Thursday, April 18, 2013

The Origins and Practice of Delivery

SSIR Opinion & Analysis

By Sir Michael Barber

This article was published by McKinsey & Company in honor of the Skoll World Forum.

In a recent speech, World Bank President Jim Yong Kim noted that delivery is a major challenge for leaders across the world.

We need a science of delivery, he argued. No leader of the World Bank has ever made a more important case. And the good news is that the science he wants is ready to emerge. This is the story of how it began.

In June 2001, Tony Blair was elected to a second term as the British prime minister. A few days later, he asked me to set up the Prime Minister's Delivery Unit (PMDU), tasked with securing the implementation and delivery of his domestic policy priorities. Delivery meant more than passing laws and writing speeches. It meant changing the facts on the ground and ensuring that citizens could see and feel the difference. Our task was to translate reform into results.

Over the next few weeks, a handful of colleagues and I developed a set of processes that, with refinement over the years, turned out to be a major innovation not just in Britain but globally. By 2005, most of Blair's domestic-policy priorities, ranging from healthcare improvements and crime reduction to railway performance, had either been delivered or were heading firmly in the right direction. Other governments began to take notice. Since then, there have been numerous attempts to emulate the work of the PMDU. Some have succeeded, while others have failed.

What were our techniques and processes? Among the attempts at emulation, what has differentiated success from failure? What PMDU put in place was deceptively simple. We asked five questions, repeatedly and persistently, until we received satisfactory answers.

Question 1: What are you trying to do?

We asked this question to establish clear priorities (and therefore also to clarify what was less important) and ensure that each priority was paired with a clear definition of success. Our goals were intentionally ambitious; after all, Blair wanted "step change." We called them "targets," a word that became controversial. The word is unimportant—what matters is the clear, measurable definition of success. We also decided to make the targets public, which is not necessary but is desirable in an era of transparency.

The result was a set of specific targets in the categories of health, education, crime, and transportation. They included reducing wait times for routine operations, improving the punctuality of trains, boosting literacy among 11 year olds, and many more.

Question 2: How are you trying to do it?

Once the targets were agreed upon, we asked the relevant departments to prepare delivery plans setting out how they intended to meet the targets. This alone was a revolutionary act; white papers, beautifully written and then shelved, were then the norm. We wanted real, coffee-stained plans that drove action. Above all, we wanted a trajectory. How would they measure progress over the period of time that would elapse between setting the target and hitting it? This simple request required officials to think systematically about the link between proposed actions and their impact.

Of course, even the best-planned trajectories don't always turn out to be right. They do allow progress to be monitored. And when reality deviates from the prediction, they enable lessons to be learned.

Question 3: How, at any given moment, will you know you are on track?

Crucially, we established routine ways to monitor progress. We insisted on regular data collection so that officials knew whether progress was being made in close to real time. People often say that this sort of ongoing performance evaluation is not too difficult. This is never true. And yet the provincial government of Punjab, in Pakistan, collects data on performance from 60,000 schools every month, in a low-tech, affordable way. As a result, it has transformed performance.

We introduced quarterly monitoring meetings, which we called "stocktakes," between the relevant ministers and Blair, advised by my team and me. In each stocktake, we examined the data, had an honest conversation, and made decisions, which again was revolutionary. Most governments spend their time running to catch up with crises and events. These routines changed all that. They put data rather than spasm at the heart of decision-making. Punjab's Chief Minister Shahbaz Sharif, with whom I work now, has done the same, to good effect.

Question 4: If you are not on track, what are you going to do about it?

Once you have proper routines in place and working, problems are identified before they become crises. In my experience, problems can always be solved. Some problems are relatively simple to fix; others are much harder. For the latter, what matters is that you try something—and if that doesn't work, try something else, and keep trying until you get a result.

When there is a problem, the first instinct in government (encouraged by the media) is too often to allocate blame rather than solve the problem. Always solve the problem first; if blame needs to be allocated, that can be done later.

Question 5: Can we help?

The PMDU didn't just monitor the performance of government. It also rolled up its sleeves and helped solve problems. When it succeeded, it congratulated the relevant department rather than taking credit for itself. We never yelled at people, West Wing style. Instead we built trusting relationships. We took the view that we shared responsibility for the outcomes.

And we developed techniques that could help solve problems—rapid reviews and delivery-chain analysis, for example. Crucially, we were persistent; we wouldn't go away until a problem was solved. We were ambitious, too, however tough the present might have looked.

If successful delivery is so simple, why is it hard to replicate? Those that fail tend to see delivery as a passing management fad. They don't make the commitment to change facts on the ground. They don't make the routines work. They might listen to "experts" who use the buzzwords and promote the form of a delivery unit, but these people generally don't understand the philosophy or discipline on which success depends. Successful leaders, such as Former Ontario Premier Dalton McGuinty, Malaysia Prime Minister Najib Razak, and Punjab Chief Minister Shahbaz Sharif, take a very different approach. They prioritize, they persist, and they appoint talented people to focus on delivery. They understand that while getting the policy right is hard, it is only 10 percent of the challenge. The other 90 percent is the blood, sweat, and tears of relentless implementation. They understand that delivering results is not about setting up a delivery unit; it's about fundamentally changing how you do business.

As Jim Yong Kim says, delivery can become a new science. As more governments see the urgency of delivering results that go beyond the incremental, we can learn quickly what works and what doesn't and unleash the science that will change millions of lives for the better.

Editor's Note: This collection of articles is part of "The Art and Science of Delivery," an anthology of essays published by McKinsey & Company in honor of the 10th Anniversary of the Skoll World Forum. It is the most recent installment of McKinsey's ongoing series, Voices on Society, which convenes leading thinkers on social topics. (Copyright (c) 2013 McKinsey & Company. All rights reserved. Reprinted by permission)

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Tuesday, April 16, 2013

'This is Bad Economics ... But it is Excellent Preaching'

Economist's View 'This is Bad Economics ... But it is Excellent Preaching'

James Surowiecki:
It's been a great couple of weeks for David Stockman. Granted, he's been called "unhinged," "nonsensical," and "a cranky old man," after arguing in the Times that the current bull market is a huge bubble, and that America's economic woes stem from the Federal Reserve's profligacy and from F.D.R.'s taking us off the gold standard. But the controversy has made his new book, "The Great Deformation," a best-seller...
 He's an ideologue, but he's an honest one. Still, honesty gets you only so far, and Stockman's ... thesis is unconvincing. He thinks that, when bad times hit, the government should just let events play out, rather than use discretionary fiscal or monetary policy to combat them. In part, this is because he thinks that the government can't do much to help a weak economy. Indeed, he believes that intervening after a crash makes the next one worse. ...
The simplicity of this idea gives it a certain visceral appeal. ... For him, pain is the way we learn discipline, and, the more closely you read "The Great Deformation," the more you sense that the impulse behind it isn't so much economic as moral. Stockman, who studied at Harvard Divinity School, favors language that is explicitly theological: Keynesian "sin," the "demon" of debt, the "devil's workshop" of the New Deal. "The Great Deformation" looks like monetary history, but it's really a classic example of the American jeremiad—a twenty-first-century counterpart to Jonathan Edwards's famous sermon "Sinners in the Hands of an Angry God." Stockman laments our fall from the path of righteousness and foretells destruction if we do not repent. This is bad economics—the economy is not a morality play—but it is excellent preaching, which explains why this is Stockman's moment. In times of crisis, as the Puritans knew, Americans never tire of hearing how we've lost our way.

"For him, pain is the way we learn discipline." Let me just add a point I tried to make recently. Even if you buy into the "we need pain to learn discipline" idea, punishing people who had nothing to do with our problems, e.g. throwing workers into unemployment even though they did nothing to cause the crisis, does not provide the discipline he wants. If we punished those at the top of the financial industry -- the individuals whose decisions drove the bubble -- maybe some learning would occur, but that's not what happened. In fact, punishing the innocent rather than the guilty leads to bad incentives, not the good ones he is after. For that reason the innocent -- the workers who did their jobs day after day to support their families who suddenly found themselves unemployed through not fault of their own -- should be protected through fiscal and monetary policy, and as much as possible, this should come at the expense of those responsible for their problems. 




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The Future City

SSIR Opinion & Analysis The Future City

By Shaina Doar and Jonathan K. Law

This article was published by McKinsey & Company in honor of the Skoll World Forum.

No one knows the exact day or place, but sometime in 2008, a person moved into a city and established a milestone: the moment when, for the first time, more than half the world's population lived in urban areas. More than six billion people will live in cities by 2030, according to the United Nations—almost double from when that unknown person left home for the city.

McKinsey has worked with cities around the world to create large-scale initiatives that help shift the trajectory of a city's economy. Delivery is essential to fostering sustainable and inclusive growth. It begins with a strategy that is rigorous, fact-based, and market-disciplined, and builds from a city's existing assets. These are the competitive strengths that allow them to compete and lead in the global economy.

Successful implementation of an economic-growth strategy requires tapping into the talents of high-skilled workers, entrepreneurs, researchers, and visionaries, and creating a base of effective anchor institutions and infrastructure. To do so, the community must be patient and resist the temptation to seek short-term, visible successes that may not build on the underlying economic strengths required for sustainability. Taking the long-term view also requires a commitment from the public, nonprofit, and private sectors alike. No economic development "playbook" can replace an understanding of local dynamics.

Here are some encouraging examples that illustrate how some cities are helping themselves through excellence in delivery:

1. Identify high-potential economic clusters. New York City is beginning to see results in its efforts to become an East Coast high-tech hub. Over the past decade, New York increased venture-capital activity by 2.8 percent a year—the only major US city to show such a rise. From 2003 to 2011, high-tech employment grew the fastest—5.3 percent—of any of the 13 major industries surveyed. And digital leaders are buying in: Facebook, Google, and Twitter have all opened offices.

The key to this success is that New York's entrepreneurs, business leaders, and government have built on the city's intrinsic strengths and its foundation of existing industries. For example, entrepreneurs and businesses have leveraged proximity to the fashion industry to identify the trends that are contributing to the next wave of e-commerce (think of start-ups like Gilt). And it is no wonder that New York does well in ad tech and digital content, considering it is home to so many writers and artists.

The sector has also benefited from intelligent government support. The New York City Economic Development Corporation (NYCEDC) has developed ten incubators to give emerging businesses access to the services they need. NYCEDC has also financed a privately managed $22 million fund aimed at early-stage technology start-ups, and it sponsors competitions and information sessions to identify and recruit talent.

While New York still has a long way to go compared with the competition in the Bay Area and Boston, the buzz is undeniable: There are twice as many members in New York Tech Meetup (23,000-plus) today than there were just three years ago. And the Cornell-Technion campus, a $2 billion education-research institution designed to forge stronger links between entrepreneurs, academics, and the high-tech sector, may be a game changer. "The campus was set up specifically to increase the talent pool in New York City," Cornell President David Skorton told the New York Times, "to positively influence the New York City economy."

2. Develop human capital. Human capital is the single most important input for economic growth, but it must be properly developed and deployed. Getting this right requires paying attention not just to education and training, but also to what sectors are creating jobs. Chicago is learning that lesson. The city, which has been plagued with slow growth and low rates of entrepreneurship, suffers from several mismatches—between the skills of the unemployed and the jobs that exist, between where the jobs are and where the people are, and between training programs and employer needs. In short, Chicago is not using its human capital to the fullest.

Recognizing this, Chicago recently launched Skills for Chicagoland's Future (SCF), a public-private partnership that aims to shrink the skills gap and help employers find trained workers. SCF has flipped the usual workforce model on its head by seeing employers as their customers and working to meet their needs. To make the right connection, unemployed people can use the program's website to register their skills, and local training programs are tailored to specific employers. Matches are tracked.

The program is still new, and it is starting small, with a goal of placing 2,000 workers this year. But we believe that this is a move in the right direction.

3. Improve innovation and entrepreneurship capabilities. Buffalo was once, quite literally, powerfully innovative—it was a pioneer of electricity, tapping into the immense natural force of the Niagara Falls in the late 19th century. But in recent decades, it has lost its innovative verve. The region is home to an array of infrastructure assets and R&D institutions, particularly in health and life sciences. Yet local researchers earn fewer than 20 patents each year, and there were only 30 life-science start-ups arising from institutional intellectual property in the last decade.

Recognizing this, the city took stock of its strengths and weaknesses in a systematic way and created a long-term strategy for rejuvenation: the Buffalo Billion Investment Development Plan. One high-potential initiative is a $50 million business-plan competition, the richest in the United States. While it will be supported by the public sector, successful delivery will require input from venture capitalists and entrepreneurs from within and outside the region. The idea is to get the word out that Buffalo is open for business, change public perceptions, and attract talent and capital.

Executed well, such a competition can bring real results, as it did in Dortmund, an industrial German city with a history and economy similar to that of Buffalo (indeed, the two are "sister cities"). Dortmund's business-plan competition, begun in 2000 and run by an independent entity, has generated 700 start-ups.

4. Invest in the right infrastructure. Density and transit-oriented development are sound principles for sustainable urban growth. Detroit might seem an odd choice to illustrate these principles, considering it is so strongly associated with the car. Moreover, Detroit's economic challenges are well-known. Its city center has been hollowing out, in part because of the absence of coherent transit-oriented development, and the state just sent in an emergency manager to oversee the city's operations.

Based on research and experience working with cities around the world, we have seen that it is possible to implement large-scale initiatives that can shift the trajectory of a city's economy. In this regard, it will be worth watching Detroit's M-1 Rail Initiative, which is intended to stimulate development and foster a "revitalized, livable, walkable, and vibrant downtown." The initiative is being financed by a partnership comprising 1) the federal government, which has granted $25 million (as of January 2013) for the initial 3.3-mile light-rail/streetcar route; 2) the city, $9 million; and 3) the private sector, more than $100 million, most of it from the Kresge Foundation, but with large sums from local employers. State and local governments have chipped in expertise and other kinds of support, such as land easements, construction coordination, tax credits, governance, permits, and the creation of a regional transport authority. The first passengers could board in 2015.

In sum, if any of this were easy, everyone would be doing it well. But it isn't. In each of these examples, the public, private, and nonprofit sectors worked together, supporting one another's efforts. They did so in different ways, with different players taking the lead. That makes sense; needs and capabilities vary. But the larger point is the same: sustainable growth requires participation across sectors to address a comprehensive set of economic drivers.

Editor's Note: This collection of articles is part of "The Art and Science of Delivery," an anthology of essays published by McKinsey & Company in honor of the 10th Anniversary of the Skoll World Forum. It is the most recent installment of McKinsey's ongoing series, Voices on Society, which convenes leading thinkers on social topics.




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Sunday, April 14, 2013

Fed Watch: When Can We All Admit the Euro is an Economic Failure?

Economist's View

Tim Duy:

When Can We All Admit the Euro is an Economic Failure?, by Tim Duy: The last month of data flow from Europe is nothing short of depressing. It seems that the history of the Eurocrisis can be summed up as a repeated effort to snatch failure from the jaws of defeat. The Euro and the policy framework that supports it is now clearly inconsistent with anything but sustained recession.

Consider a handful of recent reports. First, unemployment continues to reach new highs. From Bloomberg:

Unemployment in the 17-nation euro area was 12 percent in February and the January figure was revised up to the same level from 11.9 percent estimated earlier, the European Union's statistics office in Luxembourg said today...The European Commission predicts unemployment rates of 12.2 percent this year and 12.1 percent in 2014. ECB President Mario Draghi said on March 7 that "it is of particular importance at this juncture to address the current high long-term and youth unemployment."

I don't think that 12.2 percent forecast will hold. Greece remains a complete disaster. Via Aljazeera:

Greece's unemployment rate reached a new record of 27.2 percent in January, new data has showed, reflecting the depth of the country's recession after years of austerity imposed under its international bailout.

The latest figure rose from a revised 25.7 percent in December, the country's statistics service ELSTAT said on Thursday...Unemployment among youth aged between 15 and 24 stood at 59.3 percent in January, up from 51 percent in the same month in 2012.

Meanwhile, the Troika continues to demand further job cuts in return for a drip feed of bailouts that have arguably done little other than ensure Greece remains in recession:

An inspection team of international lenders has finished its review of Greece's reform progress, paving the way for another 10 billion euros aid payment, a source with knowledge of the talks said on Saturday....Under Greece's current bailout plan agreed in November, Athens must overall cut 150,000 public sector jobs from 2010 to 2015, about a fifth of the total, through hiring curbs, retirements and dismissals.

As a consequence, the stage is being set for another political crisis in Greece. Ekathimeri reports:

The head of the main leftist opposition SYRIZA, Alexis Tsipras, called on Saturday for the shaky coalition government to step down and pave the way for new elections, claiming that this was "the only way out" for a country seemingly condemned to endless austerity...

..."The situation has reached the absolute limit," the leftist leader told supporters. "At this moment, there is no other way out for the country than the resignation of the government and the staging of new elections so a new administration can emerge with the mandate and support of the majority of society to implement an alternative plan to exit the crisis." Tsipras admitted that his plan entailed risks but was preferable to "certain failure."

Is the price of staying in the Euro finally now too high? Meanwhile, Ambrose Evans-Pritchard reminds us that both Cyprus have gone from bad to worse:

On cue, Angela Merkel's Christian Democrat base in the Bundestag has warned that there can be no increase in the EU-IMF rescue package for Cyprus.

The Cypriot people alone must carry the extra cost of up to €5.5bn beyond what was already agreed in the €17.5bn deal in March.

"Should that not be possible, the assent of the German Bundestag next week is out of the question," said Christian von Stetten, a key member of the finance committee.

And Evans-Pritchard repeats a point that cannot be repeated enough:

If the eurozone refuses to offer any further help, there must surely be a greater temptation to withdraw from the euro and default on sovereign debt in a classic restructuring deal with the IMF.

That is what the IMF is there to do. Such restructurings have been done countless times across the world over the last 50 years. It is traumatic, but countries usually recover after a couple of years.

Currency depreciation is a critical element of traditional IMF restructurings. The inability of troubled Eurozone economies to depreciate remains a key impediment to their return to growth; there is simply no cushion to offset the never-ending austerity. Speaking of never-ending austerity, Evans-Pritchard reviews the situation in Portugal:

So Cyprus is very far from being solved, and so is Portugal. A fresh Troika leak, this time to the Pink Sheet, has confirmed what anybody following Portugal already suspected. The country is stuck in a debt-compound trap. The economic slump is proving much deeper than forecast. The deficit has been rising not falling, in spite of austerity cuts.

And, increasing, it is not just periphery. From Reuters:

Manufacturing across Europe's major economies endured another month of mostly deep decline in March, dragging down even former bright spots, surveys showed on Tuesday....

Factories in Germany and Ireland, the relative stars of February's PMIs, fell back into decline last month. Everywhere else, the industrial rot extended.

Spanish manufacturing declined at its fastest pace since October, which followed news the government will revise its economic forecasts for 2013 to show a 1 percent contraction, from a 0.5 percent decline previously.

In France, factory activity retreated for a 13th month and car registrations there dived 16.4 percent in March, further underlining the malaise sweeping through the euro zone's second-biggest economy.

"The euro zone's March manufacturing PMIs ... (banishes) the recovery scenario projected by the European Central Bank further beyond the realm of likely probabilities," said Lena Komileva from G+ Economics in London.

The ongoing deterioration in Europe is evident to everyone except European policymakers. Clive Crook wonders at European Commission President Jose Barroso's outlook:

Barroso's optimism on Europe's economic recovery, if you can call it a recovery, was harder to understand. This week the IMF's Christine Lagarde talked of a three-speed world: "countries that are doing well, those that are on the mend, and those that still have some distance to travel." (In other words, fast growth in many emerging economies, slow growth in the U.S., and no growth in Europe.) The euro area's economy is still shrinking. Yet Barroso still thinks (or says he thinks) that policy has been mostly well-judged and the union will emerge stronger from its ordeal.

He noted early on that Europe's public debts still aren't high by U.S or Japanese standards. True -- and that's the point. The EU is insisting on austerity in its weakest economies even though, in the aggregate, its fiscal problem is manageable. The failure to create effective burden-sharing arrangements -- some form of limited fiscal union to work alongside its monetary union -- has been the euro area's biggest error, not counting the creation of the euro itself. And the consequences are crushing countries such as Spain and Barroso's own Portugal.

Note that fiscal union is not the same as an austerity union. The former allows for internal transfer of the type Crook describes. The latter is simply a joint commitment to austerity. But austerity is the only policy possible within the European framework. Calculated Risk caught German Finance Minister Wolfgang Schauble wallowing in self-delusion:

"Nobody in Europe sees this contradiction between fiscal policy consolidation and growth," Schauble said. "We have a growth-friendly process of consolidation, and we have sustainable growth, however you want to word it."

With no depreciation for crisis-stricken economies, no fiscal stimulus, and tight credit conditions through half of Europe as banking consolidates within national boundaries, what exactly is the road forward for Europe? I just don't see it.

Bottom Line: How high does unemployment need to rise, how much output needs to be lost, how much poverty must be endured before European policymakers realize that the policymakers see that the framework supporting the Euro politically is an economic failure?

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America’s Inefficient Health Care System

The Big Picture

 

 

America's Health Disadvantage
Image source: www.bestmasterofscienceinnursing.com

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