What is big data - Infographics 07-19

What is big data - Infographics 

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Cerebral Microbleeds May Block Brain Blood Flow 07-15

Cerebral Microbleeds May Block Brain Blood Flow

Chronic hypoperfusion may put cognitively normal seniors at risk for neurodegeneration.

Even in cognitively normal older patients, cerebral microbleeds may portend a higher risk of neurodegeneration and cognitive impairment, researchers found.

In a single-center study of 55 patients, the presence of any cerebral microbleed showed a trend toward reduced cerebral blood flow, although the finding wasn't statistically significant, according to William Klunk, MD, PhD, of the University of Pittsburgh, and colleagues.But when they homed in on cortical cerebral microbleeds, there was a significant reduction in cerebral blood flow (P=0.0003), they reported online in JAMA Neurology.

"Chronic hypoperfusion may put these people at risk for neuronal injury and neuronal degeneration," they wrote.

Cerebral microbleeds, or remnants of the leakage of red blood cells from small cerebral vessels, are a common incidental finding on MRI in healthy older patients. They've also been found in patients with symptomatic intracerebral hemorrhage and Alzheimer's, and are associated with two types of small-vessel disease: cerebral amyloid angiopathy (CAA) and arteriosclerosis/lipohyalinosis.

Some studies have also shown them to be associated with greater cognitive impairment, but the mechanism behind how this type of small vessel disease could contribute to cognitive deficits isn't clear.

Klunk and colleagues conducted a cross-sectional study of 55 cognitively normal patients with mean age of about 87, all of whom were asymptomatic; 21 of them (38%) had cerebral microbleeds.

They found that patients who had any cerebral microbleeds had a trend toward reduced cerebral blood flow, but it wasn't significant.

However, when they focused specifically on cortical cerebral microbleeds, they found significant reductions in cerebral blood flow in multiple brain regions (percentage difference in global cerebral blood flow of -25.3%, P=0.0003).

The cortical regions with the most significant reductions in cerebral blood flow were the frontal, parietal (-37.6%, P<0.0001), and precuneus cortices (-31.8%,P=0.0006), with lesser but still significant reductions in the occipital cortex on the voxelwise analysis, they reported.

There was also a significant association between cortical cerebral microbleeds and greater prevalence of infarcts (24% versus 6%, P=0.047).

Finally, there was no difference in cortical amyloid between participants with and without cerebral microbleeds based on Pittsburgh compound B PET scans (P=0.06).

"Although not a standard subgroup to evaluate, cortical cerebral microbleeds are a subset of lobar cerebral microbleeds and suggest underlying cerebral amyloid angiopathy," they wrote.

They added that the data will help researchers better understand the temporal relationships between cerebral amyloid angiopathy, cerebral small vessel disease, cerebral blood flow, cerebral metabolism, neurodegeneration, fibrillary amyloid beta, and cognition.

Klunk and colleagues also found that patients with cortical cerebral microbleeds had a trend toward greater prevalence of non-zero global Clinical Dementia Rating (CDR) scale scores compared with those without, but the findings weren't significant (45% versus 19%, P=0.12).

There were no differences in cortical amyloid levels between patients with and without cerebral microbleeds, and no association between the presence of cerebral microbleeds and fibrillar amyloid beta burden or APOE*4 carrier status, they reported.

The study was limited by its small sample size, by the advanced age of the participants, and by its cross-sectional design. Still, the researchers concluded that the findings suggest resting-state cerebral blood flow could be a marker of small vessel disease related to cerebral microbleeds.

"Our findings suggest that asymptomatic elderly individuals with cortical cerebral microbleeds are exposed to chronic cerebral hypoperfusion, although no causal association can be inferred from the present data," they wrote. "However, this combination, which may reflect widespread cerebral amyloid angiopathy-related cerebrovascular dysfunction, could put these elderly individuals at risk for neuronal injury or cerebrovascular events."

"Early diagnosis of cerebral amyloid angiopathy and markers of disease severity -- potentially resting-state cerebral blood flow -- could be key elements for understanding the pathophysiology of cerebral amyloid angiopathy and developing treatments," they concluded.

They also pointed out that longitudinal evaluation of the participants in the study will yield additional information on the ties between small vessel disease, cerebral blood flow, neurodegeneration, fibrillar amyloid beta, and cognition.

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Conscious Capitalism is not CSR 07-11

Conscious Capitalism is not CSR

Many people think that Conscious Capitalism and Corporate Social Responsibility (CSR) are very much branches of the same tree. On first glance, many of the activities undertaken by conscious businesses and corporations adopting CSR appear similar.  However, dig a little under the surface and you’ll soon realise that there are significant differences between the two.

According  to the Conscious Capitalist Institute, “Conscious Capitalism is a philosophy based on the belief that a more complex form of capitalism is emerging that holds the potential for enhancing corporate performance while simultaneously continuing to advance the quality of life for billions of people”.

OK, certainly an impressive aspiration, but how does the Conscious Capitalism philosophy have practical applications in running a business?

At its heart, Conscious Capitalism is a business model where interests of all major stakeholders (employees, customers, suppliers, communities, investors and the environment) are served, and the ultimate aim is to maximise shared value for all (not just maximising the value for one group, ie shareholders). Conscious capitalism is embedded in the core structure of a business which, in turns, influences leadership, decision making, business strategy, processes, recruitment and performance management, customers service practices, and so on.

Corporate Social Responsibility, on the other hand, is a term that describes the way a corporation takes into account the financial, environmental and social impacts generated by the business. Philip Kotler defines CSR as a “commitment to improve community well-being through discretionary business practices and contributions of corporate resources”. For example, businesses may engage in CSR activities to go beyond minimum regulatory standards or expectations of environmental groups or social welfare advocates so that they may seen as good “corporate citizens”.

One way to think about the differences between Conscious Capitalism and CSR is that Conscious Capitalism is the engine that drives the car while CSR is an optional extra (especially if you’re running a business with a “conventional economic” engine). Decisions that drive the engine of a conscious business are based on the philosophy’s four pillars (see below), whereas the practice of CSR is often subordinated to the primary goal of a corporation – that is, to maximise the financial return to shareholders.

Indeed, the key difference between the two terms can be found in Kotler’s definition above. CSR is clearly a “discretionary business practice”, which is markedly different to the approach of conscious businesses where creating value for all stakeholders (not just shareholders) is intrinsic to the success of their businesses. Thus, “doing good” and creating shared value is part of the operating model and DNA of all conscious businesses.   So for a conscious business the term “CSR” is superfluous – by its very nature, a conscious business embeds its financial, environmental and social impacts as part of “business as usual”.

John Mackey, Co-Founder of Whole Foods Market, describes the four pillars of Conscious Capitalism as:

“higher purpose, stakeholder integration, conscious leadership, and conscious culture and management. The four are interconnected and mutually reinforcing. The tenets are foundational; they are not tactics or strategies. They represent the essential elements of an integrated business philosophy that must be understood holistically to be effectively manifested. Higher purpose and core values are central to a conscious business and all the other tenets connect back to these foundational ideas.”

A charged often levelled at CSR is that it is “added on” to a business as a way to improve a company’s public image often through public relations, marketing, philanthropy, donations or corporate support (time and/or money) to a community organisation or public cause. This has led many observers to discredit CSR as a form of “greenwash”, and in some cases the charges have stuck.

According to a  TIME magazine article: “This will not surprise anyone familiar with Enron, the once-high-flying energy company whose bosses were not only responsible for one of the great acts of corporate fraud in history but also an almost unprecedented level of corporate philanthropy in the years leading up to their unmasking. Likewise, just two years before the Deepwater Horizon fiasco knocked the stuffing out of British Petroleum in 2010, CEO Tony Hayward announced that the firm’s safety record was among the industry’s best, reflecting a culture of conscientiousness meant to satisfy internal and external stakeholders. Alas, not everyone was listening, especially those tasked with preventing deep-water rigs in the Gulf of Mexico from blowing up.”

Conscious capitalism is a more integrated, cohesive and impactful approach to business than CSR. As Professor Raj Sisodia, Founder of the Conscious Capitalism Institute, states: “Innumerable companies today have a CSR department or have at least nominated a CSR expert, because it is in vogue at the moment and not necessarily because it fits with their inner attitude and the company culture. Often companies study the negative effects of their industry and then invest a lot of money to mitigate these negative effects instead of creating a new business model, so that these negative effects don’t occur to begin with. Many corporations have a significant investment in CSR without integrating it into the existing business model. Conscious Capitalism is solid business management and not just a CSR department.”

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Why Corporate Social Responsibility Isn’t a Piece of Cake 07-10

Why Corporate Social Responsibility Isn’t a Piece of Cake

Although corporations can play important roles in addressing some of society’s problems, it’s naïve to think that corporate social responsibility can turn the corporate landscape into a win-win wonderland.

Corporate Social Responsibility (CSR) isn’t a piece of cake. It is fraught with contradictions, subject to political challenges and demands deep commitment. So let’s stop sugarcoating it. Relying on the familiar clichés — “doing well by doing good,” finding “win-win solutions” and being a “good corporate citizen” — accomplishes little in the bigger scheme of things. In fact, these platitudes sometimes encourage corporate social irresponsibility.

In nutrition, eating cake can leave you unsatisfied after the sugar hit has worn off. Although we don’t want readers to finish this article feeling unsatisfied, we also don’t want people to think there’s a simple recipe for responsible corporate behavior. We begin by critiquing four common recipes for CSR. We call them “let them eat cake,” “icing on the cake,” “everyone gets a slice of the cake,” and “having your cake and eating it too.” We find none of them adequate, however, and believe managers should instead focus their attention on the bread and butter of responsible corporate behavior.

1. Let Them Eat Cake

University of Chicago economist Milton Friedman famously denounced CSR as a “fundamentally subversive doctrine,” arguing more than 40 years ago that “there is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.” Friedman’s argument was elegant, influential — and flawed, predicated on a black-and-white world that is artificially compartmentalized: Social consequences are conveniently excluded from economic decisions, so long as markets are competitive and rules are clear.

Sadly, too many companies cause significant harm while playing by the rules of the game. We all know about the criminal cases of corruption in the marketplace, exemplified by convicted swindler Bernard Madoff. Far more damaging may well be the legal corruption embodied in practices that benefit a few corporations but harm the wider society. One blatant instance came to light during the subprime mortgage crisis and its aftermath, but such market manipulation is hardly isolated. An article in The New York Times in July 2013 described a more recent example: a scheme by investment bank Goldman Sachs and others in which 1,500-pound bars of aluminum were shuffled between warehouses, enabling the companies involved to earn billions of dollars at the expense of consumers. Goldman Sachs apparently broke no laws in these transactions: It was merely operating within the rules of the game.

Precisely the problem. Yet, although companies often don’t act in the public’s interest, economists keep telling us to trust the marketplace.

2. The Icing On the Cake

Too often, CSR is about public relations exercises more focused on corporate image than corporate behavior. If the company is “the cake,” then what is the value of icing it with CSR — either on top, with pronouncements by the CEO, or around the edges, with philanthropic activities disconnected from the operations? These actions just play into the hands of critics, who accuse companies of “window-dressing” or “greenwashing.” Corporate philanthropy, increasingly commonplace since the end of World War II, became a proxy for good corporate citizenship. Communities, schools, hospitals and other institutions have benefited — and we hope will continue to do so. But as many people have noted, such activities accomplish little in addressing the broader, systemic issues.

Corporate social responsibility initiatives: Here to stay?

While neither author has ever eaten a sweet and sour cake, both of us have encountered companies whose lofty pronouncements belie their actions. For example, BP launched its “Beyond Petroleum” campaign in 2000, and for a while it earned the company high rankings on CSR and ethical indices. Then, with the Deepwater Horizon oil spill, BP’s rankings came crashing down. When icing covers the cake, you can’t tell what’s inside. But CSR can only hide irresponsible behavior for so long.

3. Everyone Deserves a Slice of the Cake

The stakeholder view that sees the corporation as a social institution responsible to everyone affected by its actions — employees, customers, local communities and shareholders — offers a more enlightened approach: Everyone deserves a slice of the cake.

In 1981, the Business Roundtable, an association of CEOs of leading American companies, declared in its “Statement on Corporate Responsibility”:

Balancing the shareholder’s expectations of maximum return against other priorities is one of the fundamental problems confronting corporate management. … giving enlightened consideration to balancing the legitimate claims of all its constituents, a corporation will best serve the interest of the shareholders.

Then, in 1997, the group reversed its position. In its “Statement on Corporate Governance,” it claimed:

The notion that the [corporate] board must somehow balance the interests of stockholders against the interests of other stakeholders fundamentally misconstrues the role of directors. It is, moreover, an unworkable notion because it would leave the board with no criterion for resolving conflicts between interests of stockholders and of other stakeholders or among different groups of stakeholders.

No criterion? How about judgment?

Then the pendulum swung back again. In 2012, the Business Roundtable issued its “Principles of Corporate Governance”:

[I]t is the responsibility of the corporation to deal with its employees, customers, suppliers, and other constituencies in a fair and equitable manner and to exemplify the highest standards of corporate citizenship.

But by then, it seems to have been too late. Although the economic pie may be getting bigger in the aggregate, for most people the slices have been getting smaller.

4. Having Your Cake and Eating it Too

The most popular recipe these days among managers, policymakers and many academics is the idea that companies can do well by doing good — that they can become more profitable by engaging in CSR. Sometimes referred to as “the business case for CSR,” this view holds that it pays to be good. This notion is certainly appealing, and yes, it can pay to be good — sometimes. But three decades of research have produced surprisingly little overall support for this claim. As University of California Berkeley professor David Vogel argued in his book The Market For Virtue, the market for CSR is limited: “CSR is best understood as a niche rather than a generic strategy.”

And how about companies that do well by doing bad? We question the belief that corporate social responsibility will compensate for the corporate social irresponsibility we now see around us. Green retailing will not make up for greedy polluting any more than overt charity will compensate for covert lobbying. In a similar vein, how likely is it that the business case for CSR will provide sufficient incentive for profitable but irresponsible companies to rethink their business models? Although we should encourage companies to “do well by doing good,” let’s not pretend that a desire to do good will turn the corporate landscape into a win-win wonderland.

Of course, the same companies can act both well and badly. Wal-Mart Stores Inc., for example, has given attention to greening even as its labor practices have been the subject of criticism. Similarly, Toyota Motor Corp.’s leadership role in hybrid cars has clashed head-on with some of its lobbying positions. In its 2008 sustainability report, for example, Toyota described how it planned to lead the way “toward the goal of achieving sustainable mobility.” But in late 2007, the company was criticized for working with Detroit’s Big Three automakers to lobby the U.S. Senate not to tighten auto fuel economy standards.

An extension of the “do well by doing good” recipe holds that since governments aren’t able to make much headway in solving our most pressing social problems, it’s incumbent upon business to lead the way. But the primary role of business is to supply us with goods and services, not to assume the responsibilities of government. Although corporations can help to address such problems, they have their own natural agendas, which plainly are not social.

The Bread and Butter of Social Responsibility

In his landmark 19th century study of the United States, Democracy in America, Alexis de Tocqueville described the genius of American society as “self-interest rightly understood.” These days, thanks to the mantra of shareholder value and blind belief in the sanctity of markets, we see a great deal of self-interest fatefully misunderstood. Many people in the United States want bread, not cake. Delivering the bread demands responsible leadership at all levels — in government, business and throughout society. Without socially responsible institutions, the health and vitality of society will decline.

So let’s stop the sugarcoating and concentrate on the substance: the bread and butter of responsible corporate behavior. Here are several changes that need to be considered, within and beyond our private institutions.

Fostering Ethical Judgment Within the Enterprise

Company leaders face countless difficult choices, many of them in gray areas. Having the right policies and procedures in place is necessary for fostering responsible behaviors, but it is not sufficient. Having the right norms in place is often more important. Companies are social institutions, not just economic ones. Indeed, the economic and social aspects of many decisions are often difficult to distinguish. Workplaces need to be infused with strong values that reject corruption. Ethical issues have to be openly discussed at all levels of the corporation. These issues may not be black and white, but the process for addressing them should be.

Rethinking Compensation and Financing

Corporate boards, policymakers, academics and business leaders need to devote considerable effort to eliminating the conditions that discourage responsible leadership. We have no more need for a cult of shareholder value than we do for frenetic stock markets that drive huge compensation packages for executives. (How can CEOs who are paid hundreds of times what employees earn truly be considered leaders?) Such pay practices undermine the ability of executives to build sustainable enterprises — socially, environmentally and often even economically as well.

Of course, this problem has been debated for years, yet it continues to get worse. It is not, however, a lost cause; there are other, often-effective ways to finance and structure successful enterprises. For example, the Tata Group, headquartered in Mumbai, India, is a publicly traded conglomerate with more than 100 operating companies controlled by family trusts. Mondragon Corporation, a federation of worker cooperatives with headquarters in Spain’s Basque region, answers to its more than 70,000 workers rather than the stock market. Both companies are highly regarded for the economic and social value that they create, not to mention the insights into effective management that they provide.

Acknowledging the Benefits of Regulation

Responsible enterprises view government regulation as a necessary component of a well-functioning market system. While corporate resistance to some government regulatory efforts may be warranted, knee-jerk rejection of all regulation is counterproductive. In a classic 1968 article, “Why Business Always Loses,” Harvard Business School professor Theodore Levitt argued that, starting in the late 19th century, American business had repeatedly “placed itself in the unedifying role of contending against legislation which the general public has viewed as liberating, progressive, and necessary” — including child labor laws and other measures that ultimately proved good for business. In Canada prior to the 2008 financial crisis, banks lobbied the government to relax restrictions on financial sector mergers. The government held firm, however, and Canada’s regulatory framework helped protect its banks during the financial crisis.

Holding Corporate Lobbyists to Account

Corporate advocacy and lobbying may be a fact of political life … but not inevitably to the extent that it is now practiced in the United States. Under communism, the state co-opted the enterprises; under unfettered capitalism, enterprises are now co-opting the state. Citizens have the right to make their voices heard, but the role of private money in public elections now constitutes a menace to democracy in the United States, thanks to the Supreme Court’s Citizens United ruling in 2010, which sanctioned unlimited corporate and union spending for political advocacy. In response, some companies voluntarily disclose their political spending to shareholders, and there are moves afoot to require transparency, which can only help.

Enabling the “Plural Sector”

Will corporations and governments lead us towards resolving the world’s most pressing problems, such as global warming, the degradation of our physical environments, poverty and inequality? Too many companies are waiting for the business case and too many governments have become co-opted or overwhelmed by private interests. A succession of failed conferences on global warming prompted former United Nations Secretary General Kofi Annan to ask in 2013, “What now?” His answer: “If governments are unwilling to lead when leadership is required, people must. We need a global grass-roots movement that tackles climate change and its fallout.” Annan saw opportunity in civil society and what is commonly known as the third sector, but which might better be called the plural sector, so that it can be seen to take its place alongside those called public and private. If there is going to be serious change, it may have to start in the plural sector, with its activist nongovernmental organizations, social movements and social initiatives.

Social Responsibility Across Society

Reform will only happen when governments, businesses, NGOs and other associations of the plural sector join forces. In recent years, we have seen the rise of partnerships on issues such as carbon pricing, corruption and human rights. Some of these collaborations have undoubtedly involved some “icing on the cake,” but many have been able to pool expertise, to experiment with solutions and gradually establish consensus for change.

For example, recent attempts to rid global supply chains of conflict minerals such as tin, tungsten and gold — leading drivers of humanitarian crises and armed conflict in parts of Africa — have involved a web of NGO advocacy, government regulations, multi-stakeholder initiatives and cross-industry coalitions. These require considerable investments of time and effort, and the payoff isn’t always clear or the results certain. But if we are to make meaningful progress in building socially responsible societies, we shall need a great deal more of such spirited and creative collaboration.

Reproduced from MIT Sloan Management Reveiw

The infrastructure conundrum: Improving productivity 07-07

The infrastructure conundrum: Improving productivity. 

Image credit : Shyam's Imagination Library

Infrastructure productivity can and should be much better. Here’s how to start improving.

From now through 2030, the world will need to spend at least $57 trillion to build the ports, power plants, rails, roads, telecommunications, water systems, and other infrastructure that the global economy needs. For advanced economies, the priority is to renew aging and dilapidated infrastructure; for emerging ones, it is to build the structures required to support growth—this is the larger part of the total bill.

Exhibit 1.

View enlarged Image

Our research, based on 400 global case studies, suggests that governments could boost infrastructure productivity by $1 trillion a year in three ways: improving project selection, streamlining delivery, and making the most of existing investments. None of these actions requires radical change, and successful examples exist.

1. Project selection. Beyond palpable abuses of spending power, the more common problem is that decisions about whether or not to build are sometimes made without considering the larger socioeconomic objectives of the country. This happens when officials look at projects one by one rather than considering how each particular project fits into the entire portfolio.

Or they do not evaluate whether other projects might have better returns. This matters: research shows that countries that take the time to get the planning right are able to eliminate noneconomic projects and reduce project overruns in the projects they do launch. The key is to create a rigorous, transparent, and fact-based process to decide what needs to be done, and in what order (see sidebar, “Infrastructure diagnostic”). 

Exhibit 1.

Infrastructure diagnostic.

Getting policy right requires putting together the right information, and then drawing the right conclusions. But when it comes to infrastructure there’s a problem: the information doesn’t exist.
Competitiveness rankings from the Word Economic Forum and the International Institute for Management Development business school measure the availability of infrastructure.

The Construction Sector Transparency Initiative and country and sector-specific benchmarks, such as the UK Cost Review, measure costs. The International Monetary Fund’s proposed Index of Public Investment Effectiveness compiles data on transparency, audit standards, and internal controls to evaluate governance. To complement these metrics, we have developed a three-part infrastructure diagnostic. It provides a comprehensive assessment of infrastructure delivery and offers a database of more than 500 examples of good and best practices.

Part 1. Establish a starting point. What’s the state of the infrastructure? Does planned funding match future needs? Where are the biggest improvement opportunities?

Part 2. Measure effectiveness and productivity. Five areas are evaluated: project selection, funding and finance, delivery, asset utilization and maintenance, and governance. These five areas can be broken down into 30 categories and 78 subcategories, each representing a global best practice. For each category, we also codify average and low performances against a set of clear criteria, providing a basis for scoring each government’s performance.

Part 3. Define outcomes. What’s the cost of delivering a road in Country X compared to next-door Country Y? Do projects come in on time and on budget? Do they meet quality requirements? How many changes are required after first sign-off? The diagnostic considers quantitative indicators on availability, cost, and time to come up with an aggregate outcome, and also creates a basis for benchmarking.

The diagnostic compares participants not only against global best practices but also across regions, asset classes, and time. For each of the 78 categories, there are clear descriptions of good, average, and bad performance by international standards. Each category is scored from one (worst) to five (best). The final score, based on 400 criteria, reflects all participant responses. The goal is to help governments compare their performance, and also to learn from one another—something that doesn’t happen nearly often enough.

Using the diagnostic, infrastructure providers can figure out where they are compared with their peers. Bad? Average? World class? This assessment can be done over the course of a day, a week, or a month.

So far, we have done roughly a dozen case studies, and some interesting patterns are emerging. One is that even the best countries score an average 3.7 out of 5.0, so there is room for improvement everywhere. Another is that in almost every single case, there are issues with capabilities and data, such as lack of an effective program manager and standard international benchmarks.

The diagnostic is and should be a moving target. Over time, many of the 500 best practices will only be good practices, as countries learn and improve. The assessment can work at different geographical levels—country, regional, or city—and with different asset classes. The strength of the diagnostic is that it provides a fact base in which to ground discussion. It marks the beginning of a systematic effort to analyze global infrastructure performance.

Getting policy right requires putting together the right information, and then drawing the right conclusions. But when it comes to infrastructure there’s a problem: the information doesn’t exist.
Competitiveness rankings from the Word Economic Forum and the International Institute for Management Development business school measure the availability of infrastructure.

The Construction Sector Transparency Initiative and country and sector-specific benchmarks, such as the UK Cost Review, measure costs. The International Monetary Fund’s proposed Index of Public Investment Effectiveness compiles data on transparency, audit standards, and internal controls to evaluate governance. To complement these metrics, we have developed a three-part infrastructure diagnostic. It provides a comprehensive assessment of infrastructure delivery and offers a database of more than 500 examples of good and best practices.

Part 1. Establish a starting point. What’s the state of the infrastructure? Does planned funding match future needs? Where are the biggest improvement opportunities?

Part 2. Measure effectiveness and productivity. Five areas are evaluated: project selection, funding and finance, delivery, asset utilization and maintenance, and governance. These five areas can be broken down into 30 categories and 78 subcategories, each representing a global best practice. For each category, we also codify average and low performances against a set of clear criteria, providing a basis for scoring each government’s performance.

Part 3. Define outcomes. What’s the cost of delivering a road in Country X compared to next-door Country Y? Do projects come in on time and on budget? Do they meet quality requirements? How many changes are required after first sign-off? The diagnostic considers quantitative indicators on availability, cost, and time to come up with an aggregate outcome, and also creates a basis for benchmarking.

The diagnostic compares participants not only against global best practices but also across regions, asset classes, and time. For each of the 78 categories, there are clear descriptions of good, average, and bad performance by international standards. Each category is scored from one (worst) to five (best). The final score, based on 400 criteria, reflects all participant responses. The goal is to help governments compare their performance, and also to learn from one another—something that doesn’t happen nearly often enough.

Using the diagnostic, infrastructure providers can figure out where they are compared with their peers. Bad? Average? World class? This assessment can be done over the course of a day, a week, or a month.

So far, we have done roughly a dozen case studies, and some interesting patterns are emerging. One is that even the best countries score an average 3.7 out of 5.0, so there is room for improvement everywhere. Another is that in almost every single case, there are issues with capabilities and data, such as lack of an effective program manager and standard international benchmarks.

The diagnostic is and should be a moving target. Over time, many of the 500 best practices will only be good practices, as countries learn and improve. The assessment can work at different geographical levels—country, regional, or city—and with different asset classes. The strength of the diagnostic is that it provides a fact base in which to ground discussion. It marks the beginning of a systematic effort to analyze global infrastructure performance.

None of this is easy; in fact, it is almost bewilderingly complex. Take trying to calculate the socioeconomic benefits of a project. The relatively simple part is to calculate the direct benefits. This proposed road, if built, will shorten travel time by X minutes, and there are Y thousand people traveling every day, adding up to Z time saved. But that is only the beginning. With a better road, companies can recruit in a wider region, finding higher-skilled labor. How can that be calculated?

None of this is easy; in fact, it is almost bewilderingly complex. Take trying to calculate the socioeconomic benefits of a project. The relatively simple part is to calculate the direct benefits. This proposed road, if built, will shorten travel time by X minutes, and there are Y thousand people traveling every day, adding up to Z time saved. But that is only the beginning. With a better road, companies can recruit in a wider region, finding higher-skilled labor. How can that be calculated?
Additionally, decisions are sometimes made on a political basis rather an economic one. There can be a lot of horse trading: “I agree on this project if you agree on that one.” Even more common is a simple lack of knowledge. McKinsey has found cases where the cost of infrastructure in one country was up to 50 percent higher than in a neighboring country with similar characteristics—a discrepancy driven by different approaches to design, engineering, management, procurement, and sourcing.

Despite these challenges, there are ways that project delivery can be improved. One example is Infrastructure Ontario (IO), a corporation owned by the province of Ontario that provides a wide range of services to support the government’s initiatives to modernize and maximize the value of public infrastructure and real estate. Over the past decade, IO has implemented a long-term investment plan and essentially rebuilt the province’s hospital infrastructure, building more than two dozen new structures. IO has organizational independence, clear responsibilities, and a close partnership with the private sector. South Korea’s Public and Private Infrastructure Investment Management Center is a similar organization; it has saved 35 percent of the nation’s infrastructure budget by rejecting 46 percent of projects that it reviews, compared with 3 percent before it was established. The United Kingdom set up a cost-review program that identified 40 major projects for prioritization, reformed overall planning processes, and then created a cabinet subcommittee to oversee delivery. These measures reduced spending by as much as 15 percent.

2. Streamlining project delivery. In simple terms, “delivery” refers to getting the job done. Both the supplier and the client bear responsibility for this, and both parties can often fall short.

In the construction sector, labor productivity, when measured in real value added per hour worked, has been flat or worse in many developed economies for decades. In the United States, productivity in the construction sector has fallen about 20 percent since 1989; in the rest of the country’s economy, it has risen almost 40 percent. Germany has seen the same trend, to a slightly lesser degree, since 1991.
One reason for stagnating productivity is the construction industry’s structure. For smaller projects, the sector is fragmented; the ten largest companies account for only 3 to 4 percent of global market share. Therefore, there are limited scale efficiencies, investments, and innovation. At the top end, for bigger projects, there are sometimes not enough capable bidders to compete. What’s more, incentives are usually structured such that neither the agents representing the public nor the contractors are rewarded for innovating and taking risk.

It is a core responsibility of governments to provide infrastructure. However, this area typically accounts for less than 5 percent of the budget. As a result, infrastructure often receives less attention than it should. There are ways for government to increase the focus on infrastructure while also saving money. Convoluted permit and land-acquisition processes are major causes for cost overruns. By accelerating these processes, governments can cut costs. They can also improve management of contractors, by rigorously tracking their performance. These are important tasks, but ones that tend not to receive a lot of political credit.

In addition, infrastructure is a long-term investment, which can lead to complications when it intersects with the political cycle, which is often much shorter. It’s not uncommon for a government to plan a project, and then run into numerous problems. The next government will go through a lot of pain to actually build the planned project and face the bad press for any overruns. Then the third government cuts the ribbon and takes the praise. None of the three is accountable from end to end. There is little incentive to invest and plan well right from the start.

Then, there is the human element. In most projects, the skill set and capabilities of the project manager makes the difference. McKinsey analysis has found that only about 20 percent or so of project managers routinely deliver projects under budget and on time. A small minority are clearly unfit for the work. The bulk of people in the middle sometimes do well and sometimes not so well. Building their capabilities could lift productivity significantly.

An investment in early-stage planning, typically spending 3 to 5 percent of the total projected cost, is critical to improving project delivery. This involves making the commercial case as well as completing the technical drawings, specifications, risk assessments, and environmental and social-impact analyses. Eager to break ground, clients often rush this phase, later landing in trouble. Banks and donors often do not want to fund early-stage development but should insist that it occur; not investing in planning often leads to disaster. Preliminary McKinsey research has found that countries that consistently invested 1 percent or less up front experienced much larger overruns in time and costs that reached 50 percent or more. In one drastic example, the owner made 42,000 change requests in the course of a single project.

3. Underutilization. The cheapest, least intrusive infrastructure is that which doesn’t have to be built. “Intelligent” transportation systems, which use advanced signaling to squeeze more capacity out of existing roads and rail lines, can sometimes double asset utilization at a relatively low cost. Active traffic management on England’s M42 roadway, for example, directs and controls the flow of traffic; this has reduced journey times by 25 percent, accidents by 50 percent, pollution by 10 percent, and fuel consumption by 4 percent—at only 20 percent of the cost of widening the road.

Pricing mechanisms and improved maintenance are other ways to increase existing capacity. But such simple fixes are underused, often for political reasons. Take congestion charges. If there is no charge to use the road at 6 a.m. and a $5 fee an hour later, some people will move their commuting time to save money, smoothing but demand. That is the theory, and it has worked in Riga, Singapore, and even central London, where the red-and-white “C” has become a familiar urban icon. The Panama Canal also uses congestion pricing, and so do many airports and railways, charging more to the boats, planes, and trains that want to use the facilities at more popular times of day. In each case, the result is that more traffic moves along, with fewer jams.

Although effective, congestion charges provoke opposition. There are ways, however, to make a case for their implementation. One is to demonstrate success. In Stockholm, residents were clearly ready to vote “no” on a referendum on the subject, so city authorities decided to test the idea by running a pilot plan for six months. When people saw how the system worked—traffic at peak hours fell by 20 percent—their opinions changed, and they voted to approve the program in 2006.

Another way to lower the cost of infrastructure is through better maintenance. Maintenance is not glamorous; in fact, it is time-consuming and sometimes tedious, and not nearly as exciting as cutting the ribbon on a new project. However, if assets are allowed to deteriorate, the costs of both operation and reconstruction increase markedly. And when countries do not make the most of what they have, they need to build new structures, which is much more expensive.

Leading countries avoid this in part through good timing. They schedule maintenance often enough to avoid dilapidation and breakdowns. But they also seek to do so at the right times, to keep disruption to a minimum. The World Bank Group has estimated, for example, that if African nations had spent $12 billion on road maintenance in the 1990s, this would have led to savings of $45 billion in reconstruction costs.

The role of money

Money plays a part in all three issues. If countries learned from one another with respect to best practices in productivity, cost cutting, and other practical measures, we estimate that total infrastructure spending could be reduced by almost 40 percent. It would be ideal—but unlikely—to recover that figure. Still, it gives an idea of the scale of the opportunity.

One interesting development: the B-20, a business group that offers policy recommendations to the G-20 group of industrialized nations, has proposed setting up a “global infrastructure hub” to exchange best practices and develop benchmarks. In most countries, the annual spending needed to bring infrastructure up to the level required far exceeds what they have spent historically (Exhibit 2).
In North America and Western Europe, the gap ranges between 0.5 and 1.1 percentage points of GDP per year and rises to 2.0 to 3.0 percentage points in Brazil, India, and Indonesia. Fiscal concerns have only made the infrastructure gap wider. This is such an enormous investment, especially given the fiscal constraints that many nations face, that the all-too-common response has been paralysis.

Exhibit 2

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Institutional investors and others have sufficient funds available to finance all the world’s infrastructure needs—as long as the projects are attractive. Even in poorer countries, the lack of access to money is not the problem. A vibrant bond market in Malaysia has contributed more than half of the private-sector infrastructure investments since the early 1990s. The challenge is to make investors feel confident that they will get their money back by capitalizing sensible projects that will be completed and then run well.

Even so, there is often a sizable gap between the resources that are needed and the resources that are available. Public–private partnerships (PPPs) can help narrow that gap. But project specific financing represented only around 20 percent of total infrastructure investment in the boom year of 2008 and collapsed to around half that level a year later. PPPs with private financing remain small in comparison to traditional public or corporate financing by utilities and other private-infrastructure owners.

Still, there is a larger benefit to PPPs: they bring the discipline of the private sector to risk assessment, evaluation, and construction. Many PPPs also entail a 20- to 30-year concession that includes operations and maintenance. That long-term responsibility encourages the partnership to optimize the total cost of ownership, so there is no cutting back on maintenance. In this sense, PPPs have enormous potential. But they need to be managed carefully, with recognition of their limits.
Governments acknowledge the importance of infrastructure productivity, but most initiatives seem to assume that private-sector involvement will guarantee high productivity without improvements in planning, delivery, and governance. This attitude fails to recognize the efforts required to deliver complex PPP projects successfully and results in missing opportunities to raise infrastructure productivity. Moreover, just because capital is private does not guarantee it will be deployed perfectly; both the conditions of the contract and the capabilities of the provider need to be scrutinized.

Public financing is going to continue to be dominant. Particularly in the developed world, this money is cheap—well below 3 percent for ten-year government bonds in the United States and the United Kingdom. Public financing is especially important as a way to provide lower cost of capital in cases where risk is difficult to measure.

In large, high-risk greenfield developments such as high-speed-rail networks, it may be the only option. To work most effectively, governments should provide certainty on infrastructure budgets beyond annual budgeting or electoral cycles, such as Sweden’s ten-year plans for national transport. Capital recycling can free up funds for major projects; the Australian state of New South Wales, for example, has announced plans to sell off some publicly owned assets, such as ports and regional airports, to finance new investment.

Money is necessary to build the infrastructure the global economy needs, but it is not enough. Governance, commitment, and more than a little imagination are also required. As it is, the world spends much more money than it should for the results it gets. Even small improvements would bring huge benefits.

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