The Ampersand Approach

1 Ampersand
TABLE OF CONTENTS

Pg 03 AMPERSAND
What is Ampersand 03
Why is it relevant 05
Ampersand principles 05

Pg 07 COSTS AND COST BEHAVIOR

Identifying costs 07
Relevant costing 07
Cost behavior 08
Operating leverage 09

Pg 10 UNDERSTANDING PROFITABILITY ON A NEW

ENGAGEMENT
Components of a Client P&L analysis 10

Pg 13 REFINING OUR APPROACH TO PRICING AND

PROFITABILITY

Pg 15 APPENDIX
Account definitions 15

2 Ampersand
History
In the first century, Roman scribes wrote in cursive, so when they wrote the Latin word et which means
“and,” they linked the e and t. Over time the combined letters “&” came to signify the word “and” in English
as well.

The word Ampersand came many years later when the “&” was taught as part of the English alphabet. In
the early 1800s, school children reciting their ABCs concluded the alphabet with the “&.” Since it would
have been awkward to say “X, Y, Z, and,” students finished with “and per se and.” Per se means “by
itself,” so the students were essentially saying, “X, Y, Z, and by itself, and.” Over time, “and per se and”
was slurred together into the word we use today: Ampersand.

Definition
Ampersand is the logogram "&" which represents the word "and".
Meaning of “AND”
 along with or together with
 in addition to
 both
 then
 also
 as well as
 again

Concept
The importance of ‘the AND approach’ was indentified in the groundbreaking book “Built to Last”. The
authors found that when faced with a dilemma (or seemingly opposing goals), outstanding companies
were able to find a way to work through conflicting objectives; while ordinary organizations would usually
choose one alternative.

Many times business leaders reach a conclusion that things must be A OR B, but not both. This
viewpoint is safe and easy because it avoids paradoxes and the difficultly of coping with seemingly
contradictory forces. Thus, many organizations tend to formulate simplistic views such as: we can gain
market share OR increase GP margin, but not both. We can accept an increase in DSO, OR lose the
client—We can pursue profits OR quality—we must be in total control of a project OR we cannot commit
to delivering results, etc.

It is interesting that in business OR thinking is very common, yet in our day-to-day life, we are usually not
so hasty to limit our options with OR. Consider the following statements:
 you can try for a single handicap in golf OR have a happy marriage
 you can be a highly successful executive OR a be good parent
 you can have a luxury auto OR truly care about the plight of the starving

3 Ampersand
While these statements may have an element of truth, we are adept at finding ways to manage opposing
forces in our personal life. Yet when it comes to business, we often end up limiting ourselves to a single
outlook.

A key theme developed in “Built to Last” is that excellent companies liberate themselves through the
power of AND. These companies have the ability to embrace a number of conflicting dimensions at the
same time. Instead of choosing between A OR B, they figure out a way to have both A & B. As a result,
these companies have managed sustain excellent performance over many years while realizing the
following seemingly contradictory outcomes.

On the one hand Yet, on the other hand

Purpose beyond profit AND Pragmatic pursuit of profit
A relatively fixed core ideology AND Vigorous change and movement
Conservatism around the core AND Bold, committing, risky moves
Clear vision and sense of direction AND Opportunistic groping and experimentation
Big Hairy Audacious Goals AND Incremental evolutionary progress
Selection of managers steeped in the core AND Selection of managers that induce change
Ideological control AND Operational autonomy
Extremely tight culture (almost cult-like) AND Ability to change, move and adapt
Investment for long-term AND Demands for short-term performance
Philosophical, visionary, futuristic AND Superb daily execution, “nuts and bolts”
Organization aligned with a core ideology AND Organization adapted to its environment

Sounds too good to be true? Please check out the facts in “Good to Great” and “Built to Last”—these
fantastic books are conclusive in how outstanding companies are built and operated. It is clear that
embracing AND is a big part of business excellence.

As we lead ManpowerGroup to realize our goal of becoming Industry Star, we all need to embrace the
power of AND.

Therefore, this initiative is named Ampersand.

“The test of a first-rate intelligence is the ability to hold two opposing ideas in the mind at the same time”
- F. Scott Fitzgerald

4 Ampersand
Why is it relevant?
 We operate in a highly fragmented industry.
 Clients do not generally value or, even if they do, pay for "differentiation", at least in our core
staffing business.
 GP margin erosion is a hard reality for us as well as our competition.
 While we should and will fight fiercely to protect GP margin, indiscriminate "pricing intransigence"
without considering market realities would adversely affect top line and market share growth and
impair our ability to win new clients and retain existing clients over the long run.
 We need an organization-wide awareness and an integrated approach on how to respond to
pricing and margin pressures in the market.
 We need our operators to make trade-off decisions, when faced with client pricing situations, in a
manner that maximizes their chances of winning new business / retaining existing clients, while
simultaneously allowing them to grow Total GP margin (through business mix improvement),
Business Line Contribution (BLC) margin (through cost control) and both OUP $ & OUP margin,
so as to achieve the “4in14” commitment, without laying the blame on external conditions.
 This requires a disciplined approach to acquisition / retention of lower margin business without
compromising BLC margin and OUP margin goals.
 We need a framework which will help them make such trade-off decisions while knowing that they
will be held accountable to meeting their performance commitments.

Ampersand Principles
The Ampersand Initiative provides a comprehensive framework (doctrine, tenets, methodology and tools)
on how to:

• Compensate for falling staffing margins “&” still improve total GP margin by setting accountability
guidelines for business mix improvement and selling higher margin business.

• Accept / handle lower margin business “&” still improve BLC margin by setting accountability
guidelines for efficiency improvement, delivery cost management and SG&A control.

• Gain market share by winning new deals through astute pricing “&” retain existing business with
falling prices, while improving profitability through pursuit of greater efficiencies and SG&A
control.

The core operating principles of Ampersand fall into four categories. The key is to identify ways to drive
the “&’ strategy by pursuing “all” and “not either” of the below.

5 Ampersand
Ampersand operating principles
The essence of the Ampersand operating principle is based on careful and detailed assessment of each
opportunity, to arrive at a hypothesis based on thorough evaluation of the available options. This is
accomplished by answering the following four questions:

 Does this engagement provide a positive impact to the Country OUP margin?
o If not, what is the gap to get to the targeted OUP margin
o Does this positively impact the AOUP margin?
 What levers can be utilized to bridge the OUP margin gap or enhance the OUP and AOUP?
o DSO renegotiation
o Alternate sourcing models
o Operational Efficiency
o Leverage existing resources
o Potential ways to mitigate over the term of the contract
 How can a negative impact be offset by incremental Revenues
o Are there opportunities in the near term that provides access to alternative higher margin
business?
o What additional opportunities exist in the pipeline and what is the probability of these
closing and creating a positive impact to OUP this year?
 What is the impact of letting existing business go?
o It is better to have a marginal GP margin decline rather losing / walking away from
business which negatively impacts GP margin but has a positive impact on OUP / OUP
margin / AOUP

6 Ampersand
Costs and Cost behavior
The single most important aspect of the Ampersand principle revolves around the focus on striving
towards leaner and efficient models to service our clients. This means keeping the eye on the ball in
terms of monitoring program related and client servicing costs & understanding the levers that can be
used to effectively manage them. While we continue to look for avenues to reduce costs in meeting
ManpowerGroup’s strategic objectives, the Ampersand approach requires us to take a step back and take
a secondary view from a strategic cost management perspective, an approach that allows us to manage
costs in a manner that does not impact our market positioning, branding and the value we provide to the
client.

The Ampersand way is about making choices that help us manage costs while both strengthening
our strategic position “&” meeting our strategic objectives.

“If you can’t measure it, you cannot manage it” – Peter Drucker

Identifying costs
To understand the behavior of costs it is critical to assess each cost driver and classify them into
appropriate cost categories. Some of the important cost categories are noted below:

 Fixed Costs: Costs that remain constant in spite of changes in the amount/volume of services
performed
 Variable costs: Variable costs fluctuate based upon the amount/volume of services performed

 Mixed costs or semi-variable costs have properties of both fixed and variable costs due to
presence of both variable and fixed components in them. Since mixed cost figures are not useful
in their raw form, therefore they are split into their fixed and variable components by using cost
behavior analysis techniques such as High-Low Method, Scatter Diagram Method and
Regression Analysis.

Identifying which costs are fixed vs. variable and the average cost per each driver is key to understanding
the incremental costs associated with a new opportunity. Examples of cost drivers would be average cost
per temp placed, average cost per timeslip processed, # of billable hours etc.

Relevant costing
An incremental analysis which means that it considers only relevant costs i.e. costs that differ between
alternatives and ignores sunk costs i.e. costs which have been incurred, which cannot be changed and
hence are irrelevant to the scenario.

7 Ampersand
Cost behavior
The fundamental challenge in pricing an opportunity relates to deciphering the complex mapping between
the existing resources, need for incremental resource, maintain the targeted profitability and present a
pricing proposal that is aggressive enough in the eyes of the client. This involves a systematic evaluation
of relationship between the costs and understanding the behavioral change with each incremental effort.

Cost behavior in simple terms refers to the way costs respond to changes in volume or activity. While we
may understand the conceptual underpinnings of cost behavior, the challenge is to apply these concepts
to real life opportunity evaluation setting where factors unique to each line of business influence the cost
behavior in a different manner.

Understanding the relevant range particular to an engagement is essential to modeling the cost behavior.
The relevant range is the limit of cost driver level within which a specific relationship between costs and
the cost driver is valid. This concept helps with an understanding of utilizing economies of scale and
evaluating the tipping point at which we will need incremental resources and costs to support the
incremental volumes. Whether costs are really fixed or variable depends heavily on the relevant range,
the length of the planning period in question and the specific decision situation.

At times we may run into situations where we find costs behaving in a non-linear way. More than one cost
driver may simultaneously affect other costs. This example below underscores the importance of the
decision situation itself in the analysis of cost behavior.

Linear cost behavior vs. step costs: Step costs are costs that change abruptly at different intervals of
activity because the resources and their costs come in invisible chunks.

8 Ampersand
Operating leverage
In addition to weighing the varied effects of changes in fixed and variable costs, we also look at the ratio
of fixed to variable costs. This ratio is called operating leverage.
The ability to flex costs up and down with volumes and overcoming the SG&A stickiness by utilizing
bench resources, move dedicates resources across multiple accounts is the key to success.
This concept is critical in an evaluating an opportunity with the reality around volume fluctuations usually
attributable to some business such as break fix, Call centers and others where the volumes are seasonal.
This measure defines our operating efficiency in a contract – an increase in the ratio indicating an
inefficiency and inability to control costs.

9 Ampersand
Understanding profitability on a new engagement
“In god we trust, all others must bring data” – Edward Deming

A solid opportunity analysis merely begins after understanding the Gross Margins. Likewise, a
determination on a profitable vs. unprofitable client cannot be made simply by looking at the Gross
Margins. Costs like account management, program delivery and cost of capital can completely alter our
view on client profitability. A full P&L analysis including the cost of capital is the cornerstone to evaluating
the viability of a deal.

Components of a Client P&L analysis

Client Spend: Represents the total estimated spend clients perceive coming from ManpowerGroup. In
addition to branch revenue, this amount includes subcontractor billings and estimated franchise sales.

Gross Revenue: Represents branch revenue and sub-contractor billings

Gross Profit (GP): Represents the profit remaining after temporary workers and consultants are paid,
including their social costs and burden. GP also includes the fees related to sub- contractor business,
fees generated from permanent placements and fees received from our franchise offices.

Contribution: Represents Gross Profit less direct incremental costs incurred in serving the particular
opportunity or engagement. Contribution does not factor in the Cost of carrying account receivables.

Client Direct Contribution Margin (CDCM): Gross Profit less direct incremental costs AND Cost of carrying
receivables incurred in servicing the particular opportunity or engagement. The difference between
Contribution and CDCM is that CDCM includes the cost of carrying receivables. CDCM is the consistent
internal measure within ManpowerGroup used to measure all client engagements and evaluating new
client opportunities.

These costs include (table shown in appendix):

a. Account/ Program Management:

b. Account / Program support

c. Upfront costs

d. Technology related costs

e. Variable branch overhead

f. Costs incurred resulting from cross border transactions

g. SLA related penalties

h. Back office costs

i. Cost of capital

Account Management Costs: Includes the costs for Account Directors, Managers, Program Managers,
Onsite Managers and any other management related costs to service the program. The costs include
compensation, statutory burden, bonus, car allowance and any other comp related costs.

10 Ampersand
Account support costs: Includes all account related program support costs to run the program. Such costs
would include costs for Project coordinators, Program on-sites, Resource Professionals, Account
Representatives and any other position that is directly involved in supporting the day to day program
operations. This would also include analysts and reporting coordinators who are either fully or partly
engaged in providing analytical and reporting support.

Upfront costs: Includes costs relating to implementation, facility leasing, Licenses, IT infrastructure.

Technology related costs: Any incremental costs relating to software, VMS technology usage, job boards,
data base searches, applicant tracking system, ticketing system or any other technology used to service
the program.

Costs resulting from cross border billing: Any incremental costs resulting from multi-country opportunities
requiring cross border invoicing, costs incurred relating to potential FX exposure, with-holding taxes,
costs relating to transfer pricing studies, VAT exposure, intercompany processing costs etc.

SLA related Penalties: Any accruals relating to SLA penalties for non-performance.

Other Costs: Laptops, Mobile phones, Advertising costs, Navigation systems, Telecommunications office,
hardware (servers, wires), furniture, copiers and printers, stationary and packaging costs.

Variable branch overhead: Incremental costs added to the branch and support center network to the
support the volume increase. These costs could relate to order management, recruiting, pre-assignment
requirements, payroll / time slips processing, invoicing, error management and any other incremental
effort required at the branch level. It is key that each cost within the branch and support centers is
thoroughly analyzed and classified as fixed and variable to truly measure the incremental variable costs
that can be attributed to the opportunity.

An example of some of the branch variable costs are shown below:

Branch Variable Costs example

Staff Compensation Variable
Permanent Fringe Benefits Variable
Perm Payroll Taxes & Insurance Variable
Sales Promotions & Advertising Fixed
Recruiting & Retention Variable
Outside Services Fixed
Office Expenses Fixed
Occupancy Fixed
Sundry Expenses Fixed
Training and Testing Variable
Management Level
Branch Fixed
District Fixed
Area Fixed
Region Variable
Senior VP Fixed

11 Ampersand
A solid understanding of the branch workflow also helps to assess the incremental effort needed to
support additional volumes. An example of the various costs at a branch level and the classification is
shown below. Assigning costs and understanding cost behavior for each of the activities could be
accomplished by utilizing methods like Activity based costing.

Recruiting / Pre-Assignment Employee Management Customer Relations Activities

Evaluation Activities
Recruitment Pay issues Order taking
Interviewing & Testing Quality performance reviews Work environment report
Evaluation Counseling Quality performance reviews
Orientation Additional / Special training Management of Pay / Bill rates
Training Quality performance program Problem solving
Subcontractor placement Subcontractor management Invoicing issues
Special reporting
Special projects
Special recruitment
Subcontracting

Back Office related costs: These are costs incurred to perform the payroll and invoice processing (also on
behalf of other suppliers if legally permitted), manage A/R and A/P, apply cash, remit payments to other
suppliers, contract administration and technology support.

Cost of capital: The cost of carrying accounts receivable represents the lag in the time between paying
the temporary employee and collecting payment from the client. Longer payment terms, monthly invoicing
and slow client payment increase the cost of carrying account receivable. Our internal cost of capital is
12%. The rate incorporates a blend of our cost to creditors and stockholders, before taxes.

Client Economic Profit (CEP): Represents CDCM less fixed cost allocations. The fixed costs could be
allocated to the particular engagement based on a predetermined methodology, for example: revenue,
number of temps, billable hours etc.

a. Fixed branch overhead

b. Fixed support center overhead

c. Fixed regional management overhead

d. Fixed home office overhead

12 Ampersand
Refining our approach to Pricing and Profitability
“Beware of little expenses. A small leak will sink a great ship.” - Benjamin Franklin

The accuracy of client profitability analysis is a fundamental prerequisite for management decisions on
pricing, growth strategies and sales initiatives.

Not all clients are created equal. We have witnessed multiple examples of clients with comparatively
higher gross margins but with significantly lower CDCM once all service related costs are factored in. With
our solutions getting increasingly complex, there is a need for shedding the usage of simplistic costing
assumptions and adopt more robust costing models unique to each line of business.

The in-depth Pricing analysis should help determine if the solution put forth to the client has been
optimized to meet the Profitability expectations. Accurate costing of the proposed solution provides an
unmatched competitive advantage enabling ManpowerGroup to execute the Ampersand strategy by
winning new business at targeted profits.

A pricing analysis should be based on the following principles:

• Ensure a full CDCM analysis is performed on every key pricing proposal

• Ensure a critical opportunity is not over-priced, by ensuring the cost assumptions are reflective of
the required Incremental effort

• Strike a balance between assuming incremental resources vs. leveraging existing support teams,
when possible

• For existing contracts, ensure the cost of transition is fully understood and presented to the client

• Simulate multiple scenarios with varying delivery channels adjusted to get to the same level of

Profitability at varying price points

• Benchmarking operational and financial metrics from similar programs across other countries , if
warranted

• In addition, post deal analysis should be performed to ensure the operational model and delivery
ties to our initial projections and that the client is not being over-serviced.

• As our business model becomes increasingly complex, the business risks associated with it are
increasing exponentially. As such analyzing business risks being assumed for each opportunity
and identifying ways to mitigate these risks is critical.

• The Innovative Workforce Solutions framework (IWS) provides a comprehensive methodology

and criteria for opportunity review and approval. Adherence to this framework is essential to
ensure all risks are fully understood and mitigated.

13 Ampersand
Additional options to evaluate profitability of an engagement
Opportunity Cost analysis: Opportunity cost analysis is one of the main foundations used in making
financial decisions. In strict accounting terms, opportunity cost is not really a cost or an expense.
However, it may be relevant in making decisions with financial repercussions.

The underlying concept of opportunity cost is generated by a Trade-off. Margin pressure is a reality in the
economy and we continue to see larger clients demand margin reduction while demanding added layers
of service. There will likely be situations where we can generate higher profitability by putting our
resources to use elsewhere. Such situations need to be analyzed closely, keeping in mind the
opportunity cost by walking away from the contract or maximizing revenues with pursuit of a higher
margin business in the pipeline.

Target Costing for lower margin opportunities: Target costing is the process of taking the products market
price and determining the maximum cost the company can spend to make the product and still achieve
the desired profitability. This is of much prevalence in MSP and certain business model within the TBO
space. This is achieved by actively searching for ways to minimize an offering’s costs to meet the
predetermined strategic price and yet achieve the targeted profit margin.

While this presents a challenge, this also requires innovative thinking, putting an efficient model together
and leveraging efficiencies in how we deliver services. This also requires operational discipline and
absolute clarity on what is provided to the client in service and that no additional costs relating to scope
creep or process deviations, following hiring manager requests are incurred.

Activity based costing for complex solutions: Increasing number of ManpowerGroup solutions
opportunities (especially TBO) are being priced a fixed fee per event basis. The fee mechanism ranges
from transactional pricing to a fixed fee per event for break fix, a fixed fee per minute for call centers, fixed
fee per product sold, fixed fee per translation, fixed fee per month etc.

Time and Activity based costing ensures an approach that assigns resource costs to cost drivers based
on activities performed. For example, the time taken to manage a requisition, complete a software install,
factoring in break time, travel time and assigning the right level of productivity metrics can allow us to get
to a fee that covers some element of the risk involved. Understanding the casual or direct relationships
between resource costs, cost drivers, activities and assigning the right amount of time per activity is the
key to a successful pricing strategy for task based pricing.

In addition, this concept is also extremely useful in understanding and estimating costs like variable
branch overhead that form a significant component in analyzing the CDCM of an engagement.

Conclusion
The concept of Ampersand is not new. It is the simplicity of this concept that makes it a powerful one.
With our renewed focus on meeting our 4in14 goals, this is more relevant than ever, both from a tactical
perspective of meeting internal goals and increasing our organizational effectiveness from a strategic
point of view. Using the Ampersand lens of evaluating business is no longer an option, it is a business
imperative.

14 Ampersand
Appendix

https://intranet.manpower.com/corporatefinance/Documents/Account Definitions for January 2013.pdf

Client P&L

Revenue
Gross Profit
Direct Incremental Costs

Program management costs

Program support costs
Upfront costs

Technology related costs

Variable branch costs
SLA penalties

Back office support costs

Other incremental costs
Total Incremental SG&A

Contribution (Gross Profit less incremental SG&A)

Cost of capital

CDCM – Customer Direct Contribution Margin (Contribution less cost of capital)

Less Fixed branch overheads
Less Fixed home office overheads
CEP – Client Economic Profit

15 Ampersand