© neoIT 2005. All rights reserved

www.neoIT.com

February 2, 2006

Lifecycle Series: Governance

Bill MetzExternal Business Development Manager, Procter & Gamble

Chas R. MullinsManaging Director, neoIT

© 2005 neoIT2

P&G Background P&G Background

In 1999 created Global Business Services, consolidatingmore than 70 business services and application systemsin a Shared Services organization

In the past three years P&G has entered five strategicpartnerships worth a total of more than $4B

HP for IT InfrastructureJones Lang Lasalle for Facilities ManagementIBM for Employee ServicesHP for Transaction Accounts PayableSykes Enterprises for Customer Inquiries on P&G Products

© 2005 neoIT3

Ensuring Success Through Proper Governance

© 2005 neoIT4

Agenda

Need For Governance

Governance Across the Organization

Key Governance Activities

Critical Success Factors

Key Take Aways

Questions/Answers

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Question to Audience – Buyers Only

Q1. Are you currently in a relationship with a third

party supplier?

Q2. Do you have a current governance strategy in

place?

Q3. Is executive leadership (VP& above) part of the

governance structure?

© 2005 neoIT6

Need For GovernanceNeed For GovernanceOften heard statements from client side:

Not happy with quality of delivery

Why is there so much turnover?

Lack of visibility into resource availability

Not convinced of productivity and performance levels

What is the delivery process?

Whom can I escalate to?

Miscommunications due to differences in culture

Soft skills mismatch

Not sure of value of outsourcing

© 2005 neoIT7

Need For GovernanceNeed For Governance

Often heard statements from the supply side:

Not honoring small commitments which lead to failure in larger ones as

well e.g Monday deliverable slips to Tuesday etc.

Buffer resources not maintained according to contract

High attrition rate in the vendor team

Contract Service levels are no longer relevant in current operating model

Holiday in India and onsite is unaware!

Applications footprint not updated over time

© 2005 neoIT8

Need For GovernanceNeed For Governance

P&G Experiences:

No historic performance dataRetained organization resistant to adopt new rigor requiredPerception that things are harder and take much longer withno offsetting value gainsValue erosion due to lack of productivity measuresGovernance gets stuck in the middle vs. simply facilitating a direct relationship between customers and suppliersSupplier slow to react to changing needs (i.e. capacity issues)Maintaining enough competence to be a capable buyer

© 2005 neoIT9

Need For GovernanceNeed For GovernanceMost common reasons for failure to achieve full potential in offshoring

Lack of executive focus after contract signingChange of guard at client executive teamChange of client business drivers

Lack of monitoring of performance and deliverablesOther performance criteria besides service levelsQuality of service may suffer

Contract amnesia Lack of enforcement leads to complaisanceContract loses relevance

Objectives morph i.e, lose track of original objectives for offshoringObjectives driftOther than financial – quality improvements, process reengineering

© 2005 neoIT10

Governance as a Component of Global Business Services Governance as a Component of Global Business Services

SupplierClient & Site

ServicesServices

Business Units

Global organizationRegional service deliveryService/Product focus

• HP • Jones Lang LaSalle• IBM• Etc.

Customer alignedSite representation

Governance

Manages Supplier• Relationship• Performance• Key Processes

© 2005 neoIT11

Governance Across the Organization

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Governance Model/Framework

Expect to invest 5-8% of total spend in governance

• Service levels – monitoring, reporting• Schedule management• Issues in quality• Offshore workload management• Process flow for onsite/offshore

delivery

Performance ManagementInvoice reviewBudget to actualsExpense allocationInvoicing procedureChange management to base model

Financial Management

Contract ManagementKey personnelStaffing, attritionBackground checks, InsuranceDR/BCP plans, readinessReformulate service levels forrelevancy

Resource ManagementRetentionBufferTrainingVacation, holidaysOnboarding Resource transitionsConserve knowledge transferSkills update

Relationship ManagementClient of choice initiativesOne teamTrack issues to closureBridge culture gaps

© 2005 neoIT13

Key Governance Processes

Relationship ManagementService Request ManagementService Receipt VerificationPerformance ManagementProblem/Incident/Change ManagementProject ManagementSecurity, Business Continuity, Disaster RecoveryFinancial OperationsAsset ManagementContract Management

© 2005 neoIT14

Common Processes Across Suppliers

HP IBM JLL Others

Service Request Management

Performance Management

Problem/Change/Incident Management

Other Key Processes

Project Management

© 2005 neoIT15

Critical Success Factors

Internal Buy-in– Organization needs to undertake a realistic internal assessment of their ability and readiness to pursue and scale-up

complex initiativesAccountability

– PMO Owner is ultimately accountable for success of offshore initiativeEnsures accountable resources are identified for project management and executionEnsures execution synchronization of schedules and plans for all project constituentsEnsures synchronization and linkage with the Client Business and Operations groups

Responsibility– Program Leadership has responsibility for communicating aggregate project reporting, risk and issue escalation

LOB IT must determine what technology related measures must be tracked, measured and communicated regarding progress on off shoring

Leverage Role of Influencers– While nominating manager/individuals to staff appropriate

Partnership developed through clear definition of roles and responsibilities at project levelLife Cycle Commitment

– Senior level involvement and attention dwindles over time, typically in the 2nd year (known as the “the steady state”)– Despite comprehensive plans, contractual clauses for service provider to enhance productivity and to provide

additional value, such obligations are neither proactively monitored for positive results nor are they pursuedDefinition of Roles & Staffing of Governance Team

– Role definition needs to permeate beyond the three layers of governance (Organizational, Functional, Operational)Each team member has a defined role and set of responsibilities that outlines their contribution to ensure effective relationship controls and performance

Investment in time and effort– Operating staff and management should allocate approximately 15% to 28% of time and effort– Management Level (CXO) should allocate approximately 5% of time and effort

Adequate Governance Budget– In addition to time and budget, organizations should budget approximately 5% to 8% of their overall initiative

expenditure on governance

© 2005 neoIT16

Key Take Aways

Successful transition to an outsourced environment takes considerable time and planning

Operating in and managing an outsourced environment requires more structure and rigor than most organizations are accustomed to

Governance needs to happen in all areas and levels of services globalization

neoIT Governance White Paper

© 2005 neoIT17

Questions/Answers

© 2005 neoIT18

Contact Information

Chas R. MullinsManaging Directorchas@neoIT.com816.213.1171

neoIT Global Headquarters2603 Camino Ramon, 2nd FloorSan Ramon, CA 94583 USA

neoIT Asia Headquarters210, Bellary Road Upper Palace OrchardsBangalore - 560 080 India

neoIT Philippines8/F Pacific Star BuildingSenator Gil Puyat Ave. cor Makati Ave.Makati City, Metro Manila, 1200, Philippines

Bill MetzExternal Business Development Managermetz.wp@pg.com513.503.6159

© 2005 neoIT19

Key Governance Activities Key Governance Activities

Personal interaction/email/phone calls

Weekly scheduled conference calls with vendor

Regular conference calls with client management

Monthly Operational reviews at vendor delivery location

Monthly report to client

Facilitate quarterly client audits

Client visits to vendor delivery location

Annual performance and contract reviews

Issue resolution – ongoing basis

© 2005 neoIT20

What is Governance?What is Governance?

Governance is not mere contract management but is a business process and structure to continuously ensure that the organizational objectives are realized

1. Contract management 2. Relationship management3. Performance management4. Resource management5. Financial management

Includes active involvement of functional managers and managers from allied services like legal, finance, HR, Infrastructure etc.

© 2005 neoIT21

Performance Management Performance Management Activities:

Analyze trends in SLsReorganize work process flow for offshore deliveryMonitor continuous performance improvement efforts

Review workload distribution across resourcesRecommend productivity enhancementsPerform monthly operations review

Benefits:

Early indications of problemsForecast of shift schedulingMaintain focus on quality improvementsConsistent level of performance levelsOptimal utilization of resourcesImplementation of global delivery model

© 2005 neoIT22

Resource Management Resource Management Activities:

Review resource profiles for recruitment

Monitor on-boarding processEnsure smooth transition of key resources

Review attrition figures and retention strategies

Monitor skills/new process training

Assist in employee recognition

Benefits:

Right resource for the right jobEarly on the job productivityAttrition managementProject continuityProcess specific delivery not people specific

Knowledge management built for future transitions, if any

Prepare offshore for growth and moving up the value chain

Increase individual productivity

Loyalty to the engagement

© 2005 neoIT23

Contract Management Contract Management Activities:

Track adherence to SLsRedefine SLs for relevanceReview DR/BC planning, testing

Review compliance to insurance requirements

HIPAA compliance/data security

Track volume levels for pricing model triggers

Monitor sufficiency of connectivity/infrastructure

Benefits:

Contract complianceEnsuring SLs are a true reflection of vendor performance

Recommend new SLs for raising the bar

Ensure planning for 24/7 365 days operations

Mitigate regulatory riskAchieve next level of economy of scale of outsourcing

Ensure offshore center availability

© 2005 neoIT24

Financial Management Financial Management

Activities:

Facilitate renegotiation of pricing model when triggered by volumesValidate one-time expense allocationsHelp modify pricing model for moving up the value chain

Benefits:

Value for money, quality, flexibility

Industry benchmarking of market rates

Proper utilization of allotted one-time costs

Improved global sourcing

© 2005 neoIT25

Relationship Management Relationship Management Activities:

Maintain vendor’s focus on client as ‘Client of Choice’

Ensure continuity of clear organization escalation path on both sides

Track issue logs and days to closure

Clear up any cultural miscommunications

Facilitate offshore-onsite interactions

Benefits:

Executive level of vendor remains involved on engagement

Avoid issue accumulation due to executive level changes

Early issue resolutionSeamless integration of client and supplier

‘One Team’ atmosphere