Data points: Bite-size insights from Deloitte research has been saved
ISSUE 29 | FALL 2021 | FEATURED ARTICLE
Trust is foundational to the functioning and prosperity of all organizations, as they thrive on the cumulative trust of their stakeholders. In this sense, trust is like an interdependent web that connects all actors in an economy and influences how they work together to drive growth.
Yet the world has become a less trusting place. The share of the global population that believes “most people can be trusted” fell by roughly 20% over the last 15 years.1 Rising inequality, political polarization, and a higher frequency of what were previously considered once-in-a-lifetime disruptions, such as the COVID-19 pandemic, have exacerbated this downward trend.
What’s the potential economic impact of increasing trust? Using trust among individuals as a proxy for the level of trust built within a country, macroeconomists have shown that as trust improves, economic prosperity grows. From a supply-side perspective, there are just two ways to raise per capita GDP growth—increase business investment or raise productivity—and trust affects both. A rise in trust not only increases the quantity of business fixed investment, but also boosts productivity growth through higher-quality investments, human capital accumulation, organizational improvements, and internationalization.
One meta-analysis of economic literature shows that a 10-percentage-point increase in the share of trusting people within a country should raise annual per capita real GDP growth by about 0.5 percentage points.2 That’s a substantial gain, given that annual global per capita real GDP growth averaged about 2.2% between 2015 and 2019.3 For a country such as Brazil, raising trust to attainable levels seen in other countries would ensure that its per capita real GDP growth rate would be at least that of the global average, adding more than US$40 billion to its 2019 output.
Trust has clear implications for the macroeconomy, and it’s built from the actions taken by businesses and the leaders that guide them. Here are six actions to consider when working to increase organizational trust with stakeholders and society:
Read the full article here.
Treating the whole patient—from their physical and mental health to their social, emotional, equitable, spiritual, and even financial health—to lower the incidence of disease and decrease the need for medical interventions has obvious benefits at the societal level. And this tech-enabled, prevention-focused, consumer-empowered health care model also could yield significant savings for the US economy.
Deloitte’s health care actuaries collaborated with leaders from our health sector to develop models projecting the potential impact of well-being–based care. By 2040, we anticipate that US health care spending could reach US$8.3 trillion—US$3.5 trillion lower than projections based on numbers from the Office of the Actuary at the Centers for Medicare & Medicaid Services (CMS) focused on traditional health care.
We estimate that spending on well-being–based care will constitute 18.4% of the United States’ gross domestic product in 2040, seven percentage points lower than if current health care spending trends were to continue.
The US$3.5 trillion difference between our model and CMS’s projection (continued to 2040) is what we call a well-being dividend: the return on investment for tools, systems, or protocols that help consumers take an active role in their health and well-being.
Historically, the US health care system has been geared toward treatment. For every US$100 spent on health care, about US$80 currently is spent on the diagnosis and treatment of patients after they become sick. By 2040, we expect spending on well-being to account for two-thirds of total health expenditures.
While Deloitte’s projection runs counter to historic trends, we believe the US health care system’s transformation is already underway. We expect investments to increase in data and algorithms that help generate health and well-being insights, including devices and apps that nudge behavior promoting well-being—and also in initiatives that address the drivers of health and help address disparities in health outcomes, such as housing, transport, and diet.
For more insights on the future of health care, read Breaking the cost curve.
The countries of the Asia-Pacific region have the most to lose from unchecked climate change than any other part of the world, but they’re also the best positioned to lead the global transformation toward a low-carbon economy, according to a new analysis by Deloitte’s Access Economics team, an Australia-based research and advisory group that’s part of the Deloitte Economics Institute.
The team prepared an economic modeling in their report, “Asia Pacific’s turning point: How climate action can drive our economic future,” and found that without immediate action to blunt rising emissions, climate change will diminish the region’s GDP by more than 5.5%—US$3.4 trillion—by mid-century, amounting to US$96 trillion in losses by 2070, equivalent to almost seven times the economy of China today. Instead of investing in value-adding innovations and infrastructure, productive capital and knowledge would be spent repairing climate damage and managing communities’ health and well-being.
However, if the region sees decarbonization as a potential growth driver—or an export unto itself—and commits its technology, talent, and capital to the effort, it has the power to change the trajectory of the global economy.
The new report challenges one of the main concerns about acting on climate change: the cost. The research reframes the debate and shows a direct connection between action on climate change and future economic prosperity. According to Deloitte’s analysis, the decade between 2025 and 2035 would involve the most challenging shifts in industrial policy, energy systems, and consumer behavior, while demonstrating the payoff to some Asia-Pacific economies as they start exporting decarbonization technologies and goods to the world. By 2050, Asia Pacific’s early investments in decarbonization could help stabilize global temperatures, and by 2070, those investments could yield US$47 trillion in net economic gain for the region.
The five largest contributors to Asia Pacific’s current economic growth—which account for about 75% of its GDP—are emissions-intensive, so “the choices made today [in Asia Pacific] are the choices that will determine the next decade—the narrow window of time to choose the change that will prevent the worst consequences of a warming world,” the authors state. “It’s no exaggeration to say that the fight against climate change will be won or lost in Asia Pacific.”
This is the first of our regional reports on the economic impact of climate action. Access the report here.
When COVID-19 made cooking at home a necessity for many US consumers—and a growing passion for others—US food retailers’ front-line workers continued their work in warehouses and darkened stores to meet consumers’ demand for fresh and packaged goods while workers behind the front-lines transitioned out of corporate offices to work from home. With workplaces opening back up, food industry executives have to determine how and when remote workers will return.
To get a sense for what food retailers and product suppliers are planning, Deloitte and food industry association FMI surveyed more than 150 US-based executives and interviewed another 15 in April and May of 2021. The top return-to-work goal for close to 60% of the executives we surveyed is to provide the maximum amount of options and choice to employees. Another 10% of executives likely will let those working remotely continue. As in other industries, the food industry plans to continue with remote and hybrid working options because the talent war is on, and building an adaptive workplace is imperative to win it.
But not everyone agrees. Roughly 25% of food industry executives are looking to get everyone back into physical locations. Some executives believe in-person work is more effective, and others think that it’s only fair to ask office workers to come back to their in-person locations since their essential worker peers—who stocked shelves or operated on production lines—never really left. Regardless of the goal, the industry is expecting about double the level of remote work after the pandemic compared with 2019, according to the executives we surveyed.
Wherever employees are working, the industry has an obligation to keep its employees, partners, and consumers safe—and many are putting more decision-making power into employees’ hands. At the time of our survey, 18% of both food retailers and product suppliers said they would be requiring COVID-19 vaccination, while many others are taking the carrot approach instead of the stick. “We’re not demanding, but we encourage,” one executive said. “And the way we encourage every employee that gets the vaccine is we give them a hundred dollars.”
Learn more about how food producers and retailers are planning for the future, read Return to work in the food industry.
While digital shopping continues to increase in popularity the world over, many European consumers still want to do more in-store than just pick up their online order, according to data from Deloitte’s Global Consumer Tracker.
Decreases in in-store shopping intentions prompted by the pandemic aren’t leading to permanent behavior change in the consumers we surveyed. When asked about their plans to shop in-store as opposed to online, more consumers reported their intentions to return to stores as lockdowns eased across the continent. For example, by June 2021, more than half (53%) of respondents buying clothes and almost half (46%) of respondents wanting electronic goods intended to shop in-store.
Of course, it’s easier to appraise a dress or a pair of trousers in the changing room, and even purchases of electronics goods may benefit from the ability to tap a few keys, ask for expert advice, and see the size and brightness of the display. But Deloitte’s analysis of consumer trend research found that another driver of consumers’ ongoing desire to shop in-store is the opportunity to socialize: As with previous generations, many of today’s European consumers still consider shopping with friends and family to be an event-like experience, a chance to get out, take a stroll, and grab a coffee together—and the joy of a communal activity looks attractive to consumers the world over when the pandemic’s restrictions ease.
What does that mean for companies that are designing the retail experience of the future? Our data indicates that even as the retail industry continues to digitize, it needs to humanize.
For more insights, read European consumers after the pandemic: What sort of recovery will we get?
While the call for greater diversity in Fortune 500 boardrooms isn’t new, it’s sounding a lot louder. In 2020, a culmination of events in the United States—including the social justice movement and stakeholder and shareholder demands—seems to have highlighted and amplified the need for change in boardroom composition. Shareholders and stakeholders are increasing demands for greater gender, racial, and ethnic diversity in the private sector, and one of the first places they’re looking is a company’s leadership ranks.
Since 2016, Deloitte and the Alliance for Board Diversity have collaborated on the “Missing pieces report: The board diversity census of women and minorities on Fortune 500 boards.” This year’s edition shows the year-over-year change in the representation of women and minorities on public company boards of directors across America’s largest companies. The report found that, among the Fortune 500, there are 200 companies with greater than 40% diversity in their board membership, meeting the goal initially set by the Alliance for Board Diversity in 2004. Overall, however, advancement is still slow and incremental. At the current rates of change, it would take decades to achieve proportional representation to the US population based on 2020 US Census data.
The pace of progress isn’t the only issue, however. It seems that gender is far outpacing race and ethnicity as the diversity-based component of new board additions. White women gained more board seats in the Fortune 500 companies than any other group or gender, up 21% (or 209 seats) since 2018. And while there was a significant rise in Asian, Pacific Islander, and Hispanic/Latina women on boards, for every board seat newly occupied by a minority woman, white women occupied three seats.
Minority men show no substantive increase in their rate of representation in boardrooms: Their seats have been growing at less than 0.5% per year since 2010. In fact, African American/Black men lost five seats since 2018.
This snapshot of board diversity reveals an opportunity for today’s companies and board leadership to broaden the range of professional backgrounds considered for board member positions, which would allow them to attract more diverse directors who bring a wide array of skills—and new perspectives to help prompt and sustain organizational innovation.
Get more takeaways from the sixth edition of the census on the necessary changes for board composition and board diversity, and how companies can accelerate this change from this report.
Most financial services firms have started their journey toward inclusive finance. In a recent Deloitte Center for Financial Services survey of senior industry leaders, 96% said their firms have at least some financial inclusion initiative underway, and 17% said that they achieved what they set out to do.
However, not all of the inclusive finance offerings may align with unserved and underserved customers’ needs. A recent Deloitte consumer survey revealed that underbanked customers are most interested in different types of products, more relevant lifestyle-oriented rewards and offers, and competitive pricing or low fees. While senior executives in the banking and capital markets sector also have prioritized different types of products for the unserved or underserved, our research shows that they’re more focused on helping customers achieve their financial goals and offering financial literacy education than on the priorities identified by underbanked consumers.
These findings suggest that there could be an opportunity for financial firms to better align their inclusive finance offerings and initiatives with underbanked consumers’ preferences.
For more information, read Accelerating toward greater financial inclusion.
There is an acute talent shortage in manufacturing—a trend that persists even as the total number of manufacturing jobs in the United States, both filled and open, decreased in 2020 during the COVID-19 pandemic. After netting a loss of 578,000 total positions in 2020, some 800,000 US manufacturing jobs remain open.4 And current estimates suggest that, as the industry expands again over the next decade, some 2.1 million jobs will remain unfilled by 2030.
Leaving so many manufacturing jobs unfilled can impact everything from productivity and innovation to competitiveness and GDP. By 2030, open jobs could cost the US economy US$1 trillion.
To gather these insights, Deloitte teamed up with The Manufacturing Institute to take a closer look at trends in US manufacturing talent. Our survey and interviews of more than 800 US manufacturers, secondary research on labor supply and demand, and economic projections uncovered both short-term drivers and larger forces at play. The industry is addressing short-term drivers such as work/life balance issues; a narrow talent pipeline; and a comparative lack of diversity, equity, and inclusion. Longer-term forces include a lack of entry-level workers, the changing nature of jobs due to digital transformation, an inability to attract skilled workers, and workers’ pending retirement.
While training and reskilling to meet the demands of today’s digitally enabled work are part of the solution, according to our research, more focus needs to be given to the analog side of the business as well. Initiatives can include making it easier for entry-level employees to get in the door via apprenticeships, making the workplace more welcoming for a more diverse workforce, and building pathways to the future of work.
For more insights, read Creating pathways for tomorrow’s workforce today.
Capital project leaders in Africa are used to operating amid challenges and disruptions, including climate, geographic, and infrastructure issues. For example, only 25% of Africa’s road networks are paved.5 A World Bank study highlighted that the poor state of infrastructure in sub-Saharan Africa reduced business productivity by as much as 40%, resulting in the continent having the lowest productivity levels in the world.6 In large capital projects, decreased productivity could result in cost overruns and project delays.7 Other challenges such as logistics and delivery disruptions can result in a shortage of materials, delays in project completion, increased project costs, and misaligned communication, especially for remote projects.
The onset of the COVID-19 pandemic added an extra layer of complexity to capital projects in Africa, with travel bans, border closures, and the prohibited movement of people and goods. Yet in some countries, despite restrictions that were applied, work continued apace and capital projects weren’t significantly affected, according to our analysis.
Deloitte South Africa’s latest Africa construction trends report found that as the pandemic began spreading across the globe in 2020, the number of capital projects remained relatively strong in certain regions of the continent. In South Africa, for example, which was the African country most severely affected by the pandemic, the number of capital projects even increased slightly in 2020 compared to the previous two years, thanks in large part to a robust and resilient supply chain. Based on our research in the South African market, building resilient supply chains can improve project delivery time by up to 30%, reduce project costs by up to 20%, and improve the project’s return on investment by up to 30%.8
Technical factors such as procurement’s involvement in project planning and strategy, sufficient integrated control systems, and digital supply chains are crucial in managing capital projects through disruptions. Yet technical elements alone won’t suffice. Supply chains in capital projects include a network of humans, so interpersonal skills, effective leadership, and fostering trust-based relationships are equally critical in dealing with project risk and improving project performance.
According to Deloitte specialists who advise on capital projects in Africa, building trust-based relationships is one of the key success factors for weathering any disruption—as is being prepared for possible supply chain risks and disruptions to help alleviate and pre-empt a range of challenges.9
Access the full report here.