Five Frames of

Transformational Change

18 June 2014

CONFIDENTIAL AND PROPRIETARY

Any use of this material without specific permission of McKinsey & Company is strictly prohibited
Performance and health: An evidence-based approach to
transformational change

▪ In the present competitive environment, companies’ long-term success is determined

by their ability to adapt and change. However, most companies struggle to achieve
substantial, sustainable change over time

▪ The most extensive research effort of its kind has shown that successful, sustainable
transformations can be reliably achieved by managing both the performance and health
of the transformation with equal rigor

▪ We have developed a five-stage approach to rigorously manage performance and health

during transformational change. This document will focus on the key aspects of managing
health:
1. Aspire: Align on where you want to go
2. Assess: Determine the change-readiness of the organization to go there
3. Architect: Determine how to get from here to there
4. Act: Manage the journey as it unfolds
5. Advance: Ensure sustainability and continuous improvement beyond the step change

▪ The impact of this approach has proven to be reliable and significant, creating
measurably higher and more sustainable returns

SOURCE: McKinsey Organization practice 1

 1 4 facts shaping the world of organization

The nature of competition has shifted from scale

Fact one
and stability to innovation and change

Fact two The gales of creative destruction are still raging

Most transformation efforts fail … and for

Fact three
predictable reasons

Fact four It can be done

SOURCE: Scott Keller and Colin Price, Beyond Performance: How Great Organizations Build Ultimate Competitive
2
Advantage. 2011
Fact 1: The nature of competition has shifted from scale (stability) to
innovation (change)

Innovation and change are

Scale is no longer the key driver of value
Net income per employee (performance)
– top 150 firms by market value
$ thousand
becoming ever more important
Net income per employee (performance)1
– top 150 firms by market value Innovation is going to become
$ thousand king in any company

Jeff Immelt
CEO of GE
1984 2004
Innovation may be an important
element of other corporate
strategies, but for us, innovation
is our strategy

William E. Coyne
Former SVP of R&D at 3M

Up to 80% of a share’s market

value can be explained only by
cash flow expectations beyond
the next three years
Employees (size) Employees (size)
Thousand Thousand Ian Davis,
McKinsey & Company

SOURCE: Compustat; Global Vantage; team analysis 3

Fact 2: The gales of creative destruction are still raging

There seems to be a “survivors’ curse” where

Half of the companies in present S&P 500 will former winners struggle to remain competitive
not be there in 10-years time and effective
Estimated life span of S&P 500 companies Total return to shareholders of new entrants
based on company exits relative to industry average
Years %
90

Attackers

Survivors

45

26 1 5 10 15 20 25
19 17

Yrs

1935 1955 1975 1995 2009

SOURCE: Datastream; web search; press search; McKinsey corporate performance analysis tool; Richard Foster and Sarah Caplan, Creative Destruction: Why
4
companies that are built to last underperform the market – and how to successfully transform them, Doubleday/Currency, 2001
Fact 3: Most transformation efforts fail … and for predictable reasons

… mainly because organizational health gets

70% of change programs fail … in the way

Other obstacles 14
Inadequate resources
or budget 14
% of
efforts
30 70 Management behavior
failing to 33
does not support change
achieve
target Organizational
impact health factors

Employee resistance
39
to change

SOURCE: Scott Keller and Colin Price, Beyond Performance: How Great Organizations Build Ultimate Competitive Advantage. 2011 5
Some companies, however, demonstrate above-average performance over
several decades
TRS, indexed (100% = Q1 1979)

15,000 15,000

10,000 10,000

5,000 5,000
World
nondurable World
household products soft drinks
0 0
Q1 1979 Q3 2009 Q1 1979 Q3 2009

15,000 15,000

10,000 10,000

World
5,000 5,000 automobiles

U.S. major airlines

0 0
Q1 1979 Q3 2009 Q1 1979 Q3 2009

SOURCE: Aaron De Smet, Mark Loch, and Bill Schaninger, What winning looks like – the four archetypes of organizational
6
health, McKinsey & Company, 2008
Performance and health: An evidence-based approach to
transformational change

 In the present competitive environment, companies’ long-term success is determined

by their ability to adapt and change. However, most companies struggle to achieve
substantial, sustainable change over time

▪ The most extensive research effort of its kind has shown that successful, sustainable
transformations can be reliably achieved by managing both the performance and
health of the transformation with equal rigor

▪ We have developed a five-stage approach to rigorously manage performance and health

during transformational change. This document will focus on the key aspects of managing
health:
1. Aspire: Align on where you want to go
2. Assess: Determine the change-readiness of the organization to go there
3. Architect: Determine how to get from here to there
4. Act: Manage the journey as it unfolds
5. Advance: Ensure sustainability and continuous improvement beyond the step change

▪ The impact of this approach has proven to be reliable and significant, creating
measurably higher and more sustainable returns

SOURCE: McKinsey Organization practice 7

We have invested in years of learning to uncover the key to
successful transformations

Survey Research Analysis

Survey Academic journal Books were
600,000 respondents from 900 articles and books
2 published
more than 500 reviewed one internally,
organizations one externally
participated in our CEOs and chair-
30 persons did face-
“Organizational
Health Index” to-face interviews 1 Unified
research with us theory of
Leading academics
change
6,800 CEOs and 4 reviewed, chal-
senior
executives lenged, and
completed augmented our
further surveys findings
regarding trans- Years dedicated to
formational 3 developing and
change refining our under-
standing of organi-
zation and change

SOURCE: McKinsey Organization practice 8

The big idea: Companies need to manage performance and health with
equal rigor to achieve successful change

Performance Health

What an enterprise
The ability of an
delivers to stakeholders
organization to
in financial and
align, execute, and
operational terms
renew itself to
(e.g., net operating
sustain exceptional
profit, ROACE, TRS,
performance over
net operating costs,
time
and stock turn)

The narrow pursuit of shareholder We have not achieved our tremendous

value was the dumbest idea in the increase in shareholder value by
world making shareholder value the only
purpose of our business
– Jack Welch – John Mackey
Former chairman and CEO of GE Founder and CEO of Whole Foods
Financial Times, August 2009 Reason Magazine, October 2005

SOURCE: Scott Keller and Colin Price, Beyond Performance: How Great Organizations Build Ultimate Competitive
9
Advantage. 2011
Organizational health and company performance are mutually reinforcing
drivers, now and in the future
Likelihood that companies with specified level of health have above-median
financial performance
%

EBITDA margin 68
48
31 x2.2
x2.2
Managing health
is not something
you can wait to
Growth in 62 do in the future –
52 it is about the
enterprise value/ 31 x2.0
x2.0
book value actions you take
presently to
perform
tomorrow
Growth in net 53 58
income/sales 38 x1.5
X1.5

Weak1 Medium2 Strong

Health
1 Also referred to bottom, mid-, and top quartiles in health assessment
2 Comprises second and third quartiles

SOURCE: Aaron De Smet, Rodgers Palmer and William Schaninger, “The missing link – connecting organizational and
10
financial performance,” McKinsey & Company, 2007
The business benefits of a balanced approach to performance and health
during transformations are proven and profound
Bank 1 8% Performance-heavy
approaches
Profit per
Balanced performance
business banker 19% and health approaches

Coal mine 15%

Increase in 25%
tonnage

Bank 2 19%
Retail banker
cross-sell ratio 43%

Retailer 34%
Sales-to-labor 51%
ratio

35%
Telco
Churn reduction 65%

SOURCE: Company data in longitudinal studies (two years) of control groups vs. experimental groups controlling for all
11
possible distortions of trial
Organizational health has 9 critical dimensions that must be proactively
managed for organizations to transform successfully

A clear sense of where the organization is heading

Direction
and how it will get there that is meaningful to all employees

Leadership The extent to which leaders inspire actions by others

Culture The shared beliefs and quality of interactions in and among

Direction and climate organizational units

The extent to which individuals understand what is expected of

Account- Coordination Accountability
them, have authority, and take responsibility for delivering results
ability and control
Coordination The ability to evaluate organizational performance and risk, and
and control to address issues and opportunities when they arise
External Innovation
Leadership
orientation and learning
The presence of the institutional skills and talent required to
Capabilities execute strategy and create competitive advantage

Capabilities Motivation
The presence of enthusiasm that drives employees to put in
Motivation extraordinary effort to deliver results

Culture and
climate External The quality of engagement with customers, suppliers, partners,
orientation and other external stakeholders to drive value

Innovation The quality and flow of new ideas and ability to adapt and shape
and learning the organization as needed

SOURCE: McKinsey Organization practice 12

How healthy is your organization? Quick assessment

Ailing Able Elite

Direction Creates a strategy that fails to resolve Crafts and communicates a … and provides purpose, engaging
the tough issues compelling strategy, reinforced by people around the vision
systems and processes …

Leadership Provides excessively detailed Shows care toward subordinates and … and sets stretch goals and inspires
instructions and monitoring (high sensitivity to their needs employees to work at their full potential
control) (high support) … (high challenge)

Culture and Lacks a coherent sense of shared Creates a baseline of trust in and … and creates a strong, adaptable
climate values among organizational units … organizationwide performance culture

Accountability Creates excessive complexity and Creates clear roles and responsibilities; … and encourages an ownership
ambiguous roles links performance and consequences … mindset at all levels

Coordination Establishes conflicting and unclear Aligns goals, targets, and metrics … and measures and captures the
and control control systems and processes managed through efficient and value from working collaboratively
effective processes … across organizational boundaries

Capabilities Fails to manage talent pipeline or deal Builds institutional skills required to … and builds distinctive capabilities that
with poor performers execute strategy … create long-term competitive advantage

Motivation Accepts low engagement as the norm Motivates through incentives, … and taps into employees’ sense of
opportunities, and values … meaning and identity to harness
extraordinary effort

External Directs the energy of the organization Makes creating value for customers the … and focuses on creating value for all
orientation inward primary objective … stakeholders

Innovation Lacks structured approaches to Able to capture ideas and convert them … and able to leverage internal and
and learning harness employees’ ideas into value incrementally and through external network to maintain a
special initiatives … leadership position

SOURCE: Alice Breeden, Aaron de Smet, Helena Karlinder-Ostlundh, Colin Price, and Bill Schaninger, Building healthy
13
organizations to drive performance: The evidence, McKinsey & Company, 2009
Performance and health: An evidence-based approach to
transformational change

 In the present competitive environment, companies’ long-term success is determined

by their ability to adapt and change. However, most companies struggle to achieve
substantial, sustainable change over time

▪ The most extensive research effort of its kind has shown that successful, sustainable
transformations can be reliably achieved by managing both the performance and health
of the transformation with equal rigor

▪ We have developed a five-stage approach to rigorously manage performance and health

during transformational change. This document will focus on the key aspects of managing
health:
1. Aspire: Align on where you want to go
2. Assess: Determine the change readiness of the organization to go there
3. Architect: Determine how to get from here to there
4. Act: Manage the journey as it unfolds
5. Advance: Ensure sustainability and continuous improvement beyond the step change

▪ The impact of this approach has proven to be reliable and significant, creating
measurably higher and more sustainable returns

SOURCE: McKinsey Organization practice 14

Everything should be made as
simple as possible, but no simpler

– Albert Einstein

15
To drive successful transformations, companies must manage both
performance and health across all 5 stages of the transformation
Performance Health

Aspire Strategic Defining explicit

objectives
Setting the performance Health
1 Where do we essentials organizational aspirations
want to go? goals
with the same rigor

Assess Capability Determining gaps across Understanding the mindset

platform Discovery
2 How ready are we technical, managerial, process shifts needed in the
to go there? and behavioral systems organization

Architect Developing a portfolio of Architecting the

Portfolio of
3 What do we need initiatives initiatives to improve Influence implementation along the
model
to do to get there? performance levers that drive people to
change

Act Designing the approach Building broad ownership,

Delivery Change
model to rolling out initiatives engine taking a structured
4 How do we manage
in the organization approach, and measuring
the journey?
impact

Advance Continuous Setting up mechanisms Centered Developing leaders to

improvement leadership
5 How do we keep to drive continuous enable them to drive
moving forward? improvement change

SOURCE: Scott Keller and Colin Price, Beyond Performance: How Great Organizations Build Ultimate Competitive
16
Advantage. 2011
Leaders want more insight into how to improve ‘health’

In what one area do you wish you had more insights to lead the
transformation?
%, N = 2,236

Health 65

Performance 16

No single area 13

Other 7

Source: McKinsey Quarterly Transformational Change Survey, January 2010 17

Which table is longer?

18
Aspire – where do we want to go?
On the health side, this means setting the right organization aspirations

Measure
organizational
health

Set the
right health
aspirations

Involve a
A runner, a boxer, and a swimmer are broad leadership
all healthy, but in quite different ways coalition
What kind of health aspirations are
right for your organization?

SOURCE: Scott Keller and Colin Price, Beyond Performance: How Great Organizations Build Ultimate Competitive
19
Advantage. 2011
Aspire – where do we want to go? MOTIVATION
Practices work in combination EXAMPLE
% likelihood that a company will be top quartile in motivation if top quartile in this individual practice

Being top quartile in the following individual motivation The stand-alone practice from the left plus a
practices1 … “competitive environment” …

… results in the following % likelihood of being top … results in the following % likelihood of being
quartile in overall motivation top quartile in overall motivation

Meaningful
values

Inspirational +
leaders Compet-
itive
Career environ-
opportunities ment

Incentives

Success in individual practices is important Being top quartile in both incentives and
to the overall motivation outcome competitive environment is a potent combination

1 Analysis conducted on four out of five Motivation practices

SOURCE: McKinsey Quarterly Transformational Change Survey, January 2010 20

Aspire – where do we want to go?
There are 4 archetypical combinations for healthy organizations

Leadership driven Market focus Execution edge Knowledge core

1 Career opportunities Business partnerships Knowledge sharing Talent acquisition

2 Open and trusting Customer focus Creative and entrepreneurial Role clarity

3 Performance contracts Competitive insights Employee involvement Consequence management

4 Inspirational leaders Government and Talent development Financial incentives

community relations

5 Strategic clarity Financial management Internally competitive Personal ownership

6 People performance review Capturing external ideas Personal ownership People performance review

7 Operational management Process-based capabilities Bottom-up innovation Career opportunities

8 Operationally disciplined Shared vision Top-down innovation Performance contracts

9 Consultative leadership Outsourced expertise Meaningful values Professional standards

10 Consequence management Strategic clarity Consequence management Financial management

SOURCE: McKinsey Organization practice 21

Assess – how ready are we to get there?
On the health side, this means understanding the few critical mindset
shifts that are needed

Identify liberating
and limiting
mindsets

Focus on the vital

few

Assess both what

+ - is working and
Understanding the key limiting what isn’t
mindsets in your
organization

SOURCE: Scott Keller and Colin Price, Beyond Performance: How Great Organizations Build Ultimate Competitive
22
Advantage. 2011
Assess – how ready are we to get there? Retail banking example
There are analytic methods available to uncover root-cause mindsets
Performance Mindset root causes
limitation Behavioral causes of performance limitation uncovered

Why do bankers find  Disconnect

customer-facing time between bankers’
uncomfortable? identity as
Most bankers
Why do bankers technical/product
spend so much time have introvert experts (because
Completing
doing credit and personalities of historical
administrative
administrative tasks? Many tasks is in requirements) and
bankers most bankers’ Most bankers the selling role that
Time on ad- prefer comfort zone; are less skilled involves relational
ministrative admin- selling to at sales, skills
process and istrative and customers is administration,  Sense that one
credit credit tasks not and credit cannot be both a
applications to selling technician and a
Time with
to customers Why do managers spend salesperson
customers too little time coaching?

Managers
Managers act
 Development
create an involves individuals
as supervisors
environment in mastering technical
Ability to rather than processes, not
acquire new Why aren’t bankers which bankers
coaches coaching on
customers spending more get less
face time with pressure when interaction quality
customers? doing “visible”
Managers pay
 Culture of
administrative management by
attention to defined and
and credit
“paper trail” to supervised activities
tasks
Generation control upward (vs. results)
of leads information cascades into an
and sales flow absence of trust and
empowerment

SOURCE: McKinsey Organization practice 23

Assess – how ready are we to get there?
Ultimately organizations should focus on a vital few mindset shifts
From transactional …
“I am responsible for quickly and efficiently
meeting the needs my clients express.”
“Probing my clients about their financial
situation would be prying into their private
affairs”
From silos …
“I know what’s right for my area and no one
else can achieve what I can”
From blame …
“There is a lack of clarity regarding
accountabilities around here.”
“I show up at each meeting so I can watch
my back”
SOURCE: McKinsey’s Organization practice
… to relational
“I am responsible for bringing the best of my
company to clients and addressing their
needs whether articulated or not”
“I need to understand my clients’ full situation
before I can give them the best advice”
… to collaboration
“I can learn from others and there is great
value in ‘mining the seams’ together”
… to accountability
“I seek to clarify my and others’
accountabilities if they are unclear”
“I trust others to do what they are supposed
to do in a fair manner”
24
Architect – what do we need to do to get there?
On the health side, this means architecting the implementation using the
key levers that drive people to change

Create the right

context

Use performance
initiatives to influence
mindset and
behavioral change

Understanding how to make ! Expect and leverage

irrationality
change happen at an individual
level

SOURCE: Scott Keller and Colin Price, Beyond Performance: How Great Organizations Build Ultimate Competitive
25
Advantage. 2011
Architect – what do we need to do to get there?
4 levers are available to leaders to influence mindsets
Influence
model
Role modeling
 Top team participates in
customer metric reviews
 Every top team member
co-leads a cross-
business customer-
centric initiative
Skills required for change
 Top 300 leaders as
“enterprise assets”
 New leadership behavioral
standard
 360-degree feedback and
“field and forum” training on
creating value across “silos”
SOURCE: McKinsey Organization practice
Client example
A compelling story
 Quantitative customer
loyalty analyses shared
broadly, proving value/link
 Transformation story
 Coordinated, memorable
communications
campaigns
Reinforcing mechanisms
 A number of cross-
business councils
 Compensation and
consequences linked
 Customer metrics and
measurements built into all
key business processes
26
Act – how do we manage the journey?
On the health side, it means taking a structured approach, building broad
ownership, and measuring impact

Ten teams, Take a structured

each with ten members approach
were asked for their collective
ten priorities

Build broad
Heaven = 100 ownership for
change

Hell = 1,000
Measure and
evaluate
Answer: 922

SOURCE: Scott Keller and Colin Price, Beyond Performance: How Great Organizations Build Ultimate Competitive
27
Advantage. 2011
Act – how do we manage the journey?
Adopting a 3-level structure brings coherence to the journey
Level 1: transformation Level 2: performance Level 3: specific
headline and health themes initiatives

Health themes Health themes

Cross-business

Story cascade

Talent review
Data sharing
Customer focus

overhaul
councils
Accountability
Collaboration

Alignment
To become a highly
competitive integrated
company, recognized as
one of the top five energy
Performance themes

Performance themes
producers worldwide and Expanding production Pricing
as the employer of choice
in our industry Integrating the value chain Learning

Vendor
Maximizing downstream consolidation
Improving efficiency and
Lean
safety

SOURCE: Scott Keller and Colin Price, Beyond Performance: How Great Organizations Build Ultimate Competitive
28
Advantage. 2011
Advance – how do we keep moving forward?
On the health side, this means developing leaders to drive the change

Develop centered
No organization can depend on leaders to drive
genius; the supply is always scarce continuous learning
and unreliable. It is the test of an and improvement
organization to make ordinary human
beings perform better than they seem
capable of … The purpose of an Build skills in
organization is to enable individual, team and
common men to do organizational
leadership
uncommon things

Apply adult learning

– Peter Drucker, principles
1954

SOURCE: Scott Keller and Colin Price, Beyond Performance: How Great Organizations Build Ultimate Competitive
29
Advantage. 2011
Advance – how do we keep moving forward?
The centered leadership model

Meaning Framing
Finding an inspiring ▪ Happiness ▪ Self-awareness
▪ Core ▪ Learned Looking at problems in
purpose that is built on
strengths optimism new ways to find better
strengths and using it to
solutions
generate hope and action ▪ Purpose ▪ Moving on
▪ Adaptability

Personal and Connecting

Energizing professional Actively shaping networks
Actively managing ▪ Inclusiveness
experiences to
▪ Sources and context
▪ Reciprocity
to heighten one’s sense of
uses belonging, ability to
achieve maximum
▪ Recovery ▪ Network influence change, and
“flow” in the work day design personal growth
▪ Flow Engaging ▪ Sponsorship
▪ Voice, taking
action
▪ Ownership
▪ Risks and fears

Taking personal accountability for one’s life experience

and setting aside fears to step up to opportunities

SOURCE: Joanna Barsh and Susie Cranston, How remarkable women lead, Crown publishing, New York, 2009 30
A typical transformation program covering all 5 frames can take EXAMPLE

from 12 months up to 2-3 years1 Objective

Frame Month 1 2 3 4 5 6 7 8 9 10 11 12

Aspire

Strategic Health Define clear aspirations

objectives essentials
for performance and
health

Assess
Assess institutional
capabilities (skill)
Capability Discovery and will (shared
platform process
mindsets) to change

Architect

Portfolio Influence Develop initiatives to transform

of initiatives model performance and health

Act Design and execute approach to rolling out initiatives throughout the
organization; build broad ownership and adjust and refine the
Delivery Change program based on ongoing monitoring and review 2
model engine

Begin to Begin to Begin to

Advance Set up mechanisms for continuous improvement,
develop develop develop
centered centered centered knowledge and best practices sharing and governance.
Continuous Centered Develop leaders
improvement leadership leaders leaders leaders
C-level Top 50 Top 500

Leadership alignment workshop Leadership alignment workshop Leadership alignment workshop

1 Duration and resource need may vary significantly depending on type of transformation, specific company situation, and chosen company delivery model
2 Usually takes from 3-6 months but could take up to 2-3 years depending on number of business units, functions, regions, and employees covered
31
Performance and health: An evidence-based approach to
transformational change

▪ In the present competitive environment, companies’ long-term success is determined

by their ability to adapt and change. However, most companies struggle to achieve
substantial, sustainable change over time

▪ The most extensive research effort of its kind has shown that successful, sustainable
transformations can be reliably achieved by managing both the performance and
health of the transformation with equal rigor

▪ We have developed a five-stage approach to rigorously manage performance and health

during transformational change. This document will focus on the key aspects of managing
health:
1. Aspire: Align on where you want to go
2. Assess: Determine the change readiness of the organization to go there
3. Architect: Determine how to get from here to there
4. Act: Manage the journey as it unfolds
5. Advance: Ensure sustainability and continuous improvement beyond the step change

▪ The impact of this approach has proven to be reliable and significant, creating
measurably higher and more sustainable returns

SOURCE: McKinsey Organization practice 32

 1 Impact national oilco achieved via its transformation
Culture impact Business outcomes

Employee support for transformation Upstream Refining

changes Oil production1, Bpd Yield

Actively 2 1 +4%
4
resisting
17
28
+24%
Passively
49
resisting
47
42
Start Year Year 2 Start Year 2
Passively 1
33
supporting
35 Shipping and distribution Downstream retail
Actively 28 $ cost per liter Sales of brand X fuel, liters
supporting 14
-10%
-10%
Year 1 Year 2 Year 3
+10-30%
+10%-30%
Before, I had no hope we
could change and thought the
transformation would fail. But
now, I believe we can succeed.

Middle manager Start Peak Year 2 Start Transformed

in critical position stations

1 Excluding new developments/fields

Sources: Company data; Gallup data, Datastream 33

 2 Impact bankco achieved along the value chain
Culture impact Customer impact Business outcomes

Job satisfaction Transaction account net

“I am satisfied with my job” growth NPAT per FTE Bankco
% agreeing % $, indexed Industry avg

+18% 84 74
85 +100%
42
45 28

Year 1 Year 5
Year 1 Year 5 Peer Bankco, Bankco,
avg, year year Total shareholder return
year 5 6 %
year 1 5
Impact focus Use of online channel, 200
year 5
% agreeing retail accts 150

%, year 5 100
We have a can-do 58
50
culture 81 Bankco 48 0
Year 1 Year 2 Year 3 Year 4 Year 5

We are re-earning 33
customer trust Peer 1 42 Cost – income ratio
81
%
We live our values 20 Peer 2 28
65
85 60

Our meetings are Peer 3 26

61 55
productive and
outcome focused 91 Peer 4 21 50

45
Year 1 Year 2 Year 3 Year 4 Year 5

SOURCE: Company employee surveys; annual reports; team analysis 34

 Start
3 Bankco ‘good to great’ impact along the profit chain Year 3

Culture impact Customer impact Business outcomes

Employee engagement Customer loyalty2 Cross-sell

Ratio of engaged to disengaged % customers answering 5 on a 5- No. of products per household –
employees1 scale retail banking

Up 75% 7:1 Up 19%

>3.5x the 2.9x the

national Up 33% industry
4:1 average average

1.9:1

Start Year 3 National Start Year 3 Start Year 3 Industry

average average
Customer loyalty has now
Collaborating for the customer moved into the top quartile Growth
Our ways of
of the Gallup database CAGR start – year 3
working make it
easy for Customer attrition Indexed
customers to do Bankco peer avg
business with us % customers
Other work
Earnings per 17x (nil)
Down 60%
groups share
collaborate to
serve our
customers Total return to 220 100
shareholders
Customer
problems get
corrected Start Year 3 Net revenue 280 1003
quickly

1 The employee engagement survey measures items such as “I know what is expected,” “I have the tools,” “I have opportunities/development,” “I am
recognized,” “My colleagues care,” “My opinion counts,” “My work is important for the company,” “My co-workers are committed,” etc. …
2 This survey measures customers satisfaction, likelihood to recommend and continue to use 3 U.S. financial services average

SOURCE: Company data; Gallup data; Datastream 35

 4 Insureco ‘turnaround’ transformation impact
Context Health impact1 Performance impact

External context Year 0 Year 2 ROIC

 Previously privileged position %
unwinding because of Direction 55% 87%

alignment
Direction
deregulation 8.7
 A number of new multinational Leadership 69% 78%
entrants, both banks and large
insurers Environment
64% 81% Start Year 1 Year 2
 Mono-line attackers and values
specializing in specific product Combined ratio
types %
Accountability 69% 82%
 Customer buying patterns
Conducting
changing toward direct 107.2
execution
channels Capabilities 80% 91%
104.7 104.0
Company context Motivation 52% 77%
 More than 40,000 collaborators
 Decreasing profitability Coordination Start Year 1 Year 2
56% 76%
 Unsatisfied employees and control
 Uncontrolled costs Technical result
 After a second year of losses, a $ mn
External
Renewal

71% 83%
new CEO was chosen by orientation 48.5
family owners with mandate to
turnaround the company’s Innovation 59% 82% 3.2
performance
Top 3% of all results in -24.5
OHI database
Start Year 1 Year 2
1 About 90% response rate in each survey period with the survey conducted for the entire workforce

SOURCE: Client data 36

The Five Frames of
Transformational Change

June 2014

CONFIDENTIAL AND PROPRIETARY

Any use of this material without specific permission of McKinsey & Company is strictly prohibited