Insourcing Outsourcing Panel

John P. Rompon Managing Principal - BPO Hewlett-Packard Company Insourcing / Outsourcing: Changing What It Means To Be A Bank Panel Discussion BAFT 2005 Conference 83 rd Annual Meeting April 18, 2005 Miami, Florida

With You Today ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Agenda ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Definitions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Overnight Success – HP’s Fifteen-Year Shared Services BPO Journey Decentralized (1990-95) Regional Consolidation (1996-99) Off-Shore Global Consolidation (2000-03) Commercialization/ Digitalization (2004-05) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],HP achieved global shared services excellence over 15 years; and now offers customers an opportunity to leverage this learning Outsourcing experience Insourcing experience

HP: Global Structure With Regional Specialization Scale of Operations: 5,000+ professionals Presence: 8 Global Delivery Centers (56 Local Front-Offices, 7 Regional Business Centers – not shown) Language capabilities: Expertise in 30 languages Main Global Hub Low-Cost, Transaction Processing Center (Bangalore & Chennai) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Support Centers Specialized Language Transaction Processing (Barcelona, Singapore, Guadalajara, Dalian, Wroclaw & Costa Rica) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Onshore Centers (Colorado Springs & Houston) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Trends ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Key Trends By Region ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

FS Outsourcing Is Emerging Through A Series Of Unique Deals

Framework: Three Strategic Sourcing Questions The answer to each of these questions should be YES if your company is going to own an operation or asset Strategy Does the operation or asset directly contribute to the organization’s competitive advantage, core competency or capability? 1 Finance Does the investment in the operation or asset yield a return that is greater than the cost of invested capital? 2 Performance Is the operating performance of the operation or asset (quality of output, cost and cycle time) measurably superior to relevant industry standards? 3

Extending the Enterprise How much should we do ourselves and how much should we buy from others? Ronald Coase 1991 Nobel Laureate, Economics Where should we focus our resources? David Ricardo 19 th Century Economist

Organizational Boundaries and Efficiency ,[object Object],[object Object],[object Object],[object Object],[object Object],* Coase, Ronald, The Nature of the Firm, Economica , 1937

Production and Transaction Costs ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],* Measuring the Transaction Sector of the American Economy, Long-Term Factors in American Growth , (Wallis, J. and North, D., University of Chicago, 1986

Organizational Boundaries and Specialization * Ricardo, David, On the Principles of Political Economy and Taxation, 1817 ,[object Object],[object Object],[object Object],[object Object],[object Object]

Expanding The Boundaries Of Business Sawhney, Mohanbir, Kellogg School of Management, 2001 20 th century ,[object Object],[object Object],[object Object],21st century ,[object Object],[object Object],[object Object]

Several Factors Determine Which Processes Are Candidates For Outsourcing ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],F&A ‘Outsourceability’ survey ¹ Accounts Payable 85% General Ledger & Consolidation 74% Accounts Receivable 73% Fixed Assets 70% Travel Expenses 68% Credit & Collection 61% Cash Management & Treasury 56% Billing 50% Payroll 48% IT Operations 46% Source: Analyst reports, HP Analysis ¹Atkins survey - indicates % of finance executives who view sub-function as outsourceable

HP Methodology: Outsourcing Decisions Outsource process to local vendor Leave process in-place Move process to shared services center Outsource process to low-cost country ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],High Low Low High Destination model for outsourcingh Time frame and action steps Hold/prepare for o/s if synergies with other processes Prepare plan to increase feasibility Act now! Act, but at 2 nd priority High Low ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Low High 1 2

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Market Forces ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Competitive Forces IT HR Procurement Finance Back Office Functions Market Forces Are Driving Companies To Evaluate Their “Back-office” Functions

Insourced Shared Services And BPO Have Emerged As The Structures Of Choice Source: Business Process Outsourcing and the Human Capital Management Opportunity – JP Morgan, HP Analysis “ Make” In-Sourcing/ Shared Services ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],“ Buy” Business Process Outsourcing ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],In Source/Shared Services Outsource

BPO And Insourcing: Risk and Reward Business Focus Risk Operating Model ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],BPO In-Source - SSC ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Benefits And Risks Of “Make” v “Buy” “ Make” ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],“ Buy”

Build v. Buy Decision ? Insource Outsource Non core– low value add – not key to long-term success Poor track record of internal funding/support No need/desire to control Market capability and maturity Low risk/uncertainty Core – high value add - key to long-term Success High risk/uncertainty High levels of control required Strong track record of internal funding/support Strong capability Pressures to Insource/Outsource

Why Providers Are Targeting The FSI Market ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Source: Datamonitor 21% growth over period 33% growth over period Infrastructure outsourcing Application outsourcing Application outsourcing growth from 2003 to 2006 Business process outsourcing BPO growth from 2003 to 2006 The financial services outsourcing market will grow by $2.5bn from 2003 to reach $13bn by 2006 Infrastructure outsourcing growth from 2003 to 2006 28% growth over period

What Is Being Outsourced In FS?

What Can Be Outsourced In FSI?

Threshold Question: Can It Go Offshore?

FS Outsourcing Competitors Focus Provider Type More Balanced Offering Across Multiple Verticals Banks NonBanks Heavily Focused on FSI

What Is A Bank? ,[object Object]

The U.S. Always (Never) Leads ,[object Object]

To Each His Own: Different Models for Different Regions ,[object Object]

With This ERP I Do Thee Wed: Sourcing’s Role In Consolidation ,[object Object]

Insourcing Outsourcing Panel

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