Thursday, July 26, 2012

The social economy: Unlocking value and productivity through social technologies

McKinsey & Company

July 2012 | by Michael Chui, James Manyika, Jacques Bughin, Richard Dobbs, Charles Roxburgh, Hugo Sarrazin, Geoffrey Sands and Magdalena Westergren

… Whether discussing consumer products or organizing political movements, people around the world constantly use social-media platforms to seek and share information. Companies use them to reach consumers in new ways too; by tapping into these conversations, organizations can generate richer insights and create precisely targeted messages and offers.

English: Infographic on how Social Media are b...
English: Infographic on how Social Media are being used, and how everything is changed by them. (Photo credit: Wikipedia)
While 72 percent of companies use social technologies in some way, very few are anywhere near to achieving the full potential benefit. In fact, the most powerful applications of social technologies in the global economy are largely untapped. …  [The] McKinsey Global Institute (MGI) finds that twice as much potential value lies in using social tools to enhance communications, knowledge sharing, and collaboration within and across enterprises. MGI’s estimates suggest that by fully implementing social technologies, companies have an opportunity to raise the productivity of interaction workers—high-skill knowledge workers, including managers and professionals—by 20 to 25 percent.


The social economy - Improved communication

Social economy
Social economy (Photo credit: Wikipedia)
MGI’s report, The social economy: Unlocking value and productivity through social technologies, explores their potential economic impact by examining their current usage and evolving application in four commercial sectors: consumer packaged goods, retail financial services, advanced manufacturing, and professional services. These technologies, which create value by improving productivity across the value chain, could potentially contribute $900 billion to $1.3 trillion in annual value across the four sectors.

Two-thirds of this potential value lies in improving collaboration and communication within and across enterprises. …[When] companies use social media internally, messages become content; a searchable record of knowledge can reduce, by as much as 35 percent, the time employees spend searching for company information. Additional value can be realized through faster, more efficient, more effective collaboration, both within and between enterprises.

The amount of value individual companies can capture from social technologies varies widely by industry, as do the sources of value. Companies that have a high proportion of interaction workers can realize tremendous productivity improvements through faster internal communication and smoother collaboration. Companies that depend very heavily on influencing consumers can derive considerable value by interacting with them in social media and by monitoring the conversations to gain a richer perspective on product requirements or brand image—for much less than what traditional research methods would cost.

To reap the full benefit of social technologies, organizations must transform their structures, processes, and cultures: they will need to become more open and nonhierarchical and to create a culture of trust. Ultimately, the power of social technologies hinges on the full and enthusiastic participation of employees who are not afraid to share their thoughts and trust that their contributions will be respected. Creating these conditions will be far more challenging than implementing the technologies themselves.
Enhanced by Zemanta

Wednesday, July 25, 2012

How Much Is Enough Anyway

 It can be complicated—the trick is helping participants create plans that work.
July 2012
Rebecca Moore

Illustration by Josh Cochran

The amount of income workers will need in retirement and how much they should save to reach that goal have gained more attention since the economic downturn of 2008 and 2009 depleted many retirement accounts. Before the downturn, service providers and researchers in the industry estimated that workers would need to replace between 70% and 75% of their preretirement income— i.e., what came from all sources. But even then, that estimate was being scrutinized.

Target income replacement ratios should be higher, the Retirement Advisor Council now contends. In a paper, the council says this is to account for the always increasing projected cost of health care in retirement, as well as other financial planning concerns workers face, such as children’s educational needs and the cost of caring for elderly relatives.

saving and spending
saving and spending (Photo credit: 401(K) 2012)
So, how much is enough, anyway? Josh Cohen, defined contribution practice leader at Russell Investments, says that while the appropriate replacement rate is different for each person’s situation, 80% is a good target, because studies have shown it is about the average amount needed to maintain current lifestyle.

When trying to arrive at the best income replacement rate for themselves, workers should use their imaginations, says Jason Scott, Ph.D., director of the Financial Engines Retirement Research Center. They should imagine continuing to do things postretirement that they did preretirement. Then they should consider expenses they will no longer have once they retire. … Some retirees can make it with a lower income in retirement, Scott believes, but, he notes, if individuals will travel or spend more in their free time, expenses they incur will offset the savings, meaning they may need more income.

Pension (Photo credit: Frederik Seidelin)
Cohen points out that this replacement rate comes from all potential sources, including Social Security and personal savings, in addition to defined benefit (DB) and/or defined contribution (DC) plans. …

Patricia Advaney, senior vice president of participant solutions at Diversified, says that because the standard
estimate replacement ratio of 70% to 75% may be inadequate, workers should think about increasing their goal. “It’s a moving target, with questions about Social Security, the rising cost of health care and longevity,” she says. The industry has shifted from trying to give an exact number for target replacement income to suggesting a minimum 10% savings for retirement, including both employee savings and employer match.

English: Proportion of pay to save.
English: Proportion of pay to save. (Photo credit: Wikipedia)
The Retirement Advisor Council says, regardless of target income, a consistent contribution to 401(k) and 403(b) plans in the range of 10% to 16% of pay over a 30-year or 40-year career is needed to achieve the appropriate replacement retirement income.

In a research paper, “What’s the Right Savings Rate?”, Russell Investments contends that the total replacement income (TRI) 30 rule-of-thumb helps answer the question: “How much should participants save?” Saving 30% of the TRI rate each year—including personal savings, savings in an employer-sponsored retirement plan and any employer contribution—leads to about a 90% probability of meeting the income goal at retirement. This assumes a 40-year period of savings, Cohen notes.

English: Retirement savings rate as squirrel a...
English: Retirement savings rate as squirrel and nuts anaology (Photo credit: Wikipedia)
… Many who may want to retire early, Scott thinks, will find that their savings are much less than what they will need. But that figure also depends on exactly how early they want to retire. “It’s really hard to just look at savings in their 401(k) and determine whether they are hopelessly far behind,” he says.

According to the Employee Benefit Research Institute’s (EBRI’s) Retirement Security Projection Model (RSPM), 44% of Baby Boomers and Generation Xers are still projected to be “at risk” of running short of money in retirement. …

The trick is helping people figure out, wherever they are, how to create a plan that works, according to Scott. …

Workers should think about how they might boost savings by working longer, and therefore saving more, or being savvier about other benefits, such as claiming Social Security at a later age, Scott says.

A brief from the Center for Retirement Research (CRR) at Boston College concludes that starting early to save for retirement and working longer are more effective levers for ensuring retirement security than earning a higher return on savings. “How Much to Save for a Secure Retirement” said this strategy of saving longer is especially effective, given the greater risk that comes from chasing investment returns.

English: In the United States, Social Security...
English: In the United States, Social Security benefits compared for younger vs. older workers. According to author Joseph Fried, this graphic uses information from: C. Eugene Steuerle and Adam Carasso, "The USA Today Lifetime Social Security and Medicare Benefits Calculator," (Urban Institute, October 1, 2004), from: Note: The calculator does not include the value or cost of the Social Security disability program. (Photo credit: Wikipedia)
… Because Social Security benefits are actuarially adjusted, they are more than 75% higher when he is age
70 than age 62. As a result, they replace a much larger share of preretirement earnings if workers wait to apply—29% if they are 62 and 52% if 70, in the CRR’s example—reducing the amount they would need to take from savings­. And, by postponing retirement, people have additional years to contribute to their 401(k) and allow their balances to grow. Finally, a later retirement age means that people will have fewer years of dependence on their accumulated retirement assets. 

Plan sponsors can help with reporting, to show how far behind workers are, Cohen says. Then decisions can be made, …

“You can’t invest your way out of a savings problem. There may be different asset allocations that would be better, but, at the end of the day, investments can only do so much,” Cohen says. “It’s all about savings patterns, how long you work and reasonable expectations.”

According to Cohen, plan sponsors can set goals for partic­ipants and use the match formula as an incentive. For example, if a participant needs 15% put away each year and the company is willing to contribute 5%, the match formula would be 50 cents on the dollar, up to 10% of compensation. At the same time, plan sponsors can help participants get to that 10% by using automatic­ enrollment and automatic escalation.
“It takes a well-designed plan and the smart use of … auto-features and qualified default investment alternatives [QDIAs] [which], if implemented, [can give] the typical American worker … a very successful retirement,” Scott concludes.

Kristi Mitchem, head of global defined contribution at State Street Global Advisors, says workers today are in a much better position than before because the introduction of auto-enrollment has been incredibly powerful in getting participants of different income levels into retirement plans early and saving at an appropriate level. “We have put mechanisms into place to help people get on the right path and be successful,” she says.

Mitchem recommends plan sponsors auto-enroll at a 4% to 6% employee deferral range. They can pair that with auto-escalation up to 10%. And, as always, plan sponsors should communicate the importance of deferring substantial savings for retirement, according to Mitchem.

Advaney suggests retirement plan sponsors use service provider resources to help participants save more. …

“This is an incredibly important topic because the reality is, the biggest contributor of what you have in retirement is how much you put away,” Mitchem says. “So, getting people comfortable at an appropriate savings rate is the most important thing to ensure [they] have appropriate retirement savings.”

Everyone needs guidance on saving for retirement, but this is especially true for middle-income workers, says Kristi Mitchem, head of global defined contribution at State Street Global Advisors. While high-income workers will have less income replaced by Social Security, they presumably will have more personal savings to supplement their retirement income, and lower-income workers will have a higher percentage of income replaced by Social Security.

English: This is a chart outlining the histori...
English: This is a chart outlining the historical personal savings rates in United States as compiled by the US Department of Commerce, Bureau of Economic Analysis (Photo credit: Wikipedia)
So, where does that leave middle-income workers? Sources of retirement income are important for this group. Baby Boomer and Generation X households that have a defined benefit (DB) pension plan accrual at retirement age are, overall, almost 12 percentage points less likely to be “at risk” of running short of money for basic needs and uninsured health costs in retirement, according to a report by the Employee Benefit Research Institute (EBRI). The report, “Retirement Income Adequacy for Boomers and Gen Xers,” finds that, while having a defined benefit plan is particularly valuable for those with the lowest income in both age groups, it also has a “strong impact” on reducing at-risk rates for those in the middle class: ...

More than any other group, middle-income workers­ should take advantage of all resources available, says Patricia Advaney, senior vice president of participant solutions­ at Diversified. … Middle-income workers need to start thinking about what they will need and should hold onto retirement paperwork until positive­ they can retire. Retirement plan advisers need to have conversations­ early enough for middle­-income workers­ to understand the implications of any decisions they will have to make.
Enhanced by Zemanta

Monday, July 23, 2012

Jane McGonigal: The game that can give you 10 extra years of life

English: Portrait of Jane McGonigal
English: Portrait of Jane McGonigal (Photo credit: Wikipedia)
When game designer Jane McGonigal found herself bedridden and suicidal following a severe concussion, she had a fascinating idea for how to get better. She dove into the scientific research and created the healing game, SuperBetter. In this moving talk, McGonigal explains how a game can boost resilience -- and promises to add 7.5 minutes to your life.

Reality is broken, says Jane McGonigal, and we need to make it work more like a game. Her work shows us how.
Enhanced by Zemanta

Friday, July 20, 2012

3 vital tips for startup success


July 20, 2012  |  8:30am EDT

by John Harthorne, Young Entrepeneur Council

Image representing Dharmesh Shah as depicted i...
Image by Dharmesh Shah via CrunchBase
Advice is crucial to entrepreneurial success—it keeps businesses flexible and entrepreneurs humble. Throughout my career, I’ve made sure to stay open to advice, even (and especially) after tasting success.

Earlier this year, I heard an excellent keynote delivered by Dharmesh Shah, chief technology officer and founder of Hubspot. … The following is a combination of my own collection of advice and some of what Dharmesh told a crowd back in March.

1. Don’t fall in love with your plan or product. Instead, do fall in love with the problem you’re solving and the people you’re impacting. … Seek out advice and mentorship early, listen, and then adjust your plan and product to better address your customers and the problem your product aims to solve. As Dharmesh said, “It’s not about making the best camera. It’s about making the next generation of photographers.”

Image representing Tim O'Reilly as depicted in...
Image via CrunchBase
2. Your goal is not to beat the competitors, but to make an impact. It’s easy to forget that … if you beat everyone else in your field, your company does not necessarily win. The companies that do win, however, are companies that make the biggest impact. … Therefore, go for the gold by thinking bigger rather than focusing on conquering and dominating the competition. … Tim O’Reilly wrote, “Pursue something so important that even if you fail, the world is better off with you having tried.” Remembering the potential impact of your project will keep you working through the night, which is what it takes to succeed.

3. Nobody ever regrets taking the leap. … Though I do think it’s a good idea to create some sort of safety net as a backup plan—I paid off some student loans before diving in completely—you must be fully committed to your own startup. No one will take a risk on you if you don’t take that risk on yourself. Quit your day job and start living and breathing your startup. It’s scary to take risks, but the leap—in fact, many leaps—is what it takes to inspire people to join your team, invest in your idea, and help you launch your company.

John Harthorne, Founder & CEO MassChallenge, P...
John Harthorne, Founder & CEO MassChallenge, Priyanka Bakaya ,PK Clean Chief Executive Officer and Founder, Marcia Fournier, Ph.D. Founder & CEO of BioArray Therapeutics and Governor Deval Patrick (Photo credit: Office of Governor Patrick)
John Harthorne is the founder and CEO of MassChallenge, a startup accelerator and competition designed to catalyze a startup renaissance by connecting high-impact startups from around the world with the resources they need to launch and succeed.

The Young Entrepreneur Council is an invite-only nonprofit organization comprised of the world’s most promising young entrepreneurs. The YEC recently published #FixYoungAmerica: How to Rebuild Our Economy and Put Young Americans Back to Work (for Good), a book of more than 30 proven solutions to help end youth unemployment.
Enhanced by Zemanta

Bank Loans Driving Business Credit Expansion

The bulk of business capital needs are being met by bank balance sheets, as opposed to shadow banking firms or capital markets investors. Is that a good thing?

CFO Magazine
Vincent Ryan

After ceding a lot of corporate financing to shadow banking firms and capital-markets investors prior to the financial crisis, banks are driving corporate credit markets again, financing the bulk of credit expansion with their own balance sheets.

English: Components of the liability side of t...
English: Components of the liability side of the Federal Reserve System balance sheet using statistical release dates from January 4, 2007 to Arpil 2, 2009. This is the liabilities of all 12 Federal Reserve Banks combined as reported by the Federal Reserve. This image was created using Calc spreadsheet program. See table below for source data. The data was obtained from: (Photo credit: Wikipedia)
The total volume of bank loans of all types increased at a 3.3% annual rate in the second quarter, according to the Federal Reserve, …a continuing trend since the fourth quarter of 2011. And the third quarter is off to a good start, with lending activity at U.S. commercial banks expanding by …13% annualized, in the week ended July 4.

In addition, commercial and industrial loans on U.S. banks’ balance sheets grew 12% in the second quarter, after an 11% rise in the first quarter, according to Fed data, and dollar volume on banks’ books was at its highest level in two years. Bank credit growth is skewed toward business lending, according to a recent equity research report from analysts at investment bank Keefe, Bruyette & Woods. “Businesses have begun to increase leverage to take advantage of low interest rates,” the report points out.

This trend is mostly positive, but is having so much of capital creation dependent on banks’ balance sheets good for business borrowers or for the U.S. economy?

English: Components of the asset side of the F...
English: Components of the asset side of the Federal Reserve System balance sheet using statistical release dates from January 4, 2007 to Arpil 2, 2009. This is the assets of all 12 Federal Reserve Banks combined as reported by the Federal Reserve. This image was created using Calc spreadsheet program. See table below for source data. The data was obtained from: (Photo credit: Wikipedia)

As banks are ascendant, capital markets are pulling back. Recent flow-of-funds data from the Federal Reserve show that the debt outstanding in the asset-backed securities market, for example, fell to $1.9 trillion, from $2.2 trillion a year ago and $3.3 trillion in 2009. There is still no securitization market for most private-sector loans, say KBW analysts, who see “a continued decline in the ABS market for the foreseeable future.”

Logo of the Securities Industry and Financial ...
Logo of the Securities Industry and Financial Markets Association. (Photo credit: Wikipedia)
Meanwhile, U.S. corporate securities issuance is down in a number of categories year to date, according to the Securities Industry and Financial Markets Association: … Straight corporate debt issues are flat with last year on a dollar basis, as are initial public offerings….

Even venture-capital investments are down in 2012, according to the MoneyTree report from Pricewaterhouse Coopers and the National Venture Capital Association. VC funds invested $5.75 billion in 758 deals in the first quarter, a decline from $6.7 billion in 861 deals invested a year ago.

The problem with relying on banks for funding is that the markets are signaling that banks are not good credit risks.

U.S. and European banks’ credit default swap (CDS) spread averaged 19 basis points between 2004 and 2007, but since then the average has been 230 basis points, writes David Munves, a managing director at Moody’s Analytics, in a report published Tuesday. The average European and U.S. bank credit rating, as implied by CDS spreads, is “Ba1,” defined by Moody’s as a credit “judged to have speculative elements and subject to substantial credit risk.”

“Banks are a key part of the global economy, and higher and more volatile spreads limit their ability to attract capital and to fund themselves at reasonable levels,” says Munves.

Banks are also just generally riskier. “U.S. banks have higher risk profiles than before the financial crisis began, whether measured by credit spreads; equity prices; reputation, management and governance practices; or credit ratings,” Munves says.
nd JP Morgan’s trading losses and the LIBOR scandal have once again raised questions about the risk controls at large banks. This is occurring at a time when banks are having a tough time growing earnings and hitting return on equity targets, despite the boom in commercial and industrial lending.

The quality of commercial banks as counterparties is worrisome but not bad enough to make companies avoid having them as creditors. There are plenty of positive trends at commercial banks. Due to regulatory changes, banks’ capitalization ratios are rising, and the quality of their loan portfolios is improving, with loan delinquency and net charge-off levels falling across the board.

Though they may be a greater credit risk in the capital markets, the largest commercial banks also have plenty of low-cost funding from deposits with which to finance loan growth. In its second-quarter earnings report last week, Wells Fargo said its core deposits were up 9% from a year ago, and its deposit costs were 19 basis points, down 9 basis points from a year earlier.

On the other hand, it would be costly for a large commercial bank to raise equity capital in the current market climate. The average U.S. bank has a market-price-to-book value of 66%, compared with 171% in 2007, according to Moody’s Analytics. On the debt side, if banks’ ratings worsen, the cost of credit could become prohibitive also.

After their experience during the financial crisis, companies know how precarious bank funding can be. Many banks pulled back on lines of credit and reduced unfunded commitments drastically when they encountered pressures financing their own businesses. That is not a problem right now, but if the U.S. economy worsens and capital markets don’t revive, banks might turn off the business lending spigot once again. Companies should be careful not to rely too much on bank debt in their capital structure.
Enhanced by Zemanta