broadway conf captive entities
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2007 financial servicesfinance executives’ forum* a one day program exploring technical and business issues
*connectedthinking
Thursday | May 17 | 2007
2007
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Using the lessons of the captive entity to improve sourcing strategy
C. Steven CrosbyManaging Director
Advisory Investment Management
PricewaterhouseCoopers
2007 financial services finance executives’ forum PricewaterhouseCoopers May 17, 2007
Page 3
Sourcing: Principles and Approach
What is your strategy to continually meet the challenges of sourcing?
Sourcing is more than just off shoring. It is about getting it right not once, but over and over again.
You need to re-think your business functions in terms of mobile assets in a global portfolio, and apply hedging and risk theory.
Your business, the industry, and offshore markets have become highly mobile, and dynamic – you need to constantly align your goals accordingly to secure maximum value for your portfolio of functions.
PwC
Vision: The Key To Unlocking Value
INFORMEDOFFSHORING
DECISION
INFORMEDOFFSHORING
DECISION
2007 financial services finance executives’ forum PricewaterhouseCoopers May 17, 2007
Page 4
Fundamental Questions In The Global Quest For Talent
What is the Right Answer?
Alternatives?
• Internal transformation
• Internal standardization and centralization
• Internal shared services
• Outsource to provider
Where?
• On-shore
• Near-shore
• Off-shore
• Combination
How?
• Captive
• Transitional
• Outsource
What Model?
• Fee based
• Joint Venture
• Build/operate/transfer
Sourcing Intent
Sourcing Strategy
Strategic Vision
What to Source?
Align Executives & Business Leaders
Why Source
Internal or External?
Where?
On-shore
Near-shore
Off-shore
How?
Captive
Transitional
Outsource
What Model?
Fee-based Contract
Joint Venture
Build Operator
Model
2007 financial services finance executives’ forum PricewaterhouseCoopers May 17, 2007
Page 5
Sourcing: Principles and Approach
There are many low cost jurisdictions, each with its own unique value proposition and service offering – choosing where to go and when is the new challenge.
MALAYSIA• Pan Asian support• Call centers• Data processing centers
INDIA• Call centers• Software development• Engineering and design• Back-office operations/data
entry
UKRAINE• Software
CARIBBEAN• Data entry
IRELAND• Software development• Call centers• Shared services
PHILIPPINES• Software development• BPO• Call centers• Data entry
Canada• Software Support• Call Center
Mexico•Customer Support•Date entry
China•Data entry•Application development•System engineering
Poland• Data center• Data entry• Pan-European
Support
2007 financial services finance executives’ forum PricewaterhouseCoopers May 17, 2007
Page 6
In Most Firms Captive Entity Networks Are UnderleveragedMigrating To Captive Entity Models Is Essential To Empower Large Global Firms To Controlling Risk, Saving Money and Increasing Efficiency
Captive Joint Venture Build-Operate-Transfer (BOT)
More complex to set up
Moderate investment
Less staffing risk Opportunity to
share reward Local knowledge
of the JV partner helpful
Security and data privacy issues
Knowledge transfer issues
Facilities Management
Requires highest initial investment
Specialized management commitment
Potentially high risk without solid governance and decision models
Significant opportunity to realize savings
Opportunities for scale around data, security, load balancing and privacy
Outsourced
Requires robust vendor management
Heavy management focus in the multi-vendor model
Opportunity to employ Best-of-Breed providers
Security and data privacy issues
Knowledge transfer issues
Enterprise’s own offshore “shared service center.” Examples include GE, American Express and HSBC.
An offshore center with joint ownership between the client and a third party partner
An offshore center built and operated by a third party for a finite time period after which the ownership transfers to the client firm.
Helpful when a firm wants to retain control but lacks local knowledge
Also appropriate when vendors lack domain experience
Security and data privacy issues
Poor knowledge transfer
An offshore center fully owned by the enterprise, facilities management (real estate, security, transportation, cafeteria, etc.) provided by a third party . Helpful when an
entity wants to retain control but lacks local knowledge
Also appropriate when vendors lack domain experience
Security and data privacy issues
Poor knowledge transfer
Popular choice for low-end business processes or contact centers. Could have two or more vendors and multiple countries
Extended OrganizationProprietary
2007 financial services finance executives’ forum PricewaterhouseCoopers May 17, 2007
Page 7
Creating Common Utilities in Low Cost JurisdictionsAllows Us to Serve Our Businesses Cost Effectively While Moving to Scale and Meeting the Global Challenge of Data Privacy and Risk
Implementation
Patches/Updates
Maintenance Extension
Training Security
Upgrades Deployment Development
ApplicationManagement
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Business Process
Management
Marketing/ Sales
Billing
Customer Care
Support the Business
Network Provisioning Service Assurance
Service Provisioning
Procurement HR
InfrastructureManagement
Network Mgmt
Disaster Recovery
Database Mgmt Server Mgmt
Desktop Mgmt
Performance Mgmt
Security
Storage Mgmt
Patches/Updates
Shared Services
Knowledge Process
Management
Performance Analytics
Reconciliations
Financial Reporting
Reference Data
Research Security Master Maintenance
Fund Accounting
Quantitative Analytics Algos
2007 financial services finance executives’ forum PricewaterhouseCoopers May 17, 2007
Page 8
What has been done?
• Large firms have launched Right Placement usually on a limited basis
• Significant movement has been made in terms of moving to lower cost jurisdictions
• Right Placement provides as-yet untapped benefits for BPO
• KPO remains an uncharted opportunity set
• Number of low cost centers keeps growing
• Control varies between the business and corporate
• Direction and management of the flow of work into centers is mixed
• Evolution into other higher evolved sourcing is muted
• Often no optimized control structure or means to secure commitment to use
• P&L control precludes true cost savings and actually reinforces inefficiency
• Incentives are not aligned to performance
• Opportunities to create shareholder value are neutralized by current structure
2007 financial services finance executives’ forum PricewaterhouseCoopers May 17, 2007
Page 9
What Some Firms Have DoneCenter Of Excellence CharacteristicsIndication of the importance of each characteristic:
Experience
IPR Protection
Industrial strengthProven methodologies
Infrastructure
Vendor/affiliates(Universities)
Leading edge/Thought leadership
Certification
People trained and available
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Sector
Center
2007 financial services finance executives’ forum PricewaterhouseCoopers May 17, 2007
Page 10
What is the rest of the industry doing?
Never Really Got Done In An Optimal Fashion Created New Shared Service Challenge Over Stretched Lines Of Communication Legacy Knowledge Capital Diluted
Result: At Best A Stack Of Process, Technology, Function
Opportunity: Streamline Into High Performance Function
Fix and Ship Drag and Drop Repair On Site
2007 financial services finance executives’ forum PricewaterhouseCoopers May 17, 2007
Page 11
Information Characteristics
_____________________________________________________________________________________________________
People Process Technology Organizational Design Data ________________________________________________________________________________________________________ SkillsCompetencies
EducationLicensesSecurity
CostQuality
RetentionLift out /sourced
Maturity (CMM)Best Practice
OptimizedSourced
Business ArchitectureStandards ITIL
COBITTechnology ArchitectureCentralized/Distributed
NetworkBPR/DR
ScaleSourced
(BS7799/ISO27001)
LocalRegionalGlobal
Internal ProvisioningExternal ProvisioningShared Service Utility
StandardsGranularity
SecurityPrivacy
Trans-border-legal Issues
Levers Of Organizational Change
PricewaterhouseCoopersPage 12
Get the Basic FactsSummarize and Determine
DriversDetermine Root Causes
for Priority AreasGenerate and quantify
Ideas
Implement effective policies to control usage of IT
Consolidate IT standards
Implement strong IT supplier management policies
IT OPEXIT OPEX
DemandDemand
SupplySupply
FunctionalityFunctionality
AvailabilityAvailability
TransactionperformanceTransactionperformance
Change infunctionalityChange in
functionality
Use offunctionality
Use offunctionality
Complexity (level ofstandardization)
Complexity (level ofstandardization)
Implementation of projectsImplementation of projects
Complexity of infrastructureComplexity of infrastructure
Maturity of IT organizationMaturity of IT organization
Size of servicesSize of services
Quality of technologyQuality of technology
ProcessProcess
Capability/ peopleCapability/ people
Structure/ organizationStructure/ organization
IT OPEXIT OPEX
DemandDemand
SupplySupply
FunctionalityFunctionality
AvailabilityAvailability
TransactionperformanceTransactionperformance
Change infunctionalityChange in
functionality
Use offunctionality
Use offunctionality
Complexity (level ofstandardization)
Complexity (level ofstandardization)
Implementation of projectsImplementation of projects
Complexity of infrastructureComplexity of infrastructure
Maturity of IT organizationMaturity of IT organization
Size of servicesSize of servicesSize of services
Quality of technologyQuality of technology
ProcessProcess
Capability/ peopleCapability/ people
Structure/ organizationStructure/ organization
Drivers of IT Operating Expenditures
Activity Based CostingPwC’s Technique To Get To True Cost of ServiceProvides Accurate Baseline for ROI/TCO
2007 financial services finance executives’ forum May 17, 2007
2007 financial services finance executives’ forum PricewaterhouseCoopers May 17, 2007
Page 13
Introducing A New Concept: Lean ManufacturingLets Build Something Greater Than Just An Accumulated Replica of The Status Quo
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Traditional Shared Services Utility
Pushes Action To Business User To
Generate Information To Fuel The Leaning Tower of Risk
Risk Analyst
Pulls Information From The Business
Bringing It To A Single Place Where It Can Be Analyzed By The Best And Brightest
One Time
Universe Of Business Data
Tools
Standar
dsFrameworks
Reporting
Lean Model Utility
2007 financial services finance executives’ forum PricewaterhouseCoopers May 17, 2007
Page 14
The Lean KPO Enterprise: Knowledge Process OutsourcingCreating The Compliance Utility Of The Future
“A” TeamKnowledge
Analyst
Creating “Islands Of Innovation” To Address Complex Risk and Compliance Processing With Integrated Centralized Teams Of Specialists Supported By The Best Tools, Frameworks, Standards and Reporting Techniques. Pulling What Is Need From The Business Bring Data To Where It Can Best Be Analyzed and Acted Upon.
Universe Of Business Data
Tools
Standar
dsFrameworks
Reporting
• Framework Architects• Model builders• Testers• Certifiers• Check In/Out • Tracking
• Standardized Packages• Digital Reporting• Interactive Data• Network
• CMMI• ITIL• COSO• COBIT• XBRL
• Analytics• Database• Data stores• Parsers/Scrapers• Quants• Algo’s• Intelligent Agents• Transaction Monitors
• Full Time Focused Team• Educated/Licensed• Risk Professional• Knowledge Worker
CSU/Business InterfaceTool Island
Framework Island Standards Island
Reporting Island
Human Capital Island
Business
ü
2007 financial services finance executives’ forum PricewaterhouseCoopers May 17, 2007
Page 15
Captive Entity Decision Assessment Approach
In reviewing specific applications, functions, and infrastructure components, PwC brings a holistic perspective that addresses issues of risk and quality in any deployment or implementation. This supports the selection and management of specific service providers and assessments of the optimal jurisdictions for initial and future repatriation of function. A long term strategy treating the function as a mobile asset is one of the best risk mitigation and quality assurance measures.
CaptiveEntitySourceSupport
CaptiveEntitySource Preparation
CaptiveEntitySourceTCO/ROI
• Select applications, infrastructure, processes, and service components using the PwC CaptiveEntitySource selection tool.
• Determine the optimal mix of delivery models (in-source, outsource, managed services, joint venture, captive, etc.)
• Estimate ROI and time to benefit using the CaptiveEntitySource TCO and ROI models.
• Align business drivers and requirements with current array of right placement options as well as future markets and other solutions.
• Assess organizational readiness.• Identify risk factors incident various
sourcing strategies, including infrastructure, regulatory geopolitical and human capital dimensions.
• Support client selection of potential partners, including optimizing legal and economic buyer positioning.
• Provide support in negotiation of business agreements, and service level agreement including definition of critical controls, metrics and measures.
• Help identify, select and train “Away Team” and design effective communication plan and knowledge transfer plan for in country team assimilation and acculturation.
• Pre-Launch Readiness Assessment and clearance.
• Deployment optimization including regulatory approvals and sign offs, testing, and quality measures.
• Prepare standby function and rapid reaction force to address any issues and maintain client facing service quality.
• Support development, and transition from host country to in country away team, service provider or other entity.
• Maintain balanced score card, initial performance measures, and potential for change management requests and other initial transition considerations.
2007 financial services finance executives’ forum PricewaterhouseCoopers May 17, 2007
Page 16
Illustrative Geopolitical Risk ExampleSpecimen Analysis Stability vs. Market Orientation
Source: PwC and EurasiaGroup
Hungary
Egypt
MexicoPoland
South Africa
Turkey
India
Thailand Brazil
ColombiaBulgaria
PakistanPhilippines
Ukraine
Saudi Arabia China
VenezuelaIndonesia
Argentina
Nigeria
Iran
20
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50
60
70
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0 10 20 30 40 50 60 70 80
low Policy Stability high
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2007 financial services finance executives’ forum PricewaterhouseCoopers May 17, 2007
Page 17
Business Goal Impact Organizational Impact
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KP
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KP
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Actio
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ssWhat To Do With What Is Left Behind?Process Improvement: Root Cause Analysis
Response Time
Turnaround Time+Cycle
Time =
Reduce Cycle TimeNon conforming value of
Key Performance IndicatorTurnaround
Time
Impacts
Examples:• Support systems and applications lack functionality and are defective• Level 3 support team lacks business functional and technical skills.• Support personnel not available to handle the Incident• No knowledge repository of past Incidents and Problems• Level 2 support team is not being utilized
Causal AnalysisIncident
ManagementProblem
Management
Skills
Culture
Process Definition Systems Knowledge
Management
People Technology GovernanceProcess Information
ImpactsImpactsImpacts
Documentation
ProjectManagement
Service LevelManagement
RiskManagement
2007 financial services finance executives’ forum PricewaterhouseCoopers May 17, 2007
Page 18
What To Do With What Is Left Behind?Creating An Index To Measure Performance On The Ground
• Review with stakeholders and assign a relative weight to each parameter, based on estimated impact on end goal
• Also assess the Gap from expected
• Use the two to compute the index
• Compute weighted index and benchmark against actual performance to correct weights assigned
Parameter Weighting(1:lowest – 9: highest)
Gap(1:lowest – 9: highest
Impact
Training coverage 1 4 4
Documented processes
2 5 10
Availability of vendor personnel
3 1 3
Promptness of vendor personnel
6 8 48
Knowledge exhibited
8 7 56
Process adherence
7 2 14
Ownership 9 9 81
System availability 4 3 12
Retention 5 6 30
TOTAL 258
INDEX/Score 258/9 = 28.67
2007
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Contact InformationC. Steven Crosby(646) [email protected]
2007 financial services finance executives’ forum
© 2007 PricewaterhouseCoopers LLP. All rights reserved. "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, as the context requires, other member firms of PricewaterhouseCoopers International Ltd., each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP.