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Sourcing strategies and your firm:

Considerations for choosing a model

Edward Hall

Vice President and Chief Operating Officer

Amway Japan, G.K.

SSON - Singapore

September 7th, 2011

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Amway at a glance

Amway Global Amway Japan

Sales* $10+ Billion $1+ Billion

Distributors 4 Million + 700,000

Employees ~ 15,000 958

Customer orders filled ~ 125 Million 5.8 Million shipments

IT Spend ~ $400 Million $46 Million

* Asia Pacific sales ~ $7 Billion or 70% of global revenue

Finance shared service centers in Costa Rica, Poland and Malaysia

IT Service Delivery Centers in the U.S., Munich, Guangzhou and Cyberjaya

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30 Years of Outsourcing – where are we now

• Who is doing? – almost everyone

• Where? – everywhere we were told we could not only

recently

• Why? – the list keeps growing

• Are companies better off? – if it is managed effectively

• Do our Boards understand it? – a few, maybe

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All participants are at a crossroads

• Environment keeps changing

Labor dynamics, costs, infrastructure, technology, social impact

Expectations of stakeholders increasing

Scope of the gains no longer just financial

• Impact on company design, culture and competitiveness

• Experienced players have decisions to make

• Medium and smaller firms have more choices

• Providers becoming broader and more sophisticated

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Alternatives breed like rabbits

• Captive site

We build it, we run it, “it is us”

• Outsourcing to a vendor/partner

A marriage with strings – usually happy, sometimes not

• “Hybrid Model” – Trying to please all the stakeholders

The best of both? – For some firms it may be

• The next great thing

Coming soon to a consultant near you …

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Choosing an appropriate model is easy …

• If you know your own company well

• It is nearly impossible if you do not!

• Step 1: Know Thyself

• Step 2: Choose your SSO model based on Step 1

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Before you speak to a vendor or consultant:

• What is your firm’s business objective, the goals that represent success

and your strategies for achieving them?

• What capabilities are crucial to achieving those goals?

Do you have those now or are they an aspiration?

Do they require specialized skills or commodity skills?

What are you doing today that is not on that list?

• How easily does your company handle change?

Who are your stakeholders and how diverse are they?

Employees, directors, community leaders, regulators, sources of future

talent (e.g. universities)

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Key Areas of Introspection

• What is your company’s current source of competitive advantage? What

differentiates you?

Hint: This can be in the “front” or “back” office depending on firm

• What should it be?

• What are you really good at now? How do you know?

• What do you need to be good at in the future?

What is your plan to build those skills?

• Are you good at commodity activities?

• Do you / could you have scale in them?

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You must be honest with yourself

• Why are you doing this?

• How will this help your business?

Hint: if cost reduction is the only reason, STOP

Service quality, cycle time, investment efficiencies (e.g. Info. Tech.)

• In five years, what do you want this to have accomplished?

• How will you position this with your customers, employees

and the community? What is the elevator talk?

• How committed are you? What are you willing to do?

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Should you outsource your competitive

advantage? • Maybe not, but not everything in the front office is a source of

competitive advantage

Could the right partner enhance it?

• Is it based on products or product design?

How modular are your products, can you outsource the design of some

components and retain only what makes it special?

• Is it based on service quality, speed or a customer interface?

Is the service quality associated with your brand key to winning in the

marketplace?

• Is it based on other intellectual property, such as technology patents?

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What is your appetite for Risk?

• How does this vary by function?

For example: Accounting vs. customer service

• Which risks would be visible to your customers is there was

a process failure?

• What is your historic mean time between failures?

• Is IP important to your competitiveness?

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Break down your value chain into key

processes

• Usually no more than 10 – 20 for most companies

Avoid using the current organization structure: focus on process

• Which ones are candidates for shared services or BPO?

Not just about transaction processing any more

Is there a potential partner who is better at it than you?

• How much of the process can move? (Hint: I have never seen 100%)

• What is the likely impact on the processes left behind?

• On the people left behind?

• How will roles in your organization change?

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Your options …

• Captive site

We build it, we run it, “it is us”

• Outsourcing to a vendor/partner: BPO / ITO

A marriage with strings – usually happy, sometimes not

• “Hybrid Model” – Trying to please all the stakeholders

The best of both? – For some firms it may be

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Captive: can be powerful but … be careful what you wish for (1 of 3)

• Economics and intelligence: Do you have scale?

What will be your source of intelligence about the candidate

locations?

How will you vet all that data and decide priorities? Who decides?

If there was no labor arbitrage, would you still do this? If so, why?

Are you willing to make the investment of time and money to

integrate the career paths in the center with those in the rest of the

firm?

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Captive: can be powerful but … be careful what you wish for (2 of 3)

• Process: Are you already best in class at the chosen processes?

Do you already have robust process control expertise? (any GE DNA?)

Does your firm already have an ERP?

If not, how much process harmonization will you do in advance?

If “lift and shift”, will you be adding more processes later to absorb

the excess headcount after rationalization?

Does this center need to be process integrated with other centers

elsewhere?

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Captive: can be powerful but … be careful what you wish for (3 of 3)

• Organization and Talent:

Has your workforce been through large change management projects in

the past?

Do you have the right leadership available or do you have to go outside?

Who will manage this project for you? Have they done it before?

How will the new organization be governed? Who makes tie-breaker

decisions?

What will be the reporting line for the center? Regional? Global?

Can your organization absorb the excess headcount in the local markets?

What is your plan for people who do not make the “journey”?

Will you support multiple languages in the center?

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Choosing a BPO partner (1 of 3)

• Perspective – understand their vantage point in the

relationship

How are their country and company cultures different from yours?

What are their expectations for how their people will be part of your

team?

Can their company culture be a virtual extension of yours?

Overall, what kind a partner are they looking for and are you

comfortable with that?

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Choosing a BPO partner (2 of 3)

• Process management and problem resolution:

Understand how they track processes and you will track their

performance

How do they identify issues early, escalate, vet solutions and

engage with the customer?

How is their problem management process similar or different than

yours?

Do the learnings get looped back into processes to the benefit of all

clients?

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Choosing a BPO partner (3 of 3)

• Priorities and ambitions:

What are the firm’s goals and strategies?

What does the firm want to be in five years, business model, size,

core skills, etc.

Is this compatible with your firm’s goals? Will you still be important

to them?

Is the future direction of this firm compatible with your future

ambitions about where you want to become more “virtual”?

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“Hybrid” Model

• Can be an effective way to balance community and

employee interests with other benefits

• Can also share risks … and benefits

If the contract and service levels are agreed effectively, pricing will

reflect the level of risk assumed by each party

Careful attention to the business case, whose costs and benefits

are really whose?

Who own the organizational knowledge?

• What if the partners sell the same service to other firms?

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Thank you and Good Luck!

Edward Hall

Vice President and Chief Operating Officer

Amway Japan, G.K.

edward_hall@amway.com