Road to Hyperscaling in IndiaDecoding the good-to-great journey of Indias late-stage startupsMarch 2023Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities.BCG was the pioneer in business strategy when it was founded in 1963.Today,we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholders-empowering organizations to grow,build sustainable competitive advantage,and drive positive societal impact.Our diverse,global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change.BCG delivers solutions through leading-edge management consulting,technology and design,and corporate and digital ventures.We work in a uniquely collaborative model across the firm and throughout all levels of the client organization,fuelled by the goal of helping our clients thrive and enabling them to make the world a better The Indus Entrepreneurs(TiE)is a global organization fostering entrepreneurship through mentoring,networking and education.Founded in 1992 in Silicon Valley by a group of successful entrepreneurs,corporate executives,and senior professionals.There are currently 15,000 members,including over 3000 charter members,spread across a vast network of 61 Chapters in 14 countries.TiE Delhi-NCR is among the most active and vibrant chapters across the vast TiE network.In the last two decades,it has continuously taken the lead in creating an increasingly positive ecosystem for entrepreneurs and investors and has emerged as one of the biggest platforms supporting entrepreneurship.delhi.tie.org/Times Bridge is the global investments and venture arm of The Times Group,Indias oldest and largest media and digital company,whose mission is to ally with the worlds most purposeful companies to enable their entry,scale,and impact across India.Its current portfolio includes Airbnb,Canva,Coursera,Girl Effect,Headspace,Houzz,Luminary,Malaria No More,MUBI,Smule,Stack Overflow,Uber,and Wattpad,among others.By providing unmatched market leadership to its select global partners,Times Bridge accelerates growth and immersion across the Indian subcontinent for leaders and companies who believe in winning in and learning from I ForewordThe startup ecosystem in India has come a long way.As someone who took the plunge over two decades ago,I am proud to see entrepreneurship celebrated like never before.I recall how challenging it was back then to take the road less travelled,to raise funds to build and fuel growth with nascent digital penetration and a deep-rooted fear of online payments.Dont get me wrong,entrepreneurship is not for the faint-hearted even today,but a lot has changed,and thankfully,for the better.Building a solid,scaled business may take a long time in India.Still,the ecosystem now is a lot more trusting with financial and non-financial support,allowing late-stage startups to accelerate at a pace that was unimaginable two decades back.There is much to learn from the journeys of those who managed to hyper-scale smartly,riding the macro tailwinds.One must tread the path carefully,though,since for every success story,there are more who tried to move too fast too soon and are now examples of what not to do.In 2022,the winds changed course,causing discomfort to the investor community and the startups.This weather is also unprecedented for many unicorns and soonicorns,who have risen in the last 5-10 years.Having seen at least two major economic crisis cycles,I advise founders to be extremely frugal,to celebrate small successes,and to focus on the basics by relying on unaided comebacks and actual network effects rather than growth at all costs.Waves like this are an unparalleled opportunity for well-run businesses to consolidate their lead and emerge stronger than ever.Deep KalraFounder and Chairman,MakeMyTrip,Board Member and Mentor,TIE Delhi-NCR6ROAD TO HYPERSCALING IN INDIAExecutive SUMMARYThe entrepreneurship and startup landscape in India has witnessed enormous growth over the last few years,transforming India into the third largest startup ecosystem in the world,just behind USA and China.106 unicorns in India by 2022:an indicator for Indias growing startup maturity,though the overall impact is far wider and deeper65%share of this funding attracted by top 3 sectors:Fintech,E-Commerce and Enterprise Tech40,000 active startups in 2022,indicating rising aspirations among Indian entrepreneurs130Bn raised since 2014 by Indian start-ups;growing faster than China 50%reduction in time to reach unicorn status,indicating faster scaling and stronger belief in future growth potentialContext:Indias growing startup ecosystem7ROAD TO HYPERSCALING IN INDIAJourney to successful hyperscalingWhile the conducive macro-economic factors,investing and policy environment have acted as key enablers,some startups have made choices that have helped them win in this market and successfully hyperscale,while others have withered away.Through our analysis we understood 8 key unlock themes that have helped late stage startups in their hyperscaling journey.They expand the market and bring in new usersThey solve for unit economics earlyThey build the right teamsThey innovate around technology scalabilityThey deepen their moats for customer stickinessThey leverage capital optimallyThey scale the startup cultureThey unlock the full potential of ecosystem0103050702040608The path forwardThe global macro-economic headwinds have also impacted the Indian start-up ecosystem,reflected by 40%reduction in funding in FY2022.While investors become measured in their valuations,many large funds are also sitting on large amount of unallocated dry powder.Startups need to navigate the current volatile environment The gap between well-run startups with strong fundamentals vs.others will increase in this period.The founders and leaders need to ensure survival as well as keep one eye on the future.While managing burn will be critical on one end,one must capture opportunities smartly to invest and grow in the long term.Table of Contents010203CONTEXT OF ECOSYSTEM1019#2053#5461#ROAD TO SUCCESSFUL HYPERSCALINGTHE PATH FORWARD01CONTEXT OF ECOSYSTEM10ROAD TO HYPERSCALING IN INDIACONTEXT OF ECOSYSTEM1112ROAD TO HYPERSCALING IN INDIACumulative number of Indian startups launchedThe startup ecosystem in India has seen massive growthover the years,producing 58,000 startups200520062007200820092010201120122013201420152016201720182019202020212022Source:Inc42 State Of Indian Startup Ecosystem Report 2022of 58,000 startups launched are active 40,0003,5004,5005,5006,5008,50012,50016,50021,50024,50029,00037,00042,00046,70050,90054,00055,65057,08657,73813CONTEXT OF ECOSYSTEMSource:Morgan Stanley,Uplers,ADB The Startup Environment and Funding Activity in India June 2020 ReportA confluence of factors have contributed to the proliferation of startups in India over the past decadesRising digital adoption:900Mn users expected by 2025Telco price wars,commoditization of mobile data are leading to high smartphone and internet penetration:expected 13.5GR in smartphone users from 2020 to 2025Pandemic aided acceleration and explosion of UPI by 2.6XPandemic accelerated new digital behaviors;UPI adoption also grew 2.6X between April 2020 and April 2021 within a year,benefiting Fintech and E-Commerce sectors especiallyThe age demographic sweet-spot driving new digital behaviors65%of population below 35 years,with median age of 28.4 years(2023);Also producing 1Mn graduates a yearConducive public policy Digital India program,Startup India initiative(2016),Multiple incubation programs,Tax benefits,investments to support infrastructure for startup Expanding middle class and rising urbanization Resulting in larger demand basket-Middle class will account for 46%of all Indian households in 2025(vs 37%in 2018)14ROAD TO HYPERSCALING IN INDIACumulatively,Indian startups have raised over$130Bn since 2014,growing faster than China1,5191,5849538128339991,049986377201420152016201720182019202020212022Note:Funding amount numbers are rounded off Source:Inc42,Traxcn,other secondary sourcesFunding raised peaked in 2021 and dropped by$17Bn in 2022,still more than twice the funds raised in 2019 and 2020Startup funding in India has increased considerably over the last decadeDeal countFunding amount(in$Bn)raised between 2014 and 2022Over$130Bn$837BnTotal funding(2014 to 2022)China73%Internet penetration(2021)$130BnIndia616Mn1.03BnTotal internet users(2021)691312121342255$1.35TnUSA9002Mn15CONTEXT OF ECOSYSTEMFintech,E-Commerce and Enterprise Tech attracted most fundingNote:Percentages may not add up to 100%due to rounding Source:Inc42 State Of Indian Startup Ecosystem Report 202220162014201520172018201920202021202225%MediaEnterprise TechOthersFintechE-CommerceEdtechDeeptechConsumer ServicesWhile Fintech,E-Commerce and Enterprise Tech sectors have seen 55%funding share in India over this period;other sectors have also seen greater traction in the recent years 777%5%2%6%4%4%4%1%1%1%1%1%2%2%1%1%2%3%5 2%7%7%7&$%9(%9%9%8%3%4%9%6%8%6%7!%8%6%7%8%Startup funding distribution across sectors in India from 2014-202216ROAD TO HYPERSCALING IN INDIAAmong these startups,106 successfully turned into unicorns,making India#3 country with most unicorns today Up to 201420152016201720182019202020212022Total#of Indian unicorns minted every year#of unicorns as of 2022new unicorns in 2021 vs past years6331107114421106618174106IndiaChinaUSA4XSource:Inc42 State Of Indian Startup Ecosystem Report 2022,Traxcn,other secondary sources17CONTEXT OF ECOSYSTEMNearly 60%of the unicorns and soonicorns are from Enterprise Tech,Fintech and E-Commerce,in line with the funding trends1.From Adtech,Healthtech,Proptech,Media,Gaming,Aggregator-Consumer Brands,D2C-Personal Care,Manufacturing,Cleantech,Telco,Interior Design,Content-Lockscreen 2.From Adtech,Proptech,Media,Manufacturing,Interior DesignSource:Pitchbook,Crunchbase,Inc42,Iron Pillar,BCG AnalysisEnterprise TechFintechE-CommerceLogisticsMarketplaceEdtechFoodtechHealthtechAdtechHealthtechOthers1%of next 100 startups(soonicorns)by sector as estimated in November 2022EdtechFintechEnterprise TechE-CommerceHealthtechMarketplaceLogisticsGamingAgritechFoodtechOthers2#of Indian unicorns by sector as of November 2022Enterprise Tech has added highest number of startups and unicorns mainly due to digital adoption brought about across sectors by the Covid-19 crisisRise of Fintech can be attributed to rise in digital infrastructure(UPI,Aadhaar,etc.),mobile banking,payment gateway services,mobile wallets,paperless lending,etcUptick in E-Commerce can be attributed to rise in digital payments and new online behaviours post Covid-19 crisis67UROAD TO HYPERSCALING IN INDIAReaching unicorn status has accelerated over the past years,specially for Foodtech,Marketplaces and Fintech1.Excludes industries with n=$1Bn;soonicorns are valued at$200Mn to 90%share)in digital insurance marketplace in IndiaTHE RESULTSource:Press releases,Company reports,founder/investor interviews06 Alok Bansal Co-founder and Exec Vice ChairmanAt one point,when relatively cheaper capital was available in the India market actively searching for newer challengers to fund,we consciously worked on ensuring that the right investors are on our side than anyone else.36ROAD TO HYPERSCALING IN INDIAMeesho pivoted into marketplace model at opportune time,leveraging capital as an acceleratorSource:Press releases,Company reports,founder/investor interviews07 Sanjeev Barnwal Founder and CTOAs a founder,you must get a sense of the market and capitalize big and small opportunities at the right time.You,as a leader,need to ensure you get what you want out of these bets and at the same time,minimize the cost of experimentation.Mindset of a founder needs to also change very quickly to align with evolving market realities.Marketplace model currently accounts for 80%of Meeshos businessTHE RESULTIn early years,Meesho saw huge success via the resellermodel that managed to bring in high levels of demandat a significantly lower customer acquisition costWhile Meesho started as a social commerce company,the E-commerce adoption tailwinds from COVID and affordable(telco)data saw many consumers become more comfortable with online shopping.Hence,many consumers(including resellers)started buying directly from Meesho for their own needsMeesho actively invested into this opportunity and built a marketplace connecting sellers and consumers(in addition to the WhatsApp led reselling).Over 1.5 years,this has been a very successful strategy for Meesho,unlocking a new wave of growth37ROAD TO SUCCESSFUL HYPERSCALING37ROAD TO SUCCESSFUL HYPERSCALING38ROAD TO HYPERSCALING IN INDIAIndian unicorns have shaped and positioned themselves favorably to attract good talentIndian unicorns have relied on distributed leadership to scale their multi-brand businessesSource:Interviews,BCG experienceHow have Indian unicorns set up organization for successful scaling?0809They build the right teamsLeveraged distributed leadership model to scale rapidly in India&globallyOYOPushed themselves to become the best option to attract talent in the marketZeptoRebranded the industry and career paths to attract skilled talent neededDelhiveryBy shaping the organization to attract the people they needBy decentralizing power through organization design and people39ROAD TO SUCCESSFUL HYPERSCALINGZepto designed compelling employee value proposition to become the top destination for talentSource:Press releases,Company reports,founder/investor interviews08 Aadit Palicha Co-Founder and CEOContrary to the approach many start-ups take,Zepto did not start with attracting pure hustlers.With a complex product that needed to scale quickly,we needed people that had both a zero-to-one mindset and deep expertise in areas like supply chain.Just 1 year after launch,Zepto has managed to attract many senior executives fromwell-known companiesTHE RESULTZepto was relatively a late entrant in the ecommerce market,Zepto needed to move fast and create scale quickly,since quick commerce could survive only with unprecedented levels of asset utilization and turnaround timeWith just a sliver of such talent out there,Zepto pushed hard to become the best option for such entrepreneurs.They developed career pathways that were more accelerated than any other competitors,and aggressively pushed the visibility and reputation of that to startups and mature companies that held such talent40ROAD TO HYPERSCALING IN INDIAOYOs distributed leadership model enabled a pivotal shift in their scaling strategyEmbracing distributed leadership helped Oyo stay nimble and responsive in a fast-changing worldEarly on,Oyo was able to build a strong in-house extended founding team and leaders with mutual trust.Be it the shifts in business models,or tapping into new geo markets,Oyo counted on these leaders to step in and drive execution end to endHaving a clear where the buck stops for different parts of business,allowed founders to focus only on the areas where it was essential to step inThe speed with which OYO achieves consensus,changes gears and rallies the entire organization to deliver on new goals,has been a significant enabler in this execution heavy businessRapidly scaled in India since inception,expanded to other marketsSequentially improved unit economics and delivered two EBITDA positive quarters in FY23THE RESULTSource:Press releases,Company reports,founder/investor interviews09 Ritesh Agarwal Co-Founder and CEOThe biggest leverage I can get out of the senior team we have put together is to let them run their own domains of expertise.41ROAD TO SUCCESSFUL HYPERSCALING41ROAD TO SUCCESSFUL HYPERSCALING42ROAD TO HYPERSCALING IN INDIASource:Interviews,BCG experienceHow have Indian unicorns set up organization for successful scaling?They scale the startup cultureBy instating mini-founders that champion culture Created mini-founder positions to lead separate businessesPolicybazaar10Indian unicorns have created a host of mini-founders to take charge and thereby cultivating entrepreneurial mindset By institutionalizing experimentation and innovationEnsures innovation through culture and top-down focusPepperfryBuilt innovation hubs and fosters innovative mindsetUber11Indian unicorns have continually evolved their moats through inculcating innovation across the organizationBy ensuring right KPIs are selected to evaluate performanceMonitors different KPIs for different segments depending on the maturity and stage in their hyperscaling journeyDelhivery12Indian unicorns have built the right performance culture to drive discipline and results43ROAD TO SUCCESSFUL HYPERSCALINGPolicyBazaar created mini-founders within to take end to end charge of parts of the businessAs businesses mature,it becomes increasingly difficult to preserve the entrepreneurial spirit from their early stages.PolicyBazaar started its operations in 2008 and was a well-established business in 2015 when its founders launched PaisaBazaar-a digital consumer credit marketplaceThe leadership knew that both the businesses were at different levels of maturity with different market dynamics,and hence decided to keep PaisaBazaar and PolicyBazaar independentThese separate businesses own separate P&L and mini-founders are evaluated separately for the performance of each verticalThis helped nurture and protect the startup spirit in new businesses even as the older businesses maturedPaisaBazaar became Indias largest digital consumer credit marketplace with 50%market shareTHE RESULTSource:Press releases,Company reports,founder/investor interviews10 Alok Bansal Co-founder and Exec Vice ChairmanFinding and nurturing mini-founders has been a priority to extend a culture of entrepreneurship as well as to create leverage for the founders.Once we are aligned at the core ethos,and on the boundary conditions for specific businesses,we empower them to make decisions,run businesses like their own.44ROAD TO HYPERSCALING IN INDIAPepperfry ensures steady stream of innovation through right culture and enabling processesSteady stream of experiments at any one time:25 micro-experiments across functions3-4 large experiments led by tiger teams and focused on by founderTHE RESULTPepperfrys founder makes a conscious effort to not know what the micro-experiments conducted within functions are about;instead,the founder is interested in whether each function is indeed experimenting at all,and the right KPIs are put in place to ensure such culture is encouragedOnce micro-experiments become larger,tiger teams (i.e.high-performing cross-functional teams)are set up,and regular updates to the founder begin.These larger experiments receive their due rewards and recognition,and in turn incentivize each function to conduct the right types of micro-experiments regularlySource:Press releases,Company reports,founder/investor interviews11 Ambareesh Murty Co-Founder and CEOAt such a scale,its down to making innovation a culture in every single function;I dont need to know what experiments are about,but I need to know that they are happening.45ROAD TO SUCCESSFUL HYPERSCALING45ROAD TO SUCCESSFUL HYPERSCALING46ROAD TO HYPERSCALING IN INDIAScalable technology sets up startups for future successHow have unicorns innovated around technology scalability?They innovate around tech scalabilityBuilds full-tech platforms globally that can be scaled locally to cater to specific needsFocused on platform scalability to drive agility and responsivenessUber1mgBy designing a platform and not a product from the startBy constantly innovating and evolving tech infrastructure1314Indian unicorns have built platforms acting as marketplacesIndian unicorns have allocated dedicated resources to innovate and build scalabilitySource:Press search,Interviews,BCG experienceProvides flexibility in early stages while looking for product market fit before committing to scaling a particular productAbility to serve increasing demand in the future without jeopardizing customer experience and incurring significant costs47ROAD TO SUCCESSFUL HYPERSCALINGUbers strong global tech platform provides the flexibility to scale local operationsUnderlying Ubers global success is its tech enabling it to offer the right pricing to consumers while considering supply and demand factors.When it launched in India,Uber started with a simpler,low-cost product offering with its Hatchback service to reduce supply barriers.Eventually,it customized its product offering to meet local demands,such as adding a Cash payment methodAs Uber grew in India,its platform was able to support its expansion to more cities.Its unified tech stack provided the stability and scalability Uber needed to grow.Its technology is continuously evolving as learnings from one city are fed back to the system to run more experiments.With Ubers global scale,teams have one less worry about potential issues with its servers or platformsUber India is also a unique market for the company as they build full-tech solutions locally such as Uber Bus,Uber Rentals that are globally scalableSource:Press releases,Company reports,founder/investor interviews13 Prabhjeet Singh President,India and South AsiaWe dont build tech solutions that are not scalable In India,we have two big tech centres to build tech that gets deployed to other markets globally.48ROAD TO HYPERSCALING IN INDIA1mg improved the tech infrastructure to drive agility and responsiveness for businessSource:Press releases,Company reports,founder/investor interviews141mg adapted its tech infrastructure according to its scaling stage.They began with a monolithic infrastructure and eventually evolved into a microservices architecture to improve their speed of deliveryThey hosted their platform via a private data center but faced DDOS attacks.Eventually,1mg shifted to cloud infrastructure given reliability and robustness offered by cloud.While moving to cloud was pricier,it provided more flexibility and speed to scale their services1mg also leverages emerging technologies like AI and MLto deliver superior healthcare-related services at scale.1mg has a dedicated platform team to continuously identify new technologies to help build the scalability of its platformTech Infra EvolutionEvolved to Cloud-first mindsetFrom Monolithic components to true microservices based,scalable architecture Prashant Tandon,CEO and Co-FounderAt every stage in the scale,the challenges are very different.Evolving the tech infra at the right time is key-knowing when to move from a quick product that demonstrates PMF,and when to transition the architecture for scalability and stability with formal processes is critical.In our case,it gave us a certain balance of speed of development,scalability,stability,that helped in building product offerings much much faster.49ROAD TO SUCCESSFUL HYPERSCALING49ROAD TO SUCCESSFUL HYPERSCALING50ROAD TO HYPERSCALING IN INDIAHow have Indian unicorns realized the potential of partnerships?Partnerships is one of the most powerful tools for startups to scaleCollaborated with partners by building their offerings around enabling partnersIcertisLeveraged partners to reach the right set of customersUberBuilt successful partnerships with franchisees while retaining control over value chainPepperfryBy being partner-centric in scaling journeyBy balancing control and empowerment creatively151657%of businesses use partnerships to gain new customers Up to 70%of business partnerships fail despite the potential impactSource:Interviews,BCG experienceTo find the next wave of customersAcquire scalable technologyOffer full-stack solution quicklyExpand operating model quicklyBuild up reputation51ROAD TO SUCCESSFUL HYPERSCALINGIcertis saw partners as key to scaling,and built product and organization centered around partnershipsSource:Press releases,Company reports,founder/investor interviews15In its initial stage,Icertis was best placed to work with its customers on implementation,as it had best knowledge of product,CLM and how customers work.When Icertis scaled to 500 implementations,partnerships became key not just for generating leads,but also for selling betterToday,Independent Software Vendors(ISVs)integrate Icertiss CLM with their core offerings thereby bringing in ready customers to Icertis.Such partnerships are attractive to partners as they help strengthen their core offering and bring recurring profit-sharing arrangements Icertis has a CXO oversee its partnership program,including building platforms to work well with partner products,e.g.,tools for configuring things more easily,applications to go through SaaSSAPSalesforceMicrosoftLeading ISV partners Monish Darda Co-founder and CTOStrategic partnerships with top-tier software and professional services players were key to hyperscaling.Those relationships enabled us to leverage well-established B2B sales ecosystems quickly and,at the same time,add immense value to our partners portfolios of offerings to help joint customers unlock the insights of contract intelligence and uncover hidden revenue,savings and risks.52ROAD TO HYPERSCALING IN INDIAUber partnered with Meta to accelerate access to new customer segmentsSource:Press releases,Company reports,founder/investor interviews15In Tier 2 cities,smartphone penetration is lower,and customers tend to be more selective with the apps on their phone-WhatsApp being one of the popular apps used.By enabling its ride-hailing on WhatsApp,Uber was able to penetrate these small townsFor example,users booking through WhatsApp could provide their pick-up and drop-off locations and would get the ETA of the driver and other informationBeyond the user experience,Uber also ran promotions to entice users to try the new platform(such as 50%off on your first 3 Uber rides via WhatsApp)33%of inbounds during the pilot in Lucknow were received from new users,showing potential for new customer acquisitions via WhatsAppTHE RESULT Prabhjeet Singh President,India and South AsiaThe way Tier 2 and 3 cities experience digital services is different from larger cities so the real competition is which apps are downloaded.Partnering with WhatsApp gave us access to a platform everyone had.53ROAD TO SUCCESSFUL HYPERSCALINGPepperfry empowered franchise owners to be entrepreneurs,while keeping control on key parts of value chainOne of the key differentiators of Pepperfry has been its omnichannel strategy,and the reason it could scale its offline retail stores Pepperfry studios so quickly was through its successful partnership model with franchisees.The model was designed to treat franchisees as entrepreneurs who run a profitable business,fully empowered to control customer and post-sales interactionsPepperfry however,retained control in key upstream and downstream components of the value chain(i.e.,what products get sold,and how products are delivered),through the supply chain it built,which is the key disruptor to the unorganized and hyperlocal nature of the marketNew Pepperfry Accelerator ProgramCut CAPEX required from franchisees by 1/3 200 studios in one year,by adding one entrepreneur a day for rest of the yearTHE RESULTSource:Press releases,Company reports,founder/investor interviews16 Ambareesh Murty Co-Founder and CEOOur franchise model is a like virtual catalogue being sold in the physical world by a partner,and we control the key parts while empowering them as mini entrepreneurs.THE PATH FORWARD54ROAD TO HYPERSCALING IN INDIA0355THE PATH FORWARD56ROAD TO HYPERSCALING IN INDIAIndias startup ecosystem at a confluence:Funding slowdown paired with a large amount of unallocated dry powderFunding amount(in$Bn)Aligned with global trends,funding raised by India startups hit a two-year low in Q3 2022However,India-focused funds are sitting on a highest-ever unallocated capitalnew funds in 2022126Q1 2021Q1 2022Q2 2021Q2 2022Q3 2021Q3 2022Q4 2021Q4 20222015201620172018201920202021202218179994441210141516151523Source:CAIA Association,Silicon Valley Bank report,Inc42 report,Press releases,Investor interviews57THE PATH FORWARDInvestors are taking a wait and see approach on late-stage startups:Expect fair valuation with a keen eye on unit marginsDry powder will continue to be mostly deployed to early-stage startups in 2023Investors will be patient with growth-and late-stage startups,and double down on profitability metricsEarly-stage startupsLeast affected by changes in public market valuation Investors still making bets,especially in emerging sectorsExpect lower value to revenue multiple,fueled by public market corrections and macro factorsValuation ambition mismatch:Need to be wary of dilution of equity in the current market condition Growth-stage startupsLate-stage startupsAngelSeedEarly StageLater stage4,0394,6629,7679,3107,4034,8442,5372,2111914837216297536246911,304293831,794263881,110202911,1912129360820137792Q1 2021Q1 2022Q2 2021Q2 2022Q3 2021Q3 2022Q4 2021Q4 2022Source:CAIA Association,Silicon Valley Bank report,Inc42 report,Press releases,Investor interviews58ROAD TO HYPERSCALING IN INDIAIn this macro environment,essential to focus on the fundamentals to survive as well as drive long term growthImprove core metrics and celebrate small wins.Keep a sharp focus on the right metrics-Actual repeat or affirmation of repeat in the form of referrals,brand recall.Deep Kalra Founder,MakeMyTripLearn your own lessonsOne eye on the futureDrive frugal innovationsSharpen the value propContinuing to acquire customers at discount is not sustainable in long run.Scarcity of money is actually a positive;Startups become more resourceful and focus more on getting money from customers,and thereby scale more sustainably.Sanjeev Bikhchandani Co-founder,Info EdgeBegin with the principle of having customer obsession.Not just meeting the stated needs but identifying all the problems in the journey and solving them.Ability to experiment,failing fast and moving with speed is key!Kumara Raghavan Head,Startups,AWS India Alok Mittal Cofounder and CEO,IndifiDeploy capital basis how aggressive you want to be and how far ahead of profitability curve you want to go.Some startups grew slowly initially and took 6-7 years to hyperscale as network effect kick in.In others,a lot of scale is driven by capital.One size does not fit all.59THE PATH FORWARDThe approach for hyperscaling in this market will depend on basic measures of unit economics and capitalizationPositiveUnit economicsLevel of capitalizationWell-fundedBuild and scale,tone down on raising capitalFocus on growing market share to generate economies of scale and consolidate lead over competitors.This is the best time to build your business if you have sorted out your unit economics;the worst thing you can do is to want to keep to your old valuation because of ego and lose your market share.A leading Venture Capitalist in IndiaAs macro drivers in India remain strong,one should not compromise growth just to maintain valuation.Raise capital at lower valuation or from alternate sources(e.g.Venture debt)UnclearRequire capitalClear path to profitability of the business will be key to extend life,to attract funds.Even large companies with questionable unit economics will struggle to raise capital in this environment.Focus on sharpening unit economics and accelerating path to profitability60ROAD TO HYPERSCALING IN INDIASustaining and hyperscaling in turbulent times:3 critical elementsHow to create space to grow in the current uncertain environment?Focus on organic growth metrics:Customer retention,Repurchases,Referrals,etc.Track and celebrate small wins:KPI movements,milestones Maximize value from existing assets and partnerships Streamline operations:Optimize costs(core vs non-core)Retain quality talentMonitor key metrics on daily,weekly basis Extend the runway:Optimize spends by understanding liquidity outlookPreserve the gas and reduce the burn rateCut the flab and not the muscleTighten norms for new investments/experimentations,raise bar on expected Return on InvestmentsSustain and accelerate growth:Drive organic growth by frugal innovationLookout for sharp pockets of opportunities Sharpen value proposition:Focus on customer needs to drive organic growth Raise capital(venture debt/equity)strategically:Prioritize value creation over current valuationStay nimbleExecution focus61THE PATH FORWARD61BCG TIMES BRIDGE TIE REPORT 202361THE PATH FORWARDA vote of thanks to the industry leaders,who shared their journeys and perspectivesAlok Bansal PolicyBazaarAlok MittalIndifi Ambareesh MurtyPepperfryAmanpreet BajajAirbnb Aadit PalichaZepto Deep KalraMakeMyTripKumara RaghavanAWSMonish Dadra IcertisNiren ShahNorwest Venture Partners Sujeet KumarUdaanSahil BaruaDelhiverySanjeev BarnwalMeeshoInfoedge Sanjeev BikhchandaniAnjana SasidharanL Catterton Mohit BhatnagarSequoia India Prabhjeet SinghUber Prashant Tandon1mgRitesh AgarwalOYO.and several other emerging startup founders,senior executives and investors.The views shared are personal,and not attributable to the organizations represented above.About theAUTHORSSIDHARTH MADAANPartnerMadaan.SBCG New Delhi NIMISHA JAINManaging Director and Senior PartnerJain.NBCG New Delhi RAJIV GUPTAManaging Director and Senior PartnerGupta.RBCG New Delhi SHALEEN SINHAManaging DirectorSinha.SBCG Mumbai GEETIKA DAYALExecutive Directorgeetikadelhi.tie.orgTiE Delhi-NCRABHINAV BANSALHead of STimes BridgeROHAN JOSEPHVice PHead of Global Investments and CorporateTimes BridgeNote tothe ReaderAcknowledgementsFor information or permission to reprint,please contact BCG at To find the latest BCG content and register to receive e-alerts on this topic or others,please visit .Follow Boston Consulting Group on Facebook,Instagram and Twitter.Boston Consulting Group 2023.All rights reserved.03/23This report is a joint initiative of Boston Consulting Group(BCG),The Indus Entrepreneurs(TiE)and Times Bridge.The authors thank and acknowledge the support provided by Joellyn Heng(Project Leader),Harsh Singh(Project Leader),Marc Tan(Consultant,BCG),Meriza Mamaril(Senior Associate,BCG),and Shreelakshmi VN(Senior Associate,BCG)in preparing this report.We would like to extend our gratitude to TiE member organizations,Times Bridge,industry stalwarts and leaders from the startup community for sharing their rich experiences with us and enabling others to learn from their knowledge.Their expertise has been invaluable to this exercise.We extend our sincere appreciation to Jasmin Pithawala,Komal Mohan and Sucheta Desai for marketing and communications support and to Saroj Singh,Sujatha Moraes,Abbasali Asamdi,Soumya Garg,Nitesh Tirkey and Farah Daruwalla for their extensive design and report production support.
Table of ContentsHow do NLP-based Recommendations Work?Choosing One of 5 NLP-Based Recommendation Approaches1.Text Similarity2.Named Entity Recognition3.Topic Extraction4.Keyword Extraction5.Text SummarizationWhere to Apply Recommendations Using NLP1Recommendation systems built with machine learning can solve one of the mosttedious tasks of gathering customer data,which is to study their preferencesand suggest relevant information in the future.Besides searches,recommendations,or whats also called discovery,provides customers with anendless stream of information that is relevant to their search history,preferences,and which generally helps them to find what they want muchfaster.Machine learning recommendations are based on keywords,user activity,andother similar measures that help us define what a person may like.But theybecome ineffective if the user preference involves thousands of filters andsubjective criteria that are specific to the user.So here,we discuss NaturalLanguage Processing recommendation systems.Based on our previousexperience,well outline the general idea and limitations of this model,andexplain some of the best approaches for how to build a NLP-basedrecommender system.How do NLP-based Recommendations Work?Natural Language Processing,or NLP,is good at handling plain text andcolloquial speech.You can find tons of sentiment analysis or documentprocessing cases that rely on NLP to solve the task of working with writtenlanguage.These capabilities can be applied to recommendations as well,if weunderstand our inputs and outputs right.Any recommendation system performs a basic function for a user.It matchesuser expectations with the discovered content,no matter if it was an intendedrequest or not.Recommendations are formed by learning the previous activityof the user,and assigning categories to the content pieces that we call“filters”.It is a known fact that the input of any AI model is numeric data.Obviously,whenit comes to data such as the age of a user or years of experience,AI models caneasily operate with these values.To work with this type of data,it will benecessary to follow the steps according to the CRISP-DM methodology,namely,analyze the data,understand how best to transform it into a training format andperform the conversion.Think,for example,of a professional network likeLinkedIn where a user applies filters to search for a career opportunity.2Basic recommendations using content-based filtering for job searchBut,how can we handle text data?How can we convert words into numericdata?Descriptions,commentaries,and colloquial speech messages can specifydata points like years of experience with a specific technology that may becrucial for correct matching.NLP methods can help the user to provide search input in a free form andwithout any restrictions,according to the systems requirements,to get ananswer to the desired request.Text information can store a large amount ofdata that cannot be covered by ordinary filters,as in the example above.3NLP-based recommendations for job search matchingIn this simple example,we can see that extracting data from text can instantlyimprove matching results,and save time both for the user,and the companythat searches for a professional.So now,lets discuss what approaches we canapply to work with text data and build an NLP-based recommender system.Choosing One of 5 NLP-BasedRecommendation ApproachesLets consider this task using the Data Science and AI Jobs Indeed dataset,whichcontains information about various job posts in the field of AI.In the context ofthis dataset,the matching task can be formulated as follows:to find a suitablevacancy for a candidate,based on the skills and experience described by him.So asan input,well get tons of written descriptions that convey information about theskillset of our potential employees.Our dataset contains the following textual data:title of the vacancylocationA detailed description of the requirements for the candidate4Dataset information exampleGiven that the dataset was scraped from a real professional network,we canunderstand which NLP methods will work the best in a real world environment.1.Text SimilarityThe text similarity approach provides the coefficient of similarity of two texts,comparing the vectors of both texts.In this case,the feature that will be usedwhen building the AI model is the value of this coefficient.Below is an exampleof the work of the text of the similarity model,where the similarity score is thecoefficient of similarity of the job description with the description of thecandidates skills.Text similarity model output example5Text similarity models can be used in a raw form,because they provide moreaccurate results and indicate whether two texts explain the same thing based onsemantic analysis.Additionally,text similarity can also be used in conjunctionwith other NLP models like text summarization.2.Named Entity RecognitionAnother NLP approach is called Named Entity Recognition or NER.The essence ofthis method is to find named entities in the text,such as:location,organization,person,and so on.As long as we target certain keywords,we want to be sure themodel indicates named entities accurately,so that the recommendation systemdoesnt mistake organization names with locations,or technologies withprojects.Below is an example of using the NER model on the location entity.The featurethat will be used for modeling will be the coefficient of the similarity of twoentities,as shown below.Named Entity Recognition resultsThis method can be useful in replacing standard filters,such as choosing a city,or choosing a previous place of work,allowing the user to provide searchqueries in free form.63.Topic ExtractionThe topic extraction method will help to identify implicit subgroups in the trainingdata(in our case,in the list of vacancies),into which the input data can then beclassified.For example,speaking about our dataset,namely job titles,the topicextraction model(BERTopic)helped to identify several topics,each of which isdescribed by the 5 most common words.Most common topics of the Data Science and AI Jobs Indeed datasetIn order to use this information when building a matching model,you candesignate a feature that will indicate the similarity of two texts in terms of thesimilarity of the topics found,as shown in the figure below.74.Keyword ExtractionThe keywords extraction method will help to check the presence of the mostimportant keywords in the input text,as shown below.Automatic keywordextraction is useful for parsing the text and denoting which parts of a sentence,or separate words are the key ones.Further,we can compare how manykeywords are met in a target text like the one shown in the example below.Keyword extraction model output5.Text SummarizationIn addition to all of the above mentioned methods,you can also consider usingtext summarization to work with large texts.Large bodies of descriptions mayoften appear on content platforms that want to enlist as many product featuresand as much information as possible.While its not the case for professionalnetworks,summarization helps to produce shorter versions of the text whilepreserving key information points.All of the above mentioned methods can be,or rather should,be combined intoa single NLP pipeline.The complexity of NLP processing will depend on thedomain area,goals,and features of the existing system.However,the best8matching results can be provided to the user once a recommender system iscapable of working with different types of content,different text length and soon.After converting the source text into a set of numeric features,we have to buildan AI model.Here we can use three types of models:lassification model that will predict two possible values:match/no match(1/0).Based on the probability of the model prediction,you can choose the mostappropriate matching option.Regression model to predict the coefficient of similarity of two candidates.9Graph-based solution,where the features obtained from the text will be used asadditional graph vertices,and matching will be performed by the number ofmatching vertices,as shown below.10Where to Apply Recommendations UsingNLPDespite the fact NLP can be superior to standard search capabilities because itallows the user to type their request in a free form,it doesnt mean we cantcombine it with conventional recommendation systems.NLP serves a specificpurpose here,and does require setting up an infrastructure for data collection,aserver for model operation,and other elements.So this approach fits perfectly in the case that you already have data collected,or there is a relatively small amount of content that you want to recommend thisway.This requires a solid data science expertise to analyze the requirements ofyour existing infrastructure,prepare data,and implement NLP methods.As an alternative,we can apply GPT models that have become popular lately.ChatGPT,or GPT 3 represent conversational bot models that can be integratedvia API and wont require a huge data collection hassle.This is because they canalready recognize human speech in context and provide recommendationswithout applying any filters.Our AI engineers are always looking for challengingtasks and projects that require using advanced machine learning techniques.Sofeel free to discuss your project vision with us.11
ECONOMIC IMPACT OF EXHIBITIONS IN THAILAND2019W W W.O X F O R D E C O N O M I C S.C O MPrepared for:Thai Exhibition Association2TABLE OF CONTENTSTABLE OF CONTENTSExecutive summary3Section 1:Exhibitions volume and direct spending8Section 2:Economic impact of exhibitions12Section 3:Methods16EXECUTIVE SUMMARY4To quantify the economic significance of the global exhibition industry,Oxford Economics has prepared a comprehensive model of global exhibitions activity that references recent studies on their economic significance.The results were part of the study,“Global Economic Impact of Exhibitions”,which was released in April 2019 and showed the scope of the global exhibition sector in terms of direct spending and jobs,as well as the total impacts of exhibitions in the broader economy.As part of this analysis,Oxford Economics took the following steps:Analysed existing data on exhibitions maintained by UFI,including net square meters sold,visitors,and exhibitors;Analysed historic data on the exhibition industry maintained by UFI and referenced published studies on exhibition impacts in 13 countries,as well as third-party industry data across more than 180 countries;Developed an econometric model of the relationship between economic and travel-industry data sets and exhibition industry impacts to estimate exhibition activity in countries in which the exhibition industry has not been previously quantified;andCombined the results of existing studies and modeled relationships to prepare global estimates.Previous country-level analyses of exhibitions activity accounted for more than three-quarters of the estimated global total,providing a solid research foundation.Executive SummaryBased on the country-level modeling in the global economic impact analysis released in April 2019,Oxford Economics is compiling country profile reports on the impacts of the exhibition industry.This document presents key elements of the research and findings for the exhibition industry in Thailand.The report is organized in the following sections:Exhibition industry metrics and direct spending Economic impact analysisMethods1 12 23 34 45What qualifies as an exhibition?UFI follows the ISO 25639-1:2008(E/F)definitions which are also adopted here.For the purposes of this study,an exhibition,show,or fair is an event in which products,services,or information are displayed and disseminated.Exhibitions differ from“conferences”,“conventions”or“seminars”,or other business and consumer events.Exhibitions exclude flea markets and street markets.Exhibitions include:Trade exhibitions:exhibitions that promotes trade and commerce and are attended primarily by trade visitors.A trade exhibition can be opened to the public at specific times.Public exhibitions:exhibitions open primarily to general public visitors.A public exhibition is sometimes also known as a consumer show.What are the main components of economic impact?Direct impacts consist of the direct spending and jobs that are directly involved in planning and producing exhibitions,and for participants and exhibitors to travel to exhibitions,as well as other exhibition-related spending.Indirect impacts represent downstream supplier industry impacts,also referred to as supply chain impacts.For example,the facilities at which exhibitions occur require inputs such as energy and food ingredients.Also,many exhibition venues contract with specialised service providers,such as marketing,equipment upkeep,cleaning,technology support,accounting,and legal and financial services.These are examples of indirect impacts.Induced impacts occur as employees spend their wages and salaries in the broader economy.For example,as hotel employees spend money on rent,transportation,food and beverage,and entertainment.Impacts are expressed in terms of economic output,which includes all business sales,GDP(gross domestic product),which is defined as business sales less intermediate inputs,and jobs.Executive Summary6Direct impacts of exhibitions in Thailand(2019)UFI follows the ISO 25639-1:2008(E/F)definitions which are also adopted here.For the purposes of this study,an exhibition,show,or fair is an event in which products,services,or information are displayed and disseminated.Exhibitions differ from“conferences”,“conventions”or“seminars”,or other business and consumer events.Exhibitions exclude flea markets and street markets.Exhibitions include:Based on data provided by the Thai Exhibition Association(TEA),the Thailand exhibition industry rented more than 1.03 million net square meters(nsm)of exhibition space in 2019,including 0.51 million nsm for business-to-business exhibitions and 0.52 million nsm for business-to-consumer exhibitions.Direct spending(business sales):Exhibitions generated$0.87 billion of direct spending by visitors,exhibitors and additional exhibitions-related expenditures.Direct GDP(gross domestic product)and employment:Exhibitions supported more than 18,000 direct jobs in Thailand and generated$0.59 billion of direct GDP.Total impacts of exhibitions in Thailand(2019)After accounting for indirect and induced impacts,exhibitions in Thailand supported a total economic impact in 2019 of:$2.00 billion of total output(business sales)30,100 total jobs$1.28 billion of total GDP(representing 0.2%contribution to Thailands gross domestic product)Based on a total economic impact of$2.00 billion and a total of 0.25 million sqm of capacity in Thailand(as reported in UFIs World Map of Venues),total output per sqm of capacity amounted to approximately$7,900 in 2019.Executive Summary7Economic impacts of exhibitions in Thailand(2019)18,100Direct jobsJobs directly supported by Thailands exhibition industry$0.59 billionGross domestic product or value addedDirect GDP(value added)DIRECT IMPACTS(2019)$0.87 billionrepresenting spending to plan and produce exhibitions,exhibitions-related travel,and other direct spending,such as spending by visitors and exhibitorsDirect tourism spending$2.00 billionincluding direct,indirect,and induced outputTotal output(business sales)$1.28 billionincluding direct,indirect,and induced GDP impactsTotal GDP(value added)30,100Total jobsdirectly and indirectly supported by Thailand exhibitionsTOTAL IMPACTS(2019)$7,900 total impact per sqmof venue gross indoor exhibition spaceExecutive SummaryEXHIBITIONS VOLUME AND DIRECT SPENDING19This section summarizes the size and scope of exhibitions sector activity in Thailand.The primary measures presented are:Amount of exhibitions direct spendingSpace sold(net square meters)Number of direct jobsExhibition data on space sold was provided by TEA.Data on estimated exhibitions direct spending is based on econometric modeling by Oxford Economics.Exhibitions direct spending represents spending directly incurred in the planning and production of exhibitions,travel to exhibitions,and accompanying exhibitions-related activities.As a basic description this includes spending by participants to attend the exhibition(e.g.travel and registration),organiser-paid travel,spending by exhibitors(e.g.sponsorships,exhibit production,off-site events),spending by exhibition organisers and hosts,and certain other exhibitions-related spending.Overview of Exhibitions Volume and Direct SpendingExhibitions direct spending provides the clearest measure of the economic significance of exhibitions because it captures the full scope of services and goods directly provided by a range of industries.For this reason,much of our summary analysis focuses on exhibitions direct spending.10In 2019,the exhibitions industry in Thailand sold 1.03 million net square meters,including 0.51 million net square meters for business-to-business exhibitions and 0.52 million net square meters for business-to-consumer exhibitions.Exhibitions generated$0.87 billion of direct spending by visitors,exhibitors and additional exhibitions-related expenditure.Summary of Thailands exhibitions activity,2019Source:Thai Exhibition Association,UFI,and Oxford Economics(2022)Exhibitions generated$0.87 billion of direct spending and sold 1.03 million net square meters in 2019.Exhibitions Summary DataThailland2019Direct spending(billions)$0.87Space sold(nsm millions)1.03Business-to-business exhibitions0.51Business-to-consumer exhibitions0.52Capacity(sqm millions)0.25 11Exhibitions in Thailand generated$0.87 billion of direct spending in 2019.Based on a total of 252,523 square meters of venue capacity measured in terms of gross indoor exhibition space(as reported in UFIs World Map of Venues),direct spending per square meter of venue capacity amounted to approximately$3,445Direct spending metrics,2019Source:Oxford Economics(2022)Exhibitions generated approximately$3,445 in direct spending per square meter of venue capacity in Thailand in 2019.Exhibitions Summary DataThailland2019Direct spending per square metre of capacity$3,420$3,445ECONOMIC IMPACTOF EXHIBITIONS213Our analysis of exhibitions direct spending served as an input for the economic impact model we used to estimate exhibitions-sector direct employment and labor income,and the downstream impacts of the sector.This model is also referred to as an input-output(I-O)model.Components of economic impact analysisThere are three main components of a sectors overall economic impact:1.Direct impacts consist of the direct spending and jobs that are involved in planning and producing exhibitions,and for participants to travel to exhibitions,as well as other exhibitions-related spending.Given the characteristics of the exhibitions sector,much of this direct activity occurs across a variety of sectors.For example,the production of an exhibition frequently involves employees onsite at a hotel or other venue,including banquet staff as well as audio-visual/staging and technical staff,and other third-party contracted service providers,such as entertainment/production services,dcor,speakers and trainers,advertising and promotion.These employees all represent direct jobs supported by the exhibitions sector.Meanwhile,participants travel to the exhibition,and accommodation during the event,supports direct spending and jobs across a range of service providers in the travel sector.Though this spending is occurring across businesses in a range of industry sectors,it all represents activity that is supported by exhibitions direct spending,and is part of the exhibition sectors direct impacts.Economic Impact Approach2.Indirect impacts represent downstream supplier industry impacts,also referred to as supply chain impacts.For example,the facilities at which exhibitions occur require inputs such as energy and food ingredients.Also,many exhibition venues contract with specialized service providers,such as marketing,equipment upkeep,cleaning,technology support,accounting,and legal and financial services.These are examples of indirect impacts.3.Induced impacts occur as employees spend their wages and salaries in the broader economy.For example,as hotel employees spend money on rent,transportation,food and beverage,and entertainment.Indirect and induced impacts may also be referred to collectively as indirect effects.To conduct the impact analysis,we used country-level economic impact multipliers from the existing exhibitions impact studies.For countries where exhibitions impact multipliers were either unavailable or appeared inconsistent with reference data,we used travel and tourism multipliers maintained by WTTC(World Travel and Tourism Council)and Oxford Economics.WTTC multipliers are based on input-output tables for each country and were sourced from either the OECD(Organisation for Economic Co-operation and Development),or when not available,national statistical offices.From the input-output tables,multiplier matrices were developed for each economy,detailing the flow of spending in an economy that occurs as a consequence of spending in a given industry.1 12 23 314Overall,the total economic impact of the exhibition industry in Thailand in 2019 is summarized as follows:$2.00 billion of economic output(business sales)$1.28 billion in total GDP contribution;andNearly 30,100 total jobs.These totals represent the combination of direct impacts within the exhibitions sector(e.g.$0.87 billion of exhibitions direct spending,and 18,100 direct jobs),plus the estimated indirect and induced effects.The resulting output multiplier for the exhibitions sector in Thailand is 2.31,implying that each$1.00 in direct exhibition spending generates an additional$1.31 in indirect and induced expenditures in Thailands economy.Economic impacts of Thailand exhibitions,2019Source:Oxford Economics(2022)Thailands exhibitions sector supported$2.00 billion of total output(business sales)in 2019.Economic ImpactsAllExhibitionsDirect exhibitions sector impactOutput(exhibitions direct spending)($billions)$0.87Employment18,100GDP($billions)$0.59Total exhibitions sector impactOutput($billions)$2.00Employment30,100GDP($billions)$1.2815Exhibitions generated$2.00 billion of total output(total business sales)in 2019.Based on a total of 252,523 square meters of venue capacity measured in terms of gross indoor exhibition space(as reported in UFIs World Map of Venues),total output per square meter of venue capacity amounted to approximately$7,900.Economic total output metrics,2019Source:Oxford Economics(2022)Exhibitions generated approximately$7,900 in total output per square meter of capacity in 2019.Economic ImpactsThailland2019Total output per square meter of capacity$7,900METHODS317Our approach to the exhibitions sector research included the following steps:Analysed existing data on exhibitions maintained by UFI,including net square meters sold,visitors,and exhibitors;Analysed existing studies on exhibitions impacts in 13 countries,as well as third-party industry data;Developed an econometric model of the relationship between economic and travel-industry data sets and exhibitions industry impacts to estimate exhibitions activity in countries in which the exhibitions industry has not been previously quantified;andCombined the results of existing studies and modeled relationships to prepare global estimates.Overall,we found that approximately three-quarters of global exhibitions direct spending was already covered by the country-level studies we analysed.As a result,while we applied the econometric model to prepare estimates for countries that have not yet been studied at the country level,findings for many of the largest and most important countries were based on the results of existing studies.This provided a solid research foundation.In this global analysis,we have relied broadly on the headline measures of exhibitions activity and participants as reported by each study.In situations in which we saw clear differences such as definition differences or outliers in specific results,we excluded specific country-level report metrics from the estimation process.Our discussion of research methods in this section follows the same order.First,we outline the research process,then we highlight the statistical modeling,and last,the conceptual framework.Figures in this report are based on unrounded estimates.Due to rounding,the totals in certain tables may differ slightly from the sum of the individual rows or columns.The analysis was conducted in nominal Euros and US dollars based on market exchange rates.Model outputs were analyzed in US dollars and converted to Euros using the period exchange rate for calendar year 2019,which was 1.12 US Dollars for each Euro.We integrated the results of existing studies and exhibitions data maintained by UFI to model global exhibitions volume and direct spending.Three-quarters of global exhibitions direct spending was covered by country-level studies.Research Approach18We compiled existing studies on the impacts of exhibitions in global markets.A comprehensive list of the 13 studies included in the analysis is outlined in the table below.The research team collected the following metrics for each country:Direct spending Direct value-added(GDP)Direct jobsTotal participantsIn addition to existing impact studies,the research process also encompassed third-party industry data from the following sources:UFIGlobal Business Travel AssociationCountryStudy year Report titleSourcesAustralia2015The Value of Business Events to AustraliaErnst&Young,Business Events Council of AustraliaCanada2014The Economic Contribution of Business Events in CanadaMPI Foundation Canada,Maritz Research,The Conference Board of CanadaDenmark2012Economic Contribution of Meeting Activity in DenmarkVisit DenmarkFrance2011tude sur les retombes conomiques delactivit des salons en France et en le-de-FranceAtout France,CCI de Paris IDF,Comit des Expositions de Paris,DGE(Ministre de lEconomie),France Congrs et Evnements,UNIMEV-OJS,ViparisGermany2018Overall Economic Relevance of Exhibitions in GermanyAssociation of the German Trade Fair Industry(AUMA)Guatemala2017Medicion de la relevancia economica de la industria de turismo de reuniones en GuatemalaSTA Consultores,Gobierno de la Republica de Guatemala,INGUAT(Instituto Guatemalteco de Turismo)India2017Indian Exhibition Industry ReportIndian Exhibition Industry AssociationMexico2016The Economic Relevance of Meetings in MexicoSECTUR(Secretaria de Turismo),Consejo do Promocion Turistica de Mexico,STA ConsultoresPeru2014Peru,Destination for Meetings TourismPROMPERUPoland2015The Economic Impact of Polands Meetings IndustryPoland Convention Bureau,Polka Organizacja Turystyczna,MPI Foundation,MPI Poland ChapterUnited Kingdom2012The Economic Impact of the UK Exhibitions IndustryFaceTime&Oxford EconomicsUnited Kingdom2013The Economic Impact of the UK Meeting&Event IndustryMPI FoundationUnited States2018Economic Significance of Meetings to the US EconomyOxford Economics,Events Industry CouncilExisting economic impact studiesExisting Impact Studies and Third-Party Data19The research team developed an econometric model of the relationship between economic and travel-industry data sets and exhibitions impacts to estimate exhibitions activity in countries in which the exhibitions industry has not been previously quantified.In addition to the data provided by UFI and collected from existing exhibitions impact studies,the table below summarizes the data we compiled to include in the modeling process.Data descriptionSourcesBusiness arrivalsUNWTO(World Tourism Organization),various national statistical agenciesInternational business inbound travel spendingIMF Balance of PaymentsDomestic business travel spendingOxford Economics/WTTC(World Travel and Tourism Council)GDP(gross domestic product)Haver Analytics,various national statistical agenciesTotal populationHaver Analytics,United Nations,various national statistical agenciesPer capita GDPHaver Analytics,United Nations,various national statistical agenciesServices industry gross outputVarious national statistical agencies,central banks,and ministries of financeWhole economy gross outputVarious national statistical agencies,central banks,and ministries of financeData inputs for econometric modelEconometric Model20The resulting model reflects the relationship between travel-industry measures,such as estimated domestic and international business travel spending at the country level(based on Oxford Economics analysis for the World Travel and Tourism Council),and exhibitions direct spending.Because studies of exhibitions activity in more developed countries tend to show higher levels of activity relative to business travel spending,GDP per capita was also used in the model.The resulting estimates show that exhibitions spending tends to be correlated with broad economic activity.For example,the correlation between exhibitions spending and economic activity as measured by GDP is shown in the accompanying chart.$0$10,000$20,000$30,000$40,000$50,000$60,000$70,000$0$5,000$10,000$15,000$20,000Exhibitions direct spending($millions)GDP($billions)Exhibitions direct spending and GDP by countryExhibitions direct spending and GDP by countrySource:Oxford Economics(2019)Econometric Model21After estimating direct exhibitions spending based on existing impact studies and the econometric model,the research team estimated additional economic impact metrics utilizing the sources listed in the table below.For example,we used economic data on gross output and value added for both the whole economy and the travel industry to estimate direct GDP impacts for each country.Economic impact metricEstimation method and sourceEconomic impact metricsDirect spending(direct output)Existing impact studiesEstimates from econometric modelNet space sold(square meters)Existing UFI dataTotal visitorsExisting UFI dataTotal exhibitorsExisting UFI dataDirect GDP(gross domestic product)impactEstimates of direct spending(direct output)Economic data on whole economy&services industry gross output from national statistical agenciesEconomic data on whole economy&services industry value-added from national statistical agenciesDirect jobsExisting impact studiesEstimates from econometric modelEconomic data on whole economy gross output from various national statistical agenciesTravel&tourism data&multipliers from Oxford Economics&WTTC(World Travel and Tourism Council)Total economic impact,GDP,and jobsExisting impact studiesTravel&tourism data&multipliers from Oxford Economics&WTTC(World Travel and Tourism Council)In addition,we used multipliers from existing impact studies and travel and tourism multipliers maintained by Oxford Economics and WTTC to estimate the total economic impact of exhibitions for each country.Economic Impact Metrics22Oxford Economics was founded in 1981 as a commercial venture with Oxford Universitys business college to provide economic forecasting and modelling to UK companies and financial institutions expanding abroad.Since then,we have become one of the worlds foremost independent global advisory firms,providing reports,forecasts and analytical tools on 200 countries,100 industrial sectors and over 3,000 cities.Headquartered in Oxford,England,with regional centres in London,New York,and Singapore,Oxford Economics has offices across the globe.We employ over 200 full-time people,including more than 130 professional economists,industry experts and business editorsone of the largest teams of macroeconomists and thought leadership specialists.About Oxford Economics
2023 Boston Consulting Group1The US can build a durable competitive advantage in clean technologies and generate significanteconomic benefits in the processcreating jobs,achieving national energy security and sustainabilitygoals,and catalyzing the global adoption of key green solutions.The opportunities and challengesdiffer from one set of technologies to the next,however,and they will require different approaches,according to Two Paths to US Competitiveness in Clean Technologies,a new BCG report which expandsupon a previous study into US competitiveness in clean tech.Both reports were commissioned byBreakthrough Energy and Third Way.How the US Can Gain an Edge in CleanTechMARCH 21,2023 By Karan Mistry,Thomas Baker,Tina Zuzek-Arden,and Nico deLunaREADING TIME:12 MIN 2023 Boston Consulting Group2Heres what our latest report found:Tax credits and other financial incentives in the Inflation Reduction Act(IRA)and the InfrastructureInvestment and Jobs Act(IIJA)have provided significant support for US investment in thesetechnologiesin some cases making domestically manufactured systems substantially cheaper thanimports.However,for the US to achieve strong market positions across all four technologies,policymakers andcompanies must build on this recent legislation.They should take targeted actions that support thevarying needs of these technologies,including tackling infrastructure bottlenecks,streamliningpermitting processes,and accelerating investment plans.The Market Opportunity for US PlayersOur analysis of these four technologies builds on our previous report,which examined the marketopportunity for US companies in six complementary technologies:electric vehicles,clean steel,low-carbon hydrogen,long-duration energy storage,direct air capture,and advanced nuclear smallmodular reactors.For each of the ten technologies,we examined the market opportunity available tothe US and its current competitive position at a value-chain level.This allowed us to identify specificareas where the US would benefit most from building a strong presence.Two mature clean technologiessolar photovoltaic(solar PV)and offshore windare key todecarbonizing energy systems worldwide.In the US,they will account for more than 40%of powergeneration by 2050,according to the International Energy Agency(IEA).Unfortunately,the US hasalready ceded leadership in these technologies to foreign companies in both the international anddomestic markets.Even so,a narrow path still exists for US players to recapture the domesticmarketstrengthening US energy security,boosting domestic manufacturing capabilities,andmaking supply chains more resilient.Geothermal energy and carbon capture,utilization,and storage(CCUS),in contrast,are emergingtechnologies with huge growth potential.Geothermal technology can be an important source ofclean,dispatchable power that can be used to balance supplies from variable renewable energysources.It can also enable the domestic production of critical minerals,such as lithium,andprovide zero-carbon heat for industrial processes.Meanwhile,CCUS is emerging as a vitalsolution for decarbonizing hard-to-abate sectors.The US is a global leader in these twotechnologies;still,it needs to take steps to unlock domestic deployment to ensure it stays aheadof foreign competition and both catalyzes and captures global demand.2023 Boston Consulting Group3We estimate that the global market for all ten technologies could total$130 to$140 trillion betweennow and 2050.Of this figure,the serviceable addressable market(SAM)for US companiesin otherwords,the cumulative market for these technologies domestically and in countries where US exportsare most feasiblecould be worth$100 to$110 trillion over the same time period.The tentechnologies could also avoid or capture about 30 gigatons per year of greenhouse gas emissions by2050,equivalent to nearly 60%of total annual emissions worldwide.(See Exhibit 1.)Our market projections are based on the IEAs Announced Pledges Scenario(APS),which assumesthat governments will meet their current emission reduction commitments in full and on time.Thisscenario is the most likely of three IEA emission reduction outlooks(the other two being stated policiesand net-zero emissions).Within the US,we estimate that the domestic market for US companies in solar PV,offshore wind,geothermal and CCUSthe focus of this reportcould be worth a combined$3 to$4 trillion betweennow and 2050 and create up to 800,000 new US jobs,roughly equal to the chemical manufacturingindustrys current US workforce.They could also generate$25 to$30 billion for the US in annualexport revenues in 2050,which is about the size of US grain exports in 2020.Because the opportunitiesand challenges of these four technologies differ,we have divided them into two separate groupings.2023 Boston Consulting Group4Solar PV and Offshore WindToday,foreign companies dominate global solar PV and offshore wind markets,including that of theUS.Over 85%of solar PV manufacturing capacity belongs to lower-cost competitors in China andSoutheast Asia;while in offshore wind,the European Union,the UK,and China are responsible forover 95%of manufacture and installations.The US,by comparison,imports around 90%of solarpanels and its domestic offshore wind capacity is negligible compared to Europe and China.(SeeExhibit 2.)Increased political will in the US and recent legislation are set to change that.Provisions in the IRA willmake domestically produced solar panels up to 30%to 40%cheaper than imported ones,reducing thecosts of generating solar energy and supporting a significant expansion in deployment.Similarly,IRAprovisions support the domestic manufacturing of offshore wind components and address supplychain bottlenecks through funding for port upgrades and installation vessels.These measures aredesigned to help the US achieve the Biden administrations goal of creating 30 gigawatts of offshorewind capacity by 2030,putting the US on par with leading countries.2023 Boston Consulting Group5By developing its own domestic capabilities in these two areas,the US can meet growing demand athome and serve a small number of nearby export markets.(As shown in Exhibit 1,we estimate thatthe proportion of the global market accessible to US players is 25%to 30%for solar PV and 20%to 25%for offshore wind,below other clean technologies.)To seize this opportunity,US players should start bytargeting those areas that offer the greatest potential.Areas to Prioritize for Solar PV.According to our analysis of the solar PV market,solarmanufacturing,polysilicon production,and project development should be priority areas for the US,based on the possible market size of these areas and the competitive advantages they offer.Areas to Prioritize for Offshore Wind.In offshore wind,we believe the US should prioritizecomponent manufacturing,engineering,procurement,and construction(EPC)and operations andmaintenance(O&M).Each area offers a sizeable market opportunity where the US can develop adurable competitive advantage.Solar PV Manufacturing.Building domestic manufacturing capabilities is essential if the US is toavoid disruption from shocks to highly concentrated overseas supply chains.It also gives the USan opportunity to regain a leadership position in intellectual property(IP)and technicalinnovation.Polysilicon Production.Chinese tariffs on US polysilicon exports have caused US companies tomothball plants,cutting the USs share of global production capacity to just 5%.As the US createsits own manufacturing capabilities in solar PV,domestic demand for polysilicon will grow rapidly,enabling players to restart plants,add new capacity,and create resilient domestic supply chainsfor key inputs.Project Development.Owing to supportive policies and the USs favorable natural conditions,domestic developers have built significant experience in utility-scale solar projects and controlabout 75%of the domestic market.US developers can use that expertise to develop projects infast-growing overseas markets.Component Manufacturing.The US has no plants making offshore wind components todaybecause of high upfront capital costs.Despite this,the expense of importing monopiles(foundations)and similar large components incentivizes the US to produce componentsdomestically and potentially export to regional markets.Further,new floating turbine technologygives the US an opportunity to gain a technical leadership position in a nascent area withsignificant domestic and global potential.EPC.The USs significant experience in offshore oil and gas projects provides it with transferrableskills for building wind turbines for domestic developers and players in nearby markets.2023 Boston Consulting Group6Key Steps for Building Competitive Advantage.IRA and IIJA incentives help to tackle thesignificant cost issues that have prevented US companies from competing effectively against foreigncompetitors in solar PV and offshore wind markets.But policymakers and companies need to addressstructural challenges to maximize the potential benefit from these incentives and improve long-termcompetitiveness.Here are our top measures for urgent action in these markets:Geothermal Energy and CCUSThe US is currently a global leader in geothermal energy and CCUS.While global deployment of thesetwo solutions is limited today,technical innovations,cost reductions,and favorable policies are likely toaccelerate the use of both technologies.The US can build on the impetus created by IRA and IIJAlegislation,using techniques from the domestic oil and gas industry and its own technological prowess,to strengthen its leadership position in geothermal energy and CCUS,catalyze demand,and captureexport revenues.Geothermal energy stands at an inflection point,with new technical developments set to transform itfrom a niche to a central decarbonization solution.As well as providing clean heat and power,geothermal wells could be an important source of lithium and other valuable minerals,creatingadditional opportunities for US players.However,the US will need to invest in new geothermalapproaches to maintain its lead over competitors in East and Southeast Asia.O&M.Access to skilled localized labor and IRA support for constructing specialized equipmentprovide US O&M players with an advantage in delivering traditional services domestically.But bydeveloping automated solutions and advanced soware applications,they could make O&Mmore cost effective and capture additional export sales.Offset high domestic manufacturing costs.By rapidly capturing economies of scale,byinnovating,and by increasing automation in legacy manufacturing processes,companies can helpoffset the USs high energy and labor costs.Tackle shortages of skilled labor and expertise.Both companies and policymakers canimprove the availability of skilled labor by developing workforce training programs,introducingsupportive immigration policies,and retraining workers who have relevant traditional skill sets.Improve transmission interconnection and planning processes.To enable deployment,newsolar PV and offshore wind farms need to be connected to the grid in a timely manner;sufficientgrid capacity is required,and the cost of infrastructure updates must be allocated fairly andtransparently.To achieve these goals,regulators must urgently reform connection-relatedprocesses,including cost allocation,and streamline permitting for electricity transmission.2023 Boston Consulting Group7The US faces similar challenges in CCUS.Domestic deployment in China and other large economies isexpected to overtake that of the US unless it builds on its first-mover advantage by investing in next-generation capture techniques and strengthening access to foreign markets.(See Exhibit 3.)Areas to Prioritize for Geothermal Energy.According to our analysis,project development,EPC,and advanced equipment manufacturing are priority areas for the US to build a durable competitiveadvantage in geothermal energy.Project Development.Using the transferable expertise of its domestic oil and gas players,theUS can build a durable,defendable competitive advantage in project development,the largestvalue chain segment by potential market value and the one with the most technical complexity.EPC.The US is well positioned to be a global leader in EPC because its players are experienced atdelivering customized projects that meet specific geological and technological requirements.Advanced Equipment Manufacturing.As global demand shis from mature to emergingtechniques needed by developers to drill deeper,tap new kinds of wells,and extract minerals,USplayers can use their strong R&D capabilities and IP to secure a leadership manufacturingposition at home and abroad.2023 Boston Consulting Group8Areas to Prioritize for CCUS.Weve identified EPC,project development,and equipment andchemical manufacturing as priority areas for the US to build a durable competitive advantage indomestic and export markets for CCUS.Key Steps for Building Competitive Advantage.Recent legislation makes many more CCUSprojects commercially viable in the near term.It also marks a significant and positive shi in howpolicy makers treat geothermal energy.However,additional steps are needed in several areas toprevent other countries from seizing the USs position as global leader.Here are key areas for urgentaction:The Importance of EnablersEPC.Players in the US can build a significant competitive advantage because of their ability todeliver the high levels of quality and reliability needed when deploying CCUS with refineries andpower plants,as well as when building large-scale CCUS-related infrastructure such as CO2pipelines and storage.Project Development.Due to the complexity of managing CCUS projects,there is no onebusiness model for developers today.This enables US players to become market leaders bymoving first,creating a track record of success,and building relationships across the value chain.Manufacturing.The high costs and energy usage currently required to make solvents andsorbents for capturing CO2 emissions give the US an opportunity to use its strong R&Dcapabilities to create cheaper solutions and win market share.Commercialize and demonstrate innovations.Policymakers should initiate and funddemonstration projects and commercialization initiatives for new game-changing techniques,such as enhanced geothermal systems.Such measures will help improve project economics andencourage faster adoption.Share geological data.By sharing information about subsurface formations betweengovernment agencies,geothermal companies,and oil and gas players,the US can identify sitesfor geothermal development and CCUS storage more effectively.Reduce regulatory uncertainty.Complex issues relating to subsurface liabilities and ownershipof the pore space in geological formations threaten to increase risks and add delays to CCUSprojects.Policymakers can help solve these problems by establishing a single agency for resolvingdisputes,setting liability caps,and creating rules that govern pore-space ownership.2023 Boston Consulting Group9In addition to the technology-specific actions examined above,several enablers will be importantacross all four technologies to accelerate deployment,drive down costs,and permit US players tobenefit from the lessons learned during development.On the demand side,these include actions thatboost demand for green technologies,either through incentives that reduce their cost or disincentivesthat raise the cost of greenhouse-gas-emitting alternatives.As policymakers address how IRA and IIJAprovisions will work in practice,we expect to see greater clarity on the use of both these measuresforexample,through more details on which players qualify for various solar-PV or offshore-wind taxincentives.On the supply side,the enablers include actions that allow US players to boost competitiveness bybuilding economies of scale.By streamlining burdensome permitting processes,for example,policymakers can facilitate the development of CCUS hubs,which allow permitters to reduce theexpense of deployment by sharing infrastructure,and geothermal wells on greenfield sites.Similarly,through targeted research,investing in demonstration and commercialization initiatives,and byrebuilding domestic manufacturing capabilities,the US can maintain its global leadership position inIP and innovationanother important supply-side enabler(See Exhibit 4.)The market opportunities available for the US in solar PV,offshore wind,geothermal energy,andCCUS differ significantly.US players have a chance to reclaim the domestic market in solar PV andoffshore wind,while in geothermal and CCUS technologies they can maintain a leadership position notjust at home but globally.The incentives included in recent legislation are an essential first step toboost US competitiveness in all four.But policymakers and companies need to go further.They need to 2023 Boston Consulting Group10focus on those areas of the value chain with the greatest potential and use a mix of targeted actionsand more general enablers to fully unlock the opportunities ahead.Click here to see Third Ways materials on this effort,along with the complete appendix for the report.AuthorsKaran MistryPARTNERLos AngelesThomas BakerMANAGING DIRECTOR&PARTNERSan Francisco-Bay AreaTina Zuzek-ArdenMANAGING DIRECTOR&PARTNERWashington,DCNico deLunaASSOCIATEDallasABOUT BOSTON CONSULTING GROUPBoston Consulting Group partners with leaders in business and society to tackle their most importantchallenges and capture their greatest opportunities.BCG was the pioneer in business strategy when it wasfounded in 1963.Today,we work closely with clients to embrace a transformational approach aimed atbenefiting all stakeholdersempowering organizations to grow,build sustainable competitive advantage,READ THE FULL REPORT 2023 Boston Consulting Group11and drive positive societal impact.Our diverse,global teams bring deep industry and functional expertise and a range of perspectives thatquestion the status quo and spark change.BCG delivers solutions through leading-edge managementconsulting,technology and design,and corporate and digital ventures.We work in a uniquely collaborativemodel across the firm and throughout all levels of the client organization,fueled by the goal of helping ourclients thrive and enabling them to make the world a better place.Boston Consulting Group 2023.All rights reserved.For information or permission to reprint,please contact BCG at .To find the latestBCG content and register to receive e-alerts on this topic or others,please visit .Follow BostonConsulting Group on Facebook and Twitter.
Asset Management PerspectivesThe evolving role of personalization Much has changed since we last surveyed advisors and investors.The toll taken by market and geopolitical uncertainties are reflected in our latest results.In the face of turbulence many key trends persist.The financial advisors role is more important than ever.A shift to more holistic advice continues.Amidst all of this,one key trend remains clear:Advisors and investors expect more personalized investment experiences.This report quantifies the attitudinal impact of rising interest rates and volatile markets.It explores the ongoing evolution of products,insights and data-driven engagement.And it uncovers ways in which asset managers can better support advisors and their clients.TABLE OF CONTENTS A challenging time 3Financial advisors:A critical resource 4Key actions for asset managers 5 Products 6 Engagement 9 Data-driven personalization 10Asset Managers:Adding value 112|BROADRIDGEABOUT THE STUDIES This eBook includes findings from three research efforts:The Broadridge Financial Advisor Survey This survey was conducted in September 2022.Advisors were invited to participate via email and the survey was administered online.400 financial advisors with$10M AUM and a minimum of 20%of AUM in ETFs and/or mutual funds participated.Conducted by independent marketing research firm 8 Acre Perspective.The Broadridge Investor Survey Conducted during August 2022.Polled 1,000 U.S.investors through an online quantitative survey.Investors met the following screener criteria:Age 25 ,primary or shared decision-maker for household decisions about money,$25K in household income and$10K in investable assets(not including workplace plans),and they invest outside the workplace (annuities,ETFs,individual securities and/or mutual funds).Conducted by independent marketing research firm 8 Acre Perspective.The Broadridge IMEA All-Council Members Survey Conducted October 2022 among 42 council members of the Investment Management Educational Alliance(IMEA).3636F4618)29434737939D4417c63%2512X58#23 20f66!21138784w771316#23%3|BROADRIDGE|Table of Contents More than a third of investors report their financial situation is worse than 12 months prior,twice as many as in November and May 2021.Their outlook for the coming 12 months worsened as well.Investor confidence continues to decline.INVESTOR FINANCIAL SITUATION VS.12 MONTHS PRIOR(%of investors)INVESTOR OUTLOOK FOR 12 MONTHS FROM NOW (%of investors)Financial advisors(FAs)are feeling the brunt of the downturn as well,perceiving unrealistic client expectations and fee compression as two of the greatest threats to their businesses.KEY THREATS TO ADVISORS BUSINESSES(%of advisors;multiple responses allowed)Fee compressionUnrealistic client expectations4444G47%n Much/Somewhat better n About the same n Somewhat/Much worsen Very/Somewhat positive n Neutral n Somewhat/Very negativeINVESTOR CONFIDENCE IN ABILITY TO ACHIEVE FINANCIAL GOALS (%of investors)n Very/Somewhat confident n Not too/Not at all confidentA CHALLENGING TIME May 2021 Nov 2021 Aug 2022 May 2021 Nov 2021 Aug 2022 May 2021 Nov 2021 Aug 20224|BROADRIDGE|Table of Contents Nearly two-thirds of investors work with a financial advisor.While fewer of these investors report being“very satisfied”with their advisors than in prior surveys (not a surprise in a down market),nearly all of them report some level of satisfaction.FINANCIAL ADVISORS REMAIN A CRITICAL RESOURCE During this challenging period,there has been an increase in the percentage of investors who express a desire to start an advisor relationship.Likelihood is highest among Millennials and Gen X.Why turn to an advisor?Top reasons advisor-less investors would use an FA in the next two years:a chance for better investment performance(52%)and peace of mind/reducing financial stress(41%).SATISFACTION WITH FINANCIAL ADVISOR (%of investors)May 2021 Nov 2021 Aug 2022Total satisfiedVery satisfied7070e65W57969795%LIKELIHOOD TO USE AN FA IN NEXT TWO YEARS OVERALL (%of investors very/somewhat likely to use)May 2021 Nov 2021 Aug 20224343D44H48%Millennials Gen X Boomer/Silent n Very/Somewhat likelyn Not too/Not at all likely6060h6873740232c63%LIKELIHOOD TO USE AN FA IN NEXT TWO YEARS BY GENERATION (%of investors)HOLISTIC FINANCIAL PLANS MAKE A DIFFERENCEInvestors who have a formal,written financial plan are significantly more likely to be“very satisfied”with their advisors.They also have a higher degree of confidence in their ability to achieve their financial goals.Asset managers who provide products,insights and materials to support robust,personalized planning can help advisors boost investor retention and practice growth.n Formal Plan n No Plan PERCENT OF INVESTORS WHO ARE VERY CONFIDENT4410PERCENT OF INVESTORS WHO ARE VERY SATISFIED 6753n Formal Plan n No Plan“Advice is still a growth business.”Matthew Schiffman Principal,Distribution Insight Broadridge Financial SolutionsBase:Does not work with a financial advisorBase:Does not work with a financial advisor5|BROADRIDGE|Table of Contents To effectively support FAs and their clients,personalization is key.Asset managers can strengthen their advisor relationships by addressing individual needs in a variety of ways.Leaders in the asset manager community see new delivery vehicles and data-driven distribution as the largest opportunities to compete through 2027.They cite greater personalization as the most disruptive trend over the same period.A diversified product set The right digital/in-person balanceData-driven engagementMOST DISRUPTIVE TRENDS IN U.S.RETAIL ASSET MANAGEMENT THROUGH 2027(%of respondents)PersonalizationPrivate markets 434340W57%LARGEST OPPORTUNITIES TO COMPETE IN U.S.RETAIL ASSET MANAGEMENT THROUGH 2027(%of respondents)New delivery vehiclesData-driven distribution 5555W57%KEY ACTIONS ASSET MANAGERS MUST TAKE 8%6 8%8%6!6%OtherActive semi-transparent or non-transparent ETFsIndex mutual fundsIndividual securitiesPassive ETFsActively managed mutual funds6|BROADRIDGE|Table of Contents Faced with fee pressure and investors desire for more holistic advice,advisors are expanding their solution sets.Expanding product set for a more holistic approachSMAs and model portfolios continue to gain traction Usage of SMAs and models is expected to continue to grow as FAs increasingly outsource investment management,shifting their focus to client engagement and acquisition.SMAs (%of advisors using)Q3 2022 Q3 2024 expected6969r72%MODELS OUTSOURCED (%of advisors using)Q3 2022 Q3 2024 expected6565i69%Even faced with the market declines of the last 12 months,advisors report that model portfolios are meeting/exceeding expectations.ETFs prove their staying power These low-cost,tax-efficient building blocks continue to capture share from mutual funds.Their growth has been propelled largely by their use in model portfolios.AVERAGE PERCENT OF AUM BY PRODUCT Q1 2022 Q3 2022ALLOCATION CHANGE EXPECTED OVER THE NEXT TWO YEARS(%of advisors planning to increase or decrease usage as of Q3 2022)Separately managed accountsPassive ETFs Active semi-transparent/non-transparent ETFsIndividual securities Actively managed mutual fundsIndex mutual funds 5%9%92 % 35% 23% 18% 1%4%1%Net differenceIncreaseDecrease1MODEL PORTFOLIO PERFORMANCE DURING MARKET DECLINES OF THE PAST 12 MONTHSFell short of expectations1919%Exceeded expectations1818%Met expectations6262se:Use model portfolios Numbers may not add to 100%due to rounding.7|BROADRIDGE|Table of Contents It is still early days for direct indexing:Advisors report a low degree of familiarity and use.However,specialized investor interests and access to fractional shares may make direct indexing increasingly attractive.Whether or not asset managers choose to offer direct indexing,they can add value by providing the insight and education required.Seeking diversification,more FAs are turning to alternative investments including private funds.Usage is expected to rise further over the next two years.Stay about the same4646%USE PRIVATE FUNDS/ALTS IN NEXT TWO YEARS (%of advisors)Increase5252crease2 2Q51V56Y59g67%USE PRIVATE FUNDS/ALTS (%of advisors)Q1 2021 Q3 2021 Q1 2022 Q3 2022A fraction(15%)of advisors is dissatisfied with private fund/alternative investments products and resources.“Not enough options”is the most cited reason for their dissatisfaction.1515VISOR AWARENESS AND FAMILIARITY WITH DIRECT/CUSTOM INDEXING (%of advisors)152%Not awareAware but not familiarSomewhat familiarVery familiar Q3 2022HAVE USED/CONSIDERED USING DIRECT/CUSTOM INDEXING WITH CLIENTS (%of advisors)32E%7%I have not used it and am not considering itI have not used it but am considering itI am not currently using it but have in the pastI am currently using it Q3 2022Direct indexing:An untapped opportunity?Alternative investments on the riseBase:Advisors who are aware of direct indexingBase:Currently use private funds/alts8|BROADRIDGE|Table of Contents ESG represents a small share of investments.However,awareness,familiarity and appeal of ESG are up considerably since November 2021.This is another opportunity for personalized discussion and product selection according to investor ESG preferences.MAY 2021 NOV 2021 AUG 2022ESG APPEAL TRENDS (%of investors)Net appealingVery appealing15151419b62b62p70%While ESG appeals to a higher percentage of Millennials and Gen X,nearly two-thirds of Boomers now also report it to be appealing.ESG is a topic that matters to financial advisors clients.One-third of investors report discussing ESG with an FA while an additional 27%would like to do so.DISCUSSED RESPONSIBLE/ESG INVESTING WITH FINANCIAL ADVISOR (%of investors)2222%No and aware of ESG4545%Yes,have discussed ESG3333%No and not aware of ESGYes6161%No3939%INTERESTED IN FINANCIAL ADVISOR DISCUSSING RESPONSIBLE/ESG INVESTING (%of investors)“E”MATTERS MOST Advisors and investors are most focused on the“E”(environmental)aspect of ESG.ESG:An important conversationBase:Aware of ESG and have not discussed ESG with financial advisorBase:Has a financial advisor29|BROADRIDGE|Table of Contents Comfort with digital engagement and technologies accelerated during the pandemic.Many advisors are now optimistic about the return of in-person interactions and industry events,yet envision an enduring place for virtual engagement.Asset managers must incorporate this new hybrid engagement reality into their distribution strategy.Engagement:The new hybrid reality More specifically,FAs prefer a mix of in-person and virtual engagement with external wholesalers.Three in 10 want wholesaler engagement to be mostly or completely virtual.Wholesalers will benefit from tailoring their approach to advisor preferences,perfecting the different skillsets required for more effective virtual interaction.EXPECTATIONS FOR FORMAL CLIENT MEETINGS A YEAR FROM NOW (%of advisors)PERCENT OF ADVISORS GOING BACK TO IN-PERSON INDUSTRY CONFERENCES/EVENTS IN NEXT 12 MONTHS(%Attending industry conferences/events pre-pandemic)Yes6868%Not sure2626%6 6%NoMostly virtual161640%Mostly in-personEqual combination of virtual and in-person4444%HOW ADVISORS IDEALLY WANT TO ENGAGE WITH EXTERNAL WHOLESALERS(%of advisors)All virtualMostly virtualEqual mix of in-person and virtualMostly in-personAll in-person 7B%4se:Interact with external wholesalers10|BROADRIDGE|Table of Contents Asset managers have ample data with which to gain a competitive edge:scoring prospects,suggesting best next actions and optimizing client journeys.The challenge lies in putting that data to work.Among asset managers,advisor segmentation is the most frequently reported data and analytics priority.With the right data capabilities,asset managers can drive personalized advisor experiences that directly address product usage,channel preferences,demographics and more.Data-driven personalization 3DISTRIBUTION DATA&ANALYTICS PRIORITIES THROUGH 2024(%of respondents:Each respondent permitted two answers)4343%Marketing engagement3333ta architecture5050visor segmentation2929%Management dashboards11|BROADRIDGE|Table of Contents EXPLORE THE BROADRIDGE DISTRIBUTION INSIGHT PLATFORMSee the whole picture.Home to analytics,data and insights covering retail and institutional distribution across every geography and every vantage point.To gain an edge with financial advisors,asset managers must provide tools for effective,personalized interaction.Use timely,highly accurate data for:Developing the right educational content.Charting key trends.Selecting the right products.Developing personalized financial plans.The demand for advice is alive and welland increasingly personal.Asset managers who effectively embrace this trend will forge more powerful relationships with their advisor clients.For more insights,contact Matthew.SchiffmanB or visit us online Leverage technologies and education that:Bring accuracy,efficiency and relevance to engagement.Attract and retain clients.Exceed investor expectations.ASSET MANAGERS:ADDING VALUE“Its no longer a one-size-fits-all world.Asset managers who can flex to delivering personalized solutions and interactions stand to gain more ground going forward.”Andrew Guillette,VP,Global Insights,BroadridgeREGISTER FOR FREE 2022 Broadridge Financial Solutions,Inc.,Broadridge and the Broadridgelogo are registered trademarks of Broadridge Financial Solutions,Inc.AM_00547_EB_22Broadridge Financial Solutions(NYSE:BR),a global Fintech leader with$5 billion in revenues,provides the critical infrastructure that powers investing,corporate governance,and communications to enable better financial lives.We deliver technology-driven solutions that drive digital transformation for banks,broker-dealers,asset and wealth managers and public companies.Broadridges infrastructure serves as a global communications hub enabling corporate governance by linking thousands of public companies and mutual funds to tens of millions of individual and institutional investors around the world.Our technology and operations platforms underpin the daily trading of more than U.S.$9 trillion of equities,fixed income and other securities globally.BTo scan,simply open the camera app on your mobile device and point the camera at the QR code.
Global EconomicImpact of ExhibitionsProduced by20222022UFI Research:An OverviewGlobal Barometer Bi-annual report on industry developments.World Map of Venues Global report on venue capacity developments.Economic Impact Study Report on the value of exhibitions globally and regionally.United Nations Sustainable Development Goals Report on the economic,social&environmental impacts of a number of exhibition industry projects.Status of Sustainability Report on the status of sustainability in the exhibition industry,including results from surveys conducted by UFI research partner Explori.COVID Related Research Data,reports,and standards covering the exhibitions industry.Global Visitor and Exhibitor Insights Data driven research reports on visitor feedback and exhibitor expectations.Best Practices Compendiums Case studies of successful industry developments.Special Industry Topics A wide ranging selection of bespoke reports into specific industry topics.Euro Fair Statistics Annual list of certified data for Europe by country.The Trade Fair Industry in Asia Annual analysis of market developments for Asia/Pacific by country.The Exhibition Industry in Latin America The first comprehensive overview by UFI of the exhibition industry Latin America.The Exhibition Industry in MEA Overview of the exhibition market in the MEA region.GlobalReportsRegionalReportsTopicalReportsFocused reports on challenges and developments within the exhibition industry.Regular market overviews on UFIs chapter regions.Analysing the global exhibition industry with global comparisons.UFI Research Patron:Freeman is the worlds leading brand experience company.They help their clients design,plan,and deliver immersive experiences for their most important audiences.Through comprehensive solutions including strategy,creative,logistics,digital solutions,and event technology,Freeman helps increase engagement and drive business results.What makes them different is their collaborative culture,intuitive knowledge,global perspective,and personalized approach.UFI Research is available at www.ufi.org/research3Executive SummaryExhibitions Volume and Direct SpendingEconomic Impact of ExhibitionsMethodsCountry profilesUnited Kingdom(December 2019)Spain(June 2020)Thailand(June 2022)1 12 23 34 45 5TABLE OF CONTENTSExecutive Summary15This document presents key elements of the research and findings.It is organized in four sections:1.Exhibition industry metrics and direct spending 2.Economic impact analysis3.Methods4.Industry comparisonsIndividual country profile reports can be produced for UFI Member Associations and will be added as appendices to the global study.For more information,please contact Christian Druart,UFIs Research Manager(researchufi.org).OverviewTo quantify the economic significance of exhibitions globally,Oxford Economics has prepared a comprehensive model of global exhibitions activity that references recent studies on their economic significance.The results of this study show the scope of the global exhibition sector in terms of direct spending and jobs,as well as the total impacts of exhibitions in the broader economy.As part of this analysis,Oxford Economics took the following steps:Analysed existing data on exhibitions maintained by UFI,including net square meters sold,visitors,and exhibitors;Analysed historic data on the exhibition industry maintained by UFI and referenced published studies on exhibition impacts in 13 countries,as well as third-party industry data across more than 180 countries;Developed an econometric model of the relationship between economic and travel-industry data sets and exhibition industry impacts to estimate exhibition activity in countries in which the exhibition industry has not been previously quantified;andCombined the results of existing studies and modeled relationships to prepare global estimates.Previous country-level analyses of exhibitions activity accounted for more than three-quarters of the estimated global total,providing a solid research foundation.Executive summary6What are the main components of economic impact?Direct impacts consist of the direct spending and jobs that are directly involved in planning and producing exhibitions,and for participants and exhibitors to travel to exhibitions,as well as other exhibition-related spending.Indirect impacts represent downstream supplier industry impacts,also referred to as supply chain impacts.For example,the facilities at which exhibitions occur require inputs such as energy and food ingredients.Also,many exhibition venues contract with specialised service providers,such as marketing,equipment upkeep,cleaning,technology support,accounting,and legal and financial services.These are examples of indirect impacts.Induced impacts occur as employees spend their wages and salaries in the broader economy.For example,as hotel employees spend money on rent,transportation,food and beverage,and entertainment.Impacts are expressed in terms of economic output,which includes all business sales,GDP(gross domestic product),which is defined as business sales less intermediate inputs,and jobs.What qualifies as an exhibition?UFI follows the ISO 25639-1:2008(E/F)definitions which are also adopted here.For the purposes of this study,an exhibition,show,or fair is an event in which products,services,or information are displayed and disseminated.Exhibitions differ from“conference”,“conventions”or“seminars”,or other business and consumer events.Exhibitions exclude flea markets and street markets.Exhibitions include:Trade exhibitions:exhibitions that promotes trade and commerce and are attended primarily by trade visitors.A trade exhibition can be opened to the public at specific times.Public exhibitions:exhibitions open primarily to general public visitors.A public exhibition is sometimes also known as a consumer show.For more information about the methodology used for this study,please see page 27.Executive summary7Total impacts of global exhibitions(2019)After accounting for indirect and induced impacts,exhibitions supported a total global economic impact in 2019 of:298.7($334.5)billion of total output(business sales)3.4 million total jobs 179.3($200.7)billion of GDP(representing contribution to global gross domestic product)Based on a total economic impact of 298.7($334.5)billion and a global total of 39.65 million sqm of capacity(as reported in the UFI World Map of Exhibition Venues 2022),total output per sqm of capacity amounted to approximately 7,500($8,400)in 2019.Global exhibitions directly generated more output(business sales)than many large global sectors,including machine tools and medical&surgical equipment.The 179.3($200.7)billion of total GDP supported by the global exhibitions sector would rank the sector as the 55th largest economy globally,larger than the economies of countries such as Hungary,Kuwait,Sri Lanka,Greece,and Ecuador.Direct impacts of exhibitions(2019)Number of exhibitions,visitors&exhibitorsIn 2019,exhibitions directly involved nearly 353 million visitors and nearly five million exhibitors across more than 180 countries.Direct spending(business sales)Exhibitions generated more than 125.6($140.7)billion of direct spending by visitors,exhibitors and additional exhibitions-related expenditures.Direct GDP(gross domestic product)and employmentExhibitions supported 1.4 million direct jobs globally and generated 73.5($82.3)billion of direct GDP.Based on approximately 4.8 million exhibitors worldwide and 125.6($140.7)billion of direct spending,exhibitions generated approximately 26,400($29,600)in direct spending per exhibitor on a global basis.Based on its 73.5($82.3)billion direct GDP impact,the exhibitions sector would rank as the 71stlargest economy globallyExecutive summary8Executive summary353 million visitors353 million visitorsacross more than 180 countries(gross domestic product)74($82)billion in direct GDP74($82)billion in direct GDP126($141)billion in direct spending 126($141)billion in direct spending(business sales)(business sales)representing spending to plan and produce exhibitions,exhibitions-related travel,and other direct spending,such as spending by visitors and exhibitors1.4 million jobs1.4 million jobsdirectly supported by exhibitions globallyDirect Impactsincluding direct,indirect,and induced GDP impacts179($201)billion in total GDP179($201)billion in total GDP299($335)billion in total output 299($335)billion in total output(business sales)(business sales)including direct,indirect,and induced output3.4 million total jobs3.4 million total jobsdirectly and indirectly supported by global exhibitionsTotal ImpactsIndirect&Induced Impacts$62,900($70,400)of total outputper exhibiting company7,500 total impact per sqm($800 per sqf)of venue gross indoor exhibition spaceExhibitions Volume and Direct Spending210Definition of an exhibitionUFI follows the ISO 25639-1:2008(E/F)definitions which are also adopted here.For the purposes of this study,an exhibition,show,or fair is an event in which products,services,or information are displayed and disseminated.Exhibitions differ from“conference”,“conventions”or“seminars”,or other business and consumer events.Exhibitions exclude flea markets and street markets.Exhibitions include:Trade exhibitions:exhibitions that promotes trade and commerce and are attended primarily by trade visitors.A trade exhibition can be opened to the public at specific times.Public exhibitions:exhibitions open primarily to general public visitors.A public exhibition is sometimes also known as a consumer show.Regions of analysisExhibition data,estimates of direct spending,and overall impacts were analyzed at the regional and global levels.The map on the following page provides a breakdown of the regions included in the study:AfricaAsia/PacificCentral&South AmericaEuropeMiddle EastNorth AmericaThis section summarises the size and scope of exhibitions sector activity worldwide.The primary measures presented are:Amount of exhibitions direct spendingSpace sold(net square meters)Number of visitors and exhibitorsNumber of exhibitions direct jobsExhibition data on space sold,visitors,and exhibitors was provided by UFI.Data on estimated exhibitions direct spending is based on econometric modeling by Oxford Economics.Exhibitions direct spending represents spending directly incurred in the planning and production of exhibitions,travel to exhibitions,and accompanying exhibitions-related activities.As a basic description this includes spending by participants to attend the exhibition(e.g.travel and registration),organiser-paid travel,spending by exhibitors(e.g.sponsorships,exhibit production,off-site events),spending by exhibition organisers and hosts,and certain other exhibitions-related spending.Exhibitions direct spending provides the clearest measure of the economic significance of exhibitions because it captures the full scope of services and goods directly provided by a range of industries.For this reason,much of our summary analysis focuses on exhibitions direct spending and the number of exhibitions participants.Overview of exhibitions volume and direct spending11Map of analysis regionsCentral&SouthAmericaAsia/PacificNorthAmericaAsia/PacificMiddle EastEuropeAfricaCentral&SouthAmericaNOTE:Russia can be considered as both in Europe(West of the Ural mountains)and Asia(rest of the country).As a large part of the national activity is concentrated in the Western part of the country,Russia is considered as in Europe for the purpose of this study.12Exhibitions summary dataIn 2019,exhibitions sold nearly 147 million net square meters(1.5 billion square feet)across more than 180 countries.Exhibitions generated approximately 125.6($140.7)billion of direct spending,by visitors,exhibitors and additional exhibitions-related expenditure.North America and Europe ranked first and second in direct spending,representing 43%and 32%of total global direct spending in 2019,respectively.Exhibitions welcomed nearly 353 million visitors and 4.8 million exhibitors in 2019.Europe ranked first in terms of total visitors with 112.0 million visitors and 1.3 million exhibitors.North America followed with 92.3 million visitors and 1.6 million exhibitors.Exhibitions generated 125.6 billion of direct spending and sold nearly 147 million net square meters in 2019.Source:Oxford Economics&UFI(2019)(billions Euros)(billions US$)Direct spendingSpace soldGlobal total146.6 125.6$140.7100.00.0%By regionNorth America48.6 54.5$61.043.43.1%Europe46.5 40.0$44.831.81.7%Asia/Pacific37.2 25.6$28.720.4%.4ntral&South America10.2 3.7$4.12.9%7.0%Middle East3.1 1.3$1.51.1%2.1rica1.0 0.5$0.60.4%0.7%Share of totalSpace sold(net square meters,millions)Direct spendingVisitorsExhibitorsGlobal total352,660 4,752 100.00.0%By regionEurope112,000 1,340 31.8(.2%North America92,340 1,620 26.24.1%Asia/Pacific89,700 1,332 25.4(.0ntral&South America49,970 287 14.2%6.0%Middle East6,500 130 1.8%2.7rica2,150 43 0.6%0.9%Visitors(000s)Exhibitors(000s)Share of totalSummary of exhibitions activity(2019)13Exhibitions direct spendingExhibitions in North America generated 54.5($61.0)billion of exhibitions direct spending in 2019,as shown in the accompanying chart,representing 43.4%of global exhibitions direct spending.Exhibitions in Europe and Asia/Pacific generated 40.0($44.8)billion and 25.6($28.7)billion in direct spending,representing 31.8%and 20.4%of global direct spending,respectively.North America and Europe are the top regions in terms of exhibitions direct spending.Source:Oxford Economics(2021)Exhibitions direct spending by region(In billions,Euros,2019)43.41.8 .4%2.9%1.1%0.4%North AmericaEuropeAsia/PacificCentral&SouthAmericaMiddle EastAfrica 54.5 40.0 25.6 3.7 1.3 0.5NorthAmericaEuropeAsia/PacificCentral&SouthAmericaMiddle EastAfricaIn billions,Euros,201914Exhibitions visitorsEurope was the largest market in terms of exhibition participants,hosting 112.0 million visitors,representing nearly one-third of total visitors worldwide in 2019.North America ranked second,hosting 92.3 million visitors(26.2%of worldwide visitors)in 2019.Asia/Pacific ranked third with 89.7 million visitors,representing 25.4%of global visitors,while Central&South America ranked fourth with 50.0 million exhibition visitors in 2019.The Middle East,and Africa followed,each hosting less than seven million exhibition visitors in 2019.In terms of number of participants,Europe represents the largest region.Source:UFI(2021)Exhibitions visitors by region(millions of visitors,2019)31.8&.2%.4.2%1.8%0.6%EuropeNorth AmericaAsia/PacificCentral&SouthAmericaMiddle EastAfrica112.092.389.750.06.52.2EuropeNorthAmericaAsia/PacificCentral&SouthAmericaMiddleEastAfricaIn millions,201915Exhibitions exhibitorsNorth America was the largest market in terms of exhibition exhibitors,hosting 1.6 million exhibitors,representing more than 34%of total exhibitors worldwide.Europe ranked second,hosting 1.3 million exhibitors(28.2%of worldwide visitors)in 2019.Asia/Pacific ranked third with 1.3 million exhibitors,representing 28.0%of global exhibitors.Central&South America,the Middle East,and Africa followed,each hosting less than 300,000 exhibitors in 2019.In terms of number of exhibitors,North America represents the largest region with 1.6 million exhibitors in 2019.Source:UFI(2021)Exhibitions exhibitors by region(millions of exhibitors,2019)1.621.341.330.290.130.04NorthAmericaEuropeAsia/PacificCentral&SouthAmericaMiddle EastAfricaIn millions,201934.1(.2(.0%6.0%2.7%0.9%North AmericaEuropeAsia/PacificCentral&SouthAmericaMiddle EastAfrica1646.0(.3!.4%3.1%0.9%0.4%North AmericaEuropeAsia/PacificCentral&SouthAmericaMiddle EastAfricaExhibitions direct GDP and jobs impactsExhibitions generated 73.5($82.3)billion of direct GDP and more than 1.4 million direct jobs in 2019.Approximately 0.5 million of the direct jobs are maintained by the exhibitions industry alone.Exhibitions in North America generated 33.8($37.8)billion in direct GDP,representing 46.0%of global exhibitions GDP.North America is also the largest market in terms of jobs,with 561,000 direct jobs.Europe ranks second in terms of direct GDP impact,with 20.8($23.3)billion in GDP,supporting 350,000 direct jobs.Asia/Pacific ranked third with 15.7($17.6)billion in direct GDP,supporting 394,000 direct jobs.Exhibitions generated 73.5 billion of direct GDP and more than 1.4 million direct jobs in 2019.Source:Oxford Economics(2021)Exhibitions direct GDP and jobs impact by region(2019)(billions Euros)(billions US$)(billions Euros)(billions US$)Direct spendingDirect GDPDirect jobsGlobal total 125.6$140.7 73.5$82.31,403 100.00.00.0%By regionNorth America 54.5$61.0 33.8$37.8561 43.4F.0.0%Europe 40.0$44.8 20.8$23.3350 31.8(.3$.9%Asia/Pacific 25.6$28.7 15.7$17.6394 20.4!.4(.1ntral&South America 3.7$4.1 2.3$2.574 2.9%3.1%5.3%Middle East 1.3$1.5 0.7$0.815 1.1%0.9%1.1rica 0.5$0.6 0.3$0.39 0.4%0.4%0.6%Direct spendingDirect GDPDirect jobs(000s)Share of totalShare of direct GDP impacts by region(2019)17Exhibitions direct spendingper exhibitorExhibitions generated 125.6($140.7)billion of direct spending in 2019.Based on a global total of 4.8 million exhibitors in 2019,direct spending per exhibitor amounted to 26,440($29,602).North America ranked first with 33,641($37,664)in direct spending per exhibitor.Europe and Asia/Pacific followed with 29,849($33,419)and 19,229($21,529)in direct spending per exhibitor,respectively.Exhibitions generated approximately 26,440($29,602)in direct spending per exhibitor on a global basis in 2019.Source:Oxford Economics&UFI(2021)Exhibitions direct spending per exhibitor(2019)(billions Euros)(billions US$)(Euros)(US$)Global total4,752 125.6$140.7 26,440$29,602By regionNorth America1,620 54.5$61.0 33,641$37,664Europe1,340 40.0$44.8 29,849$33,419Asia/Pacific1,332 25.6$28.7 19,229$21,529Central&South America287 3.7$4.1 12,884$14,425Middle East130 1.3$1.5 10,283$11,513Africa43 0.5$0.6 11,591$12,978Exhibitors(000s)Direct spendingDirect spending per exhibitor 33,641 29,849 19,229 12,884 11,591 10,283NorthAmericaEuropeAsia/PacificCentral&SouthAmericaAfricaMiddle EastIn Euros,2019Economic Impact of Exhibitions319Indirect impacts represent downstream supplier industry impacts,also referred to as supply chain impacts.For example,the facilities at which exhibitions occur require inputs such as energy and food ingredients.Also,many exhibition venues contract with specialized service providers,such as marketing,equipment upkeep,cleaning,technology support,accounting,and legal and financial services.These are examples of indirect impacts.Induced impacts occur as employees spend their wages and salaries in the broader economy.For example,as hotel employees spend money on rent,transportation,food and beverage,and entertainment.Indirect and induced impacts may also be referred to collectively as indirect effects.To conduct the impact analysis,we used country-level economic impact multipliers from the existing exhibitions impact studies.For countries where exhibitions impact multipliers were either unavailable or appeared inconsistent with reference data,we used travel and tourism multipliers maintained by WTTC(World Travel and Tourism Council)and Oxford Economics.WTTC multipliers are based on input-output tables for each country and were sourced from either the OECD(Organisation for Economic Co-operation and Development),or when not available,national statistical offices.From the input-output tables,multiplier matrices were developed for each economy,detailing the flow of spending in an economy that occurs as a consequence of spending in a given industry.Our analysis of exhibitions direct spending served as an input for the economic impact model we used to estimate exhibitions-sector direct employment and labor income,and the downstream impacts of the sector.This model is also referred to as an input-output(I-O)model.Components of economic impact analysisThere are three main components of a sectors overall economic impact:Direct impacts consist of the direct spending and jobs that are involved in planning and producing exhibitions,and for participants to travel to exhibitions,as well as other exhibitions-related spending.Given the characteristics of the exhibitions sector,much of this direct activity occurs across a variety of sectors.For example,the production of an exhibition frequently involves employees onsite at a hotel or other venue,including banquet staff as well as audio-visual/staging and technical staff,and other third-party contracted service providers,such as entertainment/production services,dcor,speakers and trainers,advertising and promotion.These employees all represent direct jobs supported by the exhibitions sector.Meanwhile,participants travel to the exhibition,and accommodation during the event,supports direct spending and jobs across a range of service providers in the travel sector.Though this spending is occurring across businesses in a range of industry sectors,it all represents activity that is supported by exhibitions direct spending and is part of the exhibition sectors direct impacts.Economic impact approach20Economic impactsOverall,the total global economic impact of the exhibitions sector in 2019 is summarized as follows:298.7($334.5)billion of total economic output(business sales)179.3($200.7)billion in total GDP contribution;andMore than 3.4 million total jobs.These totals represent the combination of direct impacts within the exhibitions sector(e.g.125.6($140.7)billion of exhibitions direct spending,and 1.4 million direct jobs),plus the estimated indirect and induced effects.The resulting output multiplier for the exhibitions sector is 2.38,implying that each 1.00($1.00)in direct exhibition spending generates an additional 1.38($1.38)in indirect and induced expenditures in the global economy.The global exhibitions sector supported 298.7($334.5)billion of total output(business sales)in 2019.Source:Oxford Economics(2021)Exhibitions sector global economic impacts(Amounts in billions of euros and billons of US dollars,except jobs-2019)Exhibitions sector global economic impactsAmounts in billions of euros and billions of US dollars,except jobs2019(Euros&jobs)2019(US$&jobs)Direct exhibitions sector impactOutput(exhibitions direct spending)125.6$140.7Employment1,402,727 1,402,727 GDP 73.5$82.3Total exhibitions sector impactOutput 298.7$334.5Employment3,436,856 3,436,856 GDP 179.3$200.721Economic impacts by region:total outputExhibitions in North America generated 127.5($142.8)billion of total output in 2019,as shown in the accompanying chart,representing 42.7%of the total output impact of the global exhibitions sector.Exhibitions in Europe and Asia/Pacific generated 93.8($105.1)billion and 65.4($73.2)billion in direct spending,representing 31.4%and 21.9%of the sectors global output impact.North America and Europe are the top regions in terms of total output impacts.Source:Oxford Economics(2021)Economic impacts by region total output impacts(In billions of Euros,2019)127.5 93.8 65.4 8.3 2.6 1.0NorthAmericaEuropeAsia/PacificCentral&SouthAmericaMiddle EastAfricaIn billions,Euros,201942.71.4!.9%2.8%0.9%0.3%North AmericaEuropeAsia/PacificCentral&SouthAmericaMiddle EastAfrica22Economic impacts by region:total GDPExhibitions in North America generated 80.8($90.5)billion of total GDP in 2019,as shown in the accompanying chart,representing 45.1%of the global exhibitions sectors total GDP impact.Exhibitions in Europe and Asia/Pacific generated 50.9($56.9)billion and 40.5($45.3)billion in direct spending,representing 28.4%and 22.6%of the sectors total GDP impact,respectively.North America and Europe are the top regions in terms of total output impacts.Source:Oxford Economics(2021)Economic impacts by region total GDP impacts(In billions of Euros,2019)45.1(.4.6%2.9%0.7%0.3%North AmericaEuropeAsia/PacificCentral&SouthAmericaMiddle EastAfrica80.850.9126.96.36.199.6NorthAmericaEuropeAsia/PacificCentral&SouthAmericaMiddle EastAfricaIn billions,Euros,201923Economic impacts by region:total employmentExhibitions in North America generated nearly 1.4 million total jobs in 2019,as shown in the accompanying chart,representing 39.3%of the global exhibitions sectors total job impact.Exhibitions in Europe and Asia/Pacific generated 959,000 and 906 total jobs,representing 27.9%and 26.3%of the sectors total job impact,respectively.The global exhibitions sector supported more than 3.4 million total jobs in 2019.Source:Oxford Economics(2021)Economic impacts by region total job impacts(In thousands of jobs,2019)1,3529599061663320NorthAmericaEuropeAsia/PacificCentral&SouthAmericaMiddle EastAfricaIn thousands of jobs(2019)39.3.9&.3%4.8%1.0%0.6%North AmericaEuropeAsia/PacificCentral&SouthAmericaMiddle EastAfrica24Economic impacts:total output per exhibitorExhibitions generated 298.7($334.5)billion of total output(total business sales)in 2019.Based on a global total of 4.8 million exhibitors in 2019,total output per exhibitor amounted to 62,864($70,382).North America ranked first with 78,716($88,130)in total output per exhibitor.Europe and Asia/Pacific followed with 70,027($78,403)and 49,082($54,952)in total output per exhibitor,respectively.Exhibitions generated approximately 62,900($70,400)in total output per exhibitor on a global basis in 2019.Source:Oxford Economics&UFI(2021)Exhibitions total output per exhibitor(2019)78,716 70,027 49,082 28,972 24,223 20,293NorthAmericaEuropeAsia/PacificCentral&SouthAmericaAfricaMiddle EastIn Euros,2019(billions Euros)(billions US$)(Euros)(US$)Global total4,752 298.7$334.5 62,864$70,382By regionNorth America1,620 127.5$142.8 78,716$88,130Europe1,340 93.8$105.1 70,027$78,403Asia/Pacific1,332 65.4$73.2 49,082$54,952Central&South America287 8.3$9.3 28,972$32,437Africa43 1.0$1.2 24,223$27,120Middle East130 2.6$3.0 20,293$22,720Exhibitors(000s)Total outputTotal outputper exhibitor25Economic impacts:total output per square meter of venue capacityExhibitions generated 298.7($334.5)billion of total output(total business sales)in 2019.Based on a global total of 39.65 million square meters(426.73 million square feet)of venue capacity measured in terms of gross indoor exhibition space(as reported in the UFI World Map of Exhibition Venues 2022),total output per square meter of venue capacity amounted to approximately 7,500($8,400),while total output per square foot of venue capacity amounted to approximately 700($800).North America ranked first with 15,774($17,661)in total output per square meter of venue capacity and 1,465($1,641)per square foot of venue capacity.Europe followed with 5,975($6,690)in total output per square meter of venue capacity and 555($621)per square foot of venue capacity.Exhibitions generated approximately 7,500($8,400)in total output per square meter of capacity and 700($800)per square foot of capacity on a global basis in 2019.Source:Oxford Economics&UFI(2021)Exhibitions total output per sqm of capacity(2019)15,774 5,975 5,249 4,168 3,438 2,394NorthAmericaEuropeAsia/PacificCentral&SouthAmericaAfricaMiddle EastIn Euros,2019(billions Euros)(billions US$)(Euros)(US$)(Euros)(US$)Global total39.65 426.73 298.7$334.5 7,535$8,436 700$784By regionNorth America8.08 87.02 127.5$142.8 15,774$17,661 1,465$1,641Europe15.71 169.05 93.8$105.1 5,975$6,690 555$621Asia/Pacific12.46 134.08 65.4$73.2 5,249$5,876 488$546Central&South America2.00 21.47 8.3$9.3 4,168$4,666 387$434Middle East1.10 11.86 2.6$3.0 2,394$2,680 222$249Africa0.30 3.26 1.0$1.2 3,438$3,849 319$358Capacity(million square feet)Total outputTotal output per square meter of capacityCapacity(million square meters)Total output per square foot of capacity26Global exhibitions impact rankingThe global exhibitions sector directly generated more output(business sales)than many large global sectors,including machine tools and medical&surgical equipment.The 179.3($200.7)billion of total GDP supported by exhibitions globally would rank the sector as the 55th largest economy globally,larger than the economies of countries such as Hungary,Kuwait,Sri Lanka,and Ecuador.The table on the following page compares the global exhibitions sectors total GDP impact to the GDP of countries around the world.The global exhibition sectors total GDP impact would rank it as the 55th largest economy globally.27GDP comparisonsAmounts in billions of Euros,2019RankCountryGDPRankCountryGDPRankCountryGDP1United States 19,08731Norway 36361Kuwait 1222China 12,75032Nigeria 35962Morocco 1073Japan 4,57433Ireland 35663Ecuador 974Germany 3,47934Israel 35564Cuba 945United Kingdom 2,57335South Africa 34765Slovak Republic 946India 2,50536Philippines 33666Puerto Rico 947France 2,43937Singapore 33567Kenya 908Africa 2,22738Malaysia 32668Ethiopia 839Italy 1,79739Hong Kong,China 32469Angola 8010Brazil 1,67340Denmark 31070Dominican Republic 7911Canada 1,55641Egypt 30071Sri Lanka 7512Russia 1,50942Vietnam 29372Guatemala 6913South Korea 1,47543Colombia 28973Oman 6814Spain 1,24444Bangladesh 26974Luxembourg 6315Australia 1,23845Pakistan 26175Bulgaria 6216Mexico 1,13546Chile 25076Myanmar 6117Indonesia 1,00047Finland 24077Ghana 6118Netherlands 81348Czech Republic 22678Libya 6019Saudi Arabia 71849Romania 22279Panama 6020Turkey 67850Portugal 21480Costa Rica 5821Switzerland 65451Peru 20681Belarus 5722Taiwan 54652Iraq 20182Croatia 5623Poland 53353New Zealand 18883Uruguay 5524Iran,Islamic Rep.51954Greece 18384Tanzania 5425Thailand 48655Exhibitions globally 17985Cote dIvoire 5226Belgium 47856Kazakhstan 15786Uzbekistan 5027Sweden 47757Qatar 15787Macao,China 4928Argentina 40758Algeria 15388Lithuania 4929Austria 39759Hungary 14689Slovenia 4930United Arab Emirates 37360Ukraine 13790Lebanon 48Source:Source:Oxford Economics(based on data from National Statistical Offices)Methods429Research ApproachWe integrated the results of existing studies and exhibitions data maintained by UFI to model global exhibitions volume and direct spending.Three-quarters of global exhibitions direct spending was covered by country-level studies.Our discussion of research methods in this section follows the same order.First,we outline the research process,then we highlight the statistical modeling,and last,the conceptual framework.Figures in this report are based on unrounded estimates.Due to rounding,the totals in certain tables may differ slightly from the sum of the individual rows or columns.The analysis was conducted in nominal Euros and US dollars based on market exchange rates.Model outputs were analyzed in US dollars and converted to Euros using the period exchange rate for calendar year 2019,which was 1.181 US Dollars for each Euro.Note:UFI produces estimations of those metrics for the world and each region.Those estimations are derived from models that use data from several markets where such data is considered reliable.UFI is ready to update those estimations when it receives reliable data for any given market(please contact chrisufi.org).Also,regarding visitors numbers,several markets communicate on“number of visits”instead,or count in“attendees”.It is important to know that the economic impact model developed for this study did not use that metric for calculation.Country economic impact profilesIn addition to the release of the global economic impact of exhibitions findings,Oxford Economics and UFI are offering summary country profiles.Building on the results of the global impact analysis,the research team can prepare summary economic impact profiles at the country level.Metrics included in the country profiles will include direct impacts,indirect and induced impacts,and total impacts for the following metrics:Economic output(business sales),GDP(gross domestic product)and Jobs.Our approach to the exhibitions sector research included the following steps:Analysed existing data on exhibitions maintained by UFI,including net square meters sold,visitors,and exhibitors(see note);Analysed existing studies on exhibitions impacts in 13 countries,as well as third-party industry data;Developed an econometric model of the relationship between economic and travel-industry data sets and exhibitions industry impacts to estimate exhibitions activity in countries in which the exhibitions industry has not been previously quantified;andCombined the results of existing studies and modeled relationships to prepare global estimates.Overall,we found that approximately three-quarters of global exhibitions direct spending was already covered by the country-level studies we analysed.As a result,while we applied the econometric model to prepare estimates for countries that have not yet been studied at the country level,findings for many of the largest and most important countries were based on the results of existing studies.This provided a solid research foundation.In this global analysis,we have relied broadly on the headline measures of exhibitions activity and participants as reported by each study.In situations in which we saw clear differences such as definition differences or outliers in specific results,we excluded specific country-level report metrics from the estimation process.30Existing impact studiesand third-party dataIn addition to existing impact studies,the research process also encompassed third-party industry data from the following sources:UFIGlobal Business Travel AssociationWe compiled existing studies on the impacts of exhibitions in global markets.A comprehensive list of the 13 studies included in the analysis is outlined in the table below.The research team collected the following metrics for each country:Direct spending Direct value-added(GDP)Direct jobsTotal participantsCountryStudy year Report titleSourcesAustralia2015The Value of Business Events to AustraliaErnst&Young,Business Events Council of AustraliaCanada2014The Economic Contribution of Business Events in CanadaMPI Foundation Canada,Maritz Research,The Conference Board of CanadaDenmark2012Economic Contribution of Meeting Activity in DenmarkVisit DenmarkFrance2011tude sur les retombes conomiques delactivit des salons en France et en le-de-FranceChambre de commerce et dindustrie de Paris,COMIT des Expositions de PARISGermany2018Overall Economic Relevance of Exhibitions in GermanyAssociation of the German Trade Fair Industry(AUMA)Guatemala2017Medicion de la relevancia economica de la industria de turismo de reuniones en GuatemalaSTA Consultores,Gobierno de la Republica de Guatemala,INGUAT(Instituto Guatemalteco de Turismo)India2017Indian Exhibition Industry ReportIndian Exhibition Industry AssociationMexico2016The Economic Relevance of Meetings in MexicoSECTUR(Secretaria de Turismo),Consejo do Promocion Turistica de Mexico,STA ConsultoresPeru2014Peru,Destination for Meetings TourismPROMPERUPoland2015The Economic Impact of Polands Meetings IndustryPoland Convention Bureau,Polka Organizacja Turystyczna,MPI Foundation,MPI Poland ChapterUnited Kingdom2012The Economic Impact of the UK Exhibitions IndustryFaceTime&Oxford EconomicsUnited Kingdom2013The Economic Impact of the UK Meeting&Event IndustryMPI FoundationUnited States2018Economic Significance of Meetings to the US EconomyOxford Economics,Events Industry CouncilExisting economic impact studies31Econometric modelThe research team developed an econometric model of the relationship between economic and travel-industry data sets and exhibitions impacts to estimate exhibitions activity in countries in which the exhibitions industry has not been previously quantified.In addition to the data provided by UFI and collected from existing exhibitions impact studies,the table below summarizes the data we compiled to include in the modeling process.The econometric model tested the relationship between economic and travel-industry data sets and exhibitions industry impactsData descriptionSourcesBusiness arrivalsUNWTO(World Tourism Organization),various national statistical agenciesInternational business inbound travel spendingIMF Balance of PaymentsDomestic business travel spendingOxford Economics/WTTC(World Travel and Tourism Council)GDP(gross domestic product)Haver Analytics,various national statistical agenciesTotal populationHaver Analytics,United Nations,various national statistical agenciesPer capita GDPHaver Analytics,United Nations,various national statistical agenciesServices industry gross outputVarious national statistical agencies,central banks,and ministries of financeWhole economy gross outputVarious national statistical agencies,central banks,and ministries of financeData inputs for econometric model32Econometric modelThe resulting model reflects the relationship between travel-industry measures,such as estimated domestic and international business travel spending at the country level(based on Oxford Economics analysis for the World Travel and Tourism Council),and exhibitions direct spending.Because studies of exhibitions activity in more developed countries tend to show higher levels of activity relative to business travel spending,GDP per capita was also used in the model.The resulting estimates show that exhibitions spending tends to be correlated with broad economic activity.For example,the correlation between exhibitions spending and economic activity as measured by GDP is shown in the accompanying chart.The resulting model reflects the positive relationship between travel-industry measures and exhibitions direct spending.Exhibitions direct spending and GDP by country$0$10,000$20,000$30,000$40,000$50,000$60,000$70,000$0$5,000$10,000$15,000$20,000Exhibitions direct spending($millions)GDP($billions)Source:Oxford Economics(2022)33Country impact profilesIndividual country profile reports can be produced for UFI Member Associations and will be added as appendices to the global study.Please contact Christian Druart,UFIs Research Manager for more information(chrisufi.org).In addition to the release of the global economic impact of exhibitions findings,Oxford Economics and UFI are offering summary country profiles,which will provide insight for country-level impacts of exhibitions.Building on the existing econometric model and research conducted for the global impact analysis allows the research team to prepare summary economic impact profiles at the country level.Based on data availability,the following exhibition metrics will be included in the country profiles:Exhibition venue capacityExhibition space soldExhibitorsVisitorsEconomic impact metrics included in the country profiles will include direct impacts,indirect and induced impacts,and total impacts for the following metrics:Economic output(business sales)GDP(gross domestic product)Jobs34Economic impact metricsAfter estimating direct exhibitions spending based on existing impact studies and the econometric model,the research team estimated additional economic impact metrics utilizing the sources listed in the table below.For example,we used economic data on gross output and value added for both the whole economy and the travel industry to estimate direct GDP impacts for each country.In addition,we used multipliers from existing impact studies and travel and tourism multipliers maintained by Oxford Economics and WTTC to estimate the total economic impact of exhibitions for each country.Secondary data sources were a critical part of the research.Economic impact metricEstimation method and sourceEconomic impact metricsDirect spending(direct output)Existing impact studiesEstimates from econometric modelNet space sold(square meters)Existing UFI dataTotal visitorsExisting UFI dataTotal exhibitorsExisting UFI dataDirect GDP(gross domestic product)impactEstimates of direct spending(direct output)Economic data on whole economy&services industry gross output from national statistical agenciesEconomic data on whole economy&services industry value-added from national statistical agenciesDirect jobsExisting impact studiesEstimates from econometric modelEconomic data on whole economy gross output from various national statistical agenciesTravel&tourism data&multipliers from Oxford Economics&WTTC(World Travel and Tourism Council)Total economic impact,GDP,and jobsExisting impact studiesTravel&tourism data&multipliers from Oxford Economics&WTTC(World Travel and Tourism Council)Country profiles536Appendix 1 UK(December 2019)in ()37Appendix 1 UK(December 2019)in ($)38Appendix 2 Spain(June 2020)in 39Appendix 2 Thailand(June 2022)in and$40Country impact profilesIndividual country profile reports can be produced for UFI Member Associations and will be added as appendices to the global study.The June 2020 release of this report includes in section 4 the key results of the first two produced:for the United Kingdom in December 2019.for Spain in June 2020.for Thailand in June 2022.For more information,please contact Christian Druart,UFIs Research Manager(researchufi.org).In addition to the release of the global economic impact of exhibitions findings,Oxford Economics and UFI are offering summary country profiles,which will provide insight for country-level impacts of exhibitions.Building on the existing econometric model and research conducted for the global impact analysis allows the research team to prepare summary economic impact profiles at the country level.Based on data availability,the following exhibition metrics will be included in the country profiles:Exhibition venue capacityExhibition space soldExhibitorsVisitorsEconomic impact metrics included in the country profiles will include direct impacts,indirect and induced impacts,and total impacts for the following metrics:Economic output(business sales)GDP(gross domestic product)Jobs41AboutUFI is the leading global association of the worlds tradeshow organisers and exhibition centre operators,as well as the major national and international exhibition associations,and selected partners of the exhibition industry.UFIs main goal is to represent,promote and support the business interests of its members and the exhibition industry.UFI directly represents around 50,000 exhibition industry employees globally,and also works closely with its 52 national and regional associations members.Oxford EconomicsUFIOxford Economics was founded in 1981 as a commercial venture with Oxford Universitys business college to provide economic forecasting and modelling to UK companies and financial institutions expanding abroad.Since then,we have become one of the worlds foremost independent global advisory firms,providing reports,forecasts and analytical tools on 200 countries,100 industrial sectors and over 3,000 cities.Headquartered in Oxford,England,with regional centres in London,New York,and Singapore,Oxford Economics has offices across the globe.We employ over 200 full-time people,including more than 130 professional economists,industry experts and business editorsone of the largest teams of macroeconomists and thought leadership specialists.42UFI Headquarters/European Office17,rue Louise Michel 92300Levallois-Perret FranceT: 33 146 397 500F: 33 146 397 501infoufi.orgUFI Asia-Pacific Regional OfficeSuite 4114,Hong KongPlaza 188 Connaught Road West Hong Kong,ChinaT: 852 2525 6129F: 852 25256171asiaufi.orgUFI Middle East-Africa Regional Officeweb www.ufi.orgblog www.ufilive.orgUFIL www.UFI.tv UFI OfficialAccountUFI Latin American Regional OfficeInfo Salons Middle East OfficeSheikj Zayed RdCity Tower 2,Office 2001APO Box 58580DubaiUnited Arab EmiratesT: 971 4331 7180meaufi.orgCorferias,Cra 37#24-67Auditorium Second FloorBogota,ColombiaT: 571 3445 486latamufi.orgUFI Diamond Sponsors
Global Recovery Insights 2020www.ufi.org/researchSUPPORTED BY:PRODUCED BY:Part 1:The way forward for business eventsContentsSECTION 1SECTION 2SECTION 3SECTION 4SECTION 5SECTION 6SECTION 7SECTION 8SECTION 93467911131418WelcomeKey areas of focusKey findingsThe impact of event cancellationsFuture attendanceVisitor quality beats numbers for exhibitorsThe importance of networkingThe return of budgetsA position of strength2G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0Dear industry colleagues,We are happy to publish the first part of this global study of both visitors and exhibitors,the latest in a series of reports we have produced in partnership with Explori.At the time of publishing in October we face a very uncertain picture ahead,however I am happy to see the responses which do not show a long term shift away from live events,and that this crisis is a temporary hurdle which we will overcome like we did with many previous challenges.Our audience appreciates the unique aspects of face-to-face for building human connections which serve them both personally and professionally.These have yet to be recreated effectively in digital events.This report is based on a quantitative survey of trade show visitors and exhibitors,with 9,000 responses in 10 languages representing trade show participation in over 30 countries.We have been able to make comparisons with our 2018 and 2019 Global Insights reports to assess the impact of the lack of events on visitors and exhibitors,and their plans to return to live events in 2021.The absence of live events has damaged not only our industry,but all industries by reducing their access to networking,lead generation and ultimately new business.We hope this study can demonstrate to policy makers,governments to support the safe return of live business events in the coming months.We will publish the second part of this report by the end of the year.If you have any feedback please contacts us at researchufi.orgAs we all make our way through this pandemic reading this report certainly reassured me once more of the critical role that our industry has to play,and of the fact that our customers see it the same way.Yours sincerely,Kai HattendorfUFI Managing Director/CEOWelcome3G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0Key areas of focusComparisons with the 2018 and 2019 Global Insights where available-these reports are available to UFI members at www.ufi.org/researchFieldwork in July and August 2020A second phase of research will be conducted in December 2020 to determine any change in sentiment and the impact of budget planning for 2021.A quantitative survey of trade show visitors and exhibitors,gaining 9,000 responses,in 10 languages,representing trade show participation in over 30 countries.The impact of trade show cancellations on both visitors and exhibitors1.How exhibiting budgets might change and what is driving these decisions4.The views of both groups on their potential return2.What shows might have a more secure future than others5.What are the most important factors that would encourage customers to return3.Building on UFI and Exploris previous Global Visitor and Global Exhibitor Insight reports,this study investigates:MethodologyS E C T I O N 24G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0Key FindingsFuture attendance There is no evidence in this study of a fundamental shift away from live events.Although intended frequency of participation has dropped for both groups,it has done so only marginally for exhibitors.Visitors are concerned about short term issues like safety and travel,but appreciate the important business benefits live events bring.Networking is keyThe social aspects of events remain a critical draw for both groups,who rely on live events to create connections within their communities.This is an aspect that is notably poorly served by digital events.Quality is kingThere is a clear message from visitors that quality of exhibitors is paramount,suggesting that those who plan to attend have strong buying intentions.Exhibitors plan to factor visitor quality far more highly in their decision making than visitor numbers.Budgets to return53%of exhibitors expect spend to return to pre-Covid levels within 12 months.28%reported their spend would return as soon as trade shows started running again.Whilst spend allocated to live events has been put on hold,overall marketing budgets had yet to see severe cuts as of late summer.Play it safe?Both visitors and exhibitors will look to previous experience with a show when deciding whether to return.They will turn to show brands they trust to deliver robust safety measures,but more importantly high quality audiences.Customers and industries miss live events The negative impact of the lack of live events is being widely felt by both visitors and exhibitors.Two thirds of those who exhibit at business events reported their cancellation has had a notable detrimental impact on their business,reducing their ability to build brand awareness with their target markets.Half of businesses expressed this impact as being“large”or“very large”.of companies told researchers that the absence of live events was negatively affecting their ability to generate new business.48%S E C T I O N 35G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0The impact of event cancellationsLive events are being sorely missed by the businesses who rely on them to connect with their customers:Almost half of those who exhibit at trade shows reported their cancellation has had a notable detrimental impact on their business,reducing their ability to build awareness with their target markets.43scribed this impact as being large or very large.Exhibitors:To what extent has the cancellation of the event(s)affected your business?Exhibitors:How has the cancellation and/or postponement of events at which you were due to exhibit affected your business?Almost half of companies reported that the absence of live events was negatively affecting their ability to generate new business.48%have generated fewer leads and 45%have seen a negative impact on their sales,through not being able to exhibit.S E C T I O N 46G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0How does this differ by region?Across many aspects of this study,the attitudes of exhibitors were strikingly similar.It can be seen that on average,the impact of event cancellations is most acutely felt in regions where the trade show industry is still developing.In comparison,regions where the sector is mature,such as North America and Europe,felt a lesser,but still notable impact.Visitors have also felt less connected to their communities without access to business events.90%reported being impacted in some way and over a quarter felt the impact to their business had been very large.To what extent has the cancellation of event(s)affected your business(1-5 scale with 5 being greatest impact)?Impact on visitorsWhilst many felt this impact in their limited access to networking and educational opportunities,almost a third also reported an impact on their ability to source new suppliers,again highlighting the role events play in generating business within the sectors they serve.To what extent has the cancellation/postponement of event(s)affected you and your business?90fected in some way1=No impact at all 5=Very large impact57G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0Future attendanceBoth visitors and exhibitors reported some drop in how frequently they planned to attend live events in future compared to previous studies we have conducted.But when compared with data from 2019,the drop for exhibitors was very modest.This reduction in frequency seems to be part of a more long-term trend.In markets where the exhibition industry is more developed,exhibitors have indicated in previous studies that they are planning to level out their participation.The more pronounced impact on visitor attendance is driven by short term concerns,primarily around safety.Visitors who are planning to reduce their attendance need to be reassured that robust safety measures are in place.They are also more drawn to the option of being able to attend an event digitally,for the time being at least.Future exhibitor participationSo in the future,do you expect to exhibit at trade shows.S E C T I O N 58G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0The biggest three drivers of reduced future attendance for visitors are safety concerns(69%),travel restrictions(58%)and concerns about cancellations(34%).Very few(13%or less)cited more long term concerns such as lack of time or value as reasons for attending trade shows less frequently in future.So in the future,do you expect to attend trade shows.Reasons why visitors might attend less in future69V4%Safety concernsTravel restrictionsConcerns about possible cancellationsFuture visitor participation9G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0S E C T I O N 6Visitor quality beats numbers for exhibitorsVisitor quality is the biggest factor influencing the decision of exhibitors to return to a particular show.80%of respondents felt visitor quality had a large impact on their show selection,well ahead of price at 49%.It was also the aspect they wanted organisers to prioritise most,being selected by almost twice as many exhibitors as“visitor numbers”.This suggests that exhibitors will overlook smaller visitor numbers in the short-term as long as organisers can create a compelling story as to how they will attract the highest quality audience.Notably,only 3%of exhibitors felt there was nothing an organiser could do to encourage their return,suggesting that there is no sign of a fundamental shift away from live events at this stage.What are the main things trade show organisers should focus on to encourage you to exhibit at their shows?Recommended Priorities10G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0Whilst many visitors want organisers to prioritise strict health and safety measures,interestingly exhibitor quality has surged in importance for them.1 in 3 visitors said exhibitor quality was the area that organisers should focus on most,making it the most significant factor,once hygiene aspects have been addressed.This suggests that visitors who are planning to attend a show are motivated buyers who need to be sure they will meet high quality suppliers who can address their business needs.The relative importance of quality educational content has dropped off vs.previous years,perhaps reflecting the strict business case needed to attend a trade show,or the emerging ability of digital events to provide high quality content.What are the main things trade show organisers should focus on to encourage you to attend their shows?Visitors Priorities for Organisers0103040205060 49H%Make the process of attending easier (registration,queues etc.)Increase exhibitornumbersEnable you to attendremotely/virtuallyContinue to provide in-person networking opportunitiesImprove exhibitorqualityReduce costs associated with attendingIntroduce strict Covid-19safety measures11G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0The importance of networkingWould the following measures make you more or less likely to exhibit at trade shows?Exhibitors Reject Measures That Impact NetworkingThrough many aspects of this study,the ability to connect face-to-face has been confirmed as the defining strength of the business events industry.S E C T I O N 7Whilst our audience is supportive of sensible health and safety measures,they are reluctant to accept any measures that impede their ability to network,telling us that any reduction on social and networking activity reduces their likelihood to attend an event.This presents a challenge for organisers and venues alike,who must balance social interaction with maintaining a Covid-secure environment.12G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 085%Live events betterWould the following measures make you more or less likely to attend at trade shows?Many Visitors Feel The Same.Reduced access to networking was cited as the biggest impact caused by the cancellation of business events and a priority for organisers when they return.Digital events are not currently filling this gap,with“quality of networking”being the area they scored most poorly in comparison to live events with only 8%of exhibitors and 7%of visitors feeling that digital could compete with live.86%Digital events betterDigital events betterLive events betterHow do digital events compare to live events for networking?8%EXHIBITORSVISITORS7G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0The return of budgetsS E C T I O N 8Most exhibitors expect their spend to return to pre-Covid levels in the short to medium term,with 28%stating that they were ready to spend immediately.The average expected return date was around 11 months after respondents took the survey in July/August 2020,which remained remarkably consistent across both sectors and geographies,regardless of how much they had been disrupted by the pandemic.When,if at all,do you expect your trade show exhibiting spend to return to pre-Covid levels?Most Spend to Return in 1-2 Show CyclesOnly 12%of exhibitors reported that their spend would never return to pre-Covid levels.12G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0When,if at all,do you expect your trade show exhibiting spend to return to pre-Covid levels?Budgets will be found by those who believe in live events as a channel Where will reductions come from?There was little difference by company size or sector between exhibitors whose budget would return immediately and those who felt the budget reduction was permanent.But what could be seen was how strongly each of these groups favoured trade shows as a channel to achieve particular objectives.Again,the ability to network is a strong driver here.Those who indicated trade shows were their preferred channel for networking or selling,were much more likely to make budget available than those who preferred other channels.This held true regardless of the extent to which those exhibitors were facing budgetary constraints,suggesting that those that value live events will continue to prioritise them in their spending.41%Trade shows best channel for SELLING192%Trade shows best channel for NETWORKING521C%Budget returns immediatelyBudget never fully returnsAverage15G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0Since the start of the Covid-19 crisis,to what extent have your marketing budgets for the following channels changed?Dont know responses excluded from the analysisThe impact on marketing budgetsWhilst as of late summer,budgets for other marketing channels remained relatively unaffected,unsurprisingly there has been a big impact on spend for live events.Both trade show spend and in-house event spend have effectively halved at this time.This will require further investigation in the second wave of research to understand how budgets are affected by 2021 business planning.There was notably little difference in budget impact between sectors.Jewelry and Aviation reported some of the biggest reductions in their planned live event spend(58 and 54%).Whereas the comparatively less affected sectors of Agriculture and Utilities still reported cut-backs of 45%.16G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0Are exhibitors more likely to drop shows from their plans as budget pressure increases?Spread your budget or drop a show?To what extent do the following factors influence your decision to exhibit at or sponsor a show?How will exhibitors decide where to spend?As we have seen in previous sections,exhibitors will prioritise events that can deliver a high quality visitor and meaningful opportunities to network.They are likely to accept reduced visitor numbers where they are confident that they will be able to get face-to-face with key buyers.But how will they make this judgement?Previous experience at an event will be a powerful decision making factor,more than twice as important as a recommendation from a colleague or peer.Exhibitors will be looking to the show brands they already trust to deliver the quality audience they need.Conversely they may be less likely to experiment with emerging shows,or those they have not had personal experience of before.Encouragingly,it seems that trusted shows who can create a compelling quality proposition may experience less price sensitivity from their exhibitors.Will these budget cuts manifest themselves in shows being dropped from a trade show marketers plans,or an overall belt-tightening?The picture is complex.Whilst we can definitely see that the more severe the budget cut,the more likely an exhibitor is to reduce the number of shows they support,it is also true that,even for companies experiencing the largest cuts to their trade show budgets(in excess of 50%)they are still equally likely to continue to exhibit as frequently as to start dropping shows.-60-40020-20406080%AverageNo budget changeCut up to 50%Cut more than 50%Exhibit less frequentlyExhibit as frequently17G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0A position of strengthTrusted Brand We can see that previous(positive)experience is a critically important factor for both visitors and exhibitors in deciding whether to participate in a show.Shows with high Net Promoter ScoresTM and high loyalty scores in their customer satisfaction studies are strongly placed here.Visitors are also prioritising shows that can attract the highest quality exhibitors,perhaps favouring those holding a market leading position.Shows that have historically rated highly for“importance”are likely to be trusted by customers in this aspect.Oriented towards networking and deal-making Both visitors and exhibitors value the face-to-face networking opportunities of business events.In addition visitors are looking to build a strong business case for attending as budgets receive more scrutiny.Therefore shows that have previously seen networking and commercial objectives given high importance by visitors and exhibitors and have a track record of meeting these objectives,will be very strongly placed to welcome back their audience.However shows that have previously focused more on content,education and branding objectives may need to re-visit their proposition to remain relevant and to compete with digital offerings.Flexible approach to total cost of exhibiting Many exhibitors will be looking to reduce their total cost of exhibiting.Whilst they may be looking to organisers for discounts,they will also be looking to suppliers and accommodation providers.Shows that can manage this in a collaborative way and offer flexible solutions that benefit the long-term relationship with the exhibitor are likely to be viewed more favourably than those who take a more rigid approach.Low dependence on international travelWhilst not generally prohibited by company policy,many visitors and exhibitors have concerns about travel disruption when participating in overseas events.Therefore measures such as travel corridors and priority status for business travellers are important protective factors.However,international travellers within and to Asia are already showing greater confidence than their peers who would normally travel into North America and into/within Europe.A compelling proposition for those who wish to attend digitally may also be an important factor in retaining international visitors(and domestic visitors)who have heightened concerns about travel safety.Makes the business case for visitors In addition to seeing the sectors leading brands,visitors are likely to be seeking out the most innovative suppliers to meet their business needs,which could have changed dramatically since the last edition of the show.Show teams that have a clear understanding of the changing needs of the sectors they serve,combined with a robust process for identifying and attracting the most innovative players in the market(including start-ups and new entrants),will be able to create the most compelling visitor propositions.With many sectors seeing unprecedented change,an agile approach with clear focus on solutions on a new way of working could be an important factor in helping less established shows compete against market leaders.If sector and geography appear to make relatively little difference to attitudes of visitors and exhibitors,what are the factors that would suggest that a show is in a relatively robust position as live events return?It seems that the most important factors are inherent to the show itself-how well it has previously performed in the eyes of its customers and how well the show team can align with the changing needs of the market they serve.S E C T I O N 918G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0About ExploriReport authorsSuzanne Van MontfoortResearch Director(Bespoke),ExploriChristian DruartResearch Manager,UFISophie HoltManaging Director,Explori The official research partner of UFIThank you to all research participantsUFI Diamond SponsorsUFI Research PatronUFI and Explori would like to thank the trade show organisers and UFI members and partners who supported the wide collection of data that made this research possible.The authors also wish to thank the research teams at Explori,GRS and GRS Explori,and in particular Charlotte Penn and Mitch Deeming for the significant work that has gone in to producing this report.Explori provides scalable research solutions for exhibition organisers all over the world.With a global client base including Hyve,Clarion Events,Informa,Comexposium,Messe Frankfurt,Emerald,Diversified Communications and many others contributing to their global data set of industry benchmarks.Exploris research platform is designed to support organisers in gathering meaningful customer experience insight across multiple territories and languages.Over 3,000 events worldwide now work with Explori including trade shows,digital events and conferences.As part of their partnership with UFI,Explori produces annual reports giving insight into the customer experience of visitors and exhibitors across the industry.Explori is independently owned by its founders,directors and employees and is headquartered in London.19G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0UFI is the leading global association of the worlds tradeshow organisers and exhibition centre operators,as well as the major national and international exhibition associations,and selected partners of the exhibition industry.UFIs main goal is to represent,promote and support the business interests of its members and the exhibition industry.UFI directly represents around 50,000 exhibition industry employees globally,and also works closely with its 54 national and regional associations members.Around 800 member organisations in 87 countries and regions around the world are presently signed up as members.Around 1,000 international trade fairs proudly bear the UFI approved label,a quality guarantee for visitors and exhibitors alike.UFI members continue to provide the international business community with a unique marketing media aimed at developing outstanding face-to-face business opportunities.www.ufi.orgAbout UFIThe Global Association of the Exhibition Industry
Board of Governors of the Federal Reserve SystemFor use at 11:00 a.m.EDTJune 17,2022Monetary Policy rePortJune 17,2022Letter of transmittaLBoard of Governors of the Federal Reserve SystemWashington,D.C.,June 17,2022The President of the Senate The Speaker of the House of RepresentativesThe Board of Governors is pleased to submit its Monetary Policy Report pursuant to section 2B of the Federal Reserve Act.Sincerely,Jerome H.Powell,ChairStatement on Longer-run goaLS and monetary PoLicy StrategyAdopted effective January24,2012;as reaffirmed effective January25,2022The Federal Open Market Committee(FOMC)is firmly committed to fulfilling its statutory mandate from the Congress of promoting maximum employment,stable prices,and moderate long-term interest rates.The Committee seeks to explain its monetary policy decisions to the public as clearly as possible.Such clarity facilitates well-informed decisionmaking by households and businesses,reduces economic and financial uncertainty,increases the effectiveness of monetary policy,and enhances transparency and accountability,which are essential in a democratic society.Employment,inflation,and long-term interest rates fluctuate over time in response to economic and financial disturbances.Monetary policy plays an important role in stabilizing the economy in response to these disturbances.The Committees primary means of adjusting the stance of monetary policy is through changes in the target range for the federal funds rate.The Committee judges that the level of the federal funds rate consistent with maximum employment and price stability over the longer run has declined relative to its historical average.Therefore,the federal funds rate is likely to be constrained by its effective lower bound more frequently than in the past.Owing in part to the proximity of interest rates to the effective lower bound,the Committee judges that downward risks to employment and inflation have increased.The Committee is prepared to use its full range of tools to achieve its maximum employment and price stability goals.The maximum level of employment is a broad-based and inclusive goal that is not directly measurable and changes over time owing largely to nonmonetary factors that affect the structure and dynamics of the labor market.Consequently,it would not be appropriate to specify a fixed goal for employment;rather,the Committees policy decisions must be informed by assessments of the shortfalls of employment from its maximum level,recognizing that such assessments are necessarily uncertain and subject to revision.The Committee considers a wide range of indicators in making these assessments.The inflation rate over the longer run is primarily determined by monetary policy,and hence the Committee has the ability to specify a longer-run goal for inflation.The Committee reaffirms its judgment that inflation at the rate of 2percent,as measured by the annual change in the price index for personal consumption expenditures,is most consistent over the longer run with the Federal Reserves statutory mandate.The Committee judges that longer-term inflation expectations that are well anchored at 2percent foster price stability and moderate long-term interest rates and enhance the Committees ability to promote maximum employment in the face of significant economic disturbances.In order to anchor longer-term inflation expectations at this level,the Committee seeks to achieve inflation that averages 2percent over time,and therefore judges that,following periods when inflation has been running persistently below 2percent,appropriate monetary policy will likely aim to achieve inflation moderately above 2percent for some time.Monetary policy actions tend to influence economic activity,employment,and prices with a lag.In setting monetary policy,the Committee seeks over time to mitigate shortfalls of employment from the Committees assessment of its maximum level and deviations of inflation from its longer-run goal.Moreover,sustainably achieving maximum employment and price stability depends on a stable financial system.Therefore,the Committees policy decisions reflect its longer-run goals,its medium-term outlook,and its assessments of the balance of risks,including risks to the financial system that could impede the attainment of the Committees goals.The Committees employment and inflation objectives are generally complementary.However,under circumstances in which the Committee judges that the objectives are not complementary,it takes into account the employment shortfalls and inflation deviations and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent with its mandate.The Committee intends to review these principles and to make adjustments as appropriate at its annual organizational meeting each January,and to undertake roughly every 5years a thorough public review of its monetary policy strategy,tools,and communication practices.Contentsnote:This report reflects information that was publicly available as of 4 p.m.EDT on June15,2022.Unless otherwise stated,the time series in the figures extend through,for daily data,June14,2022;for monthly data,May2022;and,for quarterly data,2022:Q1.In bar charts,except as noted,the change for a given period is measured to its final quarter from the final quarter of the preceding period.For figures 23,36,and 42,note that the S&P/Case-Shiller U.S.National Home Price Index,the S&P 500 Index,and the Dow Jones Bank Index are products of S&P Dow Jones Indices LLC and/or its affiliates and have been licensed for use by the Board.Copyright 2022 S&P Dow Jones Indices LLC,a division of S&P Global,and/or its affiliates.All rights reserved.Redistribution,reproduction,and/or photocopying in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC.For more information on any of S&P Dow Jones Indices LLCs indices,please visit .S&P is a registered trademark of Standard&Poors Financial Services LLC,and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC.Neither S&P Dow Jones Indices LLC,Dow Jones Trademark Holdings LLC,their affiliates,nor their third-party licensors make any representation or warranty,express or implied,as to the ability of any index to accurately represent the asset class or market sector that it purports to represent,and neither S&P Dow Jones Indices LLC,Dow Jones Trademark Holdings LLC,their affiliates,nor their third-party licensors shall have any liability for any errors,omissions,or interruptions of any index or the data included therein.Summary.1Recent Economic and Financial Developments .1Monetary Policy.3Special Topics.3Part 1:Recent Economic and Financial Developments.5Domestic Developments.5Financial Developments.27International Developments.35Part 2:Monetary Policy.43Part 3:Summary of Economic Projections.51Abbreviations.69List of BoxesDevelopments in Global Supply Chains.8Developments in Employment and Earnings across Groups.14Developments Related to Financial Stability.31Global Inflation.37Monetary Policy in Foreign Economies.39Monetary Policy Rules in the Current Environment.46Developments in the Federal Reserves Balance Sheet and Money Markets.49Forecast Uncertainty.66 1summaryIn the first part of the year,inflation remained well above the Federal Open Market Committees(FOMC)longer-run objective of 2percent,with some inflation measures rising to their highest levels in more than 40years.These price pressures reflect supply and demand imbalances,higher energy and food prices,and broader price pressures,including those resulting from an extremely tight labor market.In the labor market,demand has remained strong,and supply has increased only modestly.As a result,the unemployment rate fell noticeably below the median of FOMC participants estimates of its longer-run normal level,and nominal wages continued to rise rapidly.Although overall economic activity edged down in the first quarter,household spending and business fixed investment remained strong.The most recent indicators suggest that private fixed investment may be moderating,but consumer spending remains strong.In response to sustained inflationary pressures and a strong labor market,the FOMC has been adjusting its policies and communications since last fall.At its March meeting,the FOMC raised the target range for the federal funds rate off the effective lower bound to to percent.The Committee continued to raise the target range in May and June,bringing it to 1 to 1percent following the June meeting,and indicated that ongoing increases are likely to be appropriate.The Committee ceased net asset purchases in early March and began reducing its securities holdings in June.The Committee is acutely aware that high inflation imposes significant hardship,especially on those least able to meet the higher costs of essentials.The Committees commitment to restoring price stabilitywhich is necessary for sustaining a strong labor marketis unconditional.Recent Economic and Financial DevelopmentsInflation.Consumer price inflation,as measured by the 12-month change in the price index for personal consumption expenditures(PCE),rose from 5.8percent in December2021 to 6.3percent in April,its highest level since the early 1980s and well above the FOMCs objective of 2percent.This increase was driven by an acceleration of retail food and energy prices,reflecting further increases in commodity prices due to Russias invasion of Ukraine.The 12-month measure of inflation that excludes the volatile food and energy categories(so-called core inflation)rose initially and then fell back to 4.9percent in April,unchanged from last December.Three-month measures of core inflation have softened since December but remain far above levels consistent with price stability.Measures of near-term inflation expectations continued to rise markedly,while longer-term expectations moved up by less.The labor market.Demand for labor continued to outstrip available supply across many parts of the economy,and nominal wages continued to increase at a robust pace.While labor demand remained very strong,labor supply increased only modestly.As a result,the labor market tightened further between December and May,with job gains averaging 488,000per month and the unemployment rate falling from 3.9percent to 3.6percentjust above the bottom of its range over the past 50years.Economic activity.Real gross domestic product(GDP)is reported to have surged at a 6.9percent annual rate in the fourth quarter of 2021 and then to have declined at a 1.5percent annual rate in the first quarter.The large swings in growth rates reflected fluctuations in the volatile expenditure categories of net 2 SUMMARyexports and inventory investment.Abstracting from these volatile components,growth in private domestic final demand(consumer spending plus residential and business fixed investmenta measure that tends to be more stable and better reflects the strength of overall economic activity)was strong in the first quarter,supported by some unwinding of supply bottlenecks and a further reopening of the economy.The most recent indicators suggest that private fixed investment may be moderating,but consumer spending remains strong.As a result,real GDP appears on track to rise moderately in the second quarter.Financial conditions.Financial conditions have tightened significantly this year.The expected path of the federal funds rate over the next few years shifted up substantially,and yields on nominal Treasury securities across maturities have risen considerably since late February amid sustained inflationary pressures and associated expectations for further monetary policy tightening.Equity prices were volatile and declined sharply,on net,while corporate bond yields increased substantially and spreads increased notably,partly reflecting some concerns about the future corporate credit outlook.Mortgage rates also rose sharply.In turn,tighter financial conditions may have begun to weigh on some financing activity.On the business side,nonfinancial corporate bond issuance was solid in the first quarter but slowed somewhat in April and May,with speculative-grade bond issuance being particularly weak.That said,the growth of bank loans to businesses picked up,and business credit quality has remained strong thus far.For households,mortgage originations declined materially.Nevertheless,mortgage credit remained broadly available for a wide range of potential borrowers.For other consumer loans(such as auto loans and credit cards),credit standards eased somewhat further or changed little,and credit outstanding grew briskly.Financial stability.Despite experiencing a series of adverse shockshigher-than-expected inflation,the ongoing supply disruptions related to COVID-19,and Russias invasion of Ukrainethe financial system has been resilient,though portions of the commodities markets temporarily experienced elevated levels of stress.The drop in equity prices and rising bond spreads suggest that valuation pressures in corporate securities markets have eased some from their previously elevated levels,but real estate prices have risen further this year.While business and household debt has been growing solidly,the ratio of credit to GDP has decreased to near pre-pandemic levels and most indicators of credit quality remained robust,suggesting that vulnerabilities from nonfinancial leverage are moderate.Large bank capital ratios dipped in the first quarter,but overall leverage in the financial sector appears moderate and little changed this year.Recent strains experienced in markets for stablecoinsdigital assets that aim to maintain a stable value relative to a national currency or other reference assetsand other digital assets have highlighted the structural fragilities in that rapidly growing sector.A few signs of funding pressures emerged amid the geopolitical tensions,particularly in commodities markets.However,broad funding markets proved resilient,and with direct exposures of U.S.financial institutions to Russia and Ukraine being small,financial spillovers have been limited to date.International developments.Economic activity has continued to recover in many foreign economies,albeit with new significant headwinds from Russias invasion of Ukraine and COVID lockdowns in China.These headwinds have,on net,pushed commodity prices higher,worsened supply disruptions,and lowered household and business confidence,thus damping the rebound in foreign economic activity.As in the United States,consumer price inflation abroad is high and has continued to rise in many economies,boosted by higher energy,food,and other commodity prices as well by supply chain constraints.In response,many foreign central banks have MONETARy POLICy REPORT:JUNE 2022 3 raised policy rates,and some have started to reduce the size of their balancesheets.Foreign financial conditions have tightened notably since the beginning of the year,in part reflecting the tightening in foreign monetary policy and concerns about persistently high inflation.Sovereign bond yields in many advanced foreign economies rose.Foreign risky asset prices declined,also driven by downside risks to the growth outlook amid the lockdowns in China and Russias invasion of Ukraine.The trade-weighted value of the dollar appreciated notably.Monetary PolicyIn response to significant ongoing inflation pressures and the tightening labor market,the Committee has been adjusting its policies and communications since last fall.The Committee wound down net purchases of securities and began reducing those securities holdings more rapidly than expected,and also initiated a swift increase in interest rates.Adjustments to both interest rates and the balance sheet are playing a role in firming the stance of monetary policy in support of the Committees maximum-employment and price-stability goals.Interest rate policy.In March,after holding the federal funds rate near zero since the onset of the pandemic,the FOMC raised the target range for that rate to to percent.The Committee raised the target range again in May and June,bringing it to the current range of 1 to 1percent,and conveyed its anticipation that ongoing increases in the target range will be appropriate.Balance sheet policy.The Federal Reserve began reducing its monthly net asset purchases last November and accelerated the reductions in December,bringing net purchases to an end in early March.In January,the FOMC issued a set of principles regarding its planned approach for significantly reducing the size of the Federal Reserves balance sheet.Consistent with those principles,the Committee announced in May its specific plans for significantly reducing its securities holdings and that these reductions would begin on June1.1The Committee acutely recognizes the significant hardship caused by elevated inflation,especially on those least able to meet the higher costs of essentials.The Committee is strongly committed to restoring price stability,which is necessary for sustaining a strong labor market.Special TopicsLabor market disparities.The labor market recovery over the past year and a half has been robust and widespread as the labor market effects of the pandemic have eased,with particularly strong improvement among groups that had suffered the most.As a result,employment and earnings of nearly all major demographic groups are near or above their levels before the pandemic,and employment rates are again near multidecade highs.However,there remain notable differences in employment and earnings across groups that predate the pandemic.Developments in global supply chains.Supply chain bottlenecks remain a major impediment for domestic and foreign firms.While U.S.manufacturers have been recording solid output growth for more than a year,order backlogs and delivery times remain high,and producer prices have risen rapidly.Further risks to global supply chains abound.In China,COVID-19 lockdowns drove the largest monthly declines in industrial production there since early 2020 while also disrupting internal and international freight transportation.In addition,the war in Ukraine continues to put 1.See the May4,2022,press release regarding the Plans for Reducing the Size of the Federal Reserves Balance Sheet,available at https:/www.federalreserve.gov/newsevents/pressreleases/monetary20220504b.htm.4 SUMMARyupward pressure on energy and food prices and has raised the risk of disruption in the supply of inputs to some manufacturing industries.Monetary policy rules.Simple monetary policy rules,which relate a policy interest rate to a small number of other economic variables,can provide useful guidance to policymakers.Many simple policy rules prescribed strongly negative values for the federal funds rate during the pandemic-driven recession.With inflation running well in excess of the Committees 2percent longer-run objective,a strong U.S.economy,and tight labor market conditions,the simple monetary policy rules considered here call for raising the target range for the federal funds rate significantly.Global inflation.Inflation abroad rose rapidly over the past year,reflecting soaring food and commodity prices,pandemic-related supply disruptions,and demand imbalances between goods and services.The price pressures have been amplified by the war in Ukraine and COVID-19 lockdowns in China.Although the recent inflation surge was concentrated in volatile components,such as food and energy,price increases have broadened to core goods and services.Global monetary policy.With inflation rising sharply across the globe,many central banks have tightened monetary policy.Policy tightening started last year as some emerging market central banks,particularly those in Latin America,were concerned that sharp increases in inflation could become entrenched in inflation expectations.Since fall 2021,many central banks in the advanced foreign economies have also started tightening monetary policy or are expected to do so soon,and several central banks that had expanded their balance sheets over the past two years are now allowing them to shrink.Developments in the Federal Reserves balance sheet.Following the conclusion of net asset purchases,the balance sheet remained stable at around$9trillion.Alongside the removal of policy accommodationthrough actual and expected increases in the policy rateplans for shrinking the size of the balance sheet were announced in May and were initiated in June.Despite the size of the balance sheet remaining steady,reserve balances fell,in large part because of increasingly elevated take-up at the overnight reverse repurchase agreement(ONRRP)facility,which reached a record high of$2.2trillion.In an environment of ample liquidity,limited Treasury bill supply,and low repurchase agreement rates,the ONRRP facility continued to serve its intended purpose of helping to provide a floor under short-term interest rates and to support effective implementation of monetary policy.5Domestic DevelopmentsInflation continued to run high.After surging 5.8percent over 2021the largest increase since 1981the price index for personal consumption expenditures(PCE)continued to post notable increases so far this year,and the change over the 12 months ending in April stood at 6.3percent(figure1).This pace is well above the FOMCs longer-run objective of 2percent.reflecting further large increases in food and energy prices.Grocery prices increased at a very rapid pace of 10percent over the 12months ending in April,more than 4percentage points faster than over the 12 months ending in December and the highest reading since 1981(figure2).Food commodity prices(such as wheat and corn),which had already increased last year,have risen further since Russias invasion of Ukraine.At the same time,high fuel costs,supply chain bottlenecks,and high wage growth have also pushed up processing,packaging,and transportation costs for food.The PCE price index for energy increased 30percent over the 12 months ending in April,Part 1reCent eConomiC and finanCiaL deveLoPmentsExcluding foodand energyTrimmed mean0.51.01.52.02.53.03.54.04.55.05.56.06.57.0Percent change from year earlier2022202120202019201820172016201520141.Change in the price index for personal consumption expenditures MonthlyTotalNOTE:The data extend through April 2022.SOURCE:For trimmed mean,Federal Reserve Bank of Dallas;for allelse,Bureau of Economic Analysis;all via Haver Analytics.2.Personal consumption expenditures price indexes Food andbeverages42 _024681012Percent change from year earlier2010 _010203040506020222021202020192018Percent change from year earlierEnergyNOTE:The data are monthly and extend through April 2022.SOURCE:Bureau of Economic Analysis via Haver Analytics.Servicesex energyand housingGoods ex food,beverages,and energy2 _02468Percent change from year earlier20222021202020192018MonthlyHousingservicesNOTE:The data extend through April 2022.SOURCE:Bureau of Economic Analysis via Haver Analytics.6 PART 1:RECENT ECONOMIC AND FINANCIAL DEvELOPMENTS42 _0246812-month percent change2022202120202019201820172016201520145.Nonfuel import price index MonthlyNOTE:The data extend through April 2022.SOURCE:Bureau of Labor Statistics via Haver Analytics.about the same pace as over the 12months ending in December.Large increases in crude oil and natural gas commodity prices have boosted consumer prices for gasoline and natural gas.which,in turn,partly reflected rising prices of commodities and importsBecause of Russias invasion of Ukraine,oil prices rose sharply in early March,reaching eight-year highs(figure3).Prices remain elevated and volatile,boosted by a European Union embargo of Russian oil imports but weighed down at times by concerns about global economic growth.In addition,producers in other countries are struggling to ramp up oil production.Nonfuel commodity prices also surged after the invasion,with large increases in the prices of both agricultural commodities and industrial metals(figure4).Although the price of industrial metals has declined recently,agricultural prices remain elevated.Ukraine and Russia are notable exporters of wheat,Russia is a major exporter of fertilizer,and higher energy prices are spilling over into the agricultural sector.Export restrictions and unfavorable weather conditions in several countries have also boosted agricultural prices.(See the box“Developments in Global Supply Chains.”)With commodity prices surging and foreign goods prices on the rise,import prices increased significantly(figure5).Excluding food and energy prices,monthly inflation readings have softened since the turn of the year but remain far above levels consistent with price stabilitySupply chain issues,hiring difficulties,and other capacity constraints have prevented the supply of products from rising quickly enough to satisfy continued strong demand,resulting in large price increases for many goods and services over the past year.After excluding consumer food and energy prices,Brent spot price20406080100120140160Dollars per barrel2007201020132016201920223.Spot and futures prices for crude oil Weekly24-month-aheadfutures contractsNOTE:The data are weekly averages of daily data and extend throughJune 10,2022.SOURCE:ICE Brent Futures via Bloomberg.Agricultureand livestock6080100120140160180Week ending January 3,2014=1002014 2015 2016 2017 2018 2019 2020 2021 20224.Spot prices for commodities WeeklyIndustrial metalsNOTE:The data are weekly averages of daily data and extend throughJune 10,2022.SOURCE:For industrial metals,S&P GSCI Industrial Metals IndexSpot;for agriculture and livestock,S&P GSCI Agriculture&LivestockSpot Index;both via Haver Analytics.MONETARy POLICy REPORT:JUNE 2022 7 the 12-month measure of core PCE inflation rose initially and then fell back to 4.9percent in April,unchanged from December.That said,monthly core inflation readings have softened noticeably since the start of the year,with the three-month measure of core PCE inflation falling from an annual rate of 6.0percent last December to 4.0percent in April.In particular,inflation stepped down for durable goods,likely reflecting some easing in supply constraints.Nevertheless,the recent inflation readings have been mixed,remain far above levels consistent with price stability,and are far from conclusive evidence on the direction of inflation.Unlike durable goods price inflation,core services inflation has not declined significantly.Housing service prices continue to rise at a brisk pace,and increased demand for travel is markedly pushing up inflation rates for lodging and airfares.More generally,rapid growth of labor costs is putting upward pressure on the prices of all labor-intensive services.Measures of near-term inflation expectations continued to rise markedly,while longer-term expectations moved up by lessThe first half of 2022 saw further increases in expectations of inflation for the year ahead in surveys of both consumers and professional forecasters(figure6).In the University of Michigan Surveys of Consumers,the median value for inflation expectations over the next year jumped to 5.4percent in March,its highest level since November1981,and has moved sideways since then.A portion of the upward movement so far this year likely reflects the war in Ukraine and the accompanying increases in the prices of commodities,especially those related to energy and food.Longer-term expectations,which are more likely to influence actual inflation over time,moved up by less and remained above pre-pandemic levels.The Michigan surveys median inflation expectation for the next CIE,projected onto10-year SPFMichigan survey,next 12 monthsSPF,10 years aheadCIE,projected ontoMichigan,next 5 to 10 years1.01.52.02.53.03.54.04.55.05.5Percent2022202020182016201420122010200820066.Measures of inflation expectations Michigan survey,next 5 to 10 yearsNOTE:The Survey of Professional Forecasters(SPF)data arequarterly,begin in 2007:Q1,and extend through 2022:Q2.The data forthe Index of Common Inflation Expectations(CIE)and the Michigansurvey are monthly and extend through June 2022;the June data for theMichigan survey and the CIE are preliminary.SOURCE:University of Michigan Surveys of Consumers;FederalReserve Bank of Philadelphia,SPF;Federal Reserve Board,CIE;Federal Reserve Board staff calculations.8 PART 1:RECENT ECONOMIC AND FINANCIAL DEvELOPMENTSmixed for bottlenecks in the transportation of goods.The number of ships waiting for berths at West Coast ports has declined noticeably,as port throughput has remained high,although manufacturers continue to cite logistics and transportation constraints as reasons for loweroutput.Bottlenecks in global production and transportation remain a major impediment for both domestic and foreign fi rms.Russias invasion of Ukraine and the widespread COvID-19 lockdowns in China have exacerbated strains in global supply networks and have led to greater uncertainty about the timing of improvement in supply conditions.Despite this turbulence in the global supply network,U.S.manufacturers have been recording solid output growth for more than a year.There have been gains in domestic motor vehicle production,as the supply of semiconductors has recovered somewhat(fi gure A).In addition,survey results suggest shorter supplier delivery times and lower order backlogs relative to their late 2021 levels(fi gure B).Notwithstanding these improvements,backlogs and delivery times for the sector remain elevated,and light vehicle assemblies are still a bit below pre-pandemic levels,with low dealer inventories continuing to constrain sales.For some materials that had previously been in short supplysuch as lumber and steelprices have declined from notable highs.Even so,the overall producer price index for manufacturing in April was more than 18percent above its year-earlier level(fi gureC).Progress has been similarly Developments in Global Supply Chains(continued)708090100110January 2020=100Feb.Apr.Jun.Aug.Oct.Dec.Feb.Apr.20212022A.U.S.light motor vehicle production MonthlyNOTE:The data extend through April 2022.The data are adjustedusing Federal Reserve Board seasonal factors.SOURCE:Wards Automotive Group,AutoInfoBank and IntelligenceData Query;Chrysler Group LLC,North American Production Data;General Motors Corporation,GM Motor Vehicle Assembly ProductionData.Order backlogs20304050607080Difusion index2022201720122007B.Suppliers delivery times and order backlogs MonthlyDelivery timesNOTE:Values greater than 50 indicate that more respondents reportedlonger delivery times or order backlogs relative to a month earlier thanreported shorter delivery times or order backlogs.SOURCE:Institute for Supply Management,ISM Manufacturing Report on Business.105 _05101520Percent change from year earlier202220212020201920182017C.Producer price index for manufacturing MonthlySOURCE:Bureau of Labor Statistics via Haver Analytics.MONETARy POLICy REPORT:JUNE 2022 9 Risks to supply chain conditions abound,including those arising from COvID-19 lockdowns in China beginning in mid-March and the ongoing war in Ukraine.1 Committed to their zero-COvID strategy,Chinese authorities ratcheted up restrictions quickly in the face of rising cases of the Omicron variant,which included a complete lockdown of Shanghai.The containment strategy managed to reduce case counts,allowing authorities to begin relaxing some citywide restrictions in late April.The lockdowns drove the largest monthly declines in Chinese activity since early 2020,with industrial production dropping about 13percent between February and April(fi gure D)before recovering some in May.With severely disrupted domestic logistics,supplier delivery times increased sharply in April and continued increasing in May,but not as strongly(fi gure E).Chinese international trade was also hit,contracting in the three months before April(fi gure F).As Chinese production continues to recover,the associated rebound in trade fl ows may further strain international transportation networks.1.The July1 expiration of the contract between dockworkers and West Coast port operators poses an additional risk for shipping-related disruption.Retail sales161284 _04812Percent changeJan.Mar.MayJulySept.Nov.Jan.Mar.May20212022D.Chinese industrial production and retail sales MonthlyIndustrial productionNOTE:Industrial production data are adjusted using Federal ReserveBoard seasonal factors.Retail sales data are seasonally adjusted by theNational Bureau of Statistics of China.SOURCE:National Bureau of Statistics of China via Haver Analytics;Federal Reserve Board staf calculations.5055606570Difusion index2022202120202019E.Chinas purchasing managers index:Supplier delivery times MonthlyNOTE:The series is seasonally adjusted.Values greater than 50indicate that more respondents reported longer delivery times relative toa month earlier than reported shorter delivery times.SOURCE:Caixin;S&P Global;both via Haver Analytics.Imports50 _050100150200Percent changeJan.Mar.MayJulySept.Nov.Jan.Mar.May20212022F.Nominal trade growth in China MonthlyExportsNOTE:All series are seasonally adjusted at an annual rate usingFederal Reserve Board seasonal factors.The data are 3-month movingaverages.SOURCE:General Administration of Customs,China,via HaverAnalytics.The invasion of Ukraine by Russia is causing economic hardship.For instance,the confl ict has disrupted global commodity markets in which Ukraine and Russia account for signifi cant shares of global exports.Notably,energy prices have soared,as(continued on next page)10 PART 1:RECENT ECONOMIC AND FINANCIAL DEvELOPMENTSincreasing geopolitical tensions have put the supply of Russian oil and gas to Europe at risk.Indeed,Russian energy exports have already been falling amid embargos on Russian oil,self-sanctioning by some companies,transportation diffi culties,and Russias decision to halt gas deliveries to several European countries.The prices of several nonfuel commodities that are vital inputs to some manufacturing industries jumped in the early days of the confl ict,including neon gas(an input in semiconductor chip production),palladium(an input in semiconductors and catalytic converters),nickel(an input in electric vehicles batteries),and platinum.However,prices have since retreated to near pre-invasion levels as major disruptions have failed to materialize thus far.Finally,blocked shipping routes in the Black Sea have severed the regions agricultural exports,disrupting global food markets.As a result,prices of corn,wheat,sunfl ower oil,and fertilizer have climbed to record-high levels,raising concerns of food insecurity across the globe.Further aggravating the situation,a number of countries introduced export bans on some food commodities to contain rising domestic food prices.Thus far,the war appears to have had more limited effects on other aspects of global supply chains.The effect on supplier delivery times across Europe has been muted,suggesting that the repercussions for manufacturers in the region have been relatively modest so far outside of the shifts in commodity prices Developments in Global Supply Chains(continued)Euro area4045505560657075808590Difusion index2022202120202019G.Purchasing managers index:Supplier delivery times MonthlyUnited KingdomNOTE:The series are seasonally adjusted.Values greater than 50indicate that more respondents reported longer delivery times relative toa month earlier than reported shorter delivery times.SOURCE:For the United Kingdom,S&P Global and the CharteredInstitute of Procurement&Supply;for the euro area,S&P Global;all viaHaver Analytics.(fi gure G).The global transportation system has also proved mostly resilient to the war,with signs of further strain in only a couple of sectors.Oil tanker charter rates spiked,boosted by a rise in demand as oil started to move to new markets,while truck transportation prices rose further,refl ecting higher diesel fuel costs.MONETARy POLICy REPORT:JUNE 2022 11 5to 10years rose to 3.3percent in the June preliminary reading.If confirmed,this reading would be near the top of the range from the past 25years.Nevertheless,it remains well below the corresponding measure of 1-year-ahead inflation expectations.In the second-quarter Survey of Professional Forecasters,the median expectation for 10-year PCE inflation edged up to 2.4percent,reflecting noticeable upward revisions to expected inflation this year and next but little change thereafter;the median expectation for 6 to 10years ahead held steady at 2percent.Market-based measures of longer-term inflation compensation,which are based on financial instruments linked to inflation,are sending a similar message.A measure of consumer price index(CPI)inflation compensation 5 to 10years ahead implied by Treasury Inflation-Protected Securities is little changed(on balance)since late 2021 and remains well below the corresponding measure of inflation compensation over the next 5years(figure7).The Index of Common Inflation Expectations,which is produced by Federal Reserve Board staff and synthesizes information from a large range of near-term as well as longer-term expectation measures,edged up in the first half of this year and now stands at the high end of the range from the past 20years.The labor market continued to tightenPayroll employment expanded an average of 488,000 per month in the first five months of the year(figure8).Payroll gains so far this year have been broad based across industries,with the leisure and hospitality sector continuing to see the largest gains as people continued their return to activities that had been cut back by the pandemic.The increase in payrolls was accompanied by further declines in the unemployment rate,which fell 0.3percentage point over the first five months of the year to 3.6percent in May,just above the bottom of its range 125130135140145150155Millions of jobs2022202020182016201420122010200820068.Nonfarm payroll employment MonthlySOURCE:Bureau of Labor Statistics via Haver Analytics.5-year0.51.01.52.02.53.03.54.0Percent20222020201820162014201220107.Inflation compensation implied by Treasury Inflation-Protected Securities Daily5-to-10-yearNOTE:The data are at a business-day frequency and are estimatedfrom smoothed nominal and inflation-indexed Treasury yield curves.SOURCE:Federal Reserve Bank of New York;Federal Reserve Boardstaff calculations.12 PART 1:RECENT ECONOMIC AND FINANCIAL DEvELOPMENTSover the past 50years(figure9).The decline in the unemployment rate has been fairly broad based across age,educational attainment,gender,and ethnic and racial groups(figure10).These declines have helped employment of nearly all major demographic groups recover to near or above their levels before the pandemic.(See the box“Developments in Employment and Earnings across Groups.”)While labor demand remained very strong,labor supply increased only modestly and stayed below pre-pandemic levelsDemand for labor continued to be very strong in the first half of the year.At the end of April,there were 11.4million job openings60percent above pre-pandemic levels and down a bit from the all-time high recorded in March.Meanwhile,the supply of labor rose only gradually and remained below pre-pandemic levels.The labor force participation rate(LFPR),which measures the share of people Black or African AmericanAsianHispanic or Latino2468101214161820Percent20222020201820162014201220102008200610.Unemployment rate,by race and ethnicity MonthlyWhiteNOTE:Unemployment rate measures total unemployed as a percentage of the labor force.Persons whose ethnicity is identified as Hispanic or Latinomay be of any race.Small sample sizes preclude reliable estimates for Native Americans and other groups for which monthly data are not reported bythe Bureau of Labor Statistics.SOURCE:Bureau of Labor Statistics via Haver Analytics.246810121416Percent2022202020182016201420122010200820069.Civilian unemployment rate MonthlySOURCE:Bureau of Labor Statistics via Haver Analytics.MONETARy POLICy REPORT:JUNE 2022 13 either working or actively seeking work,edged up just 0.1percentage point in the first five months of the yearfollowing a 0.4percentage point improvement last yearto 62.3percent in May(figure11).2Despite these improvements,the LFPR remains 1.1percentage points below its February2020 level.3 About one-half of this decline in the participation rate was to be expected even in the absence of the pandemic,as additional members of the large baby-boom generation have reached retirement age.In addition,several pandemic-related factors appear to be continuing to hold down the participation rate,including a pandemic-induced surge in retirements(beyond that implied by the aging of the baby boomers)and,to a diminishing extent,increased caregiving responsibilities and some continuing concerns about contracting COVID-19.In addition to subdued participation,a second factor constraining the size of the labor force has been a marked slowing in population growth since the start of the pandemic.Over 2020 and 2021,the working-age(16 and over)population grew by 0.4percent per year on averagenotably less than the 0.9percent2.The Bureau of Labor Statistics incorporated new population estimates beginning with the January2022 employment report.This development resulted in a one-time jump in the estimate of the aggregate LFPR of about 0.3percentage point due to a change in the age distribution of the population.Accordingly,the 0.4percentage point increase in the published measure from December to May overstates the improvement in the LFPR by about 0.3percentage point.3.This shortfall in the LFPR corresponds to a shortfall in the labor force of about 2.8million persons.(This calculation holds the LFPR constant at its February2020 level and assumes population growth equal to the actual growth observed since February2020.)Employment-to-population ratio50525456586062646668Percent20222020201820162014201220102008200611.Labor force participation rate and employment-to-population ratio MonthlyLabor force participation rateNOTE:The labor force participation rate and the employment-to-population ratio are percentages of the population aged 16 and over.SOURCE:Bureau of Labor Statistics via Haver Analytics.14 PART 1:RECENT ECONOMIC AND FINANCIAL DEvELOPMENTSEmployment for Blacks and Hispanics not only declined by more than that for whites and Asians early in the pandemic,but also recovered more quickly since the end of last year(fi gure A,upper-right panel).In addition,men and women with high school degrees or less saw larger declines and a faster recovery(fi gureA,lower-left panel).Similarly,gaps in employment between prime-age mothers and non-mothers that widened through 2020 have essentially closed(fi gureA,lower-right panel).By April2022,employment for all of those groups was near or above its pre-pandemiclevel.These differences in the timing of the employment recovery across different demographic groups partly refl ect the evolution of the pandemics effect on the labor market.For instance,social-distancing restrictions and concerns about contracting or spreading COvID-19 had likely inhibited employment in in-person services.As these restrictions and concerns have waned,employment of groups more commonly employed in in-person services,such as those with less education and some minority groups,has recovered quickly.3 Further,the closing of many schools and childcare facilities for the 202021 school year due to elevated levels of COvID cases likely held back the employment recovery of parents,as many families faced uncertainties about the consistent availability of in-person education for school-age children and childcare for younger children.The effects appear to have been particularly acute for mothers,especially Black and Hispanic mothers,as well as those with less 3.Before the pandemic,Blacks and Hispanics were less likely to be employed in jobs that could be performed remotely,and women and Blacks were more likely to be employed in occupations that involved greater face-to-face interactions;for example,see Laura Montenovo,Xuan Jiang,Felipe Lozano Rojas,Ian M.Schmutte,Kosali I.Simon,Bruce A.Weinberg,and Coady Wing(2020),“Determinants of Disparities in COvID-19 Job Losses,”NBER Working Paper Series 27132(Cambridge,Mass.:National Bureau of Economic Research,May;revised June2021),https:/www.nber.org/system/files/working_papers/w27132/w27132.pdf.Other research shows that even after accounting for workers job characteristics,Hispanic and nonwhite workers experienced a higher rate of job loss relative to other workers;see Guido Matias Cortes and Eliza Forsythe(2021),“The Heterogeneous Labor Market Impacts of the Covid-19 Pandemic,”unpublished paper,August,http:/publish.illinois.edu/elizaforsythe/files/2021/08/Cortes_Forsythe_Covid-demo_revision_8_1_2021.pdf.Labor market gains have been robust over the past year and a half as the economy continues to recover from the effects of the pandemic.Historically,economic downturns have tended to exacerbate long-standing differences in employment and earnings across demographic groups,especially for minorities and for those with less education,and this pattern was especially true early on in the pandemic.However,as pandemic-related factors have eased and the labor market has recovered,groups with larger employment declines early in the pandemic have had especially large increases lately.Now employment and real earnings of nearly all major demographic groups are near or above their levels before the pandemic,and employment rates are again near multidecade highs.Different age groups have had very different employment experiences over the course of the pandemic.1 Early in the pandemic,the employment-to-population(EPOP)ratio for people aged 16 to 24 not only declined by much more than that for people of prime age(25 to 54)and those aged 55 to 64,but also recovered much more quickly(see fi gure A,upper-left panel).2 Conversely,employment recovered more slowly for prime-age people throughout 2020 and nearly all of 2021.But in late 2021 and early 2022,the prime-age EPOP rose quickly,such that now all three of these age groups EPOP ratios have essentially recovered to their pre-pandemic levels.The EPOP ratio for those aged 65 and over,however,remains about 1percentage point below its pre-pandemic levela level it has maintained through much of the pandemic.The lower EPOP ratio for that group is entirely attributable to a lower labor force participation rate,which in turn largely refl ects an increase in retirements since the onset of the pandemic.A closer look at the prime-age group shows that there has been considerable heterogeneity in the pace of the employment recovery across race and ethnicity,educational attainment,and parental status.1.The January2022 employment report incorporates population controls that showed that the working-age population was both larger and younger over the past decade than the Census Bureau had previously estimated.Those population controls had meaningful effects on the aggregate EPOP ratio,but much smaller effects at the levels of disaggregation examined in this discussion.2.This discussion defi nes the pre-pandemic baseline EPOP ratio for each group as that groups average EPOP ratio over 2019.Developments in Employment and Earnings across Groups(continued)MONETARy POLICy REPORT:JUNE 2022 15 year,these childcare burdens likely eased,allowing many parents to reenter the workforce.See Joshua Montes,Christopher Smith,and Isabel Leigh(2021),“Caregiving for Children and Parental Labor Force Participation during the Pandemic,”FEDS Notes(Washington:Board of Governors of the Federal Reserve System,November5),https:/www.federalreserve.gov/econres/notes/feds-notes/caregiving-for-children-and-parental-labor-force-participation-during-the-pandemic-20211105.htm.A.Changes in employment-to-population ratio compared with the 2019 average ratio,by group16 to 24Black or African American65 Asian55 to 64Hispanic or Latino161412108642 _02Percentage points2022202120202019Age group Monthly25 to 541412108642 _024Percentage points2022202120202019Race and ethnicity:Prime age MonthlyWhiteMen,college or moreParentsWomen,high school or lessWomen,college or more161412108642 _024Percentage points2022202120202019Educational attainment:Prime age MonthlyMen,high school or lessNOTE:Prime age is 25 to 54.The age groups 16 to 24 and prime age show seasonally adjusted data published by the Bureau of Labor Statistics,whereas all other groups data are seasonally adjusted by the Federal Reserve Board staf.SOURCE:Bureau of Labor Statistics;Federal Reserve Board staf calculations from Current Population Survey microdata.12108642 _02Percentage points2022202120202019Parental status:Prime-age women MonthlyNonparents(continued on next page)education.4 However,with schools having generally provided in-person education for the 202122 school 4.The increase in the share of mothers of school-age children who reported being out of the labor force due to caregiving closely tracked the degree to which schools were fully closed to in-person learning over the 202021 school year,and districts that serve more Blacks and Hispanics were less likely to provide fully in-person education during the 202021 school year,which may account for some of the larger and more persistent declines in labor force attachmentfor Black and Hispanic mothers over this period.16 PART 1:RECENT ECONOMIC AND FINANCIAL DEvELOPMENTStime real earnings for women versus men is slightly smaller in 2022:Q1 than it was in 2019,as is the gap in median real earnings between Black and white full-time workers.66.Some of a groups earnings growth relative to 2019 may refl ect lingering pandemic-related compositional shifts in the groups full-time workers.Additionally,real earnings growth accounts for aggregate infl ation,but some demographic groups may be disproportionately exposed to infl ation due to differences in groups consumption patternsimplying lower real earnings growth for groups with greater exposure to infl ation.Although the gaps in employment outcomes across groups that widened during the pandemic have diminished,the considerable gaps that existed before the pandemic remain.For example,the EPOP ratio for whites of prime age remains more than 3percentage points above those for prime-age Black and Hispanic people;the EPOP ratio of college-educated,prime-age people is about 15percentage points higher than that of prime-age people with high school degrees or less;and the EPOP ratio for prime-age mothers is about 5percentage points below that of non-mothersall similar in size to the gaps that existed before the pandemic.The broad-based nature of the labor market recovery is also apparent in workers earnings,which have grown rapidly as employment surged in 2021 and early 2022.As of 2022:Q1,the median full-time workers usual weekly earnings had grown 12.3percent relative to pre-pandemic levelsimplying real earnings growth of 3.1percent(fi gure B).5 Although this earnings growth has been widespread,it has been largest for women,minorities,young workers,and workers with less than a high school education.The growth in earnings for some demographic groups has been suffi ciently robust to shrink some pre-pandemic disparities in real earnings between groups.For instance,the gap in median full-5.Just as with the change in the EPOP ratio,each groups pre-pandemic baseline is defi ned as the groups average median usual weekly earnings in 2019.The reported growth in real usual weekly earnings defl ates nominal earnings growth by total PCE(personal consumption expenditures)infl ation.If,instead,the CPI were used to defl ate nominal earnings,then reported real earnings growth since 2019 would be 2percentage points lowerbut even when using the CPI to defl ate nominal earnings,real earnings have risen for most groups since 2019.B.Growth in median full-time usual weekly earnings from 2019 to 2022:Q1 Percent change relative to 2019 averageNominalReal(PCE)0246810121416Hispanic or LatinoAsianBlack or African AmericanWhite65 556425541624Bachelors or moreSome collegeHigh schoolLess than high schoolWomenMenOverallNOTE:The percent change as of 2022:Q1 is relative to the 2019 average ofthe median usual weekly earnings for full-time workers in each group.Realearnings growth defates the nominal earnings growth by the average growth inthe personal consumption expenditures(PCE)price index as of 2022:Q1relative to its 2019 average level.The overall earnings,as well as those for menand women,use seasonally adjusted data,but the other groups earnings arenot seasonally adjusted.The key identifes bars in order from left to right.SOURCE:For median usual weekly earnings,Bureau of Labor Statistics;forthe PCE price index,Bureau of Economic Analysis.Developments in Employment and Earnings across Groups(continued)MONETARy POLICy REPORT:JUNE 2022 17 average rate over the previous five years.4 The slowing in population growth over 202021 was due to both a sharp decline in net immigration and a spike in COVID-related deaths.5 Had the population increased over 202021 at the same rate as over the previous five years,the labor force would have been about 1million larger as of the second quarter of this year.6As a result,labor markets remained extremely tight.Reflecting very strong demand for workers alongside still-subdued supply,a wide range of indicators have continued to point to an extremely tight labor market despite the fact that the level of payroll employment in May remained about 820,000 below the level in February2020.7 The number of total available jobs,measured by total employment plus posted job openings,continued to far exceed the number of available workers,measured by the size of the labor force.8 The gap was 4.Population forecasts just before the onset of the pandemic also projected faster population growth for 202122 than has been realized.For example,the Congressional Budget Office projected 0.8percent growth per year in 202122 in its January2020 budget and economic projections;see Congressional Budget Office(2020),The Budget and Economic Outlook:2020 to 2030(Washington:CBO,January),https:/www.cbo.gov/publication/56020.Before 2015,population growth was even higher.For example,the average growth rate in the working-age population between 1980 and 2014 was 1.2percent per year.5.The effect of COVID-related deaths on the labor force,however,was relatively smaller,because these deaths have been concentrated among older individuals,who tend to have low LFPRs.6.This calculation uses the actual LFPR in May2022 and multiplies it by the level of the population that would have been realized in that month had population growth over 202021 been the same as the growth observed over 201519.7.After adjusting for population growth since the beginning of the pandemic,the shortfall in payrolls relative to their pre-pandemic level was about 2.3million in May.8.The labor force includes all people aged 16 and older who are classified as either employed or unemployed.18 PART 1:RECENT ECONOMIC AND FINANCIAL DEvELOPMENTSabout 5million at the end of April,near the highest level on record.9 The share of workers quitting jobs each month,an indicator of the availability of attractive job prospects,was 2.9percent at the end of April,near the all-time high reported in November(figure12).Initial claims for unemployment benefits remain near the lowest levels observed in the past 50years.Households and small businesses perceptions of labor market tightness were near or above the highest levels observed in the history of these series.And,finally,employers continued to report widespread hiring difficulties.That said,some possible signs of modest easing of labor market tightness have recently appeared.For example,as noted in the next section,some measures of wage growth appear to have moderated.And in the June2022 Beige Book,employers in some Federal Reserve Districts reported some signs of modest improvement in worker availability.and nominal wages continued to increase at a robust paceReflecting very tight labor market conditions,nominal wages continued to rise at historically rapid rates.For example,the employment cost index(ECI)of total compensation rose 4.8percent over the 12 months ending in March,well above 2.8percent from a year earlier(figure13).The most recent readings include a surge in bonuses,which may reflect the challenges of retaining and hiring workers.In addition,wage growth as computed by the Federal Reserve Bank of Atlanta,which tracks the median 12-month wage growth of individuals responding to the Current Population Survey,picked up markedly this year and rose more than 6percent in May,well above the 3to 4percent pace reported over the previous few years.9.Another usual indicator of the gap between available jobs and available workers is the ratio of job openings to unemployment.At the end of April,this indicator showed that there were 1.9 job openings per unemployed person.Compensation per hour,business sectorAtlanta Feds Wage Growth TrackerEmployment cost index,private sector2 _0246810Percent change from year earlier2022202020182016201413.Measures of change in hourly compensation Average hourly earnings,private sectorNOTE:Business-sector compensation is on a 4-quarter percent changebasis.For the private-sector employment cost index,change is over the12 months ending in the last month of each quarter;for private-sectoraverage hourly earnings,the data are 12-month percent changes;for theAtlanta Feds Wage Growth Tracker,the data are shown as a 3-monthmoving average of the 12-month percent change.SOURCE:Bureau of Labor Statistics;Federal Reserve Bank of Atlanta,Wage Growth Tracker;all via Haver Analytics.Vacancy-to-unemployment ratio0.3.6.91.188.8.131.52.4Ratio.81.21.62.02.42.83.220222020201820162014201220102008200612.Ratio of job openings to job seekers and quits rate Percent of employmentNonfarm quits rateNOTE:The data are monthly and extend through April 2022.Thevacancy-to-unemployment ratio data are the ratio of job openings tounemployed.SOURCE:Bureau of Labor Statistics,Job Openings and LaborTurnover Survey.MONETARy POLICy REPORT:JUNE 2022 19 That said,there are some signs that nominal wage growth may be leveling off or moderating.The growth of wages and salaries as measured by the ECI moderated from 5.6percent at an annual rate in the second half of last year to 5.2percent early this year.And even as payroll employment continued to grow rapidly and the unemployment rate continued to fall,the three-month change in average hourly earnings declined from about 6percent at an annual rate late last year to 4.5percent in May,with the moderation in earnings growth particularly notable for employees in the sectors that experienced especially strong wage growth last year,such as leisure and hospitality.Following a period of solid growth,labor productivity softenedThe extent to which sizable wage gains raise firms unit costs and act as a source of inflation pressure depends importantly on the pace of productivity growth.Considerable uncertainty remains around the ultimate effects of the pandemic on productivity.From 2019 through 2021,productivity growth in the business sector picked up(albeit by less than compensation growth),averaging about 2percent at an annual rateabout 1percentage point faster than the average pace of growth over the previous decade(figure14).Some of this pickup in productivity growth might reflect persistent factors.For example,the pandemic resulted in a high rate of new business formation,the widespread adoption of remote work technology,and a wave of labor-saving investments.The latest reading,however,showed a decline in business-sector productivity in the first quarter of this year.While quarterly productivity data are notoriously volatile,this decline nevertheless highlights the possibility that some of the earlier productivity gains could prove transitory,perhaps reflecting worker effort initially surging in response to employment shortages and hiring difficulties 1 _01234Percent,annual rate14.Change in business-sector output per hour 1949 731974 95199620032004 082009 182019 212022NOTE:Changes are measured from Q4 of the year immediatelypreceding the period through Q4 of the final year of the period,except2022 changes,which are calculated from 2021:Q1 to 2022:Q1.SOURCE:Bureau of Labor Statistics via Haver Analytics.20 PART 1:RECENT ECONOMIC AND FINANCIAL DEvELOPMENTSand then subsequently returning to more normal levels.10 If the gap between wage growth and productivity growth remains comparably wide in the future,the result will be significant upward pressure on firms laborcosts.Gross domestic product declined in the first quarter of 2022 after having surged in the fourth quarter of 2021.Real gross domestic product(GDP)is reported to have surged at a 6.9percent annual rate in the fourth quarter of 2021and then to have declined at a 1.5percent annual rate in the first quarterbecause of fluctuations in net exports and inventory investment(figure15).These two categories of expenditures are volatile even in normal times,and they have been even more so in recent quarters.Some improvement in supply chain conditions late last year appears to have enabled firms to rebuild depleted inventories;inventory investment surged in the fourth quarter and then moderated to a still-elevated pace in the first quarter,thereby weighing on GDP growth.Other measures of activity,including employment,industrial production,and gross domestic income,indicate continued growth in the first quarter.while growth in consumer spending and business investment was solid in the first quarterAfter abstracting from these volatile components,growth in private domestic final demand(consumer spending plus residential and business fixed investmenta measure that tends to be more stable and better reflects the strength of overall economic activity)was solid in the first quarter,supported by some unwinding of supply bottlenecks and a further reopening of the economy.The most recent spending data and other indicators suggest that private fixed investment may be 10.The November2021 Beige Book reported that many employers were planning to increase hiring because of concerns that their current workforce was being overworked.17.017.518.018.519.019.520.0Trillions of chained 2012 dollars2022202120202019201820172016201515.Real gross domestic product QuarterlySOURCE:Bureau of Economic Analysis via Haver Analytics.MONETARy POLICy REPORT:JUNE 2022 21 moderating,but consumer spending remains strong and drag from inventory investment and net exports may be dissipating.As a result,private domestic final demand and real GDP appear on track to rise moderately in the second quarter.Real consumer spending growth remained strong.Real consumer spendingthat is,spending after adjusting for inflationcontinued to grow briskly,supported by a partial unwinding of supply bottlenecks and continued normalization of spending patterns as the pandemic fades.For example,spending on motor vehicles grew markedly in the first quarter,reflecting improvements in both domestic and foreign production,and spending on services(especially at restaurants)grew briskly.That said,consumer spending growth has moderated from its very rapid pace from early 2021 as fiscal support has declined from historical highs,some households have likely depleted excess savings accumulated during the pandemic,and inflation has eroded households purchasing power.The composition of spending remains more tilted toward goods and away from services than it was before the pandemic.Real goods spending is still well above its trend,while real spending on services remains below trend(figure16).Nevertheless,the composition continued to shift back toward services.While goods spending was only modestly higher in April compared with its average from late last year,services spending rose significantly.supported by high levels of wealthHousehold wealth grew by roughly$30trillion between late 2019 and late 2021 because of rises in equity and house prices along with the elevated rate of saving in 2020 and 2021(figures17 and 18).Since the beginning of the year,wealth has declined because of the drop in equity prices.Nevertheless,wealth remains 04812162024283236PercentMonthly20222020201820162014201220102008200618.Personal saving rate NOTE:The data extend through April 2022.SOURCE:Bureau of Economic Analysis via Haver Analytics.Goods6.57.07.58.08.59.09.5Trillions of chained 2012 dollars2.53.03.54.04.55.05.56.020222020201820162014201220102008200616.Real personal consumption expenditures Trillions of chained 2012 dollarsServicesNOTE:The data are monthly and extend through April 2022.SOURCE:Bureau of Economic Analysis via Haver Analytics.5.05.56.06.57.07.58.08.5Ratio20222020201820162014201220102008200617.Wealth-to-income ratio QuarterlyNOTE:The series is the ratio of household net worth to disposablepersonal income.SOURCE:For net worth,Federal Reserve Board,Statistical ReleaseZ.1,“Financial Accounts of the United States”;for income,Bureau ofEconomic Analysis via Haver Analytics.22 PART 1:RECENT ECONOMIC AND FINANCIAL DEvELOPMENTSwell above pre-pandemic levels,providing continuing support for consumer spending.Consumer financing conditions were generally accommodative,especially for borrowers with stronger credit scoresFinancing has been generally available to support consumer spending.Following a period of widespread reported easing last year,standards on credit card loans eased somewhat further in the first quarter,whereas those on auto and other consumer loans changed little.Partly reflecting higher credit card purchase volumes,credit card balances grew rapidly in recent months(figure19).Even so,many credit card users still have ample unused credit.Auto loans grew briskly during the first quarter,consistent with the concurrent rebound in autosales.Meanwhile,borrowing costs rose.However,they remain below pre-pandemic levels for credit cards and auto loans,partly reflecting strong consumer credit quality.Indeed,delinquency rates on consumer loans remain low relative to historical averages despite some recent increases among nonprime borrowers.Housing construction remained high but may be moderating.New single-family construction has remained well above pre-pandemic levels.However,new construction may be softening,with single-family permits turning down some in March and April(figure20).As in the past year,still-tight supplies of materials,labor,and other inputs may still be restraining new construction.Also,builders have become distinctly less optimistic about prospects for housing sales,perhaps owing to the sharp rise in mortgage rates(figure21).while home sales fell amid low inventories and rising mortgage ratesHome sales stepped down substantially from the very high levels prevailing late last year and are now close to pre-pandemic levels 2.53.03.54.04.55.05.5Percent2022202020182016201421.Mortgage rates WeeklyNOTE:The data are contract rates on 30-year,fixed-rate conventionalhome mortgage commitments and extend through June 9,2022.SOURCE:Freddie Mac Primary Mortgage Market Survey.Single-familypermitsMultifamily starts0.2.4.6.81.01.21.41.61.82.0Millions of units,annual rate20222020201820162014201220102008200620.Private housing starts and permits MonthlySingle-family startsNOTE:The data extend through April 2022.SOURCE:U.S.Census Bureau via Haver Analytics.2010 _010203040Billions of dollars,monthly rate2022202020182016201420122010200819.Consumer credit flows Apr.Q1SOURCE:Federal Reserve Board,Statistical Release G.19,“ConsumerCredit.”Student loansAuto loansCredit cardsMONETARy POLICy REPORT:JUNE 2022 23(figure22).Some of this decline may have reflected further reductions in inventories of existing homes to historically low levels early in the year.In addition,the sharp increases in mortgage rates may have begun to moderate housing demand.Even so,financing conditions in the residential mortgage market remained accommodative for borrowers who met standard loan criteria,and the terms of mortgage credit for households with lower credit scores continued to ease toward pre-pandemic levels.Listings,sales,and price data suggest that so far,demand remains strong relative to the pace at which homes are being made available for sale.For example,the share of homes off market within two weeks remains elevated,and as of April,several measures of national house prices were up about 20percent from a year earlier,though less in real terms(figure23).Business fixed investment rose strongly in the first quarter but may now be moderatingInvestment in equipment and intangibles surged at a 12percent annual rate in the first quarter(figure24).Investment demand remained strong,as worker shortages and high-capacity utilization in manufacturing likely maintained strong incentives for firms to automate production and boost capital expenditures.In turn,strong investment demand continued to boost equipment prices in an environment of constrained supply,but there have been initial signs that supply constraints may have begun to ease.In particular,since late last year,shipments of capital goods have begun to catch up with orders.The most recent indicators suggest that the growth of investment in equipment and intangibles will slow significantly in the second quarter,possibly reflecting drag from tighter financial conditions.Investment in nonresidential structures declined moderately in the first quarter after falling more rapidly over the second half of CoreLogic price indexS&P/Case-Shillernational index607080901001101201302005:Q1=10020222020201820162014201220102008200623.Real prices of existing single-family houses QuarterlyZillow indexNOTE:Series are deflated by the personal consumption expendituresprice index.SOURCE:Bureau of Economic Analysis via Haver Analytics;CoreLogic Home Price Index;Zillow,Inc.,Real Estate Data;S&P/Case-Shiller U.S.National Home Price Index.The S&P/Case-Shillerindex is a product of S&P Dow Jones Indices LLC and/or its affiliates.(For Dow Jones Indices licensing information,see the note on theContents page.)Existing home sales.184.108.40.206.01.21.4Millions,annual rate3.03.54.04.55.05.56.06.57.020222020201820162014201220102008200622.New and existing home sales Millions,annual rateNew home salesNOTE:The data are monthly and extend through April 2022.Newhome sales include only single-family sales.Existing home sales includesingle-family,condo,and co-op sales.SOURCE:For new home sales,U.S.Census Bureau;for existing homesales,National Association of Realtors;all via Haver Analytics.24 PART 1:RECENT ECONOMIC AND FINANCIAL DEvELOPMENTS2021,and it appears on track to decline again in the second quarter.Declines in spending on nondrilling structures have been only partly offset by rapid increases in drilling investment,which reflect the recent rise in energy prices.Business financing conditions tightened somewhat but remained generally accommodativeCredit remained available to most nonfinancial corporations,but financing conditions tightened somewhat,especially for lower-rated firms.Gross nonfinancial corporate bond issuance was solid in the first quarter but slowed somewhat in April and May,with speculative-grade bond issuance particularly weak.Leveraged loan issuance also declined notably in May,partly reflecting weakening demand from retail investors.The growth of business loans at banks picked up from the subdued pace of last year,reflecting stronger loan originations as well as a moderation in loan forgiveness associated with the Paycheck Protection Program.Credit also remained broadly available to small businesses.The share of small firms reporting that it was more difficult to obtain loans(compared with three months earlier)remained low by historical standards.Loan origination data through April were consistent with credit availability being comparable with pre-pandemic levels amid gradually recovering demand for small business credit.Most measures of loan performance remained largely stable;through April,default and delinquency rates remained below their pre-pandemic levels.The strong U.S.demand has partly been met through a rapid rise in importsDriven by the continued strength in domestic economic activity,including still-strong demand for goods consumption,U.S.imports continued to grow at a rapid pace,surging well above their pre-pandemic trend(figure25).High levels of imported goods have kept international logistics channels operating Imports1,5001,7502,0002,2502,5002,7503,0003,2503,5003,7504,000Billions of chained 2012 dollars2022202020182016201420122010200825.Real imports and exports of goods and services QuarterlyExportsSOURCE:Bureau of Economic Analysis via Haver Analytics.Structures1,0001,2001,4001,6001,8002,0002,2002,4002,600Billions of chained 2012 dollars35040045050055060065020222019201620132010200724.Real business fixed investment Billions of chained 2012 dollars Equipment and intangible capitalNOTE:Business fixed investment is known as“private nonresidentialfixed investment”in the national income and product accounts.The dataare quarterly.SOURCE:Bureau of Economic Analysis via Haver Analytics.MONETARy POLICy REPORT:JUNE 2022 25 under high pressure,which has continued to impair the timely delivery of goods to U.S.customers.Real goods exports have only recovered to pre-pandemic levels.Real exports and imports of services remain subdued,reflecting a slow recovery of international travel.Given the recent strength of imports relative to the milder recovery in exports,the nominal trade deficit widened further as a share of GDP(figure26).The support to economic activity provided by federal fiscal actions continued to diminish.In response to the pandemic,the federal government enacted fiscal policies to address the economic consequences of the pandemic.Because the boost to spending from these policies ended last year,the effects on demand are likely waning this year and weighing on GDP growth.and,in turn,the budget deficit has fallen sharply from pandemic highs,and the growth of federal debt has moderatedThe Congressional Budget Office estimates that fiscal policies enacted since the start of the pandemic will increase federal deficits roughly$5.4trillion by the end of fiscal year2030,with the largest deficit effects having occurred in fiscal 2020 and 2021.11 These policies,combined with the effects of the automatic stabilizersthe reduction in tax receipts and increase in transfers that occur as a consequence of depressed economic 11.For more information,see Congressional Budget Office(2020),“The Budgetary Effects of Laws Enacted in Response to the 2020 Coronavirus Pandemic,March and April2020,”June,https:/www.cbo.gov/system/files/2020-06/56403-CBO-covid-legislation.pdf;Congressional Budget Office(2021),“The Budgetary Effects of Major Laws Enacted in Response to the 202021 Coronavirus Pandemic,December2020 and March2021,”September,https:/www.cbo.gov/system/files/2021-09/57343-Pandemic.pdf;and Congressional Budget Office(2021),“Senate Amendment 2137 to H.R.3684,the Infrastructure Investment and Jobs Act,as Proposed on August1,2021,”August9,https:/www.cbo.gov/system/files/2021-08/hr3684_infrastructure.pdf.Current account7654321 _0Percent of nominal GDP2022201920162013201020072004200126.U.S.trade and current account balances QuarterlyTradeNOTE:GDP is gross domestic product.Current account balance dataextend through 2021:Q4.SOURCE:Bureau of Economic Analysis via Haver Analytics.26 PART 1:RECENT ECONOMIC AND FINANCIAL DEvELOPMENTSactivitycaused the federal deficit to surge to 15percent of nominal GDP in fiscal 2020 and remain elevated at 12percent in fiscal 2021.But with pandemic fiscal programs having largely ended and receipts surging,the deficit has fallen sharply thus far in fiscal 2022 relative to fiscal 2021 and,by the end of the fiscal year,is expected to be close to the deficits prevailing just before the pandemic(figure27).As a result of the fiscal support enacted during the pandemic,federal debt held by the public jumped to around 100percent of nominal GDP in fiscal 2020the highest debt-to-GDP ratio since 1947(figure28).But with deficits falling and economic growth having rebounded,the debt-to-GDP ratio has since receded slightly from its recent peak.State and local government budget positions are remarkably strong.Federal policymakers provided a historic level of fiscal support to state and local governments during the pandemic,with aid totaling about$1trillion.This aid has more than covered pandemic-related budget shortfalls in the aggregate.Moreover,following the pandemic-induced slump,total state tax collectionspushed up by the economic expansionrose appreciably in 2021 and continued to grow rapidly in early 2022(figure29).In turn,this recovery in revenues has led some state governments to enact or consider enacting tax cuts.At the local level,property taxes have continued to rise apace,and the typically long lags between changes in the market value of real estate and changes in tax collections suggest that property tax revenues will rise quite substantially going forward,given the rise in house prices.but hiring and construction outlays have continued to lagDespite the return to in-person schooling and the strong fiscal position of state and local governments,state and local government payrolls continued to expand only modestly in the first half of 2022.Employment levels Expenditures14161820222426283032Percent of nominal GDP202220172012200720021997Annual27.Federal receipts and expenditures ReceiptsNOTE:Through 2021,the receipts and expenditures data are on aunified-budget basis and are for fiscal years(October to September);gross domestic product(GDP)is for the 4 quarters ending in Q3.For2022,receipts and expenditures are for the 12 months ending in May;GDP is the average of 2021:Q4 and 2022:Q1.SOURCE:Department of the Treasury,Financial Management Service;Office of Management and Budget and Bureau of Economic Analysis viaHaver Analytics.Debt held bythe public020406080100120Percent of nominal GDP.51.01.52.02.53.03.528.Federal government debt and net interest outlays Percent of nominal GDP1902192219421962198220022022Net interest outlayson federal debtNOTE:The data for net interest outlays are annual,begin in 1948,andextend through 2021.Net interest outlays are the cost of servicing thedebt held by the public.Federal debt held by the public equals federaldebt less Treasury securities held in federal employee defined-benefitretirement accounts,evaluated at the end of the quarter.The data forfederal debt are annual from 1901 to 1951 and quarterly thereafter.GDPis gross domestic product.SOURCE:For GDP,Bureau of Economic Analysis;for federal debt,Congressional Budget Office and Federal Reserve Board,StatisticalRelease Z.1,“Financial Accounts of the United States.”MONETARy POLICy REPORT:JUNE 2022 27 have regained about 60percent of their sizable pandemic losses,falling well short of the recovery in private payrolls(figure30).One reason for this disparity appears to be that public-sector wages have not kept pace with the rapid gains in the private sector,which may be inhibiting the ability of these governments to staff back up to pre-pandemic levels.Meanwhile,real construction outlays by state and local governments continued to decline in the first half of the year and are currently about 15percent below pre-pandemic levels.Financial DevelopmentsThe expected level of the federal funds rate over the next few years shifted up substantiallyIn March,May,and June,the FOMC raised the target range for the federal funds rate a total of 1percentage points.The expected path of the federal funds rate over the next few years also shifted up substantially since late February(figure31).Economic data releases and FOMC communications were viewed by market participants as implying tighter monetary policy than previously expected.Market-based measures suggest that investors anticipate the federal funds rate to exceed 3.6percent by the end of this year,which is about 2percentage points higher than the level expected in late February.The same measures suggest that the federal funds rate is expected to peak at about 4percent in mid-2023 before gradually declining to about 3.1percent by the end of 2025,which is about 1.4percentage points higher than the end-2025 rate expected in late February.Similarly,according to the results of the Survey of Primary Dealers and the Survey of Market Participants,both conducted by the Federal Reserve Bank of New York in April,the median of respondents projections for 18.018.519.019.520.020.5Millions of jobs202220202018201620142012201020082006Monthly30.State and local government payroll employment SOURCE:Bureau of Labor Statistics via Haver Analytics.Total state taxes5 _051015202530Percent change from year earlier20222020201820162014201229.State and local tax receipts NOTE:State tax data are year-over-year percent changes of 12-monthmoving averages,begin in June 2012,extend through April 2022,and areaggregated over all states except Wyoming,for which data are notavailable.Revenues from Washington,D.C.,are also excluded.Data aremissing for March 2022 to April 2022 for New Mexico and Oregon andApril 2022 for Nevada,as these states have longer reporting lags thanothers.Property tax data are year-over-year percent changes of 4-quartermoving averages,begin in 2012:Q2,extend through 2021:Q4,and areprimarily collected by local governments.SOURCE:Monthly State Government Tax Revenue Data via UrbanInstitute;U.S.Census Bureau,Quarterly Summary of State and LocalGovernment Tax Revenue.Property taxes28 PART 1:RECENT ECONOMIC AND FINANCIAL DEvELOPMENTSthe most likely path of the federal funds rate shifted up significantly since January.12Before late February,the expected path of the federal funds rate had started to increase notably in the third quarter of last year,in anticipation of increases in the target range.Consistent with the rise in the expected path of the federal funds rate,yields on Treasury securities and corporate bonds,as well as mortgage rates,all started to increase materially at a similar time.Meanwhile,broad equity price indexes have declined on net.Overall,these moves in asset prices suggest tightening of financial conditions even before the initial increase in the target range of the federal funds rate occurred in March(figure32).Yields on U.S.nominal Treasury securities also rose considerablyYields on nominal Treasury securities across maturities have risen considerably since late February(figure33).After a brief dip in late February,following Russias invasion of Ukraine,yields rose steadily amid higher inflationary pressures and associated expectations for monetary policy tightening.The increases in nominal Treasury yields were primarily accounted for by rising real yields.Uncertainty about longer-term interest ratesas measured by the implied volatility embedded in the prices of near-term options on 10-year interest rate swapsalso increased significantly,reportedly reflecting,in part,an increase in uncertainty about the policyoutlook.Yields on other long-term debt increased substantiallyAcross credit categories,corporate bond yields have increased substantially and 12.The results of the Survey of Primary Dealers and the Survey of Market Participants are available on the Federal Reserve Bank of New Yorks website at https:/www.newyorkfed.org/markets/primarydealer_survey_questions.html and https:/www.newyorkfed.org/markets/survey_market_participants,respectively.10-year TreasuryMortgage rate01234567Percent2022202120202019201820172016201532.Financial market indicators DailyInvestment-grade corporateNOTE:Investment-grade corporate reflects the effective yield of theICE Bank of America Merrill Lynch triple-B U.S.Corporate Index(C0A4).The mortgage rate is contract rates on 30-year,fixed-rateconventional home mortgage commitments.Mortgage rate data extendthrough June 9,2022.SOURCE:Department of the Treasury via Haver Analytics;FreddieMac Primary Mortgage Market Survey;ICE Data Indices,LLC,usedwith permission.2-year5-year01234Percent20222020201820162014201233.Yields on nominal Treasury securities Daily10-yearSOURCE:Department of the Treasury via Haver Analytics.June 14,20220.51.01.52.02.53.03.54.04.5Percent2026202520242023202231.Market-implied federal funds rate path QuarterlyFebruary 25,2022NOTE:The federal funds rate path is implied by quotes on overnightindex swapsa derivative contract tied to the effective federal funds rate.The implied path as of February 25,2022,is compared with that as ofJune 14,2022.The path is estimated with a spline approach,assuming aterm premium of 0 basis points.The February 25,2022,path extendsthrough 2026:Q1 and the June 14,2022,path through 2026:Q2.SOURCE:Bloomberg;Federal Reserve Board staff estimates.MONETARy POLICy REPORT:JUNE 2022 29 spreads over yields on comparable-maturity Treasury securities have increased notably since late February.Corporate bond yields and spreads are somewhat above the historical median values of their respective historical distributions since the mid-1990s(figure34).Municipal bond yields also increased significantly while spreads increased somewhat since late February.Spreads on municipal bonds are now moderately above their historical medians.On net,corporate bond spreads are moderately above their pre-pandemic levels,and municipal bond spreads are near levels prevailing shortly before the pandemic.While the widening of corporate bond spreads since late February appears to partly reflect a deterioration in market expectations of future credit quality,corporate and municipal credit quality thus far in 2022 have remained strong.So far this year,defaults have been low,and upgrades of bond ratings have outpaced downgrades in both markets.Since late February,yields on agency mortgage-backed securities(MBS)an important pricing factor for home mortgage ratesincreased significantly,as longer-term Treasury yields increased and spreads over comparable-maturity Treasury securities widened(figure35).MBS spreads increased as market participants expectations of a gradual reduction in the Federal Reserves balance sheet shifted to a faster reduction.Broad equity price indexes declined sharply,on net,amid substantial volatilityBroad equity price indexes were volatile and declined sharply,on net,amid sustained inflation pressures and expectations of monetary policy tightening,as well as heightened uncertainty regarding Russias invasion of Ukraine and the economic outlook(figure36).Bank stock prices also declined on net.One-month option-implied volatility on the S&P 500 indexthe VIXrose notably to elevated levels in the days following Russias invasion of Ukraine.The VIX trended down for some time only to increase again and Yield050100150200250Basis points1234520222020201820162014201235.Yield and spread on agency mortgage-backed securities PercentSpreadNOTE:The data are daily.Yield shown is for the uniformmortgage-backed securities 30-year current coupon,the coupon rate atwhich new mortgage-backed securities would be priced at par,or face,value,for dates after May 31,2019;for earlier dates,the yield shown isfor the Fannie Mae 30-year current coupon.Spread shown is to theaverage of the 5-year and 10-year nominal Treasury yields.SOURCE:Department of the Treasury;J.P.Morgan.Courtesy of J.P.Morgan Chase&Co.,Copyright 2022.High-yield corporateMunicipal024681012Percent201020122014201620182020202234.Corporate bond yields,by securities rating,and municipal bond yield DailyInvestment-grade corporateNOTE:Investment-grade corporate reflects the effective yield of theICE Bank of America Merrill Lynch(BofAML)triple-B U.S.CorporateIndex(C0A4).High-yield corporate reflects the effective yield of the ICEBofAML High Yield Index(H0A0).Municipal reflects the yield to worstof the ICE BofAML U.S.Municipal Securities Index(U0A0).SOURCE:ICE Data Indices,LLC,used with permission.30 PART 1:RECENT ECONOMIC AND FINANCIAL DEvELOPMENTSremain elevated since late April amid a notable deterioration in risk sentiment(figure37).(For a discussion of financial stability issues,see the box“Developments Related to Financial Stability.”)Markets for Treasury securities,mortgage-backed securities,corporate and municipal bonds,and equities generally functioned in an orderly way,but some measures of liquidity deterioratedLiquidity conditions in the market for Treasury securities,which had deteriorated somewhat since late 2021,in part as a result of heightened interest rate risk,worsened further in late February following Russias invasion of Ukraine.Market deptha gauge of the ability to transact in large volumes at quotes posted by market makersfor Treasury securities fell and remains at historically low levels.Bid-ask spreads increased somewhat.However,trading volumes remained within normal ranges,suggesting that market functioning was not materially impaired.The decreases in depth were the greatest for bonds with shorter maturities because the prices of those securities are more sensitive to expectations for monetary policy over the near term.The market for MBS has functioned in an orderly way since late February,even as some measures of liquidity conditions deteriorated.Measures of market functioning in corporate and municipal bond markets indicated that the markets have remained liquid and trading conditions have stayed stable since late February without substantive disruptions around the time of Russias invasion of Ukraine.Transaction costs in the corporate bond market and in the municipal bond market have both picked up somewhat since late February,and in the corporate bond market,bid-ask spreads are modestly above pre-pandemic levels.Transaction costs remain fairly low by historical standards.Liquidity in equity markets has declined since late 2021 in part because of rising uncertainty about the outlook for monetary policy as well as Russias invasion of Ukraine and has remained VIX0102030405060708090Percent202220202018201620142012201037.S&P 500 volatility DailyExpected volatilityNOTE:The VIX is a measure of implied volatility that represents theexpected annualized change in the S&P 500 index over the following30 days.The expected volatility series shows a forecast of 1-monthrealized volatility,using a heterogeneous autoregressive model based on5-minute S&P 500 returns.SOURCE:Cboe Volatility Index(VIX)via Bloomberg;RefinitivDataScope;Federal Reserve Board staff estimates.S&P 500 index50100150200250300350400December 31,2010=10020222020201820162014201236.Equity prices DailyDow Jones bank indexSOURCE:S&P Dow Jones Indices LLC via Bloomberg.(For DowJones Indices licensing information,see the note on the Contents page.)MONETARy POLICy REPORT:JUNE 2022 31 previously very elevated levels but were still above their historical median.Corporate-to-Treasury spreads widened but remained below their historical median.Spreads on leveraged loans were little changed,and leveraged loan issuance remained solid.House prices continued to rise at a rapid pace that further outstripped rent growth.Commercial real estate prices also rose further,with some price indexes surpassing their 2006peaks.The rapid growth of nominal GDP outpaced the growth of total debt of nonfi nancial businesses and households.The ratio of the aggregate debt owed by the private nonfi nancial sector to nominal GDP further declined to near pre-pandemic levels(fi gure A).Net leverage of large nonfi nancial businesses held stable at This discussion reviews vulnerabilities in the U.S.fi nancial system.The framework used by the Federal Reserve Board for assessing the resilience of the U.S.fi nancial system focuses on fi nancial vulnerabilities in four broad areas:asset valuations,business and household debt,leverage in the fi nancial sector,and funding risks.With infl ation running higher than expected,the invasion of Ukraine,and the pandemics continued effects on supply chains and consumer demand patterns,uncertainty about the economic outlook increased,and prices of some fi nancial assets fl uctuated widely.Treasury yields increased markedly,and valuation pressures in corporate securities markets eased,but real estate prices have risen further this year despite a rise in mortgage rates.While business and household debt has been growing solidly,the ratio of private nonfi nancial credit to gross domestic product(GDP)decreased to near pre-pandemic levels and most indicators of credit quality remained robust.Large bank capital ratios dipped in the fi rst quarter,but overall leverage in the fi nancial sector appears moderate and little changed this year.A few signs of funding pressures emerged amid the escalation of geopolitical tensions.However,broad funding markets proved resilient,and with direct exposures of U.S.fi nancial institutions to Russia and Ukraine being small,fi nancial spillovers have been limited to date.Nevertheless,the effect of high infl ation,supply chain disruptions,and the ongoing geopolitical tensions remain substantial sources of uncertainty with the potential to further stress the fi nancial system.valuation measures based on current expectations of cash fl ows decreased in some markets but continued to be high relative to historical norms.Refl ecting a less accommodative monetary policy stance associated with elevated infl ation and a tight labor market,yields on Treasury securities increased markedly and reached somewhat above their pre-pandemic levels.Broad equity prices fl uctuated widely and declined sharply.Prices relative to earnings forecasts declined from Developments Related to Financial Stability.81.01.21.41.61.8Ratio202220172012200720021997199219871982A.Private nonfnancial-sector credit-to-GDP ratio QuarterlyNOTE:The shaded bars indicate periods of business recession asdefned by the National Bureau of Economic Research:January1980July 1980,July 1981November 1982,July 1990March 1991,March 2001November 2001,December 2007June 2009,and February2020April 2020.GDP is gross domestic product.SOURCE:Federal Reserve Board,Statistical Release Z.1,“FinancialAccounts of the United States”;Bureau of Economic Analysis,nationalincome and product accounts;Federal Reserve Board staf calculations.(continued on next page)32 PART 1:RECENT ECONOMIC AND FINANCIAL DEvELOPMENTS(continued)have been directly affected by the RussiaUkraine confl ict,but loan exposures of large U.S.banks to these fi rms and borrowers in Ukraine and Russia are small.However,several indirect channelsheightened volatility in asset markets;new disruptions in payment,clearing,or settlement systems;and interconnections with large European bankscould adversely affect the U.S.economy and fi nancial system.Funding risks at domestic banks and broker-dealers are low,but structural vulnerabilities persist at some money market funds(MMFs),bond funds,and stablecoins.Banks relied only modestly on short-term wholesale funding,and the share of high-quality liquid assets at banks remained historically high.Assets under management at prime and tax-exempt MMFs have continued to decline,but these funds remain a structural vulnerability due to their susceptibility to runs.In December2021,the Securities and Exchange Commission proposed reforms to MMFs,including the adoption of swing pricing for certain fund types,increased liquidity requirements,and other measures meant to make them more resilient to redemptions.The Russian invasion of Ukraine does not appear to have left a material imprint on broader short-term funding markets.Trading conditions in those markets have been stable,issuance continued,and spreads remained well below the levels reached in March2020.Although depth in markets for Treasury securities and some commodity and equity derivatives has been low by historical standards,those markets have functioned normally after the initial shock to the nickel market.Elevated market volatilityparticularly in commodity marketscaused central counterparties(CCPs)to make larger margin calls.To date,clearing members have below pre-pandemic levels,supported by ample cash holdings.Fueled by strong earnings and low borrowing costs,the ratio of earnings to interest expenses for the median fi rm among public nonfi nancial businesses rose to its highest level in two decades,indicating that large fi rms were better able to service debt.However,for fi rms in industries hit hardest by the pandemic,leverage remains elevated and interest coverage ratios are lower.The fi nancial position of many households continued to improve.Household debt relative to nominal GDP as well as mortgage,auto,and credit card delinquencies were in the bottom range of the levels observed over the past 20years.Household credit growth has been almost exclusively among prime-rated borrowers,including for residential mortgages.Nonetheless,some households remained fi nancially strained and vulnerable to adverse shocks during this period of heightened uncertainty.vulnerabilities from fi nancial-sector leverage are well within their historical range.Risk-based capital ratios at domestic bank holding companies declined some in the fi rst quarter of 2022 but remained well above regulatory requirements.Banks increased loan loss provisions to refl ect higher uncertainty about the economic outlook and continued to report that rising interest rates will support their profi tability going forward.However,higher interest rates cause losses in the market value of banks long-term fi xed-rate assets.Leverage remained high at life insurance companies and was likely somewhat elevated at hedge funds,though the most comprehensive data for hedge funds are considerably lagged.vulnerabilities of most U.S.fi nancial institutions to the Russian invasion of Ukraine appear to be limited.Some nonbank fi nancial intermediariessuch as commodity trading fi rmsDevelopments Related to Financial Stability(continued)MONETARy POLICy REPORT:JUNE 2022 33 infl ation and greater-than-expected increases in interest rates could negatively affect domestic economic activity,asset prices,credit quality,and fi nancial conditions more generally.As concerns over cyber risk have increased,U.S.government agencies and their private-sector partners have been stepping up their efforts to protect the fi nancial system and other critical infrastructures.These risks,if realized,could interact with fi nancial vulnerabilities and pose additional risks to the U.S.fi nancial system.Invasion of Ukraine and Commodity MarketsRussias invasion of Ukraine and subsequent international sanctions disrupted global trade in commodities,leading to surging prices and heightened volatility in agriculture,energy,and metals markets.These markets include spot and forward markets for physical commodities as well as futures,options,and swaps markets that involve an array of fi nancial intermediaries and infrastructures.Stresses in fi nancial markets linked to commodities could disrupt the effi cient production,processing,and transportation of commodities by interfering with the ability of commodity producers,consumers,and traders to hedge risks.Such stresses can also increase liquidity and credit risks for fi nancial institutions that are active in commodity markets.To date,however,fi nancial market stresses do not appear to have exacerbated the negative effects on broader economic activity or created substantial pressure on key fi nancial intermediaries,including banks.Since the invasion,for most commodities,futures trading volumes and open interestthe number of contracts outstanding at the end of the dayhave remained in normal ranges.been able to meet these margin calls,and,in general,CCPs effectively managed the increased risks and higher trading volumes.The aggregate value of stablecoinsdigital assets that aim to maintain a stable value relativ
THE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial785819982023America is Far More DiverseTOTAL U.S.POPULATION 12 %WHITETHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial319519982023Internet Access Becomes Nearly UniversalTOTAL U.S.POPULATION 12 %HAVE INTERNET ACCESSTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial6%of Americans age 12 hadever listened to online audioIn 1998:70%of Americans age 12 have listened to online audio in the last weekIn 2023:THE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial50%of Americans age 12 hada computer in their householdIn 1998:91%of Americans age 12 have a smartphoneIn 2023:THE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialSTUDY OVERVIEW&METHODOLOGYTECHNOLOGYSOCIALMEDIAONLINE AUDIOBRANDSIN-CAR MEDIAPODCASTINGOBSERVATIONSONLINEAUDIOPresentationOutlineTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialStudy Overview The Infinite Dial is the longest-running survey of digital media consumer behavior in America The annual reports in this series have covered a wide range of digital media and topics since 1998 The Infinite Dial tracks mobile behaviors,internet audio,podcasting,social media,smart speakers and moreTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialStudy Methodology In January 2023,Edison Research conducted a national telephone survey of 1500 people aged 12 and older,using random digit dialing techniques to both cell phones and landlines Survey offered in both English and Spanish Data weighted to national 12 U.S.population figuresTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialTechnologyTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial101431445361717681838485888891200920102011201220132014201520162017201820192020202120222023Smartphone OwnershipTOTAL U.S.POPULATION 12 %OWNING A SMARTPHONEEstimated260 MillionTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial9917171820242017201820192020202120222023Smart Watch OwnershipTOTAL U.S.POPULATION 12 %OWNING A SMART WATCHEstimated69 MillionTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial505358202120222023Bluetooth-Enabled Wireless Headphones OwnershipTOTAL U.S.POPULATION 12 Estimated166 Million%OWNING BLUETOOTH-ENABLED WIRELESS HEADPHONES/EARPHONESTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial616270202120222023Smart TV OwnershipTOTAL U.S.POPULATION 12 Estimated200 Million%OWNING A SMART TVTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial71823273335362017201820192020202120222023Smart Speaker OwnershipTOTAL U.S.POPULATION 12 %OWNING A SMART SPEAKEREstimated103 MillionTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialSmart Speaker Ownership28122Amazon Alexa deviceGoogle Nest/Home deviceApple HomePodTOTAL U.S.POPULATION 12 %OWNING SMART SPEAKER BRANDTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial674845474143222823192620112432343338201820192020202120222023Number of Smart Speakers in HouseholdBASE:U.S.AGE 12 SMART SPEAKER OWNERSONETHREE OR MORETWOMEAN1.72.02.22.32.42.8THE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialSocial MediaTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialSocial Media Brand Awareness96949493897568442311FacebookInstagramTikTokTwitterSnapchatPinterestLinkedInDiscordTruth SocialMastodonTOTAL U.S.POPULATION 12 %AWARE OF SOCIAL MEDIA BRANDTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial648688942020202120222023TikTok AwarenessTOTAL U.S.POPULATION 12 %AWARE OF TIKTOKEstimated269 MillionTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialSocial Media Brand Awareness96949493897568442311FacebookInstagramTikTokTwitterSnapchatPinterestLinkedInDiscordTruth SocialMastodonTOTAL U.S.POPULATION 12 %AWARE OF SOCIAL MEDIA BRANDTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial102144535763667077807779808282822008*2009*2010*2011*2012*2013201420152016201720182019 2020 2021 2022 2023Social Media Usage*2 0 0 8-2 0 1 2:E V E R U S E F A C E B O O K,T W I T T E R,O R L I N K E D I N%USING SOCIAL MEDIATOTAL U.S.POPULATION 12 Estimated235 MillionTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial81841515458586264676261636163612008 2009 2010201120122013201420152016201720182019 2020 2021 2022 2023Facebook UsageTOTAL U.S.POPULATION 12 %USING FACEBOOKEstimated174 MillionTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialSocial Media Brand UsageTOTAL U.S.POPULATION 12 %USING SOCIAL MEDIA BRAND614433312727262031FacebookInstagramTikTokPinterestTwitterSnapchatLinkedInDiscordTruth SocialMastodonTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial61443327273126203355061666244422420969494938975684423FacebookInstagramTikTokTwitterSnapchatPinterestLinkedInDiscordTruth SocialAware of brandCurrently ever use brandSocial Media Brand Awareness vs.UsageTOTAL U.S.POPULATION 12 THE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialSocial Media Brand UsageTOTAL U.S.POPULATION 12 %USING SOCIAL MEDIA BRAND614323312328226346362827272113614433312727262031FacebookInstagramTikTokPinterestTwitterSnapchatLinkedInDiscordTruth SocialMastodon202120222023THE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialSocial Media Brand Usage(Age 12-34)577044363455235872613142531926557255373851294221FacebookInstagramTikTokPinterestTwitterSnapchatLinkedInDiscordTruth SocialMastodon202120222023U.S.POPULATION%USING SOCIAL MEDIA BRANDTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialSocial Media Brand Usage(Age 35-54)U.S.POPULATION%USING SOCIAL MEDIA BRAND71401636252132764534332819319734233342821351342FacebookInstagramTikTokPinterestTwitterSnapchatLinkedInDiscordTruth SocialMastodon202120222023THE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialSocial Media Brand Usage(Age 55 )U.S.POPULATION%USING SOCIAL MEDIA BRAND57176201051557181320126132561692115514221FacebookInstagramTikTokPinterestTwitterSnapchatLinkedInDiscordTruth SocialMastodon202120222023THE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial462055741831126142212477966122233346574Total 12 Age 12-34Age 35-54Age 55 Social Media Brand Used Most OftenBASE:U.S.SOCIAL MEDIA USERSOTHERTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial342024311722571312334520222023Social Media Brand Used Most Often(Age 12-34)BASE:U.S.SOCIAL MEDIA USERSOTHERTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial615510127127932537720222023Social Media Brand Used Most Often(Age 35-54)BASE:U.S.SOCIAL MEDIA USERSOTHERTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial777436243612549420222023Social Media Brand Used Most Often(Age 55 )BASE:U.S.SOCIAL MEDIA USERSOTHERTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial213520222023Audio-Based Social Media Service AwarenessTOTAL U.S.POPULATION 12 %AWARE OF SPOTIFY LIVE,TWITTER SPACES,CLUBHOUSE,OR AMAZON AMPEstimated100 Million*2 0 2 2 INC LUDES SP O TIFY LIVE,TWITTER SP AC ES,AND C LUBH O USETHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial3420222023Audio-Based Social Media Service UsageTOTAL U.S.POPULATION 12 %USING SPOTIFY LIVE,TWITTER SPACES,CLUBHOUSE,OR AMAZON AMP*2 0 2 2 INC LUDES SP O TIFY LIVE,TWITTER SP AC ES,AND C LUBH O USEEstimated11 MillionTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialOnline AudioTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial57121716152120212727343945475357616467686873752000010203040506070809101112131415161718192021222023Monthly Online Audio ListeningTOTAL U.S.POPULATION 12 %LISTENED TO ONLINE AUDIO IN LAST MONTHO N L I N E A U D I O =L I S T E N I N G T O A M/F M R A D I O S T A T I O N S O N L I N E A N D/O R L I S T E N I N G T O S T R E A M E D A U D I O C O N T E N T A V A I L A B L E O N L Y O N T H E I N T E R N E TEstimated214 MillionTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial867246878152898553Age 12-34Age 35-54Age 55 202120222023Monthly Online Audio Listening%LISTENED TO ONLINE AUDIO IN LAST MONTHO N L I N E A U D I O =L I S T E N I N G T O A M/F M R A D I O S T A T I O N S O N L I N E A N D/O R L I S T E N I N G T O S T R E A M E D A U D I O C O N T E N T A V A I L A B L E O N L Y O N T H E I N T E R N E TTOTAL U.S.POPULATION 12 THE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial2568881212131717222933364450535760606267702000010203040506070809101112131415161718192021222023Weekly Online Audio ListeningTOTAL U.S.POPULATION 12 %LISTENED TO ONLINE AUDIO IN LAST WEEKO N L I N E A U D I O =L I S T E N I N G T O A M/F M R A D I O S T A T I O N S O N L I N E A N D/O R L I S T E N I N G T O S T R E A M E D A U D I O C O N T E N T A V A I L A B L E O N L Y O N T H E I N T E R N E TEstimated200 MillionTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial434345445045464553201520162017201820192020202120222023Audiobook ListeningTOTAL U.S.POPULATION 12 %EVER LISTENED TO AN AUDIOBOOKEstimated152 MillionTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial212526273030302835201520162017201820192020202120222023Audiobook Listening in Last YearTOTAL U.S.POPULATION 12 %LISTENED TO AN AUDIOBOOK IN THE LAST YEAREstimated100 MillionTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialOnline Audio BrandsTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialOnline Audio Brand Awareness84827875736946211818PandoraSpotifyiHeartRadioApple MusicYouTube Music*Amazon MusicSoundcloudNPR OneAudacyTuneIn RadioTOTAL U.S.POPULATION 12 %AWARE OF ONLINE AUDIO BRAND*ASKED AS:“YO UTUBE MUSIC,TH E STREAMING MUSIC SERVIC E FROM YOUTUBE”THE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialOnline Audio Brands Listened to in Last MonthTOTAL U.S.POPULATION 12 %LISTENED TO ONLINE AUDIO BRAND IN LAST MONTH3423171212106SpotifyYouTube Music*PandoraApple MusicAmazon MusiciHeartRadioSoundcloud*ASKED AS:“YO UTUBE MUSIC,TH E STREAMING MUSIC SERVIC E FROM YOUTUBE”THE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialOnline Audio Brands Listened to in Last WeekTOTAL U.S.POPULATION 12 %LISTENED TO ONLINE AUDIO BRAND IN LAST WEEK291912111064SpotifyYouTube Music*PandoraApple MusicAmazon MusiciHeartRadioSoundcloud*ASKED AS:“YO UTUBE MUSIC,TH E STREAMING MUSIC SERVIC E FROM YOUTUBE”THE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial37562617211622281451822111410674129516135465Total 12 Age 12-34Age 35-54Age 55 Online Audio Brand Used Most OftenIHEARTRADIOAMAZONMUSICBASE:U.S.AGE 12 AND CURRENTLY EVER USE ANY ONLINE AUDIO BRANDOTHERPANDORASPOTIFYAPPLEMUSICYOUTUBEMUSICTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial3737392114231412101115127158532546Total 12 Own an Alexa deviceOwn a Google Nest deviceOnline Audio Brand Used Most OftenPANDORASPOTIFYAPPLEMUSICIHEARTRADIOAMAZONMUSICYOUTUBEMUSICBASE:U.S.AGE 12 SMART SPEAKER OWNERS WHO CURRENTLY EVER USE ANY ONLINE AUDIO BRANDOTHERTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialIn-Car MediaTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial889088898783848720162017201820192020202120222023Driven/Ridden in Car in Last Month%DRIVING OR RIDING IN CAR/VEHICLE IN LAST MONTHBASE:U.S.AGE 18 THE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialPrimary Work LocationBASE:U.S.AGE 18 WHO ARE CURRENTLY EMPLOYED FULL-TIME OR PART-TIME;54%PRIMARILY INSIDE HOMEBOTH EQUALLYPRIMARILYOUTSIDE HOME242014658707578202120222023THE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialAudio Sources Currently Ever Used in Car%USING AUDIO SOURCE IN CARBASE:U.S.AGE 18 AND HAS DRIVEN/RIDDEN IN CAR IN LAST MONTH;87u4830333521735332323522735338372920AM/FM radioOwned digital musicPodcastsOnline audioCD playerSiriusXM202120222023THE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial8429126315735338372920AM/FM radioOwned digital musicPodcastsOnline audioCD playerSiriusXM20132023Audio Sources Currently Ever Used in Car%USING AUDIO SOURCE IN CARBASE:U.S.AGE 18 AND HAS DRIVEN/RIDDEN IN CAR IN LAST MONTHNOT ASKEDNOT ASKEDTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialMobile Operating Systems in Primary Vehicle1614Apple CarPlayAndroid Auto%HAVE SYSTEM IN PRIMARY VEHICLEBASE:U.S.AGE 18 ,DRIVEN/RIDDEN IN CAR IN LAST MONTH,87%THE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial3811121522262017201820192020202120222023Mobile Operating Systems in Primary Vehicle%HAVE APPLE CARPLAY OR ANDROID AUTO IN PRIMARY VEHICLEBASE:U.S.AGE 18 ,DRIVEN/RIDDEN IN CAR IN LAST MONTH,87%Estimated65 MillionTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial5915192332343842414550495320102011201220132014201520162017201820192020202120222023Online Audio Listening in Car Through a Cell Phone%EVER LISTENED TO ONLINE AUDIO IN A CAR THROUGH A CELL PHONETOTAL U.S.POPULATION 12 THE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialPodcastingTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial2237374345454646484955606470757879832006 070809101112131415161718192021222023Podcasting FamiliarityTOTAL U.S.POPULATION 12 MILIAR WITH PODCASTINGEstimated237 MillionTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial1113182223252927303336404451555762642006 070809101112131415161718192021222023Podcasting ListeningTOTAL U.S.POPULATION 12 %EVER LISTENED TO A PODCASTEstimated183 MillionTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial9111212141215172124263237413842200809101112131415161718192021222023Monthly Podcast ListeningTOTAL U.S.POPULATION 12 %LISTENED TO A PODCAST IN LAST MONTHEstimated120 MillionTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial3936433941364639MenWomen2020202120222023Monthly Podcast Listening%LISTENED TO A PODCAST IN LAST MONTHU.S.POPULATIONTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial494022563926504322555121Age 12-34Age 35-54Age 55 2020202120222023Monthly Podcast Listening%LISTENED TO A PODCAST IN LAST MONTHU.S.POPULATIONTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial7810131517222428263120132014201520162017201820192020202120222023Weekly Podcast ListeningTOTAL U.S.POPULATION 12 %LISTENED TO A PODCAST IN LAST WEEKEstimated89 MillionTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial2821252128233527MenWomen2020202120222023Weekly Podcast Listening%LISTENED TO A PODCAST IN LAST WEEKU.S.POPULATIONTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial342513363017333114403914Age 12-34Age 35-54Age 55 2020202120222023Weekly Podcast Listening%LISTENED TO A PODCAST IN LAST WEEKU.S.POPULATIONTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialOne11%Two14%Three16%Four or Five16%Six to Ten24 or more19%Number of Podcast Episodes Listened to in Last WeekBASE:U.S.AGE 12 AND LISTENED TO PODCAST IN LAST WEEKU.S.weekly podcast listeners averageNinepodcastsin the last weekTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialObservationsData appears to reflect post-pandemic:on pattern from previous yearsTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialObservationsOnline audio hits new highsTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialObservationsAdvertisers need to move more of their budgets to audio in all its formsTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialObservationsPodcasting is back,reaching the highest numbers ever,with 90 million listeners each weekTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialObservationsData appears to reflect post-pandemic:on pattern from previous yearsTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDialTHE INFINITE DIAL 2023 EDISON RESEARCH#InfiniteDial#InfiniteDialTHE INFINITE DIAL 2023 EDISON RESEARCH
Core InsightsThe Essential Guide to Analyzing Open-Ended QuestionsPresented byDeeper Consumer Insights&Analytical Confidence1Introduction There are few,scalable substitutes for the nuance and detail that open-ended questions(a.k.a.“open ends”)deliver as part of research studies and customer feedback.They help present a more complete picture of consumer attitudes,preferences and feelings,all without the bias of a priori answer options.In some cases,theyre critical to the research mission itself,as in unaided brand awareness and recall,or analysis of consumer reviews and comments.Insights from open ends help:Complete the picture.Open-ended questions allow respondents to provide feedback that might not be possible using the close-ended questions alone,or give rationale or detail around a particular response,like a rating.Discover unexpected findings.Open ends generate surprising or unexpected fjndings that werent considered in the programming of the study;Reveal emotional reaction.Open-ended text is a source of emotional reaction by consumers,providing the opportunity to understand not just what a customer is saying,but how they feel about it.Add color and narrative.Perhaps foremost,open ends provide a source of consumer narrative,supported by the adage:“fact tell,but stories sell.”Deeper Consumer Insights&Analytical Confidence2Unfortunately many research and CX teams dont fully-utilize open ends as a source of statistically signifjcant insights,often relegating their use to a few verbatim quotes to spice up their report,confjrming fjndings derived from the closed-ended,quantitative questions alone.The biggest risk of this approach of course is missing critical,“core”insights that are locked in the unstructured text data of open ends.For example,a leading food company would have missed how consumers really feel about their retail shopping experience without analysis of open ends.A restaurant chain would have missed how their guests are responding to new menu items without open ends.A leading moving and storage provider would have missed why customers gave the rating they did.And a media&entertainment brand would have missed how viewers feel about their new program without open ends.Deeper Consumer Insights&Analytical Confidence3To put it simply,we believe that open-ended text is under-utilized as a source of core consumer and market insights.With that mission in mind,weve developed this eBook as a guide to consider both the types of insights that can be generated from open ends and their application across common research and CX use cases.We believe that with the right approach,the unstructured,unfjltered text data of open ends can help insights professionals and the organizations they serve better understand their customers,audiences and markets.In working with insights teams analyzing many thousands of surveys and millions of open ends,we have a unique perspective on the value that open ends deliver.Well look at how open ends can be analyzed generally and then how this analysis can be applied across six insights and customer experience use cases.Our mission at Canvs AI is to help researchers,insights and customer experience professionals unlock the full value of open ends as a means to better understand consumer attitudes,preferences and feelings across a range of research types.Deeper Consumer Insights&Analytical Confidence4Section 1:Framework for Analyzing Open-Ended Text.6Thematic analysis.7Emotion analysis.8Correlation analysis.9Section 2:Open Ends in Research Context.10Consumer Behavior.11Brand Studies.12Customer Satisfaction&Experience Surveys(aka NPS surveys).17Product Feedback.20Ad&Creative Testing.23Product Reviews,Social Media and Non-Survey Verbatims.26Section 3:Summary.28About Canvs AI.30Table of ContentsDeeper Consumer Insights&Analytical Confidence5Analyzing Open-Ended TextAt fjrst glance,analyzing text might seem as simple as answering:“What did the respondent(or customer)say?”And that is exactly what we want to understand,but its often far from simple!Humans are amazingly expressive(even in surveys),developing seemingly infjnite and varied ways of saying things and imbuing those expressions with nuance and emotion along the way.Three(3)vectors of analysis can help organize our thinking around the informational value of open ends:Thematic,Emotion and Correlation analysis.Deeper Consumer Insights&Analytical Confidence6Thematic analysisThematic analysis is the result of parsing the ideas or things that are expressed in the text and presenting those ideas in a structured way.Questions that generally ask the respondent for“what”are typically analyzed for themes.For example,“What was the main idea?”or“What brands come to mind?”But questions like“Describe your perfect burger,”might generate topics like“juicy”“medium-rare”and“bacon”among many others(and in various combinations).While a topical analysis may suffjce for some questions,such as brand recall,thematic analysis is frequently organized hierarchically,grouping the responses into categories.Our“perfect burger”question generates responses that can be categorized into themes like”ingredients”,“fmavor profjle”and“texture.”Deeper Consumer Insights&Analytical Confidence7Emotion analysisEmotion analysis is an extrapolation of how the respondent“feels”based on how they have expressed themselves.Questions that ask the respondent for“how”or“why”are often ideal for emotion analysis,such as“How do you feel about your current economic situation?”Naturally,some subjects and/or open-ended questions are more likely than others to elicit an emotional response.Even our“Describe your perfect burger”question is likely to generate signifjcant emotional responses(given our general love of burgers)!While emotion analysis is often expressed in terms of overall positive or negative sentiment,more granular emotion classifjcation will reveal more nuance in the level of emotional intensity or identifjcation of feelings that dont fjt the positive/negative paradigm,such as“nostalgia.”Deeper Consumer Insights&Analytical Confidence8Correlation analysisCorrelation analysis actually isnt analysis of the open-ended text itself,but rather the ability to identify connections between information from the open ends and closed ends,such as respondent demographics.We include this here because typical approaches to incorporating open-ended responses into the research process often dont lend themselves to discovery of these connections.Going back to our“perfect burger”question,you may identify a correlation between mentions of the topics“cheddar”and“bacon”and the emotion of“love,”indicating a heightened emotional engagement with certain fmavor profjles vs.others.Or,you may identify that women are more likely to identify texture in their description of the perfect burger vs.men.With this analysis framework in mind,we hope its clear that open-ended text represents a rich and valuable source of(relatively)unfjltered,unbiased consumer feedback!Deeper Consumer Insights&Analytical Confidence9Open Ends in Research ContextLets take a look at how open-ended questions and responses are used across various research types,including samples of typical open-ended questions and more importantly the“questions”that open ends answer within the context of each research type.Specifically well look at the use of open ends in:Consumer behavior research Brand and awareness studies Product research Customer experience/NPS surveysAd andcreative testingProduct reviews andother“non-survey”analysisDeeper Consumer Insights&Analytical Confidence10Consumer Behavior Consumer behavior research seeks to understand consumer attitudes and preferences for a particular topic,product or service category.Generally this research is designed to inform business decisions or strategies,but could also be deployed to inform journalism and public policy.Examples might include examining consumer attitudes towards business and leisure travel,opinions about curb-side pickup in the grocery category or how infmation is impacting back-to-school shopping.What questions can the open end answer?The“questions”open ends can answer in consumer behavior studies are driven signifjcantly by the objective and subject of the overall study.When consumer behavior studies capture consumer trends and preferences,the use of open ends can reduce the bias of a priori answer choices.With this in mind,open ends are used to create a more complete picture of consumer habits and better understand sentiment around certain subject areas that might be valuable in shaping go-to-market and creative strategies.Sample Consumer Behavior Open-Ended Questions What do you consider when choosing what hotel to book for a vacation?Think of your favorite restaurant.How would you describe it?Describe your perfect sandwich.What are your thoughts or feelings on holiday travel this year?Whats the most important issue facing the country?Deeper Consumer Insights&Analytical Confidence11Application of AnalysisThematic AnalysisThematic analysis in consumer behavior studies allows researchers to identify the top ideas expressed about the subject,as well as to group and quantify respondents that express similar themes,whether those themes are emotional,topical,or broad categories.Emotion AnalysisUtilizing nuanced emotion measurement(vs.general sentiment)can help identify the level of emotional intensity around a subject.Some questions,such as“How do you feel about infmation?”are designed specifjcally to unlock emotion measurement.Correlation AnalysisCorrelation analysis is often used to identify meaningful difgerences among sub-segments of the sample (eg.demographic cross-tab analysis).Deeper Consumer Insights&Analytical Confidence12Key takeawaysOpen-ended questions are key to discovering(or confjrming)changes in consumer attitudes,and understanding the“why”when a consumers actions change.Consumer behavior studies often inform core product development,brand,and market strategies,and open-ended questions help both brand managers and creatives understand the mind(and heart)of the consumer.Case in PointA consumer technology brand wanted to understand consumer understanding of the metaverse.Given the newness of the subject area,the use of open ends was critical in surfacing both a structured analysis of current perceptions,but also key emotional information.Deeper Consumer Insights&Analytical Confidence13Brand StudiesBrand and awareness surveys are utilized to understand both the“mindshare”that a brand commands petitors within a category,as well as the perceived attributes and consumer attitudes associated with the brand.Brand and awareness studies may also utilize either pre/post surveys(survey of a sample to test the impact or efgectiveness of a message,ad or campaign)or tracking studies(an ongoing survey that typically generates monthly waves of data to compare over time).What questions can the open end answer?Brand studies typically include either or both unaided awareness and aided association questions.Unaided awareness questions provide a trackable metric,understanding what percentage of respondents are aware of a brand,product,or campaign top of mind,without assistance.Association questions ask for a respondents thoughts or feelings about a given,prompted brand or product.Sample Brand Study Open Ends“What brands of toothpaste do you know?“What movies or tv shows have you heard about recently?”“What smart-home-devices are top of mind?”.When you think of BRAND X,what comes to mind fjrst?What thoughts or feelings come to mind when you think of BRAND X?What three words would you use to describe BRAND X?Deeper Consumer Insights&Analytical Confidence14Application of AnalysisThematic AnalysisNaturally,in Unaided questions thematic analysis is used fjrst and foremost to identify the specifjc brands mentioned.In association questions,thematic analysis will identify the attributes driving emotional response.Researchers can track KPIs of awareness overall using unaided awareness questions,or breakthrough of certain messages based on a campaign(association of family with a bank brand,for example).Emotion AnalysisWhile Unaided Awareness questions are,by design,non-emotional,Brand Association questions can elicit extreme and nuanced emotions.Researchers can use this approach to understand what attributes and themes drive“annoying”versus“hate”,or“enjoy”versus“love.”Additionally,overall emotional response can be measured to establish a benchmark that can be tracked over time.Correlation AnalysisBeyond demographic and brand-specifjc cross-tabs,correlation analysis can be used to identify the emotional resonance of common brand associations,or understand how a brand is resonating across demographic segments.Deeper Consumer Insights&Analytical Confidence15Key takeawaysOpen ends are not only a critical tool for measuring unaided awareness,recall and attributes,they can reveal powerful information about how consumers emotionally relate to brands and brand experiences.Case in PointA consumer fjnancial services provider runs a monthly brand tracking study to understand the impact of their campaigns on awareness and perception.They include the questions:“When you think of your personal banking,what brands come to mind?”and“What are your thoughts and feelings about the brand?”The fjrst,unaided awareness question is straightforward,allowing the brand to measure the percentage of consumers who included their company in the list.The open-ended nature of the question allows the company to reduce the infmuence of reinforcing brand mentions in the survey itself.The brand perception question allows respondents to indicate their views of the brand in an unfjltered way.The fjrm analyzes the open-ended responses to categorize them into key categories that are tracked over time,such as“trustworthy,”“community,”and“service.”Deeper Consumer Insights&Analytical Confidence16Customer Satisfaction&Experience Surveys(aka NPS surveys)Perhaps no survey has become as ubiquitous as the NPS survey.First developed in 2003 by Fred Reicheld and Bain&Company,and popularized in the book“The Ultimate Question,”the Net Promoter Score(NPS)survey asks simply,“How likely are you to recommend this product or service to a friend or colleague?”Then,an important open-ended follow up:“Why?”While“NPS”may be the brand leader,there are certainly non-NPS customer satisfaction/experience surveys in wide use.And while the NPS survey design is notable for its brevity and simplicity(it was developed in part as a reaction to lengthy customer satisfaction surveys),all customer satisfaction surveys are likely to include follow up questions generally intended to provide the organization with more specifjc information regarding the customer experience(overall experience,satisfaction with the product,satisfaction with the service,satisfaction with the facilities,etc.).What questions can the open end answer?Open-ended questions in customer satisfaction surveys generally seek to provide detail regarding the customers experience with the product or service.One can think of the open end as providing the“Why”to the customers rating.Sample Customer Satisfaction/NPS Open EndsGENERAL What is the primary reason for your score?Why did you provide that rating?What is one thing we could do to make you happier?What most infmuenced your recommendation?RATING SPECIFIC What was missing or disappointing in your experience?What could we do to improve the product or service?How do you benefjt from using our product/service?How are customer experience open ends analyzed?Deeper Consumer Insights&Analytical Confidence17Thematic AnalysisThematic analysis is used to identify and categorize specifjc aspects of customers experience that naturally arise in the comments.These can be both positives(essentially,what do people like most)and negatives(what are people unhappy or complaining about).Emotion AnalysisEmotional analysis can provide color to your NPS scores.Identifying what topics&themes drive emotions,and can provide actionable feedback for teams hoping to improve their NPS scores.Correlation AnalysisPerhaps the most compelling use of correlation analysis in customer satisfaction research is the use of open ends to identify potential root causes of customer satisfaction/dissatisfaction.Essentially“what topics are more likely to be mentioned by promoters/detractors”in the NPS lexicon.Additionally,correlating emotional engagement with specifjc elements of the experience can also be useful.Application of AnalysisDeeper Consumer Insights&Analytical Confidence18Key TakeawaysIn our consumer-centric culture,customer experience/satisfaction surveys,including NPS,have become ubiquitous.The open-ended questions in these surveys provide vital,and valuable insights into why customers gave your product or service a certain rating or score,and creates an actionable feedback loop between you and your customers.Efgectively utilizing these responses in this way can also help reduce the need for detailed,follow-up closed-ended questions because drivers to positive and negative reviews will surface in the open ends.As a result,you may be able to reduce survey length and thereby boost response and complete rates.Case in PointA quick-serve restaurant uses customer surveys to understand why customers make the dining decisions they do.The open ends allow the company to identify and monitor customer satisfaction drivers over time,as well as capture the emotional reaction to the restaurant experience and new menu ofgerings.Deeper Consumer Insights&Analytical Confidence19Product FeedbackProduct feedback is a broad category of surveys in which users are asked to describe their experience,attitudes,preferences with a product that they have interacted with in some way.This can be a physical product like a granola bar or a TV remote or a car,or it can be a digital product like an application,and there are opportunities to connect with users via open ended text at almost every stage of the product lifecycle-from discovery to concept testing to post-launch.Product Feedback datasets might be used to go“beyond liking”-its great to know what your users like and dislike,but its even more valuable to uncover the nuanced emotions underneath the positives and negatives(beautiful,funny,weird,curious,nostalgic,sad).Additionally,open-ends can provide tangible and quick feedback that can help product leaders make decisions.What questions can the open end answer?There are two common types of open-ended product feedback questions.First,questions that prompt a respondent to answer what they liked,disliked,found confusing,or remembered-can be used to identify topics or attributes.Second,questions that ask broader“why”or“how do you feel”questions help us understand the nuanced emotions consumers express when interacting with our products,and make strategic decisions to improve our products,add value,and grow.Sample Product Research Open Ends What was your favorite part about.?What did you like least about.?What are your thoughts and feelings about.?How would you describe the beverage?What do you think is missing?Deeper Consumer Insights&Analytical Confidence20Application of AnalysisThematic AnalysisThematic analysis in product research is used to identify the attributes perceived and valued by the respondent.Feedback captured as part of sensory lab setting may be looking for the impact of certain product choices or formulations within the open-ended responses.Attributes are often summarized into thematic categories,such as“taste”and“texture”in food research,often referred to as codes(the attributes)and nets(the broader themes).Emotion AnalysisEmotion analysis in product research can unlock powerful consumer feelings around the category and product.These can include general positive and negative sentiment,as well as more nuanced(and less binary)feelings,like“sentimental.”Correlation AnalysisBeyond looking at demographic cross-tabs,correlation analysis can be used in product research to connect attributes with emotional engagemengement.For example,respondents whos responses indicate“Love”may be more likely than others to identify a specifjc product attribute(eg.rich,Corinthian leather).Deeper Consumer Insights&Analytical Confidence21Key TakeawaysIn todays rapidly changing markets,brands are increasingly taking an agile approach to product development and require accelerated feedback loops.Using open-ended questions efgectively can approximate the qualitative data derived from focus group and in-depth interviews,while delivering statistically signifjcant fjndings.Case in PointA“modern food company”with a large presence in the yogurt category partnered with one of their quick-serve restaurant partners on menu innovation research.Respondents were asked to describe their“dream smoothie”using an open-ended question.The open end allowed for respondents to be creative and for the food brand to generate unbiased feedback.The result was identifjcation of two major smoothie fmavor themes:fruit-forward and functional additives(i.e.protein,etc.).They were also able wto identify emotional signatures around certain fmavor combinations.Deeper Consumer Insights&Analytical Confidence22Ad&Creative TestingAd and creative testing is used to identify the impact and resonance of particulate ads or creative variations.Researchers generally test for aspects of purchase interest/intent,brand and message recall,and emotional resonance and engagement.Research indicates that emotional engagement drives brand loyalty,so this last point is of particular importance.What questions can the open end answer?Regardless of the stage of development,open-ended questions can provide actionable feedback that can be shared with agency or in-house content or communication teams.Is the message getting across?Are the jokes landing?Anything rubbing people the wrong way?Researchers may also use open-ends to determine which ad to select,or to benchmark ad success.Sample Ad&Creative Test Open Ends What are your initial thoughts and feelings after watching the ad?What is the main message of the ad?What is the name of the company?What would you expect,based on the trailer you watched?Deeper Consumer Insights&Analytical Confidence23Application of AnalysisThematic AnalysisIn ad and creative testing,thematic analysis is used to measure message efgectiveness and recall without pre-selected options that might bias the response.Additionally,specifjc creative elements can be identifjed(“what did you like best about”).Emotion AnalysisAnalysis of open ends in creative testing is likely to start with sentiment.How did the viewer feel about the ad or show?In many cases,researchers measure overall emotional reaction(%of comments with emotion)and specifjc emotional reactions(love,hates,funny,etc.).Over time,benchmarks can be developed to measure emotional reaction against norms.Correlation AnalysisOne of the most compelling uses of correlation analysis is the ability to identify the topical drivers of emotional reaction(i.e.correlation of topics and emotions).Additionally,demographic cross-tabs are critical in a fjeld where cultural relevance is a primary success factor.Deeper Consumer Insights&Analytical Confidence24Key TakeawaysEfgective use of open ends in ad and creative testing allows researchers to measure and compare ad performance against emotional reaction benchmarks,as well as to identify the topics that are associated with specifjc emotional reactions.Open ends can also help researchers assess message efgectiveness without the bias of pre-selected choices.Using open-ended questions efgectively can approximate the qualitative data derived from focus group and in-depth interviews,while delivering statistically signifjcant fjndings.Case in PointWith an understanding that emotional resonance drives brand performance,a top-fjve brand consulting fjrm asked respondents how they felt about specifjc creatives.By analyzing the emotional reaction within responses to this open-ended question,the fjrm was able to identify creatives with the most emotional impact(while delivering on message recall objectives).Deeper Consumer Insights&Analytical Confidence25Product Reviews,Social Media&Non-Survey VerbatimsSurveys,of course,arent the only source of open-ended text feedback from consumers that can be valuable for insights teams;online product reviews,product feedback forms and social media comments are among the most prevalent.They are also the most“free form”in that there is no survey context for the comments,presenting both an opportunity to capture“in the wild”customer feedback and a challenge in terms of analysis.Among those challenges is the potential for sample bias towards the most vocal segments of the user base.What questions can the open end answer?Given the open nature of non-survey verbatim comments,the uses may vary.They can be used to understand overall experience,identify potential product defects or new product ideas.In the context of owned social media channels,analysis of comments on social posts can provide early reads on content efgectiveness.Deeper Consumer Insights&Analytical Confidence26Application of AnalysisThematic AnalysisThematic analysis can be used to identify specifjc topics and broader themes emerging from non-survey sources of open-ended text.Given the wide range of potential comments,researchers are more likely to focus on the top themes vs.exhaustive,long-tail analysis.Emotion AnalysisNon-survey open ends can be mined as a source of unfjltered consumer sentiment.As with ad testing,overall emotional engagement can be benchmarked to identify meaningfully elevated(or depressed)emotional reactions.Correlation AnalysisWithout access to weighted demographics for cross-tab analysis,correlation analysis will typically focus within the text itself in terms of how consumers feel and whats driving those feelings.Deeper Consumer Insights&Analytical Confidence27Key TakeawaysThere are seemingly unlimited volumes of consumer open-ended text that can be mined for valuable business insights.These sources provide an unvarnished view into the consumer mind,but may be biased towards the loudest voices.Case in PointA major consumer goods company wanted an unfjltered view of how consumers were reacting to an updated detergent product formulation.By analyzing the review comments on the products Amazon listing,they were able to quickly gain an understanding of overall reaction as well as the product attributes driving customers comments.Deeper Consumer Insights&Analytical Confidence28SummaryWe hope this eBook may help further open you up to the potential benefjts of open-ended questions and analysis,and provide inspiration and guidance on how to further utilize them in your insights and CX work.But what about the challenge of analyzing open-ended questions at scale?This is often what holds organizations back from fully realizing the insights value hidden in open-ended text.Open ends require signifjcant time and resources to decipher and categorize,and that process is prone to human bias,if not error.As a result,many insights organizations analyze only a fraction of the open ends they receive,or may just cherry-pick for verbatims that seem to support the qualitative themes of the research,or worse yet,may use open ends only as a data quality tool.However,new advances in artifjcial intelligence(AI)and machine learning(ML),and cloud computing have dramatically opened the aperture of use cases for advanced text analytics.As a result,researchers have new tools to bring automation to the challenge of analyzing open-ended responses,allowing qualitative analysis to be done at nearly quantitative scale.This also expands the potential use cases for open-ended questions.Ask yourself:“what if we could completely and accurately code our open ends in seconds?”Would you be tempted to include a few more open-ended questions in your next survey?At the very least,wed bet you wouldnt let those open ends go to waste.Deeper Consumer Insights&Analytical Confidence29About Canvs AIOk,maybe were biased,but we love open ends Canvs AI is the easiest,fastest and most accurate insights platform for analyzing unstructured text data.That data can come from virtually any source,including surveys,reviews,chats and social media comments.Our artifjcial intelligence(AI)engine for natural language processing(NLP)was trained on the“unnatural”language of social media and represents an ontology of over a trillion terms.This advanced analytical technology has been“productized”in the form of an insights platform built for market research and consumer insights professionals called Canvs MRX.Canvs is used by some of the worlds most admired brands,research agencies,and media&entertainment companies to accelerate time-to-insights,reduce cost,and deepen understanding of consumers.Wed love to show you the power of Canvs fjrst hand.Please get in touch at salescavns.ai or canvs.ai/demo.Deeper Consumer Insights&Analytical Confidence30canvs.aiCopyright 2022 Mashwork,Inc.,All rights reserved.Canvs is a product of Mashwork.Canvs,Mashwork,and mashw*rk are registered trademarks and/or service marks registered in the U.S.Patent and Trademark Office.Get Started
The Ultimate Guide to Brand TrackingWelcome to Latanas Ultimate Guideto Brand Tracking!If youre reading this guide,then brand tracking is something that has piqued your interest.Basically,you have an itch to scratch and youre hoping this guide will offer relief.You may be here to learn more about brand tracking before signing up,or you may be here looking for an alternative platform to the one you currently use.If youre part of the former group,then its also very likely that youre not using your brand tracking results at all in your marketing activities.If youre part of the latter,then were excited to show you what makes Latana different.Looking deeper into your experience with brand tracking,we can hypothesize two things:1.Youre not really sure what your brand can gain from brand tracking and/or 2.Youve previously had a bad experience with brand tracking.Correct?Never fear!We have what you need right here *disclaimer*this guide is not all written in rhyme.By the end of this thrilling read,youll have a complete understanding of what brand tracking is plus,insights into the traditional options and alternatives on the market.Enjoy!Table ofContentsWhat is Brand Tracking?Why Use a Brand Tracking Solution?Understand How Consumers Think&Feel About Your Brand Get Insights on Your Target Audience.Gain Access to Cutting-Edge Expertise Monitor the Competitive LandscapeWhat Can Brand Tracking Track?Brand AwarenessBrand AssociationsBrand ConsiderationBrand PreferenceBrand UnderstandingTarget Audience IdentificationPurchase Driver IdentificationHow to Successfully Track Your BrandHow Often Should You Brand Track?Annual Tracking Quarterly TrackingMonthly TrackingAd-Hoc TrackingA.B.CD.A.B.C.D.E.F.G.A.B.C.D.What Can You Do With YourBrand Tracking Data?The Drawbacks of TraditionalBrand Tracking Solutions Annual Tracking Quarterly TrackingMonthly TrackingAd-Hoc TrackingAlternatives To TraditionalBrand Tracking SolutionsYou Want Precise and Reliable DataYou Want To Focus Specifically on Brand AwarenessYou Want Full Control Over The ProcessConclusionWhats Next?A.B.C.D.A.B.C.12 3 45 A.67 8 910What is Brand Tracking?Ch apter 1What is Brand Tracking?Ch apter 1Theres really only one place to start this guide,by answering the question“What is brand tracking?”Well,weve got you covered.But brand tracking provides more than just data on consumer response to your brand it allows you to compare your brand performance across markets,track competitor brands,identify new audiences or areas to focus on,and even pinpoint ones that arent working out.In the past,brand performance has been somewhat tricky to quantify accurately.However,with the right tools and KPIs now available,its 100%possible and highly advisable to track your brand health and performance.Now that we know the“what”,lets dive into the“why”.Brand tracking is the continuous monitoringof your brands health over a period of time.It provides a means to understand what your target audiences think of your brand and howthey respond to your brand messaging.Why Use a Brand Tracking Solution?Ch apter 2Why Use a Brand Tracking Solution?Ch apter 2In explaining what brand tracking is,weve actually already covered the main reason why you would set it up:you want to monitor your brands performance and learn more about what your target audience thinks of your brand.Its no secret that branding can be quite an abstract activity so,how else can you know for sure if there are shifts in important KPIs following marketing activities without setting up tracking?Plus,you also need to prove that the activities your budget is being spent on are a worthy cause.Well,youre in luck,because brand tracking allows you to quantify your return on investment(ROI).Here are some other important reasons why youd be smart to use a brand tracker:Understand How Consumers Think and Feel About Your Brand1.When it comes to growing your brand in an efficient,effective way,consumer data is your secret weapon.After all,the most successful brands are those that understand what their target audience wants and needs and give it to them in spades.Thats where brand tracking data comes in.Maybe you want to know what percentage of your target audience is aware of your brand?Or perhaps youre interested in learning how many consumers who are aware of your brand actually understand what it is you do.Or maybe,you want to know what traits and characteristics consumers associate with your brand?All these questions and more can be answered by a high-quality brand tracking solution.At the end of the day,understanding how consumers feel about and perceive your brand will allow you to create marketing strategies and campaigns that better connect and resonate with your target audience.And thats what makes for a truly successful brand.Pantene Pro-VYou can select multiple optionsDo you associate this brand with the following concept?HeadspaceHeadspaceSustainableFunnyAccessibleNone of theseHealthInnovativeNEXTClassicTrendyTrustworthyReliableFriendlyCoolIts one thing to know who your target audience is its another to have access to reliable,nuanced insights into what they want,how they feel,and the ways in which they perceive your brand and your competition.For example,lets say highly-educated women 35 and older are your main target audience.Based on your own research,you believe that this audience cares most about the high quality of your products.However,thanks to insights gleaned from your latest wave of brand tracking data,you learn that while they do enjoy high-quality products,theyre far more invested in your fast,flexible delivery times.Often,the opinions brand managers hold about what their target audiences want or need are based on gut instinct or insufficient data.But with the right brand tracking solution,you can use audience insights to make truly data-driven decisions.Get Insights on Your Target Audience2.High IncomePet Owner62%Urban Millennials23%High Education14%To most people,brand tracking sounds fairly straightforward.You have a list of questions to ask,you find the right respondents,and you then analyze the data collected.Simple,right?Well,we hate to burst your bubble,but its nowhere near that easy.Ensuring that your data is accurate and reliable not to mention statistically significant is a tall order.And thats where it becomes clear that most brands need support from expert researchers.A brand tracking tool that offers cutting-edge research expertise will know exactly how to translate your queries into data that provides you with effective,actionable insights.From how to word a survey question correctly to whether or not a target audiences parameters are too narrow or wide,expert researchers make the entire process run smoother.So,when looking for a brand tracking solution for your business,take a look at the research expertise behind the scenes.Are they approachable and helpful?Are they willing to help shape your brand tracking goals,questions,and processes?If the answer is no,then you might want to keep looking.Gain Access to Cutting-Edge Research Expertise3.Understanding how your brand is performing with your target audience is incredibly important.But do you know what else is important?Knowing what your target audience thinks about your competitors.Having data on how your competitors are performing is vital in understanding where your brands stand within your market.While you may be doing well compared to previous years performance,if youre lagging behind the competition,you need to know.After all,your individual success is always relative to the success of others.And seeing how competitors of the same or bigger size are performing with your target audiences is necessary information to have in order to inform your overall brand strategy and goals.Monitor The Competitive Landscape4.What Can Brand Tracking Track?Ch apter 3What Can Brand Tracking Track?Ch apter 3Depending on the methods you choose to track your brands performance,what you can track will differ.However,most brand tracking software tracks for the following KPIs:Brand Awareness1.Essentially,brand awareness tells you what percentage of your target audience(s)are aware of your brand when prompted by name and logo.As the first step in most marketing funnels,brand awareness is a crucial foundation for gaining customers.And,at the core of it,understanding brand awareness is the most important ingredient in a successful marketing strategy.Normally,a brand awareness question will list your brand name/logo and then ask respondents if they recognize it.A sample question is as follows:Have you heard of the following brand?Brand ABrand ANoNot SureYesIf you dont know the brand,just click“No”Brand Associations2.Brand associations are the traits and qualities that your target audience(s)associate with your brand,e.g.high-quality,accessible,fun,etc.Thus,brand association questions ask respondents for their perception of your brand.This KPI is great for understanding what current and potential customers think of your brand,as well as monitoring their change in perceptions over time.Essentially,brand associations data allows you to see if your associations match up to your brand values and goals aka if your brand positioning matches consumer needs.A sample question is as follows:Do you associate this brand with the following concept?FunFunNoNot SureYesIf you dont know the brand,just click“No”.Brand ABrand ABrand Consideration3.Brand consideration is a KPI that shows you what percentage of your target audience(s)would consider purchasing your products or services.It reveals how many potential customers your brand has and how much room for growth there still is in your category.A sample question is as follows:Which brands would you consider choosing for Industry A?None of theseSelect only one option.Brand ABrand BBrand CBrand DBrand Preference4.Brand preference reveals what percentage of your target audience(s)consider your brand as their first choice that is,above the competition.It allows you to understand brand priority within your category and is even more important for certain industries that dont tend to foster multi-brand usage.The data collected from brand preference questions allows brand managers to gauge brand loyalty.A sample question is as follows:Which of the following Industry brands would you prefer?Brand ABrand BBrand CBrand DNone of theseSelect only one option.Brand UnderstandingBrand understanding allows companies to understand whether consumers align their brand with the right category.It can provide further insight to reveal if your target audience knows that your brand actually does.Plus,it helps identify if brand positioning and messaging are being recognized and understood correctly.A sample question is as follows:5.You can select multiple optionsSustainableFunnyAccessibleNone of theseHealthInnovativeWhich of these categories do you most associate with this brand?Brand ABrand ABrand tracking software can also help you improve your brand strategy through the identification of important factors,such as target audiences and purchase drivers.Target Audience IdentificationPurchase Driver IdentificationWhile many brands are able to identify their target audience on their own,others need a bit of help finding the specific groups of consumers they should target.In this case,some more modern brand tracking solutions offer research modules that help brands uncover and understand their relevant target audience all before actually tracking it.Essentially,it ensures that brands have the correct tracking solution set up and helps them refine their brand messaging and positioning.A purchase driver is a key performance indicator(KPI)used to understand consumer purchasing or usage priorities in a given category,which is unrelated to brand specifics.For example,a question designed to gather purchase driver data could look like the following:Identifying purchase drivers helps brands to discover and understand the messages they need to align their brand with aka what customers value and prioritize.What is most important to you when deciding on CATEGORY brands?”How to Successfully Track Your BrandCh apter 4How to Successfully Track Your BrandCh apter 4Youre probably thinking “Isnt a brand tracking tool supposed to do the work for me?”In a way,youre right.But,like with everything else in life,you need to set strong foundations if you want to be successful.That is,you need to define your goals aka what you want brand tracking data to help you achieve.First,you should consider what portion of your marketing budget you can dedicate to brand tracking.Make sure its realistic,as the last thing you want to do is realize you have a great possible solution,but not enough money set aside to pay for it.Next,you need to do your research on what is currently available.There are several companies that offer various forms of brand tracking and they differ in terms of price,but also in terms of quality.Later on in this guide,well discuss the drawbacks of using traditional brand tracking solutions which mostly have to do with the accuracy and reliability of data received.However,youre in luck because there are now more modern solutions that offer results you can actually work with.That being said,make sure you check what kind of quality assurance each offers before making a commitment.That extra bit you spend can be vital to overall brand success.Finally,when deciding which brand tracking solution to go with,you need to decide what kind of results youre looking for aka the type of data youll receive.Remember,not all brand tracking solutions offer the same insights.So,youll need to ask yourself questions like:Having these decisions made beforehand will help you pick the best brand tracking solution for your company.Generally,youll find that most brand tracking tools utilize surveys to gather data,going for either a national representation or a target market sample.While we believe that a tool that uses surveys is the best way to go,there are more options available such as focus groups,DIY surveys,or social listening.Brand awareness only?What type of data do I want to see?The impact of a campaign?How many competitor brands do I want to track?Which target audiences?In which markets?How Often Should You Brand Track?Ch apter 5Annual TrackingAnnual tracking is best for brands that dont change things up often or those who experience high seasonality.With annual tracking in place,youd receive one wave of data per year which you would then compare to previous years data.Keep in mind,comparing data over time is one of the biggest benefits brand tracking provides,as it allows you to see how your brand is developing and performing.So,brands that choose annual tracking would have to wait at least a year to make comparisons.How Often Should You Track Your Brand?Ch apter 5Just like there are many different providers,prices,etc.when it comes to choosing a brand tracking solution,there are also various options in terms of how often you can receive brand tracking data.Of course,the choice is yours and you should do what makes the most sense for your company.However,there are some guidelines to keep in mind when deciding how often you should track your brands performance.Quarterly TrackingQuarterly tracking,which happens four times a year(once in each working quarter),is the most common frequency for receiving brand tracking data.Why?Well,because quarterly tracking best captures the impact of a brands marketing campaigns and overall strategy.Receiving four waves of data per year also allows brands to make more effective comparisons,taking seasonality into account.365Monthly TrackingMonthly tracking,aka receiving a wave of data each month,is best for brands that focus on monthly trends.This option is also a good bet for high-growth companies that need a constant stream of knowledge on their brand performance.Ad-Hoc TrackingThough not as popular as the previously discussed options depending on the brand tracking tool chosen brands can also choose to go with ad-hoc waves of data.This is best for brands that want to see the impact of a big brand campaign or how a rebrand has affected consumer perception.31What Can You Do With Your Brand Tracking Data?Ch apter 6What Can You Do With Brand Tracking Data?Ch apter 6There are so many things you can do with brand tracking data that will benefit your brand from improving your brand messaging to forging better emotional connections with your target audience.But before you jump to make a big change,its important that you take the time necessary to really analyze the data.In order to get the most out of your brand tracking insights,you need to ask yourself questions like:Is there a significant increase in any of the KPIs that could correlate with the time of a marketing campaign?Which are the strong audiences for my brand?And which are the weak ones?Are your KPIs increasing or decreasing?Which audience would consider using my brand over others in my industry?Which audience is most aware of my brand?Is there anything new within the data that you didnt know before about your brand?Once you have the answers to these questions and more,you can start to incorporate your gleaned insights into your future brand strategy&campaigns.Did you learn that most people know about your brand thanks to social media?Then its time to start investing more money into your social campaigns.Did consideration for your brand drop shortly after a change in your service?Maybe you consider revising the change.Are people willing to recommend you to friends&family?Then perhaps its time to set up a referral campaign to make it easier and more encouraging for them.These are just a few examples of the kinds of insights you can gain from high-quality brand tracking data.However,before we discuss how to get access to this kind of high-quality data,lets take a look at some of the drawbacks of traditional brand tracking solutions.The Drawbacks of Traditional Brand Tracking SolutionsCh apter 7The Drawbacks of Traditional Brand Tracking SolutionsCh apter 7Put quite simply,traditional methods of brand tracking are ineffectual and outdated.Now,thats a bold claim to make,were aware.But,we have the reasoning to back it up.Here are just a few reasons why:Restrictive Data1.Most brand tracking services on the market only allow you to track 2-3 audience characteristics such as age,location,or gender.And while this is important data to have,if thats the extent of the options available,youre going to be stuck with fairly bland insights.Now,if you really think about the audience(s)you want to target,ask yourself:Are these enough characteristics to get a good understanding of how my target audience feels about my brand?Probably not you need access to more granular data.No Real-World Changes Detected2.With many traditional options,age and gender are kept stable in the sample composition which means that real-world changes cant be detected.It goes something like this:Traditional brand tracking solutions control age and gender so the researcher can make sure that the ratio of both is maintained in the next survey and to ensure the results are comparable.But what happens if you want more information than just age and gender like urban/rural location?You end up with a sample composition like this?500 Male/500 Female(stable,because controlled?600 young/400 old(stable,because controlled?800 urban/200 rural(skewed,because not controlled for)Its now likely that youll see changes in the results because of the higher proportion of the urban population in the sample.This is important because particularly when it comes to brand perception such demographic variables can have a huge impact on brand performance.Therefore,if you base your brand strategy on such information,you are basing it on misinformation.In essence,these insights arent based on real-world changes but rather on changes in sample composition.High Margin of Error3.Many traditional brand tracking solutions have large margins of error that go far beyond 10%which isnt ideal for brand managers who want to take a data-driven approach.This is because when traditional methods endeavor to measure opinion in small target audiences,they slice and dice the sample to narrow down on specific respondents within the target audience which leads to real problems.When only a small amount of information is used to estimate brand awareness for a specific target audience,it leads to unreliable results with a large margin of error.Data Saturation4.According to The International Encyclopedia of Communication Research Methods,data saturation refers to“the point in the research process where no new information is discovered in data analysis,and this redundancy signals to researchers that data collection may cease.”For brand tracking,data saturation can lead to subpar results and inferior insights.But how does it happen?Well,some brand tracking solutions allow brands to ask respondents custom questions and one might not immediately see this as a negative.Instead,you might think:Isnt it great to be able to get answers to the specific questions you have?However,custom questions often lead to data saturation and,with data saturation,brands become distracted from the important metrics that are actually worthwhile tracking.Custom questions can also lead to other problems.For example,if you go overboard with the number of custom questions you include,youll not only have data saturation to contend with,but it will also become harder to get respondents.This is because respondents tend to avoid long surveys which,in turn,lowers data quality.Furthermore,custom questions usually indicate diverse research objectives,which can make it more difficult to acquire precise,actionable insights.Alternatives To Traditional Brand Tracking SolutionsCh apter 8Alternatives to Traditional Brand Tracking SolutionsCh apter 8When it comes to traditional brand tracking solutions,we all know the big names on the market:Kantar,Millward Brown,and Ipso just to name a few.And while they certainly offer a great deal of value to users,if youre looking for something a bit different,we have a few alternatives to share with you.If quality and usability of data rank high on your list of priorities,then Latana is the modern alternative you should try.Latana is an AI-Powered brand tracking platform that provides companies with consumer data and key insights to help track brand and campaign performance.You want precise and reliable data?Try LatanaWhat do people associate with your brand?Brand ABrand BTrustworthyInnovativeGreat designValue for moneyPremiumMy DashboardAwareness change over time30 %0%-10%Jan 20Feb 20Mar 20Apr 20May 20Jun 20MonthHow aware are people of your brand?Brand ABrand BBrand Consideration100 %0z 20Jan 21Feb 21Mar 21Apr 21May 21Jun 21Jul 21Aug 21MonthHow did consideration change over time?Brand CBrand BBrand ABrand AwarenessBrand ABrand B0.2.1%0.7.1! Feb vs 21 MarHow did preference change over time?Making insights easily accessible also for non-researchers Filter titleFilter titleNeutralCSVMy segmentsProfileChartsBrand purchase consideration.Associations over time in the n.New FolderSegmentsSegments by AgeSegments by EducationSegments by IncomeAided Awareness,SECreate new chartFrench MarketBrand PreferencePurchase ConsiderationMy DashboardDashboardsIndustry Benchmarks100 %0%TrustworthyInnovativeValue for moneyPremiumGreat designAssociationsHow does my brand perform against competition?Making insights easily accessible also for non-researchers RevolutWith the ability to guarantee high precision even across niche audiences Latana provides brand tracking data of much higher quality.We are able to achieve these results through the use of a form of advanced statistical modeling called Multilevel Regression and Poststratification,or MRP.In essence,MRP uses data to create a model and then uses said model to generate estimates for responses in a survey.So,when given a set of respondent characteristics,the model can produce an estimate for how a certain respondent would answer a particular survey question.This,in turn,provides more precise,reliable data.Additionally,Latana leverages global ad-tech infrastructure to access organic and casual audiences in the app-based ad space which allows for authentic and representative brand opinions from 100 countries and 1000s of cities worldwide.Because of this setup,Latana?Can produce lower margins of erro?Allows for flexible audience segmentation,which makes it possible for brands to track the perception of more niche demographic?Provides better quality insights that are more closely aligned to real-world changesEarly Tech AdopterYesNoNeitherFrequent FlyerYesNoNeitherDeviceAll ResponsesiPhoneAndroidGenderAll ResponsesMaleFemaleEducationAll ResponsesHighMediumLowAgeAll Responses18 2526 3536 4546 5556 65Persona:JaneIncomePet OwnerYesNoAll ResponsesHighMediumLowPrefer not to answerGenderAll ResponsesMaleFemaleEducationAll ResponsesHighMediumLowAgeAll Responses18 2526 3536 4546 5556 65Persona:MikeLocationAll ResponsesTop 3 citiesOther cityNon urbanBrazilNorthSoutheastNortheastSouthSo PauloCentral-WestJapanHokkaidoChubuTohokuKansaiKantoChgokuGermanyBaden-WrttembergCenterBavariaEastLower SaxonyNorthGenderAll ResponsesMaleFemaleEducationAll ResponsesHighMediumLowAgeAll Responses18 2526 3536 4546 5556 65Persona:FrannyAnother exciting aspect of Latana?We provide unprecedented flexibility in exploring brand data by letting you define what matters the most.You can customize your dashboard to fit your needs using combinations of geography,time period,KPIs,brand,and audience segments.For example,some customer characteristics you could track include?Urban Millennial?Frequent Flyer?Early Tech Adopter?Rural Consumer?Highly-Educated Men 35 Latana also moves away from the standard results delivery,which often relies on outdated spreadsheets and PowerPoint presentations.Instead,we deliver all of your data in one intuitive,easy-to-use dashboard.With Latanas dashboard,brands can?Segment data to discover new target audiences a key to growing your bran?Improve your marketing strategy by understanding what drives the competitio?Determine what your target audience connects with and accelerate your best campaignsPersona:JanePersona:JaneFrequent FlyersFrequent FlyersGeneral PopulationGeneral PopulationPersona:FrankPersona:FrankPersona:FrankRandomRandomUrban MillennialsUrban MillennialsLive in top 3 citiesLive in top 3 citiesEarly AdoptersEarly AdoptersEarly AdoptersShow allPin to axisSegmentMy segmentsCompetitorsSaveCancelBrand ABrand BBrand CBrand DBrand EAided AwarenessAugust September 2020USAGeneral populationYou want to specifically focus on brand awareness?Use what you already haveIf this is your goal,then its probably best to just use what is already available to you like a keyword planning tool,which you can use to track branded keywords.The more people searching for and finding your site using your brand name,the more your brand awareness is growing.Similarly,you can monitor social media mentions.Who out there is taking the time to mention you on social media?Share your content?These people must like you or,at the very least,theyre aware of your brand.Additionally,you can track inbound leads.And at this point,you know the drill the more people who fill out your contact form,the more your brand awareness is growing.Pro Tip:When you speak to these leads,its worthwhile to ask them how they discovered your brand that way you know which channels are working best.You want full control over the process?Go for DIY SurveysIf youre looking to have full control over the process,you can conduct a rudimentary form of brand tracking using a tool like Google Forms.In fact,many brands use DIY survey tools as a quick and cost-effective method to gather customer insights.For example,Google Forms has an easy-to-use interface,which enables you to ask unlimited questions.And because of its integration with Google Sheets,its easy to access a spreadsheet view of the data collected.Google Forms can be used to track a number of things,from campaign awareness to campaign reactions.On the flip side,DIY surveys do have their drawbacks,and your brand needs to decide if the low cost is worth limited design customization,security concerns,data reliability,and limitations in content,i.e.text,images,or cells.ConclusionLATANAWhile brand tracking may seem tricky,we hope youll agree that with the correct tools and a better understanding of how it fits into your overall marketing strategy,a brand tracking solution like is easy to set up and well worth the effort.While methods such as DIY surveys,social listening tools,and keyword planning tools can be somewhat helpful companies that require detailed,nuanced insights on their brand performance would be smart to invest in an advanced brand tracking solution.Remember with more reliable data,youre sure to make better marketing decisions.And at the end of the day,isnt that what every brand manager is trying to do?Whats Next?LATANANow that you possess unrivaled knowledge about what brand tracking is and what it can do for your brand,whats next on the docket?Choosing a solution that fits your needs.And for businesses that require reliable,accurate brand tracking data,Latana is the best solution there is.Now,theres only one thing left to do give us a spin!AI-PoweredBrand TrackingContact UsFor General Inquiries:For Sales:For PR/Partnerships:Book Demo
CHINA TALENT TRENDS&SALARY GUIDEConsumer Sector2021Good analytical skillsOmni-channel experienceSkillsYoung talents with high energy and high execution abilityTalents with good educational background who are logical(key to strategic thinking)and quick learnersPotentialOpen-mindedFlexible and agile Hardworking,willing to invest time and energySolution-centric and creativePersistent CharacterSHIFT IN HIRING CRITERIA The COVID-19 pandemic has posed significant challenges to the job market,heavily influencing hiring criteria and sparking the emergence of certain trends in the Chinese job market.In the consumer sector,especially the EC and marketing functions,working hours have evolved to look more like that of the Internet sector,in which a 995 schedule(9am-9pm,5 days per week)is more likely to be implemented.With online channels contributing to a larger portion of sales,EC channels and digital engagement experience have become must-have skill sets for marketing.EC talents with strong data analysis or KA management experience are highly sought-after.O2O experience is required for offline sales talents.HIRING TRENDIN-DEMAND SKILLS IN CONSUMER SECTOREC experienceStrong digital senseStrong data analysis skillsIN-DEMAND ROLES IN CONSUMER SECTORDigital MarketingE-CommerceData Analysis8%-15%-25%Exposure in omni-channel Proven track record of turning around biz or growing small biz SALARY INCREASE FOR NEW POTENTIAL HIRESForeign companiesDomestic companiesTALENT ATTRACTION&RETENTIONA more stable career1A platform with commitment in China market2Decision-making autonomy 3An agile organization with the flexibility to drive changes and digital transformation 4Considerations for Consumer professionals when accepting a job offer in 2021Lack of job security1Lack of internal career development opportunities2Lack of autonomy 3High pressure and workload 4Reasons that would cause Consumer professionals to leave their job voluntarilyOptimise compensation structures1Local decision-making power(for seniors candidates)2Commitment in China market 3Career visibility 4Talent attraction&retention strategies by Consumer companies SET COMPETITIVE SALARIES TORETAIN CURRENT PEOPLE ANDTO ATTRACT CAPABLE TALENT IN CONTENTIOUS MARKETIs your organization struggling to attract and retain top talents?Well,you are not alone,especially in the competitive Chinese market,where your people are constantly bombarded with headhunter calls and job offers.To make matters worse,your competitors are willing to offer a 30-50%increment on top of your talents current annual remuneration package.Chinas employment market today is vastly different from that of 5 years ago,especially in the Consumer sector.It is now a candidateIt is now a candidate-driven job market in which the shortage of driven job market in which the shortage of highhigh-performing or suitably qualified talents performing or suitably qualified talents has created fierce competition to attract and has created fierce competition to attract and retain employees.retain employees.Hence,staying competitive in your compensation packages is critical.Simply put,if youre trying to fill a vacant position,dont expect a stack of resumes from qualified candidates willing to compromise on their compensation requirements.Job seekers are confident about their employment prospects,and many of the best candidates are already employed by companies who are working hard not to lose them.You will have to be extra persuasive to win them over,but it is possible.REMAIN FLEXIBLEJust a few years ago,employers were in the drivers seat during the hiring process.They could hold out for candidates with experience in their industry,who were already located in the area or willing to relocate and who met every bullet point in the job description.In a tight labor market,you may need to become more flexible with your job requirements.OUR ADVICE FOR EMPLOYERSInstead of holding out for candidates Instead of holding out for candidates who meet a laundry list of prerequisites,who meet a laundry list of prerequisites,consider the skills and experience that consider the skills and experience that are most crucial to the position.are most crucial to the position.You may find excellent candidates with unusual career paths or experience in other business sectors.An ideal candidate may live in another city but be willing to work on site for a few days or weeks per month.Also,look outside of the traditional employer/employee paradigm.Experienced professionals increasingly favour project-based work that gives them more flexibility and autonomy as compared to full-time employment.A flexible hiring mentality and an openness to filling gaps in your team with highly-skilled executive contractors can help you tap into great,if unconventional,pools of talent.UP YOUR OFFERIn our own conducted survey,we found that while only about one-quarter of workers are actively seeking new job opportunities,over 50%of talents are passively open to exploring new opportunities.In short,while they are not actively job seeking,they are open to hearing from headhunters or potential employers.Passive candidates are harder to win over,and there is no sure-fire formula for enticing them to leave their current employer.A competitive salary is a given.You should also consider hiring bonuses,professional development opportunities,a clearly defined career path and customizable benefits packages.A WIDE RANGE OF POSITIONS IN DEMAND FOR 2021We have witnessed how Chinas employment market never slowed down in the 2H of 2020 during the pandemic.The Consumer and Luxury sectors rebounded positively with ramped-up hiring needs in Q4 of 2020.In fact,this year we will still see a continuation of this upward trend as headcount volumes are augmented.This is bound to cause chaos in the salary offering to candidates.Despite these concerns,there will still continue to be a strong demand for roles in the digital,marketing and sales spaces in China,while some companies are also desperate for R&D professionals.WORK WITH A RECRUITERToo often,organizations try to fill open positions by posting ads on job boards.They wait for resumes to come in and trust their instincts to make a decision based on a small number of candidates interviewed.In many cases,they do not even check references.As a result,they end up with a dysfunctional team that undermines performance and makes it even harder to further attract great talent.Working with an experienced talent recruiter helps you establish a disciplined hiring process.This will provide you with a larger pool of qualified candidates for every position,and sound criteria for making hiring decisions.Its a job seekers world right now,where candidates have many options to choose from.That does not mean you cant stand out from the crowd to attract the best employees.By following the advice above,you will be able to overcome the challenges posed by a tight talent market to build a team of highly skilled professionals who can work together to achieve your organizations goals.SALARY GUIDEMarketing VP12 years1.5M Marketing Director10 years1M-3MMarketing Manager6-15 years600k-900kSenior Brand Manager5-15 years500k-800kBrand Manager3-5 years300k-600kDigital Marketing Director8 years800k-2MDigital Marketing Manager3-7 years500k-800kSenior CRM Manager5-10 years600k-1MCRM Manager3-7 years400k-800kPR Director8 years800k-2MSenior PR Manager5-8 years600k-1MPR Manager3-7 years500k-800kConsumer Insight Manager4-8 years400k-800kJob TitleExperienceAnnual Salary（RMB）ConsumerMARKETINGSales General Manager15 years2.5M Key Account Director10 years1.2M Key Account Manager2-10 years300k-1MTrade Marketing Director10 years1M-1.5MTrade Marketing Manager5-15 years400k-800kNational Sales Director15 years1.5M Regional Sales Manager/Director8-15 years600k-2.5MJob TitleExperienceAnnual Salary（RMB）E-COMMERCEConsumerE-commerce Director10 years1.5M E-commerce Manager3-10 years300k-900kE-trade Marketing Manager3-8 years300k-700kE-marketing Manager3-8 years300k-700kE-CRM Manager3-8 years300k-800kData Analysis/Business Intelligence Manager3-8 years300k-800kJob TitleExperienceAnnual Salary（RMB）SALESA TRUSTED PARTNER IN TALENT ACQUISITION AND MANAGEMENT ShanghaiUnit 38-06,K.Wah Centre,1010 HuaihaiMiddle Road,Shanghai 200031T 86 21 6472 BeijingUnit 25-02A,China Central Place Tower 3,No.77,Jianguo Road,Chaoyang District,Beijing 100025T 86 10 6598 Guangzhou17/F,Guangzhou CTF Finance Center,No.6 Zhujiang East Road,Zhujiang New Town,Tianhe District,Guangzhou 510623T 86 20 8883 ShenzhenRoom 204,China Resources Tower,Nanshan District,Shenzhen 518063T 86 755 8653 Headquartered in Singapore where it was founded in 1992,HRnetOne has teams specializing in a wide spectrum of industries including healthcare and life science,retail and sourcing,consumer,industrial&chemical,food science,automotive,real estate and construction,technology and communications,along with functional practices in 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Global Recovery Insights 2020www.ufi.org/researchSUPPORTED BY:PRODUCED BY:Part 2:The future of digital and hybrid eventsContentsSECTION 1SECTION 2SECTION 3SECTION 4SECTION 5SECTION 6SECTION 7SECTION 8SECTION 9SECTION 1034567811131415WelcomeKey areas of focusKey findingsUptake of digital eventsA strong preference for networking at live eventsReturn on investment is a challenge for exhibitors Familiarity increases comfort with digitalA safety conscious option?Attracting new audiencesConclusion2G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0Dear industry colleagues,We are happy to publish the second part of this global study,which follows on from the first part which was published in October.(Part 1 is available here)As with Part 1,this report is based on a quantitative survey of trade shows visitors and exhibitors,with 9,000 responses in 10 languages representing trade show participation in over 30 countries.The first part looked at how visitors and exhibitors were feeling the impact of the lack of live events and the impact on them both personally and professionally.We were relieved to see that the core value proposition of face to face remains strong,and there was no evidence of any long-term shift away from live events.This report focuses on the experience of visitors and exhibitors at digital events;how they perceive the current digital offerings,their views on future spend and what role they think hybrid will play in the visitor journey.The core findings echo the first report in the strong demand for the return of live events.Visitors recognise some strengths in digital notably the time and cost benefits and are increasingly happy for some content to be delivered digitally.Exhibitors have strong preference for live events across all aspects,but particularly for networking,and they feel that digital events currently do not provide a good ROI.So while the future remains uncertain,it is clear that the core value proposition of our industry,connecting markets by bringing people together face to face,remains strong.Digital products are opening new possibilities for our industry they have the potential to attract new audiences,they can maintain an audience connection with those unable or unwilling to attend at the moment,and so offer new opportunities to further strengthen our live events.As we emerge from this pandemic,we should view digital as an opportunity,not a threat,and we should seize this opportunity to make our live events better.Our customers are waiting for us to do so,so the future is in our hands.Yours sincerely,Kai HattendorfUFI Managing Director/CEOWelcome3G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0Key areas of focusFieldwork in late summer 2020A second phase of research will be conducted in January 2021 to determine any change in sentiment and the impact of budget planning.The experience of trade show visitors and exhibitors with digital events to-date1.Strengths and weaknesses of the current digital proposition4.The role hybrid events may play in the visitor journey2.Exhibitor views on future spend at digital events3.Building on UFI and Exploris previous Global Visitor and Global Exhibitor Insight reports,this study investigates:MethodologyS E C T I O N 2Comparisons with GRI Part 1 and previous Global Insights reports where available,these reports are available to UFI members at www.ufi.org/researchA quantitative survey of trade show visitors and exhibitors,gaining 9,000 responses,in 10 languages,representing trade show participation in over 30 countries.4G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0Key FindingsVisitors and exhibitors have a strong preference for live eventsAs of late summer,half of regular trade show visitors and exhibitors had experienced a digital event.They reported that they preferred live events across all aspects,especially for networking.Visitors recognise some strengths in digitalAudiences do recognise the time and cost benefits of attending an event digitally.They also find them an effective was to access content,with 53%of visitors feeling that digital events were the same as,if not better than live events for providing quality content.Return of investment is lacking for exhibitors in digitalExhibitors overall feel that live events offer better return on investment,driven by the better networking opportunities(86%prefer live)and ability to generate leads(80%prefer live).Dedicated sponsor experiences improve exhibitor perceptionsWhere a company has participated in a third-party digital event as a sponsor or exhibitor,they tend to have a somewhat more favorable view of digital events vs.those who have organised their own event or been a speaker or content provider at a third-party event.Their likelihood to spend at future digital events is also increased.Digital events could maintain audience connectionThere is an increased preference(30%vs 19%)for attending the digital element of a hybrid event amongst visitors who are particularly concerned with safety and travel disruption,suggesting digital elements could play an important role in helping show brands to stay connected with portions of their audience who are unable,or unwilling to attend in-person.Digital events have the potential to attract new audiencesAudiences have an increased interest in attending a hybrid event digitally when it is a new event to them(35%vs 19%)suggesting that organisers can use the digital elements of their hybrid events to attract new audiences.This could be especially important when visitors are reporting they will favour familiar events when it comes to participating in-person.S E C T I O N 35G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0Uptake of digital eventsAs of late summer,half of regular trade show visitors had participated in a digital event of some kind.Exhibitors had also participated in similar numbers.However,many exhibiting companies had chosen to organise their own virtual events,with only a small proportion(13%)choosing to sponsor or exhibit at a third-party event at that point in time.Since the start of the COVID-19 crisis,have you.Over half of exhibitors have now used digitalS E C T I O N 4The low barrier to entry for digital events could present a challenge to traditional event organisers who may be faced with increasing numbers of exhibitors choosing to organise their own digital events.This is a trend we will examine more closely in the second phase of Global Recovery Insights.Only 13%of exhibitors had sponsored or exhibited at a 3rd-party event6G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0A strong preference for networking at live eventsBoth visitors and exhibitors strongly prefer live events across almost every aspect.They particularly rate the networking aspect of face-to-face events-an element that digital models were struggling to successfully replicate through the middle of the year.Visitors recognise some value in digital eventsIn your opinion,how do virtual events compare to live events when it comes to.S E C T I O N 5However visitors are starting to recognise the strengths of digital events in meeting some objectives.Visitors view digital events as being more time and cost effective than traditional events and feel they are equally good at delivering quality content.But live events are still their preferred channel for“doing business”and finding new suppliers,with only 6%of visitors currently preferring digital events for their sourcing activities.Virtual events are much better Quality of networkingVirtual events are a little betterNo difference Live events are a little better Live events are much better Overall enjoyable experienceDoing businessFinding new suppliersGetting new ideas and inspiration25%80%Quality of educational content32 %Value for timeCost of attending7G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0S E C T I O N 6Return on investment is a challenge for exhibitorsWhilst budgets for live events have been temporarily frozen by many companies,marketing budgets for other channels had yet to be subjected to large cuts as of late summer.Budgets for digital events had even increased in some instances,suggesting that there were pots of money available for digital event organisers with a compelling proposition.Since the start of the COVID-19 crisis,to what extent have your marketing budgets for the following channels changed?Other marketing channelsVirtual eventsDown by 50%or moreDown by 25%-49%Down by 10%-24%Down by less than 10%Marketing budget unchangedUp by less than 10%Up by 10%-24%Up by 25%-49%Up by 50%or more8G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0But exhibitors are reporting concerns about the return on investment available to them through digital events,rating them poorly for generating leads,with only one in ten respondents rating digital events as better than live events in this aspect.Three quarters of exhibitors feel live events still offer them better return on investment.In your opinion,how do virtual events compare to live events when it comes to.Exhibitors prefer live events across all aspectsReturn oninvestmentVirtual eventsare much betterRepresentingyour brandGenerating sales/leadsOverall experienceQuality of networkingVirtual eventsare a little betterNo differenceLive eventsare a little betterLive eventsare much better 9G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0Companies that have increased their budget for digital events are less likely to see their spend returning to live events immediately.(21%of those who have increased their digital event budget state their live event spend will return immediately vs 28%overall).However these companies are only marginally more likely(15%vs 12%)to think their budget for live events will never return to pre-covid levels,suggesting that their digital events will tail off or run alongside their live events rather than replace them over the longer term.Digital as a short term fix?Even where budget for digital events has been increased,live events are still the preferred channel.Return of live event budget by spend on digital events10G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0Familiarity increases comfort with digitalLikelihood of sponsoring a digital event in the future,split by past behaviourAs of late summer,only a small percentage(13%)of exhibitors had experienced a dedicated exhibiting or sponsorship experience at a third party event.For the majority who had participated in a digital event,it was as a content provider or by organising their own event.Any experience of digital has increased the likelihood of exhibitors to spend in this area in future,suggesting that organisers should continue to find ways to let exhibitors get a good sense of what their digital propositions offer to encourage them to commit financially.S E C T I O N 7But interestingly,those who got a dedicated sponsor or exhibitor experience,now hold the most favorable views of digital events.They rate them notably more highly for generating leads and delivering ROI.However networking remains an area they view as weak and they still prefer live events across all aspects.Those who have participated in a digital event are notably more likely to sponsor digital events in the future,in particular those who have already sponsored other peoples digital events.Probably or definitely will sponsor digital events in future11G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0Now exhibitors have a more nuanced understanding of the types of digital experience available to them,this will be a key topic of study for the second phase of research to determine what aspects are adding particular value.Exhibitors views of digital vs.live events for achieving different objectives12G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0A safety conscious option?S E C T I O N 8As they prefer live events,our current audience are undecided as to whether they would still attend a hybrid event digitally,if the option to attend in-person were available to them.To what extent would you be interested in attending a hybrid event,i.e.a live event that also can be attended virtually?But when we examine the group of visitors who believe their attendance at live events may reduce,we see an increase in interest for digital attendance.This group is much more likely than average to express concerns about safety at a live event and in the surrounding city and to be concerned about travel disruption.They appear to see digital attendance as an option to help them continue to participate in events,whilst they still have short-term concerns about attending in-person.500 %less likely to to value in-person networkingmore likely to favour strict safety measuresmore likely to want to attend digitallyI plan to attend fewer events in future-I am:Not at all interestedNot very interestedFairly interestedVery interestedSomewhat interested13G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0Attracting new audiencesWe reported in part one of Global Recovery Insights that both visitors and exhibitors planned to rely on previous experience when deciding which events to return to in-person-this suggested that familiar and trusted show brands would be best placed to attract their audience back.S E C T I O N 9There is a strong preference for attending a familiar event in-person(56el they are more likely to attend in-person vs 19%digitally).However when considering an event they have never attended before,visitors interest in attending virtually increases(38%preferring to attend in-person,vs 63%who would at least consider attending digitally).This suggests that digital events could form an important part of the marketing funnel for driving new attendees to live events in future.They could also have a valuable role to play in creating connections with individuals who may never consider attending the event in-person due to time or distance restrictions.If the following were organised as hybrid events,would you be more likely to attend in-person or virtually?Visitors are more interested in attending online if the event is new to themAn event you have not attended beforeAn event that you have previously attendedMuch more likely to attend in personA little more likelyto attend in personEqually likely to attend either wayA little more likely to attend virtuallyMuch more likely to attend virtually14G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0Not try to replicate a live eventA typical trade show caters to a wide range of visitor and exhibitor objectives.In fact,many see that as a unique advantage of a trade show,as they can accomplish many goals in a few intense business days.It is yet to be proven that lifting this generalist model and replicating it in a digital environment is either possible or desirable.The digital event of the future may add value by focusing on single objectives for attendees and exhibitors such as education or generating top-of-funnel leads,allowing other channels including live trade shows,to meet other needs more effectively.Guide its audience through a new journeyUnfamiliarity with the new ways of working around digital events is breeding discomfort among exhibitors.They are unsure of the value of digital events and lack the experience to make the most of the opportunities they offer.The more familiar they become with the channel,the more highly they rate it.We have seen organiser driven initiatives such as exhibitor training and collaborative sales relationships consistently associated with higher exhibitor Net Promoter Scores at live events(Global Exhibitor Insights 2017).Show teams will need to find effective ways of encouraging potential exhibitors to consider digital,then guiding them to make the most effective use of it.Contribute to an engaged communityThe interest in participating in a new event as a digital attendee suggests digital has an important role to play in an organiser marketers toolkit,bringing fresh audiences to the show brand who may become the physical attendees of the future.But they may also offer additional ways to engage existing audiences,providing more personalised content that can be consumed frequently throughout the year.Attendees recognise the advantages of digital events for providing quality content and may be ready to participate more frequently in sessions that are more tailored or more timely than can be provided at an annual trade show.Meet an audience where they are atHowever,there are potentially valuable audiences for digital events who may never wish to,or be able to,attend the event in-person.Whether this is pressure on time or travel budget,or shorter-term concerns around travel safety,digital events offer show brands a new way to connect.With many trade show audiences skewing towards an older,male demographic,(Explori global benchmarks)digital has the potential to access new audiences that do not currently consider a trade show floor as a place for them.ConclusionWhilst the strong preference for live events among our customers suggests that digital events are not seen as a substitute for getting face-to-face,there appear to be areas where they will continue to add value.S E C T I O N 10The digital event of the future will:15G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0About ExploriReport authorsSuzanne Van MontfoortResearch Director(Bespoke),ExploriChristian DruartResearch Manager,UFISophie HoltManaging Director,Explori The official research partner of UFIThank you to all research participantsUFI Diamond SponsorsUFI Research PatronUFI and Explori would like to thank the trade show organisers and UFI members and partners who supported the wide collection of data that made this research possible.The authors also wish to thank the research teams at Explori,GRS and GRS Explori,and in particular Charlotte Penn and Mitch Deeming for the significant work that has gone in to producing this report.Explori provides scalable research solutions for exhibition organisers all over the world.With a global client base including Hyve,Clarion Events,Informa,Comexposium,Messe Frankfurt,Emerald,Diversified Communications and many others contributing to their global data set of industry benchmarks.Exploris research platform is designed to support organisers in gathering meaningful customer experience insight across multiple territories and languages.Over 3,000 events worldwide now work with Explori including trade shows,digital events and conferences.As part of their partnership with UFI,Explori produces annual reports giving insight into the customer experience of visitors and exhibitors across the industry.Explori is independently owned by its founders,directors and employees and is headquartered in London.16G LO B A L R E C O V E R Y I N S I G H T S 2 0 2 0UFI is the global trade association of the worlds tradeshow organisers and exhibition centre operators,as well as the major national and international exhibition associations,and selected partners of the exhibition industry.UFIs main goal is to represent,promote and support the business interests of its members and the exhibition industry.UFI directly represents more than 50,000 exhibition industry employees globally,and also works closely with its 60 national and regional association members.More than 800 member organisations in 83 countries around the world are presently signed up as members.Around 1,000 international trade fairs proudly bear the UFI approved label,a quality guarantee for visitors and exhibitors alike.UFI members continue to provide the international business community with a unique marketing media aimed at developing outstanding face-to-face business opportunities.www.ufi.orgAbout UFIThe Global Association of the Exhibition Industry
Transforming post-trade operations November 2022Special report1 November 20222 Trading technology Cloud and APIs begin to(slowly)permeate the post-trade space5 Thought leadership Why post-trade still needs more attention7 Back-office technology If it aint broke,break it:Back-office tech reform may benefit front-office returns9 Q&A with Broadridge Post-trade tech and the back/front office11 Regulation Europe could face settlement squeeze with T 1 proposals and CSDR fines13 Data management Banks corporate actions overhaul saves hours,but industry still seeks elusive silver bulletContents2 Trading technology5 Thought leadership7 Back-office technology 9 Q&A with BroadridgeTrading technology2Transforming post-trade operationsF ront-office trading platforms are increasingly getting cloud make-overs.The same is true for risk systems sitting in the middle office.The next frontier for cloud evolution would logi-cally be post-trade and the back office.But the back office is an area that is notoriously underfunded and contains a hodgepodge of legacy systems that connect to myriad different applica-tionswhether thats data coming into the firm,or data moving from the front and middle offices into the back office,and vice versa.However,as more banks and asset managers embrace the cloud and want tools delivered as a service or as a managed service,more vendors are responding to demand in the post-trade space to help customers figure out where they should focus their attention as they migrate systems to the cloud.Firms could start,for example,with position management,says Danny Green,head of international post-trade at Broadridge,as this is an area where multiple systems are performing the same function.“In theory,you could deliver a general position management component,and then ultimately switch it off from all of the multiple systems,”he says.“By doing that,you get to have a global position management capability quite quickly.So instead of replacing the entire system,you start with replacing position management,but everywhere.”That way,firms can have visibility of global positions in real time,and provide that data via application pro-gramming interfaces(APIs)from the back office to the front office.“That would be a function you could deliver as a single component,for example.That then shrinks the overall footprint of your legacy systems and gets you on that journey of slowly replacing them,”Green says.James Marsden,managing director and head of post-trade business for the Asia-Pacific region at Broadridge,says its easier to put something new in the cloud than to migrate a legacy platform to the cloud.“Sometimes in a legacy platform,the code has grown over 20 or 30 years,and nobody quite knows what it does.But when you implement a new platform,or a new componentlike position management,for examplewe can implement that as a cloud-enabled component.And it doesnt have to be everything in one shot,”he says.He recommends finding areas that logically lend themselves to tools that dont have so much coding drama underneath.Green says Broadridge has been looking at transaction capture,a middle-office function,since its acqui-sition of Itiviti.If firms put a layer between the front office and all their post-trade systems by looking first at the middle office,they could improve how they send trade confirmations to clients,and how they communicate generally with clients,he says.“Weve been doing a lot of studies of that kind of front-to-back relationship,and that whole transaction-capture,middle-office piece is another good place to start,”he says.The key,Green says,is to plan care-fully before deciding on any innovation program.“What does the future look like for you?That could include things like data,the use of APIs and other technologies such as cloud and distributed-ledger technology.Once youve got the target operating model of what you want to achieve,now lets work with you to create a road map of how you can achieve that,”he says.The API playMany banks core systems reside in the back office,making ripping out and replacingthose systems a nightmare.Gurvinder Singh,chief executive at New York-based trading,risk,report-ing,and data management solutions provider Indus Valley Partners,says that,where possible,firms should look to lift-and-shift monolithic applications from on-premises to the cloud.From there,the key is to re-architecture appli-cations and services to a microservices model so that they can more easily be transitioned,should the need arise,in the future.“The next stage after the lift-and-shift is to start carving services out that make sense,while preserving legacy monolith cores where there are no functional or performance challenges,”he says.“This is the design pattern that Cloud and APIs begin to(slowly)permeate the post-trade spaceAs financial firms turn their attention towards modernizing the back office,how they approach these projects comes under new scrutiny.By Wei-Shen Wong“When you implement a new platform,or a new componentlike position management,for examplewe can implement that as a cloud-enabled component.And it doesnt have to be everything in one shot.”James Marsden,BroadridgeTrading technology3 November 2022has been successfully implemented by many enterprise B2B firms,and is the way to go for all.”These systems have been built over many decades,with some still running on the Cobol programming language.“Theyre older,theyve got a lot of logic and nuances that are not as easily migrat-able to cloud infrastructures,”says Neelesh Prabhu,managing director of architecture and enterprise services in information technology at the Depository Trust&Clearing Corporation(DTCC).This means that firms approach these modernization efforts incrementally,so there wont be a big-bang approach to innovation in the space.Prabhu says,though,that its relatively straightforward to move systems that sit on the edge of the IT ecosystem to the cloud.“That is the web front-ends,and the systems of engagements that banks and larger financial institutions have built.Those are relatively modern as theyve been built in the last 10 to 15 years,and can be easily adapted to the cloud,”Prabhu says.This is where APIs come inprovided theyre done right.With APIs,banks are moving small processes/pieces to the cloud,and in doing so,de-risking the programs in question.“On the front end,there is heavy migration.On data,there is a lot of interest and migration.And on the core systems side,there is migration,but firms are choosing to do it in a way thats mindful of the risk that moving some of these systems to the cloud may bring to them,”Prabhu says.He says APIs provide the ability for firms to connect the logic and the functional-ity provided by a particular system with other systems,but at the same time,lets the teams hide the internal details of how those functionalities are implemented.Say theres a system built on mainframe technology.The first thing to do is build an API layer around that system to create an endpoint for all the other systems connecting to it.Once thats done,the firm can replace the internal technology with a more modern system.“Its the idea of using the API as a construct of encapsulation and the cloud to bring functionality quickly,”he says.But the key to these platform Trading technology4Transforming post-trade operationsconversions is for both the business and technology teams to work together.The design of the API needs to make sense in the business context.“As these systems talk to each other,its not just one connectivity point,but that the structure is built with business understanding that they can stand the test of time,”Prabhu says.“The structure youre putting in place is foundational to future connectivity points which could exist or come into play.”Born freeInnovation in the capital markets is often cyclical.Pre-2008,banks were all about building proprietary systems;after the financial crisis,because of a flood of new regulatory demands,banks cut IT staff to the bone and leaned heavily on third-party providers to lower costs and improve margins.The idea of leaning on a major public cloud provider like Amazon Web Services,Google Cloud,Microsoft Azure or IBM Cloud for key trading and data management needs was dismissed on sight.But slowly,banksand even asset managershave begun to consider cloud.New regulations led to firms having to suck in and store increasingly larger amounts of data.At the same time,new datasets became available as,vitally,the ability to store and run compute on massive datasets became more viable as public cloud providers made these ser-vices more cost-effective and improved time to market on new tools.This gave birth to the fields of alter-native data and software-as-a-service models.More data and the availability of tools to analyze dataand,thus,find previously unforeseen correlations or areas of risk or productivity enhance-mentled to firms wanting not only more data,but context wrapped around that data.This is a major reason why firms want to modernize their post-trade processes:it provides more and better-structured data from which to derive insights,rather than leaning on creaky legacy platforms.It provides the potential to deliver alpha and reduce risk.As more vendors look to shift their legacy platforms to the cloud,several startups have come to market looking to jump ahead of stalwart vendors because their tools are born in the cloud and utilize new data delivery systems,most notably APIs.“Cloud creates the infrastructure for allowing the automation of expensive and risky workflows,creating a situation where staff can focus on areas to create value,”says Brad Bailey,head of market intelligence at broker-dealer Clear Street.“APIs are another key tool to facilitate the exchange of information.”Clear Street launched in 2018 and its mission is“to build better infrastructure to improve market access for all partici-pants.”As a startup,it has its sights set high and theres no way of knowing whether it will succeed,but if the company can figure out a way to streamline the post-trade space,that could give it a leg up on competitors that are in the process of migrating legacy systems to the cloud.“Solving the fundamental problems in the post-trade ecosystem requires a native rebuild for core problems to be addressed,”Bailey says.Then there is RQD,a company that obtained a limited clearing license in 2018.Instead of establishing presences at Equinix datacenters,it decided to go all-in on the cloud.RQD uses Microsoft Azure and other Microsoft technologies,such as SQL Server and.Net.RQD COO Nicolas Louis says the company had the luxury of starting the process from scratch.“When you are a clearing firm thats been around for a long time you may have thousands of processes run-ning against your on-premises systems every daywhether its a margin calcu-lation,updating a position,or building a report for Finra,those systems are working non-stop.So now,people have been saying,You need to maintain these systems,and thats expensive and hardware can fail.Lets move to the cloud,”Louis says.But this is where firms encounter a challenge because moving features to the cloud is easier said than done.One reason for that is they are moving it bit by bit,taking very specific pieces of their process,isolating it and moving it to the cloud while everything else runs on-premises.“So you have this hybrid setup,which sounds like a great idea,but all you did was add more points of failure,”Louis says.“For example,you may lose the connection to your cloud,and end up in a worse position,with processes running on different environments but not able to communicate with each other.”Stability,resilience and the availability of post-trade systems are hugely impor-tant.If the lights go out,it could result in duplication of transactions or settle-ment failures for which firms could be penalized.So they end up running both systems in parallel.“You have the new environment run-ning in the cloud for a specific need,and you have a shadow back-up envi-ronment running on-premises that still needs to be supported,”he says.The arrival of startups like these,paired with the modernization efforts at established players like Broadridge,DTCC and Indus Valley Partners,shows that there is a shift underway when it comes to cloud and post-trade.As ever,the back office will lag behind the front office,but nevertheless,change is coming.Firms will have to consider what they aim to achieve in their mod-ernization process,and then only look at applying or using technologies such as cloud and APIs to help them get there.Applying the hammer-looking-for-a-nail ideology will not fly.Previously published on “What does the future look like for you?That could include things like data,the use of APIs and other technologies such as cloud and distributed-ledger technology.Once youve got the target operating model of what you want to achieve,now lets work with you to create a road map of how you can achieve that.”Danny Green,BroadridgeThought leadership5Transforming post-trade operationsWhy post-trade still needs more attentionAfter years of neglect,back-office processes are beginning to garner the attention they deserve.However,the post-trade technology landscape remains fragmented and opportunities are being left uncaptured.By Vijay Mayadas,president,capital markets at BroadridgeM ost senior leaders will tell you that technology innovation is synonymous with competitive advan-tage.The 2022 Broadridge digital transformation and next-generation technology survey of capital market executives recently confirmed this,with industry leaders reporting expec-tations of increased revenues,improved profitability and better strategic decision-making from digital transfor-mation initiatives.1 In practice,we are witnessing firms doubling down on their technology investments in a tight race to secure these benefits and cap-ture defensible market share.At the same time,however,execu-tives recognize that the daunting pace of technological change is exacerbating practical operational and regulatory challenges,putting hurdles in the way of rapid progress on the digitalization front.Furthermore,much of the value-add from innovation over the years has primarily accrued to the front and middle office,leaving back-end capa-bilities wanting.There are many reasons for this,including an early strategic focus on reimagining customer experiences,value propositions and retention that most obviously held the promise of expanding revenues and growth through greater differentiation.This is a criti-cal objective for executives faced with rising competition.These highly visible parts of the business have also typically been perceived as offering companies“quicker wins”and“more digestible”project scopes than more ambitious plans to upgrade core technology sys-tems on the back end.Where this leaves firms todayAlthough it may seem that neglect-ing the back office has been a benign trade-off for sell-side firms over the years,this couldnt be further from the truth.Many of the post-trade technol-ogy platforms that firms have in place are not built to handle the realities and needs of todays investing community.As global buy-side trading volumes continue to rise,and asset allocations become increasingly diversified across the investment risk spectrum to include less traditional asset exposures,the inad-equacy of current systems has become more obvious to market participants.Cracks are starting to form under the pressures of rising complexity.Even if we ignore increasing asset flows into alternative investments,the magni-tude of demands placed on the sell side is clear.For example,$160.95 trillion was traded electronically in 2021 across nearly 46 billion trades,which represents a 16.9%rise in equity value traded and a 20.4%increase in volumes,according to the World Federation of Exchanges.2 Statistics from the Futures Industry Association(FIA)indicate the total volume of exchange-traded derivatives worldwide in 2021 recorded a fourth consecutive year of record-setting activ-ity,jumping 33.7%from the previous year to 62.58 billion contracts.3Although these figures seem to indi-cate significant opportunities for sell-side players,they also mask brewing trouble.This has manifested in the rise of settle-ment failures during times of heightened volume,volatility and market stress.In February,the European Securities and Markets Authority(Esma)published its first Report on trends,risks and vulnerabilities for 2022,which showed that failed set-tlement instructions as a share of total value across the 30 European Economic Area countries climbed to around 14%for equities and close to 6%for govern-ment and corporate bonds at the height of Covid-19-pandemic-induced volatil-ity in March 2020.4,5This compares to an average range of 510%and 24%for equites and all bonds traded between 2018 to 2020,respec-tively.6 Equity settlement failures were more frequent in 2021 than before the pandemic,and slightly above the second half of 2020 levels across other asset classes.Post-trade advantage:Simplicity amid complexityThese single-digit percentage point increases may not seem much,but the volume of transactions being settled globally each day is in the trillions.These increases are only a snapshot of the much larger challenges intensifying on the horizon,with the implementation of new regulations such as the European Unions Central Securities Depositories Regulation Settlement Discipline Regime and the decision by some mar-kets to move towards T 1.Firms unwilling to enhance their back-end capabilities for the needs of this tomorrow will face an erosion in com-petitive positioning.Most sell-side firms continue having to manage highly frag-mented,complex technology stacks.Silos divided by by asset class and geographic region are common.Even as staff shift toward multi-asset coverage,the systems that support their activities remain sepa-rate.Many traders use different systems Thought leadership6 November 2022to manage orders and execute trades as a result,while operational staff wrestle with multiple middle-and back-office infra-structures.This is no longer good enough.Its time for the industry to embrace the simplicity of global multi-asset post-trade solutions that can empower a consolidated,automated workflow across asset classes to reduce the cost,complex-ity and risks of running multiple operations and technology silos.Advances in artificial intelligence,dis-tributed ledger and other next-generation technologies are already raising expecta-tions and separating forward-thinking innovators from the rest.1.Broadridge(2022),How leaders are accelerating digital transformation,https:/bit.ly/3VRbp6D2.World Federation of Exchanges(February 2022),FY 2021 market highlights report,https:/bit.ly/3SfjdvR3.FIA(January 2022),Global futures and options trading hits another record in 2021,https:/bit.ly/3eJpuly4.Esma(2022),Esmareport on trends,risks and vulnerabilities,No.1,2022,https:/bit.ly/3F1HkLg5.Esma(2022),Esmareport on trends,risks and vulnerabilities,No.2,2022,https:/bit.ly/3gm5pCw6.Esma(September2022),Esma report on trends,risks and vulnerabilities,No.2,2020,https:/bit.ly/3MJTYR8 Back-office technology7Transforming post-trade operationsIf it aint broke,break it:Back-office tech reform may benefit front-office returnsBetter data visibility across multiple systems could provide a driver for technological change in the world of post-trade.By Wei-Shen WongI f the post-trade world has a mantra,it would be,“If it aint broke,dont fix it.”If the data is flowing,trades are settling smoothly,payments are going to the right place,clients are getting the right reports and settlement notifica-tions,then dont mess with it.Dont introduce any more complexity.Dont roll out anything new that might inter-fere with processes that are running fine.Behemoth back-office infrastructures are highly fragile and sensitive to change.The“if it aint broke,dont fix it”approach may keep critical post-trade processes running smoothly,but it fosters stagnation,a false sense of security,and inhibits firms ability to implement meaningful change elsewhere in their organizationsafter all,any enterprise-wide change must not only include the back office;some say it should be driven by it.“Banks and asset managers are start-ing to realize that if we can reduce our costs in the middle and back office,that could give the front-office guys some new ways to either cut costs or find additional alpha,”says Nick Gordon,chief executive and co-founder of London-based tech startup Adnitio.He says the post-trade environment has traditionally been considered a cost center,while the front-office receives greater focus because of its status as a revenue-generator,but this is starting to change.Gordon was one of the original founders of transaction monitoring and analytics provider Velocimetrics(now known as Beeks Group).Adnitios middle-and back-office real-time tracking tool is based on Velocimetrics network monitoring and packet cap-ture and analysis solutions,which were originally developed for low-latency and high-frequency trading clients.Why would latency-monitoring tools be relevant to post-trade processes?Brad Bailey,head of market intelligence at broker-dealer Clear Street,says the post-trade world is beset by barriers to data flows.“If we consider the post-trade ecosystem holistically across functions and firm types,the main choke points often stem from the same fundamental problems:poor or inaccessible data,manual processes and highly fragmented,antiquated technology.From a functional perspective,these issues create choke points around trade processing,alloca-tions,corporate actions,collateral access and movement,and settlement,”he says.And parts of the industry seem con-tent to leave things that way.In some cases,this is because of the potential cost of making changes.In others,its the sheer complexity involved in keeping all the disparate systems and processes that comprise a post-trade environ-menteverything from clearing and settlement to asset servicing,custody and reportingrunning smoothly.One reason for the fragility of these environments is that systems are often woven into many legacy upstream and downstream systems.According to a study conducted by Broadridge Financial Solutions and Firebrand Research,1 most sell-side firms have siloed infrastructures across the range of asset classes,often maintaining separate middle-and back-office operations and technologies for equities,fixed income and derivatives.“Some medium-sized organizations have,on average,nine post-trade solu-tions.Youve got organizations working in silos across asset classes and business lines,”says Danny Green,head of inter-national post-trade at Broadridge.“So what happens when you want to try and increase your levels of efficiency?When you launch an initiative,youve got to impact,on average,nine different ecosys-tems.Therefore,change becomes difficult to implement,and quite expensive.”Despite the cost and complexity,firms are beginning to realize that they need to innovate.For example,BNPParibas is investing in its back-office process,particularly within corporate actions,and Societe Generale is leading a consortium of banks to solve data management issues using privacy-enhancing technologies.However,thats where firms run into another challenge:all these innovation projects are run separately in disparate business areas,such as corporate actions,which is an area under asset servicing.Mark Wootton,regional head of local custody and clearing for Asia-Pacific at BNP Paribas,recently described the banks back-office overhaul to WatersTechnology,highlighting how all participants play a significant part throughout the lifecycle of one corporate action event.However,while each par-ticipant involved understands their own process well,there isnt a consolidated“Part of me thinks the industry is still comfortable with the process that has existed for 20 years.”Mark Wootton,BNP ParibasBack-office technology8 November 2022view of the challenges thateveryone else goes through in the same lifecycle.“Part of me thinks the industry is still comfortable with the process that has existed for 20 years,”Wootton says.Thats where vendors like Adnitio could help the industry kick-start mean-ingful change:Gordon set up Adnitio to help banks have visibility of their end-to-end process across the middle and back offices by processing each data event in real time and providing users with a live,up-to-date view of traffic and activity.“The whole idea behind the company is that you can get all your business data out in real time,tracking it end-to-end with zero impact on your underlying sys-tems.What that means is you dont have to go through any change management;youre using existing applications to basi-cally stitch together the lifecycle of your transaction as it moves across your systems from the post-execution point,all the way through all your settlements,funding,process payments,FX,netting,and so on,”Gordon says.“Its a highly complex space,and seeing how that data moves across systems has always been the challenge.”For example,Adnitio provides dash-boards that can show where exactly a trade is stuck.“Say for your number one client,youve got a trade that is worth several million and its been stuck in clearing and needs to go through a manual process.Maybe you want to clear that so that they can do another trade because theyre waiting for that liquidity to be released.Thats where its all changing,”he says.Adnitio pre-processes and links data across various systems,collects data using messaging queue tools like Apache Kafka and IBM MQSeries,and also collects data by monitoring APIs within applications with a low impact,which Gordon says is measured in nanoseconds,as well as from databases.“Thats when the teams are asking to confirm that theyve got the data in their system of record,so that their ana-lysts and quants can act on it.The quants are getting involved in this process to see how they can add value to the trading in the front end,”Gordon says.Beyond contributing to revenue gen-eration or cost cutting,theres another reason for firms to strengthen their post-trade processes:regulation.For example,the UKs Financial Conduct Authority(FCA)has issued its rules and guidance on requirements to strengthen operational resilience in the financial services sector.2 Firms have until March 31,2025,to show the FCA that their critical systems can perform within impact tolerances and that they have made the necessary investments for those systems to operate consistently.That doesnt necessarily require firms to switch out a legacy system for a new one,but it may prompt them to better understand how data flows across existing systems,which in turn will enable them to focus any change projects where real problems already exist,ratherthan create new ones by introducing a completely new architecture.As part of that process,gaining complete visibility of systems could serve as a benchmark for firms to then implement any major change to middle-and back-office systems.Still,even regulators are having a dif-ficult time changing hearts and minds when it comes to post-trade.Gordon recalls an end-of-life project he was tasked with 20 years ago.“They said it would only take a year to take this small application out of the bank.Six years later,they still couldnt take it out,because what they hadnt realized is that it had been providing data to lots of upstream and downstream process,”he says.“So,until youve got your bench-mark numbers and know exactly whats going on,youre going to struggle.”Previously published on 1.Broadridge and Firebrand Research(2021),The case for a multi-asset post-trade approach:Why the industry needs to be more joined-up across asset classes,https:/bit.ly/3s4gE552.FCA(March 2021),PS21/3 Building operational resilience,https:/bit.ly/3CHg6a9Q&A with Broadridge9Transforming post-trade operationsVijay MayadasBroadridge The back office has typically been neglected in terms of funding.Is more money being pumped into the back office?Vijay Mayadas:Yes,we are seeing more focus on how to streamline the back office and modern-ise technology stacks.All of that is driven by the macro trend of low-touch trading,electronification,margin pressure and demand for new products and new markets.Theres a much stronger focus on figuring out what the next-generation back office should look like.The focus is on how to decommission existing legacy plat-forms to enable firms to get higher levels of scale and straight-through-processing benefits.How does the back office provide data and insights to the front office today?Vijay Mayadas:Back-office data is increasingly important to the front office because of the increas-ingly real-time nature of trading.Using back-office data to help the front office make better trading decisions and manage risk and inventory more effectively is a key area of focus.Theres a lot of variation in terms of exactly what firms are doing to surface back-office data into the front office,but the underlying driver of constraints and opportunity is driven by the technology architecture in place.How is the back office approaching its technology transformation journey?Vijay Mayadas:Most firms were speaking with are trying to think of the back office holistically,so the entire trade life cycle front,middle and back.Whats our journey to modernise that entire technology stack?How should the back office fit into that?Its about really understanding your target state and designing that jour-ney in a series of very incremental steps with quick wins.Many firms are looking to avoid the big-bang type of technology transformation.Modern technology architecture really gives you the opportunity to make this journey in a more incremental manner.In what circumstances is the back office using technologies such as cloud,APIs,microservices,AI and machine learning?Vijay Mayadas:Most firms now build their new components to be What are the current specific operational challenges facing the back office?Vijay Mayadas:A complex technology footprint is the number one challenge,particularly for larger investment banks that have built up siloed technology stacks over time with multiple vendors and home-grown systems.As these systems have been built and added to over time,there are different types of data ontologiesways of describing the same or similar underlying sets of data.Data fragmentation and data complexity are often the root cause as to why it is so difficult to work with and transform a lot of post-trade technology.Continuous regulatory burdens are another chal-lenge.The Fundamental Review of the Trading Book is one example of the more complex regulations that impact the front office and flow throughto the back office.A fragmented silo tech-nology stack makes it more difficult to absorb that kind of change.Post-trade covers clearing and settlement,asset servicing,custody and reporting.Which specific areas within these activities have processes that are“easier”to automate,or to innovate?Vijay Mayadas:Regulatory reporting is a little easier to drive more technological change because its a fairly siloed activity.Once you can get the data from your core systems into the right format,reporting off of that data becomes easier.There is a lot of complex domain expertise and business logic deeply embedded in post-trade systems.Its a real focus area:how you unlock that with more modular-based,microservices-based technology principles.Im seeing innovation using artificial intelligence(AI)and machine learning to predict outcomes,such as the likelihood of a trade failing.We see needle-moving projects in distributed-ledger technology and smart contracts that are creating real benefits for firms very quickly,particularly in clearing and settlement.An example of this is how we have taken a core trading and settle-ment process in the repo markets and put it on a smart contract.This simplifies the way clearance and settlement works and creates immediate savings.Robotic process automation is also becoming embedded into asset-servicing technology stacks to manage the long tail of exceptions that require a lot of manual intervention.Vijay Mayadas,president,capital markets at Broadridge,discusses the biggest challenges in the back office and how post-trade technology is transforming the relationship between the front and back office.Post-trade tech and the back/front office Q&A with Broadridge10 November 2022cloud-ready.The cloud specifically is very beneficial if you have processes that require high spikes in computing power,but are not necessarily con-sistent over the course of the day.The cloud brings a lot of benefits for those sorts of complex activities,such as running a Monte Carlo simula-tion for a trading strategy.Im seeing a lot more adoption of cloud for front-office technol-ogy components than in the back office,but it is definitely an area weve invested in,with many of our existing components already cloud-enabled.How important is interoperability between a firms front-,middle-and back-office systems and workflows?Vijay Mayadas:Modular interoperability is very important to help firms communicate better between the front,middle and back office.For example,interoperability helps you introduce new asset classes more efficiently because youre essentially creating a new module for that asset class,which then plugs into your existing stack.You minimise the code changes you must make deeper into the technology stack.The key is data ontology.A common data ontology that gives you the ability to create APIs is more effective.This then provides the abil-ity to enable real-time and much simpler data interfaces between the different systems.A lot of operational processes within the back office require specialists.When performing large-scale transformation from legacy systems to new digital technologies,what methods are companies using to refocus their existing specialists to the new value-added tasks?Vijay Mayadas:Firms are refocusing talent to drive modernization of the back office,by having teams work together in squads.So,youll have someone who maybe has very deep domain expertise in some part of back-office operationsand then partner them up with someone who is a forward-thinking technologist along with someone from the business.If you can get those squads humming along nicely you can actually get the benefits of technology modernization,deep post-trade domain expertise with a real business focus to create really good outcomes.Regulation11Transforming post-trade operationsEurope could face settlement squeeze with T 1 proposals and CSDR finesMoves to shorten the settlement cycle in the US could have knock-on implications for other markets,as the European Union grapples with a new penalty regime.By Josephine GallagherF or all the talk of“real-time settle-ment”,it wasnt until 2014 that Europe moved from a settlement cycle of three business days after the trade date(T 3)to(T 2).And the US only fol-lowed suit in 2017.“We like to think were in a fast-paced environment but significant structural changes take time to materialize,because we work in an industry where we cant just hit the pause button and rewrite everything,”says Sachin Mohindra,executive director of global markets and market solutions at Goldman Sachs.Mohindra has held a range of post-trade roles during his 18 years at the bank.“Its like were on a moving train and were trying to service that moving train at the same time,”he says.Now,five years later,the US markets regulator is pushing for a T 1 settlement cycle.In February,the US Securities and Exchange Commission(SEC)published a proposal that would make amendments to existing rules for broker-dealers,investment advisers and certain clear-ing agencies,with a view to shortening the standard settlement cycle for most broker-dealer transactions from T 2 to T 1.1 The comment period for these changes closed on April 11.If adopted as a concrete set of rules,T 1 settlement would come into effect in the US on March 31,2024.The SECs proposal considers a report published in late 2021 by the Depository Trust&Clearing Corporation(DTCC),the Investment Company Institute and the Securities Industry and Financial Markets Association(Sifma),which made recommendations to implement a T 1 settlement cycle in the US.In the proposal,the regulator quotes the adage that“time equals risk”less time between a transaction and its com-pletion reduces risk.Moving to a shorter settlement window would reduce risk in the clearing and settlement process,and increase operational efficiency across the trade lifecycle.2 The commission says that moving to T 1 was especially attrac-tive considering two recent episodes of extreme market volatilityduring the“meme stock”frenzy and the Covid-19 pandemicwhich“highlighted the sig-nificance of the settlement cycle to the calculation of financial exposures and exposed potential risks to the stability of the US securities markets.”Some securities industry participants,however,say that,for T 1 to work,all jurisdictions should make the move at the same time.If one market moves to T 1 before others,a disjointed settle-ment framework emerges.These critics are concerned that the move to T 1 could have knock-on effects on other markets,especially considering new regulations in Europe that require investment firms to pay cash penalties for settlement fail-ures.Most notable is the Settlement Discipline Regime,a central piece of the European Commissions(ECS)review of the Central Securities Depositories Regulation(CSDR),which came into force on February 1,2022.3 European investment firms trading US securities will have a shorter time frameespecially factoring in time-zone differencesto allocate and fund securities,fix settle-ment issues and comply with CSDRs new penalty rules.“This is an area that still needs a lot more thought within the US,and its a question weve posed to Sifma,various trading groups,and the DTCC.Weve said Great,you have figured it all out Regulation12 November 2022in terms of which batches you need to change at the DTCC,what reports need to be updated for your local brokers,but we havent really thought enough about the international community.So,a bit more work still needs to be done there,”Mohindra tellsWatersTechnology.He says some participants might look at the move to T 1 in the US as simply losing a full business day to trade and settle a transaction.But the situation is more complex than that.In Europe,the settlement time could go from a 12-hour window down to two hours.“If you go from 12 hours down to two,that equates to something like an 83%reduction in that post-trade processing time,”Mohindra says.“I think a lot of people dont appreciate that because everyone thinks going from T 2 to T 1 is a 50%reduction in time,but actually its an 83%reduction ahead of the settle-ment date.”Non-US firms also face technical challenges if the SECs proposed rule amendments are passed.Many invest-ment firms are still dependent on legacy technologies and manual practices for managing their post-trade operations,an area that still struggles to attract much investment from businesses.“There is still that rump of transactions that require some level of manual process-ing.For example,your client might be a bit more technically illiterate and is still sending their trade allocations via email,which requires manual translation into your central securities depository CSD system,”says an industry source with knowledge of the USs T 1 discussions.Adding to the possible confusion is that,while the US is home to three central securities depositories and one legal structure under the SEC,the EU manages 30 CSDs(31 if you include the UKs Euroclear)and has 27 different legal and tax frameworks for each EU member state.4T 1 in the US would also affect mar-kets in Asia,says the industry source.“In Europe,we have some level of overlap with the US and Asia,but its a challenge for those in Asia who wake up and the settlement window is already closed and you have no opportunity to fix any issues,”they say.A possible solution is for counter-parties on either side of a trade to agree to pre-match trades before settlement.This would require matching instructions on either side to be ready,ensuring both counterparties have their cash and securi-ties secured and systems prepped before the trade is settled.But this setup might not work for the buy side,Mohindra says.“Its not always the most effective process for an asset manager.You cant have everything pre-allocated and pre-agreed,because sometimes an asset manager reacts to their order being filled throughout the day and then figures out the most optimal way to allocate it.So,sometimes these things must happen in post-trade and cant always happen in pre-trade,”he says.Dj vuJohn Abel,executive director of clearance and settlement product management at the DTCC,says that,in trying to accommodate a T 1 cycle,the industry can learn from the past decades initiatives to shorten the settle-ment cycle,as well as the markets that already operate on a T 1 basis,such as US government securities.If the US adopts the proposals,he says,non-US investors will be able to choose from a variety of vendor tools to help them meet the new deadlines for trade alloca-tions,confirmations and affirmations.“Most of the non-US members also employ custodians,which are very active in the US markets,and they offer their own tools and processes to help non-US investors,”he adds.One head of product at a broker-dealer says that,historically,when one jurisdic-tion moves,it speeds up the process for other markets to follow suit.If the US moves,it provides impetus for EU firms to align their own systems and practices.“This has happened before,when Europe moved and then the US moved,and it helped to lay the groundwork for all the other system and operational changes,”says the executive.But Mohindra says industry partici-pants across the European market need to consider why settlement problems happen in the first place before T 1 can become a reality in the region.For example,why does the sell side suffer from inventory problems that lead to failures?Data from the International Capital Market Association shows that a large majority of settlement fails are because the seller is unable to deliver the sold securities on time,accounting for more than 70%of all fails.5Goldman Sachs,alongside other investment firms,has asked the SEC for a two-year implementation window from when the rule is finalized to when it must be implemented.In one scenario,Mohindra says,European and Asian asset managers might have to give power of attorney to local brokers or pass on some outsourced func-tion to a third party locally in the US time zone to effect settlement processes on their behalf and prevent failures.Alternatively,if there is enough volume to warrant it,European buy-side firms might decide to set up branches in the US to be responsible for settlement decisions.But much of this is yet to be worked out.“Were asking for those two years from when the rule is published to allow for all these creases to be ironed out in the process,”he adds.An EC official tells WatersTechnology that,following its“extensive consultation process”on CSDR,the EC had received no comments or concerns regarding the shortening of the blocs settlement cycle from T 2 to T 1.However,the EU legislator says it is still monitoring regulatory changes occurring in other jurisdictions,including the US,to see how any changes play out.“We are following international dis-cussions on this issue closely,”the official says.“It should be noted,how-ever,that CSDR currently mandates a maximum of T 2 and,as such,does not prevent industry to use shorter set-tlement cycles.”Previously published on 1.SEC(February 2022),Shortening the securities transaction settlement cycle,Federal Register:The Daily Journal of the United States Government,https:/bit.ly/3giWTUS2.SEC(February 2022),SEC issues proposal to reduce risks in clearance and settlement,https:/bit.ly/3gksBRB3.European Securities and Markets Authority(August2020),Final report:CSDR RTS on settlement discipline postponement until 1 February 2022,https:/bit.ly/3CNDCSS4.European Central Securities Depositories Association(2019),List of members,https:/bit.ly/3D6TgKA5.International Capital Market Assocation(February 2022),Optimising settlement efficiency:A European repo&collateral council discussion paper,https:/bit.ly/3SderPiData management13Transforming post-trade operationsBanks corporate actions overhaul saves hours,but industry still seeks elusive silver bulletAlthough some market participants are trying to automate corporate actions internally,full straight-through processing is unattainable without end-to-end buy-in from all participants along the event lifecycle.By Wei-Shen WongC orporate actions,a largely manual function,has historically struggled to gain the attention of management,or to innovate.But BNP Paribas securities services business has decided to invest in the back-office process.In doing so,the bank estimates it has shaved three to four hours off the time it took for its ops team to process corporate action events per day.“Someone had to put it into a template,review it,validate it with a four-eye check and input it into the system.But all of that has now disappeared,”says Mark Wootton,regional head of local custody and clear-ing for the Asia-Pacific(Apac)region at BNP Paribas.As part of its strategy to automate cor-porate actions functions,BNP Paribas has implemented the Australian Securities Exchanges real-time corporate actions straight-through processing(STP)feed.The feed,which ASX launched in June last year,is designed to deliver corporate actions event notifications to inves-tors in an accurate,comprehensive and timely manner.Prior to using the STP feed,the banks corporate actions events team had to split the work into different buckets.For instance,companies whose names began with letters A through D would be managed by one corporate actions employee in the ops team,while com-panies beginning with D through G would be handled by another member of the team,and so on.As part of the workflow,employees would log on to both company registry websites and the ASX site to download what is known internally as a“daily diary,”and try to contextualize and summarize large amounts of corporate actions information.“Take BHP,for example.Its a big mining stock in Australia.If BHP announces a dividend,that will come as a 6070-page PDF and then the corporate actions team would have to read all the pages and translate that into one message that we can send to our clients,”Wootton says.Turning that 70-page PDF into mean-ingful data that clients can decipher can be an exhaustive and time-consuming task.This was the catalyst that prompted BNP Paribas to adopt ASXs STP feed,a decision that Wootton describes as a“no-brainer”.“Its not just bringing those opera-tional benefits to us,its also getting vital information to our clients in a timelier manner,”because whether a client elects to receive cash or stock can affect a companys share price at that time,and impact clients investment decisions.“The quicker we can get vital informa-tion to our clients is also a competitive advantage to us,”he says.By using the ASX feed,the banks clients now receive corporate actions information four to six hours earlier than before.Wootton says many clients have welcomed this efficiency because it also means they have more time to relay the information to their own downstream customers.Innovation breeds innovationIn addition to saving time,implement-ing the ASX STP solution has enabled BNP Paribas to innovate in other parts of the corporate actions process,Wootton says.As a custodian,after sending the cor-porate actions information to clients,BNP Paribas needs to collect clients instructions on the event,reconcile them,and then send that information to the relevant share registry.“Weve fully automated the cor-porate actions reconciliation process using robotic process automation,and the beauty of having a staff member that is a bot is they can work around the clock,”Wootton says.BNP Paribas has built two bots that fully automate the corporate actions“The beauty of having a staff member that is a bot is they can work around the clock.”Mark Wootton,BNP ParibasData management14 November 2022reconciliation process.The banks secu-rities services arm has also developed a bot that logs into company registries and sends out automated emails on corporate action events.In one use-case,the bank has a bot that can log into the website of one of the biggest company registries and elect on events,such as a decision about dividend payouts or a merger vote.But many challenges remain,espe-cially since some registries still ask to receive corporate action event elections by fax,which is further com-plicated by the way companies present the information in inconsistent formats on paper.BNP Paribas looked at implementing a fax bot that could transpose an event elec-tion into readable and non-readable fields,but rather than create a workaround,Wootton says,the industry should work to remove the problem altogether.“Weve looked at that a few times,but we would rather push the registries to not use fax,and to either use an API interface,log into their GUI or imple-ment another more automated way of doing that.In the modern day we are not fans of fax machines,”he says.Work smarter,not harderBNP Paribas has also run an internal proof of concept(PoC)with Digital Asset,using smart contracts to automate elections on behalf of its clients.1 Clients provide cus-todians with instructions to follow during a corporate action event:for example,in a dividend payment,the client might want certain criteria to be met before it elects to receive a cash payout,versus different criteria that would prompt it to elect a stock payout instead.By using smart contracts,Wootton says BNP Paribas is trying to develop thresholds or“cutoffs”for when an instruction should be followed and to provide the client with a pricing feed to support their decisions.“We could use a smart contract to work out,if the price is above x,to take stock,and if the price is below x or y,to take cash,”he adds.The PoC was run from the banks Apac presence,but was based on a multi-market approach.While the smart contracts service for client elections was designed for the Apac region,accounting for synergies between the Hong Kong and Singapore markets,in addition to other local markets,the DAML Digital Assets smart contract language-based tech will be adjusted to meet other regional specifications around the globe and incorporate new possible use cases.“Were also thinking of the next catalog of ideas and iterations,not necessarily all for corporate actions,but also what else can that technology do in our ecosystem,”Wootton says.Data management15Transforming post-trade operationsAll custodians want to offer their clients better automation and the best cutoff timeframes possible,Wootton says.The closer BNP Paribas can bring that cutoff to the time the registry needs to process the corporate action election information,the better it will be for clients and consumers of corpo-rate actions data.“Whether theyre based in Paris or the US,giving clients an extra five to 10 hours still adds value so they can make decisions as late as possible.Important information in our clients hands is one benefit,but the second element of which were working on,and doing some inter-nal automation around,is streamlining our processing to leave that cut off as late as we physically can for our clients to be able to instruct on what their intention for the event is,”he says.If it aint brokeMany industry participants believe,or want to believe,that the corporate actions data process is just not that broken,says Barnaby Nelson,chief executive of Toronto-based research,benchmark-ing and sales enablement advisory firm The ValueExchange.Nelson knows BNP Paribas corporate actions first-hand,having served as head of business development and sales for Asia at BNP Paribas between 2008 and 2014.According to a survey authored by The ValueExchange,there is a clear case for transforming the corporate actions process but many participants that took part expect savings of only 23%from automating the processing of corporate actions data.2Nelson says that the market has evolved to the point where the cor-porate actions space isnt setting off any big alarms,and where there are no immediate“fires”to put out.He notes this has led to complacency and a lack of innovation.Many firms in the corporate actions lifecycle also strug-gle to see the gravity of the potential risks of not innovating and the ultimate benefits of any investment.Another issue the Australian market faces is despondency around whether a solution like ASXs real-time STP feed can work.Nelson says that there are strongly divided opinions between those who have used the ASX feed and those that havent.The skeptics believe“Its not that broken,its alright,we can manage,”he says,but those that have trialed and tested it have seen a major reduction in inefficiencies.“They say it has triggered an increase of 80%in their STP,and its letting them restructure their data models.Its weird,this general despondency around the ability to change,but when people have made the change,the size of the change is incredible,”he says.This feeling of despondency is not unique to Australia.The inefficiencies around corporate actions processing are a global problem that has existed for more than 30 years,Nelson says,and there is no silver bullet.“Theres a lot of manual work,so its more a case of peeling away the prob-lem rather than solving it in one go.So,people must buy into the journey,”he adds.Karen Webb,senior manager for issuer services,securities and pay-ments at the ASX,says another reason why participants are more reluctant to change is the reliance on corporate actions experts.Yet,this could change if the pool of corporate action talent continues to shrink.Research from Firebrand Research suggests corporate action specialists are leaving the space,with older specialists moving on to more exciting roles in the industry.And its becoming harder to attract younger people to fill these roles.“Many of those experts have been around for a long time and were start-ing to see attrition.Some of the work has moved offshore,and the experts are relied on only on a need-to-know basis.So,there might come a point where they market participants might be forced to make a change because of that,”Webb says.Industry buy-inAutomating corporate actions fully would also require end-to-end,industry-wide buy-in and investment.Participantsregistries,issuers,custo-dians,brokers and their clientsmust identify the business case and the work needed to take on a straight-through process and how to build towards it.Some ASX customers are automating the corporate actions process today,says Webb,though such an implementa-tion is a long-term commitment,and the exchange needs to convince those participating of the future benefits they could reap.She adds that part of the problem is that everyone along the corporate action lifecycle understands their issues but is not necessarily look-ing at the bigger picture.BNP Paribas Wootton says all participants play a significant part throughout the lifecycle of one corpo-rate actionevent.“Everyone understands intimately their own process but there hasnt yet been a consolidated view of all the players getting together and under-standing the pain points that everyone goes through,”he says.So while BNP Paribas can enhance its internal processes,it does not solve the overall market issue when dealing with corporate actions.“Part of me thinks that the industry is still comfortable with the process that has existed for 20 years,”Woottonsays.“There are some registries that are fur-ther advanced than others,but if one registry doesnt advance,that means youve only got 95%and not 100%of the solution.”Previously published on WatersT1.BNP Paribas(September 2020),BNP Paribas Securities Services joins forces with Digital Asset to develop DLT trade and settlement apps,https:/bit.ly/3s1rSr92.The ValueExchange,Corporate actions in Australia:The case for transformation,https:/bit.ly/3VMmRQS“Many of those experts have been around for a long time and were starting to see attrition.Some of the work has moved offshore,and the experts are relied on only on a need-to-know basis.So,there might come a point where they market participants might be forced to make a change because of that.”Karen Webb,ASXGAIN COMPETITIVE EDGETHROUGHOUT THE TRADELIFE CYCLE WITH TECHNOLOGYSIMPLIFICATIONMovingForward
CEOs are pushing for growth during global turbulence,focusing on 10 key areas for successTURNING TURMOIL TO ADVANTAGE:HOW CEOs ARE NAVIGATING CHANGE TO DRIVE GROW TH 2023CEO INSIGHTSWe would like to acknowledge all those who contributed in the review of this Report,especially:Thomas Kuruvilla,Alan Martinovich,Richard Eagar,Gregory Pankert,Adalberto Biffi,Michele Tallarigo,Enrico Verzeroli,and Sunaina YadavFRANCESCO MARSELLAManaging Partner&Practice LeaderStrategy&O PETTER KILEFORSManaging PartnerStrategy&OMAXIMILIAN SCHERRPartnerStrategy&O RALF BARONPartner&Chairman of Global Partnership Committee,Strategy&Organization BARNIK CHITRAN MAITRAManaging PartnerStrategy&ODOMINIC SATTLERManagerStrategy&OCONTENTFOREWORD 3EXECUTIVE SUMMARY 51.ANALYSIS:5 KEY TRENDS FROM TODAYS CEOs 62.HOW SECTORS COMPARE 16CONCLUSION:FORTUNE FAVORS THE BRAVE 202Organizations,consumers,and citizens are reeling from the ongoing blows of the global pandemic,the geopolitical volatility,the industrial and digital revolutions,and the increasingly visible shocks caused by climate change.We undoubtedly live in times of volatility and uncertainty with little sign that the rhythm of disruption will calm down.Continuing with a strategy solely focused on business as usual is a recipe for failure.And in such a context,managing performance today while preparing for the future is complicated.Nevertheless,that is what is needed to avoid all risks and capture the many opportunities hidden behind these disruptions.But how are companies and the CEOs that lead them reacting to these disruptions?What decisions are they taking and what do they feel about the current and future business environment?To find out,Arthur D.Little(ADL)has explored in depth how CEOs in different industries and different geographies are coping with this extraordinary combination of challenges.After hundreds of conversations and months of research,the“2023 CEO Insights”study aims to answer five key questions:1.How do CEOs perceive the current market situation and outlook?2.What is their take on the right strategy?Is there room for growth?3.What are the new requirements and calls for action on organization and leadership?4.What are the challenges for human resources?5.What is the relevance of environmental,social,and corporate governance(ESG)in this context?FORE WORDARTHUR D.LITTLE3Many of the findings were unexpected,surprising,and even counterintuitive.Despite current challenges and many dark macroeconomic previsions for 2023,most CEOs we spoke to are optimistic for the future,with nearly two-thirds(63%)expecting a stable or positive global economic outlook over the next three to five years.Essentially,rather than being beaten down by the range and depth of current challenges,these leading CEOs see them as opportunities to be seized.They are willing to invest and innovate to drive growth.Compared to the major 2008/2009 crisis,we can clearly see that a new level of resilience among companies and CEOs has been forged,as illustrated during the pandemic.This study shows a global executive community taking the bull by the horns and working with passion,coolness,and creativity to manage performance today while building the future.I am personally convinced that the winners will be this new generation of ambidextrous CEOs and companies!Ignacio Garca AlvesChairman&Chief Executive Officer Arthur D.Little 4REPORT:TURNING TURMOIL TO ADVANTAGE:HOW CEOS ARE NAVIGATING CHANGE TO DRIVE GROW THE XECUTIVE SUMMARY“ADVERSITY EQUALS OPPORTUNITY”IS HOW TODAYS CEOs VIEW CURRENT,CHALLENGING TIMES Rather than causing them to retreat into their shells and focus on cost-cutting strategies,ADLs“2023 CEO Insights”study shows that,globally,CEOs of the largest organizations are instead targeting growth through investment and innovation.They are truly ambidextrous in managing both operational excellence and new innovations.Overall,their mindsets are positive,and they feel their organizations are resilient and well-positioned to cope thanks to changes implemented in response to the pandemic.This is leading them to look beyond their core business to a more balanced portfolio of strategic levers to drive growth.They are using technology as a key lever for innovation and future success.Adding to this heartening,if potentially surprising,picture,they are focusing on sustainability as a competitive differentiator,moving beyond compliance to understand and benefit from the opportunities it brings.Uncertainty is all around us but fearless global CEOs are taking advantage of it to shape a more positive future for their businesses and wider society.ARTHUR D.LITTLE5Analyzing ADLs“2023 CEO Insights”study leads to five clear conclusions,which apply generally across both geographies and different vertical sectors.1.CEOs:POSITIVE ATTITUDE&FOCUSED ON BUILDING A NEW FUTUREThe current crisis has triggered a tsunami of challenges across many industries.Businesses have seen a large-scale drop in customer demand,while input costs,especially for energy,have skyrocketed.Combined with serious strains and breakdowns in supply chains,this has led many commentators to predict the end of globalization as we know it.Yet most CEOs are pushing back and embracing a positive,resilient approach.In our sample,we see a trend toward a positive/stable,medium-term(three to five years)overall economic outlook(see Figure 1).Clearly,optimism varies between regions.The fact that nearly four in 10 CEOs based in the Big Five economies of Europe(Germany,France,UK,Italy,Spain)are expecting global growth is perhaps surprising given the challenges that region in particular faces but may be explainable by a focus on opportunities outside the continent itself.CEOs in the US are more cautious,with over half predicting no growth over the same time period.Just 10%of Asian CEOs expect a positive economic outlook over this time frame.A commitment to growthWhile CEOs are currently very actively engaged in cost savings and troubleshooting,the majority report that they are planning for growth,or at least stability,and are gearing up for the post-crisis world(see Figure 2).Thirty percent plan to grow faster than the market;nearly three-quarters of whom will increase their investment in growth.Showing the widespread commitment to expansion,1.ANALYSIS:5 KE Y TRENDS FROM TODAY S CEO sFigure 1.CEO views on global economic outlookSource:Arthur D.LittleSource:Arthur D.LittleFigure 1.CEO views on global economic outlookHow do you expect the global economic outlook to evolve in the next 3-5 years?2283% bA1%RG871B#BP%Europe(Big 5)TotalEurope(other)North AmericaMiddle EastAsiaSouth AmericaAfricaDecreaseStableIncrease6REPORT:TURNING TURMOIL TO ADVANTAGE:HOW CEOS ARE NAVIGATING CHANGE TO DRIVE GROW THARTHUR D.LITTLE40%of those who are planning cautious growth are increasing their growth investment,with 55%keeping it constant.Even one in five CEOs planning a defensive approach expect to invest more relative to the last three years.This sends a strong signal that the future belongs to those who act with courage now to shape their way forward.In our view,it is very encouraging to see this level of trust and energy,not only to fight the negative effects of the current crisis but also to mobilize creativity and resources to tap into future opportunities.Resilience forged during the pandemicThese results demonstrate an overall increase in resilience.Essentially,the shock therapy of the COVID pandemic may well have provided a crash course in how to deal with unprecedented challenges,contributing to building more strength and confidence so that CEOs feel well placed to deal with current issues.“In our industry,we have faced market volatility after the pandemic and due to that we made changes in our working process and strategies leading us to get involved in much better and advanced usage of tools and technologies.”CEO,healthcare An openness to government engagementOne area that is seeing change is attitudes to government intervention in markets.The pandemic saw an unprecedented growth of state involvement in many sectors,which combines with increasing regulation around areas such as decarbonization and sustainability.Geopolitical rivalry is driving protectionism,with benefits for incumbents in larger geographies.Overall,58%of CEOs globally said government intervention provided a useful support for short-or long-term growth,with just 7%viewing it negatively(see Figure 3).Concerns are strongest in Africa(15%)and Europe(10%),but the vast majority of CEOs view it positively or with a neutral view.Figure 3.Attitudes to government intervention in key industrial sectorsSource:Arthur D.LittleFigure 2.Growth ambitions and change in investment levelsSource:Arthur D.LittleSource:Arthur D.LittleFigure 2.Growth ambitions and change in investment levelsWhat are your plans for investment growth relative to the last 3 years?Offensive(faster than market growth)28Ugrutious(meet market growth rate)5fensive(slower than market growth)14%Change in growth investmentDecreaseStay constantIncreaseSource:Arthur D.LittleFigure 3.Attitudes to government intervention in key industrial sectorsHow do you view renewed state intervention in key industrial sectors?7%8%7S5)$CGF57B88(85!%1%4%TotalEurope(Big 5)Europe(other)AsiaAfricaMiddle EastSouth America6%North America50stabilizing factor skewing competitionNeutral effectsUseful support to short-term growthUseful support to long-term growth7Furthermore,our global consulting projects show that senior executives are becoming personally involved in the paradigmatic shift currently happening in many of our core industries.For example,mobility and energy are driving decarbonization,telco companies are delivering higher-quality connectivity,while financial and healthcare organizations are fully embracing digitalization.It is encouraging to see that most CEOs of the largest companies are focusing on forward-looking activities rather than remaining in defensive mode.2.STRATEGIC THRUST:LEADING AMBIDEXTROUS AGENDA When facing a downturn,conventional business wisdom is to cut costs,focus on the core business,and aim to ride out the recession.However,depending on the industry and customer segments,buying behavior often transforms,opening up new opportunities for those that innovate.The switch to digital during pandemic lockdowns is the perfect example of this change.Therefore,we were positively surprised to see that a strong percentage of our sample is now putting the emphasis on innovation as a lever to get ahead and grow,alongside optimizing existing operations(see Figure 4).CEOs are becoming truly ambidextrous.BUYING BEHAVIOR OFTEN TRANSFORMS,OPENING UP NEW OPPORTUNITIES FOR THOSE THAT INNOVATECEOs are clearly looking to improve efficiency and effectiveness.But they are treating this goal as a constant(e.g.,cost optimization remains an unchanged priority)and are focusing more on creating new opportunities.For example,30%more are planning to enter fresh geographies,while also triggering the development of new products,and are ready to explore different business models.Innovation is key;there is a 23%drop in focus on the core business as a driver of growth,compared to the last three years.We see good examples of an industrys moves to improve both efficiency and innovation in the travel and transportation industry.The COVID crisis pushed airlines and airports into large-scale efficiency programs to achieve major cost reductions,impacting thousands of jobs.However,at the same time,these companies are forming new partnerships to offer new services to passengers,such as combined intermodal mobility offerings (e.g.,bringing together aircraft,rail,and mobility on-demand services).Figure 4.Most important growth strategies past vs.futureSource:Arthur D.LittleSource:Arthur D.LittleFigure 4.Most important growth strategies past versus futureWhat are the most important growth strategies you are adopting for your organization?Multiple choice 3 choices per respondent5574&(0 %9264%(%P%New client segmentsChange in regulationCore business focusNew geographiesCost optimizationNew sales channelsM&A for bus.portfolio opt.Disruptive offeringDiversificationM&A forconsolidationPrice warM&A forvertical integration-23pp 30ppPast 3 yearsNext 3 years8REPORT:TURNING TURMOIL TO ADVANTAGE:HOW CEOS ARE NAVIGATING CHANGE TO DRIVE GROW THARTHUR D.LITTLEGrowth plans Leaders vs.laggardsTaking a deeper look into growth strategies shows a widening gap between leaders and laggards(see Figure 5).Successful CEOs have built ambitious ambidextrous strategies that combine growth and optimization and are now focused on relentlessly executing on their plans.By contrast,lagging CEOs have focused only on optimization and are now making major strategic changes as they struggle to catch up.These include:-Moving away from a focus on their core business(60%over past three years vs.20%in the future).-Embracing more disruptive offerings (20%past vs.40%future).This demonstrates that laggards recognize they need to catch up and can only do this by taking risks.“Dealing with market uncertainty is such a difficult task,but we are ready to beat that as we are expanding into fast-growing markets and investing in high-tech products which will help us.”CEO,healthcare What are the drivers of future growth?Despite the current energy crisis,all CEOs are focusing on innovation when it comes to drivers of future growth(see Figure 6).Globally,over a quarter(26%)listed technology innovation as the most critical factor to growth,well ahead of raw material/energy prices(11%).Factors such as supply chain,and cyber risks both outranked raw material prices globally.However,there are clear regional differences:-Environmental and climate change issues are a key focus in Europe,North America,and Asia,but receive less attention in other regions.-Cyber risk is viewed as a key,urgent factor by 15%of CEOs in Africa,14%in Asia,and 13%in Middle East and Africa(MEA)/South America,ahead of their peers in Europe and North America.Again,this positive focus on innovation could be a product of the pandemic,which saw enormous transformation of operations driven by the likes of digital growth,working from home(WFH),and supply chain disruption.With these improvements in place,CEOs are empowered(and enthusiastic)to explore innovation as a growth lever.Figure 5.Most important growth strategies leaders vs.laggardsNote:(1)Performance category based on own perception vs.peersSource:Arthur D.LittleNote:(1)Performance category based on own perception vs.peersSource:Arthur D.LittleFigure 5.Most important growth strategies leaders vs.laggardsWhat are your most important future growth strategies compared to the past?(per performance category1)Multiple choice 3 choices per respondentPast 3 yearsNext 3 years45)5( 7X1%Core business focus25%DiversificationM&A for consolidationCost optimizationM&A for vertical integrationNew client segmentsChange in regulationNew sales channelsPrice warNew geographies15%Disruptive offeringM&A for bus.portfolio opt.33) %9%Top quartile(n=89)Middle of the pack(n=147)Lagging(n=10)61517)D34%1$%7P P0 %9“Despite challenging business conditions and changes in the operating environment,we were still able to achieve dramatic growth.Our global efforts to reduce costs achieved our goals three years ahead of schedule.Now we are prepared to handle any future uncertainties.”CEO,healthcare Turmoil brings M&A opportunitiesHistorically,CEOs have been most satisfied with internal initiatives to drive success(see Figure 7).Of those surveyed,89%said their organic growth activities met or exceeded their expectations.In our experience,these initiatives are driven by a key focus on customer-centricity,led from the top.At the same time,25lt that M&A activity contributions fell below expectations,with success rates for M&A for consolidation even worse,with 38%of CEOs unhappy at the results of this activity.The major reason for this previous poor contribution from M&A has been extremely high multiples,meaning acquisitions were expensive and often difficult to integrate.Current market turmoil has dramatically lowered prices,providing the perfect opportunity to add programmatic M&A to the CEO agenda,alongside internal initiatives.As well as taking advantage of lower multiples,success requires choosing ambidextrous targets that fit wider corporate strategies and ensuring that the right integration capabilities are in place to deliver real value and growth.Figure 6.Critical factors to company growthSource:Arthur D.LittleSource:Arthur D.LittleFigure 6.Critical factors to company growthWhat are the most critical factors to your companys future growth?Multiple choice 2 choices per respondent26)4%8%7%7%8%8%8%7%6%5%8%9%6%7%8%5%5%5%8%1%1%1%5%4%6%8%1%1%1%6%8%7%5%5%8%Europe(Big 5)4%2%1%4%Europe(other)Middle East&Africa5%North America3%4%South America3%2%Global averageAsia2ricaTechnology innovationDisruptive competitionRaw material prices(energy,etc.)Supply chainEnvironmental&climate change issuesCyber risksEconomic growth/GDPInflationSocial issuesGlobalizationGeopolitical concerns50%Figure 7.Success rates of organic vs.M&A activitiesSource:Arthur D.LittleSource:Arthur D.LittleFigure 7.Success rates of organic vs.M&A activitiesOrganic growthM&A growthHow satisfied are you with the results of your organic and M&A activities to drive growth?20i%7H%Meets expectationsExceeds expectationsBelow expectations188hS%9%M&A forvertical integrationM&A for bus.portfolio opt.M&A forconsolidation0%Exceeds expectationsMeets expectationsBelow expectationsPast growth focus vs.success rate M&A1 0REPORT:TURNING TURMOIL TO ADVANTAGE:HOW CEOS ARE NAVIGATING CHANGE TO DRIVE GROW THARTHUR D.LITTLE3.SHAPING THE ORGANIZATION:BUILDING ON EXPERIENCE,NOT WHOLESALE CHANGEThe intensive rhythm of disruption required to adapt fundamental ways of working shifts the CEO organizational agenda from a focus on structure to a focus on capabilities.While CEOs are building agile,ambidextrous organizations,the classic question of centralized versus decentralized is much less important.Essentially,CEOs understand that developing fit-for-purpose capabilities that drive optimization and efficiency as well as innovation and growth are now mission-critical.In fact,91%of CEOs(see Figure 8)felt their current organization setup and structure was sufficiently robust to enable their business priorities.Half felt that their organization was“strong,”although just 4lt it was superior.This pattern was true across most industries,although healthcare saw a polarization,with 3lieving their structures were inadequate and 68lieving they were strong or superior.This could reflect the wide range of organizations in the sector,some of which transformed during the pandemic,while others are struggling to cope with the long-term impacts it brought.Overall,most organizational structures are now reflecting todays multidimensional business reality.Attention is shifting to prepare for the strategic challenges ahead.The main organizational improvement focus is a fresh look at automation(68%of respondents),adoption of agile ways of working(65%of respondents)and building KPI/performance metrics that reflect both the performance versus growth dimension as well as hard versus soft skills(68%of respondents;see Figure 9).This is likely to lead to a different capability mix across various companies enabling them to explore and exploit,tailored to their specific strategies for the future.“We have managed to go through a transition phase and successfully implement the strategies required.This makes us better prepared to face the unexpected,yet we need to further improve on this.”CEO,financial servicesFigure 8.Satisfaction with current organizational structureSource:Arthur D.LittleSource:Arthur D.LittleFigure 8.Satisfaction with current organizational structureHow adequate is your current corporate organizational structure to face your business priorities and market volatility?Not adequateLimitedGood enoughStrongSuperior0%3%9%9%8%8%77G3C 9PDXET%4%3%8%5%8%TotalTelcosEnergy&utilitiesManufacturing(including automotive)0%Travel&transportationHealthcareFinancial services0%0%0%0%0%0%Figure 9.How CEOs would improve their current corporate organizationSource:Arthur D.LittleSource:Arthur D.LittleFigure 9.How CEOs would improve their current corporate organizationWhat measures would you consider to improve your current corporate organizational structure?Multiple choice 3 choices per respondentMore centralizationMore decentralizationFocus on KPIs and performance analyticsMore divisional settingFocus on automationAgile method adoption3888&2t&%#%87hcDXwhcihyeqPSdwt%9%Energy&utilitiesTotalTelcosManufacturing(including automotive)HealthcareTravel&transportationFinancial services88hb%1 1The increasing challenge to find and attract talent When it comes to recruitment,CEOs have long had concerns around demography(replacing retiring baby boomers)and adapting to the changing values of new generations.On the positive side,most are happy with the skills mix within their organization:just 13%see a strong/very strong impetus to drive reskilling(see Figure 10).However,this varies among industries and in companies within them as the example of the energy and utilities sector shows.Among energy players,20%said there was no need for reskilling,yet at the other end of the spectrum,5%of CEOs in the sector saw a very strong requirement to invest in this area.CEOs STRUGGLE TO ORGANICALLY ATTRACT NEW CAPABILITIES AND TALENTSThere is concern across industries regarding access to talent(see Figure 11).CEOs struggle to organically attract new capabilities and talents and are focused on acquiring them either via headhunters,corporate venture capital,or direct acquisition.Less than a quarter(21%)of key employees are developed internally,with headhunters the favored option for 29%of companies.A greater focus on diversity,equity,and inclusion(DEI)is likely to help attract and retain talent over the long term.Figure 10.The need for reskilling among current employeesSource:Arthur D.LittleSource:Arthur D.LittleFigure 10.The need for reskilling among current employeesTo what extent do you need to reskill your employees?No needLimitedModerateStrongVery strong11%5 HB6HSI)5#18#$%5!%5%2%2%2%5%Average0%Energy&utilitiesHealthcareTelcosManufacturing(including automotive)Travel&transportationFinancial services0%0%0%Figure 11.Where CEOs source new talents and capabilitiesSource:Arthur D.LittleSource:Arthur D.LittleFigure 11.Where CEOs source new talents and capabilitiesWhat are your plans to source new capabilities&talents needed for growth?HeadhuntersAcquisitionsInternal academyCorporate venture capitalCooperation with universities&academiaOther290&4() %9%8%6%8!#% #(%Travel&transportationFinancial servicesTotalHealthcareManufacturingTelcosEnergy&utilities1%1 2REPORT:TURNING TURMOIL TO ADVANTAGE:HOW CEOS ARE NAVIGATING CHANGE TO DRIVE GROW THARTHUR D.LITTLE4.MOVING BEYOND DIGITALIZATION TO EMBRACE TECHNOLOGIES As we have seen,CEOs are focusing on technology innovation to drive growth(refer back to Figure 5).Drilling down into where they see technology delivering benefits shows a step change between the past and future(see Figure 12).While the focus previously has been on digital transformation,looking forward this will virtually halve in importance to just 42%in the future,as traditional technology trends such as digitalization have become commonplace within organizations.Essentially,ambidextrous CEOs are now moving beyond using technology,such as digitalization,to drive efficiency and optimization and are now looking at large-scale adoption of new technology to provide a differentiator.They want new technology to underpin their growth agendas and help in acquiring and retaining new customers.To achieve this going forward,CEOs expect artificial intelligence(AI)/machine learning(ML),automation and robotics,and sustainability to significantly increase in importance.They are moving beyond pilot projects to scale technologies and embed them in the mainstream business.This brings higher expectations for delivery from their teams but potentially higher returns as well.CEOs are contemplating the future with open minds:60%want to explore new technologies,and 27lieve the Metaverse and virtual reality(VR)will impact their business.They are monitoring and piloting these technologies now,preparing to exploit opportunities once they mature.ADL experience supports this trend.AI applications have achieved mass market penetration and are making a significant difference in our societies.For example,they are underpinning new modes and means of transportation,better access to mobility systems,new and bidirectional energy management systems,and automation and automomy enabled by new telecom-connectivity systems.All of this will lead to progressive and radical changes to our economies and societies,and CEOs are focused and active in understanding and acting on the implications of technology breakthroughs.Figure 12.Most impactful trends driving growth past vs.futureSource:Arthur D.LittleSource:Arthur D.LittleFigure 12.Most impactful trends driving growth past vs.futureWhat do you see as the most impactful trends driving growth?Open questionPastFuture8363453938322624232216151414134251695158602456141303176927Digital transformationCustomer focusAutomation&roboticsOrganizational strategiesAI&MLEnergy&renewablesBig dataCloud tech&computingE-commerceSustainabilityNew technologiesIoTMetaverse and VRPandemicCybersecurityMobile network tech24No.of respondents1 35.ESG FACTORS BECOME CORE ESG is becoming a full part of the CEO agenda,and increasingly it is seen as an opportunity rather than a threat(see Figure 13).While two-thirds of CEOs admit they pursue ESG targets and goals for compliance reasons,80%see it as a source of competitive advantage,with 67%referencing consumer pull as a further reason for pursuing greener,more sustainable strategies.ESG is also rising in strategic importance,with 41%of CEOs making it a higher priority than other initiatives(see Figure 14).Only 1%rank it as a lower priority.Unsurprisingly there is a clear difference between sectors:60%of carbon-intensive manufacturing companies see it as a higher priority,compared to just 28%of healthcare companies.Increasing the focus on sustainability and committing to targets such as those within the UNs Sustainable Development Goals(SDGs)delivers wider benefits in both responding to customer needs and attracting todays purpose-driven generations of employees.1 Milanese,Stefano,et al.“Overcoming the Challenges to Sustainability.”Arthur D.Little Report,July 2022.https:/ CEOs are moving beyond talk to taking action on sustainability.Based on ADL work and research,1 we see five key actions to embed sustainability within a companys operations and governance:-Adopt an ecosystem approach,positioning themselves through collaboration with nontraditional partners.-Integrate sustainability indicators,reporting,and tools at the core of the business,and incentivize senior management based on these indicators.-Redefine their culture and build new capabilities and internal governance.-Focus on sustainability technologies and look more widely for innovation beyond traditional value chains.-Develop and adopt new business models built on sustainability.Figure 13.Reasons for pursuing ESG targets and goalsSource:Arthur D.LittleFigure 14.Priority given to ESG compared to other corporate initiatives Source:Arthur D.LittleSource:Arthur D.LittleFigure 13.Reasons for pursuing ESG targets and goalsWhy do you pursue ESG targets and goals?Multiple choice 2 choices per respondent80ggb%5%0%Competitive advantageOtherComplianceCustomer pullDont pursueAdditional businessSource:Arthur D.LittleFigure 14.Priority given to ESG compared to other corporate initiativesWhat priority does your company give ESG compared to other company initiatives?Lower prioritySame priorityHigher priority58UcXeC8Ep7A3(%2%1%TotalEnergy&utilities2%0%TelcosManufacturing(including automotive)0%Travel&transportation3%Healthcare0%Financial services1 4REPORT:TURNING TURMOIL TO ADVANTAGE:HOW CEOS ARE NAVIGATING CHANGE TO DRIVE GROW THARTHUR D.LITTLE1 52.HOW SEC TORS COMPAREWe have already seen how CEO thinking and actions vary between geographic regions.Unsurprisingly,attitudes show differences across sectors as well,with current and future trends impacting them in distinct ways.Some sectors are undergoing more radical transformation than others,especially those driven by convergence,which is enabling new opportunities but adding complexity.In the travel and transportation sector,for example,all players are gearing up to address a major shift in the classical paradigm of mobility management.This new mobility will be electric(with a lower carbon footprint),fully integrated and intermodal,and more autonomous,but also more demand and efficiency oriented.Around this paradigm a variety of new services will emerge to be addressed by traditional and new players,all of them working in stronger partnerships and ecosystems.In addition to transportation companies,these ecosystems will involve players such as energy suppliers,automotive manufacturers,telco companies providing connectivity,and even government agencies.CEOs understand that these trends go far beyond the current global crisis and are acting and planning accordingly.SOME SECTORS ARE UNDERGOING MORE RADICAL TRANSFORMATION THAN OTHERSThese differences between sectors are particularly highlighted in three areas:(1)optimism for the future,(2)views on the importance of growth/investment strategies,and(3)the levers CEOs expect to drive the growth.FUTURE ECONOMIC OUTLOOKCurrent turbulence means some sectors are winning while others languish(see Figure 15).For example,80%of CEOs of energy&utilities companies believe the global economic outlook will either improve or remain stable over the next three to five years.This could reflect the positive side of higher energy prices,particularly among producers.The telco sector is also positive,demonstrating its position as a critical part of everyones work and daily lives.Figure 15.Expectations for global economic outlook,by sectorSource:Arthur D.LittleSource:Arthur D.LittleFigure 15.Expectations for global economic outlook,by sectorHow do you expect the global economic outlook to evolve in the next 3-5 years?DecreaseStableIncrease22&0& %7AGP647( 85Y%TotalTelcosFinancial servicesEnergy&utilitiesManufacturingTravel&transportationHealthcare1 6REPORT:TURNING TURMOIL TO ADVANTAGE:HOW CEOS ARE NAVIGATING CHANGE TO DRIVE GROW THARTHUR D.LITTLEIn contrast,industries that are not able to benefit from the crisis,such as financial services,are extremely pessimistic,with 59%in that sector expecting a decline in the global economy.“Every firm can be impacted by an uncertain and unpredictable environment.We were not completely prepared during the pandemic and had a challenging experience.Now,we are preparing for the future by increasing our operational reach and updating technology inside our company.”CEO,travel&transportation“Through the methodical implementation of our strategy program and a creative and innovative commercial approach,we have now repositioned the company for growth.”CEO,telco THE RELATIVE IMPORTANCE OF GROWTH AND WHERE INVESTMENTS ARE BEING MADECEOs in all sectors view growth as vital for their organization.However,theres diversity in the reasons they want to grow(see Figure 16).Nearly a quarter of manufacturing companies(23%)believe it will help them attract,retain,and motivate top talent higher than in all other sectors.Growth is seen as most critical to securing the long-term health of the organization,particularly in energy and utilities(cited by 48%of CEOs),demonstrating the large-scale transformation happening in the sector as the world decarbonizes.Financial services is driven most by investor and board expectations(51%),reflecting the more traditional nature of the industry.“Despite challenging business conditions,we were still able to achieve dramatic growth.Our global efforts to reduce costs meant we achieved our goals three years ahead of schedule.Now we are prepared to handle all the uncertainties that may arise.”CEO,healthcare“High volatility and geopolitical tensions continually affect the energy market.We are increasing our production multifold by utilizing different tactics and new updated technologies while keeping resource sustainability in mind.”CEO,energy&utilitiesGROWTH IS SEEN AS MOST CRITICAL TO SECURING THE LONG-TERM HEALTH OF THE ORGANIZATIONFigure 16.Reasons for investing in growth,by sectorSource:Arthur D.LittleSource:Arthur D.LittleFigure 16.Reasons for investing in growth,by sectorWhy is growth important for your organization?OtherTo ensure long-term health of the organizationTo meet board expectationsTo help attract,retain&motivate top talentTo satisfy investor expectations40D8H7%9 %9#! )& )0#%Manufacturing(includingautomotive)0%Telcos0%1%Energy&utilities1%Travel&transportation0%0%HealthcareFinancial services1 7In the minds of CEOs,future opportunities are not evenly spread among sectors,with a greater number of companies in certain sectors(healthcare,energy and utilities,travel and transportation)aiming to achieve above-average growth rates(see Figure 17).In contrast,just 12%of financial services CEOs are adopting offensive growth strategies,the lowest number in the study.These different approaches drive investment budgets.Less than a third(29%)of financial services companies will increase their growth investments,with 10creasing them.Nearly two-thirds(65%)of energy and utilities CEOs will boost spending in this area,alongside 62%of those in manufacturing.In both these cases,radical transformation required for sustainability are key drivers for CEOs.RADICAL TRANSFORMATION REQUIRED FOR SUSTAINABILITY ARE KEY DRIVERS FOR CEOsFigure 17.Growth ambitions and change in growth investment relative to last 3 years,by sectorSource:Arthur D.LittleSource:Arthur D.LittleFigure 17.Growth ambitions and change in growth investment relative to last 3 years,by sectorWhat are your growth ambitions and how are your growth investments changing going forward?Offensive(faster than market growth/grow market share)Cautious(meet market growth)IncreaseDefensive(slower than market growth/focus on profitability)Stay constantDecrease14%5eXXHx!813P%3%533SHa7ebEP)%2%3%3%3%TelcosEnergy&utilitiesManufacturing&automotiveTravel&transportationHealthcareFinancial services1 8REPORT:TURNING TURMOIL TO ADVANTAGE:HOW CEOS ARE NAVIGATING CHANGE TO DRIVE GROW THARTHUR D.LITTLELEVERS FOR GROWTHWhile CEOs in every sector are consistently reducing their focus on their core business,where they are looking for growth varies widely(see Figure 18).Telcos and energy and utilities CEOs are dramatically increasing their efforts around disruptive innovation and expansion into new geographies.Energy CEOs are aiming to be truly ambidextrous,also accelerating their emphasis on cost optimization and seeing the largest drop in focus(42%)on their(previously)core business.Perhaps surprisingly for a sector noted for a constant focus on process improvement,manufacturing is moving away from cost optimization,instead embracing new sales channels and new geographies.Reflecting the sectors static,rather pessimistic view of current opportunities,financial services CEOs are planning a seven-fold increase in M&A investments to drive vertical integration as they battle new competitors.“A diversified investment portfolio will work to our advantage.We are planning more investments in technology and fast-growth sectors.”CEO,financial services“Concentrate on twin transformations to withstand economic shocks.One would be looking for raw material substitutes and the other would be an investment in technology.”CEO,manufacturingFigure 18.Areas for focus on growth(past vs.future),by sectorSource:Arthur D.LittleSource:Arthur D.LittleFigure 18.Areas for focus on growth(past vs.future),by sector1856I)4) $%7%22922)F%7%2%New sales channelsNew client segmentsCore busi-ness focusM&A for consol.Cost optimizationDiversi-ficationDisruptive offeringNew geographiesChange in regulationM&A for bus.portfolio opt.Price warM&A for vertical int.488#8C(#%3P(5 (X%3%80c(8(#5%8%50C5 X#%H3R&!3!%5863&)6%7e8(%3(#%8#5HC0 C%5S750%7!0B(X%9(!%Past 3 yearsNext 3 yearsTelcosEnergy&utilitiesManufacturing&automotiveTravel&transportationHealthcareFinancial servicesPast 3 yearsNext 3 yearsSurprising result1 9It is easy to become disheartened in current times.Short-term challenges,such as inflation,and longer-term issues,such as climate change,have swiftly followed the global pandemic,which continues to cause death and disruption.However,ADL research demonstrates that,globally,CEOs of our largest companies are embracing the positive and seeing the opportunities that arise from turmoil.They have a growth focus and are confident that a combination of pandemic-hardened organizational structures and innovation will allow them to thrive,rather than just survive.Across sectors and geographies they are combining this focus on growth with cost optimization,building agile,ambidextrous organizations that can innovate while increasing productivity.Based on the five broad trends that emerged from our 2023 survey and that we have discussed above,we have defined 10 CEO imperatives to help companies remain competitive,both now and in the future.Trend#1:Build a new future for the company 1.Pursue a growth-oriented strategy.The vast majority of companies are maintaining or increasing their investment in growth.Going forward,this means a fundamental revisit of strategic plans and priorities to reflect this desire for growth.Companies now need to develop strategies to identify new markets,customer segments,and new products to actively shape the business portfolio of the future while keeping an eye on profitability.The survey shows that CEOs believe that the current economic climate presents unique opportunities for expansion and diversification that can only be captured through a growth-oriented strategy.2.Engage proactively with government stakeholders.CEOs realize that governments are restructuring and revisiting regulation to respond to societal crises.Companies that engage constructively with policy makers will be able to secure their futures.Companies must actively shape policy and regulation,particularly around decarbonization and sustainability,to become the winners of the future.Trend#2:Lead an ambidextrous agenda3.Balance resource allocation between optimization and growth/renewal priorities.CEOs have stated a desire to maintain a good balance between optimization and growth/innovation priorities,building an ambidextrous strategic agenda for the company.We believe that this balance must be enabled with the right level of capital and workforce deployment.Keeping this in mind,companies should ensure adequate budget and,more importantly,leadership bandwidth allocation to strike the right balance between innovation and optimization initiatives.4.Develop programmatic M&A as a strategic lever while doubling down on existing customers.CEOs have expressed dissatisfaction with existing M&A programs.This is driven mostly by expansive fiscal policies inflating asset prices and valuations that have set up most acquisitions for failure,with the buyer overpaying significantly.The new inflationary environment has tempered valuations and,with dropping P/E multiples,we believe that acquisition targets have become strategically affordable as a result.While continuing to focus heavily on existing customers,CEOs can put past M&A disappointments behind them to build programmatic M&A initiatives supported by thoughtful integration capabilities.CONCLUSION:FORTUNE FAVORS THE BR AVE2 0REPORT:TURNING TURMOIL TO ADVANTAGE:HOW CEOS ARE NAVIGATING CHANGE TO DRIVE GROW THARTHUR D.LITTLETrend#3:Shape the organization5.Fill capability gaps.CEOs believe that now is not the time to indulge in time-consuming changes of organizational structure but instead to strengthen the existing organization.As a result,companies should proactively seek out and develop the right talents,whether internally,through acquisition,or via headhunters.At the same time,companies should focus on encouraging more organizational diversity by widening the range of experiences and backgrounds of prospective employees to match changing business and customer needs.6.Build organizational agility.An ambidextrous strategic agenda will need an ambidextrous organization.Companies should strive to break down silos,encourage cross-functional teaming and collaboration,and encourage more risk taking and innovation.At the same time,revisiting KPIs/key responsibility areas(KRAs),and objectives and key results(OKRs)to encourage and incentivize innovation will help create the right motivation for employees to think outside the box.Trend#4:Leverage technology7.Build a comprehensive technology transformation agenda beyond process digitization.COVID-19 drove companies to embrace process digitization,driving cost reduction and enabling WFH.CEOs recognize that technology is a key driver for growth,innovation,and cost optimization.Going forward,companies need to embrace newer technologies such as AI,robotics,and the Metaverse to increase revenues,enable innovation,and sustain/ensure market differentiation.8.Invest in scaling technology usage from pilot projects and sandboxes.CEOs realize that advanced technologies need to be embedded in business models to drive full value realization.Going forward,companies should scale investment in new technologies,moving away from pilot projects and sandboxes.As investments in technology scale,companies could consider measuring return on investment in technology(RoIT)and incorporating this in company and employee dashboards.Trend#5:Move ESG into the core9.Move from intent to action on ESG.CEOs are beginning to view ESG as a positive and not just a compliance cost.Companies must put sustainability at the core of their business model and engage with customers,suppliers,and regulators.At the same time,CEOs should create and drive multiple strategic initiatives that underpin the achievement of ESG goals and create a culture of positive ESG actions in the company.10.Craft and execute bold ESG bets.Progressive CEOs believe that ESG could be a source of future business model differentiation and drive the increased acquisition and retention of customers.As a result,companies could craft bold ESG bets such as divesting carbon-intensive operations,investments in new technologies(such as carbon capture and storage),and create an end-to-end green business model.Raising green finance to fund these bets will become increasingly important.It will take a bold CEO to embrace and drive all of these recommended imperatives,navigate the current turmoil,capitalize on new opportunities,and build the companies of the future.However,our research finds that,increasingly,CEOs leading the largest organizations across the globe have the skills,optimism,and growth plans to thrive in the uncertain future.About ADLs 2023 CEO Insights study-The global survey interviewed 246 CEOs from companies with turnover of more than US$1 billion.-Over half(55%)of participating CEOs led organizations with more than 10,000 employees.-CEOs were equally distributed among organizations in six key industries(telcos,energy&utilities,manufacturing,travel&transportation,healthcare,and financial services)-To give a representative,truly global view,CEOs were based in Europe,Asia,the Middle East,Africa,and South and North America.2 12 2REPORT:TURNING TURMOIL TO ADVANTAGE:HOW CEOS ARE NAVIGATING CHANGE TO DRIVE GROW THARTHUR D.LITTLENOTES23Arthur D.Little has been at the forefront of innovation since 1886.We are an acknowledged thought leader in linking strategy,innovation and transformation in technology-intensive and converging industries.We navigate our clients through changing business ecosystems to uncover new growth opportunities.We enable our clients to build innovation capabilities and transform their organizations.Our consultants have strong practical industry experience combined with excellent knowledge of key trends and dynamics.ADL is present in the most important business centers around the world.We are proud to serve most of the Fortune 1000 companies,in addition to other leading firms and public sector organizations.For further information,please visit .Copyright Arthur D.Little 2023.All rights reserved.
THE RACE TO FUTURE-PROOF THE SUPPLY CHAINGlobal supply chains are facing a perfect storm of disruptionA disrupted worldOn 23rd March 2021,the container ship Ever Given ran aground smack in the middle of the Suez Canal.The accident blocked the maritime thoroughfare for six days,as a queue of 369 ships formed behind the beached giant,resulting in a supply-chain disaster.Sixteen million tonnes of cargo freight were delayed,and about$9.6bn worth of trade was lost.That disruption came on top of a pandemic,geopolitical tensions,and extreme weathera cascade of“black swan”events that created shortages,delays and disruptions for businesses and ordinary people across the planet.If the past few years have taught us anything,it is that supply chains matterand they are not as resilient as we thought.“What we have observed over the last 18 months with the Suez Canal blockage,Covid and then the implications of Covid,with ports being congested or shut,is that there are many external events impacting the industry,”says Rotem Hershko,Senior Vice President and Head of Business Platforms at logistics giant Maersk.“We are in a perfect storm situation.”The vulnerability of supply chains may come as a surprise to manywe live in a world where digital technology seems to be transforming nearly every aspect of our lives,and logistics is a sphere rich with talk of innovation.However,this essential digital transformation has yet to penetrate much of the industrylook closely and youll see that an unexpectedly analogue,paper-based model still prevails.“There are many external events affecting the supply and logistics industry.We are in a perfect storm situation.”Rotem Hershko,Senior Vice President and Head of Business Platforms at Maersk54“Some companies are just a bit old style,”says Dr zden Tozanli Yilmaz,a researcher at the Centre for Transportation and Logistics at the Massachusetts Institute of Technology.“But even when its not old style companies,some organisations in the sector are simply lacking state-of-the-art management in order to move towards digital transformation.”The prevailing mindset is one thats all too common among business-to-business organisations:introducing new tools to better serve the needs of their customers is not necessarily a priority.There is also a more fundamental reason why supply chains look behind-the-timesthey are formidably Byzantine systems,so there are no quick fixes.“One of the big challenges in the industry is the lack of transparency:different activities within the supply chain are generated by many partners,and from the customer perspective,some of them are known,some of them are unknown,”says Kaisa Tikk,Global Senior Sustainability Advisor at Maersk.“So creating that visibility is very complexbut visibility is a crucial prerequisite for many other things that need to follow.Think,for instance,of decarbonisation:if you do not have visibility of your emissions,how can you reduce them?”Facing up to the challenge“One of the big challenges in the industry is the lack of transparency.”Kaisa Tikk,Global Senior Sustainability Advisor at MaerskTraditionally analogue methods lead to a lack of transparency and frustration6In order to face up to future“black swan”events,these problems must be urgently overcome.Digitisationand the shift in mindset that both drives it and derives from ithas now become essential.The industry has learned that the hard way.“All these disruptions have caused a rethink of how to become less dependent on human resources,and how to find ways to move the supply chain when employees are ill or there is a labour shortage,”says Professor Michael Bourlakis,Chair in Logistics,Procurement and Supply Chain Management at Cranfield School of Management.“One of those ways is investing more in digitalisation and automation.”Thats why,right now,the world of logistics is experimenting with technology like never before.Maersk itself began its transformation before Covid hit and has thus become a pathfinder for the industry.Rotem Hershko joined the company in late 2020 following almost eight years at e-commerce colossus Amazon,and he says he is just one of the several hundred engineers and over 50 tech executives who have been joining Maersk from Silicon Valley giants and innovative tech companies over the last 12 months.How digitisation can revolutionise supply chains“All these disruptions have caused a rethink of how to become less dependent on human resources.”Professor Michael Bourlakis,Chair in Logistics,Procurement and Supply Chain Management at Cranfield School of ManagementData and technology are the key to efficient and resilient supply chains 9In Hershkos opinion,that is happening because supply chains have never been as impactful as they are today.“By leveraging technology and platforms in an effective and meaningful way,you feel like there is a huge opportunity to really move the needle tremendously for customers and the industry as a whole.”Emerging technologies are playing a meaningful role in that effort.Take TradeLens,a blockchain platform developed by Maersk in partnership with computing giant IBM.A blockchain is a digital ledger,first pioneered in cryptocurrency,that works in a decentralised fashion,allowing a plurality of parties to co-create a single source of truth without relying on a central authority.Given the vast array of actors in the supply chain sectorshippers,freight forwarders,port authorities,terminals,ocean carriers,intermodal operators,governments,customs brokersand the need to share different information and data throughout a cargos journey,all kept on one unified platform,blockchain is ideally suited to addressing the problem.Say you were shipping a cargo of T-shirts;if you were wondering exactly where it is,the system would give you the precise location and retrace the digital“paper trail”left in its wake.“TradeLens streamlines all the different transportation data in order to have it for customers to access it,to use it,to leverage it,”Hershko says.“So,we can provide customers with end-to-end visibility of where their cargo is no matter where it is in the supply chain,including aspects of the journey which is managed by other parties.”There is another clear strand of cutting-edge innovation happening in the industry.“Artificial intelligence,analytics,and big data are very high on these companies list of priorities,”says Professor Bourlakis.Delays and disruptions can be forecast and prevented by harvesting better data from a whole host of sources and using AI models to find a way around them;AI can also be harnessed to streamline vessel and container packing,saving space and money.Maersks customer-facing online“Logistics Hub”,for instance,features an AI-enhanced interactive map that predicts when vessels will arrive in ports.If AI is the industrys buzzword of the moment,a close second would be“digital twin”.This is a method to model,simulate and stress-test a process or an organisationwhether thats a trade route or a marine terminaland Bourlakis calls it one of the“major applications”for the increased troves of data that companies in the industry are collecting.That means if you are a company importing automotive parts,you could create a digital twin of the supply chain that brings those components from a Chinese factory to your shop floor,and this would help predict the risks and snags that could beset it.Once you know what those are,you can put countermeasures and fail-safe mechanisms in place to mitigate disruptions.Alternatively,if you operate ships,you can create a digital twin of each one to work out how to improve its performance and minimise carbon emissions.Maersk offers this service for shipowners who have entrusted the company to manage their vessels.“Artificial intelligence,analytics,and big data are very high on these companies list of priorities.”Professor Michael Bourlakis,Chair in Logistics,Procurement and Supply Chain Management at Cranfield School of Management1110“By leveraging technology and platforms in an effective and meaningful way,you feel like there is a huge opportunity to really move the needle tremendously for customers and the industry as a whole.”Rotem Hershko,Senior Vice President and Head of Business Platforms at Maersk1312The race for net zeroThe climate crisis is yet another reason why the sector as a whole is rushing to embrace digital transformation.Global supply chains of eight key industries account for more than 50 percent of annual greenhouse gas emissions,according to Boston Consulting Group.But solving that isnt just an environmental imperative,its also a commercial one:customers themselves are increasingly clamouring to be more sustainable.“Two thirds of our 200 largest customers actually have net zero targets at the moment,”Kaisa Tikk says.“A year ago,that number was roughly 50 percent.So,there is a massive acceleration from the customer side to be very serious about the sustainability agenda.”In response,Maersk unveiled its Emissions Dashboard in 2021,a one-stop-shop tool where customers can get visibility for how much CO2 the movement of their goods is producing.Based on this data,they can also receive suggestions for how to reduce their carbon footprint.“This visibility tool supports customers by pointing out specific trade lanes and locations,carriers and modes of transportation that were responsible for the majority of their greenhouse gas emissions,”Tikk explains.Maersk itself is fully committed to hitting its net-zero target by 2040 and is investing heavily in research and development in green tech and alternative green fuels such as biodiesel,green methanol,and green ammonia.Starting with the basicsHelping customers meet their sustainability targets is just one area that reflects a wider shift at Maersk:reorienting itself away from the industrys default“business-to-business”mindset and towards a“business-to-consumer”one.To Hershko,this is the guiding force of the companys digital strategy and its why,for all the new technologies,this overhaul puts no less emphasis on customer experience.“To start,one just needs to look at the basics of creating customer value and make sure that they are covered,”Hershko explains.For this reason,M has been redesigned,streamlined and debugged to offer customers a digital way to book,contract and engage with the company.“We measured latency and uptime and number of bugs in tickets:we were able to end 2021 40 percent better in our uptime versus 2020,”says Hershko.Instant booking was another big step ahead:in 2021,Maersk kick-started an effort to allow more customers to book their services through digital channels and receive immediate feedback.“Customers want to know in real time that their packages are in,their booking is confirmed,and they have a date for when we can ship it to them,”he says.Following the update,in 2021,now more than 70 percent of Maersks bookings take place via self-service digital channels,booked directly by customers.Rotem Hershko,Senior Vice President and Head of Business Platforms at Maersk“Customers want to know in real time that their packages are in,their booking is confirmed,and they have a date for when we can ship it to them.”1514Yet another piece in Maersks digital jigsaw is a new version of its mobile customer app.“These customers are the same people that are,you know,engaging with their online banking app at 8:30am,”Hershko says.“And then when they want to engage with Maersk at 8:45,they aspire to have a similar experience on their mobile app.There is no reason why for Maersk they need to pick up the phone.Mobile obviously is the right channel for that.Which is why we re-architectured and invested heavily in our mobile channels in 2021,and customers have made ten times more bookings through mobile in 2021 than 2020.And thats just the starting point.”Tikk thinks its not only competitors who might decide to take a leaf out of Maersks customer-centric,digital playbookit is the whole ecosystem,and often collaboration can enable better outcomes.“Some of our technically advanced customers are keen to co-innovate with usto co-create or test solutions to improve emissions visibility,predictability or fuel optimisation,just to mention a few areas,”Tikk says.“So thats also a new pathway.”“Some of our technically advanced customers are keen to co-innovate with us to co-create or test solutions to improve emissions visibility,predictability or fuel optimisation,just to mention a few areas,so thats also a new pathway.”Kaisa Tikk,Global Senior Sustainability Advisor at Maersk16Over the years to come,what will define the ideas that endure across the industry is that they wont be innovation for innovations sake.MITs Dr zden Tozanli Yilmaz has a clear sense of where efforts should be focused:“From a researchers point of view,the most value we can get out of digitisation is improving our prescriptive analysis:how we can be more predictive,how we can understand customers purchasing behaviour,how we can forecast demand,how we can meet the service level at a given range.”In turn,this will provide those in the industry with ever more personalised solutions that will drive greater efficiency and effectiveness within the supply chainwhether thats forecasting routes even more intelligently to avoid disruption or finding new ways to minimise fuel consumption.In the next few years,Bourlakis says,we should brace for a monumental change in how companies in the logistics industry operate.“The whole sector will change fundamentally.Well be looking at different supply chains,different practices,different approaches,and better customer service and customer deliveries,”he says.“Technology will be a key aspect of that.I expect many companies,even smaller companies,to finally implement digitisation in their operations.”At the end of this transition,customers will have found a newly central role.“The sector will be driven by customers demands,”he adds.“Well have to move from supply chain management,to demand chain management.”Looking ahead“Well have to move from supply chain management,to demand chain management.”Professor Michael Bourlakis,Chair in Logistics,Procurement and Supply Chain Management at Cranfield School of ManagementThe future of the supply chain and logistics industry needs to be digital19“If you look at the commerce sector and everything e-commerce has done for it,if you look at the banking industry and everything that e-banking has done,I believe that it is a natural evolution:all industries are going to be digitised eventually.”For many other sectors,this future is already here.“If you look at the commerce sector and everything e-commerce has done for it,if you look at the banking industry and everything that e-banking has done,I believe that it is a natural evolution:all industries are going to be digitised eventually,”says Hershko.“We are just a little bit late to the game.”Still,better late than never.As the“perfect storm”of the last few years continues to rage,the impact of black swan events has never been clearerand the need to strengthen global supply chains never more pressing.Rotem Hershko,Senior Vice President and Head of Business Platforms at MaerskMaersk is an integrated container logistics company and member of the A.P.Moller Group.Connecting and simplifying trade to help our customers grow and thrive.With a dedicated team of around 95,000,operating in 130 countries;we go all the way to enable global trade for a growing world.Discover more at Maersk.WIRED is known for its fresh thinking and deep expertise on the technological,scientific and societal trends shaping our world.Consulting is a division of WIRED dedicated to taking the unique WIRED network,knowledge and brand to commercial organisationshelping them to build internal knowledge,develop strategy and create thought-leading content that positions their brand at the cutting edge of trends.Discover more at consulting.wired.co.uk.2120
From challenge to advantage Supply network optimizationFrom challenge to advantage:Supply network optimizationGlobal supply chains are under acute stress.As pressure is mounting from all sides,a fundamental rethink of supply network design,planning and operation is clearly in order.A holistic optimization approach centered around the connected supply chain enables manufacturers to adapt,increase resilience and achieve more flexibility unlocking competitive benefits in the process.2From challenge to advantage|Supply network optimizationEfficient,global,just in time:Over the decades,manufacturers such as auto-motive OEMs have acquired a truly impressive degree of mastery in the field of supply chain management.However,after two years of pandemic disruption,it has become obvious that established systems and methods are in many ways too rigid to deal with severe disruptions.The situation is aggravated by the fact that supply chains issues are arising from a variety of sides at once,from the microchip crisis to logistics problems and more.On top of that,the automotive industry,like many other sectors,has been facing the challenge to fundamentally transform its business models since even before the start of the pandemic.Developments such as the increasing localization due to regu-latory requirements or the shift to electric vehicles,characterized by the growth of the electrical vehicles market of 63 percent in the EU and 145 percent1 in China from 2020 to 2021,call for new ways of managing supply.In this context the development of sources of raw materials and the expan-sion of the supplier base present new challenges.The only answer to this broad range of issues is a future-proof redesign of supply chains.The effort is not to be underestimated,as it entails measures in many areas and dimensions,from strategy to operations.In this Point of View,we will outline how the agenda of holistic supply network optimiza-tion may look like.Drawing mostly from the experience of the automotive industry that can at the same time be easily extrapolated to other areas of discrete manufacturing,Deloitte experts have identified critical levers and considerations for this endeavor.Three main points stick out.Supply chains cease to be viewed as cost centers and evolve into a competitive differentiator.Moreover,a one-off approach to network design is replaced by strategic network design as a continuous process of improve-ment.Finally,innovative tool suites,con-nected supply chain technologies and new capabilities in fields such as automation help organizations to reap the benefits of digitalization and underpin their optimi-zation efforts with high-quality live data.Connected supply chain data can be used in network design just as well as in opera-tional planning,enabling risk management through increased visibility,efficient part-ner management and compliance man-agement.In the future,strategic supply network design and everyday operational supply management will converge more and more in an integrated continuous data-driven optimization process that produces superior outcomes.Supply network optimi-zation is no easy task,but one with a lot of chances.After all,creating a network setup that is ready for present as well as future supply shocks and demand trends may very well turn out to be a matter of existen-tial importance for automotive companies and others alike.1 Source:statista3From challenge to advantage|Supply network optimizationFig.1 Chains under duress:Trends and drivers CustomizedDefining and serving new markets through tailored supply chain solutionsFlexible Dynamic solutions are needed to react to unique changing demand and supply chain risksEfficientCost reduction and speed-to-market are the top of operational prioritiesGlobalSupply chains cross global boundaries and require local executionVisibleNew tools are required to provide real-time transparency across the entire supply chainDigitalTraditional linear supply chain nodes are collapsingSustainableSupply chains should increasingly contribute to the sustainability agendaResilientDisruptions such as COVID-19 cause supply chain resilience to be increasingly importantResilience and responsiveness,flexibility and efficiency not to mention sustain-ability:These are just some of the man-ifold areas where existing supply chain models currently display shortcomings.Before addressing how to optimize accordingly,it is necessary to have a closer look at the drivers in the marketplace behind those challenges.Many represent general trends,but there are important differentiations as to the geographies involved.A major factor is the current shift in consumer preferences.The increasing demand for individual customization requires a move away from the traditional Build-to-Stock(BTS)approach towards an adaption of Build-to-Order(BTO)pro-cesses.North American markets repre-sent a salient example of this develop-ment,which is accompanied by a general compression of the Order-to-Delivery(OTD)cycle and respective implications for inventory.Source:Deloitte analysis4From challenge to advantage|Supply network optimizationSource:Deloitte analysisFig.2 From global risks to local impactsCOVID-19 PandemicSuez CanalShanghaiUkraine WarChip ShortageSynchronized PlanningSupply Chain NetworkFactory SC Operations78%named opera-tional efficiency as top priority for CPOs49%are anxious about supplier resilience and supply continuity38%are concerned about internal complexities of supply chain32%are losing revenue due to supply shortages22%see a risk in managing digital fragmentation and the supplier baseSmart ProductionIntelligent SupplyDynamic FullfillmentRecent material shortages and supply constraints add to the pressures on sup-ply chains,exacerbated by the pandemic and geopolitics.In particular,the impact of the war in the Ukraine highlights this tension in the automotive supply chains.Disruptions in transportation routes,as well as scarcity and increases in the cost of crucial materials and pre-products,resulted in production downtimes at various German automotive manufac-turers after the outbreak of war2.Overall,89 percent of companies in the German automotive industry were affected by shortages in April 20223.At the same time,logistics costs are exploding.Road transport capacity is scarce,fuel costs rise,the OPEC raw oil prices are on the highest level since 20134,and sea rates have increased up to sixfold during the last twelve months.Another important aspect is the regulatory trend towards localization requirements.In markets such as Brazil,India or Turkey,global organiza-tions need to increase local production or else run the risk of fines and taxes.Chinese manufacturers also increase their local activity in Europe,motivated in part by the necessity to reduce COVID-related supply chain problems.Finally,the overar-ching sustainability mega-trend introduces a whole array of separate challenges for supply chain management.From the point of view of social sustainability,the German supply chain act requires companies to pay much more attention to partners and suppliers.Optimizing operations by CO2 footprint becomes a major issue.Circular economy approaches also demand a more sophisticated management of the supply network.The impact of all this on opera-tions is significant.2 Source:VDA3 Sources:statista,ifo4 Source:statista5From challenge to advantage|Supply network optimizationUnchaining supply as a strategic asset:Network design Maybe the most important aspect in designing resilient supply networks is the conceptual shift from cost center to com-petitive differentiator.Fig.3 Setting up an optimal global supply networkSegmentationIn the trade-off between a central setup(economies of scale,ability to invest in automation,limited inventory risk)and local setup(close to con-sumer,responsive,high service)there is no clear winner.Supply networks need to be segmented,making network design choices for parts of the assortment/channels or markets.Defining optimalOne of the main challenges in optimizing a global supply network is to define what optimal means to your company.What is the relative weight of inventory risk,compared to operational cost or a certain amount of CO2 emissions.Key starting point will be to align these definitions to the business strategy.“Supply chain as a cost center”Optimal Global Supply Network“Supply chain as a differentiator”End-to-end resilienceAnticipating,reacting to,and facilitating the recovery from the unexpexted(e.g.COVID-19,container shortage,blockage of Suez Canal)becomes a key driver for success and requires to reconsider the end-to-end network(including manufac-turing)as well as routes to market(e.g.rail from China to Europe).ManufacturingLogisticsInventoryTax220.127.116.11. Sustainability FlexibilityResilienceQuality 18.104.22.168. =min.=max.Source:Deloitte analysis6From challenge to advantage|Supply network optimization(Re-)design considerations traditionally focus on the physical supply chain perspec-tive(manufacturing,logistics,inventory).Yet this approach risks missing out on aligning the network to the bigger company context,and may introduce weaknesses with regard to tax,customs,regulatory and location aspects.As a remedy,network optimization needs to strengthen capabi-lities that benefit the competitive position,such as the aforementioned aspects of resilience,flexibility,sustainability,and also quality.In doing so,it is vital to harmonize network choices with a companys indi-vidual business strategy and risk profile.“Defining optimal”implies different things relative to the industry consider the special emphasis on the inbound network in the automotive sector.A holistic end-to-end network design approach should focus on business seg-ments rather than functions,as well as on the competitiveness impact of both upstream and downstream dimensions with regard to the industry lifecycle.A clear view on trade-offs such as cost vs.service level is required,and fundamental deci-sions between a centralized and a local setup have to be made.Centralization offers advantages such as economies of scale,automation options,and reduced inventory risk,whereas local setups offer maximum proximity to consumers,increa-sed responsiveness and good service levels.Yet for global organizations,a unified blanket approach to the choice between such options is hardly viable.Network design decisions need to be segmented in relation to the specifics of respective channels and markets.The design shift away from the purely physical approach to a view on the supply chain as a differen-tiator will increase end-to-end resilience in the face of further future shocks to the supply chain,provided it is based on a mul-ti-disciplinary approach that includes the dimensions of customer and localization requirements,corporate strategy,business model,tax and sustainability issues.The traditional network design around physical nodes has served the industry well for many years.Today,it results in an increasing amount of bottlenecks and inflexibi-lities.Capability-centric supply networks7From challenge to advantage|Supply network optimizationFig.4 Breaking traditional boundariesFrom traditional functional boundaries R&DPurchasingProductionLogisticsTestingSorting to flexible capability configurationCombination 1Combination 2Combination 3Combination 4Combination 5Combination 6Internal capabilities of enterpriseCapabilities of external partnersA further increase in network density is not likely to be the adequate response to demand hikes,for instance.Establishing a capability-centric network can address such issues by equipping physical nodes according to actual requirements.A dyna-mic re-configuration of capabilities enables the company to respond swiftly to fluctu-ations in demand.In order to address this problem with a capacity-centric supply network,capabilities need to be analyzed and managed on a more granular level rather than according to their traditional functional context.How does this work in practice?Take the case of an automotive company that realized that the capabilities of a particular port warehouse were too limited.Originally,the warehouse was designed for import declaration and inspection processes.However,a lack of repair,customization and software installation capabilities meant that emerging business demands could not be addressed appropriately,resulting in long delivery cycles and problems with customization.The problem was solved without creating a new physical node.The company added required capabilities to the existing facility,thereby moving closer to the customer and decreasing the delivery cycle considerably.Software is now no longer pre-loaded but installed during the local customization process.Operationally,the efficiency of capabili-ty-centric networks is greatly enhanced by the connected supply chain approach.Digital solutions facilitate monitoring and tracking,which makes it necessary to establish respective KPIs and ensure the required data quality internally,but also across the partner network(stock levels,capacity,production state,etc.).The imple-mentation of a supply chain control tower,advanced analytics solutions and the use of external data sources(traffic,weather,market data)all contribute to a real-time picture that enables companies to moni-tor risks,anticipate problems and react promptly.Right-time deliveries,route and load optimization improve short-term out-comes.Predictive analytics enables advan-ced planning in the smart factory,and scenario planning helps with longer-term network management.Source:Deloitte analysis8From challenge to advantage|Supply network optimizationTowards continuous network optimiza-tion:Process and approachThe range of relevant considerations in network design is vast.However,it is not necessary to address all of them at once.One advantage of moving towards network design as a continuous process is that it enables a much broader scope while at the same time it resolves issues according to priority.Furthermore,this improvement process takes place in lockstep with opera-tions,for instance through live input from data sources along the connected supply chain.This data-driven approach ensures that decisions are anchored in what actu-ally happens in the network,increasing transparency and flexibility.Typically,supply networks evolve accord-ing to a companys changing business development stages.While start-ups focus on support,growing companies at the intermediate stage emphasize cost.Moving on to the advanced stage of mature companies,it can be very challenging to transform the existing supply management structures into a dynamic,resilient and flexible end-to-end network.The key step is to transcend one-off network design and to start an ongoing process of continuous design development and adjustment.Fig.5 Network design stages Reactive or opportunistic shifts in the network,after business or market changes and/or for isolated parts of the business Vision on overall fit of the network to longer term strategy is missingOpportunistic Design Network redesign executed to investigate whether the current supply chain network is still fit to serve the business Often done as a one-off exercise each three to five years(depending on the definition of mid-term per industry)Requires starting from scratch and significant effort to ensure a qualitative project is deliveredOne-off Network Design Interface between network optimization and control tower to link prescriptive analytics to network optimization Digital twin of your physical supply chain,fed by triggers from your control tower and AI Supporting apps allow users to assess and visualize interplay between short term supply chain parameters&ideal network and flow setup Pragmatic setup of these apps allows different functions to participate in supply chain design,democratization of network designAI-enabled Network Design Exception-based monitoring of current network and identification of possible challenges Continuous focus on network fit-for-purpose with a view on the short/medium/long term Develops a deep understanding of supply chain network dynamics.Fuels strategic decision making while maintaining tactical optimums Hinges on a pragmatic and proven approach leveraging developed modelsDesign Centre of ExcellenceLaggingPerformingLeadingNext GenSource:Deloitte analysis9From challenge to advantage|Supply network optimizationThe common one-off approach is often based on three to five years cycles.To this low frequency corresponds a very high level of effort,as the aim is a compre-hensive redesign.At the same time,the one-off approach obviously lacks mid-term and short-term responsiveness.By using a network Design Center of Excellence,companies build more responsive conti-nuous design capabilities based on current monitoring.Strategic decision-making also benefits because it is now informed by high quality operative data.Adding state-of-the art digital enablers such as digital twins,prescriptive analytics and supporting smart apps,the approach can be leveraged to the next-gen level of network design(see fig.5).One particular advantage of an apps rollout is the potential extension(“democratiza-tion”)of network design input,as different functions and stakeholders may now parti-cipate in its development.The optimization aims to transform net-work design from a one-time effort into an ongoing process.However,in order to kick-start this transformation,a dedica-ted one-off effort is still necessary.In the experience of Deloitte experts,an opti-mization project usually takes between 14 and 20 weeks.This timespan includes project setup(team mobilization,scope),supply chain analysis(data gathering,site visits,restrictions analysis,data analysis,network baseline&model),network design(evaluation criteria,network options,future scenarios,business assessment,valida-tion),business case and transition plan development.It has to be acknowledged:The optimiza-tion project agenda does look substantial.The rewards are more than worth it,how-ever.The connected supply chain optimiza-tion approach achieves so much more than a one-off exercise in efficiency,as neces-sary and welcome as this may be.New potential is created by intertwining network operations and design on the basis of the connected supply chain,and incorporating continuous improvement processes into everyday supply chain management.With these steps,companies from the automo-tive sector realize the true aim of next gen network design optimization:not only to optimize the network,but also the design process itself.Supply network optimization is self-evidently an attractive proposi-tion.But what about the technological foundations that enable it in the first place?Deloitte experts use a varied tool kit with standard application suites as well as proprietary solutions for design,planning and management processes.Among third party packa-ges,Coupa Llamasoft represents a strong tool with broad capabilities particularly suitable for very complex optimization challenges.Other recom-mended vendors include AIMMS and Anylogistix,both of which offer pow-erful dedicated optimization software.In other areas,Deloittes experts developed a host of specializedassets,based on their own subject experience:Create visibility with Deloitte Illu-minateTMIlluminate is Deloittes award-winning n-tier supplier insights tool.It is based on the AI-powered analysis of supplier relationships and interconnections,enabling the system to highlight hidden dependencies and generate immediate action warnings that help with implementing remedies and risk mitigations.Building blocks and enablersControl supply chain operations with Deloitte Supplier 360 Control TowerTMSupply chain management perfor-mance depends on both monitoring and control excellence.Deloittes control tower solution unlocks the power of data to achieve both,based on the digital platform by ServiceNow.Comprehensive real-time risk moni-toring enables effective end-to-end performance management.Users benefit from integrated dashboards and personalized role-specific control environments.Manage partners and stakeholders with Deloitte Delivery CenterTMCollaboration is the key element of any supply network.With centralized real-time data management capa-bilities,Deloittes Delivery Center provides quality management tools for suppliers and logistics partners management,including supplier capa-bility tracking and training options.Ensure sustainability with Deloitte ESG Management ServicesDeloitte has developed a comprehen-sive ESG offering that also addresses compliance with new supply chain legislation(German Supply Chain Act).More than that,it helps companies from all sectors with solutions for ESG strategy,governance,reporting and steering,as well as tax optimization and change management.10From challenge to advantage|Supply network optimizationFig.6 Solution building blocks n-Tier supplier illuminationIntegrated status and risk dashboardsSupplier quality managementReporting&steeringTaxation optimazationChange and communicationESG strategy&governanceSupplier capability tracking and trainingMaster data managementLogistics provider qualitymanagement and live trackingEnd-to-end performance managementSupply chain risk monitoringIntegration of different user perspectivesMulti-tier insightsgenerationAI-based learning of supplier connectionsAnalyzing supplier relationships and making n-tier dependenciesDeloitte IlluminateTMRiskSustainabilitySteering and risk monitoring of suppliersDeloitte 360 Control TowerTMReal-time management of all SC stakeholdersConnected Supply Chain Management Deloitte Delivery CenterTMESG-supplier strategy incl.continous monitoring for LkSG complianceESG&SustainabilityManagementImmediate action warningVisibilityCapabilitiesTrust&controlCollaborationComplianceSource:Deloitte analysisAuthorsDebanjan Dutt Partner|US Supply Chain&Network Operations Practice LeadTel: 1 630 487 Yogesh GoswamiManaging Director|Supply Chain&Network Operations Tel: 1 213 688 Hao LiuPartner|(Smart)Manufacturing Strategy and Operations Service Line LeadTel: 86 186 Jing ChenDirector|Supply Chain&Network Operations Tel: 86 Corina Cruceru-WeisbrodManager|Supply Chain&Network Operations Tel: 49 151 58001871ccrucerudeloitte.de Jan BovermannPartner|Market Offering Lead Logistics&DistributionTel: 49 151 18294800jbovermanndeloitte.deJurgen HoppenbrouwersDirector|Global and EMEA Logistics&Distribution LeaderTel: 31 88288 0558jhoppenbrouwersdeloitte.nlTobias ExlerPartner|Manufacturing Strategy&Smart Operations LeadTel: 49 151 18293983texlerdeloitte.deContactsHao LiuDeloitte China(Smart)Manufacturing Strategy and Operations Service Line Lead Deloitte Consulting China PJing ChenDeloitte China Supply Chain&Network Operations DirectorDeloitte Consulting China D Andy ZhouDeloitte China AutomotiveIndustry LeaderDeloitte Consulting ChinaAutomotive L13From challenge to advantage|Supply network optimizationDeloitte refers to one or more of Deloitte Touche Tohmatsu Limited(“DTTL”),its global network of member firms,and their related entities(collectively,the“Deloitte organization”).DTTL(also referred to as“Deloitte Global”)and each of its member firms and related entities are legally separate and independent entities,which cannot obligate or bind each other in respect of third parties.DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions,and not those of each other.DTTL does not provide services to clients.Please see to learn more.Deloitte provides industry-leading audit and assurance,tax and legal,consulting,financial advisory,and risk advisory services to nearly 90%of the Fortune Global 500 and thousands of private companies.Legal advisory services in Germany are provided by Deloitte Legal.Our professionals deliver measurable and lasting results that help reinforce public trust in capital markets,enable clients to transform and thrive,and lead the way toward a stronger economy,a more equitable society and a sustainable world.Building on its 175-plus year history,Deloitte spans more than 150 countries and territories.Learn how Deloittes more than 345,000 people worldwide make an impact that matters at communication contains general information only,and none of Deloitte GmbH Wirtschaftsprfungsgesellschaft or Deloitte Touche Tohmatsu Limited(“DTTL”),its global network of member firms or their related entities(collectively,the“Deloitte organization”)is,by means of this communication,rendering professional advice or services.Before making any decision or taking any action that may affect your finances or your business,you should consult a qualified professional 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Crunch time seriesIts time to get serious about dataIs data a challenge for your finance organization?If you answer yes then what?0102030405060CostmanagementFinancial performanceGrowth(organic and inorganic)Capital allocationTalent/laborTransformation(i.e.,business model,enterprise,finance)Strategy setting and executionSupplychainITinfrastructureRegulatoryreadinessData analytics/AI/businessintelligenceProcess andoperations37#%8RP8*s CFO,what are your top three priorities for 2023?Deloitte,CFO Signals:4Q 2022,2022.Survey included 126 CFOs from the United States,Canada,and Mexico.3It almost seems fundamental:Of course,data is vitally important,and no Finance leader would say different.That is,until you ask about other priorities.Theres cost management and financial performance,of course.Growth.Talent.Compliance.And on down the list.Each of these concerns claims its share of a CFOs time and attention until finally we get towhat were we asking about again?Right:data.Now ask a new question:Which of those other priorities can you expect to master if you dont have data completely under control?Not one of them.So,no matter what people practice or preach,data really is central.The real question is whether you treat it that way.Its time to get serious about data.Data is a top priority for our finance team.Except forEverywhere a CFO turns,something underscores the need to care about and prioritize data:compliance with new regulations and demands for transparency,supporting agile and effective decision-making amid rapid change,and reacting to market and stakeholder demands as business cycles continue to shorten.Data is central even to the hiring and upskilling that keeps a finance organization on its toesand in hiring and retaining talent with data skills,the competition includes not only finance but the whole business world.When Finance treats data as a first-tier priority,it can excel across more than one dimension.Not in spite of other pressures,but because of them4Data availability:Information on demand,where and when its needed.Data completeness:Telling the whole story at every touchpoint.Data detail:Information thats granular enough to drive sound,timely decisions.Data standardization:Consistent formats and standards regardless of source or use.Data accuracy and credibility:Not only accurate data,but relevant,timely information that stakeholders agree is meaningful.The common thread in these imperatives is the need to turn data you have into information you can use.A comprehensive approach like this can elevate Finance to a more strategic role within the organization.Achieving these aims will require a focused effort with leadership commitment to see and manage the big data picture.5Some organizations are not aware of the full range of stakeholders who use data.Thats why its foundational to understand in specific terms where Finance data originates and who consumes it.Lets be clear what kind of data were talking about.What kinds of data does Finance use?Where does it come from?Where is it used,by whom,and for what purpose?Financial systemsHR systems ERP Data warehouses Planning systems Consolidation tools Reporting tools Tax systems Treasury systems Intelligent automation Spreadsheets/shared filesWhere Finance data can originateWhat data Finance can useWhere,how,and by whom Finance data can be consumedFinancial actualsRegulatory reporting bodiesInvestorsCreditorsAnalystsManagementOperationsEmployeesCustomers Local GAAP IFRS Global stat Managerial TaxForecasting Local GAAP Managerial TaxOperational Transactions HR Commercial Supply chainSupply chain and procurement systemsVendors/suppliersBoards of DirectorsCommercial systems IT systems Vendor/alliance systemsMarket data(internal and external)Economic indicatorsReal estate systems6The trajectory of Finance data Each organization is different,but a clear understanding of the trajectory of your Finance data can help you better harness its power.7Whats insideConsider all data important 8Focus only on financial data 10Dont have a formalized finance data organization 12The big picture20The path ahead210107080203040506Dont have Finance roles and career paths for“data people”14Spend most of the time in spreadsheets 16Arent thinking about automating data 18Time to put priorities to the testWhat does“getting serious about data”look likeespecially if you believe you already are?Ask yourself whether you:8The first priority is not to prioritize.When in doubt,capture as much as you can;then sort and refine it later.Right?Not so fastor,rather,not so much.Collecting all the data you can at the lowest level of detail can set you up for headaches and bottlenecks later.The more intake you haveespecially if it arrives in different formats from different sources with no standardization around key attributes,such as profit centers,cost centers,general ledger accounts,customers,and productsthe more effort and bandwidth it takes to load into downstream systems with proper governance and attribution.Inconsistent definitions,or the use of a broader array of management dimensions such as product,customer,geography,channel,or line of business,can also add confusion.Similar problems can arise if you focus too much on the presentbecause“present”can be another word for“temporary”as business needs for information and insights evolve over time and new data domains,ESG being a top-of-mind example,may be needed in the future.Ultimately,failure to invest in thoughtful data prioritization upfront can limit the efficiency benefits of major core technology investmentsfrom ERPs to data warehouses.03020607050401030208Its time to get serious about data ifYou consider all data importantInconsistent definitions,or the use of a broader array of management dimensions such as product,customer,geography,channel,or line of business,can also add confusion.9Moving targets,mounting confusionHigh-growth companies sometimes expand from a single-product focus to multi-product,multi-channel operations.That can be a boon for growthbut,initially,a setback for data alignment.Their existing enterprise resource planning(ERP)platforms may not be designed to handle that business model shift.So,when it happens,they have to enrich large amounts of data offline or outside their core platforms.Reporting can become tangled,and planning,forecasting,and analytics capabilities suddenly become much less effective because they dont match a shift in business with a corresponding change that would keep critical decision-making information flowing as needed.The truth is not all data is equal in importance.But it should be equal in usability.It should serve an identified needsuch as financial,operational,sustainability,or whatever you valuebased on your industry and operations.In addition,a forward-thinking approach to data standards can help maintain alignment across existing systems,future ones,and ones you may acquire through integration.Applying these principles wont always be easy.They can introduce transition and rebuild costs,especially in more complex organizations.If you acquire another company,you may have a lot of existing structures to untangle and adapt.But todays work to standardize,prioritize,and anticipate the future can pay off down the road.Define what data,at what level of detail,can help you understand the value drivers of your business and support decision-making aligned with your business strategy and performance management,help you understand and run your business,and help to motivate and inform your leadership.Establish a data model and curated data sets that provide a standardized way of capturing and reviewing data aligned to the different ways the data will be used.Create and use common standards and data tiers that harmonize data from different sources,determine what data matters,and dictate how to cleanse and prepare it.Align your data to a realistic view of which downstream processes it is meant to inform.Adopt robust governance that can meet continually changing data needs in areas such as capturing,storing,securing,controlling,and reportingas well as scenarios like divestiture or management structure change.Match requests for information to the performance management expectations that data is meant to supportno more,no less.03020607050401030208What serious looks like1003020607050401030208If youre in Finance and focus closely on the sources of your data,youre likely to look close to homein Finance.But you need to think bigger.Todays Finance organizations handle management reporting that requires sources from supply chain,marketing,HR,and external data.In addition,the outputs of your work help drive enterprise-wide decision-making linking tax,statutory accounting,and financial planning to forecasts and models spanning commercial,supply chain,operations,talent,and beyond.If different data streams dont alignfor example,if supply chain and Finance define and use cost centers differentlyit can get cumbersome to turn knowledge into insight.Its time to get serious about data ifYou focus only on financial dataIf different data streams dont alignfor example,if supply chain and Finance define and use cost centers differentlyit can get cumbersome to turn knowledge into insight.11Looking beyond Finance doesnt mean overlooking Finance.Casting a more comprehensive net can help your team perform more accurately and effectively as accounting and performance management goes from periodic to real time.A broad view may help you build forecasting and predictive capabilities that help turn your Finance assembly line into a Finance engine.Identify operational data that can work alongside financial data to help inform management decisions.Plan for tax,statutory accounting,and other functions from the start,not as an afterthought.Present financial results in context with proactive inclusion of relevant datafor example,you might have taken a loss,but it was less than your competitors.Integrate and coordinate data from systems outside Finance.Align from the beginning on how data originates from vendors,customer orders,SKUs,and similar sources with the appropriate attributions.Establish clear and tailored controls based on the type,source,and usage of data.Develop accountability standards for the use of operational and third-party data.Look further afield for newly relevant sources(like ESG,DEI,and sustainability data)that affect your organization.What serious looks like0302060705040103020812Data is a shared asset but not a shared responsibility.Formalized ownership of data standards and data quality is key to effectively managing data,and without ownership and governance,it will likely remain difficult to harness its power.And data ownership and process ownership are not the same thing.That doesnt mean its time to appoint a single person or role and walk away.Different constituents for the data finance uses will have different requirements,sometimes transformational ones.The team that oversees data should be able to name all the stakeholders that consume it and know the sources of truth they use.They need to work across the organization to elevate the implications of poor data visibility and not allow finance to default to temporary fixes that allow finance processes to continue for now,but not deal with the underlying data issues.Conversely,the people outside the data team who consume information should understand the processes that create and deliver their data;without this data literacy training,they may not fully understand the ways their actions affect the data(and vice versa).This is ultimately the CFOs responsibility,but just like so many other things that fit that description,the solution may lie in delegating governance to a dedicated team.Its time to get serious about data ifYou dont have a formalized Finance data organizationDifferent constituents for the data finance uses will have different requirements,sometimes transformational ones.0302060705040103020813Leading organizations establish Finance data functions with defined,clearly assigned responsibilities that span data standards definition and documentation,data process design,and execution,and they distinguish between teams that set the rules for data governance and teams that execute requests for data creation.Every data management team for Finance should have clear lines of accountability and a specifically determined scale,focus,and funding mechanism,all under the direct oversight of the CFO,linked to a broader enterprise data governance approach that allows them to engage across functions and stakeholders.Establish the business case,identify innovative and feasible funding mechanisms to help formalize and transform the organization.Develop a culture of accountability around data that has policies and procedures regarding roles and responsibilities,as well as goals and objectives tied to performance.Define a clear governance structure with data stewards accountable for specific data sets.Stewards engage cross-functionally and with IT to understand requirements but are empowered to make data related decisions.Govern data at the rate you create it.Tie data decisions back to business reasons.Shift your mindset from cleaning up data one time to an ongoing approach that creates,cleanses,and maintains data in pace with the business.Build adequate tools and a technology infrastructure to store,process,analyze,and report on data.What serious looks like0302060705040103020814If the career path you offer data professionals in your Finance organization is one-size fits all,then youre not serious about data.Similarly,if you have Finance employees who feel their job titles make them“non-data”people,you need to do more.The ability to access and use data is something you should embed throughout the organization building data competency that allows every finance employee to be able to spot opportunities to use analytics and derive insights.What are you doing to make your shop an attractive place for the most capable people?What are you offering to existing team members to help them add and refine data related skills?Most importantly,is there a recognizable path forward for people in that specialty?Its time to get serious about data ifYou dont have finance roles and career paths for data peopleWhat are you offering to existing team members to help them add and refine data-related skills?0302060705040103020815Priming the talent pipelineAs in other areas,Accounting and Finance are traditionally viewed as late adopters of these data practices.Perhaps your organization needs help accelerating its own data talent pipeline.Fortunately,a new focus in higher education is preparing students for careers in data,specifically as it relates to the finance industry.If data is central to your performance as a Finance organization,the ways you bring talent to bear on it shouldnt be left to chance.When you compete for Finance talent,youre likely only competing against your peers in the same discipline.When you compete for data talent,youre competing with employers in every field.Start by knowing what business problems your data needs to address and how this can inform your talent needs and data competency development approaches.Establish several multi-disciplinary career paths that align data capabilities with specific functions within the Finance organization.Turn to influencers from across the organization to help enhance internal finance data capabilities including supporting upskilling and knowledge sharing.Prepare to adapt roles based on industry changes,such as ESG reporting.Develop a specific talent acquisition and retention plan for data people that offers competitive compensation,benefits,impact,mentorship,and trainings,etc.What serious looks like0302060705040103020816Data is a resource.The value you derive from it is certainly a resource.And presumably,youre an enterprise.So why is your financial data and its output not wired into an ERP platform and enterprise performance management(EPM)and reporting systems?Finance teams turn to spreadsheets for analysis when they need to align and curate data from different systemsmeaning no standardized system has applied common data standards beforehand.Its also common to see spreadsheet use in cases when an organization has not aligned its data,has not aligned its performance management practices,or carves out special views for executives.If your teams bring you reports in spreadsheets and slide decks,you are not leveraging the performance management and data visualization technologies that are designed to integrate with your ERP and manage your processes and improve them over time.The old ways may be familiar,and your teams may be skilled in using them as workarounds,but thats still what they are.Getting better at doing things the old way doesnt fix the problem in the long run.Its time to get serious about data ifYour team is spending more than half of their time in spreadsheetsGetting better at doing things the old way doesnt fix the problem in the long run.0302060705040103020817An efficient organization should centralize,standardize,and validate information,making it available in one place,to create a golden source of truth.Accomplishing this can spell the difference between a merely efficient organization and an insight-driven one.The finance organization should be at the heart of that,not an outlier.That means sourcing,curating,and using data in ways that support not only traditional reporting but leading-edge functions,such as predictive analytics and machine learning.Your ERP likely cost tens of millions,if not more.It ought to be adding its value to your reports and insights if it isnt already.Be patient and fix issues with your technology enablement over time.Pursue ERP integration one process at a time instead of all at once,and prioritize.Interrogate the ways ERP integration can deliver more timely and useful insights,and work backward from business needs.Prioritize data availability in decisions about sourcing,formatting,and hosting.Keep your core ERP clean,with a common set of processes for each enterprise if feasible,and have a clear plan of what data is housed in your periphery systems(e.g.,EPM,reporting).What serious looks like0302060705040103020818More.Faster.Richer.We all know data is growing in every way we can measure it.How long can“throw more bodies at it”remain a sustainable response?Beyond a certain threshold,keeping up with scale means turning to automation.And youve probably already passed it.It might be a generalization to say Finance organizations tend not to adopt new technology as quickly as other parts of an enterprise do,but whether thats true across industries,it shouldnt be true in your organization.Building automation capabilities into the ways you create,regulate,store,and use data has the potential to carry you past the limits of human governance and unlock more performance.Because the volume of data and the ways in which its used continue to grow,automation is also increasingly the key to maintaining the necessary availability of data.Its also true that“more”doesnt translate to“better”in a strictly linear way:There is a trade-off between how rich your data is and how efficiently Finance organizations can operate in transaction processing and closing the books.Its time to get serious about data ifYou arent thinking about automating dataBecause the volume of data and the ways in which its used continue to grow,automation is also increasingly the key to maintaining the necessary availability of data.0302060705040103020819All of this requires detailed knowledge of what youre working withdetail in the data itself,sufficient standardization,and verified sourcing and quality.As your organization grows,its vital to maintain clarity on who owns the data and how you use it to make decisions.That will likely involve representation from areas outside Finance,particularly if another business is acquired.At the highest level,“serious”starts with an embrace of automating Finance data and its use.Management and financial reporting simply depend on that capability today.Beyond that,there are several ways to drill down:Establish clear controls and rules that enforce checks on data at the point of creation.Enable self-healing data supported by Machine Learning(ML)-driven data quality standards.Invest in self-corrective and self-healing technologies to manage master data coherently through AI/ML-powered chatbot-based workflows and assets that can evolve with your data needs.Empower humans to work with machines with a focus on exceptions that require human intervention and context.Develop reconciliation and controls to improve and continuously maintain data quality.What serious looks likeAutomating supplier master dataSupplier data streams and operational steps are increasing due to higher vendor counts and reporting or data requirements.Todays processes are managed over communications,email,and manual recollections and data entry,frequently with low levels of data governance.Data stewards spend their time absorbed in manual retracing and entry of data.Imagine instead a business data steward who can access one true supplier master dataset across the enterprise.Reference templates and data are readily available,minimizing manual data entry.The steward can now validate data in real time across business and regional units and provide recommendations to optimize enterprise outcome.Solving data gaps becomes a function of the past,as ML connects the dots for commonalities across the business.0302060705040103020820There are a lot of insights in these pages,and it would be easy to take on too much too fast.The idea is to evolve the use of data in your Finance organization,and not to be more disruptive than is necessary.So dont try to tackle everything all at once.As always,address needs before process:Start with the business problem youre trying to solve.That can lead you to the quick wins and easy early steps and avoid analysis paralysis that all data must be fixed or perfect.Addressing those needs wont just deliver faster returns but also will help you clarify roles,responsibilities,and your vision for Finance data in a way that will set up a smoother experience on later,bigger projects.The big picture0302060705040103020821Data is an asset.Acquiring it and managing it carries costs.You should expect a return on that investmentand no investment produces a return if you take it for granted.From sourcing to cleansing to governance,often across multiple legacy systems,data is a resource you need to take control of and put to work.From the top down,your finance organization should have a North Star data strategy.Where do you want to go?How can you get there?What benefits can you realizenot just in cost savings,but in new capabilities to strategically collaborate with the business?A clear strategy is a necessary bedrock for defining roles and responsibilities,determining priority levels,and establishing accountability.For many organizations,becoming an effective data-driven organization is easier when Finance has a place at the strategic table in addition to its functional role.The person in this role,whatever their title,governs the data lake and is the custodian of the companys data management policy.Whatever title comes with this job,it needs to be occupied by someone who understands the ways data drives business and customer value.This role can help organizations increase their understanding of data,link it to business outcomes,and improve efficiencies.If you dont make those connections,no matter how much data you have,its just data for datas sake.The path ahead0302060705040103020822Its Crunch time.There was a time when keeping on top of your manual entries meant you were on top of your Finance information.Then you switched to local spreadsheets.Then you started sharing them on a server or the cloud.Evolution in Finance data isnt new;its just at a turning point.Getting serious about data is no longer an incremental need for Finance.Its a transformative oneor a reason transformation might fail.Data is raw material,and it doesnt turn into information,insight,plans,or decisions until its managed and interpreted.Doing that at human scale is simply not feasible today.For many Finance organizations,data is an area in which they have to play catch-up.But that just means they have more opportunity waiting to be seized.The good news is there are more tools than ever to help carry that process forward.It wont be easy.But then if the way you approach finance data isnt hard,youre not serious about data.The work is there.The benefits are clear.Time to get started.Getting serious about data is no longer an incremental need for Finance.Its a transformative oneor a reason transformation might fail.0302060705040103020823AcknowledgmentsAuthorsKirti Parakh Managing Director,Audit and Assurance,Accounting,Advisory&Transformation ServicesDeloitte&Touche LLP Tel: 1 312 486 3937Email:Dave PierceManaging Director,Consulting,Finance and Enterprise Performance Deloitte Consulting Tel: 1 703 251 4088Email:Putri Sukardi Managing Director,Risk and Financial Advisory,ControllershipDeloitte&Touche LLPTel: 1 513 723 3063Email:Srikanth TammaManaging Director,Consulting,Enterprise Technology and Performance Deloitte ConsultingTel: 1 214 840 7992Email:Marla McPheetersSenior Manager,Consulting,Strategy and AnalyticsDeloitte ConsultingTel: 1 312 486 5387Email: ContributorsSusan HoganRenee AnningaPankaj ArjunwadkarBenjamin BarudinLucy ChungMike DanitzVjola DulePriya EhrbarAla El-KourJonathan EnglertEldy FalixMartin HodgettsEric MerrillRyan McWhorterRanjit RaoThomas RavnRyan ReiberJeevi ParamanathanPhilippe PodhoreckiDaniele SacerdotiJoAnna ScullinRichard SideyAdrian TaySimo UusijokiJamie Weidner0302060705040103020824Susan HoganPrincipal,Finance Transformation Practice LeaderDeloitte Consulting LLPTel: 1 404 631 2166Email:Jonathan EnglertPrincipal,Finance Transformation Eminence LeadDeloitte Consulting LLPTel: 1 215 405 7765Email:Diane MaPrincipal,Consulting,Finance&Enterprise PerformanceDeloitte Consulting LLPTel: 1 213 553 1221Email:Jessica BierManaging Director,Consulting,Human CapitalDeloitte Consulting LLPTel: 1 415 783 5863Email:Jonathan PearcePrincipal,Consulting,Human CapitalDeloitte Consulting LLPTel: 1 646 301 1407Email:Varun DhirPrincipal,Consulting,OracleDeloitte Consulting LLPTel: 1 484 868 2299Email:Eric BramleyManaging Director,Consulting,SAPDeloitte Consulting LLPTel: 1 404 631 2145Email:Dan SiegelPrincipal,Consulting,Emerging ERP SolutionsDeloitte Consulting LLPTel: 1 973 602 5411Email:Clint CarlinPartner,Risk and Financial Advisory,ControllershipDeloitte&Touche LLPTel: 1 713 504 0352Email:Sarah FedelePrincipal,Risk and Financial Advisory,Internal AuditDeloitte&Touche LLPTel: 1 713 982 3210Email:Mike KosonogPartner,Risk and 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The Brookings Institution,June 2022.All Rights Reserved.1TRANSFORMING EDUCATION SYSTEMSWHY,WHAT,AND HOWBY DAVID SENGEH AND REBECCA WINTHROPPOLICY BRIEF|JUNE 2022Today,the topic of education system transformation is front of mind for many leaders.Ministers of education around the world are seeking to build back better as they emerge from COVID-19-school closures to a new normal of living with a pandemic.The U.N.secretary general is convening the Transforming Education Summit(TES)at this years general assembly meeting(United Nations,n.d.).Students around the world continue to demand transformation on climate and,not finding voice to do this through their schools,are regularly leaving class to test out their civic action skills.It is with this moment in mind that we have developed this shared vision of education system transformation.Collectively we offer insights on transformation from the perspective of a global think tank and a national government:the Center for Universal Education(CUE)at Brookings brings years of global research on education change and transformation,and the Ministry of Education of Sierra Leone brings on-the-ground lessons from designing and implementing system-wide educational rebuilding.This brief is for any education leader or stakeholder who is interested in charting a transformation,journey in their country or education jurisdiction,such as a state or district.It is also for civil society organizations,funders,researchers,and anyone interested in the topic of national development through education.In it,we answer the following three questions and argue for a participatory approach to transformation:Why is education system transformation urgent now?We argue that the world is at an inflection point.Climate change,the changing nature of work,increasing conflict and authoritarianism together with the urgency of COVID recovery has made the transformation agenda more critical than ever.What is education system transformation?We argue that education system transformation must entail a fresh review of the goals of your system are they meeting the moment that we are in,are they tackling inequality and building resilience for a changing world,are they fully context aware,DAVID SENGEH is the Minister of Basic and Senior Secondary Education and Chief Innovation Officer for the Directorate of Science,Technology and Innovation in Sierra LeoneREBECCA WINTHROP is a Senior Fellow and Director of the Center for Universal Education at BrookingsTRANSFORMING EDUCATION SYSTEMS2are they owned broadly across society and then fundamentally positioning all components of your education system to coherently contribute to this shared purpose.How can education system transformation advance in your country or jurisdiction?We argue that three steps are crucial:Purpose(developing a broadly shared vision and purpose),Pedagogy(redesigning the pedagogical core),and Position(positioning and aligning all components of the system to support the pedagogical core and purpose).Deep engagement of educators,families,communities,students,ministry staff,and partners is essential across each of these“3 P”steps.Our aim is not to provide“the answer”we are also on a journey and continually learning about what it takes to transform systemsbut to help others interested in pursuing system transformation benefit from our collective reflections to date.The goal is to complement and put in perspectivenot replace detailed guidance from other actors on education sector system strengthening,reform,and redesign.In essence,we want to broaden the conversation and debate.Why is education system transformation urgent now?“We need a new social contract for education to repair injustices while transforming the future.”UNESCO,Reimagining Our FuturesTogetherCalls for fundamentally reimagining education systems are hardly new(See Box 1).But today,the topic of education system transformation has taken centerstage in a way not seen before globally.A growing call from large-scale global actors is putting the topic on the global agenda:In 2015,the Organisation for Economic Co-operation and Development(OECD)kicked off its Education 2030 initiative that puts well-being at the center of education systems and helps guide its high-and middle-income member states in reflecting on the knowledge,skills,attitudes,and values young people will need(OECD Future of Education and Skills 2030,n.d.).This year the Global Partnership for Education released its new“GPE 2025:Strategic Plan”that focuses on supporting system transformation in low-income countries toward“equitable,resilient,and inclusive systems fit for the 21st century,”with an eye toward improving access,learning,and gender equality(GPE 2025:Strategic Plan,2022).The most comprehensive call for transformation comes from UNESCOs Futures of Education initiative and its new report“Reimagining our futures together:A new social contract for education”(UNESCO,2021).Advancing Sustainable Development Goal(SDG)4 amid a world in flux calls for,the report argues,a new social compact that harnesses the transformative power of education to support our“sustainable collective futures”by maintaining education as a common good and harnessingamong other thingspedagogies of cooperation and solidarity that are needed to develop the broad suite of competencies young people need to thrive.“The world is at an inflection point.”Recovering from the worldwide COVID-19-related school closures in 2020 is the most visible reason the U.N.secretary general has elevated the topic of education system transformation onto the global stage with the TES.But it is hardly the only reason transformation is urgent.The world is at an inflection point.Climate change is here,with massive disruptions with its impacts already felt around the world and the future of a livable planet in 2050 in jeopardy(IPCC,TRANSFORMING EDUCATION SYSTEMS32021).Automation is changing the tasks of most jobs;strong literacy and numeracy skills,while an essential minimum for a successful career,are no longer enough,with employers looking for critical thinkers that can work collectively and creatively solve new problems(The Future of Jobs Report,2020).Violence,conflict,displacement,and authoritarianism have been on the rise over the last 15 years(and inflamed by the infodemic of fake news)with the war in Ukraine most recently taking centerstage(Repucci&Slipowitz,2022).Income inequality,once on a steady decline,has been increasing steadily over the last several decades,and only a handful of people hold a majority of the worlds resources(Oxfam International,2020).It is no wonder that our worlds children and youth are exhibiting poor mental health,with depression and anxiety increasing to worrying levels coming out of the pandemic(American Academy of Pediatrics,2021).This is the reality in which we are educating our children.But education leaders and educators are struggling to adapt learning to this reality because they are understandably overwhelmed with pandemic-related impacts.Before the pandemic,CUE argued that there is a“100-year-gap”between those poorly served and well served by education systems in the report“Why Wait 100 years?Bridging the Gap in Global Education”(Winthrop&McGivney,2015).In other words,the pace of change is so slow within and across countries that it will take approximately 100 yearsgive or take depending on the contextfor those farthest behind in terms of access,completion,and literacy and numeracy learning outcomes to catch up to those who are farthest ahead.Imagine how the 100-year-gap has grown today?The portion of 10-year-olds in low-and middle-income countries who cannot read a simple story is estimated to have grown from 50 percent before the pandemic to 70 percent today(Save our Future,n.d.).Those hardest hit are from communities with limited financial resources,live in rural areas,and are ethnic and linguistic minorities.Gender intersects with all these characteristics,excluding girls in some places and boys in others(Wide Inequalities in Education,2013).The pandemic gaps will seriously impact childrenacademically,socially,and emotionallybut not just today.Over their lifetime,children could earn$17 trillion less because of the pandemic(World Bank,2022;Dorn et al.,2021;World Bank,2021).It is clear that new approaches are needed to address these existential challenges.Asking education leaders,school administrators,educators,and civil society partners to work harder in the face of these challenges,but using the same approaches that created the 100-year-gap before the pandemic,will not work.We need approaches that allow for the complex nature of the problem:namely,approaches that can redesign the what and how of teaching and learning so systems can deliver not only recovery from pandemic impacts but learning that meets the moment we are in globally.RECOGNIZING EDUCATIONS ESSENTIAL ROLE IN SHAPING OUR WORLDTo identify the path forward,it is always important to reflect on the past.Often in current policy debates,education systems are referred to as passive entities struggling to keep up with changes in the world at large.However,in many ways the opposite is true.Education,and the systems to deliver it,have actively created the society we have today.Sociologist David Baker has demonstrated how education shapes other large-scale social forces like the economy,politics,and religion by examining the impact of the growth of universal schooling on societies(Baker,2014).Two centuries ago,no country in the world had an education system designed to ensure every young“Educationand the systems to deliver ithave actively created the society we have today.”TRANSFORMING EDUCATION SYSTEMS4“While education systems have made people healthier and wealthier,it is unclear if they have made them wiser and better prepared to address the intractable challenges we face today and in the future.”person became literate and educated.No one would have thought that attending a school was better preparation for work than the participation in actual work activities or that universitiesand by extension schoolswould be the arbiters of truth,not religious,tribal,or family institutions.Education systems have existed for millennia,but their purpose was to train only a subsection of the populationnamely the leaders(e.g.,select citizens in ancient Rome or civil servants in China)and the idea that knowledge could be accessible to everyone did not exist.After only a handful of generations,all that changed as the idea of universal schooling spread around the globe and fundamentally altered the way children grow up,what counts as knowledge,and the pathways for social mobility.BOX 1Calls for education system transformation from around the world and across time.Many educatorsfrom the Global North and Southhave called for education system transformation over the past 100 years.The three examples below are merely illustrations of the diversity of voices advocating for transforming education:John Dewey,U.S.,early 1900s.John Dewey argued that public education plays a central role in society for sustaining a young democracy and that classrooms should be interdisciplinary and take inspiration from social learning environments.Educators and families,Italy,post World-War II.The Reggio Emilia approach emerged amid reconstruction when parents and a local teacher,Loris Malaguzzi,called for imagining early education anew by making children the central knowledge holders and leaders of their own learning(Loris Malaguzzi,n.d.).Ministers of education,Africa,early 2000s.African ministers of education convening a decade ago under the Association for the Development of Education forum in Africa collectively called for a new education paradigm that centers sustainable development,including harnessing indigenous knowledge,as a central feature of education systems on the continent(Post-Triennale Activities in Support of Education for Sustainable Development in Africa,n.d.)TRANSFORMING EDUCATION SYSTEMS5The rise of universal schooling across the globe has resulted in many positive outcomes.Increased levels of schooling have played a key role in helping people live healthier and longer livesfrom reducing infant mortality to acting as a“social vaccine”against HIV/AIDS and malaria(World Health Organization,n.d.;Sperling&Winthrop et al.,2016).It has also contributed significantly to making people wealthier by reducing poverty,increasing individual wages,and growing the economy.But while education systems have made people healthier and wealthier in the last few centuries,it is unclear if they have made them wiser and better prepared to address the intractable challenges we face today and in the future.Educated people have all been part of constructing the world we now live in with models of economic growth that overlook planetary stewardship,allow for massive accumulation of capital at a scale never before seen,and support technological invention without the accompanying ethical understanding of its uses.HARNESSING THE TRANSFORMATION MOMENT“Harnessing the evolving discussions on transforming education”is one of the motivations for the UN secretary general to convene the TES at this Septembers UN General Assembly meetings.Leading up to the summit are a range of activities from a pre-summit in Paris,national consultations,regional and global dialogues,and commitments to transformation by countries.While there is clearly momentum behind transforming education systems,the question remains what exactly is it and what steps can leaders take to advance it?What is education system transformation?”Is it the same as acceleration?Is it the same as innovation?”Minister of Education,An African CountryHow is transformation distinct from the past and current work to reform systems?We argue that education system transformation must entail a fresh review of the goals of your system are they meeting the moment that we are in,are they tackling inequality and building resilience for a changing world,are they fully context aware,are they owned broadly across society and then fundamentally positioning all components of your education system to coherently contribute to this shared purpose.Carrying on with system strengthening work without re-examining where the system is headed may result in improved efficacy but not transformed relevance.It is impossible to transform,and utilize existing system strengthening tools for transformation,unless you know where you are headed.This does not mean discarding the education system thinking insights or approaches developed over“Education system transformation must entail a fresh review of the goals of your system are they meeting the moment that we are in,are they tackling inequality and building resilience for a changing world,are they fully context aware,are they owned broadly across society and then fundamentally positioning all components of your education system to coherently contribute to this shared purpose.”TRANSFORMING EDUCATION SYSTEMS6the last several decades but rather using them to fundamentally redesign and align your system to a new shared vision and goals.There has been no one clear definition of system transformation but there has been much discussion and work on system reform.Hence,a short review of the concept of systems thinking and its influence on education change over time is a helpful place to start.THE RISE OF SYSTEMS THINKINGIn CUEs recent report“Systems thinking to improve and transform schools:Clarifying concepts and rethinking pathways”Bruce Fuller and Hoyun Kim provide a useful overview(Fuller&Kim,2022).Educationalists,they point out,have been debating how to build,strengthen,and reform education systems for at least the past 50 years.As universal schooling for all children emerged as a priority for the state,social activists and policy leaders drew upon the ideas of division of labor and specialization to consolidate loose affiliations of schools into strong education systems that more equitably served all young people.Specialization and division of labor were concepts prevalent everywhere in modernizing societies.As an illustration,think of the transition from one craftsman that makes shoes bringing a wide range of skills to the job moving to many workers with one specialized skill that contributes to one small part of making a shoe(e.g.,managers designing the timeline and process for manufacturing a shoe and factory workers responsible for one piece of making the shoe like cutting,nailing,and buffing).This specialization approach was seen to be more efficient and equitable(e.g.,shoes could be produced more quickly and their quality would be similar)and was a hallmark of how universal education systems began to be organized(e.g.,different people would develop the curriculum,teach it to children,design assessments of childrens learning,monitor data across schools,and manage and organize timetables,etc.).The factory became a revered form of organization,creating wealth and raising standards of living.BOX 2What is a system?Ideas from general systems theory1.Subsystem interaction:The interplay of subsystems or system components reciprocally inform or help to animate one another.2.Communication between subsystems:The glue or feedback loops that allow subsystems to labor together;this is key to understanding systems.3.Subsystem hierarchy:Systems and component parts reflect a hierarchical arrangement,where“controls”or managing devices coordinate work and processing of inputs(yielding outputs)and require coordination.4.Open systems:Adaptive systems have a dynamic ecology typically operating as open systems,acquiring resources from outside the internal(bounded)systemfeeding internal processing,stability,and sometimes growth.5.Multiple goals:Complex systems pursue multiple goals,often processing a variety of inputs to produce differing kinds of outputs(Fuller&Kim,2022).TRANSFORMING EDUCATION SYSTEMS7FIGURE 1The focus of systems thinking in education over the last 7 decades Source:Systems thinking to improve and transform schools:Clarifying concepts and rethinking pathways(FULLER AND KIM,2022)2000Strengthen institutional capacity1960Advance literacyBuild schools Widen access1980Lift school quality2020Recover,Review Post-PandemicTransform,Rethink PerformanceBut to truly understand how a system worksand hence to be able to improve itone needs to understand how all the component parts work together and affect each other.This is the main idea of general systems theory,which as Fuller and Kim point out,arose out of the fields of biology and engineering in the 1950s and has been deeply influential in guiding thinking across many disciplines(See Box 2).It is not enough to seek to understand and improve each part of a system separately because they ultimately are part of a larger whole,working(or not)in concert to produce the desired outcomes.The classic education example illustrating the limits of focusing only on one component of the system is the multiple cases of countries or jurisdictions pursuing curriculum reform that ultimately yield little results because the changes were misaligned with the way teachers are trained or students assessed(Care et al.,2018).As a whole,systems are composed of the dynamics and feedback loops between subsystem components that are arranged in a hierarchical order and need coordinating.“Healthy”or adaptive systems integrate ideas,resources,and inputs from outside of themselves,and are hence seen as“open systems.”Complex systems,like education,have multiple goals and outputs(e.g.,educating children,serving as an important employer in communities,and providing infrastructure contracts to businesses).THE MANY FLAVORS OF SYSTEMS THINKING IN EDUCATION Education reformers have over the last several decades drawn on the core concept of understanding the interactions between the elements of a system to advance a range of approaches.Fuller and Kim trace the journey of education system reformersfrom expanding access to improving quality in core academic competencies,such as literacy and numeracyto strengthen systems management capacity to deliver on stated outcomes for todays system transformation following a global pandemic(Figure 1).The authors are quick to point out that although these systems thinking reflects the broad areas of focus for system reformers over the last several decades globally,each country or jurisdiction may be grappling with a different focus depending on their particular context and circumstances.The current state and context matter for any transformation process.Systems thinking has informed a wide range of education reform approaches over the years.One prominent approach has been what Fuller and Kim characterize as standards-based accountability,which tends to focus on centralized authorities setting learning standards for children and the related TRANSFORMING EDUCATION SYSTEMS8proficiency goals they need to meet,aligning school resources and inputs behind them,and implementing accountability and monitoring measures.This approach has had varying success depending on context and focus.A careful review found that the approach has lifted achievement levels,but only in low-and middle-income countrieswith reformers pointing to success stories like Vietnam(Fuller&Kim 2022).The approach,originally pioneered in the 1980s in the state of Texas in the U.S.,was seen as a successful model and hence replicated nationally for several decades in the No Child Left Behind legislation.While the approach did boost academic achievement in some states,Fuller and Kim point out how it is designed matters.The sharp focus on literacy and numeracy began to crowd out time for the arts,music,recess,and social studiesmuch to the consternation of parents and educators.Ultimately,much of the legislation was repealed in favor of a more ground-up movement where U.S.states develop and adopt Common Core Standards.Central to this approach,regardless of how it is implemented,is the belief that the different parts of education systems behave rationally,and getting them to work better together is a matter of top-down adjustments,“like tightening bolts on a bicycle,”as Fuller and Kim colorfully put it.Other approaches to system reform have been based on the observation that different elements within education systems are not always motivated by top-down incentives for various reasons.In tracing the evolution of neo-institutionalism,Fuller and Kim highlight that human systems,like education systems,did not always behave like the well-oiled machines general systems theory would expect them to be.There is a distinct difference between biological or mechanically engineered systems and complex human systems,including health and education systems.Sometimes groups of people inside human systems(e.g.,ministry officials,teachers,and school leaders)could be motivated by different incentives(e.g.,re-election,keeping their jobs,and getting promoted),and their behaviors did not always result from efficiently aligning the components of a system to deliver on a stated goal.Other times,the communication between different parts of the system can be unclear and not nearly as easy as tightening a bolt on a bicycle(e.g.,differing interpretations by teachers on pedagogical guidance given from above),and hence the feedback loops do not always have the intended result.This leads Fuller and Kim to argue that“Unless we learn about what material incentives or deeper cultural habits and values animate educators on the ground,project designs or policy reforms may miss their mark.”They also go on to argue that education systems may work less like a factory floor and more like a network of artisans on the groundin this case teacherswhere both the knowledge of the craft and the power in the system reside,as at the end of the day,it is up to them how to do their work and,in the case of teachers,to educate their students.LEVERAGING SYSTEMS THINKING FOR EDUCATION TRANSFORMATIONSystems thinking and the debates on how to most helpfully apply it to advance education change should not be jettisoned as the global education community turns its eyes from education reform to education transformation following the pandemic.Education leaders around the globe should pull from the insights of system building and strengthening work that have been gained over the last several decades and bring them to bear in the transformation process.However,doubling down on system thinking to build and strengthen systems is no guarantee of transformation.It is quite possible to leverage systems thinking and develop a more effective and efficient version of a current system,which for us counts as education reform.So how can you develop broadly shared goals for your education system that meet the moment and fundamentally align all the parts of your system behind these goals?We turn next to provide suggestions on three specific steps that leaders can take to advance this vision of system transformation in their countries or jurisdictions.TRANSFORMING EDUCATION SYSTEMS9FIGURE 2The participatory approach to transformation:3Ps Purpose,Pedagogy,PositionPEDAGOGY:(Re)design systems starting with the pedagogical coreRedesign the interactions between learners(including those out of school),educa-tors,content,and resour-ces to deliver on your vision and purpose.POSITION:Position and align system components to support the pedagogical coreFundamentally align the components of your education system to support the pedagogical core redesign and deliver on your vision and purpose.PURPOSE:Develop a shared vision of the purpose of educationDevelop a vision of the purpose of your system that meets the moment we are in and is broadly shared in and outside of education.How can education system transformation advance in your country or jurisdiction?Every country benefits from its own heritage.The vision and journey of raising and educating children must be couched in local contexts to motivate students and families over time.Hence,we provide the following three broad steps to advance transformation as guidance that can be adapted to the context(Figure 2).The three steps in this“participatory approach to transformation”the 3 Ps of purpose,pedagogy,and position-are important points of reflection either prior to implementing transformation efforts or as a reflective check-in along the transformation process.Some leaders may have already started down this path while others are just beginning.Our focus here is on the systems educating children and youth from the crucial period of laying the foundations for education success in early childhood through primary and senior secondary.TRANSFORMING EDUCATION SYSTEMS10Step 1.Purpose:Develop a shared vision of the purpose of education“No institution or one actor can reinvent the education system by themselves.So you need to spend the time to develop an answer to the question:What is it that we want for our children in this community?Only once we agree on where were trying to go,can we then work in coordination and know what our respective roles are.Developing this shared vision is what good leaders do.”School District Superintendent,United StatesThe first and most important step on your journey toward transformation is to answer the question“transformation to what?”We argue that this vision should include two essential criteria:(1)It should be broadly shared in and outside of the education system,and(2)it should,for each context,meet the moment we are in globally.THE POWER OF A SHARED VISIONMultiple studies in and outside of education have highlighted the importance of developing a widely shared understanding of a systems purpose and goals for enabling true transformation that endures over time and across political leadership changes and funding environments.One widely used system transformation theory,called the Leverage Points Framework,argues that shifting the goals,beliefs,and values orienting the system is the most impactful area to leverage because it has the power to guide the transformation of many other parts of a systemfrom resource allocation,to feedback loops,to what is measured(see Annex 1 for the Leverage Points Framework;Meadows,2008).The framework,which comes out of the environmental movement,has been used across multiple sectors and is frequently cited as a path for impact and efficiency in sustainable development(Abson et al.,2017;Hjorth&Bagheri,2006).Shifting the beliefs and values guiding a system(e.g.teachers expectations of what children can do;what competencies are valued)is often referred to by system change scholars as shifting the“invisible”elements that drive a system.Many argue that leaders trying to make education change are frequently unsuccessful because they try and shift the“visible”elements of a system(e.g.,resources,people,and metrics)without also shifting the invisible elements(e.g.,mindsets,goals,beliefs,and values)(Gersick,1991;Heracleous&Barrett,2001;Munro et al.,2002).MISALIGNED BELIEFS ON THE PURPOSE OF EDUCATIONMost recently,CUE has used the Leverage Points Framework in its work on community-school collaborations.In its report“Collaborating to transform and improve education systems:A playbook for family-school engagement,”CUE examines the role of broadly shared beliefsacross students,families,communities,teachers,and education leadersin the education change process(Winthrop et al.,2021).In interviews with education leaders attempting to shift systems across 15 countries from Asia to Africa and around the globe,CUE found that a failure to“get on the same page”with their communities about what a good quality education looks like was a major roadblock for transformation efforts(Winthrop et al.,2021).Detailed reviews of this issue have revealed similar findings.One study of decades worth of reform efforts in the U.S.found that system change was stymied by various factors including when communities,families,students,and teachers did not share the vision and values at the core of the reform effort(Cohen and Mehta,2017).The U.S.has a highly decentralized system with multiple avenues for community voice,but a similar finding was also evident in a later study of barriers to education reform in countries with varying degree of centralized controlfrom Portugal to Finland to Canada(Barton,2021;Winthrop et al.,2021).These studies also found the reverse was true:that system change benefits when there is broad alignment across communities and teachers and education leaders on the values and goals of the reform.In fact,one OECD study found this alignment is one of the keys to transformation in a complex world.Developing a strategic vision that results in common goals for the education system across a TRANSFORMING EDUCATION SYSTEMS11FIGURE 3CUE Belief Map 1:Beliefs on the Most Important Purpose of SchoolParents Beliefs and Teachers Beliefs(In selected jurisdictions)CUE Belief Map 2:Perceptions on the Most Important Purpose of SchoolParents and Teachers Perceptions of Each Others Beliefs(In selected jurisdictions)Parents beliefsTeachers beliefsMaharashtra,India24131843472163223Parents beliefsTeachers beliefsBritish Columbia,Canada392516845514191217Parents beliefsTeachers beliefsWayne Township,IN,US31381874210231669Socio-emotional Academic Economic Civic Other 1Parents perceptions of teachers beliefsTeachers perceptions of parents beliefsMaharashtra,India231616403110154351Parents perceptions of teachers beliefsTeachers perceptions of parents beliefsBritish Columbia,Canada40231216114631597Parents perceptions of teachers beliefsTeachers perceptions of parents beliefsWayne Township,IN,US225212682952487Socio-emotional Academic Economic Civic Other Source:Collaborating to transform and improve education systems:A playbook for family-school engagement(Winthrop et al,2021)TRANSFORMING EDUCATION SYSTEMS12BOX 4Conversation Starter Tools for mapping and discussing education beliefsCUEs Conversation Starter Tools are a free-to-use resource in its playbook titled“Improving and transforming education systems:A playbook for family-school engagement.”The tools are designed to help education systems and their stakeholders have a data-informed discussion about what makes for a good quality education.The tools facilitate this by gathering data about different stakeholder groups beliefs and perceptions,providing a set of belief maps to show where there is or is not alignment,and offering guidance on having an open discussion about the findings.For those who are specifically interested in using the discussion to find new ways of fostering family-school collaboration,there is also a strategy bank to inspire action.But the process of mapping beliefs and perceptions can be used for a range of purposes,including informing discussions on the goals of a system.The tools are available in multiple languages and can be accessed by emailing leapfroggingbrookings.edu.broad array of stakeholders was one of three essential components for systems to successfully govern amid these unpredictable times(Burns and Kster,2016).It appears that in many education jurisdictions,there is not a broadly shared vision of the purpose and goals of education systems.After surveying approximately 25,000 parents and primary caregivers and 6,000 teachers across 10 countries in Latin America,North America,Europe,Africa,and Asia,CUE found a wide diversity of perspectives on what makes for a good quality education(Winthrop et al.,2021).Parents and teachers perspectives on the most important purpose of schooland importantly their perceptions of each others beliefsoften revealed a misalignment or lack of shared values.Figure 3 highlights a selection of what CUE calls“belief maps”for some of the jurisdictions in the study.The maps show,that with the exception of India,most communities have or perceive they have divergent views on one of the most basic yet fundamental questions about education.PARTICIPATORY POLICY DESIGN FOR A SHARED VISIONBuilding off this research,CUE has developed a set of free-to-use Conversation Starter Tools to help education leaders and communities map the educational beliefs and perceptions of different stakeholdersincluding parents,teachers,students,community members,and administrators and then use the data to hold a series of conversations across stakeholders about the purpose and goals of their system(see Box 4)(Winthrop et al.,2021).When education leaders do take the time to have meaningful conversations with diverse stakeholders about the goals of education,it can help pave the way for a broadly shared vision.Participatory policy design approacheswhere teachers,community members,students and partners had a seat at the table alongside education system leaderswere highlighted as important for successful reform in the study examining system change in Portugal,Finland,and Canada(Barton,2021).This process of meaningful dialogue and conversations around the overarching purpose and goals of education helped cohere a broadly shared vision that supported system change efforts.One example of education leaders benefitting from participatory policy design and then embedding it as an ongoing approach comes from the Sea to Sky School District in British Colombia,Canada(note:districts are where much of the education decisionmaking authority lies in Canada)(Winthrop et al.,2021).In response to TRANSFORMING EDUCATION SYSTEMS13persistent inequalities between the districts students performancein 2006 only 35 percent of Indigenous students were graduating high school in six years versus 86 percent of non-Indigenous studentseducation leaders turned toward community leaders for help.In 2010,they embarked on an educational codesign strategy that brought parents,teachers,teacher unions,students,boards or trustees of schools,and Indigenous community leaders in as central partners.The district leaders used a combination of strategies from multistage surveys broadly collecting data on the purpose and values underpinning a high-quality education to multi-stakeholder working groups that brought all stakeholders to the table to develop a shared vision and a clear strategic plan.The strategy led to a shift in focus for the systems goals for educational success and paved the way for more ongoing engagement of community stakeholders in the implementation of the strategy.This process of inclusive policy dialogue is now done every several years using technology to survey stakeholders and map the emerging vision into concrete strategy and planning activities(see Box 5).District leaders credit this process to helping advance a more equitable system where,by 2019,graduation rates were 92 percent and 96 percent for Indigenous and non-Indigenous students,respectively.Bringing in partners such as community members in a participatory policy design process does not mean education leaders abdicate responsibility for developing a vision for their education system.Instead,it entails deep dialogue with families,community leaders,students,and teachers having a voice alongside education leaders and curriculum designerseach bringing their respective expertise to the table.This entails,as is described in“A New Education Story:Three Drivers of Transformation,”a shift in power by education leaders opening the policy dialogue and decisionmaking process to those that normally are not included(Goddard et al.,n.d.).In the case of the Sea to Sky district,the dialogues revealed that academic outcomes were not seen as the main purpose of education for the Indigenous community,and dialogue with educationalists on the competencies needed for the future of work and citizenship led to BOX 5Harnessing technology for conversations on the purpose of education and participatory policy design:Sea to Sky School District,British Columbia,CanadaOne of the tools education leaders from British Columbias small but highly diverse school districthousing students from a wide range of backgrounds,including 12 Indigenous tribesused for surfacing education beliefs across the district was a technology platform that employed a backward design approach.The technology platform,called Thought Stream,disseminated in three phases digital surveys that asked community members to first identify their beliefs about the purpose of education and then answer additional questions on wide-ranging topics from curriculum content to vacation days.The visual organizing of the findings provided usable data to the broad-based community working groupincluding teachers,Indigenous leaders,parents,students,and education leadersthat was tasked with developing the new education vision and plan.It was an important part of helping co-construct a shared vision for the district and is repeated every several years to ensure ongoing dialogue is maintained(Winthrop et al.,2021).TRANSFORMING EDUCATION SYSTEMS14redefining the systems goals that resonated locally and were relevant to broader changes in society.Academic skillsnamely intellectual developmentwere positioned as one of four key dimensions of student learning and growth alongside emotional(i.e.,belonging and connectedness to schools and communities),physical(i.e.,living healthy lives),and spiritual(i.e.,understanding and respect for culture heritage)dimensions.Working together,these four dimensions were crucial for students to do four things upon graduating:create and innovate,contribute,collaborate,and think critically.In the policy dialogue process,education leaders should bring information from education debates and discussions that the broader community may not be able to access.This could include information on educational disparities alongside the insights on the role of education systems in shaping our society.Ultimately,education leaders will need the ambition to envision how education systems can not only recoup pandemic-related losses but also contribute to shaping a better world.The globally agreed upon SDGs can be a useful starting point for discussing the purpose of education.Taken together,the SDGs provide a broad vision of the range of issues society contends with today.SDG 4,focused on education,provides a useful lens for envisioning the education sectors rolefrom supporting lifelong learning beginning in early childhood alongside equitable learning across academic and global citizenship skills(United Nations,2015).For the education of children and youth,there are three broad areas represented in the SDGs and referenced in multiple studies on the future of education(UNESCO,2021)that education leaders should bring to policy dialogues around the purpose of education in todays changing world:The foundations:Early learning experiences help children develop socioemotionally and master literacy and numeracy,all of which lay the strong foundations for students successful educational trajectory.21st century skills:Higher-order thinking skills,such as critical thinking and creative problem-solving,lifelong learning skills like metacognition,and interpersonal skills like collaboration and teamwork,are all needed for young people to thrive today in work and life.Sustainable citizenship:Knowledge,mindsets,and skills enable young people to actively engage in promoting planetary stewardship,social justice,and ethical technology.Sierra Leones pathway to locally rooted but globally informed education goals Each country or education jurisdiction will have to decide for itself what the right approach is for building a vision that meets the moment.In Sierra Leone,for example,the education sector plan finalized in 2022 strikes a balance between investing heavily in strengthening the foundations while aspiring and building toward 21st century skills and sustainable citizenship(see Box 6).Given the deep inequality in students foundational learning in Sierra Leone64 percent of students in grade four cannot answer a single comprehension question on a basic textthe strategy prioritizes foundational learning not as an end goal but as the floor to give every child a chance for longer-term educational success.Through an extensive consultation that covered every single district and a broad cross-section of stakeholdersincluding parent organizations,teachers associations,disabled persons organizations,development and donor partners,and government personnel outside of educationSierra Leone arrived at a plan with clear goals and broad support.The first objective of the ministrys Education Sector Plan is to strengthen the pedagogical core by ensuring that the curricula are effectively implemented across all schools.This includes investment in working with teachers,including training and support.It also includes adopting a set of new curricula with a set of ambitious goals so that the students who have the basics in place can remain excited about their TRANSFORMING EDUCATION SYSTEMS15education journey.For example,the basic education curriculum framework outlines the five areas where students should develop competence to thrive in work and life:comprehension,computational thinking,creativity,critical thinking,and civics.The secondary education curriculum framework outlines five streams students can follow:sciences and technologies,languages&literature,mathematics&numeracy,social&cultural studies,and economics,business&entrepreneurship.Ultimately,young people need a full breadth of skills to thrive in todays world,and education leaders have an important role to play in co-constructing a vision of education that is relevant for the wide range of communities in their system but also responsive to the larger forces at play in society.BOX 6Sierra Leones education system vision:Foundational learning on the road to citizenship competenciesThe overall goal of Sierra Leones 2022-26 Education Sector Plan is to“improve learning outcomes for all children and youth.”Foundational learning is a top priority as evidenced by the fact that an important overall measure of whether Sierra Leone is on track with its transformation goals is the percentage of students in grade 4 who meet and exceed minimum benchmarks for reading and mathematics.The path to get there covers nine specific objectives,including“strengthen the instructional core,”“recruit,retain,and support excellent educators,”and”reduce gender and other disparities in educational access,experience,and outcomes for the most marginalized.”However,while foundational learning is a central focus,the system aspires to help develop constructive citizens and has recently created a values-based civics curriculum and the National Council for Civic Education and Development.At the final stage of this curriculum,students should be able to do things like“Define the term global citizenship,state and discuss the qualities of a global citizen,and examine the concept of a global village.”While foundational learning is necessary to acquire these concepts,the Ministry is also setting a clear direction for the country as a whole and providing opportunities for those who have mastered the basics and are looking to become engaged citizens in the 21st century and perhaps even the countrys future leaders.Foundational learning is a floor,not a ceiling,and Sierra Leone is preparing the education system so all learners can help support national development in their own capacity(Ministry of Basic and Senior Secondary Education,2020).TRANSFORMING EDUCATION SYSTEMS16Step 2.Pedagogy:(Re)design systems starting with the pedagogical core“The way one learns has an impact on politics,on citizenship,on democracy,on peace.”Former Vice-Minister of Education and Civil Society Leader,Colombia The second step in your transformation journey is to(re)design teaching and learning experiences to ensure students achieve the systems goals.This approach puts the pedagogical core at the center of system(re)design and includes two important dimensions:(1)identifying which children are not achieving the systems purpose and goals and why,and(2)(re)designing teaching and learning experiences to help them do so.CHANGING SYSTEMS WHILE KEEPING THEM THE SAMERedesigning education systems can,and often does,result in a lot of action with limited results for childrens learning and development.This,as multiple studies point out,is often because system reform efforts do not actually end up shifting the teaching and learning experiences of young people,which after all,is essential for any meaningful change in students outcomes.One scholar of U.S.education change notes,“Schools,then,might be changing all the timeadopting this or that new structure or schedule or textbook series or tracking systemand never change in any fundamental way what teachers and students actually do when they are together in classrooms”(Elmore,1996).Other scholars of education system change in high-,middle-,and low-income countries note that too often reforms focus on improving a series of inputs accompanied by a large dosage of hope that they will make a difference,which rarely works(Fuller and Kim,2022;Kaffenberger et al.,2022).At other times,reform mandates made centrally do not account for the motivations of actors inside the system.In the words of Amanda Datnow of the University of California San Diego,the approach to education reform in which the“causal arrow of change moves in only one direction from the statehouse to the schoolhouse”frequently ignores the many ways in which educators themselves mediate and have an impact on reforms(Datnow,2020).Co-constructing system reforms with teachers is,she argues,frequently an important ingredient for successful reform efforts.START WITH THE PEDAGOGICAL COREHence,we argue that starting with changes that are needed in the“pedagogical core”and mapping backwards out and up into broader systemic reforms is the more fruitful approach to system(re)design(Elmore,1979).In an extensive review of several decades of education system reforms in the U.S.,David Cohen and Deborah Ball noted that the reforms that had lasting impact were the ones that shifted in some way the“instructional core”(Ball and Cohen,1999).It is the interactions among educators,students,and content that make up the instructional core.A shift in one component,such as new curriculum(content),will have limited impact if it does not change how teachers teach and students learn.This insight on the importance of shifting the instructional core has proven to be a powerful lens for understanding pathways for education system change around the world.The OECDs rigorous global research on innovative learning environments argues that“the common policy variables of structures,institutional arrangements,and resourcing are relatively far removed from pedagogy and practices on the ground that most directly influence learning”(OECD,n.d.).Adapting Ball and Cohens model,the OECD argues that education change should focus on the“pedagogical core,”adding resources(e.g.,teaching and learning materials and physical spaces)as a new element(OECD,2013).Therefore,the pedagogical core consists of the relationship and interactions among learners(who),educators(with whom),content(what),and resources(with what)(Figure 4).“Pedagogy is the engine room of education”and what drives the relationships between the different components of the pedagogical core,argues David TRANSFORMING EDUCATION SYSTEMS17Istance and Alejandro Paniagua in CUEs report“Learning to leapfrog:Innovative Pedagogies to transform education”(Istance and Paniagua,2019).Engaging teachers themselves in the process of redesign is crucial to shifting the interactions in the pedagogical core.Not only are teachers best positioned to share insights on what could or could not work in redesign,but additionallyas discussed abovemotivating essential actors to embrace change is crucial to sustained system change.Additionally,the science of learning should inform the relationships and interactions in the pedagogical core.Engaging students is ultimately at the center of teaching and learning regardless of subject matter,student age,or geography.Finding new ways to engage students is a core element of some of the most successful approaches to improving literacy and numeracy in low-income countries:Teachers meet children where they are and teach according to their level of understanding,not their grade.In high-income countries,it is also central to students developing civic action skills and teachers supporting students ability to apply academic knowledge in solving local community problems(Dumont et al.,2010).PEDAGOGICALCOREContent(What)Families andCommunitiesFamilies andCommunitiesFamilies andCommunitiesFamilies andCommunitiesLearners(Who)Educators(With Whom)Resources(With What)FIGURE 4The pedagogical coreSource:Adapted by authors from OECDs“Innovative Learning Environments”(OECD,2013).TRANSFORMING EDUCATION SYSTEMS18As one global review of education systems notes,this focus on the process of improving students learning experience gets too little attention even though it is one of the key criteria for system improvement.The authors go on to say that of the 20 Global North and Global South systems they examined,“improving systems generally spend more of their activity on improving how instruction is delivered than on changing the content of what is delivered”(Mourshed et al.,2010).Reforms that focus on shifting the pedagogical core have also been some of the most successful in improving literacy and numeracy in middle-and low-income countries,such as the Teaching at the Right Level approach pioneered in India(Banerjee et al.,2016),and advancing students socio-emotional learning in places like Chile and Singapore as described below.IDENTIFYING WHO IS NOT ACHIEVING THE SYSTEMS GOALS AND WHYIf every young,school-aged person is meeting your systems education goals,then there is no need to examine and(re)design the pedagogical core.However,if some learners are not supported in a way that allows them to reach these goals and ultimately their fullest potential,it will be essential to understand who specifically is being left behind and why.As the scholars involved in the Research on Improving Systems in Education(RISE)Program have noted,understanding why systems are not delivering on their outcomes is the first step needed in advancing systemic reforms(Kaffenberger,2022).Givenas discussed abovethe deep education inequalities around the globe,it is likely that most countries and education jurisdictions are leaving behind a segment of their population.Who those learners are depends heavily on context but often includes children from low-income families,rural areas,refugees or ethnic minorities who do not speak the language of instruction,and children with learning differences.Gender can also play a rolehowever,in some geographies it is girls and in others it is boys who are left behind.Why these children are excluded is crucial to understand before turning to pedagogical core redesign.There are a multitude of reasons keeping children from achieving the educational goals set out for them.This could include the many reasons some learners are not even present enough in school to take part in the teaching and learning process.This is particularly true after the pandemic for marginalized studentsmany of whom have left and not yet returned to school.It could also be due to health and safety barriers.Some young people arrive at the school door with health concerns that limit their ability to learnfrom malnutrition to poor eyesight to mental health concerns.Other learners may be unable to get to and from school or the school environment itself is not saferanging from armed conflict to gun violence to bullying and abuse.It could also be instructional barriers that impede students learning.Children may be safely attending school and ready to learn,but their teaching and learning experiences are keeping them from developing the full range of competencies they need.This could be because of poorly trained teachers,outdated materials,or the pedagogical approaches used.For example,the pedagogical approach of direct instruction,a predominant approach in many classrooms around the globe,while essential is of limited use for developing 21st century or sustainable citizenship skills,or socio-emotional learning.Systems that have these types of competencies in their goals will hold students back from developing them unless they include innovative pedagogies alongside direct instruction(Istance and Paniagua,2019).REDESIGNING TEACHING AND LEARNING EXPERIENCES TO HELP THOSE LEFT BEHIND SUCCEEDWhat countries or education jurisdictions will need to do to shift the teaching and learning experiences to support all children will vary widely depending on a systems goals,who is left behind and why,and contextual factors like resources and culture.If,for example,a system has students safely arriving to school ready to learn but they fail to develop foundational competencies in the first several years of school and hence cannot successfully continue,then examining what needs to shift in the early primary grades teaching and learning experiences is needed.This was the case in India where children were falling behind in learning to read and unable to catch upTRANSFORMING EDUCATION SYSTEMS19mainly due to teachers closely following the sequenced textbook content,as they were incentivized to do,regardless if children understood it or not.An approach pioneered by the Indian nonprofit Pratham and used across multiple education systems fundamentally shifted the pedagogical core by administering rapid assessments,grouping children into levels of comprehension,and developing a series of interactive learning tasks that complemented direct instruction such as peer-to-peer practice(see Box 7).On the other hand,a system that has young people attending school and excelling academically but with high levels of stress and anxiety requires another approach to redesigning teaching and learning.Indeed,inadvertent outcomes of an intense focus on academic achievement can include stress,burnout,and unhappiness in students that undermine(rather than support)national visions and purposes for education.For this reason,Singapore has advanced value-based,student-centric policy initiatives beginning in 2011 that have focused on holistic student development by deliberately shifting equal focus to other dimensions of students development,such as socio-emotional(Kwek,Ho,&Wong,Forthcoming;Box 8).Systems need not wait to have top-ranked academic performers to prioritize student well-being.There is growing recognition that effective teaching and learning encompasses attention to childrens well-being and socio-emotional learning which helps drive academic development(National Commission on Social,Emotional,and Academic Development,n.d.).This is particularly crucial in the needs of students who are falling behind,as the country of Chile has found.Chile has launched a new voluntary evaluation tool,the Comprehensive Learning Diagnosis,that provides“timely information and guidance to monitor learning in the academic and socio-emotional areas of children and young people at three moments of the school year:diagnosis,monitoring and closure”(Weinstein&Bravo,BOX 7Redesigning the pedagogical core to improve the foundations:Teaching at the Right Level in IndiaOver the last 20 years,the Indian nongovernmental organization Pratham has partnered with researchers at MITs Poverty Action Lab to evaluate different approaches to improving students literacy and numeracy skills in primary school(Teaching at the Right Level,n.d.).Over the years,regardless of who was tasked with implementing the approachfrom community volunteers to teachers to district administratorsseveral key elements emerged as essential to improving student learning.Grouping children by ability level and conducting interactive learning activities for a period of time each day is at the core.Ongoing assessment provides data needed to move students onto higher level groups as they master skills.The approach is most effective for education systems that have large numbers of students failing to master literacy and numeracy by the end of primary school and where the default teaching approach is whole group instruction,even with very large class sizes.Shifting the ways in which teachers and students interact with contentnamely redesigning the pedagogical core,engaging students,and developing what Michelle Kaffenberger and colleagues call“instructional coherence,”even if only for a portion of each dayis at the heart of Teaching at the Right Levels success(Kaffenberger,2022).TRANSFORMING EDUCATION SYSTEMS20BOX 8Teaching and learning for holistic development in SingaporeThe aim is to shift the broader societal focus on academic performance toward a holistic education that equips students with the knowledge,skills,values,and competencies that Singapore needs among its citizens in a rapidly changing world.The further emphasis on holistic education is to expand educational parameters beyond cognitive abilities and academic performance to other growth areas such as physical,socio-emotional,and artistic achievements.In 2016,then Acting Minister for Education(Schools)Ng Chee Meng stated that the Singapore Ministry of Education“will create an environment conducive for holistic development,by providing students the time,space,and opportunity to discover and nurture their talents,strengthen their character,and develop their lifelong love for learning”(Philomin,2016).Forthcoming,p.3).Administering these assessments,which examine students personal,community,and citizenship learning in relation to social-emotional skills,at multiple time points throughout the year allow teachers to adjust their practices in real time in order to support students holistic development.If on the other hand,a system is struggling to educate children well because they simply are not present,then an entirely different approach is needed to redesign the pedagogical core.In Leapfrogging Inequality:Remaking Education to Help Young People Thrive,CUE examined the question of how to rapidly accelerate progress for even the most marginalized communities(Winthrop,2018).Would systems have to wait to enroll all children before building their foundational skills and only then developing their sustainable citizenship competencies?Ultimately,CUE determined that through redesigning the pedagogical core,including expanding resources such as spaces where learning takes place,that it is possible to provide even the most marginalized children access to learning experiences and simultaneously support their foundational learning and acquisition of 21st century and citizenship skills(see Box 9).This reconfiguring of the resources harnessed by the pedagogical core is often referred to as building learning ecosystems(Hannon et al.,2019).Local learning ecosystems draw on the wide range of assets in a community and systemfrom families to businesses to nonprofits to religious educational institutions to community spaces.This approach is evident in networks like Big Picture Learning that primarily works with secondary schools in marginalized communities in high-income countries.Today Big Picture Learning is fundamentally redesigning the resources for teaching and learning in the almost 200 public and private schools they support across 11 countries by leveraging employers in the schools communities.They put students interests at the center of the teaching and learning experience by placing students in diversity workplace learning experiences for 40 percent of the school year(Bradly and Hernandez,2019).But it is especially relevant for systems that have limited legacy infrastructure.For example,the Ministry of Education in Amazonas state in Brazil expanded access to secondary-school students living in remote areas by redesigning what a school looks like.After one year of consultation with teachers and community members,young people in rural villages could access secondary school in a community center with“mentoring teachers”managing the logistics and classroom and“lecturing TRANSFORMING EDUCATION SYSTEMS21BOX 9Leapfrogging in Education:Addressing Equity and Relevance at the Same TimeIn Leapfrogging Inequality:Remaking Education to Help Young People Thrive,CUE examined if it was possible to close the 100-year-gap in education through approaches that simultaneously addressed access,academic quality,and relevance.By studying almost 3,000 education innovations across 160 countries,CUE found that there were multiple examples of children living in marginalized communities with access to education that both developed their foundational learning and competencies in 21st century skills and sustainable citizenship.This education was often delivered by focusing the content on foundational learning but harnessing innovative pedagogies that helped students develop a wide range of competencies.Most of the examples CUE found were on the margins of education systems,not at the center.But given that it is possible for education to address access,quality,and relevance,this is a useful approach,especially for marginalized communities and in the post-pandemic recovery.teachers”broadcasting class by two-way video uplink from a TV station miles away in the state capitol.The ministry had collaborated with teachers from the state to adapt content,developing a distance learning curriculum that was relevant to the daily lives of rural children and the normal responsibilities of teachersinstruction on content and classroom managementwere split in two(Cruz et al.,2016).Today,children who previously had no access to secondary school are accessing educational experiences right alongside their peers.Redesigning resources also includes other forms of digital learning environments,and the effectiveness of education technology is closely linked to how it changes the relationships in the pedagogical core(Ganimian et al.,2020).It can also include using community resources to fundamentally redesign schooling organization as in the case of Escuela Nuevas work with rural communities in Colombia and around the world(Box 10).In some cases,redesigning the pedagogical core to ensure students can participate in education is simply a matter of mapping backwards and identifying policies that must be changed centrally.For many years in Sierra Leone,adolescent girls participation in secondary education was limited by a ban on pregnant girls taking secondary leaving exams.Given the high rates of teenage pregnancy,thisalong with a range of other factorshas excluded girls from taking part in learning.Recently,this ban has been reversed and in March 2021,the Ministry of Education issued its National Policy on Radical Inclusion in Schools to comprehensively support girls and other marginalized childrens participation in school(Ministry of Basic and Senior Secondary Education of Sierra Leone,2021).HARNESS GLOBAL EVIDENCE ANDINNOVATION BUT ONLY IN CONTEXTRegardless of the particulars of any given context,examining what needs to shift in the pedagogical core to transform the teaching and learning experiences of students who are not meeting the systems goals is a useful place to start your transformation journey.It is only after this analysis drawing on the copious literature around“what works”in education(e.g.,see the many useful databases from ERIC in the U.S.to the repositories of intervention evaluations and cost-effectiveness evidence from MIT and the World Bank)can be useful and instructive.Systems transformation efforts are not well served,however,when a particularly effective approach in one context is applied in another TRANSFORMING EDUCATION SYSTEMS22BOX 10Redesigning pedagogical core resources for rural children in Colombia:The Case of Escuela NuevaThe Colombian nonprofit Escuela Nueva redesigned the pedagogical cores resources to fit the lives of rural agricultural children who could not attend school for months at a time when they needed to help their families during harvest season.Central to the model are teaching and learning materials that allow for self-paced learning so students can pick up where they leave off,with teachers guiding children through the material in multiage classrooms rather than lecturing(Psacharopoulos et al.,1993).In addition to acquiring the foundations,this pedagogical experience enabled children to simultaneously develop a range of 21st century skills such as self-directed learning,collaboration,and civic engagement,demonstrating that a linear approach to system development(e.g.,access first,foundations second,and 21st century skills and civic competencies third)is not the only way to build inclusive systems.The Escuela Nueva approach has been used around the world and adopted by governments,especially for children from the most marginalized communities.without knowing if it addresses the root causes of why students are not achieving the goals set out for them.This usually ends up in what Marla Spivak calls the“symptom-only”approach to education system reform;she cites the example of trying to improve learning through textbook procurement,which addresses the symptom of few textbooks per student,when the real problem was not lack of books but that the books were in a language that most students did not understand(Spivak,2021).When you have a clear diagnosis of why the pedagogical core is not delivering the desired outcomes for students,global evidence can provide inspiration and know-how on redesigning teaching and learning to overcome your barriers.Step 3.Position:Position and align system components to support the pedagogical core“The sparrow may be small,but all its vital organs are present a Chinese proverb.Having the best teachers,schools,or policies is not sufficient.It is about havingthe parts work together.”Educator and Academic,National Institute of Education,SingaporeThe third step of your system transformation journey is to position the different components of your system to support the pedagogical core across the following six components:(1)Curriculum,(2)Human resources,(3)Data and assessment,(4)Governance,(5)Funding,and(6)Engagement of“winners”and“losers”in the alignment process.TRANSFORMING EDUCATION SYSTEMS23THE NEED FOR ALIGNMENTRedesigning the pedagogical core draws on different components of an education system,namely the content(curriculum,the“what”),resources for children to learn(schools,community centers,and/or online),and the interactions between educators and students with these components.It is essential to position the full suite of education system components to support the shifts you desire in the pedagogical core.Without this,actors in the system can have conflicting incentives.The classic case is when teachers get mixed messages encouraging one pedagogical approach,but student assessments and teacher or school accountability measures incentivize another.For example,one scholar of Chinese education notes that part of the reason that more innovative instructional approaches have not been widely taken up,despite strong support from Chinas central ministry,is due to teachers responding to what is required for good marks in the systems centralized exams instead(Liu,2020).This is hardly a unique case.CUEs report“Education system alignment for 21st century skills”highlights the importance of harmonizing the three main system componentscurriculum,teacher pedagogical training,and assessmentfor education systems to shift their goals toward 21st century skills(Care et al.,2018).Teaching and learning are essential in education,and yet there are various on-ramps and roads for systems to move towards transformation.In CUEs report“Education system reform journeys:Toward holistic outcomes,”Amanda Datnow,Vicki Park,Donald Peurach,and James Spillane argue thatrather than a singular approach that downplays the role of local contexts it is important to develop and share knowledge across and between systems with the goal of improving teaching and learning for holistic student development.Whereas some education jurisdictions engage in transformative activities to align system components and support the pedagogical core themselves,other efforts involve networked ecosystems that include schools,districts,and community organizations(see Box 11).Ultimately,Datnow and colleagues argue that redesign efforts should advance“instructionally focused systems”that align resources,infrastructure,BOX 11Leveraging the education ecosystem to transform:The International BaccalaureateThe International Baccalaureate(IB)is a nonprofit organization working with thousands of public and private schools around the globe.Essentially the IB is a networked educational system that aligns key educational elements to support instructional coherence across a large number of schools.The IB network of over 5,500 schools spans 160 countries across the globe.One of the organizing features of IB is an overarching instructional framework,informed by global transdisciplinary themes.The framework is flexibly designed so that schools can fit their local or national instructional standards within it.IB is also distinctive in that it is a whole school endeavor,rather than a niche effort that involves only a subset of classrooms.In this way,it calls for the alignment of policies,relationships,and shared goals to support holistic student development.A hallmark feature of IB instruction is that it is inquiry-based;teachers support students in addressing pressing questions of their own interest and of global significance.In making this shift,teachers report moving from“being a sage on the stage to a guide on the side.”(Hegseth,Forthcoming,p.8).This shift is supported through ongoing professional development and collaboration among teachers,as well as among students in the classroom.TRANSFORMING EDUCATION SYSTEMS24relationships,and mindsets behind shifting the teaching and learning process(Datnow et al.,2022).They focus on issues of instructional coherence and capacity building,highlighting tensions that seven systems from around the world from the U.S.and Ireland to Chile and Indianegotiate.As students typically spend several hours each day in the classrooms,they argue that ensuring coherence in their instructional experiences is of utmost importance.Education systems play a critical role in supporting instructional coherence through a range of structures and activities,including standards,curricula,and assessments;hiring and professional development;and leading and managing instruction.Developing shared meaning about the content of instruction and the definition of quality teaching and learning are ongoing efforts that involve not only leaders and teachers but often other stakeholders,as well.In crafting instructional coherence,systems grapple with tensions regarding what should be centralized or decentralized and the balance between prescription and local adaptation,among other concerns.Aligning system components to support the pedagogical coreThere is no one way to conceptualize the process of aligning system components behind the design of the pedagogical core and developing system coherence.The Global Partnership for Education,the global fund supporting education in low-income countries,has a new strategic plan focusing on transforming education systems(Global Partnership for Education,2022).The Global Partnership for Education guides countries seeking funding to diagnose the problems,prioritize their actions,and align partners and actors behind the identified priorities with a particular focus on ensuring countries have sufficient financing(including from the countrys own budget),functioning data systems,coordination mechanisms involving key actors from donors to civil society,and a commitment to use a gender lens in their planning process(Global Partnership for Education,2020).By contrast,CUEs Millions Learning initiative on scaling and sustaining education change inside systems highlights multiple system components that need to work together,including governance,human resources,curriculum and materials,information and data,finance,and stakeholder engagement(Perlman Robinson et al,2021).Another approach taken in“Building a World Class Learning System”by Geoff Masters is derived from studying high-performing education systems in high-income countries.The publication highlights six major components of effective“learning systems”that must work together:a quality curriculum,informative assessment processes,highly effective teaching,comprehensive student support,strong leadership of learning,and a supportive learning ecosystem(Masters,2022).Lant Pritchett and his RISE team take another approach altogether in their work to harness systems thinking to improve foundational learning in low-and middle-income countries(Spivak,2022).Building off service delivery models,they articulate a series of actors(e.g.,education authorities,teachers,government fiduciary authorities,and citizens)and the relationships between them(e.g.,citizens elect the fiduciary government authorities and education authorities manage school administrators and teachers).They argue that in these relationships,there are five actions that are especially important:delegation,financing,information gathering and use,support to deliver a task,and motivation.Coherence across these relationships and lines of accountability is essential for systems to deliver on learning goals.There are certainly many dimensions to developing system coherence,but at a minimum,education leaders and organizations should assess the alignment of six components.Do these six components,along with others that leaders may identify,work together to support the required shifts in the pedagogical core?Do the mindsets and motivations of the main actors working within each component support the redesign of the pedagogical core?Curriculum.Are curricula focused on the competencies and skills needed for students to meet the systems goals and vision?Are there frameworks guiding teachers on how students develop the desired competencies and skills?Have teachers TRANSFORMING EDUCATION SYSTEMS25been consulted and engaged in the curriculum development process?Do they believe all students can develop these competencies and skills?Human resources.Are there sufficient education personnel in the system to deliver on the pedagogical core design?Do educational personnel support the new design?Have they been involved in the redesign process?Do they have the knowledge and skills needed to support the pedagogical core redesign?Do they have opportunities to develop these skills in an ongoing way?Are they sufficiently and sustainably supported through professional development or resource provision to adequately carry out what is asked of them?Data and assessment.Do student assessment systems indicate progress against the goals the education system has identified(and not just on a subset of outcomes)?Do data systems track implementation and progress?Is data disaggregated to provide visibility into how new strategies target and impact historically excluded groups?Is there a process to regularly feed relevant data to educational personnel and other actors in the system in a way that enables them to adjust their practice,and do they have the skills to do so?Are data transparent and made publicly available,including to families and students?(See Box 12).Governance.Are senior leaders inside the system supportive of the redesign?Are they engaging educators,families,and students along with community members in the pedagogical core redesign?Are they coordinating actors engaged in the redesign implementation?Does policy support the implementation of the redesign(or at least not get in the way of it)?Do education planning activities support ongoing implementation of the redesign?Finance.Are there sufficient financial resources available to implement the redesign?Is there a plan for sustaining the financial resources needed?Are resources directed toward removing identified barriers to access and learning?Are financial resources invested in strengthening the capacity of key implementers of the pedagogical redesign(teachers,supervisors,and local-level actors)?Do spaces or mechanisms exist for teachers,students,families,and other citizens to participate in decisionmaking around education spending?Are effective systems in place for planning,monitoring,and evaluation of education spending?Engagement.Is there a process for ongoing sharing and dialogue with key stakeholdersfrom communities and parents to students to civil society organizations and employerson the redesign and how it is implemented?Do the conversations feed back to the actors implementing the redesign in a way that helps them adjust and pivot?Are there opportunities for addressing concerns and building sustained support for redesign by actors who stand to lose from the change?TRANSFORMING EDUCATION SYSTEMS26BOX 12Aligning data to support inclusive learning in Sierra Leone Before 2018,Sierra Leone had little detailed information about who its education system served and who it left out.Data collection used paper-based questionnaires,and,as a result,data was often lagging by up to a year and scattered across multiple government departments.Moreover,the data that did reach the Ministry was not disaggregated by gender or disability status.Informing parents about their childrens results,including for the all-important transition exams,took months.It was not uncommon for a family to wait a quarter of a year or more to find out if their child could continue schooling.The Ministry also did not get regular assessments on whether students were obtaining the foundations for learningthe last Early Grade Reading and Math Assessment had been done in 2014.Finally,even when some of this data did get through the system,there were limited ways to assess competencies outside of a narrow set of indicators.Starting in 2018,Sierra Leones Ministry of Education began to revamp its data systems to better support the governments goals of providing quality learning experiences to all children.One crucial step was to have a data system that could effectively track who was being served by the education system.Sierra Leone set about digitizing its education data collection and did so in 10 weeks.By digitizing its data collection process and carefully updating the questions asked,Sierra Leone both increased the speed and relevance of its data collection,and also shed light on who was left out of the system.Now the Annual School Census is both gender-disaggregated and asks about the disability status of the students and the accessibility of the classrooms.Even more importantly,the Ministry digitized and linked education data going all the way back to 2015.This gave the Ministry a data-driven starting point for addressing disparities within the education system and was a crucial component supporting its goals of developing a more inclusive system,including for pregnant girls and children with disabilities.Also,in 2021,Sierra Leone launched an SMS-based technology systemfree of chargeto provide timely feedback to parents and caregivers on childrens transitional exams,which determined if they could continue to junior secondary school,senior secondary school,and university.Prior to this effort,exam results were shared up to three months after the fact by physically posting the scores in schools,or parents could pay up to$10 to buy a card that would allow them to check the results online.This simple intervention has shifted expectations of what is possible and helped show all learners and families what the norms of regular and transparent data sharing can look like.Taken together,these initiatives are helping develop the data systems to support the work of systemwide goals such as identifying and supporting marginalized children,building closer community-school collaboration,and adequately assessing the competencies children should be developing.TRANSFORMING EDUCATION SYSTEMS27Conclusion“Every system is perfectly designed to get the results it gets.”W.Edwards Deming,United StatesTHESYSTEMStronger leverageHarder to implementWeaker leverageEasier to implementChange measurable parametersChange level of resourcesChange flow of resourcesChange speed of feedback loopsChange negative feedback loopsChange positive feedback loopsChange access to informationChange the rules governing the systemChange power to design the systemChange public mindsetChange ability to transcend paradigmsChange goalsFEEDBACKShifts in interactionsinside systemsDESIGNShifts in powerand structuresPURPOSEShifts in goals,beliefs,values orienting the systemPARAMETERSShifts in infrastructure,metrics,materialsANNEXThe leverage points framework for system transformationSource:Adapted from Meadows(1999)and from conversations with Todd Rose and his colleagues at Populace(Winthrop,2021)A high-quality,relevant education can be a game-changer for young people.Children and youth who can effectively communicate,use mathematical reasoning to solve problems,build consensus across diverse viewpoints,and generate new ideas to address complex challenges are more likely to become healthy adults who constructively contribute to their communities,countries,and planet.Transforming education systems is a much-needed way of delivering on this vision and helping shape the future of our communities at this inflection point in our planets history.We hope these insights will inspire you to take the transformation journey for yourself,and we look forward to adding your learnings and lessons to this collective effort to move from reforming systems to transforming them one child,one school,and one country at a time to achieve SDG4quality education for all.TRANSFORMING EDUCATION SYSTEMS28Acknowledgements We are deeply grateful for our colleagues who have contributed to our thinking and the development of this report,including Rohan Carter-Rau,Amanda Datnow,David Edwards,Mathias Esmann,Bruce Fuller,Ryan Gawn,Caireen Goddard,Olli-Pekka Heinonen,Grace Kargobai,Hoyun Kim,Marian Licheri,Anthony Mackay,Geoff Masters,Emily Morris,Jennifer ODonoghue,Brad Olsen,Vicki Park,Sophie Partington,Donald Peurach,Katherine Portnoy,Omar Qargha,James Spillane,Michael Stevenson,Claire Sukumar and Rein Terwindt.We are also especially grateful to the employees of the Ministry of Basic and Senior Secondary Education,Ministry of Technical and Higher Education and the Teaching Service Commission,their local and international partners,who are working hard to transform education in Sierra Leone.Above all,we would like to thank the teachers,parents and communities who are all take the lead in transforming education in Sierra Leone.The Brookings Institution is a nonprofit organization devoted to independent research and policy solutions.Its mission is to conduct high-quality,independent research and,based on that research,to provide innovative,practical recommendations for policymakers and the public.The conclusions and recommendations of any Brookings publication are solely those of its author(s),and do not reflect the views of the Institution,its management,or its other scholars.Brookings recognizes that the value it provides is in its absolute commitment to quality,independence and impact.Activities supported by its donors reflect this commitment and the analysis and recommendations are not determined or influenced by any donation.A full list of contributors to the Brookings Institution can be found in the Annual Report at 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Energy Storage Targets 2030 and 2050Ensuring Europes Energy Security in a Renewable Energy SystemAs Europe accelerates its ambitions to achieve climate neutrality by 2050,the energy system is set to look very differentfrom the one we see today.Driven by ambitious climate targets,the electricity sector especially is taking great stridesin reducing greenhouse gas emissions by replacing fossil fuel generators with renewables.However,the inherentvariability of wind and solar generation brings with it new challenges.The electricity system needs to become muchmore flexible than it is today to accommodate the rising share of renewables and new flows of electricity that comewith it.Variable production of wind and solar means renewable deployment alone will not eliminate fossil fueldependence,as backup gas generators are used to cover renewables energy shortfalls at times of low production.Ifthe EU is to meet its climate targets in time and integrate even higher shares of renewables as stated in theREPowerEU plan,reliance on fossil fuel imports and backup gas generation must be replaced with alternative lowemission solutions.Energy shifting and flexibility services provided by energy storage are indispensable for system reliability and securingsupply of energy to cope with moments of low renewables and also maximise renewable utilisation at times of highproduction.While flexibility services can also be provided by other technologies,energy storage is the only solutionable to provide the essential energy shifting service which is one of the key solutions to minimising curtailment ofrenewable energy.This will ensure a self-sufficient European energy economy by maximising utilisation of localrenewables,reducing reliance on external fossil fuel imports,in turn alleviating the high electricity prices seen today.REPowerEU clearly acknowledges this and the important role of energy storage to reduce the use of gas power plantsin the energy system 1.It is therefore critical that the role of greenhouse gas(GHG)emitting flexibility from fossil fuelgenerators is reconsidered especially by 2030*.However,storage uptake today is seriously lagging behind wind and solar deployment.The EU risks being unable tointegrate the rapidly growing renewables and in turn being locked into fossil fuel backup,if storage deployment doesnot go in parallel with renewable uptake.With this paper we assess the energy storage requirements as a whole forEurope and propose estimates of energy storage targets for 2030 and 2050 based on a review of existing scientificliterature,official documents from the European Commission(EC)and input from relevant stakeholders.We find thatmany studies do not address all key energy storage technologies and durations,often undervaluing low emissiontechnologies and energy shifting resources and overvaluing the use of GHG emitting baseload plants especially in the2030 time horizon 2.Many studies are based on outdated climate targets which leads to an underestimation offlexibility needs in the energy system.Furthermore,the rapidly changing storage technology and innovation landscapemeans new cost projections need to be included in energy system planning today to accurately reflect technologiesavailable 3 4.We estimate energy storage power capacity requirements at EU level will be approximately 200 GW by 2030(focusing on energy shifting technologies,and including existing storage capacity of approximately 60 GW inEurope,mainly PHS).By 2050,it is estimated at least 600 GW of energy storage will be needed in the energy system.This is based on the needs in terms of bi-directional contribution from Power-to-X-to-Power solutions(i.e.for energyshifting),estimated at around 435 GW as a no regret option for 2050,being complemented by 165 GW of power-to-Xtechnologies providing one-directional system flexibility.This will require a massive ramp-up in storage deployment ofat least 14 GW/year in the next 9 years,compared to 0.8 GW/year of battery storage deployed in 2020 according to theInternational Energy Agency(IEA).This is an ambitious goal but it is in line with existing non-binding national targets inSpain for example,which is targeting 20 GW by 2030 and further highlights the urgent need to start deployment now.The required storage capacity(hours of rated power during discharging)will largely depend on the fraction of annualenergy from variable renewables in the generation mix,which means some member states will already require largeamounts of storage even before 2030(see Figure 4).There is an urgent need for EU-level energy storage targets andstrategy that are compatible with the energy storage needs related to current EU climate policy.Establishing thesevalues as energy storage targets at EU-level backed by the promise of meaningful future policy and regulation,provides the clearest signal to the energy storage industry to begin building the infrastructure needed to drive truescale,reducing costs and enabling the success of the EUs climate goals.2Executive Summary*Low-carbon non-variable generation such as nuclear,bioenergies or CCUS can also make very meaningful contributions to the GHG reductionstarget;their different projected growth trajectories however are not part of the scope of this current paper.Executive Summary.1.Introduction:Why Do We Need Energy Storage Targets?.1.1.Energy Storage Definition.1.2.Accelerated Renewables Uptake in Europe What Does This Mean for Energy Storage?.1.3.Setting EU Energy Storage Targets in Line with Best Practice.2.Overview of Energy Storage Requirements in Europe by 2030 and 2050.2.1.Energy Storage:2030-time Horizon.2.2.Energy Storage:2050-time Horizon.3.Why Energy Storage Needs Are Underestimated Today.3.1.Climate and Sector Targets Do Not Align with Energy Storage Uptake.3.2.High Electricity Prices Today:Urgent Need to Reduce Reliance on Natural Gas.3.3.Minimising Curtailment with Energy Shifting.3.4.Cost Projections and Technology Readiness Data Does Not Reflect Reality.3.5.Sector Integration and Seasonal Storage Considerations.3.6.Accounting for Extreme Weather Events and Adequate Temporal Resolution.3.7.Maximising Existing Grid Infrastructure with Energy Storage.4.Energy Storage Estimates Based on Current Data and Assumptions.4.1.Flexibility Needs for 2030.4.1.1.Reducing the EUs Reliance on Natural Gas by 2030.4.2.2030 EU Energy Storage Target Estimation.4.3.Flexibility needs for 2050.4.4.2050 EU Energy Storage Target Estimation.5.Conclusions.6.Annex:Supporting Information.6.1.Relationship between Variable Renewables Share and Energy Storage Requirements in GW.6.2.Calculation of Natural Gas Reduction Needed in Power Sector by 2030 to Align with 55%GHG Reduction Target.6.3.2030 Summary of Inputs and References for Energy Storage Targets Estimate.6.4.2050 Summary of Inputs and References for Energy storage Target Estimate.7.List of Acronyms.8.References.2 44 57 8910 1111 111213141515 161618192122 24 25 25 252627 28 29Table of Contents3As highlighted in the REPowerEU initiative,the European Commission plans to increase renewables andelectrification of the energy system.This means there will be a growing need for technologies which cansupport high levels of electrification by storing and giving electricity back to the system.Setting energystorage targets in line with existing climate targets and best practice in the EU today is critical.We focus onthe key applications of energy storage providing system flexibility and energy shifting services crucial toenabling the rising integration of renewables.Formalising energy storage targets will provide the necessarylong-term vision to market players,utilities,investors and policy makers to make strategic decisions withconfidence,in a context of global uncertainty about market growth,technologies and cost.Such a visionmust be based on a comprehensive rationale taking into account decarbonisation goals and resultingstructural changes needed in the energy system.1.Introduction:Why Do We Need Energy Storage Targets?41.1.Energy Storage DefinitionIn this work we follow the energy storage definition established in the Clean Energy Package,Article 2(59)of Directive(EU)2019/944 of the European Parliament and of the Council.We distinguish storage solutionsproviding system flexibility(i)in one-direction i.e.not giving electricity back to the system,by Power-to-Xtechnologies and(ii)bi-directional i.e.electricity is stored and given back to the electricity system(energyshifting),provided by Power-to-X-to-Power technologies,as illustrated below.Figure 1:Clean Energy Package definition of energy storage providing system flexibility from Power-to-X-to-Power technologies providing bi-directional flexibility(energy shifting)and Power-to-X solutionsproviding flexibility in one-direction.5Power-to-X:includes technologies which provide flexibility in one-direction,meaning the electricity flowsin one direction and is not given back to the system,it is converted to another energy carrier,which canthen decarbonise other parts of society(e.g.heating,cooling,transport etc.).Storage technologies whichfulfil this role mainly include among others:Power-to-X technologies e.g.Power-to-Gas(P2G,i.e.electrolysers which produce hydrogen not reconverted back to electricity),Power-to-heat(P2H)and V1G(i.e.smart charging of electric vehicles where electricity is not reinjected back into the grid).Power-to-X-to-Power(Energy shifting):refers to storage technologies which shift electricity and store thiselectricity for different durations(seconds,minutes,hours,weeks,months,seasons),releasing it back to thesystem when it is needed 5.Energy shifting can be considered bi-directional meaning the electricitywhich is shifted is given back to the system.Technologies which are more geared to providing this serviceinclude among others batteries,flywheels,supercapacitors,SMES,PHS,gravity storage,CAES,LAES,V2G,electrolysers(P2G2P),thermal energy storage(P2H2P).Figure 2 illustrates the concept of energy shiftingbased on the case of seasonal energy shifting,excess electricity produced in summer months where thedemand is low is stored and used to meet higher demand peaks in winter months electricity use istherefore shifted from summer to winter using energy storage.Figure 2:Seasonal correlation of electricity demand(black line)and solar generation(yellow line)forEurope over a single year.Yellow shaded are indicates excess solar generation stored using energystorage technologies.The use of this electricity is shifted to meet high demand in winter.1.2.Accelerated Renewables Uptake in Europe What Does This Mean for Energy Storage?Figure 3 shows wind and solar growth in Europe in TWh per year:both the historic trajectory(black line)and the latest national energy and climate plans(orange line)will fail to meet the 55%GHG reductiontarget by 2030 at current growth rates.Wind and solar growth need to almost triple in the next decade toreach their needed contribution to the 55%reduction target by 2030.This will require a massive ramp-up inwind and solar electricity generation between 93-100 TWh/year,corresponding to variable renewablesshare as high as 69%already by 2030 6.In light of REPowerEU this build out of renewables will beaccelerated meaning he energy system must become much more flexible and capable of energy shiftingthan it is today to accommodate this high share of wind and solar generation.6The key issue for the integrating wind and solar in the energy system is their variable,non-dispatchablegeneration.This means the system requires technologies able to stabilise electricity flows ensuring reliableenergy supply.Furthermore,on low wind or cloudy days energy production from variable renewables alonecannot meet demand.In these instances,dispatchable backup supply typically from fossil fuel gasgenerators is used to cover these energy shortfalls.Therefore,building more and more renewables will notin itself reduce reliance on fossil fuels.The need for backup supply to account for variable generation willonly increase as more renewables are introduced in the system.The role of alternative clean energy storagesolutions able to fill this role must also be considered over GHG emitting counterparts.Curtailment also becomes an issue the more renewables are integrated in the system.When there isexcess production on very windy or sunny days and there is no demand for this electricity or there arecapacity constraints from the system itself,electricity is curtailed.This is a massive waste of the EUsindigenous renewable energy resources.Storage provides a solution to this,creating energy independenceby maximising EUs own renewables utilisation in line with climate targets,minimising curtailment andproviding critical system flexibility and energy shifting services over different timescales.Figure 4 illustratesincreasing wind and solar in the electricity mix mainly requires hourly storage(24hr(some technologies cover both ranges).Capex costs are expected todecline by 60%in future projections.This can be achieved by scaling production efforts and driving downcosts as was the case for similar breakthrough technologies such as wind and solar.This requiresinvestment signals to facilitate their widescale deployment 4,which is also dependent on enabling policyand legislation.System models should account for this uncertainty,as technologies are ready to bedeployed but are limited by cost assumptions which in turn means they are not considered today as viablesolutions for the future.133.5.Sector Integration and Seasonal Storage ConsiderationsHeating and cooling in buildings,businesses and industry consume around half of the energy producedand used in the EU.Thermal energy storage can provide an important flexibility lever helping balancedemand and supply particularly on long duration seasonal timescales critical for balancing high renewablesin 2050 34.Limited studies have been performed which evaluate the potential role of thermal storagetechnologies in sustainable European energy scenarios.A focus is typically applied on electricity andhydrogen storage options in most recent EU scenario studies,while overlooking the storage potential thatother technologies may provide at competitive costs.High temperature-underground thermal energystorage(HT-UTES)and other thermochemical energy storage technologies for example provide valuableservices to the electricity sector through sector integration as it absorbs electricity surpluses throughpower-to-heat solutions decoupling electricity production and heat demand from the short to seasonaltimescales 35.It is one of few long-duration storage technologies that can store vast amounts of energyup to tens of GWh per cycle on a seasonal timescale,see Figure 8.36Figure 8:Energy system services and storage options mapped according to their power(W)and relevanttimescales for charging and discharging.Colours coding indicate in which infrastructure system thestorage technology is implemented:blue=electricity grids,green=(renewable)gas infrastructure;orangeis heat networks adapted from ref 36.14Thermal energy storage(TES)technologies are developing at pace and can enable a higher share ofrenewable energy in industries and facilitate the recovery of heat that would otherwise go to waste.Theycan also play a key role in retrofitting existing fossil fuelled power plants,avoiding the combustion of fossilfuels.The integration of HT-UTES technologies in future energy scenarios and energy system planning willallow the demonstration of the crucial role that HT-UTES can play in the decarbonisation of the heat sectorand benefit the electricity sector.3.6.Accounting for Extreme Weather Events and Adequate Temporal ResolutionIIn the case of prolonged periods without sufficient sun or wind,these imbalance periods could last days oreven weeks 4 37.Dunkelflaute events occur on average 50-100 hours per year between November toJanuary for countries bordering the North and Baltic sea 38.Shifting large amounts of energy from timeswhen there is excess energy and storing it until needed will be central to balancing an variable energysystem.Energy storage technologies can provide enhanced resiliency for extreme weather events.Researchers have recently begun to quantify the value that energy storage brings in terms of resiliency andthere are several instances where tens of hours of energy storage would be sufficient for a system to remainonline during a loss of power 7.This function is traditionally served by fossil-fuelled generators,however,concerns regarding reliability,fuel supply and costs are driving operators of sites such as hospitals,datacentres,and wastewater treatment facilities to explore alternatives.Energy storage could fulfil this role,withthe added potential to provide additional revenue by participating in other markets e.g.ancillary services.System models should reflect real historical meteorological data accounting for extreme weather events soall energy shortfalls are captured and accounted for 37.It is also important that all short and long duration flexibility needs are captured in energy system modelsto accurately reflect all the services storage can provide on all timescales,particularly for shorter durations1 hour.Time resolution 25 years)it is impossible to predict technology innovationand cost reductions or policy and market changes.Other clean technologies(e.g.wind and solar)havealready seen dramatic cost reductions over even shorter timeframes.Similar cost reductions will likelyoccur in the timeframe up to 2050 for more nascent storage technologies.A sensitivity analysis based onbest case scenario cost assumptions for all technologies should be accounted for in models today.While wedo not dispute the quantity of flexibility needed by 2050 as stated in the EC study energy storage,otherliterature studies indicate that this flexibility need will be filled by a number of different technologies.214.4.2050 EU Energy Storage Target EstimationHere we present our target estimate for energy storage in 2050 based on up-to-date figures from theliterature for different storage technologies and assumptions for system flexibility based on Power-to-X-to-Power technologies providing energy shifting and Power-to-X technologies providing system flexibility inone-direction(See Annex 6.4 for detailed references).Since it is not possible to predict absolute scenariosand technology mix in 2050 we base our estimate on the following ranges and assumptions.Assumptions included in our assessment of target estimates for 2050,see Figure 13:Power-to-X-to-Power technologies providing energy shifting flexibility where energy is given back to thesystem(bi-directional)1.We include 65 GW PHS from the EC Impact assessment,which is a conservative estimate considering potential PHS capacity expansion highlighted previously(Section 3.3).2.Long duration energy storage technologies are expected to reach between 128 GW and 264 GW installed capacity by 2040 in the EU,we take an average of 200 GW LDES in our estimate.This includes among others:CAES,LAES,gravity storage,thermal energy storage(P2H2P),electrochemical storage and electrolysers(P2G2P)(Electrolysers providing P2G2P according to EC study is 12 GW).3.120 GW of V2G based on scenario of European EV deployment(French TSO RTE provides an estimation of 1,7 GW of V2G for 1,1 million of EV,with the hypothesis of 77 million EV in Europe in 2050)44(See Annex 6.4)4.The Commissions staff working document from 2021,states that stationary batteries will reach an installed capacity over 100 GW in 2050 45.The role of batteries in the EC study on energy storage ranges between 1-70 GW in 2050 dependent on sensitivities to deployment and costs of other competing technologies including V2G and electrolysers.We therefore take an average of these values(1-100 GW)and make a conservative estimate to include 50 GW of batteries in the 2050 estimate.Power-to-X technologies:Power-to-X storage technologies providing system flexibility in one-direction willalso play a role in 2050.1.To meet the total energy storage flexibility needs in 2050 as stated in the EC study,as much as 165 GW could be filled by P2X solutions which provide system flexibility in one direction(energy is not given back to the system).Our estimate is based on energy storage needs for system flexibility in terms of bi-directional contributionto the system(power-to-X-to-power energy shifting)which ranges between 315-550 GW and are estimatedaround 435 GW as a no regret option for 2050 in Figure 13.An additional 165 GW of power-to-X storagetechnologies are necessary for system flexibility,leading to a total of 600 GW.Lastly,the role of gas turbinescould equally be filled by alternative cost competitive storage technologies in 2050 and could furtherincrease storage needs at this time-horizon.Nonetheless based on these assumptions total energy storageneeds of at least 600 GW will be required by 2050.This is illustrated in Figure 13 where power-to-Xtechnologies are highlighted in blue and provide system flexibility in one-direction.Power-to-X-to-Powertechnologies are shown in green and provide system flexibility that is bi-directional i.e.electricity is givenback to the system,these technologies provide critical energy shifting services.22Figure 13:Total energy storage requirements by 2050.The Y-axis shows installed power capacity(GW)fordifferent energy storage technologies based on total flexibility needs as defined in the EC study on energystorage and values from other literature studies.Power-to-X technologies are highlighted in blue andprovide system flexibility in one-direction.Power-to-X-to-Power technologies are shown in green andprovide system flexibility that is bi-directional i.e.electricity is given back to the system,these technologiesprovide critical energy shifting services.The total energy storage needs are indicated by the red dotted lineto be at least 600 GW in 2050.23The EU energy system risks being unable to support the ambitious renewable energy integration foreseenin REPowerEU today if we do not act now.Accommodating the growing shares of renewables in the energysystem requires energy storage to provide critical system flexibility and energy shifting services.Currentmarket projections severely underestimate energy storage requirements and a massive boost indeployment is critically needed to go in parallel with renewables uptake.A massive ramp-up in storagedeployment of at least 14 GW/year is required in the next 9 years,compared to 0.8GW/year of batterystorage deployed in 2020 according to the International Energy Agency(IEA).Relying on fossil fuelgeneration and flexibility is not an option for the future if we are to ensure energy security and reducereliance on third party imports,especially when low emission storage technologies are already availabletoday.With this paper we have highlighted the rationale for estimating EU-level energy storage targets based onan extensive review of numerous scientific studies and analyses of the energy system in Europe.We do notforecast the storage technology mix itself,as evolving costs,technologies and innovation landscapes willinevitably change in the future making it impossible to predict.However,we look at the system needs as awhole considering all technologies including both Power-to-X-to-Power and Power-to-X-solutionsaccording to the Clean Energy Package definition of energy storage.Taking into account inputs from numerous studies and assumptions on replacing a portion of gas turbineflexibility with low emission energy storage technologies,we estimate energy storage needs ofapproximately 200 GW as a no regret option for 2030(including existing storage capacity in Europe).By2050,it is estimated at least 600 GW of energy storage will be needed in the energy system.This is basedon the needs in terms of the bi-directional contribution from Power-to-X-to-Power solutions(i.e.forenergy shifting)estimated at 435 GW as a no regret option for 2050,being complemented by 165 GW ofPower-to-X technologies providing one-directional system flexibility.As highlighted in the REPowerEUcommunication,energy storage reduces the use of gas power plants in the energy system and as such therole of gas turbines providing flexibility could further be filled by storage technologies in both 2030 and2050,meaning energy storage needs could be even higher in both cases.Establishing these 2030 and 2050 values as energy storage targets at EU level with a dedicated energystorage strategy will provide a clear signal to the energy storage industry and investors to begin buildingthe infrastructure needed to drive large-scale deployment in parallel with supporting renewablesintegration.Energy Storage targets are a necessary complement to existing EU climate targets and willallow Europe to foster a local,sustainable green energy system independent of external energy imports.5.Conclusions24Looking only at the needs of a high variable renewable system which is a key question,one notable studylooks at the relationship between variable renewables energy(vRE)share in the power mix and the GW ofenergy storage needed for flexibility and energy shifting.This study highlights the importance not only ofthe generation technology(wind or solar)but also the ratio of the two in the power mix on the subsequentenergy storage requirements and durations.This study reviews over 400 different scenarios from theliterature,narrowing down the scope to Europe 18.Higher amounts of solar generation typically requiremore daily energy shifting flexibility from batteries(4-9 GW/%vRE),whereas wind dominated systems needlonger term energy shifting to account for days or weeks of low winds(1-2GW/%vRE)129183.In Table 1we illustrate the energy storage needs for either a wind or solar dominated power mix in Europe.The shareof variable renewables is take from the EC impact assessment scenarios,67%vRE in 2030 andapproximately 85%by 2050 6.These values indicate that more storage is needed for systems with highersolar generation to account for daily system flexibility and energy shifting whereas wind dominatedsystems require more longer-term storage to account for days or weeks of low winds(values are included inFigure 5 and Figure 6).This is an important observation and will affect storage needs based on generationtechnology(wind or solar)which will vary country by country in the EU and must be considered.Note herethat these results will also depend on the storage durations,longer durations would mean lower installedcapacity and vice versa.6.Annex:Supporting Information 6.1.Relationship Between Variable Renewables Share and Energy Storage Requirements in GWTable 1:Energy Storage power capacity calculated using reference 18 for a 67%vRE share in 2030 and 85%in 2050 The EC Impact assessment study shows that a 30%reduction in total natural gas use(compared to 2015)isneeded to achieve the revised 55%GHG reduction target in the ALLBNK scenario.This means an additional17%reduction in total natural gas usage is required by 2030 compared to the baseline scenario(BSL)inorder to reach the 55%GHG reduction target.As previously mentioned,the EC study on energy storagefrom 2020 is based on the outdated targets and therefore sees a disproportionate amount of gas turbinesstill providing flexibility in 2030.We look at how much natural gas must be removed from the power sectors(approx.30%of natural gas is used in power sector).We propose substituting a portion of gas turbines(OCGTs)providing flexibility in the EC study on energy storage(METIS-Baseline scenario 2030,where OCGT=63 GW and CCGT=285 GW)with energy storage technologies.The key assumptions are elaborated insection 4.1.1.and calculations are summarised below(OCGT parameters taken from IEA-ETSAP(energytechnology systems analysis program)ref 42).Further to note that ALLBNK is the most ambitious Fit-for-55 scenario in the EC Impact Assessment and aligns with 55%GHG reductions and 40%RES(69%variableRES i.e.wind and solar in electricity generation).6.2.Calculation of Natural Gas Reduction Needed in Power Sector by 2030 to Align with 55%GHG Reduction Target25Table 2 summarises key inputs and sources used for 2030 energy storage estimates.We include the EUSySflex study in the table for contribution of V2G noting that we see this as being a competitive solution tobatteries for short-term flexibility 22.While of course not all applications of batteries can be filled by V2G,as we are unable to separate each contribution,we include 33GW V2G under the 67 GW system flexibilityprovided by batteries and other short duration technologies.6.3.2030 Summary of Inputs and References for Energy Storage Targets Estimate 26Table 2:Summary of Key Data and Sources used for EU Energy Storage Estimates in 2030Table 3 summarises key inputs and associated references for 2050 energy storage estimates detailed inSection 4.3 and 22.214.171.124.2050 Summary of Inputs and References for Energy storage Target Estimate Table 3:Summary of Key Data and Sources used for EU Energy Storage Estimates in 2050 277.List of AcronymsAcronymDefinitionCAESCCGT CCS CCUS CO2 EC EU FES GHG HT-UTES IEAIOU LAES LDES NECP NREL OCGT OPEX P2G P2H P2X P2X2P PHS REDII RES RTE SMES TES TSO V1G V2G vRES Compressed Air Energy StorageCombined Cycle Gas TurbineCarbon Capture and storageCarbon Capture Utilisation and storageCarbon-dioxideEuropean CommissionEuropean UnionFlywheel Energy StorageGreenhouse GasHigh temperature-underground thermal energy storageInternational Energy Agency Investor-owned utilitiesLiquid Air Energy StorageLong duration energy storageNational Energy and Climate PlansNational renewable energy laboratoryOpen Cycle Gas TurbineOperating expenditurePower-to-GasPower-to-HeatPower-to-X Power-to-X-to-PowerPump-Hydro StorageRenewable Energy 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the leading member-supported association representing organisations active across the entire energy storage value chain.EASE supports the deployment of energy storage to further the cost-effective transition to a resilient,low-carbon,and secure energy system.Together,EASE members have significant expertise across all major storage technologies and applications.This allows us to generate new ideas and policy recommendations that are essential to build a regulatory framework that is supportive of storage.For more information please visit www.ease-storage.eu *Disclaimer:This response was elaborated by EASE and reflects a consolidated view of its members from an energy storage point of view.Individual EASE members may adopt different positions on certain topics from their corporate standpoint.*Contact:Susan Taylor|EASE Energy Storage Analyst|s.taylorease-storage.eu| 32(0)2 743 29 82 Avenue Adolphe Lacombl 59/81030 Brussels|BelgiumTel: 32.2.743.29.82EASE_ES www.ease-storage.euinfoease-storage.eu