High-performing US states: Is there a secret to success?

States have enormous responsibilities. They must not only meet their citizens’ needs on a wide range of issues—from education to healthcare to housing and job security—but also manage enormous budgets, often larger than most countries. How they do it, and do it well, is an important question. And for those that are succeeding, how are they succeeding? Measuring performance and developing a fact base for decision making is critically important for states to understand what they’re doing well, where they need to improve, and what their residents value most.

To that end, we have launched our second annual Leading States Index, which combines more than 10,000 data points across a range of observable outcomes to give public-sector leaders a snapshot of how citizens experience their states across eight categories. McKinsey’s Leading States Index is used by U.S. News & World Report to inform their 2018 Best States rankings, the results of which have now been made available online. This year’s study combines enhanced data sets, more historical data, and more information for governments and citizens about what’s working and what’s not. (For more on what has changed since last year, see sidebar, “Refinements to our methodology.”) Here’s what we found.

There is no single formula for overall high performance

Among states with overall high performance, a variety of profiles emerge. All perform well on multiple subindices, but none is in the top 20 in all 8 subindices, and even some top performers fall in the bottom half of performance in a couple areas.

Where they succeed also varies, although there seems to be some regional consistency among these profiles. Successful profiles include a group of states that seem to have focused on human services. They collectively outperform on healthcare, education, crime and corrections, and opportunity. This profile is common for Northeast states (such as Massachusetts, New Hampshire, and Vermont). Another group, typified by some Western states including Washington and Utah, perform particularly well on economy, education, healthcare, and infrastructure. Several Midwestern states, such as Iowa, Minnesota, and North Dakota, all perform well on measures of infrastructure, opportunity, and quality of life.

Some measures are more strongly correlated to top-line success

Even though well-performing states excel in different areas, patterns in our findings do suggest that certain competencies are more strongly linked to a state’s overall success. Specifically, performance on the education subindex and on the healthcare subindex is a strong predictor of overall state performance. Other subindices are much less closely correlated with top-line success (Exhibit 1).

With the exceptions of education and income—and of course income is correlated with education—basic state characteristics like physical size, population, and percent minorities have little relationship to overall performance.

Interestingly, state citizens already sense what the analysis verifies—education and good, affordable healthcare are most important to them. Over the past two years, we surveyed more than 30,000 people who have consistently rated health and education as the most significant issues affecting their lives (Exhibit 2).

This outcome confirms what many experts already believe to be true, that building and maintaining human capital—particularly through prioritizing education and healthcare programs—should be the single most important focus for states.

These past two years have been a great start. We look forward to continuing to build our analysis over time and developing more and deeper insights that help states succeed.

André Dua is a senior partner in McKinsey’s New York office, where Aly Spencer is an associate partner; Navjot Singh is a senior partner in the Boston office; and Tim Ward is a senior partner in the Southern California office.Read more…