Back to School for Business Services how to get it right?

Back to School for Business Services how to get it right? CORE conference November 8, 2016 1

Shared Services and Outsourcing Advisory WHO WE ARE KPMG s Shared Services and Outsourcing Advisory practice helps clients transform business services to improve value, increase agility and create sustainable performance. Our 1000+ professionals directly serve 60+ countries and have led 2.000+ transactions, with a total contract value of more than $300 bn. With the acquisition and integration of Equaterra, we became truly the largest independent third-party global Sourcing advisor Since 2010 we have consistently been named one of the World s Best Outsourcing Advisors Last week named in Europe #1 Sourcing Advisor 1000+ PROFESSIONALS 7/10 We bring a specialized global team of professionals who blend insight and operational talent to help our clients design, build and manage their business services delivery models We focus on strategies that you can implement. We put the strategy within the context of practical execution 2

What is Global Business Services (GBS)? An integrated platform to deliver Global Business Services A driver of efficiency and business outcomes A model that evolves with the market and organizational needs Retained Organization + + = Shared Services Outsourced Capabilities Global Business Services 3

The progression to GBS Background Typical footprint Focus 1990s Shared Services Creation of Shared Services On-shore solutions Emergence of outsourcing narrow capabilities Internally regional models Transactional activities Cost reduction Initiatives not aligned to business needs 2000s Multifunctional Outsourcing and offshoring becoming more mature, Indian multi-vendor Right shoring, near-shore Vendors delivering niche services Multi-vendor deals Centers of expertise solutions Lack of internal alignment led to fragmentation, integration becomes an issue Labor arbitrage Multi-sourcing since 2010 Integration (GBS) Multifunctional integration GBS construct Outsourcing and internal captive delivery centers End-to-end process with multiple delivery channels Enterprise Outsourcing centers of excellence Integrated service delivery models combining nearshore, offshore, and outsourcing On analytical, judgment, and expert services Multifunctional, multi-channel GBS Disruptive technologies Talent management, enterprise governance, enterprise process ownership 4

Top 10 functional focus areas for service delivery improvement efforts Source: KPMG Global Insights Pulse, Q3 2016 5

Top approaches to improve service delivery capabilities Source: KPMG Global Insights Pulse, Q3 2016 6

2Q16 Deal Analysis 340 177 USD41.3 billion 91% 72% 61% Total number of IT-BPO deals signed in 2Q16 Contribution of ITO deals to overall number of deals signed Contracts that had a fixed price Percentage of deals signed in 2Q16 that were of value less than USD100 million Total contract value of IT-BPO deals Percentage of deals with tenure between one to five years 7

Sourcing and GBS Strategies are becoming a primary lever for resolving cost and performance issues Beyond the initial savings associated with consolidation and a change in service model, the delivery model then provides the platform for further cost improvements and business outcome improvement through reengineering and focused optimization. A typical view of the benefit from service delivery realignment is illustrated below The Journey 20-40% Delivery Model Performance Improvements Process Reengineering and Standardization Retained Organization Optimization Baseline Costs Sourcing and Offshoring Value 15-20% of addressable spend Stabilized Steady State Delivery Costs Optimization Value 5% to 20% of addressable spend Cost of a Process Cost Reduction 8

Simultaneous Growth and Change are upending the traditional delivery model Incorporating new technologies into product offerings Effective Cost Management Robotic Process Automation Consumer Preference of Anytime, Anywhere, Any device Talent availability Balance traditional business models with emerging digital opportunities Innovative solutions to enable growth and speed time to market Demand for improved analytics/insight Collaborative and agile business partner External Internal 9

Global Business Services have entered a new phase of disruption 1 Client organizations are advancing their operating models and increasing expectations for their Global Business Services organizations to deliver better business outcomes 2 Disruptive technologies such as robotic process automation (RPA), natural language processing and cognitive computing are creating new value streams 3 Global Business Services must embrace the As-a-Service model* and innovate to redefine role in ecosystem or manage diminishing demand for low-cost staff augmentation GBS organizations must focus on developing their maturity in order to keep up with client demands. *(Process As-a-Service, Software As-a Service, Technology As-a-Service) 10

So, what is GBS Excellence today? Enable service through unified technology/cloud IT architectural strategy Adaptable to business needs and strategy Multi-functional Standardized processes Enterprise-wide Integrated governance Rationalized service delivery Strategic location(s) rationalized Consistent compliance approach Leverages a global talent strategy End-to-end process ownership Value and cost focused Cohesive, insightful analytics Enterprise wide process efficiencies 11

GBS is optimized and enabled by 10 Dimensions The 10 Dimensions are ten areas of competency required for any leading business services organization. They form a framework by which a business service organization can assess their current maturity level and consider the needed investments and areas of focus over time. 1. Delivery and sourcing strategy 10. Risk Optimization 2. Service Portfolio 9. Commercial Perspective 3. Data and Analytics 8. Enterprise Service Governance 4. Talent Management. 7. Enabling Technology 5. Process Excellence 6. Change and Program Management 12

10 Dimensions Maturity Assessment Methodology Level 05 Level 04 Level 03 3.9 1st Quartile Performers* Level 02 2.8 Average Performers* Level 01 Fragmented Sub-scaled Scaled Integrated Strategic Focus on Efficiency: Value driven though standardization, simplification, scale, transparency and control Focus on Outcomes: Value driven though end-to-end optimization, agility, analytics, insights, innovation, governance and compliance 13

Aggregated Global Private Sector Results Sensitivity to drive maturity Difficulty in Implementation 1 3 5 Very Delivery and Sourcing Strategy 3.1 4.1 Medium Service Portfolio 3.3 4.1 Data and Analytics 2.1 3.7 Talent Management 2.7 3.9 Very Process Excellence 2.8 3.9 Medium Change and Program Management 3.0 4.2 Enabling Technology 2.5 3.8 Medium Enterprise Service Governance 2.6 3.8 Commercial Perspective 2.9 4.0 Medium Tax and Risk Optimization 3.3 4.0 LEGEND Current Aspirational 14

What does good look like? Delivery and Sourcing Strategy Aligned GBS Strategy Best labor arbitrage and value delivery Change and transformation agenda Total executive support and formal sponsorship Change Management Service Portfolio Services for multiple functions Multiple kinds of services One ERP system with 2 or less instances Automation Enabling Technology Data & Analytics Better and faster business decisions Real time tracking of metrics Formal governance process Single governance structure Enterprise Service Governance Talent Management GBS culture Career management GBS organizations run like a business Services as competitive as private sector Commercial Perspective Process Excellence Global process ownership of end to end processes Lean/six sigma Informed business decisions Globally consistent tax and risk adherence Risk optimization 15

Some Examples of Top Performers Coca Cola NASA P-Direkt Service Portfolio Forerunners in having a detailed Service Catalogue Data & Analytics Increase efficiency through process automation Enabling Technology degree of self service (and multiple platforms) Talent Management Investments in Global Capability Programs Change Management Strong political support Enterprise Service Governance Segregation of roles and responsibilities Process Excellence End-to-end process ownership for GBS services Commercial Perspective Upfront investment and support allowed to automate and leverage savings immediately Commercial Perspective Target of 5% cost savings annually drives innovation 16

Components of Enterprise Service Governance Performance Analytics Client aligned service levels End-to-end and process specific metrics Integrated performance reporting Predictive and prescriptive analytics Organization Design Service delivery model Organizational structure Clear roles and accountabilities Reporting relationships Linking relationships Understood decision rights Governance Strategy Coordinated client experience management Focus on stakeholder satisfaction Effective and timely communications Financial Management Integrated and delivery channel specific planning & forecasting Integrated and delivery channel specific consumption management Proactive cost management Alignment of Strategic and Financial Planning Service Governance Governance Committees Oversight of service performance Application of in-depth knowledge to support service objectives Provide advice regarding issues Adherence to the terms of reference Governance Processes Cross-organizational processes Information sharing on process performance Integrated process improvement & innovation Standardized across services 17

Third- Parties Shared Service Organization Division Division Division Division Division Division Division Clients GBS Structures True GBS Multiple SSCs X Y Z X Y Z Service Governance Enterprise Capabilities Delivery Strategy Service Governance Enterprise Capabilities Delivery Strategy Shared Service Organization SSC SSC SSC Sourcing Strategy Sourcing Strategy 1 2 3 1 2 3 18

Third- Parties Third- Parties Shared Service Organization Division Division Division Division Division Division Division Global/Regional Delivery Centers Clients Market-based Clients GBS Structures True GBS Multiple SSCs Hub and Spoke X Y Z X Y Z X1 Y1 Z1 X2 Y2 Z2 Service Governance Service Governance Service Governance Enterprise Capabilities Enterprise Capabilities Enterprise Capabilities Delivery Strategy Delivery Strategy Delivery Strategy Shared Service Organization SSC SSC SSC RDC* X RDC* Y RDC* Z Sourcing Strategy Sourcing Strategy Global Delivery Center Sourcing Strategy 1 2 3 1 2 3 1 2 3 * RDC = Regional Delivery Center 19

Third- Parties Shared Service Organization Clients Moving to a Dynamic Model is crucial to drive Maturity Moving from a static to dynamic model will enable Shared Service Organizations to move up the maturity curve by implementing strong governance and a delivery strategy. Static X Y Z Div. A Div. B Div. C 20

Third- Parties Shared Service Organization Clients Moving to a Dynamic Model is crucial to drive Maturity Moving from a static to dynamic model will enable Shared Service Organizations to move up the maturity curve by implementing strong governance and a delivery strategy. Static Enabled X Y Z X Y Z Service Governance Enterprise Capabilities Delivery Strategy Div. A Div. B Div. C Div. A Div. B Div. C Sourcing Strategy 1 21

Third- Parties Shared Service Organization Clients Moving to a Dynamic Model is crucial to drive Maturity Moving from a static to dynamic model will enable Shared Service Organizations to move up the maturity curve by implementing strong governance and a delivery strategy. Static Enabled Dynamic X Y Z X Y Z X Y Z Service Governance Enterprise Capabilities Delivery Strategy Service Governance Enterprise Capabilities Delivery Strategy Div. A Div. B Div. C Div. A Div. B Div. C Div. A Div. B Div. C Sourcing Strategy Sourcing Strategy 1 1 2 3 22

Discussion Questions? 23

Appendices 24

Level 01 Service Delivery Management Maturity Level 02 Focus Level 03 Level 04 Level 05 Mapping results against the GBS maturity model A industry view The following provides an average maturity assessment across the 10 dimensions for major USA and European Enterprises across a number of industries, including the public sector. The aspirational average and current average is also provided. Cross Industry Levels of Maturity STRATEGIC Enterprise wide multi-functional service delivery platform Coordinated processes, technology, governance, and multi-channel delivery for scale and adaptability INTEGRATED Multi-functional, multi-channel service delivery model Provides transactional and analytic services Managed through integrated, outcome-oriented governance Synced end-to-end Aspirational Average 3.9 Major USA and European Enterprises* CPG Food & Beverage (Top Performers) SCALED Functionally oriented Global shared service model Variation around processes, tech and governance standardization Current Average 2.8 SUB-SCALED Consolidated delivery model Leverage economies of scale for highly transactional services Shared services or outsourcing typically on a single-function Aspirational Average 3.4* Current Average 2.4* Industrial and Manufacturing Energy & Utilities Pharma Public Sector Tech and Telecom Financial Services CPG Food & Beverage (Overall) FRAGMENTED Decentralized service delivery model Duplicative functions, processes, and technology Little central control and governance over business support services Legend * KPMG Survey of 200 organizations, of which 19 were public sector organizations PUBLIC SECTOR PRIVATE SECTOR 25

Aggregated Global Public Sector Results Sensitivity to drive maturity Difficulty in Implementation 1 3 5 Very Delivery and Sourcing Strategy 2.6 3.6 Medium Service Portfolio 3.3 3.8 Data and Analytics 1.8 3.1 Talent Management 2.2 3.3 Very Process Excellence 2.2 3.4 Medium Change and Program Management 3.4 4.0 Enabling Technology 2.3 3.4 Medium Enterprise Service Governance 2.1 3.1 Commercial Perspective 2.3 3.5 Medium Tax and Risk Optimization 1.4 2.6 LEGEND Current Aspirational 26

Delivery Channel Governance Delivery Channel Governance Enterprise Service Governance Structure ENTERPRISE SERVICE GOVERNANCE Outsourcing Shared Service Organization Centers of Expertise Other Internal Service Providers Organization Processes Data & analytics Enabling technologies CROSS-CHANNEL INTEGRATION END-TO-END PROCESS INTEGRATION Change management Issue management Service management Financial management Performance management Risk & compliance ORGANIZATIONAL ENABLEMENT Collaboration Forums Organizational Structure Ttechnology Architecture Integrated Metrics MEASUREMENTS AND OUTCOMES GBS Value Realization 27

In country Delivery model Regional Enterprise Service Delivery Trends - One Size Doesn t Fit All One size does not fit all Multiple service delivery options are in play. Ontario Shared Services In-house distributed Captive shared services Outsourced Service architecture 28

What we found in Canada Federal Client satisfaction has become #1 priority Robust governance framework Focus on costs and expenditure (value) Developed a detailed service catalogue Focus around changing culture Full understanding of complexity and time to get things done Service and client focus culture first then transformation Ontario Initiated LEAN and Continuous Improvement Strong desire to enhance the value for money of services delivery to its clients Consolidate and expand services to additional public sector clients, potentially adding new services Prioritizing digitization and self-serve availability of their services Investment in sustaining and improving services has been lacking, which requires a new funding approach and an IT strategy to support continuous improvement Customer confidence is low Dated legal model Quebec Embarked on a 5-year transformation journey Refocusing on business relationships and client satisfaction Moving towards a pay-per-use model Lobbying to retain a percentage of surplus Launched a 5 year transformation plan to regain trust Employee morale a key focus New Brunswick Current operating model revised in October 2015 and is an amalgamation of 4 different shared services organizations Goal of 1 organization: savings, standardization, build upon best practice Wide range of funding models Long way to go to standardization as there are 4 payroll systems and 3 finance systems 5 year business case and savings target 1 standard SLA for all clients 29

Coca-Cola Maturity Drill-down (1/2) Strategy 4.2 Integration of GBS in overall Business Strategy 4.0 Investment Strategy 5.0 Value Drivers 3.0 Transformation Agenda 4.0 Alternative Delivery Mechanism 5.0 Executive Commitment 4.0 Process Ownership 3.7 Global Process Management 4.0 Service Management Integration 4.0 Process Owner Responsibilities 4.0 Process Accountability 4.0 Improvement Strategy 5.0 Process Standardization 3.0 Organizational Structure 3.0 Organizational Level 3.0 Documentation & Enterprise Content Management 3.0 Services Portfolio 4.3 Functional Scale 5.0 Business Unit and Geographical scope 5.0 Value Chain 3.0 Operational Scale (historical trend) 4.0 Data and Analytics 2.3 Data and Analytics Deployment 2.0 GBS Involvement and Capability 3.0 Information Production 2.0 Reporting 2.0 Talent Management 3.5 Global workforce planning 4.0 Employer of Choice Strategy 3.0 Skills mix 3.0 Learning and Development 4.0 Career Development 3.0 Staff Retention 3.0 Culture 4.0 Collaboration 4.0 Maturity at 3.5 or higher Maturity below 3.5 30

Coca-Cola Maturity Drill-down (2/2) Governance 3.4 Overall Organization Governance 4.0 Service Delivery Channel Governance 3.0 Cross Channel Integration - Change Management 4.0 Cross Channel Integration - Issue Management 3.0 Cross Channel Integration - Financial Management 4.0 Cross Channel Integration - Performance Management 4.0 Cross Channel Integration - Collaboration Forums 3.0 Outsourcing Portfolio Management 2.0 Cross Channel - Service Agreements 4.0 Risk and Compliance Management 4.6 Service Provider Assistance 4.0 Cross Channel Integration - Risk & Compliance Management 5.0 Financial Reporting Integrity and Compliance 5.0 Business Continuity/Disaster Recovery Framework 4.0 Data Security and IP Risk 5.0 Data Privacy 4.0 Direct Tax Considerations 5.0 Indirect Tax 5.0 Change Management 4.0 Sponsorship 5.0 Case for Change 4.0 Readiness 4.0 Resistance and Buy in 4.0 Competing Priorities 3.0 Enabling Technology 3.5 Technology Platform 4.0 Automation 4.0 IT / Business Process Integration 3.0 IT Innovation 3.0 Commercial Orientation 4.0 GBS Brand 4.0 Customer Relationship Management (CRM) 3.0 Demand to Deliver 4.0 Service Level Transparency 4.0 Pricing and Competitiveness 4.0 Benchmarking 5.0 Maturity at 3.5 or higher Maturity below 3.5 31

kpmg.ca Julie Sullivan Partner, National SSOA Lead KPMG LLP T: +1 (416) 777-8512 F: +1 (416) 777-8462 jasullivan@kpmg.ca 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. The KPMG name and logo are 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 endeavour 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 on such information without appropriate professional advice after a thorough examination of the particular situation. 32