Shared Services 101: The Fundamentals of Designing, Building, and Implementing a Shared Services Operation

Shared Services Summit West 2007 Las Vegas, Nevada

September 16, 2007

Copyright 2007 by ScottMadden. All rights reserved.

Agenda
Chapter I. Introduction to ScottMadden, Inc. (ScottMadden) Chapter II. Introduction to Shared Services Chapter III. The ScottMadden Approach to Shared Services Implementation Strategy Alignment and Project Planning Current State Assessment Model Design and Business Case Development Implementation Planning Implementation and Transition

Chapter IV. Beyond Implementation The Outsourcing Process Chapter V. ScottMaddens Shared Services Experience

Copyright 2007 by ScottMadden. All rights reserved.

Participant Introductions
Name Title Company Shared Services Description Shared Services A,B,C A. Planning stage B. One year or less C. One plus years of services x Objective for Workshop

Copyright 2007 by ScottMadden. All rights reserved.

Chapter I. Introduction to ScottMadden

Introduction to ScottMadden
Who We Are ScottMadden is a general management consulting firm founded in 1983 We started with a focus in energy and now have three primary practice areas Shared services Finance and accounting Human resources Information technology Real estate and facilities Supply chain Multi-function Outsourcing advisory services Energy gas/electric utilities Our clients tell us that our service is unique in the quality of our consultants and the way that we: Listen, are flexible, and provide a solution that fits not just the generic answer Put the clients best interest first Maintain a relentless focus on results and customer satisfaction Provide great value, getting the work done quickly and practically Do it with our clients (instead of doing it to them) Support them during implementation with expert resources

Copyright 2007 by ScottMadden. All rights reserved.

What Our Clients Say

ScottMadden worked with us on infrastructure enhancement and cost reduction projects. Compared to other consultants, ScottMadden does a great jobthey do projects with us, instead of to us. They dont try to squeeze us into their solution or templateScottMadden has a strong focus on relationships and results instead of sales. Director They are extremely thorough; they understand and define the problem correctly; they combine the right information and the right management thinking to help solve the problem. ScottMadden never does a mechanical jobthey really make me a part of the solution so that I own it at the end of the day. Their solutions are not academic; they are pragmatic. Director The big firms have no desire to learn our businessjust a desire to tell us what to do. ScottMadden has the desire to understand our company. CIO They are practical; we can put their recommendations into play right away. SVP They dont just consult, they actually do the work and deliver product. ScottMadden delivers work products that we are able to use. SVP ScottMadden people can dive in, get the work done and deliver results in the time it would normally take us to introduce consultants to our team. EVP

ScottMadden Provides An Exceptional Consulting Experience

Copyright 2007 by ScottMadden. All rights reserved.

About ScottMadden
Primary Practice Areas Capabilities

Energy

Strategy and Business Planning Strategy and Business Planning Operations/Organization Design Operations/Organization Design Business Case Analysis Business Case Analysis Project Planning and Management Project Planning and Management

Shared Services

Design and Implementation Design and Implementation Technology Support Technology Support Process Improvement and Cost Reduction Process Improvement and Cost Reduction M&A Integration M&A Integration Operational Audits Operational Audits

Outsourcing Advisory Services

Employee Service Centers Employee Service Centers Customer and Employee Surveys Customer and Employee Surveys

Copyright 2007 by ScottMadden. All rights reserved.

About ScottMadden (Contd)

Primary Practice Areas Capabilities

Energy

Readiness Assessment Readiness Assessment Business Case Development Business Case Development

Shared Services

RFP Development RFP Development Technical Proposal Analysis Technical Proposal Analysis Financial Proposal Analysis Financial Proposal Analysis Base Case Development Base Case Development Technical and Commercial Negotiations Technical and Commercial Negotiations

Outsourcing Advisory Services

Implementation Planning Implementation Planning Relationship Management Planning Relationship Management Planning Effectiveness Assessment Effectiveness Assessment

Copyright 2007 by ScottMadden. All rights reserved.

A Sample of ScottMadden Shared Services Clients

Energy
Cinergy Los Alamos National Lab/KSL Mirant Oglethorpe Power Corporation Plains All American Pipeline Progress Energy Sempra Southern California Edison

Pharmaceuticals
Pharmacia

Transportation
Burlington Northern Santa Fe Norfolk Southern Union Pacific Railroad

Technology
Ericsson Lockheed Martin Microsoft Seagate Siemens Solectron

Financial Services
Blue Shield of California International Monetary Fund Unum Provident

Other
Adidas Bechtel Fluor Hospital Corporation of America Johns Manville Johnson Controls Kerr-McGee Corporation Michelin NASA NewellRubbermaid Sara Lee Woodruff Arts Center

Entertainment
Time Warner Cable Turner Broadcasting System

Telecommunications
AT&T Bell Atlantic BellSouth Southwestern Bell WorldCom

Paper/ Forest Products

Georgia-Pacific MeadWestvaco Weyerhaeuser

Copyright 2007 by ScottMadden. All rights reserved.

ScottMadden Value Proposition

We enable you to implement change more efficiently and effectively

Copyright 2007 by ScottMadden. All rights reserved.

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Chapter II. Introduction to Shared Services

Shared Services Overview

What is Shared Services? Under a shared services model, operating units outsource certain support functions to a centralized support organization Shared services organizations group essential business support functionssuch as information technology, human resources, and financeas a business unit (or units) to serve the operating units of a corporation Shared services is externally focused on their corporate customers, balancing the requirements of the business units with the most efficient and effective delivery of services In the most advanced models, the shared services organization runs as a business, offering competitive services at competitive prices to its internal customers

"Traditionally, our service organizations have been largely perceived by our customers (SBUs) to be costs instead of providers of value. This is the fundamental reason why we have put the shared services business in place. Ashok Arya, Principal Consultant of Dupont's Global Shared Services Business

Copyright 2007 by ScottMadden. All rights reserved.

12

Benefits of Shared Services

Shared services, if done right, is a source of competitive advantage for a business Reduce Expenditures
x x Removes duplicate processes and brings them together in one organization Eliminates redundant labor and systems costs; aligns labor skills and costs with specific task types Creates awareness of costs for internal services, shaping usage behavior Enables company to retain internal control of core functions while still maximizing cost efficiency Reduces costs by 20% to 50%

x x

Leverage Information

Improve Operations

x x x x x

Allows collection and analysis of standardized data across the organization Creates comparability across the organization through consistent processes Enables better decisions to be made based on better information Adapts easily to growth, contraction or structural changes within the company Provides one-stop shopping for employees; clear and known point of contact

x x x

Raises service levels by standardizing processes to achieve world-class results Identifies and eliminates non value-added processes Focuses efforts of shared services staff on providing cost-effective, high-quality service Improves qualitative customer satisfaction and quantitative service measures

Efficiently serving the customer is the driving reason to consider a shared services arrangement
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Benefits of Shared Services (Contd)

Driving Forces for Shared Services
Percent of Baseline Costs

Phases of Shared Services Development

100%

Competition is demanding continuous cost reduction in support services Not only transactions, but also for knowledge-based activities Demands by business units for improved service have dramatically increased 24/7 availability Customized services at commodity prices Technology has been the great enabler Low-cost, reliable communications Shared data bases Web-enabled self-service Outsourcing options have expanded The emergence of Business Process Outsourcing (BPO) provides additional delivery options
Copyright 2007 by ScottMadden. All rights reserved.

0%

Time

Start-up < 1 year

Step 1: Formation Centralization Consolidation 10-20% Reduction Economies of scale Elimination of redundant overhead costs

Growth 1 to 5 years
Step 2: Operation Service level agreements Unit pricing Monthly invoices Performance measurement 15-30% Reduction Reduced demand Standardization of service levels Process standardization Step 3: Refinement Process improvement Reengineering 25-40% Reduction Minimizing exceptions or customization Improving handoffs and interfaces Process simplification Outsourcing alliances

Maturity 5+ years
Step 4: Innovation Web-enabled Self-service Six Sigma processes Unlimited Opportunity Paperless Virtual service center Global low cost alternatives Strategic outsourcing

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Shared Services Overview

SHARED SERVICES DECENTRALIZED Redundant
Customer Focused

Service Culture Efficient Delivery Model Best Practices Independent Entity Infrastructure
Economies of Scale Standardized Processes

CENTRALIZED Unresponsive Detached from Business Inflexible

Inefficient
Business Intelligent

Non-Standardized

Shared Services is not the same as centralization!

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Potential Shared Services Offerings

Human Resources
Payroll Compensation Records management Benefits administration Training and development Relocation services Travel and expense Labor relations Policies and procedures

Information Services
Standards Technology planning and development Desktop support Applications development Data center operations Application maintenance Telecommunications Hardware and software Acquisition

Customer Service
Call centers Returns processing Credit and collections Order management

Legal/Corporate Affairs/Administrative Services

Litigation support and coordination Communication services Environmental, health and safety

Finance
General ledger Accounts payable/receivable Planning and budgeting Internal audit Tax cash management Foreign exchange

Logistics/Materials Management
Strategic sourcing Procurement Warehousing Inventory management Transportation

Insurance Regulatory compliance Media relations Security Travel Real estate Facilities Fleet management

Source: Shared Services: Better Service at Lower Cost Chris Rutledge; [Link]; ScottMadden
Copyright 2007 by ScottMadden. All rights reserved.

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Shared Services Infrastructure

STRATEGY
Governance Structure
I N F R A S T R U C T U R E

Performance Management and Reporting

Chargeback and Billing

Activity Based Costing

Service Level Agreements

Products and Services

Business Processes Technology

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Customer Account Management

Chapter III. The ScottMadden Approach to Shared Services Implementation

Shared Services Implementation

Case for Change Phase I Step 1 Strategy Alignment and Project Planning a. Strategy alignment assessment Step 2 Current State Assessment a. Organizations and responsibilities Step 3 Model Design and Business Case Development a. New operating model Implementation Phase II Step 1 Implementation Planning Step 2 Implementation and Transition a. Execution of implementation plan b. Service level agreements and continuous improvement

a. Detailed implementation plan b. Detailed change management plan

b. Preliminary change b. Products, services, and b. Business case management planning processes

c. Project planning

c. Customers and demographics

c. High-level implementation plan

c. Project management c. Pricing and charging

d. Communication plan

d. Supporting telecom and technology e. Costs f. Executive summary

d. Go/no go decision

d. Marketing e. Transition management f. Risk management

Four to twelve weeks

Three to twelve months

Copyright 2007 by ScottMadden. All rights reserved.

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Implementing Shared Services Keys to Success

Shared services implementations require significant integration and coordination to ensure success. Listed below are key elements that are essential to implementations, but frequently forgotten or ignored:

Proper executive-level sponsorship with support organizations and operating units Well-articulated drivers for implementing shared services Detailed business case that specifies qualitative and quantitative benefits Comprehensive, integrated, phased implementation plan Customer and corporate (HR and IT, for example) input and buy-in Governance Scope agreement Service levels Operating model Managing impact Matching positions and skill sets Willingness to transition current employees out and hire new, properly skilled employees Leveraging and integrating technology Streamlining and reworking processes to fit shared services Leveraging internal resources to design and build Marketing and communicating the concept
Copyright 2007 by ScottMadden. All rights reserved.

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Shared Services Implementation Phase I, Step 1: Strategy Alignment and Project Planning

Strategy Alignment and Project Planning

Phase I, Step 1
Case for Change Phase I Step 1 Strategy Alignment and Project Planning a. Strategy alignment assessment Step 2 Current State Assessment a. Organizations and responsibilities Step 3 Model Design and Business Case Development a. New operating model Implementation Phase II Step 1 Implementation Planning Step 2 Implementation and Transition a. Execution of implementation plan b. Service level agreements and continuous improvement c. Pricing and charging

a. Detailed implementation plan b. Detailed change management plan

b. Preliminary change b. Products, services, and b. Business case management planning processes

c. Project planning

c. Customers and demographics d. Supporting telecom and technology e. Costs

c. High-level implementation plan d. Go/no go decision

c. Project management

d. Communication plan

d. Marketing

e. Transition management f. Risk management

f. Executive summary

Copyright 2007 by ScottMadden. All rights reserved.

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I.1.a Strategy Alignment

The Importance of Strategy
To be a strategic partner, a shared services function and its professionals must comprehend exactly what capabilities drive successful strategy implementation in their companies and how the function affects those capabilities Key Purposes of Strategy Articulates the future direction for the business or group Allocates scarce resources Enunciates promises Creates sustained competitive advantage Key Questions What is the corporate strategy? The marketplace Competitive advantage What is the corporate philosophy? Autonomy versus control Entrepreneurship versus staying between the lines Accountability for results What are the business unit strategies? Marketplace Independence versus interdependence What has been tried in shared services and either succeeded or failed? Approach Understand the corporate visionwhat it says and what it means Be involved in business unit planningunderstand their strategies and critical success factors Discuss with stakeholders the definition of success for shared services and what shared services should do to support the corporate vision Incorporate learnings into shared services strategy development If a shared services function cannot demonstrate its value in implementing company strategy, it faces more scrutiny for being outsourced
Copyright 2007 by ScottMadden. All rights reserved.

23

Strategy Alignment
Assessment
Is a shared services approach consistent with corporate, business unit, functional (HR, IT, Finance, etc.), and other strategies? Reponses Relevant to Shared Services
Organization
Assess and build sponsorship for change Sharpen focus of operational business units Place support services in shared service organization Orient as customer service organization with other business units as customers

Example Corporate Strategy Options

Reduce costs of support services Improve quality of support services Improve business unit performance Gear organization for mergers and acquisitions

Processes
Redesign the service delivery model Standardize processes Reengineer service processes

People
Define new skills Reselect the staff Train service providers

Tools
Leverage existing technology Use technology to facilitate service request/fulfillment Automate information retrieval and communication Automate performance reporting to speed improvement

Is the corporate strategy clear and has it been communicated?

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Strategy Alignment
Strategic Direction More Than Cost Reduction
x

Integrated Strategic Service Delivery Focus on strategic business drivers Create strategic partnerships Ensure seamless integration of outsourcing Enable a virtual organization

Value Creation and Continuous Improvement Reengineering and Productivity Enhancement

x x x

Focus on value Leverage shared services network and expertise Create new services that enable business transformation

Benefit

Focus on process Reduce/eliminate non value-added activities Reduce errors and increase rework More timeliness and accuracy of information
x

Cost Reduction
x x

Focus on cost Consolidate and standardize Reduce fixed cost base, mainly through staff reductions
x

Time
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Strategy Alignment
Constraints
Assessment Organization Is there support for this project? (At corporate? At business unit? In functional area?) How successful have similar projects been? Is a major organizational change realistic? Is adequate funding available? Would corporate leadership support an outsourcing option? Processes Are current service processes broken? Will process participants support change? Are processes in need of improvement? Can the number of processes supporting a service/product be reduced? People Will corporate policies allow reductions and/or redeployments of staff? Is there budget for extensive retraining programs? Can new staff with needed skills be hired? Tools What are the limitations of the current technology architecture? Is the IT organization capable and available to implement supporting technology?
Tools People Processes No Maybe Organization Yes

Copyright 2007 by ScottMadden. All rights reserved.

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I.1.b Preliminary Change Management Planning

Elements of Change Management
Project Management Accountability Integration Plan Management Resources Organization Development Role/Responsibilities Rewards Processes Training/Education Sponsorship Assessment Development Maintenance

Successful Transition/ Implementation

Risk Management Assessment Mitigation Monitoring Communication Plan Audiences Development Messages Rollout

Marketing Value Promise Brand Constituent Assessment Collateral Material Rollout

Copyright 2007 by ScottMadden. All rights reserved.

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Preliminary Change Management Planning

Early Change Management Assessments
Who currently supports this project? How steady is that support? Who must support this project to be successful? Who are the important stakeholders? What has been communicated to date on prospective project? What, how, and when will we communicate to those who must assist with planning?
Stakeholder
John Welch

Position
Chief Executive Officer

Assessment
Positive

Comments
Mr. Welch led development of a new corporate strategy to make business units more efficient Mr. Novator initiated the idea of developing shared services

Actions

Joseph Novator

Chief, Administrative Officer

Positive

Mark Peoples

SVP, Human Resources

Neutral

Mr. Peoples has expressed doubts about the Mr. Novator to meet with him utility of shared services and the bi-weekly to provide organizations ability to adopt this level of information and discuss change concerns Mr. Gates believes that IT is over tasked and Propose alterations to IT cannot provide adequate support for priorities to free resources to implementation support implementation Mr. Levinson is reluctant to give up his support service(s) for fear of losing control Mr. Novator to meet with him bi-weekly to provide information and discuss concerns

Bill Gates

Chief Information Officer

Negative

Jerry Levinson

President, Manufacturing Business Unit

Neutral

Example of Sponsor Assessment

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28

I.1.c Project Planning

Objectives and Core Team
Objectives for project planning in Step 1:
Review project objectives and planning assumptions Establish a meeting schedule to collect information Current organization, responsibilities, services, processes, service providers, customers, and costs Existing technology architectures, databases, and software applications Typical Core Team
Leader who ideally: Understands shared services Is experienced with managing people and projectsa good team builder Understands financing within corporation Can operate comfortably across functions and businesses (not necessarily experienced in shared service function to be implemented)

Determine core team members and roles Schedule working groups with core team to develop new operating model design options Set up tentative meeting schedule with senior management to: Receive approval to proceed with project Solicit budget to complete Phase I planning Schedule business case presentation briefing

Other members Leaders from relevant support services Manager(s) from business units/customer groups Human resources representative Information technology manager Manager who understands change management and training development Organization development professional who can assist with process analysis and reengineering Others relevant to specific situation

If known, develop overall schedule of planning and implementation to make a tentative go live date

Project planning provides the roadmap that the core team will use to develop a comprehensive business case and preliminary implementation plan

Copyright 2007 by ScottMadden. All rights reserved.

29

Project Planning
Example Summary Project Plan
Task Step 1 Strategy Assessment and Project Planning Review project objectives and planning assumptions Discuss corporate strategy and develop plan Sponsor assessment and other change management planning Select core team for planning Step 2 Develop Current State Comprehensive document review Meet with service providers Gather background and benchmark information Interview selected customers Meet with other stakeholders Meet with information technology managers Meet with information technology SMEs Meet with selected service SMEs
Copyright 2007 by ScottMadden. All rights reserved.

Week 1

Week 2

Week 3

Week 4

30

I.1.d Communication Plan

Audience Message Medium From When Approvals

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31

Strategy Alignment and Project Planning Exercise

Answer and/or discuss the following elements related to launching a shared services operation:

What is the strategy for the shared services operation?

What elements of this strategy are consistent with the strategy of the corporation? The corporations business units?

What elements of the strategy are inconsistent with the strategy of the corporation? The corporations business units?

If there are other shared services operations within the corporation, how is your groups strategy consistent and inconsistent with that of other shared services groups?

What can be done to improve the alignment of your shared services strategy with the direction set by corporate, the business units, and other shared services groups?

Copyright 2007 by ScottMadden. All rights reserved.

32

Shared Services Implementation Phase I, Step 2: Current State Assessment

Current State
Phase I, Step 2
Case for Change Phase I Step 1 Strategy Alignment and Project Planning a. Strategy alignment assessment Step 2 Current State Assessment a. Organizations and responsibilities Step 3 Model Design and Business Case Development a. New operating model Implementation Phase II Step 1 Implementation Planning Step 2 Implementation and Transition a. Execution of implementation plan b. Service level agreements and continuous improvement c. Pricing and charging

a. Detailed implementation plan b. Detailed change management plan

b. Preliminary change b. Products, services, and b. Business case management planning processes

c. Project planning

c. Customers and demographics d. Supporting telecom and technology e. Costs

c. High-level implementation plan d. Go/no go decision

c. Project management

d. Communication plan

d. Marketing

e. Transition management f. Risk management

f. Executive summary

Copyright 2007 by ScottMadden. All rights reserved.

34

I.2.a Organizations and Responsibilities

Process
Interview managers and subject matter experts to: Determine organization structure, roles and responsibilities Compare roles and responsibilities at various levels and in various locations of the organization Analyze overlaps and gaps in responsibilities Collect the numbers of FTEs performing various work activities
Example of Staffing Organization Chart
Planning and Policy 3 Staff CIO Web Coordination
Led by business person who overseas web management Edits organization and content for corporation Assists offices and branches to develop web pages and links Coordinates web standards throughout corporation

Example of Functional Organization Chart

Chief Information Officer CIO
Led by a business person Responsible to SMT for effective information systems Coordinates and implements business/IT strategy

Planning, Coordination and Research

IT planning, programming and budgeting Research

Applications

Business Solutions
Provides project management of projects from an IT perspective Project managers report to business accountable managers for projects Manages contractors assigned to projects

Network and Infrastructure

Installs and manages servers and security Manages desktop profiles Manages development, test and production environments Manages test labs

IT Help Desk

Controls application development resources Coordinates contracts for similar requirements in businesses

Provides how to support for widely used applications Provides problem resolution Manages security accounts including log-ons, roles, permissions and passwords

Web Coordination 1 Supervisor 2 Staff 2 Contractor

Applications 1 Supervisor 4 Staff 27 Contractor

Business Solutions 7 Supervisor 0 Staff

Network and Infrastructure 2 Supervisor 8 Staff 16 Contractor

Help Desk 2 Supervisor 5 Staff 10 Contractor

Example of Roles/Responsibilities Comparison

Organization
Corporate IT CIO

Role
Oversight of corporate information systems Provide information technology sup port to business processes Develop and maintain retail sales databases and application

Responsibilities
Develop and implement standards Run configuration control board Standardize web applications Provide requirements for applications Maintain business -specific applications

Manufacturing business unit IT Retailing business unit IT

Implement applications to satisfy retail sales and corporate reporting Develop forecasting techniques to provide inputs to manufacturing

Etc Etc Etc

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35

Organizations and Responsibilities

Work Activity Collection
HR Service 1. Benefits/Group Insurance Work Activity Strat a.) Health & Welfare b.) Life Insurance Program c.) LOA/STD/LTD d.) 401(k)/Savings e.) Pension/Retirement f.) Severance Planning g.) Executive Deferred Compensation h.) Compliance i.) Reporting/Billing j.) Tuition Reimbursement k.) Service Awards l.) Childcare Centers m.) Vendor Management a.) Career Ladder/Succession Planning b.) Training Design 2.) Non-clinical courses c.) Training Coordination 2.) Non-clinical courses d.) Training Delivery 2.) Non-clinical courses e.) Organizational Development f.) Performance Management/Evaluation g.) Consulting h.) Vendor Management a.) External Recruiting b.) Internal Staffing c.) Workforce Planning d.) Relocation e.) Outplacement Services f.) Terminations g.) New Hire Process h.) Vendor Management Spec T/P C/D Total 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

2. Learning and Development

3. Recruiting

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36

Organizations and Responsibilities

Assess Skills of the Organization
Human resources are the most important ingredient for improving performance through shared services Skills must be assessed to establish a basis for conducting gap analysis with a new shared services model
Example Template for Current Skills Assessment Summary

Name

Position/Grade

Current Duties

Unique Skills

Comments

Positions and position descriptions will be established in the new operating model Assessment of current skills will be helpful in determining the need for new training and/or new staff

Copyright 2007 by ScottMadden. All rights reserved.

37

I.2.b Products, Services, and Processes

Process and Examples
Develop information on what the organization produces and how it is delivered At right is an example of HR services with details and process implications This information is used to identify: Potential services and processes that might be moved to shared services Relative complexity of various services Disconnects and overlaps, which may be present in service processes
Service
Payroll
-

Example of Service Analysis

Service Elements
Copies of pay stubs & inquiries Garnishment fee guidelines Deduction guidelines Payroll tax guidelines Pay period/day information Employment verification & earnings reporting W-4, W-2 administration Canadian equivalents (T -1 and T-4) Call center performance Benefits enrollment Performance history Tax forms (W-2, T-4) Migration to new processes -

Process Implications
Self service security authorization Forms reductions in processes Ensuring information is in knowledge base

Reporting Maintaining employee records

Call center statistics for 3/27 Document management What must be retained? Paper or electronic retention? Knowledge base content, escalation rules/path Employee self service and knowledge base

Determine the volumes associated with pertinent services, for example: Number of database transactions Number of forms fulfillment actions Number of mailings Number of checks Number of invoices Number of vouchers Etc.
Volume
100 / day

Basic benefits administration and call routing to vendors On-line access to policy and process

Example of HRIS Transaction Volumes/Level of Effort

Table General deductions Employment Job State tax Direct deposit Federal tax data Garnishmentschedule Personal data Garnishmentdeduction Local tax Emerg contact Emerg phone Empl deductions Job Earnings Dist Add'l pay data Can tax data Garnishmentrule Personal phone Employment Phone Employees Oct-99 17420 5044 3953 963 2375 869 178 1950 370 262 454 106 179 126 63 21 154 106 105 26900 Sep-99 15776 10855 4719 731 1904 697 635 1442 164 463 175 224 122 80 25 121 67 12 26900 Aug-99 10985 2541 2164 625 1610 594 150 1068 254 117 307 131 108 102 107 40 55 47 4 20200 Jul-99 13911 2872 2795 738 976 712 572 1047 336 146 375 195 72 92 215 139 45 41 14 20200 Jun-99 14831 4497 3058 1057 1226 980 110 946 328 358 415 243 107 145 109 55 93 51 9 20200 Average 14585 5162 3338 823 1618 770 329 1291 322 209 403 170 138 117 115 56 94 62 29 22880 Time 3 5 5 10 5 10 20 5 20 10 5 5 5 5 5 10 5 5 5 Min/mo 43754 25809 16689 8228 8091 7704 6580 6453 6440 2094 2014 850 690 587 574 560 468 312 144 Hrs/year 8751 5162 3338 1646 1618 1541 1316 1291 1288 419 403 170 138 117 115 112 94 62 29 27608 Percent 32% 19% 12% 6% 6% 6% 5% 5% 5% 2% 1% 1% 0% 0% 0% 0% 0% 0% 0%

Example of Volumes/Level of Effort

Product/Service
Questions regarding payroll

Duration
5 minutes

FTE
1.2

Comments
Volume increases by 30 % in January and June due to pay rate changes

PeopleSoft profile transaction

5 / day

10 minutes

0.1

Hrs/1000 Employees

1206.6503

FTE/1000 Employees

0.5801204

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38

I.2.c Customers and Demographics

Process and Examples
Interview managers and customers to determine: Customer groups and service requirements Communications means with groups Products/services by customer group to be provided Other special considerations for each customer group
Motion Picture KVI Aetna/US Healthcare CIGNA Oxford UnitedHealthcare Blue Cross Blue Shield Hartford Life Time Warner Prudential Fidelity Ultralink (32 HMO in 32 states) Zurich Frick Company Other

Example of Benefits Third Party Providers Currently Delivering Service

Ultralink mitigates the complex landscape of corporate vendors .
Unemployment Dental (DMO, PDO)
Non Union Union Not provided

Travel Accident

Non Contributory

Contributory

Group LIfe

Thrift Plan

Pension

Travel

HMO

Example of Employee Demographics Related to HR Shared Services Center

Employee populations vary with the season and are complex Stable Workforce Seasonal Workforce Seasonal Production Employees

Interview customers themselves to: Baseline customer service quality Satisfaction with services, products, and responsiveness Ideas for improvement

Overhead Employees

Approximately 6,500

Approximately 8,000-10,000 at one time on studio lots 70,000 different employees per year

Stores Part-time Employees Services Provided by SSC Pay Benefits Full HR services Production Employees Baseline Operations

Approximately 3,000-5,000 (additional during holiday sales season)

Attitudes concerning proposed changes Special requirements to provide service under a new model

Approximately Services Provided by SSC 1,700 Pay Benefits through unions Limited HR services

Services Provided by SSC Pay Benefits through unions Limited HR services

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39

VOE

LTD

POS

FSA

AD & D

I.2.d Supporting Telecom and Technology

Assessment Process
Resources Determine the attitude, availability, and capabilities of the information technology (IT) organization that would support implementation Investigate competing projects and their demands and timelines Technology landscape Determine network type and relative capacity for expansion Local area network Wide area network Extranets Security approaches and requirements at a high level Databases ERPs Relevant databases, which might include financial management, human resources information systems, logistics, procurement, and others Unique, application-specific databases Software standards Network Databases Operating systems Office suites Technology landscape (Contd) Applications pertinent to proposed shared services Automatic call distributors (ACD) Interactive voice response (IVR) systems Case management or customer relationship management systems (CMS/CRM) Knowledge bases Portals Search engines Other service support software, examples include: HR Recruiting software Compensation planning Workforce management Finance and accounting AP management AR management General ledger Etc. Telecom PBX system features and capacity Local and long distance providers and services

How are current technology capabilities being used to support existing service processes?
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40

I.2.e Current Costs

Categories
Service delivery costs Plot FTEs performing each service process that would likely be moved to shared services Determine average loaded employee costs by FTE level Determine total costs of each process and service Include costs of processes currently outsourced or partially outsourced Facilities costs If significant facilities will be made available by moving services from business units, determine cost per square foot and total footage used Calculate the overall costs allocated to each service as appropriate Technology Determine pertinent telecom, infrastructure or software licensing costs directly supporting service processes Allocate costs as appropriate where item is not dedicated to providing relevant service Telecom charges, if significant and expected to change

Other costs Vendor costs, as appropriate Overhead management costs Administrative support for relevant services Costs for postage, publishing, advertising, records storage, forms production, etc. if not included in other costs

Tally pertinent recurring costs and costs trends, if available, to provide proposed services
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Cost Analysis
Methodology
HR Costs by Business Labor Cost Analysis
Time mapped to activities based on interviews Costs developed from time allocations, salary information and standard loadings Activities mapped to services Costs for management, ongoing HRIS support and other support activities spread among services based on labor percentage

Exclude Non-HR Costs

Corporate Energy Utilities Global Enterprises

Direct HR Costs
(All costs charged to HR cost centers)

Corporate Utilities Global Enterprises

No HR Cost? Yes

HR Costs by Service Benefits Workforce Development and Training Recruiting and Staffing Employee Relations and EEO Payroll Compensation Special Projects

Total HR Costs Indirect HR Costs

(HR costs charged to non-HR cost centers)

Corporate Utilities Global Enterprises

Accounting (Non-Labor) Cost Analysis

Costs mapped to services based on reviews of accounts and interviews Costs not mapped directly to services allocated based on labor percentage

HR Costs by Type Direct Indirect

Notes: 1. HR costs = Costs to administer and deliver HR services to Corporate and Business Unit customers

Copyright 2007 by ScottMadden. All rights reserved.

42

Cost Analysis
Methodology (Contd)
Labor Cost Analysis Methodology
Develop HR Service Portfolio Conduct Interviews Allocate time of HR staff across services Determine labor cost type Direct Indirect Populate Labor Cost Model Input raw data Calculate Labor Costs By business By service By activity type By cost type

Develop HR Labor Cost Model Employees Salaries Business unit and cost center affiliation Allocation of time to HR services

Analyze Data Inputs and Costs

Labor Cost Analysis Key Elements Many HR employees participate in the delivery of more than one service to customers Utilize interviews to estimate the percentage of time employees spent on various HR services Develop a comprehensive list of HR services and activities to collect employee time allocation information

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43

Cost Analysis
Methodology (Contd)
Accounting (Non-Labor) Cost Analysis Methodology
Acquire Cost Detail for All HR Accounts 2003 Budget 2002 Actuals Review Transaction Detail For 2002 Accounts Identify HR and Non-HR Costs in HR and Non-HR Accounts Direct HR costs incurred by HR cost centers Indirect costs incurred by nonHR cost centers Allocate Direct and Indirect Costs to Services Populate Non-Labor Cost Model and Calculate HR Costs By business By service By cost type

Review 2003 Budget for Anomalies

Build NonLabor Model

Analyze Data Inputs and Costs

Identify NonHR Accounts Potentially Harboring HR Costs

Non-Labor Cost Analysis Key Elements Use actual financials to sort costs Use budgets to identify and adjust for any upcoming projects or other anomalies in the data Obtain budget and actual information for all HR cost centers, accounts, and sub-accounts Review transaction-level detail for all actual HR expenditures Transaction-level detail is useful in classifying expenses by service when the account or subaccount could apply to more than one service

Copyright 2007 by ScottMadden. All rights reserved.

44

I.2.f Current State

Executive Summary
Step 2.a: Organizations and responsibilities Sponsorship and support Current organization, functions, and numbers Roles and responsibilities Step 2.b: Products, services, and processes Customer, service provider, corporate, and business unit service preferences and concerns Volumes and levels of effort to provide existing services Step 2.c: Customer demographics and requirements Customer groups and relevant services Capabilities of customer groups Common service requirements Special service requirements IMPROVEMENT OPPORTUNITIES Efficiencies that can be gained by reorganizing Products, services, and processes that can be better accomplished for all business units
Copyright 2007 by ScottMadden. All rights reserved.

Step 2.d: Supporting telecom and technologies Supporting technology landscape Supporting resourcescapability and availability Step 2.e: Costs Service delivery costs Facilities Technology Other costs

Processes that can be reengineered and automated for increased efficiency Opportunities to reduce costs
45

Current State Assessment Exercise

Answer and/or discuss the following elements related to analyzing current operations:

What indirect functions or resources are providing services that augment or duplicate the services of your function? Which activities provided by these indirect functions are candidates for shared services? Why?

What technologies exist within or outside your function that might be applicable to the shared services organization? How might you evaluate these technologies?

What are the key categories of non-labor costs that might be impacted (positively or negatively) by implementing (or improving) shared services?

Copyright 2007 by ScottMadden. All rights reserved.

46

Shared Services Implementation Phase I, Step 3: Model Design and Business Case Development

Model Design and Business Case

Phase I, Step 3
Case for Change Phase I Step 1 Strategy Alignment and Project Planning a. Strategy alignment assessment Step 2 Current State Assessment a. Organizations and responsibilities Step 3 Model Design and Business Case Development a. New operating model Implementation Phase II Step 1 Implementation Planning Step 2 Implementation and Transition a. Execution of implementation plan b. Service level agreements and continuous improvement c. Pricing and charging

a. Detailed implementation plan b. Detailed change management plan

b. Preliminary change b. Products, services, and b. Business case management planning processes

c. Project planning

c. Customers and demographics d. Supporting telecom and technology e. Costs

c. High-level implementation plan d. Go/no go decision

c. Project management

d. Communication plan

d. Marketing

e. Transition management f. Risk management

f. Executive summary

Copyright 2007 by ScottMadden. All rights reserved.

48

I.3.a New Operating Model

Elements
Organization Functional organizationelements of the organization and responsibilities Staffing organizationtypes and numbers of staff and reporting relationships Functional organizationelements of the organization and responsibilities Roles and responsibilities Internal roles and responsibilities Service tiers Support functions External relationships Roles and responsibilities of partners People Skills required for new service delivery processes Position descriptions Training requirements Tools High-level supporting technology functional requirements Communications Requests management Knowledge management Self service

Telecom architecture Technology architecture User interfaces Applications Databases

Processes Processes to provide each service Service delivery processes Communications of requests Documentation and management of requests Fulfillment processes and procedures Closure of requests Communications processes Escalation processes

Continuous improvement processes Governance and pricing/charging

Copyright 2007 by ScottMadden. All rights reserved.

49

New Operating Model

Development Process
Staffing Sub-team x Through collaboration with core team Develops staffing concepts Begins background work on sourcing options x Through collaboration with process sub-team Develops staff positions Begins developing basis for position descriptions Process Sub-team x Through working group sessions Proposes service delivery processes Proposes escalation processes From volumes and levels of effort, estimates staffing numbers Outlines staff functions Develops high-level performance metrics Provides inputs to staffing sub-team

Model design is an iterative process through implementation

Change Management Sub-team x Through collaboration with core team Performs risk analysis of Operating Model options Analyzes communications implications Continues sponsorship cultivation Begins development of marketing strategy

Core Team x Team reviews best practices and delivery options x Through working group sessions: Reviews strategy and current state Discusses options for design Selects criteria for services in scope Tentatively selects services and delivery methods Discusses service concepts Outlines tentative organization that supports concepts Reviews governance and funding options Tentatively selects governance and funding approaches Delegates detailed work to sub-teams or groups x After iterative exchanges with sub-teams, conducts decision meeting: Reviews operating model options Develops operating model recommendation for which business case will be developed

Model Design Model Design x Organization x Organization x Processes x Processes x People x People x Tools x Tools

Facilities Sub-team x Through collaboration with core team Develops high-level facilities requirements Develops options for locating the new organization

Technology Team x Through working group sessions With process sub-team develops functional telecom requirements With process sub-team develops functional technology requirements Develops tentative technology architecture Develops telecom and technology requirements lists with estimated costs

SMEs and customers provide inputs to refine design

Note: Planning can be conducted as a larger core team or with sub-teams

Copyright 2007 by ScottMadden. All rights reserved.

50

New Operating Model

Key Questions for New Model Design
Organization Could one business service organization provide services for all other units? Can centralization provide scale that improves service quality? Which organization option most aligns with strategy? What are the realistic location options? Processes Is your strategy to reduce costs, improve service or both? What services are similar and duplicated in more than one business unit? What services can be standardized or simplified and centralized? What services have greatest impact on business performance? What services are most in need of improvement? How can processes be improved to speed service, improve quality and/or reduce costs? Will you use tiered service groups to provide service? Is your strategy incremental implementation or the big bang? Which functional area can be implemented most simply? Processes (Contd) What governance approaches are most appropriate? What method should be used for funding? When will this model be implemented? Can services and/or customer groups be phased? What performance will you measure? People Who, when, and how will service providers communicate with customers? How many people are needed for service delivery? What skills are required to administer services in the new model? Tools What services will be provided through self service? Through human assistance? Via telephone? Via the web? Via e-mail? How can customer access to information and services be facilitated? How do you manage requests and improve accountability for quality and service? How can information and processes be automatically provided to service providers? How will you measure performance?

Copyright 2007 by ScottMadden. All rights reserved.

51

New Operating Model

Tips for Developing
Determine the services that can be better provided via a shared services model Example criteria Services required by multiple business units Services that can be standardized or can be automatically tailored for customer groups Higher volume services where scale can provide some efficiencies or greater depth of service Services that can leverage technology investments for better service and/or greater efficiency Study best practice information on shared services delivery options Consider a tiered service delivery approach Design service from customers perspectives Reengineer and standardize processes to extent practical Automate reengineered processes within cultural and budgetary constraints Outline the shared services organization Provide chart of key functions with estimate of FTEs Outline the key responsibilities at corporate, shared services, and in the business units

Copyright 2007 by ScottMadden. All rights reserved.

52

New Operating Model

Tips for Developing (Contd)
Describe service delivery processes, flows, and escalations Describe how requests for services are communicated and managed to fulfillment Diagram the service flows by type service requested Using volumes of services to be delivered, estimate the number of service representatives needed Volumes multiplied by service times yields total time to provide service Translate hours into staffing requirements Benchmark rules of thumb can be used in lieu of calculated volumes, durations, and FTEs Study technology options to automate new service processes Technologies can usually be phased in Technology can be used to provide service directly, route requests, move information, eliminate duplicate data entry, monitor service, and assist management Develop high-level functional requirements for technologies Outline functional requirements of technologies to support service delivery and fulfillment processes Estimate costs of new services model Tally software purchase, licensing and maintenance, and implementation costs

Copyright 2007 by ScottMadden. All rights reserved.

53

New Operating Model Example HR

Channels of Service Delivery
While delivery models will vary, most models rely on a fairly consistent make-up of channels. These include channels for the delivery of customer-specific products and services, administrative and transactional products and services, skill-based products and services, and governance/policy products and services. Each channel serves specific constituencies
Channel Types of Products and Examples of Products Services and Services
Unique, customer-specific x x x x x

Primary Customers

Typical Staff

Operating Unit HR

x BU management Workforce planning Change management x BU employees Organization design Employee relations Program implementation

Mid- to senior-level generalist with breadth of HR knowledge

Self-Service and Employee Transactional and Service Center administrative

x Benefit and HR questionsx BU management x Benefits and payroll x Employees enrollment x Indicative data x Standard and ad hoc reporting x Recruiting/staffing x Compensation surveys and job evaluation x Organization development x Training

Entry-level employees with strong customer service skills and technology proficiency; typically no HR knowledge required

Centers of Excellence

Skill-based

x BU HR Mid-level associates with x Employee Service Center depth in one HR functional area x Corporate HR

Corporate HR

x Centers of Excellence Enterprise-wide HR strategy,x Compensation governance, policy, and philosophy x Executives standards x Job evaluation process design x Benefits program design x Diversity policies

Senior-level professionals with strong depth in one or more HR function areas

Copyright 2007 by ScottMadden. All rights reserved.

54

New Operating Model Example HR

Operational View of Service Delivery
Key Attributes:

Customers

Service Interface/Service Delivery

Strategies, Programs and Policies

Service structured and delivered based on type of work performed Leverages centralized and decentralized components Heightens focus on the customer Increases service delivery at entry or lower service tiers Leverages technologies Focuses on proactive analysis and responses Defines services clearly and bases services on customer needs

Self-Service Vendors
Tier 0
Data Warehouse/ Knowledgebase Interactive Voice Response

Assisted Support
Tier 1 Tier 2

Corporate
Policies/governance

Service Center
Transactions Information and tools Routine services Administrative support

Employees

Centers of Excellence
Design programs Deliver services to business units Tier 3 support for service center Policies and governance

Line Managers Business Partners

Shared services Customer-facing Consulting services Liaison to Centers of Excellence, as appropriate

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55

New Operating Model Example HR

Customer View of Service Delivery

?
Tier 0
75-90%
escalation

Employee/Retiree x x x x x Data changes Enrollment Policy/program info Payroll/timesheet data Referrals

Manager x Policy/program info x HRIS reporting x Advanced services dispatch x Referrals

Tier 1
escalation

x Tier 0 activities for those without computer access x Basic transactions not yet offered in tier 0 x Basic assistance x Application assistance x Policy interpretation x Complex issue assistance x Problem resolution

x Basic activities not yet offered in tier 0 x Basic assistance x Application assistance

5-10%

Tier 2
Centers of Expertise/ESC escalation

x Policy interpretation x Complex issue assistance x BU program design Exceptions for corporate-wide programs Corporate program redesign

0-5%

Tier 3

Corporate HR

x Exceptions for corporate- x wide programs x Corporate program redesign x

Copyright 2007 by ScottMadden. All rights reserved.

56

New Operating Model Example HR

Shared Services Scope
Corporate HR
Compensation

Line Managers and Business Unit HR

Centers of Excellence
Design specialty compensation programs within established guidelines Evaluate jobs Conduct salary surveys Communicate regarding compensation issues, policies, etc. Answer advanced compensation questions

Self Service and HR Service Center

Answer basic compensation questions Process and track stock options Run and distribute compensation reports

Establish policies and procedures Apply compensation programs, policies, and procedures Design corporate-wide Advise management on compensation programs compensation issues Develop compensations policies and procedures Design job evaluation process Design and oversee salary planning process

Benefits

Design benefit programs Develop benefits policies and procedures Select benefit vendors Negotiate contracts with benefit vendors Establish severance programs

Apply benefits programs, policies, Manage vendors and reconcile and procedures vendor bills Advise management on benefits Create severance packages issues Perform plan discrimination testing Advise management on Answer advanced benefits severance issues questions Request and deliver severance packages

Answer basic benefits questions Look up employee benefits information Execute employee benefits changes Administer leaves of absence Conduct annual open enrollment Run and distribute benefits reports Run retirement calculations

Staffing

Design staffing policies Develop staffing policies and procedures Develop workforce planning process

Manage and assist with selection process Advise management on staffing issues

Select staffing-related vendors Manage vendors and reconcile vendor bills Develop staffing processes and tools

Process job requisitions Answer basic staffing questions Look up staffing information Process candidate recruitment expenses Coordinate background and reference checks for candidates Receive and scan resumes into recruiting software

Create and coordinate recruiting communication materials Manage job descriptions Answer advanced staffing questions

Copyright 2007 by ScottMadden. All rights reserved.

57

New Operating Model Example HR

Shared Services Scope (Contd)
Corporate HR Line Managers and Business Unit HR
Advise managers on organization, development, and training programs Conduct workforce planning Conduct succession planning Identify local training needs and arrange for training Assist managers with development planning

Centers of Excellence
Coordinate and manage training (non-technical) vendors Develop training programs Answer advanced organization, development, and training questions

Self Service and HR Service Center

Answer basic organization, development, and training questions Look up organization, development, and training information Enroll employees in training programs Maintain training catalog Administer tuition reimbursement

Organization,Dev Develop enterprise core values elopment,and Design succession planning Training process and tools Design performance review process and tools Define enterprise training priorities Define tuition reimbursement program

Payroll

Develop payroll policies and procedures Manage vendors and reconcile vendor bills Perform tax reporting Maintain accountability for severance plan payments Answer advanced payroll questions Define overarching payroll policies Define labor relations strategies Design EEO programs and policies

Answer basic payroll questions Look up payroll information Input payroll data into system Run and distribute payroll reports

Employee Relations

Coordinate and manage vendors, Adapt overarching employee policies to local conditions within including EAP, EEO investigations, set guidelines and relocation Administer expatriate services Serve as employee advocate Advise managers on employee relations issues Deliver new hire orientation programs Oversee EEO investigations Lead labor negotiations Conduct exit interviews

Answer basic employee relations questions Look up employee relations information Enter employee indicative data updates Maintain personnel files Process verification of employment requests

Copyright 2007 by ScottMadden. All rights reserved.

58

New Operating Model Example Finance and Accounting

Operational View of Service Delivery
Self-Sufficiency Service Interface/Service Delivery Financial Strategy and Policies

Traditional Shared Services

Employees
x Self-service

Service Center
x x x x Transaction processing Questions Routine problem solving Administrative support

x Deliver central F&A services to business units and corporate x Tier 2 for Service Center

Line Managers
x Self-service x Forecasting, budgeting, analyzing, and managing financial resources

Centers of Expertise
Picture Picture F&A Tea F&A m Tea m Decentralized

Corporate F&A
x Support the corporate customer x Develop and maintain financial strategies and policies x Provide financial oversight

F&A

x Customer-facing x Financial consulting support x Liaison to centers of expertise, as appropriate

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59

Expanded Shared Services

New Operating Model Example Finance and Accounting

Shared Services Scope
Function Accounts Payable Accounts Receivable Payroll General Ledger Tax Accounting and Reporting Financial Reporting Business Planning and Budgeting Tax strategy and policy Corporate Little involvement COE Problem solving Problem solving Problem solving Problem solving Provide service for corporate, support field Service Center Processing, support Processing, support Processing, support Processing, support Make routine tax filings Ensure compliance Decentralized Direct work to service center, provide liaison to COE

Set requirements

Design reporting structure Provide financial reports Maintain local distribution and formats (int. and ext.) No direct support Provide service for local customers

Define corporate targets Provide service for corporate, support field; maintain processes Set capitalization policy Set hurdle rates, other corporate requirements Provide service for corporate and field Design and maintain processes; provide service for corporate, support for field Corporate serves as COE

Property Accounting Financial Analysis and Evaluation

Ensure compliance Provide consulting service to local customers

Treasury (cash mgt., bank relations, investor relations)

Manage

Provide wire transfers

Identify local needs

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60

New Operating Model Example Finance and Accounting

Commonalities
Shared services delivery frameworks are all customized to the needs of a company and its business; however, most leading models share certain philosophies and elements The organization is externally or customer oriented, not internally or corporate services oriented Both centralized and decentralized components exist Decentralized largely focused on value-added advisement and/or consulting Centralized focused on policy and program development, transactions and inquiries More service delivery is provided at entry or lower service tiers Integrated technologies are employed pervasively, including telephony, case management, knowledgebase, workflow, and document management Paper is minimized Individuals retrieve information and complete transactions via self service Service centers cover large geographies (United States, Europe, Asia, etc.) A recent survey by Deloitte reports that only seven percent of participants operate multiple service centers in a given country Focus on metrics and measures for customer management, forecasting, process improvement, and proactive response to possible issues Services are defined clearly and from the customers point of view

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61

New Operating Model

Some Potential Supporting Technologies
Automatic Call Distributor (ACD) Handles queue management. Routes callers to available reps, including skill-based routing. Reports on queue time, call abandonment, caller volume per rep, etc. 800#/Interactive Voice Response System (IVR) Provides customers with access to information via the telephone. Provides menu options to callers and pulls information from back office systems such as the HRIS. Reports on caller selections. Can employ a variety of inbound and outbound call handling functions Computer Telephony Integration Screen pops. Recognizes callers phone number and pulls up relevant information for call reps while they are answering the phone. Used as a productivity enhancer Case Management Provides caller history/information. Gives the rep information such as history, past calls, who they spoke to, actions taken, status of their problem, etc. Tracks issue completion against established service levels Knowledge Base Provides searchable information for call reps. Captures/interprets any policy information, requirements anything the call rep must know to answer questions. Includes scripts for frequently asked questions. May also be used as content on Intranet for direct customer access Document Management Manages electronic receipt/filing/retrieval of documents. Routes documents for appropriate archiving based on meta data (such as SS#, account #, etc.) Employee/Manager Self Service Application and Workflow Technology Provides web front-end and back-end processing to enable customers to view/interact with back-end data via a pc, kiosk, etc. Includes filtering information to show only permitted/applicable information Web Content Management Software (portals) Serves to pull distributed data from a variety of sources into a standard web presentation. Enables users to customize their own information, but present it in a standard, centrally supported environment Web Chat Allows customers to interact real time with a customer service rep over the web Voice Over IP Enables call reps and customers to speak directly over the internet (bypassing telecomm costs) while customers navigate the web site. Other applications can be customized to allow call rep to see what the customer sees Wireless PDA Ports back office and web-based information to wireless personal digital assistants Core HRIS/Payroll Systems Database-based systems used for core HR reporting and payroll functions
* other emerging technologies should be exploited as appropriate in the future
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62

New Operating Model

PBX ACD

Example of a Web Enabled Architecture (HR)

TPP TPP TPP TPP TPP

ESRs PC

Phone Access

Security

IVR/CTI

Intranet Applications Case Management System

E-mail

HRIS

Web Server (s)

Knowledge Base

Links
PC Access (Browser)
Abbreviations PBX IVR CTI ACD CMS KB HRIS TPP ESR = private branch exchange = interactive voice response system = computer telephony integration = automatic call distributor = case management system = knowledge base = human resource information system = third party provider = employee service representative

KB
HRIS Bridge KB Database HRIS Extract HRIS Database

HR Web

Self Service Web Application

Copyright 2007 by ScottMadden. All rights reserved.

63

I.3.b Business Case

Methodology
Model Overview x x x x Governance Service scope Organization Technology

Costs

x One-time model implementation costs Labor Technology Equipment Facilities Outsourcing Training Consulting Transition (severance, marketing, etc.) x Recurring model costs Labor Technology x Current costs x Savings x Cash flow analysis x Expected payback x Qualitative benefits x Recommended go/no go decision
64

Analysis

Recommendation
Copyright 2007 by ScottMadden. All rights reserved.

Business Case

An Example of Qualitative Benefits (HR)

An Employee Service Center approach to employee service delivery differs from the current approach, characterized by face-to-face, personalized service. The service center would rely upon centralized service expertise, heavily supported by technology. The benefits of this concept include: One Stop Shopping the ESC provides a single point of contact for all employee service needs Integrated Life Event Solutions improved customer service by emphasizing employee life events, not plan election modifications Increased Availability both service center representatives and employee self service access are available beyond the 40 hour work week Instant Access/Response employee services are as close as the nearest telephonethe service center objective is to resolve all issues during the initial customer contact Accuracy and Consistency the technology employed within the service center will force the dissemination of consistent and accurate information Accurate and Predictable Costs the service center makes it easier to put a price tag on employee services Enabler of Strategic HR Role the ESC will free up HR personnel from the day-to-day service delivery activities to concentrate upon more strategic responsibilities Employee Self-Reliance the ESC will assist in placing more responsibility on the employee for their benefits, administrative tasks and careers

Copyright 2007 by ScottMadden. All rights reserved.

65

Business Case

An Example of Financial Benefits (HR)

Financial business case depends on savings from reductions in costs of service delivery
(in $000's) Savings from Headcount Reduction
1 2

2001

September Business Case 2002 2003 2004 2005 860 60 920 1,350 180 1,530 1,350 180 1,530 1,350 180 1,530

2006 1,350 180 1,530

Savings from (outsourcer) Reduction Total Savings Capital Requirements

3

181

O&M Requirements (000's) HR ESC Personnel Wages Severance Other Total O&M Requirements Total Requirements (O&M + Capital) Net Cash Savings NPV at 10% IRR
1 2 3 4
5 4

43

645 333

722

722

722

722

489 532 713 (713)

176 1,154 1,154 (234)

89 811 811 719 1,042 44%

89 811 811 719

89 811 811 719

89 811 811 719

Compensation reflects 4 % merit increase and includes 35 % load factor for benefits (Outsourcer) work should not be tak en by HRSSC Costs of scanners and scanning software is not included Headcount is reduced to 11, but mix changes to include a Supervisor and administrative assistant ESR salaries are based on $ 28,000/year (includes 7 ESRs) 5 Severance dates have been moved to Jun 30 and Aug 31 Severance pay assumes 1/2 of all 26 displaced employees, equal to 6 months compensation
Copyright 2007 by ScottMadden. All rights reserved.

66

I.3.c High-Level Implementation Plan

2006 Activities
Gain Approval Finalize Plan Design and Build National Service Center Select and Implement Technologies Design (Update) and Build COE Staff National Service Center and COEs Conduct Training and Re skilling Implement New Service Delivery Model at Divisions (Staged) Realign Staff (Staged)

2007 Q1 Q2 Q3 Q4 Q1

2008 Q2 Q3 Q4

Q3

Q4

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67

I.3.d Go/No Go Decision

Sponsors Go Cautions No Go Action Items

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68

Model Design and Business Case Development Exercise

Answer and/or discuss the following elements related to future state design:

What is your envisioned shared services operating model?

For activities that will be delivered from your service or transaction center, which might leverage selfservice?

What type of return and payback period are required for the implementation (or major improvement) of shared services to gain sponsor support? What qualitative elements are most important to your sponsors? Your customers?

How will you evaluate alternatives to implementing shared services, such as outsourcing?

What unforeseen elements or events might impact your implementation? How might you model these in your business case?

Copyright 2007 by ScottMadden. All rights reserved.

69

Shared Services Implementation Phase II, Step 1: Implementation Planning

Implementation Planning
Phase II, Step 1
Case for Change Phase I Step 1 Strategy Alignment and Project Planning a. Strategy alignment assessment Step 2 Current State Assessment a. Organizations and responsibilities Step 3 Model Design and Business Case Development a. New operating model Implementation Phase II Step 1 Implementation Planning Step 2 Implementation and Transition a. Execution of implementation plan b. Service level agreements and continuous improvement

a. Detailed implementation plan b. Detailed change management plan

b. Preliminary change b. Products, services, and b. Business case management planning processes

c. Project planning

c. Customers and demographics d. Supporting telecom and technology e. Costs

c. High-level implementation plan d. Go/no go decision

c. Project management c. Pricing and charging

d. Communication plan

d. Marketing

e. Transition management f. Risk management

f. Executive summary

Copyright 2007 by ScottMadden. All rights reserved.

71

II.1.a Detailed Implementation Plan

Development Process
Implementation plan development process Select appropriate subordinate teams, if not already done Develop a draft implementation plan Convene a meeting of the core team Layout new operating model Brainstorm tasks and durations Identify resources for each task or group of tasks Convene sub-teams to develop more details in plan Layout timelines Gain agreement for completion of overall implementation requirements Identify key milestones Identify critical path tasks Revise and send out project plan for comment Publish final project plan Adjust project plan, as required, through implementation (you will not have all of the requirements by the time you publish this plan) Risk management What could go wrong? What will we do about it if it happens? Key elements of a project plan Tasks what must be done Schedule when must it be done Resources who will do it Budget how much money is allocated

Copyright 2007 by ScottMadden. All rights reserved.

72

Detailed Implementation Plan

Team of Teams Approach
The success of the project depends upon the coordinated interaction and support of key groups
Team Requirements Depends on specific strategy and plans Usually changes over the course of planning and implementation Training and marketing are sub-teams that may come on later in planning
l en k ica K ran hn F arry ec n T o B ob l R abe B I s la n r A ome H
Kn S ow B and led M arb y ge B as S ich ara e H her iko R i P O Is olic ps y ab el

Other Potential Subordinate Teams Training Communications/ marketing Facilities Others

Team Selection Select the project leader first, if possible Select core team Core team leaders can be leaders of subordinate teams Select individual team members Be realistic on time commitments

ng e nt Cha geme na Ma n Joh ia l Dah on r Sha iko h Mic ry Lar y s ti o n d San munica C om

Core Team John Sandy Barbara Angela Isabel Ron Dahlia Mike Process Team Angela Barbara Sheri Bill HR Ops ER/HR Admin

Staf Sa fing n Jo dy hn Ba r An bara gela Jen Ern nifer Ph ie il Sh eri

Build the Teams Educate teams on project philosophy and objectives Establish clear roles and responsibilities Provide explicit milestones and delivery dates Establish weekly progress meetings

Example from HR and Payroll Implementation

73

Copyright 2007 by ScottMadden. All rights reserved.

Detailed Implementation Plan

Major Sections
Implementation team formation Detailed design of shared service center Staffing process, selection, and on boarding Process reengineering Process identification and mapping New process documentation and coordination Performance metrics and reporting Cost accounting and charge backs Telecom Communications requirements Telecom services installation Telecom integration and testing Technology Finalize technology requirements Detailed architecture Vendor selection, contract, and plan Installation and integration Testing Disaster preparedness/business continuation planning Facilities Site selection process Facilities requirements and design Construction and configuration Acceptance Equipment installation Move employees Training Customer service Internal processes Service processes and knowledge Technology operations Customer and ancillary service provider training Business simulation Communications and marketing Risk management and contingency planning

Copyright 2007 by ScottMadden. All rights reserved.

74

Detailed Implementation Plan

Example Excerpt
Week Key Tasks and Milestones Accountability of I Current State Analysis and SSC Call Center Definition I-A Finalize scope of services I-B Finalize call and transaction volumes May 1 Finalize call and t ransaction volume estimates: - Apply benchmark data and tools to scope and population - Test assumptions against Erlang model - Quantify transactions for each scope item IC Finalize technology requirements May 22 Compile list of technologies May 22 Develop short list of requirements What Must Be In Place Complete Deliverables

Scope of services Customer population defined Greater definition of all scope Assumptions r elated to transaction processes SSC definition Technology shopping list

May 26

Call volume estimate FTE requirement for call handling FTE requirements for transaction load

May 26 May 26

May 22

Develop final solution for IVR and CTI functionality Develop options for secure access through phone and web applications

May 30

Jun 5

Develop technology architectu with application SMEs

re

MIS/SME

Commitment of funds from Telecom and SSC - List of in -house technology - Understanding of in house LDAP capability and schedule Decision on IVR/CTI approach -

Jun 5

Technology shopping list Basic functionality and architectural requirements template Contract c ommitment to NEC Plan to develop security structure

Jun 9

Jun 16

Detailed functional architecture from which SMEs can develop designs

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75

Detailed Implementation Plan

Example Excerpt (Contd)
Week of Jun 5 Key Tasks and Milestones Define telecom environment and capability/capacity Accountability MIS What Must Be in Place Complete Jun 9 Deliverables Telecom summary with opportunities and limitations Core team established Meeting Subordinate teams established with availability known

I-D Form implementation planning teams and make assignments May 22 Form core implementation - Decision on leaders planning team of subordinate teams May 22 Hold kick-off meeting - Work plan with assignments May 22 Identify subordinate teams - Work plan with information - Technology team requirements - Process team - Knowledge base team - Change management/ communications team Jun 5 Communicate expectations to Core team - Team identified, work subordinate teams plan completed II Integration Management and Planning Jun 5 Develop outline vision for SSC Core team - Established scope and basic phases for end-of-year 2001, including; defined - Scope - Populations served - Technologies (self- service) - Staffing - Processes Jun 12 Communicate vision to subordinate teams, Corporate HR, and HR Ops Core team High level phasing document

May 22 May 26 Jun 2

Jun 9

Jun 9

Jun 12

High level phase document describing scope and reach of center at designated point in time, culminating in the end-of-year 2001 state Meeting

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76

II.1.b Detailed Change Management Plan

Overview of Plan Requirements
Detailed change management plans are developed The integrated model describes the basic elements of this plan
Project Management Accountability Integration Plan Management Resources Organization Development Role/Responsibilities Rewards Processes Training/Education Sponsorship Assessment Development Maintenance

Successful Transition/ Implementation

Risk Management Assessment Mitigation Monitoring Communication Plan Audiences Development Messages Rollout

Marketing Value Promise Brand Constituent Assessment Collateral Material Rollout

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77

II.1.b Change Management

Sponsor Assessment
Sponsor

+ = For

Comments

O = Neutral = Against CEO

COO

Pres BU 1

Pres BU 2

SRVP HR

SRVP IT

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78

II.1.c Project Management

Tools and Templates of the Project Manager
Attentive, intelligent project management is a key to success Example Key Milestones List
Task
Define high-level IT organization Form implementation team(s) for IT Re -engineering Develop marketing plans Develop communications plans Develop draft service level agreement for IT Establish new IT Users Forum (IT strategy input due) Develop new BSC, baseline and set targets Implement new project management processes Establish Business/IT Planning Team Complete staffing decisions for new CIO organization Develop initial IT strategic plan and recommendations Complete staffing for an improved CIO organization Complete new web site management processes Complete facilities for consolidated organization Decide help desk service delivery processes Develop improved help desk infrastructure/ technology Train new help desk employees

Tools of the project manager Weekly progress meeting Comprehensive project plan

Responsibility
Staffing/Organization Team Admin, Director Communications/ Marketing Team Communications/ Marketing Team Core Team Admin CIO Process Team Core Team Core Team Process Team Staffing/Organization Team Process Team Facilities Team Process Team Technology Team Training Team

Due Date
November 18, 2002 November 22, 2002 November 22, 2002 November 22, 2002 November 27, 2002 January 6, 2002 January 10, 2003 January 24, 2003 January 24, 2002 February 6, 2002 March 31, 2002 April 7, 2003 April 17, 2003 April 14, 2002 June 20, 2003 August 1, 2003 August 15, 2003

Issues/actions list Senior management support

Example Issues/Actions List

Issue
1. Mainframe programming projects

Discussion
Numerous high-payoff projects have been identified Resources in MIS are not sufficient to provide timely delivery of all priorities Dependent on decisions regarding ESS Requirements and design for ESS is required for Phase I Coordination with other web communications is required to reduce duplication and potential confusion for employees Current plan is to present paycheck and benefits elections information on intranet Need final design and resource

Impact
High

Actions
Consider an additional resource from outside of Acme Costs could be $ 80K Investigating use of AC security schema Programming resource is identified Explore integration of AC self service pages for Phase I Schedule meeting with all stakeholders and develop long-term vision for user interface on intranet Make clear decision on what is achievable for Phase I Publish decision in memo Gary has offered resource

Lead
John

Due Date
Aug 25

2. ESS Security system for technologies 3. Develop clear, comprehensive phased plan for Employee Self Service (ESS)

High

Ron

Sep 1

High

John/ Sandy

Sep 1

4. Programming resource for presentation of info on web

High

Ron

Sep 1

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Implementation Planning Exercise

Answer and/or discuss the following elements related to implementation planning:

What period of time do you plan to implement shared services?

How will you phase your implementation?

How will you structure your implementation team?

What do you believe the critical path items will be for the implementation? Why?

What do you expect the key risks to be? How will you mitigate these risks?

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Shared Services Implementation Phase II, Step 2: Implementation and Transition

Implementation and Transition

Phase II, Step 2
Case for Change Phase I Step 1 Strategy Alignment and Project Planning a. Strategy alignment assessment Step 2 Current State Assessment a. Organizations and responsibilities Step 3 Model Design and Business Case Development a. New operating model Implementation Phase II Step 1 Implementation Planning Step 2 Implementation and Transition a. Execution of implementation plan b. Service level agreements and continuous improvement c. Pricing and charging

a. Detailed implementation plan b. Detailed change management plan

b. Preliminary change b. Products, services, and b. Business case management planning processes

c. Project planning

c. Customers and demographics d. Supporting telecom and technology e. Costs

c. High-level implementation plan d. Go/no go decision

c. Project management

d. Communication Plan

d. Marketing

e. Transition management f. Risk management

f. Executive summary

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II.2.a Execution of Implementation Plan

Implementation Reviews
Establish clear deliverables and milestones in the project plan Business accountable manager and IT project manager should review these milestones and costs estimates at least weekly

Agree on performance metrics Functional performance (did not meet, met, or exceeded) Implementation schedule (milestones on time, late, late more than ___ days) Costs performance (on budget, % overrun)

Brief senior sponsors on project status on a regular basis (bi-weekly) Highlight those behind schedule or over budget Highlight shortfalls in satisfaction of requirements Highlight needs for reallocation of resources Highlight needs for assistance from outside of shared services

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Execution of Implementation Plan

Scope Control Process
Establish bounds within which changes can be made to the design

For changes that exceed those bounds: Require formal submission of a scope change request Determine costs of change in terms of resources and time Get approval for that change from the manager whose budget is funding that project Highlight scope changes in high-level project reviews to the senior sponsor

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II.2.b Service Level Agreements

What is an SLA?
A service level agreement (SLA) is an agreement between the provider of a service and a customer that quantifies the target quantity, quality, and cost of services to be provided in a future period

A Service Level Agreement Is Not: Just a form to complete A protect yourself document A letter sent to customers A once-a-year contract A make-work activity A backward-looking document

A Service Level Agreement Is: A way of managing expectations The creation of a partnership Two-way communications Ongoing contact/feedback A clarifying process A way to improve for the future

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Service Level Agreements

The Importance of SLAs
Why are service level agreements needed? To achieve understanding of roles and responsibilities To clarify expectations Definitions of services Quantities Service levels (quality) Prices and costs To provide a basis for developing plans and budgets To establish a baseline for performance measurement To increase value Reduce quantities of low-value services Increase effectiveness of high-value services Optimize service levels Improve processes To mimic processes used in the competitive marketplace To achieve the best possible results

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Service Level Agreements

Developing SLAs
What are the steps to develop service level agreements? Define services Establish prices Define service levels Conduct dialogues with customers Performance results and plans Service definitions Historical information Forecasts Improvement opportunities Document results

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Service Level Agreements

A Simple and Effective SLA Format Section Key Elements
Function (e.g., accounting service provider)

Length

Introduction

Services Elements associated with services Processing hours Customer support hours Activities performed Quantifiable performance targets Reporting frequency Method of accessing Requirements from business units Standard pricing

1 page

Delivery Agreement

1 page

Performance

1 page

Customer Support Focus

1 page

Cost of Service

Premium pricing Authorizations

1 page 5 page

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Service Level Agreements

An Example Service Level Agreement (Administrative Services)

No. Product/Service
1 2 3 4 5 Records Storage Mail Services Building Operations and Maintenance Facility Modifications Land Management Services

Cost Dist Method

Fixed Annual Allocated Unit Price Bid for Job Time & Materials

Unit/ Allocator
N/A Number of Employees Square Feet Occupied N/A N/A

Unit Price
$400k N/A $15/yr N/A N/A

Est. Est. Cost Volume ($000)

N/A 3,200 547k N/A N/A Total $400 $523 $8,203 $1,020 $4,100 $14,246

Expected Service Level SLI Indicators Values

Avg. Record Retrieval Time % Delivered Within 24 Hours # of Complaints % Completed on Time % Completed under Estimate <1 hour 98% <2/month 85% 95%

Signed: _____________________________ Administrative Services Department

Signed: _____________________________ Customer Services Business Unit

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Service Level Agreements

Suggested Sequence for Customer Involvement Inputs
Workshop information Project team support

Steps
Prepare initial service list Prepare cost and volume information and complete overall service list Develop competitive benchmarking cost data if available Conduct Dialogue Meeting 1 Reconcile differences among customers

Outputs
Completed Service Definitions Table Completed Cost Distribution Methods Table

Dialogue Meeting 1

Dialogue Meeting 2

Results of Dialogue Meeting 1 Project team support

Develop cost distributions by service and by customer Develop service level indicators for each service Conduct Dialogue Meeting 2 to review cost distribution methods, initial service level indicators, and discuss ideas for value improvements Reconcile differences among customers Prepare draft service level agreements Conduct Dialogue Meeting 3 to review draft service level agreements Reconcile differences among customers

Final Service Definitions Table and Cost Distribution Table Final Service Level Definitions Table

Dialogue Meeting 3

Results of Dialogue Meetings 1 and 2 Project team support

Service Level Agreements Value Improvement Action Plans

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Service Level Agreements

Customer Involvement Key Points
Customers know more about their business than service providers Markets Competition Challenges Service providers should listen carefully to their customers regarding: Challenges, including meeting budget targets Strategies and initiatives Support needs

Service providers know more about service usage than customers Volumes Service levels Improvement opportunities

Service providers should take the lead in: Estimating next years service volumes Suggesting service level alternatives Proposing improvements

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II.2.b Continuous Improvement

Charter
Performance measurement systems must be part of a continuous improvement process Performance is measured Performance is compared against targets Action plans are developed to improve processes, training or systems Response to those improvements is measured

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Continuous Improvement
Process Service INPUTS
People Processes Training Systems

OUTPUTS

No

Measure

Reset Targets (SLA, BSC)

Yes

Reset Targets ?

Yes

Met Targets ?
No

Reward Achievement Implement Improvements

Identify Improvement Actions

Continuous Improvement Process

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II.2.c Pricing and Charging

Service Definitions
Key principles Focus on deliverables, not activities What is it that the customer receives in the end? Limit the number of services so that focus is on the management processes Focus on 20% of services that represent 80% of costs Primary versus secondary services Focus on value improvement, not cost distribution Management tool versus accounting accuracy Definitions serve to plan future work volumes

The best way to define a service is to consider the competitive marketplace The best way to define a service is to consider the competitive marketplace what is it that the customer buys? what is it that the customer buys?

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Pricing and Charging

The Components of Service Costs
Direct charges Labor adders Internal overheads Administrative time General supervision Meetings Training Other shared service charges Capital-related Charged for all assets owned by the shared services organization Charge should include depreciation and capital carrying charge
Asset is directly by the customer (building): Net book value of building Capital charge rate Annual capital cost Annual building O&M cost Total annual building cost Occupied square feet Annual cost per square foot $100,000 X .15 $ 15,000 + 10,000 $ 25,000 2,500 $ 10

Monthly charge for customer A, who occupies 1,000 sq. ft.: (1,000 X $10) / 12 = $833

Capital Cost Example

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Pricing and Charging

The Process to Determine Service Costs
Quantify Current Budget Estimate Volumes per Service Calculate Unit Costs per Service

Estimate Services Cost

Step 1: Quantify Current Budget ($10,000,000)

Step 2: Estimate Service Costs (Current Budget $10,000,000) Product/ Service

PS 1 PS 2 PS 3 PS 4 Subtotal Internal Dept. Overhead TOTAL

Current Budget X % of Service FTEs

Direct O&M

Equiv FTEs
40 15 22 31 108 13 121

% of P/S FTEs
37% 14% 20% 29% 100%

Total P/S Cost

$3.7 M $1.4 M $2.0 M $2.9 M $10 M

+
Chargebacks

+
Capital-Related Costs

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Pricing and Charging

Quantify Current Budget Estimate Services Cost

The Process to Determine Service Costs (Contd)

Estimate Volumes per Service

Calculate Unit Costs per Service

Step 3: Estimate Volumes Per Service

Volume Defined by Unit of Measure

Step 4: Calculate Unit Cost Per Service

Total Service Cost Estimated Volume

Product/ Service
PS 1 PS 2 PS 3 PS 4 Subtotal Internal Dept. Overhead TOTAL

Equiv % of P/S Total Estimated FTEs FTEs P/S Cost Volume

40 15 22 31 108 13 121 37% 14% 20% 29% 100% $3.7 M $1.4 M $2.0 M $2.9 M $10 M 10,000 7,500 6,000 6,000

Product/ Service
PS 1 PS 2 PS 3 PS 4 Subtotal Internal Dept. Overhead TOTAL

Equiv FTEs
40 15 22 31 108 13

% of P/S FTEs
37% 14% 20% 29% 100%

Total P/S Estimated Unit Cost Cost Volume per P/S

$3.7 M $1.4 M $2.0 M $2.9 M $10 M 10,000 7,500 6,000 6,000 $370 $187 $333 $483

121

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Pricing and Charging

Service Costs Distribution Methods
How It Works
Bid for Job
x Each request for work is evaluated and a cost estimate developed x The customer (Operating Unit) is quoted the estimated cost which includes all direct and indirect costs x The cost quoted to the customer is the cost distributed to the customer

Where It Works

Variations

x Work content of each request is x For unknown or variable work highly variable scope, quote can be for standard labor rate times actual labor x A job costing system is readily hours available x Number of requests and turn-around time permits estimation

Usefulness as a Management Tool

Unit Rate

x An average cost is determined for x each unit of service delivered x The unit rate includes direct, labor x adders, internal overheads, and other shared services costs x x The unit rate is committed to during dialogue sessions x The cost distributed is the committed unit rate times the actual number of units

Simplicity

A unit can be defined that correlates x None to work content The average work content per unit is relatively stable The actual number of units delivered can be recorded and compiled each month

Fixed Cost

x The cost for a service is estimated for x Predictable and stable workload a time period x Routine, periodic work rather than x This time period cost is agreed to work based on customer demand during dialogue sessions x The agreed time period cost is distributed in equal monthly increments x An allocation basis is determined that x is related to the work done, but is not a direct measure of work done (e.g., x FTEs, $O&M, PCs, vehicles) x Cost is distributed on the same x percentage as the allocation basis

x None

Allocation

A unit of work or a job estimate is x Budgeted cost can be distributed impractical rather than actual Distribution of work/cost to operating units is relatively constant Little opportunity to manage demand

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Pricing and Charging

A Distribution of Service Costs for Mixed Organizations

For organizations that have both shared services and corporate center functions, cost distribution can be addressed in two ways 1. Consider corporate center as a customer and distribute costs to corporate center according to usage Works best when corporate center functions are not located within one organizational unit of shared services Examples include information services and facilities services Has the benefit of including all of the service providers costs in the same cost distribution methodology Exclude costs associated with corporate center functions from shared services cost distributionthese costs would be assigned to corporate center Works best when the corporate center functions are segregated organizationally from the shared service functions Examples include the corporate tax organization when it is part of accounting avoids defining services and establishing unit prices for organizations dedicated to corporate center

2.

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Pricing and Charging

Service Costs Key Points
Determining costs by service does not necessarily yield a price Prices should be rounded for simplicity and to avoid expression of false precision Totals may not tie exactly to budgeted figures This is acceptable because actual counts for the year will not tie exactly to projected counts Known, but not yet experienced, cost increases or decreases should be reflected in pricing Prices for some services may be modified from delivery cost to drive behavior Discouraged services should be made more expensive Services for which usage is encouraged may be sold below the calculated cost This loss leader approach is particularly useful to drive acceptance of a service with decreasing marginal costs These adjustments to the results produced by the costing model constitute the pricing model This model may be as simple as a single spreadsheet using costing model output

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II.2.d Marketing Plan

Constituent Value Proposition Action Plan (What, When, Who, How, Where)

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II.2.e Transition Management

Keys to Successful Transition
Rigorous business simulation training Backup assistance for service providers during a transition period Continuation of change management efforts Expectations managementensure customers know your challenges and communicate expectation you will exceed Communicate, communicate, communicate with Customers Stakeholders Service partners Town hall meetings Workshops with participants, stakeholders, and/or partners Efforts to get rid of shadow work (elements of old processes, etc.) Individual and group training Continuous improvement Organization Processes People Tools Items that typically get pushed to the end, but are important Performance metrics collection, automation and reporting (critical for immediate feedback) Disaster recovery/business continuation planning Other risk mitigation planning Continuous improvement concepts and processes

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II.2.f Risk Management

Concept and Elements
Effective risk management results from detailed planning What is our plan? What can go wrong? What will we do about it when it does go wrong? Risk management continues after shared services begin operations
Take down requests on manual call logs Look up answers in hard copies of knowledge base

Our well conceived plan for providing answers to customers Route calls automatically through the IVR Pop answers from the knowledge base to the service reps

Backhoe digs through power cable causing computers to go down Telephones still work

Contingency plan elements are similar to the implementation plan what, who, and when? Failure, impact, and implications Alternative action and decision making procedure Who does it and when?
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Implementation and Transition Exercise

Answer and/or discuss the following elements related to implementing and transitioning to shared services:

How will you handle the cut-over to shared services? How will you manage the need for staff to train for shared services, but continue to keep the lights on?

What infrastructure elements will be critical to the success of your shared services operations? Why? Do these elements impact your organizations structure or staffing?

How will you determine the competitiveness of your shared services operations against those of alternative providers?

How will you market shared services within your corporation?

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Shared Services Implementation Overview

Case for Change Phase I Step 1 Strategy Alignment and Project Planning a. Strategy alignment assessment Step 2 Current State Assessment a. Organizations and responsibilities Step 3 Model Design and Business Case Development a. New operating model Implementation Phase II Step 1 Implementation Planning Step 2 Implementation and Transition a. Execution of implementation plan b. Service level agreements and continuous improvement c. Pricing and charging

a. Detailed implementation plan b. Detailed change management plan

b. Preliminary change b. Products, services, and b. Business case management planning processes

c. Project planning

c. Customers and demographics d. Supporting telecom and technology e. Costs f. Executive summary

c. High-level implementation plan d. Go/no go decision

c. Project management

d. Communication plan

d. Marketing e. Transition management f. Risk management

Four to twelve weeks

Three to twelve months

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Chapter IV. Beyond Implementation The Outsourcing Process

Outsourcing What Is It?

Outsourcing is the contracting out of an organizations Non-core, non-revenue-producing activities to outside providers

Core Capabilities

Outsourcing is a strategic management tool that involves the restructuring of an organization around what it does best its core competencies

Source: ADP, Inc. Website:

[Link]

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Outsourcing Options
What to Source Knowledge Processes Intelligent Services Transaction Processes
Functions

Where to Source Multi-shore Off-shore Near-shore

Location

Materials
Sophistication

On-shore
Geography/Distance

Who to Source to Contractors Commodity Providers Single Function Specialists

Vendors

How to Source Build-Operate-Transfer Joint Venture Shared Services Co RFP

Duration

Multi-Function Providers
Sourced Services

RFI
Transaction Sophistication

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Outsourcing

Manage Relationship

Assess Needs

Go Live Write Business Case

Implement

Phase IV Phase I Implementation Business Case Phase III Phase II Legal Selection Agreement

Create RFP

Contract Evaluate Proposals

Sign Letter of Intent

Present Visit Sites

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Outsourcing Detail
PHASE I
Assess Needs Determine objectives Identify discrete processes and/or functions and alternative sourcing options Input current and future state analyses Develop sourcing decision criteria and apply Prioritize initiatives Develop Business Case Input current and future state analyses Services Headcount Volumes Performance Conduct detailed cost study Determine quantitative and qualitative benefits of alternative sourcing Assess risks Assess sponsorship

PHASE II
Select Alternative Sourcers Identify vendor candidates Determine logistics Conduct vendor conference Develop and distribute RFPs Manage vendors Evaluate proposals Host vendor presentations Visit finalist sites Select vendor Revise business case

PHASE III
Create Legal Agreement Agree upon letter of intent Negotiate contract

PHASE IV
Implement Develop and launch implementation plan Apply key change management initiatives Communicatio n Marketing Risk management Launch and manage arrangements

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Outsourcing Keys to Success

PHASE I
Assess Needs Develop Business Case

PHASE II
Select Alternative Sourcers
Tell vendor what you want to accomplish but not how to accomplish it Give background information to vendor; specific data and volumes of data decreases the surprises and hidden costs Evaluation process is iterative Fit counts Avoid being over sold take control Include exit clause Understand how prices change when the population served changes Visit the outsourcers operations and/or customers and let them visit you Make sure you truly understand the outsourcers proposals Be open to new ideas and approaches Check references closely

PHASE III
Create Legal Agreement
Letter of intent (LOI) is the basis of the contract Some vendors charge for fixing processes or overhauling technologies. Be sure upgrading and overhauling of processes/technologies are covered in your contract for life of relationship Vendor has more experience than you do (it is routine for them) Use knowledgeable and experienced people when negotiating Dont use the outsourcers contract Ensure there is a clear definition of both in-scope and out-of-scope services; also consider and manage dependencies Institute necessary performance standards and impose attendant penalties Think about and develop groups for contract termination (exit strategy) Include exit clause Understand how prices change when the population served changes

PHASE IV
Implement
You will have to manage the vendor provide infrastructure to do so Pay me now/pay me later (you will not get the absolute lowest price) dont listen to lose money on every thing we do for you Ensure program and resources are in place for transition Remember that you are delegating responsibility, not accountability Continually monitor performance - take action when service levels are not being met Develop a termination and transition plan if needed (back pocket)

Sponsorship dont bother without it Ground rules communication of whats going on, time frames, RFP or sole source, basis of evaluation, business case requirements, decision-makers, etc. Decision factors does it boil to costs only? If so, structure the project accordingly Cross-functional team outsourcing impacts operations, personnel, technology, facilities, etc. Technology will be a big task dont underestimate it Future requirements define outsourcing for future when developing your scope Recognize critical IT elements of BPO transaction Business process mapping is key to success in later project stages Anticipate and plan for deal hurdles like Director Approvals, regulatory consents and the like

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Select Outsourcer Evaluate Proposals (Sample Evaluation Worksheet)

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Chapter V. ScottMaddens Shared Services Experience

Success Stories Finance and Accounting Service Center

ScottMadden performed an assessment of current practices for a centralized finance and accounting organization and assisted in the design and implementation of a shared services management model The Situation The Situation
Certain finance and accounting functions, including payroll, accounts payable, cash management, and tax reporting were centralized but not operating as shared services Management recognized that implementing shared services management practices could help improve relationships with internal customers and standardize processes The organization structure had evolved as the various functions were centralized and management also wished to identify options for improving the organization structure to make it more efficient and responsive

The Solution The Solution

Defined the vision of organization as a shared service, designed and installed improved mechanisms for operating as a shared services business and engaged customers in a manner that increased the organizations value to them Mapped core processes and identified improvement opportunities. For each process, assessed the current state, designed the future state, identified key gaps and implemented improvements to close the gaps Redefined the organization structure Designed and delivered training for employees that explained and reinforced the shared services approach, equipped employees to operate improved processes and improved customer service skills

The Results The Results

Restructured the organization from a function-based organization to a process-based organization Implemented a dedicated customer service organization Redesigned processes that improved service and achieved reductions of staffing of >20% in the first year of operation Designed service level agreements and used these agreements as a method to engage customers Developed a scorecard of performance metrics to track effectiveness of improvements Aligned and energized the organization with a new understanding of customer service

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Success Stories Finance and Accounting Service Center Cost Model

ScottMadden developed a service cost model for an established finance and accounting shared service center The Situation The Situation
Although the shared service center had operated for several years, it had never developed a method for estimating and tracking unit costs for the services it provided Management recognized the need to better understand its unit costs and key cost drivers if it was to continue to improve the cost effectiveness of its operations Management also believed that unit cost data would be helpful in budgeting, planning for expansion of operations, and in dialogues with internal customers

The Solution The Solution

Refined service definitions and units of measure Analyzed resource costs and related information and identified sources of resource-related information Through interviews and examination of process flows, identified primary cost drivers Designed allocation rules to define relationships between resource costs and primary cost drivers Designed service line rules to define relationships between cost drivers and service costs Developed cost model reports Tested the service cost model and produced initial model runs and related reports Documented the service cost model and communicated its capabilities

The Results The Results

Costs per unit for 2002 actual, 2003 estimate, and 2004 budget for each of the key services An improved understanding of the key cost drivers for the organization An effective tool for: Planning and budgeting Evaluating potential expansions of services and/or customer base Estimating and measuring the effectiveness of process improvement initiatives Promoting throughout the workforce the need for improving cost effectiveness

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Success Stories Accounting Service Center Process Improvement

ScottMadden assisted the client in identifying and implementing process improvements in support of a company-wide cost reduction initiative The Situation The Situation
The organization delivered payroll and accounts payable services as its primary offerings New management was brought in to improve customer service and reduce costs Little effort had been made in the past to document work processes and quantify costs of the various services and service levels Management wanted a systematic approach to obtain near-term cost reductions as well as provide a foundation for continuous improvement

The Solution The Solution

Conducted a short diagnostic, best practices benchmarking and gap analysis Identified and prioritized performance improvement opportunities Identified cost savings opportunities to meet and exceed the 2003 cost reduction goal Identified service improvement opportunities that would be valued by users Identified improvements in management processes that would make the organization more efficient and effective Provided the road map for more extensive process improvement and reengineering efforts in 2003

The Results The Results

Process maps for all key service delivery processes Work volumes, including volumes of work representing exceptions to normal process flows Benchmarked performance of unit costs and service effectiveness Recommended service delivery process improvements to reduce costs by >15% in year 1 and an additional 10% in year 2 Recommended improvements in management processes to achieve a more effective shared services management approach High-level implementation plan showing recommended timing and sequencing of improvement efforts

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Success Stories Finance and Accounting Reorganization

ScottMadden was engaged by a leading competitive energy supply company to reorganize its highly fragmented finance and accounting organization The Situation The Situation
Finance and accounting organization highly decentralized across three operating entities corporate, country, and region Legacy operations and processes existed from recent merger of two independent entities to produce the company Significant difficulty in completing routine finance and accounting tasks, including budgeting, forecasting, monthly closing, and regulatory filings because of the decentralization and legacy issues Finance and accounting jobs accounted for more than a third of the organizations total staff positions

The Solution The Solution

Assessed current state, including number of employees, services provided, organization performance statistics, customers, customer needs, and required service levels Determined key bottlenecks in organization effectiveness and organization inefficiencies Developed new organization structures to improve performance and efficiencies and gained buy-in from key leaders Defined new organizations positions, identified skilled candidates for each position and facilitated selection process Developed transition plans to implement new organization without impacting operations

The Results The Results

Collapsed a three-tiered organization into a single entity Reduced operating expense by nearly $7.8 million dollars Reduced headcount by 60 individuals Provided the platform for streamlining processes to improve the organizations performance

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Success Stories Financial Shared Service Improvement Program

ScottMadden was engaged by a Fortune 100 media company to recommend and implement improvement initiatives for their shared services accounts payable, payroll, and treasury function The Situation The Situation
The news and entertainment company had been recently acquired by a larger media company A strategic decision was made to evaluate the shared service functions of both companies and combine functions at the location with the most effective operations Evaluation and implementation of improvement initiatives would need to be completed in six months

The Solution The Solution

Developed improvement initiatives for 1) organization design and staffing, 2) performance management, 3) business unit marketing and communication, and 4) technology Developed new organization structure, determined staffing requirements, developed position descriptions, and selected qualified staff for the new positions Developed internal teams, key metrics, targets, and team incentive to hit targets Surveyed customers and developed new service level agreements Conducted pilot launches of webbased time and attendance and automated matching with the purchase system

The Results The Results

Developed and implemented an efficient transaction based organization structure that offered cross-training opportunities, a centralized call center, and 10% fewer staff Launched recurring customer satisfaction surveys in the business units. Addressed results through improvement initiatives. Customer satisfaction improved 10% in 1 year Improved service business unit calls were answered with improved speed and accuracy Created new service level agreements that priced services and offered incentives to reduce customized services for the business units

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Success Stories Full-Service Business Process Outsourcing

ScottMadden assisted a large power supply cooperative in creating a business process outsourcing (BPO) strategy, determined how to deploy that strategy, and how to execute it at a competitive cost

The Situation
In anticipation of deregulation, the client was breaking its business into three separate legal entities The company needed to split off all G&A into either a separate shared services organization or prepare for a full BPO G&A included accounting, audit and consulting, communications, facilities management, human resources, information technology, materials procurement, and telecommunications The companys decision was to sole-source to a single outsourcer and move all internal staff ScottMadden was brought in to assist with scoping, pricing, and negotiation

The Solution
Fully scoped all services in each functional area, with costs and prices, for both the outsourcer and the client Determined appropriate metrics and service levels Worked closely with the legal team to negotiate terms and conditions Project managed the contract negotiation process

The Results
Successfully worked with client and outsourcer on a first-of-its-kind full services business process outsourcing Eliminated a learning curve through transitioning of entire incumbent staff Established price certainty for a three-year period Included provisions for the client to receive modest credits from the vendor for leveraging staff and providing references to vendors other customers Maintained high customer satisfaction ratings throughout the transition

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Success Stories Outsourcing Benefits Administration

ScottMadden supported two large paper companies going through the merger process in developing and implementing an outsource delivery model for HR benefits The Situation
Two paper companies of approximately equal size were merging and needed to have one benefits delivery model that reduced overall benefits costs and improved quality of service One companys benefits were outsourced while the other operated under a traditional distributed delivery model The demographics of the client population were complex due to the large numbers of participants, the dozens of unions, and the geographic locations. In addition, the company was upgrading its HRIS and modifying its benefit plans

The Solution
Developed the business case highlighting outsourcing costs to be compared to insourcing and cosourcing options Determined the future scope of services and customer service standards that would be required of an outsourcer Wrote the outsourcing request for proposal and helped client select preliminary list of vendors Coordinated all communications among vendors and client throughout the selection process to promote consistency and fairness Determined the selection criteria, provided tools to compare vendor responses and facilitated the selection process Supported corporate legal counsel in identifying contract issues and drafted edits to the service level agreement Assessed and documented implementation and going forward risks associated with the outsourcing process to allow company to more effectively manage risk 120

The Results
Met scheduled go-live date Retained key employees during implementation process Final price was 10% less than original quote Outsourcing agreement resulted in $22 million of net present value savings over the next five years

Copyright 2007 by ScottMadden. All rights reserved.

Success Stories Cost Reduction

ScottMadden was engaged by a leading competitive energy supply company to plan and implement a major reduction in its ongoing operating expenses The Situation
Company poised to operate to achieve annual growth rates of 20% to 25% Organization staffed and generation capacity planned to achieve companys aggressive growth targets Significant shifts in marketplace, including Enrons collapse, plummeting merchant stock prices and reduced access to capital, left the company with a cost structure that was out of balance with its needs A need to reduce its cost structure to align with new marketplace and maintain favorable debt ratings Organization operating in highly decentralized fashion

The Solution
Culled financial and headcount information from a large set of highly decentralized entities Developed and populated financial model to portray current operating situation Determined achievable expense reduction levels and developed detailed plans on how to achieve Developed new, streamlined organization structures to align with companys new strategy and marketplace Developed and implemented detailed, defensible process to select individuals for new organization Tracked headcount and other cost reductions against plan

The Results
Reorganized entire North American operations and removed country corporate structure Reduced operating expenses by nearly $125 million dollars in North America and $180 million worldwide Reduced headcount from plan by over 550 individuals Designed process to track reductions and ensure their achievement

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Success Stories Domestic and International ESCs

ScottMadden was engaged by a leading manufacturer of disk drives and data storage devices to design and implement employee service centers (ESCs) for the entire global organization The Situation The Situation
Margins continuing to decrease on products HR costs continuing to escalate as service levels decreased Increased difficulty managing the human aspects of a global operation Significant confusion from employees on where to turn for which service Significant differences in benefits and services available to domestic and international employees based on work location Weak HRIS infrastructure

The Solution The Solution

Assessed key attributes, including geographies, customer needs, required service levels, and designed plan for placement and staged rollout of ESCs Planned and implemented service centers in the US, Singapore, Thailand, Malaysia, and Ireland Selected staff, implemented technologies, built knowledge base, designed processes, designed facilities, marketed concept, and trained staff and HR professionals Designed general operations, including interaction with HR, escalation of cases, required metrics, and future scope

The Results The Results

Client successfully completed implementation on time and within budget despite the delay in implementation of a new, integrated HRIS system Over first six months, service levels, as measured by internal surveys, increased by over 50% HR reduced initial costs by over 30% and expects additional cost drops as services are added to the center Refocused appropriately skilled HR staff on the delivery of solutions to business problems and away from administrative activities

Copyright 2007 by ScottMadden. All rights reserved.

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Success Stories HR Delivery Model Development

ScottMadden was engaged by a leading oil and gas company to design and plan the implementation for a new human resource service delivery system The Situation The Situation
HR costs continuing to escalate Poor HR service levels had, over time, led to building duplicate HR functions within the companys business units Significant time spent on administrative tasks instead of business-related, strategic issues Significant confusion from employees on where to turn for which service Significant use of paper instead of technology Ineffective use of vendors and poor understanding of vendor costs, service levels, and contracts

The Solution The Solution

Designed four-channel delivery framework with business unit resources, centers of excellence, transaction-based services, and strategy components Built new organization structures; set staffing levels based on overall strategy, new framework, demanded services; modeled demand levels and global service requirements Selected new technologies required to implement new delivery framework Assessed current and potential vendor relationships for increased efficiencies and cost control Developed detailed implementation plan

The Results The Results

New delivery framework expected to achieve over $2.4 million in direct annual labor savings Vendor assessment yielded an additional $1.4 million in annual savings Required investments, including implementation, call center build and new HRIS system, structured to achieve payback in less than three years Complete framework implementation to occur in six months with high business unit buy-in

Copyright 2007 by ScottMadden. All rights reserved.

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Success Stories HRIS Selection

ScottMadden facilitated the selection of a new human resource information system for a global chemical/oil and gas company The Situation The Situation
Vendor of previous HRIS system exited the marketplace; no one in the marketplace provided support for the system Although system was relatively new, it was selected by a single individual and failed to ever meet the companys needs Significant distrust surrounding new system selection based on earlier system selection process System increasingly failing to meet the companys needs in routine (e.g., payroll process) and strategic (e.g., global workforce management) functions

The Solution The Solution

Developed highly participative process that involved corporate and business unit users to select new system Developed system requirements against key strategic drivers required for current and future company operations Investigated core system functionality using references Created partner relationships with vendors from outset of process to speed selection and information sharing

The Results The Results

Selected system from scratch in twelve weeks Created process that produced trust and excitement in leadership and users Produced business-based process that included detailed business case and payback analyses Produced system capable of future company requirements that worked for the companys global operations Produced strong relationship with final vendor

Copyright 2007 by ScottMadden. All rights reserved.

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Brad DeMent Partner 404-814-0020 office 678-524-2496 cell bdement@scottmadden. com

Atlanta Ten Piedmont Center Suite 805 Atlanta, GA 30305 404-814-0020

Scott Manning Partner 404-814-0020 office 404-456-1176 cell sbmanning@scottmadde [Link]

Raleigh 2626 Glenwood Ave. Suite 480 Raleigh, NC 27608 919-781-4191

[Link]