BCG’s Weekly Briefs

The Broadening Impact of AI-Powered Personalization

APRIL 15, 2024

In early 2022, I wrote to you about the staggering pace of change in how personalization can be used in retail—a topic core to some of my earliest projects at BCG when we were pioneers in this work. New technology and tools, including AI-assisted dynamic content generation, had enabled a move away from mass offers to personalized touchpoints at scale.

Since then, progress has increased rapidly. I recently checked in with Mark Abraham, who leads BCG’s work in personalization and will be co-authoring a book in October on the topic. He says personalization leaders are emerging in nearly every sector of the economy:

• In fashion and luxury, companies such as Pandora are reimagining how they conduct marketing throughout the funnel. The jewelry company has combined powerful brand marketing with one-to-one personalized touches to rejuvenate growth in a mature category—for example, inspiring existing customers to try new products and gift-givers to find the perfect item.
• In health care, large pharmacy chains are using AI to help patients maintain medication adherence, while digital native startups, such as Sondermind and Noom, are giving people personalized nudges toward achieving better mental health and weight loss goals.
• In financial services, companies like Voya are using personalization to help customers navigate retirement and improve financial wellness.
• In B2B, large hardware and software companies are arming their sales force with AI-guided next best actions, informed by a holistic view of customers’ touchpoints. These include how their executives engage with sales events and digital content as well as feedback from customer success teams and call centers.
• In retail and restaurants, personalization is no longer available only to the largest companies. Sweetgreen, the fast-casual chain, has combined off-the-shelf technology with modern data and analytics and strong marketing teams to launch personalization similar to what Starbucks and other leaders offer in their apps.

The number of marketing technology solutions promising personalization continues to explode, with large cloud providers honing their integrated offerings. In this environment, smart integration is more important than ever. It takes clear goals, sound use of data, tech architecture connected in a modular way, and a culture of experimentation and rapid scaling.

A small fintech offers a great example. The company integrated available AI solutions with its own systems as a means of automating marketing processes. The result: a system that can target content in a highly detailed way, leading to a double-digit improvement in conversion only six months after launching the pilot.

Generative AI at Every Step

More companies are scaling personalization, with GenAI enabling every step of the process. Large insurers and telcos are using the technology to process unstructured data from call center logs to detect customers at risk of churning. We have seen the accuracy of prediction models improve by 75% when incorporating this data.

A large pharma company reinvested the efficiencies from implementing GenAI into the process it uses to develop direct-to-consumer marketing content and increased the volume of personalized content tenfold.

And in the customer experience space, leading brands are working on ways to use GenAI for assistance and product discovery, with L’Oréal’s Beauty Advisor and Expedia’s conversational trip planning tool as great examples.

The Power (and Sunshine) of Generous Leaders

APRIL 08, 2024

Happy eclipse day! I’m in Vermont with my family and friends, where we came looking for clear skies and a great experience of a total eclipse of the sun.

My travels north provided a great opportunity to finish up my early copy of The Generous Leader: 7 Ways to Give of Yourself for Everyone’s Gain. The book, which officially comes out tomorrow, April 9, is written by my BCG colleague Joe Davis—a friend since 1987, when we were both students at Harvard Business School.

Books about effective leadership are often making the rounds, so it was such a treat for me to read one by a person I know firsthand has always walked the talk. The book is a great read, drawing on the learnings of many terrific CEOs and Joe’s own personal stories.

The Job Has Changed, So Must We

The growing influence of AI, shifts in work models, the desire for increased diversity and inclusion, and heightened transparency and scrutiny are all transforming the role of leadership.

How can leaders evolve? 

A successful business in a world full of disruption and higher employee expectations calls for leaders who can focus on the bottom line and look beyond it—while also looking beyond themselves.

Joe says the answer lies in leading with humanity, with the heart, and with a sense of generosity. Those might sound like the soft skills that are nice to have in flush times. But Joe shows how becoming a generous leader allows both the leader and the organization to grow.

He lays out seven ways leaders can give of themselves for everyone’s gain:   

1. Generous Communication. The best approach to building a lasting bond based on honesty, concern, and trust is to communicate in a personal and authentic way. Joaquin Duato, chairman and CEO of Johnson & Johnson, has a reputation for building such connections, which he said he’s able to do, in part, by always making an effort “to see others as more than their roles.”
2. Generous Listening. Make room for the perspectives of others, ask probing questions, and be ready to learn from them. As you get better at the first step—being a generous communicator—you’ll find that the people around you are more willing to challenge and share honestly with you.
3. Generous Inclusion. “The sooner a new leader learns they must empower others, the better…especially those you may not normally turn to,” said Joanne Crevoiserat, CEO of Tapestry, which includes the Coach, Kate Spade, and Stuart Weitzman brands. When you let others into the conversation, you’re welcoming collaboration. And when they’re included, they feel respected and empowered and get better at their jobs.
4. Generous Allyship. This means not just being present for diverse individuals and supporting them but going further by creating opportunities and building a clear path toward future success. It’s about taking chances that make chances for others.
5. Generous Development. Noticing and celebrating the successes of others validates hard work and lets them feel seen—and motivated to go further. Help others leverage their strengths to develop where needed, while also giving clear, timely, direct feedback.
6. Generous Moments. United Airlines CEO Scott Kirby said to Joe, “Small gestures matter infinitely more than the big gestures.” Little acts of acknowledgment in important moments accumulate to have a big and lasting impact on your people.
7. Generous Emotions. Joe calls this “giving up the mask”—a willingness to be emotionally accessible with authenticity and vulnerability, to share mistakes and hard times. I personally watched how Joe did this with enormous positive impact in multiple challenging situations over the years.

As best-selling author and organizational psychologist Adam Grant said about Joe and this book, “Too many leaders are takers rather than givers. Drawing on his extensive experience advising and running organizations, Joe Davis is on a mission to change that. This is a practical guide to becoming a servant leader.” 

Organizations of the future will depend on leaders who have honed their ability to be generous, inclusive, and authentic. These are valuable skills to learn, and The Generous Leader provides a great roadmap. Thanks, Joe!

Rich Lesser
Global Chair

Infrastructure Is an Investment in Our Future

APRIL 02, 2024

Not that long ago, infrastructure was an “investment backwater,” in the words of the Financial Times. Those days are over. From 2018 to 2023, private investments in infrastructure grew by $700 billion, or 18% annually, faster than traditional private equity buyouts. During that time, these investments generated stable and resilient returns despite the market’s rollercoaster ride.

This investor interest in infrastructure is well timed. Fiscal constraints limit governments’ historic role in financing large projects just as the demand for energy transition and digital infrastructure projects is high. The Global Infrastructure Hub, a G20 initiative, for example, identified a funding gap for infrastructure of $15 trillion from 2016 t0 2040.

In 2023, however, infrastructure investors hit a bump in the road. The number of infrastructure deals declined by 18% in 2023, and fundraising fell from $176 billion in 2022 to $89 billion. My colleagues in BCG’s Principal Investors and Private Equity practice argue the slowdown reflected macroeconomic and geopolitical concerns of the moment rather than long-term retreat.

In their annual report on the state of infrastructure investing, they argue that private investment in infrastructure is helping the transition to a green and digital economy.

• The energy and environment sector received $1.1 trillion in infrastructure investments from 2018 to 2023, accounting for almost 45% of the sector’s total deal value. Renewable energy deals made up the bulk of these investments in the past two years.

• Electric vehicle charging infrastructure accounted for 40% of European deals in the transportation and logistics space.

• The digital infrastructure sector received nearly $420 billion in infrastructure investments in those five years, almost 20% of total deal value. In 2023, most of these investments in Europe focused on data center assets, while in North America most went to mobile data and end-user services.

Investing in infrastructure assets was once a buy-and-hold endeavor. Those days are over, too. No longer functioning merely as caretakers, infrastructure investors must act even more like private equity investors, seeking to improve operational performance and putting in place a “value creation playbook.” They will want to recruit executives who can actively manage businesses and instill a culture of operational excellence.

Constrained in their capacity to finance these investments themselves, governments should welcome private investors and ensure they are able to earn appropriate returns.

So many of the world’s large challenges, such as addressing climate change, enabling and scaling AI, and managing an aging population, require large infrastructure investments. Infrastructure is an investment in our future. It’s an opportunity for investors to help the economy, their communities, and the planet.

Christoph Schweizer
Chief Executive Officer

Banking at a Crossroads

MARCH 25, 2024

Banks have historically played two vital roles: directly financing economic growth and indirectly advancing societal progress.

The rapid rise of mobile banking in developing countries shows how these two roles intertwine by creating economic and social opportunities for the “unbanked” population. Banks will also be critical in providing the $37 trillion needed to reach net zero goals by 2030. More broadly, banks touch every part of the economy, facilitating trade and economic activity that generates job and income growth.

For these reasons, business leaders need to understand what’s happening in the banking system. In a nutshell, the industry has still not recovered from the global banking crisis of 2008. The average return on equity has since declined by more than 450 basis points, and many banks, especially in Europe and parts of Asia, are trading below their book value.

In 2023, the failure of a few high-profile banks in Europe and the US exposed the industry’s continued vulnerability. Can banks fulfill their economic and social missions without fundamental transformation?

The State of Banking Today

My colleagues in BCG’s Financial Institution practice recently wrote a comprehensive report on the industry. Some highlights:

• Banks’ share of total financial assets has been steadily declining in most markets. Banks are ceding their raison d’être. Direct commercial lending by asset management firms (such as private equity funds) grew by 20% annually between 2017 and 2022, compared with banks’ asset growth of less than 5%.
• Banks spend more on technology than most other industries, such as consumer goods, industrial goods, media, and telecom, but have struggled to reap the benefits. Only about one-quarter of the industry’s tech spending is on innovation, including intuitive mobile banking apps or AI-powered decision making. Most of the rest goes to costly maintenance and updating of legacy systems.
• Regulators are likely to impose additional capital and liquidity requirements on banks. Managing climate risks, for example, will require structured end-to-end data platforms and new, complex data.

The $7 Trillion Opportunity

Despite these challenges, there is a window of opportunity for banks to create $7 trillion in shareholder value over the next five years—but only if they fundamentally reshape their organizations and collaborate with regulators.

• Banks need a new, simplified business model. Banks need to actively manage their business portfolio by exiting subscale businesses. They also need to reskill their staff, create digital end-to-end processes, and seamlessly partner with fintech firms. Banks that fully adopt this model can improve productivity by as much as 40%.
• Regulators need a new approach, too. Regulators need to balance profitability, innovation, systemic stability, and consumer protection. Otherwise, business will move to unregulated markets and increase the systemic risk regulators are trying to avoid. Regulators should adopt agile approaches to rule making, allow consolidation when it makes sense, and support the development of digital public infrastructure, such as a real-time interbank payments system.

***

Banks are too important for the overall economy and for societal progress to have underperformed for more than 15 years. It’s time for banks and regulators alike to take a fresh look at how they operate and how they regulate in the interest of stability, innovation, and sustainable profitability.

Christoph Schweizer
Chief Executive Officer

When Government and Business Work Together for Change

MARCH 19, 2024

Four years ago this week, I got one of the most unexpected and meaningful phone calls of my career at BCG. It was ten days after we had closed our offices due to COVID-19, like so many businesses all around the world. I was working from home, when Gina Raimondo, then the governor of Rhode Island, reached out to me directly. She said managing the COVID-19 situation was going to be more challenging than people realized, society wasn’t prepared for it, and the public and private sectors would have to work together if we were going to keep people safe.

She brought this message to multiple CEOs in those earliest days of the pandemic and led the development of new models of collaboration. She may have been the leader of the smallest state in the US, but she turned out to be a bellwether for governors and others around the country and the world. In the weeks and months that followed, leaders actively looked for collaboration between government and business to manage the unprecedented challenges—first to slow the spread of the disease and support a strained medical system, and eventually to develop, distribute, and administer vaccines.

Advancing Economic and Societal Impact

This past week, I had another opportunity to work with the now US Commerce Secretary Raimondo, as she led a presidential trade mission to the Philippines and a President’s Export Council visit to Thailand. It was a fascinating and energizing week. At every stop, the clear message from the Secretary and leadership in both countries was about the critical role of businesses to invest ambitiously, develop new capabilities, and form new partnerships with one another and with governments to advance the economy and society.

We heard from Filipino and Thai officials not about ideology but about the practical steps they were taking to support and encourage business investment in their countries. This was the case whether the focus was on digitization, tackling climate change and the energy transition, education and reskilling for a world of AI, building infrastructure, strengthening cyber protections, or advancing other critical issues.

As examples, in the Philippines, President Marcos meets with a business advisory council for two hours every other Thursday to focus on specific actions to accelerate economic progress and remove obstacles. The country recently passed amendments to its Renewable Energy Act to allow 100% foreign ownership of renewable assets.

And in Thailand, Prime Minister Thavisin has been on the road with his mission to seek partnerships with both local and foreign businesses and to attract foreign direct investment.  He has also guided the Thai Board of Investment to focus on building infrastructure and attracting new manufacturing hubs for electric vehicle components and other segments of high-tech value chains. A critical enabler will be attracting investment from international companies capable of developing engineering and tech talent within the Thai labor force.

We spoke with US and local business leaders, as well as representatives of local chambers of commerce, and they were open about what was needed to go faster. It starts with addressing basic issues, such as excessive regulation and paperwork related to customs and borders, but also includes more fundamental challenges, such as improving workforce skills, increasing investment support, and working on free-trade agreements. There was a lot of enthusiasm for the Indo-Pacific Economic Framework for Prosperity, which will include 14 countries.

A $2 Trillion Opportunity

As we look at the challenges ahead, it will be essential to strengthen the business-government relationship. A BCG study sponsored by Australia and endorsed by ASEAN economic ministers last October points to a $2 trillion digital opportunity for ASEAN countries by 2030 if they establish a bold agenda leveraging both the public and private sectors.

And of course, we need collaboration to address the climate crisis. The key technological solutions are likely to come from business but will need governments to invest and remove roadblocks to deployment if we’re to reach the pace of progress we need.

The relationship between government and business is never perfect, no matter the government and no matter the business. But when leaders from both sides are committed to drive real change and find models to work together, the impact can be dramatic.

Rich Lesser
Global Chair

Advice from Women Leading and Shaping the GenAI Revolution

MARCH 13, 2024

GenAI proficiency is a requirement for some of today’s and many of tomorrow’s jobs. It is an accessible technology that does not require programming skill. But could it also be an inclusive technology, opening doors for women in the tech industry?

Rather than wait and see, several of my women colleagues are working to level the playing field. They recently surveyed more than 6,500 employees of tech companies in Germany, India, Japan, the UK, and the US to understand how women are using GenAI at work. They also talked to women leaders at tech companies, providing both a quantitative and qualitative look at how quickly women are adopting GenAI—and what’s holding them back.

The results contain positive and negative signals.

• Women and men use GenAI at work similarly. About two-thirds of each group use the technology more than once a week.
• Senior-tenured women who work in tech functions are adopting GenAI at a higher rate than their colleagues who are men. These women in tech functions were 10 percentage points more likely than men in those functions to say they considered GenAI to be critical to their job success.
• The picture is less encouraging for junior women in tech. When it comes to using GenAI more than weekly, they lagged behind their peers who are men by 7 percentage points.
• And it’s even worse for junior women in nontech functions, such as HR, legal, and finance. Junior women in these functions lagged behind their peers who are men by 21 percentage points.

Lessons for All Companies

The survey and interviews offer general lessons for all companies, not just tech companies. “There is a small window of opportunity to make progress on the gender gap,” a director at a Fortune 500 AI company said.

The women executives we spoke to had clear advice for companies to encourage greater and more even adoption of GenAI.

• Leaders should talk about the importance of GenAI to corporate and career success. They then need to put in place change management initiatives to encourage all women, not just leaders, to embrace GenAI. “Leaders need to recognize and elevate GenAI such that people are excited,” a board member of an IT services company said.
• Companies can create targeted upskilling programs that encourage experimentation and build confidence among women. “Our company has courses that help explain for each function what are the applications of GenAI,” a vice president of a large tech company said.
• Businesses should develop a pilot environment that offers a safe space for employees to explore and test GenAI tools while following responsible AI policies. As the vice president of an enterprise tech company said, junior women “may be less likely to take risks without clear policies.”

In the spirit of International Women’s Day last week and its 2024 theme—inspire inclusion—we have an opportunity to intervene earlier in the tech adoption curve to ensure that the benefits of GenAI are available to everyone.

Christoph Schweizer
Chief Executive Officer

Space: The Final Frontier

MARCH 04, 2024

Business leaders have their work cut out for them as they navigate the incredible advances in artificial intelligence and a whole host of other fast-evolving changes.

And that’s just here on earth.

It’s also time to get used to the idea of a space economy. For CEOs, space offers a new frontier in innovation and sources of value. It’s important for all business leaders to get smart about how much they depend on space already (think GPS and connectivity) and to get moving on the potential benefits ahead. The commercialization of space is lowering barriers to entry and providing companies with powerful opportunities in communication, observation, and location.

I recently chatted with my colleague Troy Thomas, who leads BCG’s space topic, about the space economy, its potential for growth, and the challenges ahead.

To Boldly Go…

Opportunities in satellite services offer huge potential for industrial goods companies through precise communication, navigation, and earth imagery. Satellites can provide data-driven insights, enhance operations, help with sustainability goals, and unlock significant value.

Troy and his team estimate that some industrial goods companies can see up to a 15% increase in gross profit margins, 25% revenue increase, 10% decrease in operating costs, and 10% reduction in fuel within one year of rolling out integrated space-based services.

There’s a broad range of industries that can benefit, including agriculture, aviation, automotive, logistics, energy, mining, and construction. Logistics companies could reap benefits from fleet management, equipment monitoring, and autonomous operations, leading to improvements in productivity and reductions in cost. Long-haul trucking can use satellites to enhance smart navigation and optimize routes, increasing efficiency and cutting back on fuel.

John Deere is a great example of an organization digging into these opportunities. The company recently announced one of the largest ever satellite communications partnerships, with SpaceX’s Starlink.  Satellite connectivity will further transform smart agriculture for John Deere, enabling automated planting and harvesting in remote locations that lack internet service.

Volkswagen Group is another interesting example. The company has partnered with Germany’s Isar Aerospace to use satellite connectivity for self-driving cars.

Make It So

The space sector is expected to have a market value of more than $1 trillion by 2040. That growth will come primarily from four areas of digital and advanced manufacturing:

• Small satellite manufacturing, with commercial, cost-effective, off-the-shelf components that increase affordability and advances such as the use of ceramic composites, which reduce weight and protect satellites from radiation
• Payload modernization, with new software-defined sensors, high throughput transponders, and on-orbit processing of data powered by AI
• Faster connectivity, with high-speed downlink radios and relays and laser-based communications among satellites, forming a smart, global, ultra-high-speed network that connects with terrestrial 5G
• Next-generation launch capabilities, such as fully reusable launch vehicles, satellite “ride shares” to reduce costs, commercial spaceports, and “green” propellants

Essentials to Live Long and Prosper

The commercialization of space comes with increased congestion, and there have been numerous close calls involving debris, satellites, and spacecraft—even crewed space stations. The likelihood of collisions will continue to grow. There are right now about 4,400 satellites in different “orbital bins,” and it’s estimated there will be thousands more by 2030. The increased debris from spacecraft is particularly hazardous, with more than 30,000 such objects currently being tracked and moving at speeds of up to 29,000 km/hour.

To manage the risk of collision, government and industry will need to work together to advance technologies in space environment management, ensuring safe and sustainable space operations.

I can’t write about space without also mentioning geopolitical competition. As space grows in business importance, it’s also growing in strategic military importance. A key challenge of our time is ensuring the sustainable development of the space domain while seeking to avoid conflicts that extend into space.

As we focus on the commercial opportunities in space, the promise of space exploration still looms large. The James Webb Space Telescope, the recent return to the moon, and other success stories ignite the imagination and provide enormous scientific value.

As someone who grew up with Isaac Asimov, Arthur C. Clarke, and Star Trek, it’s been remarkable to see the concept of space move from the realms of science fiction and science to a much more everyday reality for business. We’ll need to see collaboration in order to advance a responsible and sustainable space economy, but the opportunities for businesses to create value and competitive advantage—on earth and beyond—will skyrocket.

Rich Lesser
Global Chair

Extending and Expanding Impact as Leaders

FEBRUARY 26, 2024

One of the things that inspires me in my work is hearing stories of how leaders take capabilities they’ve built during their careers and apply them in new and important areas.

A recent example has to do with Lewy Body dementia, a horrible disease and the second most common form of neurodegenerative dementia in the US, afflicting more than 1 million Americans and millions more around the world. It’s frequently confused with Alzheimer’s and Parkinson’s and as a result takes much longer to diagnose. And it’s woefully underfunded relative to its incidence, receiving one-eighth the research funding per patient of these better-known diseases.  

Lewy Body dementia is also the disease that claimed the life of the husband of my close friend and mentor, Sandy Moose. Sandy has had a remarkable career. She started at BCG in 1968—the first woman to work as a management consultant and then partner in our industry, now serving as one of our senior advisors since retiring 20 years ago. Since her retirement, she also served as the lead outside director of Verizon Communications and chaired the boards of trustees of the Alfred P. Sloan Foundation and the Museum of Fine Arts in Boston, among other roles.

When Eric, Sandy’s husband, began showing challenging symptoms, she was frustrated—as was he—by the lack of a clear diagnosis. Because they didn’t know exactly what he had, they couldn’t seek out the support they needed—and they weren’t able to prepare for how quickly his life would be cut short. Sandy had asked several doctors if it might be Lewy Body dementia, but she didn’t get any affirmation from a doctor until two days before Eric died.

Building a Framework for Progress

Afterwards, Sandy was determined to understand what went wrong—where the gaps in knowledge were and what was holding back the ability to tackle this devastating disease. She brought her years of experience alongside a pro bono BCG team and together they reviewed everything written on the topic in recent years. They pulled out the major themes and analyzed the current state of research and funding.

The team created a novel perspective on the disease, setting the stage for a discussion with two dozen leading scientists from academia, government, and the biopharma industry in the US and the UK. Their work culminated in an articulation of the most urgent priorities, which are laid out in the recent publication of an article in a highly regarded peer-reviewed neuroscience journal.  

In the business world, we often say you can’t manage what you don’t measure. Sandy’s work with Lewy Body dementia has led to a similar understanding. In this case, we are missing clear diagnostics and biomarkers. Until we get those, we’re in a vicious cycle. We’re unable to design research programs that will attract sufficient funding with the dedicated scientists needed to make progress on foundational work. And without that progress, the biopharma industry is constrained in its ability to develop therapeutic interventions.

This new effort has given scientists and funders a framework that can help address those gaps, redirecting research priorities and investments that can make a difference for so many patients and their families.

Impact Beyond a Career

Talking to Sandy about her experience and reading the impressive output from this work has led me to think more broadly about how we can extend and expand our impact as leaders. Sandy took the skills she had honed during an amazing business career and applied them to an area where she had never worked. She formed new teams and now talks expertly about protein folding, biomarkers, and research funding as if she were a biologist and not an economist.

As she put it to me recently, “I didn’t intend to embark on this, but it’s given me a whole new sense of purpose and mission in the sixth decade of my career.” As someone just starting the fifth decade of his, I find that really inspiring and hope it can be for you, too, whatever your decade.

Rich Lesser
Global Chair

In Uncertain Times, Control What You Can Control: Costs

FEBRUARY 20, 2024

We live in uncertain times. Geopolitical tensions remain high. Global trade patterns are shifting. Inflation and interest rates have come down but are still above pre-pandemic levels. In a recent BCG survey of more than 600 executives, economic uncertainty was their top concern for 2024.

In the face of such significant unknowns, many CEOs and top executives focus on controlling what they can control: costs—the top priority of companies in 2024 in North America, Europe, and Asia alike, according to our survey. Growth was the number two priority.

Fortunately, cost control and growth are not mutually exclusive. Cost management frees up resources, which can fuel a company’s growth and support its strategic priorities.

The Focus for Cost Management Is Shifting

To cope with the pandemic, supply chain disruption, energy shocks, and other factors, most companies added to their cost bases, which were further impacted by input-cost inflation. As a traditional reaction, companies have reduced overhead expenses to manage costs. Now, two-thirds of executives say manufacturing and supply chain costs are their top priority. This shift is particularly evident at consumer goods, industrial goods, and energy companies, where these costs are very significant.

Linear, rigid, just-in-time supply chains no longer work in today’s challenging times. Corporations now need to carefully manage their supply chains for cost, flexibility, and resilience by relying on best-in-class, real-time data and digital capabilities. In addition, AI, GenAI, and other disruptive technologies can help. As one CEO told me, “If we aren’t experimenting with AI, our competitor is and two start-ups are, too.”

Why Traditional Cost Management Falls Short...and How to Do It Better

Too often, we find that the effectiveness of traditional approaches to cost management fades over time. In the survey, 83% of leaders said that their companies met or exceeded recent cost savings targets, but more than one-third also reported that the costs crept back soon. Lots of work for little lasting impact!

We have learned how to make cost transformations stick: looking beyond one-and-done cost takeouts and instead establishing a culture of continuous improvement. This shift emphasizes innovation and treats setbacks as learning opportunities by focusing on:

• Engagement. Sharing the company’s priorities and cost management vision can engage employees, help them feel part of the solution, and shift how they work.
• Enablement. Providing other leaders with the right resources and clear objectives encourages them to better balance cost and growth ambitions.
• Execution. Effective governance and monitoring processes allow teams to break down a large cost transformation into distinct actions with measurable change—and to hold teams and leaders accountable.

Companies also need their workforces to possess emotional strength. If companies can meet four fundamental human needs—the need for clarity, trust, meaning, and belonging—they significantly increase their chances of success.

Christoph Schweizer
Chief Executive Officer

The Global Race for Economic Growth

FEBRUARY 13, 2024

I recently caught up with BCG’s Chief Economist Philipp Carlsson-Szlezak just after he attended a private dinner with CEOs in Canada. I asked him to share some of the key messages he delivered to that group.

Over the past couple years, Philipp and his collaborator Paul Swartz repeatedly made the case that narratives of structural inflation and inevitable recession were too pessimistic and that the US was most likely headed toward a soft landing. Now that this is playing out, I was eager to hear Philipp’s current global views, not just for the US but for China and the Eurozone as well. Here’s an overview of his take, which I hope you’ll find helpful.

A Reversal of Fortunes

To see the near-term growth prospects of these three regions, we need to consider the emerging structural legacies of recent shocks. The direct comparison of growth rates would be misleading, but understanding each bloc’s ability or inability to return to its old growth path tells us a lot about resilience and the tactical outlook. (See Philipp’s and Paul’s new article on this topic in Fortune.)

• The US started out as a laggard in 2020 but is now the only bloc on its way to its pre-pandemic growth trajectory. Inflation threatened that progress, but the unfolding soft landing is evidence of remarkable resilience.
• China’s economy was the envy of the world in 2020, making a swift return to its old growth path. But in its own reversal of fortunes, China’s switch to a consumption-driven economy is proving challenging and has pushed it off that pre-pandemic path.
• The Eurozone has seen yet a different reversal of fortunes. It was making sustained progress toward its old growth path—until the war in Ukraine. Though a show of resilience has allowed it to escape a recession, a return to pre-pandemic growth now looks challenging.

Tactical Growth in 2024

Settling into their new trajectories, each bloc is fighting for tactical strength in the year ahead. Prospects vary, but we can view near-term growth with an optimistic lens. It should be a year of progress.

US Strength. Philipp thinks the US will continue to defy the pessimists. Consensus recession odds of 45% remain too high and are reminiscent of the recent past when pessimism was simply punted out quarter after quarter.

Yes, growth will be slower than the fast 3.1% of 2023, but the underlying resilience of the US economy is sustainable, not finite. As inflation has fallen below wage growth, real incomes are growing again. After a pullback during much of 2023, corporate earnings are set to expand. And the labor market is structurally tight, pushing companies to embrace technology where labor is scarce and pricey.

On the monetary side, it will get easier in 2024, even as the timing of rate cuts remains uncertain. And looking beyond this year, Philipp’s team thinks the US is likely to overshoot its pre-pandemic trend.

China’s Challenges. China’s tactical fight, meanwhile, is to arrest the drag on growth. The shrinking real estate sector and weak equity markets remain headwinds as they impair the confidence and spending power of households whose consumption is needed to drive growth.

Stimulus would help, but many of the old channels, such as pushing construction, would undermine the desired rebalancing toward consumption. That said, even as the Chinese economy has been pushed off its old growth path, its rate of growth likely remains much higher than that of the other blocs, and China’s past ability to manage difficulties points to resilience.

Europe’s Restart. Despite the challenges, the Eurozone will see faster—but uneven—growth. Germany, which weathered the 2010s well relative to other Eurozone members, is now at the bottom of the growth league tables.

Yet labor markets across the bloc remain stronger than they’ve been in two decades, and real income growth is set to return as inflation drops below wage growth. Plus, after an era of tepid investment, the Eurozone has found convincing investment narratives in decarbonization, technology, and defense.

Combining Vigilance with Ambition

The better-than-expected growth outlook is no reason to let down our guard. The past four years have shown that shocks are ubiquitous, and continuous judgment of macroeconomic risks should stay at the top of corporate agendas.

But the past four years have also shown that shocks are not deterministic—neither for economies nor companies. The resilience we have seen, especially the avoidance of recession, is testament to the strong collective efforts of business leaders and policymakers. While leaders can’t control the shocks, investing in capabilities to understand and react to them is a muscle they can continue to build.

Finally, given a baseline positive case for growth, boldness alongside vigilance is important, too!

Rich Lesser
Global Chair

India: A Nation on the Move

FEBRUARY 08, 2024

I recently returned from India, where the business leaders I met in Mumbai and Chennai believe that India’s moment on the world stage has arrived. The evidence is strong.

At a time when growth is hard to find in many parts of the world, the Indian economy is growing by about 7% annually. It is on a path to become a $7 trillion economy by 2030 and is likely to surpass both Japan and Germany in size.

Indian consumers are benefitting from this growth. GDP per capita has grown from about $1,000 15 years ago to about $2,500 currently, putting more money in the pockets of consumers. The elite and affluent consumer segments account for 15% of the population, up from about 6% a decade ago. By 2030, these segments will approach one-quarter of the population. Domestic and international companies alike can tap into this opportunity.

The country is enjoying other tailwinds as well:

• Global trade is going through profound changes, and India is emerging as one key option. In our recent global trade report, we project that India will add nearly $400 billion in additional trade in goods over the next ten years.
• There is a concerted effort to expand India’s manufacturing base, driven in part by Production Linked Incentive (PLI) schemes. This creates an opportunity for the country to diversify beyond services that have powered growth this century—building an additional leg for the economy to stand on.
• India, now the most populous country in the world, has the workforce to support this transition. Its working-age population will reach 950 million next year, a striking demographic dividend in an aging world. The share of the working-age population will continue to grow until 2041.
• To enable this growth, India is investing in hard infrastructure such as roads, airports, ports, and power. It is also a leader in public digital infrastructure, building on its traditional strength in IT services. India’s Unified Payments Interface and Open Network for Digital Commerce facilitate peer-to-peer transactions, while Aadhar is the world’s largest biometric identity system.

The leaders I met with recognize the opportunity of a large and growing local economy alongside the challenges. They are keeping their eyes on the horizon but feet on the ground.

A significant share of manufacturing moving to India involves assembly. To guarantee future competitiveness, India will need to improve the skill level of employees in manufacturing and related functions (e.g., in quality management). The added value per employee in manufacturing is below that of several countries in Southeast Asia, which are also seeking to attract investments.

Healthy ecosystems around raw materials and subcomponents will be critical. Companies need to improve their R&D and innovation capabilities to compete globally. Inclusivity is also key. More opportunities for women, a reduction in regional disparities, and support for micro, small, and medium-size enterprises will all help India reach its potential.

One of my colleagues in India described the country as ready for “tough optimism.” The country’s ambitions are high, and it has a lot going for it. I am excited to see India meet the moment.

Christoph Schweizer
Chief Executive Officer