Lessons Learned from the Global Sourcing Decison

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Lessons Learned from the Global Sourcing Decision What are the key sourcing decisions to be considered by a complex global corporation? Guy Cowan will discuss the critical factors to constantly evaluate when considering global sourcing combinations. Complex global corporate structures can leverage cost-effective locations in order to provide high performance internal back office services such as finance and accounting, human resources, and information technology.

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Lessons Learned from the Global Sourcing Decison

  1. 1. Lessons Learned From the Global Sourcing Decision Guy Cowan, CFO Shell US Ben Trowbridge, Trowbridge Group Thursday, October 14th 2004 Confidential and Proprietary
  2. 2. Lessons Learned from the Global Sourcing Decision • Know What You’ve Got – Size of the prize/business case • Find a Champion – Break down silos • Who’s Coming Along? – Finance / IT/ HR / ? • What’s in Scope? – How do you know when you’re ready? • Systems Standardization? – Moving work with multiple systems • Where to Move to? – What drives that decision • In-House or Outsourced? – What factors to consider • Risk Evaluation – Before, during and after migration • Governance – Where does the buck stop? • Managing the People Issue – In the business and in the service centers • Managing External Consultants • Sourcing Considerations – Development of the business case • Sourcing Considerations - Trends • Sourcing Considerations - Staffing • Summary of Key Learnings - Lessons Learned Confidential and Proprietary 2 Guy Cowan, CFO Shell US Ben Trowbridge, Trowbridge Group
  3. 3. Know What You’ve Got - Size of the prize/business case • Find out how many employees work on given activities and location – 80/20 Rule • Assume hidden bodies - e.g., finance activities not controlled by Finance • Highest cost is redundancy • European work councils require significant preparation/consultation and time • Base case should assume no process improvements • Factor in wage inflation Confidential and Proprietary 3 Guy Cowan, CFO Shell US Ben Trowbridge, Trowbridge Group
  4. 4. Find a Champion – Break down silos • Businesses do not typically want to give up ownership • Requires senior involvement to create enterprise-first mentality • Cost allocation should encourage and reward early movers • Start with simple, proven, stable processes – quick wins to gain confidence • Ensure each stakeholder has a say but not overall control Confidential and Proprietary 4 Guy Cowan, CFO Shell US Ben Trowbridge, Trowbridge Group
  5. 5. Who’s Coming Along – Finance / IT / HR / ? • Typically the skill sets/communication requirements are different for IT. Separate location decisions are possible • HR transaction processes are more compatible with Finance and subject to same process improvement opportunities • Once stabilized, more complex activities can follow (planning, budgeting, internal consultancy) Confidential and Proprietary 5 Guy Cowan, CFO Shell US Ben Trowbridge, Trowbridge Group
  6. 6. What’s in Scope? – How do you know when you are ready? • Routine transaction processing (AP, AR, stock accounting, etc.) – no brainers • Finance and accounting – G/L reconciliations, bank reconciliations, inter-company charges – okay, but some resistance • In some businesses there is more reluctance, e.g., Oil and Gas Venture accounting, client intimate transactions • As confidence is created, sophisticated processes can be outsourced, e.g., manufacturing variance processes, planning and logistics support • Decision to outsource linked to: Stable and documented processes Good controls Detailed risk identification Confidential and Proprietary 6 Guy Cowan, CFO Shell US Ben Trowbridge, Trowbridge Group
  7. 7. Systems Standardization – Moving work with multiple systems • Can you migrate multiple businesses on multiple systems, or should you wait until you have one standard system? • Process Improvements before moving. When is enough? • What are the key considerations in deciding if you have sufficient systems stability to migrate safely? • Can the release of new systems be implemented in remote locations? • Is there a right answer? Confidential and Proprietary 7 Guy Cowan, CFO Shell US Ben Trowbridge, Trowbridge Group
  8. 8. Where to Move? – What drives the decision? • Internal factors Same Time Zone or follow the sun Speed of response Customer Intimacy Night shift working Language “Pitcher” country political issues • Local factors Size and quality of labor force Political stability Security/Comms Cost/Incentives Confidential and Proprietary 8 Guy Cowan, CFO Shell US Ben Trowbridge, Trowbridge Group
  9. 9. Where to Move to? Low Medium High Philip- India Israel pines Ireland Canada China Russia Government Support Labor Pool Infrastructure Educational System Cost Process Quality Cultural Compatibility (US) Overall Climate Company Presence Confidential and Proprietary 9 Guy Cowan, CFO Shell US Ben Trowbridge, Trowbridge Group
  10. 10. In-House or Outsource? Outsource Captive SSC • Loss of control? • Cost vs. Speed of set up • Loss of knowledge? • Ease of start up • Presence in country Confidential and Proprietary 10 Guy Cowan, CFO Shell US Ben Trowbridge, Trowbridge Group
  11. 11. Risk Evaluation Before Mitigation Process 1 Operations / Financial Staff 15 23 18 20 High 2 Purchases – Bulk 3 Purchases – Truck 5 13 26 4 Sales Fit for Off-Shoring 5 Exchange – Internal Balancing of Exchanges 6 Exchange – Comparison of Partner Information 6 7 8 7 Exchange – Communication with Partners Medium 8 Exchange – Communication with Internal Personnel 25 11 12 16 9 Movement :- Booking 10 Movement : – Reviewing Interface Errors 2 4 17 19 21 11 Movement : – Reviewing SAP Errors 12 Movement : – Answering Analyst Inquiries 22 24 13 Movement : – Monthly Activities 14 Movement : Marine 14 15 Reconcile – Compare Src System w/ Shipper Rpt 10 12 Low 16 Reconcile – Reviewing Interface Errors 17 Reconcile – Reviewing SAP Errors 1 9 3 18 Reconcile – Inventory Validation 19 Reconcile – Answering Customer Inquiries 20 Reconcile – Month End Activities High Medium Low 21 Reconcile Terminals – Reviewing Interface Errors 22 Reconcile Terminals – Reviewing SAP Errors Risk 23 Reconcile Terminals – Inventory Validation 24 Reconcile Equity – Customer Inquiries Medium-term Short-term Immediate 25 Reconcile Equity – Terminaling Prtnr Recon implementation implementation implementation 26 Reconcile Equity – Month End Activities Total Confidential and Proprietary 11 Guy Cowan, CFO Shell US Ben Trowbridge, Trowbridge Group
  12. 12. Risk Evaluation During Migration HIGH Current Perceived Risk Levels as of xxx Business SSC Operations Employees/ IT Training Interruption Facilities Competencies Systems Service Fin & Ops Level Security Migration/ IT IMPACT Controls InfrastructureAgreements SSC MEDIUM Legal Experience Early Delays/ Change Entity/ Clear Tax Migration Approvals Management Interfaces Failure EVP (Salary Customer/ Administrative Employee SSC & Benefits) Partner/ Supplier Systems Morale Employee Resistance Turnover Logistical/ Travel LOW ACCEPTED NEEDS UNACCEPTABLE IMPROVEMENT LOW MEDIUM HIGH LIKELIHOOD Active Risk Management Process in Place Confidential and Proprietary 12 Guy Cowan, CFO Shell US Ben Trowbridge, Trowbridge Group
  13. 13. Governance – Where does the buck stop? Governance Process Regular performance reviews Value Business Ongoing Implementation proposition case operations Qualification Commitment Go-live Post implementation review review review review Big Rules • Basic ERP’s • Clear ownership • Systems architecture • Mandate for driving process improvements • Major businesses share resources • Controls responsibility – with business • Build on business initiatives • Escalation process • In-Sourcing • SLA’s • Co-ordination with IT/HR • Change management control Confidential and Proprietary 13 Guy Cowan, CFO Shell US Ben Trowbridge, Trowbridge Group
  14. 14. Managing People Issues • Clear and honest communications • Make sure each individual knows where he/she stands immediately after general announcement • Sensitivity in handling work councils • Employee value proposition Business Finance Shared Services Finance • “Branding” of Shared Services Center – same culture or unique Confidential and Proprietary 14 Guy Cowan, CFO Shell US Ben Trowbridge, Trowbridge Group
  15. 15. Managing External Consultants • Location / Evaluation • Validation of business case • Short term help for start up and transition Confidential and Proprietary 15 Guy Cowan, CFO Shell US Ben Trowbridge, Trowbridge Group
  16. 16. Sourcing Consideration – Development of a business case Business Plan for new SSC How do we develop a plan that will have: • Pricing Factors • The lowest risk The lowest risk • Support Staff • The greatest speed of execution The greatest speed • Staff Costs • Net lower total cost Net lower total cost • Program Office • Timing • Overhead Costs Location and Configuration • Premiums Deal and Relationship Structure • Building Building PLAN PLAN • Tax Scope • Migration • IT/Telecom • Depreciation Confidential and Proprietary 16 Guy Cowan, CFO Shell US Ben Trowbridge, Trowbridge Group
  17. 17. Sourcing Considerations - Trends Global Birth Rates: Global Birth Rates: China: Potential Player - By 2010 this Labor pool giant China: Potential Player - By 2010 this Labor pool giant China 1.69 has the potential to overtake India as the dominant BPO China 1.69 has the potential to overtake India as the dominant BPO leader. English skills are being developed in government India India 2.85 2.85 leader. English skills are being developed in government supported programs to support growth in global market. Philippines 3.22 supported programs to support growth in global market. Philippines 3.22 Size: 10,000 FTEs (offshore); 30,000 FTEs (domestic) Size: 10,000 FTEs (offshore); 30,000 FTEs (domestic) Current focus: Data entry, engineering, contact centers Current focus: Data entry, engineering, contact centers for Japanese and Korean markets. for Japanese and Korean markets. The Hidden Eastern Europe: Regional Player - Eastern Europe: Regional Player - Non-English European language Multiplier Non-English European language requirements. requirements. Size: 22,000 FTEs Size: 22,000 FTEs India: No. 1 Player - The dominant leader in India: No. 1 Player - The dominant leader in BPO and IT Outsourcing BPO and IT Outsourcing Size: 208,000 FTEs supporting a variety of Size: 208,000 FTEs supporting a variety of processes. Providers claim over 100,000 of processes. Providers claim over 100,000 of additional seat capacity. additional seat capacity. Latin American: Regional Player - Latin American: Regional Player - Spanish Language support with marginal Malaysia: Niche Player in Contact Center, Spanish Language support with marginal Malaysia: Niche Player in Contact Center, cost difference between countries. Human Resources and Administration cost difference between countries. Human Resources and Administration support. support. Philippines: No. 2 Player - Philippines: No. 2 Player - Size: 48,000 FTEs Size: 48,000 FTEs Scope: Primarily contact Scope: Primarily contact centers, shared services, and centers, shared services, and specialized niches. Surging specialized niches. Surging demand due to excellent US demand due to excellent US accented English language accented English language support. support. Confidential and Proprietary 17 Guy Cowan, CFO Shell US Ben Trowbridge, Trowbridge Group
  18. 18. Sourcing Considerations - Staffing Labor Pool • Differentials in direct labor costs and 2200 USA overheads are the main drivers of total employment cost savings Ireland 40 Non-U.S. citizens • Careful build out of the new center and Mexico 100 transition planning can control start up 18 Malaysia and long term costs English-speaking graduate and post-graduate per year 90 • Local labor inflation will not reduce the China offshore advantage for the foreseeable Philippines 320 future India 2,100 Total Employment Cost 0 500 1,000 1,500 2,000 2,500 US $60,000 Salary and Fringe 60,000 Overhead Facilities 50,000 IT and Telecom • The English speaking Indian and Costs Represent Philippino graduate pools and high 40,000 $38,400 High End Finance and Accounting and HR unemployment rats are projected to functions provide an attractive environment for 30,000 EUROPE $23,000 offshore operations 20,000 ASIA • Non-English speaking requirements $16,000 $14,720 can be supported from a variety of 10,000 $21,600 $7,680 locations $8,320 $8,280 - US ASIA EUROPE Source: Trowbridge Group Confidential and Proprietary 18 Guy Cowan, CFO Shell US Ben Trowbridge, Trowbridge Group
  19. 19. Summary of Key Learning's - Lessons learned • It’s a Marathon - Not a Sprint • The Organization has to be primed/pushed - The Champion • Governance is a shield to block progress • Walk before you run - but don’t be afraid to walk • Risk Monitoring and Mitigation as part of the process - but accept there are risks lue y/Va u ctivit g Prod High End Knowledge Work in imiz Max Ongoing Productivity Business Enablement Process Improvement/ Financial Accounting Technology Basic Transaction Skills Upgrade Processes Cost Arbitrage “We Came for Cost…We stayed for Quality/Intellectual Capital” Confidential and Proprietary 19 Guy Cowan, CFO Shell US Ben Trowbridge, Trowbridge Group
  20. 20. Questions and Discussion ? Ben Trowbridge Email: bt@trowbridgegroup.net Trowbridge Group LP Two Galleria Center, 13455 Noel Rd, Suite 1000, Dallas, TX 75240 Tel: (214) 696-6410 www.TrowbridgeGroup.net Confidential and Proprietary 20 Guy Cowan, CFO Shell US Ben Trowbridge, Trowbridge Group

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