Disruption means $3 trillion global infrastructure investment needed

10 January 2018 Consultancy.uk

As the world looks to prepare for an uncertain future, a new study suggests that an annual investment of more than $3.7 trillion in infrastructure spending will be required globally. A shift toward sustainable energy, and a need to plan for the worst case scenario of climate change are the largest contributors to this huge bill.

One of the major backbones of developed and developing economies, which often falls from view, is infrastructure. Much of it is already in place, enabling a wide range of possible activities for users. However, changing global priorities, changing economic models and ageing organisation means that, in many instances, considerable investments will be needed to keep society cohesive and functional.

In recent decades, investment in infrastructure has been utilised to enable improvements to productivity, which, in turn, grew economies and ways of life. Since the 2008 global economic crisis, however, the breaks have been put on infrastructure investment, particularly in developed economies. While much has been made of a proposed infrastructure investment campaign in the US, little practical advancement has been made on this by the incumbent administration. Beyond America, in order to meet global challenges such as climate change and ageing infrastructure and growing populations, considerable investments in Paris Agreement compliant infrastructure will be required in the years to come. Green bonds have recently seen a huge spike in demand to this end.Infrastructure spendingBeyond America, in order to meet global challenges, such as climate change and ageing infrastructure and growing populations, considerable investments in Paris Agreement compliant infrastructure will be required in the years to come. Green bonds have recently seen a huge spike in demand to this end.

A new report from McKinsey & Company’s McKinsey Global Institute, explores current trends in the infrastructure investment space, as the world looks to make itself resilient to a stable future put in peril by the poor sustainability of past infrastructure focuses.

Infrastructure spending in 2015 represented an equivalent of around 14% of total global GDP, or $9.47 trillion. The majority of that spending went to real estate, at around $4.8 trillion in investment. Direct economic infrastructure represented around $2.5 trillion in investment, while $2.1 trillion went to a broader definition of infrastructure projects.Infrastructure spending gapDisruption in energy infrastructure is, meanwhile, ramping up the need to invest there. A steady shift to sustainable energy, largely just renewables, coupled with the electrification and automation of vehicles means that major change will be needed. The UK Government alone is already lining up a £15 million infrastructure programme to prepare British roads for the ban of new combustion engine vehicles by 2040.

Overall, around $3.7 trillion in investment will be required, per year, to meet the expected need between 2017 and 2035 – with aggregated total investment at almost $70 trillion. Power will require the largest respective yearly investment, at $1.1 trillion annually, followed by the transportation network, at around $1.6 trillion annually across its various aspects. Water, in the face of potential water scarcity, will require around half a trillion dollars per year – of which around $5 billion annually is needed to curb plastic flows into the globe’s oceans.

When it comes to investment in economic infrastructure, China remains the country projected to need the highest level of investment – at 34% of the almost $70 trillion pie. Eastern Europe will require around 4% while Western Europe will need around 10% of the total. The US, meanwhile, will need to invest around 20% of the total over the next 18 years – or close to $750 billion per year.

Investment gap

Keeping up with growth requirements in productivity, among others, as well as transforming the background to the economy into more sustainable forms of operation, will require countries to invest a considerable % of their GDP in infrastructure.

However, while some countries are ahead of their respective investment requirement to meet domestic needs, such as China and Japan, where 2.5% and a 1% of GDP surplus is being invested, other countries – particularly in Europe – remain behind. In Germany and the UK, around 0.5% more of the GDP needs to be invested in infrastructure to account for infrastructure needs, with a similar % in the US. Emerging economies, such as Mexico, Indonesia and Brazil are the furthest behind, however, at 1.3%, 1.2% and 1.1% respectively.Closing the gapClosing the investment gap is likely to require a considerable effort across a range of areas. Focus on improving efficiency is touted by McKinsey as one way in which to improve overall outcomes. Improvement in construction industry productivity could unlock considerable potential, as does focusing on key areas of need, focused on sustainability of stock, circular economic potential as well as making the most of current stock.

The authors concluded the paper by stating, “There is significant room to improve the effectiveness and efficiency of how infrastructure investment is spent. Up to 38 percent of global infrastructure investment is not spent effectively because of bottlenecks, lack of innovation, and market failures. Fact-based project selection, streamlined delivery, and the optimisation of operations and maintenance of existing infrastructure can close this gap, reducing spending by more than $1 trillion a year for the same amount of infrastructure delivered.”


Accenture's push into the creative sector is an identity crisis

18 April 2019 Consultancy.uk

In its latest push into the creative sector, Accenture Interactive acquired New York and London-based ad agency Droga5 earlier this month, adding illustrious clients such as HBO, Amazon and The New York Times to its roster of clients. With the latest in a long line of similar purchases, Accenture Interactive further demonstrated its ambition of becoming the globe’s leading trusted advisor to chief marketing officers. Yet according to Ben Langdon, Chairman of Class35, Accenture’s strategy may be heading in the wrong direction.

A press release on Accenture’s website announcing the acquisition sits next to a quote stating that “brands aren’t built through advertising” – a huge contradiction from a consultancy firm hell-bent on becoming the ‘CMO agency of choice’. It’s not alone of course. The entire consulting industry wants a piece of the creative pie right now. In addition to Accenture Interactive, recent acquisitions by PwC Digital, IBM iX, and Deloitte Digital meant that in 2017, for the first time ever, four of the world’s ten largest creative agencies were consultancies.

So just what it is that Accenture wants to achieve from this? For one thing, it’s clearly trying to be a digital transformation business. A one-stop creative shop rivalling more traditional models, it wants to lure CMOs in with the promise of lower ad spend and a “more impactful customer experience”. At the same time, though, it’s still in thrall to those same slinky, shiny branding and advertising agencies it’s attempting to disrupt. The Droga5 acquisition and that of Karmarama a few years before are both testament to this.

There’s a fundamental problem with this, though. Digital transformation businesses don’t sell to CMOs. These people have enough on their plates trying to transform their own marketing skills in order to keep up with an ever-changing market – they just don’t have the time or the energy to concern themselves with digitally transforming a whole business. If Accenture’s purpose is digital transformation, then going after creative agencies is barking up the wrong tree.Is Accenture's push into the creative sector an identity crisis?

Worlds apart

Perhaps more importantly, these two industries are worlds apart in terms of the way they think. Creative agencies are all about ideas, campaigns and consumers. Digital businesses, on the other hand, are customer-driven – they think in terms such as lifetime value, measurement, and efficiency. Customer-led thinking is an entirely different beast to consumer-led thinking.

The reality is that the arrival of digital and an all-encompassing obsession with technology, measurement and social has led to the death of agencies in a reductive, zero-sum, efficiency-focused battle with brands. Indeed, agencies have become so obsessed with the latest tech fads, they’re beginning to forget how brands work. Worse still, they’re beginning to forget how brands are built. And, by forgetting, they’re destroying their own values.

Killing creativity

All things considered, it really feels to me as though Accenture is a chip leader in a game it doesn’t understand. Expensive acquisitions like these show that they’ve got the big money, but they don’t appear to have any idea what they’re doing with it. Take talent, for example. The best talent in the creative industry right now is out in the market; it’s not tied to any one agency. Both agencies might well be at the top of their game, but why would a consulting firm waste so much money on buying them when they could hire high-quality creative talent on a contingent basis instead?

As their presence in the top 10 creative agencies shows, there is a growing trend in which Accenture, like many of the other big players, are buying up agencies as if they were nothing more than keywords. What they’re really buying, though, is a collection of credentials, clients and IP. Unfortunately, the talent that created those credentials aren’t going to stay at the business, the clients that hired the agency in the first place won’t be interested in buying what is basically just another part of Accenture, and the IP never really existed to begin with.

Droga5, for example, was one of the few agencies that did great brand work the old-fashioned way – undoubtedly something that made it attractive to Accenture in the first place. The irony, though, is that by leading it further away from the way of working that made it so special, the consulting giant will kill its creativity.

“Accenture Interactive has been dazzled by its ambitions to become the CMO agency of record…. But, in flashing its cash, it is spending millions on acquiring nothing of any value.”

If pressed, the recently acquired agency staff at Accenture will tell you just how dysfunctional the new arrangement is. They’re largely unfulfilled. Rarely do they feel their work has any sort of meaning or purpose. What’s more, the different disciplines have found little or no common ground, and find it hard to work together as a cohesive whole. It’s not surprising, then, to see talented people leaving in droves.

Beyond the window dressing 

It’s clear, then, that consulting firms and creative agencies are no easy bedfellows. But in his company’s defence, Accenture Interactive’s Senior Managing Director for North America, Glen Hartman, described its culture as being “far, far away from what a stereotypical consulting firm would look like. Our office and studios look a lot like Droga5’s.”

In demonstrating a belief that office design equates to workplace culture, this statement serves as an illustration of how confused Accenture is right now. It wants to justify its new strategy so badly, it’s started dressing like a creative agency. But if you look beyond the window dressing and see that you and your partners are speaking a different language with a different purpose, selling to different people in a different market, there’s no getting away from the fact that you’re different.

Accenture Interactive has been dazzled by its ambitions to become the CMO agency of record, and it wants to dazzle others with its new direction. But, in flashing its cash, it is spending millions on acquiring nothing of any value.

Related: Space between consulting firms and creative agencies is converging.