Tag Archives: McKinsey

Updates from McKinsey

Unequal America: Ten insights on the state of economic opportunity
By André Dua, Kweilin Ellingrud, Michael Lazar, Ryan Luby, Matthew Petric, Alex Ulyett, and Tucker Van Aken – As parts of the United States begin the long path to recovery from the health and economic impacts of the COVID-19 pandemic, we set out to understand what Americans think about their current economic standing, their views on economic opportunity, and the barriers they see standing between themselves and a more inclusive and prosperous future.

So we asked them directly.

Together with the market-research and opinion-polling firm Ipsos, we surveyed 25,000 Americans in the spring of 2021 in an effort to understand their perceptions of the current and future state of the US economy, to discern firsthand their hopes for the future, and to learn about the challenges they face. We also wanted to establish a baseline of data to better understand how outcomes and perceptions are affected by people’s access to resources, as well as by factors such as their identity, education, and level of caregiving responsibility. The breadth and depth of our sample allowed us to draw timely insights across demographic categories and geographic cuts (see sidebar “About the survey”). While the results of our inaugural survey reflect just one moment in time—a period during which the course of the COVID-19 virus and economic conditions were rapidly evolving—they serve as a useful baseline view into the economic experiences of a broad swath of Americans.

What we learned was sobering. Among the findings: Americans report that their financial situations have deteriorated over the past year, and at the time of our survey only half of all respondents reported being able to cover their living expenses for more than two months in the event of job loss. Our survey results also indicated that the pandemic has harmed the economic well-being of many groups, exacerbating inequalities that existed before the crisis. Americans reported facing numerous barriers to economic opportunity and inclusion—among them, inadequate access to health insurance and physical and mental healthcare, as well as to affordable childcare. Moreover, many respondents said that they feel their very identity limits their access to jobs and to fair recognition and reward for their work. more>

Updates from McKinsey

The rise and rise of the global balance sheet: How productively are we using our wealth?
Net worth has tripled since 2000, but the increase mainly reflects valuation gains in real assets, especially real estate, rather than investment in productive assets that drive our economies.
By Jonathan Woetzel, Jan Mischke, Anu Madgavkar, Eckart Windhagen, Sven Smit, Michael Birshan, Szabolcs Kemeny, and Rebecca J. Anderson – We have borrowed a page from the corporate world—namely, the balance sheet—to take stock of the underlying health and resilience of the global economy as it begins to rebound from the COVID-19 pandemic. This view from the balance sheet complements more typical approaches based on GDP, capital investment levels, and other measures of economic flows that reflect changes in economic value. Our report, The rise of the global balance sheet: How productively are we using our wealth?, provides an in-depth look at the global economy after two decades of financial turbulence and more than ten years of heavy central bank intervention, punctuated by the pandemic.

Across ten countries that account for about 60 percent of global GDP—Australia, Canada, China, France, Germany, Japan, Mexico, Sweden, the United Kingdom, and the United States—the historic link between the growth of net worth and the growth of GDP no longer holds. While economic growth has been tepid over the past two decades in advanced economies, balance sheets and net worth that have long tracked it have tripled in size. This divergence emerged as asset prices rose—but not as a result of 21st-century trends like the growing digitization of the economy.

Rather, in an economy increasingly propelled by intangible assets like software and other intellectual property, a glut of savings has struggled to find investments offering sufficient economic returns and lasting value to investors. These savings have found their way instead into real estate, which in 2020 accounted for two-thirds of net worth. Other fixed assets that can drive economic growth made up only about 20 percent the total. Moreover, asset values are now nearly 50 percent higher than the long-run average relative to income. And for every $1 in net new investment over the past 20 years, overall liabilities have grown by almost $4, of which about $2 is debt. more>

Updates from McKinsey

Protecting people from a changing climate: The case for resilience
Our new study lays bare the potential impact of climate risks for people across the globe—and underscores the need to protect the most vulnerable and build resilience.
By Harry Bowcott, Lori Fomenko, Alastair Hamilton, Mekala Krishnan, Mihir Mysore, Alexis Trittipo, and Oliver Walker – The United Nations’ 2021 Intergovernmental Panel on Climate Change (IPCC) report stated—with higher confidence than ever before—that, without meaningful decarbonization, global temperatures will rise to at least 1.5°C above preindustrial levels within the next two decades.1 This could have potentially dangerous and irreversible effects. A better understanding of how a changing climate could affect people around the world is a necessary first step toward defining solutions for protecting communities and building resilience.

As part of our knowledge partnership with Race to Resilience at the UN Climate Change Conference of the Parties (COP26) in Glasgow, we have built a detailed, global assessment of the number of people exposed to four key physical climate hazards, primarily under two different warming scenarios. This paper lays out our methodology and our conclusions from this independent assessment.

Our findings suggest the following conclusions:

  • Under a scenario with 1.5°C of warming above preindustrial levels by 2030, almost half of the world’s population could be exposed to a climate hazard related to heat stress, drought, flood, or water stress in the next decade, up from 43 percent today3 —and almost a quarter of the world’s population would be exposed to severe hazards. (For detailed explanations of these hazards and how we define “severe,” see sidebar “A climate risk analysis focused on people: Our methodology in brief.”)
  • Indeed, as severe climate events become more common, even in a scenario where the world reaches 1.5°C of warming above preindustrial levels by 2050 rather than 2030, nearly one in four people could be exposed to a severe climate hazard that could affect their lives or livelihoods.
  • Climate hazards are unevenly distributed.

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Updates from McKinsey

The energy transition unfolds
The transition to zero-carbon energy isn’t going to be a single shift, but a set of interrelated, system-level shifts. What will it take to get things moving quickly toward net-zero emissions?
McKinsey –  Decarbonizing the world’s economy will largely be a matter of overhauling the global energy system. And the necessary changes made to policies, technology, finance, and business models will affect the way that all individuals and all institutions produce and use energy.

Today McKinsey convened leaders from different points in the energy system to share observations on the state of the energy transition and the factors that might accelerate it. A few of the comments made during the session, edited for clarity, appear below. A full replay of today’s session can be found here.

Charting green hydrogen’s path to affordability: “The starting point is stone age: little [electrolyzer] units made by hand welding and hand cutting. The minute we are able to automate a process, with robotic welding machines and long factories assembling fast, phenomenal scale will come in. In renewable energy, the price has come down. Producers still need to bring down the cost of the electrolyzer and the balance of the system. We are very confident. … There is no reason why green hydrogen cannot end up competing with gray hydrogen. No reason whatsoever.”
—Paddy Padmanathan, president and CEO, ACWA Power

Rethinking the financial risk of new technologies: “We’ve had a long period when the perceived risk associated with new solutions for the climate problem has been higher than it really is. Now we’re starting to get to a point where that is tipping. It’s becoming obvious how carbon capture and storage, hydrogen, and direct-air capture are fitting into the climate equation. And therefore finance can start to factor them into credible transition pathways for clients.”
—Zoë Knight, managing director and group head, Centre of Sustainable Finance, HSBC more>

Updates from McKinsey

The 2021 McKinsey Global Payments Report
By Alessio Botta, Philip Bruno and Jeff Galvin – Last October, when we published McKinsey’s 2020 Global Payments Report, it was already clear that the pandemic’s economic impact would lead to the first decline in global payments revenues in 11 years.

One year later, the picture is unexpectedly positive—on the payments front—despite challenges. Payments revenue did indeed decline—to $1.9 trillion globally—but by less than we anticipated last fall. Indicators point to a nominal but geographically uneven rebound in 2021, bringing revenue back into the range of 2019’s record high. From there, McKinsey projects a return to historical mid-single-digit growth rates, generating 2025 global payments revenue of roughly $2.5 trillion.

The relatively muted 2020 topline numbers mask some important countervailing effects, however, which are poised to reset the scale of opportunity for payments players for years to come. The pandemic accelerated ongoing declines in cash usage and adoption of electronic and e-commerce transaction methods. Revenue gains in these areas were offset by tightening of net interest margins earned on deposit balances. All these trends are expected to outlast the pandemic. The contraction of net interest income—combined with technology breakthroughs and the impact of open banking and fintech innovation—has spurred the creation of revenue models that within five years will offer adjacent opportunities as large as the core payments revenue pool. more>

Updates from McKinsey

An on-demand revolution in customer-experience operations?
Whether relying mainly on in-house or external talent, gig-style staffing models—when managed carefully—could give customer care the horsepower and flexibility it needs for today’s increasingly volatile markets.
By Vinay Gupta, Raelyn Jacobson, Paul Kline, Manu Mehndiratta, and Julian Raabe – When businesses across the globe were forced to shutter in 2020, the leaders at one regional North American bank shifted to virtual mode. Anticipating that customer-call volumes would remain elevated through the early months of the COVID-19 pandemic, bank leaders created a streamlined training module to cross-train sidelined branch workers. The extra support from branch colleagues helped the bank to manage the high volume of calls. Better still, because the supporting workers were branch personnel, their knowledge of the bank’s processes, products, and culture helped maintain the high level of customer satisfaction that the bank had worked so hard to achieve. Leaders learned that this internal “gig worker” approach could be a solution for managing future spikes in demand, whether from unforeseen events or seasonally based capacity increases. And, during a time of great uncertainty, it gave employees new opportunities—to work flexibly, learn new skills, and even find new career paths. That flexibility may give companies an edge now that many are fighting a “Great Attrition.” 

The COVID-19 lockdowns sparked a major scramble to move business to online and phone-based channels. Not every company, however, was prepared to handle the ensuing digital deluge; at this point, there are little data on how effectively companies coped. But the experiences of companies to date show that many organizations are now rethinking how they staff customer-care operations.

Flexible staffing—the use of external talent from outsourcing providers or independent freelancers—has been a staple of customer service for decades. But the pandemic may well be the first time that the redeployment of in-house talent from other departments has occurred on a relatively large scale.

Both approaches, externally and internally sourced, constitute the core of what we call “gig customer-experience operations,” or Gig CX. And it behooves companies from across the industry spectrum to consider making this strategy a part of their regular operations. In this article, we explore the pros and cons of Gig CX and identify four essential elements that must be in place to make it work. more>

Updates from McKinsey

When agile marketing breaks the agency model
The journey to agile marketing can be hard. But for many marketers and agencies, it offers the opportunity to forge a better partnership.
By Clay Cowan, Jennifer Ellinas, and Rachael Schaffner –
Key takeaways

  • Agile marketing teams can deliver real business value for an organization.
  • But agile transformations can be challenging and place outsized strain on a marketing group’s agency relationships.
  • The most successful agile marketing teams are doubling down on sound agency management practices, including approaches to scopes of work, fee arrangements, improved operating model, talent and culture, and metrics./li>

Marketing leaders are increasingly turning to agile methodologies to help improve the speed and performance of their teams along with the many partners they use for creative, production, and measurement expertise. In our experience, though, the shift to agile is often far from seamless for these constellations of teams. Our recent survey of marketing executives found that only 3 percent characterized their transition to agile marketing with their partners as “smooth,” while more than 80 percent reported the journey to be filled with obstacles.

Managing multiple external partners can already be complicated in a traditional marketing department, and it’s an understandably significant shift to borrow operating methodologies from the IT world. Compounding that challenge is the fact that marketing requires engaging with so many more types of third parties, which include measurement, platform, and publishing partners. Google, Twitter, Facebook, and LinkedIn were mentioned by 40 percent of the executives as being among the additional partners they coordinate with today.

It’s no wonder, then, that when switching to agile methods, marketers often struggle with how best to involve their external partners and other third parties in their transformation. The result can leave some professionals feeling that agile marketing broke their agency model. more>

Updates from McKinsey

Moving beyond agile to become a software innovator
Companies need to borrow a page from the tech industry’s playbook to understand how to use agile to build better products and experiences.
By Santiago Comella-Dorda, Martin Harrysson, and Shivam Srivastava – t the end of the movie The Candidate, Robert Redford is sitting in a hotel room surrounded by cheering staffers after his character has won the election for the US Senate. Looking a little perplexed and forlorn, he turns to his advisor and asks, “What do we do now?”

Many executives who have led their businesses through successful agile programs can probably relate to Redford’s character. They have overseen sizable improvements in software product development thanks to agile; our Developer Velocity research shows that adoption of agile practices at the team level can be one of the most critical dimensions for companies that are in the early part of their journey.

But many of these businesses have run into a ceiling where incremental gains are minimal. The same Developer Velocity research, for example, showed that while third-quartile companies in terms of overall software-development performance scored 41 percent higher on agile practices than fourth-quartile companies, the differences between companies in the first and second quartiles dropped to less than 20 percent. In other words, once a business hits a certain level of excellence, improvements to how teams work in agile alone drive diminishing returns.

For companies that have realized many of the initial gains from adopting agile, there are valuable lessons to be learned from how tech companies develop products. The industry’s intense competition and pace of change have forced tech companies to develop a set of capabilities that take the fullest advantage of agile, of which the following are the most important:

  • grounding every decision on customer value through world-class product management and experience design and adopting an operating model built on products and platforms
  • creating a software-engineering culture that nurtures and celebrates technical craftmanship, empowers teams, and provides them with high levels of psychological safety in addition to supporting developers with automation and world-class tools
  • embedding data and analytics at every level of product development

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Updates from McKinsey

A first step to racial equality? “Fundamentally improve job quality.”
MCKINSEY GLOBAL INSTITUTE – JP Julien was nine-years-old when he learned that place matters.

Now an associate partner, JP co-leads our Institute for Black Economic Mobility and led the research for The economic state of Black America: What it is and what it could be. In 1998, he and his Trinidadian American family of six moved from a low-income town in New Jersey to nearby Bloomfield. The 15 miles in between made a world of difference to his life.

Twenty percent of his first town’s residents lived below the poverty line at the time. The grocery store was a 20-minute drive away, and there were few nearby parks or playgrounds. “My mom took two buses to commute to work in New York City every day—sometimes 90 minutes one way,” he recalls.

Several years later, the family moved to Bloomfield, NJ, about a 20-minute drive away on the Garden State Parkway. “I remember the first day we moved in,” he says. “We had our own backyard, a bank on the corner, a diner a block away. My mom’s commuter train stop was a five-minute walk. My parents let me ride my bike throughout the neighborhood.”

“In third grade,” he adds, “I realized for the first time how important place was in shaping opportunity and your life. And so this research resonated with me on a very personal level.” more>

Updates from McKinsey

Japan offshore wind: The ideal moment to build a vibrant industry
As construction starts on Japan’s first large commercial offshore wind farm in the coastal waters of Akita, the country is heralding a future of energy independence.
By Sven Heiligtag, Katsuhiro Sato, Benjamin Sauer, and Koji Toyama – With the passage in late 2019 of a law that allows offshore turbines to operate for 30 years, Japan has begun in earnest its journey away from fossil fuels and nuclear energy.

The two wind farms of the ¥100 billion Akita project will generate with a capacity of 140 MW, enough electricity to power at least 150,000 of Japan’s 52 million homes. By 2030 Japan plans to have installed a total of 10 GW, and the country’s possibilities are even greater. The International Energy Agency estimates Japan has enough technical potential to satisfy its entire power needs nine times over.

Japan can take advantage of the technology advances and cost improvements the offshore wind industry has made since its early days in Denmark in the 1990s. Today, it can learn from the experiences of other countries, not only in creating the turbines and wind farms but also in building markets, setting offtake prices, and designing regulation and financial incentives.

In only a handful of decades, offshore wind has become one of the core power-generation technologies of Europe, with installed capacity of 22 GW2 and about 100 GW planned by 2030.3 Taiwan and the United States have already commissioned the first small projects and plan for more than 10 and 25 GW by 2030, respectively.4 During the industry’s 30-year evolution, costs have fallen so sharply that offshore wind now compares favorably with competing energy sources.

But that does not mean Japan’s journey will be simple. It will require multiple players, including regulators, utilities, and investors, to do their part in a country where the public remains skeptical about offshore wind’s cost competitiveness with other power sources. more>