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Broadway Conf Captive Entities

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    • 1. 2007 financial services finance executives’ forum* a one day program exploring technical and business issues  *connectedthinking Thursday | May 17 | 2007
    • 2. Using the lessons of the captive entity to improve sourcing strategy C. Steven Crosby Managing Director Advisory Investment Management PricewaterhouseCoopers
    • 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 INFORMED OFFSHORING DECISION INFORMED OFFSHORING DECISION
    • 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
    • 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
    • 6. In Most Firms Captive Entity Networks Are Underleveraged
      • Migrating 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 t wo or more vendors and multiple countries Extended Organization Proprietary
    • 7. Creating Common Utilities in Low Cost Jurisdictions Allows Us to Serve Our Businesses Cost Effectively While Moving to Scale and Meeting the Global Challenge of Data Privacy and Risk Application Management Business Process Management Infrastructure Management Shared Services Knowledge Process Management Implementation Patches/Updates Maintenance Extension Training Security Upgrades Deployment Development Service Performance Monitoring and Reporting Program Management Office Help Desk Service Coordination and Planning Marketing/ Sales Billing Customer Care Support the Business Network Provisioning Service Assurance Service Provisioning Procurement HR Network Mgmt Disaster Recovery Database Mgmt Server Mgmt Desktop Mgmt Performance Mgmt Security Storage Mgmt Patches/Updates Performance Analytics Reconciliations Financial Reporting Reference Data Research Security Master Maintenance Fund Accounting Quantitative Analytics Algos
    • 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
    • 9. What Some Firms Have Done Center Of Excellence Characteristics Indication of the importance of each characteristic: Experience IPR Protection Industrial strength Proven methodologies Infrastructure Vendor/affiliates (Universities) Leading edge/ Thought leadership Certification People trained and available 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 5 4 Sector Center
    • 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
    • 11. Information Characteristics
      • _____________________________________________________________________________________________________
      • People Process Technology Organizational Design Data
      • ________________________________________________________________________________________________________
      Skills Competencies Education Licenses Security Cost Quality Retention Lift out /sourced Maturity (CMM) Best Practice Optimized Sourced Business Architecture Standards ITIL COBIT Technology Architecture Centralized/Distributed Network BPR/DR Scale Sourced (BS7799/ISO27001) Local Regional Global Internal Provisioning External Provisioning Shared Service Utility Standards Granularity Security Privacy Trans-border-legal Issues Levers Of Organizational Change
    • 12. Get the Basic Facts Summarize and Determine Drivers Determine Root Causes for Priority Areas Generate and quantify Ideas Implement effective policies to control usage of IT Consolidate IT standards Implement strong IT supplier management policies IT OPEX IT OPEX Demand Demand Supply Supply Functionality Functionality Availability Availability Transaction performance Transaction performance Change in functionality Change in functionality Use of functionality Use of functionality Complexity (level of standardization ) Complexity (level of standardization ) Implementation of projects Implementation of projects Complexity of infrastructure Complexity of infrastructure Maturity of IT organization Maturity of IT organization Size of services Size of services Quality of technology Quality of technology Process Process Capability/ people Capability/ people Structure/ organization Structure/ organization IT OPEX IT OPEX Demand Demand Supply Supply Functionality Functionality Availability Availability Transaction performance Transaction performance Change in functionality Change in functionality Use of functionality Use of functionality Complexity (level of standardization ) Complexity (level of standardization ) Implementation of projects Implementation of projects Complexity of infrastructure Complexity of infrastructure Maturity of IT organization Maturity of IT organization Size of services Size of services Quality of technology Quality of technology Process Process Capability/ people Capability/ people Structure/ organization Structure/ organization Drivers of IT Operating Expenditures Activity Based Costing PwC’s Technique To Get To True Cost of Service Provides Accurate Baseline for ROI/TCO 2007 financial services finance executives’ forum May 17, 2007
    • 13. Introducing A New Concept: Lean Manufacturing Lets Build Something Greater Than Just An Accumulated Replica of The Status Quo Traditional Shared Services Utility Pushes Action To Business User To Generate Information To Fuel The Leaning Tower of Risk Self Assessment No. 2 Program Management Office Help Desk Self Assessment No 1 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 Standards Frameworks Reporting Lean Model Utility
    • 14. The Lean KPO Enterprise: Knowledge Process Outsourcing Creating The Compliance Utility Of The Future “ A” Team Knowledge 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 Standards Frameworks 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 Interface Tool Island Framework Island Standards Island Reporting Island Human Capital Island Business ü
    • 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.
      CaptiveEntitySource Support CaptiveEntitySource Preparation CaptiveEntitySource TCO/ROI
          • 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.
          • 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.
          • 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.
    • 16. Illustrative Geopolitical Risk Example Specimen Analysis Stability vs. Market Orientation Source: PwC and EurasiaGroup Hungary Egypt Mexico Poland South Africa Turkey India Thailand Brazil Colombia Bulgaria Pakistan Philippines Ukraine Saudi Arabia China Venezuela Indonesia Argentina Nigeria Iran 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 low Policy Stability high cronyism Market Orientation competition promotion
    • 17. What To Do With What Is Left Behind? Process Improvement: Root Cause Analysis Response Time Turnaround Time + Cycle Time = Reduce Cycle Time Non conforming value of Key Performance Indicator Turnaround 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 Analysis Incident Management Problem Management Skills Culture Process Definition Systems Knowledge Management People Technology Governance Process Information Impacts Impacts Impacts Documentation Project Management Service Level Management Risk Management Action Process KPI Analysis KPA Measurement Business Goal Organizational Impact Business Goal Impact
    • 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
      6 3 9 2 7 8 1 5 4 Gap (1:lowest – 9: highest 5 4 9 7 8 6 3 2 1 Weighting (1:lowest – 9: highest) 258/9 = 28.67 INDEX/Score 258 TOTAL 30 Retention 12 System availability 81 Ownership 14 Process adherence 56 Knowledge exhibited 48 Promptness of vendor personnel 3 Availability of vendor personnel 10 Documented processes 4 Training coverage Impact Parameter
    • 19. Contact Information C. Steven Crosby (646) 471-4875 [email_address]
    • 20. 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. 

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