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Private equity: Changing perceptions and new realities

April 23, 2014 Comments off

Private equity: Changing perceptions and new realities
Source: McKinsey & Company

Private-equity performance has been misunderstood in some essential ways. It now seems that the private-equity industry decisively outperforms public equities with respect to risk-adjusted returns, which may prompt return-starved institutional investors to allocate even more capital to the asset class. But this good news comes with an asterisk: top private-equity firms now seem less able to produce consistently successful funds. That’s because success has become more democratic as the general level of investing skill has increased.

The new priority for success is differentiated capabilities. Limited partners (those who invest in the funds raised and managed by general partners) expect funds that exploit a general partner’s distinctive strengths will do well, while more generalist approaches may be falling from favor. Institutional investors will need to get better at identifying and assessing these skills, and private-equity firms will need to look inward to better understand and capitalize on the factors that truly drive their performance.

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Are you ready for the resource revolution?

April 15, 2014 Comments off

Are you ready for the resource revolution?
Source: McKinsey & Company

Meeting increasing global demand requires dramatically improving resource productivity. Yet technological advances mean companies have an extraordinary opportunity not only to meet that challenge but to spark the next industrial revolution as well.

How government can promote open data

April 9, 2014 Comments off

How government can promote open data
Source: McKinsey & Company

Institutions and companies across the public and private sectors have begun to release and share vast amounts of information in recent years, and the trend is only accelerating. Yet while some information is easily accessible, some is still trapped in paper records. Data may be free or come at a cost. And there are tremendous differences in reuse and redistribution rights. In short, there are degrees when it comes to just how “open” data is and, as a result, how much value it can create.

While businesses and other private organizations can make more information public, we believe that government has a critical role in unleashing the economic potential of open data. A recent McKinsey report, Open data: Unlocking innovation and performance with liquid information,1 identified more than $3 trillion in economic value globally that could be generated each year in seven domains through increasingly “liquid” information that is machine readable, accessible to a broad audience at little or no cost, and capable of being shared and distributed. These sources of value include new or increased revenue, savings, and economic surplus that flow from the insights provided by data as diverse as census demographics, crop reports, and information on product recalls.

The disruptive potential of solar power

April 4, 2014 Comments off

The disruptive potential of solar power
Source: McKinsey & Company

The economics of solar power are improving. It is a far more cost-competitive power source today than it was in the mid-2000s, when installations and manufacturing were taking off, subsidies were generous, and investors were piling in. Consumption continued rising even as the MAC Global Solar Energy Index fell by 50 percent between 2011 and the end of 2013, a period when dozens of solar companies went bankrupt, shut down, or changed hands at fire-sale prices.

The bottom line: the financial crisis, cheap natural gas, subsidy cuts by cash-strapped governments, and a flood of imports from Chinese solar-panel manufacturers have profoundly challenged the industry’s short-term performance. But they haven’t undermined its potential; indeed, global installations have continued to rise—by over 50 percent a year, on average, since 2006. The industry is poised to assume a bigger role in global energy markets; as it evolves, its impact on businesses and consumers will be significant and widespread. Utilities will probably be the first, but far from the only, major sector to feel solar’s disruptive potential.

Preparing for bigger, bolder shareholder activists

April 3, 2014 Comments off

Preparing for bigger, bolder shareholder activists
Source: McKinsey & Company

Activist investors are getting ever more adventurous. Last year, according to our analysis, the US-listed companies that activists targeted had an average market capitalization of $10 billion—up from $8 billion just a year earlier and less than $2 billion at the end of the last decade. They’ve also been busier, launching an average of 240 campaigns in each of the past three years—more than double the number a decade ago. And even though activists are a relatively small group, with only $75 billion in combined assets under management compared with the $2.5 trillion hedge-fund industry overall, they’ve enjoyed a higher rate of asset growth than hedge funds and attracted new partnerships with traditional investors. As a result, they have both the capital and the leverage to continue engaging largecap companies.

IT under pressure: McKinsey Global Survey results

April 1, 2014 Comments off

IT under pressure: McKinsey Global Survey results
Source: McKinsey & Company

More and more executives are acknowledging the strategic value of IT to their businesses beyond merely cutting costs. But as they focus on and invest in the function’s ability to enable productivity, business efficiency, and product and service innovation, respondents are also homing in on the shortcomings many IT organizations suffer. Among the most substantial challenges are demonstrating effective leadership and finding, developing, and retaining IT talent.

These are among the key findings from our most recent survey on business technology, which asked executives from all functions about their companies’ priorities for, spending on, and satisfaction with IT. Overall, respondents are more negative about IT performance than they were in 2012 and, notably, IT executives judge their own effectiveness more harshly than their business counterparts do. Compared with executives from the business side, they are more than twice as likely to suggest replacing IT management as the best remedy.

A tale of two Mexicos: Growth and prosperity in a two-speed economy

March 28, 2014 Comments off

A tale of two Mexicos: Growth and prosperity in a two-speed economy
Source: McKinsey & Company

In the 20 years since the North American Free Trade Agreement went into effect, Mexico has become a global manufacturing leader and a prime destination for investors and multinationals around the world. Yet the country’s economic growth continues to disappoint, and the rise in living standards has stalled. The root cause is a chronic productivity problem that stems from the economy’s two-speed nature. A modern, fast-growing Mexico, with globally competitive multinationals and cutting-edge manufacturing plants, exists amid a far larger group of traditional Mexican enterprises that do not contribute to growth. These two Mexicos are moving in opposite directions. The largest companies are raising productivity by an impressive 5.8 percent a year, while the productivity of small, slow-growing enterprises is falling by 6.5 percent a year. And with employment growing faster in the traditional Mexico, more labor is shifting to low-productivity work.

In need of a retail turnaround? How to know and what to do

March 17, 2014 Comments off

In need of a retail turnaround? How to know and what to do
Source: McKinsey & Company

Over the past few years, sales growth at the top publicly listed European retailers has been a mere one or two percentage points above inflation; average EBIT1 margins have dropped to around 0.5 to 1.5 percent of sales. The short- to medium-term forecast doesn’t suggest any respite from these gloomy numbers. Changing consumer lifestyles and preferences, the Internet, and continued economic uncertainty are putting pressure on—and, in some cases, causing financial distress among—many traditional retailers.

There are broadly two types of distressed situations a retailer can face. One is a cash or liquidity crisis, requiring immediate cash-management and debt-restructuring measures. The other, which is trickier to detect, consists of a set of issues that may not threaten immediate bankruptcy but pose fundamental challenges to the sustainability of the business model. In this article, we discuss how to recognize—and emerge victoriously from—the second type, an undertaking we refer to as a “distressed turnaround.”

McKinsey Quarterly: Shaping the future of manufacturing

March 11, 2014 Comments off

McKinsey Quarterly: Shaping the future of manufacturing
Source: McKinsey & Company

Examines the future of manufacturing, how senior executives should spread best practices, why leadership-development programs fail, taking data analytics to the next level, and Starbucks’ Indian expansion.

India’s path from poverty to empowerment

March 10, 2014 Comments off

India’s path from poverty to empowerment
Source: McKinsey & Company

India has made encouraging progress by halving its official poverty rate, from 45 percent of the population in 1994 to 22 percent in 2012. This is an achievement to be celebrated—yet it also gives the nation an opportunity to set higher aspirations. While the official poverty line counts only those living in the most abject conditions, even a cursory scan of India’s human-development indicators suggests more widespread deprivation. Above and beyond the goal of eradicating extreme poverty, India can address these issues and create a new national vision for helping more than half a billion people attain a more economically empowered life.

Global gas markets: The North American factor

February 28, 2014 Comments off

Global gas markets: The North American factor
Source: McKinsey & Companies

Cost curves, which array blocks of supply according to their expense, can clarify the dynamics of supply in commodity industries. They are particularly useful when multiple new sources compete to serve a finite market. Such a situation exists today for liquefied natural gas (LNG). Exporters from North America—now among the world’s low-cost gas producers, given recent advances in recovering shale gas—aim to export LNG in competition mostly with projects in Africa, Australia, and Russia.

The enterprise IT infrastructure agenda for 2014

February 21, 2014 Comments off

The enterprise IT infrastructure agenda for 2014
Source: McKinsey & Company

This year has been tough for many organizations that manage IT infrastructure—the hardware, software, and operational support required to provide application hosting, network, and end-user services. Highly uncertain business conditions have resulted in tighter budgets. Many infrastructure managers have rushed to put tactical cost reductions in place—canceling projects, rationalizing contractors, extracting vendor concessions, and deferring investments to upgrade hardware and software.

We have conducted more than 50 discussions with heads of infrastructure at Fortune Global 500 companies over the past six months to get a sense of the issues they are wrestling with. Clearly, infrastructure leaders must meet 2013 budgets while ensuring they can address critical challenges in 2014 and beyond. They can do so by pulling 11 levers.

A multifaceted future: The jewelry industry in 2020

February 20, 2014 Comments off

A multifaceted future: The jewelry industry in 2020
Source: McKinsey & Company

The jewelry industry seems poised for a glittering future. Annual global sales of €148 billion are expected to grow at a healthy clip of 5 to 6 percent each year, totaling €250 billion by 2020. Consumer appetite for jewelry, which was dampened by the global recession, now appears more voracious than ever.

But the industry is as dynamic as it is fast growing. Consequential changes are under way, both in consumer behavior as well as in the industry itself. Jewelry players can’t simply do business as usual and expect to thrive; they must be alert and responsive to important trends and developments or else risk being left behind by more agile competitors.

To chart the most likely course of the jewelry sector, we analyzed publicly available data, studied companies’ annual reports, and interviewed 20 executives at global fine-jewelry and fashion-jewelry companies and industry associations. Our research indicates that five trends that shaped an adjacent industry—apparel—over the past 30 years are becoming evident in the jewelry industry as well, and at a much faster pace: internationalization and consolidation, the growth of branded products, a reconfigured channel landscape, “hybrid” consumption, and fast fashion. In this article, we discuss how these trends could affect the future of jewelry and what jewelry companies should do to prepare.

Next-shoring: A CEO’s guide

February 4, 2014 Comments off

Next-shoring: A CEO’s guide
Source: McKinsey & Company

Rather than focus on offshoring or even “reshoring”—a term used to describe the return of manufacturing to developed markets as wages rise in emerging ones—today’s manufacturing strategies need to concentrate on what’s coming next. A next-shoring perspective emphasizes proximity to demand and proximity to innovation. Both are crucial in a world where evolving demand from new markets places a premium on the ability to adapt products to different regions and where emerging technologies that could disrupt costs and processes are making new supply ecosystems a differentiator. Next-shoring strategies encompass elements such as a diverse and agile set of production locations, a rich network of innovation-oriented partnerships, and a strong focus on technical skills.

Moving mind-sets on gender diversity: McKinsey Global Survey results

January 27, 2014 Comments off

Moving mind-sets on gender diversity: McKinsey Global Survey results
Source: McKinsey

Female executives are ambitious and sure of their own abilities to become top managers, though they are much less confident that their companies’ cultures can support their rise. In our latest survey on gender and workplace diversity, the results indicate that collective, cultural factors at work are more than twice as likely as individual factors to link to women’s confidence that they can reach top management.

Open data: Unlocking innovation and performance with liquid information

January 15, 2014 Comments off

Open data: Unlocking innovation and performance with liquid information
Source: McKinsey & Company

Open data—machine-readable information, particularly government data, that’s made available to others—has generated a great deal of excitement around the world for its potential to empower citizens, change how government works, and improve the delivery of public services. It may also generate significant economic value, according to a new McKinsey report. Our research suggests that seven sectors alone could generate more than $3 trillion a year in additional value as a result of open data, which is already giving rise to hundreds of entrepreneurial businesses and helping established companies to segment markets, define new products and services, and improve the efficiency and effectiveness of operations.

Moore’s law: Repeal or renewal?

January 6, 2014 Comments off

Moore’s law: Repeal or renewal?
Source: McKinsey & Company

The global semiconductor industry has recorded impressive achievements since 1965, when Intel cofounder Gordon Moore published the observation that would become the industry’s touchstone. Moore’s law states that the number of transistors on integrated circuits doubles every two years, and for the past four decades it has set the pace for progress in the semiconductor industry. The positive by-products of the constant scaling down that Moore’s law predicts include simultaneous cost declines, made possible by fitting more transistors per area onto silicon chips, and performance increases with regard to speed, compactness, and power consumption. As a result, semiconductor-enabled products today play integral roles in virtually every aspect of modern life.

In this article, we will examine the technologies that aim to extend the life of Moore’s law and model their impact on four likely future scenarios for the industry. Obviously, there are many factors in play, but we believe the economics of continued advances in performance could eventually disrupt the companies competing in the business today.

Reverse the curse: Maximizing the potential of resource-driven economies

January 3, 2014 Comments off

Reverse the curse: Maximizing the potential of resource-driven economies
Source: McKinsey & Company

Rising resource prices and expanded production have raised the number of countries where the resource sector represents a major share of the economy, from 58 in 1995 to 81 in 2011. That number will rise: to meet soaring demand for resources and replace rapidly depleting supply, the world should invest a total of up to $17 trillion in oil and gas and in minerals by 2030, double the historical rate. In 20 years, almost half of the world’s countries could depend on their resource endowments for growth.

Economies with natural-resource endowments have a huge opportunity to transform their prospects. But history suggests that they could all too easily squander the windfall.

A new dawn: Reigniting growth in Central and Eastern Europe

December 23, 2013 Comments off

A new dawn: Reigniting growth in Central and Eastern Europe
Source: McKinsey & Company

From the early 1990s until the onset of the global financial crisis, in 2008, the economies of Central and Eastern Europe established a record of growth and economic progress that few regions have matched. Emerging from decades of socialism, Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, Slovakia, and Slovenia became standout performers in the global economy. Their inherent strengths were unleashed as state-owned industries were privatized and labor reforms implemented, attracting a flood of capital and foreign direct investment that drove productivity improvements and per capita GDP growth.

Yet these economies—like the United States and Western Europe—have struggled to regain momentum since the end of the recession. Despite their underlying intact strengths, such as highly educated yet inexpensive labor forces, they need to modify their economic models to restore the 4 to 5 percent annual growth rates of the precrisis years. The region must emphasize investment-led growth, expand high-value-added exports, and increase both foreign direct investment and domestic savings. For this strategy to succeed, the nations of Central and Eastern Europe will also need to build the foundation for growth, including infrastructure improvements, accelerated urbanization, regulatory reforms, institution building, investments in labor-force skills, and efforts to encourage R&D and innovation. In addition, these economies must address the aging of the workforce by raising the labor-participation rate of women and younger workers.

Organizing for change through social technologies: McKinsey Global Survey results

November 14, 2013 Comments off

Organizing for change through social technologies: McKinsey Global Survey results
Source: McKinsey & Company

While the percentage of companies adopting social technologies remains high, it has plateaued. After seven years of research on the use and benefits of social tools, respondents to our latest survey1 have for the first time reported no growth in the share of organizations deploying such technologies. Yet there remain significant opportunities for further adoption—and considerable value to capture—particularly among companies’ own employees and with business partners. The results suggest these technologies can facilitate substantial organizational change, provided that companies approach social tools as they would any large-scale transformation. Indeed, the companies reaping the greatest benefits from social interactions with both internal and external stakeholders (what we call “fully networked” enterprises) already implement the key practices that support organizational change more comprehensively than all others do. Still, all executives note barriers to realizing the full potential of social tools, and all organizations could do more to generate value.

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