Where are the biggest opportunities for business and government to work together?

As companies globalise, they face a growing body of diverse and complex regulations. The global regulatory environment is changing faster than companies can absorb. This is why CEOs consistently report overregulation as a threat to business growth. And it’s not getting any easier; according to the CEO Survey, only 31% of CEOs believe that regulations will be harmonised among governments. However, the successes of the private and public sectors are increasingly intertwined. Effective partnership models are emerging around the world, ranging from improved communication and better coordination to true collaboration, depending on the market.

71% of CEOs plan to increase investment in an area they also believe is one of the government’s top-three priorities: developing a skilled workforce. And increasingly, governments are making this a top priority. Countries as well as companies are competing for talent, and some governments are investing a lot to make their workforces more competitive. For example, the Singapore government partnered with a local university to launch a talent development programme, bringing together professional services firms, universities and business schools.

Workforce skilling is just one area of focus. Intellectual property, health care, energy, infrastructure, immigration, tax, financial sector convergence… these are major areas in which leaders from both public and private sector organisations say they can work together more effectively to achieve common goals.

A shared agenda for businesses and governments

Image via Wikipedia

Government leadership in building infrastructure is critical for competitiveness. A majority of CEOs identified the priority for the governments of all countries outside of Western Europe and Japan, where infrastructure is well developed, and of China – where the government allocated almost US$600 billion of stimulus spending for infrastructure projects over the past two years, according to PwC’s 14 Annual CEO Survey.

The role of private capital in financing infrastructure is unavoidable: an estimated US$3 trillion per year needs to be spent on infrastructure across the globe in the coming decades, according to a recent report from the World Economic Forum.

However, businesses can provide more than cash: they have expertise, and the abilities to execute and manage risks. This is part of what makes PPPs attractive. As Berthold Leetfink, Deputy Secretary General of the Ministry of Economics, Agriculture and Innovation in the Netherlands told PwC, “At least for the Netherlands, and I think for many other countries, planning and building infrastructure is very much in the hands of government. But it’s obvious that the private sector has a lot of knowledge in terms of building cheaply, efficiently or in a more environmentally friendly way.” As an example, a PPP project in 2009 to connect a 12-mile regional rapid transit line in Vancouver (Canada Line) was completed several months ahead of schedule.

Needless to say, businesses also have a key expectation for their governments: to tackle fiscal deficits to restore stability to the markets in a way that is mindful of the fragile environment for global growth. Public revenues are of course expected to be part of the equation: a majority of CEOs expect taxes will rise, led by 65% of CEOs in Asia and 70% in Latin America.

For a full report, you may click here.

Ten tech-enabled business trends to watch

Image by inju via Flickr

Two-and-a-half years ago, McKinsey described eight technology-enabled business trends that were profoundly reshaping strategy across a wide swath of industries. Since then, the technology landscape has continued to evolve rapidly. The dizzying pace of change has affected those original eight trends, which have continued to spread (though often at a more rapid pace than anticipated), morph in unexpected ways, and grew in number to ten:

1. Distributed cocreation moves into the mainstream

By McKinsey’s estimates, when customer communities handle an issue, the per-contact cost can be as low as 10 percent of the cost to resolve the issue through traditional call centers. Other companies are extending their reach by using the Web for word-of-mouth marketing. However, since cocreation is a two-way process, companies must also provide feedback to stimulate continuing participation and commitment.

2. Making the network the organization

The recession underscored the value of such flexibility in managing volatility. McKinsey believes that the more porous, networked organizations of the future will need to organize work around critical tasks rather than molding it to constraints imposed by corporate structures.

3. Collaboration at scale

Across many economies, the number of people who undertake knowledge work has grown much more quickly than the number of production or transactions workers. While the body of knowledge around the best use of such technologies is still developing, a number of companies have conducted experiments, as one may see in the rapid growth rates of video and Web conferencing, expected to top 20 percent annually during the next few years.

4. The growing ‘Internet of Things’

Assets themselves became elements of an information system, with the ability to capture, compute, communicate, and collaborate around information – something that has come to be known as the “Internet of Things.” Embedded with sensors, actuators, and communications capabilities, such objects will soon be able to absorb and transmit information on a massive scale and, in some cases, to adapt and react to changes in the environment automatically. These “smart” assets can make processes more efficient, give products new capabilities, and spark novel business models.

5. Experimentation and big data

McKinsey affirms that some companies haven’t even mastered the technologies needed to capture and analyze the valuable information they can access. More commonly, they don’t have the right talent and processes to design experiments and extract business value from big data, which require changes in the way many executives now make decisions: trusting instincts and experience over experimentation and rigorous analysis. To get managers at all echelons to accept the value of experimentation, senior leaders must buy into a “test and learn” mind-set and then serve as role models for their teams.

6. Wiring for a sustainable world

Companies are now taking the first steps to reduce the environmental impact of their IT. Information technology is both a significant source of environmental emissions and a key enabler of many strategies to mitigate environmental damage.

7. Imagining anything as a service

In the IT industry, the growth of “cloud computing” (accessing computer resources provided through networks rather than running software or storing data on a local computer) exemplifies this shift. Consumer acceptance of Web-based cloud services for everything from e-mail to video is of course becoming universal, and companies are following suit.

8. The age of the multisided business model

Thr advertising-supported model has proliferated on the Internet, underwriting Web content sites, as well as services such as search and e-mail. It is now spreading to new markets, such as enterprise software: Spiceworks offers IT-management applications to 950,000 users at no cost, while it collects advertising from B2B companies that want access to IT professionals.

9. Innovating from the bottom of the pyramid

Hundreds of companies are now appearing on the global scene from emerging markets. For most global incumbents, these represent a new type of competitor: they are not only challenging the dominant players’ growth plans in developing markets but also exporting their extreme models to developed ones. To respond, global players must plug into the local networks of entrepreneurs, fast-growing businesses, suppliers, investors, and influencers spawning such disruptions.

10. Producing public good on the grid

Technology can also improve the delivery and effectiveness of many public services. At the UK Web site FixMyStreet.com, for example, citizens report, view, and discuss local problems, such as graffiti and the illegal dumping of waste, and interact with local officials who provide updates on actions to solve them.

For detailed analysis see McKisey Quarterly

McKinsey Survey: less than 25% of the companies whose primary market is in the European Union or the United States, are effective at lobbying

A recent McKinsey survey show that among companies whose primary market is in the European Union or the United States, less than a quarter of respondents say their companies are effective at developing and executing strategies for engaging with all relevant government stakeholders.

The results show that government actions have a significant effect on companies’ economic value: 34% of respondents say 10% or more of their operating income is at stake. Some government actions, such as providing infrastructure and access to capital, are likelier to have a positive than a negative effect on company finances. However, passing laws and setting policies—the actions executives say most often affect their companies’ economic value—have an overall negative effect. Respondents whose primary markets are in developing economies are more positive than others, however, about the effect of government actions, such as the passage of laws and enforcement of rules.

Given this value at risk, it’s promising that 71% of respondents say companies should proactively and regularly engage with government, but it’s less encouraging that only 43% say their companies actually do so.

Some of the reasons for the relative lack of engagement may be executives’ own views of government. More than 75% agree that business must be actively involved in shaping government policy to succeed and that it’s beneficial for companies to be as transparent as possible with government, but large shares also express frustration with government along various dimensions.

When companies do engage with government, executives indicate they’re not particularly good at it. Engaging with the governments of their companies’ primary-market countries is a top-three priority for only 30% of CEOs—although the figure rises to nearly 60% in China. More are involved in overseeing their companies’ efforts to engage: almost two-thirds of respondents say their CEOs either sponsor those efforts personally or oversee the group that does so.

Romanian readers may find usefull the following resource on the subject of lobbying:
www.reglementare-lobby.ro

According to McKinsey, the survey received responses from 1,167 executives representing the full range of industries, regions, and functional specialties.

Detailed survey results may be found on McKinsey Quarterly: www.mckinseyquarterly.com

Book launching: “Lobby regulation. Inside the antechambre of influence”

C.H. Beck Publishing has the pleasure to invite you on November 11, 2009 to the launching event of the book “Lobby regulation. Inside the antechambre of influence” written by Liviu Mihaileanu and Aurelian Horja. The event will take place at the Law Faculty of Bucharest University (36-46 Kogalniceanu Blvd., Bucharest).

Besides defining the lobby activities and presenting lobbying tactics and tools, the book clarifies aspects such as the difference between lobby and trafic of influence and makes a comparative analysis of lobby regulation in USA, the European Union and EU member states.

For more information, please visit: www.reglementare-lobby.ro

Reforming the public sector in a crisis: Göran Persson’s views on the Swedish Great Depression and crisis opportunities

Image by wallyg via Flickr

In the early 1990s, Sweden suffered its deepest recession since the Great Depression. Although the Swedish crisis was homegrown, its causes and effects resemble the events unfolding in the world today. After years of strong domestic growth driven by easy credit and high leverage, a real-estate bubble burst, leading to the collapse and partial nationalization of the banking sector. Domestic demand plunged as the household savings ratio soared by 13%. In three years, public debt doubled, unemployment tripled, and the government budget deficit increased tenfold, to more than 10% of GDP, the largest in any OECD country at the time.

Göran Persson was appointed finance minister after the 1994 elections, and became prime minister two years later. In order to regain the confidence of international lenders (and so pave the way for stability and sustainable growth) he knew that Sweden had to reduce its budget deficit dramatically. It took four years for the Swedish government to balance its budget. By 2006 the country had almost halved its public debt.

Persson recently spoke about what it takes to improve the way the public sector works and here are some of the lessons learned that he shared with McKinsey Quarterly:

• First, as Persson says, you must make it clear that you are responsible for the process and that you are prepared to put your position at stake.

• Second, the consolidation program must be designed so that the burdens are shared fairly. Public support for tough policies would quickly deteriorate if they were not perceived as fair.

• Third, the consolidation program has to be designed as a comprehensive package: by presenting the measures together, it becomes clear to all interest groups that they are not the only ones being asked to make sacrifices. Also, by starting with the most difficult measures, you demonstrate your resolve and increase the chances of achieving the early results, which will be important for getting the continued support that is critical for sustaining the effort.

• Transparency is the fourth lesson: never play down the effects of the program’s measures, be completely honest when you communicate with financial markets, clarify assumptions and calculations.

When talking about crisis opportunities, Persson admitted that the cuts in government consumption became a driver of improved efficiency, since public authorities were forced to do the same job on unchanged or reduced budgets and he mentions three of the strategies pursued:

1) One strategy aiming to improve productivity, service quality, and freedom of choice involved the liberalization of telecommunications, mail, railways, and other infrastructure industries. It also involved allowing privately run providers to compete with public ones in providing tax-financed services for the school system, health care, child care, and care for the elderly.

2) Another measure was to introduce information technology to broad layers of the population through a tax-deduction scheme that allowed workers to obtain a home computer under a favorable leasing agreement with their employers. The penetration of IT in Sweden during these years outpaced every other country in the world, which made it possible for authorities like the Tax Agency to go online at an early stage. More and more of the communication between Swedish public agencies and citizens now takes place on the Web, and many Swedes do their annual tax submissions over the Internet, allowing for a very efficient processing of taxes.

3) A third strategy was to give people with basic schooling the chance to complete a secondary education that would qualify them for university studies. More than 10% of the workforce seized this opportunity between 1997 and 2002. When the business cycle turned up again, they became a very good resource on the labor market, not least in the public sector. This education scheme served a dual purpose: it eased the pain of unemployment and increased Sweden’s long-term competitiveness by lifting the average competence level of the workforce.

Göran Persson also commented on his experience with trying to get the civil servants on board and making them partners in the initiative, changes in the way government worked and the way it developed and delivered its services, and influencing change at ministries that were not making good on their efficiency targets.

Economic Forecast, spring 2009: the widespread economic downturn may trigger trade-distorting protectionist measures

The European Commission issued on 4 May 2009 its spring economic forecast. Beside its optimistic press release, the analysis show that the risk of a worse-than-expected outlook for economic activity relates, in particular, to the impact of the financial crisis and the strength of the negative feedback loop between different sectors of the economy. For instance, a sharper deterioration of the real economy may aggravate the housing-market correction in some countries and may also reinforce the banking deleveraging process, pushing the projected recovery further into the future. Some economies with substantial (external) financing needs also face the risk of sudden shifts in investors’ risk preferences and difficulties in securing the necessary financing as recently illustrated by developments in some Central and Eastern European economies. Moreover, it cannot be excluded that the widespread economic downturn may trigger trade-distorting protectionist measures.

Turning to inflation, risks partly relate to future commodity price trends, where weaker demand poses a downside risk, while the possibility of further supply restrictions points in the opposite direction. The disinflationary impact of a severe recession on wage and price setting may also prove more pronounced. However, the risk of a deflationary scenario at the EU or euro-area level, i.e. a persistent and self-reinforcing decline in a broad set of prices, appears limited at the current juncture. Inflation expectations remain anchored at levels consistent with price stability; wage growth is expected to remain positive, while both fiscal and monetary policies have turned expansionary.

World GDP is expected to contract by some 1.5% in 2009, with the downturn being especially pronounced in advanced economies. GDP is projected to fall by about 3% in the US and by a stark 5.25% in Japan in 2009. Moreover, the economic downturn has increasingly spilled over to emerging and developing economies. Although China seems to be in a relatively good position to counter the global recession in view of the arsenal of policy instruments still available, growth is expected to slow sharply this year (to some 6%).

Among the five largest EU economies, real GDP is expected to contract this year by about 5.5% in Germany, some 4-4½% in Italy and the United Kingdom and by about 3% in France and Spain. Activity is expected to broadly stabilise in all of the larger economies in 2010, except Spain where a further contraction of close to 1% is predicted. Moreover, population growth continues to play a positive role in the case of Spain, where GDP per capita growth, at -4.5%, is in line with the euro-area average this year and is expected at close to -2% in 2010.

Although the economic downswing has become more broad based in recent quarters, differences across EU countries persist. Strongly export-oriented economies have been particularly affected by the collapse in global manufacturing. Some countries remain subject to a deeper and more protracted downturn due to their direct exposure to the financial crisis or a substantial housing-market correction. Some countries also face deterioration in external financing conditions following the build-up of imbalances and vulnerabilities, which fuel financial markets’ concern.

The downturn is also expected to be widespread across demand components, with the exception of government consumption and public investment as these are supported by budgetary stimulus proposed in the European Economic Recovery Plan. Exports and investment are set to contract particularly sharply this year (by 12.75% and 10.5%, respectively).

You may find more details on economic forecasts for the EU Member States at:
http://ec.europa.eu/economy_finance/thematic_articles/article14927_en.htm

Social Private Partnerships: innovation in public service delivery

PwC Public Sector Research Centre published these days a study on “Social Private Partnerships”. Using profit to deliver social benefits is a concept that the private sector has already embraced through its considerable investment in corporate social responsibility programmes. Maximising profit should enable social enterprise to deliver a higher level of ‘mission benefits’. Therefore, PwC considers that the time is ripe to recognise the coming together of the two related sectors, and to adopt a more assertive approach to partnerships between social enterprises and private firms in the provision of public services.

Working together, and sharing experience and resources, may indeed become a necessary means of achieving the traditional aims of both sectors whilst better harnessing public spending for the wider public good. However, it is important not to exaggerate or confuse the role of the third sector and social enterprise. Much of the third sector will remain dependant on giving. Only 2% of total public spending is on third sector delivery and a high proportion of social enterprises are micro-businesses. Even so, the sector receives widespread support and is popular with Government and service users. Moreover, if the goal is to create a mixed economy of providers then there will need to be more social enterprise involvement, especially in areas where private providers or public providers are dominant.

The economic downturn will act as a brake on the rate of growth and constrict access to conventional funding, but may also open up new opportunities as the government seeks to fast-track spending in key areas like health, education, housing and transport while also delivering on social outcomes, such as limiting inequality.

Advancement in outcome-based commissioning (whereby social or local added-value, like volunteering or mentoring are factored into the procurement process) and the introduction of full cost recovery should be real plusses.

You may download the full PwC study at:
“Social Private Partnerships: innovation in public service delivery,” PwC Public Sector Research Centre, 2009