Shared Services: A private sector example and some lessons learned Jonathan D. Breul Federal Financial Management Conference March 11, 2008 Notes: IBM Confidential

Agenda 1. Research on federal government experience: franchise funds 2. Private sector example: BP/Amoco 3. Importance of governance 4. Lessons learned 5. Questions? Federal Financial Management Conference Jonathan D. Breul March 11 2008 IBM Confidential

IBM Center research on federal government experience Notes: IBM Confidential

IBM Center for the Business of Government “Franchise Funds in the Federal Government: Ending the Monopoly in Service Provision,” by John Callahan http://www.businessofgovernment.org/pdfs/Callahan_Report.pdf “franchise funds have been successful” “seen considerable customer and service growth during their operation” “expanded, modified, and even curtailed their service offerings as determined by the markets that they serve” “operated on a self-sustaining basis and have practiced full cost recovery” Federal Financial Management Conference Jonathan D. Breul March 11 2008 IBM Confidential

Private sector example – BP / Amoco Notes: IBM Confidential

A snapshot of the BP and IBM Financial and accounting services A five-year journey Growth by theatres, building on prior success Evolution of important “partnering” relationship between BP and IBM Federal Financial Management Conference Jonathan D. Breul March 11 2008

Business transformation in multiple processes Finance and Accounting Human Resources Customer Relationship Industry Specific Procurement Cost Accounting JE Processing AP/AR Fixed Assets Project Acctg Inter-company Billing Credit & Collections Cash Application Internal/External Financial Reporting General Acctg Budget and Forecasting B2E Strategy HR Process redesign Service Delivery Strategy Access to consolidated HR information Full HR Process Delivery Web enabled self service and contact center Vendor aggregation and management Offshore Sourcing Strategic Sourcing Supplier Catalog Enablement Supplier Relationship Management Indirect-Direct Purchasing Contract Management End-User Support Customer Access Transformation Marketing Transformation Field Sales & Service Transformation Contact Center Transformation Infrastructure & Data Transformation Enterprise Connectivity Transformation Oil and Gas Back Office processes Banking Back Office Insurance – General Claims Management Insurance – Life Policy Management Health claims processing BPMS Switch – 19 and 20 ERP Management Data Administration Third Party Management End-user support Transformational Activities Related Legacy Apps Package Solutions IBM Research Process and Productivity Improvements Web Enablement Annuity Based Solutions Global Resourcing Rustproofing and preventative Maintenance Skills Leverage Portfolio Analysis Assessments Systems Engineering, Arch. & Data Integrity Global Testing Web Services Accelerated Solution Delivery Global Solution and Competency Delivery Centers AMS Applications Transformation Technology Transformation Performance and sizing Monitoring and maintaining Database Administration Operating system upgrades Data Center Operations Network Management SO Federal Financial Management Conference Jonathan D. Breul March 11 2008 IBM Confidential

Progression of improvements at BP Vision Leverage of Common Industry Platform and Best Practices Industry Clearing house Common Processes Client 1 Client 2 Client 3 Client 4 Offshore Processing (2003) x ARCO Integration (2000) Business Process Outsourcing to PwC (1999) Value Accumulation of Outsourcing Scale x Shared Services 1995-1997 x BP Amoco Merger (1998) x Common Processes 1994-1997 x x Common ERP 1994-97 Automation 1970-90 x x Continuous Improvement 1990-1995 Time Federal Financial Management Conference Jonathan D. Breul March 11 2008

Three-tier delivery network Global Hub (e.g., Bangalore) Tier 2 Regional Hubs (e.g., Tulsa) Tier 1 Expertise Centres (client site) Consolidate transactional activities in a low cost global hub Consolidate standard non transactional activities into regional centers Provide non standard expertise processes, such a business specific activities, from local expertise centers Six Sigma black belt leadership and methodology applied throughout network Processes include: Accounts payable Travel & expenses Accounts receivable Intercompany Fixed assets Processes include: Data scanning Query handling Statutory accounting Management reporting General accounting Credit management Processes include: Payment disbursement Project monitoring Cost accounting Financial analysis Budgeting & forecasting Governance, relationship management and customer service Federal Financial Management Conference Jonathan D. Breul March 11 2008

Cost and working capital reductions Since 1995 worldwide, savings of 20-50% have been delivered to BP over life of the various contract. Since 1999 in North America, IBM has assimilated three major scope increases in response to BP acquisitions and outsourcing contract awards. BP’s cost for the combined scope (a 20-25% volumetric increase) is lower than it was for the original scope. Transactional unit costs have steadily declined. IBM’s use of Activity Based Management gives BP better understanding of service consumption that ever before. Working capital improvements measured in tens of millions of dollars have already been achieved with more on the way. Federal Financial Management Conference Jonathan D. Breul March 11 2008 IBM Confidential

Increased customer satisfaction Customer satisfaction is monitored on an ongoing basis within IBM and measured annually by a third-party. Annual satisfaction survey results started good and have improved each year. Strong governance program – global and regional governance contracts. Federal Financial Management Conference Jonathan D. Breul March 11 2008 IBM Confidential

Importance of governance Notes: IBM Confidential

Why governance matters Lack of working governance mechanism will be the most common reason for failure of shared services arrangements. Federal Financial Management Conference Jonathan D. Breul March 11 2008 IBM Confidential

Governance challenges 1. Establishing decision rights: - Everyone is responsible, no one is responsible - Decision rights and governance process 2. Defining high value business services: - Decision rights and governance process for shared services - Communicating and enforcing standards and policies - Identifying and implementing sharable services 3. Managing the lifecycle of assets: - Eliminate and prevent unnecessary service proliferation - Change management for shared services - Security and authentication 4. Measuring effectiveness: - Measuring service utilization and cost - Measuring business benefit - Access and visibility to information Federal Financial Management Conference Jonathan D. Breul March 11 2008 IBM Confidential

Effective governance of shared services Setting up an effective shared service organization requires the following elements: - Governing council - Operating standards - Client relationships - Client-focused team and service level agreements - Capable sourcing and service delivery New governance models are required as agency-centric delivery models give way to integrated or shared-service delivery models. Federal Financial Management Conference Jonathan D. Breul March 11 2008 IBM Confidential

Lessons learned Notes: IBM Confidential

Lessons learned Do not under-estimate effort to implement shared services. Need senior management full support. Target and document quick hits – successes. Operate shared services as a separate P&L canter. Implement performance measurement programs. Establish service level agreements. Choose the right geographic site. Limit # of different systems. Incentive based compensation. “Partner” for success. Federal Financial Management Conference Jonathan D. Breul March 11 2008 IBM Confidential

Questions? Jonathan D. Breul Executive Director, IBM Center for The Business of Government and Partner, IBM, Global Business Services 1301 K Street NW, 4th floor, West Tower Washington, DC 20005 (202) 515-4382 jonathan.d.breul@us.ibm.com www.businessofgovernment.org Notes: Federal Financial Management Conference Jonathan D. Breul March 11 2008 IBM Confidential