Using a business process outsourcing (BPO) relationship to move up the value chain. Simone Noordegraaf Global Head of Finance Operations, Philips

Transcription

1 Using a business process outsourcing (BPO) relationship to move up the value chain Simone Noordegraaf Global Head of Finance Operations, Philips

2 Philips: A strong diversified industrial group leading in health and well-being Philips Businesses 1, 2 Geographies 1 Healthcare Consumer Lifestyle Lighting Western Europe North America Other Mature Geographies Growth Geographies 3 43% Since 1891 Headquarters in Amsterdam, the Netherlands 20% 37% 25% 23.5 Billion 115,000+ Sales in People employed Portfolio consists of ~70% worldwide in over 100 B2B countries businesses 31% 9% 35% $9.1Billion Brand value in % of sales invested in R&D in ,000 patent rights, 35,000 trademark rights, 81,000 design rights 1 Based on last twelve months sales June Excluding Central sector (IG&S) 3 Growth geographies are all geographies excluding USA, Canada, Western Europe, Australia, New Zealand, South Korea, Japan and Israel Note - Prior-period financials revised for discontinued operations, the adoption of IAS19R and for restatements included in the Annual Report 2012 (please refer to the Annual Report section Significant Accounting Policies )

3 At Philips we strive to make the world healthier and more sustainable through innovation We will be the best place to work for people who share our passion Together we will deliver superior value for our customers and shareholders Improving people s lives through meaningful innovation

4 Philips is on a transformation journey establishing a new operating model with standard processes New Operating Model 4 Business Models 15 Businesses in 3 sector domains Global business leadership End2End customer value chain Idea 2 2 Order Core Value Chain Elements Order 2 Cash Success in local markets Customers 17 s 100+ countries New Operating Model Standard Processes IT Systems Information & (master) data End-to-end processes supporting 4 business models with shared functional processes Simple IT platforms enabling process capabilities across business models Simple (master) data structure underpinning all IT platforms

5 Accordingly, Philips Finance is also on a transformation journey From. Starting Point Widely regarded as one of the strongest functions 2.1 Cost of Finance (as % of sales) But working in a complex environment Everyone is doing everything Lack of standards of processes and procedures 0.8 Unsustainably complex IT and data landscape and too costly Philips Starting Point 1st quartile

6 Accordingly, Philips Finance is also on a transformation journey To. Credible Business Partner with leading analysis capabilities enabling fast decision making Real-time and consistent data as basis for performance monitoring and decision making Operational excellence based on standard processes & tools delivered at benchmark cost levels Securing Philips Operations by leading edge compliance and control standards A great place to work and develop for top finance people

7 Accordingly, Philips Finance is also on a transformation journey. Scalable Best Practice Finance Organization Business Partner FP&A Acctg. & Internal Control FinOps 5 Pillars 2014 LocallyEmbedded Sector Level CoEs Cross sector CoEs & s Process based service organization Group Finance CoEs Standardized Processes and Tools Process Governance BPM PBF R2R O2C P2P IC Tax Treasury Continuous Improvement Harmonized Systems/Data E2E Processes IT Enablement APQC Process Frame-work Level 5/6 Roll-out new Finance processes and master data Relevant Finance capabilities for Philips Embed new behaviors and culture New career roadmap Finance Operating model Engagement & capabilities Competency based training & development Talent pipeline and workforce planning

8 Within this context, Philips Finance Operations is transforming our operating model End State Global FinOps Team Global FinOps Team Global FinOps Team Cluster Cluster Cluster Cluster Cluster Cluster Cluster Cluster Cluster Regional Regional Regional Regional Regional FinOps FinOps FinOps X FinOps s FinOps 9 FinOps Clusters / s /s /s /s X s ~90 s 5 s FinOps scattered across 90+ locations performing work on a local basis Svc. Partner Svc. Partner 17 FinOps /s Svc. Partner 3 s 4 s 5 major regional FinOps spokes and 12 FinOps market spokes aligned with the new 17 Philips markets structure Svc. Partner Svc. Partner Svc. Partner Svc. Partner X s Consolidation into regional hubs Only selected spokes Activities requiring small scale country presence performed by local finance organization or outsourced to third parties X s

9 The four main priorities for FinOps on our journey to world class performance Vision and mission Operating model and capabilities Governance model Process transformation Establish a new vision and mission for a world class shared services organization Implement a new competency model based on the Philips Finance Career Framework Foster a culture of pride in FinOps as an integral value-creator for Philips Re-design the organization and install critical management capabilities Upgrade talent and establish a balanced management pyramid with related commitments Restructure the current FinOps global footprint to optimize efficiency and service levels Implement new governance roles and processes to drive process improvement and cost performance Clearly define decision rights across Group, Sectors, Businesses & s and FinOps Restructure relationship, governance and cost/quality performance of Service Partner Implement process improvements including: Automation and process enhancement to drive out process workload and cost Revised distribution of in-house and outsourced activities

10 Infosys relationship evolved from 2007 to date FinOps and Infosys Development and Current Status SELECTED MILESTONES 2007: Selling Philips Operations 2010: Enhanced Accounting : Rule Based Controlling : Fit to Grow 2014: Contract Expiration Philips sold parts if its Finance Shared Services Operations to Infosys Enhanced Accounting project focused on shifting further processes to BPO provider Rule Based Controlling project focused on shifting further rule based controlling and reporting to BPO provider Agreement focused on additional savings and efficiency gains Review of BPO relationship due to expiration date

11 Our pricing model already evolved from FTE-based model in 2007 to an increasingly hybrid one More FTE Transaction Outcome Supplier Risk/ Reward Less RBC (FTE based) OTC (Hybrid) PTP (Hybrid) Majority Transaction Based RTR Predominantly Transaction (Hybrid) Based Majority Transaction Based Undefined Service Volume Defined

12 Recent Improvement End 2 End Dashboard What are the Challenges? How are we resolving it? One Dashboard for both captive Watermelon effect Limited empowerment of BPO to drive required process changes Lack of clear accountabilities and BPO BPO has clear accountability for E2E KPIs in-scope processes BPO creates insights to drive process changes

13 Recent Improvement Pain / Gain Sharing Pain Gain What are the Challenges? Slow quality improvements Lack of drive from BPO to improve processes E2E Lack of integration of diverse capabilities of BPO How are we resolving it? Clear improvement targets for six key indicators Quality change leads to significant penalty or incentive Solid control environment prerequisite for incentive

14 Recent Improvement Predictable efficiencies What are the Challenges? How are we resolving it? Heavy dependency on ability of BPO to drive efficiencies Predictability of efficiencies Lack of integration of diverse capabilities of BPO Efficiencies are upfront agreed Efficiencies based on projects aligned with Philips roadmaps BPO is responsible to find new projects to meet efficiencies

15 Questions and Answers