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IBM Institute for Business Value

I BM MBPS Accelerating the move to a Value Integrator

Praveen Sharma Practice Head Central Eastern Europe, Middle East and Africa

Executive Summary

IBM Managed Business Process Services © 2010 IBM Corporation

IBM’s Managed Business Process Services help businesses leaders accelerate change, harness innovation more effectively, and integrate globally The MBPS Portfolio Cross-Industry Processes • • • •

Customer Relationship Management Supply Chain Management / Procurement Human Resources and Learning Finance & Accounting

Industry-Specific Processes • • • •

Banking Back Office Insurance Claims Processing Intelligent Transport Analytics

By outsourcing process responsibility to IBM, clients can take advantage of IBM’s global labor pool, process innovations and delivery capabilities, enabling them to shift their investments and resources to activities that differentiate them in the marketplace

22

IBM Corporation

© 2010 IBM Corporation

IBM employs a collaborative framework to help clients rationalize costs at an acceptable rate of change and with minimal risk Total Service Value Optimization

INCREMENTAL VALUE

Consolidation

Integration Procurement Sourcing & Compliance

3-7%

Annualized Run Rate Savings Range 30 – 60% from Baseline Standardization

Working Capital

(against procurement spend)

15-25% (against receivable s balance)

25% Other enterprise business benefits:

Automation

20%

Scale & Expertise 55%

      

Accelerating integration readiness Revenue enhancement Cost avoidance Improved risk , controls & compliance Improved customer experience Data access, quality and integrity Governance-driven predictability

Globalization

LIFECYCLE Functional Cost Im provem ent

33

IBM Corporation

Enterpris e Business Outcom es


We offer services across the entire spectrum of analytics

Advanced Analytics Value and Impact

oSegmentation, Predictive modeling and Optimization

Analysis Multi-dimensional analysis to better understand business challenges o

Benchmarking oKey Performance Indicators (KPIs) oPerformance Measured against Best Practices

Basic Reporting o Standard reporting that is reasonably automated o‘Slice and dice’ data based on standard variables

Data Management oConsolidation of data oData quality and accuracy

Time and Resources

4

Based on : Competing on Analytics, Davenport and Harris, 2007


As the agenda grows, our study shows CFOs perceive a gap in effectiveness across top focus areas Importance Rank

Core Finance

Developing your people in the Finance organization Executing continuous Finance process improvements Strengthening compliance programs and internal controls

83%

59%

51%

Driving enterprise cost reduction 0%

20%

40%

Highest importance

28% 26%

77% 62%

28%

34% 80%

52%

35%

16%

75%

73%

39%

Supporting / managing / mitigating enterprise risk Measuring / monitoring business performance

Source: IBM Institute for Business Value, The Global CFO Study 2010

84%

55%

Providing inputs into enterprise strategy

5

Gap

49%

Driving integration of information across the enterprise

Enterprise Focused

Effectiveness

CFO Agenda: Importance vs. Effectiveness

85%

59%

80%

60%

80%

23% 21% 100%

Largest increase in importance © 2010 IBM Corporation

The broader enterprise focused role requires core Finance efficiency be in place to reliably support business insight and decision making Addressing the Broader Enterprise Focused Role of Finance Enterprise Focus Demands on Finance

Finance Capabilities Needed

Driving enterprise cost reduction Driving information integration

Finance Efficiency

Supporting enterprise risk management Measuring / monitoring business performance

Business Insight

Inputs into enterprise strategy

6



Our analysis found seven enablers that have a high correlation to EBITDA growth rates linked to Finance efficiency and business insight Finance Efficiency and Business Insight Enablers Ranking

Enabler

1

Standard / common Finance processes

2

Common Finance data definitions and data governance

3

Standard Financial chart of accounts

4

Globally mandated standards / enforced

1

Analytical capability (operational planning and forecasting)

2

People / talent (effectiveness of developing people in Finance)

3

Technology (deployment of a common planning platform)

7


Finance Capabilities Needed

Finance Efficiency

Business Insight


By analyzing what Value Integrators did to outperform their peers, we identified two themes

 Delivering efficiency through standards matters more than ever  Providing business insight drives performance improvement beyond finance

Source: IBM Institute for Business Value, The Global CFO Study 2010 8


There are three efficiency accelerators that help finance organizations reduce complexity with positive impact on standards Leading Finance Organization Accelerators to Enable Finance Efficiency Finance Efficiency Capability Enablers

 Standard / common processes  Common data definitions  Standard chart of accounts  Globally mandated standards & enforced

Accelerators to Enable Finance Efficiency

1. Global process ownership (145% greater adoption)

2. Alternative delivery models(1) for financial transaction processing (69% greater adoption)

3. Common ledger and standard accounting transaction applications (ERP) (47% greater adoption) (1) Enterprise-wide Shared Services / Centers of Excellence or Outsourcing Adoption

9



Process ownership drives the highest impact on standards adoption, followed by alternative delivery models, then common ledger (ERP) Impact on Process & Data Standards Adoption All participants

Enterprise-wide Standards Adoption Rate

100% 90% 80%

Process & Data Standards: Standard chart of accounts

70%

Common processes Common Finance data definitions

60%

Globally mandated standards

50% 40% Common Ledger (ERP)

Alternative Delivery Model

Global Process Ownership

Accelerators*

* Accelerators executed on an enterprise-wide basis are more effective than when done by regional or line of business. 10


Further analysis of clients with Alternative Delivery Model shows greater movement up the efficiency curve Breakdown of Finance Profiles All Respondents

32%

High

Finance Efficiency

33%

23%

12%

Low

43% High

Finance Efficiency

23%

27%

7%

Low Low

High

Business Insight

11

Enterprises that Adopted Alternative Delivery Models (N = 597)


Low

High

Business Insight


Example: Global CPG company accelerated transformation path, accomplishing in less than four years what historically took 10-15 years Contract Overview

IBM Partnership

 750 FTE’s in F&A across 4 delivery centers  End to End Suite of Transformational Tools

 In Europe, jointly developed a 2-year road map on “One Unilever” journey which included single ERP platform, common supply chain & multiple outsourcing initiatives  Faster transformational journey & world-class change management practices  Transitioned processes from 20+ countries, 3 business lines and multiple systems into 4 IBM delivery centers under a CoE model  Partnered in client’s growth journey; executed transformational projects & managed changes resulting for both acquisitions and disposition of business  As a Value Integrator, now seeking to drive integrated ‘analytics inside’

Accounts Payable : DCIW – T&E : GERS – O2C : AR Collect –

24 Countries in EMEA 2 Countries in NA Multiple language requirements End to end process scope :  P2P, R2R & O2C  Multiple External Recognition    

– 2008 FAO Award of Distinction – 2009 Outsourcing Excellence Award – 2009 Best BPO

12


There are two business insight accelerators that help Finance organizations develop analytical capabilities Leading Finance Organization Accelerators to Enable Business Insight Business Insight Capability Enablers

• Operating planning and forecasting analytical capability • Finance talent • Common planning platform

13


Accelerators to Enable Business Insight

1. Automated production of (financial and operational) key metrics 2. Non-financial (operational) data standards


Organizations with strong business insight have higher adoption of automation and data standards with higher levels of satisfaction Adoption of Business Insight Accelerators and High Satisfaction Rate 90%

Percentage with High Adoption Rate

80% 70% 60%

Organizations with strong business insight

50%

All other organizations High satisfaction rate

40% 30% 20% Automated production of Financial Metrics

14

Automated production of Operational Metrics


Non-financial data standards

Accelerators


Example: Automated production of operational analytics drives customer segmentation to improve effectiveness of collections strategy Collections management: A properly segmented AR portfolio will lead to better allocation of scarce resources to focus on the appropriate areas of the ledger that will yield the best results. High

Close focus a/c

1

 Commercial terms

 #1 Collections focus

 Habitual late payers

 Results swingers

 AP Process limits

 Complex accounts

2

 Pays on time and in terms

3

Close focus a/c

Days To Pay

Days to Pay

High

 Occasional disputes  Requires collections discipline

197

760

403

1642

234

2

1099

Days to Pay - Variation

Low

Days to Pay - Variation

High

Low

High

(Example: Global Document Management company)

Offer the right treatment to the right customer at the right time through analytics driven credit scoring 15


Example: By setting operating standards at the activity level, individuals’ performance can be optimized, reducing variability across teams Example: Individual Efficiency/Availability BEFORE TVC: Individual Efficiency/Availability

AFTER TVC: Individual Efficiency/Availability

200.00

200.00

120.00 100.00 80.00 60.00 40.00 20.00

160.00

Below average efficiency

140.00 120.00 100.00 80.00 60.00 40.00 20.00

0.00

Top quartile

Below average efficiency

0.00 0.00

20.00

40.00

60.00

80.00

Availability %

16 16

Below average availability

140.00

Top quartile

Efficiency %

160.00

Efficiency %

180.00

Below average availability

180.00

100.00

120.00

140.00

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

Availability %


Enterprise-wide approach to outsourcing is enabling our clients to shift focus to decision support and control & risk Finance Workload Distribution

28%

IBM MBPS clients with enterprise-wide BPO

Enterprises with Enterprise-wide Alternative Delivery Models for Transaction Processing

31%

46%

26%

49%

All participants 0%

20%

41%

25% 40%

60%

28%

26% 80%

100%

Transactional activities Control (and risk) activities Decision support / performance management activities 17



IBM MBPS clients perceive smaller gaps and higher effectiveness in key enterprise focus areas Percentage Gap between Importance and Effectiveness of CFO’s Enterprise Agenda

Percentage Gap

30%

IBM MBPS Clients

All Participants

20%

10%

0% Measuring /monitoring business performance 18

Supporting / managing / mitigating enterprise risk


Providing inputs into the enterprise strategy © 2010 IBM Corporation

In addition, outsourcing appears to have higher adoption of standards compared with the Alternative Delivery Model group Impact on Adoption of Standards Percent adopted enterprise-wide > 75%

Alternative Delivery Models vs Outsourcing

Enterprise-wide Standards Adoption Rate

80%

Process & Data Standards:

70%

Standard chart of accounts Common processes Common Finance data definitions Globally mandated standards

60%

50%

Alternative Delivery Model 19


IBM MBPS Clients © 2010 IBM Corporation

To accelerate business impact, companies are focusing on a strategy of consolidation and optimization to quickly reduce complexity Stages of Finance Transformation • ERP implementation / rationalization Integration • Data warehouses / business intelligence • Standards-driven granular measurement • Process simplification & standardization • Innovative technologies • Integrated analytics

Optimization

Consolidatio n Do it cheaper Processes 20

Innovate

Eliminate Work

Value creation

Risk management

Do it better Business Transformation

• Global footprint • Centers of expertise • Economies of scale

Functions

Products

Business © 2010 IBM Corporation

Sophisticated, well developed methodologies offer an end-to-end approach to consistently deliver optimization with committed outcomes Operational Excellence methodology Assess process maturity

Measure and monitor to standards

Implement enabling technologies

Identify gaps to best practices process models to quickly design tactical roadmaps

Manage performance at granular level against targets to optimize staff utilization

Deploy tools appropriately to drive productivity, quality and outcomes

Increased productivity

21 21

Build quality into process Reduce opportunity for errors in process designs

Improved quality

Eliminate exceptions and nonvalue-added work Eliminate exceptions at the source and challenge nonvalue work

Benchmark key metrics Continuously monitor performance against internal / external top performers to institutionalize process improvements

Best practice outcomes


Investments in mature industrial engineering methods quickly optimize both individual and process performance. DMS Generic Front End 5

4.60

350 300

4 3.39

4

2.77

3

2.32 2.132.14 1.96 2 1.741.761.791.821.821.83 1.581.591.591.601.64 1.451.461.501.501.56 1.321.341.36 2 1.181.24 1.061.14 0.87 1

250 200

3

150

Volume

Time per transaction (min.)

5

100 50

1

0

16 -D

ec -N is h 25 wit -N ha o S 23 16 v-M uv -D -D a ar ec ec nju na -N -M ma is an la h 21 wit jum G -N ha ala o S 29 v-M uv G -D an ar n e ju a 03 c-M m -D an ala e ju 17 c-M m G -N an ala o ju G 09 18 v-M m ala -D -N a ec ov nju G m -N -M is an ala h 26 wit jum G a -N ha ov S la G 15 -M uva -D a r ec nju na 18 -M m -D an ala e 10 c-M jum G -D an ala e 27 c-M jum G -N an ala o ju 10 11 v-M m G ala -D -D a ec ec nju G -N -M ma is la h an 02 wit jum G -D ha a e S la 19 c-M uv G -N an ar n o a ju 20 v-M m -N an ala o ju 05 v-M m G -D an ala e ju 28 c-M m G -N an ala o 24 v-M jum G -N an ala o 19 v-M jum G -D an ala e 01 c-M jum G -D an ala e 31 c-M jum G -D an ala e ju G 08 17 c-M m ala a -D -D ec ec nju G -N -M ma an is la h 04 wit jum G -D ha ala e S 24 c-M uv G -D a ar ec nju na 22 -M m -D a ala ec nju G -M m an ala ju m G ala G

0

Time per transaction

Volume

Design taxonomy

Create and install TVC instance

Individuals clock time in TVC

Set standard times

Improvement opportunities identified

Monthly cadence with management

Weekly cadence

Review data vs standards

Key Initiatives Bangalore R2R – Sep 09

%0 4 1

%0 2 1

%0 0 1

%0 8 n oi t azi l i t U y c n ei ci f f E yti li b ali a v A %0 6

%0 4

%0 2

%0 B Pr a mu K n ur A

Identify opportunities through reviews and prepare execution plan 22

Cross-account comparisons

y ht r o o M ar a d n u S

ht n a ki h s a h S

a g a N at a k n e V. M i n av a P

ni d d u h s ma h S d a m ma h o M

r ed nu Kr ak u hd a M

Review of weekly availability and efficiency of account by manager

Review practitioner performance against standards © 2010 IBM Corporation

What is the right path for you?  Speed, agility and flexibility increasingly drive competitive advantage in today's volatile world  CFO's have a packed agenda (cost, risk, compliance, analytics, etc.) and they must do everything well

High

 Value Integrators exhibit the same seven characteristics correlated to better performance

Finance Efficiency

 Consolidation and optimization accelerates adoption of standards and benefit realization

Low Low

Business Insight

High

 High standards adoption sets the stage for integrated analytics  Partnering allows Finance to shift focus away from transactional activities and more effectively execute the enterprise agenda  The economics and maturity of BPO can now beat the internal shared services model

23



Thank You! Download the 2010 CFO Study: http://www.ibm.com/cfostudy2010

Praveen Sharma [email protected]

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25


Finance Profile Firmographics Participating Markets

Enterprise Size

Value Integrator

47%

23%

30%

Value Integrator

Disciplined Operator

46%

24%

30%


Constrained Advisor

38%

24%

38%

Constrained Advisor

Scorekeeper

38%

22%

40%

Scorekeeper

All Enterprises

43%

0%

23%

20%

40%

60%

14%

100%

National, primarily active in one country Multi-National, active in more than one country Global, active in many countries in several continents


13%

32%

10%

Constrained Advisor

13%

Scorekeeper

12%

32%

All Enterprises

12%

33%

0%

20%

Communications

26

21%

34%

22% 18% 19%

40%

Distribution

28%

15%

28%

17%

11% 8%

15%

13% 15%

11% 11%

30%

13%

13%

20%

$250-500M

40% $501M-1B

60% >$1-5B

11%

15%

7%

15%

8%

16%

80% >$5-10B

100% >$10-20B

>$20B

Geography

19%

33%

14%

11% 7%

30%

Sector Value Integrator

33%

11% 12% 11%

0% < $250M

13%

9%

8% 10%

All Enterprises

34%

80%

8% 11%

60%

26%

10%

23%

13%

Value Integrator

30%


32%

45%

25%

39%

30%

10%

Constrained Advisor

27%

11%

Scorekeeper

32%

43%

25%

25%

11%

All Enterprises

32%

43%

25%

21%

80%

Financial Services

100%

Industrial


Public

35%

0%

20%

57%

40% Americas

60% EMEA

8%

80%

100%

Asia Pacific


Over 1,900 CFOs around the world participated in our 2010 CFO Study CFO Studies

2003 (450 participants)




Our study was conducted at the height of the economic crises and comes to market as signs of a new economic environment emerge 27



The CFO agenda continues to broaden, with multiple areas increasing in importance over the past five years – some dramatically. CFO Agenda: Importance Over Time 2005

Core Finance

Executing continuous Finance process improvements Strengthening compliance programs and internal controls Developing your people in the Finance organization

61%

Enterprise Focused

Supporting / managing / mitigating enterprise risk Driving integration of information across the enterprise

61%


84%

66%

60%

85%

80% 80% 77%

62%

50%

84%

73%

40%

40%

75%

71%

56%

35%

83%

75%

69%

30%

28

72%

56%

Driving enterprise cost reduction

2010

74%

59%

Measuring / monitoring business performance Providing inputs into enterprise strategy

2008

73%

70%

80%

90%


CFO Study 2010 Overview

Four Finance profiles become apparent when participants are segmented by efficiency and business insight Finance Profiles High Corporate philosophy of information standards Standard Chart of Accounts

Finance Efficiency

32%

23%

33%

12%

Standard data definitions

Standard processes

Low Low

High

Business Insight Operational planning and forecasting capability Source: IBM Institute for Business Value, The Global CFO Study 2010 29

Finance talent development

Common planning platf orm


Introduction

Value Integrators excel in both efficiency and business insight, contributing to financial outperformance Efficiency + Business Insight Contributes to Outperformance 49%

> 20x

more

14.0%

more

30%

Value Integrators

more

All other enterprises

12.1%

11.3% 9.4%

9.3%

0.5%

EBITDA

Revenue

ROIC

5-year CAGR, 2004-2008

5-year CAGR, 2004-2008

5-year average, 2004-2008

Value Integrators also have an almost 20% better operating efficiency ratio than all other companies examined. 30



A ‘ship then fix’ model accelerates transformation and delivers almost 40% higher ROI over “fix then ship”

Percentage of Benefit by Driver

Percentage of Benefit by Year 36% higher NPV

15% 20%

65% Centralization ('Scale & Expertise') Outsource and Offshore ('Globalization & Optimzation') Automation ('ERP Integration')

Source: McKinsey 31


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