Will productivity and growth return? An author of our new McKinsey Global Institute research discusses.

A retailer reduced an 18-month timeline for launching curbside pick-up to two days. A luxury hotel switched to housing essential workers with sanitized protocols in a week. A makeup company accelerated its digital transformation, gaining three years of e-commerce growth in eight weeks.

The stories of business innovation and rapid change across industries spurred by the pandemic are remarkable. But will this activity translate into a period of widespread productivity growth in the coming years?

In the newest McKinsey Global Institute (MGI) report, our analysts explore productivity and economic growth after the COVID-19 crisis across seven countries and eight sectors. Marc Canal Noguer, an engagement manager in our London office, joined McKinsey in 2014 and splits his time between MGI and several industries, including banking and consumer packaged goods, among others. Here, he shares a bit about his background and career, and provides an inside view of the findings.

Let’s start by talking a bit about your background.

Productivity and growth: will it return after the pandemic?
Upgrading skills is a critical factor for increasing productivity.
Productivity and growth: will it return after the pandemic?

I was born in Granollers, a small city outside Barcelona, where my family still lives. I am one of two children—I have a brother—and I was there until I was 22. My dad managed a small car dealership in town, and my mum started up her own company in her forties—an English language and travel program for kids. She is quite an entrepreneur! I went to college at Esade, in San Cugat, next to Barcelona, and earned graduate business and economics degrees in Paris and London. I have also lived in Madrid, Singapore, and Chicago. So Ive lived in quite a few places.

MGI has studied productivity for over 30 years. How did you personally get involved in the topic?

It is the most exciting topic in the world! It asks what are the roots of economic prosperity, right? Why do some societies get rich? And productivity is certainly the most important factor over the long run to explain prosperity, which ultimately affects all of us.

Since you raised it, we’ll ask: why do some societies get rich?

Ultimately, in my opinion, it has to do with innovation and technological change. Any explanation of the roots of prosperity needs to tackle why a society gets innovative, why ideas emerge and flow, and how they result in new and better technology.

Can you give us a quick definition of productivity?

Sure. Basically, productivity measures the amount of value created for each hour that is worked in a society. So, at the end of the day, the way to increase value for society is to either permanently add hours worked or increase the productivity or the value of each of those hours worked.

Will productivity and growth return after the COVID-19 crisis?

Will productivity and growth return after the COVID-19 crisis?

Bold innovation by some firms under pressure of the pandemic could deliver a productivity dividend, but that depends on corporate action broadening and robust demand.

During the pandemic, a lot of companies have been forced to significantly accelerate the adoption of digital and other technologies, changing their business models and ways of working. In the process, many became more productive.

Yes, and there's some initial evidence that the gains in productivity have been so far mostly in large leading firms, what we call ‘superstar’ firms, particularly in the United States. These are the bigger companies with the financial muscle and higher-skilled talent necessary to withstand the massive shocks created by the pandemic.

Having innovation and investment in technology is great, but to generate an overall increase in productivity across an economy it has to be diffused, for example, among a company’s whole ecosystem of suppliers and partners. Otherwise, you can end up with only a few very innovative firms and a long tail of what you could call “laggards” or “zombies.”

Beside diffusing innovation, what other factors influence overall productivity?

Over the long run, skills are one of the main drivers behind productivity growth: companies need to have access to and invest in the skills of their people so they can keep up with and advance their innovations. And higher skills mean people can earn higher wages, which in turn creates greater consumption or demand for products and services—a ‘virtuous cycle.’

What are the two main takeaways from this report?

In terms of GDP growth, 2020 was the worst year since World War II. But what we're pointing out here is, not withstanding that, theres a silver lining: the opportunity to increase long-awaited productivity growth, which would mean higher living standards over the long run.

The second takeaway is that for that to happen, we need innovation that is diffused among multiple industries, and we need there to be demand.

And while its great businesses are innovating to save money and reduce costs, they also need to invest in skilling their people and innovating and uplifting their products and services. There’s also a role for governments and policymakers to gradually move their spending from supporting businesses and individuals, to investing and creating the right conditions for the private sector to invest in infrastructure, climate change mitigation, research and development, and skills for long-term returns.

Which industries have been particularly innovative over this past year and will those changes stick?

Productivity and growth: will it return after the pandemic?
Marc Canal, a McKinsey engagement manager, who helped lead the research
Productivity and growth: will it return after the pandemic?

Two interesting ones come to mind, particularly because they have been slow in the past. One is healthcare and the rise of telehealth. In the United Kingdom, virtual consultations jumped from 10 to 85 percent during the pandemic, and part of this change will certainly stick; in the United States, 76 percent of patients expressed interest in using telehealth in the future. Telehealth replaces physical trips to healthcare facilities. It could reduce the number of emergency room visits and help manage mental health. It offers a number of benefits from widening geographic reach to improving quality of care and, not to mention, reducing costs.

Construction is another interesting example. During the pandemic, more processes and work had to be digitized and moved off site. In construction, digitization is a lot about using digital twins or building-integration modeling. It can also be used in supply chain planning, cost estimation, and timeline development. With digital twins, workers and subcontractors can then also be managed and supported with tablets that have the latest plans, or even use augmented reality tools on site. These technologies significantly reduce errors, rework, and costs, accelerating schedules and improving overall quality. There’s no going back.

In terms of your own personal productivity, is there anything you've learned during the pandemic?

The fact of not having to commute for an hour and a half a day, by definition, makes you more productive. Thats quite important.

But one critical and often misunderstood thing about productivity is that it’s not just about doing things quicker. Its also about learning—the skills building we talked about, or what economists would call “human capital accumulation.”

And with the pandemic, pretty much everything happens over Zoom nowadays. Conferences that you could never attend before where a Nobel Prize economist is presenting a new theory, all of a sudden, are available and free on Zoom.

So, Ive learned a lot more. That certainly increases my productivity, and it is probably more important than being more efficient at doing something. This is my personal silver lining.

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