2014 Lean Management Enterprise Compendium With Links

A system for daily progress, meaningful purpose, and lasting value
The Lean Management Enterprise

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Editor
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Managing Editors
Michael T. Borruso and Venetia Simcock
Art Direction and Design
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A system for daily progress, meaningful purpose, and lasting value
The Lean Management Enterprise
2 The Lean Management Enterprise A system for daily progress, meaningful purpose, and lasting value
3
A second compendium, Lean Management: New
frontiers for nancial institutions, followed in
2011 and reected the many advances organiza-
tions had made over the intervening three years.
Most important, leaders were recognizing
how much more a transformation could achieve
when it unleashed the potential of each
individual, reinforcing management skills and
unlocking employees problem-solving
capabilities. To underscore this point, we began
using the term lean management. And we
explained that success rests on building from a
small, isolated success story until it reaches
the entire enterprise, including functions that once
seemed too difcult to transform, such as IT,
product development, nance, marketing and
sales, and communications.
Since then, it has become increasingly clear that
the most successful services organizations
whether in nance, telecommunications, or the
public sectorare those that deeply commit
to the disciplines of lean management. They are
the ones with the exibility to respond to
changing market demands and deliver what cus-
tomers value as efciently as possible. They
are the ones whose employees are contributing to
their fullest potential. They are the ones where
everyone from the front line to the CEO knows how
to see problems, solve them, and push the
organization to improve. And they are the ones with
the greatest sense of purpose, so that their
people understand where the top team wants to
take the company and how they can help get
there. Together, these elements must manifest in
organizational systems, with people and
processes all working together for the same
purpose, from the CEO to the front line.
In this compendium, we have included ten inter-
views with executives representing banking,
business services, insurance, telecommunications,
Building on more than a decade of experience in
serving organizations that have dramatically
transformed themselves, The Lean Management
Enterprise: A system for daily progress, mean-
ingful purpose, and lasting value considers how
organizations will fare now that more of their
competitors may be starting to hear aboutand
usethe management principles once known
as lean manufacturing. This collection of articles
and interviews constitutes the third in a series
that began in 2008 with Banking on Lean. That
compendium articulated how lean ideas
could be adapted to challenging nancial-services
environments where, for example, the work is
difcult to monitor, employees are uniquely skilled,
and products are highly tailored. The hope was
that by showing leans potential for service-sector
organizations, we could inspire executives to
embark on a lean journey.
Preface
What do we mean by lean?
A common misperception about lean is that it focuses mainly on
process redesign. In fact, although the ideas underpinning lean
ultimately originated in manufacturing, they encompass far more.
Fundamentally, lean seeks to rene a companys basic systems
to meet changing customer needs more effectively.
The four disciplines of lean management, described in more
detail in The organization that renews itself: Lasting value from
lean management (page 8), are supported by a set of tools
and techniques that shape day-to-day work for managers and
frontline employees throughout the organization. The orga-
nization learns how to adapt and implement the tools through
a transformation that aligns performance targets for trans-
parent results, redesigns processes to be more efcient from end
to end, builds organizational structures that encourage
cooperation and capability building, and wins the support of
employees and managers.
and public-sector institutions, in addition to seven
articles on topics that will help organizations
arrive at a new level of performance that comes
from embedding lean principles and practices
throughout their enterprises. If you are relatively
new to the concepts of lean management,
we suggest you start with the introduction on page
8 followed by the chapter introductions on
pages 16, 66, 104, and 130. These will give a full
overview of how to think about lean manage-
ment, so that you can get the most out of the
articles and interviews.
If you are a CEO or member of the C-suite,
we hope you will pay special attention to the nal
section, Connecting strategy, goals, and
meaningful purpose, and to the interviews with
your peers, which appear in every section.
For example, Marv Adams, COO of TD Ameritrade,
shares insights from his three decades of apply-
ing lean-management principles to help rid large
organizations of valueless complexity. Yves
Poullet, CEO of Euroclear Bank, describes how
lean management has helped him achieve
his strategic objectives. And Martin Lippert,
former COO of TDC, a Danish telecom-
munications company, notes that he started with
lean management with little inkling of the
tremendous impact it would have on customers
and employees.
To bring lean management to life, we have started
each section with the story of Mary, a typical
midlevel manager in a ctional company. We will
use her story to illustrate how different it feels
to work in a company that has embedded the
lean-management system.
We hope you will enjoy reading this latest compen-
dium. If you have comments or questions for
the authors, or if you would like an opportunity to
visit a company that has implemented the
lean-management system, please note the list of
contacts at the back.
David Jacquemont
Principal
On behalf of McKinsey's
global leadership team for
lean management
5
In late October 2012, an unprecedented storm
struck the East Coast of the United States,
paralyzing transport networks and bringing normal
city life to an abrupt halt. The New York Stock
Exchange had its rst unplanned closure since
1888. Many employees were unable to get
to work, and companies struggled to keep their
businesses running with a skeleton staff.
A crisis like this represents a test for an organi-
zation. How do you cope with customer demand
when half your employees cant leave their
homes and the other half are battling against wide-
spread disruption and damage? People at one
company talked about their experiences:
Everyone was trying to help everyone else.
We were all working toward the same goal.
I felt a sense of belonging.
Our vice president came and sat down
with us to take customer calls.
The walls in the organization disappeared.
We trusted each other to do our best.
Similar stories arise in almost every organization
during natural disasters or other events (epidemics,
data-center failures, public-transit strikes) that
substantially disrupt customers or the workplace.
Adversity, it seems, encourages people to do
their best work and band together in pursuit of
a common cause. What could companies
accomplish if only they could nd a way to replicate
this effect (without the stress) under normal
circumstances?
Organizations that follow lean-management princi-
ples and practices are able to create similar
conditions in their ordinary day-to-day business.
They operate seamlessly across functions
and departments while building a culture of mutual
respect, collaboration, and shared purpose.
They are adept at renewing themselves, continu-
ously improving their operations, and getting
people to bring their best to work. In fact, lean
management could be described as a mech-
anism for codifying the good practices that arise
under pressure.
Codifying lean management results in the crea-
tion of a rich and integrated set of tools and
practices that help guide how people work on a
day-to-day basis. Accordingly, each of the
four sections of this compendium will open with
an example of how Mary, the head of claims
processing for an insurer, follows the disciplines
of lean management in the course of meeting
daily challenges.
Marys story: The context
22
One company in the eyes
of the client
An interview with Marv Adams, COO of
TD Ameritrade
32
The untapped potential from
delivering for customers
41
Making customers more
valuedand valuable
An interview with Peg Marty, EVP and
head of contact centers of RBS Citizens
Financial Group
48
Forging an identity at
Indias Axis Bank
An interview with Jairam Sridharan,
president of consumer lending
55
The truth about
customer experience
16
Delivering value efficiently
to the customer
8
The organization that
renews itself
Lasting value from lean
management
110
Building a problem-solving
culture that lasts
117
Many small ideas add
up to big impact
An interview with Carlos Zuleta
Londoo, COO of Porvenir
123
Performance from
problem solving
An interview with three leaders
at MassMutual
136
The aligned organization
143
A shorter path to an
asylum decision
An interview with Marcus
Toremar, lean manager
for the Swedish Migration Board
149
The strategic enabler at
Euroclear Bank
An interview with Yves Poullet, CEO
154
Discovering America by
looking for India
An interview with Martin Lippert,
former COO of TDC
72
Cultural change at
Direct Line Group
An interview with Bryan
Robertson, former director
of lean transformation
79
Guiding the people
transformation
The role of HR in lean
management
89
Lean management
from the ground up in
the Middle East
An interview with Suhail Bin Tarraf,
CEO of Tanfeeth
96
Lessons from
emerging markets
104
Discovering better ways
of working
130
Connecting strategy,
goals, and meaningful
purpose
66
Enabling people to lead
and contribute to their
fullest potential
The Lean Management Enterprise A system for daily progress, meaningful purpose, and lasting value
The organization that
renews itself
Lasting value from lean
management
8
David Jacquemont Executives at a fnancial institution wondered
how to fght complacency as they watched
competitors start to catch up to their most impor-
tant productone whose success the institution
never quite matched.
A logistics company faced diminishing returns
from years of cost cutting. Managing vendors now
consumed many of the gains from outsourcing.
Fixing talent and quality issues meant that low
cost locations were no longer so low cost. And
just keeping pace with the latest IT developments
meant constant budgetary struggles. How could
it get more out of the cost-cutting investments it
had already made?
For an asset manager, the focus was on customer
disappointment with how long it took to open
and fund an account. Every day of delay meant lost
revenue both for the company and, more impor-
tant, for the customer. But regulatory constraints
meant that speeding the process up seemed
fraught with risk.
A government agency seemed to be in an
enviable position, with demand higher than ever.
But its budget was fat and it recently had to
impose a hiring freeze. It needed to manage the
infux while maintaining quality standards,
without causing highly trained employees to
burn out.
9
The Lean Management Enterprise A system for daily progress, meaningful purpose, and lasting value 10
How often do you hear of these types of issues
in your organization? How often do you confront
them yourself?
Of course, questions that challenge how well
large, modern organizations work are almost as
old as management itself. But if it seems
that questions are coming up more often, or more
forcefully, there are good reasons.
The frst is a rising sense of urgency, with large
organizations recognizing that the pressures they
face are unlikely to abate much in the short term,
regardless of location or sector. In mature markets,
slower growth, lingering debt burdens, and aging
workforces are the chief concerns; in fast-growing
countries, rapid expansion and urbanization
are outpacing the ability of local infrastructure and
talent pools to keep up. Everywhere, mis-
matches between worker skills and available jobs
are growing, even as unemployment reaches
new highs, especially among the young
1
while
those managers and workers who do fnd
employment report high stress and low engage-
ment. To respond to these forces, organizations
need new capacity and energy, but instead
they fnd both are in short supply, having been
absorbed by internal complexity.
In 2011, the McKinsey Global Institute estimated
that for the United States to match the GDP growth
and rising living standards to which it has long
been accustomed, the countrys labor productivity
would have to rise by 34 percent, to a rate
not seen since the 1960s.
1
A year later, a separate
report suggested that rapidly aging advanced
economies such as Germany and Japan face an
even more daunting challenge: they will need
to increase the pace of their productivity gains by
about 60 percent in order to attain historical
GDP growth.
2

Those gains will be especially difcult to attain
given pervasive mismatches between
available work and employee skills, gaps that are
already large and threaten to expand further.
Across advanced economies, newly created jobs
are much more likely to involve complex
interactions that require employee exibility and
Filling the great labor gap
responsiveness; the routine, execution-oriented
work that historically has provided employment for
tens of millions of less educated workers will fade.
By 2020, advanced economies may face a surplus
of 32 million to 35 million workers with only a
secondary education and a shortfall of 16 million to
18 million of their college-educated peers.
Organizations must therefore learn how to increase
their productivity despite a scarcity of highly
skilled workersthe sort of constraint that lean
management helps resolve. One organization,
Export Development Canada (EDC), illustrates the
possibilities. In 2008 and 2009, demand for
EDCs nancing services surged by about 25 per-
cent over three quarters. By better coordinating
the work of its many highly trained specialists, EDC
was able to nd the needed exibility to absorb
the additional demand without increasing its
nancial risk.
1
For more information, see
Richard Dobbs et al.,
The World at Work: Jobs,
Pay, and Skills for
3.5 Billion People, McKinsey
Global Institute, June
2012 (mckinsey.com), and
the sidebar Filling the
great labor gap.
1
James Manyika et al.,
Growth and Renewal in the
United States: Retooling
Americas Economic Engine,
McKinsey Global Institute,
February 2011 (mckinsey.com).
2
Richard Dobbs et al., The
World at Work: Jobs, Pay, and
Skills for 3.5 Billion People,
McKinsey Global Institute, June
2012 (mckinsey.com).
11 The organization that renews itself: Lasting value from lean management
Thus, while the specifc issues may differ, the
broader themes are the same. Large organizations
realize they must reimagine how they work so
that their scale once again becomes an asset rather
than a liability. And they must do so from within,
because external conditionsthe rising economic
tides that formerly lifted so many boats, regard-
less of how well or badly they rowedare not likely
to make a lasting return any time soon.
The second reason for questions is, if anything,
even more important. Leaders know that some
organizations are transforming themselves,
fnding new value while becoming more resilient,
effective, and effcient in ways that keep
reinforcing themselves over time. These organi-
zations, both in heavy industry and in service
sectors as diverse as banking, telecommunications,
and government, attain a state that is as
valuable as it is rare: continuous improvement.
Their performance increases both in the
immediate term and over the long run, as the tech-
niques people learn form a new culture centered
on fnding ways to do things better.
However, leaders also know that imitating
an admired organizations best practices is hardly
a reliable way to imitate its success. It takes
more than a borrowed checklist. What is
it that makes these exceptional organizations so
exceptionaland keeps them that way?
Lean managements four disciplines
In working with large organizations, we have found
that those that renew themselves all seek to
execute four essential management disciplines
exceptionally well. Every organization already
follows these disciplines in one form or another.
Accordingly, they are not a formula; they do
not represent the whole universe of good manage-
ment. But when leaders design systems that
enforce these disciplines effectivelyand when they
ensure theyre followed every day, at every level
of the organizationthe disciplines reinforce one
another to create what lean has long envisioned:
an adaptive organization that consistently generates
the most value possible for all stakeholders from
all of the resources it can bring to bear.
Even more important, the disciplines correlate
to tangible skills and ways of working that people
and organizations can learnwhich, over time,
constitute culturehow people behave and think.
The more the organization learns regarding each
of the four disciplines, the more it can achieve and
the faster it gets at learning and improving itself.
Delivering value effciently to the customer.
The organization must start by understanding
what customers truly valueand where,
when, how, and why as well. It must then con-
fgure how it works so that it can deliver
exactly that value, no more and no less, with
the fewest resources possible, improving
coordination, eliminating redundancy, and
building quality into every process. The
cycle of listening and responding never ends,
as the customers evolving needs reveal
new opportunities to attack waste, create new
worth, and build competitive advantage.
Enabling people to lead and contribute to their
fullest potential. The organizations that get
the most from their people provide them with
What is it that makes
these exceptional organizations
so exceptionaland keeps
them that way?
Criticism of objective, top-down, metric-focused
scientic management has a long pedigree,
dating almost to the ideas origin at the turn of the
20th century in the Taylorism movement.
As early as the 1920s, pioneering management
theorist Mary Parker Follett endorsed a
participatory vision of management, in which the
managers role was one of power with, not
power over. In 1933, Harvard Business School
professor Elton Mayo argued in The Human
Problems of an Industrial Civilization that higher
output depended more on group norms than
on the physical conditions that Frederick Taylor
emphasized. By midcentury, Peter Drucker
and Douglas McGregor added their voices in favor
of a more humanistic vocabulary for management,
rather than strong control over the workforce,
The limits of scientic management
while future Nobel economics laureate Herbert A.
Simon began publishing his work describ-
ing the limits of rational factors in management
decision making.
Yet even as more organizations adopted policies
for motivating or empowering employees, the
gap between the policies and day-to-day reality
grew. In 1990, employee stress had become
a large enough problem to attract attention from
labor scholar Robert Karasek. His research
identied three main contributors to work-related
stress: high professional demands, low deci-
sion latitude (that is, little ability to control how
the work is done), and low social support.
The combination of high professional demand and
low control was found to be especially stressful.
Source: Regus, From Distressed to De-stressed, September 2012 (regus.com); McKinsey analysis
Employees in large companies feel more
stressed than those in small ones, and management
is a signicant problem.
Lean Compendium 2013
Main introduction
Exhibit (sidebar)
Work-related stress is more prevalent in large and
midsize companies than in small ones, notably because
of management
Causes of stress in the past year, 2012, %
Size of
companies Job Management Customers
Employee perception of
stress increase in the past
year, 2012, %
People in large companies are more
likely than those in small companies
to see stress levels as increasing
Large 40 27 54 67
Midsize 41 29 50 60
Small 20 42 46 56
Exhibit
13
Since then, at least some data suggest that
employees positions have gradually worsened.
According to a 2009 EU report, workers
reported steady erosion in control over their work
between 1995 and 2005. And a 2012 study of
16,000 workers worldwide found that employees
in large organizations were more stressed
than those in small ones, particularly because of
management issues (exhibit).
Lean management seeks to reconcile control
and autonomy in large organizations by rethinking
how organizational improvement should work.
The lean-management system enables individuals
to rely much more on themselves and much
less on the top-down, external sources of control
that so often become rigid, inefcient, and even
counterproductive on a large scale.
Further reading
Pauline Graham, ed., Mary Parker Follett: Prophet of
ManagementA Celebration of Writings from the 1920s,
revised edition, Frederick, MD: Beard Books, 2003.
Robert Karasek and Tres Theorell, Healthy Work: Stress,
Productivity, and the Reconstruction of Working Life, New
York, NY: Basic Books, 1990.
Herbert A. Simon, Administrative Behavior: A Study of
Decision-Making Processes in Administrative Organization,
fourth edition, New York, NY: The Free Press, 1997, and
A behavioral model of rational choice, Quarterly Journal of
Economics, 1955, Volume 69, pp. 99188.
support mechanisms so that they can truly
master their work, whether at the front line or
in the boardroom. Revamped physical space
fosters collaboration, visual-management tech-
niques let everyone see what needs to be
done, targeted coaching builds capabilities, and
simple job aids reinforce standards. These
and other changes enable employees to own
their own development, without leaving them to
fgure it out by themselves.
Discovering better ways of working.
As customers, competitors, and the broader
economic and social context change, the
whole enterprise must continually think about
how todays ways of working and managing
could improve. To guide the inquiry, people will
need a clear sense of what better meansthe
ideal that the organization is reaching toward
as well as an unvarnished view of current
conditions and the ability to work with others to
close gaps without fear of reprisal. Problem
identifcation and resolution must become
a part of everyones job description, supported
by structures to ensure that problems fow to
the people best able to solve them.
Connecting strategy, goals, and meaningful
purpose. Organizations that endure operate
from a clear directiona vision of what
The organization that renews itself: Lasting value from lean management
the organization is for, which in turn shapes
their strategy and objectives in ways that
give meaning to daily work. At every level,
starting with the CEO, leaders articulate
the strategy and objectives in ways that their
people can understand and support. The
fnal step aligns individual goals to the strategy
and vision, with the result that people fully
understand their role in the organization and
why it matters.
The four build on one another. For example, to
create new products that deliver better value
to customers, the fnancial-data company cited
at the beginning will need to convince its
employees that their ideas matter, encourage them
to fnd new ways to respond to customers, and
clarify the companys purpose. To help its people
manage the surge in infow, the government
agency will need to evaluate what matters to con-
stituents, reassess how work gets done, and
The lean-management system is articulated through
four integrated disciplines.
Main introduction
Exhibit 1 of 1
Discovering
better ways of
working
Delivering value
efciently to the
customer
Enabling people
to lead and
contribute to their
fullest potential
Connecting
strategy, goals,
and meaningful
purpose
Exhibit
15
make sure that its strategy is consistent with its
mission. Thus, while an organizations focus
may naturally emphasize different disciplines at
different times, it will need all four to keep
renewing itself. Together, they form the lean-
management system (exhibit).
As the organizations experience with the system
deepens, its capabilities will naturally strengthen.
At the same time, lean management fosters
a culture that encourages continual reassessment.
Gradually, that drive will come to apply to
the system as wellthe organization will seek to
improve its application of lean management,
to see how it could push the ideas (and its
performance) further. Accordingly, the most com-
mitted organizations regularly conduct well-
structured assessments of their maturity in lean
management, giving them feedback on their
progress in all four disciplines while identifying
opportunities to refect and improve.
The following collection of articles and executive
interviews illustrates the four disciplines in
greater detail, describing how each is evolving
based on lean principles, in real organiza-
tions doing real work and facing real challenges.
But understanding the full impact that lean
management can offer is possible only by viewing
these stories as part of a consistent system
one that delivers rapid improvement in perfor-
mance and health while unlocking much
greater value through continuous improvement
over time.
The organization that renews itself: Lasting value from lean management
David Jacquemont is a principal in McKinseys Paris ofce.
Copyright 2014 McKinsey & Company. All rights reserved.
Table of contents
Delivering value efciently
to the customer
16
17
Lean managements focus on delivering for the customer starts from
two ideas. The rst recognizes that the details of daily life in a large
organization can often obscure the fundamental need to acquire and serve
customers well. Customer in this context can have many different
meanings beyond the purchaser of a product or service. For a government,
the customer is a resident or citizen. For an IT team, the focus is to help
end users to better serve the organizations external customers. Everything
that the organization does must in some way contribute to acquiring
and serving customers; anything that does not is presumed to be a poor
use of the organizations resources.
Moreover, even actions that serve customers can misallocate resources
if the result ends up providing more or less than the customer wants. Thus,
the second idea is to meet customer needs exactlydelivering neither
too much nor too littleunless there is a strong reason to do so, such as to
comply with regulations or protect employee safety.
Precision in understanding and fullling customer needs requires organizations
to develop new infrastructure: for gathering customer feedback, for assessing
and channeling customer demand, and for managing internal capacity to
match this demand. A day in Marys life provides a sample of how these tools
and concepts work together, so that an organization really can put the
customerhowever denedat the center of its business.
18 The Lean Management Enterprise A system for daily progress, meaningful purpose, and lasting value 18
Morning huddle
Clear organizational
design aligned
with customer
expectations
Lean tools and
behaviors
Capacity
management
Root-cause
problem solving
Capacity
management
Floor walks
Understanding
customer
requirements
Capacity
readjustment
Skills matrix
Adhering
to customer
standards
Customer survey
Reaffrming
customer promise
Taking the clients
perspective
Customer-aligned
performance
targets
Instilling purpose
Serving customers despite a data disruption
At the morning meeting of a priority-client service team, team leader Axel asks if Mary has
heard why so few claims arrived overnightthe whiteboard shows todays infow is only 15
percent of yesterdays. When Mary says no, Axel offers his teams spare capacity and says
that they will also start problem solving to try to fnd the issue.
Mary fnishes her rounds and returns to Axel, who says that IT is looking for a break in
communication somewhere between the priority-client data hub and the service center. Mary
suggests checking the customer agreement to see what the center has promised.
Axel calls Mary, who is reviewing the mornings claims-ow data to see where she needs
to move work. Were responsible for same-day service for all claims that reach the data hub by
noon, Axel says. Thanks, Mary responds. While were waiting, theres a big international
settlement coming through Cindys team, so Im looking at your teams skill proles to see who
could help. Gracielas experience in these settlements is deep and Vipuls is moderate,
so Mary reassigns both.
Mary checks the inbox for the centers automated client survey e-mails. Several ask why the
previous nights claims arent fnished. Before she can reply, Axel stops by, saying the IT problem
is fxed. He asks for Graciela and Vipul back, plus two extra team members. After Mary
reminds Axel to focus on the claims that arrived before noon, he agrees he can manage with
just one extra. Mary reassigns Jorge, an international specialist with the right skills.
Mary calls the priority client: Victor, Mary here. We just fxed a problem. Refresh your screen
you should see some resolutions now. Ive already assigned extra staff to process the same-day
claims. We were wondering, thanks for calling. Our month is closing early so we need
everything to go through today. I understand. Well get all same-day claims done by 6.
Mary stops by Axels team: Folks, the large agencies you serve count on us to protect their
proftability and customer reputations. Thats why our performance targets judge us on being
timely and accurate. Lets do everything we can today to meet that high standard.
Axel calls: Morning claims are done. If I can keep Jorge, we can start on the arrivals that we
would normally do tomorrow. What do you think? Mary sees that afternoon infow is high. Yes,
lets get ahead for tomorrow.
19 Delivering value efficiently to the customer
Marys interactions with her team show how the principles behind lean managements
customer focus come alive.
As a manager, Mary is constantly evaluating customer demand. Data gathering and
reportingoften via simple means such as standard whiteboards and daily oor walkslet
more-senior managers see the quantity and types of work coming in, together with the
tasks that their teams are currently working on. Mary therefore knows almost immediately that
her priority-client service team has a major shortfall in its work and that her international-
settlements team needs help.
But to ll the gap effectively between a teams workload and its stafng level, Mary cant
just assign two random people who seem to be availablethey could easily end up being
more of a hindrance than a help if they slow down the rest of the overloaded team.
She needs to know which employees have the right capabilities. The answer is an up-to-date
skills matrix that summarizes what each employee can do, based on a standard prole
of the employees experience. Consistent cross-training has given Marys organization more
exibility in meeting variations in demand and capacity. Mary nds that Graciela and
Vipul have the right proles; moreover, pairing two employees at different levels encourages
skill transfer, further enlarging the pool of employees available for short-term transfer
as needed.
In parallel, Mary keeps close tabs on what customers want and are willing to pay for. The
company continually gathers customer feedback via an automated e-mail system
whose responses Mary can view at any time. She sees the early warning: client personnel
are not happy that their overnight claims havent been processed yet.
Mary knows that her groups performance metrics depend on customer satisfaction
a combination of being timely and accurate. Yet she also recognizes even a priority-client team
faces resource constraints and must prioritize; at a very basic level, overdelivering for one
priority client may mean underdelivering for another. Accordingly, when Axel realizes that his
team will need additional help to process the ood of claims, she reminds him that they
are bound by what the customer agreement providesonly the morning claims are entitled to
same-day service.
But Mary also seeks to inspire her team to work by reminding them of why they do this
workthe agents whose business depends on accurate, timely claims resolution.
And once they clear the mornings claims, she decides to use the added capacity to get
a head start on the next days work.
Marys story is a composite of experiences at organizations that have transformed
themselves through lean management. The interviews and articles that follow in this section
provide additional depth on several of the important factors that make it possible
for Mary and her organization to deliver for customers consistently, even in a constantly
changing environment.
With almost three decades of experience in working with lean concepts, Marv Adams, chief
operating ofcer of TD Ameritrade, starts the section by reecting on lean managements
ability to eliminate valueless complexity. An organization that learns to concentrate on the
work that contributes genuine value for customers will simplify itself in ways that create
even more value for customers while engaging workers and streamlining coordination across
the organization as a whole.
In The untapped potential from delivering for customers, the authors describe in detail how
organizations use a better understanding of their customer to inform every aspect of
how their business operates. Initially, an organization simply becomes better at the basics
of meeting customer needs, but over time, the capabilities it develops allow it to move
one step ahead of the customeranticipating needs and building an emotional connection.
Next, Peg Marty, executive vice president and head of contact centers for RBS Citizens
in the United States, homes in on how lean-management principles can help an organization
create new capabilities for meeting customers changing service expectations. Her
organization discovered that with the right management systems, many employees long
used to providing customer service can learn to start presenting product-based
solutions as well, generating new sales while increasing customer satisfaction.
From the opposite side of the world, Jairam Sridharan, president and head of consumer
lending and payments for Indias Axis Bank, describes the dramatic new promises
that his institution is now able to make to customers after its transformationincreasing a
valuable competitive edge in Indias fast-growing market for home and consumer loans.
Finally, in The truth about customer experience, reprinted with permission from the
Harvard Business Review, the authors explain how organizations must evolve from seeing
customer interactions as single touchpoints to understanding them as parts of much
longer journeys. The organizations that excel throughout the entire journey, not just at a
touchpoint or two, reap enormous rewards.
Table of contents
Delivering value efficiently to the customer
22
of the client
An interview with Marv Adams,
COO of TD Ameritrade
32
41
valuedand valuable
An interview with Peg Marty, EVP
and head of contact centers
of RBS Citizens Financial Group
48
Indias Axis Bank
An interview with Jairam Sridharan,
president of consumer lending
55
The truth about customer
experience
A nancial-services leader explains how
ridding organizations of valueless complexity
can spur growth.
Organizations that truly deliver for customers
know that understanding what they want
is only a rst step: the whole enterprise must
evolve to meet customers priorities.
An expanded view of customer service
has improved customer satisfaction,
employee engagement, and sales at one of
the largest US banks.
Axis Banks Shikhar transformation has
reduced customer wait time for loans
by 30 to 70 percent, while its total book has
risen by almost 50 percenteven as hiring
and IT investment remain almost at.
Employee quality of life has improved, too.
To maximize customer satisfaction,
companies have long emphasized
touchpoints. But doing so can make
customers seem happier than
they actually are and divert attention from
the bigger, more important issue:
the customers end-to-end journey.
21
22
A fnancial-services leader explains
how ridding organizations of valueless
complexity can spur growth.
of the client
An interview with Marv Adams, COO of TD Ameritrade
23
Marv Adams is the chief operating offcer
(COO) of TD Ameritrade, a leading US provider
of electronic discount brokerage and related
fnancial services. The company currently holds
more than $524 billion in client accounts
and executes an average of nearly 400,000 trades
per day.
In his role as COO, Mr. Adams oversees all IT and
operations functions, including systems devel-
opment, data centers and infrastructure, networks,
project management and process improvement,
and retail brokerage clearing and operations. He
has devoted much of his 30-year career to the
pursuit of lean management, initially in traditional
manufacturing environments and later in
fnancial services. He has been a member of the
senior leadership teams at Ford Motor Company,
Bank One, Citigroup, Fidelity Brokerage
Services, and TIAA-CREF.
McKinsey spoke with Mr. Adams at his offce in
Jersey City, New Jersey.
McKinsey: Across the many operational
contexts in which you have worked, what do you
fnd makes lean management so powerful
when it is done well?
Marv Adams: Lean management effectively taps
into associates convictions and passions. They
have a deeper sense of when their company is act-
ing in the right wayfor the long term, out of a
genuine belief in serving clientsversus when it is
just reacting to short-term pressures in a never-
ending cycle of favor of the year.
Flavor of the year is exhausting. It consumes time
and energy without achieving real change.
Thats dispiriting for associates and makes it even
harder for middle managers to motivate their
teams. Everyone is so worn out that when they
see a system that says, We are stewards; it is our
responsibility to fnd a better way to help our
clients, they fnd it inspiring. When associates
can tie their work back to a purpose thats
deeper than just making more money next quarter,
the result is a culture in which people are much
more satisfed, inspired, productive, and
innovative at every level of the organization. So
its incredibly powerful when its done well.
McKinsey: Now that you have designed and led
a number of lean managementbased trans-
formations, how has your perspective evolved?
Marv Adams: The frst few times that I got
involved with some of the ideas underlying lean
management, it was all about individual
methodologies, so it was inherently fragmented.
There wasnt any emphasis on the belief
system or leadership and management practices.
A lean project would start when somebody
saw a problema problem big enough to warrant
signifcant resources.
At most, the project would fx a process. But
it didnt leave behind a continuous-improvement
system; it didnt leave behind motivated staff.
Now I see lean management as an integrated
system of beliefs, leadership practices, and
management practices. The methodologies and
tools are important in that they allow the
organization to implement those deeper ideas in
a practical way, but the tools alone are not
lean management.
McKinsey: How can lean management bridge
the gap between a complex organization and
the client?
Marv Adams: One of lean managements great
strengths is its focus on understanding a whole
value stream, every step in a process from
beginning to end, from the clients point of view.
It forces everyone to ignore internal boundaries
and instead examine only the fow of work
and activities that contribute value for the client
whether in the form of a funded investment
account, completed loan, or something else. The
organization may discover that it needs new
work systems to make sure that work fows from
function to function. Middle managers will
need to take on a different kind of role, one that
emphasizes cross-functional collaboration
and problem resolution. And the organization
as a whole becomes more cohesive.
As a result, the organization begins to simplify
itself. Left on its own, almost any organization
evolves in a way that leads to what I call valueless
complexity. People assume that things are
done in a certain way because that is the way they
need to be done. Very often, however, what has
actually happened is that a practice developed for
a very specifc time and purpose has crept into
processes that it was never intended for.
And in larger organizations, these intrusions
proliferate to become bureaucracy.
Much of the time, associates can see the problem,
but they feel powerless to make changes. Lean
management gives them the voice, structure, and
tools to challenge long-standing assumptions
and the freedom to question how the organization
does certain things and why. The effect is to
help simplify and root out valueless complexity
every day at the working level of the organization.
McKinsey: What are the most important things
that leaders must believe for lean management
to work for their organization?
Marv Adams: I see four beliefs as essential.
First, clients matter more than anything and their
perspective trumps almost all other consider-
Marv Adams
With more than 30 years of operations and technology experience, much
of it in the nancial-services sector, Marv Adams has served as chief operating
ofcer of TD Ameritrade since 2011. Previously, he was executive vice
president of shared services and technology and operations for TIAA-CREF,
where he oversaw operations and applications-services technology,
as well as IT strategy and policy. Earlier in his career, Mr. Adams served in
a similar capacity at Fidelity Investments, where he was responsible
for enterprise transformation. He also served as chief information ofcer at
Citigroup, Ford Motor Company, and Bank One and was the head of
worldwide engineering systems for Xerox. He started his career at IBM after
earning a bachelor of science in electrical engineering at Michigan
State University.
25
ations. That also means taking care of the
associates, since they are the ones taking care
of the clients. Companies are often tempted
to monetize their productivity gains too quickly
via layoffs. Unless handled exceptionally well,
layoffs will undermine the trust that lean manage-
ment seeks to build. People already have
preconceived notions about the relationship
between lean management and layoffs,
and such action only serves to reinforce that
misconception. Conversely, companies
that protect this newfound trust and instead
rely on attrition and redeployment through
practices that associates perceive as fair will earn
a continued commitment to making the
organization better.
Second, most people come to work every day
wanting to do a good job and serve the clientnot
to create problems. So when there are problems
or somebody makes a mistake, the frst response
cannot be blame. So many dysfunctional things
occur when people are afraid of being associated
with problemsthey not only hide individual
problems, but they also distance themselves from
complex situations. But once the fear eases
and people begin to feel comfortable uncovering
problems themselves, excitement builds and
performance takes off.
Third, whatever the organization is doing, there is
probably a better way of doing itand people
are individually and collectively responsible for
pursuing that new way of doing things. Its
not enough just to want to fnd a better way;
people must commit to lean managements
approaches and tools, which take effort to learn
and adapt to the organization. But they are
essential because they systematically guide the
creation of new structures for orchestrating
resources more effectively.
Finally, lean management is a holistic system for
achieving permanent change, not an isolated
project or collection of tools for meeting short-
term goals.
Most of these beliefs are rooted in trust.
I think leaders absolutely have to convey that
trusting your colleagues is critical to having
a team, to having one company from the eyes of
the client.
McKinsey: A lot of organizations say they
believe in those things, but the reality doesnt
meet the rhetoric.
Marv Adams: Lean management provides
a tangible way to translate rhetoric into action.
The common language, methods, and tools
create a structure for daily reinforcement, much
like practice sessions in music or sports.
McKinsey: How do you help leaders, managers,
and associates get lean management?
One company in the eyes of the client
Lean management gives
associates freedom to question
how the organization does
certain things and why; the effect
is to help simplify and root
out valueless complexity every
day at the working level of
the organization.
McKinsey: What were TD Ameritrades initial
goals in pursuing lean management?
Marv Adams: It started with the CEO, who
simply wanted the organization to be better. Over
the years, he has consistently avoided phrases
such as best in class, which can imply a limit to
how good an organization can become. Instead,
his focus has long been on better, regardless of
how good the organization may become.
It was lean managements focus on continuous
improvement that drew him to the concept.
The CEO also recognized that under current
conditions, the nancial sectors persistent
protability challenges were unlikely to change
without a major intervention. He wanted
cost reduction, but in a way that would build TD
Ameritrades muscle rather than strip it away.
McKinsey: Where did you start and why?
Marv Adams: We started off in several key value
streams, including retail new-account opening
and call centers, institutional client onboarding and
service, and shared brokerage operations.
The scale meant that our improvements would
have a substantial effect on the organization, both
nancially and psychologically. For example,
across the industry, new-account opening can be
frustrating for clients because it cuts across
many functions and every step involves important
compliance requirements. Brokerages struggle
to reduce the number of clients who never fund
their accounts, either because they lose
interest or because they end up with errors in
their applications. Even modest reductions
in this type of leakage add up to signicant new
Lean management at TD Ameritrade
business for us. Improvements were therefore
highly visible and helped position lean as a growth
storythe main goal was to increase revenues,
with efciency gains as a welcome consequence.
Id estimate that about half of the benet we have
seen comes from productivity and efciency
improvements. But whats more important over
the long run is that the other half comes from
growth sources, such as clients opening more new
accounts and call centers pursuing more high-
quality leads. Most important of all, by fundamentally
changing how 3,000 people work across all
of our sites, our transformation has propelled our
employee-engagement scores into a new
category. Our survey partner tells us that we are
now among the best-performing companies
in all of nancial services. Thats what makes
further improvement possible.
We have not been afraid to make tough deci-
sions. In areas such as new-account opening and
brokerage operations, we have redrawn the
organizational boundaries to deliver better value for
our clients, with minimal internal coordination
and redundancy. It is a strong sign that leaders
now advocate to do what is right for our
clients and the company without regard to their
personal efdoms.
McKinsey: How have the communications
evolved over the last year?
Marv Adams: I think the most important change
is that the communications are becoming
much more bottom-up. People are reporting their
achievements in town halls, posting them
online in our newsletters. Our surveys show that
even the registered investment advisers we
27
serve are becoming excited; their most important
metrics have all improvedclient satisfaction,
error rates, controls, even revenues. Some of our
institutional clients are asking us how lean
management might help them in their businesses.
McKinsey: What kinds of support are people
asking for across the organization?
Marv Adams: For parts of the organization that
have already implemented lean management,
we see a big pull for more help with developing lean
leadership skills and building new structures to
support faster problem solving and talent develop-
ment. They want to do more. For those that have
not experienced lean yet, theres a different sort of
pull. When they rst hear of the results, they
get very interested. But then theres a middle stage
when they push back, because change is difcult
and they come to realize that lean management is
a whole new way of working. Once they start
engaging, they come to realize that the long-term
outcome is worth the commitment.
McKinsey: Where does lean go next?
Marv Adams: Because we believe that lean
management applies everywhere, the next step is
to expand across all support functions. IT is
already under way.
McKinsey: What are the similarities and
the differences you have seen in extending lean
management into IT?
Marv Adams: Ive been in IT since 1981, and
since then Ive managed a lot of IT organizations.
The patterns of IT work are largely consistent,
regardless of industry or scale: the challenges of
infrastructure management or application
development are pretty similar whether at Ford
Motor Company or Citigroup or TD Ameritrade.
So I can say with great, great conviction that the
processes of IT that have built up over the last
three or four decades are rich with opportunities
that lean management can addresstheyre
just as rich as in any classic value stream.
But the culture is different in IT, which is lled with
people who are more independent, generally more
introverted, and very narrow and deep in a
technical eld. As a result, getting them to see how
their work ts into a larger stream of activities
or asking them to work more collaboratively can be
more difcult at rst. Historically, IT professionals
have been supposed to solve their own problems
themselves, so the idea of sharing problems for
others to help solve is a radical change.
Then there is the question of metrics. Measuring
the output of other value streams or functions
is usually pretty clear: we can add up the number
of transactions or phone calls or open accounts,
then see how many we have completed and how
long each one took. Trying to evaluate indi-
vidual productivity in an application-development
project involving 25 people over three months
is a lot less clear. Its doable, but there is more of
a learning curve.
Now, having said that, IT is not only a rich target for
lean management but an absolutely critical
oneespecially in a business such as TD Ameri-
trades, which is mostly online. In this context,
IT gures highly in every area of the business that is
important to the client. If we say that we are client-
centric, we must engage IT deeply in the whole
system of activities.
Marv Adams: Even in my current position, I
cant simply push lean management into
an organization. Instead, I demonstrate my belief
that lean management is important by taking
the time to help senior managers understand it. I
also encourage people to go and see another
organization that is applying the same ideas. See-
ing it live and talking to the people involved
makes a huge difference in creating shared under-
standing and conviction to try it out.
Once an informal dialogue gets going, people start
to trust their colleagues a lot more. Hierarchies
start to level out. Respect for associates increases
with the recognition that they have valuable
insights. Managers come to realize that their
job is to create the conditions for drawing
those insights out, as opposed to giving top-
down direction.
Horizontal trust increases as people collaborate
more closely across organizational boundaries.
Not long ago, middle managers from two organi-
zations came forward and jointly recommended
moving hundreds of associates from the frst
organization to the second. The managers werent
thinking of turf anymore; they believed deeply
that the new confguration would lead to a better
client experience and, almost as an aside,
higher productivity. They came to value the system
as a whole more than their individual function.
Thats what I mean by stewardship.
McKinsey: How is lean management changing IT
at TD Ameritrade?
Marv Adams: The early indicators are promising.
In application development, for example,
were adapting rigorous methodologies such as
visual modeling, collaborative requirements
analysis, and more frequent iteration in the software-
development life cycle. Infrastructure operations
has created a single front door for requests,
together with clearer segmentation, better resource
pooling, and more accurate metrics for through-
put and productivity.
We expect to free up about 30 percent of our
capacity in both application development
and infrastructure. We have not yet decided on
whether to reinvest that capacity into faster
speed to market or to improve our efciency, but
we are excited that we will be running signicantly
more effectively than we ever have before.
McKinsey: And after IT?
Marv Adams: We will expand to other functions
such as HR and marketing. But whats even
more interesting to us is to surf the improvement
wave, expanding our ambitions as lean
management takes hold. For example, in IT the
transformation is already turning into an
important source of innovation. We recently held
a daylong hackapalooza to generate new IT
ideas, in which the best ideas won awards and are
on track for implementation.
29
And never underestimate the importance of
communication. Talk about it often and
consistently. And make sure you do it in a way
thats personal for your organization.
McKinsey: It sounds like trust also strengthens,
from bottom to top.
Marv Adams: Ive seen it at almost every huddle
I attend. When I ask our associates what they
like most about the changes, they talk about how
they see their managers more often; they see
their leaders more often; their ideas are being
heard. They feel like theyre taken seriously,
and thats really motivatingthey see that they
play a certain role, and they can better under-
stand the managers role as well.
McKinsey: What indicators do you follow to
evaluate progress?
Marv Adams: I look at how authentic peoples
beliefs arehow strongly they own the underlying
concepts. Very pragmatically, I want to see
that the design of the value stream and manage-
ment system refects a solid understanding
of lean management. Once the transformation
is under way, I look at how well the tools
match the designwhat information is used
daily, how managers and associates engage
in huddles, and whether problem-solving cycles
fully address the outcomes that matter most
to clients.
I want to see people connecting to a deeper
purpose. Recently I was in Omaha, where a single
huddle had identifed and fully implemented
some 51 ideas in the frst six months, out of a total
across the whole organization of about 500.
That level of energy tells me that continuous-
improvement engine is revving up.
McKinsey: What value should leaders expect
to see?
Marv Adams: The easy answer is productivity,
but another of lean managements virtues is that
productivity gains are actually a by-product
of other changes that are more signifcant and
lasting. For example, client-satisfaction rates
will improve because the client experience will be
simpler and better integrated.
Innovation improves as well, especially over time.
Initially the daily huddles will focus on problems,
but as those get resolved and associates gain
confdence, the discussions will turn more to new
ideas. At the same time, a simpler organization
with greater capacity will make it easier to bring
these innovations to market.
Risk controls also become more effective. Value-
less complexity obscures important sources
of risk. The exercise of identifying value streams
reveals the real sources of risk, allowing the
organization to realign its controls so they are
more targeted and effective.
As for the productivity side beneft, if an
organization hasnt previously implemented a lot
of effciency programs, its not uncommon to
free up 20, 40, or even 50 percent of labor capacity
in the frst year. The important difference
between lean management and the typical eff-
ciency program is what happens after the
initial burst. In an effciency program, not much
happens, whereas lean managements legacy
is the continuous-improvement engine,
which typically yields at least 5 percent further
improvement year after year.
But I would argue against launching a trans-
formation by setting an artifcial target for any of
these dimensions. The danger is that people
will then think that lean management is only for
achieving that single target. As a result, they
will implement lean management poorly, forget-
ting that the reason it works is that it is
a holistic system.
McKinsey: What two or three messages
would you want to give someone considering
lean management for the frst time in
their organization?
Marv Adams: I would tell them not to think
about lean management as yet another priority;
instead, think of it as a more effective way
of doing what you already do, so you can better
achieve your current priorities and take on
even more. The reason I say this is that in most
organizations, there are too many priorities
already. Lean management cannot succeed if it is
merely added to the stack.
I would also recommend putting your best
people on the team that spearheads the design
and deployment of value streams and lean-
management methodologies. Dont leave it to
managers who just happen to be available
or who may have done a process-improvement
program or two in the past. The people
heading the transformation must be respected
leaders from within the organization.
Its an exciting journey. People sometimes come
in with a preconception that processes are
boring, but I would say that lean management
will help you feel more connectedto your
Theres always a better
way. As a transformation
matures, it becomes
more important to challenge
your own methods.
31
companys purpose, to the people you lead, and
to your clients.
McKinsey: What would you say to someone
whos already pushing forward with lean
management and is wondering, What do I
do next?
Marv Adams: The short answer is that there is
no next, because lean management should
never go away. But people do wonder what more
they can do with it.
I see this as a matter of returning to frst
principles: the belief that theres always a better
way. As a transformation matures, it becomes
more important to challenge your own methods.
For example, we see a need to increase the
speed and scope of our problem solving across
the enterprise. Were therefore developing
more robust management systems for middle and
senior management.
We want to avoid setting too many top-down
goals, which could damage the bottom-up focus
that is the hallmark of lean management.
There is no value in lean for the sake of lean; the
goal must always be focused on the client.
McKinsey: Over your years of working
with lean management, what have been the most
powerful moments for you personally?
Marv Adams: A favorite is to participate in
a huddle thats really clicking. In senior-
management roles, its easy to think that your job
is all about sitting in your offce, reviewing
fnancial performance and making policy
decisions. But when you actually go out and see
associates taking care of clients and see how
much it means to them for you to be present and
to hear what theyre experiencing, it fips
your whole view of what effective leadership is
all about.
Another very satisfying aha moment is when
one of the leaders Im working with hits the
tipping point between complying with what they
think I want them to do and suddenly becoming
inspired. The level of energy is so terrifc;
then they come back and say, Everything you
told me would happen is happening, and more.
Ive seen that transition play out with almost
every senior leader Ive worked with. As crazy as
this may sound, I feel like Ive changed their
life in a positive and meaningful way. The results
that theyre going to be able to produce for
clients and the company are substantially greater
than what would have been possible before.
The fnal moment for me was seeing the dovetail
between simplifcation and innovation.
Getting rid of valueless complexity is a really
powerful opportunity to spur growth in
unexpected directions and further change the
company culture to support more new ideas.
This corrected version reects minor edits made in
January, 2014. Copyright 2014 McKinsey & Company.
All rights reserved.
Table of contents
32
Organizations that truly deliver
for customers know that understanding
what they want is only a frst step:
the whole enterprise must evolve to meet
customers priorities.
33
How often do organizations make the right
promises to customers, follow through on them,
and keep doing so year after year? Not nearly
as often as most would hope, despite the commit-
ment that so many organizations have made to
gathering and using customer insights.
Too often the data companies look to for these
insights do not help in making the operational
decisions that are crucial for customers to
get what they value. Moreover, the parts of the
organization that are most responsible for
turning promises into reality may be too rigid and
isolated from customers to respond quickly to
their changing circumstances. Not surprisingly,
everyone has heard stories about operations
teams that are in the dark about new marketing
strategies, resulting in confusion in the feld.
Lean management recognizes that to bridge the
gap, an organization not only must understand its
customers better but also, and equally impor-
tant, must better translate those insights across
the enterprise, so that all its operations more
closely match customers priorities. And as those
priorities evolve, so must the organizations,
as it continually searches for new ideas that
customers will see as further reason to do business
with it.
To reach that point, however, we fnd that the
typical organization must rethink how it looks at
customers and at itself, usually through three
stages: reorienting around the customers journey,
making that journey effortless, and engaging
emotionally with the customer throughout
the journey.
As a frst move, an organization focuses on the
basics: providing what customers want (and
not what they dont), how they want it, at the right
combination of quality and price, all while
minimizing resource use. It learns to view fulfll-
ment of customer promises not as a succession
of transactions or touchpoints, such as funding a
loan or answering a call-center request, but as
streams of value, or journeys, that have a start,
middle, and end, which carry the customer
from request through to fulfllment. Rearranging
how the organization operates so that these
journeys fow quickly and smoothly results in
greater stability, allowing the organization
to better balance its resources in response to
incoming workfow.
In competitive industries, just giving customers
what they say they want is no longer enough.
How begins to matter even more than what:
an organization that makes it easier for customers
to interact with it, or that provides more value
for the same cost, will tend to make inroads over
its peers. And by this stage, the lean organiza-
tions new capabilities allow it do more. Its journey
perspective matures, letting the organization
start to anticipate customer needs even before
customers are necessarily aware of them.
Rather than just provide the service the way cus-
tomers say they want it, the organization
can make the whole process effortless in ways the
customer might not have imagined.
A few organizations have reached an even more
powerful virtuous cycle that yields the greatest
competitive advantage. The systems that the
organization has built allow its people to develop
a deeper understanding of customer psychology,
to the point that they can move beyond
serving customers to engage emotionally with
themto making their experience of the
company memorable because it strengthens
an emotional connection.
Attaining even the frst stage will require time and
patience. A European energy company, described
Rodrigo Chaparro
Gazzo, Ignacio
Gorupicz,
Francisco Ortega,
and Alejandro
Sandoval
in more detail in The truth about customer expe-
rience, added 4 million in revenues just by
smoothing the process for customers who moved
their householdspart of a broader transfor-
mation that has netted more than 50 million.
Yet pushing further promises even better
results. One multinational fnancial institution,
for example, has spent the past several years
systematically building on earlier successes to raise
its customer-satisfaction scores in every segment
from retail customers to large corporations.
Understanding needs in
operational terms
Organizations now know more about their cus-
tomers than they ever have before. But despite
the technological and analytic breakthroughs that
have made amassing customer insights so
easy, the payoff has often been disappointing,
especially considering that less expensive
efforts can yield better results (see sidebar What
price loyalty?).
In our experience, problems with delivering for
customers result from a failure to align the
insights the organization is gathering with its
operational ecosystem. A South American
bank provides a typical example in its handling
of customer complaints: it spent enormous
amounts of time, money, and managerial energy
on defning different types of complaints with
almost-scientifc precision. But the outcome was
a list of some 1,300 different issues, each
with its own resolution process. For the frontline
employees trying to resolve complaints in branches
or over the phone, the list was of no useit left
them making vague, hollow-sounding promises of
when the bank might be able to address the
customers issue. And just keeping track of the
relevant information requirements became
almost impossible, multiplying the opportunities
for further error and delay.
Gathering and assessing dataeven with
unprecedented detailclearly was not suffcient
to address customer needs. The bank needed
a broader understanding both of the customers
experience and of its own operations so that it
could bring them into a closer balance.
Following a journey
Today, most organizations think of customer
interactions as individual interactions or
touchpoints, such as a customer lodging a com-
plaint or a credit review for a loan application
(this is also discussed in The truth about
customer experience). Touchpoints thus shape
organizational design, with employees
arranged into separate groups such as tellers
or customer service or underwriting.
But customers do not experience processes in this
way. They see a goal that they want to achieve,
and the steps matter only if they seem to get in
the way. The fact that the underwriting and
call-center units may be entirely distinct is irrele-
vant to the customer; from the customers
(and even the organizations) perspective, the
reason those units exist is that they are all involved
in approving her business loan.
Even tasks that seem purely transactional are
journeys, albeit simpler ones. And, like the
customer applying for a loan, the South American
banks customer with a complaint to resolve
was completely indifferent as to which internal
unit the resolution came from, so long as it
resolved the problem completely and quicklyin
other words, so long as it involved as few
obstacles as possible.
Unblocking value streams
The bank experiences the customers journey as
a value stream, or the sequence of activities
involved in providing a servicein this case,
35 The untapped potential from delivering for customers
resolving the customers problem. The obstacles
that customers can see on their journeys,
such as long wait times for complaint resolution,
block value streams and, in many cases, the
creation of value as well.
Furthermore, visible obstacles are usually only
symptoms of much deeper issues that the
organization must address (see Building a
problem-solving culture that lasts). Lean man-
agement thus provides a comprehensive
series of diagnostics that assess value streams
from start to fnish, uncovering blockages.
It then builds new capabilities that reduce the
blockages and create capacity so that the
organization can handle more volume, defne
One of the central questions that organizations
confront in thinking about customer experience is
return on investmenthow likely is it that the
investment will create loyalty, and how does that
loyalty translate into revenue?
For many organizations, skepticism on both points
keeps them from committing more deeply to
improving customer experience, instead keeping it
as more of a marketing exercise than a source of
real operational or strategic insight. Perhaps it is no
surprise, then, that despite years of promising
customer centricity, meeting customers expecta-
tions still represents a huge challenge for many
organizationsand, in far too many cases, a huge
change. In the United States, for example,
the American Customer Satisfaction Index
1
tracks
sector and company customer-service survey
scores from 1994 to the present. Over that period,
scores in sectors such as nance, retail, and
air transport barely budged, even though their
baselines were all well below 80 on the 100-point
scale. Indeed, the highest scores were in
mature manufacturing industries such as auto-
motive, personal care, and televisions and
video players.
2
What price loyalty?
This period also saw an explosion in customer
data, with the rise of the Internet providing unprec-
edented opportunities to assess how customers
really behavewhat information they use, which
product combinations they want, how they
respond to different prices. Yet the fact that cus-
tomer satisfaction has barely moved suggests
a deep disconnect between customers and the
organizations trying to serve them, one
that even todays customer insights cannot
alone address.
While teasing out the long-term effects of
greater loyalty is inherently difcult, organizations
that manage to strengthen customer experience
are seeing encouraging results, and often
with only modest nancial outlays. At a European
bank, for example, delays in processing
commercial loans had led customers to abandon
8 percent of loan applications before com-
pletion. Targeted changes that sped up response
times largely eliminated that type of leakage.
Similarly, customer-experience investments at an
emerging-market credit-card operation
reduced its churn rate by more than 30 percent,
while also increasing sales of other products.
1
A collaboration among the
American Society for Quality,
CFI Group, and the
University of Michigan Ross
School of Business.
2
National, Sector, and Industry
Benchmarks, American
Customer Satisfaction Index,
October 2013 (theacsi.org).
new ways of working, or have time for other
activities altogether, such as long-term strategic
initiatives or innovation opportunities.
Value-stream mapping
1
shows, for example,
where two different functions involved in
a process use the same information but fail to
share it, resulting in two identical queries
to the customer. Touch-time data highlight the
gaps between the amount of time a customer
request is actually worked on (or touched) and
the amount of time it spends not being worked
on. From the results of these and other analyses,
the organization can create an end-to-end
map of value streams that correlates much more
closely with the customers view. Rather than
centering its attention on a relationship-manager
team, a credit department, a compliance group,
and a funding desk, a bank can begin to see
how each unit helpsor hindersa business-
loan application.
In parallel, the organization must also improve
how it handles its day-to-day tasks. The
most urgent is more sophisticated demand and
capacity management at every step in a journey,
1
This is also known as
material and information
fow analysis, or MIFA.
In turning customer insights into a new operational
design, one of the most important tasks is
better management of capacity. That comprises
four elements: tighter management of demand,
a more exible operating system, agile matching of
supply to demand, and transparent performance
metrics. Together the four make it possible for the
organization to meet customer demand at
the optimal junction of quantity, quality, speed,
and cost.
The rst element, rigorous and frequent analysis
of demand, eliminates items with low value
to customers and, where possible, smooths the
arrival of demand to reduce variability and
operational strain, while building exibility to
accommodate the variability that cannot be elimi-
nated. The organization will need accurate,
responsive tools for tracking demand in detail; for
insurance claim processing, for example,
this would start with arrival patterns for claims by
Building capacity
customer segment, type of claim, and region. The
data might show that, for most of the year, auto-
property-damage claims in the Southeast average
10,000 per month but spike to 15,000 per
month in the winter. Meanwhile, in the North
Central region, the same claims average 8,000 per
month but spike to 12,000 during summer
storms. The organization can then build baseload
teams that handle the constant numbers,
while cross-training a peak team to provide
supplemental coverage for each regions
peak season.
Counterintuitively, exibility depends to a great
degree on standardization. By developing
standard work documents that codify employees
best practices, the organization enables all
employees to improve the quality, quantity, and
speed of their work, while making it easier for
managers to move tasks from one employee to
another as demand and capacity shift
37
so that the organization can match its resources
more effectively to the dynamics of the actual
work. Ideally, the organization wants suffcient
fexibility so that it can fulfll its promise to
each customer by having the right person available
at the right time to work on that customers
demand (see sidebar Building capacity).
That takes effort. But it usually creates additional
time as well, which the organization can devote
to additional problem solving and cross-training
measures that, in turn, help improve quality
management, production fow, and fulfllment
practices. The result is tighter resource utilization
and better responsiveness to customers.
Once the South American bank realized that
its elaborate complaint classifcations did not
work in a way that made commercial or
operational sense, it completely reassessed its
approach in a way that let it improve on its
customer promises. Rather than defning each
specifc complaint type, the new focus would
be on channeling complaints to the employees
best able to resolve them quickly and
completelyan especially powerful technique
The untapped potential from delivering for customers
whether because of normal variation or because of
unexpected events. Likewise, employee skills will
require standard denitions, along with monitoring
as employees learn more. From that, the organ-
ization can develop a skills matrix that summarizes
the total skills available at any point in time,
highlighting any priority areas for additional training.
The combination allowed a European nancial
institution to meet a sudden spike in demand for
one of its products by reallocating personnel that it
already knew had the right advanced training.
On a daily basis, line managers will need a dened
method for estimating resource requirements
and making adjustments as circumstances evolve.
Ideally, a step-by-step guide will help these
managers set up their team each day, based on
demand forecasts, the skills matrix, and resource
availability. A more detailed planning tool will
translate actual volume data into stafng require-
ments, with indicators showing how well
demand is being met so that the managers can
easily see which areas are over or under capacity.
More-senior managers, with the crucial task
of balancing resources among teams, will then
follow up with quick huddles over the course
of the day, reallocating work or stafng as needed
depending on current conditions.
The nal component, performance metrics, provides
crucial reinforcement by helping dene targets
and supporting capability and capacity. The data
underpin daily meetings that review previous
performance, uncover problems, and identify poten-
tial best practices that others can learn from.
And they inform the regular dialogues between
managers and employees, in which man-
agers check processes and help employees build
their skills.
in service environments where, as this bank
discovered, other forms of segmentation prove
too complex.
For simpler complaints, frontline employees
in branches and call centers would provide the
solution on the spot. If a complaint required
somewhat more work, the front line would refer it
to a resolution team and promise a response
in two days. Those two categories accounted for
almost all complaints. Only the most complex
issuessuch as ones that raised legal or compli-
ance issueswould go to specialists in the
relevant felds, where resolution might take fve
days. The result reduced delays by 70 percent
and allowed the bank to cancel a costly upgrade it
had planned for its customer e-mail system.
Further horizons
Once all of these elements are stable throughout
an organization, everyone from the call-center
operator to the leader of the business begins to
think and feel as the customer thinks and
feels. The organization can now fnd new oppor-
tunities to improve on the value it provides;
as performance increases, its people will start to
ask what is keeping it from performing still better
(see Performance from problem solving: An
interview with three leaders at MassMutual). In
the nearer term, the ensuing changes can make
customers experience effortless; eventually it can
engage their emotions in a way that promotes
a deep relationship.
Making it effortless
By increasing its analytic capabilities to cover
more data sources and better integrate their
fndings, the organization can begin to anticipate
customer needs before they surface. Some
of these moves may rely on technology and big-
data investments, such as the location-based
coupons that credit-card issuers in some markets
are already offering to smartphone userswalk
past a restaurant at dinnertime and receive a text
message with the nights drink specials. But
others require not much more than better use of
the data that many organizations already have.
Small changes can add up. At the multinational
bank mentioned earlier, customers dialing in
from mobile phones had a diffcult time entering
their full account numbers for verifcation. The
bank found that it could achieve the same level of
security by requiring only the last four digits,
reducing customer burden and call length simul-
taneously. It later extended the four-digit
approach across all customers and platforms
for even greater simplifcation.
Other organizations are now flling in application
forms using data they have already collected
from their customers. The next step is to refne
the underlying processes even further to
refect deeper understandings of the customer.
By increasing its analytic
capabilities to cover more data
sources and better integrate
their fndings, the organization
can begin to anticipate
customer needs before
they surface.
39
For example, frst-time mortgage customers
are likely to need much more help than
customers who have already had at least one
mortgage. For experienced customers,
lenders could offer faster turnaround with con-
solidated data requests, while frst-time
customers would follow the detailed step-by-step
process and receive extra hand-holding.
Once the mortgage closes, the bank could offer
to monitor the customers direct-deposit
history and credit rating, together with interest
rates, to see when the customer might qualify
to refnance at a lower rate.
Engaging customers emotionally
A few highly advanced organizations, where
customer insights, demand and capacity manage-
ment, and related capabilities have attained real
maturity and reliability, push customer delivery
to its ultimate end: a connection that thrives
at an emotional level. In a sense, these organiza-
tions are able to achieve at large scale the
kind of connection that typically can occur only
among networks of people who know each
other exceptionally well, such as the US credit
unions that perpetually outscore national
banks in customer-satisfaction surveys.
2

The achievements rest on the realization that
emotional engagement is replicableits a matter
of refning procedures to include emotional
elements, much in the way that salespeople learn
to listen for small changes in a customers voice
to know when to make an offer. What is crucial is
that the additional elements feel genuine both
to the employee and the customer. So long as they
do, emotional procedures can go through the
same cycle of training, practice, evaluation, and
improvement as would any others.
The multinational bank from the earlier examples
is successfully following this idea after it
revamped its branch organization several years
ago. With competition in its home market
intensifying, the banks leaders recognized that
the institution still had substantial room to
improve its customer service. The mantra became
not just satisfying customers but also making
them feel heard and appreciated.
Everyone who might interact with a customer,
from security guards through to senior managers,
now gets training in emotional awarenessin
recognizing and responding to customers who
are upset at a fnancial problem or excited about
a new job. Greater emotional insight carries
through to process design as well. Rather than
just looking for new ways to reduce wait
times in branches, the bank sought ways to make
the remaining wait time more enjoyable.
Frontline employees bring emotional awareness
into recognizing and solving customer prob-
lems: they helped establish a new procedure
allowing customers to enter a branch shortly after
closing time if employees can tell that the
need is truly urgent, such as cashing a paycheck.
Employees can likewise give a one-time
waiver of credit limit to help a customer in crisis,
cementing loyalty at a particularly intense
moment of truth.
The untapped potential from delivering for customers
2
ACSI Finance and Insurance
Report 2012, American
Customer Satisfaction Index,
December 11, 2012
(theacsi.org).
The larger result is a highly predictable experience
in which customers know in advance that the bank
will follow through on its promises. Customer
satisfaction has risen by between 5 and 13 percent
in a single year. For every segment, it is now the
most-referred bank in its home market.
Delivering consistently for customers requires
much more than simply understanding them. It
means making the much deeper transforma-
tion that brings all of the other lean-management
disciplines togetherdeveloping people, fnding
new ways of working, and connecting strategy,
goals, and meaningful purpose. That combination
is what makes it possible for the organization
to fulfll all of the promises that together consti-
tute a customer relationship.
Rodrigo Chaparro Gazzo is a principal in McKinseys
Paris ofce; Ignacio Gorupicz is an associate principal in
the Buenos Aires ofce, where Francisco Ortega
and Alejandro Sandoval are principals. Copyright 2014
McKinsey & Company. All rights reserved.
Table of contents
41
An expanded view of customer service
has improved customer satisfaction,
employee engagement, and sales at one
of the largest US banks.
valuedand valuable
An interview with Peg Marty, EVP and head of contact centers
of RBS Citizens Financial Group
With $118 billion in assets and fve million
consumer and business customers, RBS Citizens
Financial Group (Citizens) is among the
largest commercial bank holding companies
in the United States. Based in Providence,
Rhode Island, Citizens and its subsidiaries com-
prise a network of approximately 1,400 branches,
3,600 ATMs, and 19,500 employees.
Since 2010, Citizens has undertaken a wide-
ranging transformation of its banking channels
and operations, with an emphasis on cus-
tomer service. As a result, one of the frst areas
to be transformed was the Citizens customer-
contact organization, led by Margaret (Peg)
Marty, executive vice president and head
of contact centers.
In her current role, Ms. Marty is responsible
for all customer-service operations, including
strategic planning, and leads a team of
950 customer-service professionals who feld
12 million consumer inquiries annually.
We spoke with her at the Citizens offces in
Cranston, Rhode Island.
McKinsey: What was your reaction when you
frst heard about lean management?
Peg Marty: It looked like a great system, but I
wondered how we would fnd the capacity
for it. At the time, we had so many separate
projects under waytechnology projects,
customer-transformation projects, capability-
building projectsand lean management
looked like one more item to add to the list.
But as I learned more, it became clear that lean
managements focus on the customer would help
us get more out of those other efforts as well.
And it would give us a very practical, tangible way
to integrate all of the changes for managers and
frontline colleagues. We would be able to
capture more value from the whole portfolio
of improvement investments that we
were making.
McKinsey: Now that Citizens has been through
the frst couple of years of its transformation,
how would you describe the process of adapting
lean management to Citizens? How did it
change over time?
Peg Marty: Our aspiration throughout has been
to enable every single colleague to play a role in
the success of the business. As weve learned more
about what we can do with lean management,
weve been able to do more to meet that aspiration.
Weve expanded our defnition of great service,
and now were also expanding beyond the tradi-
tional boundaries of our organization. It
is all about making each customer interaction
simple, clear, and personal.
McKinsey: What challenges has Citizens faced
as its aspirations grew?
Peg Marty: This has been a major change in
our customer-service approach. Before we started
our transformation, our service operation was
designed to answer the customers question and
provide basic service. Thats not an incorrect
modelproviding quality answers is important
but we knew that we were missing a lot of
opportunities to help customers with solutions
that were broader based. We started to
wonder about how we could incorporate products
into discussions with customers.
People call the approach service to sales,
but sales can feel uncomfortable to colleagues
who dont view themselves as salespeople.
We understood that some people would naturally
resist, thinking that sales was not something
43
they could learn or that it was more important
just to answer the immediate service question.
We therefore restated the goal as one of
providing product-based solutions, explaining
that while some answers require only infor-
mation, others involve educating the customer on
different ways that the bank can help them
with new products and services. For example, if
the customer mentions something about his
or her children, theres a natural transition to
discussing a savings account for college.
We also expanded our training with detailed
role playing and new procedures to help
colleagues build their skills. New metrics and
communications reinforced the value of
the revised model in improving our customer
service. And we incorporated the ongoing
change initiatives into the transformation so that
they became a part of the new model.
Gradually, people who at frst said that they could
never sell realized that they were already
selling. We just gave them the knowledge, skills,
and confdence to sell more frequently.
McKinsey: Do you see a difference in the
sales fgures?
Peg Marty: Yes, we have seen a signifcant
increase in both new-product sales and
cross-sales for important services that improve
customer engagement and retention.
McKinsey: Do you tell frontline colleagues what
to sell?
Peg Marty: No. Because our customers needs
are constantly changing, its impossible for us to
assume that we can know exactly what every
one of them wants. Rather than try to prescribe
Margaret (Peg) Marty
Margaret (Peg) Marty, executive vice president and head of contact centers
for RBS Citizens Financial Group (Citizens), has more than 30 years of
banking experience. She assumed her current position in 2008 after serving
as a retail director for Citizens for seven years. Before joining Citizens in
2001, she worked for FleetBoston Financial, where she was director of project
planning and administration for the retail delivery group. Ms. Marty holds
a bachelors degree in nance and nancial-management services from
Northeastern University.
Making customers more valuedand valuable
every answer, we want our colleagues to have
enough understanding so that they can customize
the experience for that individual customer.
That means we want people to know not only
what to do but why. Colleagues who comply with
requirements without understanding why
will do their work mechanically. A colleague who
understands why will be engaged in a way
that feels special to the customer.
McKinsey: What happens for the exceptions,
when the customer issue involves more than the
frontline colleague can address?
Peg Marty: Complex products, such as mort-
gages, require specialized service, and of
course certain investment products can be offered
only by licensed specialists. We revamped our
incentive programs to reward frontline colleagues
not only for their direct sales but for their
referrals as well. And we built back-end tracking
to create a continuous feedback loop about
the quality of those referrals, to see how many of
them closed and how the experience was for
the customers.
McKinsey: And if there doesnt seem to be
a solution for the customer?
Peg Marty: All colleagues keep a tracking sheet
to record any time that they cant solve the
customer issue by themselvesif they had to
transfer the customer or if they had to say
no. Even if that transfer or no is within policy
guidelines, we want to understand how often
that happens and why so that we can improve
the process for the customer. The colleague
makes a notation and then brings the tracking
sheet to the huddle the next morning.
The huddle is where colleagues and managers
discuss the previous days performance.
The metrics all take the customers point of view:
rather than average handle time, we talk
about valuing the customers time. As issues
come up, managers will triage them and
address those related to skill or knowledge imme-
diately. Issues related to policy or procedure,
or something that just isnt working the way it
should, all get raised through our problem-
solving process.
Those items go on the huddle board at the team
level. The team leader will then assign people to do
further investigation. If the problem is bigger
than the team can handle, the team leader brings
it to the group-leader huddle board that day,
and then the team leaders and group leader can
work together to try to solve the problem.
In addition, we collect all of the problems on a
separate problem board, which is the basis
for weekly root-cause problem-solving sessions
at each tier of our organization.
If a problem is not within the groups control
to fx, then the lean sustain teama small group
of lean-management specialistswill take
over and make cross-functional team meetings
We want people to know not
only what to do but why.
A colleague who understands
why will be engaged in
a way that feels special to
the customer.
45 Making customers more valuedand valuable
to ensure the problem is resolved appropriately.
The most diffcult problems ultimately come
to my desk or the head of our operations group,
and either of us can escalate them to senior
leadership if necessary.
McKinsey: How do you make sure that
all of your colleaguesincluding leaders and
managerskeep to these routines?
Peg Marty: Fundamentally, there is no single
aspect of lean management that makes it all
possible. Instead, all of the elementsthe voice of
the customer, the colleague engagement, the
tools, the problem solving, and our visionwork
together to excite people about wanting to
work differently.
But I would also say that a major part of
the answer is our measuring and tracking of our
lean-management discipline. For example, we
worked hard to free up our managers time so that
they could spend 60 percent of their days on
coaching rather than on fling low-value reports
or completing non-customer-related work
that others are better positioned to address. The
team huddle board therefore shows how
much time the manager spends on coaching. We
reinforce this accountability at every level:
each manager, starting from me, is responsible
for coaching and for making sure that the
managers who report to us are, in turn, coaching
the managers and colleagues who report to
them, all the way to the front line.
We also track our process confrmationsthe
meetings that managers hold with their
immediate reports to confrm that everyone is
following the same standards. Each manager
now has a separate board that shows how many
process confrmations he or she has con-
ducted this week. And we assess quality by
completing skip level confrmations
between a senior manager and someone several
levels away. I do some myself. If a process
confrmation that I hold with a frontline manager
reveals gaps in meeting a standard, I may
need to work with the managers in between to
see if theres a bigger issue.
McKinsey: Where do you fnd the time?
Peg Marty: Customer experience is the one
thing that I am most accountable for. And
the only way I can know whether our customer
experience is what it needs to be is to invest
the time in understanding how our customers
are being treated and how we are handling
customer interactions.
McKinsey: Once a problem is solved, how do
you communicate it back to the colleagues who
frst raised the issue?
Peg Marty: Most important, if the resolution
involves changing a standard operating procedure,
we involve the original team in designing and
testing the solution. The people who frst reported
the problem have the chance to see how
the solution works with customers and can
help improve it.
In some ways, that is the ultimate recognition
we can give. People can tell themselves,
Not only did I bring this up, but I was part of
the change.
McKinsey: Are there still times when there is
no solution?
Peg Marty: Rarely, but even then we make sure
to communicate with the colleagues who raised
the issue. We explain why we are unable to
change right nowwhether because of a regulatory
issue or some other reasonand we try to fnd
ways to make the process better for the customer.
We help colleagues frame the conversation
with alternatives, so that neither the colleague
nor the customer feels like we are simply
saying no and closing the door.
McKinsey: How do you fnd the right words
for that?
Peg Marty: We rely a lot on the colleagues them-
selves to come up with the phrases and test
them to see how they work. It is important that
we remain simple, clear, and personal in our
messages to customersand the colleagues who
speak with customers every day are our
best resource.
McKinsey: Does it feel comfortable to you to
rely on the front line in that way?
Peg Marty: Empowering our service teams to
fnd solutions without immediately judging
quality is sometimes the hardest thing to do, but
we know it is the right thing. We test our ideas,
recognizing that not every idea is right in its initial
thinking. But if its allowed to breathe and
take life, if everyone gets a chance to improve it
through trial and error, it can become the best
outcome for our customers.
In some ways, it might be easier for me to step in
and defne the solution for the team, but that
would be a mistake. The people who are closest to
the customer know best and are now encouraged
and enabled to identify solutions.
McKinsey: What does this capability mean for
the bank?
Peg Marty: As the contact center, one of our
roles is to serve as a sort of listening post for our
customers, which can help guide improvement
almost everywhere in the bank. If, for instance,
our frontline colleagues have an idea for
how to make a new product easier to understand,
we can provide recordings to the product-
development team to show where customers are
struggling and how a different approach
might increase sales.
In one situation, we let our technology partners
know about new functionality that customers
wanted to have included as part of the interactive-
voice-response (IVR) system. Once the IVR
had the additional information, we saw a signif-
cant drop in the number of calls that we
handle manually.
Before lean management, our IVR completion
rate was already competitive with leading
US retail banks. As a result, with every percentage
point that our IVR completion rate increases,
we see a bigger and bigger impact on our remain-
ing total call volume. The improvements that
we have deployed over the last few years have
raised our IVR completion by 200 basis
points, reducing our agent-assisted call volume
by about 8 percent.
McKinsey: Are people able to keep up with the
pace of change?
Peg Marty: We know change can be overwhelm-
ing, and so we always make a point of telling
everyone why were making a changewhy the
change is important and will help our cus-
tomers and colleagues. People now expect to hear
these explanations, and when they do, they are
willing to make changes (see sidebar The trans-
formation story in The aligned organization).
McKinsey: What differences do you see in how
colleagues work with customers?
47 Making customers more valuedand valuable
Peg Marty: Before, we relied much more
heavily on specialists, so customers who needed
multiple services ended up getting passed
from one specialist to another. Now, the tools
and skills we built in the lean-management
program have given our generalists a wider range
of options for helping customers. That lets
them take ownership for a solution from start
to fnish.
The handle time per call is a little bit longer,
but the experience is much better for the
customer and we have more fexibility in our
staffng. The employees are also more engaged:
they view themselves as advisers rather
than just service providers.
McKinsey: What other types of impact have
you seen?
Peg Marty: On the surface, we saw a number of
easily measured improvements in areas such
as productivity and sales. But to me, two deeper
changes are much more important. The frst
is that every single manager in the contact center
now understands how to do the right thing
for the customer. And the second is the level of
engagement and empowerment I see among
the frontline colleagues who speak with
customers every day.
Those two improvements have so many additional
effects. Colleague retention has increased.
People are more willing to take on additional
responsibilities, allowing us to rely less
on external recruiting and more on internal
promotion. And as an organization, we are
becoming more fexible and adaptable. Offcially,
we redefne our plan every six months, but
quite honestly, we redefne it every day. And we
can change every day if we need to.
McKinsey: Does that include the banks external
partners, such as third-party call centers?
Peg Marty: Increasingly it does. Although our
partners have not been through the full lean
transformation, everyone now follows the same
basic processes, and their call-center man-
agers have completed much of the same training
that we give managers in our own call centers.
In fact, we fnd that the most signifcant customer-
experience improvements have been in the calls
that our third-party provider handles.
McKinsey: What are some of the next opportu-
nities for lean management at Citizens?
Peg Marty: We are doing more to improve
our management systems. For example, we revised
the format and focus of the huddle boards to
put even more emphasis on the customer metrics
that agents and teams can be accountable
for, rather than slow-changing metrics that relate
more to managing the bank as a whole. We
are simplifying our incentive formulas so that
they are easier to understand and to train
toward. And we are supporting a much broader
integration of the customer experience
across the entire relationshipall contact centers,
channels, and products. Its a living process,
constantly changing, testing, listening,
and learning.
Table of contents
48
Axis Banks Shikhar transformation
has reduced customer wait time for loans
by 30 to 70 percent, while its total
book has risen by almost 50 percenteven
as hiring and IT investment remain
almost fat. Employee quality of life has
improved, too.
Indias Axis Bank
An interview with Jairam Sridharan, president of consumer lending
49
As one of Indias leading nancial
institutions, Axis Bank has shown extraor-
dinary growth over the last fve years, expanding
from about 800 branches, 3,500 ATMs,
and $1.35 billion in revenue in 2008 to more
than 2,000 branches, 11,000 ATMs, and
$2.5 billion in revenue in 2013.
The banks consumer-lending operation has
grown even more rapidly, from launch in 2006 to
a consumer-loan portfolio of almost $9 billion
in 2013. Leading the business is Jairam Sridharan,
president and head of consumer lending and
payments for Axis Bank.
Mr. Sridharan spoke with McKinsey from his
offces in Mumbai.
McKinsey: Rapid growth in consumer lending
is a challenge that many institutions around
the world would love to have. What were some of
the specifc issues that Axis Bank started to see?
Jairam Sridharan: With the business growing
at a much faster pace, we realized it was becoming
increasingly diffcult to offer customers the
turnaround times they wanted. Too many errors
were creeping into our processes, and when
we looked more closely, we saw huge geographic
variations in how we were serving customers.
Two customers with the same basic profle, buying
the same kind of product, would have completely
different experiences if one were in Gurgaon and
the other in Bangalore.
In general, we seemed to lack a standard Axis
way of doing things. Because we were growing
fast and hiring all across the country at once, our
people were bringing with them a potpourri
of different processes that they had been exposed
to in their previous jobs. As a result, teams
were not working effectively together, with too
much fnger-pointing among the sales, credit,
operations, and customer-service teams whenever
problems came up.
McKinsey: Were people at least trying to fx
the problems?
Jairam Sridharan: They were, but it was all
very seat-of-the-pants. Restructuring the
organization had little effect. We then thought
that additional hiring might help us reduce
turnaround times, but we later realized that the
extra people might actually have made the
problem worse. The next idea was a rotation
program in which we transferred managers
who were doing well in one region to a lower-
performing region to see if they could work
their magic. That wasnt sustainable either: with
so much variation between regions, new
managers ended up spending too much time just
fguring out how the new region operated.
Trying all of these different ideas ultimately
made us realize we needed a more system-
atic approach.
McKinsey: What brought lean management to
your attention?
Jairam Sridharan: I had seen lean in action
at my previous organizations. So when we
started discussing the challenges we had, lean
management seemed like a ft. In addition,
my team and I visited a fnancial-services
company in the Middle Eastone that had been
through its own transformation and had
achieved some real breakthroughs. That gave me
further conviction that lean would be the
right approach for Axis as well.
McKinsey: What led you to start with the
loan-disbursement process?
Jairam Sridharan: We knew that buying a
mortgage is one of the most crucial experiences
a customer has in forming an opinion of a
bank. And we knew that customer acquisition and
onboardingthe very frst step in that process
needed work. We thought that tackling this issue
head-on would buy us a lot of goodwill, with the
potential for quick returns if customers who were
happy with us felt confdent enough to deepen
their relationship through additional products.
McKinsey: What did the mortgage process look
like at that time?
Jairam Sridharan: The frst big surprise was
that the complete process wasnt laid out on paper
anywhere. Everybody had in their heads how the
process was supposed to work, but no one
had taken the time to document it, especially as it
evolved over time.
That led to still more surprises. We recorded
everything that happened to a customers
fle from the time when the customer made frst
contact to when the loan was fully approved
and disbursed. We found that the average fle
went through more than 30 separate hand-offs; if
someone had asked me before we fnished this
analysis, I would have guessed 5 or 6 hand-offs at
the most. And much of what was going on
was reworkchecking data, rechecking data, going
back to the customer for more documentation.
McKinsey: What was the process like
for employees?
Jairam Sridharan: We took a camera to our
processing centers to take photos and videos of
the work environment. That was another
eye-opener. When we presented these to our CEO
and leadership team, they were shocked. Is
it always that noisy? Why are there so many
stacks of fles? Its so crowdedwhat are
all these people doing, exactly?
For some of us in senior management, this was
effectively the frst time that we were seeing
what the centers were really like. In the past, every
time we would visit a particular center, it would
magically clean up.
Jairam Sridharan
Jairam Sridharan became president and head of consumer lending and
payments at Axis Bank in June 2013, after spending three years as senior vice
president. Earlier in his career, he served in a range of domestic and
international retail-nance roles at ICICI Bank and Capital One Financial. Mr.
Sridharan holds a B.Tech degree from the Indian Institute of Technology, Delhi,
and an MBA from the Indian Institute of Management, Calcutta.
51 Forging an identity at Indias Axis Bank
McKinsey: Like a visit from the queen.
Jairam Sridharan: Exactly! On that type of
formal visit, you get the impression that everything
is working perfectly. But when the senior
managers arent there, when its just the local
managers and workforce, its a completely
different story. We could fnally see how hap-
hazard everything was.
McKinsey: What effect did that realization have
on the Axis leadership?
Jairam Sridharan: The penny dropped
for us: we knew we needed to clean things up.
And we had the CEOs support, which
was critical.
McKinsey: What did clean things up mean
to you?
Jairam Sridharan: We could see some of
the reasons that turnaround times were too long.
The question was what to do. So often, people
look to IT for a solution, thinking that some big
automation or customer-relationship-
management system will make everything
better. But we came to recognize that
the problem was our processtoo many hand-offs,
too much rework. If we fxed the process,
we could get much better outcomes using the
same technologies.
McKinsey: There were no major IT investments?
Jairam Sridharan: No. We made a conscious
choice not to make any big-ticket investments in
technologyor in infrastructure, for that
matter. We wanted to go back to basics; our idea
was to reduce the complexity in our processes,
not to try to automate them or build new offces
to house them in.
It doesnt require any additional technology
to do our work in the simplest possible way. And
it doesnt require the whole offce layout to be
changed; just moving a few people can be enough
to make hand-offs a lot cleaner.
McKinsey: That sort of decision certainly helps
manage constraints.
Jairam Sridharan: Yes. At other organizations,
any major initiative would have a big IT
component. But once we saw how much we
could achieve by removing bottlenecks
and helping teams work better with one another,
IT and infrastructure changes no longer
seemed necessary.
McKinsey: Were there any ways that you
adapted lean management to the India context?
Jairam Sridharan: There were a few, mostly
minor. One was in the name we chose for
our transformation. We wanted to refect our
aspirations and our culture in a way that
would connect emotionally with our people.
So rather than use an English word or
an acronym, we chose to call the effort Shikhar,
which is Hindi for mountaintop or peak.
McKinsey: What other changes did you make
as Shikhar evolved?
Jairam Sridharan: Very early on, in the region
where we were frst testing Shikhar, one of
the most diffcult issues we faced was with our
best sales performers. These were the people
who fgured out how to deal with our old pro-
cesses; they knew whom to talk to and
how to hustle their way around obstacles. And
they were turning in great numbers month
after monththis was the top sales region in
the country.
Now we were saying, All of that subjectivity
and wiggle room that helped you in the past is
going to disappear and be replaced by
standardized processes. Naturally, some people
didnt like it; to them, there was nothing
wrong with the old way.
McKinsey: How did you convince them?
Jairam Sridharan: We told them Shikhar would
help them do even better. If they were doing
100 crore rupees
1
in business before, their new
target would be to double that fgure in six
months, with no additional staff.
Once we gave them a challenge, they quickly
began to realize how much time they had
been wasting on rework. That got them on board
pretty quickly.
McKinsey: How did you extend Shikhar to
other regions?
Jairam Sridharan: We started by exposing all
of the regional heads to what was happening
in the test region. After a couple of days visiting
the transformed sites, seeing the results,
the lightbulbs started to go off. Soon everyone
was clamoring to go next.
We also decided we could not ask line managers
to implement Shikhar on their own. So we
put together a transformation team, which we
call our Shikhar Implementation Offce.
We ran a very public process of inviting and
interviewing applicants, who would have
more access to leaders and the potential to
accelerate their careers. With that, we
were able to handpick some exceptional people
to help roll Shikhar out across the bank. If
anything, we might have taken that step even
earlier in the transformation.
As we added regions, I relied more and more on
my direct reports and senior management to
step up as champions for Shikhar. The effort was
fairly intense at frst, but it has eased now that
Shikhar is sustaining itself through much more of
the organization.
McKinsey: How do you handle the transition
from the transformation team back to the
line manager?
Jairam Sridharan: At frst, line managers
needed help to see that Shikhar was not just some
program from the corporate offceit is
fundamentally their program, their opportunity
to show how successful they can be. Once
1
One billion Indian rupees,
or approximately $16 million
as of October 2013.
53 Forging an identity at Indias Axis Bank
70 percent. Customers are spending many fewer
days waiting than they did before.
McKinsey: What effect has that change had on
customer-satisfaction fgures?
Jairam Sridharan: We have seen a signifcant
improvement in acquisition and onboarding and
even better results as Shikhar expanded to
other areas of the bankespecially in handling
customer-service requests.
McKinsey: How is the organization responding?
Jairam Sridharan: There are some obvious
improvements. Productivity is one: the capacity of
our transformed teams has risen by about
40 percent. As a direct result, we have grown our
book by 50 percent with almost no additional
hiring in the processing centers.
Other parts of the bankfor example, branch
managers on the deposit side of the businessare
much more willing to share lending leads with us
because they are confdent in our ability to
execute. Were seeing a similar shift among our
external partners, including real-estate brokers
and auto dealers, now that we have brought
them in to see our offces and shown how our
process works.
The standardization that Shikhar has brought us
also means that we can start a much more
robust mobility program. Instead of spending
weeks coming up to speed, transferred
managers can be effective in their new roles
almost from the start.
For me, the strongest indicators of success
are what I hear from our people. People who join
us from other banks immediately notice how
much more they can get done at Axis than they
they understand that they arent just facilitating
somebody elses transformation but need to
lead it themselves, their behavior totally changes.
You see much more energy, passiona much
greater willingness to push back when they think
an idea doesnt work for their group and to
innovate until the idea does work.
McKinsey: What has Shikhar meant
for customers?
Jairam Sridharan: The customer experience is
very different now, much more predictable. When
a loan applicant comes in for the frst time, the
sales agent presents a simple checklist of all of the
required documents, adapted for the type of
customer and loan. The list clearly says when the
documents are neededwhich ones immediately
and which ones after the loan is approved.
That step alone eliminates a huge amount of
rework because theres usually no need to
go back to the customer for missing documents.
The agent will then give the customer
a specifc date for when to expect a status
report via text message.
McKinsey: How long does the process take now
as opposed to before?
Jairam Sridharan: For loan disbursement, we
reduced the time required by 30 to 50 percent,
depending on the product. For unsecured loans,
the reduction is even greater: approximately
To me, the biggest change is
the dignity that Shikhar has
given to every job here.
could at their prior jobs and invariably refer
to Shikhar as what differentiates Axis from other
institutions. And it sounds minor, but its
quite important: people go home on time, even
at month-end. They are no longer killing
themselves to meet their monthly targets.
McKinsey: As a leader, what changes would you
say make the biggest difference to your people?
Jairam Sridharan: To me, the biggest change
is the dignity that Shikhar has given to
every job here. Before Shikhar, the criterion
people were really interested in was our
sales numbers, so all of the glory went to the
sales team. In the new world, in which
metrics such as turnaround time and frst time
right get as much attention as sales, everyone
gets their share of applause and pats on the back.
People in back-offce roles, such as credit
and operations, are much more positive than
they were in the past, and the sales team is
continuing to excel.
McKinsey: And what made the biggest
difference for Axis as an institution?
Jairam Sridharan: Shikhar has given us a
stronger identity. We now have a group of people
who are all working in the same way, across
the country, regardless of where we came from.
That has a huge impact on how each of us
sees Axis.
And its spreading further across the bank. We
have started a big effort on the deposit side
of the business, and there are other areas that we
have yet to touch. Even on the assets side,
we are far from where we aspire to be, and we
continue to focus on maturing the transformation
in a sort of Shikhar 2.0.
Table of contents
55
To maximize customer satisfaction,
companies have long emphasized
touchpoints. But doing so can make
customers seem happier than they
actually are and divert attention from
the bigger, more important issue: the
customers end-to-end journey.
The truth about
customer experience
Think about a routine service event
say, a product queryfrom the point of view of
both the company and the customer. The
company may receive millions of phone calls
about the product and must handle each
one well. But if asked about the experience
months after the fact, a customer would
never describe such a call as simply a product
question. Understanding the context of a
call is key. A customer might have been trying to
ensure uninterrupted service after moving,
make sense of the renewal options at the end of
a contract, or fx a nagging technical problem.
A company that manages complete journeys
would not only do its best with the individual
transaction but also seek to understand
the broader reasons for the call, address the
root causes, and create feedback loops to
continuously improve interactions upstream
and downstream from the call.
In our research and consulting on customer
journeys, weve found that organizations able to
skillfully manage the entire experience reap
enormous rewards: enhanced customer satisfac-
tion, reduced churn, increased revenue, and
greater employee satisfaction. They also discover
more-effective ways to collaborate across
functions and levels, a process that delivers gains
throughout the company.
Consider a leading pay-TV provider we worked
with. Although it was among the best in the
industry at managing churn, it faced a maturing
market, heightened competition, and escalat-
ing costs to keep its best customers. Churn was
a familiar problem, of course, and the typical
reasons for it were well understood: pricing
spurred some customers to leave, while competi-
tors technology or product bundles lured others
away. The common ways to keep customers
were also well known, but they were expensive,
including such things as upgrade offers, dis-
counted rate plans, and save desks to intercept
defectors. So the executives looked to another
levercustomer experienceto see if improve-
ments there could reduce churn and build
competitive advantage.
As they dug in, they discovered that the frms
emphasis on perfecting touchpoints wasnt
enough. The company had long been disciplined
about measuring customers satisfaction with
each transaction involving the call centers, feld
services, and the website, and scores were
consistently high. But focus groups revealed that
many customers were unhappy with their overall
interaction. Looking solely at individual trans-
actions made it hard for the frm to identify where
to direct improvement efforts, and the high
levels of satisfaction on specifc metrics made it
hard to motivate employees to change.
As company leaders dug further, they uncovered
the root of the problem. Most customers werent
fed up with any one phone call, feld visit, or other
interactionin fact, they didnt much care
about those singular touchpoints. What reduced
satisfaction was something few companies
managecumulative experiences across multiple
touchpoints and in multiple channels over time.
Take new-customer onboarding, a journey that
typically spans about three months and
involves six or so phone calls, a home visit from
a technician, and numerous web and mail
exchanges. Each interaction with this provider
had a high likelihood of going well. But in
key customer segments, average satisfaction fell
almost 40 percent over the course of the
journey. It wasnt the touchpoints that needed to
be improvedit was the onboarding process
as a whole. Most service encounters were positive
in a narrow senseemployees resolved the
Ewan Duncan,
Conor Jones, and
Alex Rawson
57
issues at handbut the underlying problems were
avoidable, the fundamental causes went
unaddressed, and the cumulative effect on the
customer was decidedly negative.
Remedying matters would add signifcant value,
but it wouldnt be easy: the company needed
a whole new way of managing its service opera-
tions in order to reinvent the customer journeys
that mattered most.
More touchpoints, more complexity
The problem the pay-TV provider encountered
is far more common than most organizations care
to admit, and it can be diffcult to spot. At
the heart of the challenge is the siloed nature of
service delivery and the insular cultures that
fourish inside the functional groups that design
and deliver service. These groups shape how
the company interacts with customers. But even
as they work hard to optimize their contributions
to the customer experience, they often lose
sight of what customers want.
The pay-TV companys salespeople, for example,
were focused on closing new sales and helping the
customer choose from a dense menu of tech-
nology and programming optionsbut they had
very little visibility into what happened after
they hung up the phone, other than whether or
not the customer went through with the
installation. Confusion about promotions and
questions about the installation process,
hardware options, and channel lineups often
caused dissatisfaction later in the process
and drove queries to the call centers, but sales
agents seldom got the feedback that could have
helped them adjust their initial approach.
The solution to broken service-delivery chains
isnt to replace touchpoint management.
Functional groups have important expertise, and
touchpoints will continue to be invaluable
sources of insight, particularly in the fast-
changing digital arena.
1
Instead, companies need
to embed customer journeys into their oper-
ating models in four ways: they must identify
the journeys in which they need to excel,
understand how they are currently performing
in each, build cross-functional processes
to redesign and support those journeys, and
institute cultural change and continuous
improvement to sustain the initiatives at scale.
Identifying key journeys
Defning the journeys that matter and deciding
where to begin the transformation requires
both top-down, judgment-driven evaluations and
bottom-up, data-driven analysis, to varying
degrees. We recommend pursuing these efforts in
parallel whenever possible.
An executive working session, drawing on
existing research, may be suffcient to identify
the most signifcant journeys and the pain
points within themthe specifc service
shortcomings that damage customers experience.
That research is typically fragmented and
often includes data on the customer volume in
1
See David Edelman, Brand-
ing in the digital age:
Youre spending your money
in all the wrong places,
Harvard Business Review,
December 2010.
The solution to broken service-
delivery chains isnt to
replace touchpoint management.
Instead, companies need
to embed customer journeys
into their operating models.
The truth about customer experience
a given journey, reasons for call-center
complaints, and obvious gaps in performance
for example, discrepancies between
promises made in marketing materials and
services actually delivered.
At three companies weve worked with, sessions
of this type directed attention to key customer-
journey problems. The executive team at a fxed-
line telecom focused on the 50 percent
dissatisfaction rate with the installation process;
the team at a leading energy player targeted
the 40 percent churn among customers moving
houses; and executive sessions at an integrated
telecom zeroed in on the more than one-third of
new fber-optic customers who canceled before
installation or within 90 days. In each case
the executive attention led to a concerted effort to
fx the targeted journey, while leaderships
walking the talk generated support for improve-
ment programs and broader organizational
changes. These results show how initial top-down
work can identify early wins (often policy
or process changes that can be implemented
quickly and centrally) that set the tone for
further transformation.
For companies seeking just to fx a few glaring
problems in specifc journeys, such top-down
problem solving can be enough. But those that
want to transform the overall customer
experience need to simultaneously create a
detailed road map for each journey, one
that describes the process from start to fnish,
takes into account the business impact of
optimizing the journey, and lays out a common-
sense, feasible sequence of initiatives.
This is a bottom-up effort that starts with addi-
tional research into customers experiences of
their journeys and which ones matter most, both
to customers and to business performance. A
company should draw on customer and employee
surveys along with operational data across
functions at each touchpoint, to assess perfor-
mance and gauge how it is doing relative
to the competition. Best-in-class companies use
regression models to understand which journeys
have the greatest impact on overall customer
satisfaction and business outcomes, and then run
simulations to get a picture of the potential
impact of various initiatives.
Doing this research and analysis well is no
small task, because it typically means acquiring
new types of information and assembling it
in new ways. For many companies, combining
operational, marketing, and customer and
competitive research data to understand
journeys is a frst-time undertaking, and it can
be a long processsometimes lasting several
months. But the reward is well worth it, because
the fact base thats created allows manage-
ment to clearly see the customers experience
of various journeys and decide which ones
to prioritize.
Understanding current performance
Once a company has identifed its key customer
journeys, it must examine each one in detail in
order to understand the causes of current perfor-
mance. This deep dive involves additional
research, including customer and employee focus
groups and call monitoring. Combined with the
initial bottom-up analysis, it allows the company
to map the most signifcant permutations of
each journey as the customer experiences and
would describe it, revealing the sequence of
steps she is likely to take from start to fnish. The
mapping exercise also exposes departures
from the ideal customer experience and their
causes, and often reveals policy choices or
company processes that unintentionally generate
adverse results. For example, many companies
59 The truth about customer experience
charge for phone-based technical support,
thinking that imposing a fee will steer customers
to self-service options. But the consequence
may be numerous callbacks or inadequate do-it-
yourself fxes, both of which degrade the
customer experience.
Consider the telecom faced with 50 percent initial
customer dissatisfaction. Executives knew the
provisioning journeythe process of installing
fxed-line service at a customers homewas
a priority, and as they probed new data, they began
to see an ominous pattern. When they surveyed
new customers about their experience from the
time they ordered service through installation and
activation (a journey that spanned four touch-
points), they learned that although about half were
thrilled with the service, giving it an eight or
a nine on a ten-point scale, the other half were
incensed, giving it a one or a two.
On further investigation, the frm discovered
that the installation process for unhappy cus-
tomers was compromised by delays that
ultimately stemmed from misaligned incentives:
back-offce employees werent measured on
or rewarded for the accuracy of order tickets and
so sometimes processed them with missing or
incorrect information. The companys traditional
customer-experience dashboard had missed
the problem because it included no measure of
end-to-end success. Our dashboard metrics
were like a watermelon, one senior manager
told us. On the outside everything was
green, but when you looked inside, it was red,
red, red.
Redesigning the experience and engaging
the front line
Once a company has identifed its priority jour-
neys and gained an understanding of the
problems within them, leaders must avoid the
temptation to helicopter in and dictate
remedies; indeed, they should refrain from
any solutions (including ones from outside
experts) that dont give employees a big hand in
shaping the outcome. Even if a fx appears
obvious from the outside, the root causes of poor
customer experience always stem from the
inside, often from cross-functional disconnects.
Only by getting cross-functional teams together
to see problems for themselves and design
solutions as a group can companies hope to make
fxes that stick.
The energy company identifed moving house
as a journey it needed to get right. Executives
started by gathering representatives from
the various operational and commercial groups
involved in that journey. The setup for the
meeting was low tech yet powerful: one wall of
the conference room was devoted to posters,
customer quotes, and visual depictions of what
customers experienced from the time they
decided to move until service was activated in
their new homes.
Most executives we talk to readily grasp the journey
concept, but they wonder whether perfecting
journeys pays off in hard dollars. Our annual cross-
industry customer-experience surveys (including
pay-TV, retail-banking, and auto-insurance rms, to
name a few) show that it does.
Companies that excel in delivering journeys tend
to win in the market. In two industries weve studied,
insurance and pay TV, better performance on
journeys corresponds to faster revenue growth: in
measurements of customer satisfaction with the
rms most important journeys, performing one point
better than peer companies on a ten-point scale
corresponds to at least a two-percentage-point out-
performance on revenue growth rate (see
sidebar Good journeys fuel growth). Moreover, the
companies that excel in journeys have a more
distinct competitive advantage than those that
How journeys pay off
excel in touchpoints: in one of the industries we
surveyed, the gap between the top- and bottom-
quartile companies on journey performance
was 50 percent wider than the gap between top-
and bottom-quartile companies on touchpoint
performance. Put simply, most companies perform
fairly well on touchpoints, but performance on
journeys can set a company apart.
Our research also shows that performance on
journeys is more predictive of business outcomes
than performance on touchpoints is. Indeed,
across industries, performance on journeys is 30 to
40 percent more strongly correlated with customer
satisfaction than performance on touchpoints
isand 20 to 30 percent more strongly correlated
with business outcomes, such as high revenue,
repeat purchase, low customer churn, and positive
word of mouth.
It proved to be a breakthrough meeting. Seeing
the journey represented from start to fnish
was powerful, because no single group had ever
had visibility intolet alone accountability
forthe entire experience, and therefore didnt
recognize the journeys shortcomings. It
immediately became clear that the process had
evolved into something far more complex
than anyone had realized; there were 19 customer
interactions in all. Many of the steps involved
complex hand-offs between internal groups, creat-
ing multiple places where things couldand
didgo wrong. But the ahas were not just about
operational glitches: some of the unhappy cus-
tomers frustration arose from a lack of
communication at key moments when, operation-
ally, things were working fnefor example,
when scheduling end of service at an old address.
At other points (for instance, after starting
service at a new address), customers got too much
information and were confused by apparently
conficting messages.
Once the team members had identifed the
reasons for the myriad hand-offs and begun to
appreciate the challenges their counterparts
in other operational groups faced, they could sit
down to design a new approach. They brain-
stormed solutions in a war room, launched
frontline teams to pilot and improve upon
ideas, and empowered the teams to take risks and
experiment through trial and error. Finally,
they engaged customers in the design process,
to ensure that the approach developed would
please them. The result: a new process that was
four times as effcient, far more satisfying
to customers, and much better aligned with the
companys brand promise, We deliver.
The proportion of customers dissatisfed with
the experience of moving house dropped
signifcantly, resulting in a revenue gain of
4 million. (For an example of a typical working
process, see Exhibit 2 in sidebar Good jour-
neys fuel growth).
A leading car-rental company we worked with ran
a similar series of cross-functional efforts
pilots at key airport locations involving frontline
teams including counter staff, car cleaners,
exit-gate personnel, and bus drivers. Management
chose several target geographies, assigned a
senior executive to each, and tasked the frontline
teams with three things: mapping the customer
experience and looking for fresh service ideas to
improve it, getting frontline employees from
each of the functions to collaborate on identifying
the causes of problems and fnding solutions,
and coordinating activities to maximize the speed
of service from the customers point of view.
A team in one region discovered a major
bottleneck: the company frequently fell short of
clean cars during peak demand. Among the
remedies it suggested was installing a buzzer
between the rental counter and the car lot. When
the line at the counter grew long, staff mem-
bers could alert workers in the lot that they would
soon need more cars. By the end of the pilot,
the units on-site customer-service scores had
doubled, revenues from upselling had
climbed 5 percent, and the cost of serving cus-
tomers had dropped 10 percent. In addition,
the marketing teaminvolved from day one
helped identify changes to the exit process
(when customers pick up a car on the lot) that
boosted upsell by broadening the choice of
available vehicles.
Sustaining at scale by changing mind-sets
Of course, analyzing journeys and redesigning
service processes get a company only so far.
Implementing the changes across the frm is
hugely importantand hugely challenging.
A detailed discussion of how to scale and sustain
transformation initiatives is beyond the purview
of this article. However, delivering at scale
on customer journeys requires two high-level
changes that merit mention here: one,
modifying the organization and its processes to
deliver excellent journeys, and two, adjusting
metrics and incentives to support journeys, not
just touchpoints.
Organizationally, adopting a journey-centric
approach allows companies to move from siloed
functions and top-down innovation to cross-
functional processes and empowered, bottom-up
innovation. Most companies keep their functional
alignments intact and add cross-functional
working teams and processes to drive change. To
that end, many companies we have studied
set up a central change-leadership team with an
Customer-service scores
doubled, upselling revenues
climbed 5 percent, and
the cost of serving customers
dropped 10 percent.
Studies of companies in the pay-TV and
auto-insurance industries reveal a strong relation-
ship between customers satisfaction with
Good journeys fuel growth
the end-to-end service experience and revenue
growth. Exhibit 1 shows the results for seven
companies in each industry.
Higher satisfaction leads to higher revenue growth.
Exhibit 1 of 2
Revenue growth, 201011, %
Pay TV
Auto insurance
Average satisfaction with each companys 3 key journeys (on a 10-point scale), 2011
14
12
10
8
6
6.5 7.0 8.0 9.0 6.0 7.5 8.5 9.5
4
2
2
0
Exhibit 1
An excellent customer experience must last the entire journey.
Exhibit 2 of 2
The customer buys
a new house.
The customer
moves into her
new house.
The customer contacts
the electrical utilitys
call center and provides
her moving date.
The utility sends
her a conrmation letter
and a nal meter-
reading card.
The billing department
tags her old and new
addresses to indicate
the move.
sends her the nal bill for
her old address.
The call center has
the billing department mail
her a corrected bill.
The service department
arranges for the activation
on the moving date.
The service department
activates service at
the new address and
reads the meter.
sends her an initial
statement and an
explanation of payment
options.
The customer reviews
the bill and contacts the
call center about an error
on it.
The customer reads the
meter at her old address,
marks the card, and mails
it to the utility.
Customer
Provider
Exhibit 2
Moving to a new home launches a customer
on an array of journeys with service providers,
including phone, Internet, cable, and utility
companies. The moving journey begins with
a call informing the company of the move
and ends with an accurate initial bill at the new
address. Exhibit 2 shows a simplied electrical-
service journey from the perspectives of both the
customer and the provider.
executive-level head to steer the design and
implementation and to ensure that the organiza-
tion can break away from functional biases
that have historically blocked change. These roles
tend not to be permanentindeed, success
ultimately involves changing company culture so
much that the roles are no longer needed
but they are critical in the early years. The energy
company located its change team right next
to the boardroom to signal the importance of its
effort. The pay-TV provider promoted a
functional leader and had him report directly to
the CEO. Several telcos we worked with that
elected to have more-permanent organizational
change left their cross-functional change teams
in place to ensure sustained checks and balances
in order to address the natural tensions across
functions. In the most effective cases, companies
design cross-functional working and
accountability into their core business processes,
establishing clear ownership, authority,
metrics, and performance expectations that sup-
plement the existing functional structures.
Consider how this worked at the car-rental
business. As efforts ramped up at the pilot
locations, the CEO gave each member of his execu-
tive team responsibility for implementation
across all sites in a particular geographic region,
knowing that would require the executives to
partner with peers in challenging new ways. The
CFO, for example, might be responsible for
keeping tabs on cross-functional improvements in
the Philadelphia area and for taking any issues
that arose, including purely operational ones, up
the chain of command. And although the
company had a solid playbook for its frst pilot,
it explicitly challenged the teams in each
Identifying the journeys that matter most can be
benecial even when companies dont have a
nagging customer-service problemthe effort can
help them nd a competitive differentiator. One
car-rental agency wanted to improve its already
good service and distinguish itself from its
competitors in light of the increasingly commodi-
tized nature of the industry. Its investigation into
what mattered to customers highlighted the airport
pickup, a journey that might take less than
an hour but that crossed a half dozen or more
touchpoints. The most important aspect was
the end-to-end speed of service, from bus to rental
counter to car to exit gatebut no one person
owned that issue.
Using journeys to differentiate
By focusing cross-functionally on delivering
speed at the airport pickup, the company was able
to innovate in ways that helped set it apart: it
introduced more exibility in car selection, devel-
oped technology to help customers manage
their reservations from mobile devices, and installed
virtual customer-service kiosks at high-volume
locations to give people the option of skipping the
line but still working with a live agent. It also
pushed hard to shift the emphasis from cars
available to the right car for the right cus-
tomer at the right time. These efforts provided
a real opportunity to differentiate not just the
service experience but the brand itself.
location to adapt the playbook and make it their
own, and to try to beat the original locations
results. The frontline teams were empowered to
continually test new ideas that the executives
heading the teams could then spread to the rest of
the business.
Back at the energy company, the scope was
broadened to include fve critical journeys, with
an executive-team member leading each effort
and conducting weekly reviews with stakeholders
from each function. And at the integrated
telecom, the executive team created a new perma-
nent role, redeploying senior people from siloed
functions to become chain managers responsible
for overseeing specifc journeys, such as fber-
cable provisioning. It created war rooms where
the chain managers could monitor the efforts
and meet with the functional teams involved. Thus
the program was driven by cross-functional,
bottom-up idea generation but had enough top-
down ownership and coordination to maintain
momentum and focus.
Once their new management structures are in
place, organizations must identify the appropriate
metrics and create the appropriate measurement
systems and incentives to support an emphasis on
journeys. Even if a company already uses a
broad customer-satisfaction metric, moving the
focus from touchpoints to journeys typically
requires tailored metrics for each journey that can
be used to hold the relevant functions and
employees accountable for the journeys outcome.
Very few companies do that today. For the telco
focused on new-product installations, this meant
holding the sales agent, the technician, the
call-center, and the back-offce agents responsible
for a trouble-free installation and high cus-
tomer satisfaction at the end of the process, instead
of simply requiring a successful hand-off to
the next touchpoint. For the energy company,
it meant new cross-functional measures for each
frontline employee who handled address
changes (for example, error-free capture by
call-center agents of information needed
downstream). Disney famously builds its entire
theme-park culture around delivering the
guest experience: from hiring through perfor-
mance reviews, it assesses each frontline
team member on his or her customer-friendly
skills. And one large retail bank started
requiring each executive-team and board member
to call fve dissatisfed customers a month
a simple but effective way of holding the leader-
ships feet to the fre on issues related to
customer experience.
Optimizing a single customer journey is tactical;
shifting organizational processes, culture, and
mind-sets to a journey orientation is strategic and
transformational. Journey-based transformations
are not easy, and they may take years to perfect.
But the reward is higher customer and employee
satisfaction, increased revenue, and lower
costs. Delivering successful journeys brings about
an operational and cultural shift that engages
the organization across functions and from top to
bottom, generating excitement, innovation, and
a focus on continuous improvement.
Ewan Duncan and Alex Rawson are principals in
McKinseys Seattle ofce, and Conor Jones is a principal in
the Dublin ofce. Adapted with permission from The truth
about customer experience, by Ewan Duncan, Conor Jones,
and Alex Rawson, Harvard Business Review, September
2013. Copyright 2013 Harvard Business School Publishing
Corporation. All rights reserved.
Table of contents
66
Enabling people to lead
and contribute to their
fullest potential
67
Helping people develop to their full potential is at the heart of a lean organization.
When people are not empowered to contribute, enabled to develop, or given
proper support, the effects are profound. Motivation ags, intellectual capacity is
wasted, talent is lost, and value is forfeited.
We believe that lean organizations share three key principles in the way they
treat their people:

creating a culture that respects and empowers people

cultivating leaders and managers who are committed to
developing others

managing people through a transparent and fair process
These principles are reected in the articles and interviews throughout this
section. To see what they look like in action, we share another day in the life of
Marythis time, a particularly difcult day when half of her claims-processing
team is out sick. Thanks to her thoughtful approach, the systems she has put
in place with her team and her colleagues, and the trust she has encouraged,
she manages to avert a crisis through a series of well-judged actions.
By using lean-management tools and the behaviors associated with them,
Mary is able to keep her team working together effectively and her
department running smoothly. Her story also demonstrates how the three
principles above can help lean companies operate seamlessly while
building a strong culture based on mutual respect, collaboration, and common
purpose. Lean companies are adept at creating an expectation of
continuous improvement and fostering an environment where people bring
the best of themselves to work.
Matching skills
to tasks
Lean tools and
behaviors
Daily huddle
Constant
communication
Process
confrmation
Standard work
Standards
developed by
the team
Peer-to-peer
coaching
Load balancing
Cross-training
Shared ownership
Daily huddle
Clear career path
Root-cause
problem solving
Building team
members skills
Building skills to manage temporary shortages
As soon as she arrives at the offce, Mary knows it wont be a normal Friday. Half of her
department is out sick. She must determine who has the skills to take on absent colleagues
work and must be there to support all of her teams. She begins her morning meeting
with team leaders by outlining the days tasks, agreeing on expectations, and asking if anyone
has questions or concerns.
Mary then sits down with Eric and Jan to watch them process claims and is pleased to see
they follow the current standard operating procedures step by step. Eric evidently
knows the process inside and out, so Mary decides to update his skills profle. He also notes
a couple of changes that might be helpful, which Mary suggests he bring to the next
problem-solving session. On the other hand, Jan seems to be struggling, so Mary arranges for
a peer to spend an hour observing and coaching her later in the week.
As she walks around her department, Mary realizes that a backlog is developing in a particular
type of claim that always reaches high volumes on Fridays. In light of the days distractions,
she quickly calls her team back together to remind them of the importance of clearing these
claims. She asks Phil, a team member with wide-ranging experience, to help out with
any queries.
Later that morning, Mary meets with fellow managers in a tier-three huddle to make sure her
staff shortage isnt creating problems elsewhere. Her colleague Sophia volunteers that her team
is ahead of schedule and could spare some time to help Marys team with its workload.
Toward the end of the day, Phil comes to see Mary. The constant Friday battle with high-
volume claims started him thinking about changes in customers needs. He has ideas for
improving the claims-handling process and offers to raise them at the next team meeting.
Impressed, Mary decides to consider offering Phil a deputy managers role on her team.
As the offce empties and Mary prepares to leave, she refects on the days events. Phil was
emerging as a leader, Eric was consolidating his technical expertise, and Jan needed
support but was eager to improve. Mary is proud of how her team had risen to the challenge of
a diffcult day.
69
In working with her colleagues, Mary shows how a respectful culture fosters transparency,
enabling everyone to see how they and others are performing from day to day. It creates
clear expectations about what it is fair to ask people to doand provides them with the tools,
systems, and training to fulll these objectives. Mary, for example, conducts process
conrmations with Eric and Janside-by-side meetings in which the leader and team member
evaluate how a standard operating procedure (SOP) is going for the team member. She
also understands that because the team members use the SOPs every day, they are best
positioned to make changes. She therefore suggests that Eric bring his ideas to the
next problem-solving discussion.
Leaders and managers in a respectful culture make sure they follow up on expectations
and provide regular coaching and fact-based feedback. When Mary realizes Jan is struggling
to follow the best-practice guidelines, she sets up a private meeting with her to nd
a way to help Jan learnin this case, through side-by-side coaching from a peer who has
demonstrated mastery.
To enable people to contribute their best, companies need to nurture leaders and managers
who are committed to making others shineleaders who can win hearts and minds
and create an emotional bond that is hard to break. Such leaders set expectations that are
motivating but realistic, as Mary does by brieng her team at the beginning of the day,
communicating constantly with them and with her fellow managers, and acting as a role model.
In nominating Phil to help with colleagues queries, she exemplies another lean leadership
skill: knowing how to step back and act as an enabler, not an executor.
Phils suggestions for process changes illustrate another hallmark of a lean organization: when
leaders build a sense of ownership, people feel problems are theirs to solve. Being empowered
to raise issues, challenge objectives, and come up with solutions dramatically increases
not just their motivation but also the value they deliver.
Creating the right culture and nurturing the right leaders are major steps toward enabling
people to contribute to their fullest potential. However, organizations also need to get
the basics right. That means attracting and retaining the right peopleand redeploying them
to more suitable roles if necessaryso as to deliver the greatest value to customers in
the most efcient way. Peoples skills must also be matched to the most appropriate tasks, as
when Mary arranges coverage for absent team members. Having observed daily huddles,
performed process conrmations, and engaged in constant coaching and feedback, Mary is
well equipped to make these decisions. And the fact that the entire organization follows
the same system gives her more condence that when colleagues from other teams ll in, they
will be able to do so productively.
Managing talent also involves promoting and rewarding the right capabilities. When
Mary recognizes Phils leadership potential and Erics deep expertise, she updates their skills
proles and starts to think about building their capabilities and shaping their career
paths. Leaders need to dene an individual career path for each employee, one that provides
customized opportunities for promotion and development.
Enabling people to lead and contribute to their fullest potential
The articles and interviews that follow give a avor of how the principles of enabling people to
lead and contribute to their fullest potential are put into practice in the day-to-day work of
real-life lean organizations.
Naturally, achieving this level of engagement is far from easy. Bryan Robertson, the former
director of lean transformation at British insurer Direct Line, describes the profound
shift needed in people development, observing that lean management is very much about
changing the way leaders think, lead, and behave. He explains that his organization
denes a leader not as someone who tells people what to do but as someone who coaches
others to be successful and achieve their true potential.
For this to happen, performance management needs to become a transparent and routine
part of everyones working day. As Guiding the people transformation: The role of HR in
lean management notes, structures must evolve to support ordinary, casual conversations
about how work is progressing and where it could improve.
Respect is central to managing people. In Lean management from the ground up in the
Middle East, Tanfeeth CEO Suhail Bin Tarraf explains, It means developing [our own]
skills to their fullest potential and helping colleagues develop theirs as well. . . . No one person
can do it alone, so we empower our people.
The last article in this section, Lessons from emerging markets, looks at how companies
can use the human factor to overcome organizational and cultural barriers to
change, enabling them to make major strides in revamping how they work with customers
and maximizing value from limited resources.
Table of contents
72
Cultural change at
Direct Line Group
An interview with Bryan Robertson,
former director of lean transformation
79
Guiding the people transformation
The role of HR in lean management
89
Lean management from the ground
up in the Middle East
An interview with Suhail Bin Tarraf,
CEO of Tanfeeth
96
Lessons from
emerging markets
At a leading UK-based insurer,
profound cultural change is not only
increasing efciencyit is enabling
employees to achieve things they never
thought they could.
By focusing on ve critical areas, HR can
ensure that the human side of lean
management creates lasting value for
the organization.
By incorporating lean-management
principles from an early stage, a Gulf-based
shared-services provider has increased
employee engagement and effectiveness,
even while growing rapidly.
Three success stories illustrate how
emerging-market organizations
are using lean management to navigate
around constraints and inspire new
levels of commitment from their people.
71
At a leading UK-based insurer, profound
cultural change is not only increasing
effciencyit is enabling employees to
achieve things they never thought
they could.
Cultural change at
Direct Line Group
An interview with Bryan Robertson, former director
of lean transformation
73
Direct Line Group, based in Bromley,
England, is a leading provider of personal-lines
general insurance, with operations in Germany,
Italy, and the United Kingdom.
1

Under the leadership of Bryan Robertson,
then the director of lean transformation, Direct
Line Group offcially launched its lean-
management transformation journey in early
2010. The initial focus was on improving
customer service and productivity in the com-
panys sales and service operations. Since
then, the scope has gradually expanded, with
plans in place to cover almost the
entire organization.
In October 2012, McKinsey spoke with Mr.
Robertson at its offces in London.
Mr. Robertson has since left Direct Line for
another opportunity.
McKinsey: What were the circumstances
that drove Direct Line Group to look at
lean management?
Bryan Robertson: Direct Line Group had
long been proftable, but as of late 2009
we were actually taking a loss. Our new CEO,
Paul Geddes, came in with a new executive
team, looking for ideas to turn the business
around. He said that while we would commit to
making some technology investments in
claims and pricing, that effort alone wouldnt be
enough. We needed to look at our overall
operational effectivenessmeaning, most impor-
tant, how we enable our people and engage
with our customers. And to make Direct Line
Group more effective, they wanted to launch
lean management.
McKinsey: What were the reasons for starting
with the sales and service call centers?
Bryan Robertson: We spent quite a bit of time
visiting other organizations to fnd out what
the right transformation approach would be. One
of the key messages we kept hearing was to
focus on one area of the business, making sure
you get the transformation absolutely right.
On the way, you fnd out what works and what
doesnt, and its a great way to spotlight success
for the rest of the organization.
At this time, Darrell Evans, the managing
director of sales, service, and partnerships, came
to us and said, Im really keen to start
a lean transformation.
Now, when you start a transformation, I think
its very important to understand why youre doing
it in the frst place. Far too often, when people
talk about lean, the view in their head is all about
cost savings and process improvement. The
lean management that we want to be involved in
is not about that, not as the primary reason.
Its about cultural change to deliver long-term
improvements for our people, our customers, and
our shareholders.
McKinsey: What did Darrell tell you?
Bryan Robertson: He said, I want to make sure
that every site is working the same way, that we
share best practices, and that we really engage our
employees to put the customer frst. Thats exactly
the type of cultural focus we were looking for.
There were other advantages, too. Sales and
service is a big department, giving us a chance
to make a difference at a noticeable scale.
There were about 3,500 people working across
ten operational sites, representing different
brands with different products. So it gave us a
real opportunity to fnd out how well lean
management could work.
1
In early October 2012, the
group completed a successful
initial public offering
representing 34.7 percent
of its total share capital,
generating 911 million gross
proceeds, which were
received by the Royal Bank
of Scotland Group.
McKinsey: What were the goals for that
initial phase?
Bryan Robertson: The stated goal was a 15
percent effciency improvement. But Darrell and
I wanted the transformation to deliver a lot
more than that.
And it did. It improved employee engagement
by 10 percent. It improved the consistency of how
we ran our business across all our sites. And
it improved communication across the different
sites, so we had a common language to run
the business, to solve problems, to share best
practices, and to improve results.
McKinsey: What effect did it have on cus-
tomer service?
Bryan Robertson: The employees that the
program targeted were the ones who deal with
the customers every day. We knew they
would have the best ideas because they knew
what frustrated customers and what customers
were really seeking.
They said, for instance, that some of the ques-
tions we asked had become too complex for
the customer. We then asked the frontline staff to
redesign the call guides according to what they
knew the customers wanted to know.
By starting with sales and servicethe front
endwe could begin seeing how to improve the
business from end to end. It was a way to ask
questions such as: How should we market to our
customers? How do we engage our customers
Bryan Robertson
From 2009 through the end of 2012, Bryan Robertson was the director of lean
transformation for Direct Line Group, one of the largest UK-based general
insurers, with over 20 million in-force policies as of September 30, 2012. Mr.
Robertson started his career in the construction industry but in 1994
moved into telecommunications, leading large-scale continuous-improvement
transformations at Motorola and Damovo before joining the Royal Bank of
Scotland (RBS) Group in 2003. While at RBS, Mr. Robertson helped transform
a wide range of functional and business groups, and in 2006 he joined
RBS Insurance. Now known as Direct Line Group, the company completed its
separation from RBS with its initial public offering in late 2012.
Mr. Robertson holds a BS in quantity surveying from the University of Abertay
Dundee and an MBA from the University of Edinburgh.
75
and improve the whole experience, from sales to
claims resolution?
McKinsey: When an organization is going
through a transformation, what do you look for
to see whether the change is really occurring?
Bryan Robertson: It was quite clear to me from
the outset that lean management is very much
about changing the way leaders think, lead, and
behave, so thats one of the frst things I want
to see happening.
In too many organizations, the role of a leader
is to tell people what to do. Our ultimate aim was
to defne the role of a leader as someone who
coaches others to be successful and achieve their
true potential. Thats quite a difference from
what we were used to seeing. So when I see leaders
consistently holding problem-solving sessions
and welcoming problems as opportunities for
improvement, I know thats a great sign.
Another good sign is when people begin to share
ideas. Before, some people seemed to think
that their competition was at the other sites in our
company, rather than the other companies
that are trying to win business from us. So when
people start to show pride in telling others
about their ideasinstead of keeping them to
themselvesI know the change is meaningful.
McKinsey: How has the transformation process
changed you as a leader?
Bryan Robertson: Ive been involved in
continuous improvement for over 20 yearsbut
what Ive learned in the last 3 years has been
really powerful and has had far more impact for
me as a transformation leader.
Im highly motivated by seeing people achieve a
potential they had never imagined. And now,
whenever I go back to one of our sites, people will
come up to me and say, There are things I can do
now that I never thought I could do before.
McKinsey: What does that mean for Direct
Line Group?
Bryan Robertson: It means we have a whole
new base of skills. We have engineers who can go
to our call centers and help in problem-solving
sessions. We have people in the sales centers who
can go to our accident-repair centers. People
who never spoke up are now communicating in
front of hundreds of people and problem
solving on a regular basis.
They never thought they could do these things
before. The potential was always there. And now
they can actually use their new skills to help
improve the business that they are very much
a part of.
McKinsey: What have been some of the harder
parts of this transformation?
Bryan Robertson: Overcoming resistance.
Youre asking people to think differently and do
things differently, and thats never easy.
Cultural change at Direct Line Group
When people start to show pride
in telling others about their
ideasinstead of keeping them
to themselvesI know the
change is meaningful.
At one of the accident-repair centers, one guy
directly told us, I want you to fail. Why? Ive
been doing this job for 20 years. If you can
improve it, it proves that Ive been doing my
job wrong.
Of course, thats not what a transformation is
abouthe may well have been doing a great job.
The issue is to fnd out how he can do an even
better job. And we say to people that the anger
and frustration they feel is OK, because
if they didnt feel like that, it would mean they
didnt care. Whats important is paying
attention to these emotions and helping them go
through the change curve for themselves.
When they do, it is brilliant to see people move
from resistance to strong advocates of this
way of running our business.
McKinsey: Is it easier if people are already
familiar with lean-management ideas?
Bryan Robertson: To be honest, the most
dangerous people in a transformation are those
who claim that they understand what lean
management is all about. The problem is that they
probably know lean from a more traditional,
cost-reduction point of view. They dont know
about the capability building, the cultural
change, the leadership role modelingall of
which are absolutely critical. Their limited
view is actually quite debilitating, with respect to
what they can and cant see as the potential
for success.
McKinsey: What change stories have been
especially meaningful to you?
Bryan Robertson: There have been so many.
One of the leaders in our Manchester center
recently said to me, Ive been here for a number
of years. But I realize now that all Ive been
for the last few years is a postboxfor manage-
ment reports, management information,
analysis of data, and so on. I actually came here
to be a leader. Now, as a result of the lean
transformation, Im becoming a leader again. I
can coach my team. I can develop my team.
I can lead my team.
When you hear that, you know that the change
is going to sustain itselfbecause the people have
changed. Its a fantastic outcome.
McKinsey: How would you assess the overall
impact of lean management?
Bryan Robertson: The fnancial impact is great,
because thats what any organization will ask
for. We have delivered tens of millions of pounds
in beneft. But of equal importance are the
greater employee engagement and the new range
of capabilities the organization can tap, such
as problem solving, coaching, and performance
managementall centered on serving the
customer in a more effective way.
That gives the whole organization a new
language: What would the customer think in this
situation? How do we really get to the root
cause of that problem, rather than just frefght
the symptoms?
If the organization is focused on the customer, if
the organization is focused on problem solving,
and if the organization is focused on listening to
the employees, it will continually improve. That
is what we are trying to achieve through our lean-
management system.
McKinsey: Are there any aspects of the
earlier transformation stages that you would
do differently if you were to start it all
over today?
77
lead differently, the message got through much
more forcefully.
For that frst stage, embedding people from the
other functionsfnance, HR, learning and
development, risk, and so forthin the team that
is overseeing the change is a highly effective
way to help them understand their role in future
transformations. It made the later stages of
our transformation a lot easier.
McKinsey: What were some of the challenges in
bringing lean management into these other
parts of the business, such as the accident-repair
centers or the fnance function?
Bryan Robertson: People sometimes think
that they can just copy what worked in one area
and repeat it, but thats never the case. The
starting point isnt the methodology, its under-
standing the specifc challenge that the
accident-repair center or the fnance function is
facing. So the frst question is, What is the
business problem? Then you can fnd the right
transformation approach.
A big part of that process is listening. Leaders
from other areas may say that sales and
service is quite different from the accident-repair
center, for example. But invariably, every
Bryan Robertson: We were lucky in that
the sales and service transformation was hugely
successful, so now we have done our best to
identify and replicate the success factorssuch as
having a fantastic sponsor in Darrell Evans
and taking the time to ensure we have really
strong employee engagement. When those factors
arent present, we should be strong enough
to say, No, its not time to go in yet. We also
recognize that its crucial to get as many
people involved as possible. For instance, sales
and service relies on many more parts of the
organizationoperations, IT, and so forth. So our
transformation approach has aligned to reinforce
other key improvement strategies, such as
establishing the Direct Line Group Values, and
we therefore ensure people are involved from
other areas such as HR and risk.
Another critical success factor is ensuring we go
and see to learn from other organizations up
front. On our visits to other organizations, it was
incredibly powerful for people such as our
CEO and COO and IT director to meet their oppo-
site numbers. Rather than just listen to
someone who was passionate about lean man-
agement, they were listening to the person
who was passionate about the same things they
cared about day to day. And when that person
then said, As a result of lean management, I now
Cultural change at Direct Line Group
business has a problem with variability, with
adherence to process, with hand-offs between
teams and functions. You just need to help
these leaders see that their problem is an oppor-
tunity that you can help them fx.
McKinsey: How sustainable is lean manage-
ment in the organization right now?
Bryan Robertson: Any cultural change,
including our journey to achieve a business that
continuously improves, takes a long time.
But you have to plant the seeds early on to
be successful.
It really does depend on culture. Because we
were striving to establish a new organization, we
could ask ourselves, What kind of culture
do we want to have?
We didnt just ask that as a management
committeeMike Tildesley, director of brand
transformation, started a conversation with
all 15,000 employees. That conversation took
over a year to run. As a result, we now have
a set of values that we have all signed up for, and
that we believe will be a competitive advantage
for us in running our business.
But to me the really exciting thing is that because
the values are so closely aligned with continu-
ous improvement, they will help us sustain change.
They will tell us the kind of people we need to
recruit and promote, and how we should reward
them. That will be fundamental to keeping
this momentum going.
McKinsey: How do you persuade people
that the values are meaningfulthat they can
trust them?
Bryan Robertson: I think you build trust
by making sure the companys values are openly
discussed all the timewhen they do work
and when theyre not working. They cant just be
a sign posted in the lift.
You reward people when they role model the
values. Of course, when discussing performance,
its important for people to show that they
deliver results. But its equally important for them
to show that the way they delivered the results
was consistent with the values.
Trust also comes from demonstrating that you
listen and will take action. We created a website
where people can post anything they want
about the organization. People began to talk about
what they like in the organization and what
annoys them. And we make sure to do something.
Thats what it takes to earn trust and keep it.
McKinsey: What are Direct Line Groups
transformation goals for the next two or
three years?
Bryan Robertson: So much is changing now,
especially with social media and new technology,
that keeping in touch with what the customer
cares about is more diffcult and important than
ever. As channels and customer behavior
change, we see lean management helping us
become a more agile company so that we
stay ahead of the market in a way thats best for
the customer, best for employees, and best
for our shareholders.
Table of contents
79
By focusing on fve critical areas, HR can
ensure that the human side of lean
management creates lasting value for
the organization.
Guiding the people
transformation: The role of
HR in lean management
Getting people matters right is essential for
any serious lean-management effort, for ulti-
mately much of the point of a transformation is
to help people achieve morebuild their
capabilities, increase their capacity, intensify their
engagement, and develop deeper connections
between purpose and meaning. Accordingly, in
conversations with business and HR leaders
at some of lean managements most experienced
organizations, a consistent theme has been
the importance of HR both to the transformation
process and to the changes long-term sustain-
ability (some of the executives insights are
included throughout this article).
But the executives all agreed that because HR is
so often called upon for support, it should
intervene only where its efforts are most needed.
Encouraging or expecting HR to get involved
everywhere only dilutes its impact while also over-
whelming its personnel, the leaders noted. Yet
defning HRs role too narrowly will also mean
forgoing real benefts for the transformation,
especially as it matures.
The executives recommended focusing HR on
the areas where its input will be critical either to
getting the transformation off the ground
or achieving lasting impact. Based on their
experience, fve topics came to the fore.
The frst three help early on: building and
sustaining the transformation team,
designing the new organization structure,
and monitoring the people pulse as
the transformation moves forward. The last
two, integrating lean management into
talent systems and strengthening lean
leadership, assume greater prominence as lean
management takes hold.
Organizations that successfully engage HR
throughout their application of lean management
see signifcant long-term advantages. The people-
related changes that a US steelmaker made
(across its entire organization, including internal
functions) have allowed it to thrive, even
after the global fnancial crisis cut demand for
its products in half almost overnight. And
a European insurer withstood a restructuring
of its regulatory environment to become
one of the top performers in challenging
economic circumstances.
A partnership with HR
We have seen that when HR is not clearly
established as a mutually supportive partner with
others in the transformation, organizations
tend to struggle. The most signifcant risk with HR
is to involve it in the transformation process
only after decisions with people implications have
already been madeeven ones that may seem
positive. At a retail bank, for example, a team help-
ing to transform branches was so convinced
that daily huddles would improve performance
In transforming our
organization, we found that it
was hard to overestimate
the need for HR support at every
level. It really was crucial
to the transformations success.
Suhail Bin Tarraf, CEO, Tanfeeth
(See Lean management from the ground up in
the Middle East: An interview with Suhail Bin Tarraf
of Tanfeeth, page 89.)
Erin Frackleton,
Robert Girbig,
David Jacquemont,
and AJ Singh
81
that it started implementation without the type
of communication strategy that HR can help
develop. Instead, the team moved forward despite
clearly stated concerns from branch personnel
that the changes would be too disruptive. The poor
results that ensued damaged the transforma-
tions image to such a degree that further work on
it was suspended and could be restarted only
after managers overcame even greater employee
resistance. And this was a consequence of
moving too quickly only on huddles. HRs input
may be even greater where a transformation
will more substantially restructure employees
day-to-day jobs.
Failing to defne HRs goals is another mistake. As
one US asset manager began rolling out its
transformation, the HR head began assigning
specialists to attend the planning meetings
for each unit to be transformed. But without a
clear mission to follow, the specialists ended
up as just extra hands for implementation rather
than real partners for the issues on which they
could contribute most effectively. Given that HR
must typically strain to fnd the capacity to
support a transformation in the frst place, this
sort of disconnect only further impairs its ability
to meet all of its obligations. (For more on
engagement models that HR can follow, see How
HR engages in the transformation.)
Five areas for HR to target
A more balanced perspective understands the
constraints that HR faces. In identifying
the fve areas where HR can add the most value,
the executives we interviewed cited a basic
chronology, from the planning stages to sustain-
ing the changes.
Building the transformation team
Before launching a lean-management transforma-
tion, the enterprise must establish a central
team to plan and coordinate the transformation
and provide oversight for working-level change
teams, or navigators who will guide business and
functional areas through the transformation.
The teams will need top talent, both to meet the
many managerial demands inherent in
a transformationwhich often translates into
commitments of travel and time that are
greater than most managers may have experi-
encedand to underscore the priority that
leaders are giving to the transformation. At a US
life insurer, for example, HR crafted a value
proposition for candidates for its transformation
team that emphasized the exclusivity of the
designationtelling them that they had been
handpicked based on their records of achievement,
and that successful completion would qualify
them for accelerated promotionalong with
special benefts such as hardship pay and better
travel accommodations.
Committing to lean management
means making a few sacrifces.
One of the most important ones
we made was to staff the lean
team only with A playersin fact,
the head of that team was one
of my best managers.
Carlos Zuleta Londoo, COO, Porvenir
(See Many small ideas add up to big impact:
An interview with Carlos Zuleta Londoo, COO of
Porvenir, page 117.)
HR will also need to work with senior leaders
to craft a career path for people who join the team.
That will matter greatly to the best candidates,
who will want to know that their contributions
will help their advancement rather than
impede it. It will also matter to the units that
are sacrifcing their top performers and
may hope for their return. And it will matter to
the transformation team itself, whose needs
will evolve once the primary transformation effort
tapers off and the organization learns lean-
management concepts. As the teams activities
start to focus more on sustainability and
continuous improvement, its resource needs will
diminish, enabling more team members to
put their lean-management capabilities to use
elsewhere in the organization.
Designing a new organizational structure
From the front line up to senior leaders, lean
management creates new roles and changes old
ones signifcantly as the organization breaks
down internal walls and redesigns its operating
patterns. The redeployment of both managers
and employees will require extensive HR collab-
oration for the transformation to take hold.
HRs support in identifying and staffng a stable
management core at every levelwith people
committed to the new emphasis on coaching and
feedback rather than just technical competence
will be crucial to reinforce the changes. At the
same time, new tracks for managers, experts, and
project leaders will help retain talent in posi-
tions to which they are most suited.
At one global asset manager, leaders found out
that they needed to restructure almost the
entire tier of vice presidentlevel positions. The
HR department worked with senior leaders
to understand all of the factors in the new
organization design that needed to be balanced,
such as constraints in specialized skills,
compensation questions, and aspirations for
diversity and equal-opportunity policies.
Navigating this potential minefeld allowed the
new structure to move forward with a minimum
of disruption.
If one of the goals of the transformation is to
free up substantial people capacity, HRs
experience will be even more valuable, given its
ability to fnd morale-boosting redeployment
opportunities. Before the transformation starts,
basic HR steps such as reducing recruiting
efforts, winding down contracts for temps, and
We need to think carefully about
who is on this team, what their
goals are, and make sure that they
are being trained, assessed,
and motivated. People in these
positions must continue to
grow as they build their lean-
management capabilities,
yet still have both the incentive
and ability to return to their
original organizations.
Susanne Laperle, retired senior vice
president of HR and communications,
Export Development Canada (EDC)
83
improving transparency about open positions
can underscore the organizations commit-
ment to its employees. Longer-term value capture
can come from insourcing vendor work,
reassigning people to growing new products or
markets, providing cross-training in hard-
to-fnd capabilities, or assembling a talent pool
to staff open requirements in other parts of
the organization.
Employees left idle become a source of anxiety
not just to themselves but also to their colleagues,
so HR must move quickly. Creativity helps:
moving people temporarily to address backlogs,
staff special projects, or drive community-
service efforts, for example, can strengthen the
employees sense of purpose while calming
the rest of the team.
The greatest value often comes from fnding
new opportunities for high-performing employees
whose current work fails to engage all of
their abilities. The asset manager again provides
an example. Its IT department had long
struggled to staff strategic projects consistently,
with people constantly drawn off to work
on more urgent tasks. But with the basic lean-
management daily-management system
(such as morning huddles, progress-tracking
whiteboards, and improved capacity
management) and clearly defned work standards,
average employees were able to produce
much more, with greater quality and consistency.
The effect was to free up about 20 percent of
the departments capacity. But rather than simply
shrink the department by 20 percent, HR and
IT leaders worked together to redeploy a group of
high performers as a fex team devoted to
overlooked long-term initiatives. Among their
frst successes: overseeing the IT integration
of a large, newly acquired business without hiring
additional personnel or outside contractors.
Communications and monitoring
the people pulse
Changes in leadership, team structure, and
performance transparency can be deeply stressful
for frontline employees and middle managers.
That leads to HRs next major contribution, which
is to help with communicating the transfor-
mation, monitoring employee reactions to it, and
addressing concerns that arise.
At the earliest stages of a transformation, one of
the basic tasks for the leadership team is the
development of a communications plan.
1
Attuned
to employee sensitivities and to contractual
and statutory requirements, HR professionals
are well positioned to help craft messages
and strategies that will encourage rather than
undermine employee buy-in. And as the
transformation launches, HR can help build the
communications capabilities of leaders
and managers charged with persuading the
organization to give its backing.
EDC has benefted from having
some senior managers who were
excellent leaders in the lean-
management environment. Our
next step is to inculcate that
mind-set across the entire group.
Susanne Laperle, retired
senior vice president of HR and
communications, EDC
1
Steve Sakson and George
Whitmore, Communications
strategy: A vital (but
often overlooked) element
in lean-management
transformations, McKinsey
Operations Extranet, 2013.
Leaders will then need to know whether the
communications are working, and HR can add
tremendous value in helping fnd the answer.
Some take advantage of mechanisms that many
organizations already have even before a
transformation, such as periodic employee-
engagement surveys. HR can adapt this
infrastructure to add lean-management elements
and to conduct more-frequent pulse surveys,
which ask how transformed teams feel about their
progress on an easy-to-understand set
of measurements.
Others build upon standard lean-management
tools, such as the foor walks in which leaders
go and visit working teams in person to
see how work is being performed and help solve
problems. HR can work with transformation
teams to add special-purpose walks designed to
observe employee engagement and gather
informal feedback. A fnal option is to work with
the communications function to establish
listening teams expressly charged with
assessing communications (see sidebar The
listening team).
Integrating lean management into
the talent system
Among the most visible legacies of a lean-
management transformation are the tools and
practicesthe skills matrixes and coaching
instructions and performance-dialogue formats
that fundamentally redesign how people
do their work and engage with customers and
colleagues. When executed consistently,
the result is a new set of cultural norms.
Maintaining the lean-management knowledge
base and transmitting the mind-sets to current
and future workers will depend to a great
degree on HRs core talent systems for recruiting,
training, people development, and compensa-
tion. Those will need their own adjustments and
improvements as part of constructing the
transformed organization.
Recruiting. The most forward-thinking organi-
zations recognize that instilling lean-management
values in employees begins even before the
frst interview, when defning the profles of ideal
job candidates. HR will therefore need to
update job descriptions and related documents to
incorporate lean characteristics and behaviors.
Recognizing the importance of strong teamwork
in its business, the global asset manager
redrafted its recruiting materials to present
itself as a place where people could join
and build great teams. Likewise, recruiting teams
and interviewers may require retraining so
that they understand and recognize important
lean-management skills; for the asset manager,
that meant guiding interviewers to ask
candidates more about their experience in high-
performance teams.
Training. Once a candidate joins the organiza-
tion, the onboarding and training programs must
incorporate lean-management principles,
85
systems, and tools as well, both for initial
orientation and for later growth at every career
stage. To build these resources, organizations
should partner with the transformation team to
spread their capability-building practices and
materials throughout the company. Hard skills,
such as value-stream mapping or capacity-
management analytics, may attract more atten-
tion at frst because they seem more tangible.
But lean managements most important skills
are generally softer: coaching, facilitating
meetings, recognizing and solving problems,
discussing performance trends in the open,
and eliminating single points of dependency.
These are more diffcult to convey and require
more effort to reinforce. For the steelmaker,
that meant not only creating a new internal certi-
fcation program but also limiting the top
certifcation levels to candidates who themselves
became trainers. Making the trainer role
so prestigious underscored the importance of
capability building while also reducing the
companys reliance on external trainersand
ensuring that the training itself was more
credible, since it came from people whom the
employees already knew.
The best way to nd out if a communications
strategy is working is to ask the people being com-
municated with. The challenge, however, is
getting enough people within a giant organization
to open up and provide an accurate cross-
section of views. Focus groups, surveys, and
interviews are ne, but they are labor-intensive and
can be costly. There is an additional resource
that will cost less and can provide a more nuanced
view: we call it a listening team.
The team generally includes up to 12 managers,
from senior executives down to the front line. They
may come from different parts of the organiza-
tion, with different ranks and tenures, but all must
have a reputation as someone people trust.
Each listening-team member makes listening to
his or her people a core job responsibility
through everyday conversations, huddles, and
even occasional interviews of inuential
employees. Every two weeks or so, the team
The listening team
meets (with a communications manager initially
acting as facilitator) to compare notes. Is the
communication getting through? Does there seem
to be buy-in? Are any groups struggling to
let go of old ways? Are any policies, practices,
or structures impeding the transformation?
What additional information, skills, or assistance do
people need? What new channels are available?
The existence of the team should be well-known,
and everyone should be invited to speak with
team members. This way, everyone will understand
that leaders respect and want their views.
The team codies ndings and then reports to
transformation leaders, who must take visible
action to address concerns and communicate this
action broadly.
Steve Sakson is an independent New Yorkbased com-
munications consultant, and George Whitmore is a senior
communications specialist in McKinseys London ofce.
Steve Sakson and
George Whitmore
People development. The third core talent
system, people development, will undergo a sea
change as individual and team performance
become far more transparent throughout the
organization. Structures designed around
high-stress, high-stakes annual or semiannual
reviews must evolve to support ordinary,
everyday conversations about how work is
progressing and where it could improve.
The substance of the evaluation will change
dramatically as well. Throughout the organization,
people from the CEO down to the front line will
need to be assessed based in part on how
well they role model and follow lean-management
practices. Managers and executives should
be scored based on their commitment to revamp
their schedules to emphasize feedback and
coaching, while frontline workers should demon-
strate root-cause problem solving.
Compensation. Finally, in most organizations,
compensation and incentive design may need
a radical overhaul, particularly as leaders begin to
redefne what they mean by a star performer.
Whereas in the past, star performers were likely
to be considered great mainly at specialized
skillswhether writing software code, answering
customer calls, or selling fnancial products
the star performer in a lean-management organi-
zation will need to be great at developing others
and solving problems, in addition to the technical
requirements of their jobs. The most valuable
team member may not be the one who produces
the most but the one who can stretch to use
many skills, without necessarily being the best at
any of them.
That may mean moving to compensation plans
that emphasize the performance of the team
and the company rather than the individual. One
emerging-market bank now uses individual
performance metrics solely for assessing peoples
development needs. Compensation is entirely
based on group- and company-wide metrics
creating a powerful incentive for high performers
to coach their lower-performing peers.
Integrating lean management into
the leadership model
Coaching, feedback, capability buildingtogether,
these shape the new leadership model.
2

As current and future leaders learn the new
behaviorsand learn to exhibit them
they will need comprehensive support. HRs
2
Laura Costello and
Remco Vlemmix, Building
lean leaders, Lean
Management: New frontiers
for fnancial institutions,
mckinsey.com, 2011.
Each of us is assessed based
on how we are developing from
a lean managementbased
perspective, including details such
as how we ask questions
to get feedback. We now
have a whole slew of tools to
reinforce these core ideas,
both from a performance-
management perspective and as
a development matter.
Catherine Decarie, senior vice president
of HR and communications, EDC
87
A conundrum that organizations face relatively
early in a transformation is that for HR personnel to
provide effective support, they need to under-
stand lean managementand the best way to
learn lean management is to experience a
transformation themselves. But an organizations
circumstances often lead it to favor other
business or functional units to go rst, so that
the HR departments transformation starts
one or two years later.
As a result, in working with dozens of companies
undergoing and sustaining lean-management
transformations, we have seen three broad
engagement models emerge. The choice of which
is best depends largely on how familiar critical
HR leaders are with lean concepts when the trans-
formation begins. In a few organizations, HRs
lean capabilities are already deep enough (typically
from earlier, small-scale transformations) that
the function can credibly lead the transformation.
One European telecommunications company
followed this model, with HR leading a ten-person
change-management team that is now learning
lean and will lead a transformation across much of
the enterprise.
More typically, however, HR does not have prior
lean-management experience, and staff must learn
as they go. This can be challenging and even
intimidating. When its possible for HR to begin
early in the timeline, HR can role model the
transformation for the rest of the organization and
feel more condent in its ability to partner with
the change team on the topics discussed in this
article. One multinational telecom operator
How HR engages in the transformation
followed this approach when it decided to
transform its business-support functions, including
nance, legal, and the HR function itself. HRs
success therefore had a double impact: it gave the
transformation credibility while also helping HR
nd the capacity to be much more effective for the
remaining stages.
When that is not feasibleas is often the case
the third option, shaping the transformation,
allows important stakeholders in HR to build capa-
bilities while supporting the transformation of
a different unit. Given conicting demands, it may
be tempting to allocate HR staff on only a
part-time basis. In practice, however, learning lean
management requires more commitment than
most people can give to a part-time role. Its usually
more realistic for an HR specialist to serve as a
business partner or even an on-the-ground change
agent for the unit to be transformed, learning
both lean-management concepts and the needs of
the unit at sufcient depth to achieve real impact.
A leading multinational property-and-casualty
insurer successfully applied this model in
transforming its businesses in the United Kingdom.
In the initial phase, a senior HR executive
devoted a large percentage of her time to the entire
rst phase of the transformation of one of
the insurers operations centers. As she learned
the concepts, she began teaching her HR
colleagues, enabling them to nd their own
efciencies. As a result, HR was able to support
the expansion of the transformation with only
its existing resources while also continuing to meet
its ongoing responsibilities.
resources will be called upon to incorporate
lean-management concepts into the leadership-
competency model, to design and implement
lean leadership programs to complement existing
leadership-development resources, and to
revise leaders coaching and feedback mechanisms
with new mentoring opportunities.
Once these changes are complete, HRs ongoing
responsibility will be to revise and realign
them continually as the transformed organizations
priorities evolve. At the steelmaker cited earlier,
the top leaders have further demonstrated their
commitment by rapidly promoting candidates
with lean skills. Several of the transformations
champions have been appointed to top execu-
tive roles, while a functional specialist who joined
the transformation team early on was promoted
to a senior-manager position after two years
instead of the usual ten.
A successful transformation based on lean
management produces a profound cultural change,
with major impact for the organizations people.
As the shaper and custodian of people practices,
the HR function will be instrumental to
sustaining that new culture for the beneft of the
organization, its people, and its customers.
The authors would like to thank Alison Jenkins for her
contributions to this article.
Erin Frackleton is an associate principal in McKinseys
Washington, DC, ofce; Robert Girbig is a senior expert in
the Hamburg ofce; David Jacquemont is a principal
in the Paris ofce; and AJ Singh is an associate principal in
the Dubai ofce. Copyright 2014 McKinsey & Company.
Table of contents
89
By incorporating lean-management
principles from an early stage,
a Gulf-based shared-services provider has
increased employee engagement and
effectiveness, even while growing rapidly.
Lean management
from the ground up in
the Middle East
An interview with Suhail Bin Tarraf, CEO of Tanfeeth
Tanfeeth, whose name is Arabic for get-
ting the job done, is a United Arab Emirates
(UAE)based shared-services provider and
a subsidiary of Emirates NBD, one of the Gulf
regions largest banks. Tanfeeth has been
growing rapidly by working with clients to drive
improvements in quality, effciency, consis-
tency, and cost of voice and data in business
functions such as call-center operations,
collection services, fnance and accounting, HR
services, and banking operations.
Although Tanfeeth was founded only at
the beginning of 2009, it is already branching
out beyond its initial focus on supporting
Emirates NBD to serve other organizations
as well.
CEO Suhail Bin Tarraf, having helped steer
the HR integration of the 2007 merger
between Emirates Bank and National Bank of
Dubai, recognized an opportunity to build
a new organization based on lean-management
principles. Through enhanced productivity,
cost management, professionalism, and employee
engagement, Tanfeeth has already delivered
a net fnancial impact of 36 percent to the
parent company.
McKinsey spoke with Mr. Bin Tarraf at his offce
in Dubai.
McKinsey: Lets start at the beginning
how did you get the idea to create a service-
excellence company?
Suhail Bin Tarraf: I was born and raised
in Dubai. Dubai is a very young place. You can
see all the skyscrapers, but Ive found
that some business practices and manage-
ment systems have yet to catch up with
the infrastructure.
One basic concept thats still developing is
the idea of a service-level promisethe bar is not
yet set. For example, if you apply for a credit
card and you know that getting the credit card
will take three days, thats the promise. Then
its possible to enhance it to become two days or
less. That whole concept does not exist in
this region.
We saw an opportunity there. In banking,
for example, the products are quite similar these
days; its the service that makes the difference.
But what is service, and how do you measure it?
We set up Tanfeeth to fll this gap. We help
our clients provide better and better service to
their customers.
McKinsey: You set out to make Tanfeeth lean
right from the beginningwhy did you do that?
Suhail Bin Tarraf: Im always trying to make
things work better. Even in my HR days, an
important goal was to fnd ways to bring our HR
philosophy closer to a business approach. At
a visit to a lean-management program at a UK
bank in 2009, I saw a way of working and
managing that complemented my thinking and
style. So I was already a natural believer.
As we began building Tanfeeth, that experience
confrmed for me that lean management is
what Tanfeeth needs in order to fulfll its promises
and compete differently in our market.
McKinsey: What did you fnd so appealing
about lean management?
Suhail Bin Tarraf: It helps explain important
ideas to our people. Lean management gives
us rigorous ways to design our processes and
management systems. Moreover, it all
makes sense to our people and helps them
build their skills.
91
McKinsey: What are your objectives for lean
management at Tanfeeth?
Suhail Bin Tarraf: For me, success is quite
simple. Number one is for Tanfeeth to be the
frst-tier service provider in the region
one with robust management systems that are
hard for others to copy. We call our new
way of management the Tanfeeth Operating
Model (TOM).
Number two is to become a talent institute. If we
overinvest in our talent for the future, we
will create sustainability and push Tanfeeth to the
next level of performanceand further.
McKinsey: How is lean management helping
you to achieve that?
Suhail Bin Tarraf: Its a mixture of things. It
helps us focus on our clients promises to
their customers. Superfcially, a loan application
may look like just the beginning of a process.
But to the customer its much moreit might be
paying for a childs tuition or buying a house.
Lean management helps us, as well as our clients,
see how our process is just a step in making
that customers goals happen. Equally important
is the transparency that lean management
creates. Here your targets are so transparent that
your manager cannot question whether or
not you have delivered them. In fact, you can
question your managers if you dont agree
with their assessment.
It starts from my offce. I keep a visual-
management boarda large whiteboard showing
current performance at a company-wide
level. So does everyone on our executive team.
Our boards are there for all to see.
But none of this will work unless people embrace
it. Thats the third thing about lean manage-
ment thats so importantits not a project, its
a culture. This is something we have worked
hard to create, and its the reason for our success
so far.
McKinsey: How have you created your culture?
Suhail Bin Tarraf: It took us around six months,
running two to three workshops a week with
Suhail Bin Tarraf
Suhail Bin Tarraf, CEO of Tanfeeth, has 11 years of experience in the
United Arab Emiratess banking sector, specializing in HR and
organizational development. Before his appointment as CEO, he was
Emirates NBDs general manager of HR. This role included leading
the HR integration process for more than 8,000 staff members during the
merger of Emirates Bank and the National Bank of Dubai in 2007.
Mr. Bin Tarraf holds a bachelors of business administration from
the American University in Dubai and an MBA from the International
University in UAE.
Lean management from the ground up in the Middle East
the leadership team, to come up with the vision,
the mission, the fve values, and the behaviors.
But it was worth it. Senior management knows
it inside and out and believes in it. And the
managers cannot say, Oh, some consultant gave
it to us. We created it ourselves. That itself
shows, for lack of a better word, belongingness
which is very important for any organization.
McKinsey: Is belongingness one of your
fve values?
Suhail Bin Tarraf: Not that exact word, but
one team is, and that includes an element
of belongingness.
Continuous improvement is a value that we work
hard on, because our journey has just started
and its still evolving. The mind-set were trying to
instill is that its OK to make a mistakethat
way, more problems will be raised and
more improvements will be implemented by
people closer to the work.
Respect means more than just the basics
of respecting timearriving on time, leaving
on time, focusing on the meeting youre in,
responding to your e-mailsor diversity, religion,
gender, and so on. It means developing
your skills to their fullest potential and helping
colleagues develop theirs as well.
Integrity, for us, means that what we say and
what we promise is what we deliver. If
you promise something, you make sure that
you deliver it.
And, of course, customer comes frst.
For example, this evening I have a meeting at
8 oclock with a client. We never say no!
McKinsey: What does it mean to live up to
those fve values on a day-to-day basis?
Suhail Bin Tarraf: I spend 50 to 70 percent of
my time on the foor, with foor walks every
day. At frst staff were uncomfortable, but now
they smile and say hello and open a conversation.
They tell me the issues theyre facing and ask
for help when they need it. Recently, for example,
in the call center, one of the agents said that
the older agents were handling more calls than
the new agents because theyre more experienced.
This was something Id already picked up on
three weeks earlier, and so I was able to explain
that were putting a training program in
place. They hear from me directly that were
working on things.
I also do weekly town halls; during these,
we have reward and recognition sessions, talent
shows featuring employees, and Q&As where
This offcethe CEOs offce
can be quite lonely if you let it
be . . . I dont want to be lonely,
so I go out and spend time with
our people where they work.
If you visit people at their level,
theyll respect you.
93
people can ask me any question they want. This
is something that I am pretty sure never existed
here in the region before Tanfeeth.
Finally, I have an Ask Suhail portal where
they can ask me any question and Ill respond
within 48 hours.
Being open to this feedback is new for me. Before
I just assumed people were happy. But now
I sit down and do process confrmations with
agents and managers at every levelshort
one-to-one sessions where we talk about how the
process is working and what their issues, pain
points, and challenges are.
This offcethe CEOs offcecan be quite
lonely if you let it be. If you want to be lonely, its
your call. I dont want to be lonely, so I go out
and spend time with our people where they work.
If you visit people at their level, theyll respect
you. Its an expectation we have set for all execu-
tives. On every foor, every performance
board has a place for the relevant executives to
sign it each time they visit. If we see too few
signatures, that is a problem we address quickly.
McKinsey: What should the lean leaders
priorities be?
Suhail Bin Tarraf: For me, the most important
thing is the people who work here. Its as
simple as that. Im a cost to themthey pay
my salary.
My one piece of advice to lean leaders would
be to use the day in the life of, or DILO, exercise,
where you go through and record everything
that you do for a day. Thats what gave me the
time to go to the foor. I used to get stuck in
a lot of meetings, but now I choose my meetings
so that I can keep my 50 to 70 percent commit-
ment to be free to walk the foors. I leave a lot of
tasks to the executive committee and make
sure our schedules are synchronized. Executive-
committee meetings always take place after
noon, because in the morning we are all taking
care of the foors. That has to come frst.
This is all part of our structured root-cause
problem-solving process, through which issues
get raised to the executive-committee level.
Most of our meetings then focus on resolving
problems as a group, which is a much
better use of our time than the standard execu-
tive meeting.
McKinsey: It sounds as though you have had to
change yourself as a leader, too.
Suhail Bin Tarraf: It feels like growing ten
years in one year. Once you accept that you need
to learn, you open up to new ideas, to feedback,
and to challenges.
I went back to basicsI realized that I had to be
part of the call center, to sit in on the call, to
see the application and how it works. That shows
everyone that problem solving is critical
throughout the company, from bottom to top.
Its important to go back to simple stuff. I believe
everybody is responsible enough and smart
enough. No one person can do it alone, so we
empower our people. Believe in your people.
And have fun!
McKinsey: What was the biggest challenge
you faced?
Suhail Bin Tarraf: I underestimated the need
for HR capacity. There were HR issues on
the foor, such as poor punctuality and low levels
of staff engagement, which were taking up a
lot of the foor managers time. Some of
the foor managers did not yet have the people
skills to handle this effectively. We came
up with the idea of introducing line HR on
the foors.
McKinsey: How does line HR work?
Suhail Bin Tarraf: For every 200 or so
employees, we dedicate a line-HR professional
who works with the local operations team to
monitor the groups pulse. That individual helps
reinforce our organizational values while also
ensuring that any HR issues that employees raise
get addressed. Its a structure that allows us
to make our talent, evaluation, reward, and recog-
nition practices all work in an unbiased way.
McKinsey: Youve touched on performance
management. What else can you share with us
about that?
Suhail Bin Tarraf: Transparency is essential.
Robust performance management helps
managers systematically develop their teams
capabilities and at the same time meet
budgetary and performance goals. Thats what
success is for us.
McKinsey: Youre rapidly expanding into new
areas. How do you manage that process?
Suhail Bin Tarraf: Our approach is to break
a nine-month transition into three phases of
three months each.
The frst three months for a foor is chaotic.
We introduce TOM and redesign the processes.
The agents are totally confused.
The next three months are the harvest, when you
start seeing the fruits, the crop. The staff is amazed
by the performance gains and proud of their
ability to deliver on promises to customers. They
feel more connected to the way we achieve
these outcomes: the sense of community that
arises with the daily huddles, weekly problem-
solving sessions, and town halls. Agents
shift gears and think, Yes, this is a better way of
working . . . this is change we want.
The last three months are when we see a big
increase in the number of improvement
ideas coming from the foor. They can sense
their empowerment; they feel encouraged
to question things.
McKinsey: In building a lean institution, you
traveled the world and picked top senior
talent from a wide range of organizations and
cultures. How did you bring them together
around a single lean-management culture?
Suhail Bin Tarraf: All of them came with their
experiences, and all of them wanted to implement
their own ideas. What turned them on to
lean management was a visit to a US bank. Most
of them saw the beneft of lean management
and embraced it that day. From then on, they
didnt need pushing anymore; they started
to preach the concepts themselves.
McKinsey: I know that part of your aim as
a talent institute is to help Emirati development
by creating opportunities and building skills.
How are you doing that?
Suhail Bin Tarraf: I want to develop Emiratis
and all talented individuals in this region
we do not differentiate between Emirati and
non-Emirati. An Emirati goes through
the same regular training as everyone else. He
or she is competing with expatriates who
have world-class talent.
95
Theres a huge gap between new hires who are
expats and those who are UAE nationals. Expats
typically have four or fve years experience,
while a national will be a fresh graduate. Our job
is to shrink that gap.
We use a graded approach that monitors their
progress on a quarterly basis. We allot a
buddy to them and enroll them in our mentor
program, where high-potential employees
get to mentor two or three people over a period
of nine months. But again, this applies to
nationals and expats alike.
McKinsey: Is your selection process
different, too?
Suhail Bin Tarraf: As we do for all our
employees, we think hard about what type of
Emiratis to source. Are they hungry for
change? Are they ready to challenge the status
quo? In addition to talent, do they have fre
in the belly?
We also think about how to develop them.
We want them to add value to the organization
rather than to be a cost. Were starting
to send them abroad to understand different
cultures, so they move out of their fshbowl
and see another fshbowl.
We want to train them to become our leaders of
the future.
McKinsey: What would you do differently if
you had to start all over again?
Suhail Bin Tarraf: I always think about that. I
would not rush the process as much as we
did. We went from 200 people to 2,000 people in
less than 18 months, and the sheer volume
that we had to handle in the transformation
was unbelievable.
Second, I would spend more time and effort to
make sure the team embraces the culture so that
it becomes one team and takes care of itself.
Last, Id build in the line-HR element earlier so
that its integrated with the operation.
McKinsey: What would you say to somebody
thinking about trying lean management?
Suhail Bin Tarraf: If we hadnt gone with a
management system based on lean principles, in
the very best case, it would have taken us
many years to get to where we are now. With lean
management we have a rocket booster on our
backs. It provided us with a system and structure
for accelerating our journey.
Table of contents
96
Three success stories illustrate how
emerging-market organizations
are using lean management to navigate
around constraints and inspire new levels
of commitment from their people.
Lessons from
emerging markets
97
Like their peers elsewhere, by the end
of the last decade, leading services enterprises in
places such as Latin America, the Indian
subcontinent, the Middle East, and sub-Saharan
Africa were applying lean-management ideas
to reimagine their business models. The changes
that the early movers made enabled them not
just to respond to growing customer bases but to
expand them even further, as lower costs and
greater fexibility meant that previously unreach-
able populations could become attractive
market segments.
1
A more recent wave of transformation, however,
shows how quickly emerging-market organi-
zations priorities are changing. Having resolved
many tangible problems such as paper-heavy
processes and ineffcient branch layouts, these
enterprises now face what for many of them
is their greatest challenge: successfully developing
people to their fullest potential and reducing
high levels of variability in their effectiveness.
Admittedly, the term emerging markets is a very
large umbrella for countries and regions with
wildly varying cultural contexts. Yet despite their
diversity, a few commonalities form a powerful
set of reasons for emerging-market organizations
to address their people issues head-on. Probably
the most serious is one that organizations almost
everywhere will recognize: shortages of talent,
which are most acute in emerging markets but are
being felt to some degree worldwide.
By tackling the issues directly through three
distinct types of comprehensive intervention,
emerging-market organizations are accomplishing
much more than their leaders would have
thought possible and in much less time. A Middle
Eastbased telecom company recently raised
customer satisfaction for its store- and feld-based
operations by 15 to 35 percentwhile also
reducing store wait times by 50 percent and
repeat feld visits by 40 percent. At a Latin
American banks commercial-lending operation,
total processing time fell by between 30 and
70 percent, and productivity rose by 15 to 25 per-
cent. In India, a leading retail bank increased
sales productivity by 50 percent while almost
tripling its customer-satisfaction scoresin effect,
a triple play of better customer relations, reduced
costs, and increased sales.
Moreover, the success of these organizations in
overcoming people challenges came from
applying lean-management disciplines. Their
stories therefore provide lessons that any
organization can use.
Three success stories
Some of the concerns common among most
emerging-market organizations refect the strains
inherent in high growth. Seizing the moment
when millions of people are becoming consumers
for the frst time, leaders understandably
focus more on the revenues to be earned than on
the costs to be avoided. Regulatory systems are
in constant fux as policy makers respond to rapid
change. And customer needs are more diverse,
with traditional and modern cultural norms oper-
ating in tandem as rising incomes expose
consumers to new experiences.
But as different as these pressures may appear to
be from those that most affect companies in
North America or Europe, the result is actually
the same: a need to maximize value from
limited resources. And in emerging markets, to an
even greater extent than elsewhere, one of the
most limited resources is that of skilled talent.
2
Talent shortages are both a result and a cause of a
second factor that exacerbates people issues:
the more rigidly hierarchical organizational model
Khurram Masood,
Francisco Ortega,
Joydeep Sengupta,
and AJ Singh
1
Marco Breu, Francisco
Ortega, and Roeland
Vertriest, Capturing growth
in emerging markets
through lean, Lean Manage-
ment: New frontiers
for fnancial institutions,
mckinsey.com, 2011.
2
Martin Dewhurst, Matthew
Pettigrew, and Ramesh
Srinivasan, How multina-
tionals can fnd the
talent they need, Winning
the $30 trillion decathlon:
Going for gold in emerg-
ing markets, mckinsey.com,
August 2012; for advanced
economies, see Byron
Auguste, Susan Lund, James
Manyika, and Sreenivas
Ramaswamy, Help Wanted:
The Future of Work in
Advanced Economies,
McKinsey Global Institute,
March 2012.
found in many emerging markets,
3
in which
promotion often depends mainly on a willingness
to follow instructions. Having risen under that
model, line leaders and middle managerswhose
example everyone else will followtend to see
change as a threat. And, lacking support from this
crucial constituency, frontline employees may
show little interest in changes that at frst glance
seem to require more of them.
Yet perhaps because of these constraints, three
successes illustrate how the unusually intensive
application of lean management has helped
emerging-market organizations achieve real break-
throughs. The frst focuses especially on the
middle-management layers, where resistance to
change is often strongest. In the second, the
organization sought to cut across hierarchies and
unleash frontline entrepreneurship across
a sales organization. And the third example shows
how an organization can integrate its functions
and businesses into an ecosystem that
supports change.
Middle managers: From stumbling
blocks to supporters
As intermediaries between corporate leadership
and the front line, middle managers play a critical
role both in transforming an organization and
later in continuing the improvement. But because
they are the information gatekeepers between the
decision makers at headquarters and the doers
in the trenches, if they perceive the proposed
changes as a threat, they can easily undermine all
of the leaderships transformation efforts.
Showing their opposition is easy: all the managers
must do is keep behaving as they always
have when not under scrutiny. But a few judicious
tactics have allowed several emerging-market
companies to turn their middle managers into
enthusiastic supporters.
Introduce radical transparency. The frst step is
to weaken middle managers chokehold on
information by creating many new channels
that allow data to fow directly to the top
teamand everyone else in the organization
as well. Part of the task is technical. With
modest investment, new reporting can collect
data automatically and distribute information
on basic trends to all levels of the organiza-
tion. But even more important is the discipline
to monitor and use data effectively. Some
of that will come from the cascade of daily and
weekly huddles and meetings, which center
on data review. But they may not be enough to
ensure follow-up. Again, greater transparency
provides an answer: one Indian bank set
up web-based issue-escalation groups using
popular messaging platforms such as
WhatsApp. The company set clear rules for the
types of issues and ideas to be discussed in
each group, along with a messaging template for
effective communication and governance
mechanisms to aid in tracking, prioritizing,
and implementing the resulting actions.
Obstacles surfaced earlier, the potential benefts
from fxing them became clearer, and correc-
tive actions took hold faster.
Prioritize behavioral changes. People who have
spent their entire careers navigating the old
Identifying, recognizing, and
rewarding managers who are
thriving under a transformation
underscores how the changes
help managers succeed.
3
Ayse A. Akcal, S. Tamer
Cavusgil, and Pervez N.
Ghauri, Doing Business in
Emerging Markets,
second edition, London: Sage
Publications, 2013.
99
ways will question why they should revamp
how they operate. Simply ignoring skepticism
can easily become counterproductive, as
one Latin American institution discovered when
it tried rolling out changes more quickly than
its people could digest. Leaders then discovered
that it was more productive to encourage
managers to adhere to just a few core behaviors
that are crucial for lean management to
take hold: holding the huddles every day, for
example, or conducting data-based performance
dialogues with each team member. So long
as managers followed the norms, they could
have even more leeway to lead their teams.
From the COO on down, leaders rigorously
employed weekly process-confrmation
meetings to check that managers were following
the norms, with results tracked on white-
boards; the metrics varied with the managers
seniorityranging from process execution
for frontline team leaders to company-wide
employee- and client-satisfaction scores
for the C-suite. The transformation once again
progressed, with productivity in specialized
functions doubling and the company
winning national recognition for its delivery
of customer service.
Celebrate rising stars. One of the most effective
ways to boost momentum among middle
managers is to spotlight those who are cham-
pioning the transformation and thriving as
a result. Identifying, recognizing, and rewarding
these individuals in a highly public way
shows how the changes help managers succeed,
spurring healthy competition. During its
transformation, the Indian bank added new,
change-oriented performance indicators
to managers evaluation metrics, which the bank
built into an easy-to-read dashboard that
highlighted high-potential individuals. Those
candidates who showed sustained promise
were celebrated under a new, well-publicized
elite rewards program and became eligible
for exclusive training programs designed to
accelerate their trajectory.
Lessons from emerging markets
Combining these tactics can have dramatic
effects, especially when a transformations energy
starts to fagas at the Indian bank, where
hard-won cost reductions were gradually inching
up after huge initial victories. Within ten
months of the middle-management intervention,
turnaround times had fallen by a further
38 percentage points and cost by more than
20 (exhibit). Both fgures were more than
double the initial outcomes.
Uncorking an entrepreneurial genie
Even a fully committed complement of leaders
and managers will achieve little unless
the frontline employees with whom customers
interact every day change as well. But in intensely
hierarchical environments, workers may have
little control over what they do or how they do it,
reducing them to the status of order takers.
The resulting box ticking mentality may leave
the organization with few avenues to generate
new ideas or improve service quality.
As one Middle Eastern service-sector company
discovered, the key to turning that around lies in
the prime coping mechanism that employees
use in large organizations: entrepreneurialism,
albeit of a kind that may help the employee
more than the company. Too often it remains
hidden. Employees do whatever it takes
After intervention, middle managers produce top results.
Emerging markets
Exhibit 1 of 1
Impact; baseline indexed to 100
Cost per transaction Turnaround time
Transformation
kicked off
Middle-
management
intervention
initiated
After middle-
management
intervention
2011 May
June
May
June
July
August
September
October
November
December
January
February
March
April
2012
100
84
87
90
84
72
74
71
67
72
75
70
71
73
100
100
70
70
50
41
35
35
32
37
30
33
42
37
Exhibit
101
to work around hurdles, often achieving superior
results but in a way that sometimes raises risks.
Moreover, the type of knowledge these employees
acquire becomes a sort of currency that
makes them more valuable compared with their
colleagues, so they have no reason to share it.
What an organization must do is unleash this
entrepreneurialism in a guided way, so that the
gains accrue more broadly across the enter-
prise. The Middle Eastern companys leaders did
that through a radical competition model
that loosened central control over sales
employees, encouraged voluntary learning and
capability building, made the operating
system more fexible, and completely revamped
the incentive system.
The company replaced a rigid, prescriptive
sales approach with one that was much more open
and transparent. Each high performer, or
champion, was required to assemble a team
among the salespeople, develop the teams
skills (by choosing among a broad range of tools,
support facilities, and learning modules), and
deliver excellent results. Top-performing teams
would then earn recognition and rewards, and
their champions would be eligible for special fnan-
cial and career incentives. To demonstrate the
programs importance, build enthusiasm, and
cruciallycross-pollinate effective practices
across the company, senior leaders met with teams
every two weeks in the company boardroom
to review the choices the teams made, assess the
ensuing results, and agree on actions based
on the lessons learned across teams.
Within three months, sales productivity doubled
in the companys mass segment; in the upper
segment, volume doubled while total portfolio
size rose by 10 percent. And management
came away with a much better understanding of
the changes that really worked in the feld,
pointing to which changes needed extra invest-
ment and which could be canceled.
Reshaping the ecosystem to create a
healthy environment for change
The third success story addresses the profound
disconnects between functions and businesses
that often lie just below the surface in most orga-
nizations. Better integrating the two sides
makes the entire organizational ecosystem more
productive and stable, and thus better able
to support change and respond to external forces.
Closer connections are especially important
during a transformation, when there is a natural
impulse to focus on operating units frst
(a tendency that is especially marked among
mature-market organizations). But a gap
can then emerge between the units being trans-
formed and the rest of the enterprise. Functions
that still operate in the old way and do not
Lessons from emerging markets
By bringing the support functions
into the transformation from
the very beginning, the company
was able to raise the performance
of both the business and
the functions.
understand the changes in process become
a hindrance to the transformed business rather
than a help. Given emerging markets talent
shortages, organizations operating in those regions
already struggle to make sure the functions
are truly capable of working in tandem with the
businesses as a general matter. Addressing
support-function capabilities has therefore proved
essential for emerging-market transformations
to succeed.
For one expanding service provider, that
limitation actually became an opportunity. By
bringing the support functions into the
transformation from the very beginning, with
support-function staff dedicated to the
team leading the change and applying the same
concepts to their own work, the company
was able to raise the performance of both the
business and the functions.
Where necessary, functional specialists worked
with the businesses on a full-time basisin
some cases, even working in person alongside
business personnel so that they could
understand the support needs more clearly. HR
specialists, for example, were embedded
in each business unit, with their performance
assessed jointly by the business and HR
against metrics that related both to HR and
business outcomes. Tight integration
allowed the specialists to focus on understanding
frontline employees concerns, addressing
them quickly to minimize any effect on morale,
and creating an early-warning system
to reduce unwanted attrition among hard-to-
fnd talent.
Under a slightly different approach, IT staff
joined the companys continuous-improvement
team, which was responsible for supporting
each unit through the most intense period of
transformation. Using a shared-service model,
ITs budget was controlled in part by the
businesses themselves, ensuring closer alignment
in tailoring IT solutions to meet the businesses
new performance goals.
The company is now growing quickly. Employee
satisfaction has doubled. And the functions are
improving their results as well: the time it takes to
fll a vacant position has fallen by 75 percent,
while IT is enabling 5 percent effciency improve-
ment per year through greater automation.
As the worlds interconnections become more
complex, organizations everywhere are realizing
that they have much to learn from their peers
in emerging marketsideas they can use both
abroad and at home. Increasing economic
uncertainty means that now is the time for
a better understanding of what works with lean
management, reaching beyond process
improvement to the people who make processes
and real transformationpossible.
The authors would like to thank Pablo Correa, Andy Eichfeld,
and Pishu Ganglani for their contributions to this article.

Khurram Masood is an associate principal in McKinseys
Dubai ofce, where Joydeep Sengupta is a principal
and AJ Singh is an associate principal; Francisco Ortega
is a principal in the Buenos Aires ofce. Copyright 2014
McKinsey & Company. All rights reserved.
Table of contents
103 Lessons from emerging markets
Discovering better ways
of working
105
Most companies, and most leaders, have developed a bias toward tackling
what we might call rocks: large, top-down interventions such as
reorganizations, IT investments, or mergers. For most organizations, the
hierarchy, performance metrics, and interaction rhythms all center on
managing rocks, which usually translate to projectseach with a manager,
a set of objectives, and milestones.
But business isnt all about rocks. There is also sand: the innumerable small
issues that cumulatively can wreak havoc on daily work. Sand can take
the form of applications that always seem to have errors, progress updates
that arrive too late, or workloads that skyrocket and then crash. Sand
is ubiquitous, especially at the front line. But a project-based approach is too
cumbersome to work at such a granular scale: the only way to deal with
sand is to catch it as it comes in and constantly sweep it away. That means
empowering, coaching, and trusting people at all levels of the organization
to see the problems (the sand) all around them, trace their root causes (where
the sand is coming from), and take steps to solve them (to sweep
the sand away).
To understand what good problem solving looks like, we pay another visit to
Mary and her team. Her experience shows that treating problems as
opportunities to improve, together with applying the principles, tools, and
mind-sets that lean management fosters, effectively weaves problem
solving into the fabric of an organization. Instead of dismissing everyday
operating problems as routine, too trivial to bother with, or unxable,
lean organizations seek problems out, search relentlessly to nd their root
causes, and engage the people most affected by them in helping to
develop a cure.
Process
confrmation
Lean tools and
behaviors
Standard work
Clear, quantitative
description of
problem with impact
Team-based
problem resolution
Capacity set aside
for problem solving
The frst of
fve whys
Assess
current state
Test of hypothesis
Test of solution
Implementation
The second of
fve whys
Reaching for
root cause
Tactical
implementation
plan
Finding a problems deeper sources
Monday
Axel is meeting with Eric to conrm the process for a new type of claim. Erics screen freezes
as he enters the providers code, so he starts over, losing 15 minutes of work. The claim is fnally
accepted, but Axel notes that the standard turnaround is supposed to be 20 minutes.
Wednesday
Graciela experiences the same frozen computer screen. Axel starts to suggest a solution but
instead asks Graciela to start a problem-solving team with Eric. Shes skeptical: Is saving
15 minutes really worth it? There may be a deeper problem that affects other claims. If there
isnt, all we lose is some problem-solving timeand thats what its for. Axel makes a
note to discuss problem solving in Gracielas next one-on-one coaching session.
Thursday
Graciela, Eric, and Carlosan IT specialiststart by agreeing that the hurdle is the provider
code, which makes a 20-minute claim take 35 minutes. Graciela wonders if the eld is coded
correctly, and Carlos suggests testing a claim from a different provider. It goes smoothly.
But testing the same provider code Eric entered on Monday fails. Maybe its just that provider,
Eric suggests, but Graciela says that the code she entered was different. She asks, Why
would just these two providers be a problem? Carlos suggests meeting again after he does
more research.
Friday
Carlos explains that providers data systems record the code in two slightly different formats.
Why would that matter? Because the data export slightly differently to the spreadsheets
that he and his colleagues use to build claims forms. He discovered that the new form fails only
with one data format. When his colleagues applied the same format to all of the data and
updated the form, it worked consistently. A test with Eric and Graciela works; they validate it by
reverting to the old form one last time, which again fails. Carlos phones his colleagues to have
the revised form uploaded to all systems.
Friday
Axel is meeting with Mary when the problem-solving team fnishes the test. I think were done,
Carlos says. After Carlos describes the solution, Axel asks, Have you really reached the fnal
why? Meaning? Well, why do these forms still rely on data exported from spreadsheets?
Fair point, Carlos says. We discussed that with you last yearthere wasnt budget to build
a direct data link to the providers. Mary chimes in: Lets revisit it. This could really disrupt our
operations. I can reprioritize our budget. She asks Axel, Carlos, Graciela, and Eric to form
a new problem-solving team and makes a note to update her midterm plan to refect the change.
107
The problem solving that Marys team undertakes represents a signicant untapped source of
value in most organizations.
It starts with a careful procedure for assessing how the work is currently being performed.
Process conrmationsrst discussed in the introduction to section twoplay a role by
uncovering aspects of a standard process that may not be working as well as they could be.
When conducting a process conrmation, the leader is looking both at whether the team
member needs help and whether the standard itself needs revision.
Here, the issue with the process is clear: a technical glitch with the form. When it happens
twice in one week, Axel realizes that it needs a second look. He therefore asks his colleagues
who directly experienced the problem to form a teamthat way, the people working on
the problem can accurately describe what it is and the impact it is having on their work. Rather
than suggest a solution himself, he relies on his team to do so because they are closer to
the work.
When Graciela pushes back, suggesting that the problem is too small to bother with, Axel
reafrms that small problems are important. He understands that it is all too easy to allow
small problems to fester until they turn into big ones that are far more expensive and difcult to
cure. Moreover, he knows that his organization has allocated a certain amount of time
specically for problem solving. This step, crucial to enabling problem solving at scale, is
possible because of the productivity gains that a transformed organization achieves; in
essence, the organization reinvests some of the current productivity improvement to enable
further improvement in the future.
The dialogue among Carlos, Eric, and Graciela illustrates what a simple problem-solving process
should look like and how a team can avoid the typical pitfalls that make problem solving
so inconsistent in most organizations. The most important to resist is the impulse to jump to
conclusionssuch as Graciela did when she assumes the problem is a coding error or
Eric did when he suggests its only one provider that is at issue. But the team presses forward
in a more rigorous problem-solving process.
They start by dening the problem, comparing what should be happening against what
actually is happeningthe 15 minutes of lost productivity when the form fails. They identify
and test potential root causes, repeatedly asking why a particular result is happening.
Once Carloss colleagues have developed a solution, Graciela and Eric test and validate it.
Carlos then calls his colleagues to ask them to implement the x.
The team thinks that they are done, but in fact they are not. There are more levels of
questions to askclassically, root-cause problem solving suggests ve whys. Carloss
solution only reaches two whys, so Axel pushes the team further.
Discovering better ways of working
The nal conversation with Mary illustrates the power and limits of escalation. Her involvement
is necessary because there is a budgetary issue that only she can solve. But she does
not herself offer a solution; instead, as Axel did before her, she asks the people who know the
problem best to assemble a team.
In this case, the immediate problem has been solved, but a real resolution will be possible only
with additional effort over a period of several weeks, months, or perhaps even longer.
Accordingly, Mary adds it to her midterm planning. Sometimes referred to as a tactical
implementation plan, this provides a structure for working on longer-term changes
that may be necessary to resolve a problem fully, detailing the steps required to achieve the
change, when the steps will occur, and who will be responsible.
This sections articles and interviews touch on many of these points. The rst, Building a
problem-solving culture that lasts, identies the ve traits that leaders must develop
in themselves so that their organizations can solve problems consistently and effectively.
Those that do create a capability that is fundamental to continuous improvement,
not just for the organization but also for its employees, whose emotional investment in
their work deepens.
Next, Carlos Zuleta Londoo, chief operating ofcer at the Colombian pension-fund
administrator Porvenir, explains how the company is enhancing its industry-leading customer
experience while also improving productivity. He argues that innovation is not the search
for a big idea but rather the ability to keep implementing small ideas that have a powerful
cumulative impact. Additionally, he notes that the best ideas tend to come from the
people on the front line who serve customers and operate core processes day in and
day out.
The realization that leaders need to step out of the way and enable their teams to solve
problems for themselves is one of the messages in Performance from problem solving:
An interview with three leaders at MassMutual. As one of the companys executives points
out, the changes we needed to make were much more at the leadership level than at
the front line. It is also important to bear in mind the ultimate purpose a company is working
toward: solving problems is not the goal; the goal is to help the organization improve.
Table of contents
110
culture that lasts
117
Many small ideas add up
to big impact
An interview with Carlos Zuleta Londoo,
COO of Porvenir
123
Performance from
problem solving
An interview with three leaders
at MassMutual
Organizations cannot improve unless they
consistently seek out and solve their
problems. For most, that means undertaking
a profound cultural changewhich must
begin from the top.
At Colombias largest private pension fund,
lean management has unleashed innovation
across the organization.
At MassMutual, problem solving leads to
higher standards, which in turn mean
more problems to solve. The constant cycle
is raising performance at every level of
the organization.
109
110
Organizations cannot improve unless
they consistently seek out and solve their
problems. For most, that means
undertaking a profound cultural change
which must begin from the top.
culture that lasts
111
When a company engages its people
in problem solving as part of their daily work,
they feel more motivated, they do their jobs
better, the organizations performance improves,
and a virtuous cycle starts to turn. Such an
approach can tap enormous potential for the com-
pany and its customers. At one auto-parts
manufacturer, each employee generates an average
of 15 suggestions for improvement every year.
Over a period of 16 years, these suggestions have
helped secure major advances that reached well
beyond productivity to safety and quality.
So how can leaders unlock their organizations
problem-solving capacity? From our experience
with dozens of companies, a clear message has
emerged. Through a combination of blind spots
and habitual behaviors, leaders can unwittingly
impede the very changes they want to see. In this
article, we look at fve common traits that leaders
need to develop in themselves as part of a con-
scious effort to build a problem-solving culture.
1
Openness to talking about problems
On the face of it, talking about issues or
opportunities rather than problems sounds
like a good way to avoid sounding negative or
critical. In practice, though, great problem solving
begins with the ability to acknowledge problems
and a willingness to see them without judgment.
When an organization treats problems as bad
thingsas mistakes, defects, or failingsbringing
them out into the open will make people uncom-
fortable. But problems that stay hidden will
not get fxed. And problems that go unfxed keep
the organization from reaching its objectives.
The reluctance to acknowledge problems often
stems from the tendency to personalize themto
see them as someones (usually someone elses)
fault. Some leaders are quick to point the fnger
instead of taking the time to analyze problems to
uncover their root causes. Looking for a culprit
rather than a cause can be a hard habit to break,
even for those who know how damaging it
can be. One insurance executive was attending a
workshop on creating a continuous-improvement
culture. During a break, he got a call about
a systems foul-up that had triggered a deluge of
potentially confusing notifcations to a small
group of customers. Forgetting everything he had
just heard, the executive said, Whos responsible
for this? Wait until I get hold of them!
At the opposite end of the spectrum, some people
resort to avoidance strategies, skirting a
problem to keep the peace with colleagues. The
underwriting team at one commercial lender
shied away from discussing a particular problem
openly but told us privately they were con-
vinced it was caused by inconsistent practices
between their department and another. The
reluctance to speak out prevented the issue from
being recognized and studied objectively.
Neither attributing blame nor brushing a problem
under the carpet is helpful. Organizations
that embrace continuous improvement take the
opposite approach. They understand that
when a problem is properly identifed, the root
cause usually turns out to be not a particular
group or individual but an underlying factor that
the organization can address, such as a lack of
transparency, poor communication, inadequate
training, or misaligned incentives.
This means that organizations should see prob-
lems as something to prize, not bury. Raising
and discussing problems is not just normal but
desirable and critical to success. As one lean
leader told us, Problems are gold nuggets we
have to search for. Its when we dont have
problems that we have a problem.
Randy Cook and
Alison Jenkins
2
Willingness to see problems wherever
they may be
Before you can acknowledge a problem, you have
to be aware of it. Identifying problems, par-
ticularly before they grow into a crisis, is a skill
that can be learned. In lean thinking, all
problems can be attributed to some form of waste,
variability, or overburden. Learning how to
spot these factors as they arise is one of the most
important skills leaders and their organiza-
tions can develop.
Picture a bank supervisor who takes a call
from an irate customer demanding to know what
has happened to the loan she applied for two
weeks ago. What should the manager do? Tell the
customer her application is in the system and
she should get her decision soon? Track down the
application and quietly expedite it? Or go and
fnd out what is causing the delay and whether it
is affecting other applications as well? Only
the third option will enable the manager to bring
the problems real causes to light and get the team
involved in identifying and fxing it.
Problems are particularly diffcult to see when
they are hardwired into the way we do things
around here. For instance, some organizations
place a lot of value on certain tasks that their
best employees perform in order to work around
uncooperative business partners or cumber-
some IT work fows. Yet under closer examination,
many of these tasks turn out to add no value as
far as customers are concerned.
At one commercial lender, senior underwriters
were so inured to complex processes, multiple
hand-offs, and long delays that they had come to
defne their value by their prowess at navigat-
ing around these obstacles. Rather than wait for
automated updates on the cases they were
handling, they would routinely leave their desks
to tap specialists shoulders for the latest
information. The company was so oblivious to
the problem that it even began trying to
standardize the work-arounds and encouraging
others to follow them.
A reliable way to help individuals learn to spot
problems is to make the ideal outcome for their
work as obvious and easy to follow as the lines
between spaces in a parking lot. In one disability-
claims organization, claims managers were
given a brief list of questions to resolve during
initial phone calls with claimants. By provid-
ing an easily understood target, the list ensured
that the claims managers probed for critical
information, and it helped managers coach their
team members toward ideal performance.
Organizations can often achieve signifcant
improvements simply by exploring what
is preventing them from applying current best
practices consistently across the entire work-
force. Once they reach stable performance at this
level, raising the target creates a new gap to
be explored.
3
Understanding that small problems matter
Most large organizations design their processes
for managing big, top-down strategic inter-
ventionsreorganizing, migrating to a new IT
platform, or outsourcing a process. They have
well-honed routines for handling them: appoint a
manager, set objectives, and check progress at
regular intervals. If the effort fails to move in the
right direction or at the right speed, leaders
intervene. Leaders themselves, having grown up
in this kind of environment, believe that
implementing these big strategic projects is
central to their joband perhaps their
next promotion as well.
113
However, this view misses an important truth.
Businesses dont stand or fall by big projects
alone. Small problems matter too and are often
more critical to great execution. A well-designed
application form and a well-oiled hand-off
between sales and underwriting can reduce
rework and stress for employees and give
customers better service. Conversely, a lack of
fexibility in accommodating varying levels
of demand can create backlogs in new-business
processing and trigger follow-up calls from
salespeople and their customers.
Monitoring issues such as these requires constant
effort and a systematic method for bringing
them to light. The project-based approach used to
manage major interventions is ineffectual at
such a small and fragmented scale. Even so, it
may end up being used by default: we have
seen more than one organization introduce a new
IT system to solve multiple small problems
that the organization hasnt properly defned
or understood.
If a project-based approach doesnt work, what
will? In fact, the only way to manage these small,
everyday issues is to detect and solve them as
they arise (or even before). That calls for leaders
to shift their dominant mind-set from that of
knowing the answers and directing employees
to learning from and coaching the people
who are closest to the problems. Solving
hundreds of small issues each yearas opposed to
managing a dozen big projectsrequires
an organization to develop a more distributed
problem-solving capability. Leaders carry
the responsibility for modeling coaching and
analytical problem-solving behavior and ensuring
it is adopted at all levels of the organization.
It can take years of practice for this way of
working to become truly ingrained, but when
it does, organizations see the results year
after year. The ultimate goal is for everyone in
the organization to take the initiative to solve
the problems that are most relevant to them. For
instance, while a frontline team at a bank is
working to revamp an account application form
to prevent customer error, a manager might
be reviewing capacity management across the
branch network or tackling a persistent
overtime issue, while a senior leader might be
exploring what new product areas offer the
greatest opportunity to meet the institutions
growth aspirations.
4
Commitment to approaching
problems methodically
Most of the leaders we meet pride themselves on
their problem-solving ability. But when we
watch how they work, we often see them behaving
instinctively rather than following a rigorous
problem-solving approach. All too often they fail
to defne the real problem, rely on instinct
rather than facts, and jump to conclusions rather
Leaders carry the responsibility
for modeling coaching
and analytical problem-solving
behavior and ensuring
it is adopted at all levels of
the organization.
Building a problem-solving culture that lasts
than stepping back and asking questions.
They fall into the trap of confusing decisiveness
with problem solving and rush into action
instead of taking time to refect.
Why does this happen? Following a systematic
problem-solving process takes discipline and
patience. There are no shortcuts, even for leaders
with a wealth of experience. An organization
that consistently uses a single, simple problem-
solving approach across its entire enterprise
can achieve more than just greater rigor in asking
the right questionsit can create a new shared
language that helps people build capabil-
ities more quickly and collaborate across internal
boundaries more effectively. But to do so, it
will need to avoid getting caught up in sophisti-
cated problem-solving techniques until it
captures all that can be learned from the simple
ones. The main objective is to uncover problems,
ask the right questions, engage everyone
in the problem-solving effort, and develop the
organizations problem-solving muscles.
An effective process for identifying and solving
problems involves fve steps:
1. Defne the problem. Clarify what should be
happening and what is happening. The gap
between the two is where the problem lies.
Defning the problem well ensures that the team
has a shared understanding of the real issue.
2. Identify root causes. Learn as much as possible
about the problem, preferably by observing
it as it occurs. This step is often skipped, but it is
essential; without it there is no way of knowing
whether you are solving the real problem.
3. Develop a solution. Crafting a good solution
rests on distinguishing cause from effect.
A solution that tackles the root cause will elimi-
nate the symptom that the problem causes;
if the root cause has truly been found, removing
the proposed solution will lead to the symp-
toms return.
4. Test and refne the solution. The solution must
be tested to ensure it has the expected impact.
If it solves only part of the problem, further rounds
of the problem-solving process may be needed
before the problem disappears completely. For
validation, conduct a fnal experiment without the
solution to see if the problem recurs.
5. Adopt new standards. The last step is to
incorporate the solution into standards for work,
with training and follow-up to make sure
everyone has adopted the new method. That
should eliminate any possibility of recur-
rence; moreover, sharing the solution more
broadly across the organization allows
others to glean insights that might be applicable
in seemingly different scenarios.
Although easy to understand, this process is
hard to master. In our experience the frst two
steps are often skipped, so the third step
becomes weakand its far from unusual to see
the last two steps skipped as well.
115
5
Recognition that observations are often
more valuable than data
Most organizations are good at gathering and
analyzing fnancial and accounting data for
reporting purposes. The average executive is
inundated with management information
on revenues, cost of sales, valuations, variances,
and volumes. However, this information is
geared toward fnancial outcomes, not operating
processes, and works like a rearview mirror,
showing where the organization has been, not
where it is heading. It is of little or no use for
identifying operational problems and uncovering
root causes or helping leaders and frontline
teams do their jobs better. Instead, organizations
struggle to understand basic questions about
their capacity and level of demand. How many
transaction requests did we receive today?
What was our planned capacity? How many trans-
actions did we complete? What was the quality
of the work?
Why dont organizations have this information
at their fngertips, as they do with fnancial
information? Probably because they have never
asked these questions or understood how the
answers could help them improve the way they
work. Once they appreciate how useful the
information could be, they tend to assume that
some kind of IT solution must be put in place
before they go any further. But the cost and time
involved in application development can
be enough to stop the problem-solving effort
in its tracks.
There is another way. Taiichi Ohno, the executive
often cited as the father of lean manufactur-
ing, noted that while data are good, facts are more
important. When operational data are not
routinely available, teams can often fnd what
they need not by commissioning new reports but
simply by observing team members as they
work and talking to them to fnd out exactly what
they are doing and why. Observation and
questioning provide a powerful and immediate
source of insights into processes, work fows,
capabilities, and frustrations with current ways of
working. Teams can typically get the information
they need within a week, sometimes sooner.
Consider a team that experiences substantial
variability in the time people take to complete a
common task, such as initiating a mortgage
application. A capable and experienced associate
can complete the work in 30 minutes, but
some associates take 40 minutes and a few need
60 minutes. The company could spend a long
time researching how many associates complete
the task at various speeds. For the purposes
of making improvements, though, it is enough
to know there is a difference of 100 percent
between the fastest and slowest speeds. The team
needs no further data or reports to begin
narrowing the gap. By codifying how the top
performers are doing their work and replicating
their practices for the rest of the team, the
employees themselves should be able to bring the
gap closer to 10 percent. At that point, the
whole process will reach a level of stability and
predictability that will lead to signifcant
additional improvements, both now and in
the future.
From problem solving to
continuous improvement
Executives are often amazed at the sheer
number of problems their organization is able to
identify and fx in the frst few months of a
lean transformation. Some wonder whether it can
last. But the good news is that in our experience,
problem solving is immune to the law of
diminishing returns. Quite the opposite: problems
never cease to arise. One company we know
has been on a lean journey for 20 years without
seeing any letup in the fow of improvement
opportunities. Year after year it surprises itself by
managing to achieve yet another 10 percent
increase in productivity and speed.
is not about fxing particular problems but about
always striving to do things better. Eliminating
long-standing niggles and introducing more
effcient ways of working are not the only gains;
companies with a well-established problem-
solving culture also beneft from the strength of
the capabilities people develop and the
engagement and enthusiasm they bring to their
work. These give organizations the means
and the momentum to sustain their performance
in the future.
Frontline employees come to see their job in
a different light. They are no longer hired hands
doing their superiors bidding; now their role
is to improve the way they work and own the
processes they use every day. Their job becomes
a series of experiments: If I approach this
task in a different way, will it be easier or
better? Taking part in team problem solving gives
peoples jobs more meaning and creates the
foundation for an ethos of ownership, pride, and
trust. What might an organization achieve if
everyone from the front line to middle manage-
ment to the executive suite routinely dedicated
an hour a week to problem solving?
To help create this kind of environment, leaders
must themselves change, respecting the expertise
of the people on their team and fnding ways
to support them. No longer pretending to have all
the answers, they should focus instead on
defning targets, creating a safe environment for
raising problems, ensuring people have enough
time for problem solving, and helping them
develop their skills. Adjusting to this change in
role can take time for leaders accustomed to
being the team hero. But by learning how to
help others participate to the full, they can
fnd a new identity and an even more powerful
way to add value to their organization.
Randy Cook is an expert in McKinseys Detroit ofce,
and Alison Jenkins is a senior expert in the Washington,
DC, ofce. Copyright 2014 McKinsey & Company.
Table of contents
117
At Colombias largest private
pension fund, lean management has
unleashed innovation across
the organization.
Many small ideas add up
to big impact
An interview with Carlos Zuleta Londoo, COO of Porvenir
Porvenir, a member of the leading
Colombian conglomerate Grupo Aval, is
the largest private pension-fund administrator
in Colombia, serving about 11 percent of the
countrys population. In early 2012, the company
launched a lean-management program,
Innovacion y Productividad (Innovation and
Productivity), to bolster its industry-
leading customer experience while improv-
ing proftability.
The program is headed by Carlos Zuleta Londoo,
a vice president who serves as Porvenirs chief
operating offcer. McKinsey spoke with Mr. Zuleta
at his offce in Bogot.
McKinsey: What motivated Porvenir to start its
lean-management transformation in 2012?
Carlos Zuleta Londoo: Since Colombia
reformed its pension system in 1993,
private defned-contribution funds such as
Porvenir have played an increasingly
important role in helping Colombian workers
save for retirement. As the system matured,
we found that proft margins were getting nar-
rower and narrower while the level of
regulatory scrutiny seemed likely to rise. It was
becoming clear that the factors that made
us the industry leader were not likely to help us
maintain that leadership position over
the coming 10 or 20 years.
McKinsey: What steps did you take initially?
Carlos Zuleta Londoo: We knew that we
needed to become an innovation company. Yet
regulatory constraints limited our ability to
launch new products or design new marketing
approaches. We tried working with experts
in innovation, bringing in speakers, studying
casesbut everything was too theoretical.
Even when an idea was conceptually appealing,
we just couldnt fnd a way to translate it into
a real-life context.
McKinsey: Thats a serious gap.
Carlos Zuleta Londoo: Yes. But when
I started reading about lean management and
getting to know the methodology, I realized
that we needed to think of innovation in a different
way. I think most people see innovation as the
search for a big idea, for a moment of epiphany
that pushes a business into the future. Lean
management helped us recognize that innovation
is much more than that. Its about small ideas
that together have a big impact. And the best
ideas tend to come from the people on the front
line who serve customers and operate core
processes day in and day out.
For Porvenir, this was a really important
insight. I could see that lean management could
give us a tangible, practical methodology
for bringing an innovation mentality to our
daily work.
McKinsey: How did you convince the rest of
Porvenirs leadership that lean management was
the right choice?
Carlos Zuleta Londoo: I knew that selling
a commitment of this magnitude to our
CEO and the rest of the executive team was not
going to be easy. So I decided to try a pilot
on my own, with no outside helpjust my team,
focusing on a single process for paying out
pension benefts.
It took just three months and the result was
incrediblereally incredible: at frst, people didnt
believe it. The pilot achieved a 98 percent
reduction in processing time, so benefts that used
119
to take more than 100 days to process are
now done in 48 hours from start to fnish. Once
we proved that the reduction was real, we
had the leaders attention. They agreed to move
forward with a larger-scale program that
would engage everyone in the company and
ensure sustainability by changing the way
we manage at every level.
McKinsey: Now that you had the executive
team on board, what did you do to win the rest of
the organizations support?
Carlos Zuleta Londoo: We decided to create
a brand that would clearly communicate
our goal. Because very few of our employees
speak English, we opted against using the
word lean and instead came up with Innovacion
y Productividad.
We also recognized that for people to accept and
embrace such a profound transformation,
they needed to understand what it would mean
to them. This was especially important for
the frontline employees. Explaining the programs
rational beneftswhy it would be good for
the company, for the shareholders, or even for
the customerwould convince some people
but not the majority. We needed to fnd a com-
pelling incentive.
McKinsey: A fnancial incentive?
Carlos Zuleta Londoo: No, that wasnt
realistic for us. And, more important, we needed
to convey a deeper sense of purpose than we
could achieve by handing out checks. We want
to appeal to employees sense of pride. The
truth is, were not selling gadgets: were selling
Carlos Zuleta Londoo
Carlos Zuleta Londoo is a vice president who serves as the chief operating
ofcer of Porvenir SA, the leading Colombian pension-fund administrator, with
almost ve million customers and $25 billion in assets under management.
After starting his career as a consultant with Booz Allen Hamilton, Mr. Zuleta
joined Porvenir in 2004. He previously served as a corporate-planning
manager and as head of a payment-processing subsidiary. He then joined
Porvenirs seven-person executive team in 2009.
Mr. Zuleta holds an undergraduate degree in business administration
from the Universidad de los Andes and an MBA from the Darden School of
Business at the University of Virginia.
Many small ideas add up to big impact
future economic peace of mind. Thats
very sensitive, especially in a country such
as Colombia. Increasing productivity or
reducing cycle time is not just about the bottom
lineit has an impact on society and on
the individual.
Instead, we focused on recognition. For
example, teams who outperform get a message
from the CEO, or even lunch with him
in a nice restaurantthat type of visibility is
incredibly valuable. Participants also get
preferred admission to our corporate university
programs. And we constantly underscore
that people who choose to continue their careers
outside Porvenir will have a big advantage in
their next job interview: they will be able to say
that they took part in a transformation that
increased productivity by 50, 70, or 80 percent.
McKinsey: Given that motivation, how have
people changed the way they work?
Carlos Zuleta Londoo: For me, the single
most surprising attribute of lean management is
how it makes the invisible visible. In big com-
panies, so many things tend to be invisible. Its
not because people are trying to hide them,
but because its hard to see through the layers of
bureaucracy. For example, as a senior executive,
you may have no quick way to fnd out how many
claims are in process at oncein other words,
how big your inventory is. Now we have that sort
of data available at a glance, just by looking at
our performance boardsthe whiteboards around
the foor that track our performance metrics.
That gives people a language that simply didnt
exist before. People are talking about produc-
tivity, eliminating waste, and cycle times in ways
that genuinely improve performance.
McKinsey: What have been some of
the challenges?
Carlos Zuleta Londoo: There have been
many. This type of transformation takes
persistencelean management is not going to
solve all your problems in just a few weeks.
But the evolution is very positive.
We have learned a lot along the way. One of
the frst processes we started to transform
included a step for legal review, so we needed to
incorporate attorneys into the new team.
There was substantial resistance. They were
worried that the new structure would
devalue their expertise.
McKinsey: Many companies have a very
diffcult time persuading highly trained
professionals to support lean management.
1

What worked?
Carlos Zuleta Londoo: Two things. First,
we made sure that the leaders of the two
groupsmyself as head of operations and my
colleague as head of the legal department
were completely aligned. Second, we reexamined
our communications to make sure that we
met the lawyers concerns. The head of the legal
department emphasized that everyone would
still be recognized as lawyers, that they would still
For me, the single most
surprising attribute of lean
management is how it
makes the invisible visible.
1
For more information, see
Bringing lean to a
highly skilled workforce:
An interview with
Thierry Pcoud of BNP
Paribas, Lean Man-
agement: New frontiers for
fnancial institutions,
mckinsey.com, 2011.
121
be fulflling a legal role, and that they would
have a new opportunity to learn. We didnt retreat
on the need for a new structure, but we presented
it in a way that the lawyers could support.
You have to give people a chance to talk about
their concerns. We make sure to do that every
time we deploy in a new area.
McKinsey: What effect has lean management
had on you as a leader?
Carlos Zuleta Londoo: It has changed me
in many ways. The social impact of our work has
always been important for me11 percent of
Colombias population are our customers, and we
work with them at some of the most important
moments in their lives. From here on, lean man-
agement is how I personally choose to work
so that I can help fulfll that responsibility. I dont
see myself working without visual management;
I dont see myself working without interdisci-
plinary teams; I dont see myself working without
analysis that highlights where the waste is and
how we can eliminate it.
McKinsey: And in the background I can see
your own performance board.
Carlos Zuleta Londoo: Defnitely. We have
boards at four levels of the organization. The one
behind me is a level-four board. When some-
body walks into my offce and looks at that board,
they know that I am totally aware of what is
happening in the processes in which Innovacion y
Productividad is operating. From a management
standpoint, that makes a huge difference.
Lean management has also brought me a lot
closer to my team, as we now have constant
communication through daily huddles, problem-
solving sessions, coaching, and foor walks.
People cant just sit quietly day after day until the
end of the month or quarter. Everyone has
to be able to know whats happening every day,
every week. Im now regularly in touch with
people who previously never had the chance to
show their results.
McKinsey: Now that the transformation is
taking hold, what is Porvenir doing to maintain
its momentum? How do you make sure
that the improvements are sustainable?
Carlos Zuleta Londoo: Early on, we estab-
lished a lean team to manage the transformation
under the Innovacion y Productividad banner.
But because the need for further innovation and
productivity gains will never go away, we
made this organization permanent.
Committing to lean management means making
a few sacrifces. One of the most important
ones we made was to staff the lean team only with
A playersand in fact, the head of that team
was one of my best managers. At the time, I fgured
that if Im really convinced that lean manage-
ment is the way to go, I cant be selfsh. Moving
forward, we really must pay attention to that
team, keep them motivated, and reward them for
results. They will be responsible not only for
Many small ideas add up to big impact
Carlos Zuleta Londoo: This will sound like a
clich, but whoever is going to lead the effort
must feel it from the heart. If your interest in lean
management is only at an intellectual level,
you risk losing the energy you will need to over-
come all the hurdles. I would ask: Are
you really convinced? Do you feel you have
the passion inside to move this transfor-
mation forward?
If the answer is yes, you will need a dedicated
team of A players. If you are not willing to assign
a signifcant number of top performers to
lead the transformationfor us, that meant fve
or six really good peopleforget it.
Finally, look for where you can make immediate
impact. When I say immediate, I dont
mean tomorrowit took us three months to turn
a 100-day process into a 2-day process. But
you need an early victory because that is your
ticket to credibility.
McKinsey: How confdent are you about the
next stage of Porvenirs journey?
Carlos Zuleta Londoo: Its like learning to
ride a bicycle. Were pedaling on our own,
not very frmly yet, but Im confdent that we will
continue to get stronger. I am convinced that
Innovacion y Productividad is the foundation for
our continued leadership for the next 20 years.
maintaining what we have accomplished but also
for strengthening our capabilities over time.
Communicating is the second key to sustain-
ability. If were meeting our productivity
goals and the customer is having a much better
experience, the whole organization needs
to know. And the people who contributed most
need to feel acknowledgednot necessarily
fnancially but tangibly. Even something as simple
as an e-mail from the CEO works wonders.
The third element is accountability. We can never
lose our discipline about the basics of lean
management: holding the daily huddles, updating
the performance boards, reviewing the data.
If we stop any one component, we know our
progress can start eroding quickly.
McKinsey: Porvenir was recently recognized
for customer service. How do you keep people
from resting on their laurels?
Carlos Zuleta Londoo: The award was from
Colombias leading business newspaper
and was an incredible honor. But we must also
remember that we won before the lean-
management program offcially launched. As part
of the competition process, we documented
our experience from the pilotthe 98 percent
reduction in payout timebut that was
all. That background helps us put the award in
perspective, because it gives our people
a sense that we can do so much more.
McKinsey: If you were speaking to a peer
executive who is thinking about lean
management, what two or three things would
you tell him or her to bear in mind when
starting a transformation?
Table of contents
123
At MassMutual, problem solving leads to
higher standards, which in turn mean
more problems to solve. The constant cycle
is raising performance at every level of
the organization.
Performance from
problem solving
An interview with three leaders at MassMutual
With more than $600 billion in assets
under management as of the third quarter
of 2013, Massachusetts Mutual Financial Group
better known as MassMutualis one of the
largest fnancial-services companies in the United
States. Although its namesake life-insurance
operation is still its largest single business,
MassMutual also offers retirement and asset-
management services, particularly through
MassMutual Retirement Services and MassMutual
affliates Babson Capital Management, Baring
Asset Management, and OppenheimerFunds.
The company has a history of fnancial strength.
In 2012, sales of MassMutuals core whole-life-
insurance product notched a seventh consecutive
record, while retirement-services sales set
a fourth consecutive record. The year ended with
the largest dividend in the companys history.
But to strengthen its future, in 2011, MassMutual
began adopting lean-management principles as
part of the MassMutual Way. It started with the
US insurance business, in a transformation that
eventually will reach the entire company. We spoke
with Mike Fanning, executive vice president for
the US insurance group; Mike Rollings, executive
vice president and CFO; and Doug Russell,
senior vice president for strategy and corporate
development. The three executives emphasized
the critical role that more rigorous problem solving
has played in the transformations success.
McKinsey: How did the transformation begin?
Doug Russell: For three or four years before
this enterprise-wide effort, a number of internal
groups started applying ideas such as lean Six
Sigma and value-stream mapping. The
success of those efforts, measured largely in
productivity, started to build real grass-
roots momentum.
At the same time, the leadership began thinking
about where to take the company over the next
ten years or so. The ambition centered not just on
growing the top line or becoming more effcient
but also on better understanding our customers
our distribution partners, policyholders, and
participants in our retirement-services business.
There was a growing belief that we needed to
improve the value we were providing for them
and a recognition that it needed to be an
enterprise-led effort.
McKinsey: And yet, by many measures, it
seemed that MassMutual was starting from a
strong position.
Mike Fanning: This was a growth transfor-
mationa way that we could build on our position.
Coming out of the fnancial crisis, our ratings
and dividends were among the highest in
the industry. This was a real chance to create long-
term advantages for the entire institution.
Doug Russell: Traditionally, we saw our-
selves as a manufacturing frmwe manufacture
products, which are sold through our strong
partnerships with agents and distributors. But
given changes in the regulatory and economic
environment, along with advances in technology
and long-term demographic trends such as the
rise of the millennial generation, we knew that we
needed to reexamine our assumptions. Looking
at how other companies operate gave us the sense
that we could fundamentally improve the way
we run our business if we could deepen our under-
standing of our customers evolving needs.
McKinsey: Has there been improvement?
Doug Russell: Its still early days, but weve
already seen some highly encouraging
results: faster responses to our distribution
125
partners, higher placement rates, greater
fexibility in accommodating peak demand times,
and even tighter management of our cash
system. All of that ultimately fows from better
understanding what the customer values.
Mike Rollings: We try to view every action from
a customers perspectivewould a customer
pay us for doing what were doing right now? If
the answer is no, then we need to understand
why we are doing it. We can fnd capacity to do
things that we could not have done before
and better meet our customers needs.
McKinsey: Across the organization, what are
some of the most important differences
you see between todays MassMutual and the
MassMutual of two years ago?
Mike Fanning: When we frst started learning
about lean management and visiting companies
that were already doing itsome of them for
10 or 20 yearsone of the consistent themes was
that problem solving was core to their business
systems. It was visible at every level of the
organization, from people answering customer
calls right up to the CEO. Everyone was actively
involved in that problem-solving process.
Doug Russell: And that process was essential
to improving over time. As a result, we believed
that in designing the MassMutual Way, if we
didnt put problem solving at its core, all
of the tools and all of our work in establishing the
other foundational elements would collapse
at some point in the future.
McKinsey: How would you describe problem
solving at MassMutual before the transforma-
tion started?
Mike Fanning: It probably wasnt very different
from other large companies. When people
frst saw a problem, there was a sense of urgency
to dig in and fx it, but then 3 or 6 or 12
months later the problem would resurface
usually because the frst time around, no
one spent enough time fnding out what the
underlying causes actually were.
Doug Russell: In our culture, people thought
that if they had a problem they should go to
the most senior person on the team to solve it.
Also, in any organization, theres a natural
tendency for managers to think that the higher
they rise in the organization, the more they
have to have the answer.
Mike Rollings: The approach would be to
step in and do somethingto help to fx
the problem rather than to stop, step back, ask
questions, and coach.
Mike Fanning: We needed a little humility and
the willingness to say, Maybe thats what the
problem and answer were 25 years ago, or 20 years
ago, or 5 years ago, but it may not be the answer
today. We had to recognize that we have a lot of
smart people in the organization who really know
what they are doing and that we can trust them.
McKinsey: What was it like to change
that mind-set?
When people see that you take
problem solving seriously
as part of your everyday work,
it makes a difference.
Performance from problem solving
Mike Fanning Mike Rollings Doug Russell
Mike Fanning was appointed executive
vice president for MassMutuals US
insurance group in 2006. He came to
MassMutual from MetLife, where
he rose through several operational
roles, most recently serving as
vice president of new individual
business. Mr. Fanning holds bachelors
degrees in economics and in
organizational behavior and manage-
ment from Brown University.
Mike Rollings has served as executive
vice president and CFO of MassMutual
since 2006, after serving the com-
pany for several years in other nancial
capacities. Mr. Rollings received his
undergraduate degree in nance from
Georgetown University and holds a
postgraduate degree from the Kellogg
School of Management at
Northwestern University.
Doug Russell has been MassMutuals
senior vice president for strategy and
corporate development since
2009. He joined MassMutual in 2007
as senior vice president, chief operating
ofcer, and CFO of MassMutuals
retirement-income business. Earlier in
his career, Mr. Russell was an
executive at insurers, including Cigna,
ING, and Prudential. He holds a
bachelors in economics from Brown
University and an MBA from
the Tuck School of Business at
Dartmouth College.
Mike Fanning: It required a lot of patience. We
had to stop thinking, We have a problem,
lets solve it today. Instead, we had to learn how
to maintain our sense of urgency while method-
ically asking, Do we have the right problem? Can
we describe the problem? Have we really
reached the root cause?
Doug Russell: In the early days, it felt like
we were moving more slowly in solving problems,
but it meant that we were fnally solving the
correct problems, because we were being more
thoughtful about not just what we do but
how, and especially why, we do things. Reexamin-
ing why we do something is what lets us improve
the what and the how.
More important, if done right, problem solving
brings the design and execution of solutions closer
to the source of the problems. Over time, that
is the real power: frontline associates recognize
a problem, work on the solution with their
management team, then implement all on their
own. In the old system, when problems were
usually escalated, they either got lost between one
management layer and the next and were
never reviewed or the recommended action was
too superfcial and did not actually solve
the problem.
McKinsey: What effect did that evolution have
on you as leaders?
Mike Fanning: I got to a point one day where
I realized I had to step out of the way. We were
working on the transformation of our new
business and underwriting area. Having run a very
large underwriting shop earlier in my career,
my reaction to some of the ideas was that I would
not do things that way.
But you know what? What I think is not the
issue. These people are operating the business,
they have the right data, and they fnished the
right process of thinking through the problem and
resolving it. What they think is what matters.
127
Doug Russell: As a leader, you start to set the
expectation that people should solve their
own problems. The only problems that should be
coming to your desk are the ones that require
your involvement, either because you are truly
the only person who can solve them ormore
typicallybecause you can remove a barrier that
the team is running into, such as an out-of-
date policy that you can repeal. We must also set
the expectation that once problems are solved, we
should see benefts in our performance.
McKinsey: Are people generally willing to
identify problems?
Mike Rollings: We have always worked with
employees to address problems and improve. Still,
for us it was a change of mind-set to say, Lets
be very comfortable in recognizing that we have
problems and that there are places where
we can get better. One of the things I have been
focusing on and coaching my leaders on is
how to create a safe environment for uncover-
ing problems.
Mike Fanning: In large organizations, theres
usually a fear of failure. We had to establish a norm
that we are always going to have problems
moreover, problems are our opportunities. We
celebrate the identifcation of problems. If,
on a whiteboard, we see that all of the boxes are
green, thats probably an indication that the
system isnt working. There may be problems that
we arent fnding, or we need to recalibrate
our targets. We keep telling everyone, Red
means things are going well.
Doug Russell: People need to get in the habit of
identifying the factors that are inhibiting the
team from performing at a higher level. Higher
targets therefore almost automatically
translate into more problems to solve. In this
way, teams learn that solving problems
is not the goal; the goal is to help the organiza-
tion improve.
McKinsey: What does problem solving at
MassMutual look like now?
Mike Fanning: Problem identifcation mainly
operates through our huddle meetings,
which happen at every tier, right up to tier six
the CEO and leadership team. If a problem
cant be resolved at a lower tier, typically because
it requires coordination among different
teams or internal units, it gets passed up to the
next tier. For example, there was a problem
regarding space-allocation policies in the
US insurance group. That had to come to me
because we needed a consistent standard
across the business.
Doug Russell: The huddles also helped us fnd
time for designing and executing solutions.
With the huddle cycle, we could eliminate weekly
staff meetings entirelyfreeing about eight
hours per person per monthand many one-on-
one meetings as well. And while the huddles
still took time, the total they required was sub-
stantially lower.
McKinsey: How does an organization as large
as MassMutual do that at scale?
Doug Russell: One of our objectives this year is
to make sure that we have an effective problem-
solving culture throughout the companythat we
see a common set of practices regardless of
what business or level of the organization we are
in. We therefore built problem solving into
our defnitions of what managers and leaders do.
To borrow lean-management terminology,
problem solving is now part of the role expecta-
tions of leaders, so a large part of their time
is spent observing and coaching managers on how
they do problem solving.
McKinsey: As senior executives, how
do you know that you are working on the
right problems?
Mike Fanning: Fewer problems are bubbling
up to the senior-executive team, which is a good
sign that solutions are happening at the local
level. We are also pushing fewer problems down
the organization from above. Recently, a couple
of senior executives heard anecdotes suggesting
that there may be problems with our competi-
tive intelligence. We went through our standard
problem-solving process and concluded that
in fact there was no problem: we could fnd no
factual basis for the concerns. So, rather than
take a lot of employees time to come to the same
conclusion, we took the issue off the list.
McKinsey: What changes do you see among
the executive team?
Mike Fanning: Fundamentally, the changes we
needed to make were much more at the
leadership level than at the front lineour own
behaviors and practices, not those of people
working directly with our customers. It was tough
to let go, but in the end we wanted our legacy
to be an organization that can solve problems and
operate on its own.
Mike Rollings: You cannot say, This is great
and we want everyone to do itbut it is not rele-
vant for me. Youve got to be in it. When people
see that you take problem solving seriously as
part of your everyday work, it makes a difference.
Doug Russell: Our CEO now leads a weekly
huddle as well, which allows the leadership team
129
to discuss issues that might have arisen just
a day or two earlier. The informality means that
an executive can raise a problem without
feeling that he or she must think through every
possible implication frst.
McKinsey: How would you describe the impact
so far?
Mike Rollings: As CFO, I like to measure return
on investment (ROI), and in this context, both
the short- and long-term ROI are compelling. But
the value is much more than dollars and cents.
This is about cultural change that lets us change
the way we serve our customers.
Mike Fanning: And although we are still in early
days, customers seem to be responding.
Historically, we knew what percentage of our
applications would end up underwritten,
delivered, and paid for by the customer. And we
knew that if we shortened our turnaround
times for applications, we could raise that fgure.
It has now increased by about 10 percent.
In 2012, we grew our core business by over
20 percent. And we did not have to add a single
person to the organization.
Doug Russell: Our employees are more engaged
as well, partly because rather than reviewing
performance data in the aggregate and in arrears,
we see it at the individual level in real time.
Employees now understand the impact they are
having for our customers, which strengthens
alignment around our purpose: helping people
protect those they love.
Mike Fanning: The percentage of employees
saying that they are proud to work at MassMutual
jumped from the mid-70s to the mid-80s; our
goal is to reach 90 percent. Im seeing the emer-
gence of a real ownership culture, where
people want not just to work but to have a career.
People understand the customer better. They
dont wait for someone to tell them what to do: if
compliance says that our process is x, but the
customer wants y, they fgure out how to provide
what the customer values in a compliant way.
We started 162 years ago with one policyholder
and one agent. Getting closer to the customer
again is highly satisfying.
McKinsey: What lessons would you offer to
others just starting out?
Mike Rollings: There are very few people who
just naturally are great problem solvers.
Almost everything about problem solving is
a learned characteristic. You need to train,
practice, get better at itthat is the virtuous cycle
that lets an organization continuously improve.
Table of contents
Connecting strategy, goals,
and meaningful purpose
130
131
Within each of lean managements other three disciplinesdelivering value
to customers, enabling people to lead and contribute, and discovering better
ways of workinglies a question related to direction. What value are we
trying to deliver? How do we want our employees to contribute? Which new
ways of working matter most?
The answers depend on the fourth discipline: connecting strategy, goals,
and meaningful purpose. This discipline seeks to align what the organization
as a whole wants to achieve, given its larger business context, with what
the people who work for it want to achieve every day.
The organization does this in two ways. First, it develops aspirations that
provide a clear idea both of what the organization wants to achieve
and how. Communicating the aspirations broadly and frequently ensures that
the entire organization has a general understanding of where it is headed.
Second, and equally important, the organization supports its aspirations with
an infrastructure that makes them tangible. The aspirations inform the
targets that the organization sets for itself, the tasks that people perform,
and the measurements it applies to assess its performance. Over
time, the organization also reexamines the aspirations by building feedback
mechanisms that let it see how well it is meeting its aspirations and
whether they need to change.
Clear statement
of aspiration
Lean tools and
behaviors
Reassessment of
aspiration
Providing upward
feedback
Adapting the
compelling story for
a new audience
Appeal to different
potential sources of
meaning
Compelling story
Clear organizational
design with
defned roles
Upward feedback
Performance
measures updated
to refect
aspirations
Review of
key performance
indicators (KPIs)
Cascading KPIs
Recommitting to a larger purpose
Thursday
Phil, Marys assistant manager, resigns because he feels the company isnt meeting its promise
to build the most creative, efcient solutions. He is Marys third high-potential employee
to leave in six months. Mary calls her boss, Sandra, to tell her. Sandra says the problem is
widespreadand the CEO has already convened a team to address the issue.
Tuesday
An all-company CEO e-mail announces the planned creation of a new service. Now, more than
ever, we need to live our principles of developing creative, efcient solutions. Citing
the faster processing the new service offers, he raises the revenue target by two percentage
points. But no extra budgetthats what effcient means. Mary sees a golden opportunity
to prevent further attrition: her team is the natural owner of this new service.
Tuesday
Mary gathers her team, adapting the CEOs message to inspire her people. You heard
our CEO call for a new service that will be the next competitive edge. As individuals, were
going to develop new skills to make this product work. Faster, more accurate claims
turnarounds will help our agents provide better peace of mind to customers while preventing
fraud and keeping a lid on insurance costs. We can do thisthis is our chance as a team
to shine. She ends by appointing a new team to lead development of the product. Phil asks
Mary if he can withdraw his resignation and join the teamshe agrees.
Friday, two weeks later
In a managers meeting covering the latest performance data, Mary notes that metrics for
innovation center mainly on new revenues. A team that designs new products with no additional
resources would get the same rating as one that got extra development funds. Wheres
the efciency? she asks. The head of accounting explains that the metric was designed when
revenues were a greater focus and agrees to bring the problem up with the CFO.
Wednesday, one week later
The CFO releases revised innovation metrics, in which projected new-product revenues
will be adjusted by estimated development budgets. Mary immediately revises her teams
individual performance measures to refect the changes.
Thursday, three months later
The new service goes live. By reassigning personnel from a declining product, Marys team
has been able to launch it with existing personnel. Take-up is rapid: the CEOs goal of a two-
percentage-point revenue increase looks like an underestimate.
133
For an organization such as Marys, the gap between the promise of its long-standing
aspiration and its reality has become a real threat because of attrition among
high-potential employees. The organization does, however, have upward-feedback
mechanisms to surface the issue and respond. Mary feels enough condence
in her ability to be open with her boss about problems that she immediately calls
Sandra to let her know of Phils departure. It turns out that Mary is not alone
in dealing with the issue: Sandra is able to tell her that the CEO knows of the problem
and is working on a response.
A critical part of that response is the announcement of a new service, the development
of which will require the organization to meet its aspiration in a renewed way. Mary
immediately recognizes that the CEOs call to action provides her with a way to combat
further attrition. But she also knows that simply forwarding the e-mail may not
motivate her team in the right way. She needs to translate the message so it will be
relevant to her team. Her conversation with her team therefore refocuses on what
the product will mean at the individual and team levels, and she appeals to multiple
potential sources of meaning to cover everyone in the group. Marys quick and
decisive action is enough to persuade Phil to rescind his resignation, creating an
immediate benet to the organization.
Marys organization already has a process for reviewing performance, which provides an
additional forum for upward feedback. At one of the regular managers meetings,
Mary takes the opportunity to raise a concern about the innovation metricwhich is more
important for her team than it ever was before. She points out that the metrics focus
on revenues undermines the efciency part of the aspiration. The accountant explains
why the metric evolved as it did and agrees to pose the problem to the CFO.
The CFOs announcement of a revised metric reects how the organization adapts
its performance indicators as needed to match its aspirations. Mary is then able to
incorporate the new metric into evaluations for her team members.
The way Marys organization responds to the challenges it faces regarding its
aspirations reects several of the lessons discussed in the article and interviews that
complete this section (and this compendium). The rst, The aligned organization,
describes the importance of the connections among strategy, goals, and meaningful
purpose, particularly at the individual level. The authors note that the need to
changesometimes radicallyan organizations vision must be matched with changes
in planning and with communication that conveys the new vision adequately at
every level.
Connecting strategy, goals, and meaningful purpose
In A shorter path to an asylum decision, Marcus Toremar, lean manager for the Swedish
Migration Board (Migrationsverket), recounts the challenges of balancing multiple aspirations
at once while making a renewed commitment to reduce dramatically the time that asylum
applicants would have to wait for a decision. His organization faced the further complication of
needing to persuade highly specialized lawyers, caseworkers, and other staff to embrace
a style of work that differed signicantly from their previous practices.
Yves Poullet, CEO of Euroclear Bank, focuses on the value that lean management provides
as a tool supporting strategic development in The strategic enabler at Euroclear Bank. While
cautioning that lean management is not itself a strategy, he notes that it enables an
organization to execute a strategy more efciently and effectively.
Finally, in Discovering America by looking for India, the former chief operating ofcer
of TDC, Denmarks leading telco, tells of the companys unusual path to a lean transformation.
In his words, it was almost by accident, starting in a seriously challenged sales team and
growing to encompass nearly the entire company. The customer-satisfaction and productivity
improvements that TDC has logged are enabling the company to invest in future growth
to a degree that otherwise would have been quite difcult.
Table of contents
136
The aligned organization Bringing meaningful purpose, practical
strategies, and goals together makes
an organizations aspirations more credible
and more likely to be achieved.
143
A shorter path to an
asylum decision
An interview with Marcus Toremar,
lean manager for the Swedish
Migration Board
For a government agency facing intense
scrutiny and a dramatic increase in
applications, lean management was the
solution that let it reduce wait times
by two-thirds while meeting budgetary,
legal, and policy constraints.
149
Euroclear Bank
Six years into Euroclear Banks
transformation, the CEO reects on how
lean management has evolved to let
his institution execute its strategy more
effectively in turbulent times.
154
looking for India
An interview with Martin Lippert,
former COO of TDC
For TDC, Denmarks leading telecom
provider, a lean-management transformation
has been a necessary condition for
investing in future growth.
135
136
Bringing meaningful purpose, practical
strategies, and goals together makes an
organizations aspirations more credible
and more likely to be achieved.
137
Think of a successful organization,
regardless of industry. One of the measures of
an organizations success is its agilitywhether it
manages to stay at least one step ahead of its
market. Achieving real alignment, where strategy,
goals, and meaningful purpose reinforce one
another, gives an organization a major advantage
because it has a clearer sense of what to do at
any given time, and it can trust people to move in
the right direction. The result is an organi-
zation that can focus less on deciding what to
doand more on simply doing.
Recent research accentuates how important
the connections between direction, strategy, goals,
and purpose are to an organizations sustained
performance. One study found, for example, that
when people understand and are excited about
the direction their company is taking, the
companys earnings margin is twice as likely to
be above the median. And it showed that
high-achieving organizations are also better than
others at turning their visions into viable
strategies that guide operational planning
something many business leaders may
believe they already do well, but which often
proves diffcult in practice.
The fnal connection is to the goals that motivate
people as individuals. In their 2011 book
The Progress Principle, Harvard Business School
professor Teresa Amabile and independent
researcher Steven Kramer found that the strongest
organizations were those that nurtured their
employees inner work lives by allowing them to
make progress in meaningful work.
That is rare. More typically, the individual level is
where the vision breaks down: employees see
only the gap between the aspirational language
and their daily work lives and may become
cynical rather than motivated.
But some organizations make all of the links,
so that vision, strategy, and goals come together
to become meaningful work. In so doing they
instill a sense of achievement that, in turn, enables
their people to achieve more and more.
Vision to strategy to goals
Organizations that are starting their transforma-
tions typically fnd themselves in one of two
categories when it comes to their visions. The
larger category consists of organizations
whose visions have weakened, as may happen out
of neglect or inconsistent understanding.
An organization whose vision focuses on quality
and operational effciency may discover, for
example, that the decisions it made to increase
effciency have undermined quality. Or the
organization that seeks to be credible across
major market segments fnds that internal
competition reduces organizational focus, leading
to declines in almost every segment.
The smaller category consists of organizations
whose visions are still quite strong but where
changing circumstancestechnological
developments, economic conditions, or perhaps
new market openingsmean that they will
no longer be able to achieve the vision in the same
way. Massachusetts Mutual Financial Group
(MassMutual), for example, started its transfor-
mation when it was outperforming its industry
by many measures. Its leaders, however,
sensed that demographic, economic, and other
changes meant that it needed to reassess its
long-term competitive position (see Performance
from problem solving: An interview with three
leaders at MassMutual, page 123).
Organizations in the frst category must start
by realigning according to what the vision should
be. Organizations in the second category may
omit this step, but if anything, they may face even
Thierry Nautin
larger challenges later onin convincing their
people that despite todays success, the
strategy and goals that implement the vision must
change radically in light of external conditions.
Envisioning a future
In our work with organizations, we have found
that a vision is effective only if it balances
multiple dimensions at once. First, it must be
broad enough to be recognized by everybody,
even in a large and diversifed environment, yet it
must also be suffciently specifc to differentiate
the organization clearly from its competitors. It
must be enduring enough to serve the organi-
zation over the long term while also allowing its
execution to change as the enterprise evolves.
It must articulate ideals while describing how the
organization wants to progress in ways that
seem achievable. And, to be truly compelling, the
story must appeal to the fve sources of meaning
that organizational research has identifed, which
stem from how the changes will affect the
individuals themselves, their teams, their cus-
tomers, the organization, and society.
1
Each
of the fve sources is the primary motivator for
about 20 percent of the population, so touching
on all fve is essential.
But within those broad guidelines, there is
no particular content that appears to offer an
advantage: organizations have been equally
successful with visions focused on improving cost,
growth, market share, sales, or even external
constraints. What matters is that the organization
fnds the right vision for itself and then
communicates and pursues it in a way that is
concrete, relevant, and meaningful to individuals
(see sidebar A hospitals vision).
By 2008, the leaders of a specialized European
fnancial-services frm had already recognized
that its longtime vision, which focused on quality
of service regardless of cost, was under threat
from new competition. As the fnancial crisis took
hold, the old vision began to show cracks: one
of the companys top clients threatened to end its
relationship unless the company agreed to
a 50 percent price reduction. Similar messages
from other clients underscored that what
had once seemed like an enduring vision simply
1
Danah Zohar, Rewiring the
Corporate Brain: Using
the New Science to Rethink
How We Structure and
Lead Organizations, San
Francisco: Berrett-
Koehler Publishers, 1997;
Richard Barrett,
Liberating the Corporate
Soul: Building a Visionary
Organization, Woburn,
Massachusetts: Butterworth-
Heinemann, 1998; and
Don Beck and Christopher
Cowan, Spiral Dynamics:
Mastering Values,
Leadership, and Change,
Malden, Massachusetts:
Blackwell Business, 1996.
For a hospital seeking to improve treatment out-
comes and reduce wait times, the vision was
framed around patient safety. Leaders continually
reinforced the message that a hospital could
be a dangerous place for a sick person; the longer
a patient stayed in the hospital unnecessarily,
the greater the risk of an adverse event such as a
new infection or injury. That mantra became
the basis for a whole new series of metrics that
A hospitals vision
evaluated the quality and timeliness of patient
dischargeshow long the process took, whether
all of the required information was available
when needed, and whether patients were later
readmitted for preventable complications. The
average time for discharge fell by 45 percent with
no negative impact on readmission rates
creating capacity to treat more patients, more
promptly, with reduced costs from complications.
139
wasnt anymore. The company therefore took on
the task of developing a new vision, one in
which it maintained its commitment to quality
but added a customer-service dimension
that included sharper attention to cost and more
customization options.
Creating a strategy
Nevertheless, a new vision is of little use on
its own unless it becomes a strategy that supports
a tangible set of organizational goals. Together,
they outline where the organizations competitive
advantage will come from and how it will
be sustained.
The European frm determined that while
it could continue to rely to some degree on its
long-standing top product, it needed to
increase the pace of innovation. Both realizations
would have major effects on the companys
strategy. For the top product to maintain its posi-
tion, its price would need to fall, with
ramifcations across the entire cost basecuts
of 25 percent would be necessary. At the
same time, improved innovation would require
new investment, along with profound cultural
change in order to tame bureaucracy and foster
entrepreneurialism. These became the core
elements of the companys transformation, which
the CEO tested (with board encouragement)
at a small scale to build support. Encouraging
preliminary results aligned the leadership
behind a much more comprehensive plan, which
the company successfully deployed over
the next two years and has continually updated
ever since.
MassMutual, by contrast, knew it needed to
become more agile in response to rapidly
changing external conditions and customer needs.
The new strategy and goals it adopted sought
to encourage new ways of working with customers
while eliminating internal barriers that impeded
the sharing of information.
Communicating change and setting targets
The third connection brings the vision and
strategy into peoples daily work, raising the
question of how the organization will
communicate the transformation more broadly.
If it communicates the changes too early,
before people can see any evidence that they are
important and actually work, the organiza-
tion risks losing credibility; people may view the
transformation as yet another corporate
initiative destined to fall by the wayside. But if the
organization communicates the changes too
lateparticularly if the changes will reduce the
organizations sizerumors may spread, with
even greater damage to morale.
The better option, typically, is to wait until
the organization has fnished testing the
transformation with a few teams. Those early
successes help refne the organizations
transformation story (see sidebar The trans-
formation story). As the story spreads
through the organization, managers and their
people adapt the vision to their groups
worka process that gives the vision the bottom-
up credibility it needs. At MassMutual, for
example, stewards of fnancial strength became
the central idea for reassessing the functions
priorities and creating new goals that reinforced
the point for each employee, from the CFO
on down.
As people at all levels begin to understand the
need for the transformation, they also begin
to see the transformations effects. The greatest
impact on employees will be that the targets
they seek to meet each day will changeindeed,
in some organizations, employees may be
getting explicit targets for the frst time. These
Adapted from Steve Sakson and George
Whitmore, Communications strategy: A vital
(but often overlooked) element in lean-
management transformations, McKinsey
Operations Extranet, 2013.
Before the transformation launches, the vision,
strategy, and goals should all be in place.
But the most successful transformations also
incorporate a detailed communications plan
guiding every stage of the transformation, from
initial launch to sustaining and building on
the improvement.
A transformations top-down communications
start with a compelling, personal transformation
story in which the organizations leader
summarizes a profound need for change while
also giving an inspiring view of the future.
But the story itself is only part of the effort. The
leader must start cascading the story
through each management layer. As the story
moves down, each manager-storyteller
customizes it to his or her audience so that,
eventually, all employees understand why
and how they must change, and what theyll get
out of it.
In this way, the communications start to incorpo-
rate a bottom-up component. Purely top-down
messages rarely work for cultural change; people
see the effort that the new beliefs and behavior
The transformation story
will require, and they naturally resist. In especially
difcult situations, employees may see the changes
as only exacerbating their problems. If, however,
the organization presents the changes as a way to
help people meet challenges that they already
face, people will start to want the changes. Accord-
ingly, a two-pronged strategy is often best: the
organization rst communicates the circumstances
that necessitate change and then frames the
changes as enabling people to respond to
the circumstances.
Writing the transformation story. As the
foundation upon which all other communications
are built, the transformation story is the most
important single element of any communications
strategy. To be effective, the story must help
people make sense of, and engage in, the changes
they are being asked to make. That means
it must be personalreecting not only the
organization but also the heartfelt commitment of
the person telling it. In addition, it must be
exible so that it can motivate employees with
wildly different priorities and personality types.
These requirements mean that the organization
leader, and not just the communications
or HR staff, must be involved in writing the initial
story. That way the leader owns it, using
his or her own language and connecting with
authentic values that make sense to the
wider audience.
141
Crafting the message requires care. Corporate
metrics such as shareholder value may excite the
CEO, but these tend not to motivate most
employees. Instead, as with vision, the transfor-
mation message must appeal to the ve
potential sources of meaning noted in the main
text: the individuals themselves, their teams, their
customers, the organization, and society.
One bank whose story met all these requirements
was able to dramatically increase its measurements
of employee motivation for change. The story
described how the banks transformation would
offer employees more attractive jobs and
opportunities to shape the institution; help working
teams cut unnecessary duplication and feel
more inuential over results; give customers simpler,
more reliable service at lower prices; enable
the company to reduce unsustainable cost growth;
and benet society by providing more services
to deliver affordable housing. With that story, the
transformation achieved 10 percent efciency
improvements in the rst year, far above
initial expectations.
1
Cascading the transformation story. Once the
leader renes the story, with feedback from
direct reports, its time to start spreading the word.
The reports recast the story for themselves,
retaining the leaders major themes but using their
own words and providing examples that will
resonate with their direct reports and below. Each
management level repeats the process, ultimately
with frontline managers sharing their stories
with workers. (To maintain the storys authenticity,
this is best done face-to-facesuch as in
small meetings or town halls, never by memo
or e-mail.)
A European retail bank illustrates how a
transformation story evolves through a successful
cascade. It started with the CEO explaining
to his direct reports that the only way to boost
revenue and protsresults important to this
audiencewould be to deliver far better customer
outcomes at a lower cost. The bank culture,
he continued, would have to change from a
bureaucracy to a federation of entrepreneurs. The
nature of work would change, with managers
rewarded for taking charge of problems and
deciding how to x them.
To recast the story for his audience, the human-
resources director sought to improve the
companys system for identifying and nurturing
potential highiers so they would spend less
time on low-impact jobs. The director of retail
operations focused on faster customer
service. At the branch-manager level, this included
replacing faulty document imagers that slowed
operations and frustrated branch staff.
2
1
Carolyn Aiken and Scott Keller,
The inconvenient truth
about change management,
mckinsey.com, May 2008.
2
Emily Lawson and Colin Price,
The psychology of change
management, mckinsey.com,
June 2003.
targets will refect the vision in highly
practical terms.
The European fnancial-services frm began
assessing employees based in part on their
contributions to cost reduction and innovation.
Within a year, every function, business pro-
cess, and location in the company had identifed
improvement opportunities of between 30
and 50 percent. At MassMutual, a crucial portion
of managers reviews now rests on how well
they encourage problem identifcation and reso-
lution, thus improving customer service.
With falling turnaround times, placement rates
the percentage of insurance applications that
customers commit tohave risen by 10 percent.
Together, deeper meaning and tangible progress
cement the trust that the transformed
organization builds as it delivers more effciently
for customers, enables its people to lead, and
(especially) discovers better ways of working. The
organizations that earn and keep trust are
those that can continue improving indefnitely.
Thierry Nautin is a principal in McKinseys Paris ofce.
Table of contents
143
For a government agency facing intense
scrutiny and a dramatic increase in
applications, lean management was the
solution that let it reduce wait times
by two-thirds while meeting budgetary,
legal, and policy constraints.
A shorter path to
an asylum decision
An interview with Marcus Toremar, lean manager for
the Swedish Migration Board
According to the United Nations High
Commissioner for Refugees, in 2012 Sweden
received the fourth-largest number of asylum
applications among industrialized countries, rank-
ing behind only the United States, Germany,
and France.
1
But Swedens population is less than
10 million, compared with 315 million in
the United States. Proportionate to its population,
Swedens applicant total was second only to
Maltas, with that of the United States lagging
far behind, in the 24th slot.
Assessing and processing the mass of applications
is the responsibility of the Swedish Migration
Board, Migrationsverket, a national government
agency that oversees other immigration ser-
vices as well. The board must protect applicants
human rights, comply with international
treaties and European and Swedish laws, and
conduct fair and accurate reviews, all within
the budgetary and staffng constraints that every
public body must meet.
Since 2009, the board has been using lean
management to help it meet all of these demands.
We spoke with Marcus Toremar, the Migration
Boards lean manager, at the McKinsey offce in
Gothenburg, Sweden.
McKinsey: What are some of the constraints
that the Migration Board faces as a public-
sector organization?
Marcus Toremar: Among the many realities
that make a government body different from
a private organization is the sustained level of
scrutiny we are under from the media,
elected offcials, external organizations. While we
must protect our applicants privacy, when
questions come up about our processes, no
comment is not our way of working. We
comment on everythingwe have to, constantly.
It means we have to be very conscious of what we
do, to make sure we do it in a good way.
We recognize that scrutiny is just an ordinary
part of the democratic process. It needs to
be; as an organization, we have a lot of infuence
over peoples lives. We are not like a shop
where a customer who gets poor service can go
somewhere else. It may sound counter-
intuitive, but our awareness of that fact focuses
us even more on seeing things from the
applicants perspective.
McKinsey: What led the Migration Board to
look to lean management?
Marcus Toremar: Some of the issues never
change. For example, we are always looking for
new ways to maintain our level of quality
so that our decisions are legally correct. That is
a given. What we began to notice, however,
was that our processing times were becoming
longer and longer.
If you ask asylum applicants what they want,
they will answer, A decision, and a swift one.
This is universal. They want to know, Will
I be able to live my life in this country? Nobody
likes to wait for months on end for an answer
to that question.
Everyone was becoming frustrated with
delayswe were, too. Our people did not like
having to tell applicants that we still had
no decision for them.
McKinsey: How did you try to address
the situation?
Marcus Toremar: Originally, we studied
other organizations. We would apply one idea to
one part of our process and another idea to
1
UNHCR Asylum Trends
2012: Levels and Trends in
Industrialized Countries,
United Nations High Commis-
sioner for Refugees, March
21, 2013 (unhcr.org).
145
another part. In retrospect, it is not surprising
that the results were inconsistent.
We had heard about lean management, mainly
from the private sector. But after trying out
other changes and not seeing much improvement,
our leadership decided that we had to stop
hedging our bets and commit. By that point, lean
management seemed worth trying because
it was comprehensive. We thought we should at
least see if it would work on a small scale.
McKinsey: What convinced you and the leader-
ship that it was the right direction to take?
Marcus Toremar: The results of that frst,
small-scale test did it. We knew we had to try
lean management with real cases, following
our real processes, so we started with some newly
received applications.
We chose the location of the test with some
care. The Migration Board is somewhat unusual
in that it is responsible not only for the legal
aspects of the asylum process but for most of the
practical aspects as well. Our agency therefore
provides housing and related support for
thousands of people every year. The logistics can
become quite complicated: a person might fle
an application in Stockholm, but the most
suitable housing might be 1,000 kilometers away.
To give lean management a proper test, we
started at an offce that handles the entire mission
rather than just part of it.
The new approach cut processing times quite
dramatically. It showed that we could resolve a
case in three months or even two months,
not nine months or a year.
McKinsey: How did leaders elsewhere in the
organization react?
Marcus Toremar: We knew they would naturally
be skeptical, so we relied a lot on showing
them how it worked in person. Leaders needed
to understand that the ideas would work for
all of our operations.
Our view was that people should form their own
opinions, good or bad, about lean manage-
ment based on what they saw themselves, not on
Marcus Toremar
Marcus Toremar, lean manager for the Swedish Migration Board,
has served in a variety of management roles for the board since 2007.
He assumed his current position in 2011.
Mr. Toremar holds a diploma in sociology from the University of
Gothenburg and a master of laws degree from the School of Business,
Economics, and Law at the University of Gothenburg.
A shorter path to an asylum decision
what others told them. Of course, we knew that
the results were strong enough that most
would come away with a positive impression. But
we suspected that their support would be
stronger if we let the leaders come to their
conclusions on their own.
McKinsey: In communicating more broadly
about lean management, what did you fnd
worked well?
Marcus Toremar: We provided a lot of
training, especially to the managers who would
be most responsible for making it work
every day. But a lot of what worked was simply
to be present and take opportunities to
communicate as they came up naturally. If
I heard someone in the hallway express
a concern, I would start a conversation right
there to address the issue.
Among some employees, there was fear of
change. We have strong unions in Sweden, so we
made sure to involve union representatives
in our workshops, which underscored that the
changes would be good for workers as well.
McKinsey: How did the Migration Board
adapt lean-management concepts to its
internal culture?
Marcus Toremar: At the beginning, we limited
our adaptation. During the frst couple of
years, we intentionally used English terms such as
lean so that people could look them up on
the Internet and become more comfortable with
them. Over time, we have started to modify
the way we present the ideas so that they feel
more like a refection of our values rather
than an outside system. The transition has not
been easy; the terminology has to feel honest
and authentic.
We keep revising our training as well, so that it
refects what our people are doing in their jobs
right now. The examples we give are all based on
actual problems that our managers and
employees are seeing.
McKinsey: Which changes surprised you the
most? What can the organization do now that it
couldnt before?
Marcus Toremar: Our fexibility is so much
greater now. Last year, we processed over 36,000
applications, which was roughly twice what
we were expecting. It put a huge strain on the
organization, but we were able to absorb
them without any increase in our budget or staff.
In fact, we reduced the average decision time
from 149 days to 108. To put those numbers in
perspective, 2008 was another very busy
year, with almost 34,000 applications processed.
But we were not using lean management
then, and an average application took over 270
days to fnish.
Previously, people tended to focus on their own
caseload. Now, when the Migration Board is
busy, many of them are starting to wonder if their
caseload is the most important thing that
they should be doingwhether they need to put
it aside and work on something that is a
higher priority for the authority as a whole. That
is a huge change for us.
McKinsey: What effect has lean management
had on the organizations strategic direction?
Marcus Toremar: For me, lean management
alone cannot provide us with direction. Instead, it
helps us navigate in the direction that our
leaders have chosen. I think of lean management
as a compass. A compass does not choose a
direction, and it cannot guarantee that you will
147 A shorter path to an asylum decision
arrive at a certain point. But it does increase
your chances.
McKinsey: How did lean management change
the way you and your peers lead?
Marcus Toremar: It did in many ways.
Historically, we have always relied heavily on
expertson lawyers, for example. Like many
organizations, we promoted people because of
their expertise. But we know that being the
best lawyer does not make you the best manager.
We now realize that much of what we are
doing centers on helping our experts become
better managers. Its a lot of work, but I
think it will be one of the most important
benefts from our transformation.
We are much better about making sure that our
decisions have a strong factual basis. Our best
leaders now listen to their colleagues; they dont
just make quick recommendations based on
how things were when they were asylum offcers
eight or ten years ago.
Some of the changes seem small, but they turn out
to be quite important. For example, go and
seethe idea that leaders and managers must
physically go and see what is happening in
their unitshas had a major impact. To make
that work, we had to divide our units into smaller
teams; it would have been impossible for
a manager of 50 people to understand what all
of those colleagues were doing. Now the
manager can rely on the team leaders to handle
that day-to-day oversight.
We then discovered that the new structure makes
it much easier to bring new staff on board.
In a 50-person unit, recent hires could easily feel
lost. Now they can learn much more quickly.
McKinsey: What are the transformations
next horizons?
Marcus Toremar: We will certainly need to
keep increasing our quality and effciency,
because we think that the expectations for the
Migration Board will likely increase. We
want to be prepared for new pressures. Much of
the world has been through one fnancial crisis;
we know from looking at other governments that
even in good times, refugee and asylum matters
are not an area that easily attracts funding.
That is why we have assembled a strong core
group of people who are well trained in lean ideas,
some of whom came to us from the private
Marcus Toremar: Part of what is gratifying is
just the knowledge that we tried. In Sweden
alone there are hundreds of other government
authorities, some of which have really tried
to change the way they work. But I see some real
breakthroughs for us because our senior-
management team was willing to commit. That
is a source of pride.
Its easy to look to the statistics, see how much
faster we are in resolving cases and how
many more we can handle, and think that our
work is done. But I believe there is so much
more ahead of us. We are still very new to this
game, and we can do more to make it into
a way of life.
sector. They will help us keep pushing. We know
that we need to extend into other areas, to break
down internal barriers.
Its an enormous task to change the behavior of
4,000 people, and we cannot let our guard
down. We constantly keep questioning ourselves:
Do we have the right facts? Are we solving
problems the way we should? Is this the
right standard?
At the same time, we have to remember that
learning to work in this new way takes time. We
should not be too hard on ourselves, expecting
to achieve too much too quickly.
McKinsey: If you were to look at the impact
that lean management has had so far for
the Migration Board, which results are most
gratifying to you?
Table of contents
149
Six years into Euroclear Banks
transformation, the CEO refects on how
lean management has evolved to let
his institution execute its strategy more
effectively in turbulent times.
Euroclear Bank
Brussels-based Euroclear Bank is a
provider of securities-settlement, asset-servicing,
custodial, and asset-optimization services for
cross-border transactions involving domestic and
international bonds, equities, derivatives, and
investment funds. With clients in about 90
countries, the bank offers a single point of access
to post-trade services covering more than
40 markets.
In 2007, the bank launched an ambitious
transformation with lean management at its
core, and has held to it throughout the
extraordinary pressures that the global fnancial-
services industry has faced in the years since
then. The results have justifed Euroclear Banks
commitment. Over the past fve years, cus-
tomer satisfaction has risen by 12 percent and
quality incidents have fallen by 75 percent,
even as transaction volume rose by 30 percent.
Moreover, employee engagement is up by
approximately 15 percent despite the workforce
shrinking by one-quarter.
Six years into the transformation, lean manage-
ment has become fundamental to how Euroclear
Bank does business. But the way that it applies
the principles continues to evolve as the company
refnes its strategy. To get a better understanding
of that evolution, McKinsey spoke with
Euroclears CEO, Yves Poullet, at McKinseys
offce in Brussels.
McKinsey: How has lean management contrib-
uted to Euroclear Banks strategic development?
Yves Poullet: One of the most important
factors to bear in mind about lean management
is that it is not a strategyit is a strategic
enabler. It enables an organization to execute its
strategy more effciently and effectively, aligning
the company more closely with its objectives.
In our case, our whole industry has been through
quite turbulent times over the past six years. Lean
management focuses us on our clients, helping
us reevaluate what improved client satisfaction
really means as our clients priorities change.
We can then adapt ourselves while making sure
that our control environment remains sound.
The beauty of lean management is that it creates a
focused, transparent management environment,
without directing our strategy one way or another.
McKinsey: How has Euroclear Bank evolved
with lean management over the past few years?
Yves Poullet: Since the goal is to ingrain a series
of mind-set changes in the company, lean
management must be more than just a couple of
PowerPoint slides or high-level statements.
As our experience with lean management has
deepened, we have seen a gradual evolution in
how people view the principles.
The initial focus is How do I master these systems
and techniques? Later, the question becomes,
Why do I use them? Once I understand why I
use them, I can change themfor better
effciency, client satisfaction, and so forth.
In the last stage, the perspective expands
to see the whole end-to-end process, revealing
opportunities for closer collaboration
across divisions.
McKinsey: What does that mean on a day-to-
day basis for Euroclear Banks business?
Yves Poullet: It means improved align-
ment. Lean management highlights bottom-up
problems at the same time as it helps
cascade top-down priorities through the
organization. That makes it much
151
easier for divisions to communicate with one
another and work together.
Both approaches are critical today. Our mission is
to make post-trade easy for our customers.
Right now a number of regulatory changes are
being introduced that will, for example,
increase the need for collateral management. In
Europe, a new settlement platform, Target2-
Securities, or T2S, is in development.
We need to offer our customers the right service
and products in this new context. Lean
management is helping us adapt to these changes
more effectively, bringing us closer to our
customers so that we understand their needs
more clearly. We are faster at developing
new products and better at selling them as well
and we are more effective at industrializing
them, further reducing our cost while increasing
our capacity for further innovation.
McKinsey: Tell us more about how lean man-
agement itself has evolved at Euroclear Bank.
Yves Poullet: The risk with lean management is
that it can become static. We cannot forget
that lean management is a means to an end, not
the end itself.
The tools matter because of how they help the
organization change. But what matters even
more is how you stay focused on clients, how you
keep identifying problems and solving them
in a sustainable way.
Consequently, a tool that is useful at a specifc
point in time might not be useful later. It is
crucial to apply lean to lean, as it wereto make
sure that lean management also continuously
improves. The focus should be more on the under-
lying principles of lean management and less
on any one tool.
Yves Poullet
Yves Poullet has been the CEO of Euroclear Bank since 2007. He
joined the bank in 1991, holding a variety of senior positions in the nance,
risk-management, corporate-strategy, product-management, and
operations divisions before serving as the banks head of operations from
2003 to 2007.
Mr. Poullet holds a degree in business administration from the Universit
catholique de Louvain and a degree in electrical engineering from the
Katholieke Universteit Leuven.
The strategic enabler at Euroclear Bank
Reaching this level takes time, of course. As
leaders become more familiar with lean-
management concepts and systems, they learn
to adapt the tools more effectively as
needs change, while continuing to adhere to
the principles.
McKinsey: What have you discovered about
lean management along the way?
Yves Poullet: Communication about lean
management is always important. People must
see the principles as part of the companys
DNA, rather than as add-ons to existing manage-
ment processes. This is a factor that organizations
should consider when deciding what name to
give lean management. Creating a new name, one
that refects the organization, is a good way to
embed the principles more quickly.
McKinsey: What can the organization do today
that it could not have done six years ago?
Yves Poullet: I see greater management and
leadership capabilities, particularly among middle
managers. The level of communicationabout
client issues, business issues, effciency issues
has increased. These are being discussed in a
much more open, transparent environment where
there is no fear of highlighting a problem.
That has generated an energy; you feel
like everyone can contribute more to the success
of the company.
McKinsey: In the past you described lean
management as common sense executed with
discipline.
1
Does that description apply
equally well today?
Yves Poullet: Defnitely. Our customers rely on
our reliabilityon our capacity to deliver
on a day-to-day basis at a very high standard.
Being able to execute on that promise
on a sustainable basis is essential. That is the
discipline part.
And I think that common sense is a nice way to
describe what lean management is about. It
is about being focused, starting with the clients,
and making sure that whatever you do, you
do it for them.
These elements remain valid whatever the
environment. They are as true today as they were
six years ago.
McKinsey: How do you keep lean manage-
ment fresh after so many years of working with
the concepts?
Yves Poullet: When you are trying to change
mind-sets, there is always a high risk that
the results will drop off at a later stage. From early
on, we sought to think through all of the classic
management techniques that an organization can
use to retain a new practice: building training
programs, setting new objectives, creating new
performance evaluations and self-assessments.
Any organization undertaking lean management
had better have multiple levers ready to sustain
the transformation to a lean environment.
The beauty of lean management
is that it creates a focused,
transparent management
environment.
1
Common sense executed
with discipline: An interview
with Yves Poullet, CEO
of Euroclear Bank, Banking
on Lean, McKinsey &
Company, 2008.
153 The strategic enabler at Euroclear Bank
Energy often dissipates when lean management
seems to be most successful. When no major
issues appear and capacity is well under control in
a stable environment, the routine of daily
work allows inertia to set in. Recalibrating our
targetsand making sure that they focus on
customer value and innovation rather than just
productivityenables us to continue challenging
our teams in a constructive way.
Whenever we sense that our lean-management
discipline might be faltering a little bit, we accept
that fnding and then see what needs to be done
to reinject energy into our work. It doesnt need to
be a costly exercise; it just needs to get the
momentum started again.
Table of contents
154
For TDC, Denmarks leading telecom
provider, a lean-management
transformation has been a necessary
condition for investing in
future growth.
looking for India
An interview with Martin Lippert, former COO of TDC
155
TDC is Denmarks largest provider of
business and consumer telecommunications.
Long the countrys incumbent telecom
company, TDC was gradually privatized in the
1990s as part of a broader liberalization of
Denmarks telecom market.
After a group of private-equity frms acquired a
controlling interest in TDC in 2005, the company
spent the next several years restructuring
its operations. But by 2009, rapidly evolving
fnancial, commercial, and technological
conditions led the company to turn to lean-
management principles for a new wave of
performance improvement. Starting on a small
scale, the program quickly expanded to
become TDC 2.0, a company-wide transforma-
tion that has boosted employee and customer
satisfaction signifcantly while building a much
more fexible and responsive organization.
As CEO of TDC Business, the companys
enterprise-service unit, and later as groupwide
chief operating offcer, Martin Lippert was
responsible for overseeing the implementation
of TDC 2.0 up until mid-2013, when he left
TDC for a new opportunity. Before his departure,
McKinsey spoke with Mr. Lippert at TDCs
headquarters in Copenhagen.
McKinsey: What were the origins of TDC 2.0?
Martin Lippert: To be honest, it started almost
by accident. The original idea was just a
short-term project to improve sales effciency
in the business-services unit.
At the time, the units customer- and employee-
satisfaction scores were falling. An important
reason turned out to be that customer meetings
were too short and infrequent. That led us
to a diffcult realization: effciency levels were
so low that it was simply impossible for the team
to cover the entire potential market with
a proper sales approachthe numbers just didnt
add up. We could not afford to hire hordes
of salespeople, so we had to increase eff-
ciency dramatically.
McKinsey: How did you do that?
Martin Lippert: We recognized that the only
way to reach the improvement target was to fnd
a new way of working: clearer roles and responsi-
bilities, better management, more knowledge
sharing, everything. So we started out with
a small test case, following a bottom-up approach
in which the sales unit adapted a basic lean-
management tool kit to its distinct needs.
After about six or eight weeks, the result was
an enormous increase in productivity and
effciency. Employee satisfaction rose as well. And
when we measured long-term health factors
such as employees sense of direction and control,
we saw a lot of improvement. To our surprise,
the transformation addressed many of the long-
standing issues the organization suffered
from, even though that had not been our original
goal when we started.
Like Columbus, we set out to fnd a new route to
India. Instead, we discovered America.
McKinsey: How did the rest of the organization
respond to the discovery?
Martin Lippert: Word quickly got around that
the people in the test organization were
suddenly happierperformance was much
higher, bonuses were higher. Demand
for similar change started to build, and so we
started to roll the concepts out to different
sales organizations.
We saw the same results. Then we thought, Can
we use this approach in customer care?
We soon realized that lean management was
working all over. That was the birth of TDC 2.0. It
was not something we consciously designed
from the startwe evolved into it, and it proved
enormously effective.
McKinsey: What are some of the things that
TDC 2.0 can do now that the old TDC could not?
Martin Lippert: In short, we are more agile. I
see greater agility throughout the organization,
starting with how people interact in the regular
team meetings that take place every day.
My role is usually to listen, not to participate
actively. I can see that employees are much more
engaged in solving issues than they were before.
They arent just responding to some point that I
raised or that the manager raised. Instead,
they are fnding problems and solving them on
their own, coming up with responses like,
I had a meeting with the business division yester-
day. We realized that the way they enter orders
into the system is what has been generating the
extra code we see, so we standardized the
order entry to eliminate the issue.
That sense of agency and initiative is enormously
important. I can see employees sticking to the
problem-solving processholding the meetings,
doing the analysis, fnishing the follow-up
even when their managers are away.
And because our way of working is now standard-
izedits fundamentally the same whether
you work in the network division, the business
division, or another areano one needs
permission to go to another organization to ask
for help in solving a problem. Teams know
that they will get visits from colleagues elsewhere
in the company who have issues to solve.
McKinsey: How do teamsand especially
managersfnd the capacity to help from other
parts of the company?
Martin Lippert: Lean management has built
our employees problem-solving capabilities so
that more issues get resolved without the
managers involvement.
In the old days, managers were the ones who
solved problems, not the employees. With
a team of 15 or 16 employees, there were always
enough problems that just keeping track
of them was practically a full-time job for
the manager.
Now we empower the entire organization to
go about fnding solutions. A few issues will still
come back to managers, but much fewer than
before. The organization can solve more problems,
and that means we can better serve our customers.
McKinsey: What were some of the challenges
that you saw with the transformation?
Martin Lippert: Transformation is always going
to provoke resistance, but because we started
in the sales organization, the nature of the resis-
tance was different.
In sales organizations, there are always a few stars,
people who have been the hero for forever.
Their attitude was, Its great that youre doing
something to help the rest of the bunch, but
Im a star here. Im not going to change, because
what Im doing is working.
We had to be prepared to lose some of them. Our
message was very clear: we are creating a new
157
way of working. You will participate in designing
the process, and once that is in place, we will all
follow it. No exceptions.
In the end, I dont think we lost any of them.
McKinsey: Thats an interesting distinction,
because organizations more typically see a lot of
resistance among middle managers.
Martin Lippert: We encountered that too. It was
a big change for them. Before, middle managers
spent only about 10 or 15 percent of their time on
real leadershipperformance management,
coaching, fnding out whats going on in their
organization. Instead, almost all of their
time was consumed by projects, mostly to fx
problems. Thats a very ineffcient way of
working. We needed to reverse those numbers
so that managers could spend 80 percent of
their time being managers and leaders.
Some of the managers were truly unable or
unwilling to make the change. But eventually most
of them saw that what we were providing was
a set of techniques that they could adapt as they
needed. In working together with the front
line and senior leadership to design the trans-
formation in their teams, the managers gradually
came to recognize how the whole system of
lean management could help them accomplish
more. It took time, of course, but once they
did, we saw more involvement from them than
ever before.
McKinsey: What about the senior leaders?
Martin Lippert: Again, the message centered on
empowerment. Usually senior executives would
start by saying, Great project. You should
understand, however, that while it might work in
the sales organization, my group is different.
Every time we listened, and every time we
pushed back.
We pointed to the results they could achieve.
We acknowledged that there would be resistance.
And we fnished by underscoring that we
would provide the tools; they would design the
transformation so the results would be
their own.
Discovering America by looking for India
Martin Lippert
Martin Lippert served as group chief operating ofcer for TDC until
August 2013; earlier in his career, he was CEO of TDC Business
and was appointed to TDCs corporate-management team in 2009.
Before joining TDC, he was CEO of the Luxembourg-based
cloud-services provider MACH. He holds an MS in economics and
business administration and a PhD in economics, both from
Aarhus University.
By being persistent and emphasizing ownership,
we were able to persuade the leadership that the
approach was worth trying.
McKinsey: So persistence and empowerment
are the essential elements?
Martin Lippert: We also had the top teams
commitment. TDC 2.0 may have started in one
small part of the business, but its success
made the top team interested. I expended a lot of
time to help implement the process, and so did
my colleagues.
The quality of the core transformation team
matters. We moved senior vice presidents out of
line positions to make sure that team would
have peoples respect from the start.
Additionally, we found that by effectively
communicating the results, the results started to
reinforce themselves. When people hear that a
sales organization more than doubled the number
of renegotiations it completed, they simply have
to pay attention. I would say that communication
in every directiontoward the board and top
management, toward employees, toward
other parts of the organizationwas a major
reason we succeeded.
McKinsey: How have the changes played out
across the organization?
Martin Lippert: One of the most important
effects was to build a real performance culture.
Before, there were lots of discussions about
fgures and key performance indicators (KPIs)
and so forth. But it seemed like everybody
had their own reports, each showing something
different. There were endless debates. So, in
reality, people did not discuss performance. What
they thought were discussions about performance
were instead just discussions about data.
In the transformation, we sought to identify
which KPIs really were the most important for
leading the business in the right direction.
Those became the new report, which is now
produced automatically on a weekly and
daily basis. We announced that this is the only
report that matters, and we shut down the
other reportsrogue reports, we call themso
that there was only one set of fgures.
McKinsey: So just standardizing the data was a
very big deal?
Martin Lippert: Yes. But we also needed to
change what we did with the data. Rather
than use the report to put negative pressure on
poor performance, we used it to fnd positive
opportunities, as a way to say, for example, This
salesperson must really understand how to
go to market with this product. Lets learn from
him and replicate what he does. It became
the basis for coaching discussions, so that our
lower performers could learn from the stars.
Being able to decrease
our cost every year gives us
much greater fexibility
in how we respond to changing
customer demands.
159
McKinsey: What was in it for the stars?
Martin Lippert: They also got more attention, in
a positive way. Before, with only 10 to 15 percent
of their time available for coaching, managers
naturally focused on the weaker team members
and ignored the stars. But redesigning the
manager role gave managers a lot more time to
spend with each team member. For the frst
time, the stars were getting coaching sessions and
seeing that even they could improve.
McKinsey: And that meant more sales.
Martin Lippert: New sales increased by 80
percentthats 80, not 18in the transformed
teams, with no added personnel.
McKinsey: Thats astonishing.
Martin Lippert: But really, the other outcomes
matter more in the long run. We have better
knowledge sharing. We have increased agility. And
in the process, we are reducing our costs by
between 9 and 11 percent each year while raising
our employee-satisfaction and customer-
satisfaction scores.
In the business division, customer-satisfaction
scores rose 15 index points in a single year.
Usually companies struggle to raise those scores
by 3 or 4 points; 15 is so unusual that the
statistician rechecked all of the data.
McKinsey: What are the broader implications
for TDC in the future? How does this
transformation inform TDCs strategy?
Martin Lippert: As an incumbent telco,
TDC faces the same challenges confronting the
rest of the industry, especially in Europe.
Revenues are fat or decreasing. Competition is
only getting tougher.
Increased effciency is a necessary condition for
us to be able to invest in the businesses that
will provide future growth. The fact that we are
able to decrease our cost every year gives us
much greater fexibility in how we respond to
changing customer demands.
McKinsey: What comes next for TDC 2.0?
Martin Lippert: I would say that we are only
halfway through TDC 2.0, even though we
are completing our implementation across the
entire organization. We want to combine
the strengths we have developed in different
product areas so that we are even more precise in
meeting customers needs. That is a large
part of our organization-wide effciency agenda
as TDC 2.0 takes on a life of its own.
At the same time, we are already looking into
what we can do for a third wave, which we
are calling radical simplifcation. The idea is to
build on the lean-management premises under-
pinning TDC 2.0 and push them further.
Discovering America by looking for India
Table of contents
Europe
David Jacquemont
Principal
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[email protected]
Paul Jenkins
Director
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[email protected]
Thierry Nautin
Principal
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[email protected]
Marcel Normann
Principal
+49 (40) 3612-1366
[email protected]
Jasper van Ouwerkerk
Director
+31 (20) 551 3220
[email protected]
Americas
Deniz Cultu
Principal
+1 (612) 371-3125
[email protected]
Andy Eichfeld
Director
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[email protected]
Kweilin Ellingrud
Principal
+1 (612) 371-3132
[email protected]
Krish Krishnakanthan
Principal
+1 (212) 446-7208
[email protected]
Francisco Ortega
Principal
+54 (11) 5776-3817
[email protected]
Rohit Sood
Principal
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Middle East and Asia
Joydeep Sengupta
Principal
+971 (4) 389 9286
[email protected]
We welcome your comments and questions.
The editorial board would like to thank the colleagues
listed below for their contributions to McKinseys
perspective on lean management:
Kalle Bengtsson, Santiago Carbonell, Pablo Correa,
Wouter De Ploey, Joao Dias, Alessandra Fantoni,
Ron Fardell, Leo Grepin, Petter Hallman, Klemens Hjartar,
Martin Hjerpe, Julie Klinge Johansen, Scott Lippert,
Sarah Ryerson, Steve Sakson, Sameer Shetty, Jacob
Staun, Zachary Surak, Vincent Van Lierde
For service organizations, the goal of sustained improvement
has been at least as frustrating as attractive. But a select group
is pointing the way forward by adhering to four management
disciplines: delivering value efciently to the customer, enabling
people to lead and contribute to their fullest potential, discovering
better ways of working, and connecting strategy, goals, and
meaningful purpose. Together, these form the lean-management
system, an integrated approach that transforms the entire
organization from the front line to the executive suite, allowing it to
renew itself continuously for lasting value.
January 2014
Designed by Global Editorial Services
Copyright McKinsey & Company
McKinsey Practice Publications meet the Forest Stewardship
Council (FSC) chain-of-custody standards.
The paper used in this publication is certifed as
being produced in an environmentally responsible, socially
benefcial, and economically viable way.
Printed in the United States of America.

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