McKinsey: Are you ready for the resource revolution?

InsightaaS: McKinsey & Co. is a world-leading management consulting firm. Its flagship publication, McKinsey Quarterly, has been providing insight into key management issues for 50 years.

McKinsey's influence is such that its thoughts are taken seriously by senior political and business leaders worldwide, even when they deal with issues that are challenging in scope. We are, therefore, extremely pleased to see (and be able to call some incremental attention to) a recent McKinsey piece on resource efficiency. This article paints a stark picture of inefficiency in key infrastructure elements, including roads, automobiles, and the power grid, and argues that improvements in the use of resources - broadly, one of three key inputs to economic growth - has not kept pace with advances in labour and capital efficiency. The authors foresee a third industrial revolution - a resource revolution - in which "rather than settling for historic resource-productivity improvement rates of one to two percentage points a year, leaders must deliver productivity gains of 50 percent or so every few years," and outline methods for building the foundations for tomorrow's success within today's business reality. By citing real-world examples, the piece helps readers to envision the path to growth based on responsible resource management. The issues covered in the article - including virtualization, integration and analytics - won't be new to most Across the Net readers, but the insightful analysis typical of McKinsey makes this an important article for anyone with an interest in how business needs to progress in the resource-centric era we have entered.

Most cars spend more than 95 percent of their time sitting in garages or parking lots. When in use, the average occupancy per vehicle is well below two people, even though most cars have five seats. Roads are likewise extremely inefficient. Freeways can operate at peak throughput (around 2,000 cars a lane per hour) only when they are less than 10 percent covered by cars. Add more, and congestion lowers speeds and reduces throughput. Most roads reach anything like peak usage only once a day and typically in only one direction (exhibit).

The story is similar for utilities. Just 20 to 40 percent of the transmission and distribution capacity in the United States is in use at a given time, and only about 40 percent of the capacity of power plants. The heat-rate efficiency of the average coal-fired power plant has not significantly improved in more than 50 years–an extreme version of conditions in many industries over the past century. Automotive fuel-efficiency improvement, for example, has consistently lagged behind economy-wide productivity growth.

Underutilization and chronic inefficiency cannot be solved by financial engineering or offshoring labor. Something more fundamental is required. We see such challenges as emblematic of an unprecedented opportunity to produce and use resources far more imaginatively and efficiently, revolutionizing business and management in the process. Indeed, rather than facing a crisis of resource scarcity, the world economy will be revitalized by an array of business opportunities that will create trillions of dollars in profits...

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