26th July, 2002 Colours Why do Lean- The Compelling Need This report is solely for the use of client personnel.No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.Content Today we will look at: Perspective on Manufacturing Industry Shareholders Globalisation Customers Competitors Society Examples of adding value Source: McKinseyContent Today we will look at: Perspective on Manufacturing Industry Shareholders Globalisation Customers Competitors Society Examples of adding value Source: McKinseyShareholder value is driving change “ Given the globalisation of capital markets, if countries whose economic systems are not based on maximising shareholder value and therefore giving investors lower returns, they will slowly be starved of capital. Their fate will be to fall further & further behind in global competition and to lose employment opportunities.” McKinsey & Company McKinsey Quarterly 1994 No. 4 * Footnote Source:Source Source: McKinsey Quarterly 1994 No.4 – Thomas CopelandPercentage Value creation or value destruction *Return expected by shareholders and banks from the company to pay for use of capital **Net Profits divided by Capital Employed in the business10.9% 7.5% Cost of Capital* Return on Capital Employed** UK Manufacturing Sector Percentage Shareholders are losing money Average over 10 years (1991 – 2000) *Return expected by shareholders and banks from the company to pay for use of capital (based on sample of 87 listed companies) **Net Profits divided by Capital Employed in the business (based on whole sector statistics) Source: Office of National Statistics, Datastream, McKinsey analysisAggressive capital markets are seeking returns wherever they can be found 38 21 35 221 274 307 84 33 136 120 103 64 126 265 257 148 174 63 64 183 190 42 2483 45 855 India Hong Kong Latin America Rest of world Scan-danavia Japan Australia Canada Nether-lands Switzer-land France Germany OtherPacific Rim Singa- pore Spain Italy Eastern Europe UK U.S. Cross-border equity trades by value (1997) $b Source: McKinsey & Co Global Strategy – Meeting the global competitive challenge