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A leading insurance company

transforms its IT infrastructure delivery


Shared global IT services improve efficiency, drive down time-tomarket, and improve quality.
Challenge
Our client had a highly-fragmented IT infrastructure due to a series of mergers as well as a growth in
business units because of the clients entrepreneurial culture. The client had started to consolidate this to
capture synergies but soon found that the cost and quality improvements they expected from
consolidating IT infrastructure operations were falling short.
Although its disparate IT operations were being consolidated to fewer sites and platforms, the individual
CIOs of these organizations grew frustrated when they did not see the cost savings they expected. This
alarmed the newly acquired international units and made their CIOs hesitant to have their IT
infrastructure folded into that of the larger company. This in turn limited the planned scale effects and
further stalled the expected improvements, creating a vicious cycle that was difficult to break.
To stop this snowballing problem, the client asked McKinsey to turn the situation around by helping to
fully establish a shared global IT service provider for the group, bring the financials on track to meet
benchmark cost, and boost internal customer satisfaction.

Discovery
To transform the IT infrastructure shared-service organization, we developed a four-phase program with
the client that would unfold over two years.
The first step was an in-depth assessment of strategy and achievements to date. The goal was to
consolidate and globalize IT infrastructure management. The client had already taken major steps, and
our review found the existing strategy to be appropriate. However, we identified some substantial gaps
that called for intensified internal optimization efforts to improve quality and cost levels.
The second step was to create and implement an efficiency program that would foster sustainable
structural changes to organization, processes, and technology. Our goal was to improve internal efficiency
by 30 percent and to capture half of the savings within the first year. To do this, we identified short-term
actions that could be implemented early on.
With the efficiency program very well established, the focus shifted to internationalization. The crucial
first step for this was winning the favor of the next wave of new countries to consolidate their IT
infrastructure organizations and assets. As soon as this was achieved, local optimization for each country
was triggered along the lines of the program established in phase 2.
The mission to provide IT infrastructure services globally at benchmark cost and quality was well on its
way after the first three phases, and major progress had been made in terms of quality of service and

delivering on efficiency targets. This resulted in meeting the financial targets to a large extent. However,
significant challenges remained for the organization. In particular, the organization was facing huge
change resulting in the need to significantly develop individual capabilities. Hence, in the fourth phase,
we explicitly aimed at further stabilizing and professionalizing the organization with a co-management
model that accelerated capability building in the leadership team while delivering on the program.

Impact
The IT infrastructure shared-service unit is now fully established as the group's global IT service provider.
The financials are fully on track to meet benchmark cost, resulting in annual savings of several hundred
million euros, or about 30 percent efficiency gain. As a result, the internal customers are more satisfied.
In addition, the group was able to launch more comprehensive shared services, building on the successes
of IT infrastructure delivery in application development, but also beyond IT.
Our commitment to confidentiality prevents us from disclosing the identity of our clients and other confidential
information.

Building a solution to cope with rapid sales


growth
Bespoke workflow-management application in combination with
change-management programs drove a 50 percent productivity
improvement in a mortgage business.
Challenge
A leading financial institution wanted to make a step-change improvement in its mortgage-modification
business unit by implementing a large-scale workflow-management solution. The business was
experiencing a surge in activity and needed a working solution fast.

Discovery
A McKinsey team came in to assess the processes and approaches. It identified several ways to improve
throughput, but the key driver of success for the client was closely linked to IT enablement and execution.
The client wanted to review its conventional approach to IT development and find ways to accelerate
implementation. McKinsey introduced an agile approach to improve both the speed and efficiency of the
development team. A joint McKinsey/client team developed the solution, incorporating only those
elements that drove the greatest value to the business and ensuring organization-wide buy-in by cocreating the solution with management, employee end users, and IT.

McKinseys agile approach used rapid prototyping and tools to build an interactive solution (~1 week) that
provided a stake in the ground to revisit daily and elicit ongoing feedback from real end users and
stakeholders.

McKinsey IT experts worked side by side with the client's IT to design and rapidly develop (~10 weeks) a
large-scale enterprise system that was scalable to over 1,000 field agents across six site locations and
capable of processing more than 100,000 mortgages daily.
McKinsey provided a holistic approach to the IT enablement solution that also included embedding
change-management programs in tandem with the agile-development process to ensure maximum value
capture. The change-management efforts targeted, and were implemented by, every level of the workforce
involved in making the solution work:

Business unit leadership and frontline management: Weekly walk-throughs to drive buy-in and receive
open access to training group.

Frontline users: Several live in-class training conducted by the training teams using working IT solution
loaded with employee-specific data. In addition to making field agents competent in the new agile
solution, the ongoing training created buzz and promoted employee adaptation to the new methods.

Impact

McKinsey helped the client build and pilot the new system with approximately 300 staff across three sites.
The team was able to increase frontline productivity by 50 percent while halving the size of the IT team
and drastically reducing the overall time for systems development from more than 26 weeks to just 10
weeks.
Our commitment to confidentiality prevents us from disclosing the identity of our clients and other confidential
information.

Lean transformation in IT maintenance


Delivering a 32 percent increase in capacity in 12 months by
tackling the root causes of inefficiency and enabling managers to
become coaches
Challenge
At a major financial institution, two-thirds of the application development and maintenance staff was
working on maintenance tasks (where best practice puts maintenance work closer to 4050 percent).
Staff were constantly diverted from high-value preventative work to deal with urgent requests, resulting in
a constantly growing backlog.
As far as internal customers were concerned, the entire change-request process appeared woefully
inefficient. The IT maintenance function appeared to be poor value for money and far from transparent.
Even in the most urgent cases, only a fifth of the time needed to effect a change was real processing time.
Less urgent change requests could, in extreme cases, take more than 2 years to be resolved. Staff morale
was low. "It is often the storm, but we never get the calm," said one IT manager.

Discovery
In the first phase of the work, the McKinsey team conducted a lean diagnostic to understand the
performance of the IT maintenance function. It found that exchange of best practices across the group
was almost nonexistent, and interaction with outside IT departments was cumbersome. Just over 10
percent of time was spent on value-adding activities. The situation was unsustainable and damaging the
organization's ability to operate in the best interest of its customers. It was clear that a just-in-time lean
approach would be more accurate and effective, and if it were implemented correctly, the whole IT
maintenance team would feel ownership of the new process.
As part of the transformation, the McKinsey team worked with the IT maintenance staff to assess the time
needed for any change request, agreeing on a consensus estimate. This process encouraged best-practice
sharing and built commitment from the whole team to stick to the agreed timeframes. Another part of the
solution was a major shift in how staff capacity was used. Rather than turning to new projects when they
had time, staff instead helped their colleagues complete change requests already underway. A lean
whiteboard was introduced, enabling best-practice sharing and making capacity and achievements
transparent for the whole team. The board clarified ownership of any given request and was used to check
on estimated time to complete vs. time taken.
As with all lean transformations, these process improvements alone were not sufficient. To foster a culture
of continuous improvement, managers were trained to see themselves as coaches.

Impact
Overall, the IT maintenance group delivered a 32 percent increase in capacity in 12 months. The new
processes and more collegial way of working freed significant time for working on preventative
maintenance and adding additional value. Almost half of the time saved came from standardizing
operations and sharing best practices. The rest came from better planning, better use of management

time, and other adjustments to the entire process. Critically, and a major factor in getting buy-in for a
second phase of the transformation, more than half of the total savings were realized in the first 6 months.

Reduced complexity and costs help transform


a global telecom
New operating model reduces cycle time and cost while improving
service delivery.
Challenge
A global telecom with a global development organization that supports multiple complex
application/product platforms faced surging demand and an immediate need to reduce costs.
At the same time, the organization had highly complex application architecture that was a result of
multiple acquisitions, cumbersome application development, and having multiple application
development centers around the globe.
In an effort to preserve its competitive advantage the client asked McKinsey to help reduce cycle time
while maintaining quality and reducing cost through a structured holistic transformation.

Discovery
We recommended several changes over a 12-month period to help transform the organization. Among
them, we rationalized the number of locations and vendors, and created centers of excellence around
application domains and technology. We also streamlined the project portfolio, segmented projects
according to their complexity, and implemented lean/agile development methodologies. In addition, we
put rigorous performance management in place, rolled out a new chargeback model, and instituted
capability building and a continuous improvement program.
To get there we followed a highly structured approach to discovery, design, and implementation. During
the discovery phase we baselined the current organization, conducted analysis to determine the levers and
the size of the opportunity, and developed our approach to transformation. Following the discovery
phase, we launched the design of a new operating model that defined locations, centers of excellence,
partners, new processes, metrics, and capabilities. We rolled these out through an approach that
combined both classroom training and in-the-field coaching.

Impact
After we were done the client was able to reduce the cycle time by 20-30 percent while maintaining
quality and reducing costs by 10-20 percent.

Reconfiguring an IT platform for maximum


value
Aligning IT with business needs cut costs and gave a bank greater
freedom to pursue differentiating strategies.
Challenge
The custody business of a global bank faced eroding margins, and costs remained high. In addition, there
were multiple lines of business active in custody with different geographic foci (regional vs. global) and
different business goals, ranging from a retail business with a low degree of sophistication to the global
custody business for corporations with many specialized custody services.
The client was considering outsourcing the custody platform to capture the benefits of scale. However, the
business lines argued that the platform gave them a competitive advantage that would be lost if
it outsourced.

Discovery
Applying our proprietary Business Service Architecture (BSA) approach, we helped the bank align the
business with operations and IT. In the BSA approach, we first define all required business capabilities.
We then categorize these capabilities in two different dimensions: how specific they are to the business
and how much business value they help to create.
For example, a custody transaction usually includes a payment of cash funds from one account to another.
This is a commodity in the banking industry, any bank would do it the same way. It also does not generate
high fees, meaning it has low business value. Commodity capabilities with low business value are
candidates for shared services or outsourcing, while business-specific capabilities with high value added
may justify higher IT investment (e.g., set up/manage tailored client standing instructions).
Discovery revealed just three unique and differentiating capabilities, while the other 50 were common in
the industry. Mapping the actual IT platform against these capabilities, we found a way to isolate them
and move them onto a separate platform. The core custody operation with the remaining commodity
capabilities could then be outsourced.

Impact
The project resulted in a 25 percent reduction of the addressable cost base by maximizing the sharing of
capabilities and outsourcing of the commodity platform. This allowed the bank to focus on developing
more differentiating IT capabilities and also gave it more flexibility to pursue diverging business
strategies.
The approach proved so successful, that the client is now looking to use it to align business and IT in other
parts of the bank.

Organizational effectiveness drives


technology delivery
Aligning IT with the business and improving application
development processes reaps rewards.
Challenge
The IT department for a global multi business company was struggling to meet heightened demand for
increasingly complex technology solutions. This frustrated the companys business leaders, who were
relying on technology solutions to drive multiple changes in the business model.
The company realized that continuing down this path without making some adjustments in the
technology delivery model jeopardized its goals for deepening its IT capabilities. This would have
hindered its ability to quickly implement business strategies and to maintain a competitive edge in the
market. Senior management asked McKinsey to help change the IT organizational model in a way that
would more effectively support strategy.

Discovery
As the McKinsey team started to work with the client, it became clear that the ineffective delivery model
was rooted in a range of issues: The IT departments resources were organized by application area and not
business needs; neither the business nor the IT group practiced basic portfolio management effectively; IT
demand-supply disciplines were weak; and there was a shortage of people who had expertise in highdemand subject matter such as knowledge of certain applications and advanced programming-language
skills. Also, the IT department's heavy reliance on external contractors which, when combined with weak
processes and disciplines, was adding some delivery capacity but not very effectively relative to the added
cost and resources.
In conjunction with a sizable client team, we redesigned the IT delivery organizationstructure, process,
and peopleto improve the effectiveness of technology delivery. Our jointly developed solution included
multiple changes:

Aignment of project definition and management resources to the major businesses

Creation of a new demand organization capable of prioritizing project demand and simplifying project
support requests

Separation of application-development and quality-assurance resources from demand in order to force


clarified project expression and improve these disciplines

Introduction of a range of supporting processes, including demand management, release deployment, and
quick-iteration maintenance and enhancement requests

Identification of several critical people capabilities that needed to be strengthened, and improvement
of the hiring and development program to deepen expertise in the high-demand skills

For this program to succeed at the scale of the IT department, we needed to work closely with business
and IT leaders alike. With such a large-scale transformation, development of a clear program for change,
including process rollout, implementation, communication and change-management efforts was
necessary. Investing the time upfront to address not just the mechanics of change, but also the underlying
culture of the IT department, was a critical piece of the new organizational model.

Impact
The relationship between business leadership and IT leadership has vastly improved, becoming a
collaborative relationship rather than an arms-length, customer-to-supplier relationship. Shared
accountability for projects, enabled by much greater clarity of roles and responsibilities, has become the
norm. This in turn offers IT staff members a wider range of well-defined career tracks and broader
development opportunities. Moreover, the realigned organization is now able to consistently and
effectively implement specific foundational capabilities (e.g., end-to-end project portfolio management,
project management discipline, and tailored application development methodologies).

Renewing store formats for a major grocery


retailer
A completely new store format provides the consumer proposition
strength to enable the company to profitably grow into new markets
for the first time in over a decade.
Challenge
A leading grocery retailer was seeing growth stagnate or decline at most outlets. Growth from new-store
openings was unlikely because of the companys saturated network, and its core value proposition was not
strong enough for it to profitably enter new geographies. The grocer was also facing pressure from
aggressive new entrants, which threatened its market position.
Executives at the company asked McKinsey to help establish a clearer consumer value proposition to help
restore performance.

Discovery
To explore potential options, the McKinsey team worked closely with the client on comprehensive
research and insight generation. The work focused on three topicscraft, art, and sciencedrawn from
McKinseys strategic brand-management approach:

Craft

Analysis of potential limiting factors, including the clients real estate, in-house skills, overall cost
structure, local competitive environment, and the specific strengths and weaknesses of the clients key
competitors

Art

Qualitative shopper research to grasp the grocers true brand image, including consumer focus groups,
employee interviews, and shop-along sessions at both client and competitor outlets to observe shopper
behavior

Science

Cluster analysis to identify promising consumer target segments and shopping occasions, backed up by an
economic evaluation of potential new formats, including capex needs, gross margins, and operating cost
Building on the opportunities this work uncovered, the team helped the client define new store formats
with clear, targeted customer value propositions. The work included redesigning the grocers commercial
offer and adapting relevant outlet features, such as store design, service levels, network configuration, and
space allocation.

Impact
The client successfully piloted the new store concepts. The new formats, created by converting existing
stores, showed sales increases of up to 20 to 40 percent. Thanks to the commitment of client executives,
the organization quickly assumed ownership of the new concepts and their defining elements.

Optimizing the supply chain for an


international nonfood retailer
Deep-dive analysis uncovers the potential to increase net margin by
more than 5 percentage points.
Challenge
A leading international nonfood retailer was facing increasing operational complexity. Serving millions of
customers every week and sourcing its merchandize from a large number of suppliers globally, the
company was also rapidly scaling up its online sales.
The client asked for McKinseys help to redesign its supply chain to manage complexity and boost overall
performance.

Discovery
The team took a staged approach, working closely with the client to understand the companys
profitability targets and growth ambitions. Key project phases included a detailed evaluation of current
supply-chain performance, recommendations for the new supply-chain organization, a pilot phase, and
implementation.
Drawing on the clients rich internal costing data and relevant industry benchmarks provided by our team
of experts, the evaluation phase uncovered several opportunities:

Savings from applying a total cost perspective to supplier selection

The client had a sizable pool of suppliers in low-cost countries, but not all buying decisions reflected the
total cost. Secondary factors such as freight were often disregarded because buyers incentives were based
on gross margins.

Performance improvement from shortening internal clearance processes

While overall lead times from product design to delivery were in line with the industry average, internal
sign-off typically took longer than actual manufacturing, sometimes as long as several months.

Value creation through more systematic order management

Our analysis revealed that inventory costs were high because of a lack of short-term forecasting. Large
initial orders and early arrivals of supplier deliveries to the clients warehouses often necessitated big
markdowns in order to clear out excess inventory.
To capture these opportunities, the team recommended a set of substantial changes to the clients supplychain-management approach. To increase operational flexibility, the team developed a value-based
product segmentation, looking at criteria such as average shelf life, rate of sales, sales predictability, and
volumetric information. The range was divided into segments such as core products, seasonal products,
and trend-driven items. The segmentation helped shape recommendations for a more adaptive supplychain approach:

For fast-moving core products, establish a fast-track approval process, domestic sourcing, and accelerated
replenishment cycles

For segments with high sales predictability, keep reduced inventory

For selected slow-moving items, introduce separate warehousing in dedicated delivery centers
The product range was thus broken down into meaningful categories, and specific changes to supplychain operations at the product-category level were developed.

Impact
The proposed supply-chain approach offers substantial operational improvement opportunities.
Compared with best-in-class retail players, the new supply-chain model improves performance on a range
of operational metrics:

Lead-time reduction by a factor of 3 to 5, depending on the category

Inventory and markdown reduction by 2 to 4 percentage points

Logistics-cost reduction as a share of sales by up to 1 percentage point


Achieving these supply-chain efficiency improvements holds the potential for a net margin increase of
more than 5 percentage points.