A new report from the McKinsey Global Institute highlights a troubling trend: The pandemic has spurred workplace efficiencies that will boost companies’ productivity (this is good!), but nearly all of those gains will be enjoyed by large, successful, “superstar” firms, and not shared across sectors and companies. You probably have questions.
Didn’t we already know that big companies are getting bigger?
Yes. We’ve all been watching tiny versions of this in our hometowns, quietly devastated by a year of small business shutterings, while the Walmarts of the world seem to be doing just fine, and poised for future growth.
So what’s new here?
The report quantifies the train wreck. One example: Large superstar firms, on average, lost no revenue from the third quarter of 2019 to the third quarter of 2020, while their competitors’ revenues declined by 11%.
Big companies have big resources to make big pivots in a big pandemic, and position themselves for big growth.
What industries are we talking about?
The report says that pretty much all sectors will see dominant firms grow more, but that the dynamic will be particularly pronounced for science, professional services, technical services, IT, electronic manufacturing, and healthcare companies.
Tell me more depressing numbers
Spending by superstar firms on research and development dwarfs that of smaller companies. The gap is so crazy wide that you can just tell yourself it’s a lot. It’s really a lot.
Why is it a problem if bigger companies spend more on R&D?
This matters because it’s like you investing $10,000 in the stock market and your neighbor investing $500,000. Who is going to have more wealth, power, and opportunities in a decade, not to mention a mansion? Not you. Oh, and your neighbor will probably buy or push you out altogether, so you won’t even be there anymore.
Is this type of inequality bad for business?
In the long run, yes. If growth remains concentrated at superstar companies, it will ultimately hamper nationwide productivity growth, the report says.
Why should I care?
Well, the gap between winners and losers will grow. The same dynamic is playing out among American individuals, where the top 1% are now worth more than the entire middle class. (They own 29% of all household wealth.) This creates a winner-takes-all society, in which both individual and corporate winners can exude significant control over the political system, and the corporate gap will likely breed something of a caste system in which opportunities differ broadly for smaller and larger companies, and their employees.
What does McKinsey predict?
In the report, McKinsey researchers put it this way: “The gap between superstars and a long tail of lagging or zombie companies could widen, and income inequality or unemployment could increase. In summary, we could observe a widening ‘great divide’ in which, at best, only a minority of companies, households, and regions enjoy productivity and income growth.”
Isn’t McKinsey a superstar firm?
You’re a sharp one. McKinsey’s clients include many superstar firms, and it could itself be considered one. (Its competitors in management consulting are Boston Consulting Group and Bain & Company. They’re called the Big Three.) But it’s good of them to point out the gloom and doom to policymakers.