Michelle Ferguson, Senior Vice President, McGraw Hill
Financial, and
Sanjay Tripathy, Principal, Booz and Company,

© 2013...
Agenda
McGraw Hill Financial - A New Company with 125 Year Heritage
Speaker Introductions
Scope of Global Business Service...
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A new company, with a 125‐year‐old heritage, focused on
providing essential intelligence
Our vision is to ...
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© 2013 IAOP® All Rights Reserved

Senior Vice President, Global
Business Services
• Finance
• Human Resources
• E...


Senior Principal, Americas Leader for Outsourcing and Shared
Services Advisory, focused across industries for • Strateg...
McGraw Hill E2E Finance Outsourcing

•

Process “towers” with cross functional support
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–
–
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–

•

Global Finance an...
McGraw Hill E2E Finance Outsourcing

Transformation Goals
 Achieve higher and sustained
global growth
 Capture horizonta...
McGraw Hill E2E Finance Outsourcing

Growth & Value Plan
Theme
Organization
Architecture
P&Ls
Governance &
Decision-Making...
McGraw Hill E2E Finance Outsourcing

Outsourcing Approach: A swift yet structured process
Rapid Outsourcing Approach and T...
McGraw Hill E2E Finance Outsourcing

Order to Cash E2E scope across Regions,
Business Units and GBS
Order Management
and B...
McGraw Hill E2E Finance Outsourcing

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Atlas ERP Implementation
◦ Project One launched June 2010; Golive July 2012
...
McGraw Hill E2E Finance Outsourcing

Business
Focus Area

What they do
for us

Locations

Finance

Hyderabad, India
Dalian...
McGraw Hill E2E Finance Outsourcing



Challenges were many…
Outsourcing Finance and going live with a new ERP system the...
Trends in End to End (E2E) BPO

What E2E Transformation Outsourcing Involves
100

Labor Cost
Reduction

+
Operational

Imp...
Trends in End to End (E2E) BPO

Sell Side Dynamics (Suppliers)

Buy Side Dynamics (Clients)
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Recognition tha...
Trends in End to End (E2E) BPO

Finance E2E

Distribution of FAO Contracts with End-toEnd Scope Over Time
Number of new co...
Trends in End to End (E2E) BPO

Finance E2E

Scope of Frequently Outsourced F&A E2E Processes

Record-to-Report

Procure-t...
Trends in End to End (E2E) BPO

Supplier Portfolio for E2E Processes
Multi-tower Global BPO
Focused Functional Pure
Servic...
Trends in End to End (E2E) BPO

Description of Supplier Sourcing Models
4
Best-of-Breed Approach
Hybrid Approach
 Company...
Trends in End to End (E2E) BPO

BPO Service Provider Selection Criteria
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Strategic Selection Factors

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...
Tends in End to End (E2E) BPO

Strategic Success Factors
1 Clear Understanding of Your Competitively
Differentiating Capab...
© 2013 IAOP® All Rights Reserved
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Iaop 2013 costa rica end to end finance outsourcing v f

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Iaop 2013 costa rica end to end finance outsourcing v f

  1. 1. Michelle Ferguson, Senior Vice President, McGraw Hill Financial, and Sanjay Tripathy, Principal, Booz and Company, © 2013 IAOP® All Rights Reserved
  2. 2. Agenda McGraw Hill Financial - A New Company with 125 Year Heritage Speaker Introductions Scope of Global Business Services Outsourcing Approach Challenges and Lessons Learnt Trends in End to End (E2E) BPO Q&A © 2013 IAOP® All Rights Reserved
  3. 3.       A new company, with a 125‐year‐old heritage, focused on providing essential intelligence Our vision is to be the foremost provider of ratings, benchmarks, and analytics in the global capital and commodity markets Strong balance sheet enables financial flexibility Will continue to invest in businesses while returning cash to shareholders Solid track record of top‐ and bottom‐line growth 2013 guidance indicates solid growth:  High single‐digit, top‐line growth  Adjusted diluted EPS guidance of $3.15 ‐ $3.25 © 2013 IAOP® All Rights Reserved
  4. 4.    © 2013 IAOP® All Rights Reserved Senior Vice President, Global Business Services • Finance • Human Resources • ERP System • Global Real Estate BBA – University of Notre Dame • Advisory Council for DeBartolo Performing Arts Council • Member of Alumni Board MBA – Columbia Business School
  5. 5.  Senior Principal, Americas Leader for Outsourcing and Shared Services Advisory, focused across industries for • Strategy, Operating Model, Organization Design, Business and Cost Transformation, People and Change • Fit for Growth (FFGTM) platform • Finance and Accounting • Procurement • Human Resources • Customer Relationship Management • Real Estate and Facilities Management • KPO, Analytics, R&D and Engineering Services • Platform and SaaS Services • Other G&A Functions • Governance, Transition, Re-negotiations • Global supplier relations  © 2013 IAOP® All Rights Reserved Over 18 years of global industry and consulting experience
  6. 6. McGraw Hill E2E Finance Outsourcing • Process “towers” with cross functional support – – – – – – – • Global Finance and Accounting – Order to Cash, Procure to Pay, Record to Report ERP Implementation Global Payroll Global Employee Care / Special Programs Global Sourcing and Disbursements Special project support (e.g., People Fluent, Physical Separation) Cross tower support (financial planning/estimating, contract administration, service delivery and governance) OBJECTIVE: Deliver predictable, scalable, lower cost Finance/HR service consistently across company. Outsource transactional activities to global partners – – – – – – Relationships with industry leading providers that have global capabilities Strong governance Measurements focused (e.g., service level agreements, process health) Aligned to support our businesses Process improvement mindset with end to end transformation Opportunities for direct access, self service © 2013 IAOP® All Rights Reserved
  7. 7. McGraw Hill E2E Finance Outsourcing Transformation Goals  Achieve higher and sustained global growth  Capture horizontal synergies across businesses  Drive scalability and predictability in cost structure  Drive business impact through end to end process transformation  Treat talent and data as strategic corporate assets Growth: Position great businesses for scalable growth Performance: Enhance business impact with end to end process transformation (e.g. Order to Cash) People: Become a high-performance employer of choice Cost: Reshape to be fit for growth with best in class economics Operating Model: Increase speed, agility and global connectivity, while building enterprise capability © 2013 IAOP® All Rights Reserved
  8. 8. McGraw Hill E2E Finance Outsourcing Growth & Value Plan Theme Organization Architecture P&Ls Governance & Decision-Making Capabilities & Talent Collaboration & Alignment Culture Change Orientation Geographic Leadership Critical Metrics © 2013 IAOP® All Rights Reserved “Evolving” Stand Up MHFI “Sustained High Performance”  Vertical and layered  Flatter and compressed  Competing metrics and opaque allocations  Transparent, consistent, precise  Uneven criteria and pace  Clear, selective shifts to align on emerging enterprise decision rights  Individual business-based  Selective shared enterprise capabilities & talent  Shifting to greater flexibility and cross-business leverage  Leadership alignment, with mechanisms established and integration underway  Publishing heritage, avoidance of risk  Market orientation with risk management  Hesitant but building momentum  Shared common purpose and vision  US-focused with shifting focus to global – Limited accountability for regional results  Regional measurement with cross-LoB management and accountability by geographic sub-region (i.e., ex-Americas)  Revenue and profits  Financial and strategic metrics, with clear accountability
  9. 9. McGraw Hill E2E Finance Outsourcing Outsourcing Approach: A swift yet structured process Rapid Outsourcing Approach and Timeline Month 1 Month 2 Month 4 Month 5 Month 8 Provider Selection & Contract Development RFP Responses & down-selection Base Case Solution Development Site Visits & Inbound Due Diligence/BAFO To be Vision Outsourcing Objectives RFP/Spec Package MH specific activities Joint activities with Provider Provider Selection Negotiations and Contract Award Outbound Due Diligence Transition Begins Transition Ends Governance Design & Transition Planning Change and Risk Management Communication and Change Management Engagement Package & MSA to PreSelected Providers © 2013 IAOP® All Rights Reserved Providers Down Selected Provider Selected Contract Awarded
  10. 10. McGraw Hill E2E Finance Outsourcing Order to Cash E2E scope across Regions, Business Units and GBS Order Management and Billing Credit Risk and Contract Admin Customer Master Cash Application & AR Collections Deductions Management Critical Success Factors  Outsourced Services • • • • • New Account Setup Changes in Existing Accounts Price Mapping Billing Types/Cycle Tax Status • • • • • • Initial Analysis Review of Credit Limits Receive/Validate Contracts Contract Renewal/Extension Contract Audits Ensure compliance • • • • • • % Outsourced: 90 % Outsourced: 90 Receive/Validate and Enter PO Order Fulfillment Regular Open Order Analysis Invoicing Generation and Presentment Shipping and Freight Details Pricing Support % Outsourced: 95 • • • • • Customer Segmentation Self-Payer Analysis Call Prioritisation Issue Coding and Analysis Research Bad Debts % Outsourced: 85 • • • • Processing/Cleari ng Lockbox Misapplied Cash Exception Coding Research Unapplied Cash and Credits • • • % Outsourced: 95 ◦ Identification and Validation of Disputes Resolution on Short Payments/Deductio ns Credit Memos and Reconciliations ◦ ◦ ◦ % Outsourced: 85 Retained Services • Exception Approvals  • Define Credit terms • Develop and Review Credit Policies/Recommen dations • Exception Approvals  • Exception Approvals • Order Release Matrix • Establish and Maintain Billing Policies  • Collection Policies • Strategic and Government Accounts • Banking of cheques • Approval of writeoffs  • High-dollar write-offs • Deductions Approval   ◦  OTC Process in Scope Business Outcome E2E SLAs Metric Category Service Level Name  Resolve Order Management backlog issues for credit related problems within 24 hours.  Unapplied Cash / Credits & unidentified as %age of total collections. Efficiency  Sales Orders and Changes processed within 24 hours of receipt Supplier Relationship MHE Only Formula  Resolved order management backlog issues for credit related problems/All credit related backlog issues All business  Value of unapplied cash and Credits/Total value of units ledger. All business  Number of requests processed within 24 units hours/Total requests received Measuremen t Window Daily © 2013 IAOP® All Rights Reserved  Monthly Monthly  Number of manual bills correctly processed within 48 hours/Total number of manual bills created during Monthly the month All business  AR balance/Sales in the period*number of days in  Days Sales Outstanding Daily units the period MHE Only  Number of deductions/charge backs (from short Deductions Outstanding Monthly payment of invoices)/Total number received in month  Cash Collected as percentage All business Monthly of gross billings (or as a units  Cash collected in month/Gross billings or Beginning (rolling 12 percentage of Beginning AR - for AR month periods) MHE)  Dispatch of Bills within 24 All business  Number of bills dispatched within 24 hours/Total hours of business unit units Monthly number of bills created in a period. requirements (to be agreed).  Manual billing requests processed within 48 hours Effectiveness Business Units Collaboration upfront with supplier during joint solutioning to design/enable MHE Only  Outsource End to end scope to enable standardization, centralization, and process improvements Interim and future state process Clear SLAs tied to performance outcomes Engage global regions and business units in the design, implementation Leverage supplier tools, best practices and expertise to move the needle on performance tied to business outcomes to achieve more than labor arbitrage Agreement with supplier on clear milestones around transition, process improvements, productivity levers with risk sharing models to drive transformative improvements Established collaborative governance including retained organization design, decision rights, services delivery design, implementation
  11. 11. McGraw Hill E2E Finance Outsourcing    Atlas ERP Implementation ◦ Project One launched June 2010; Golive July 2012  Replacement of Lawson Financials with Oracle 12 e-Business Suite  Chart of Accounts Atlas Hard Separation ◦ Project launch March 2012; go-live January 2013 ◦ Financial and operational segregation ◦ Separate and distinct bank accounts and ledgers Atlas Physical Separation ◦ Project launch January 2013; go-live February 2014 ◦ Two independent Oracle environments © 2013 IAOP® All Rights Reserved
  12. 12. McGraw Hill E2E Finance Outsourcing Business Focus Area What they do for us Locations Finance Hyderabad, India Dalian, China Bucharest, Romania Juarez, Mexico Payroll Global Payroll Manila, Philippines HR services Customer Service Support: Portal, Taleo, Success Factors, Workday Charlotte, NC Woodland Hills, TX Gurgaon, India System development Oracle Kolkata, India Quality control © 2013 IAOP® All Rights Reserved AP, OTC, R2R Oracle Chennai, India Bangalore, India
  13. 13. McGraw Hill E2E Finance Outsourcing  Challenges were many… Outsourcing Finance and going live with a new ERP system the same day Outsourcing Payroll, a new Human Capital Management System for MHE at the same time Understanding key controls early in the project lifecycle Enabling company separation  Lessons Learned were many… Communicate, communicate, communicate Coordination Project management Know a Project Manager when you see one Need different skill set in the leadership team Don’t panic, overreact to anecdotal and isolated issues One group does contract administration Pricing, SOW, MSA, IT Requirements Invest upfront in Governance, Retained Org, Roles and Responsibilities, Decision Rights © 2013 IAOP® All Rights Reserved
  14. 14. Trends in End to End (E2E) BPO What E2E Transformation Outsourcing Involves 100 Labor Cost Reduction + Operational Improvements + Process  Align partner and client incentives to reduce cost of service Transformation Benefits are Not Materializing and Governance Costs are Mounting 20  Partner with client to improve operations and share in the benefits 35% Target 5 15  Leverage gain share models to align partner and client incentives 5 5  Enablers for transformational partnership – Benefits Realization Model Transformation 60 65 – Assets to enable productivity improvements + Technology Enablement Transformational E2E BPO Deal Economics – Governance structures  Shift clients’ fixed costs to a more variable model Source: Booz & Company Database and Experience © 2013 IAOP® All Rights Reserved Baseline Cost Cost Arbitrage Process Process & Target Cost Retained Improvement Platform Goverance Standardization Value Drivers Organization Total EndState Cost Business Case Projection
  15. 15. Trends in End to End (E2E) BPO Sell Side Dynamics (Suppliers) Buy Side Dynamics (Clients)      Recognition that global E2E process view enables a holistic service delivery design that pulls on multiple levers including standardization, automation, shared services and outsourcing Recognition that enduring and transformational savings can only be achieved when a service provider has control over end to end processes Transformation end to end processes is difficult to achieve internally when processes are fragmented and process governance is difficult to institutionalize Scalable affordable technology platforms are critical to E2E transformation and are best accessed through third party solutions End to end process outsourcing rationalizes and consolidates multiple transactional service providers and creates a focused set of strategic provider partnerships © 2013 IAOP® All Rights Reserved     Improved ability to bundle domain expertise and outsourcing expertise into bundled and integrated process transformation solution More advanced, sophisticated global end to end process solutions from service providers supported by proprietary tools Growing domain expertise on how to drive process innovation and standardization based on network effect of serving scores of diverse clients Increasing appetite to commit to productivity improvements, best-in-class service levels and gain-sharing agreements
  16. 16. Trends in End to End (E2E) BPO Finance E2E Distribution of FAO Contracts with End-toEnd Scope Over Time Number of new contracts 100% End-to-End Scope 460 268 87 37% Type of End-to-End Scope in FAO Contracts Frequency of Inclusion 51% Purchase to Pay1 55% 70% 75% Order to Cash1 Traditional Piecemeal Scope 63% Record to Report1 45% 30% Up to 2008 2009-2011 2012-2013 Sample Size: :815 multi-process FAO contracts signed as of December 2012 Source: Booz & Company Deal Database, Gartner, Everest Group, © 2013 IAOP® All Rights Reserved 33%
  17. 17. Trends in End to End (E2E) BPO Finance E2E Scope of Frequently Outsourced F&A E2E Processes Record-to-Report Procure-to-Pay Order-to-Cash Collections & Accounts Receivable Order Management & Billing Manage & Process Collections Maintain Customer Master Data Manage Sales Orders Manage Customer Requests & Inquiries Manage & Process Disputes & Deductions Maintain A/R Ledger & Apply Cash Manage Contacts Order Service Customers Transaction Processing & Travel Financial Integrity Authorize & Manage Credit Perform Revenue Assurance Activities Help Desk Business Impact Effectiveness 3rd Party & Intercompany Invoices/credi ts Vendor Statement Reconciliation Irate Creditor Reconciliation s Payments & Remittances Vendor Master Data Maintenance Interface Management Manage & Process Collections Manage & Process Disputes & Deductions Period Close & Data Integrity  Improve  Increase DSO Order and billing  Reduce accuracy collection s cash  Improve float contract complianc  Optimize e reserves  Reduce overpayments  Increase contract compliance  Increase PO & AP processing efficiency  Identify duplicate invoices  Optimize discount capture  Identify duplicate invoices  Reduce time to close  Improve month end close processing efficiency  Reduce manual journal entries  Reduce exposure -aged open items  Increase Balance sheet integrity  Optimize & crash period Maintain Customer Master Data Manage Sales Orders Manage Customer Requests & Inquiries Maintain A/R Ledger & Apply Cash Manage Contacts Support Center Financial & Government Perform Reporting Authorize & Revenue Service Customers © 2013 IAOP® All Rights Reserved Manage Credit Controls  Reduce writeoffs  Improve collections efficiency Payment Accuracy Controls Asset & Transactional Processing Working Capital  Reduce cancellation of orders  Capture invalid deductions  Optimize trade promotion  Improve order to bill cycle TA Expense Claims Receipt & Scanning (BSS EDM) Efficiency Assurance Activities Source: Booz & Company Research
  18. 18. Trends in End to End (E2E) BPO Supplier Portfolio for E2E Processes Multi-tower Global BPO Focused Functional Pure Service Providers Plays Legacy Indian-heritage IT Service Providers Target Market  Primarily large market global buyers, though have started pursuing smaller opportunities as well  Target both mid-market and large-market opportunities  No rigorously defined market – opportunistic in deal pursuits Typical Solution Approach  A platform-agnostic approach with a good mix of onshore and offshore delivery  A combination of custom & platform-based solutions  Flexible approach depending on the client situation with heavy reliance on offshore delivery  Ability to combine consulting, technology, and process capabilities with global reach  Ability & experience to cover multiple BPO towers under one deal  Balanced value proposition  Value proposition centered around cost & quality impact with around near term cost reduction spike in transaction-intensive with a spike in transactional processes processes  Deep functional domain  Ability to provide bundled F&A experience services with HR (e.g. TCS, Infosys, Wipro,) Key Value Proposition Source: Booz & Company Experience, Not exhaustive, with overlaps © 2013 IAOP® All Rights Reserved
  19. 19. Trends in End to End (E2E) BPO Description of Supplier Sourcing Models 4 Best-of-Breed Approach Hybrid Approach  Company outsources specialized parts of the process to different vendors, as well as disaggregates volume across multiple vendors  Managing the resultant portfolio complexity requires very mature VM capabilities  Best suited for processes that have large scale and scope  Company outsources clusters of similar or related sub-processes to different vendors, in order to leverage their respective expertise / specialization  Clusters generally require materially different expertize and / or assets  Interfaces & handoffs between clusters are relatively few, but are clear, well defined, & can be remotely managed; Best suited for non-core processes with broad scope / high complexity Disintegrated SUB-PROCESSES 2 1 3 Exclusive Partnership Approach Risk Diversification Approach  Company keeps process integrated but spreads volume across multiple vendors  There is sufficient volume to enable more than one vendor to realize economies of scale  Company diversifies risk and gains ongoing performance / price improvement by creating competition between vendors  Best suited for core processes with moderate scope but large scale Aggregated Integrated  Company outsources a process in its entirety to a single vendor  Relationship is managed as a strategic partnership, with open collaboration and information sharing  Potential for high performance and diversification risk requires high level of trust  Best suited for non-sensitive processes with small-to-medium scale Disaggregated © 2013 IAOP® All Rights Reserved SUPPLIERS
  20. 20. Trends in End to End (E2E) BPO BPO Service Provider Selection Criteria    Strategic Selection Factors     Key Criteria for Selecting a Service Provider End to End BPO Services? Improve Costs: provide top quartile pricing and commit to >50% reduction in operating costs and 5% YoY Ability/Track Record to Deliver E2E reductions Deliver Quality Service: adhere to SLAs and other critical KPIs and deploy clear recourse/remediation clauses Provide Flexible Commercial Terms: that reflect the scale impact of end to end processes and bundling; demonstrate flexibility in pricing strategies Industry Specific Services Financial Stability Ability to Focus on Business Outcomes, as Opposed to an Provide Scalability: to flex with changes to volumes and Effort-Based Approach, to Pricing requirements, and to react quickly to business changes Demonstrate Domain Process Expertise: Showcase specialized depth in world class practices and ability to leverage these across diverse clients in targeted industries Drive Future Innovation and Transformation: redesign end to end processes that simplify work and radically improve the service levels and move the needle on critical business metrics Global Presence/Scale Ability to Transform Processes Ability to Provide Innovation (i.e. New-Sources of Revenue) in the Future Brand Recognition Trusted Partner/Seat at the Senior Table: demonstrate cultural fit and C-Suite impact as assessed through Critically Important good-faith in solutioning and negotiations Quite Important Source: Booz & Company BPO Experience Source: HFS Research © 2013 IAOP® All Rights Reserved Nice to Have Not Important at All 0% 20% 40% 60% 80% 100%
  21. 21. Tends in End to End (E2E) BPO Strategic Success Factors 1 Clear Understanding of Your Competitively Differentiating Capabilities Tactical Success Factors 5 Create Coherent, Sourcing Strategies “Optimize Internally vs., Outsource,? Captive or Outsource,? Vendor Platform or Legacy Platform?” “What Matters in Your Markets?” 2 Clear Understanding of Your Performance Gaps 6 “What Is the Benefit and the Cost to Achieve from Internal vs. External Transformation?” 3 Strong Process Ownership and Knowledge 7 Attention to Commercial Terms “How Is Clear Accountability and Risk Sharing Established?” “Understanding of End to End Process Baseline, Value Drivers and Performance Upside” 4 Strong End to End Process Governance “Ability to Drive to Decisions on Standardization and Transformation Aspirations”  Successful outsourcing strategies are built on clear and disciplined operating model blueprints – Capabilities that determine market success – Capabilities where cost can be managed aggressively – Capabilities we are good at and where we need improvement  Governance is established early – blueprint decision processes are clearly understood with no workarounds © 2013 IAOP® All Rights Reserved Utilization of a Multi-Vendor Portfolio “Which Vendors Best Match Your E2E Processes?” 8 Deep Change Management Strategies “What is the Transition Plan and Change Impacts?”  Tactical success factors translate the blueprint into sourceable packages – Careful articulation of business processes as opposed to activities – Bundling of these processes to best leverage markets – and the capabilities of each vendor  Accountability and change management ensure successful execution
  22. 22. © 2013 IAOP® All Rights Reserved

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