2007 financial services

finance executives’ forum*

a one day program exploring technical and business issues

Thursday | May 17 | 2007

*connectedthinking   
2007 financial services finance executives’ forum
Using the lessons of the
captive entity to improve
sourcing strategy
C. Steven Crosby
Managing Director
Advisory Investment Management
PricewaterhouseCoopers


Sourcing: Principles and Approach

What is your strategy to continually meet the challenges of sourcing?

 Sourcing is more than just

off shoring. It is about
getting it right not once, but
over and over again.
 You need to re-think your
business functions in terms
of mobile assets in a global
portfolio, and apply hedging
and risk theory. INFORMED INFORMED
 Your business, the industry, OFFSHORING
DECISION PwC OFFSHORING
DECISION

and offshore markets have

become highly mobile, and
dynamic – you need to
constantly align your goals
accordingly to secure
maximum value for your
Vision: The Key To Unlocking Value
portfolio of functions.

2007 financial services finance executives’ forum Page 3

PricewaterhouseCoopers May 17, 2007
Fundamental Questions In The Global Quest For Talent

What is the Right Answer?

Alternatives?
• Internal transformation Where?
• Internal standardization • On-shore How?
What Model?
and centralization • Near-shore • Captive
• Fee based
• Internal shared services • Off-shore • Transitional
• Joint Venture
• Outsource to provider • Combination • Outsource
• Build/operate/transfer

Sourcing Sourcing
Intent Strategy

Strategic Fee-based
On-shore Captive Contract
Vision

Why
What to Source Joint
Where? How? What
Source? Internal or Near-shore Transitional Venture
External?
Model?

Build
Align Executives & Outsource Operator
Off-shore
Business Leaders Model

2007 financial services finance executives’ forum Page 4

PricewaterhouseCoopers May 17, 2007
Sourcing: Principles and Approach
There are many low cost jurisdictions, each with its own unique value
proposition and service offering – choosing where to go and when is the new
challenge.
Poland IRELAND
• Data center INDIA
Canada • Software development • Call centers
• Software Support • Data entry • Call centers • Software development
• Call Center • Pan-European • Shared services • Engineering and design
Support
• Back-office operations/data
entry

UKRAINE PHILIPPINES
• Software • Software development
• BPO
• Call centers
Mexico • Data entry
CARIBBEAN •Customer Support
• Data entry
•Date entry

China
•Data entry
MALAYSIA •Application development
• Pan Asian support •System engineering
• Call centers
• Data processing centers
2007 financial services finance executives’ forum Page 5
PricewaterhouseCoopers May 17, 2007
In Most Firms Captive Entity Networks Are Underleveraged
Migrating To Captive Entity Models Is Essential To Empower Large Global
Firms To Controlling Risk, Saving Money and Increasing Efficiency
Captive Joint Venture Build-Operate- Facilities Outsourced
Enterprise’s own Transfer (BOT) Management Popular choice for
offshore “shared An offshore
An offshore center An offshore center low-end business
service center.” center with joint processes or
built and operated fully owned by the
Examples include ownership enterprise, facilities contact centers.
GE, American between the by a third party for Could have two or
management (real
Express and a finite time period estate, security, more vendors and
HSBC. client and a third after which the transportation, multiple countries
 Requires highest party partner ownership transfers cafeteria, etc.)
initial investment More complex to to the client firm. provided by a third
 
Requires robust

Specialized set up party . vendor
management  Moderate

Helpful when a  Helpful when an management
commitment investment firm wants to entity wants to  Heavy
 Potentially high

Less staffing risk retain control but retain control but management
risk without solid lacks local lacks local focus in the
governance and
 Opportunity to knowledge
share reward knowledge multi-vendor
decision models 
Also appropriate  Also appropriate model

Significant

Local knowledge when vendors
of the JV partner when vendors 
Opportunity to
opportunity to lack domain lack domain employ Best-of-
realize savings helpful experience
 Security and experience Breed providers
 Opportunities for 
Security and 
Security and Security and
scale around data privacy data privacy


issues data privacy data privacy

data, security, issues issues issues
load balancing

Knowledge 
Poor knowledge  Poor knowledge
and privacy transfer issues 
Knowledge
transfer transfer transfer issues

Proprietary Extended Organization

2007 financial services finance executives’ forum Page 6
PricewaterhouseCoopers May 17, 2007
Creating Common Utilities in Low Cost Jurisdictions
Allows Us to Serve Our Businesses Cost Effectively While Moving to
Scale and Meeting the Global Challenge of Data Privacy and Risk
Shared Services
Performance Financial Reporting Fund Accounting
Analytics
Knowledge
Research Security Master Reconciliations Process
Maintenance
Management
Reference Data Quantitative Analytics Algos
Service Performance Monitoring and Reporting

Marketing/ Sales Customer Care Service Provisioning

Service Coordination and Planning

Business
Program Management Office

Network Provisioning Service Assurance Billing

Process
Management
Support the Business Procurement HR
Help Desk

Implementation Maintenance Extension

Application
Upgrades Deployment Development Management
Training Security Patches/Updates

Performance Mgmt Database Mgmt Server Mgmt

Storage Mgmt Network Mgmt Desktop Mgmt

Infrastructure
Management
Patches/Updates Security Disaster Recovery

2007 financial services finance executives’ forum Page 7

PricewaterhouseCoopers May 17, 2007
What has been done?

• Large firms have launched Right Placement usually on a limited basis

• Significant movement has been made in terms of moving to lower cost jurisdictions
• Right Placement provides as-yet untapped benefits for BPO
• KPO remains an uncharted opportunity set
• Number of low cost centers keeps growing
• Control varies between the business and corporate
• Direction and management of the flow of work into centers is mixed
• Evolution into other higher evolved sourcing is muted
• Often no optimized control structure or means to secure commitment to use
• P&L control precludes true cost savings and actually reinforces inefficiency
• Incentives are not aligned to performance
• Opportunities to create shareholder value are neutralized by current structure

2007 financial services finance executives’ forum Page 8

PricewaterhouseCoopers May 17, 2007
What Some Firms Have Done
Center Of Excellence Characteristics
Indication of the importance of each characteristic:

Industrial strength
Proven methodologies
Vendor/affiliates Certification
(Universities) 5

5 4
5
4 3
4
3 3
2
2 2

1 1 1

Infrastructure 5 4 3 2 1 1 2 3 4 5
IPR Protection
1 1 1

2 2
2
3 3
4 3 4

5 4 5

People trained 5
and available Sector
Leading edge/ Center
Experience Thought leadership
2007 financial services finance executives’ forum Page 9
PricewaterhouseCoopers May 17, 2007
What is the rest of the industry doing?

Fix and Ship Drag and Drop Repair On Site

 Never Really Got Done In An Optimal Fashion

 Created New Shared Service Challenge
 Over Stretched Lines Of Communication
 Legacy Knowledge Capital Diluted

Result: At Best A Stack Of Process, Technology, Function

Opportunity: Streamline Into High Performance Function

2007 financial services finance executives’ forum Page 10

PricewaterhouseCoopers May 17, 2007
Information Characteristics

Levers Of Organizational Change

_____________________________________________________________________________________________________

People Process Technology Organizational Design Data

_______________________________________________________________________________________________________
_
Skills Maturity (CMM) Business Architecture Local Standards
Competencies Best Practice Standards ITIL Regional Granularity
Education Optimized COBIT Global Security
Licenses Sourced Technology Architecture Internal Provisioning Privacy
Security Centralized/Distributed External Provisioning Trans-border-legal Issues
Cost Network Shared Service Utility
Quality BPR/DR
Retention Scale
Lift out /sourced Sourced
(BS7799/ISO27001)

2007 financial services finance executives’ forum Page 11

PricewaterhouseCoopers May 17, 2007
 Activity Based Costing
PwC’s Technique To Get To True Cost of Service
Provides Accurate Baseline for ROI/TCO
Drivers of IT Operating Expenditures

Summarize and Determine Determine Root Causes Generate and quantify

Get the Basic Facts
Drivers for Priority Areas Ideas

Transaction
Transaction
performance
performance

Demand Availability
Availability
Change
Change inin
functionality
functionality

Use
Use of
of Implement effective
Functionality
functionality
functionality policies to control usage of
IT
Complexity
Complexity (level
(level of
of
standardization
))
standardization
IT
IT OPEX Complexity
Complexity of
of infrastructure
infrastructure

Implementation
Implementation of projects
Process
Process Consolidate IT standards

Supply
Supply Maturity
Maturity of
of IT
ITorganization
organization Capability/
Capability/ people
people

Structure/
Structure/organization
organization
Size
Size of services

Implement strong IT
Quality
Quality of
of technology
technology supplier management
policies

2007 financial services finance executives’ forum Page 12

PricewaterhouseCoopers May 17, 2007
Introducing A New Concept: Lean Manufacturing
Lets Build Something Greater Than Just An Accumulated Replica of The Status Quo
Pushes Action Pulls Information
To Business User To From The Business
Generate Information To Fuel Bringing It To A Single Place
The Leaning Tower of Risk Where It Can Be Analyzed By The Best And Brightest
One Time

Universe Of Business Data

Program Management Office
Self Assessment No. 2
Self Assessment No 1

Re
po

ls
o
r

To
tin
Help Desk

g
Risk
Analyst
Fr

s
am

rd
ew

da
or

an
ks

St
Traditional Shared
Lean Model Utility
Services Utility
2007 financial services finance executives’ forum Page 13
PricewaterhouseCoopers May 17, 2007
The Lean KPO Enterprise: Knowledge Process Outsourcing
Creating The Compliance Utility Of The Future
Creating “Islands Of Innovation” To Address Complex Risk and Compliance Processing With
Integrated Centralized Teams Of Specialists Supported By The Best Tools, Frameworks, Standards and
Reporting Techniques. Pulling What Is Need From The Business Bring Data To Where It Can Best Be
Analyzed and Acted Upon.
Business

Tool Island CSU/Business Interface Reporting Island

• Analytics • Standardized Packages
• Database • Digital Reporting
• Data stores Universe Of Business Data • Interactive Data
• Parsers/Scrapers • Network
•
Re
Quants po
ls
• Algo’s To
o
ü rti
ng
• Intelligent Agents “A” Team
• Transaction Monitors
Knowledge
Fr Analyst

s
am

rd
ew

da
Framework Island or Standards Island

an
ks
St
• Framework Architects • CMMI
• Model builders • ITIL
• Testers • COSO
• Certifiers • COBIT
• Check In/Out • XBRL
• Tracking
Human Capital Island
• Full Time Focused Team
• Educated/Licensed
• Risk Professional
2007 financial services finance executives’ forum Page 14
• Knowledge Worker
PricewaterhouseCoopers May 17, 2007
Captive Entity Decision Assessment Approach
In reviewing specific applications, functions, and infrastructure components, PwC brings a holistic
perspective that addresses issues of risk and quality in any deployment or implementation. This
supports the selection and management of specific service providers and assessments of the
optimal jurisdictions for initial and future repatriation of function. A long term strategy treating the
function as a mobile asset is one of the best risk mitigation and quality assurance measures.

CaptiveEntitySource CaptiveEntitySource CaptiveEntitySource

TCO/ROI Preparation Support

• Select applications, infrastructure,
processes, and service components
using the PwC CaptiveEntitySource
selection tool.
• Determine the optimal mix of delivery
models (in-source, outsource, managed
services, joint venture, captive, etc.)
• Estimate ROI and time to benefit using
the CaptiveEntitySource TCO and ROI
models.
• Align business drivers and requirements •
with current array of right placement
options as well as future markets and
other solutions.
• Assess organizational readiness.
• Identify risk factors incident various
sourcing strategies, including
infrastructure, regulatory geopolitical and
human capital dimensions.
• Support client selection of potential
partners, including optimizing legal and
economic buyer positioning.
• Provide support in negotiation of
business agreements, and service level
agreement including definition of critical
controls, metrics and measures.
• Help identify, select and train “Away
Team” and design effective
communication plan and knowledge
transfer plan for in country team
assimilation and acculturation.
Pre-Launch Readiness Assessment and
clearance.
• Deployment optimization including
regulatory approvals and sign offs,
testing, and quality measures.
• Prepare standby function and rapid
reaction force to address any issues and
maintain client facing service quality.
• Support development, and transition
from host country to in country away
team, service provider or other entity.
• Maintain balanced score card, initial
performance measures, and potential for
change management requests and other
initial transition considerations.

2007 financial services finance executives’ forum Page 15

PricewaterhouseCoopers May 17, 2007
Illustrative Geopolitical Risk Example
Specimen Analysis Stability vs. Market Orientation

100
competition promotion

90

Hungary Poland
Mexico
80
Egypt South Africa
Turkey Thailand Brazil
70
India
Market Orientation

60
Bulgaria Philippines
Colombia Pakistan
Ukraine
50

Saudi Arabia China

40
Indonesia Venezuela

Nigeria
30
cronyism

Iran
Argentina

20
0 10 20 30 40 50 60 70 80
low Policy Stability high

Source: PwC and EurasiaGroup

2007 financial services finance executives’ forum Page 16

PricewaterhouseCoopers May 17, 2007
What To Do With What Is Left Behind?
Process Improvement: Root Cause Analysis
Business Goal Impact Organizational Impact
Business

Measurement Analysis
Goal

Non conforming value of Turnaround

Reduce Cycle Time
Key Performance Indicator Time
KPA

Incident Problem
Causal Analysis
Management Management
KPI

Action Process
People Process Technology Governance Information
Impacts Impacts Impacts Impacts
Skills Process Project Knowledge
Systems
Culture Definition Management Management

Service Level Documentation

Management
Cycle Response Turnaround
Time = Time + Time Risk
Management

Examples:
• Support systems and applications lack functionality and are defective
• Level 3 support team lacks business functional and technical skills.
• Support personnel not available to handle the Incident
• No knowledge repository of past Incidents and Problems
• Level 2 support team is not being utilized

2007 financial services finance executives’ forum Page 17

PricewaterhouseCoopers May 17, 2007
What To Do With What Is Left Behind?
Creating An Index To Measure Performance On The Ground
Parameter Weighting Gap Impact
(1:lowest – 9: highest) (1:lowest – 9: highest

Training coverage 1 4 4

• Review with stakeholders Documented 2 5 10

processes
and assign a relative weight
Availability of 3 1 3
to each parameter, based on vendor personnel
estimated impact on end goal
Promptness of 6 8 48
vendor personnel
• Also assess the Gap from Knowledge 8 7 56
expected exhibited
Process adherence 7 2 14
• Use the two to compute the
index Ownership 9 9 81
System availability 4 3 12
• Compute weighted index and
benchmark against actual Retention 5 6 30
performance to correct TOTAL 258
weights assigned INDEX/Score 258/9 =
28.67

2007 financial services finance executives’ forum Page 18

PricewaterhouseCoopers May 17, 2007
2007 financial services finance executives’ forum

Contact Information
C. Steven Crosby
(646) 471-4875
c.steven.crosby@us.pwc.com

  
2007 financial services
finance executives’ forum



© 2007 PricewaterhouseCoopers LLP. All rights reserved. "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP (a
Delaware limited liability partnership) or, as the context requires, other member firms of PricewaterhouseCoopers International Ltd.,
each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP.