The inevitable reboot: Diverging health and economic outcomes

Understanding divergence through the US lens

COVID-19 has created major shifts in how businesses and societies operate and has had a dual impact on health and economies all over the world. Initially, health and economic outcomes were strongly correlated, but as countries begin to push more aggressively for reopening, there is an increased likelihood of a divergence between them—meaning economies might recover while health remains at risk.

In the United States, we have seen almost every state engage in at least a partial reopening of its primary industries; 68 percent of US states have fully reopened across all primary industries. So, how does the US response to the pandemic differ from the rest of the world, and what does divergence look like here compared with other countries?

With health concerns lingering indefinitely until a vaccine is produced, we took a look at the US response to COVID-19—particularly, the extent of the divergence between health and economic outcomes and its resulting implications for local and global businesses.

We determined that economic recovery has three major drivers: Government, businesses, and individuals. Each of these drivers has various market implications across sectors that are vital for business leaders to consider as they look to thrive in the new normal: use of asset-light business models, borrowed capabilities, and optimization of underutilized resources. We were also able to pinpoint several major trends that are likely to emerge across consumer-facing sectors as a result of divergence.

Read our full article to learn more about the divergence between health and economic outcomes as the pandemic progresses, the impact it will have on US consumer industries, and our suggestions on how to thrive in the next normal.

Next steps for divergence

Why do we believe divergence will continue?

Divergence depends on multiple factors, each concurrently pushing (or pulling) a country toward (or away from) economic recovery. The key drivers for divergence span three areas: Government, businesses, and individuals.

• Government: A country’s economic system plays an important role in determining divergence, as more business-friendly societies are quicker to align policies and resources to prioritize economic recovery over health outcomes.
• Businesses: A country’s business environment, including its industry composition, workforce flexibility, and availability of capital also has a large impact on divergence. Countries over-indexed with industries heavily impacted by COVID-19 (e.g., travel, hospitality, and retail) experience slower divergence than those with a more diverse industry mix.
• Individuals: A society’s beliefs concerning consumerism, optimism, and trust shapes the divergence of health and economic outcomes.

What are the cross-sector implications of divergence?

The divergence of health and economic outcomes manifests differently in each industry as businesses adapt to changing customer behaviors and other marketplace dynamics. There are several major trends, however, which we expect to emerge across sectors; the resulting implications will be critical for business leaders to consider as they look to thrive in the new normal.

• Revenue challenges favor asset-light business models: As the economy diverges, lingering health concerns will continue to put firms’ revenues at risk, intensifying the pressure to cover fixed costs. Under these conditions, firms with asset-light business models that can easily pivot to meet changes in demand will separate from the pack.
• Mass migration online gives rise to borrowed capabilities: Divergence brings large portions of the economy online as customers seek to reduce health risks and businesses look to capitalize on new distribution channels. In this new environment, companies that can “borrow” the capabilities needed instead of building or acquiring them directly will see the most success.
• Excess capacity drives monetization of underutilized resources: During the first few weeks of the pandemic, we witnessed a massive re-allocation of manufacturing capacity as companies adjusted their production lines to churn out personal protective equipment (PPE) and ventilators to support the US response to COVID-19. Throughout divergence, we will witness an extension of this trend as companies seek to use their excess capacity in new ways, monetizing resources that would otherwise sit idle. While this redistribution may not be permanent, it hints at the possibility of moving towards a more distributed economy, where resources can be dynamically allocated not just within a single company but across complementary firms. This dynamic flexibility will be key for companies to thrive in the post-COVID future.