deploying global business services - fsaafsaa.com.au/images/07martinfahy.pdf · deploying global...

Deploying Global Business Services

The role of emerging sourcing modelsin driving greater effectiveness

in Financial Services

Martin Fahy

FSAA

June 2013

2© 2013 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Australia. KPMG and the KPMG logo are registered trademarks of KPMG International. Liability limited by a scheme

approved under Professional Standards Legislation.

© 2013 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Australia. KPMG and the KPMG logo are registered trademarks of KPMG International. Liability limited by a scheme


Contents Page

Financial Services challenges leading to sourcing strategies 3

Financial Services shared services and outsourcing landscape 4

Financial Services sourcing trends 5

Financial Services market triggers and drivers 7

Sourcing as a business strategy 8

Sourcing models and objectives 10

Where Financial Services companies are heading offshore 13

The services delivery maturity curve 19

Critical success factors 20

Managing off shoring and outsourcing risk 21

Table of contents



Financial Services business challenges leading to sourcing strategies

Business challenges facing Financial Services organisations:

• Dynamic environment – Growing competition, globalisation, new

products, more mergers and acquisitions

• Financial pressures – Non-stop focus on cost reduction, especially while

companies are growing and expanding

• Risk mitigation – Regulatory compliance, business continuity, data

security and privacy are focus areas for financial institutions

• Business agility – Increasingly important for businesses to have

operational scalability and flexibility, better management information and

tighter business linkages

• Stakeholder value – Business value in EPS, stock price, business

viability and reputation are ongoing priorities for financial institutions

Business challenges identified in Asia Pac Financial Services sector leading to shared services and sourcing opportunities:

• Major banks – bad debts and dislocation in financial markets will reduce

margins leading them to continue their focus on cost reduction,

productivity and simplifying their organisational structures in a move to

“back to basics banking”

• Insurance companies – cost reduction and operational efficiency

continue to be a high priority, particularly in the wake of weaker economic

conditions and continued extreme weather events impacting loss ratios

• Investment banks – increased adoption of specialised technology, focus

on core capability and the desire to outsource back office functions are

key focus areas to improve product competitiveness

• Wealth management – tidal wave of regulatory reform with Cooper,

FOFA and Henry reviews is impacting product design, pricing, margins ,

distribution and competition resulting in companies re-evaluating their

their current organisational structure and sourcing model

Organisations are increasingly leveraging shared services

and sourcing strategies as a quick cost reduction lever; these solutions then provide the platform for further cost

improvements and business outcome improvement through reengineering and focused optimisation. A typical view of

the benefit from service delivery realignment is illustrated

below.

Organisations are increasingly leveraging shared services

and sourcing strategies as a quick cost reduction lever; these solutions then provide the platform for further cost

improvements and business outcome improvement through reengineering and focused optimisation. A typical view of

the benefit from service delivery realignment is illustrated

below.



Financial Services shared services and outsourcing landscape

• The Financial Services industry, especially in Banking, has been using

the shared services model for a number of years

• Financial Services organisations have off shored to a number of countries including Malaysia, India, Philippines and increasingly China and people are always looking for opportunities for service improvement

or new technologies.

• Banks pursuing the hybrid model: most banks have adopted a hybrid

model for F&A processes, while a few have taken a pure shared services

route

• Outsourcing of processes to Third Party Providers set to increase: a

number of banks have engaged specialised third party providers for

transactional activities such as AP, keeping more complex functions e.g.

financial planning in-house / SSC

• Banks are increasingly starting to extend their relationships with third party providers for research capabilities using the Knowledge

Process Outsourcing arms of service providers

• Investment banks are leading the way in off shoring. Morgan Stanley,

JP Morgan, HSBC, ABN AMRO, UBS, Goldman Sachs and Nomura and

Barclays Capital for example have off shored high end processes such as investment banking equity research and high end analytics to India

• In the future, a move toward more complex hybrid models with JVs,

strategic alliances and third party models all existing at the same time is

expected (particularly in FS)

• Contract modification: M&A activity along with the severe industry downturn has created a number of opportunities to adjust service delivery

models such as renegotiating existing outsourcing contracts or

sale/leasebacks of centres

Illustration of processes that have been off shored to India by various

multi-nationals, highlighting that investment banks have experience off-

shoring high-end value-adding services:

Example outsourcing services available to FS companies:

• Process outsourcing

• Accounts outsourcing – GL accounting

• Book keeping services• SEC financial reporting and risk management

• Tax preparation services

• Payroll processing

• Double entry system / single entry system

• Equity research services• Life insurance outsourcing services

• Offshore annuity insurance services

Example outsourcing services available to FS companies:

• Process outsourcing

• Accounts outsourcing – GL accounting

• Book keeping services• SEC financial reporting and risk management

• Tax preparation services

• Payroll processing

• Double entry system / single entry system

• Equity research services• Life insurance outsourcing services

• Offshore annuity insurance services



Financial Services sourcing trends over the past 30 years

1990s –Mega deals and shared services 2000s – Multi-sourcing Late 2000s – Consolidation and optimisation

Background • Emergence of outsourcing

• Few global players with capabilities

• Focus on internal delivery centres

• Emergence of pure Indian players who became

more global

• Leading to emergence of multi-vendor deals

• Outsource and offshore models becoming more mature

• Maturity of delivery model led to increase in outsourcing and captive delivery centres

Typical Footprint

• Many organisations continue to deliver core services internally.

• Outsourcing often mega deals with providers with global footprint.

• Focus on low value transactional activities.

• Deals signed with vendors delivering niche services.

• The introduction of multi-vendor deals.

• The emergence of centres of excellence and KPO deals.

• Emergence of right-shoring with nearshore becoming key.

• Integrated service delivery models combining nearshore, offshore and outsourcing.

• Lower value activities typically outsourced.

• More focus on CoEs and KPO type services.

• Development of scale and capability.

Looking back • Focus on driving out cost savings .

• Initiatives not aligned to business needs.

• Creation of unsustainable models led to

failures.

• Multi-vendor agreements were complex.

• Lack of internal alignment led to fragmentation.

• Initial focus on labour arbitrage; later sourcing

became strategic and was incorporated into

global operating models.

• Focus on optimisation of existing footprint.

• Deployment of sourcing was increasingly strategic.

• Delivery models integrated / consolidated.

Financial Services organisations have moved from a purist, single service option to a very fragmented hybrid model and today they are

starting to consolidate in a more structured way



Shift in delivery model

• Shift from regional/national to global model

• Adoption of hybrid model becoming increasingly prevalent (mix of in-house SSC and outsourced )

• Expand existing centres to service new geographies and processes

• Move back towards insourcing / nearshoring for case work requiring expertise – Citibank have just announced an extra 500 roles in Belfast to cover this type of work

Increase in sophisti-cated processes

• Expand and move beyond transactional activities such as Payroll and AP, which are now stable

• Non-F&A transactional processes, such as mortgage application processing, are increasingly included in scope

• Move now is to move to more sophisticated F&A processes as statutory reporting, tax, and treasury

Unified / fragmented platforms

• One ERP system platform to drive the maximum benefits of standardisation

• Huge interest in distributed technology coupled with service:

– Cloud computing, SAAS, platform BPO

– Impact on core services not yet evident

Captive onshore SSC still popular

• To deliver benefits while reducing disruption and governance concerns

• Forced by increasingly tight work visa regulations in Europe and USA

• BPO providers (such as Infosys) have responded with more aggressive outsourcing models

Realise cost savings internally and then commercialise

• Captive SSC model for initial internal savings realisation, even if the pace is slower

• Once mature, SELL to a BPO provider for one off gain / further efficiencies

• Examples: Genpact – GE, Cognizant – UBS, TCS and Wipro-Citibank

Located in Asia or Eastern Europe

• Location competition between Eastern Europe and Asian countries (BNP Paribas - Morocco)

• Emerging geographies: Latin America, Philippines, Malaysia. Concerns around taxes, languages, and size of educated workforces

• Near shore alternatives include Morocco for France and Baltics for Scandinavia also emerging

• European language availability in India and China still an issue, but being addressed particularly in China

Flexible sourcing models and pricing

• Emerging trend for “in-sourcing”, bringing back in house complex or voice sensitive processes initially outsourced

• Stable, matured “de-coupled’ process; process work can be split over multiple centres, supporting multiple geographies

• More flexible, less rigid commercial models: pricing, reporting, rewarding, alignment of objectives and measures

Financial Services sourcing trends



Striving for greater focus on core competencies

� Desire for simplified back office structures to enable them to concentrate on delivering their core competencies resulting from years of acquisition across the Financial Services sector

� Investment banks are increasingly opting for a buy model selling off their BPO centres to third party providers, rather than housing them in their local or offshore canters

� As the SSCs mature, banks are now looking at moving more high-end, analytical processes to their offshore centres, while they move the vanilla (more transactional) processes to third parties

Decreasing appetite for risk

� More banks are now spreading their operations across locations, in an effort to decrease their dependence on certain economies and ensure business continuity of processes

� Banks such as Credit Suisse and Citigroup have adopted a multi geography strategy and Deutsche bank continues to use its near shore centres in US and UK, to support any outages in its offshore centres

Accessing new technologies such as cloud computing

� Financial Services organisations with mature sourcing models are starting to want more from their service providers, for example, seeking access to new technologies as part of outsourcing strategies

� Cloud computing, for example, enables companies to reduce costs as well as better align their IT and business functions. It can dramatically change the landscape of a company if implemented correctly and is particularly useful for disaster recovery operations where every site has to be available at real time (NB: perceptions of cloud computing effectiveness vary across organisations and individuals)

� Technologies such as cloud computing also enable companies to better manage their cost base as it has the advantage of

being able to scale up and scale down operations, as and when needed

Accessing skills unique to the outsourcing provider

� Organisations that are having difficulty retaining talent often seek the support of a third party provider to give them access to specific expertise and sophistication of processes

� Desire for improved data and information management to enable strategic decisions (e.g. high-end analytics)

Reducing costs through leveraging scale

� Financial Services continue to leverage shared services and sourcing strategies as a quick cost reduction lever

� These solutions then quickly provide the platform for further cost improvements and business outcome improvement through reengineering and focused optimisation

Financial Services market triggers and drivers

There are a number of triggers and drivers for moving to shared services and outsourcing across FS.



Sourcing as a business strategy

Client business goals

Enhance quality

Release capital

Focus on core

business

Reduce risk

Enhance agility

Reduce costs

Sourcing models

Hybrid

Captive

Shared service centre

Third party outsourcing

Joint ventures

• Cost reduction through economies of

scale and labour arbitrage

• Focus on core competencies by moving

administrative functions from operations

• Access to ready, scalable and specialised

solutions

• Improve process quality and efficiency

• Reduced time to market for new products and services

• Improve customer service

• Leverage technology in a common infrastructure with standard data

• Divestment – new businesses developed

Sourcing as a potential solution

Organisations are increasingly achieving business goals using sourcing solutions. Shared Services and Outsourcing Advisory (SSOA) is

focussed on helping clients to find the right solution for their business whether that be through a joint venture, shared services, or using a third party provider. SSOA focuses on providing sound impartial advice through in-depth understanding and experience.



Organisations are increasingly leveraging shared services and sourcing strategies as a quick cost reduction lever; these solutions then

provide the platform for further cost improvements and business outcome improvement through reengineering and focused optimisation. A typical view of the benefit from service delivery realignment is illustrated below.

Performance Improvements

Retained organisation optimisation

Baseline Costs

Direct Labor Cost Arbitrage of Delivery Model

■ Internal SupportCosts

■ Management

overhead

■ Technology

■ Governance

■ Initial investmentsin processimprovements

ProcessReengineering and Standardisation

■ Setup Costs

■ Transition Costs

■ KnowledgeTransfer

■ Lost Productivity

■ Retained Costs

Stabilised Steady State Delivery Costs

Sourcing and Offshoring Value20% to 30% of addressable spend

optimisation Value 15% to 20%of addressable spend

Investments

Cost Reduction

Cost of a Process

“The Journey”

30% to40%

Sourcing and shared services strategies are now seen as a solution to cost and performance Issues



Sourcing models and objectives

Model Basic Features Desired Goals

• Own: 100% ownership by the firm

• Setup: Built by the firm

• Operate: Ongoing operations managed by the firm

• Govern: Firm is responsible for ongoing management of the centre

• Centre that is extension of parent’s culture & high on control

• Other drivers include regulations, IP sensitive solutions

• Own: 100% ownership by the firm

• Setup: 3rd party vendor to assist in setup and establish initial operations

• Operate: Ongoing operations managed by the firm

• Govern: Firm is responsible for ongoing management of the centre

• Centre that is extension of parent’s culture &

high on control

• Other drivers: regulations, IP sensitive solutions

• Leverage TPP experience in setup to overcome in-house limitations

• Own: 100% initially owned by a third party vendor for an agreed period of time and is subsequently transferred to the firm

• Setup: Third party vendor to assist in setup and establish initial operations

• Operate: Managed by third party and subsequently transferred to firm

• Govern: Firm responsible for ongoing management of centre. Involvement of third party vendor in the governance is limited to the build and operate phase

• Leverage TPP experience in setup and running operations to overcome in-house limitations

• May facilitate easier exit depending on deal terms

• Management focus during Initial years on building experience of working in [Country]

• Own: Equal or near equal ownership by the firm and a third party vendor

• Setup: Third party vendor to assist in setup and establish initial operations

• Operate: Ongoing operations managed by the firm and the third party vendor

• Govern: Governance of centre is a joint responsibility of the firm and the third party vendor. Firm’s role focused on overall control and alignment of delivery

• Focus primarily on creating centre of excellence in delivery through leverage of TPP experience

• Achieve off-shoring benefits with limited capital outflow

• Own: An exclusive centre in a shared facility 100% owned by 3rdparty vendor

• Setup: 3rd party vendor responsible for setup and establish initial operations

• Operate: Ongoing operations managed by the third party vendor. Role of the firm limited to key areas as per its’ focus areas

• Govern: Primary responsibility of the third party vendor. Firm’s role is limited and

usually in select areas e.g., SLA, compliance to requirements etc.

• Focus primarily on creating a robust delivery centre through leverage of off-shoring benefits and TPP experience

Captive/ Shared

Services

Hybrid

Build, Operate, Transfer

Joint Venture

Third party outsourcing



Captive Partial / Full Outsourcing Hybrid

Description • In-house 100% subsidiary company to

cater exclusively to parent company

• Have capability to undertake core and

complex work

• 100% of employees on payroll of service

provider

• Manage low to medium complexity non-

core work

• Co-management of resources

• Joint governance models

• Usually, fixed time contract and stop-gap

arrangement to exit in future

Examples in Financial Services

Observations of Financial Services sourcing models



Transformational BenefitsPure Wage Arbitrage

Transactional

Complex/ Requires Judgment

Natu

re o

f

Off

shore

d P

rocess

Benefits from Offshoring

Note: (1)in many cases

Finance processes have

been offshored or outsourced with other

functions such as Customer

Services and IT

How far Financial Services companies have gone in terms of offshoring finance processes(1) (offshore captive or to a BPO provider)?

Transaction

Processing Continues

Continues improvement

Additional sophisticated

processes

World class processing and

technology

India: Bangalore

India: Hyderabad



Where Financial Services companies are heading offshore

Philippines

Malaysia Singapore

China

India

Locations of off-shore centres in Asia (Financial Services)



Hungary – Citigroup, Morgan Stanley

India – UBS, Goldman Sachs, Credit Suisse, Deutsche Bank, JP Morgan,

ANZ Bank, Lloyds TSB, Barclays, Royal Bank of Scotland, Standard

Chartered, Citigroup, HSBC, AXA, Aviva

Australia - ANZ Bank

Singapore- Credit Suisse, Chevron,

RBS, Citigroup

Philippines –Citigroup,

Deutsche Bank, JP Morgan,

Chevron , AIG, HSBC

Poland – UBS, Credit Suisse, Citigroup

UK – RBS, Barclays, Morgan Stanley

US – Citigroup, Goldman Sachs

Ireland –Citigroup

Netherlands –Royal Bank of

Scotland

Costa Rica –Citigroup

China – Citigroup, HSBC, Standard

Chartered, AXA, AIG, Allianz, Fidelity

Location of Financial Services offshore centres – India is still the preferred location

India• Pioneer in the outsourcing space• Well established Tier II cities

(strong experience in the insurance and banking sector)

• Emerging Tier II cities with significant government investment

• Infrastructure lagging behind

• Becoming more expensive with high competition for talent

Malaysia• Positioning itself as a provider of

high-end outsourcing services

• Access to skilled multi-lingual talent pool

• Relatively stable and political landscape

• Strong for Islamic banking /

Takaful insurance services

Singapore• Well-established for Financial

Service with major banks having

regional Asia offices here• Access to high-end talent pool

• More expensive than other destinations (not HK / Japan)

• Lends itself well for CoEs and

more complex KPO

Philippines• Access to English speaking talent• Good cultural fit with western

organisations• Strong voice capability

• Political instability and natural disasters can be deterrents

China• Fast expanding location for SSC

and outsourcing

• Major government investment• Large talent pool coming through

Chinese education system• Solid, fast-developing

infrastructure

• Some concerns around privacy and government controls

MalaysiaHSBC, Standard Chartered,

Prudential, Citigroup



UK Financial Services companies employ a hybrid model with global delivery locations

• Has established SSCs across seven global locations, with eight centres in India alone

− The SSCs are responsible for credit card and transaction processing, account opening and closing, mortgage processing, back office processing including credit rating & fraud detection, customer service, support functions - Finance, IT, HR and Admin, account services and retail loan processing

− Markets served: US, UK, Australia and Middle East

• Has also developed centres of Excellence (CoE) for IT that provide robust technology solutions

• Established Barclays Shared Services (BSS) in 2007 as a fully owned subsidiary of Barclays Bank PLC, to provide operations support & services to businesses within Global Retail Banking and Barclays Corporate

• Has centres across three sites in India (1 in Chennai and 2 in Noida) and a branch operating out of the UK headquarters

− Services offered include - Accounts payable; general ledger; Fixed assets; Project accounting; cash management

• Also operates an IT centre in Singapore

Global Delivery Network spread

across India, Poland, Philippines, Malaysia

Brazil, China, Egypt

• Has outsourcing engagements for document processing, facilities management

and cheque clearing services

• Scope International is a captive back office of Standard Chartered, UK and has over 10,500 employees across multiple locations in India, Malaysia and China

• The Finance SSC services 99 finance departments in 38 countries

• Provides back-office processing service including . wholesale and consumer banking operations, HR services, finance and accounting services, software

development and maintenance, and IT service and helpdesk support services

• The banking support functions include Payments , Global Markets , Securities

Services , Trade ,Global Message Centre , Cards , Global Reconciliation ,Hub Loans ,Global Investigations ,Wealth Management

• Outsourcing engagements with Xansa and FirstSource Solutions

Hybrid

Hybrid

Primarily offshore delivery from India

Captive

Primarily offshore delivery from Asia –

including India, China and Malaysia

Delivery ModelFinancial Services Firm Shared Service Operations Outsourcing Presence

• NA

Source: Industry reporting



• Acquired ABN’s shared service arm, ABN Amro Central Enterprise Services (ACES), which employs around 7,500 people across Mumbai, Delhi and Chennai

• Services include”

− Operations

− HR-shared services

− Finance-shared services and

− KPO space like credit analytics and equity research

• ACES also has a centre in Poland, offering language capabilities

• RBS also has an IT off shoring centre in India with around 750 people

• Has a captive centre in Gurgaon providing:

− Information technology outsourcing (ITO) and business process outsourcing

(BPO) capabilities

− Services and solutions in payment processing, core banking and risk management

• In 2009, Fidelity National Information Services (FIS) announced plans to increase its workforce in India by 20% in the next 18 months

− Employs 4,200 people in India, FIS has centres in Chennai, Mumbai, Bangalore, Gurgaon & Chandigarh

Primarily delivers through India

• RBS has a cheque processing deal with EDS

• Captive centres in UK for:

− Customer Service: Account handling, credit collections, customer support

• Centres in India for:

− Back office operations: Credit processing, back office processing

• NACaptive

Hybrid

Operates through ABN’s shared service

arm, with delivery from India, China and

Hybrid

Delivers primary through UK based

captives and outsourcing

arrangements

Delivery ModelFinancial Services Firm Shared Service Operations Outsourcing Presence

• Has outsourcing contracts for F&A and HR with Xansa

• Payroll processing with Ceridian

• IBM and FirstSource in India for credit processing and other back office activities

Source: Industry reporting

UK Financial Services companies employ a hybrid model with global delivery locations



Citigroup: centres in India, Philippines, 8500 employees; Recently sold its BPO unit to TCS and IT unit to Wipro

• Telemarketing/ Sales• Systems integration

• Application dev. and maintenance

• E-business support• Transaction processing

• Customer service support

Bank of America: 3 centres in India, 2500

employees

• Payroll processing; Employee HR help-desk

• Trade activities, derivatives

• Account fulfillment

• Credit card fraud investigation

• Lock-Box Management

• Mortgage origination

• IT Application development (outsourced)

• Standard Chartered: centres in India,

Malaysia, China; 6000+ employees:

• Investment and Asset Management

• Corporate and Investment Banking

• Transaction processing

• Account set up and servicing

• Mortgage Banking

ABN AMRO (now RBS): centre in India,

5,000+ employees

• Call centre• Credit Risk Management• Transaction processing• Systems integration, IT Application dev. &

maintenance (in house and outsourced to multiple vendors)

• Infrastructure support (outsourced)

Deutsche Bank: 3 centres in India, Philippines,

Russia; more than 4000 employees

• Data analyses & research; Industry research

• Systems integration

• Application development and maintenance

• E-business support


Asia Financial Services companies have offshore centres predominantly in India

ANZ: centre in India; 2000+ employees

• Operations and Technology

• Development and management of software and technology for ANZ's systems

• Capability to support ANZ's operations and functions

HSBC: Centres in India, Philippines, Malaysia, China; 10000+ employees

• IT Application Development and support• Infrastructure support (outsourced)• Transaction processing• Lending & Deposits• Call centre• Credit card processing• Fund Administration

BNP Paribas: 1 centre in Mumbai

• BNP Paribas India Solutions supports

international Corporate and Investment Banking business of BNP Paribas Group

• Application development, maintenance

• Finance platform

• Data warehousing and info services

• Knowledge services

Source: Desk research, KPMG AnalysisNote: List is illustrative, not exhaustive



JP Morgan Chase centres in India; 2000+

employees

• Data analyses & research;

• Finance and accounts preparation;

• Retail sales servicing desk

• Treasury back-office processing

• Systems integration (partly outsourced)

• Application development and maintenance (partly outsourced)

Merrill Lynch: 1 Centre in Mumbai, 600

employees.

• IT Application development and maintenance

• Testing services

• Infra support, NOC support and some IT ADM

activities outsourced to third party vendors

Goldman Sachs: centres in India; 3000+

employees

• Portfolio of services range from research,

knowledge management and finance to operations such as treasury, equity and asset management.

• Supports investment banking

• Equity Operations

• IT Services, Finance and back office

Fidelity: centre in India

• Technical and back office services to Fidelity’s various US units

• Customer contact centre

• Transaction processes

• IT services

• 80% work done captive, 20% outsourced

UBS: Centres in India, Poland; 1750+ employees

• Supports its asset management, wealth mgmt and investment banking businesses

• Research and Analytics

• Transaction and Data processing and

• IT infrastructure support

Asia Financial Services companies predominantly have offshore centres in India

American Express 4 centres located globally, more than 7,000 employees

• Retirement services

• Systems integration• Application dev. and maintenance• E-business support• Centre of excellence for processing

• Customer service support• Various financial management services

Prudential: centres in India, Malaysia; Part of the

shared service operations in India (1400+

employees) were acquired by Capita in 2008


• Call centres

• Life and pensions policy processing

• IT services (outsourced)



Moving up the services delivery maturity curve

Serv

ice D

eliv

ery

Managem

ent

Matu

rity

Extended Global Enterprise (EGE)

Characteristics of a mature EGE:

• Broad set of end-to-end solution oriented services, both scale and skill based across IT and business

processes

• Collaborative governance and commercially oriented services

management framework inclusive of global process, brand and customer experience management

• Balanced enterprise cost, service, risk, and outcome based measurement

• Global business process and data management and reporting coupled with business intelligence

• Rationale balance of internal and external service delivery capabilities

• Enterprise wide reach with harmonised process, technology, and location delivery platform for scale and adaptability

• Culture of continuous improvement and re-invention

• Global talent management

Valu

e C

aptu

re a

nd P

erfo

rmance S

usta

inability

Level 5 – Integrated• Globally integrated Services portfolio

Level 2 – Centralised• Activities are centralised and tactical on-shore

or off-shore vendor relationships are used

Level 3 – Traditional• Non-integrated

Shared Services across functions/geographies

Level 1 – Decentralised• Each business unit or location manages

its own service needs

Consolidation

Technology Standardisation &Demand Management

Delivery Model Transformation

Central Portfolio Management

Risk of Stagnation & Regression• Attrition fueled by uninteresting

work • Lack of process integration and

end-to-end improvement due to limited scope

• Atrophy due to underinvestment and sporadic management support

Level 4 – Optimised• Optimised balance of internal and

external global delivery capabilities across functions

20.© 2013 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Australia. KPMG and the KPMG logo are registered trademarks of KPMG International. Liability limited by a scheme


Insights from our research – critical success factors (CSFs)

Selecting the right destination

Creating and managing the right roadmap to

transformation

Gaining adoption and buy-in to Future State Definition

Program Challenges Keys to Success

Change Management & Communications

• Key stakeholder support early in the program

• Continuous and visible C-level sponsorship

• Comprehensive communications program

• Program objectives and success well understood

Design for value

• Existence of a strategic vision

• Design is cross functional

• Design is understood and linked to value

• Systems requirements reflect design and value

Program Management discipline

• Implement an effective Program Management Office (PMO)

• Utilise a robust methodology

• Execute quick wins and communicate these to the field

• Staff appropriately; both quality and quantity

21.© 2013 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Australia. KPMG and the KPMG logo are registered trademarks of KPMG International. Liability limited by a scheme


Actively manage real and perceived risks of offshoring and outsourcing

Perceived Risk Risk Considerations & Mitigation

You can’t outsource/offshore a mess, you need to fix it first

• Service Providers (SPs) excel at process improvement

and leverage best practices to fix “broken” processes

• Fundamental structural defects (control, fragmentation & localisation, governance) should be considered to be corrected prior to transferring or moving offshore

Internal process transformation is less risky than outsourcing

• Process and technology transformation is a core competency of SPs

• SPs are contractually obligated to transition, transformation, and ongoing service quality

• Any transformation (internal or external) should consider Company track record of success

SOX and similar external or internal security and compliance requirements prevent outsourcing & offshoring

• SPs support control and compliance requirements through:

– Strict process and consistent reporting mechanisms

– Performing the compliance legwork (e.g. automated controls, controls testing, documentation)

– Standardised (e.g., SAS 70) reporting

• Company governance processes (e.g., audited security procedures, internal checkpoints) mitigate risks

We will lose control • Company maintains control of strategy and policy and has right and obligation to monitor SP’s contractual obligations to perform against these strategies and policies

Perceived Risk Risk Considerations & Mitigation

Service quality will decline

• SPs are contractually obligated to maintaining service levels

• SPs have robust processes for transition and

knowledge transfer

• Companies should maintain effective selection process (e.g., joint solution design, due diligence,

transition planning, due diligence) and robust ongoing governance

We will lose all of our institutional knowledge

• SPs are contractually obligated to maintain documented process and procedures which are owned by the Company and passed back at the end of the term

• Retention plans can be put in place for key personnel

Labor arbitrage is the only benefit of offshore/outsourcing

• A properly negotiated outsourcing contract includes both labor arbitrage, guaranteed productivity gains, and business outcome gains

• Offshore locations have become an increasing source of skill availability for knowledge based processes

We will give away all of our savings potential to a provider

• Outcome based pricing and commercial structures (vs. FTE based) allow companies to lock in savings

Once we sign an agreement, we are stuck

• Exit rights and transfer assistance can be negotiated into the contract

© 2013 KPMG, an Australian partnership and a member firm of the KPMG network of

independent member firms affiliated with KPMG International Cooperative (“KPMG

International”), a Swiss entity. All rights reserved.

The KPMG name, logo and "cutting through complexity" are registered trademarks or

trademarks of KPMG International).

Liability limited by a scheme approved under Professional Standards Legislation.

Martin FahyPartner

Shared Services and Outsourcing Advisory+ 61 2 9346 5585

[email protected]

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