cebit finance solutions forum - deutsche messe ag

5th March 2008 CeBIT Finance Solutions Forum BPO in Financial Services

CeBIT Finance Solutions ForumBusiness Process Outsourcingin Financial Services

Richard GodfreyXerox Global ServicesBPO Manager EuropeFinancial Services


Content

Business Process OutsourcingFinancial Services Cost StructureBenchmarkingMake or Buy Decision Making


Outsourcing started in Italy

1506 – Vatican outsourced its Security to the Swiss Guard

1785 – Cotton Mills outsourced Power Loom manufacturing

1890 – Armand Peugeot outsourced Engines to Gottlieb Daimler

1963 – Frito Lay outsourced their Facilities to EDS

1983 – VW outsourced their IT to a captive subsidiary Gedas

1989 – Kodak outsourced their IT to IBM

1991 – BP outsourced their Invoicing to Accenture, 1999 – HR to Exult

2002 – BT outsourced their Finance & Accounting to Xansa

“outsourcing is not simply a purchasing decision” Quinn & Hilmer 1994


Outsourcing in Financial Services

2000 – Bank of America outsourced HR to Exult

2004 – Deutsche/Dresdner outsourced Payments to Postbank

2003 – Lloyds TSB outsourced Document Processing to Xerox

2003 – Deutsche Bank outsourced Procurement to Accenture

2004 – Deutsche Bank outsourced Securities to Xchanging

2003 – Nordea outsourced IT to IBM

2000 – Barclays outsourced Back Office to SBS

2003 – Deutsche Bank outsourced IT to IBM

2002 – ABN AMRO outsourced IT to EDS

1998 – Bank of Scotland outsourced AM to Xansa

“outsourcing is alignment with the business strategy” Willcocks 2004


Focus on Critical Processes

Credit& Legal

Sales &Marketing

FinancialControl

RiskManagement

Relationshipmanagement

Sales

MultiChannelTransactions

FinancialProducts

Portfoliovaluation

Portfoliohedging

SensitivityAnalysis

RiskassessmentFinancial

Reporting

Audit

GeneralLedger

Compliance

Taxation

Creditassessment

BISreporting

Internallimits

Regulation

Positionkeeping

Marketanalysis

Pricing

TransactionProcessing

Customer andCounterparty

dataCredit limits

Credit riskanalysis

Product &Instrument

data

Market dataProvision

Market riskanalysis

Accounting

Profit & Loss

Financialanalysis

InvestigationsSettlement

Confirmations

PaymentsNetting

Event monitoringReconciliation

= Primary Tasks

= Support Tasks

= Back Office Tasks

Custody

“outsourcing is focus on critical processes” Prahalad & Hamel 1990


Value Chain Analysis

InboundLogistics

Operations OutboundLogistics

Sales &Marketing

Service

Firm Infrastructure

Human Resource Management

Technology Development

Procurement

Mar

gin

Margin

Vertical IntegrationVertical Integration

Horizontal Integration

Primary Activities

Support Activities

“outsourcing is the 3rd revolution of the value chain” Fink et al. 2004


Disintregration of the Value Chain

Production

Transaction

Cooperation

Ford

1913

Horizontal andVertical Integration

Vertical Disintegration- Primary Activities

Toyota

British Petroleum

1959

Vertical Disintegration- Support Activities

1991

Division of LabourSmith (1776)Taylor (1882)

Transaction CostsCoase (1937)

Williamson (1981)

Core CompetencePrahalad &

Hamel (1990)

“outsourcing is vertical disintegration of the value chain” Gilley & Rasheed 2000


Content



Financial Services Cost Structure

Source: Annual Reports

CompanyWorld

Ranking Industry Country

2006Sales($B)

2006Profits

($B)

2006Operating

Costs($B)

2006Customers

(M)2006

EmployeesCitigroup 1 Banking US 120,32 24,64 45,16 117,6 325.000HSBC 5 Banking GB 76,38 12,36 33,55 125,0 312.000JPMorgan Chase 9 Banking US 79,90 8,48 38,28 10,0 174.360UBS 10 Financials CH 78,25 10,65 35,73 0,8 78.140ING 11 Financials NL 137,11 8,52 20,74 60,0 119.801Royal Bank of Scotland 14 Banking GB 55,05 8,66 24,14 20,9 135.000BNP Paribas 17 Banking FR 60,90 6,33 23,40 16,7 141.911Banco Santander 19 Banking ES 44,81 8,54 17,70 68,0 131.819Barclays 20 Banking GB 47,87 5,92 24,97 27,0 123.000HBOS 24 Banking GB 51,74 5,87 9,67 23,0 74.000AXA 28 Insurance FR 115,20 3,42 22,97 52,0 96.009Allianz 29 Insurance DE 124,41 2,98 18,02 60,0 166.505Credit Suisse 30 Financials CH 68,31 4,44 26,61 0,6 44.871Merrill Lynch 36 Financials US 47,78 5,12 24,23 0,7 56.200Fortis 38 Financials NL 81,48 4,56 12,04 6,0 59.747Goldman Sachs 42 Financials US 43,39 5,63 23,11 0,4 26.467Societe Generale 43 Banking FR 49,68 4,44 19,87 22,5 115.134Credit Agricole 46 Banking FR 81,10 2,99 15,02 31,0 157.000Lloyds TSB 47 Banking GB 52,38 4,28 10,44 16,0 63.000Deutsche Bank 56 Financials DE 41,09 8,68 29,31 14,1 68.849BBVA 58 Banking ES 28,21 4,50 9,89 42,0 98.553Generali 69 Insurance IT 88,95 1,78 1,96 54,0 66.000Aviva 78 Insurance GB 75,61 2,03 7,58 40,0 59.000UniCredit 85 Banking IT 21,02 2,89 19,22 34,2 142.406Aegon 98 Insurance NL 46,38 2,26 8,82 40,0 29.000Total 1.717,32 159,97 522,44 882,5 2.863.772

Out of the Top 100Companies in the World:

25 are Financial ServicesCompanies operating in Europe

Sales: $1717BCustomers: 883MEmployees: 2.9M

Operating Costs: $522B

Document Spend: $15.7B

- Customer $6.5B- Back Office $3.4B- External $2.5B- Infrastructure $2.3B- Creative $1.0B


Example International Bank

Operating Costs

Operating Profit

Operating Income

2006 1H 2007

Germany Group

2006

3,695 - 4.9%

2,257 + 70.0%

5,952 + 14.2%

1,898 + 1.5%

2,089 + 55.5%

3,987 + 24.1%

13,258 + 3.1%

10,206 + 27.8%

23,464 + 12.5%

Cost Income Ratio 62.1% 47.6% 56.5%

Staff 25,738 23,073 142,406

Customers 3,132,000 34,166,000

€ million



Cost Breakdown

Operating Costs

2006 1H 2007

Germany Group

2006

3,695 - 4.9% 1,898 + 1.5% 13,258 + 3.1%

€ million

- Staff Costs 2,216 + 0.2% 1,149 + 0.7% 7,860

- Admin. Costs 1,166 - 7.5% 626 + 8.3% 4,549

- Depreciationand Provisions

313 - 24.2% 123 - 18.5% 849



Administration Cost StructureGermany

(2006 pro rata costs)Group

(2006 actual costs)€

Admin. Costs 1,165,931,000 4,548,730,000

- Taxes- Consultants- Insurance- Advertising- Security- Services- Transportation- Office Rental- Office Maintenance- Cleaning- Utilities- Furniture/Machinery- Electronics/Software- Postage/Telephone- Printing- Office Equipment- Travel- Hire Charges- Credit Searches- Auditors- Charity- Other

73.990.889116.029.17526.681.638

131.968.95117.527.679

203.852.63412.443.058

138.744.26031.067.53016.062.55436.019.37830.486.96571.974.67685.783.15125.040.93312.902.89645.422.7361.658.6477.707.0325.430.6533.508.509

71.626.849

288.666.000452.673.000104.095.000514.860.00068.382.000

795.305.00048.545.000

541.293.000121.206.00062.666.000

140.525.000118.941.000280.800.000334.672.00097.694.00050.339.000

177.211.0006.471.000

30.068.00021.187.00013.688.000

279.443.000



Document Processing Cost Structure?

“outsourcing is cost transparency” Simon 1991


Content



BenchmarkingBenchmarking is the process of identifying best practice in relation to products and services and the process by which those products and services are created and delivered

The objective of benchmarking is to define, measure and analyze the current operating model of a business in relation to best practice and then to identify areas and means to improve and control the target operating model

Xerox Global Services has a benchmarking database of 6,886 customer target operating models including:

• 1,867 Financial Services Organizations worldwide• 842 German Organizations

Regular cross-checks made with National and International standards (ISO, CEN, DIN) as well as Industry Analysts (Gartner, IDC, Forrester, InfoTrends, Aberdeen Group, Nelson Hall)

1994

The Xerox Management Model

1996

The Xerox Management Model

1997

Xerox 2005

1997

XeroxISO 14001

1998

Xerox Six Sigma

2002

Xerox Lean Six Sigma

2000

Xerox new quality

Source: Xerox and Industry Benchmarks


Benchmarking in Practice

“outsourcing is achieving world class standards” Quinn 1999

Define the performance metrics: Turn Around Time, Utilization (Equipment & Labour), Operating Cost, Vended Work, WasteDefineDefine

MeasureMeasure

AnalyzeAnalyze

ImproveImprove

ControlControl

Analyze data to determine: opportunities for improvement, the low performance causals. Set targets for performance & operational metrics

Measure “current state” of the performance metrics, set targets for achievable metrics and collect customer requirements

Improve process elements: facilities, layout, variance in performance or workflow, labour allocation and scheduling policies

Control performance metrics: use real-time scheduling and control policies to minimize variance. Continuously monitor, track & improve the performance


Benchmarking CriteriaAverage Benchmark Units

Switchboard Operation 24,656

Post Inbound

Post Outbound

Postage

Post Internal

Print/Copy Production

Creative Design Services

Printing

Advertising

Transaction Print

Invoice Processing

Travel Claim Processing

Travel

Office Equipment

Legal Disputes

Document Spend (€)(Estimate based on example bank volumes and average staff cost of €32,180 pa)

€362,516,000 €317,375,000

-€45,141,000

36,000 Calls per person per year

181,362 528,000 Pages per person per year


-12% Cost savings


0.1462 0.1157 € per click all in

0.9159 0.6560

0.4916 0.1247

11,168 18,886

29.90 3.66 € per travel claim

900 412 € per person per year

€ per click all in

-10% Cost savings

-5% Cost savings

€ per click all in

Invoices per person per year

-6.5% Cost savings

Provisions-5%

Source: Xerox and Industry Benchmarks


Xerox Global Services Portfolio

“outsourcing is a long-term relationship of trust” Barthélemy 2003

Creative Services

Mailroom Services

Office Services

ePrint Sourcing

Production Services

Transaction Services

Financial Administration Services

Imaging & Archive Services

Product Lifecycle

Client Lifecycle

Document Management

Litigation Services


Xerox Global Services Portfolio

“outsourcing is a partnership of co-competencies and innovation” Fink et al. 2004

Creative Services

Mailroom Services

Office Services

ePrint Sourcing

Production Services




Product Lifecycle

Client Lifecycle

Document Management

4.4. $1,714M$1,714M

3.3. $2,533M$2,533M5.5. $952M$952M

8.8. $507M$507M

1.1. $5,965M$5,965M

6.6. $791M$791M

Litigation Services

2.2. $2,564M$2,564M

7.7. $603M$603M

Top 25 Financial Services Companies Top 25 Financial Services Companies –– Annual Document Spend $15.7BAnnual Document Spend $15.7B


Annual Cost Savings

“outsourcing is driven by cost reduction” Lindner 2004

Creative Services

Mailroom Services

Office Services

ePrint Sourcing

Production Services




Product Lifecycle

Client Lifecycle

Document Management

2.2. $929M$929M

6.6. $253M$253M5.5. $270M$270M

3.3. $378M$378M

1.1. $3,916M$3,916M

4.4. $323M$323M

Litigation Services

7.7. $128M$128M

8.8. $126M$126M

Top 25 Financial Services Companies Top 25 Financial Services Companies –– Annual Cost Savings $6.3BAnnual Cost Savings $6.3B


Content



Make or Buy Decision Making

Make ... or ... Buy?

Company > Market?Vertical and Horizontal

Integrationuntil

cost of transaction within the companybecomes greater than

cost of the same transactionon the open market

Market > Company?Vertical and Horizontal

Dis-Integrationwhile

core competence andsustained competitive advantage

is notendangered

Insourceif Core Competence

Outsourceif Non-Core, High Cost, Low Risk

“outsourcing is cost transparency” Simon 1991


Insourcer or Outsourcer?

Benefits

Cost Reduction

Risk Reduction

Competitiveness

Efficacy

Insourcer

Efficiency

Offering

Aggregation of Demand

Aggregation of Risk

Best Practice

Core Competence

Outsourcer

Focus Resources

Global Presence

Economies of Scale

Risk Sharing

Transformation

Economies of Scope

Non-Core <> Core

New Markets

“outsourcing is economies of scale and scope” Quinn & Hilmer 1994


Outsourcing is Strategic Change

Design and Manage

Process and Resources

Leadership

and Culture

Focus- Purpose of Change- Objectives of Change

Translate into Operation

Alig

nO

rgan

isati

on

- Balanced Scorecard- Key Performance Indicators

Mob

ilise-

Org

an

isa

tio

nal

De

sig

n-

Ro

les

an

dR

esp

on

sib

ilit

ies

-C

om

mu

nica

tion

s-

Ch

an

ge

Ag

en

ts

What do we want to become?

How are we going to make the changes?

How will I be

measured?

What is my new role?

What do we think about

the changes?

Why change?

“outsourcing is a means to implement a new strategy” Lindner 2004


Outsourcing is focus on People

Knowledge

Job Security

Career Development

Payment

Promotion

Social Belonging

Communication

Network

Commitment

Extra Role Behaviour

Teamwork

Knowledge Exchange

Knowledge Combination

ExplicitKnowledge

Knowledge Capability

Competence

TacitKnowledge

IntellectualCapital

Trust

Long-termRelationships

SocialCapital

NetworkBreadth

Employment Contract

Psychological ContractGovernance

Duty

Flexibility

Responsibility

EmployeeEmployer

“outsourcing is more than transferring people to another employer” Elmuti 2003


Outsourcing enables Core CompetenceOutsourcing is the long-term contracting out of ready made products or services,formerly handled internally, but which are not core-competence,to a specialist outsource partner,to provide world-class standards and bottom line benefits

2.5B documents printed per year for Lloyds TSB

Global document portal for 22,000 Citigroup advisors

146M payments processed p.a. for 4.8M HSBC customers

1.8M credit agreements p.a. managed for BNP Paribas

Click on demand printing for all Barclays offices

9M pages of pitch book presentations for Goldman Sachs

All HR documents held electronically for Deutsche Bank

“outsourcing is a business strategy of core competence” Elmuti 2003


Xerox Contacts

Frederik GoergenSales Director Germany - Financial Services� +49 176 1690 [email protected]

Gregor MayerAccount Manager Germany - Insurance� +49 176 1690 [email protected]

Richard GodfreyBPO Manager Europe – Financial Services� +49 170 737 [email protected]

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