| This week, the next wave of growth in Latin American banking and why organizational health is key to mergers. Plus, a look back at McKinsey’s work with NASA 50 years after the Apollo 11 moon landing, and thoughts from Kassia Yanosek, a partner based in Houston, on how global energy systems are adapting to tech innovation and other big changes. |
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| In the past decade, the global banking industry has forged ahead at a steady though decidedly ho-hum pace—moderate growth, moderate profits—except for in one region. When it comes to banking success, Latin America has been exceptional. |
| With consumer finance as the industry’s primary growth engine, revenue in Latin America is surging. Between 2012 and 2017, banking revenue before cost of risk in the region grew at a compound annual growth rate of 12 percent in constant 2017 exchange rates, reaching $418 billion, according to McKinsey Global Banking Pools data. That’s six percentage points higher than the global average and more than any other region. |
| And there’s more good news: over the next five years, revenue in the region is expected to increase at about 10 percent per year, reaching $675 billion before cost of risk. Profits are climbing too. In 2017, Latin America’s overall return on equity was 14 percent, significantly higher than other global regions and more than double the 4 to 6 percent range of most developed regions. National leaders and large winning banks are relentlessly seeking cost efficiency; many have multiyear programs that include cost-reduction areas, such as lean process redesign and rightsizing. |
| On the flip side, Latin America’s missing middle: Rebooting inclusive growth, a report from the McKinsey Global Institute, takes a broader view of the challenges facing the region—including the lack of dynamic midsize companies and the absence of a middle class with spending power. Tackling these two core issues will be essential to capturing the next wave of growth. |
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| OFF THE CHARTS |
| Tilting the odds toward success |
| Organizational health matters immensely in the M&A context. McKinsey research shows a strong correlation between the preclose organizational health of the acquirer and the postclose financial performance of the newly combined company. Acquirers that score in the top half of our Organizational Health Index gain, on average, 5 percent in excess total returns to shareholders (TRS) compared with industry peers after two years. The change in excess TRS of companies in the bottom half is negative 17 percent over the same period. The bottom line? Unhealthy acquirers destroy value, while healthy acquirers create it. |
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| MORE ON MCKINSEY.COM |
| No problem, Houston | In the early 1960s, NASA asked McKinsey to help determine how best to use industry and private institutions in its work, including what the division of labor between government and industry should look like for the burgeoning space program. |
| Speeding up the digital drumbeat | Increasing the digital rhythm of your business is an achievable goal; it requires a set of clear, collaborative, and consistent practices. |
| The mind’s the limit | To create sustainable workplace safety, companies must shift five employee mind-sets that limit the effectiveness of safety programs. Here’s how to identify these attitudes and overcome them. |
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| THREE QUESTIONS FOR
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| Kassia Yanosek |
| Kassia Yanosek, a partner in McKinsey’s Houston office, leads the firm’s strategy work within the Oil & Gas Practice in the Americas. She advises global energy clients on adapting to disruption and on emerging growth opportunities.
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| How is the global movement toward decarbonization affecting companies’ strategies? |
| Oil and gas companies are facing mounting scrutiny from the public and—most recently—shareholders. In part, this attention is because of a renewed focus on clean-energy production and reduced emissions. In addition, global energy systems are experiencing significant change, driven by technological innovation, changes in consumption patterns, supply dynamics, and policy shifts. |
| Addressing decarbonization goals globally is a central element to the energy transition. Pressure from both the public and shareholders is forcing executives to reevaluate their portfolios and business models, ensuring they take carbon emissions into account. |
| Some energy companies have made a low CO₂ footprint part of their overall strategies, while others have laid out short-term carbon-emission-reduction plans. At the same time, some governments have created funds to invest in reduction technologies. Overall, private and public organizations need to align on strategy and how best to work together. |
| How are advancements in digital technology affecting companies in the energy sector? |
| Today, digital technologies are increasingly being used as value drivers across the energy value chain—from better seismic imaging in oil and gas exploration that improves success rates to equipment and system analytics that help companies increase productivity and optimize their operations. |
| Data and analytics can help with everything from supplier risk management and inventory to energy storage and distribution. In the power sector, the end consumer is taken into consideration. Newly envisioned digital platforms provide customers with better service and more accurate product recommendations. And smart meters allow for better usage monitoring for providers. |
| How is the energy sector dealing with its talent challenge? |
| The industry is facing an emerging talent gap caused in part by changing demographics (an aging workforce) and technological innovation (the need for digitally savvy workers). The second factor is particularly challenging. New roles that center on data and analytics, such as data scientists and translators, are seemingly created every day. These workers are at a premium across industries, so energy companies that hope to stay at the forefront of the industry’s transformation must take a more innovative approach to attract these scarce workers. |
| Finding and focusing on an untapped source of highly skilled workers is essential to bolstering the talent pipeline. One way to do that is by deepening and diversifying the talent pool—for instance, attracting and retaining more women. Companies that do this will be better positioned to meet the industry’s full potential and help it regain its competitiveness. |
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| BACKTALK |
| Have feedback or other ideas? We’d love to hear from you. |
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