What will the New Normal be like?
What will the future of business be, post-COVID?
Bart Binning, Ed. D.
Those responsible for predicting the future now recognize that yesterday’s predictions of the future will be much different than tomorrow’s perception of the future because of two important factors:
1) Learning Curve Compression – because of sequestration, the learning curve of integrating new technologies has been significantly compressed from 5 to 6 years to 2 to 3 months. When we emerge from the need to social distance, everyone from the workforce to school children will have vastly improved technical (internet) skills that will change the ways we interact with each other when we live, work, and play.
2) Focus on Resilience of the Supply Chain – the past focus on Just-In-Time created a rigid business model that could not withstand unexpected shocks. While businesses were able to significantly reduce their investment in inventory (thereby increasing return on investment), the costs of not being able to compensate for shocks to the economy, have proved to be unacceptable.
Edmond based futurist Scott Klososky suggests that technology will make standard the hybridization of jobs, with some tasks better performed at home, and other tasks from a more distributed office location. As a result, it will be easier for businesses and schools to activate a form of sequestration for weather and natural disaster, as well as health. Which means that businesses and schools will need two different policies and procedures, one for normal business, and the other when an emergency is declared. Scott suggests the average emergency declaration may occur two to three times a year, for a week or two at a time. The corollary is that businesses are finding there can be an increase in productivity in allowing employees to sometimes work from home, but at a cost that can be addressed, a potential loss of corporate culture.
The increase in working from home as well as social distancing requirements have led to a change is the way we utilize work & learning spaces, both at home and in the office or school. The standard offices now have cubical densities that make social distancing difficult, and the increase in density appears to have reached diminishing returns in terms of productivity. Long-term, it appears that most employees will be demanding more office space (not cubicles) as well as hybrid work schedules (home and office). In a recent Global Occupier Sentiment Survey by the commercial real estate broker CBRE, “61% of respondents from multinational companies expect to adopt a more hybrid way of working. Achieving successful portfolio strategies that efficiently integrate traditional leased space, remote work and flexible office space will be the challenge for occupiers in the years ahead.”
However, COVID sequestration Is hurting the short-term office market by reducing demand for office space. The commercial listing service, the CoStar Group, saw a 38% reduction in transaction volume during the first ½ of 2020 when compared to 2019. The commercial real estate broker JLL saw its gross leasing volume drop 53% during the first ½ of 2020. While numbers should improve during the second ½ of 2020, it will probably take one year for this part of the commercial real estate market to recover.
With the focus on technology (video conferencing, collaboration software, sharing documents in the cloud, etc.) and the rise of the hybrid job, it is likely that the complexion of the office will change. Many companies are decentralizing, now focusing on a hub and spoke model. Under this model, the focus is on multiple smaller branches located in second or third tier cities, rather than having large central locations in tier one cities. The branch locations have sophisticated high definition video conferencing equipment in multiple meeting rooms, as well as offices, technology, and support services designed for the hybrid workforce to work from office and home, all while maintaining a corporate culture.
Shopping norms have changed. Not only have people, in the past two months, rapidly accelerated the adoption of digital technology, people are now expecting new service platforms to help taking care of business in new on-line ways. The trend of transferring tasks previously done by company employees to the end-user (ex. ATM machines reduce need for tellers, PayPal reduces the need for HR staff). This shift is likely to accelerate simply because, for example, e-commerce is often more efficient, less expensive, and safer for customers than shopping in physical stores.
Adding resilience to an organization’s Supply Chain will be a future long-term focus of business. Changes to the supply change will be in the following areas:
1. E-commerce will continue to increase its share of total retail sales. As it has been for more than a decade, online sales will be the biggest catalyst for both activity and change in industrial real estate. Increasing demand for goods bought online, especially food, will fuel the need for decentralized distribution facilities at a pace much higher than in the current cycle. CBRE Research projects online sales to reach 39% by 2030
2. Reduced focus on Just-in-Time, which had been the source of much of the retail sectors previous increase in return on investment (inventories dropped with sales either staying the same or increasing) will diminish. Instead, retailers and manufacturers will focus on increasing their “safety inventory” to ensure they can respond to demand shocks. Retailers will insist that vendors keep higher amounts in stock, thus increasing the demand for warehouse space. The Institute for Supply Management (ISM) Manufacturing Inventories Index rose for a second consecutive month to a level of 50.5 in June.
3. Diversification of supply chains will occur either throughout Asia or through reshoring to North America and Europe. Supply chains that rely on Mainland China have been disrupted by U.S.-imposed trade tariffs and the COVID-19 pandemic. Other factors like rising labor costs and intellectual capital concerns also may drive companies away from Mainland China and into other parts of Asia, Europe, Mexico and even the U.S., especially as automation improves.
Trust & Affordability have been elevated as top concerns for consumers and workers. There are increased concerns for cleaning and disinfecting. Additionally, consumers’ acceptance of contactless curbside pickup and self-checkout, will likely be permanent. Which means that Facilities Management will have an enhanced importance as the increased focus on health and hygiene will most likely accelerate the trend towards increasing demand for buildings with high indoor air quality standards, sustainability, and wellness.
In short: there will be a renewed focus on offices and other physical spaces that serve as important hubs for the human elements and experiences that technology alone cannot provide. Social networking features for live, work, and play, will become increasingly important.
CBRE Research. “Global Real Estate Market Outlook 2020 Midyear Review”. Richard Barkham, Ph.D. Global Head of Research; Neil Blake, Ph.D., Global Head, Forecasting and Analytics; Spencer Levy, Chairman, American Research & Senior Economic Advisor
McKinsey & Company, Marketing & Sales Articles. “Reimagining marketing in the next normal.” July 19, 2020. Arun Arora, Peter Dahlström, Eric Hazan, Hamaz Khan, and Rock Khanna.