return
to Pre-Crisis
Quarter
Real GDP Drop
2019Q4-2020Q2
% Change
2020 GDP
Growth
% Change
McKinsey & Company 13
Scenario A1 Muted RecoveryReal GDP, Local Currency Indexed
110
100
85
90
105
95
Q2 Q2Q1 Q3 Q4 Q1 Q3 Q4 Q1 Q2 Q3 Q4
Real GDP Growth – COVID-19 CrisisLocal Currency Units Indexed, 2019 Q4=100
World
China1United states
Eurozone
2019 2020 2021
Source: McKinsey analysis, in partnership with Oxford Economics
1. Seasonally adjusted by Oxford Economics
-3.9% 2021 Q2-2.7%China
-10.6% 2023 Q1-8.4%USA
-6.2% 2022 Q3-4.7%World
-12.2% 2023 Q3-9.7%Eurozone
Time to Return
to Pre-Crisis
Quarter
Real GDP Drop
2019Q4-2020Q2
% Change
2020 GDP
Growth
% Change
McKinsey & Company 14
0
-25
-30
-20
-15
-10
-5
19301900 1910 1920 1940 1950 1960 1970
-8%
1980 1990 2000 2010 2020
-13%
COVID-19 US impact could exceed anything since the end of WWII
Source: Historical Statistics of the United States Vol 3; Bureau of economic analysis; McKinsey team analysis, in partnership with Oxford Economics
Scenario A1
Scenario A3
Pre-WW II Post-WW II
United States Real GDP
%, total draw-down from previous peak
McKinsey & Company 15
Planning ahead for the imperative now
Insights team focused on finding the truth
Operations team focused on delivering effects
Plan ahead team focused on creating future scenarios
Inform and instruct team focused on ensuring that everyone knows and does
what they are supposed to do
4 separate teams – inspiration from the army
McKinsey & Company 16
Companies in advanced industries need to think and act across five horizons
Resolve Resilience Return Reimagination Reform
Address immediate
challenges that COVID-19
represents to workforce,
customers, and partners.
E.g.,
Establish nerve center
to steer organization
Screen and safeguard
global supply chains
Monitor indicators such
as reductions in spend
on durable goods
Address near-term cash-
management challenges
and broader resiliency
issues during virus-related
shutdowns. E.g.,
Set up “cash war
rooms”
Move faster on
productivity to
preserve growth
capacity
Create plan to return
business to scale quickly
and safely as COVID-19
situation evolves. E.g.,
Match volume to actual
demand
Monitor global supplier
networks to ensure
readiness
Redesign workspaces
to further limit viral
spread and maintain
worker safety
Reimagine the next normal:
what a discontinuous shift
looks like and implications
for how institutions should
reinvent. E.g.,
Shift towards redundant
sourcing
Consider shifting more
business to ecommerce
Seek M&A opportunities
given historic lows in
market capitalization
Be clear about how
regulatory and
competitive environments
in industry may shift. E.g.,
Increasing workforce
flexibility including
remote work and
flexible hours
Increasing resilience in
supply chains such as
“local-to-local”
sourcing
1 2 3 4 5
Here’s how it applies to automotive and industrial companies
McKinsey & Company 17
Questions
The path to the next normal and
how we can navigate to what’s
next
1 Resolve: How do we determine the scale and pace of action
required? Can Chinese consumer data help predict
rebound in the US and EU?
2 Resilience: Can we move faster on productivity? Can we build
resiliency dashboards of leading indicators?
3 Return: What can we learn from AI players already ramping
back up to safely restart production facilities? How do
we match volume with actual demand?
4 Reimagination: How might our go-to-market approaches change (will
there be greater emphasis on rentals and leasing)?
Can we shift from fixed to variable costs?
5 Reform: How can we shift our globalized supply chains to
more local sourcing?
McKinsey & Company 18
Featured insights
Safeguarding our lives and our
livelihoods: The imperative of our
time focusing on the impact of
the health driven response to the
virus and the impact of the
corresponding policy responses
on the economy.
Beyond coronavirus: The path to
the next normal, that sets out the
5 steps that leaders must
navigate to get from today to the
economy that will exist after the
battle against COVID-19 has
been won.
Coronavirus: Five strategies for
industrial and automotive
companies, that lays out actions
that Advanced Industries
companies must undertake to
rebound from the coronavirus
pandemic
Other insights on how organizations can respond, and what happens next can be found here
McKinsey & Company 19
Next session:
May 4th – 2pm CT / 3PM ET
McKinsey & Company 20
Your McKinsey organizing team
Mark Sawaya
Engagement Manager,
Cleveland
Advanced Industries
Kate Pancratz,
Executive Assistant,
Chicago
Advanced Industries
Jesse Salazar
External Relations
Manager, Washington DC
Advanced Industries
Gitanjali Bakshi
Communications Specialist,
Atlanta
Global Communications
Kristy Shelley
Practice Manager, Detroit
Advanced Industries