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The Shortlist
Our best ideas, quick and curated | january 14, 2022
This week, how to think about starting a new business before you start one. Plus, the State of Fashion 2022 report on the industry’s uneven recovery, and Frank D’Amelio, the CFO of Pfizer, on the all-hands-on-deck approach to a COVID-19 vaccine.
A young plant coming out of the soil
Bridge to the future. The more new businesses you build, the better you get at building them. That’s the key takeaway from the latest McKinsey Global Survey of more than 1,000 C-level executives and other senior managers across regions, industries, and company sizes. Business leaders predict that by 2026, half of their revenues will come from products, services, or businesses that haven’t yet been created. New-business building helps bridge that gap.
More urgency. Launching new businesses was the top strategic priority of more than one-fifth of the leaders surveyed, with 55 percent naming it as a top three priority—nearly double the share who said it was a high priority for their companies between 2018 and 2020. CEOs are now twice as likely to say it’s the top priority than they were in previous years.
Organic growth. Unlike when they pursue M&A or invest in external start-ups, companies that undertake new-business building can make the most of existing assets and capabilities to create new products, services, or business models. It can help them diversify revenues and keep pace with shifting customers and markets. What’s more, new businesses generate organic growth, which often creates greater excess returns to shareholders than dealmaking does. One example is RXR Realty, which has reimagined the tenant experience across residential, commercial, and mixed-use properties.
Failing to scale. Still, only a small segment of companies capture most of the growth from new-business building—less than one in five new businesses achieves annual revenues above $50 million. Joining their ranks requires learning by doing, which isn’t necessarily a comfortable place for incumbents. A smart approach includes these four factors: understanding how the CEO of the parent company plays a crucial role, striking the right balance between autonomy and centralization, clarifying the rationale for making acquisitions, and generating the deeper customer insights needed to succeed.
Validation. One way to start new businesses and make sure they’re on the path to success is to create a dedicated “growth engine” team to manage the businesses from launch to scaling to maturity. This team, a separate entity from the parent company, facilitates the free flow of new ideas and focuses support in each stage of a venture’s growth. Validation must also come from outside the parent company: McKinsey surveyed 50 equity analysts to gain a better understanding of the value at stake for new-business building and found that a chief concern was that companies have to demonstrate that ideas are not simply “backyard success stories.” Less than half the respondents believed that internal-only valuations were sufficient proof of a new business’s value.
Longevity wins. Business building is no longer an optional way to generate organic growth: it has become essential. Organizations that embrace a start-up mentality and adopt three tech approaches can create a business-building capability that powers continual organic growth. How’s your company progressing? Here’s a way to score your ability to scale new ventures.
Will fashion find its footing in 2022?
After nearly two years of disruption, the global fashion industry is recovering as companies adapt to new consumer priorities and digital provides a nexus for growth. Still, the industry faces significant challenges amid supply-chain disruption, patchy demand, and persistent pressure on the bottom line, as the State of Fashion 2022 explores. Luxury growth will likely be driven by both China and the United States, while Europe lags behind and will need the return of international tourism to recover fully.
Change in luxury fashion sales, McKinsey Fashion Scenarios exhibit
Check out our chart of the day here.
Frank D’Amelio
From virus to vaccine: Eight months
Frank D’Amelio has been the CFO of Pfizer for 14 years, but he’s never experienced a stretch like the months since early 2020. In this episode of The McKinsey Podcast, he talks about how Pfizer teamed up with BioNTech to address the most urgent challenge in recent history: developing a vaccine for COVID-19. D’Amelio said the company wanted to “create a sense of steadfastness and accountability.” CEO Albert Bourla held a leadership team meeting when the pandemic erupted and told the group, “If not us, who? If we aren’t going to solve this pandemic, who will?” From that point it was all hands on deck, D’Amelio says.
Quantum computing use cases are getting real | A burgeoning quantum-computing ecosystem and emerging business use cases promise to create significant value for industries, if executives prepare now.
An Rx for your pharmacy hassles | Young professionals, busy parents, active retirees, and others say they don’t have time to interact with pharmacies. This is where the new direct-to-consumer pharmacy entrants come in. And they’re gaining early traction.
US water infrastructure: How to make investment count | As leaders chart the economic recovery from the COVID-19 pandemic, water investors and utilities are ready to spring into action. We look at the unique opportunity ahead.
Simon Mundy
Simon Mundy
Simon Mundy is the Moral Money editor at the Financial Times. In his new book, Race for Tomorrow: Survival, Innovation and Profit on the Front Lines of the Climate Crisis, he writes about his journey through 26 countries to meet the people facing the myriad challenges of the climate crisis. This is an edited version of a recent McKinsey Author Talks.
What gap does your book fill on the climate crisis?
For many people, the subject can be intimidating. It can seem abstract; it’s full of complicated science and statistics. There’s been a lot of rhetoric around it on many sides. I felt there was a need for a book that, instead of getting into polemics, instead of focusing on the depressing sides of the story, showed that something huge is on the way, which is this amazing human response.
All over the world, people from every walk of life—some of the richest people in the world and some of the poorest people in the world—are engaged in trying to respond to the challenge of climate change and the energy transition that it is forcing us to undertake. There are some incredible human stories within that.
I wanted to make the most of that by sharing the stories of these people who are doing these extraordinary things, in many cases, or who are dealing with extraordinary situations. The big issues might start to seem less abstract.
What was the most dismaying climate-change story you came across?
There’s one thing that people need to think about, which is migration. People are already on the move all over the world in response to the various impacts of climate change. This is going to get more and more severe. In Bangladesh, I saw this in a profound and disturbing way.
People often talk about the danger of parts of Bangladesh ending up underwater, and I believe that is going to happen. What’s happening right now is the intrusion of salty water linked to rising sea levels and storm surges across much of southwestern Bangladesh—areas that were historically rice-farming areas. Rice farming is labor intensive and provides work for a lot of people. The groundwater is getting too salty in many places to support rice. You’re seeing rice-farming areas turning into shrimp-farming areas.
Shrimp farming has many good things about it. It can bring in a lot of export revenue. But it’s less labor intensive, and it can exacerbate the increasing salinity of the soil. You end up with people who used to be rice farmers, and they had been in rice-farming communities for hundreds of years, now finding themselves landless and homeless. They’re moving in enormous numbers to cities, predominantly Dhaka, the capital of Bangladesh.
This is obviously a huge crisis within developing countries. And a lot of people from developing countries, in their desperation, are looking to move to developed countries. What does that mean for politics in Europe or in the US? Do you end up with politicians gaining influence by promising to keep out the “climate migrants”? That’s already started happening, but does it get more extreme?
What was the most inspiring story you came across?
There were many, and this is something I want to emphasize. This is a book that also looks at people who are trying to come up with solutions. For instance, I spoke with the cofounder of a company that came up with a solution for direct air capture of CO2. The technology was conceived by two young engineers working together in Europe.
When I asked if the technology was a pipe dream, he pointed out that when you compare the complexity of any large-scale tech solution to carbon capture with the number of cars the world makes per year, it’s not crazy at all.
Sometimes during my research, I would meet people who would talk on such an incredibly ambitious scale that they almost sounded delusional. But this young innovator’s point reminded me that the technological advances we’ve already made are also amazing, and that we should think on a massive scale when it comes to tackling this crisis.
— Edited by Barbara Tierney
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