SHARED SERVICES AND OUTSOURCING ADVISORY (SSOA) Get more value. Today s global business services go far beyond cost savings alone. kpmg.

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1 SHARED SERVICES AND OUTSOURCING ADVISORY (SSOA) Get more value Today s global business services go far beyond cost savings alone. kpmg.com

2 1 Shared Services and Outsourcing Advisory The Shared Services and Outsourcing Advisory (SSOA) practice is supported by more than 138,000 partners and professionals from across KPMG International s global network of member firms. KPMG LLP delivers Management Consulting, Risk Consulting, and Transactions and Restructuring services along with our Tax and Audit platform to create value while reducing complexity World s Best Outsourcing Advisors Since 2009, KPMG has ranked on IAOP s list of the World s Best Outsourcing Advisors and was ranked #1 in KPMG is #1 in Shared Services and Outsourcing* $300B+ advised contract value 75 percent of the FORTUNE 100 served average 20+ years of advisory experience 2,000+ transformation project supported *Ranked by global headcount and revenue

3 Shared Services and Outsourcing Advisory 2 Why KPMG? We ve been working hard for businesses and organizations that are on their transformational journey. To date, we have advised on a total contract value of more than $300 billion. We believe that no other firm has the people, clients, experience, data, methods, and worldwide reach that KPMG has today. KPMG is one of the world s leading shared services and outsourcing advisory firms. What to expect from KPMG Broad perspective on Global Business Services: a thorough services framework that aligns the services model with business objectives Objectivity as advisors: We are not outsourcers, nor do we favor any supplier or delivery model we are the only Big Four consulting firm with this characteristic Consumer Markets Coca-Cola Heineken Hershey Johnson & Johnson Mead Johnson Nutrition Nestle Procter and Gamble Unilever Wal-Mart Whirlpool Financial Services AEGON AFLAC Incorporated AIG American Express Company (AMEX) Aviva Insurance Barclays Capital One Financial Corporation Deutsche Bank Goldman Sachs The Hartford Lloyds Banking Group Moody s Corp Morgan Stanley Prudential Standard Chartered Bank Energy & Natural Resources BP Chevron ConocoPhillips Healthcare & Pharmaceuticals Abbott Astellas Pharma, Inc. Full experience across the life cycle of strategy, implementation, and services portfolio management Global breadth: capabilities across industries, functions, geographies, and business disciplines A small sample of our SSOA clients AstraZeneca Pharmaceuticals Baxter Boehringer Ingelheim Bristol-Myers Squibb Cardinal Health, Inc. Catalent Pharma Solutions Eli Lilly GlaxoSmithKline Hospira, Inc. Merck & Company Inc. Mylan Laboratories Inc. Pfizer High Tech & Manufacturing Boeing Chrysler Cisco Google Hewlett-Packard Microsoft Warner Bros. Retail Amway Ann Taylor Apple (UK) Best Buy Carlson Companies CarMax Carphone Warehouse Chico s Church s Chicken Coles Myer (APAC) CVS Dairy Farm Delhaize Dixon s Gap Industry-recognized depth and experience in shared services and outsourcing advisory our advisors are experienced practitioners. KPMG s Shared Services and Outsourcing spanning industries, functions, geographies, and business disciplines. Guthy-Renker Hallmark Home Depot Hudson s Bay (CN) IKEA Kenneth Cole Kmart (AUS) Leroy-Merlin Levi s Macy s Telecommunications AT&T Vodafone

4 3 Shared Services and Outsourcing Advisory Potential benefits 10 35% Cost savings ranging from 10% to 35% across major back-office functions (IT, Finance, HR) 10 15% Reductions in facilities costs ranging from 10% to 15% 8 13% Improved processes resulting in 8% to 13% spend management on indirect goods and services ü ü ü ü Collaborative relationship between internal and external stakeholders Optimized internal and external delivery capabilities virtual and real-time Enhanced governance, risk mitigation, performance metrics, and reporting processes Improvements in the effectiveness of overall portfolio management Global Business Services (GBS): move beyond cost savings Shared services and outsourcing of selling, general, and administrative expense (SG&A) functions has historically been driven by an innate desire to reduce administrative costs by creating leverage across horizontal business processes, while focusing retained resources on the core competencies of the business. There are, however, many tangible benefits that these organizations have realized, including enhanced global growth, acquisition integration, and improvements in agility and innovation. KPMG, based on years of practical experience and research, has identified a few primary factors that are most often overlooked: Sourcing and shared services goals are moving beyond just cost savings. Leading sourcing and shared services organizations are advancing their capabilities, evolving to models engineered to be positive influencers of change. Success in this new model depends on the ability to dynamically assemble a variety of capabilities regardless of where those capabilities reside into a seamless end-to-end process that s focused on a specific business outcome. Your support service functions can be a competitive advantage, and KPMG is a recognized leader at helping you optimize the service delivery model and reduce your support costs. KPMG assists organizations in achieving their objectives in shared services and outsourcing using the Enterprise Services Transformation (EST) framework. KPMG s EST framework allows organizations to build value, and achieve sustainable quality improvements while controlling costs. We help organizations transform and optimize their investments through leveraging process improvements, tools, resource capabilities, and management, all while helping to reduce costs. Costs reductions are achieved through a variety of means including labor arbitrage, process efficiencies, and managing the white space between functions and processes (improving alignment). The EST framework from KPMG is a transformative service delivery approach designed to maintain alignment of core business objectives with services delivery. Utilizing this framework, we can facilitate: Improved integration The EST framework institutionalizes cross-functional collaboration and improves the ability to offer end-to-end services to the business. Customer-focused service delivery The EST framework allows customers more flexible access to the appropriate services with improved visibility into costs and rates. Adaptability and flexibility Developing an internal governance capability and associated practices provides the business more access to services-on-demand such as software, infrastructure, and contractors, with less capital investment in hardware and infrastructure. Simplified management Provides a more standard approach to metrics, contracts, and pricing across functions. Access to innovation Centers of Excellence and internal service providers are better identified and integrated into the overall services portfolio.

5 Shared Services and Outsourcing Advisory 4 GBS MATURITY Level 01 SUB-OPTIMIZED RATIONALIZED OPTIMIZED STRATEGIC INTEGRATED Decentralized and duplicative functions; little central control over business support services Level 02 Single function shared services with tactical onshore or offshore provider relationships Level 03 Traditional outsourcing relationships with global delivery; non-integrated internal shared services capabilities Level 04 Optimized balance of internal and external delivery capabilities, global sourcing with multifunction focus Level 05 Globally integrated services portfolio with aggressive use of alternative and mixed delivery models Value capture and performance sustainability occurs over time

6 5 Shared Services and Outsourcing Advisory GBS as a source of competitive advantage Resettling the value proposition Enterprise service models are evolving to deliver a much broader value proposition closely aligned to the C-Suite agenda. Align the operating model for efficiency and effectiveness. Drive growth in merging markets. Optimize the global operations. Redefine the business model for greater integration. Collaborate across teams and mine data to drive greater insight. Protect the brand and foster a common customer experience. IT HR F&A Service Delivery Focus For a company at the front end of a transformation journey, the delivery model change and savings can be significant. 40% 35% 30% 25% 20% 15% 10% 5% 0% High and Low Savings Range by Support Function (% of Impacted Costs) IT HR Indirect Procurement Leading GBS organizations are moving beyond cost-cutting and resource optimization to focus on business alignment. Success in this new model depends on the ability to dynamically assemble a variety of capabilities regardless of where those capabilities reside into a seamless end-to-end process that s focused on business outcomes. KPMG s SSOA practice can help. We can give you the tools, experience, and data to align your services to support your overall business strategy. Our goal is to provide you with the full suite of capabilities required to provision services and drive high-value, sustainable transformation in your services models. Finance Labor Arbitrage Capacity Management Quality Improvement Process Efficiency Onshore/Offshore Leverage Function % Impacted by Change in Service Delivery Model Procurement Savings Range (% of Impacted Costs) % of Revenue Saved IT 80% 10-15% % HR 50% 15-30% % Indirect Procurement Product Innovation Business Intelligence Business Agility Process Transformation New Market Entry Value Proposition 80% 8-13% % Finance 60% 20-40% %

7 Shared Services and Outsourcing Advisory 6 It s not what you say it s what you can do that matters. The journey: Today s shared services organizations can map their development across stages of maturity. Where are you in this continuum? Our experienced professionals have assisted organizations across a variety of different industries to migrate among all phases. The global enterprise extended Today, our advisors are taking shared services and outsourcing to the next level, with the help of KPMG s EST framework, where we are changing the way technology and services are purchased, priced, and delivered. To drive meaningful value, sustainable improvement, and cost reductions, we are showing our clients how to look beyond the traditional enterprise to find a global network of capabilities and a pool of configurable resources with rapid deployment and provisioning. Nothing less will meet tomorrow s market conditions and business objectives. The business of productivity and risk As has been our tradition for more than a century, KPMG advisors bring leading insights on the implications of tax, compliance, accounting, risk management, forensics, and transaction services to global businesses. This knowledge, our experience, and our collaborative, team-based approach helps keep our clients at the top of their game. Reduce resistance, risk Single-function transactional Few shared or centralized services Independent, non-standard Disparate processes and technology Functionally focused Business unit and functional silos Captive Internal with no third-party leverage Disparate systems Multiple data models, tools and applications Measured change Opportunistic, focused on quick wins Strategic Continuum Functional Breadth Standardization Process Orientation Sourcing Technology Prioritization of Investment Attributes of a mature model Cohesive vision for leveraging and integrating horizontal processes across the enterprise Global process management and service delivery platform Balance of internal and external service delivery Integrated delivery centers and Centers of Excellence (COEs), with a focus on business intelligence Diligent emphasis on governance, performance, and talent management Flexible to dynamic business needs and priorities Ongoing competition within the service supply chain Outcome-focused Enhance impact, savings Multifunction and center of excellence Full business partner Integrated People, process and technology standardized End-to-end Full E2E delivery and governance BPO BPO leverage including higher complexity Global data model/systems Standard technology, single instance Transformational change Support model drives true transformation

8 7 Shared Services and Outsourcing Advisory Change is everywhere Transformational change isn t a new term. But today, it s taken on new meaning as businesses evolve. We re working with clients on trends that pose both opportunities and challenges: It s a tumultuous time for business, so we offer a wide range of strategy, methodology, and enhancement services. Cloud Virtualization Globalization Increased regulation Data analytics Strategy and design We can begin by architecting a transformed organization that is more global, flexible, and integrated, then align appropriate strategies for shared services and outsourcing. For those farther along in their transformative journey, we offer diagnostics and assessments to maintain the strategic focus. Methodologies and implementation From building shared methodology centers to full outsourcing management, including due diligence, RFP selection, transition management, and change management, we can be with companies throughout the entire process. We watch out for things that only the most seasoned shared services and outsourcing advisors can know and resolve. Enhancement and governance From an analysis of the current state, we can discover and diagnose issues that are hindering operations and build a roadmap to the future state. We can also review existing contracts for value through our existing database of contract information, market assessments, and benchmarks.

9 Shared Services and Outsourcing Advisory 8 Multifunctional scope is a growing trend across leading shared services delivery organizations 6Six functions have evolved as core pillars of a mature shared service strategy... Analytics Consulting, business process management, quality program (e.g., Lean Sigma) Corporate affairs/communication Customer service/contact center Engineering Cross-functional Master Data...while a number of others are emerging as opportunities to increase relevance and impact. HR Facilities Management Environmental health and safety Legal Marketing Outsourcing COE Sustainability Travel management Finance Procurement IT The key driving business through information and innovation. In our experience, the challenges you face can be turned into competitive advantage. In our experience: Shared services and outsourcing goals are moving beyond just cost savings. Leading shared services and sourcing organizations are advancing their capabilities, evolving to models engineered to be positive influencers of change.

10 9 Shared Services and Outsourcing Advisory What we do: Business Services optimization across all functions Our value proposition Deep functional expertise with over 500 Advisors experienced in IT, Finance and accounting, Human Resources and Procurement. Finance and Accounting Human Resources Information Technology Industry Specific Strategy Assess service delivery model options Opportunity assessment Baseline (FTEs, volumes, SLAs) Base case (costs of Ownership) Location analysis Operating model options Modeling & business case Risk assessment Stakeholders alignment Transition strategy Implementation roadmap Solution Design target operating model and roadmap Shared services design Location selection Outsourcing RFP Vendor selection Contract & negotiation Organization design Change impact assess Technology blueprint Key perform. indicators Transition methodology Tax/compliance risks The Service Delivery Lifecycle is a complex journey that requires meticulous planning, solution definition and rigorous implementation control and optimization to ensure full value realization. We apply focused research, automating tools, proprietary data, clear business acumen, and a mindset to get quickly to what matters in providing actionable advice and practical answers to clients. Implementation Transition organization to new operating model Shared services build out Retained organization Transition management Outsourcing transition Readiness assessment Service mgt governance Change management Communication mgt Tax/compliance review ERP remediation Transformation office Knowledge We are solution agnostic, our independence from technology or providers means we can provide objective advice to clients. Strategy Optimization Optimization Identify improvement opportunities Global Business Services maturity assessment Shared services diagnostic Services portfolio review and optimization Governance health check Outsourcing contract value assurance Supplier strategy review and portfolio balancing Peer Networks Governance Shared Services & Outsourcing Market Research Outsourcing contract renegotiation/remediation Benchmarking Solution Implementation Governance Maximize value and mitigate risks Training & Education Governance committees structure Service management processes Governance organization and decision matrix Governance tools Supply/demand mgt organization benchmark Service performance dashboard Service level agreements Charge back models We offer clients the benefit of working with a professional services firm that draws upon the skills and experience of 155,000 audit, tax, and business advisory colleagues across 155 countries.

11 By Cliff Justice, KPMG Partner, Shared Services and Outsourcing Advisory 1 Shared Services and Outsourcing Advisory / July KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. KPMG International Shared Services and Outsourcing Advisory There is a revolution taking shape in the business services manufacturing has spawned a rapidly growing middle class in these regions, industry, one that disregards the traditional shared services which is both increasing the cost of and outsourcing paradigms and centers the design labor and broadening the potential customer base for many companies. of support services on the needs and priorities of the As this success causes the benefits enterprise as a whole. of labor arbitrage to disappear, how do organizations effectively serve new markets, and where is the next level of Since the information technology more complex services and, as a result, back office savings? outsourcing mega-deals of the 1990 s established an internal brand. Indeed, and through the expansion of offshoring multi-functional captive delivery centers As most companies would opt for a few and business process outsourcing in the are an example of the success of the hundred million new consumers over s, companies have consistently global shared services concept. Many percent additional savings on information sought ways to use sourcing strategies organizations have monetized the asset technology (IT) and finance and to reduce the cost of back office and sold off their captives to become accounting, the competitive advantage services. commercial service providers with will go to those that can both connect specialties in an industry and function. with new customers and do business When part of a comprehensive effectively in these new markets with strategy, outsourcing has proven to be a Labor arbitrage, India, and the lower costs, better data and market transformation catalyst that has helped new customer insights, and operational flexibility. companies implement new processes and technologies, reduce costs, access In the past five years, a number of A change in business services a global talent pool, and change their significant changes have begun to overall business through the use of transform the traditional underpinnings of models partners. business service delivery in the Western When thinking about sales, general world. For example, cloud technology and administrative functions human But today, the average deal size is and social media are ubiquitous. They resources, IT, purchasing, accounting, smaller, performance expectations are are changing not only how we connect etc. some organizations view these higher and many providers are delivering with family members or store music, but support services as a tactical necessity, more complex services with greater also how we do business, collect data while others consider them a strategic industry knowledge and business and deliver technology. These are more weapon. Some see cost center, and acumen. While cost is still key, success than new technologies; they represent a others a competitive advantage. The in a mature relationship is more often change in behavior in how the customer reality is, none of these are mutually determined by its contribution to the and business agree to interact, share exclusive. In fact, they demonstrate business than by cost savings alone. information and conduct trade. the degree of contrast KPMG sees in Shared services has also steadily evolved the strategies and objectives of new Perhaps as significant a change is who from the days of simple accounts business services models. But in a the customer is. The traditional low payable and data entry processing. In market ripe for and requiring change, a cost arbitrage markets have been India, many companies it has moved up the services delivery model that focuses on China and other parts of Asia. However, value chain to provide a wider range of the holistic requirements and priorities the success of outsourcing and global by: Rick Bertheaud, Principal, Shared Services and Outsourcing Advisory and Bryan Furlong, Director, Shared Services and Outsourcing Advisory 1 Shared Services and Outsourcing Advisory / July KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. KPMG International Shared Services and Outsourcing Advisory Like many global business services organizations (i.e., groups that deliver shared services globally and/or managing global outsourcing efforts), yours probably has cost savings down to a science. That is, you know how to create centers of scale, take advantage of labor arbitrage and continuously improve productivity all in the name of cost-effective delivery of transactional services. But in today s world of global business services, a fixation on The Journey: Global Business Services efficiency gains, or more specifically cost savings, has become Level 5 Differentiated Globally integrated services portfolio with aggressive use of alternative and mixed delivery models Level 4 Strategic Optimized balance of internal and external delivery capabilities, global sourcing with multifunction focus Level 3 Optimized Traditional outsourcing relationships with global delivery; non-integrated internal shared services capabilities Level 2 Rationalized Single function shared services with tactical onshore or offshore provider relationships Level 1 Sub Optimized Decentralized and duplicative functions; little central control over business support services The Journey... Development Stages... Time According to a recent KPMG study of GBS organizations at Fortune 500 companies, about two-thirds of them including many that have been doing shared services for five or more years are at level two or three on the maturity scale. Translation: There s a big opportunity for GBS to contribute more to the business. Where is your organization in the journey? Here are 10 leading practices for the journey to level 5. 1 Shared Services and Outsourcing Advisory table stakes; efficiency gains, such as process improvement or transformation, have remained more elusive. Even though you re making a measurable impact, you have an unanswered call to contribute more fundamentally to the business, as GBS organizations face new challenges that historically haven t been posed. Can you use your broad process footprint to get products to market faster? How do you help the company quickly integrate acquisitions to accelerate growth? Can you drive growth in emerging markets by seamlessly supporting operations in China or Brazil? If you re like many organizations, you may get involved in these activities from time to time, but you re rarely leading the strategy. And you re often called in too late, providing only tactical support. How can you elevate your value proposition to make your organization a strategic contributor to the business? How can you better align your services model with the C-suite agenda? How can you support strategic business initiatives, such as M&A efforts, new market penetration or protecting/enabling a quality and consistent global brand, above and beyond helping the firm save money? The most mature services organizations are leveraging much more than labor arbitrage and transactional economies of scale. They re also leveraging their process expertise and a global portfolio of services. As a result, they re not only supporting the business they re advancing it and fully integrating with it. As you explore the opportunities within your organization, consider these 10 dimensions of global business services: The Shared Services and Outsourcing Advisory (SSOA) practice is supported by more than 138,000 partners and professionals from across KPMG International s global network of member firms. KPMG delivers Management Consulting, Risk Consulting, and Transactions and Restructuring along with our Tax and Audit platform to create value while reducing complexity Since 2009, KPMG has ranked on IAOP s list of the World s Best Outsourcing Advisors and was ranked #1 in KPMG is #1 in Shared Services and Outsourcing* $300B+ advised contract value 75 percent of the FORTUNE 100 served 20+ years of average advisory experience 2,000+ transformation project supported *Ranked by global headcount and revenue Trying to elevate the value proposition of your shared services organization? It s time to move from customer relationship management to customer experience common challenges: management. Effective shared services centers (SSCs) know their performance goes beyond delivering the right services at the right price. It s also about elevating the internal brand and improving strategic relevance. To do so, they ve taken a page from outsourcing service providers by focusing on customer relationship management (CRM). These organizations are determining customers needs and expectations, measuring satisfaction and identifying opportunities for innovation all with a goal to enhance the reputation of shared services and deliver long-term value. But CRM is only the beginning. The next step is to evolve from managing customers relationship to managing their overall experience with shared services. This discipline, called customer experience management (CEM), is about turning customer satisfaction into loyalty, advocacy and higher shut down a production line. organizational relevance for shared services. Who are your customers? How do they interact with the SSC? How are you continually improving their experience? How are you addressing roadblocks? This kind of holistic thinking is the stuff of CEM. Challenges in managing the customer experience It all starts with a good customer relationship model. However, some SSCs are starting at a disadvantage. Consider these Service orientation assumptions. With mandated, 100 percent market share, some SSCs take customers for granted. Others may have an inflated self-image by operating under the misconception that they are providing excellent customer service. Here s an interesting fact: 80 percent of service organizations believe they deliver a superior customer experience, while only about 8 percent of their customers agree. Service quality assumptions. Another challenge is misaligned expectations, as customers generally expect SSCs not only to process hundreds of thousands of transactions but to do so flawlessly. After all, incorrect payments to employees can have big productivity consequences. And the impact in other high-volume transactional areas can be even more significant. For instance, a faulty payables process could quite literally However, despite the expectation for flawless delivery, zero defects is more an aspiration than a reality. Indeed, even if a process achieves six sigma, it will still fail 3.4 times in a million attempts. For high-volume back office processes, service level metrics more typically reflect accuracy rates of 99.5 to 99.8 percent. Ultimately, part of building a good customer relationship model is recognizing and addressing the failure opportunities in all layers of service delivery, as well as inputs from the customer s organization. That means avoiding the traps of market dominance, inflated self-image and misaligned expectations. It means managing the relationship in consideration of local and global service delivery. And it means applying a routine of active measurement, constructive self-criticism, and best practices across all processes and technologies. Shared Services and Outsourcing Advisory 10 Selected industry thought leadership KPMG Sourcing Advisory Pulse Surveys The Pulse surveys provide insights into trends and projections in end-user organizations usage of shared services, outsourcing, and third-party business and IT services. Prepare to prosper 10 leading practices for global business services Value Capture and Performance Sustainability Prepare to Prosper: 10 Leading Practices for Global Business Services Leading organizations are leveraging their global business services outsourcing, shared services and internal processes as a strategic asset, not just a transactional processing engine. Learn how adopting the attributes of these 10 practices can help you succeed in your organization s next opportunity The Death of Outsourcing Outsourced and Optimized the Back Office? What s Your Next Competitive Advantage? Back-office functions, such as Information Technology (IT), Human Resources (HR), and Finance and Accounting (F&A), have executed complex and innovative strategies to deliver cost savings and improved service levels which seem commonplace today. The Death of Outsourcing There is a revolution taking shape in the business services industry, one that disregards the traditional shared services and outsourcing paradigms and centers the design of support services on the needs and priorities of the enterprise as a whole. Advice Worth Keeping KPMG Management Consulting podcast series Tune in to these short conversations with subject matter experts, industry leaders and eminent researchers who are at the front line of efforts to drive evolutionary and revolutionary changes in the way organizations are structured and operate globally. From CRM to CEM Taking your shared services brand to the next level Global Business Services Innovation: Optimizing the Business Model for Competitiveness A series of in-depth interviews with business executives reveals success factors and leading practices for advancing the maturity of global services delivery. Sustain Competitive Advantage by Rethinking Your Business Services Models Survey results from top-performing shared service centers in Europe and discussion on how they are distinguished from their peers. From CRM to CEM Trying to elevate the value proposition of your shared services organization? It s time to move from customer relationship management to customer experience management. is a recognized leader in helping Global 1000 firms plan, implement, and KPMG improve Global Business Services.

12 Contact us Cliff Justice Principal and U.S. Leader Shared Services and Outsourcing Advisory Services T: E: Rick Bertheaud Principal, Advisory Shared Services and Outsourcing Advisory Services T: E: Bob Cecil Principal, Advisory Shared Services and Outsourcing Advisory Services T: E: To learn more, visit the Shared Services and Outsourcing Institute at com/shared-servicesoutsourcing-institute. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation KPMG International Cooperative ( KPMG International ), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks of KPMG International Cooperative ( KPMG International ).