I Process Framework Private Equity Portfolio Co
- 1. iprocess creating intelligent and cost conscious processes for portfolio operating companies
- 2. Contents 1 iProcess Value Creation Approach 2 Portfolio Review for Quick Wins 3 Strategic Sourcing Analysis 4 Shared Services Deployment 5 Outsourcing Feasibility 6 6 Technology Outsourcing & Governance 7 Sales Process Improvement 8 Sustaining a Low Cost Operating Model 9 Strategic Options Review Ramesh Krish Proprietary and Confidential P1
- 3. 1 iProcess Value Creation Approach Ramesh Krish Proprietary and Confidential P2
- 4. The iprocess Approach to Value Creation 1. Portfolio 2. Options Assessment Formulation • Apply appropriate assessment and • Develop options in conjunction with operating measurement techniques to understand company leadership to transform the cost base the current portfolio mix in light of investment parameters 5. Strategic Options Review 3. Feasibility • Monitor key performance indicators derived from initial investment criteria CUSTOMER Analysis • Understand and evaluate transaction merits and exit considerations • Develop a detailed blueprint for future state and transition plan from the current state outlining the financial viability of 4. Low Cost Model proposed projects Development • Implement the blueprint – strategic sourcing, shared services, process integration, physical layout consolidation, organizational transition etc • Review performance metrics and refine implementation Ramesh Krish Proprietary and Confidential P3
- 5. The Investment Review Approach Portfolio Company - Approach Overview Develop & Apply Apply Portfolio Apply Portfolio Inventory of Current & Inventory of Current & Determine Economic Determine Economic Monitor & Manage Monitor & Manage Strategic Selection Management Management Planned Projects Planned Projects Viability of Projects Viability of Projects Projects Projects Process Screening Process Screening Process • Accurately account for • Conduct working • Determine rationale / • Determine whether • Establish standards, every ongoing & sessions with executives feasibility for projects initiatives fit within schedule & tools planned project, to define organisation, by conducting “portfolio” by screening necessary for project capitalized investment, strategy and vision business case against specific selection updates and business line analyses (cost/benefit) criteria (correlation with other projects, risk, return, ease of • Apply “Filter Criteria” to implementation, timing, • Define key owners, • Determine key owners, screen out projects • Gain consensus from etc.) metrics, and incentives budgets, financial misaligned to company executives around for ongoing returns, and time goals & strategy appropriate hurdle management frames rates (IRR, ROI, NPV, etc.) • Apply hurdle rates to initiatives to determine whether or not to proceed Ramesh Krish Proprietary and Confidential P4
- 6. 2 Portfolio Review for Quick Wins Ramesh Krish Proprietary and Confidential P5
- 7. Portfolio Review for ‘Quick Wins’ 4 to 6 weeks 2 to 4 weeks Project start-up off-site Management to review and prioritise opportunities Analyze Prioritize Implement 4Analyze 4 the cost base 4Agree prioritization 4 criteria Plan & Realize: 4Assess 4 current organizational 4Identify 4 potential ‘show-stoppers’ 4Develop detailed project 4 efficiency / effectiveness 4Obtain business buy-in 4 plans 4Identify key cost drivers 4 4Develop costed business cases 4 4Validate business case 4 4Analyze existing initiatives 4 for a portfolio of initiatives assumptions 4Assess value of existing activities 4 4Prioritize opportunities 4 4Determine 4 Activities 4Confirm strategy 4 4Obtain sign-off and commitment 4 interdependencies 4Use benchmarks / leading 4 to implement 4Establish resourcing 4 practice to identify opportunities requirements 4Define/Develop & Deploy 4 4Definition 4 of the cost baseline 4Prioritized 4 opportunity business 4Finalised business cases 4 opportunities 4Comparative analysis of 4 cases 4Project 4 plans differences in performance 4Business buy-in 4 4Identified resources 4 4Initial list of cost reduction 4 4‘Quick Wins’ planned and 4 4Opportunities 4 Outputs opportunities and ‘Quick Wins’ implementation commenced implemented and savings realized Implement ‘Quick Wins’ Ramesh Krish Proprietary and Confidential P6
- 8. Opportunity Analysis Framework Cost Structure Comparative Management Segment Analysis Analysis Analysis Knowledge Analysis - Where are What do we compare to? Where are costs high Where does the large areas of cost relative to revenues? management believe and what are the opportunities exist? primary drivers? ! Major Processes ! Competition ! Business Units ! Interviews ! Functional / ! Internal Comparatives ! Customer Groups ! Focus Groups Organizational ! Historical Performance ! Product Groups ! Workshops ! Line Item ! Benchmarks/Best ! Channels ! Initial opinion can be ! Cost of Management Practices directionally correct ! Geographic ! Reasonability ! Treated as a hypothesis, Standards then tested with facts Ramesh Krish Proprietary and Confidential P7
- 9. Opportunity Analysis – Prioritization of Outcomes Opportunity Prioritization Matrix Examples Opportunity Shared Migration IT Dev Supplier Risk Mgt Quick Wins Intermediate-Term (Examples) Service of Rationalisatio consolid efficiency Center transaction n ation High IT outsourcing Contractor processing Criteria rationalization IT/network Sales project Contribution to strategy Call center administration prioritization consolidation and support Potential size of benefit rationalization Value of Ease of implementation savings Second Priority G&A shared Back Burner services implementation Call center Efficiency gap Management process span of control streamlining rationalization Speed of realization Improved Procurement G&A functional customer credit centralization consolidation screening Organizational impact Low Priority 1 2 1 2 2 Low High Difficulty of implementation Ramesh Krish Proprietary and Confidential P8
- 10. Business Case Development for Savings Realization Outline Business Case Detailed Financial Business Case Improvement Opportunity 1: High Level Description - Revise Purchase Order Procedure •Description: Replace current PO system with a system where all items are sourced through Central Supplies with items being sourced through 4 CashflowA alysis n national major suppliers using suppliers accounts, we would achieve material cost savings of approximately $0.85million and reduce FTEs from 21 to 18. Y1r Y2 Y3 r r Y4 Y5 r r Y6 Y7 r r Y8 r Y 9 Y 10 r r 2000 2001 2002 2003 2004 2005 2006 2007 2 008 2009 FTEV alue - - 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 •Benefits •Reduction in material costs of •Costs •Technology Enablers O R ther ecurringB efits en - 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 $0.85m • Creating supplier • Suppliers will need to make changes to their systems. (Cost G B ne ross e fits O N R ther on ecurringB enefits - 6.00 - 7.00 - •Reduction in FTEs from 21 to 18 accounts, negligible borne by supplier). = $84k • Redundancy costs of • PO database for Central Supplies , sized to cope with RecurringP rofit - - 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 •Improved management £18k anticipated volumes (maximum $5k) N R on ecurringP fitro - 1.00 1.00 1.00 - information and control • Cost of PO database • PO database adapted to produce electronic data for allocating •Less fraud (max $5k) cost in accounts Total A nnual G B ross enefit - 11.00 9.50 16.50 8.50 8.50 8.50 8.50 8.50 8.50 • Possible supplier costs in • Supplier capable of providing sufficient management administration (unknown information for control purposes FTEC ost - - - - - - - - - - C O osts ff-set at this stage) O R ther ecurringC ost - - 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 S everance - - - 1.50 - ITH are ardw - 2.00 - - - ITS are oftw 2.00 - - - - Im entation plem ITD evelopm t en - - - 5.00 - Costs •People Enablers O O ther pex - - 0.40 0.40 - •User Service Impact/Business Risks • Training on PO database Internal C su on ltancy - - 3.00 - - • No change • Training on product availability through the suppliers • Management information held on 2 systems O C ther apex - - - - - • Local staff briefings • Management by exception • Accounts payable briefings Total Annual Cost 2.00 2.00 6.40 9.90 3.00 3.00 3.00 3.00 3.00 3.00 • Suppliers will need to train sales staff to ensure they can •Implementation Risks adequately interpret requirements N Cet ashflow- 2.00 9.00 3.10 6.60 5.50 5.50 5.50 5.50 5.50 5.50 • Under estimate of FTE requirements on Central Supplies • • Under specified/size requirements from PO database Discount Factor 1.00 0.89 0.80 0.71 0.64 0.57 0.51 0.45 0.40 0.36 • Suppliers unable to satisfy required standards of service DiscountedC ashflow- 2.00 8.04 2.47 4.70 3.50 3.12 2.79 2.49 2.22 1.98 C ulativeD um iscoun C ted ashflow- 2.00 6.04 8.51 13.20 16.70 19.82 22.61 25.10 27.32 29.30 P ba Y ay ck ear 2001 C of C ost apital 12% N : A escostsareincurred&benefitsrealisedonJanu 1of eachyear B ssum ary N P et resent Value 29.3 Ramesh Krish Proprietary and Confidential P9
- 11. 3 Strategic Sourcing Analysis Ramesh Krish Proprietary and Confidential P10
- 12. Strategic Sourcing Approach Approach Overview Gather and Analyse Gather and Analyse Evaluate Supplier Evaluate Supplier Solicit and Evaluate Solicit and Evaluate Negotiate and Sign Negotiate and Sign Purchasing Data Purchasing Data Community Community Bids Bids Contracts Contracts Analyse Procurement Infrastructure Analyse Procurement Infrastructure Design/Implement Required Solution Design/Implement Required Solution • Categorize potential • Determine where greatest • Issue bids to potential • Sign contracts with reduced savings purchasing leverage opportunities consolidated suppliers number of suppliers exist • Determine if category size • Choose supplier based on • Integrated solution reduces and percentage savings are • Evaluate MIS infrastructure overall purchasing cost overall cost to purchase sufficient required to support procurement (Goods, Processing Service) initiative Ramesh Krish Proprietary and Confidential P11
- 13. Strategic Sourcing- Value Chain Analysis Framework Supplier Evaluation •• Metrics Tracked Metrics Tracked •• Purpose of Evaluation Purpose of Evaluation •• Tools Used Tools Used After-Sale •• Communication Communication Qualification Service of Parts •• Process Efficiency Process Efficiency •• Return Requirements Return Requirements •• Time to Qualify Time to Qualify •• Line Fallout Policy Line Fallout Policy •• Extent of Customer Extent of Customer Qualification Qualification •• Extent of Supplier Extent of Supplier Qualification Qualification Understanding Payment the Contracting/ Cost Base Capacity Reservation •• Date //Basis Date Basis •• Contract Length •• Discount Terms Contract Length Discount Terms •• Clarity of Terms Clarity of Terms •• Transmission Transmission •• Commitments •• Ease of Resolution Commitments Ease of Resolution – Prevalence – Prevalence – Time Horizon – Time Horizon •• Price Adjustments Price Adjustments Inventory Forecasting/ Management Order Management •• Warehousing Model Warehousing Model •• Forecast Process Forecast Process •• Assumption of Assumption of •• Number of Days/Weeks Number of Days/Weeks Warehousing Cost Warehousing Cost Firm Firm •• Liability •• Accuracy & Volatility Accuracy & Volatility Liability •• Information Transferred Information Transferred •• Transmission Transmission Ramesh Krish Proprietary and Confidential P12
- 14. Supply Chain - Cost Analysis Production/ Raw Inbound Shuttle Off-Site Outbound Customer On-Site Materials Transportation Transportation Warehousing Transportation Service Warehousing • Lead Time • Forecast Accuracy • Number of Plants • Volume • Customer • Speed • Capacity Management • Number of Warehouses • Transportation Satisfaction • Flexibility • Schedule Adherence • Geographic Layout Modes • Order Cycle Time • Raw Material • Technology • Warehouse/ • Transportation • Order Processing Costs • Product-to-Plant DC Practices Practices Costs • Transportation Allocation • Operating and Storage • Number of • Complaint Handling Costs • Quality Costs Carriers • Customer Service • Supplier Base • Line Start-Ups • Number of SKUs • Delivery Response Time • Buffer Inventories • Inventory Levels Performance • Promotion Mgmt • Changeovers • Information • Product Mix • Freight Costs • Unauthorized • Efficiencies Sharing • Inventory Deployment • Rate Variability Deductions • Asset Utilization • Packaging • New Product • Spoilage/Damaged Complexity Introductions Inventory • Contract Portfolio Ramesh Krish Proprietary and Confidential P13
- 15. The initial assessment involves quantitative benchmarking of the performance of procurement operations against industry average performance statistics Electronic Commerce Usage Spend Per Active Supplier The Performance Analysis Active Suppliers Per Professional Reveals Specific Improvement Opportunities Degree of Commonality Purchasing Head Count $Millions % of Transactions % of Transactions Purchasing Operating Expense Number Dollars Purchased/Professional % of Total Supplier Cost-to-Manage % of Total 1,000 ?? % of Sales $Millions 750 500 250 $/Supplier Industry (Client) Average Ramesh Krish Proprietary and Confidential P14
- 16. The initial assessment will also examine actual purchase data by commodity group to determine specifically where the effectiveness benefits can be captured Commodity Category Statistics Commodity SAMPLE OUTPUT Parts/Supplier Share of Total Purchases Number Number Range Average Median of of (Min:Max) Commodity Suppliers Parts 1992 YTD 1991 YTD Electronic Components 15 88 1:31 5.9 2 32% 29% Tubing 7 31 1:15 4.4 2 26% 34% Screw Machined Products 11 94 1:45 8.5 3 15% 13% Commodity Commodity Annual Cumulative Percent Number of Vendors Stamping 18 148 1:40 8.2 3 9% 11% Code Description Expenditure Dollars Of Total Primary Total Steel 2 N/A N/A N/A N/A 7% 4% 643 Electric Circuits $5,835,262 $5,835,262 35.2% 46 125 Precision Plastics 16 43 1:8 2.7 2 2% 3% 512 Power Transmission 3,802,733 9,637,995 58.2% 19 143 Clamps 8 19 1:5 2.4 2 2% 2% Cold Heading 2 3 1:1 1.5 1 0% 345 Oils & Lubricants 3,209,138 12,847,133 77.6% 26 78 763 Fasteners 1,117,232 13,964,365 84.3% 51 173 189 Miscellaneous Elec. Materials 904,550 14,868,915 89.8% 7 61 418 Motors, DC 622,034 15,490,949 93.5% 39 173 377 Mechanical Components 521,777 16,012,726 96.7% 35 190 235 Shipping Material 177,346 16,190,072 97.7% 19 168 153 Safety Supplies 156,354 16,346,426 98.7% 15 5 916 Office Supplies 54,423 16,400,849 99.0% 30 447 Janitorial Services 42,226 16,443,075 99.3% 1 81 Controls 40,887 16,483,962 99 855 HVAC 34,908 16,518,870 732 Linen Service 22,578 1 Ramesh Krish Proprietary and Confidential P15
- 17. Each “company spend” category will be assessed a “stage of development” rating. This rating is an important tool in determining the relative size of a given opportunity Procurement Life Cycle Illustrative Stage I Cost Focus Stage II Cost/Service Focus Stage III Value Focus 5-10% 7-15% Impact on Total Steel Cost / Competitive • Position 10-30% Telecom Lumber • • Office Supplies Temp Services • • Procurement Primary Mission: Supply base reduction Supply base optimization Value optimization Evolution Orientation: Leverage volume to reduce Reduce fixed costs from Reduce total system costs by supplier per unit costs client-supplier system optimizing total cost-quality- service relationship Typical Actions: • Unsophisticated, reactive • Control / Supplier • Cross-functional integration performance focus within company and key • Align customer needs with supplier(s) supplier capabilities • On-going effort to improve = estimated savings % value Ramesh Krish
- 18. The first end-product of the analysis is a matrix profiling each category with the estimated economic opportunity Opportunity Matrix Illustrative Annual Number of Implemen- Organi- Potential Potential # of Supplier Business Potential Spend Buying tation zational Barriers/ Savings Commodity Suppliers Stratification Significance Savings % ($ Millions) Locations Difficulty Readiness Linkages ( $ Million) Temp Services $200 40 Fragmented 75 None Medium 20% $40 Benefits/Insurance $500 15 Consolidated 10 Personnel Impact Medium 0% $0 Telecommunication $100 40 Semi-focused 50 Existing Contracts Low 10% $10 Machine Maintenance Supplies $200 1,000 Fragmented 75 Req./Solution Design Low 20% $40 & Selected Project Software/Computer Accessories $100 20 Semi-focused 75 Existing Contracts Medium 5% $5 Solution Design & Office Supplies $100 10,000 Fragmented 125 Low 20% $40 Selected Project Copiers and Faxes $50 50 Fragmented 125 Existing Contracts Low 20% $10 Engineering Supplies $300 1,000 Fragmented 100 Existing Contracts High 10% $30 Ramesh Krish
- 19. 4 Shared Services Deployment Ramesh Krish Proprietary and Confidential P18
- 20. Shared Services Approach Approach for outsourcing There is a spectrum of solutions… Evaluate Evaluate Assess Assess Solicit and Solicit and Finalize Finalize Supplier Supplier Opportunity Opportunity Evaluate Bids Evaluate Bids Partnership Partnership Universe Universe Define functional Determine Define service Conduct face-to- 4 Finance 4 Property services 4 Payroll “candidates” supplier universe requirements, face discussions within company specifications with finalists 4 Middle Office Strategy & 4 IT 4 Operations Establish and metrics Development Compare qualification Review final 4 Regulatory 4 IT functional criteria Develop and proposals and reporting Infrastructure performance distribute RFP select vendor(s) with industry Conduct vendor benchmarks 4 Global 4 Data interviews, as Manage RFP Develop required response transition plan procurement processing in Assess process jointly with Finance intangibles, such Evaluate vendors vendor as service, against criteria Evaluate bids quality to determine and select Begin migration Shared service Service companies Outsourcing improvements short list finalists and monitor centres performance Finalize list of functions to be outsourced Savings can be achieved by… • Establishing shared service centers for core activities allows organizations to achieve economies of scale. • Setting-up service companies allows organisations to operate on a more commercial basis and to better understand performance. • Outsourcing non-core activities allows organizations to focus investment and management attention on more critical issues. • Provides near-term realization of cost savings and significant scale flexibility, particularly in multi-vendor arrangements. Ramesh Krish Proprietary and Confidential P19
- 21. The Shared Services Assessment Framework Multiple Multiple Systems Processes Rationalize Systems Define Processes Move to One Commonize Policies System Move to One Database Commonize Processes Shared ServicesOne Organization One Location per Process Consolidate within Region Separate from Consolidate within Country Business Units Multiple Multiple Locations Organizations Major Types Description Sample Processes Handles routine transaction • Procurement Center of Scale based processes by leveraging • Accounts Payable Services economies of scale and • Payroll standardization. • Travel & Expenses Concentrates expertise to • ERP COEs Center of Expertise provide high-value services to • Tax/Treasury Services internal customers at • Benefits competitive cost. • Legal Establishes a partner • Internal Consulting Business Partner relationship between Services Services organizational units to achieve • Strategy common goals. • Reengineering • Government Provides a structure to support Corporate Steward Relations central mission critical Services • Compliance objectives. • Fiduciary Ramesh Krish Proprietary and Confidential P20
- 22. Appendix - Way Forward Assessment Output – Illustrative Example Key INCREASE IN SHAREHOLDER VALUE Objectives not met Objectives fully met Client's LONG TERM STRATEGIC OBJECTIVES STOP FIX OUTSOURCE Decentralization of processes Effective streamlined Costs are tied to SLA and functions will result in implementation will deliver agreements with external service COST headcount and service benefits provider against predefined levels duplication of functions and therefore headcount of service SERVICE Decentralization will permit Internal SLA agreements can be Service levels are tied to SLA’s, dedicated local teams but restrict used to maximise the level of which penalise poor quality QUALITY common systems and their service to both internal and delivery related process benefits external customers Common systems will permit Common systems and processes Common systems and processes VISIBILTY centralised visibility but restrict across SBUs will maximize across SBUs will maximize common operating procedures financial and service level financial and service level visibility visibility Integration of new country entities A centralized approach will High level of flexibility possible AGILITY will be lengthened while local maximise the efficiency of tied to the negotiated structure of support is built subsequent acquisitions the SLA A decentralized approach will A centralized approach will A large amount of control is CONTROL limit the level of control maximize the level of control ceded to the service provider but possible at SBU level can be limited by the structure of the negotiated SLA NON-VIABLE VIABLE VIABLE Ramesh Krish Proprietary and Confidential P21
- 23. 5 Outsourcing Feasibility Ramesh Krish Proprietary and Confidential P22
- 24. Outsourcing - Approach 4 Performing processes/services utilizing internal human and technology resources 4 Improvements in processes/services leverage techniques such as process redesign, service center implementation, technology infrastructure improvement and role redesign Insourcing Enterprise Enterprise Infrastructure & labor cost Process, Transition savings Process Service or Service or Function Function 4 Utilizes a combination of insourcing and outsourcing solutions, with a third party vendor providing human and/or technology resources as an extension of the employer’s resources 4 Business process redesign typically accompanies the transition to a co-sourcing arrangement 4 Additional improvements leverage service center implementation, technology infrastructure improvement and role redesign Hybrid/Co- Infrastructure & Sourcing Enterprise labor cost Enterprise Service Provider savings Process, Process, Service or Service or Function Transition Function 4 Typically, a pure outsourcing arrangement called full outsourcing is the final phase in the transition to an outsourcing strategy 4 Outsourcing is where an organization transitions human and technology resources related to non-core competency processes/services to a service provider with expertise in administering the particular process or processes 4 New responsibilities emerge for the organization to manage the service levels of the service provider Total Outsourcing Enterprise Enterprise Service Provider Process, Infrastructure Process, Service or Transition and labor cost Service or Function savings Function Ramesh Krish Proprietary and Confidential P23
- 25. Outsourcing – Options Assessment Technology Typical Functions For Off shoring Deutsche Bank IT Development in Bangalore (JV) Historical Low 4 Transactional sourcing environment, C 4 Single transaction technology projects 4 DB established an IT development centre in 1992 / Typical O restricted to specific IT processes / M to provide services across banking and finance Off infrastructure T 4 Application development and functions E P management shoring C L 4 Limited risk profile HE 4 Infrastructure development and 4 The facility spans 50,000 square feet with 450 Starting X I management professionals and is supported with dedicated Point 4 Maturing global market place T Y 4 Full enterprise technology delivery high-speed satellite communication links High Number of Functions Illustrative ABN-AMRO Card Processing in Chennai Business Process (BP) Typical Functions For Off shoring (Outsourced) 4 Strategic sourcing opportunity Low 4 ABN outsourced card processing functions as part Expansio C of a 10 year deal to a facility in Chennai 4 Rapidly growing market of O n Area / M Alternativ processes to offshore, enabled by P Customer Finance 4 Initially 60 software professionals will manage maturing service providers, global IT B L application hosting, data and back office e Starting P E Relation- & Human Card and telecoms infrastructure X ship processing Point I Admin- Resource Services 4 Evolving focus for many firms due to T Manage- istration s 4 ABN estimate that they will increase card services Y ment the potential for significant cost cost efficiencies by 15-20% High Number of Functions savings Standard Chartered Asia Pacific Hub (Multiple Hub Possible Structures For Off shoring Models) Building 4 Creation of a regional / global 4 SC has developed an extensive hub network Significan Low within the region, which is managed centrally shared services organisation t Scale 4 Single function regional hub through a business hub in Singapore 4 Due to their complexity, hubs require C And / Or O significant levels of commitment but M 4 Multi-functional regional hub 4 The Chennai facility was consolidated in 2002 into Global HP are potentially the most rewarding U L a global multi-functional hub, dealing with both Diversity B E back-office processing and IT development option 4 Multi-functional, multi-entity global Of X hub requirements 4 Hub strategy can be established as I 4 Multi-hub network with central Operation T the aspirational goal towards which Y management control point 4 SC are investing $40 million into a second back- s technology and business process High Number of Functions office processing hub in Kuala Lumpur, primarily strategy can evolve for their Asia Pacific businesses Ramesh Krish Proprietary and Confidential P24
- 26. Outsourcing – Execution Risk Assessment Split …Or …Or Here Here Here………....................... Or Lift In Its Entirety Advice / Customer Customer Support Execution / Operations Technology Facing Service Services Transaction Key Criteria For Off shoring And Organisational Considerations 4 Physical access to clients is required 4 The current resources supporting the Requires activity are viewed as irreplaceable Competitive Physical 4 Physicalaccess to other staff or Advantage or 4 Currentresources represent a competitive G Proximity or departments is required on a regular basis Irreplaceable advantage to the bank, will not relocate O Similar Time 4 Physical access to an external entity is Resource and cannot be allowed to go to a / Zone required on a regular basis competitor N O 4 Regulatory or compliance statutes dictate 4 Labor pool at new site does not contain a G a location for the activity Regulatory or Skill Set regular supply of required skill set AND O Compliance 4 Internal audit or risk policy requires (at Deficiency of skill set requires uncharacteristically high Requirement least given current process) that activity New Site lead time to train, posing an unacceptable remain in current location level of risk GO vs. commodity 4 Strategic priorities C 4 Specialist O 4 Client interaction channels 4 Short-term vs. long-term N S 4 Product / service mix driven by business 4 Internal vs. external I requirements D 4 Complimentary roles and skill Skill Sets & Organizational 4 Mapping of business and technical E categorisations / combinations Types of Structure & requirements R 4 Mix of types of resources / alternate A Resources sources Processes 4 Timing of delivery T 4 Manner of interaction with vendors I 4 Resource sharing opportunities O 4 Organisational interdependencies N 4 Resource costs vs. benefits S 4 Migration requirements for alternative 4 Flexibility of access resourcing model Ramesh Krish Proprietary and Confidential P25
- 27. 6 Technology Outsourcing & Governance Ramesh Krish Proprietary and Confidential P26
- 28. Outsourcing and Contract Management Phases Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 Phase 6 Identification of Business Case Evaluation and Implementation and Contract Contract Migration Outsourcing Selection Transition Management Opportunities 1.1 Document / Confirm 2.1 Identify Service 3.1 Develop Evaluation 4.1 Develop 5.1 Liaise with User 6.1 Evaluate Options Strategic Direction Providers Mechanism Implementation Groups 6.2 Retain Existing 1.2 Identify Candidate 2.2 Examine 3.2 Issue Request for Plan 5.2 Manage Service Service Provider Services Outsourcing Viability Tender 4.2 Negotiate Contract Levels 6.3 Select 1.3 Document Service 2.3 Consider 3.3 Conduct Service Profile Reorganization Provider 4.3 Prepare for 5.3 Monitor Replacement Options Evaluations Handover Performance Service Provider 1.4 Prepare Scoping Report 2.4 Develop Business 3.4 Select Preferred 4.4 Transition to 5.4 Administer Contract 6.4 Migrate to In- Case Service Provider(s) service provider House Services Objectives Objectives Objectives Objectives Objectives Objectives Objectives Objectives Objectives Objectives Objectives Objectives Identification of those Identification of those Comparison of internal Comparison of internal Evaluation of Evaluation of Finalization of the Finalization of the Proper management of Proper management of Effective planning and Effective planning and areas to be considered areas to be considered operations with operations with alternative service alternative service outsourcing contract so outsourcing contract so the day-to-day the day-to-day management through management through for outsourcing and to for outsourcing and to external options both external options both providers and the providers and the as to ensure aasmooth as to ensure smooth outsourcing outsourcing the conclusion of the the conclusion of the document the current document the current from aacost and service from cost and service selection of aapreferred selection of preferred transition to the transition to the arrangements to ensure arrangements to ensure outsourcing contract outsourcing contract and required services and required services perspective to perspective to service provider(s) in service provider(s) in outsourcing outsourcing that they operate as that they operate as and the implementation and the implementation provision. provision. determine whether to determine whether to accordance with the accordance with the arrangements. arrangements. planned and meet planned and meet of arrangements for of arrangements for proceed forward proceed forward acquisition strategy. acquisition strategy. required standards. required standards. future service delivery. future service delivery. Key Questions Key Questions Key Questions Key Questions Key Questions Key Questions Key Questions Key Questions Key Questions Key Questions Key Questions Key Questions Are there services that Are there services that Are there potential Are there potential Will the evaluation Will the evaluation Do the implementation Do the implementation Are the service Are the service Has the current service Has the current service could be outsourced? could be outsourced? service providers who process withstand the plans contain realistic requirements of provider delivered service providers who process withstand the plans contain realistic requirements of provider delivered Is outsourcing relevant could deliver the required could deliver the required test of probity? test of probity? dates which permit an dates which permit an business units being business units being satisfactory services? satisfactory services? Is outsourcing relevant services? orderly transition? met? in the context of the in the context of the services? Which service provider orderly transition? met? Should consideration Department or Agency’s Which service provider Should consideration Department or Agency’s Are there reorganization is preferred? Does the contract Have the service be given to alternative operations? operations? Are there reorganization is preferred? Does the contract Have the service be given to alternative possibilities that offer possibilities that offer properly define the properly define the requirements requirements service providers? service providers? Should the option of viable options to Does the scope of the Does the scope of the service requirements? changed? Should the option of viable options to services to be service requirements? changed? Has the provision of outsourcing be outsourcing be outsourcing? services to be Has the provision of considered further? outsourcing? outsourced meet the Are the Government’s Is the service provider services been fully considered further? outsourced meet the Are the Government’s Is the service provider services been fully Does aabusiness case Does business case real requirements? real requirements? interests protected by interests protected by providing the services providing the services migrated from the migrated from the Have the staffing issues Have the staffing issues exist to proceed with the contract? previous contractual been considered? been considered? exist to proceed with Are the Tender Report the contract? in aasatisfactory in satisfactory previous contractual outsourcing? outsourcing? Are the Tender Report manner? manner? arrangements to aanew arrangements to new Are there strategic recommendations recommendations Has the provision of Has the provision of or revised set of Are there strategic Has an acquisition acceptable? services been fully Are all outsourcing or revised set of opportunities from the opportunities from the Has an acquisition acceptable? services been fully Are all outsourcing arrangements? adoption of outsourcing strategy been developed transferred to the issues being arrangements? adoption of outsourcing strategy been developed transferred to the issues being for one or more for one or more and approved? and approved? service provider? service provider? addressed in aatimely addressed in timely processes? processes? and effective manner? and effective manner? Outsourcing Outsourcing Business case for Business case for Evaluation process Evaluation process Contract signing and Contract signing and Performance Performance Outsourcing options Outsourcing options candidate services candidate services outsourcing outsourcing findings and findings and service transition service transition monitoring and monitoring and assessment and assessment and identified identified documented documented recommendations recommendations review review change management change management implementation implementation Ramesh Krish Proprietary and Confidential P27
- 29. Outsourcing Governance – Potential Benefits Improvement Potential Economies of Scale Economies of Scope Service Improvement IT Desktop Management Application Management Data Center Outsourcing Network Management Help Desk Finance General Accounting Support External Reporting Management/Internal Reporting Budgeting Support Materials A/P Processing Management Purchase Order Issue/Processing Inventory Tracking Combined Purchase Volume Customer Data Record Maintenance Customer/CRM Billing and Receipts Response to Customer Inquiry Collections HR Benefits Inquiries and Changes Benefits Claims Processing Employee Data Changes Workers Comp/Accident Claims Payroll Checks Travel & Expense Ramesh Krish Proprietary and Confidential P28
- 30. 7 Sales Process Improvement Ramesh Krish Proprietary and Confidential P29
- 31. Setting the Process Framework for Effective Selling Business Strategy Sales Strategy Customer Customer Customer Retention Expansion Acquisition Sales Plan Sales Force Effectiveness Structured Sales Process Ramesh Krish
- 32. Customized Selling – Process Effectiveness Assessment Conversion Selling New Concept Selling New Attract Customers Develop New Markets from Competition and New Products Maintenance Selling Leverage Selling CUSTOMERS CUSTOMERS Retain Offer New Products Current Existing Customers to Existing Customers Current New PRODUCTS PRODUCTS Ramesh Krish
- 33. ROI Analysis for Sales Force Automation & Effectiveness I. ROI input template II. Gather metrics III. Make Assumptions Gene ral Information (by Group) Group Group P resident S ource Contact Name Indus trial P at Mc Mahon T m Trott i (perceived value) Contact Phone Number Number of Companies 6 Number of Locations 15 Direct P Sal es Forc e Number of Sales P eople 25 Annual Revenue $ 425,000,000 Gr oup Perform ance Average P rofit M argin 16% Annual Number of S ales 1800 Inves tment P erformanc e Discount Rate - Rate of Return on Zero Risk Investments 10% Rev enue Growth (by Group) Direct P Average time to complete & approve quote (person days) 10.0 Total number of quotes given per year 3500 Average time to complete & approve quote (after deploying CRM )? 10.0 Sal es Cyc le Average time to complete & approve final proposal (person days) 5.3 Average time to complete & approve proposals (after deploying CRM)? 5.2 Total number of pr opos als w ritten each year 3000 Per cent of additional time that will be spent on new business 10% Annual Number of S ales 1800 Ups el li ng/Cross Sell ing Average dollar amount per sale $236,111 What is the per cent incr ease expected in dollar amount per sale? 0% Months r equired to tr ain a new sales repr esentative 7.0 Sal es Learning Curve How many months r equ ed for sales tr aining after deploying CRM ? ir 6.5 Average per cent of sales staff added or r eplaced annually 20% Average time to complete and deliver quote to cus tomer (days) 21.0 Average time to complete and deliver quote (after deploying CRM)? 21.0 Cus tom er Res pons iveness Number of bids/quotes lost per month 180 Per cent of lost bids/quotes influenced by poor r esponsiveness 5% Cus tom er Retenti on Total number of pr ofitable customers 700 Retention r ate of profitable customer s 90% Average r evenue per p ofitable customer r $ 607,142.86 What per cent increase in retention r ate is expected? 0.1% Cost Reduc tion (by Group) Direct Total sales cycles per year (w on and lost) 3500 Average number of visits to customer site during sales cycle 3.0 Cos t of S el li ng Average sales team size 3.0 Average sales team size per sales call after deploying CRM? 2.8 Annual cost of adver tising $ 290,000.00 Cos t of A dvertis ing Current number of sales reps Months to train a new sales Average revenue per sales rep Example: rep after deploying SFA tool Months to train a new sales rep. Shortened Sales Percent of new sales rep per yr Cycle Learning Curve V. Validate, rationalize, and revise VI. Taking ownership revenue projections (per category) IV. Calculate Associated Revenues Total additional productive months/ per year * average monthly revenue per sales rep Ramesh Krish Proprietary and Confidential P32
- 34. Sales Process Improvement – Illustrative Example SALES OPPORTUNITY ORDER AMOUNT CLOSE DATE Opportunity Assessment Write in the date and assess your position using DATE DATE DATE + or –. If you don’t know, put a question mark. Assess your competitor’s position. Repeat at critical points in the sales campaign. COMPETITORS COMPETITORS COMPETITORS OUR OUR OUR CO. CO. CO. IS THERE AN OPPORTUNITY? CUSTOMER’S APPLICATION DEFINED + 1 OR PROJECT UNDEFINED – CUSTOMER’S BUSINESS STRONG + 2 PROFILE WEAK – CUSTOMER’S STRONG + 3 FINANCIAL CONDITION WEAK – YES + 4 ACCESS TO FUNDS NO – DEFINED + 5 COMPELLING EVENT UNDEFINED – CAN WE COMPETE? DEFINED + 6 FORMAL DECISION CRITERIA UNDEFINED – GOOD + 7 SOLUTION FIT POOR – SALES RESOURCE LOW + 8 REQUIREMENTS HIGH – STRONG + 9 CURRENT RELATIONSHIP WEAK – STRONG + 10 UNIQUE BUSINESS VALUE WEAK – CAN WE WIN? STRONG + 11 INSIDE SUPPORT WEAK – STRONG + 12 EXECUTIVE CREDIBILITY WEAK – GOOD + 13 CULTURAL COMPATIBILITY POOR – INFORMAL DECISION DEFINED + 14 CRITERIA UNDEFINED – STRONG + 15 POLITICAL ALIGNMENT WEAK – IS IT WORTH WINNING? HIGH + 16 SHORT-TERM REVENUE LOW – HIGH + 17 FUTURE REVENUE LOW – HIGH + 18 PROFITABILITY LOW – LOW + 19 DEGREE OF RISK HIGH – YES + 20 STRATEGIC VALUE NO – Ramesh Krish Proprietary and Confidential P33
- 35. 8 Sustaining a Low Cost Operating Model Ramesh Krish Proprietary and Confidential P34
- 36. Key Attributes of Low Cost Model Operating Companies Objectives Speed Impact Investment Sustainability Risk Activity Reduction Activity Reduction Eliminate expenses by “combing” the organization for wasteful expenditure Functional Functional Consolidate redundant activities to achieve Centralization Centralization economies of scale Automation Automation Decrease manual involvement by improving technology with automated processes Reengineering Reduce labor and input cost by streamlining key Reengineering business processes Outsourcing Reduce operating expense by leveraging external Outsourcing vendors’ greater scale and experience Sourcing Reduce purchased expenses by evaluating Sourcing purchasing behavior, assessing economics, and IT Portfolio renegotiating contracts IT Portfolio Eliminate or re-align branches which don’t conform Management Management to overall strategy Divestiture Divestiture Reduce expenses by eliminating unprofitable product, services, and “businesses” Channel Channel Rationalization Rationalization Eliminate or re-align branches which don’t conform to overall strategy Business Mix Business Mix Restructuring Reduce expenses by eliminating unprofitable Restructuring product, services, and “businesses” Unfavourable Favourable Ramesh Krish Proprietary and Confidential P35
- 37. Embedding a Cost Management discipline in Operating Companies Achieving a low cost operating model ultimately requires cost management to be embedded into the fabric of the organisation. A range of tools can support management of costs on an on-going basis… Supports operating companies in understanding the true profitability of Activity Based products and customers, by analyzing: Costing 4 costs of processing products; and 4 costs of acquiring and servicing clients Enables operating companies to monitor ongoing performance in achieving their objectives, by identifying and setting targets for the key financial and Balanced Scorecard non-financial performance measures at each of the different levels in the organization (ie enterprise, process, individual) Provides management with timely and relevant financial information, that is Enhanced supported by integrated planning and budgeting processes Financial Reporting Supports operating companies in assessing the impact of decisions, such as Value Based capital expenditure, new product introductions, global shared services etc. Management Ramesh Krish Proprietary and Confidential P36
- 38. Low Cost Model – Operating Framework The potential scope of cost reduction in a Low Cost Model includes rationalizing business lines, improving processes, enhancing sourcing of external services, changing policies and procedures, as well as employing financial engineering. Policies and Procedures Attrition/Requisitions Compensation T&E s ne Functions Li ss Sales Business Mix ne i Customer Service s Re-engineering Restructuring Bu Marketing Manufacturing Sales Service Ops IT Channel Functional Rationalization Direct Centralization Business Process Line • Staff Level • Benefits Initiatives Initiatives Service Level Automation Reductions Indirect • Purchased Expense Types • CapEx Investment • Overhead Activity Reduction Reductions Support Functions Outsourcing Sourcing External Market Initiatives Ramesh Krish Proprietary and Confidential P37
- 39. 9 Strategic Options Review Ramesh Krish Proprietary and Confidential P38
- 40. Review of Investment Expectations against Operational Performance Cash Review Generation Priorities Potential • Operations • Receivables • Supply Chain • Debt • Balance Sheet Gap/ Operations Investment Options Expectations Review Review Review Assessment • Performance • Spin-off part against criteria or whole • Exit • Carve out SSC Considerations • Sale to Public Long Term • Target enterprise Understand attractiveness • Go public Feasibility Tradeoffs • Aggregate Potential with another • Market portfolio leadership company • Profit Growth • Sales Growth • Cost Structure • Industry Landscape Ramesh Krish Proprietary and Confidential P39
- 41. Key Exit Transaction Considerations "Can management deliver? "Do we need to inject anyone? "Is exit plausible in the timescale? "Does it meet IRR requirements? "What are the risks? "How do we price the offer? "Will the proposed financing structure work? Ramesh Krish Proprietary and Confidential P40
- 42. Characteristics of Unsuccessful Cost Reduction Initiatives • Analysis ignores the strategy – Long-term and strategic investments are cut to save cost leading to a long-term reduction in competitiveness and profitability • Targets are arbitrary or not clearly thought out and are set without the involvement of the people who will have to achieve them – This leads to an alienation of the people who are best placed to identify savings. Analyze • Project team suffer from “Analysis Paralysis” – Time is wasted on over analysis of the business. • Prolonged debate over difficult decisions – Increases the uncertainty around how the cost reduction initiative will affect individuals. The best people are normally among the first to leave weakening the organisation. • Too many initiatives – No single message about what is important. Management team lack a focus which leads to poor delivery • The wrong mix of projects are chosen Prioritize – A few, large initiatives are chosen. These usually have a longer pay-back time and are higher risk. – Resource requirements to make the changes aren’t balanced. • Lack of comprehensive planning – The impact on key stakeholders is not assessed leading to resistance to change, potentially poor publicity – Incentives are not planned or aligned with the objectives and so employees do not exhibit the desired behaviour – Changes in one area of process have detrimental impact on later stages. • Lack of resource to implement savings – Customer service takes priority over reducing cost delaying how much can be done quickly – Ineffective “spot” solutions implemented Implement • Project team not experienced in managing large change projects – Mistakes are repeated during the implementations Ramesh Krish Proprietary and Confidential P41
- 43. i process Thank You Ramesh Krish Cell: 917-971-9701