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The social economy: Unlocking value and productivity through social technologies
The social economy: Unlocking value and productivity through social technologies
Source: McKinsey and Company
In a few short years, social technologies have given social interactions the speed and scale of the Internet. Whether discussing consumer products or organizing political movements, people around the world constantly use social-media platforms to seek and share information. Companies use them to reach consumers in new ways too; by tapping into these conversations, organizations can generate richer insights and create precisely targeted messages and offers.
While 72 percent of companies use social technologies in some way, very few are anywhere near to achieving the full potential benefit. In fact, the most powerful applications of social technologies in the global economy are largely untapped. Companies will go on developing ways to reach consumers through social technologies and gathering insights for product development, marketing, and customer service. Yet the McKinsey Global Institute (MGI) finds that twice as much potential value lies in using social tools to enhance communications, knowledge sharing, and collaboration within and across enterprises. MGI’s estimates suggest that by fully implementing social technologies, companies have an opportunity to raise the productivity of interaction workers—high-skill knowledge workers, including managers and professionals—by 20 to 25 percent.
Urban America: US cities in the global economy
Urban America: US cities in the global economy
Source: McKinsey Global Institute
In a world of rising urbanization, the degree of economic vigor that the economy of the United States derives from its cities is unmatched by any other region of the globe. Large US cities, defined here as those with 150,000 or more inhabitants, generated almost 85 percent of the country’s GDP in 2010, compared with 78 percent for large cities in China and just under 65 percent for those in Western Europe during the same period. In the next 15 years, the 259 large US cities are expected to generate more than 10 percent of global GDP growth—a share bigger than that of all such cities in other developed countries combined.
The overwhelming role that cities play as home to the vast majority of Americans but also as a dominant driver of US and global economic growth argues for a keen focus on their prospects. MGI sheds new light on the role cities play in the US economy and gauges how large they loom in the urban world overall.
Urban America: US cities in the global economy
Urban America: US cities in the global economy
Source: McKinsey Global Institute
In a world of rising urbanization, the degree of economic vigor that the economy of the United States derives from its cities is unmatched by any other region of the globe. Large US cities, defined here as those with 150,000 or more inhabitants, generated almost 85 percent of the country’s GDP in 2010, compared with 78 percent for large cities in China and just under 65 percent for those in Western Europe during the same period. In the next 15 years, the 259 large US cities are expected to generate more than 10 percent of global GDP growth—a share bigger than that of all such cities in other developed countries combined.
The overwhelming role that cities play as home to the vast majority of Americans but also as a dominant driver of US and global economic growth argues for a keen focus on their prospects. MGI sheds new light on the role cities play in the US economy and gauges how large they loom in the urban world overall.
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Building globally competitive cities: The key to Latin American growth
Building globally competitive cities: The key to Latin American growth
Source: McKinsey & Company
Latin America is a bright spot in the post-recession global economy, with growth rebounding strongly in much of the region. In the years ahead, cities will be critical to regional growth. Latin America is more urbanized than any other region in the developing world, with 80 percent of its relatively young population living in cities today, a share expected to rise to 85 percent by 2025. The shift from country to town has contributed much to Latin America’s growth, as economies of scale have boosted the productivity of expanding cities and reduced the cost of delivering basic services to their inhabitants.
The region’s 198 large cities—defined as having populations of 200,000 or more—together contribute more than 60 percent of GDP today. The ten largest cities alone generate half of that output. Such a concentration of urban economic activity among the largest cities is comparable with the picture in the United States and Western Europe today. China’s top ten cities, for instance, contribute around 20 percent of the nation’s GDP.
But many of the largest urban centers are grappling with traffic gridlock, housing shortages, and other symptoms of diseconomies of scale. The region has already won a large share of any easy gains that come from expanding urban populations and many of its large cities today face diseconomies of scale. In the recent past, growth rates in Brazil’s São Paulo and Rio de Janeiro have dropped from above to below the national averages in these two economies. Other leading cities in the region have also recently grown more slowly than either their national economies or middleweight cities (with populations of between 200,000 and 10 million). Unless the region’s top ten cities significantly enhance the productivity and number of jobs they generate in the formal economy and boost the efficiency of their operations and management, their growth rates are likely to remain below the average for the region’s large cities. If the strains faced by these cities are not tackled, they risk dragging down Latin America’s overall growth trajectory.
MGI examines the multiple challenges that Latin America’s cities must address to fulfill the region’s potential and offers an agenda for urban renewal. Action to reform and develop not only these large cities but rapidly growing middle-weight cities is urgent if Latin America is to create the more productive jobs in the formal economy to meet the aspirations of today’s young workforce. The need for action is urgent. In contrast to many other parts of the world, Latin America enjoys favorable demographics, but this situation will not last. By the second half of this century, Latin America’s demographic profile will look more like Europe’s with a shrinking proportion of economically active young having to provide for a growing fraction of older people. The risk is that the region could grow old before it becomes rich if cities do not fulfill their potential.
European growth and renewal: The path from crisis to recovery
European growth and renewal: The path from crisis to recovery
Source: McKinsey & Company
Europe is growing again, but the recovery is uneven and under threat from the continuing eurozone debt crisis. Europe has significant strengths on which to build but needs to address profound long-term challenges that could limit its future growth. MGI sets out a perspective on where the European economy stands today, the challenges it faces, and the very considerable strengths on which it can build. MGI also sets out seven priorities for action. Each requires joint action by policy makers and business leaders.
Findings include:
- Economic growth is recovering unevenly. While most of Europe (defined in this research as all members of the European Union (EU-27) plus Norway and Switzerland) is expected to return to pre-crisis GDP levels by 2012, recovery in Southern Europe, Ireland, and the United Kingdom is forecast to take considerably longer. The debt crisis and speculation about the possibility of sovereign defaults cast doubt on the resilience of the recovery.
- Europe has very significant, and sometimes underappreciated, strengths on which to build a sustained recovery. As the world’s largest integrated economy, Europe is home to 124 Fortune 500 corporations. Several European countries have successfully reformed labor and product markets and can now serve as examples for others to follow. Europe is home to some of the most vibrant cities in the world and has a high quality of life.
- All European economies face a set of profound long-term challenges that, if unaddressed, will limit their future growth potential. Private- and public-sector deleveraging is only just starting and could weigh on growth for some time. Structural imbalances have left Southern Europe with a 4.6 per cent current account deficit today. Old-age dependency is set to double. Labor utilization is 20 per cent below US levels, and Europe’s productivity gap with the United States is widening again. Rising energy prices and competition from emerging economies will place increasing strain on Europe.
- Returning to a sustained path to economic growth and renewal will require innovation in European policy making together with bold leadership from the private sector. The seven priorities highlighted are:
- Consolidating Europe’s fiscal position
- Expanding the supply of skilled labor mainly through senior participation,
- Using structural reforms to fuel innovation and growth in services
- Boosting public-sector productivity,
- Unlocking the potential of sustainable resources
- Winning in tradable goods and services
- Supporting innovation.
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An economy that works: Job creation and America’s future
An economy that works: Job creation and America’s future
Source: McKinsey & Company
For the United States to return to full employment—finding work for the currently unemployed and accommodating new entrants into the labor force this decade — the US economy will need to create 21 million jobs by 2020, according to MGI’s analysis.
To understand how this might happen, MGI launched a research project that combines extensive sector analysis, interviews with human resource executives, a proprietary survey of 2,000 business leaders, and our own scenario analysis and modeling.
The research analyzes the causes of slow job creation in the period before the recession and during the recovery and the implications of these forces for future job growth. The research projects how the US labor force will evolve over the next ten years and creates different scenarios for job growth based on extensive analysis of sector trends. MGI’s central finding is that a return to full employment will occur in only the most optimistic job growth scenario. This will require not only a robust economic recovery, but also a concerted effort to address other factors that impede employment, including growing gaps in skill and education.
The report offers a range of illustrative solutions based on lessons from US states and other countries that MGI hopes will add to the national conversation on jobs. Findings include:ul>
Recoveries are increasingly becoming “jobless” due to firm restructuring, skill and geographic mismatches between workers and jobs, and sharp decline in new start-ups. The US needs to create 21 million new jobs by 2020 to regain full employment – and only achieves this in our most optimistic job growth scenario. The US workforce will continue to grow until 2020, but under current trends, many workers will not have the right skills for the available jobs. Technology is changing the nature of work: jobs are being disaggregated into tasks, work is becoming virtual, and firms are relying on flexible labor (temporary, contract workers). These trends offer new opportunities for creating jobs in the United States, a trend that some companies do not fully appreciate. Progress on four dimensions will be essential for reviving the US job creation machine: develop the US workforces’ skill to better match what employers are looking for; expand US workers’ share of global economic growth by attracting foreign investment and spurring exports; revive the nation’s spark by supporting emerging industries, ensuring more of them scale up in the United States, and reviving new business start-ups; and speed up regulatory decision-making that blocks business expansion and new investment.
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An economy that works: Job creation and America’s future
An economy that works: Job creation and America’s future
Source: McKinsey & Company
For the United States to return to full employment—finding work for the currently unemployed and accommodating new entrants into the labor force this decade—the US economy will need to create 21 million jobs by 2020, according to MGI’s analysis.
To understand how this might happen, MGI launched a research project that combines extensive sector analysis, interviews with human resource executives, a proprietary survey of 2,000 business leaders, and our own scenario analysis and modeling.
The research analyzes the causes of slow job creation in the period before the recession and during the recovery and the implications of these forces for future job growth. The research projects how the US labor force will evolve over the next ten years and creates different scenarios for job growth based on extensive analysis of sector trends. MGI’s central finding is that a return to full employment will occur in only the most optimistic job growth scenario. This will require not only a robust economic recovery, but also a concerted effort to address other factors that impede employment, including growing gaps in skill and education.
The report offers a range of illustrative solutions based on lessons from US states and other countries that MGI hopes will add to the national conversation on jobs. Findings include:
- Recoveries are increasingly becoming “jobless” due to firm restructuring, skill and geographic mismatches between workers and jobs, and sharp decline in new start-ups.
- The US needs to create 21 million new jobs by 2020 to regain full employment – and only achieves this in our most optimistic job growth scenario.
- The US workforce will continue to grow until 2020, but under current trends, many workers will not have the right skills for the available jobs. Technology is changing the nature of work: jobs are being disaggregated into tasks, work is becoming virtual, and firms are relying on flexible labor (temporary, contract workers). These trends offer new opportunities for creating jobs in the United States, a trend that some companies do not fully appreciate.
- Progress on four dimensions will be essential for reviving the US job creation machine: develop the US workforces’ skill to better match what employers are looking for; expand US workers’ share of global economic growth by attracting foreign investment and spurring exports; revive the nation’s spark by supporting emerging industries, ensuring more of them scale up in the United States, and reviving new business start-ups; and speed up regulatory decision-making that blocks business expansion and new investment.
Documents in the News — How US health care reform will affect employee benefits
How US health care reform will affect employee benefits
Source: McKinsey Quarterly
US health care reform sets in motion the largest change in employer-provided health benefits in the post–World War II era. While the pace and timing are difficult to predict, McKinsey research points to a radical restructuring of employer-sponsored health benefits following the 2010 passage of the Affordable Care Act.
Many of the law’s relevant provisions take effect in 2014. Our research suggests that when employers become more aware of the new economic and social incentives embedded in the law and of the option to restructure benefits beyond dropping or keeping them, many will make dramatic changes. The Congressional Budget Office has estimated that only about 7 percent of employees currently covered by employer-sponsored insurance (ESI) will have to switch to subsidized-exchange policies in 2014. However, our early-2011 survey of more than 1,300 employers across industries, geographies, and employer sizes, as well as other proprietary research, found that reform will provoke a much greater response.
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Report – Internet matters: The net’s sweeping impact on growth, jobs, and prosperity
Report — Internet matters: The net’s sweeping impact on growth, jobs, and prosperity
Source: McKinsey & Company
The Internet is a vast mosaic of economic activity, ranging from millions of daily online transactions and communications to smartphone downloads of TV shows. But little is known about how the Web in its entirety contributes to global growth, productivity, and employment. New McKinsey research into the Internet economies of the G-8 nations as well as Brazil, China, and India, South Korea, and Sweden finds that the Web accounts for a significant and growing portion of global GDP. Indeed, if measured as a sector, Internet-related consumption and expenditure is now bigger than agriculture or energy. On average, the Internet contributes 3.4 percent to GDP in the 13 countries covered by the research—an amount the size of Spain or Canada in terms of GDP, and growing at a faster rate than that of Brazil.
Research prepared by the McKinsey Global Institute and McKinsey’s Technology, Media and Telecommunications practice as part of a knowledge partnership with the e-G8 Forum, offers the first quantitative assessment of the impact of the Internet on GDP and growth, while also considering the most relevant tools governments and businesses can use to get the most benefit from the digital transformation. To assess the Internet’s contribution to the global economy, the report analyzes two primary sources of value: consumption and supply. The report draws on a macroeconomic approach used in national accounts to calculate the contribution of GDP; a statistical econometric approach; and a microeconomic approach, analyzing the results of a survey of 4,800 small and medium-sized enterprises in a number of different countries.
Big data: The next frontier for innovation, competition, and productivity
Big data: The next frontier for innovation, competition, and productivity
Source: McKinsey & Company
Analyzing large data sets—so called big data—will become a key basis of competition, underpinning new waves of productivity growth, innovation, and consumer surplus as long as the right policies and enablers are in place.
Research by MGI and McKinsey’s Business Technology Office examines the state of digital data and documents the significant value that can potentially be unlocked.
For example, a retailer using big data to the full could increase its operating margin by more than 60 percent. Harnessing big data in the public sector has enormous potential, too. If US health care were to use big data creatively and effectively to drive efficiency and quality, the sector could create more than $300 billion in value every year. Two-thirds of that would be in the form of reducing US health care expenditure by about 8 percent. In the developed economies of Europe, government administrators could save more than €100 billion ($149 billion) in operational efficiency improvements alone by using big data, not including using big data to reduce fraud and errors and boost the collection of tax revenues. And users of services enabled by personal location data could capture $600 billion in consumer surplus.
The use of data has long been part of the impact of information and communication technology, but the scale and scope of changes that big data are bringing about is today at an inflection point as a number of trends converge. The increasing volume and detail of information captured by enterprises, together with the rise of multimedia, social media, and the Internet of Things will fuel exponential growth in data for the foreseeable future. Data have now reached every sector in the economy.
Big data will help to create new growth opportunities and entirely new categories of companies. Many of these will be companies that sit in the middle of large information flows where data about products and services, buyers and suppliers, consumer preferences and intent can be captured and analyzed.
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Urban world: Mapping the economic power of cities
Urban world: Mapping the economic power of cities
Source: McKinsey & Company
The urban world is shifting. Today only 600 urban centers generate about 60 percent of global GDP. While 600 cities will continue to account for the same share of global GDP in 2025, this group of 600 will have a very different membership. Over the next 15 years, the center of gravity of the urban world will move south and, even more decisively, east.
Today, major urban areas in developed regions are, without doubt, economic giants. Half of global GDP in 2007 came from 380 cities in developed regions, with more than 20 percent of global GDP coming from 190 North American cities alone. The 220 largest cities in developing regions contributed another 10 percent.
But by 2025, one-third of these developed market cities will no longer make the top 600; and one out of every 20 cities in emerging markets is likely to see their rank drop out of the top 600. By 2025, 136 new cities are expected to enter the top 600, all of them from the developing world and overwhelmingly—100 new cities—from China.
To help companies looking for growth opportunities and policy makers to manage the increasing complexity of larger cities more effectively, MGI has built on its extensive research on the urbanization of China, India, and Latin America to develop Cityscope to develop a database of more than 2,000 metropolitan areas around the world, the largest of its kind.
Companies looking for cities that will generate the most GDP growth will find another different list of potential urban hot spots. The top 100 cities ranked by their contribution to global GDP growth in the next 15 years—we call this group the City 100—will contribute just over 35 percent of GDP growth to 2025. And the top 600—the City 600—will generate 60 percent of global GDP growth during this period.
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Restoring Americans’ Retirement Security: A Shared Responsibility
Restoring Americans’ Retirement Security: A Shared Responsibility (PDF)
Source: McKinsey & Company
Over the past quarter century, the primary responsibility for saving and planning for retirement has shifted to the individual, yet policies and behaviors have not kept pace with this shift, leaving millions unprepared. McKinsey’s analysis of consumers’ balance sheets in 2009 indicates that the average American family faces a 37 percent shortfall in the income they will need in retirement. This lack of preparedness is driven less by the recent stock market decline and more fundamentally by the limited accessibility of retirement plans, insufficient savings rates for those who do have retirement plans, and poor investment choices, particularly with regard to managing in-retirement risks. Today, one-third of American households do not have any form of retirement savings plan beyond Social Security. Those with access to retirement plans have insufficient participation and contribution rates to ensure a secure retirement. Moreover, even those Americans who have saved enough are exposed to health, inflation, longevity and market risks that they are ill-prepared to manage. The good news, however, is that Americans are now acutely aware of their predicament and, with the right guidance, can act to fix it.
McKinsey’s analysis indicates that a consistent focus on four policy principles could enable the average American family to reduce their retirement readiness gap by nearly half, injecting over $3.5 trillion in incremental as- sets into the retirement system over the next decade. These four principles are: (1) improv- ing the accessibility of retirement plans, (2) increasing plan participation and savings rates for all Americans, especially lower- and middle-income households, (3) helping Americans to better manage their in-retirement risks in order to draw a stable “retirement paycheck,” and (4) enabling Americans to work longer. The trend toward greater individual responsibility for retirement security will undoubtedly continue, particularly given the deteriorating state of employer and government balance sheets. But there is much that employers, financial institutions and the government can do to modernize their retirement policies and solutions in order to help Americans achieve a secure and dignified retirement. The time to act is now, as every five years of delay in addressing the issue of retirement security will result in a 10 percent decline in the typical American’s standard of living in retirement.
This paper analyzes the current state of retirement preparedness in the United States and the impact of the four policy principles on retirement preparedness. It also outlines the role that the U.S. government, employers and financial institutions can play in turning these principles into action and helping all Americans achieve their retirement dreams.
Growth and renewal in the United States: Retooling America’s economic engine
Growth and renewal in the United States: Retooling America’s economic engine
Source: McKinsey & Company
More than ever, the United States needs productivity gains to drive growth and competitiveness. As baby boomers retire and the female participation rate plateaus, increases in the labor force will no longer provide the lift to US growth that they once did. New research by the McKinsey Global Institute finds that, to match the GDP growth of the past 20 years and the rising living standards of past generations, the United States needs to boost labor productivity growth from 1.7 to 2.3 percent a year. That’s an acceleration of 34 percent to a rate not seen since the 1960s.
This acceleration needs to come both from efficiency gains—reducing inputs for given output—and from increasing the volume and value of outputs for any given input. Since 2000, the largest productivity gains have been in sectors that have seen large employment reductions. Periods such as this have made many Americans suspicious that boosting productivity is a job-destroying exercise. However, MGI finds that, since 1929, every ten-year rolling period except one has recorded increases in both US productivity and employment. It is nevertheless important that the United States returns to the more broadly-based productivity growth of the 1990s when strong demand and a shift to products with a higher value per unit helped to create jobs even as productivity was growing.
There is large untapped potential to increase productivity and growth in the United States, MGI finds. Businesses can achieve three-quarters of the necessary productivity growth acceleration in the current regulatory and business environment. Companies can achieve one-quarter of the acceleration by more widely adopting best practice. Even in such sectors as retail, where US businesses have a strong productivity record, there is scope to do more (e.g., by taking lean practices from the stockroom to the storefront). Aerospace companies may be leading global exporters but they have yet to adopt lean practices in the systematic way seen among best-in-class automotive players. The public sector and regulated sectors such as health care, which have not faced as strong competitive pressure, offer another large opportunity. Health care players have just begun to adopt lean. Hospitals have room to improve how nurses spend their time—at some hospitals, nurses spend less than 40 percent of their time with patients—and to improve their discharge and admissions processes.
Implementing emerging business and technology innovations can achieve a further half of the necessary acceleration. Opportunities lie in enhanced supply chain integration, greater responsiveness to evolving customer preferences and behavior, and innovating in what, and how, goods and services are provided to customers.
