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CBS HD-IB October 2011

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Case regarding SimCorps outsourcing process to Ukraine presented at Copenhagen Business School October 2011

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CBS HD-IB October 2011

  1. 1. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009 The SimCorp Challenge“From Local to Global Development” CBS – HD-IB, October 18, 2011 By Jens Brinksten, SVP – SimCorp A/S
  2. 2. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009Agenda Setting the scene The phases  Period 2001 to 2005  Pilot project phase…  Partner phase and transfer…  SimCorp Ukraine LLC Overall lesson learned and conclusions Q&A
  3. 3. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009Setting the scene…My name is Jens Brinksten,  I hold an E-MBA and HD-R from CBS  I am currently SVP and Head of SGS in SimCorp A/S  I am former CEO of SimCorp Ukraine LLC  I have been CEO of Ernst & Young in Uzbekistan, Director of KPMS’s Consultancy & Financial Advisory Service in Central Asia and Director of EBRD’s Post- privatisation Fund in Uzbekistan.  I founded the outsourcing firm TechOutSys and have worked for a number of big Danish companies in outsourcing questions, such as SimCorp A/S  During the past 21 years I have worked in more than 20 countries and started up operational companies and operations in 15 countries  I have worked with privatisation and globalisation since year 1990  I have lived outside Denmark more that 10 years, mainly in East Europe and Central Asia
  4. 4. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009Setting the scene…Who are we in SimCorp? SimCorp develops and globally markets the investment management system, SimCorp Dimension. Our product helps customers perform the many tasks needed to stay ahead in todays international financial markets. The SimCorp product, SimCorp Dimension, meets the markets need for an advanced system, which can exploit new technology and handle complex transactions on a global scale. Since the customers, driven by the need for continual efficiency gains, increasingly demand integrated and flexible solutions, SimCorps product is positioned to exploit the growing market potential. We are currently present in 16 countries and have around 1.100 employees Worldwide, of which 130 are in Kiev, and we have employees from more than 40 countries Worldwide.
  5. 5. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009Setting the scene…History Founded in 1971 SimCorp has 40 years of experience developing solutions for the financial industry. Headquartered in Denmark with several international subsidiaries, SimCorp is listed on NASDAQ OMX Copenhagen A/S and continues to create value for its customers, shareholders and employees alike.Customers Our customers include financial institutions, asset managers, insurance companies, pension funds, mutual funds, banks and mortgage lenders and they all rely on our ability to constantly be on the cutting edge of the financial industry.
  6. 6. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009Setting the scene…The timeline which we will go through today... 2004/05 2001/02 2001/02 Second First investigation First milestone investigation phase phase 2005 2005 2005 Third milestone Pilot project phase Second milestone 2007/08 2005/07 2007 SimCorp Ukraine Partner phase Fourth milestone LLC and ongoing…
  7. 7. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009The period 2001 to 2005…The period from 2001 to 2005 SimCorp did several investigations (2001 and 2004/05), because it became more and more difficult to find qualified resources in Denmark, why the SimCorp Management acknowledge the need for sourcing (SimCorp went to the Radar Zone for investigating the potential possibilities) Radar Zone But it was obvious that SimCorp neither could find any suitable partner nor was the company internally ready to work with outsourcing before 2005 (Feasibility Zone – readiness to perform the needed tasks in connection to a sourcing operation) Feasibility Zone
  8. 8. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009The period 2001 to 2005…Lesson learned Be thorough and critical in your investigations (Radar Zone) Radar Zone Be ready to say NO… and turn down the project idea Get full strategic commitment from the top management To avoid resistance internally, keep all involved parties informed about all steps in the process and the results First when you feel, that you have knowledge enough and the organization is ready, then you can go further… (Feasibility Zone) Feasibility Zone
  9. 9. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009Pilot project phase – 2005After the second investigation in 2004/05, SimCorp finds two potential partners in UkraineThere are drafted and signed Memorandum of Understanding’s (MoU) with the two potential partners, before starting up pilot (test) projectsFocus areas in the MoU’s  Pre-conditions to the partner and the employees involved in the start up phase, including cost- and risk-sharing, which gives motivation… Risk management is a key issue in the overall evaluation!  How do we end this fast and easy for both parties, if the pilot does not work out as expected
  10. 10. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009Pilot project phase – 2005  Conditions in connection to running the operation, incl. staff specification, staff turn-over, educational level, special expected training, costs sharing for training, roles and responsibilities, etc.  Exit conditions and/or future growth opportunities  SimCorp was here considering JV possibilities, both as a potential umbrella for a bigger setup, but also as a “carrot” for the partners  By doing this thorough investigation and preparation (risk management) before signing up with the two pilots, then SimCorp manage to get into the Comfort Zone, because they Comfort Zone have strong control of the overall situation including potential risks
  11. 11. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009Third milestone - 2005 The pilot projects are finished with satisfactory results, and it is decided to continue full-scale cooperation with both pilot companies READINESS At this point SimCorp enter the Readiness Zone, because of the satisfactory results in regard to risk, performance, internal resources and readiness, trust to the setup and the partners involved The resources in the project will be incorporated in the overall development strategy of SimCorp, which requires much more training and knowledge transfer about SimCorp and SimCorp Dimension.
  12. 12. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009Third milestone - 2005 A contract (Cooperation Agreement) is developed and signed, with focus on a long term relationship (based on the MoU), but it covers areas such as:  SimCorp will select all staff  Training, staff development, special training in e.g. APL and financial training, etc. According to SimCorp standards  Local organizational setup, so it fits into the SimCorp organization  Security of premises  Equipment, data-lines, etc.  Bonus, salaries, benefits, promotions, etc. (Quasi-integration)  Exit strategy (JV possibility, etc.) All issues where SimCorp wishes to have influence…
  13. 13. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009Partner phase – 2005 to 2007 The development goes well and the teams and groups grow and SimCorp sees the first real results of the potential sourcing strategy… There are established more intensive training and knowledge sharing between employees in Denmark and partners employees in Kiev… SimCorp starts to implement the project groups in Kiev in the overall future development strategy for both code development and testing, which include domain related test teams… The future goals and wishes for uses of sourcing become a part of the strategy discussion inside SimCorp management!
  14. 14. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009Fourth milestone - 2007 The setup in Kiev reaches a critical mass level, where it becomes strong enough to be integrated in the full development cycle in SimCorp, but there are some constraints:  If developers should work with client data, they need to be fulltime employees of SimCorp according to client contracts.  It is the aim to give all people who work for SimCorp the same basic working conditions and benefits…  In other words… How to secure SimCorp’s investment in people and knowledge and still promote and develop the setup in Kiev?
  15. 15. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009Fourth milestone - 2007 According to the existing contracts SimCorp considers the opportunity to establish JV with the existing partners, with focus on some key issues:  Would it be possible to retain existing staff?  Would it be possible to move around on Kiev staff, if it is not a 100% owned company?  Contractual obligations to clients in respect to “live” client data, etc.
  16. 16. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009Fourth milestone - 2007 With these key questions in mind, and the wish to “run” the operation 100% controlled by SimCorp, it is decided to establish a wholly-owned subsidiary in Kiev (captive offshoring)…  Because it is not considered to be sufficient enough to cover security clauses regarding client data in SimCorp client contracts, if it is not a 100% owned subsidiary  It will be easier to make decisions and form the offshoring development capacity as an integrated part of the overall SimCorp development strategy  It will be easier to implement all normal SimCorp staff benefits in a 100% owned subsidiary
  17. 17. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009Fourth milestone - 2007  Retention of staff would hopefully become easier, and the acceptance of Ukraine staff in the total organization should be easier to implement… Finally, this is a decision, which is made because of positive results and experiences with sourcing and operating in Ukraine…But one major focus area is the question about, how SimCorp can secure the investment in staff, and how SimCorp can get the staff over in the new company smooth and without loosing competences and qualified people!  Remember that Ukraine is a relations-based country, and the employees are loyal to the existing partner, and many of them have special local benefits, such as loans from partners, etc., so it becomes important to avoid conflicts in the transition of staff!
  18. 18. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009SimCorp Ukraine LLC – 2007/08With the focus on especially the smooth transfer from the existing partners to SimCorp, a transfer model is created (BOT alike): Transfer of staff (1) SimCorp starts up the negotiations regarding moving existing partner employees into a SimCorp owned company… through an Addendum to the existing Corporation Agreement  SimCorp divided the employees into two groups, A) Senior important people with key knowledge and skills, B) Other qualified people  The negotiations are, of course, focused on the lost revenue for the partners, and here it is agreed to have a transition period of 18 months, which means the employees will stay as consultants in 18 months, where SimCorp would pay for them as for partner employees
  19. 19. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009SimCorp Ukraine LLC – 2007/08Transfer of staff (2)  The above mentioned 18 months period is also considered as a trial period for all B-employees. A-employees are “taken over” already from the establishment of the new company.  There is also set a final take-over price for the employees, which is only paid, if the employees pass the 18 months trial period with satisfactory results, otherwise the employees are transferred back to the partner  Up to 4 months full salary cost for A-employees  3 months full salary cost for B-employees  On top of the buy-out there are made different agreements regarding HR support, internal IT support, etc.
  20. 20. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009SimCorp Ukraine LLC – 2008/2011 We have of course experienced a number of challenges since the establishment of SimCorp Ukraine LLC, such as:  Discipline problems with employees, which came from the original outsourcing project (here we have had to say goodbye to several people)  Maturity problems, you need to balance the age-groups of employees, we had too many young and immature people, so we changed our HR- focus…  Infrastructure problems (bandwidth) and electricity…  Communication challenges (we have now installed 2 video conference rooms) and we have increased English training
  21. 21. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009SimCorp Ukraine LLC – 2008/2011  Acceptance problems between “old” SimCorp employees and Kiev- based employees  Level of local management and management skills (here we have enforced special management training for Kiev-based managers)  Team building of employees “taken-over” from the two partners, and those hired directly to the new company is not always easy  All administrative areas in relation to employees, authorities, technical setup, building, etc., etc.
  22. 22. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009SimCorp Ukraine LLC – 2008/2011SimCorp Ukraine LLC today:  Since establishment in February 2008 we hired more than 100 people and performed 7 SimCorp Academies, and we are still growing…  Have increased productivity with around 50% (have around 35% of the total production of code in SimCorp)  Have lowered the cost per employee in Kiev…  The turnover of people has fallen drastically, and it is not just because of the financial and economical crisis…
  23. 23. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009SimCorp Ukraine LLC – 2011 and on-goingSimCorp Ukraine LLC today:  Because of the maturity of the organization, then the management structure was changed to a clean local management…  The focus is now on building on the experienced staff and give them empowerment to lift the firm to the next level  The single groups are now totally integrated in the entire development organization and all processes of SimCorp  Strategically SimCorp in Ukraine will grow, because SimCorp still have a huge challenge to find qualified staff in Denmark  More internal tasks are being planned to move to Kiev in the future
  24. 24. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009Overall lesson learned and conclusionsOverall lesson learned  Key elements in a successful outsourcing and insourcing: Management and decision wise (getting to Readiness through the other zones):  Thorough investigation and preparation  Clear goals regarding demands, profile of partners and external conditions Radar Zone READINESS Feasibility Comfort Zone Zone
  25. 25. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009Overall lesson learned and conclusionsOverall lesson learned  Clear milestones and evaluation points  Ability and courage to say STOP and NO  The project should be approved and supported from the top management, and it should be clearly communicated that it is a company’s goal to succeed  Clear long term overall company strategy  Constant communication to all involved parties (internal and external) READINESS
  26. 26. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009Overall lesson learned and conclusionsContractual wise (Risk assessment):  Prepare always either a Letter of Intention (LoI) or a Memorandum of Understanding (MoU) in the preliminary phase, when you start up a cooperation, so all involved parties know the conditions for the cooperation  Think through the whole expected scenario from the first contact to the exit (both in case of unsuccessful and successful exit)  Focus on all potential ways of continuing the project both with or without the selected partner/partners  Setup terms and conditions for staff in case of changes in the cooperation (remember the staff carry the investment element, because of training and knowledge transfer, etc.), how can we get them to stay with the project or company, etc.
  27. 27. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009Overall lesson learned and conclusionsOther learning points  Outsourcing vendors’ commitment tends to fall during the cooperation period, because they get new clients and new focus areas, make sure you keep their focus on YOU!  Use experienced project managers, with extensive knowledge and understanding of culture and local management skills…  It is “easy to be popular, but difficult to be respected” in many countries as a foreign manager…  Keep regular follow up meetings and have clear measurement points and milestones (steering committee, reporting, evaluations, etc.)  When all involved parties operate in 2nd languages, then there are huge possibilities for misunderstanding and mistakes, so go after people with good language skills from day one…
  28. 28. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009Overall lesson learned and conclusionsConclusion  The contractual framework should be thought well through, with all possible scenarios  You can not use standard contracts in a full-scale and long-term outsourcing/insourcing operation, as there are no standards, which cover all potential scenarios…  Think through the whole live-cycle from start to different end scenarios  Balance the staff with young and experienced people...  Involve experienced people from day one and do not “just” select the one who wants or a “rookie”, because in the long run it is very expensive and will give extra “challenges” and problems..  Remember the 3 T’s – “Things Take Time” – it is a key point to remember, if you want to operate in outsourcing...
  29. 29. The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009

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