reduce costs significantly in 2009! outsourcing finance ... costs significantly in 2009.pdf · time...

IBM Managed Business Process Services

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change management

learn + perform

scale

expertise

globalization

Technology

OperationalExcellence

Measure

EnableProcess

People

Opt

imiz

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Autom

ate

Transform

Standa

rdize

© Copyright IBM Corporation 2009

Reduce Costs Significantly in 2009!Outsourcing Finance Processes

FEI Annual Conference May 28, 2009



AGENDA

Implications of the Current Economic Climate on CFO’s

Driving a New Vision for Finance Through Finance and Accounting Business Process Outsourcing

IBM’s Transformation Story

Benefits of Business Process Outsourcing of Procurement

Customer Case Study

Wrap-up



Top of mind for CFOs is process improvement and cost reduction

FEI Breakfast Seminars April 2009 Feedback Results

– Greater than 70% of FEI member respondents on feedback form saidthat they are focusing on process improvements within the next six months

– 58% of respondents said their key focus was driving short term cost savings (either 1 or 2 priority)• 33% as top #1 priority

– 58% of respondents said their key focus was driving long term cost savings (either 1 or 2 priority)



The current market crisis is increasing the pressure to do more with less, just as historically effective initiatives are generating diminishing returns

Profitable Growth & Cash FlowGlobal ExpansionPerformance AnalyticsManage Working Capital

Optimizing the Business PortfolioCapital ManagementCorporate DevelopmentInsight Driven DecisionsShareholder Value

VALU

E

TIME

Cost Pressures

ERP-driven transformation

Cost Rationalization

Global SourcingScale Process Optimization

Transparency & Risk Management

Regulatory ComplianceImproved ControlsConsistency & Analytics

CFO Agenda

requires continual

renewal

CFO Agenda

requires continual

renewal



Strategic Outsourcing | Hosting

Our customers look for globally integrated, comprehensive capabilities to drive their business outcomes

Operate

Managed Business Process Services

Hardware | Software | Smarter Planet

Design / Build

Manage

Application Management Services

Infrastructure

Consult

Human Resources & Learning

Customer Relationship Management

Supply Chain Management

Industry Verticals:

Banking Back OfficeInsurance Administration

Mortgage OriginationHealth Care

Telco

Product Development Procurement Manufacturing

LogisticsDistribution

ConsumerMarketing

Customer Management

Finance & Administration



Best Practice

Decisionsupport

18%

Transaction processing

55%

Reporting & Control

27%

Transaction processing 30%

Reporting& Control 20%

Decisionsupport

50%

CurrentRole transformation

Focus on decision supportBusiness partnerUsing Information to Enhance Shareholder ValueBusiness Improvement

Role transformationFocus on decision supportBusiness partnerUsing Information to Enhance Shareholder ValueBusiness Improvement

Value added systems & process redesignTranslating Data into Business InformationCompliance/GovernanceCentral Point of ControlHigh Integrity

Value added systems & process redesignTranslating Data into Business InformationCompliance/GovernanceCentral Point of ControlHigh Integrity

Integrated systems & functional consolidationsIntegrating with Operational ProcessesLow Cost and EfficiencyOutsourcing Opportunities

Integrated systems & functional consolidationsIntegrating with Operational ProcessesLow Cost and EfficiencyOutsourcing Opportunities

In response to the shift in customer expectation, Finance must move to a high value, lower cost best practice model



Customer experience proves a significant portion of the finance portfolio can be outsourced

Allocation of Processes Outsourced vs. Retained

Accounts Payable

Travel & Expenses

Order CaptureCredit & CollectionsBilling / InvoicingDisputes / DeductionsAccounts ReceivableRevenue Acctg

General LedgerAcct PoliciesAccount ReconciliationsFixed AssetsTax Accounting

Project AccountingCost AccountingInventory Accounting

Financial ConsolidationsBU Financial StatementsStatement PrepSEC Filings

Cost MgmtCustomer Product ProfitabilityNew Product EvalLife Cycle CostingPerformance MgmtContinuous Improvement

Periodic Budget PrepPeriodic Forecast Prep

Cash MgmtCompliance MgmtTax Mgmt

Investor RelationsBudget Policies / Procedures

Strategic Planning

Corporate Development

Bank Relations Financial / Invest Risk Mgmt

Fundraising

Dept Mgmt

Tax Advisory & Planning

Transaction Processing

Cash Disbursements(A/P / T&E)

Revenue Cycle(Order to Cash)

Record to Report

General Accounting

Project & Cost Accounting

Financial / External

Reporting

Performance Mgmt / Decision SupportBusiness

Performance Mgmt

Planning Budgeting

Forecasting

Capital Platform Mgmt

Cash MgmtTreasury Mgmt

Risk MgmtTax Planning & Compliance

Typical starting point

70%70%70% 80% 50% 40% 30%95%

5% 30% 30% 20% 30% 50% 60% 70%

RetainPolicy managementStrategy developmentDecision makingAcceptance / approval

OutsourceTransaction processingProcedure Process maintenanceBusiness Process maintenance



Improved risk, controls and compliance

Additional Business Impact:

Effective management of resources

Cost avoidance

Revenue enhancement

Reduction of variability in performance

Improved customer experience

Smoothing of upfront costs

Annualized Run Rate Savings

B. Scale &

Expertise

5 -10%

A.Globalization

10 -25%

30 - 60% from

baseline

D. Standardization &

Measurement

C. Tools

Enablement

Speed to benefit

VALU

E

TIME

10 -15%

EXAMPLE

Operating Cost Savings

5 -10%

E. Working Capital

F. Procurement Sourcing & Compliance

3 - 7%

(against procurement

spend)

15 - 25%

(against receivables

balance)

Our managed services approach focuses on the certainty of outcome for our clients

Client Economic Value

Spend & Bal. Sheet Reductions



A proven, standardized and flexible delivery model is required to optimize the global sourcing of work

Regional Support Centers:Language and standard non-

transactional activities; work is transferred to global centers

for processing

Expertise Support Centers: Non-standard expertise processes, can be client specific; dedicated centers include locations in Bratislava (IBM),

Istanbul (BP), others

Global Support Centers:Transaction/accounting

activities; work received from regional centers for

processing

Technology & Infrastructure Enablers:

- Process tracking & workflow provide the ability to move work across centers and monitor progress

- Query & exception management processing enable issue identification and tracking

- Communication vehicles enable real-time updates

- Document management tools allow for end to end management



AP T&E

Transaction Processing

Record-to-reportRevenue Cycle (O2C) Payment Systems

Workflow Tools: RAPID, DCIW, Issue Escalation Management (JIRA)

Delivery excellence: TVC, Auto e-mailer, Auto-resizing, QC tool, Scrapper, Automation of trackers, Macros, Hot Keys

Document Management Tools: Document imaging (Xerox), Electronic forms (eForms)

Standardization Tools: Desktop Procedures & Policies Repository (Quickr) , Service level management (Service Flow)

Expense reporting

(GERS) Suite:

Purchasing Card,

Travel Booking Integration,

Standard Reporting

ARCollect Suite:

CDR,

Dashboard,

Open Pay

Payment Systems Suite

(Transaction Processing Engine, Integration Tools, Value Add

Features)

General Accounting Suite:

Account Reconciliation, Close Monitoring,

Audit Tracking,Quickr Repositories,

Journal Entry, Reporting Process

Tracking

Accounts Payable Suite:

eInvoicing/Portal

AP Recovery/ Duplicate Payments

Invoice Translation

IBM’s F&A enabling tools can wrap around your existing systems allowing for process standardization with minimal change while you complete your ERP implementation



Delivery Excellence - comprehensive best practices help our clients standardize processes and reduce costs

Openinvoice index open

invoicevalidateindex

process:enter into

SAP

audit(80%) payment

ID unenterables& put in queue

openinvoice

validateunenterable

send 1st

query to clientcontinue toquery untilresolved

process:enter into

SAP

IndexingGroup

ProcessingGroup

UnenterablesGroup

Today’s process

Redesigned process

Accounts Payable Example

Openinvoice index open

invoicevalidateindex

process:enter into

SAP

audit(80%) payment

ID unenterables& put in queue

openinvoice

validateunenterable

send 1st

query to client

continue toquery untilresolved

process:enter into

SAP

x x

xx

#2re-engineer

audit process – low cost reentry and

auto compare

#1 Merge indexing,

processing

#3Reduce false un-enterables

#4: automatequeries, use auto-unblock

#5 Dual screens#6 Launch multiple invoices simultaneously



Process optimization is managed at granular level, allowing us to understand true cost drivers…

The TVC utility is installed on each agent's desktop to monitor sub-activity times

Selection of sub-activity

"Break" option

R2 = 0.50

0

1

2

3

4

5

0 1 2 3 4 5Number of lines per invoice

Invoice Processing time = 0.99*(avg. number of lines) – 0.76

Invoice Processing: Number of lines

Work drivers can be linked directly to activity unit times

Selection of sub activity



Availability %

Effic

ienc

y %

0.0020.0040.0060.0080.00

100.00120.00140.00160.00180.00200.00

0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00

Below average efficiency

Bel

ow a

vera

ge a

vaila

bilit

y

Top quartile

Agent Efficiency/Availability

Performance Management Activities:

Break down work into detailed tasks

Measure performance of tasks

Track availability / efficiency of agents against standard

Analyze performance and results

Manage performance by implementing process changes, additional training, and redirection of resources as needed

Identify work drivers

80%

60%

40%

Processed volume and utilization - Unilever NA

0%

20%

40%

60%

80%

100%

12/3 12/10 12/17 12/26 1/3 1/10 1/17Date

Util

izat

ion

0500100015002000250030003500

Pro

cess

ed v

olu

m

Utilization Volume

80%

60%

40%

80%

60%

40%

Utilization %

Utilization Increase Over Time (20% increase within 2 months of launch)

Utilization %

0

100

50

75%

90%

Car

ter,

Nicho

lle

Stua

rt, Joh

n

Fran

ke, M

ark

Gulley, R

ober

t

Dun

can,

Mat

t

Kelly

, Melissa

McB

eath

, Mike

Rud

d, F

rank

Sch

iltz, D

ennis

Beau

soleil, M

.

Poun

cil, Sidra

Savo

y, M

ary

Sim

mon

s, L

eon

Ford

, Alic

ia

Availability (%)Availability reported by accountantAvailability Reported by Accountant

Expect Continuous Performance Improvement



In the current economic environment clients are pulling several levers to reduce costs and risk and improve controls

SAVINGSPOTENTIAL

OUTSOURCING

PROCESSES 5-15%

15-23%25-35%20-40%20-30%20-35%4-8%

Cash conservation– Lower spending– Higher margins

Working Capital optimization

– DSO, A/P– Inventory

20-35%


Improved Controls– Process

harmonization– Standardization

AREAS FOR IMPROVEMENT

Eliminate work stepsStreamline remaining workReorganize workAssign work to right levelRealize economies of scale

IT infrastructureApplicationsCRMHRF&AProcurement of indirect spend

Optimize labor rates with offshoringEstablish shared service centersFocus on Core processes – outsource otherGlobal Enterprise model

Consolidation, virtualization, automationOptimized infrastructure and shared services Self service technologyMove to variable cost modelEnergy efficiency

5-30%

Cash conservation– Lower spending– Higher margins– Lease vs. buy

Higher ROI/ROA


Cash Generation– Sale of infrastructure– Quick payback

BALANCE SHEETIMPACT

OPERATINGMODEL

TECHNOLOGY



IBM has pulled all of these levers in a major Finance Transformation program, quickly achieving significant measurable and qualitative improvements

Measurable Benefits Qualitative Benefits

IBM after the Finance Transformation

PROCESSES

OPERATING MODEL

DATA STRATEGY& TECHNOLOGY

IBM before the Finance Transformation

No global process leadership– Inefficient processes– Inability to implement best practices across units–No measure of process efficiency–Slow close process

14,000 Finance employees – 2x competitionDecentralized organizationHigh percent of time spent on administrative tasksFinance organization viewed as low value add

Lack of corporate-wide data strategy– Inconsistent definitions & unique measurements– Inconsistent data & lack of transparency–Vital information lost at every consolidation level

Multiple data centers / applications–Lack of integration, 20-25 years old

Functional best practicesStandard / common processes and simplificationRules based transactional processes – run onceAutomation and web enablement for ease of execution, e.g., planning tools, CFO PortalIncreased use of modeling

Common data definitions – one worldwide chart of accountsCommon ledger and transaction applicationsCommon information through single worldwide consolidation system, single FIWUse of dashboards to deliver headlights

Common charts of accountData consistency, integrity, reliability & available earlierHigher flexibility to accommodate changesModel for transforming other global functionsAllowed Finance to focus on analysis & business issuesFrom: taillights to headlights, gathering to interpreting

Financial data centersKey applicationsDays for accounting closeEstimated Finance operations expenseEstimated Finances ops exp / revenue

199467

14518

$2.1B3.3%

199615958

$1.4B1.8%

20056

447

$1.2B1.3%

∆ vs.1994-91%-70%-62%-43%

-2.0 pts

Worldwide process owners drive trans./executionFront/Middle/Back Office concepts; Front Office collocation only for high value decision supportConsolidated shared services: global COEs deliver standardization and economies of scaleFinance seen as trusted advisor



A transformation program is a continuous evolution and runs through several stages

KEY LESSONS LEARNED

An effective transformation requires:Strong Executive supportClear targets and measurable objectivesBalance across three dimensions with a focus on quality and cost of delivery:

– Business Design and Processes– IT Operating Environment– Organization and Cultural Change

Continuous effort – need to dedicate resourcesComprehensive communication

Transformation never endsStandardization

Consolidation Shared Services

GlobalizationLeverage Global Capabilities

Standard / Common ProcessesAutomationFunctional best PracticesFinancial Reporting

Shared ServicesWeb EnablementCore CompetencyDecision Support

Process Outsourcing / Global COEsTechnology ExploitationRationalized ERPInformation on Demand

E/R > 3%

E/R < 2%

E/R < 1%

Basics

Enterprise Integration

Globalization

1994

1998

2002

EFF

ICIE

NC

Y

TIME

EVOLUTION OF FINANCE PROCESSES AT IBM



We have successfully implemented transformation and cost reduction programs in many clients

PROVEN ABILITY TO PERFORM WIDE RANGE OF COST REDUCTION

FINANCIAL STABILITY AND TRUST IN

DELIVERY

STRUCTURED WORK FOR

6-12 MONTHS PAYBACK

Proven Cost Take out methodologiesIBM Financing to further improve payback of projects

Key differentiators of IBM

Enterprise wide view of pockets of savings opportunities Industry specific benchmarks drawn from client and internal experiencesConsulting knowledge to streamline business processes Ability to lower cost through outsourcing or out-taskingAccess to labor in low cost countriesIf needed, capacity to PMO and track realization of savings

Financial strength and stability of IBM providing reliabilityLong record of successful, risk mitigated transition and service deliveryRobust governance capabilities



IBM is recognized as a market leader in F&A BPO

2009 Winner: Best BPOUnilever Europe and IBM

Cover Story: A Unified Unilever Europe

Winner: Unilever Europe - IBM FAO Research’s annual FAO

Award of Distinction

F&A

Respondent Segments

IDC’s research identified IBM as the #1 F&A BPO provider across 4 categories:

ADPHewittUnisysUnisys5

InfosysInfosysFidelityFidelity, Infosys4

HP-EDSAccenture, Unisys

ADPADP3

AccentureHP-EDSAccentureAccenture2

IBMIBMIBMIBM1

InnovationIntegrationCost OptimizationTransformationOverall Rankings

F&A

Respondent Segments

IDC’s research identified IBM as the #1 F&A BPO provider across 4 categories:

ADPHewittUnisysUnisys5

InfosysInfosysFidelityFidelity, Infosys4

HP-EDSAccenture, Unisys

ADPADP3

AccentureHP-EDSAccentureAccenture2

IBMIBMIBMIBM1

InnovationIntegrationCost OptimizationTransformationOverall Rankings

Customer perceptions of Top 5 Ranked BPO Vendors by Transformation, Cost Optimization, Integration, and InnovationSource: IDC Research, 2008

#1 in all categories

Our relationship with Unilever Europe continues to win awards…

…and recent public customer surveys rank us #1 across our business

2008 Award of Distinction



Efficiency levers– Simplify, Integrate, Automate

• Negative confirmations, ERS, PO Commitment accounting, non-valuated receipt

– Three Tier delivery - consolidation of procurement and accounts payable functions into regional and global centers

Effectiveness levers– Typical Category savings of 3-8% per year

– Drive Process Compliance > 90%

– Typically strategically source all direct and indirect categories within 6-12 months

Outsourcing Procurement also drives significant savings

Procurement Operations

Technology

Accounts Payable

Operations

Customer Assistance

Strategic & Tactical

Sourcing



IBM is also recognized as the market leader in Purchasing BPO

#1 in ACV, TCV, managed spend, and number of

active contracts**

Largest Managed Spend Base of PO Providers*

#1 Delivery*

*Everest Research PO Annual Report, April 2009**Everest Research Institute 2009

Subcontract Services22%

Travel7%

Uncategorized1%

Software5%

Connectivity5%

Facilities Mgmt & Construction

6%

Production22%

Telecom4%

Business Services5%

Facilities Svcs & Op Supplies

4%

Logistics/Distrib3%

IT Equip7%

CapEx3%

Marcom6%

Chemicals0%

#1 in Quality1#



Effectiveness and efficiency improves greatly for Sarah Lee when considering integrated multiple line of business delivery



Transformational Levers

Sarah Lee developed a roadmap to drive out $90M+ cost out of finance function – actually realized $125M+

Working Capital improvements

Global SSC/ Outsourcing

2%

.25

.30

1.5%

.9%

Retained Finance Realignment – locally, regionally, globally

Planning & budgeting, Finance master data.20

Treasury/Consolidation.10

SAP Harmonization .15

CPG Industry Target

Promotional Analysis

Gross to net

Finance Efficiency Finance Effectiveness

Pricing Analysis

Retailer Account

MgmtDeduction

Improvements

$125M+

$10B CPG Company: Cost of Finance $200M Roadmap to drive out $90M+

Finance focus – shifting finance resources to focus on driving profitable growth, margin, and supporting the customers of finance



Some of the companies that have made the decision to have IBM perform their non-core business processes



Wrap-Up

Top performing finance organizations drive higher business value and continuing improvements

Outsourcing Finance and Procurement can:

– Accelerate this transformation to within a 6-12 month period

– Drive substantial operational savings and financial improvements• E.g. DSO Improvement, Reduced spend, working capital

improvements, etc.

Leverage best practices and lessons learned




IBM Managed Business Process ServicesRoute 100Somers, NY 10589U.S.A.

Produced in the United States of America02-09All Rights Reserved

IBM, the IBM logo and the On Demand Business logo are trademarks or registered trademarks of International Business Machines Corporation in the United States, other countries, or both.

Other company, product and service names may be trademarks or service marks of other companies.

References in this publication to IBM products or services do not imply that IBM intends to make them available in all countries in which IBM operates.

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