The Evolution from a Internal SSC to an Outsourced Model:

Goh Kim Lee

Singapore

22nd Sep 2010

to an Outsourced Model: Philips Hybrid Journey

AGENDAAGENDAAGENDAAGENDA

1. Our journey of SSC: from internal to external/hybrid

2. Scope of services3. Evaluation of the first three years4. Next steps

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4. Next steps

SBS Finance

Our History1998-> Philips established standalone SSC created in Bangkok(Thailand) for

Lighting sector. India setup SSC in Culcutta in 2001.

2002 Philips established multi sectors Shared service centers in Lodz

(Poland), Chennai (India) and Bangkok (Thailand) for accounting work

2007 Shared service centers divested to Infosys BPO

Confidential 3

2007 Global SBS Finance created (local captive centers)

2009 Transaction based pricing introduced

2009 Introduction of Infosys model in Latin America

2010 Start of rule based controlling project

Why going captive initially and not directly to outsourcing?

• Philips had 3 key attributes required to be successful:

1. The know-how with prior experiences and knowledgeable staff

2. The presence in off-shore to provide support

3. The scale to generate enough savings (>500FTEs per center)

• Strength of approach:

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• Strength of approach:

– Capture all the savings initially (but also all the costs)

– Avoid some initial risks of outsourcing

• creating a partnership together with transition,

• internal buy-in during the migration from onshore to offshore SSC

Why in 2007?

• Key migrations were done and service centers were due to shrink because of process improvements

– Impact on staff career opportunities

– Cost are no longer optimized because of lower scale

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– Cost are no longer optimized because of lower scale

• In a still maturing market with key players still positioning themselves, Philips saw an opportunity to create extra value by divesting the shared service centers.

• Transition risks are limited as Philips hands over a mature existing business (transformations are achieved, staff remains unchanged, governance model already in place, costs are competitive)

AGENDAAGENDAAGENDAAGENDA

1. Our journey of SSC: from internal to external/hybrid

2. Scope of services3. Evaluation of the first three years4. Next steps

6

4. Next steps

SBS Finance

One Service Provider concept

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Front Office

Philips

One face to the customer

3. Business Model

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GM&S

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(Back Office)

Harmonised processes (value chain)

SBS Finance

InfosysSSC‘s

Service processes

RBCI&EB

“Judgement”

Based

Controlling

Remains with the

sectors

Analysis on sub

SBS FinanceScope of services

Confidential 8

“Rule Based”

Controlling

Transactional Accounting

Analysis on sub

process level will be the

basis for a decision

what to bring in scope

Must transfer to

SBS F

Our Portfolio includes traditional Finance services but also Procurement and Compliance Mgt

Requisition ProcessingCatalogue ManagementAccounts PayableTravel Expenses & P-CardFreight PaymentsInter Company Accounts Payable

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Procure To Pay

Local

Regio

nal

Global

XX

XXXX

Confidential 9

CreditsAccounts Receivable and ApplicationCollectionsInter Company Accounts Receivable

Inter Company Accounts PayablePayment Services

General Accounting and ClosingFixed AssetsExternal ReportingTax AccountingTax Filing and ReportingStandard ReportingCompliance Management

XX

XXXX

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Invoice To Cash

Record To Report

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AGENDAAGENDAAGENDAAGENDA

1. Our journey of SSC: from internal to external/hybrid

2. Scope of services3. Evaluation of the first three years4. Next steps

10

4. Next steps

• Further efficiencies: economies of scale across sectors

• Communication: the BPO contract requires one point of contact per country with

Infosys.

• Scope compliance: more than 20% of the work that should be transferred to

SBS Finance

The 6 reasons why Philips decided to create a global SBS Finance organization

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• Scope compliance: more than 20% of the work that should be transferred to

Infosys is still done in the sectors.

• Harmonization: the speed to reach harmonized work instructions is too low.

• Innovation: together with the Finance Excellence Network we can implement

process innovations quicker.

• People: managing knowledge (including back ups) and career opportunities.

Our Vision

We want to be recognized as an excellent

provider of financial services to all Philips

businesses worldwide.

SBS Finance

Vision & Mission

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Our Mission

We are a business focusing on customer

needs and delivering excellent quality and

sense and simplicity in financial services at

competitive prices to all Philips businesses.

• Depend on each other

Scope: execute the Shared Business Service Finance concept by bringing all transactional accounting into the SBS Finance front office (Philips) or back office (Infosys), to be ready by mid 2010. In addition, provide attractive opportunities to our internal customers to migrate rule based controlling work to SBS Finance or Infosys.

• Delight customers

Customer satisfaction: achieve a high level of customer satisfaction by delivering quality and “sense and simplicity” services at competitive prices.

SBS FinanceOur strategy is linked to the 4 Philips values

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“sense and simplicity” services at competitive prices.

• Deliver great results

Costs: support Philips in bringing the total Finance costs closer to benchmark targets by pursuing further efficiencies in our front office organizations, by actively migrating the appropriate activities to the low cost centers of Infosys, by strongly driving innovation (together with the Finance Excellence Network, Infosys and our customers) and through a high level of harmonization and automation.

• Develop people

People: offer a professional and customer oriented environment that provides solid career opportunities for (finance) professionals, but also safeguards essential (accounting) competencies within Philips.

Infosys locations

Scope Compliance: close to 80 %

Customer satisfaction

The partnership with Infosys is stable and working well

Confidential 14

�Lower cost

�Flexibility and cost variability

�Capacity for outsourcing scope expansion

�Improved service

�Improved BPO relationship management skills

�Leveraging technology

�Better staff retention and motivation

Compared with the initial outsourced objectives:

Savings 2008-2010

The 4 building blocks of SBS Finance

Increasing the efficiency within the standard scope;

De-bottlenecking and further

automating processes

Completing the standard scope

Executing for accounting the

agreed scope for Infosys

Confidential 15

Broadening the scope

Substantial savings in

accounting and controlling

by more aggressive outsourcing

Decreasing the Infosys Charges

Adapt our way of working to

reduce the Infosys costs under

transaction based pricing

Harmonization of accounting processes

First assessment in 2008 (pilot):

Why harmonisation in accounting:

•Less complexity offers next step towards lower costs•less complex customer for Infosys (better service/re-locations)•Facilitates faster process improvement

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45% of processes is more orless harmonized

25% can be

harmonized with

some effort

30% will take quite

some effort

Creation of harmonized

Work instructions

a. Impact analysis

b. Harmonize if possible

SAP landscape

Fiscal requirements

Business requirements

2009 2010

AGENDAAGENDAAGENDAAGENDA

1. Our journey of SSC: from internal to external/hybrid

2. Scope of services3. Evaluation of the first three years4. Next steps

17

4. Next steps

Our Strategy towards World Class

Initial Cost Level

Salary Arbitrage Savings

Process Improvement Savings

Current

Confidential 18

�Move to low cost countries to fund process improvement

�Go for costs, stay for quality

Future Cost Level

World Class

Definition RBC:

•No/less face-to-face contact

with the business functions

needed and

•can be captured in work

instructions

Remains with sectors

Infosys is already involved

in rule based controlling

work on a small scale

Increase Scope of Rule Based Controlling

“RuleBased”

Controlling

“Judgement”Based

Controlling

Accounting

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instructions

•are of routine nature

requiring relatively little

business knowledge

This model allows the controller to focus on core business activities and support business

functions, e.g. sales, production rather than transactional activities.

Present scope

of SBSF / Infosys.

SBS-F has the ambition to act as an analyst How the RBC project will work: business model and scope

Business PartnerScorekeeper

RBC JBC

Analyst

Infosys Local FinanceSBS-F

Accounting and controlling function

Move to Shared Service

Environment

Stay with the business

function

• Infosys is performing the scorekeeper role which is highly repetitive and standardized

• The analyst function within SBS-F requires also a certain degree of business knowledge

forming a value adding front-office function for business reporting and analysis.

• Local finance focuses on the added value part of controlling, requiring in-depth business

knowledge building on the pre-work performed by the scorekeeper and the analyst.

(definitions of scorekeeper, analyst and business partner found in appendix)

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