The rise of intelligent operations Technology breakthroughs radically expand business processes’ art of the possible

A collection of insights and perspectives

Operating models are evolving fast. The effect of new thinking in shared services, outsourcing, and process engineering is further amplified by cloud-based and mobile applications, advanced analytics, and collaboration tools.

GENERATING TECHNOLOGY IMPACT ENTERPRISE-WIDE

The rise of intelligent operations A collection of insights and perspectives

1 Foreword

The role of analytics and technology in the rise of intelligent operations 4 The impact of technology on business process operations 10 Data-to-insight-to-action: Taking a business process view for analytics to deliver real business impact 22 Built to adapt: A better business technology approach for volatile times 24 "Robotics" in process operations: Useful rapid automation, no transformation panacea 28 Loyalty 2.0: Industrialized analytics embedded in your processes 34 The changing face of business collaboration 48 Almost plug and play: How advanced process operations help M&As 52 A rigorous business case for advanced operating models

Advanced finance and accounting operating models 62 Transforming finance and accounting through advanced operating models 68 Debunking the myth of leveraged AO-FAO solutions 72 Augmenting the FAO technology landscape – Exploring new engagement models 78 Master data management is the next big thing—Seriously 82 Separating impact from hype: How CFOs achieve technology ROI 86 Continuous transaction monitoring: Using analytics to detect fraud or simple payment errors in real time

Advanced procurement and supply chain models 94 Transforming procurement operations through advanced operating models 98 "Industrialization" of sourcing and procurement operations 104 The supply chain: The CFO's crystal ball 106 Inventory optimization: The benefits of building a smarter supply chain 110 Demand forecasting: Helping drive intelligent business results

114 About Genpact

The rise of intelligent operations A collection of insights and perspectives

Foreword The Great Recession has triggered a momentous change in many organizations’ operating models. Enterprises seek competitiveness in an environment where agility and variable cost are as important as robustness, and where scrutiny from regulators and clients is pervasive— and organizations need all of their operations’ help to compete. This time is different. Unfortunately, past transformation through, for instance, large-scale Enterprise Resource Planning (ERP) deployments has often delivered much lower-than-expected ROI), and slower realization of expected benefits (five to seven years later, on average). Our experience indicates that a clear root cause of these issues has been the forced-fit of old processes onto new technologies, scale by orchestrating the operational work of hundreds of thousands of and vice versa. Many of these mistakes can be avoided today, thanks to professionals, including more than 60,000 within our own company. better process design and transformation practices, and now-mature and We now know that there are agile and practical ways to evolve. The more agile technologies—in short, with better operating models. key is to design, transform, and run the processes that power advanced As described in our previous reports1, when operating model changes operating models so that they closely align with measurable business are executed well, the impact on cost and growth can be enormous. goals, and avoid saddling the company with unnecessary and often Being flexible in terms of cost structures while capturing fast-evolving, unmanageable complexity. This approach: granular profit pools is achievable through advanced process operations, • Focuses more rigorously on the sources of impact and and yields better controllability and auditability of how companies run. deliberately disregards any practice that does not yield material A radical shift in the art of the possible: Technology is no longer outcomes. With our deep craft of operations, we now can pinpoint the limiting factor. Cloud-based and mobile applications, analytics, practices and changes that are likely to work. and collaboration tools now multiply the effect of well-understood • Takes a more objective and holistic look at technology, analytics levers such as shared services, outsourcing, global delivery, and process and organizational practices. It leverages new yet mature "systems reengineering. These technologies matured almost at the same time2 of engagement" that complement core business technology and in mid-2013, and their combined momentum is now formidable. "systems of record". It treats analytics (data-to-insight-to-action) as a Consider the impact on client-facing activities as a sample of what's process, and determines how to embed insight at scale into the fabric possible: of other enterprise processes; it does not take the typical approach of • Banks engage clients at scale through multi-channel models enabled viewing analytics as a task and a set of technologies. by technology and related data-driven insight. • Harnesses process and organizational levers available from • Pharma companies can harness interactions with patients during the established disciplines, such as reengineering, shared services, initial, critical phases of product launches. outsourcing, and global delivery.

• Industrial manufacturers can optimize the effectiveness of their assets We call the resulting advanced operations "intelligent" because they can and capture more value from their clients by deploying more cost- sense, act, and learn from the outcome of their actions, at scale—thus effective services, once again based on more insightful data correlated making the entire enterprise more intelligent. with financial impact. Every great business relies on great operating models. They can be a In general, most large operations supporting front-to-back processes are cornerstone in every CEO's portfolio of strategic initiatives. benefiting from faster ways to automate, derive insight, and act in a way We sincerely hope you will find the reading useful, and we look forward that delights clients while reducing the effort (and cost) of doing so. to engaging with you in making these ideas a reality.

Clearly, these great opportunities may be nullified by the same issues that have prevented previous waves of transformation. Technological NV "Tiger" Tyagarajan, excesses of the past (such as in many ERP or data-warehouse President and CEO deployments) have left many feeling jaded. Although the root causes have been identified, few understand the interconnection between IT, analytics, and process operations sufficiently. Some technologies are unproven, and older ones are rigid and expensive to evolve. Some new uses of analytics are unclear, and scaling deep analytics throughout the enterprise is frequently a struggle.

A practical way forward. Our experience of advanced operating models, accumulated over 15 years of work with hundreds of clients, including more than one-fourth of the Global Fortune 500, drives the research described in this book. This experience benefits from thousands of "controlled experiments" conducted at unprecedented

1 "Business Process Operations: The Art of The Possible" and "Genpact impact report 2014". 2 For reference, among others, see Gartner www.gartner.com/technology/research/nexus-of-forces/. 1 2 The role of analytics and technology in the rise of intelligent operations

The impact of technology on business process operations 4 We are entering a time in which new, yet robust technologies will catalyze the evolution of process operations, and multiply operations' impact in addressing the numerous challenges that large enterprises face. However, the applicability and impact of these technologies is not uniformly high, according to almost 1,000 business executives surveyed by an independent research firm in a project commissioned by Genpact. Here are the findings.

Data-to-insight-to-action: Taking a business process view for analytics to deliver real business impact 10 Too many companies struggle in leveraging analytics. That's because despite the hype, a critical aspect is often neglected; "data- to-insight" and "insight-to-action" are business processes, and to generate material business impact, they require scale, as well as appropriate design, related change management, incentives, and people accountability. Advanced operating models such as shared services and outsourcing, as well as a focused effort to ingrain analytics more deeply into those business process steps, that generate material impact, can help give analytics a necessary "industrial strength".

Built to adapt: A better business technology approach for volatile times 22 Instead of succumbing to the traditional IT-first bias, smart CFOs, CPOs, COOs, CMOs, and many CIOs are now judiciously embracing a business-practice bias—enabling a "build to adapt" strategy that is highly valuable in a volatile business climate.

"Robotics" in process operations: Useful rapid automation, no transformation panacea 24 Rapid automation (RA) is a valuable addition to systems of engagement for process operations and a useful complement to systems of records.

Loyalty 2.0: Industrialized analytics embedded in your processes 28 New customers of both the B2B and B2C variety are far more influenced by increased choices, technological advances, and exposure to social media. Remaking enterprise processes that are responsible for delighting these new customers (and doing it at the right cost) is an analytic and business transformation challenge. The point of view explores how to "industrialize" and embed analytics into processes to enable intelligent execution at scale in order to create and maintain a loyal customer base.

The changing face of business collaboration 34 Collaboration remains an often-untapped key to competitive advantage, buried in enterprises' organizational "backyard." A Unified Collaboration framework that takes culture and human behavior into account, and drives technology decisions with a clear focus on business outcome, can deliver significant impact.

Almost plug and play: How advanced process operations help M&As 48 Mergers and acquisitions are commonly used to drive innovation and growth, but their consummation is complex. Their execution benefits from advanced support operations such as shared services, outsourcing, and particularly Global Business Services (GBS), which can facilitate increasingly complicated enterprise restructuring.

A rigorous business case for advanced operating models 52 Operations leaders often struggle to describe the full strategic value of their operating model transformation to top management. This thorough evaluation helps build more sophisticated business cases that withstand the scrutiny of board and CEO, and enable more informed decisions between strategic alternatives.

3 RESEARCH REPORT The impact of technology on business process operations Research results across industries and functions

We are entering a time in which new yet robust technologies-such as cloud, analytics, collaboration, mobility—will catalyze the evolution of process operations, and multiply operations’ impact in addressing the numerous challenges that large enterprises face. However, the applicability and impact of these technologies is not uniformly high, according to almost 1,000 business executives surveyed by an independent research firm in a project commissioned by Genpact. The research also shows that many executives associate technology with significant positive monetary impact, and that technology is proportionally more applicable to business functions that address multiple challenges across the enterprise.

About the research We analyzed the data to identify patterns of applicability and financial impact of technology. To do so, we first determined In 2014, Genpact commissioned a research project conducted which enterprise challenges were most pressing for the by an independent research firm. The goal was to assess the surveyed organizations, by industry and business functions. We potential to address strategic enterprise challenges through then analyzed which enterprise functions helped the most in advanced operating models across a defined spectrum of addressing those challenges. For those functions' operations, industry sectors (banking and financial services, manufacturing, respondents rated the ability of technology to materially impact high tech, healthcare, life sciences and consumer goods). The them. We finally analyzed the estimates respondents made findings presented are based on the response of executives of the financial impact generated by technology in impacting selected, based on their ability to materially influence functional those functions. The results provide an unprecedented view decisions, of which over 150 were from finance, about 130 of technology's ability to impact new operating models and, from marketing, about 120 from procurement, about 140 from as a result, help core enterprise functions to address the big risk and over 350 from operations. Respondents were asked challenges their companies face. The ability to compare results if operating model initiatives such as radically improved use of across multiple industries and enterprise functions is also new technology can materially impact an enterprise function. and intriguing.

4 Research confirms the important role Looking across some of the industries, executives expected of technology in delivering a powerful significant impact from operations with radically improved use of technology. Insurance and life sciences R&D executives impact—but application requires estimated a significantly higher impact from improved use of selectivity technology compared to outsourcing, shared services, and Executives in some functions estimated a high impact from business process reengineering levers, while the impact was radically improved technology—higher than the impact of comparable for banking (both retail and commercial) and life other levers, such as outsourcing, shared services, and business sciences commercial operations. process reengineering. The estimated impact from improved Yet many didn't see technology as a material lever to impact use of technology—when applicable—for finance and operations. The number who did was significantly lower, in fact, accounting processes was the highest across all functions and than for the combination of shared services and outsourcing significantly higher than other levers. (See Figure 1).

Average $ impact, bar width proportional to percent of respondents stating that the initiative will have a material impact

Overall Finance Procurement Risk Marketing $268m

$208m $225m $187m $185m $152m $155m $168m $157m $120m $120m $103m $99m $106m $84m

Tech BPR SSC, BPO, Tech BPR SSC, BPO, Tech BPR SSC, BPO, Tech BPR SSC, BPO, 1 Tech BPR SSC, BPO, Hybrid Hybrid Hybrid Hybrid Hybrid

Commercial Banking Retail Banking Insurance Life Sciences R&D Life Sciences Commercial $330m Operations $299m $261m $267m

$225m $210m $210m $209m

$156m $151m $165m

$108m $104m $90m

NA*

Tech BPR SSC, BPO, Tech BPR SSC, BPO, Tech BPR SSC, BPO, Tech BPR SSC, BPO, Tech BPR SSC, BPO, Hybrid Hybrid Hybrid Hybrid Hybrid

Annual $ impact is the impact of operating model initiatives in $ per annum 1 BPO-Business Process Outsourcing, SSC-Shared including reduction of cost, capital required, improvement of cash and Services, revenue growth BPR-Business Process Reengineering, Tech - Radically * Some data not reported due to sample size limitations improved use of technology

Figure 1 - Estimated annual impact (USD million) of three operating model levers and applicability of each (represented by width of column) across functions and industries

5 400

Finance & Accounting (financial services) 350 Commercial Banking

300 Finance & Accounting (all industries) D mm )

S Retail Banking ( U 250 Life Sciences Commercial Operations Risk pa ct* Healthcare Payer m 200 Life Sciences R&D Finance & Insurance Marketing Accounting (CPG, 150 life sciences, healthcare,

technology i Procurement

. manufacturing,

g high tech) v 100 A

50

0 20 25 30 35 40 45 50 * Estimated annual impact of technology initiatives % of responses stating radically improved use of technology among those in USD including reduction of cost, capital required, operating model initiatives that can materially impact operations improvement of cash and revenue growth

Figure 2 - Financial impact of technology and applicability of technology lever

Figure 2 compares more closely the opinions of executives Technology’s impact seems more in various functions and industries. Banking (both retail and commercial), capital markets and insurance consider radically widespread for functions that impact improved use of technology as impactful slightly less often multiple company challenges than their counterparts—however, when applicable it is Interestingly, when comparing enterprise functions' overall estimated to generate significant positive financial impact. impact1 with the percentage of the respondents from those functions who believe that technology can have a significant The reason may be that many financial institutions have done impact, some patterns emerge [Figure 3]. more work on their IT systems than their counterparts in other industries, and therefore the percentage of institutions that Notably, more respondents rated technology as a material can still derive value from this may be lower. The result may impact lever for functions that bear on multiple strategic also be due to the sheer size of banking operations, which enterprise challenges. Two such groups emerged: makes the task of "materially impacting them" more daunting than in other industries. Note that for BFS, finance functions • Wide function impact, high technology applicability. such as Master Data Management were seen to have the Quadrant 9 (top right of the 9-block chart) represents highest impact on multiple enterprise challenges among all functions for which technology is often seen as a material functions, which seems to imply that specific technology work lever for impact, and those functions are often seen as is of great value to those institutions. materially impacting multiple important enterprise challenges. This quadrant includes life sciences' research/pre-clinical Some functions or industries estimated a lower estimated development, business banking origination, payment financial impact from improved use of technology, yet in processing and procurement business intelligence. those cases, the proportion of executives who saw technology as impactful was slightly higher. Marketing technology, for • More limited function impact, low technology instance, was frequently seen as applicable, though lower applicability. Quadrant 1 (bottom left of the chart) marks in financial impact. Procurement technology had the lowest the opposite side of the spectrum. This quadrant only has estimated impact of all categories, while the percentage of some commercial banking operations' functions like auto and respondents from life sciences' commercial operations who equipment finance, retirement services from insurance and saw technology as impactful was the lowest of any group in life sciences' compliance function. the sample.

1 Calculated as "impact index" that weighed the impact of each function according to the importance of the business challenges the function addresses 6 Finance Procurement Marketing Risk Life Sciences and healthcare operations BFS operations

65 7 8 P&C commercial underwriting 9 Actuarial & claims analysis 60 P&C agency support Personal policy admin/underwriting Procurement MDM Procurement BI P&C commercial claims 55 Marketing analytics Account set-up/servicing Multi-channel customer mgmt. Marketing automation/campaign mgmt. Business banking origination/servicing 50 BI/analytics Risk mgmt. Customer service P&C personal claims Research/pre-clinical dev. # CRM/sales support Multi-channel marketing Finance MDM Payments processing Marketing MDM 45 4 5 6 Enrollment/policy mgmt. Stress testing Transactional procurement Clin. dev. FP&A Claims processing/adjudication 40 Claims recovery/payment integrity KYC/AML AML Provider network mgmt. Loan portfolio monitoring Mortgage servicing 35 Sourcing/Category mgmt. Multi-channel marketing/customer engmt. Collections Loan underwriting/origination Mortgage origination Supplier risk & perf. mgmt. 30 Adv./promotions mgmt.

Technology applicability Technology P2P R2R 1 Dodd-Frank compliance 2 Med./Reg. affairs 3 25 Basel2 Retail brokerage Commercial strategy O2C Basel implementation 20 Equipment finance Retirement services Access and reimbursements Contract mgmt./managed Care 15 Compliance Auto finance 10 70 75 80 85 90 95 100 105 110 115 120 125 130 135 140 145 150 155 160 165 170 175 180 185 190 195 Function impact index*

*Function impact index: Higher index values mean that the function impacts many of the enterprise's most important challenges. #Technology applicability: Percentage of the function's executives who stated that radically improved use of technology could have an impact on Figure 2 - Financial impact of technology and applicability of technology lever the function PROCESSn = 912 executives • ANALYTICS from • TECHNOLOGY a survey conducted by LinkedIn, commissioned by Genpact © 2014 Copyright Genpact. All Rights Reserved. 2

Figure 3 - Technology applicability correlates with functions' impact

Two sets of outliers could be singled out:

• Wide function impact, low technology applicability. • More limited function impact, high technology Quadrant 3 (bottom right of the chart) comprises of functions applicability. Quadrant 7 (top left of the chart), shows that impact multiple strategic challenges, but for which functions where technology's applicability is substantial, comparatively few executives see technology applicability. but that either impact fewer enterprise challenges or This quadrant is virtually empty and functions in its vicinity address only the ones that are considered comparatively include procurement supplier risk management and sourcing less critical in those enterprises. This quadrant is also category management or life sciences regulatory affairs. very sparsely populated and includes healthcare and life These functions have strong impact on important enterprise sciences operations functions like customer service, business challenges but fewer respondents saw technology as having a intelligence and multi-channel customer. material impact for them, possibly due to reliance on subject matter experts' discretionary judgment.

7 Conclusion however, is not widespread and relies on experience accumulated by designing, transforming and running Business process operations have entered a new phase of operations. For many companies the best approach may be accelerated transformation, thanks to now-mature, powerful to identify partners who possess that ability, in order to avoid technologies. Cloud-based and mobile applications, advanced expensive and time-consuming experimentation and, ultimately, analytics and powerful collaboration tools multiply the effect of risking losing momentum and precious time in an unforgiving well understood operating model levers such as shared services, competitive environment. outsourcing, global delivery and process reengineering. However, the applicability and impact of these technologies is not uniformly high, according to almost 1,000 business executives polled by an independent research firm in a survey commissioned by Genpact.

The key, in our experience, is to understand which technology interventions—coupled with process engineering and organizational redesign such as shared services and outsourcing often integrated in Global Business Services—are most impactful. Doing so enables large enterprises to focus scarce resources to what's really materially impacting the most significant business outcomes. It also helps reduce the complexity of projects invariably involving cross-disciplinary teams that often struggle finding common language, ground and "true north". The ability to identify the levers to pull,

8 For more information, visit www.genpact.com/technology-impact © Genpact 2015

9 WHITE PAPER Data-to-insight-to-action: Taking a business process view for analytics to deliver real business impact

Industry leaders increasingly separate from laggards through their ability to generate, embed, and leverage insight into their organization and ecosystem—and this trend is no longer confined to marketing and online retailers. However, despite the significant hype around big data and analytics, a critical aspect is often neglected; “data-to- insight” and “insight-to-action” are business processes, and to generate material business impact, they require scale, as well as appropriate design, related to change management, incentives, and people accountability.

Given its enterprise-wide nature, the data-to-action process is the cornerstone of real enterprise performance management and needs the attention of the C-suite, which must consider “industrialization” through operating models that are not limited to fabulously intelligent people and technology. Up to 30% of the analytical effort relates to heavy-lifting tasks that advanced operating models such as shared services or outsourcing can enable, and many analytics-related activities benefit from centralization and sharing of best practices, critical data, and IT assets. Finally, insight needs to be ingrained deeply into those business process steps that generate material impact on the chosen business outcomes. This paper synthesizes our experience with hundreds of clients in the use of industrialized analytics and the application of end- to-end process transformation practices derived from Lean Six Sigma. It ultimately provides recommendations that reflect the need for agility in volatile times.

1. A new competitive battleground reshapes companies whose product is not information based; data-rich supply chains, digital interfaces with clients, and Increasingly, industries compete on analytics. There is a real machine-to-machine data transmission make companies dealing advantage that customer, production, or supply insight can with physical goods increasingly able to leverage large and provide to enterprises and their ecosystems (suppliers, clients, meaningful volumes of data. A recent study by McKinsey and and other stakeholders). While this fact is obvious to sectors MIT1 in the consumer-product space (where demand and supply such as financial services, analytics-driven competition also applications of analytics are particularly obvious) shows 1 Massachusetts Institute of Technology 10 that companies that inject big data and analytics into their teams often sit between some data sources and interested operations outperform their peers by 5% in productivity and business line executives, but are unable to process the 6% in profitability2. data at the right speed or granularity to become more relevant to the business or, even worse, they might become There is a strong belief among business leaders that big data a bottleneck in that flow of information. Accountability is and advanced analytics will be the next frontier for innovation, often not clear, or breaks up across the process end-to-end. productivity, and competitive advantage. Trillions of dollars are at stake3. Analytics makes business processes smart and • Technology challenges: The huge interest in big data their absence often dangerously dumb. For many industries prompted a rush to technology. However, as it happens and functions, these capabilities mean the difference between in many technology inflections (from enterprise resource success and survival or failure—from mortgage origination planning (ERP) and (BI/DW6) to the Internet), some of to credit card and healthcare fraud, from industrial machinery these investments have not lived up to their promise. For service optimization to (across industries) financial planning instance, Apache™ Hadoop®, an open-source software and analysis and customer interaction. Having too many of the project, is no panacea for big data. Technology is a must wrong clients, not paying the right attention to the right ones, but is fast moving and often complex. For instance, real- or not properly handling production or supply chain processes time architectures are swinging into prominence for some and stakeholders are traditional challenges. What is new is the use cases with organizations seeking (and sometimes speed of reaction enabled by data, insight, and technology, as struggling with) streaming, event processing, and in- well as the volatility and speed of change of marketplaces that memory data technologies to provide real-time analytics displace those unable to make and act on the right decisions and run predictive models.7 granularly, in a timely manner, and at scale. Data velocity, quantity, and complexity are typical of unstructured data, and the quest for predictive analysis 2. Why it is hard to harness data for real have added dimensions to the problem. In this case, the business impact numbers are indeed mind-boggling, but while these areas make the news, even structured data and descriptive analytics However, many enterprises are still too slow in adopting —the lifeblood of today's enterprises—still have a long way advanced analytics. Years of relying on intuition and experience to go. Comparatively mundane challenges such as master mean that only 4% of enterprises rely on data for decision data are still not fully solved in many companies. Handling making, according to one study4. In our own experience data remains challenging, despite billions of past technology with hundreds of large organizations, many, perhaps most investments in BI and DW. companies, struggle to scale the analytics effort beyond pockets. From inquiry-to-cash to sales incentives disbursement, However, this perspective misses a major point. The source-to-pay, hire-to-retire, financial analysis, industrial assets challenge is not just about a few data scientists and the right maintenance and optimization, we constantly witness the big data IT tools. Our experience and analysis show that the struggle of major players to find the right analytical resources problem is an eminently organizational one; the process of and implement the right analytical technology to power those analytics (the arc of data-to-insight) is not robust enough, and data-intensive processes. We also observe that only about insufficient "science" is applied to embedding analytics-driven one out of every five companies is very satisfied with the insight into the actual business process (insight-to-action) to business outcomes from their existing analytics programs. generate a material impact.

Two broad sets of challenges exist: 3. Design data-to-insight-to-action: • People challenges: A now-famous McKinsey study5 highlighted that in the United States alone, there will be a A business process view gap of hundreds of thousands of data scientists every year. 3 a). Understanding end-to-end business processes While Google and investment banking can perhaps pay to ingrain analytics and attract the best, many other companies and industries are not as fortunate. This is only a part of the problem; The analytics challenge is both insight generation (the multiple-function teams (think teams of the chief financial data-to-insight process) and embedment (insight-to- officer (CFO), chief procurement officer (CPO), and supply action) of that insight so that it can be used at scale. chain and banking operations staff) lack the ability to use analytics in their increasingly data-driven jobs. Especially CFO

2 www.mckinsey.com/insights/consumer_and_retail/applying_advanced_analytics_in_consumer_companies 3 Big data: The next frontier for innovation. McKinsey Research Institute, May 2012 4 www.ibm.com/systems/hu/resources/the_real_word_use_of_big_data.pdf 5 Big data: The next frontier for innovation, McKinsey Research Institute, May 2012 6 Business intelligence/data warehousing 7 Mike Gualtieri, Forrester. http://blogs.forrester.com/mike_gualtieri/13-01-02-big_data_predictions_for_2013 11 At the risk of trivializing, the issue is that having great insight on To understand why analytics is often a challenge and to begin PowerPoint or even on a streaming data visualization tool might structuring a solution, let's explore the data-to-insight and help isolated consultants or strategists, but it doesn't per se help insight-to-action arc. Three clusters of analytical processes exist the operations of large and global organizations. Interestingly, in these business processes. this data-to-insight-to-action framework (in short, data-to- action) applies to simpler, discrete, and descriptive analytics, as well as to big data and Internet of Things enabled (i) Provide visibility by machine-to-machine data transmission—as described in The first group of processes "provides management Table 1, which borrows the classification of analytics "ages" visibility" (Figure 1). This has traditionally been the first space from Harvard's Tom Davenport8. where descriptive analytics has supported executives. Here, executives and their teams use specific technologies to obtain Table 1. Analytics eras and related characteristics visibility about what happened (and sometimes what might Analytics Example Type of data Type of Tools "era" analysis happen) and syndicate the learning with relevant colleagues to 1.0 Client Discrete, Descriptive, BI, online gather collective intelligence. This is where reports are produced, profitability structured, diagnostic— analytical distributed, and discussed—and the respective BI tools are Demand slow statistical processing forecasts (OLAP), DW 2.0 Client Big data: Predictive, Above + behavior Structured and prognostic— Hadoop®, Data enhancement, consolidation, reconciliation analysis and unstructured, advanced etc. intelligent high velocity, data science pricing high Report complexity, and volume Periodic 3.0 Machine- Ubiquitous Prescriptive, Above + dashboards for to-machine sources of embedded/ columnar key stakeholders system big data: invisible— databases optimization anything with heavy use (DBs), graph IP address is of machine DBs, etc. Analyze, a source, and learning benchmark, sensors add volume and augment variety Figure 1 - "Provide visibility" section of data-to-action process

A useful analogy can be derived by observing a recent leveraged9, and this is where multiple additional data sources disruption in the automobile industry. There are obvious (such as unstructured data from social media or "liquid data"10 differences between cars (even the best ones) built 20 years ago or supply chain information) augment the internal ones. and those built today. While they use very similar mechanical parts, today's cars handle driving completely differently, because In one case, an oil and gas major needed to perform a large- 11 they sense and react to conditions in a granular, timely, cost- scale lithology analysis to optimize its exploration operations. effective, and scalable way. Today, the most innovative aspect Millions of dollars were at stake, not just because of the costly of car engineering is not the design of the mechanical parts. operations, but because of the value of speed, as every single It is the technology engineering that embeds the insight from day of productive oil wells was worth significant amounts of relentless analytical work, embedding millions of tests into revenue. The existing visual core analysis was tedious, time the programmed reaction of key mechanical components— consuming and reactive, while real-time lithology prediction was shock absorbers, gas throttle, steering wheel, brakes, and needed. At the same time, sensor-fitted drills generated copious even tire pressure and overhead augmented-reality displays. amounts of granular geophysical data (10GB daily log data per Statistical simulations drive our cars, literally, making them wellbore), resulting in the need to process 4TB daily of sensor "intelligent." Soon, cars will be able to drive themselves. data per well. The solution was to use a globally located team, Moreover, interestingly, even the difference between older and preparing the data and employing fuzzy logic to capture the newer cars is particularly striking on "difficult," unpredictable, geologist's expert knowledge and convert it into an automated winding roads—where agility is necessary. It is not just a intelligent reasoning system, which would act on the big data ® technology success, but an analytics breakthrough that has source. Scalability and low storage cost of the Hadoop -based solution made the solution cost effective. The result was 90% been embedded—industrialized—to perfection. prediction accuracy when the method was combined with visual The same thinking can and should be applied to business core analysis, hence harnessing the intelligence of both humans processes, where insight deserves being embedded at scale. and algorithms. Optimal, real-time drilling decisions were enabled by instant lithology predictions.

8 Tom Davenport, Big Data at Work, 2013 9 For further reference on BI for business processes, see http://www.genpact.com/home/about-us/smart-enterprise-processes 10 www.mckinsey.com/insights/business_technology/open_data_unlocking_innovation_and_performance_with_liquid_information 11 "A description of its physical characteristics visible at outcrop, in hand or core samples or with low magnification microscopy, such as color, texture, grain size, or 12 composition" http://en.wikipedia.org/wiki/Lithology Other examples are provided in Text Box 1. This is where the business logic that drives organizational actions is decided and altered through metrics that are modified, set, and • CFOs and sales leaders measure the variance of sales incentives metrics through financial planning and analysis made ready to be cascaded through systems such as business (FP&A) groups and sales operations staff to ascertain their rules engines (BRE), decision management systems (DMS) and effectiveness "systems of engagement" that complement legacy ERP and • CFOs and sales and marketing leaders monitor the profitability of clients by segment other systems of records. Much of the analytics performed at • Chief operating officers (COOs) monitor and predict their this level is predictive, informing broad groups of actions by portfolios' overall risk profiles, be they industrial assets forecasting the future. aftermarket services (through failure rates and cost of repair within contract terms), or commercial loans repayment In one example, a credit card issuer saw a disproportionate and residual asset values, and retail mortgages repayment delinquencies amount of suspicious spending by its customers. It deployed a • Machine data, such as on industrial or healthcare equipment, data enhancement program that matched structured transaction is collected, automatically categorized, and compared to similar data sets, its exceptions classified and preliminarily data with the unstructured ones derived from telephonic interpreted by people (for instance, in remote operations conversations and utilized a matching algorithm to determine centers) integrity. The resulting expert system materially curbed the • CPOs monitor the percentage of expenses under management and compliance with contracts, or in more advanced situations number of suspicious cases. (such as Wal-Mart's supplier scorecards), the sustainability of the supplier base In another instance, a power generation machinery major • Supply chain leaders can detect the early signals of supply experienced gas turbine failures that led to high repair costs chain risk by monitoring delays, spikes in costs, and social and lost revenues for its clients and for the manufacturer itself media when the machine's contract was sold on an uptime basis. • Supply and operation planning (S&OP) gathers demand and supply chain data to ensure that forecasts can be met at the Significant challenges existed with regard to predicting failure SKU12 level from the performance and maintenance data of the equipment; • Product management leaders can learn about customer usage and preferences from the technical feedback received from the inferences from the unstructured data of field repair history were multi-channel client contact centers highly manual and time consuming; outage forecasting based on the repair history and performance parameters was virtually Text Box 1: Provide visibility segment—actual examples nonexistent. The solution encompassed four areas: knowledge extraction from service emails, building and curating a lexicon- These are activities most intuitively associated with analytics. of-parts taxonomy, identification of the root cause for failure However, while they are a very important part of it, they and its solution, and generation of a "most likely" alert based constitute only a partial component. Clearly, some of the on past failure information of the turbine parts. The results most common analytical challenges in this process originate generated up to 10% reduction in predictive maintenance elsewhere. Incomplete or erroneous master data impairs costs, accurate prediction of failure events, and superior delivery profitability analysis; manual reports inhibit real- or near-time efficiency of field engineers through proactive monitoring. insight and limit granularity; or the partial data sources—for Other examples are provided in Text Box 2. example, the lack of demand-based forecast and the reliance on historical trend analysis that becomes necessary when the • Definition of policies on sales incentives or pricing changes for sales channels (or the demand signals from the web)—are specific customer segments insufficiently mined. • Credit or risk scoring and related validation of risk modeling, for retail or commercial loans and insurance or healthcare policies, driving rejections or pricing • Multi-channel client engagement business logic defines the (ii) Manage effectiveness "next best action" (or next best question) based on customer behavior or drives the maximum wait time, quality of agent, and The second group of processes uses insight for informing type of process (expedited vs. thorough) by client profile—for the specific, granular actions that affect company instance, based on risk thresholds in the case of mortgage origination authorization—or dictate anti-money laundering effectiveness (Figure 2). (AML) or know-your-customer (KYC) processes on a case-by- case basis, or in collections processes, informs the delinquency Set and cascade KPIs, Discuss target tolerance for specific clients based on their profitability and risk Set budgets, business rules revenue, cost, • Policies prompting reduction of purchases from suppliers whose targets capital profile, sustainability ratings are suboptimal derive actions • Improvement of consumer promotion trial rates through optimized targeting enabled by neural networks and use of Correct machine learning strategy • Creation of a "patient frailty" index to identify patients with the highest probability of hospitalization or emergency treatment, by using claims data Internal/external • Identification of online buyers whose transactions should ecosystems continuously not be trusted by using data across different sources—from Gather refine insight into causes demographics to shopping behavior and social media and solutions preferences 8 Tom Davenport, Big Data at Work, 2013 feedback 9 For further reference on BI for business processes, see http://www.genpact.com/home/about-us/smart-enterprise-processes Figure 2 - "Manage effectiveness" section of data-to-action Text Box 2: Manage effectiveness segment—actual examples 12 Stock keeping unit 13 Often the insight created by this group of processes is cascaded the road," and thousands of front lines (be they consisting through memos, or at best, new standard operating procedures. of people working with clients or suppliers or on production In other cases, this output becomes the foundation of changes processes, or web or other technology-based client interfaces) in the action options given to agents or sales people. Given perform their tasks based on the new rules. In analytics 3.0, this the importance of using the right metrics, at the right level set of processes can include the so-called prescriptive analytics, of granularity, in shaping the behavior of large and complex which granularly and timely (often in real time) guide people's organizations, it is clear that this area is incredibly important, and machines' actions in detail. The ability to embed insight but in our experience, it is not sufficiently optimized by cross- and related, modified business logic into BRE, DMS and systems functional experts who are able to understand the implications of engagement—and make their rules pervasive—is critical for on people reactions or technology complexity, for instance. The business processes to perform intelligently at scale. results can be problematic, for instance, "metric fatigue" for field agents, or complex, unwieldy, and costly customization of Unsurprisingly, there is a great push towards the infusion of technology tools to guide the procedures of staff downstream, data analytics into the day-to-day operational processes. Gartner or the lack of master data enabling the results tracking so that a predicts that analytics will reach 50% of potential users by 2014. 14 proper feedback loop is established, and the performance of the By 2020, that figure is expected to reach 75% . new settings is tested. (iv) Repeat and loop (iii) Execute actions The end-to-end process view across data-to-insight and insight- The third group is where the actions are executed to-action can help design effective analytics solutions and enable (Figure 3). This is where typically, technology projects focus most targeted change management to embed them into business of their attention and often start with an objective of efficiency. processes (Figure 4). Effectively instrumentizing the process, Many examples are provided in Text Box 3 below. measuring and keeping people accountable for actions are three crucial factors that an end-to-end view can facilitate. In many respects, this is the real power of Enterprise Performance ACTION EXECUTE Measure Implement Management (EPM). This aspect is even more indispensable as Data extract, cleanse, analytics becomes the real-time foundation of business offerings,

initiatives S standardize, enhance which is the predicament of analytics 3.0. e.g. additional data sources Data-to-insight Insight-to-action Implement enterprise data and BI enablers, Enable decision making at Set targets embed business rules the "moment of truth" e.g. Report Account/ Operate new customer offer, inventory consolidate Correct processes decision strategy Figure 3 - "Execute actions" section of data-to-action Analyze, BI, ERP, Gather benchmark, UC&C feedback augment • Supporting sales operations' speed and accuracy by allocation ACTION of sales compensation for specific deals EXECUTE • Timely provision of pricing information to close a large, complex Measure

support contract by quickly accessing client and asset risk data Implement S performance • Correct execution of supplier relationship management initiatives procedures, depending on the suppliers' status • Execution of discounting to trade or clients' order to cash collection process, based on delinquency and history • Appropriate reaction to clients' feedback and the triggering of Operate new assistance or repair at increasing levels or complexity processes • Suggestion of alternative products to be purchased (based on availability, profitability, and customer behavior) or Figure 4 - "Data-to-action" loop recommendation about steps to be undertaken by AML/KYC staff on a specific client case For instance, manufacturers' aftermarket services benefit • Correct rotation speed of industrial equipment and its measurement of critical parameters such as temperature, from an end-to-end view of data across finance and field energy consumption, mechanical stress, output volume and operations (stock inventory, machine-to-machine reading of quality, etc. asset performance, and respective financial implications, as well as contract coverage); in order to do so, they foster the Text Box 3: Execute actions segment—actual examples optimization of business processes related to maintenance (e.g., off-wing time for aircraft engines), for instance, by defining However, according to one study, only 46% of the companies the right master data, identifying the right structured and are effective at using the data they have.13 This is a major issue, unstructured data sources, as well as designing optimal field as this part of the process is where the proverbial "rubber meets

13 MIT, Fall 2012 14 Gartner research. http://www.gartner.com/newsroom/id/2510815 14 engineer or workshop procedures. Industry leaders such as processes. Their optimization begins by asking the right General Electric (GE) are moving decisively to capture the questions, not to one person but to an organization (which often opportunity and even crystallize the fastest data-to-action loops requires collaboration between teams), investigating the answers, in industrial "software." then embedding the policies derived from those answers into a business process, and running the resulting, more intelligent In reality, the end-to-end process view is still relatively rarely used process at scale. as a lens to understand interdependencies and drive activities toward the "true north"—business impact—in turn generating Table 2. Application of data-to-action framework across analytics "ages" at least two major sets of negative consequences: Analytics Provide visibility Manage Execute actions "era" effectiveness • Local optimization trumps whole-chain optimization: 1.0 • Statisticians, • Business • Business owners, business analysts and some IT, some The central analytics team might design the data-to-insight analysts, and management, business analysts, process to optimize its own functioning, without fully management some IT some ETL/BI/DW/ involved. advisory, and MDM involvement Significant other support, apprehending how different business lines and functions • Infrequent changes, involvement of e.g., MDM semi-automated (e.g., finance, procurement, operations, and supply chain) ETL,15 MDM,16 • Punctuated processes and BI/DW use that information. As a result, there may be a mismatch activity analyst support of timeliness (how quickly), timing (when), granularity (how • Punctuated deep), precision, and cost of the insight across the various activity stakeholders of the chain. The consequence is a loss of 2.0 • As above + data scientists • More IT involved effectiveness of the end-to-end process. • Semi-continuous activity • Simpler activities changed in real time • Data sources suffer: For structured data, the most common (e.g., client offers), others in batches issue involves master data issues that happen as the data 3.0 • As above + extensive use • Resources savvy in travels through the data-to-action cycle. As for unstructured of machine learning, more both technology and data, it is important for actors across the chain to collaborate technologist-oriented staff, remote analytics operations center (ROC)-type • System is "self- in determining which data can and should be sourced and monitoring directed," real or what limitations could exist, thereby overcoming information • Continuous activity near-real time asymmetry. Data source constraints clearly damage the ability to generate deep, granular, and timely insight.

The end-to-end model is applicable in all analytics "ages," but 3 b). Organizational design: as described in Table 2, its speed (the speed of the "loops") The operations of industrialized increases significantly, and the profile of the resources involved data-to-action may differ, as organizations move toward analytics 3.0. Data-to-insight and insight-to-action must be designed jointly if Our analysis shows that "data-to-action" is not just about insight is to be effectively used. In other words, business process, finding enough data scientists and accessing the most advanced technology, and analytics should be developed and executed in technology. Data-to-insight and insight-to-action are large, lockstep, as described in Figure 5. complex decision-making processes that feed into action

Process expertise inform analytics and IT

Smart Focused Actionable Processes Technology Decisions class Business Business Analytics Measure, Measure, Run cost- efficiency Analytical Transform Transform Enterprise Enterprise intelligence enablement applications Governance/ toward best-in- toward controllership benchmark, design

Insights inform process and related governance

Figure 5 - Virtuous circle of process, technology and analytics-based decision

15 Extract transform load 16 Master data management 15

In our experience, enterprise impact cannot be achieved just Step #1: Dissect your data-to-insight through technology or a precious few, quantitatively minded process and visualize its tasks and 17 people with off-the-scale IQs."Competing on analytics" is required resources. about creating a scalable (we call it "industrialized") foundation for data-to-action processes. It means decoupling parts and Some steps of the data-to-insight process can be delivered delivering them from where the right resources exist, as well through very scalable and cost-effective operating models. This as leveraging decades-long experiences of running operating can obviously remove a number of obstacles to the generation centers, shared services, and outsourcing units. of insight that is granular and timely enough to make a difference. Just as before the industrial revolution, when the Moreover, while the traditional approach to information process of production was performed end-to-end by scarce, problems has for some time been one of "cementing a solution" often very talented but completely non-scalable artisans and into an IT deployment, in these times of volatility, organizations sometimes by real artists, there is an opportunity to deconstruct, increasingly need fast ROI and flexible solutions that can be decouple, and optimize this business process. Our analysis evolved to accommodate the possible (and likely) changes to shows that a significant part (close to 30%) of the analytics their business models. work lends itself to being decoupled and its "heavy lifting" provided by globally located shared services. In our experience, there are four pillars to a scalable, agile, cost- effective solution, which we call "industrialized analytics": The more unstructured the data and the more unclear the questions, the more organizations tend to co-locate very • Data: Data assets across the organization are understood, competent analysts and business experts to iterate quickly and there is a plan to integrate data across functional silos; on all of the steps listed in Figure 6. While it is certainly a integrity of information across the organization is maintained, comparatively traditional, tried-and-true method, it also has such that there is a "single truth." scalability and cost limitations. An appropriate organizational • Technology: Relevant technologies are leveraged consistently design, talent sourcing, and technology (including collaboration across the organization—technologies related to (1) data and tools) can help break at least some of these constraints. infrastructure, (2) BI and reporting, (3) advanced analytics, (4) visualization, etc. Easy to Harder to industrialize industrialize DIRECTIONAL • Governance: This involves standardization of processes and Proportion of cross-leverage. The ongoing program for insights includes Analysis design time spent prioritization of areas to build predictive analytics, review of Data acquisition/ the impact delivered, and a test-and-learn environment for collection

continuous improvement. Data preparation • People: Analytical talent is respected and leveraged across Data analytics functions; a central pool of experts enables cross-learning. Data mining Achieving maturity across these pillars is an organizational Visualization journey, often requiring a different operating model for a number Programming of functions, not just the central analytics group where it exists. Interpretation Three steps enable progress toward the maturation of these Presentation pillars. First, dissect your data-to-insight-to-action process and Administration visualize its "assembly line"; second, set up an analytics center of Management excellence (COE); third, ensure stakeholders are aligned around an agile, fast-ROI strategy. Let us delve into each of them. Figure 6 - Time allocation across the data-to-insight process

17 Thomas Davenport and Jeanne Harris, Competing on analytics-the new science of winning 2013 16 Content & data Data BI, analysis & Technology & management transformation reporting automation

Data loading/Cleansing/ Dictionary creation & Report & dashboard Dashboard & UI Integration; Syndicated, POS, maintenance Design & development development W*M, Club Analytic application Content research - Trends analysis & scorecards development Master data management internet, outbound, calling, catalogues, packaging, media Six Sigma-based Standard periodic report automation Attribute coding & item Data investigation delivery categorization Process improvement tools Ad hoc queries & reports for Workflow management & Product & customer marketing, finance, client Custom design & process QC hierarchy management servicing and sales support development

Figure 7 - Type of resources for data-to-insight

More specifically, the work that can be industrialized can fall solution needed, there might be a stronger need for business under any of the four areas described in Figure 7. context or functional analytics expertise. Typically, the latter is easier to find in global work markets, while the former should Five types of resources can be decoupled, as follows: be the focus of the "business client" organization.

• Data management: This resource refers to the capabilities • Specialized services: (predictive/optimization/unstructured/ in the development, execution, and supervision of plans, big data). Developing capabilities in advanced analytics to policies, programs, and practices that control, protect, deliver, fully realize the true potential of analytics-led decision making and enhance the value of data and information assets. These is often where the most acute talent scarcity exists. The are IT-related skills and can typically be performed at scale solution can often be similar to the above-mentioned ones, as from anywhere, provided that the appropriate technology long as exploratory and small-scale work is tackled carefully, and security policies are in place. However, a business process and only for scalable tasks that do not require intimate orientation is required for some members of the team. This business knowledge and continuous, synchronous co-work. is especially true in structured data that requires strong Interestingly, we find that even exploratory and "skunk work" master data management, such as client and vendor master activities lend themselves to being partially industrialized by data used, for instance, in client discount, vendor sourcing decoupling steps appropriately. negotiations, and ultimately, profitability management. The • Advisory: This is where organizations strategically envisage reason is that master data issues are very often business industrialization of analytics and articulate the roadmap in process issues (the inability of people at various touch points terms of processes, technology, and building a culture of to classify information) and not just technical ones. analytics while staying in touch with current organizational • Developers/statisticians/analysts: This resource type realities, as well as the latest trends in data, technology, and involves creating a workbench of highly skilled professionals analytics. These are consultative skills that can help "sell" who are competent in various statistical and analytical work internally and require once more a blend of industry techniques, data types, and treatment of data. Structuring and business intimacy with the understanding of the "art teams with the right combination of industries, process of the possible" in global analytics delivery operations. We specialists, and analytical experts is crucial. Parts of these find that the best advisory work is supported by specific talent pools can be sourced globally, as long as the COEs frameworks, such as our Smart Enterprise Processes (SEPSM),18 or shared services (including outsourced partners) utilize which enable more targeted interventions by focusing on specialized human resource management practices, as well as the desired business outcome (for example, enabling the collaboration tools. CFO to harness more timely financial data reporting, as depicted in the example in Figure 8) and reverse-engineer the • Solution architects: They comprise a small pool of process end-to-end in order to achieve that result. In doing specialized people who can design new solutions and are so, analytics advisory uncovers the most important people, able to respond to changing needs of the organization by technology, process design, and policy opportunities. optimizing existing technology investments and introducing new, cost-effective, and scalable solutions. Depending on the

18 http://www.genpact.com/home/smart-enterprise-processes 17 EXAMPLE Minimum Median Maximum

Record to report Key Performance Measures Practices

3 • Automated interface process within ERP system Sub Ledger- Days to SL 5 1 • Scheduled mapping tables from source to SL to GL AP cut-off to avoid data loss • Automated tool for inter-company transactions

• Implement MJE workflow • Global common chart of accounts • Standardization and rationalization of IT systems GL Close & Days - GL • Reduction in MJE-Threshold, recurring JEs, interface Key Business 9 3 Consolidation submission • Web-based global closing calendar, with clear Outcome 5 accountability Time to report* • IT system integration / Rationalization • Synchronize edit checks between subsidiary and 17 parent books for better first-pass yield 30 4 Days to 10 • Create database for common errors encountered and External their proposed solution for reference Reporting earnings 15 2 release • Materiality thresholds defined for accruals

• Recs prioritization • Documented reconciliation policy in place • Use of automated tick and tie/reconciliation tool Recs cycle • Reconciliation dashboards published regularly Account time from 45 14 • Clearly defined approved backup per category Reconciliation BS date 30 (days) • Standard policies/operating framework • Analysis of repetitive open items to reduce inflow * Days from qtr. end to earnings release Source: Genpact SEPSM Figure 8 - SEP model example for designing business processes based on business outcomes and key metrics

Step #2: Choose the right operating Minimum business impact model for a shared analytics enterprise wide Minimum business impact Ad-hoc analytics Outsourcing of Decentralized FederatedenterpriseCentralized wide organization. outsourcing projects model As Thomas Davenport, one of the most prominent analytics Transforming from... to... Common approach to data quality, 19 Disjointed experts, observes, "There is reason to believe that the Greater risk integration and management pockets of of redundancy availability of big data […] will benefit those organizations analytics Integrated models which support a broad and duplication capabilities range of decision making that centralize their capabilities to capture and analyze the Repeatable, industrial-scale processes data. We already see this with small data analytics; many Different Lack of which promote greater adoption techniques of knowledge Processes and models built to adapt as organizations have begun to build centrally coordinated sharing per business situation conducting the across the analytics strategies and groups. If big data resides in silos and same analytics organization Faster data -> insights -> decisions through pre-configured models/processes pockets across organizations, it will be very difficult to pull it Figure 9 - Different operating models for analytics organization together to understand and act on business opportunities." (See Figure 9). more unstructured business problems, irrespective of location (Figures 10 and 11). This clearly opens an opportunity for parsing These organizational structures are by now well understood. components of the insight-to-action chain, and utilizing the For at least two decades, shared services, operating centers, COE's pooled, specialized, scalable, and cost-effective resources and more recently, Global Business Services (GBS)20 have to solve various problems that routinely "cripple" analytical enabled organizations to use scale and specialized skills to impact. The COEs can provide experience in specific disciplines, solve for the cost to serve, scalability, and access to talent. such as utilizing specialized tools, breaking organizational silos,

Whereas in the past, much interaction used to happen and providing more cost-effective resources. They can also help through workflows, emails, and phones, a whole new era of scale up or down the analytical efforts faster. collaboration tools21 enables people to work together on

19 Thomas Davenport, Big Data at work, 2013 20 http://www.genpact.com/home/solutions/reengineering/global-business-services 21 18 http://www.genpact.com/home/smart-technology/unified-collaboration

Business Partner Business • Services that require onsite presence or that directly impact the customer experience Service

Strategic Input guidance

Results

Service requirements Corporate GBS

Performance contracts Run processes efficiently, drive best practices and value

Provide corporate governance and Internal Partner • Rules-based processes common strategic guidance, establish policies across business units • Significant process transaction • Processes requiring deep expertise volumes in specific functional disciplines • More limited interaction required • Highly advisory in nature, may with rest of business require frequent face-to-face • Common systems infrastructure

Figure 10 - Extended enterprise including advanced analytics operating model

Decoupling the shared organizations from the rest of the functional analytics, such as in the industrial manufacturing enterprise needs to be done carefully because of the risk of example in Figure 11. However, when this organization is severing the ties with the business. Thankfully, there is by now staffed with business process experts who understand the a good deal of experience from both other business processes insight-to-action part of the process, it can also serve as a and analytics themselves. Our own experience separating from global process owner (GPO) for analytically enabled processes. GE in 2006 and creating a global delivery backbone has become The GPO model has become prevalent in GBS environments, a widely discussed management case study. serving functions such as finance or human resources or even IT, but it is still less commonly adopted in analytics. However, the Taking deliberately the two steps described above provides success of GPOs in optimizing end-to-end processes, irrespective the opportunity to create scalable, back-office, data-to-insight of their hierarchical ownership, is a clear example for a more organizations, able to muscle up cost-effectively a variety of industrialized analytics adoption.

Planning & Engineering and Procurement & Sales & Aftermarket assessment R&D manufacturing marketing

• Industry Analysis • CAD Design and • Demand Planning • Customer & Market • Shop Visit Planning • Growth Playbook Customization • Inventory Optimization Analysis and Forecasting • Long Range Forecast • Engineering • Logistics and Fulfillment • Customer Segmentation • Repair History Analysis • Economic Analysis Documentation • Sourcing and Spend • Pricing Analytics • Reliability Analytics • NPI Support Analytics • Competitive Intelligence • Shop process planning • Value Engineering • Vendor Management • Customer Loyalty Analysis and optimization • Reliability Analysis • Category Management • Sales Force Effectiveness • Spare Parts Pricing and • IT Solutions • Commodity Research • Win-Loss post mortem fulfillment • CRM Analytics • Contract Management • Digital Marketing & Social Media Research

Centralized Back Office

Figure 11 - Example of advanced analytics scope in an industrial manufacturing environment

19 Step #3: Ensure all stakeholders The second step is the formation of an organizational strategy that uses advanced operating models such as COEs and their are aligned around an agile, respective targeted technologies—not just analytical but also fast-ROI strategy. collaboration tools—to power up those processes.

Analytics investments are heavily scrutinized by the chief The business environment has never been as difficult as today; information officer (CIO), CFO, and functional or business volatility and uncertainty are widespread, while the stock leaders. Making the respective business cases is often a difficult market's hunger relentlessly asks for performance acceleration. exercise. Typically, these are not "cost-reduction" efforts, and We have used the analogy of old cars compared to digitally the resulting impact depends heavily on the adoption and enabled new models that use data to make the vehicle more longevity of solutions. Both are tentative estimates at best. intelligent—agile, safer, and less expensive. We have noted that Especially in these volatile times where demand, supply, and the difference is even more strongly felt on difficult roads. While technology change fast and upend business models, and in there might never have been an easy, straight, and flat road turn, operating models, enterprises must thoroughly evaluate in business, today the path is mountainous and full of hairpin more agile deployment options. Industrialized analytics does bends. Better get ready for it by industrializing our analytical not need to be a three-year-long exercise with substantial insight and making our business processes intelligent. technological risk. In fact, it should be made as nimble as possible.

A sobering example comes from remembering the billions of dollars spent on data warehouses in the last ten years, on the premise that they would enable a strong analytical workbench for the future—only to discover that new data characteristics (complexity, velocity, volume) and fragmentation do not lend themselves to being adapted to those older structures, and new technologies may leapfrog old ones, making them an obsolete legacy.

Agile design and deployment of globally located, well- orchestrated organizational structures enabled by nimble technology is often a more strategically sound choice-providing the option to evolve further, but also enabling short-term learning and avoidance of an excessive fixed cost. Parts of that portfolio can later be fully consolidated with lengthier IT approaches, but only when those areas clearly benefit from such heavy investment and do not run the risk of "cementing solutions in the wrong place," hence restraining future adaptability.

Conclusion

Insights have material impact only when industrialized and effectively embedded into business processes. Data-driven insight is fast becoming a significant factor in the success or underperformance of companies. Many firms struggle with harnessing analytics practices to drive material business impact—and contrary to common wisdom, not just because data scientists are hard to find or because technology is a "moving target." It is because enterprises are not used to thinking of the analytical impact at scale in terms of (1) the data-to-insight process and (2) the insight-to-action process.

This paper has articulated that the impact of these two processes can be materially enhanced by analyzing them end- to-end as a first step to a robust, scalable, and flexible solution.

20

This has been authored by Gianni Giacomelli, Chief Marketing Officer, and Sanjay Srivastava, SVP Enterprise Technology Solutions at Genpact. © Genpact 2015

21 POINT OF VIEW Build to adapt: A better business technology approach for volatile times

Instead of succumbing to the traditional IT-first bias, smart CFOs, CPOs, COOs, CMOs, and, indeed, many CIOs are now judiciously embracing a business-practice bias. By doing so, they enable a “build to adapt” strategy that is highly valuable in a volatile business climate.

For decades, business process challenges of many operational disruptions after implementation. Few types have systematically fallen onto impartial observers question the premise that the shoulders of CIOs who oversee the ERP-properly implemented-can deliver creation of solutions to simplify processes, transformative value to the enterprise. automate workflows, and enable However, it's equally true that few operational or strategic breakthroughs. industry participants take the claims The Enterprise Resource Planning (ERP) of ERP vendors at face value-or at market momentum has been partly least they question if their own responsible for, and partly a beneficiary organizations would be able to of, this tendency. Hasso Plattner and unleash such power. The painful the other visionary co-founders disconnect between business users of SAP sought to create a unified and and IT experts often meant that either streamlined IT environment where business technology had to be customized (at processes and data could operate seamlessly considerable cost) to fit obsolete processes to industrialize countless business-critical or revolutionary process change was forced on functions. That vision was validated by the market, business users to comply with the limitations and which catapulted SAP into a multibillion dollar global business- constraints of software that didn't truly reflect their businesses. and made the ERP market a huge one. But did that vision and Further complicating the situation is an emerging IT reality: promise ever translate into a meaningful and measurable ROI? data and processes no longer reside just in ERP systems. Years later, the answer is still unclear. Despite the various efforts and visions of the enterprise A famously controversial study from Panorama1 showed that software pioneers to unify all software and databases, no one more than half of all ERP implementations eventually exceed application platform or database owns everything. Even when their budgets and schedules. In addition, more than 40% of ERP initiatives gave way to large-scale data warehousing, the organizations implementing ERP fail to achieve half or variability of process flows and data formats kept overpowering more of the expected benefits and suffer significant the massive IT investments being made. That huge volume of

1 http://www.enterpriseirregulars.com/11871/erp-failure-new-research-and-statistics/ 22 unstructured data-and the emergence of SaaS architectures model. Strategy, budgets, and organizational incentives with their structured interfaces and application programming and skills will need to change. The outcomes will make the interfaces (API)-signaled a sea change that has forever transition more than worth the effort in most organizations. transformed enterprise software. And, of course, IT decisions are increasingly being driven by business-not technical- considerations. The result can be a nightmare for the CIO (and COO and CFO, too). But it needn't be that way.

Without question, very few corporate decision makers have any further tolerance for decade-long payback periods on their technology investments and deployments. Business volatilities (and even technology change) can make it foolhardy to lock in business processes and models that may need a complete and disruptive transformation in just six months. Instead, companies need agile process transformation that can support businesses for just months or even weeks (especially with respect to decision-support analytics). The speed of business has simply outstripped the monolithic, multi-year model.

That agility can be achieved through the right combination of technology, analytics, and process redesign that emphasizes the new requirements: speed and flexibility. For example, business intelligence is properly viewed as a business problem first. From this perspective, key business outcomes (e.g., cross-selling or more timely management accounting) alone should drive technology decisions and process-reengineering efforts. If a CFO needs to analyze profitability by client to make the appropriate discounting decisions, the solution needn't lie in a radical IT project to create a better customer relationship management (CRM) system or related data warehouses. Instead, the solution might simply be a low-investment intervention aimed at ensuring that the master data for the right data sets is maintained by a shared service organization and that a specific process is designed and implemented to produce the required reports and analyses (which can be industrialized). The beauty of this approach is that it is, in many cases, more agile. It typically has a much lower investment threshold, and it doesn't lock the organization into rigid, difficult-to-change processes.

Today's technology ecosystem is too often characterized by misaligned incentives and capabilities across the business- technology ecosystem-gradually assembled over decades in comparatively stable business environments. There are small- scope cloud-based, lightweight alternatives-a first sign that the tide is changing from the IT side. Another sign is that many CIOs are increasingly responsible for business operations and running back- and middle-office shared services and Global Business Services (GBS)-a trend heralded by Procter & Gamble a decade back and visible across industries today. Ultimately, achieving strategic adaptation of business-process operations requires a business-process-driven approach that treats IT as an enabler of a more holistic delivery This has been authored by Gianni Giacomelli, Chief Marketing Officer at Genpact. © Genpact 2015

23 POINT OF VIEW “Robotics” in process operations: Useful rapid automation, no transformation panacea

Rapid automation (RA), also known as “robotics” and autonomics, is not a new technical development but has accelerated significantly since 2013. Better technology tools and operations clarity have enabled the automation of material parts of the repetitive work currently performed in shared service-type operations. However, there are limitations to robots’ usability and impact, namely, the type of transactions robots can perform and their limited value beyond efficiency in specific parts of the process. Despite that, the emergence of RA represents a valuable addition to Systems of Engagements (SOE) for process operations and a useful complement to today’s systems of records. This paper describes the sphere of intervention for RA and recommends a more effective way to plan for its use.

What is RA? Microsoft.net framework, with pre-built functions that make the development work fast-paced and relatively error-free. This Rapid automation (RA) technology, aka "robotics" and also helps in making fast-paced revisions to existing code and "autonomics," mimics people interactions with user interfaces reduces the effort required to extensively train developers on this of ERPs, Microsoft Office documents, databases, etc. Technically technology. speaking, RA interacts with different software systems at the GUI (graphical user interface) or presentation layer, the same level as a "human" user of the system. RA is a non-intrusive RA’s sweet spot application with no need for integration with other systems and To understand the ideal playground for RA, we have analyzed delivers productivity by replacing human effort. The time and various processes across "horizontal" (e.g., Finance and cost involved in typical integration efforts between different Accounting) and industry "vertical" (operations in banking, software (the most common being workflow/ERP integration) insurance, etc.) functions. The technology can be applied are notorious pain points for operations and IT executives, and across many processes and functions, it is scalable, and if the RA is a useful additional tool for those issues. Thus, RA is a processing conditions are right, it can replace labor. Following non-intrusive application with no need for integration with other are the best use cases for RA. systems and delivers productivity by replacing human effort. It is a useful complement to the more traditional "system of records" • Dual data entry scenarios: Data manually entered in one technologies, primarily ERP. system need not be reentered manually in any other system. RA replaces such dual human effort since invoices are indexed Technically, most RA products are based on the well-understood in the workflow and then manually reentered in ERP

24 the following are the areas in which robots score better than employees: Dual data entry • Accuracy: Employees often make basic data entry errors scenarios such as typing in DD/MM/YY instead of MM/DD/YY. Software doesn't make such errors unless the underlying code is written incorrectly or the data is inconsistent. "Armies" of associates

Rule-based Straight- checking and correcting the work of other staff before a decision through transaction is posted are not uncommon. RA eliminates Best uses making processing the need for rework and releases productive capacity for for Rapid meaningful work Automation • 24x7, uninterrupted labor: No shrinkage due to breaks, vacations, breaks, meetings, or employee attrition. RA can work around the clock as long as work and target systems Response to Virtual are available requests for integration data Areas where robots • Flexibility: Processes often score better than face volume spikes • Straight-through processing: Inputs arriving from various employees are accuracy, on defined (or systems such as web pages for customer orders, workflow sudden) days, for invoices, emails, or Excel files must be entered into ERP. 24x7, uninterrupted weeks, months, However, if the input is clean and the rules are well laid out, labor, flexibility, and and quarters during that data entry can be done through RA compliance. a year. Staffing tends to be sized • Virtual "integration" between different systems: to accommodate peak loads, with cost often to be paid for Standalone, legacy, ERP, or workflow systems often don't year-round. RA is modular and uses a lightweight deployment "talk" to each other, and integrating them would cost millions model, which makes it easy to replicate and ramp up or down of dollars and precious IT time. RA can provide lightweight the number of "robots" to meet the vagaries of demand, integration connecting disparate systems at the user interface while maintaining optimal employee staffing level as companies move to one global ERP backbone and retire legacy systems • Compliance: Experienced associates tend to skip steps in the standard operating procedure (SOP) due to their experience, • Responding to data extraction and reporting requests: which can lead to errors. RA is programmed to always follow When data and report requests come from multiple process the SOP, and since there is as yet no self-learning mechanism, owners, vendors, and even end customers, employees log RA will keep on following it. This is an advantage especially in into a system to extract the data, format it, and send an email sensitive processes with regulatory oversight such as healthcare to the requestor. Since these requests are typically rule-based claims adjudication. In addition, the separate log-in IDs and work, RA lends itself very well to such tasks passwords in RA mean transactions are segregated, enabling • Rule-based decision-making: RA can execute decision-based precise accountability between people and software. RA tasks provided the rules driving those decisions are well laid also generates extensive audit trails at the "keystroke" level, out. For instance, on an invoice coming from a utility vendor, which provides an extra level of assurance during testing and RA can change payment terms to "immediate" from whatever production is on the invoice. If an order is above $50k, RA would send it to a manager/approver for review, or if the price variance is The limits of RA less than 5%, or below a defined threshold, then RA would post the invoice. These are all rule-based scenarios that robotic These advantages are fueling the "robotics" hype. What software can execute is the ultimate impact for all labor—be it business process optimization (BPO), shared services, or Global Business The potential impact of RA Services (GBS)—in the business process operations world? To understand the economic "end game," we must analyze the Processes that have one or more of these characteristics can significant limitations that apply. potentially see a productivity lift of anywhere between 10% and 50% or more if the conditions are particularly suitable. Broadly speaking, observations from our implementations thus far show

25 Complex exception handling and research: In some processes, straight-through processing happens without Input type human touch, and only exceptions require human processing. The effort typically entails researching why the straight- through processing didn't happen, obtaining additional approvals, and then posting the transaction manually. These actions require human understanding and become too Differing SOP issues complicated and expensive to be codified for RA. Limits formats of Rapid SOP issues: RA is programmed based on the available SOPs Automation for a process. The effectiveness of RA diminishes in processes that undergo frequent changes or for which the SOPs aren't granular or comprehensive enough to cover many scenarios. In these cases, these would end up processing the simple Complex Reading parts of the transaction and flagging all others as exceptions exceptions emails handling requiring human intervention. In the case of frequent changes, this effort would require additional investment to change the coding, conduct testing, and redeploy the robot Non-digital input type: RA products can't read or extract in the production environment. It could also lead to data from scanned images without using OCR to extract the processing errors. data. For many processes, the predominant input type is a Other issues: Multiple scenarios exist where employees are scanned image, and consequently, an RA implementation required: would incur extra cost and implementation time to include OCR. In some cases, the business case falls through because • To read handwriting or verify signatures of this aspect. However, once the threshold of the early • A fraudster could mimic an invoice structure on plain paper adoption curve is passed, and the default operating mode for a and have it processed automatically. Employees would assess process changes to RA, we can theoretically expect a push for the authenticity of the document from its letterhead converting input types from digital images, such as a system- generated, structured .pdf, which can be easily read by robots. The right approach to RA Again, the economic viability of these modifications depends on the cost of the respective IT implementation. This analysis has described the value and limitation of this fast- emerging, useful business process technology. There is no doubt Diverse input formats: Process operations often see multiple that improved technologies will emerge over time and redefine formats from different vendors for invoices or even paper the "art of the possible" in industrializing process operations claims in health insurance. RA can be trained to read specific through RA. formats. Beyond a certain point, using multiple robots to read multiple formats becomes economically unviable to The RA landscape itself is rapidly evolving, and the ability to deploy and maintain. Unless RA providers inject their products test usability across multiple types of processes is an advantage, with artificial intelligence, deploying robots to read different since RA allows users to understand the real value and formats will always be a challenge. Attempting to influence complexity. As the vendors to submit inputs in a standard format would be leading business A better automation difficult and time-consuming to implement. The organization service provider, strategy uses a might find it more appropriate to spend that effort nudging Genpact has a combination of: Optimal AP vendors toward electronic invoicing, which would eliminate long and broad process design "kits," human and robotic intervention. experience with multiple clients Lean value-stream Reading unstructured attachments and emails: Many across different maps, and RA to provide interactions between process owners and associates happen process types. the multiplier effect of via email, where instructions to process a certain exception are The main insight given. A free-flowing email is an unstructured data type and process automation. drawn from this can't be read by RA. Similarly, data arriving as an unstructured vast experience is that RA risks increasing automation of badly attachment, such as mortgage documents or supporting designed processes. documents for healthcare claims, needs human intervention.

26 A better automation strategy uses a combination of:

• Optimal process design "kits," to define the future state process

• Lean value-stream maps to identify and eliminate wasteful spend on non-value-added steps in the process

• RA to provide the multiplier effect of process automation. Although this approach may take slightly longer to execute compared to quick-fix automation, it provides more sustainable benefits for client organizations

This has been authored by Sanjay Srivastava, Senior Vice President, Enterprise Technology Solutions, and Saurav Dey, Vice President Quality at Genpact. © Genpact 2015

27 WHITE PAPER Loyalty 2.0: Industrialized analytics embedded in your processes

It is no longer a given that a high initial customer satisfaction rate for a product or service will naturally translate into a loyal customer base. New customers of both the B2B and B2C variety are far more influenced by increased choices, technological advances, and exposure to social media.

At the same time, the channels used to get and keep this new breed of customer often rely on (siloed) brick-and-mortar operations and processes. Remaking enterprise processes that are responsible for delighting customers (and doing it at the right cost) is an analytic and business transformation challenge. The following explores how to “industrialize” and embed analytics into processes to enable intelligent execution at scale.

We live in a world where vast social and e-commerce a "single view" of the customer by integrating multiple networks are interwoven globally in ways that are gradually data sources, from social media to enterprise data to rendering the networks indistinguishable from each other. traditional research. Buyers are in control as never before. That has made In this complex environment, one must ask, "How do renewing the enterprises increase their 'intelligence,' adapt to the new focus on customer In this complex rules of customer loyalty, and drive sustainable growth?" retention and environment, one The answer lies in capturing insights from multiple listening loyalty a top priority posts across touch points and customer relationship regardless of what must ask, "How do life-cycle stages. Through a more comprehensive you are selling. enterprises increase their understanding of buyer opinions and intent, enterprises Meeting that 'intelligence,' adapt to the can use predictive analytics to transform business processes priority calls for new new rules of customer and influence customer behavior. business processes, employee practices, loyalty, and drive and innovation. The sustainable growth?" The growing need for more CEM need of the hour: and less CRM Identify and deliver a quality experience across all customer touch points. Effectively meeting this need means creating In recent years, companies have invested a lot of money in

28 Customer Relationship Management (CRM). CRM has picture of the customer: Past, current, and probable. It takes a empowered the business leader with the muscle of repeatable company to the next level of customer centricity by providing customer-interaction behaviors while enabling the collection of access to customer opinion and decision-making processes. data... some type of data, that is. Since business leaders are already heavily invested in CRM and still situated on the front end of its ROI curve, many are Managing customer experience in silos means individual understandably skeptical of further investments in CEM. departments worry about their metrics or their processes; the Sometimes even when companies are aware of the importance departments do not necessarily look at the overarching goal of CEM they may not know how to manage it. They may that connects everything under one frame of reference, the collect data but struggle to tie it together into a comprehensive customer's. Examining only past transactional data, for instance, customer view. They may analyze the data but fail to circulate yields information only on what's already occurred. Weight must findings to the appropriate people. Some struggle to assign also be given to how up-to-the-moment purchasing preferences accountability for process improvements. CRM tells you only evolve based on something customers see and "like" on what the customer does, not what he or she is thinking. Facebook or covet enough to "pin" a photo of it to their Pinterest board. In these conditions, the next step is to harness the power of Customer Experience Management (CEM). CEM Introducing a holistic CEM framework results in overall customer satisfaction, which, in turn, secures We have found that converting raw data into actionable a measure of customer loyalty that would otherwise remain intelligence that can holistically heighten customer satisfaction fleeting. It involves the following: and loyalty means expanding and sharpening your enterprise's • Understanding the experience from customers' perspective listening capability in three areas:

• Delivering the experience to their expectations, closing the • Traditional research: Feedback is sought in the form of gap between desired and actual experience structured ‘Loyalty Surveys' that study customer perception, attitude, opinion, need, and desire • Integrating customer centricity into an organization's DNA— through repeatable processes that hit the determinants of • New media research: Steadily monitoring "unsolicited" "delight" feedback on websites, forums, blogs, and other social media

CEM is not limited to managing end-customer experiences. • Enterprise data: Identify and understand key drivers of Rather, it extends to managing and improving the experience of behavior by studying traits and tendencies during transactional all stakeholders, including influencers, employees, and channel engagements at contact centers and the like partners. Managing customer experience is not an exercise to be performed by a single team or specific departments. It is Stage 1: Designing - Experience mapping about changing how companies do business, how they view Once customer information is gathered from traditional, new media, their customer, and how flexible they are regarding changing and enterprise data sources, one can begin to develop a framework customer needs. for mapping customers' experiences, measuring their loyalty, and CEM helps companies look at customer survey data in assessing the impact that their opinions can have in relation to how conjunction with their behavioral data, and thus gives a holistic the enterprise responds to those opinions. (Figure 1)

1 Experience mapping 2 Loyalty measurement 3 Impact assessment

Prospect Presales Primary research Sales and marketing

Development/ 0 1 2 3 4 5 6 7 8 9 10 Delivery/ Revenue trends Operations New Customer revenue analysis Order/Billing

Customer segment Social media

Customer touch points After sales research support

Contact center/ Mature Customer complaints Prioritize action item

Map customer journey and highlight Determine customer loyalty scores Integrate with enterprise revenue data critical touch points across processes and their key drivers through primary to determine the financial impact of research and social media customer opinion

Figure 1: CEM framework 29 Customer experience must be measured at specific Design: Based on the input from Stage 1, a study is designed "touchpoints" throughout his or her journey. This means that combines traditional and social media research for a anywhere he or she comes in contact with the business in any comprehensive customer view. (Figure 3) This design ensures form, be it product, service, customer representative, or word that customer segments across the experience life-cycle stages of mouth. A touch point can be divided into three main zones: are covered based on their touchpoint use. Social media themes Pre-purchase, purchase, and post-purchase. Pre-purchase points provide additional inputs for designing the questionnaire. At this build customer perception and expectation, which are then stage, one must identify and finalize the key sources of social evaluated during the purchase stage. Post-purchase points are media conversations. equally important as they provide the "last impressions" of the product, service, brand, and company that will complete the Inputs from loop in the Customer Experience Cycle. stage 1

There are many ways to chronicle customer experience. Among Design research Collect customer Analysis of them are process mapping, customer activity cycles, activity study feedback feedback mapping, service blueprint, and touch point analysis. The best

results are obtained through a combination of methods. This • Output from • Structured • Analyze loyalty process helps landscape the entire cycle, from information Stage 1 and customer and key drivers social media feedback for an integrated gathering to purchase decision to actual purchase and post- themes will through primary view purchase use to after-sales support. (Figure 2) help identify research • Actionable audience and • Capture insights for formulate unsolicited all customer Interviews with stakeholders hypothesis for Senior leadership from processes with direct/ customer chatter touchpoints indirect customer interaction research through social media research Sales and marketing Operations Support services

Figure 3: Loyalty mapping stage Customer touchpoints Data collection: Data for traditional research can be collected Website Sales rep Point of sale Account manager online, on the telephone, face-to-face (F2F), or through a Marketing programs After sales Contact center mixed-mode approach depending on the target audience profile. Multiple surveys should be conducted with in-house-data Prospect New customer Mature collection centers in multiple geographies and by partnering Customer segmentation with third-party agencies for specific regions or target audience Customer to map critical touch points to all segments profiles. A preliminary analysis of the data and key themes is conducted. Figure 2: Decoding the customer experience: Walking in the customer's shoes Data analysis: Customer loyalty metrics and their drivers are analyzed to identify the critical drivers. Data collected from This broader landscaping effort involves interviews with traditional research and social media are analyzed independent all stakeholders in the organization at multiple levels. The of each other and in conjunction, for a holistic view. stakeholders are spread across functions such as operations, sales and marketing, customer service, design and engineering, and after-sales support. Combining the top management view 360-degree view of customer loyalty with frontline operational experience at such initial stages of the Combining structured feedback from primary research with CEM program design ensures that the output from the program unsolicited feedback from social media gives a comprehensive view is operational and is well aligned to the overarching strategic of customer loyalty. Primary research and social media research goal. This allows organizations to achieve an "inside-out" view. complement each other and work very well in tandem while closing the inherent gaps in individual methods.

Stage 2: Execution - Loyalty mapping Unsolicited customer chatter: Since this is not structured, it can Where Stage 1 is about solution design, Stage 2 is about execution. help identify new themes and new drivers more easily than traditional This is the stage when empirical research is conducted and research. The data are current and free of bias. Additionally, the hypotheses formulated and tested. This is also the stage when the cost of collecting these data is relatively low, and this type of data methodology for evaluating the CEM program itself is designed can be collected much more frequently than traditional research. and executed. Social media data are helpful in providing greater granularity to the individual drivers and issues. This in turn helps drive more action- oriented insights.

30 convert and competitors' customers. Then a standard system for listening to customer complaints and offering timely responses Listen and respond to must be designed. complaints/ issues in time

Design a VOC Stage 3: Impact assessment Integrate with program to behavioral Senior leadership is always looking at the financial impact loyalty has collect timely, data to assess on the business. This stage is thus about combining customer survey actionable financial impact Create a single view feedback data with transactional data to look at "what customers feel" and of customer through "what customers do" as a result. combining insights

from multiple 00,000 listening posts Base Sample: Custom Sample FY10 2010-07-22 Average NPS Score = 14.5% Fix G Model Tap in on new Listen to all 00,000 media (online/ stakeholders such social) to listen as employees and 00,000 N to unsolicited E channel partners D feedback 00,000 Listen to lost U

customers, 00,000 FY10BOOKINGS ($) B competition H K I Y V customers and 00,000 prospects J L R F S X Q M O 00,000 W T A P Move FY10 NPS Grow

Figure 4: 360 degree customer loyalty view -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% -120%

Figure 5: Quadrant analysis segments customer accounts by revenue and loyalty scores Traditional research: The benefits of structured research for checking the customer pulse have been many and undisputed This analysis incorporates merging data from multiple sources, over time. In spite of obvious criticism such as high costs and which is sometimes the biggest challenge in this stage. Linkage intense design effort, traditional research helps generate robust analysis is a two-step process in which Step 1 is about creating insights that can aid business decisions and prioritize actions. a data set for further analysis through merging disparate data sets. Step 2 is about analyzing that data set to identify In addition to combining social media and traditional research, patterns and trends and build predictive models. This analysis a complete view of customer loyalty includes listening to other supports customer loyalty efforts and CEM investments in the stakeholders. These stakeholders include not just employees and organization. The numbers help get senior leadership buy-in and suppliers but also listening to potential customers who did not predict future investments.

AVG NPS 12% 18% 51% 67% 69% • Early stage instability • Standard ‘client asks' continue but delivery • Predictable issues improves • Team and leader play critical roles • Incremental ask is for value-added services • All client touchpoints need to be maximized • Quantum increase in value additions will lead to small increases in NPS Known and predictable drivers to ‘deliver on' and impact NPS

NPS Flatter gradient for NPS and growth NPS can have an ACUTE opportunities (avg. growth=9%) impact on growth

Steep gradient for NPS and growth Growth is limited by size of opportunities (avg. growth=24%) client's internal factors and 1% in NPS = 0.31% in Growth external conditions 3 yrs

Vintage 0 - 1 yrs Vintage 1.1 - 2 yrs Vintage 2.1 - 4 yrs Vintage 4.1 - 6 yrs >6 yrs Early stage Mid stage Mature

Figure 6: Across vintage, ‘loyalty and growth' gradient

31 Industrialized analytics can enable a practices for retaining customers and driving business growth. holistic customer view and embed that Pursuing these goals requires a more robust—and more readily insight into loyalty-driving processes scalable—approach to analytics and related data collection. We live in a wired world where the relationship between customer Identifying and delivering an overall superior experience to and enterprise is more immediate, fluid, and delicate than it has customers is an all-encompassing goal. However, with the ever been. demand to create a single view of the customer increasing, there is now a better way to measure, assess, and execute best

32 For more information, visit www.genpact.com/home/solutions/analytics- research © Genpact 2015

33 WHITE PAPER The changing face of business collaboration

Collaboration remains an often-untapped key to competitive advantage, buried in enterprises’ organizational “backyard”. A Unified Collaboration framework that takes culture and human behavior into account, and drives technology decisions with a clear focus on business outcome, can deliver significant impact.

The days of collaborating with colleagues in the conference To support this reality, businesses must facilitate an "extended room, over the cubicle wall, or through long email streams are enterprise" in which critical collaborative interactions happen not gone, but these traditional models of collaboration can't effectively not only between individual employees and internal solve today's complex business challenges. Many companies teams but also with partners, outside agencies, customers, and are discovering the untapped benefits of harnessing collective prospects who may be located anywhere. Cross-border and intelligence. By adding collaboration tools that neatly overlay team collaboration requires rethinking of core business processes existing technology stacks, these businesses are boosting in order to effectively manage and leverage a more diverse productivity, speeding process cycles, and vastly increasing and distributed workforce. Tools and operations structures that the organizations' ability to respond to customer and market support cross-border and team collaboration are now crucial. demands quickly and effectively. 2. Complement—don’t replace existing 1. A new approach to the modern technologies

workforce Organizations seeking an easy method for moving to next- Job requirements today often result in a mismatch between generation collaboration tools need a "system of engagement," the demand and supply of specific skills. Scarce young a layer that enables a more productive and seamless work analytical talent and retiring industrial engineers are two faces environment. Effective collaboration tools complement the of the same coin. As the workforce evolves and automation underlying technologies already in place within the enterprise for or cost makes some skills obsolete, businesses may need to managing security and data: firewalls, virtual private networks staff their operations from various global locations in order (VPNs), enterprise resource planning (ERP), single sign-on (SSO), to obtain critically needed skills and talent. Human Resources Microsoft Exchange, etc. Collaborative tools provide unified (HR) executives believe that in the future there will be more access to existing data and expand the organization's ability to part-time, temporary, semi-retired, work-from-home, and share knowledge without compromising security or forcing a offshore resources. complete overhaul of existing systems.

34 Most organizations tend to look at the value of collaboration 3. Collaboration drives business impact: in terms of the transactional benefits derived from a simple Case studies application of technology—for instance, replacing an in-person meeting with a video chat. However, much greater value comes A combination of effective change management and well- from understanding the nature of human interactions. Powerful chosen collaborative platforms drives immediate tangible tools such as social network analytics can discern "hidden benefits. By carefully managing employee expectations and signals": the traces that people leave through online actions encouraging the use of collaborative tools such as real-time such as deciding when to connect, how, and with whom. document and screen sharing, chat, video conferencing, and This reveals insights into the functionality of groups in large collaborative forums, the enterprise can clearly chart a path organizations and how groups can be made more effective toward significant benefits derived from closer teamwork and through collaboration. This knowledge, in turn, helps the faster resolution of issues. enterprise refine the tools and gain the greatest value. The following examples demonstrate how a unified collaboration framework can create significant business impact for large global enterprises.

35 Note: Click on the company names to view case study details.

Case studies summary

Company Challenge Solution Large information Divestiture of a significant part of the Genpact's OneFloor collaboration solution services company resulted in significant challenges created stronger relationships between organization to the new business strategy of outsourcing teams and a seamless customer experience areas of the Finance function across country boundaries

Global diversified Two teams, one external (partner) and one Glue, Genpact's "asynchronous" social technology and internal, were responsible for designing collaboration portal, provided a common industrial leader and developing training programs and environment for more interaction that materials. Email and phone communication allowed the two teams to work as alone failed to integrate the two parties and effectively as in a face-to-face environment, stymied creativity saving time and costs

Global provider A central team of solution architects Glue, Genpact's social collaboration of business involved in large and complex business-to- solution, provided a collaboration platform and technology business solution design needed to ensure that produced faster responses to client services innovation and knowledge-sharing among a inquiries and immediate access to a far team of practitioners that provided cross- wider range of expertise and improved industry, cross-business process and cross- productivity through reusable, easily geography support accessible materials

Global provider Cross-company teams are often challenged Genpact's SolutionXchange, a specialized of business when internal skills and expertise fall short community where external subject matter and technology of specific business requirements and domain experts address unique services business problems, helped solve 60% of more than 400 posted challenges during the past year and decreased problem resolution time for clients by 80%

Global provider A global team responsible for assisting TransForum, a social environment based of business clients in globalizing business operations on Genpact's Glue, an "asynchronous" and technology needed to collaborate effectively on local collaboration platform, enabled highly services and regional issues, yet provide high- mobile and dispersed team members to quality, consistent change management share knowledge and collaborate on related and execution for clients across the globe execution issues. Genpact created a more collaborative culture that cut RFP response times by 20% and increased Voice of the Customer metrics by 10%

Fast-growing The enterprise struggled with distance OneFloor, a real-time collaboration company with and over-reliance on travel to stay close solution, and SolutionXchange, an external global footprint to markets. Deployment of a real-time community of experts, together created collaboration solution was challenged by a strong virtual network for the product a highly secure environment, adoption innovation and other teams. Innovative issues, and architectural complexity technical solutions resolved network complexities, while insights from Lean Six Sigma projects and social network analytics identified key "nodes" of influencers who could help drive adoption

36 Company Challenge Solution Leading pharma The company was dissatisfied with slow Genpact's Zero Surprise Operational company responses to inquiries made to their Monitoring solution used big data and globally distributed external shared social network analytics to evaluate services team but struggled to identify the the health of the relationships between root cause globally distributed teams. Scorecards identified designated points of contacts, pinpointed issues, and provided recommendations for improvement Global provider An internal group responsible for The group used Genpact's Unified of business developing products for service offerings, Collaboration solution, with a primary and technology creating business and industry thought focus on Glue, a portal for asynchronous services leadership, and identifying approaches social collaboration, to facilitate contests for improving internal operations needed among employees for the best solutions a method for harvesting the collective and most valuable new ideas, and used intelligence of the extended team metrics to identify the strongest and most consistent experts

Global provider A small team of five solution architects OneFloor, a real-time collaboration of business distributed across the US each support at solution, and Glue, Genpact's portal for and technology least three to five global sales opportunities asynchronous social collaboration, were services at any time. Business development team used to help the team work remotely members thought the solution architects to create "win" strategies and work out needed to be on-site to develop "win" solution details with global sales teams. strategies, but competing priorities and Global business development teams have logistics challenged the team to effectively access to marketing insights and other support sales teams globally materials that help the teams improve productivity and shorten the sales proposal cycle

4. Enterprises should not overlook this across enterprise boundaries. However, too many enterprises untapped competitive advantage lament poor results that mainly stem from limited adoption. The key to more effective collaboration lies in understanding the The collective intelligence and talent of a diverse, globally most powerful use cases, choosing and configuring specific— distributed workforce must be leveraged to fuel agility and not generic—collaboration solutions, and focusing on adoption innovation as well as increase efficiency. Organizations must also through data-driven and people-centered programs. become more effective in collaborating with their partners

37 SupportingSupporting transformation transformation and harnessing and harnessing outsourced outsourced operations operations

Case study 1: Large information services organization

Challenge Solution and impact Summary of benefits The information services The organization deployed Genpact's OneFloor • Helped build organization had undergone a tool to facilitate real-time collaboration. relationships recent divestiture in which a Using OneFloor, the organization's teams • Improved enterprise significant part of the company have built stronger relationships, with more communication and was spun off. Even after the split, familiarity between teams, through immediate collaboration across this company remained a large, critical communication. With video chat calls, silos and geographies more than US$4.5 billion entity. team members put a "face to the name" and The significant structural change became more comfortable resolving problems • Increased efficiency caused a great deal of volatility, together. Team members shared their screens and time savings resulting in organizational and to view issue logs and other materials such as across teams staffing changes, skill gaps, automated systems errors, making resolving • Speeded up problem hostile attitudes, and a culture issues much more easily. Teams relied less resolution and created of skepticism. The new business on cumbersome and elongated email trails or greater accuracy strategy included outsourcing conference calls that had previously resulted • Increased customer key areas of the Finance and in longer cycle times and misunderstandings satisfaction Accounting function, including between teams. Additionally, the collaboration • Improved access Order to Cash, Procure to Pay, tools segregated users with a "virtual partition," to knowledge and and Record to Report processes, enabling internal teams to interact with each document-sharing to three global delivery centers other while facilitating work with external in China, Romania, and India. teams. • Email traffic decreased by 21% The outsourcing service partner With the organization's teams dispersed team faced many challenges in three countries, OneFloor provided a when it came on board to assist collaborative process that enabled the cross- in the transformation. The skills functional team to deliver a seamless customer disparity produced gaps in experience across country boundaries. Net capabilities and understanding. Promoter Scores increased from 59% to 65%. Hostile attitudes created Team members saw available process owners, challenges in knowledge transfer reached out to review month-end journal between teams. Skepticism was entries so that the correct data was fed into a divisive factor in everyday the reconciliation tracker, or collaborated to operational transactions, so that quickly resolve other challenges, significantly every delay, problem, or stumble minimizing delays. When delays in payments during the change was met with to vendors were projected, for example, the unproductive attitudes and operating leader notified the process owner behaviors. at the client site and explained the delay immediately. This shortened the cycle time for decision-making by reducing "phone tag" and emails. Problem-solving that usually averaged five hours to resolve now took only 30 minutes. Collaborative document-sharing and editing improved speed and accuracy by up to 90%.

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38 Supporting transformation and harnessing outsourced operations Collaborating and innovating across an enterprise's boundariesdaries

Case study 2: Global diversified technology and industrial leader

Challenge Solution and impact Summary of benefits The global technology and industrial Glue, Genpact's portal for asynchronous • Reduced time to find company's director of learning social collaboration, provided a common knowledge, expertise, and development had two teams, platform to support more interaction and best practices one external and one internal, that between the two teams. The shared • Increased efficiency were responsible for designing Glue environment broke down barriers between project and developing training programs and encouraged more personal and teams and materials. Email and phone professional interactions. The technical communication were insufficient training, instructional design, and • Improved knowledge- to overcome the lack of chemistry graphic design teams enhanced their worker productivity between the teams and create a more design and development processes. The • Reduced cost of travel integrated and supportive working teams held "Innovation Days" via the relationship in which ideas could be common collaboration platform twice shared. annually, sessions in which the joint team brainstormed breakthrough ideas and approaches. With Glue, the two teams worked as effectively as in a face-to-face environment, with less time and fewer costs associated with innovation and improved idea management.

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39 Designing a complex B2B solution through collective knowledge creation and client response managementaries

Case study 3: Global provider of business and technology services

Challenge Solution and impact Summary of benefits A global provider of business and Glue, Genpact's social collaboration • Reduced time to find technology services was facing solution, evolved significantly from a forum knowledge, expertise, challenges in ensuring innovation for trading questions and clarifications to a and best practices among practitioners. A central team collaboration platform where best practices, • Decreased RFP of architects is involved in large trends, and benchmarking materials can response time and complex business-to-business be readily used. True collaboration through solution design. The team comprises Glue has had a wide range of positive • Decreased client a core of 50 people but inclusively business impacts: response times, with 70% of inquiries involves 260+ members. The team's • Faster response to client inquiries: 20% mission is to build competitive answered in less than decrease in response time and 30% 24 hours knowledge and define approaches decrease in the effort to pull together for delivering best-practice advice the best insights. For example, the team • Speeded up new and services to clients. The team posted a client inquiry on Glue; eight content development is constantly challenged in not people responded immediately, facilitating using reusable only ensuring innovation among an effective client response within 24 materials practitioners providing cross- hours • Improved efficiency industry, cross-business process, • Wider range of expertise: Glue provides across project teams and cross-geography support but immediate access to specific problem also in bringing extensive, complex resolutions, industry insights, best knowledge to bear for a wide range practices adopted by other companies, of stakeholders, including sales, and a wide range of the best insights subject matter experts, operations available from across the organization. teams, and clients. Through effective tagging and keyword searches, this access is extremely fast and easy • Improved productivity: Reusable templates, write-ups, case studies, and other project-related materials mean that good work already produced can be leveraged and teams do not have to start from scratch with new initiatives

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40 Leveraging crowd-sourced expertise to drive innovative B2B solutions

Case study 4: Global provider of business and technology services

Challenge Solution and impact Summary of benefits A global provider of business Genpact's SolutionXchange is a large global • Acquired needed and technology services is community where external subject matter and knowledge and often challenged when cross- domain experts can solve unique business expertise company business and new problems and bid on the opportunity to solve • Decreased time to find product development, solutions client challenges. knowledge, expertise, delivery, and other operational and best practices teams, which require internal Over the past year, this community has helped skills and expertise, fall short of solve 60% of 400+ posted challenges. Problem • Improved solution and specific business requirements resolution time for clients, on average, has idea development in unique situations. While decreased by 80% by finding the right expertise • Increased customer partnering with clients, these when it was needed. satisfaction teams may need to explore new Successes include the following: areas, seek specific information or insights, or get assistance in • High-impact transformation roadmap for developing new solutions. the hospitality industry: This short-term engagement provided insights into industry best practices and benchmarking techniques to develop a roadmap to strengthen the balance sheet, increase revenues, reduce costs, and make the profit and loss (P&L) statement stronger for a hospitality company • Clinical cross-process metrics and benchmarks for pharmaceutical clients: During a long-term engagement with multiple pharmaceutical companies, Genpact and external experts identified metrics that bridge sub-process activities across clinical data management processes for better performance management and benchmarks • Insurance claims cost reduction: In an engagement with a registered process co- lab expert, Genpact identified and resolved critical factors that caused claims leakage, resulting in a point solution that drove cost reductions of $10–12 million out of $1 billion in premiums • Financial closing scoring matrix: In a medium- term engagement, Genpact and registered experts developed a comprehensive framework of lead indicators and metrics that measured the effectiveness of the financial closing process

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41 Enabling global change management for global operations transformation

Case study 5: Global provider of business and technology services

Challenge Solution and impact Summary of benefits A global provider of business The team established TransForum, a social • Decreased time to find and technology services faced environment based on Genpact's Glue knowledge, expertise, challenges in ensuring global asynchronous collaboration platform. Team and best practices change management. A team members across regions shared learning • Improved solution responsible for assisting clients and knowledge and collaborated on related development and in globalizing business operations execution issues. Since mobility is necessary management had clients and team members for these teams, which are often in transit, in the Americas, Europe, and Glue was particularly effective, as it is • Decreased client and Asia-Pacific. Tasks included accessible via BlackBerry and iPhone devices. RFP response time restructuring organizations, • Speeded up new reengineering business TransForum acted as a unifying force that content development encouraged more discussion as well as processes, and deploying new • Improved employees' sharing of knowledge and best practices technologies. The team needed connections to across regional teams. Essentially, TransForum to collaborate effectively on colleagues (61% feel created a more collaborative culture, which led local and regional issues but also more connected) provide high-quality, consistent to more robust and consistent global solutions change management and and the following outcomes: execution for clients across the • "First Time Right" performance scores globe. improved by 5% as knowledge-sharing resulted in fewer repeatable mistakes • Voice of the Customer (VoC) metrics increased by 10% on project management as collaboration improved the performance of new managers and leveraged experience to overcome complexities arising across regions • RFP response times decreased by 20% and sales collateral improved by featuring the best of what the global team could provide in solution results

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42 Driving product innovation with real-time collaboration

Case study 6: Fast-growing company with global footprint

Challenge Solution and impact Summary of benefits A global fast-growing company The company leveraged OneFloor, a real-time • Improved innovation was struggling with distance and collaboration solution, and SolutionXchange, ideas pipeline by 50% over-reliance on travel. Some an external community of experts, to create • Reduced solution units such as the new product a strong virtual network for the Product development and innovation team were multi- Innovation and other teams. Network testing time by 30% country by design because they complexities were resolved through innovative needed to stay close to markets technical solutions to partition users. Using but had resources globally insights from Lean Six Sigma projects and and would collapse if a strong social network analytics conducted on the collaboration framework were network, the company identified key "nodes" not in place. This in turn affected of influencers who could help drive adoption, other front-end teams, including backed by a strong internal marketing program. consulting and sales.

Deployment of a real-time collaboration solution was challenged by a highly secure environment and related architectural complexity as well as issues with driving adoption in a fragmented user environment.

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43 Ensuring healthy client interactions and responses

Case study 7: Leading pharma company

Challenge Solution and impact Summary of benefits A leading pharma company was Genpact leveraged its Zero Surprise Operational • Decreased response dissatisfied with slow responses Monitoring solution, which uses big data and time to inquiries made to the globally social network analytics to evaluate the health • Increased response distributed external shared of the relationships between globally distributed levels services team and struggled to teams every month. This solution takes a pinpoint the nature and location proactive approach to identifying and solving • Created proactive of the cause. problems, allowing for timely investigations and monitoring for issues corrective actions. • Improved client satisfaction Monthly scorecards generated by the tool clearly reflected a very high average response time and low profiling of central leadership. Using this reporting, the client team identified the designated points of contact for delegating work among the shared services team members. The scorecards indicated that emails were not promptly answered; a client had to send several inquiries before he or she received a response. The scorecards also provided "directional" recommendations based on the best-practice communication guidelines. Changes suggested to improve team behavior patterns and practices included the following:

• Reviewing the structure and ratio of team members to a team lead/manager from the service provider. This would help identify those who could facilitate support and communication • Establishing performance metrics mandating that any client email should receive a response in less than 24 hours

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44 Generating valuable ideas and driving innovation

Case study 8: Global provider of business and technology services

Challenge Solution and impact Summary of benefits A global provider of business Genpact's Unified Collaboration solution • Increased innovation and technology services wanted focused on Glue, Genpact's portal for and value creation to improve management of asynchronous social collaboration. Using Glue, • Improved solution collective intelligence. An the group facilitated contests among employees development and internal group responsible for for the best solutions and most valuable new management developing products for service ideas. Genpact asked team members to submit offerings, creating business and Point of View documents and other thought • Decreased time to find industry thought leadership, leadership assets for consideration and saw a knowledge, expertise, and identifying approaches for high response rate; more than 100 assets were and best practices improving internal operations submitted. The group set up a panel and a rating needed a method for harvesting system to help choose the winners and resolve the collective intelligence of the the challenge of selecting the top five to 10 extended team. ideas. For example, one idea that won involved a methodology for assisting pharmaceutical companies with adopting new drugs. The team made recommendations that included identifying key opinion leaders who could assist these companies in their efforts to effectively promote new drugs entering the marketplace. The group's related recommendations were incorporated into service offerings for the pharma industry.

The team posts ongoing business challenges and questions to which internal experts and team members can submit resolution proposals. The best solutions are used to improve internal operations and resolve problems. The team also monitors employees and maintains metrics to identify the strongest and most consistent experts, those who provide valuable insights. This helps reinforce employee rewards, promotions, and recommendations for engagement in delivering various client services.

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45 Leveraging a small and geographically dispersed enterprise solution architects team for global support of sales opportunities

Case study 9: Global provider of business and technology services

Challenge Solution and impact Summary of benefits A global provider of business and OneFloor, a real-time collaboration solution, • Helped build technology services was facing a and Glue, Genpact's portal for asynchronous relationships and challenge to effectively support social collaboration, were used by the team. teams sales teams globally. A small OneFloor was incredibly powerful in helping • Developed team of five solution architects, the team work remotely to create "win" better enterprise distributed across the US, each strategies and work out solution details communication and support at least three to five with global sales teams. With OneFloor, collaboration across global sales opportunities at any the solution architects engaged the right silos and geographies time. Business development team resources at the right time on the right members perceived a need for the projects. The team was not spending valuable • Increased efficiency solution architects to be on-site time and money traveling, and the company and time- and cost- to develop "win" strategies, but maximized its investment in a small team savings across teams with global sales teams on six for global sales support. The team used • Increased deal team continents, and multiple competing whiteboard and desktop-sharing features productivity by 15% priorities, it was neither practical in multi-hour "win" strategy brainstorming • Speeded up problem nor time- or cost-effective for meetings that involved the business resolution these architects to meet in person development leader, global regional manager, • Improved access for each opportunity. Competing and lead solution architects. to knowledge and priorities and logistics could document sharing result in the person dispatched Additionally, the solution architect team on-site not having the right set of began monthly one-on-one and weekly team knowledge and skills. This small meetings via Lync video and, increasingly, team was therefore challenged to used Lync calls for discussions that would effectively support sales teams have normally taken place via mobile phones globally. or landlines. Although the team leader may not physically be with team members for six In addition, the solution architect months or more, the team can still see each team was relatively new. These other regularly and further develop a team critical resources were difficult mindset. to hire, with learning curves of 1.5 years or more. Establishing Glue is used by the global business strong relationships between the development teams to gain access to team members, creating a sense the latest competitive insights, proposed of loyalty, and retaining these solutions, marketing insights, win/loss employees were key due to the assessments, insights from competitor high investment and critical need organizations, case studies, and many other for these individuals. However, materials. They help the sales teams develop regular face-to-face team meetings critical insights that are used in business were simply too costly and time- development and materials that can help consuming. improve productivity and shorten the sales proposal cycle.

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46 For more information, visit www.genpact.com/home/about-us/leading- edge-innovation/the-intelligent-enterprise/smart- technology/unified-collaboration © Genpact 2015

47 POINT OF VIEW Almost plug and play: How advanced process operations help M&As

Mergers and acquisitions are commonly used to drive innovation and growth, but their consummation is complex. Their execution benefits from advanced support operations such as shared services, outsourcing, and particularly Global Business Services (GBS), which can facilitate increasingly complicated enterprise restructurings. M&As leverage superior process maturity, transparency, scalability as well as better economics due to shared operations. Here is a view on the road map CFOs, COOs, and other senior management dealing with significant operations complexity in an M&A environment should adopt.

It is much easier to buy than build but and a third produce only marginal returns. Indeed, barely half achieve the cost savings, operational synergies, or revenue M&A consummation is complex expected. Worldwide, corporate mergers and acquisitions totaled some Many studies have examined why that is the case. Staff $839 billion in 2013, up 20% over 2012. The outlook for preparation, behavioral bias, and bad homework are some 2014 shows a likely further 25% increase. At the same time, of the culprits. However, the role of various business process business cycles are becoming so dynamic in so many industries delivery models is typically not explored in detail—quite wrongly, (pharmaceuticals, manufacturing, energy, finance, and consumer in our experience. Even when the pre-merger analysis is done products, to name a few) that CEOs and CFOs are often hard- well and the final decision is fully rational, all too often acquirers pressed to transform their operating models, that is, the way do not have the organizational structure and managerial tools their delivery processes are executed at scale across people, IT, to make the deal succeed. A core reason for so many of these and policies. failures is the inability of the post-merger integration (PMI) to These two trends can be highly synergistic, but many companies integrate companies and realize the related synergies: 40% aren't harnessing them jointly. of executives who've been involved in M&A deals say that post-merger issues are often the most difficult to resolve. In the meantime, M&A is still a tough strategy. A recent Beyond soft factors such as culture and style, hard elements McKinsey study found 86% of CFOs surveyed expect to be related to business processes are very often major hurdles (from tending to M&A-related restructuring issues through 2016. The data collection and analysis to payment systems, purchasing, work will not be easy. Recent studies show approximately three- procurement, and invoicing). Some processes often prove too quarters of all M&A deals fall apart, nearly two-thirds of those dissimilar for the acquirers' PMI team and a challenge for change completed are financial failures, half erode shareholder value to management efforts to readily standardize. where they cannot earn back the capital invested in them,

48 Companies with global ambitions can face added complications. Advanced operations such as GBS facilitate M&A execution in Compliance with local government regulations, accounting various ways: standards, rules on corruption and bribery, as well as • Scalability. The economics of shared services, outsourcing, or management discipline in dealing with them vary from country combinations thereof in advanced operations can rapidly scale to country. Information management can be especially tricky up or down top- and bottom-line operations to accommodate because of the potentially wide variation in capabilities related growth in some parts of the business, or loss of volume in to monitoring, collection, storage, and analytical systems. Lost others data, IT downtime, and integration can become critical issues in any merger. • Integration capabilities. Using GBS, restructuring companies can quickly discover their target operations. This However, a mature operating model, most importantly for facilitates the integration functions through more transparent the acquirer, can go a long way in reducing the risk of PMI, and documented processes, better enabled by more robust increasing its speed, and ultimately enabling a functionally technology (ERP, workflow, business intelligence, as well as effective and efficient steady state. solid master data management frameworks). Additionally, change processes can be managed by teams of change A different way to look at operational experts and global process owners (GPOs) who have synergies accountability for end-to-end processes irrespective of the actual reporting lines When Procter & Gamble (P&G) acquired Gillette in 2005, and • Analytics. Increasing decision-making across the enterprise, became the world's largest consumer goods company in the thanks to more robust data-to-insight as well as insight-to- process, the company's top executives expected the merged action processes entity to operate at much greater efficiency and scale than the separate parts had. Because of very different sales forces, even • Policies. Allowing companies to standardize operational seemingly obvious synergies proved difficult at first. Salespeople and compliance processes and metrics faster, even across from the two predecessor companies found themselves gunning seemingly incompatible business cultures, thus enabling for each other's jobs. In the initial wave of restructuring, good repeatability of the transformation across business units, legal people left, and corporate performance suffered. In sum, the entities, or acquired organizations deal was not simple to execute. However, as P&G had adopted and fine-tuned its GBS, the company learned how to overcome In a post-merger scenario, key processes such as order-to-cash process-related aggravating factors, such as sales operations (OTC), source-to-pay (S2P), and record-to-report (R2R) are and related order to cash. P&G is one of the strongest merger impacted materially. Advanced operating models help achieve executors, despite being in one of the most volatile industries. desired business outcomes as described in Table 1.

Key Typical challenges in post M&A Specific practices in a GBS/SSC Common practices in processes scenario environment GBS

Improper alignment of accounting and • Creating end-to-end OTC visibility and • Documentation of OTC collections process/systems leading to: reporting processes • Lower accuracy of order deliveries due to • Workflow to standardize and monitor billing • Availability of GPOs Order to Cash incorrect customer master setup management • MDM governance/ (OTC) • Delayed cash realization due to • Workflow tools for dispute resolution/ standards mismatch in billing information management • Inaccurate collections due to poor • Proactive collections strategy for select account reconciliation customers

• Poor vendor realignment and • Vendor rationalization/ increased use of • Documentation of S2P consolidation preferred suppliers processes • Savings leakage due to inability to • 100% spend extraction from ERPs and • Availability of GPOs Source to Pay renegotiate credit terms increased spend visibility • Business intelligence (S2P) • Low sourcing effectiveness due to • Better categorization by using standards • MDM governance/ insufficient spend visibility such as UPSPSC standards • 100% cataloguing and no-PO-no pay policy

Differences in book closing and reporting • Automated interface process within ERP • Documentation of R2R of merged entities leading to: system for sub-ledgers processes • Longer time to close than comparable • Adherence to global corporate calendar • MDM governance/ Record to Report peers • Workflows for manual journal entry standards (R2R) • Unreliable financial statements because reductions of high aged open items • Simplified, standardized and documented • Delayed external reporting due to high reconciliation policies with equally robust number of rectifications dashboards and reporting mechanisms

Table 1. How advanced operating models help achieve desired business outcomes

49 Advanced operations: A largely stakeholders when executing an M&A. PMI can be significantly simplified by the disciplined delivery, as well as superior untapped lever for M&A execution economics, of advanced operations models. Advanced operations such as GBS are a very strong tool for CEOs and CFOs who must capture maximum value for

An example of advanced operations impact in M&A

When one of the world's largest construction materials manufacturers wanted to expand into global emerging markets to counter declining domestic sales in the U.S., the company did so via acquisitions. The company had a chance to acquire three leading door manufacturers in India, but faced a tight deadline and lacked local market knowledge and in-country human resources and legal expertise.

Genpact's shared services and process reengineering approach helped manage the three-part merger, from due diligence to a smoothly running new enterprise. Genpact redesigned and integrated the business processes of all four companies into a single shared service center. This included a seamless control process from day one and an end-to-end finance and accounting system for the new enterprise.

The payoff? An integrated back-office operation was up and running in just 12 weeks. In the process, we created a model that is applicable to any industry and business unit that needs to move quickly into an emerging market by acquisition.

50 This has been authored by Gianni Giacomelli, Chief Marketing Officer at Genpact. © Genpact 2015

51 WHITE PAPER A rigorous business case for advanced operating models A precondition for transformative operational strategies

Operations leaders often struggle to present the full strategic values of their operating model alternatives to their respective CXOs. This challenge is common across service and support operations, from banking processing to finance and accounting and beyond. Assessing advanced operations’ roles solely through the lens of baseline-cost reductions biases CEOs’ enterprise choices, since the choice of alternatives benefits from a more sophisticated value-modeling approach that accounts for the financial impact of execution uncertainty and market volatility. The same challenge exists when choosing between alternative organizational models, such as internal shared services, BPO, hybrid and global business services. This paper provides executives with the analytics to robustly estimate the full values of these models (taking into account the financial significance of risk, time, and additional quantifiable factors) and to properly evaluate alternative organizational models.

The challenge risks of their strategic options.

Many leaders struggle to assess and present the value of The end result is too often the creation of documents that strategic transformations of their operations. Within functions include only transactional cost reductions, and even these are like financial planning and analysis, industrial operations, often represented in only a partial way, with a bias towards acquisitions and spinoffs, where sophisticated business case aspects that are well known. The consequence is that the CEO modeling is prevalent, data benchmarks are easily accessible and the board are likely to discount the strategic values of these and strategy consultants are readily available. In these cases, plans. sophisticated business cases are routinely built by specialized analysts (including very experienced top managers) and consumed by senior management. Building a rigorous business case requires two steps Service operations, on the other hand, be they the core services of a bank, the services of a finance and accounting These challenges are surmountable, but they require greater function, or the services of a sales or even an R&D combined operational and financial efforts than they typically organization, often struggle to produce the same CEO-grade attract. Two steps can help operational leaders do justice to strategy materials and don't account for the full values and their plans and retain the attention of the top management.

52 • First, determine the Total Cost of Ownership (TCO). Consequently, the considerations on the next pages, which Understand the cost structure of advanced operations in variably impact the inception, steady-state, and model windup/ detail and map the drivers of these cost structures in order change (e.g., through sale or merger) of such operations, to understand how to harness the respective economics and should be modeled accurately for each of these stages. to quantify the risk of falling short of financial targets. As shown in Figure 1, two sets of levers exist. Very often, • Second, clarify the full value envelope, including costs that only the first lever (or only a part of it-the direct FTE cost of occur in the event of volatility or enterprise discontinuities, the associates) is taken fully into account. However, in our such as fast growth. experience, much of the variance in operation cost effectiveness is explained by the other levers and their variances. In both steps, the impact of alternative operating structures on these drivers must be rigorously modeled. This document provides the analytical tools to do so. Direct FTE

Step 1: What’s the TCO? Infra Production Understand the cost structure of input cost advanced operations in detail IT Map out cost drivers to understand how to harness the respective economics to forecast financial outcomes more precisely. Overall delivery cost structure G&A a). The determinants of a real-world shared organization’s cost structure Leakage source It is commonly understood that a business case requires an Agent Inter-agent analysis of the initial setup, ongoing operations, and, potentially, productivity variance wind-up options. What is not as well understood is the set of economic levers that determines the financial outcomes of each Waste/ of those phases. For example, while the "production" cost rework at scale may be similar across different scenarios, significant Figure 1 variability is often observed in the initial phase due to significant variance in agent productivity-variance that mature operations, The four main cost categories (i.e., FTE, Infra, IT, and G&A) staffed by experienced operators, can gradually control. The must be further broken down for us to better understand their speed of reduction of this variance is a large determinant of the dynamics, the levers that can influence them, and the design spread in financial outcomes and needs to be accounted for, principles that an organization may or may not be able to starting with an understanding of what factors (e.g., waste and respect (each described in the examples of Figure 2). rework) provoke the variance in the first place.

Operations cost levers Necessary design

Associate comp. Associate comp • Experience/ tenure mix policies • Entry level comp Bench Direct supervision Bench • Agent attrition Direct support management

ect FTE cost Transport, cafeteria • Span of control (across

Di r Direct Recruitment, training supervision supervision levels) Rentals Other infra OPEX Recruitment, • Average time to recruit

Infra. training and train Depreciation

IT, software maintenance • Area per seat I T Rentals Telecom • Seat utilization • % idle seat capacity G&A - personnel Non-recoverable travel,

G& A • Approval policy and sta Travel compliance • Policy for business class travel

Figure 2

53 5 R2= .90 Scale

4 10X scale can cut 50% of cost-per-unit-of-work

3 Optimization

2 Standardization to scale explains variance

1 Cost arbitrage

Cost per hour can be 70% less - for same skills Ratio of FTEs per 1000 employees served Ratio of FTEs per 1000 employees "Cost per unit" "Cost 0 100 1,000 10,000 100,000 globally, and to some extent regionally Benefits Admin Company size Employees, log scale

Figure 3

The inability to pull some of those levers-whether due to cost structure might behave like a collection of small companies scale, to process optimization capabilities, or to access to and miss the target cost by a significant amount. cost-effective pools-can radically alter these costs. The team To provide practical modeling guidance, the following chart, responsible for the business case should be able to model the Figure 4, gives an approximate indication of the materiality effects of some of the key variables, as well as the impact of a of each lever and shows what enhances our ability to failure to achieve them. harness them. For example, some of the levers and respective To clarify why such an analysis is required, the example in Figure subcomponents, such as bench levels, benefit greatly from 3 illustrates the magnitude of a possible impact. Understanding economies of scale or from increased scope, which enable, for the effect of scale, for example, is often something that example, the pooling of resources and the spreading of fixed individual companies struggle with, unless they have significant costs. Other levers, such as associate compensation, respond experience in transforming and sharing operations. If the well to global delivery. Failing the ability to use these levers, requisite scale is not achieved because, for instance, the lines- process improvements can still generate benefits; however, of-business units don't release the necessary scope or because these improvements typically have a greater impact when of limited process standardization, even a large organization's combined with other levers.

Transactional process, oshore example Potential impact of advanced ops % of cost Process Global improv. Scale delivery Scope • Experience and tenure mix Associate comp 20-40 • Entry level compensation • Proportion of temporary sta deployed Bench • Agent attrition 1-5 • Average time to recruit and train Direct • Span of control (across supervision levels) supervision 10-15 • Grade role mismatch Direct support 5-10 • Support per 100 FTEs • Grade role mismatch Direct FTE Transportation, • Proportion of workforce availing transportation 5-10 • Average fill rate cafeteria • Defects/no shows Recruitment, • Average time to recruit and train 1-5 • Recruiter productivity training • Recruitment yield 50-60% Rentals 5-10 • Area per seat • Seat utilization Infra Other Infra 10-15 • Proportion of idle seat capacity 10-20% • Desktop maintenance cost IT maintenance 1-10

IT • Number of tickets raised Telecom 1-10 • Average bandwidth utilization 5-10% • Number of G&A employees per 100 RGFTEs G&A 1-10

G& A Travel 1-10 • Approval policy and compliance • Policy for business class travel 10-15% Negative High impact No impact impact

Figure 4

54 NON EXHAUSTIVE Business Impact Operations cost levers Necessary design SSC GBS Key Levers

Associate comp. • Experience/ tenure mix • Move tenured emp. to Bench 97 • Entry level comp new projects Direct supervision • Agent attrition • Low cost locations Direct support • Span of control (across • Better career paths ect FTE cost Transport, cafeteria supervision levels) • More standardized Di r Recruitment, training processes Rentals • Seat utilization • Better shift scheduling Other infra OPEX • More seat sharing

Infra. • % idle seat capacity Depreciation

IT, software mainten.ance, • System sharing, bulk • Systems per user I T Telecom licenses

G&A - personnel • G&A costs • Shared G&A costs Non-recoverable travel, • Better compliance by G& A sta welfare, meetings • Approval policy and compliance standardization • ..

High No impact impact

Figure 5

Shared service centers (SSC), business process outsourcing From the analysis above, it is clear why the practical result (BPO), and modern global business service (GBS) structures depends on the theoretical "economic fundamentals" of can impact these cost structures with varying degrees of each alternative model (which are sometime reflected in certainty, and the business cases for alternatives must be business cases), but also, importantly, on the sheer execution built appropriately. In other words, it is necessary to account excellence applied to these fundamentals. Creating these for the different likely financial risk profiles of each of organizational constructs is a nontrivial implementation effort, these structures and to ensure very robust modeling of the and a robust business case must take this aspect into account alternatives, since the risk is borne by the client organization. when performing sensitivity analyses for various alternatives. The following are considerations that aren't often modeled appropriately in business cases. b). The cost effectiveness of different models rests on their respective abilities to harness the drivers of cost c). Accounting for real-world leakage and assessing possible deviations from the plan The theoretical outcomes of the various options (SSC, BPO and GBS-typically with hybrid models) depend mainly on Attribute a value to uncertainty. While proper investment three things: The size that the client's operations can reach valuation takes uncertainty into account and discounts by themselves for the functions in scope; the client's ability outcomes accordingly, business cases for shared services to optimize processes; and the client's access to labor pools and other operational constructs do so very rarely. This is that it can realistically obtain and maintain. Clients that a mistake because the alternative options carry different score well and feel that they have little risk in execution are levels of financial risk, and management should be given this the best candidates to optimize their financial profiles by information as part of its decision-making process. Specifically, retaining greater scope in-house. While the results are highly the parameters described in the first section of this paper have situational, a more granular analysis shows that high-level material financial impact, but the ability of an organization's estimates can be readily made. Figure 5 shows the design business planners to estimate them well varies significantly. choices of different organizational models, as well as their This is especially true when estimating risks for internal shared typical ability to drive results. services, in which all of the modeling, as well as the risk of deviation from the financial plan, falls completely on the More sophisticated shared organizations, which are often shoulders of the client. Specifically, the typical budgeting and structured as GBS (in which a part of the scope is typically financial controls for internal shared services often don't act as outsourced) have the potential to deliver more material good stabilizers for initial budget overruns (an effect known as results. These considerations must be taken into account "burning through the money"). Instead, they tend to incentivize by those responsible for the business case and reflected in underinvestment (e.g., in talent, infrastructure) in order to keep sensitivity analyses.

55 short-term costs under control, which, in turn, may perpetuate markets), or when the business is affected by new internal cost issues and lead to vicious circles. The business case for top ecosystem requests (e.g., governance, service level management should explicitly reflect a wider range of possible agreements, customer satisfaction, etc.). outcomes, since the expected results may be more "noisy"1 than those of process outsourcing (in which the modeling is based d). Benchmark results confirm the model on systematic experience and observations and the risk is borne more fully by the provider). It will not come as a surprise that benchmark studies2 demonstrate that the levels of these cost categories Understand what degree of financial risk your company vary significantly between best-in-class and "median" assumes. The possibility of a miscalculation is significant, and organizations-and, most likely, so do the variances of the not just when your organization is new to these endeavors. original business cases. Importantly, the probability of a mistake – and the severity of its consequences – varies widely: The analysis uses historical data for rule-based decision- making (of the sort that is often considered a candidate 1. In the case of a BPO agreement, the consequences will be for in-house operations). Even in these situations, the best less severe if the service provider has done appropriate due captives can have, for example, a lower fully loaded cost diligence and if the contract protects the buyer from part per FTE than that of the best BPO providers;3 however, the or all of the price level pressure that may derive from a cost median captive is roughly 40% more expensive than the calculation that is revised upwards. That said, outsourcing median service provider. relationships in which the cost has been underestimated do exist and are potential sources of instability (hence, the The same pattern is visible when comparing the significant importance of ensuring that the service provider has enough determinants of the cost structure, such as the number of data points to make an accurate assessment of the outsourced support staff per productive FTE, the facilities cost, or the organization and to enable an estimate of the cost of the spare capacity for business continuity. retained organization). In general, service providers and the very best captives enjoy 2. In an in-house shared service transformation, the structural advantages, such as better opportunities to spread benchmark data available to the modelers are typically sparse fixed costs, lower costs of acquisition of resources and and not easy to relate to the new situation. For example, how greater attention to indirect costs and process improvements. should a company model the actual cost of hiring people at In addition, several unquantifiable aspects negatively impact scale in an offshore location? Moreover, what will the actual the business case for the worst performing captives over level of attrition be for key employees when the job market longer time horizons. Examples include the opportunity becomes more competitive, given the actual attractiveness cost of management attention to remote operations; fewer of the client's brand and the actual opportunities for job career development opportunities for staff (leading to higher advancement in the actual scope of the captive? retention costs); and a limited ability to develop leading practice thinking. Clearly, the best in-house captives are great The sensitivity analysis of the business case needs to account performers, and the probability of reaching such performance for the differential risks of the various alternatives: A BPO should be accounted for in the related business case. provider will often assume the most risk, a mature shared service organization will be able to estimate and manage these variables to a certain extent, and a new team in a firm that is new to Step 2: Clarify the full value envelope internal shared services will have the highest level of risk. Today, most business cases for shared services or BPOs are Very often, these analyses are simply not performed-or, if constituted by efficiency and cost measures, and even these they are, the potential deviation is applied uniformly across are not fully accounted for. Instead, multiple factors should alternatives. Both of these approaches are inappropriate. be part of a robust analysis, and their cumulated effect should be brought to the attention of top management. Avoid blind spots. Business cases often only use known costs, without seeking a proper understanding of all the related costs a). Resilience to inflation that should be included in the new organizational structure. The impact of "production" resources' cost inflation is often Some such costs may be embedded-sometime invisibly-in not considered, although it affects the alternative operating other G&A or business-line cost structures. There is frequently models (e.g., SSC, BPO) differently, and, consequently, is little clarity regarding how those costs may vary in the future, a source of bias between options. Specifically, the cost of whether in the "heat of the transformation battle," during in-house, fragmented operations, which represents the steady-state operations that expose the business to pressures "baseline" (as shown in Figure 6), is very rarely a steady cost. due to new environmental conditions (e.g., offshore labor

1 Definition of noise in financial terms as dispersion of actual results around expected or trend-line results 2 McKinsey P360 data 3 Inclusive of the provider's EBIT 56 Instead, it tends to increase over time, and to increase even growth is of particular importance in times when developing more rapidly in the event of additional compliance requirements markets represent growth potential for corporate portfolios and or when additional investments are needed to improve emerging clientele segments may require setups for different effectiveness. In contrast, the baseline used as a comparison types of operations. The inability of support operations to keep to alternative delivery models is often kept artificially flat, pace with demand (or with the sales force) can have a variety of obfuscating a non-negligible source of savings or, at a minimum, implications: Demand is left unaddressed, resulting in a loss of predictability. Outsourcing contracts also typically stipulate cost revenue and EBIT; demand is addressed, but at a higher SG&A of living adjustment clauses that shift the risk of unforeseen cost, resulting in EBIT dilution; demand is addressed, but at the inflation to the provider. Like all "future" financial options, these wrong conditions (for instance, such that the sales force cannot are particularly valuable in times of volatility or when the client use accurate cost-to-serve or discount or credit policies because doesn't control future costs very well. the supporting operations cannot provide such information in a timely and precise manner); or demand is addressed, Realistic but at the risk of non-compliance with local or international baseline cost regulations. All of these are situations that can expose firms and Estimated structure baseline cost individual managers to increasingly dangerous liabilities. Again, structure these scenarios are very rarely quantified. Figure 7 provides a Realistic schematic simulation of the analyses that should be run in a Estimated cost robust business case. cost dierence dierence

Operations cost Advanced operations enable target revenue/ New cost structure in presence volumes to be realized faster compared to of continuous improvement decentralized operations Time

Figure 6 b). Account for the time-value of money

The speed of the realization of benefits isn't the same across models. This is true in initial phases, when the ability to access pre-existing knowledge and infrastructure (for example, of existing centers or of a partner) makes a material difference Additional revenue captured in the cost and investment curve of the first 24 months. As an over the initial phase life cycle with accelerated time to market

illustrative example, an advanced 500-person global-delivery Operational volume needed to satisfy new market demand operation can save well in excess of $5 to $10 million per year, Time which translates to around $100,000 to $200,000 per week. If two alternative delivery models take significantly different times Figure 7 to reach steady-state savings, the savings differential in the first three years will be significant. Interestingly, the same applies d). Flexible cost structure aligned to demand to the end-of-cycle situation, when the client wants to evolve In addition to having better ramp-up capacities, advanced the operating model and, for example, merge it with other operational models can typically better handle the (up and operations or turn it over to a service provider. The value of time down) fluctuations of demand. For instance, they may be able spent preparing for these transitions is rarely accounted for, but to pool resources better across businesses or to implement more it can be material. sophisticated staffing forecasts and resourcing mechanisms. They also tend to make workforces more fungible, such as c). Reduce the time-to-market of business initiatives by cross-training people or by redesigning processes so that While the analysis above only took into account those savings different employees can perform different parts of the jobs related to the value of time, such savings represent only one at hand. Figure 8 describes this concept and compares the part of the full value equation. The ability to deploy support differential performances of alternative operating models. operations quickly or to scale them up to accommodate fast

57 syndicated across clients; the value of a flexible cost structure Demand that better accommodates the volatility of demand; and the Capacity from fragmented in-house delivery returns from being able to ramp up to demand more promptly.

Legend Capacity from advanced operations The difference between in-house fragmented operations and

Volatility in In house Advanced advanced operations is even more pronounced. demand operations adjust operations more requires to demand volatility agile in partially and with a operations to response to f). Combining harder-to-quantify, yet “not adapt significant lag volatile demand continuously intangible” items The analysis above, while significantly deeper than the analysis that is typically performed, still has not fully taken into account other qualitative, but still very tangible, factors. While a more thorough examination of these aspects is beyond the scope of this document, the following Figure 10, attempts to do justice to some of them. olume

V Choices should be made based on realistic expectations, Time not best-case scenarios. Different delivery models provide different benefits across parameters, such as ease of setup, High cost due to Loss of revenue excess/idle due to insucient integration into business and intellectual property provisions, capacity capacity and compliance and control. It is important to note that we observe significant variability in the actual achievement of Figure 8 those benefits, not just because service providers and in-house shared services vary in how tightly they run these operations, e). Evaluating the overall impact but also because the scope of work that is delivered may not These aspects can materially alter the business case (as shown be appropriate or may differ from the planned scope. For in the simulation below in Figure 9) based on real-world example, an in-house captive may be built with the intention assumptions4, which compare the cost differential of an internal of delivering high-end and highly proprietary work and of SSC operation and a tightly-run BPO operation. The comparison acquiring resources accordingly. However, it is common for between like-for-like savings is only one part of the cost leaders of captive operations, while operationally strong, to envelope. The rest, which often involves even more significant lack the "salesmanship" capabilities necessary to convince monetary impact, is explained by some of the factors we internal clients to migrate the work for which the captive discussed earlier: protection from inflation, taking into account was conceived. When this happens, the expected financial the baseline cost increase; continuous improvement, thanks to results will not be realized, the captive may be destabilized (for mature business process reengineering capabilities, often instance, the best staff will quit) and it will become clear that the initial operating model choice should have been different. Savings indexed to a base of 100 248 A simple scorecard can be a valuable summary tool for executive discussions. Figure 10 provides a synopsis 74 1.4X of many of the concepts described so far. It highlights that 36 the values created by the different operating models are 100 24 commensurate with their abilities to harness three economic 14 "fundamentals" (i.e., labor arbitrage, economies of scale, and process optimization) and shows that different delivery models vary in their abilities to do so. The chart then summarizes what benefits, both quantitative and qualitative, can be derived from these models. While relatively superficial, such an analysis can impact

volatility help in the formation of a strategic options scorecard and in to market the discussion of alternatives with executives. For instance, it shows that parameters relying on business integration and Lean, Six Sigma, productivity gains Inflation savings + cultural affinity, if they are important, militate in favor of in- Estimated business Cost flexibility during

and process redesign) house centers, while benefits that depend on scale and labor Profit from reduced time continuous improvement arbitrage typically favor offshore captives or service providers

cost structure (global delivery with significant scale and global delivery capabilities. Savings from new steady state Figure 9

4 Multi-year cost savings projected over five years; Volatility in demand assumed as +/- 20% of the average; Fixed vs. variable costs for client at a ratio of 70:30; Cost-of-flex capacity 20% higher than the base (fixed) capacity; Installed capacity of client's operations equal to the average demand serviced; In-house SSC: Client capacity can only be adjusted with flex/temp resources by a maximum of 20% and with a three-month lag; Outsourced operation capacity assumed to adjust ~90% with a one-month lag 58 determinants of thebusinesscasebeunderstood andmodeled biased orstalledforthewrong reasons. Itisimportantthatthe decisions regarding advanced operatingmodelsare either sophisticated businesscasesis limited. Consequently, many The abilityofmanyoperations teams tocreate robust and operations and decision-making foradvanced Toward more robust businesscases functions inscope. simulating different deliverymodelsforvariouspartsofthe each executives totestalargernumberofalternatives, adopt hybridmodelsandatwhyoperationsshouldencourage hints atwhyanincreasing numberofadvancedoperations models isnotpartofthescopethispaper, marketevidence Finally, whileananalysis oftheimpactchoicesbetween jointly solveproblems. (who understandthegranularfunctioning)mustfindawayto about importantchoices)andmiddlemanagementmembers means thattopmanagementmembers(whocanbecold aren't evaluateddispassionately orinsufficient detail,which experience showsthat,toooften,thesequalitativefactors may benefitfrom beingkept in-house.Ingeneral,though, proprietary technologyorknow-how. Suchareas, hence, there maybeareas ofhigh-volumeprocessing thatrequire parts ofthescopeanin-houseoperation,and,similarly, Nuances abound:Culturalaffinity maynotbe relevant forall

Other Process Cost Levers benefits e ectiveness. benefits Market Compliance and Ease V IP Standardization context dependentproc. Custom High-volume (FTE related,Infra,IT Labor Absolute Economies of Process ariability andbusiness ofsetup,decision-making arbitrage entry , location& optimization

, G&A) process , scale scalability * integration contr ol *includes costarbitrage,andavailabilityofskills Business partner

Figure 10 strategic, transformativecasestotheirCEOs. and COOstowhomtheyreport) willbeabletopresent more In doingso,operationleaders(aswellastheCFOs,CIOs, making processes ofadvanced operations. and isworthaccessinginorder to dojusticetothedecision- experience isaccessibleinanecosystemofpotentialpartners of process reengineering inservice-typeoperations.This emergence ofthefirstcaptivesandwidespread use has beenaccumulatedinthealmosttwodecadessince planning exercise maynot exist in-house,significantexperience While alltheexpertisenecessarytoachievesuchathorough accounting forvolatilityandotheruncertainscenarios. and thatafullvalueequationbeestablished,includingproper central Corp © Genpact2015 reengineering visit www.genpact.com/home/solutions/ For more information, Captive GBS BPO

Typical benefits Significant Limited 59

60 Advanced finance and accounting operating models

Transforming finance and accounting through advanced operating models 62 Intense competition and slow growth in mature markets have magnified uncertainty and put pressure on costs, just as regulators are escalating their demands. Research shows that CFOs and other senior finance executives believe that their function can play a key role but the ability to impact these challenges depends on levels of maturity and preparedness, which vary widely across companies and industries, as well by sub-functions. Read the executive summary for key findings.

Debunking the myth of leveraged AO-FAO solutions 68 As the FAO market has emerged and matured over the past 10–15 years, the role of technology and its impact on FAO outcomes has also evolved. This reflects a broader shift in FAO, where the core value proposition has evolved from cost-savings driven by labor arbitrage to cost-savings and business-impact driven by process improvement and stronger alignment with business outcomes. In parallel, FAO technology has evolved from capturing and documenting financial transactions and compliance reporting, to a more targeted set of capabilities that directly focus on key financial activities such as Order-to-Cash (O2C), Procure-to-Pay (P2P), and business analytics designed to optimize operations and the strategic management of the finance function. Technology is undoubtedly an important lever to enhance value from FAO. An Everest Group Report.

Augmenting the FAO technology landscape – Exploring new engagement models 72 A recent Everest Group study of FAO buyers indicates that access to best-in-class technology is the topmost area of improvement for FAO service providers. One in four organizations believes that their FAO provider can, and should, further augment the existing technology landscape.

Master data management is the next big thing—Seriously 78 As the CFO's role expands in increasingly strategic support of the entire enterprise, leading companies are evolving their master data management (MDM) to lower risk, boost profitability and competitively differentiate themselves. Accurate and correct master data provide the foundation to create actionable insights through business intelligence and analytics. A granular, timely, enterprise-wide view into the customer, supplier, and employee and product portfolios gives CFOs deep insights that can help the company quickly adjust to market changes, maintain compliance and grow revenue.

Separating impact from hype: How CFOs achieve technology ROI 82 How enterprises approach IT transformation can spell the difference between failing and achieving ROI. A total focus on technology almost invariably fails; companies that take into account the process requirements and the "human factor" have a much higher degree of success.

Continuous transaction monitoring: Using analytics to detect fraud or simple payment errors in real time 86 Organizations today stand at considerable risk of material financial leakage and are subjected to a significant increase of regulatory pressure to find, and fix, improper financial transactions and broken business processes. With traditional measures proving inadequate in the face of growing business complexity, organizations are more vulnerable now than ever before. This increases risk and the failure of businesses.

61 RESEARCH REPORT Transforming finance and accounting through advanced operating models

Executives believe there is untapped potential for advanced technology, process reengineering, and new organizational structures to improve the finance function’s ability to address the most strategic enterprise challenges.

About the research sub-functions. Specifically, Financial Planning and Analysis (FP&A) and master data management (MDM) have emerged as In 2014, Genpact commissioned a research project conducted two key areas to watch. Finally, executives believe that the three by an independent research firm. The goal was to assess the levers of operating model transformation (technology, process potential for new operating models across a wide spectrum reengineering, and advanced organizational structures) create of industry sectors and functions. More than 900 senior-level impact differently. Using commissioned research, Genpact has 1 executives completed the survey. The entire report sets out examined these trends to understand how enterprises are driving findings drawn from more than 150 respondents engaged in transformation to achieve business impact. the finance function across a range of industries. This analysis complements other research and insight derived from Genpact's experience designing, transforming and operating business Regulatory compliance, risk management, processes and operations. and cost reduction are the biggest worries confronting senior finance executives

Introduction When asked to name the three top concerns confronting their Even as the economic recovery inches forward, organizations company, about 56% of respondents point to compliance continue to face daunting challenges. Intense competition and with regulations, while reducing costs and increasing customer slow growth in mature markets have magnified uncertainty satisfaction rank close behind, cited by 48% of the respondents. and put pressure on costs, just as regulators are escalating their However, the most important challenges vary widely across demands. CFOs and other senior finance executives believe that industries. Banking, financial services, and insurance (BFSI) the finance function can play a key role in addressing some executives include compliance and risk management among of these issues. However, its ability to impact these challenges their top three concerns, respectively, in 72% and 70% of depends on levels of maturity and preparedness, which vary the cases (Figure 1). Executives in other industries are more widely across companies and industry sectors, as well by concerned about innovation and growth.

1 http://go.genpact.com/CFO-research-Advanced-Operating-Models.html

62 Importance of the challenge (% of finance and accounting respondents across industry segments stating that the challenge is among the 'Top 3' for their company)

0 10 20 30 40 50 60 70 80 DIRECTIONAL Ensure compliance to regulations BFSI Others1 Overall

Manage risk Others1 Overall BFSI Sharp differences between financial Overall services and other Reduce cost 1 BFSI Others industries Increase customer satisfaction Others1 Overall BFSI Manufacturing, life sciences and high Increase growth and scalability BFSI Overall Others1 tech companies more focused on innovation

BFSI Overall Others1 Enable company’s innovation and growth

Enable agility and adaptability BFSI Overall Others1

Others1 Reduce capital and asset intensity Overall BFSI

1Healthcare, life sciences, consumer goods, high tech n=157 for finance and accounting executives and manufacturing

Figure 1

Improvements in FP&A and MDM have • For regulatory compliance, MDM is virtually tied with record- the biggest overall impact in addressing to-report for highest impact, followed by FP&A. these challenges • Although FP&A has the most impact, MDM deserves special attention because it is less mature and not all companies are • For managing risk, FP&A (64%) and MDM (49%) are far well-prepared to make it evolve (Figure 2). more frequently cited as having material impact than any of the other finance sub-functions.

Importance of the challenge (% of respondents in specific functions across industries DIRECTIONAL stating that the challenge is among the 'Top 3' for their company)

ty % of respondents assessing

l i ns b i

growth maturity and preparedness ti o risk

costs

l a

Magnitude of anc e cal a f challenge1 to eas e s eg u duc e sure o r Increase customer satisfaction t E n compl i R e Inc r an d Manage urity o ure 56 48 48 42 42 Ma t process Prepared ma t

Overall F&A 58 58 21 43 64

O2C 23 43 37 18 17

R2R 50 32 18 22 35

P2P 25 53 27 9 22

FP&A 34 53 20 62 64

MDM 49 38 27 40 49 % of respondents stating function can have material impact on addressing challenge

Very mature or mature Fully prepared or prepared Somewhat mature or immature Somewhat prepared or not prepared

n=157 finance and accounting executives Figure 2

63 Importance of the challenge (% of respondents in specific industries stating that the challenge is among the 'Top 3' for their company) % of respondents stating the initiative can have a material impact on the function DIRECTIONAL

Radically Business BPO or Impact Index* improved process SSC or use of reengineering hybrid1 technology Technology quite Overall F&A 38 40 59 140 important in FP&A and MDM FP&A 42 38 41 147 More BFSI MDM 46 32 50 123 see advanced organizational R2R 28 29 44 93 structures as helpful P2P 28 29 49 79 for MDM

O2C 23 29 48 78

* Function Impact Index combining stated importance of challenges and n=157 finance and accounting executives stated ability of a function to address them 1 BPO-Business Process Outsourcing, SSC-Shared Services

Figure 3

Advanced organizational structures • This contrasts with radically improved use of technology and business process reengineering where there is little difference support finance transformation in impact among firms with mature and immature sub- • Advanced organizational structures include business process functions (Figure 4). outsourcing (BPO) and shared service centers (SSC) as well as hybrid models that combine the two. Advanced organizational structures are • Financial executives give advanced organizational structures being implemented most rapidly the highest ratings for impact on the overall F&A function, • Senior financial executives have made substantial progress with about 59% stating that they can have material impact. in implementing advanced organizational structures for the • This source of impact is considered material more frequently FP&A function. than other operating model initiatives, including business • About 83% say that such implementations are either in process engineering (40%) and radically improved use of progress or will start within 12 months, compared with technology (38%). 76% reported for technology and 74% for business process • Advanced organizational structures are also frequently reengineering. believed to have particularly strong benefits for FP&A and • There is still considerable opportunity for further MDM (Figure 3). improvements in MDM, where a comparatively lower 73% of respondents have advanced organizational structure initiatives Advanced organizational structures have in progress or planned (Figure 5).

the greatest impact in mature F&A sub- functions

• For every F&A sub-function, the proportion of financial executives who rate advanced organizational structures as having material impact is significantly higher among organizations with mature functions.

64 % of respondents stating the initiative can have a material impact on the function DIRECTIONAL

Radically improved Business process BPO or SSC or use of technology reengineering hybrid1

Overall F&A 38 Mature 40 63 38 Not mature 41 49

26 33 60 O2C 18 23 30

28 30 49 R2R 27 27 35

26 29 51 P2P 27 25 39

42 37 45 FP&A 43 43 31

43 30 52 MDM 51 34 48

1 BPO-Business Process Outsourcing, SSC-Shared Services n=157 finance and accounting executives; Mature=119, Not mature=38

Figure 4

% of respondents; width of the column indicates the % of respondents who believe that the operating model initiative will have a material impact on the function. O2C R2R

DIRECTIONAL 54 58 50 Currently in Progress 59 67 64

10 Planned in next 12 months 11 13 8 15 11 7 5 15 Planned after 12 months 13 9 32 23 28 Not Considered 15 15 16 Tech BPR SSC, BPO or Tech BPR SSC, BPO or hybrid1 hybrid1

P2P FP&A MDM

54 48 57 63 60 62 65 72 64

14 13 7 19 11 15 11 12 14 13 10 8 8 11 5 10 13 21 24 5 18 16 18 13 18 15 15 Tech BPR SSC, BPO or Tech BPR SSC, BPO or Tech BPR SSC, BPO or hybrid1 hybrid1 hybrid1

1 BPO-Business Process Outsourcing, SSC-Shared Services n=157 for finance and accounting executives

Figure 5

65 Average $ impact, bar width proportional to percent of respondents stating that the initiative will have a material impact

OVERALL MATURE IMMATURE $295m Average $268m $ impact

$178m $155m $158m

$103m $110m $82m $83m

TechBPR SSC, BPO, Tech BPR SSC, BPO, Tech BPR SSC, BPO, Hybrid1 Hybrid1 Hybrid1

Annual $ impact is the impact of operating model initiatives in $ per n=157 (Mature=119, Not mature=38) finance annum including reduction of cost, capital required, improvement of and accounting executives cash and revenue growth 1 BPO-Business Process Outsourcing, SSC-Shared Services

Figure 6

Notwithstanding the widespread understand the "IT + analytics + process operations" nexus opportunity represented by advanced sufficiently. Technological excesses of the past (such as ERP or data warehouses) are well documented. Some technologies organizational structures, radically are unproven, some uses of analytics are unclear, and older improved use of technology is expected to technologies are rigid and expensive to evolve. Finally, it is generate the largest monetary impact frequently a struggle to scale deep analytics throughout the enterprise. • Advanced organizational structures are considered to have Our experience of advanced operating models, accumulated impact by more executives than other approaches for finance over 15 years, clearly indicates that there are agile and process improvement. practical ways to transform. The key is to design, transform, • On the other hand, the research has found that (when and run the processes that power advanced operating models applicable) improved use of technology is believed to so that they closely align with measurable business goals, provide the biggest monetary impact, especially for mature thereby avoiding saddling the company with unnecessary and organizations (Figure 6). often unmanageable complexity.

• There are important variations among mature and immature This approach focuses more rigorously on the sources finance organizations, as well as across industries, sub- of impact and deliberately disregards any practice that does functions, and company size. not yield material outcomes. It also takes a more objective and holistic look at technology, analytics and organizational Conclusion practices. It leverages now-mature "system of engagement" technologies that complement "system of record" technologies. CFOs and other senior finance executives believe that the It treats analytics (the arc of data-to-insight-to-action) as a finance function plays a strategic role in addressing the process and determines how to embed insight at scale into daunting challenges that are still prominent in times of slow the fabric of other enterprise processes; it does not take the economic recovery, continued uncertainty, and heightened typical approach of viewing analytics as a task and a set of regulatory demands. This research examined how those technologies. Finally, it harnesses the process and organizational challenges can be tackled by three levers of operating model levers available from established disciplines, such as transformation: technology, process reengineering, and reengineering, shared services, outsourcing, and global delivery. advanced organizational structures. We think that there is a smarter way to transform operating The related transformation of operations is an untapped models and address the most complex strategic challenges. This strategic lever for the CFO as well as the CEO. However, it is is a way for CFOs to make their enterprises more intelligent and sometimes seen as a formidable undertaking. Few generate material impact.

66 For the full report Transforming finance and accounting through advanced operating models, click here2. © Genpact 2015 2 http://go.genpact.com/CFO-research-Advanced-Operating-Models.html

67 2014 AN EVEREST GROUP REPORT

AN EVEREST GROUP REPORT

RESEARCH REPORT Debunking the myth of leveraged AO-FAO solutions Role of technology in FAO Debunking the Myth of Leveraged AO-FAO Solutions

Katrina Menzigian, Vice President Role of Technology in FAO Vishnu Khandelwal, Senior Analyst is well-understood in the market that client organizations have Introduction Copyright © 2014, Everest Global, Inc. All rights reserved. made significant investments and process reengineering to As the FAO market has emerged and matured over the past utilize these technology environments for enhanced finance 10-15 years, the role of technology and its impact on FAO operations. Further, very few CFOs would envision letting go of outcomes has also evolved. This reflects a broader shift in FAO, their in-house ERP system under any circumstances. However, where the core value proposition has evolved from cost-savings how they implement and access those systems is another story. driven by labor arbitrage to cost-savings and business-impact driven by process improvement and stronger alignment with While many client organizations maintain ERP systems in- business outcomes. In parallel, FAO technology has evolved house and outsource their finance processes to FAO service from capturing and documenting financial transactions and providers, others choose to outsource the implementation, compliance reporting, to a more targeted set of capabilities that maintenance, and support of their finance ERP environments directly focus on key financial activities such as Order-to-Cash to IT or AO providers. Since efficient and effective F&A service (O2C), Procure-to-Pay (P2P), and business analytics designed delivery is often enabled by the underlying ERP systems, some to optimize operations and the strategic management of the organizations have sought to combine the scope of their FAO finance function. services with the same service provider offering AO services. The basic idea is that a natural synergy should emerge from Technology is undoubtedly an important lever to enhance value bundling, and help simplify and enhance the technology from FAO. However, this should not be confused with simply environment, thereby the F&A operating model as well. In combining FAO and Application Outsourcing (AO). In fact, reality, Everest Group research shows that not only has bundling market evidence demonstrates that simply bundling FAO and AO not become common practice, but those that have adopted this together generates no synergy. This paper explains how getting approach are increasingly in the minority (see Exhibit 1). valuer e s e a fromr c h . e vFAOe r e stechnologyt g r p . c o m is not as simple as bundling FAO and

EGR-2014-AO1-R-1 2into66 a single contract/relationship. The piece also articulates and defines where technology does add value to FAO. The challenges: Why bundled FAO/AO has not worked

AO+BPO adoption in FAO: The current This brings us to the topic of bundled AO and FAO. As the state value of FAO has moved creating business impact, the focus of technology improvements in FAO engagements has shifted FAO, among all BPO segments, has remained the closest to away from the underlying ERP "system of record". While a long-standing Enterprise Resource Planning (ERP) applications. It bundled FAO/AO solution might improve the efficiency of

68 EXHIBIT 1 Rate of bundling AO with FAO AN EVEREST GROUP REPORT Number of FAO contracts with AO in-scope bundling of fAO/AO 100% = 461 76 115 97 91 91 3% 3% FAO+AO 11% 9% 10% 6%

Source: Everest Group

97% 97% FAO-focused 89% 91% 90% 94%

up to 2008 2009 2010 2011 2012 2013 In any given year, the share of new bundled FAO/AO deals ranged from a high of 11% (2008) to a current low of 3% (2013). Today, of all active FAO deals, roughly 3-4% involve a bundled situation.

operating the underlying ERP systems, augmentation tools, to attributable to the ability of the FAO provider to bring deep be discussed in detail further below, wrap around core systems finance process understanding and its ability to enhance of record (i.e., ERP systems) to better address the needs of existing finance processes to achieve improvements. Further, redesigned and enhanced finance processes. In fact, leading the provider should understand how technology can address FAO providers have implicitly acknowledged the shortcomings those needs and technical understanding related to the of ERP applications by investing in and building out augmenting "augmentation" tools and not the underlying ERP. Stand-alone technologies that fill gaps within and across major ERP modules. ERP or AO capability cannot adequately address the growing Today, 55% of new FAO contracts include augmenting IT requirements of process excellence needed to deliver world- components, compared to 42% just five years ago. Further, use class performance in core finance processes. of the tie-and-run approach has continued to decline. This is a message from the market that to optimize the functionality of the actual finance operations and analytics, there is a need to go beyond the underlying ERP system and create targeted We have not seen true daily

technology-enabled finance capabilities. “benefits to the collaboration – only smaller benefits around

When thinking about the bundling of AO and FAO, one of the contracting. first things to consider is the distinction between the bundling of the contracting piece versus the bundling of the actual – Director, BPO Strategy at North “ delivery. We have seen cases where the contracts are bundled American pharmaceutical due to organizational or management necessities, but are company not designed to create integration between the AO and FAO delivery pieces. In contrast, there are also seen contracts that aspire for delivery integration, but do not adequately plan for such in the contract structure. Successful integration of bundling involves both the contracting and delivery components, with Our experience is that engagements which attempt to bundle a well-thought out roadmap of how to implement the vision AO services with FAO also face challenges associated with articulated in the contract. the nature of the service provider's business model. From a practical standpoint, synergy between these two delivery areas Another consideration is the relevance of technology expertise is inhibited by the fact that service providers run their AO and versus finance process expertise. Successful FAO engagements FAO practices as distinct lines of business, with distinct delivery certainly require both sets of capabilities. However, given the teams with differing work locations, incentives, skills, and other shifting focus on the business impact created by FAO, the scales barriers. These fundamental realities limit the emergence of are tipped in favor of finance process expertise. In other words, natural synergies within the service provider's organization. A a larger portion of the value achieved through FAO is by-product of this dynamic is that service providers with an

69 AO-FAO model must simultaneously consider the internal The expertise needed to make these enhancements is a best- needs of their own organization along with meeting the client of-breed combined skill set of F&A process knowledge and engagement commitments. specialized technical capability applied to FAO service delivery.

Challenges exist on the client-side of the equation as well. When a single service provider or outsourcing engagement attempts to integrate both the finance ERP application and More should have been spelled the finance process delivery components, two different sets of “out in the contract to make clear

stakeholders inside the client organization must be engaged. the funding of innovation and

The finance organization has its priorities and considerations, transformation. as does the IT organization. We find that natural tensions are – Sr. Director of Shared Services, “ inherent between these two stakeholders, creating additional layers of complexity and distraction in targeting the core large North American beverage intentions of the FAO engagement itself. In a nutshell, the producer client organizations are not necessarily well-structured to leverage the benefits possible from a combined AO and FAO engagement. How technology adds value to FAO Further, some of the challenges common to all outsourcing FAO solutions typically involve one of the three different engagements can be amplified in the context of a bundled technology models, tie-and-run, augmentation, and platforms AO-FAO deal. Governance becomes more challenging, as (see Exhibit 2). Let us take a look at these models and then the number of stakeholders involved grows. Communication assess their relative benefits. practices can become strained as uncertainty emerges about who is responsible for initiating dialog. And lastly, expectations • Tie-and-run: While initially the favored FAO technology related to innovation or change management can become approach, today tie-and-run continues to decline and misaligned as multiple stakeholders on both the client and the represents 37% of all recent engagements. In this service provider organizations look to each other to be the approach, the service provider taps into and works on the driving force. client's existing ERP environment, without any additional functionality or technology being introduced. The FAO service Finally and most importantly, the assumption that optimizing or provider is responsible only for the delivery of finance process replacing the underlying ERP systems is the optimal approach execution and no technology capabilities is flawed. Many improvements can be made without the complexity of changing or altering the ERP systems (which • Augmentation: In addition to delivering finance process often fail to have sufficient functionality available anyway). execution, the FAO service provider also offers technology

EXHIBIT 2

Spectrum of bPO technology Increasing role of technology in BPO

models Platform-based BPO / Tie-and-run Technology augmentation BPaaS

Limited role of Tools/wrappers offered by Pre-integrated technology where the service provider that applications and pre-built Source: Everest Group provider plugs into serve as “add-ons” around processes, owned by the the buyer’s existing the periphery of the existing provider, with pricing built systems to deliver systems to address specific into the BPO contract. services gaps or create better user Could be single or multi- engagement tenant

F&A outsourcing services 

Enabling tools & technologies   

Core F&A processing system(s) 

70 tools, templates, and enhancements intended to increase before and, thereby undermining some of the potential the functionality of the client's existing ERP environment. benefits of FAO. These augmenting technology capabilities often reflect While the thought of relinquishing cumbersome or aging ERP proprietary intellectual property that the service provider finance modules may appeal to some, evidence indicates that has proactively invested in, to build the value of its FAO adoption of the platform model in FAO has been slow and that offerings. Examples of augmentation include workflow these systems only work well in specific client situations. To tools, interface solutions, business intelligence and analytics, date, FAO platforms have focused primarily on specific finance and process automation and robotics, to name a few. As process areas, such as O2C, P2P, or R2R, as a way to offer mentioned earlier, augmentation is gaining popularity and clients targeted solutions for particular problem areas, and not involves roughly 55% of the FAO deals signed in the past relying on the service provider for the entire finance technology few years environment.

• Platform: Under the platform model, the client relies heavily, or exclusively, on the FAO service provider for both Conclusion the finance process execution and finance technology components. In some cases, clients replace part or all of We believe that FAO value is driven by a few key areas, their ERP environment with platforms offered by their service namely, strong finance process focus and specialization, provider as part of a BPO-plus-technology value proposition. strong knowledge of FAO technology and how to apply it to Platforms are the least adopted model among FAO buyers, finance operations and analytics (but not necessarily a practice representing about 8% of all the engagements signed in the in implementing FAO applications), and the ability to invest past couple of years, and skewed towards the mid-market in innovative finance solutions. Our research has not seen evidence that suggests the bundling of AO and FAO achieves The growing appeal of the augmentation model involves a few these values. In fact, service providers who need to support key considerations: both sets of capabilities may actually face the added challenge of investing in and supporting these two distinct practice areas, • Control and risk mitigation-where clients maintain their whereas a best-of-breed provider can dedicate all its resources existing ERP environment, allowing them to control their core to building FAO distinction. systems of record, maximize their past financial investments in the systems, and protect themselves in case of future service provider changes or the decision to bring finance processes in-house This has been authored by Katrina Menzigian, Vice President, and Vishnu Khandelwal, Senior Analyst at • Access to technology enhancements-without replacing Everest Group. the existing ERP environment, the client can now fill gaps, improve functionality, and address new requirements and About Everest Group regulations by partnering with a service provider that has Everest Group is an advisor to business leaders on already solved these challenges next generation global services with a worldwide reputation for helping Global 1000 firms dramatically • Access to subject matter expertise-FAO providers improve their performance by optimizing their back- differentiate themselves through their strong focus on and middle-office business services. With a fact-based understanding, optimizing, and solutioning finance approach driving outcomes, Everest Group counsels processes. Compared to technology providers, FAO providers organizations with complex challenges related to the are better positioned to directly see the impact of the use and delivery of global services in their pursuits interaction between FAO technology and FAO process to balance short-term needs with long-term goals. Through its practical consulting, original research execution, making them especially well-suited to drive both and industry resource services, Everest Group helps components of finance solutions clients maximize value from delivery strategies, talent and sourcing models, technologies and management Tie-and-run solutions remain an option for many clients, but approaches. Established in 1991, Everest Group this approach does limit the ability to grow the impact of the serves users of global services, providers of services, FAO solution over time. Given the persistent gap between country organizations, and private equity firms, in six process functionality and the enabling finance technology, FAO continents across all industry categories. providers have far fewer mechanisms for creating change to For more information, further optimize the client's finance operations. This scenario please visit www.everestgrp.com and also requires intense and ongoing collaboration between the research.everestgrp.com. FAO provider and the client's internal IT organization or their Copyright © 2014, Everest Global, Inc. All rights AO provider. Thus, potentially creating more complexity than reserved.

71 2014 AN EVEREST GROUP REPORT

AN EVEREST GROUP REPORT

RESEARCH REPORT Augmenting the FAO technology landscape – Exploring new engagement models Technology augmentation in FAO Debunking the Myth of Leveraged AO-FAO Solutions

Katrina Menzigian, Vice President Role of Technology in FAO Vishnu Khandelwal, Senior Analyst The key themes covered in this research are: Introduction Copyright © 2014, Everest Global, Inc. All rights reserved. • Why technology matters in FAO As Finance and Accounting Outsourcing (FAO) adoption has expanded and matured over the last 10 years, the role of • Existing install-base and associated challenges technology in FAO has grown significantly, where today, there • Innovation in FAO technology models and the rise of are three distinct approaches – tie-and-run, augmentation, and technology augmentation platform-based. Regardless of which approach the clients adopt, • A new approach to technology augmentation and its we believe that FAO clients will continue to work with ERP-based implications/benefits System of Records (SOR) for the foreseeable future, many times maintaining multiple environments. Increasing role of technology in FAO Technology solutions that "tie-and-run" to ERP systems remain Technology, in the shape of ERP systems, has always been an option for many clients, but this approach limits the ability a significant lever in managing F&A of large- and mid- to grow the impact of sized organizations. A recent Everest Group study of the FAO solution over FAO buyers indicates that access time. Alternatively, However, as buyers seek F&A transformation, they are to best-in-class technology is the while the thought increasingly pushing service providers to deliver more innovative topmost area of improvement of relinquishing for FAO service providers. One solutions that target delivery of business impact. Technology, in four organizations believes cumbersome or aging long recognized as one such lever to enhance efficiency and that their FAO provider can, and ERP finance modules effectiveness of FAO solutions, now plays an even stronger role. should, further augment the may have appeal As illustrated by an Everest Group survey of mature FAO buyers, r e sexistinge a r c h . e technologyv e r e s t g r p . c landscapeo m for some, evidence access to bestin- class technology is among the top three key

EGR-2014-1-R-1266 indicates that adoption improvement areas for FAO service providers (Exhibit 1). of the platform model in FAO has been slow to take hold. As a result, the technical capability required to manage these complex legacy ERP environments is not the same as traditional FAO technology models and their use ERP expertise, but rather in the ability to augment the ERP cases landscape and enhance the underlying systems. Everest Group Technology engagement models in FAO can be categorized into research also suggests that technology augmentation is the three broad buckets depending on the role of the FAO service new norm in the FAO world. provider (Exhibit 2). This report highlights how emerging FAO technology models are positioned to support the evolving needs of FAO clients.

72 EXHIBIT 1 Key improvement areas for service providers AN EVEREST GROUP REPORT Percentage of responses from FAO buyers what buyers seek from their Best-in-class technology 26% FAO providers Exception handling / issue resolution / escalations 21%

Attrition rate 16%

Source: Everest Group Domain expertise and language capabilities 11%

Introduction to best practices to increase efficiency and productivity 11%

Transition handling 5%

Delivery accuracy 5%

Governance and account management 5%

EXHIBIT 2

Technology models in FAO Increasing role of technology in BPO

Platform-based BPO / Tie-and-run Technology augmentation BPaaS Source: Everest Group Limited role of Tools/wrappers offered by Pre-integrated technology where the service provider that applications and pre-built provider plugs into serve as “add-ons” around processes, owned by the buyer’s existing the periphery of the existing provider, with pricing built systems to deliver systems to address specific into the BPO contract. services gaps or create better user Could be single or multi- engagement tenant

F&A outsourcing services 

Enabling tools & technologies   

Core F&A processing system(s) 

Today, most large- and mid-sized enterprises have well- These issues, coupled with buyer needs to transform their established legacy ERP systems to manage their F&A F&A function and create favorable business outcomes, are requirements. However, these organizations often face a variety pushing both buyers and service providers to move beyond the of challenges that, ultimately lead to unoptimzed delivery and traditional tie-and-run approach and utilize next generation inhibit the value creation potential of their FAO solution. Table innovative solutions. As a result, technology augmentation and below lists out the issues and associated challenges of working platform-based FAO models are gaining traction. with legacy ERP systems.

Issues and challenges of utilizing legacy ERP systems

Issues Challenges/effects Disjointed/fragmented ERP  Creates disparity in data extraction, inhibits process standardization, and limits technology upgrades, ultimately leading to environment increased complexity and cost

 Challenges in developing comprehensive visibility for reporting and analysis Difficulty in implementing and disseminating systematic change across an organization to address policy changes, compliance requirements, and/or process enhancements

Rudimentary/outdated SOR  Results in non-standardized and erroneous data

 Leads to lack of focused enhancements that target specific F&A process requirements

73 EXHIBIT 3 Adoption of technology models in FAO contracts Number of contracts Technology augmentation is 100% = 371 231 131 Platform 12% 14% 8% increasingly getting adopted in FAO Augmentation 42% 44% 55%

Source: Everest Group Tie-and-run 45% 42% 37%

Up to 2008 2009-2011 2012-2013

However, adoption of both these models depends heavily on the provide quicker access to functionality. As a result, the existing buyer situation and appetite for investment. Platform transformation, so achieved, is more resilient and less play is limited in FAO, primarily utilized in situations where the susceptible to fade out during change management. Everest buyer intends to replace their existing ERP solution in part or Group analysis clearly indicates increasing adoption of such add- entirely due to its rudimentary or fragmented functionality. on tools in FAO contracts, referred to here, as the augmentation Therefore, organizations are increasingly moving towards add- model (Exhibit 3). on tools to augment their existing technology landscape. Flavors of technology augmentation Rise of technology augmentation While most FAO buyers recognize technology as a key enabler Given that most FAO buyers use an ERP platform as the core to the overall FAO solution, most seek solutions that do not F&A SOR, there is great reluctance to relinquish control of fundamentally disrupt the existing technology landscape. Add- such core F&A systems or make sizable investments to replace on tools provide a simple and non-intrusive way to augment them. Everest Group analysis finds that in over 85% of the the existing technology landscape of buyers to achieve greater FAO contracts signed in the last three years, buyers retain the functionality and value on several fronts. ownership and control of their core F&A systems. They prefer Everest Group research indicates that such technology utilizing a host of non-intrusive solutions to enable technology augmentation can be achieved in a number of ways. The exhibit augmentation. Such add-on solutions tend to cost significantly below illustrates the various ways to augment the existing less compared to an SOR replacement solution, and tend to be technology landscape of any organization. easier to implement, more flexible, less complex in nature, and

EXHIBIT 4  Workflows Process  Application wrappers enablers ways to augment the  Point solutions technology landscape

Decision  Analytics support  Reporting and dashboard enablers Source: Everest Group Flavors of technology augmentation Document  OCR/ICR management  XML/EDI processing

 Performance Delivery management enablers  Program management

74 Despite the multiple benefits of utilizing augmenting tools, this This approach to FAO technology provides multiple benefits approach also has some challenges. Adoption of add-on tools compared to a piecemeal or traditional augmentation approach: is primarily driven by specific client needs. As organizations • Consistent global environment: SOE approach to adopt such point solutions on a need basis, the overall technology provides users with a uniform and global technology landscape can become inconsistent and processing layer that is consistent in functionality and fragmented/ disjointed over time. Technology users (third-party user experience, regardless of the underlying systems. service providers, shared-services organizations, and/or in-house It creates additional efficiencies arising out of enhanced finance function) have to work on disparate systems, which user engagement, process standardization, and workflow leads to inefficiencies and challenges related to technology simplification fragmentation, such as inconsistent data, broken process flows, and lack of integrated reporting. • Complement existing technologies rather than compete: The process-centric design of such applications can complement the underlying ERP systems rather than A new wave of technology strategies competing with them. As a result, such solutions can The shortcomings in the existing augmentation approach are potentially enable a more productive and collaborative work pushing stakeholders to explore a new approach that not environment for both internal and external stakeholders only enhances the functionality of the existing SOR, but also • Flexible and agile: Moreover, such an approach is highly provides uniformity across the organization by providing a nimble and agile and can support an organizations' growth consistent layer of processing systems over and above the (both organic and inorganic) objectives well, as enterprises underlying SOR. Such an approach can enhance both efficiency need not worry about integrating the underlying systems and effectiveness of the during M&As. Since the add-on tools can overlay multiple A leading U.S.-based pre-cast underlying function and ERP systems, such solutions can be quickly deployed during a enable enterprise-wide manufacturing organization is able to utilize its current ERP- merger or an acquisition instead of waiting for a lengthy and collaboration between based iT environment to its full effort-intensive SOR integration process globally distributed potential by deploying an SOE • Enhanced compliance and governance: Simplified user teams. tool for managing its credit and interactions with technology and augmented dashboards collections process. The SOE As a result, the market approach provides multiple capabilities leads to enhanced and more effective reporting is witnessing the benefits including: and compliance emergence of new  consistent user interface approaches to FAO across the company (as While this concept already exists in the market for some time technology. Service compared to multiple now, it has witnessed limited success in the past because of providers have begun customer views provided by the varied implementation and functionality-related challenges. making investments the ERP system) Use of such solutions earlier required heavy investment in in developing add-on  improved process cycle-time technology due to on-premise installation and provided limited  increased team productivity solutions that combine functionality beyond creating a uniform interaction environment  lowered risk by providing different aspects of for their users. However today, with the wider acceptance higher visibility into augmentation (process, and adoption of non-conventional delivery models and operations decision support, and advancements in the areas of mobility and analytics, such an delivery enablers) and approach can be highly successful. The benefits include: adopt a process-centric design to provide a non-invasive, • A cloud-based Software-as-a-Service (SaaS) approach integrated, and uniform delivery environment. The underlying can enable organizations to maintain minimal technology philosophy of such an approach is to create a flexible and footprint beyond their incumbent investments uniform layer of core processing systems that can be deployed on top of the existing technology infrastructure (ERP systems, • The SaaS model to technology is faster to implement, point solutions, and other legacy systems) and is primarily requires minimal IT support, and eliminates the hassle of focused on simplifying and streamlining user (either third-party application upgrades for enterprises provider / shared-services or in-house buyer organization) • End-to-end business process analytics embedded within engagement and interaction with technology. In other words, enterprise operations can provide deep insights for driving such an approach can be perceived or viewed as "Systems of business outcomes Engagement" or SOE. • Mobile-enabled operations can further extend the concept of enhancing engagement by empowering users to conduct business anytime, anywhere

75 Exhibit 5 further illustrates this new approach to technology augmentation.

EXHIBIT 5 User engagement layer – SoE

New approach to technology Analytics-driven Mobility Cloud-based augmentation – system of engagement

Source: Everest Group Point solution – collections ERP 1 ERP 2 ERP Reporting system Other legacy application Business Intelligence tool

Technology environment

As shown above, this approach forms a uniform layer of through a cloud-based approach and equipped with state- engagement between the users and the underlying technology of-the-art functionalities, such as analytics and mobility, such environment. This layer not only increases efficiency, but also an approach can transform the way processes are delivered. reduces the complexity arising out of users interacting with Following case study illustrates the benefits accrued to clients multiple applications and drives greater compliance. Delivered who adopted this approach.

Case study: How an SOE solution helped an automotive parts manufacturer – a Genpact example

Client challenges Solution adopted Impact delivered and needs

 A leading automotive parts  The client adopted  Enhanced automation manufacturer faced Genpact’s Akritiv systems of  Consolidation of the challenges in its collections engagement customer data across the process due to fragmented  Key attributes of the solution organization; moved to one ERP landscape and included: single environment to significant manual – A uniform engagement manage a customer’s intervention layer to cater to all account  The client sought add-on process requirements  Ability to create business tools to augment its ERP – Cloud-based approach rules to automate the systems and enhance with minimal IT support process efficiency of its collections – Quick and low-cost im-  Enhanced visibility and process through automation plementation insight around individual – Bolts-on approach to accounts and overall augment the functionality portfolio – finance to sales and efficiency of existing  Reduction in process ERP systems complexity through a single – Ease of customization to integrated and streamlined suit client environment application environment  Ability to quickly respond to changes

76 Conclusion

With technology playing a more pervasive role in FAO, organizations are increasingly adopting the augmentation approach to enhance the functionality of their existing systems. Despite the benefits, the existing approaches to technology augmentation may pose challenges arising due to the utilization of several add-on tools that lead to technology fragmentation, and in turn discrete processes and operations. A new and innovative approach to technology is thus emerging, wherein an agile solutions layer, or "Systems of Engagement" is deployed that floats above the existing technology infrastructure and complements clients' SOR. This approach, which focuses on enhancing user engagement with technology, can help organizations drive greater value by optimizing operational performance and business agility.

This has been authored by Katrina Menzigian, Vice President, and Vishnu Khandelwal, Senior Analyst at Everest Group.

About Everest Group Everest Group is an advisor to business leaders on next generation global services with a worldwide reputation for helping Global 1000 firms dramatically improve their performance by optimizing their back- and middle-office business services. With a fact-based approach driving outcomes, Everest Group counsels organizations with complex challenges related to the use and delivery of global services in their pursuits to balance short-term needs with long-term goals. Through its practical consulting, original research and industry resource services, Everest Group helps clients maximize value from delivery strategies, talent and sourcing models, technologies and management approaches. Established in 1991, Everest Group serves users of global services, providers of services, country organizations, and private equity firms, in six continents across all industry categories. For more information, please visit www.everestgrp.com and research.everestgrp.com.

Copyright © 2014, Everest Global, Inc. All rights reserved.

77 ARTICLE Master data management is the next big thing—Seriously

Opportunities arrive at the speed of information—and die at the speed of decision- making. What CFOs need most is information—accurate, up-to-date, detailed data to support fast, confident decision-making. And as the CFO’s role expands in increasingly strategic support of the entire enterprise, leading companies are evolving their master data management (MDM) to lower risk, boost profitability and competitively differentiate themselves.

Accurate and correct master data provide the foundation to create actionable insights through business intelligence and analytics—whether the need is to obtain a holistic view into a retail bank customer’s activity to determine credit worthiness or spot fraud, to predict customer behavior, or to determine the cost of a product. A granular, timely, enterprise-wide view into the customer, supplier, and employee and product portfolios gives CFOs deep insights that can help the company quickly adjust to market changes, maintain compliance and grow revenue.

A more agile enterprise The most successful companies are achieving satisfactory ROI by implementing enterprise-wide MDM structures that ensure A moribund information management system that takes months the tools are well integrated with better processes and global to update a record simply cannot support fast, sound decisions. policies for maintaining data quality. For instance, one global oil An industrialized approach supports all four essential pillars of and gas company lowered costs by 35% by creating a center of best-in-class MDM: data, process, technology and governance. excellence to standardize its master data processes across all its 1. Data regions and business lines. These improvement measures also CXOs need data that is free of duplicates and errors and gave the enterprise much greater confidence in decision-making adheres to global policies for completeness. Maintaining by raising data accuracy to 98% and ensuring that nearly 100% high data quality is a process in itself. It requires deep of changes to master data were processed within one business understanding of how data in each silo is entered, maintained, day. This, in turn, provided materially improved agility through shared and reported. Determining who needs what better analytics and insight. information and when is the starting point for industrializing MDM processes.

78 2. Processes MDM must serve every stakeholder equally with the As this company discovered, many data management timeliest and most accurate information possible, it becomes processes can be "industrialized": simplified, automated an enterprise-wide responsibility, best managed from an and standardized across business lines and delivered via enterprise perspective. Each consumer and producer of data shared service centers (SSC) or Global Business Services (GBS) has a role in capturing and protecting that data throughout organizations that ensure compliance to internal policies and its lifecycle. This is greatly facilitated by global policies external regulatory requirements. Such organizations can drive enforced by a unified authority. down MDM costs by eliminating redundancies and integrating Gartner recently observed that a new chief data officer and managing customer, supplier and product data in a (CDO) role is emerging2 as an answer to the critical CXO globally consistent manner. They provide CFOs and their peers need for meaningful insights. Even when a CDO is not in reporting that is faster, more accurate and more detailed than place, the most successful companies think globally when it most IT-focused legacy systems can deliver. comes to MDM. Creating an SSC or GBS MDM organization, Partnering with an experienced service provider can help whether in-house or partially outsourced, establishes a overcome institutional biases and effectively integrate coherent governance structure with the power to integrate disparate systems. A unified delivery organization also brings systems and keep each business line and division from together requisite skill sets and uses standardized processes instituting separate standards and policies. This MDM target and common tools. operating model is adept at enforcing standards, monitoring compliance, and choosing metrics to measure success in 3. Technology maintaining data quality and speed of reporting. While better tools alone cannot drive more effective MDM, the right technologies are essential for supporting smarter processes. Many commercial master data hubs exist for Technology alone is not the answer centrally managing all domains, as well as bolt-on tools and While MDM technology has evolved and matured quickly in smart technologies. The ability to deploy the right technology the past decade, too many IT-led MDM initiatives fail to justify cost- and time-effectively often hinges on the ability to the return on investment. Commercial off-the-shelf tools for centralize process ownership1 and skills. MDM now provide critical out-of-the-box features such as data 4. Governance stewardship interfaces, in-built workflows and higher data The last and most essential component of better MDM is quality. And recent advances include social and mobile MDM— comprehensive, enterprise-wide governance. The best MDM integrating external data from social media to create a "system organizations institute policies that ensure every important of engagement" available on the user's mobile devices. record meets an established standard and is part of a single Despite all these innovations, these MDM initiatives are often source of highly accurate information easily accessible to all handicapped by the complexity of large-scale projects and an stakeholders. The benefits can be significant. These include over-reliance on technology. Companies are discovering that automated and real-time reports, more accurate forecasting established MDM methodologies and conventional approaches and spend analysis, fewer disputes, and proactive spotting of to improvement are no longer adequate. trends in customer or supplier behavior. Shorter cycle times improve working capital, while the ability to quickly uncover MDM differs from other types of technology-driven fraud or supplier issues can vastly reduce risk. consolidation efforts because of the need to closely tie Master data objects, when integrated with predictive technology, through business process integration and rule- analytics, provide deep and relevant insights. For example, based operational systems, with formally defined and centrally customer records integrated with predictive analytics that managed business rules. While data governance functions examine customer behavior help the sales and marketing are rolled out in most organizations, they are often not active teams create more targeted and effective campaigns. and operational. The business does not proactively manage data quality and SLAs through metrics and KPIs, even though Many companies fail to realize that more accurate data, better the technology capability may exist within the organization. processes and clear governance are required whether or not Additionally, project teams often don't have a detailed the company upgrades its data management tools. Since understanding of the business outcome being influenced by

1 http://www.industryweek.com/cost-management-amp-bpm/world-class-processes-begin-right-process-owners?page=1 2 http://blogs.gartner.com/peter-sondergaard/big-data-chief-data-officer/ 79 the analysis enabled by master data. For that reason, they are unable to prioritize as required to limit implementation risk and keep projects relatively simple and time-effective.

A purely IT-focused approach is outdated and less effective than holistic industrialized operations that provide fast access to integrated data, enforce data quality and enable robust analytics. Modern businesses cannot afford to deny themselves the benefits of faster cash flow from fewer disputes, lower costs from integrated operations, and the priceless advantage of timely insights that let them seize opportunity as it arises and ward off risk before is too late.

80 This has been authored by Prakash Hariharan, VP and Enterprise MDM Practice Head, and Susmita Kanjilal, AVP MDM practice at Genpact. © Genpact 2015

81 POINT OF VIEW Separating impact from hype: How CFOs achieve technology ROI

How enterprises approach IT transformation can spell the difference between failure and achieving ROI. A total focus on technology almost invariably fails; companies that take into account the process requirements and the “human factor” have a much higher degree of success.

The best technology-based ERP is no longer the only answer transformation focuses on what A huge, multi-year implementation is no longer the only matters option available to leverage better technology. In fact, massive implementations can sometimes undermine actual business Why do so many technology upgrades fall short of their goals? goals. Although there is still room for Enterprise Resource How can the vast capabilities of modern technology tools Planning (ERP) systems, they seldom address all business needs, still fail to meet critical user needs or provide material return and may not promote business goals of simplicity, efficiency, and on investment—with the goal of cost-to-serve, agility and speed of deployment. ERP systems also tend to be expensive adaptability, standardization, or scalability? Why do so many customizations, are non-intuitive to business users, and can result companies reach the end of a multi-year deployment only to in highly fragmented backend IT systems and "data islands" that discover they are not materially better off than before and that are costly to staff and hard to evolve. the world has moved on to the next big thing? In contrast, consider the example of a global claims The answer lies in how they approach IT. Too many companies management provider that sought to improve its manual and view technology as the primary factor in greater efficiency. disparate Accounts Receivable (AR) and collections processes. They fail to engage in a deep analysis of the processes IT The company chose to deploy a cloud-based, end-to-end must support or how people will leverage technology. Many Software as a Service (SaaS) suite of financial and accounting implement a vast array of process and technology improvements applications in the company's U.S. operations. A test within a instead of surgically targeting the actual drivers of desired chosen business unit produced improvement so significant that business outcomes. Sometimes there is a disconnect between the company moved up the scheduled rollout of the solution what the CIO perceives as necessary and what the CFO needs to the rest of the company's U.S. operations by six months. to accomplish. And, too often, a carefully planned deployment Because the new system easily accesses legacy ERP data but meant to address particular problems is implemented so slowly is much more user-friendly, collectors who previously felt as that by the end business needs have radically changed and the though they were working on separate islands now feel part solution is no longer adequate. of one team.

82 EXAMPLE Minimum Median Maximum

Record to report Key Performance Measures Practices

3 • Automated interface process within ERP system Sub Ledger- Days to SL 5 1 • Scheduled mapping tables from source to SL to GL AP cut-off to avoid data loss • Automated tool for inter-company transactions

• Implement MJE workflow • Global common chart of accounts • Standardization and rationalization of IT systems GL Close & Days - GL • Reduction in MJE-Threshold, recurring JEs, interface Key Business 9 3 Consolidation submission • Web-based global closing calendar, with clear Outcome 5 accountability Time to report* • IT system integration / Rationalization • Synchronize edit checks between subsidiary and 17 parent books for better first-pass yield 30 4 Days to 10 • Create database for common errors encountered and External their proposed solution for reference Reporting earnings 15 2 release • Materiality thresholds defined for accruals

• Recs prioritization • Documented reconciliation policy in place • Use of automated tick and tie/reconciliation tool Recs cycle • Reconciliation dashboards published regularly Account time from 45 14 • Clearly defined approved backup per category Reconciliation BS date 30 (days) • Standard policies/operating framework • Analysis of repetitive open items to reduce inflow * Days from qtr. end to earnings release Source: Genpact SEPSM Figure 1 - SEP model example for designing business processes based on business outcomes and key metrics

Process is key to better report process, "time to report" is a key business outcome. An effective framework for driving improvement measures and technology ROI benchmarks the performance of sub-ledger AP metrics such Too many companies fail to closely examine the processes they as "days to sub-ledger cutoff" and then develops effective need to support—specifically the key business outcomes those processes that drive movement in those metrics. The underlying processes must deliver—before moving ahead with technology technology should support those processes rather than try to upgrades or new deployments. Instead, enterprises should force-fit human behavior to accommodate the technology—a harness domain and process expertise for that purpose, well common issue in IT-driven projects. beyond functional process design specifications, in three steps. First, identify the most important outcomes to achieve and then Don’t allow anyone to “boil the determine what metrics must be measured to drive results. Then, measure the current performance, benchmark it (either ocean” internally or externally), and determine the potential gaps. A process-based approach to technology allows organizations Finally, pinpoint what technology or process interventions are to focus on fewer—but material—parts of the solution. needed to close those gaps (see Figure 1). The deliverables of This simplifies organizational alignment as well as technical such analyses answer key questions such as: Which parts of the realization while preserving the business impact. Companies process can be automated? Which parts could be eliminated? may discover that targeted interventions will solve their How do the processes impact the effectiveness of various problems, at far less cost and with significantly shorter timelines departments or business lines? than an enterprise-wide upgrade. Business stakeholders Understanding how the end-to-end process links to other parts should encourage practical solutions in order to contain the of the organization lets planners zero in on business practices natural tendency of some technology consultants to "do too that will support better enterprise performance, not just sub- much" and "cement the solution," irrespective of the need for process performance. The planners can then target technologies simplicity and future agility. to help drive better outcomes. For example, in the record to

83 Business stakeholders have a material role to play in the design The rapid evolution of technology does not mean that of technology solutions. They should collaborate thoroughly enterprises should forego business practices or adopt technology with IT—and their consultants—to focus efforts and guarantee wholesale and in a rush. Instead, thoughtful, process-based future flexibility. A robust solution might not last more than a design and transformation can harness the newest technology few years because of the likely business changes that will soon for what matters, thoroughly utilizing process analytics and intervene. The business case—and related technology choices— focusing on how the business process (and the related human must reflect that. factor) drives the desired business outcomes, while retaining the flexibility to adapt to future needs. The best technology-based This article1 first appeared in Industry Week, on May 29, transformation focuses on what 2014. matters

Once a more targeted scope has been defined, organizations are better able to leverage advancing technologies: new point solutions, workflows, wrappers, and other tools (including those that leverage cloud-based delivery and mobile solutions), instead of defaulting to ERP deployment or optimization. They can use automation to reduce variances and to industrialize processes, but they should bear in mind that automation cannot do everything and that workflows found within traditional solutions are often too rigid to enable large, distributed groups of people, especially in high-end functions such as Financial Planning and Analysis (FP&A), risk management, and controllership.

Tools for collaboration and insight are required in a global economy, and they must be intuitive to be effective. Modern technology users accustomed to mobile apps and easy interfaces expect the same from their business software.

The good news is that today's technology is much more agile than in the past, able to leapfrog the traditional cycle of upgrades invariably subject to "sunk cost" issues created by older technologies. Cloud-based solutions, mobile extensions, and "systems of engagement" can sit on top of traditional "systems of records" (e.g., legacy ERP or data warehouses), increasing efficiency and effectiveness while keeping the effort finite.

The claims management company used the new SaaS solution to link disparate systems and improve AR operations. The new, comprehensive cloud-based solution represented a paradigm shift in the company's technology deployment while fulfilling the company's objectives.

1 http://www.industryweek.com/software-systems/separating-impact-hype-how-cfos-achieve-technology-roi?page=1

84 This has been authored by Sanjay Srivastava, Senior Vice President, Enterprise Technology Solutions, and Gianni Giacomelli, Chief Marketing Officer at Genpact. © Genpact 2015

85 WHITE PAPER Continuous transaction monitoring: Using analytics to detect fraud or simple payment errors in real time

Organizations today stand at considerable risk of material financial leakage and are subjected to a significant increase of regulatory pressure to find, and fix, improper financial transactions and broken business processes. With traditional measures proving inadequate in the face of growing business complexity, organizations are more vulnerable now than ever before. This increased risk and the failure of businesses to take corrective action, can easily trigger a crisis that results in heavy losses, bad publicity—and in some instances, bankruptcy. Faced with this challenge, more and more organizations are adopting “Continuous Transaction Monitoring”—a process that enables them to monitor virtually every payment throughout their system as soon as it is made.

"Continuous Transaction Monitoring" [CTM] refers to a spares clients from the upfront expenses required by other process that enables organizations to extract-and then analyze- vendors-and enables them to take advantage of Axis' "pay as transaction data in near-real time. With the use of audit you use" service. analytics, organizations run their customer order processing, purchasing and other general ledger transactions through pre-set filters. Through the use of statistical logic and industry Introduction best practices, these automated audits help internal auditors Organizations can make erroneous payments for many reasons monitor user activity and controls—and quickly detect events that range from accidental double invoicing to willful acts of that represent risks to the organization. This, in turn, enables employee or contractor fraud. Historically, auditors conducted these businesses to remain in compliance with the growing spot checks to detect fraud and other irregularities. But this number of regulatory requirements and reduce risk of material approach was labor-intensive, incomplete and invariably financial leakage. occurred too late to be of value—since any discrepancies were usually detected weeks or months later during reconciliation or Axis, a fully owned subsidiary of Genpact, delivers a solution post-closing audits. This lag often left organizations with limited that is less intrusive and provides increased compliance. In recourse to recapture any erroneous payments. contrast to technology vendors selling complex software that requires clients to implement burdensome and costly upfront It's only been in recent decades that computer systems capable training, Axis creates value by providing customers the root of monitoring virtually every transaction have become available. cause which leads to improper transactions. This helps clients The enactment of a number of anti-fraud measures over the invest time in closing gaps within their processes. Also, it past decade—including the USA Patriot Act, the Sarbanes-Oxley

86

Act of 2002 and Europe's Financial Services Action Plan—has provided additional impetus for companies to invest in new Accounts Vendor Accounts Customer systems to ensure tighter financial controls. payable management receivable management Organizations need to maintain tighter controls over their financial transactions. That's because the risk of making these General Inventory Payroll improper payments has increased in recent years for many ledger reasons, including:

• Increased complexity and globalization of business

• Huge volume of financial transactions Audit • Increasing variance in technology platforms analytics • Growing number of ways in which transactions get processed through enterprise systems CTM

But creating tighter financial controls isn't easy for most organizations—particularly those who continue to rely on Organizations must overcome many barriers before they old-fashioned spot checks and assurance by auditing a can monitor transactions continuously sample of transactions by their auditors. Axis has identified three of the biggest challenges that organizations face in Differences in organization, process and technology result trying to stay on top of all of the financial transactions that in varying levels of compliance. Too many organizations flow through their books: leave it to the CEO, CFO and the board of directors to oversee compliance, and then use paper-based processes and manual Evaluating whether an exception is genuine or not can IT procedures. The best performers are those who appoint a be difficult if there are a large number of "business as Chief Risk Officer to oversee and manage compliance-related usual" exceptions. Indeed, given the increased complexity issues—and fully automate the relevant processes, especially in in today's transactions, breakdowns in business processes are IT-enabled business functions. likely to occur more frequently. A large number of integrity checks need to be performed at every step of the way. These checks are necessary to detect Duplicate payment review helps a such irregularities as invalid vendors, duplicate purchase orders, global confectionery, food and beverage payments to employees, and mismatched invoices. Failure to conglomerate recover $5MM detect these types of irregularities can occur when organizations rely too much on external parties due to a lack of internally trained staff. The Challenge: A food and beverage conglomerate outsourced its accounts payable processes to a third-party service provider. But the company suspected that duplicate Measurable Impact vendor payments were being made. Even as the risks of financial irregularities have grown, Axis believes that significant improvement in operating and process Genpact traced the duplicate payments to errors in the metrics can be achieved through CTM. Quantitatively customers data provided by the client—but determined that the can look towards achieving: filters the contractor created to catch duplicate payments • Bottom line growth up to 0.5% and a top-line growth of up were not comprehensive. to 1% upon coverage of all major transactions (P2P, O2C, The Solution: Axis first identified duplicates in the vendor GL,T&L, FCPA, P-Card) master data, and then built a refined set of rules and • Up to 100% audit coverage of transactions provides improved processes for catching future overpayments. assurance towards organizational and regulatory compliance Business Impact delivered: After reviewing nearly • Up to 30% reduction in audit cost due to pragmatic use 470,000 line items of data, Axis' team identified roughly of technology 3,000 potential overpayments. The observations were graded and prioritized which led the client to recover close to $5MM from its suppliers

87 BUSINESS PROCESS TOP 3 LEAKAGE POINTS % TRANSACTION % PREVENTED BUSINESS IMPACT VALUE AT STAKE THROUGH CTM

Procure to Pay • Data errors and omission • Unauthorized payments 12-17% ~90% Operating metrics • Overpayment • Decrease in working capital by up to • Delayed collections Order to Cash 3–5% • Unauthorized changes in 20-30% ~97% • Increase in cash flow masters by 2–3% • Invoice and billing mismatch • Bottom line improvement by Travel & living • Policy non-compliance • Overpayment 7-12% ~85% up to 0.1–0.2% of • Unauthorized payments revenues • Improve revenues up General ledger • SoD conflict to 1% • Whole number entries - • DSO reduction by 11-17% ~97% rounding off 10–15% • Unusual account pairing analysis Process level metrics • 10–15% savings FCPA • Out of country payments from employee • Gift/sponsorships/ 6-7% ~80% recoveries government payment • Prevention of analysis accounts mis- • Unusual payments reporting • Prevention of foreign P-Card • Purchases from approved/ 10-15% ~80% corrupt practices by regular vendors up to 80%, reducing • Policy non compliance probability of • Improper/illegal payments penalties

Source: Genpact experience

PARAMETERS WITHOUT CTM WITH CTM BUSINESS IMPACT

Up to 5X increase in Transaction coverage 10-15% 100% transactions under audit

Transaction Up to 15% improvement completeness and 60-70% 65-80% in transaction quality accuracy

Up to 20% increase in Operating control 70-75% 80-95% controls

Up to 30% reduction in Turnaround time 100% 70-75% audit completion time

Up to 30% reduction in Auditor cost 100% 70-75% cost of audit operation

Source: Genpact experience

Significant improvement in operating, process and assurance metrics can be achieved through CTM

88 Axis provides CTM solutions that help detect and analyze Platform Hosting and Data Mining. As a result of the merger suspicious transactions and other anomalies, enabling clients to mania of the past two decades, many large organizations are take quick corrective action against the root cause leading to: juggling a patchwork of systems. So before an organization can attempt CTM, it must be able to extract data from every one • Duplicate payments of the disparate systems in its universe. To ensure that clients • Missed supplier discounts have clean data that can be easily extracted and analyzed, Axis • Large purchase orders that exceed an employee's approval provides: limit, but that are split up to avoid detection • Pre-built data request templates by process, vendor, analysis, • Fraudulent payments by insiders to a "phantom vendor" and type of Enterprise Resource Planning (ERP) system. Axis company can provide pre-built extraction for systems from the major • Payments that violate the U.S. Foreign Corrupt Practices Act ERP vendors including SAP, Oracle, JD Edwards, PeopleSoft • Many other questionable transactions and Lawson.

• Custom scripts to rapidly extract data in an automated Structuring and solving the challenges manner • Out-of-the-box analytics libraries supporting numerous The approach from Axis is a unique combination that is aimed processes at defining, managing and running an organization wide CTM program. • Dedicated experts with extensive experience in gathering data quickly and ensuring the accuracy and integrity of data Axis knows that before implementing a CTM program, before analysis organizations must first establish a control environment that • A collaborative approach to verify that each client is linked to its goals and objectives. To create this control understands how to interpret the extracted data in real time environment, Axis deploys a team of domain and CTM experts who help clients: Transaction Analytics. For large organizations that process thousands of transactions each day, detecting fraud or other • Assess the current control environment and the risks to irregularities is like finding the proverbial needle in the haystack. organizational goals and objectives Organizations can only succeed on this front if they have access • Build a complete control environment for the organization to the most sophisticated algorithms and analytics. Axis has • Determine the frequency for monitoring the controls developed cutting-edge analytics that can identify error patterns • Identify and capture the data that measure the effectiveness in near time—and take immediate corrective action. Axis of the client's risk management as well as its other controls provides its clients with:

• Heuristic algorithms that learn and improve continuously

Definition of • Analytics based on predictive logic, including fuzzy logic, controls (preventive pattern recognition and statistical analysis and detective) • Granular and actionable insights by process and sub-process, IT system, and nature of the transactions Refine control Definition of framework/close transaction/ master • Lists of analytics performed under each area and sub-area, gap and dashboard CTM data monitoring with detailed sub-analytics by process, vendor, and ERP management) Solution alerts system

Exception Management & Closures. Attempting CTM is futile if an organization's auditors can't quickly pick out Resolve exceptions which of the hundreds—or even thousands—of anomalous and identify root Exception identified transactions that occur each day are truly worth investigating. cause To stay on top of its data in real time, organizations need to be proficient in exception management, root-cause diagnostics leading to exception and process gap closure. Axis supports Genpact's CTM solutions incorporate a feedback loop to clients with: help clients strengthen their controls • Risk profiling of exceptions based on factors such as process type, vendor or criticality

• Integrated exceptions in instances where exceptions are linked to each other

89 • Follow up of genuine exceptions and recommendations on documenting every relevant exception. This enables executives process, technology fixes etc. to take action against fraud or compliance failures. Axis • Collaborative approach with client to determine and manage provides: "genuine" exceptions • Granular reporting of exceptions based on criteria such as

Management Reporting. Even after the algorithms and process type, vendor or ERP system analytics are in place, and the CTM system starts flagging • Assessments of the root cause of the exception and validating irregular transactions, the real work has only begun. That's the same with the business/process owner because every organization that implements CTM realizes that • Details of initiatives, including process changes or technology it's an ongoing learning process as the types of waste, fraud improvements, that can eliminate exceptions and abuse continue to change. To stay abreast of the latest trends, organizations need robust reporting. Axis provides • Recommendations on new analytics based on reporting and management teams with holistic and comprehensive reports business changes

Design and implementation of fraud risk framework for a multinational pharmaceutical and consumer healthcare company

The Challenge: AP accounting process outsourced to third party service provider. Instances of fraud payments within the organization. Multiple data sources and decentralized process ownership.

Axis Solution: Axis identified vulnerabilities which could be exploited for fraudulent purposes. Analyzed transactions to determine data points for fraud risk, evaluated impact and potential exposure for each fraud scenario.

Detailed investigation to identify and grade real fraud instance.

Business Impact delivered: Identified fraudulent payments made by employees in their personal account by changing the bank account of vendors ~$0.5MM. Identified instances of PO splitting, resulting in identification of kickbacks.

90 For more information, visit www.genpact.com/home/solutions/risk- management-services © Genpact 2015

91 92 Advanced procurement and supply chain models

Transforming procurement operations through advanced operating models 94 Procurement executives worldwide agree on the top challenges facing their organizations: Cost, compliance, and customer satisfaction. In this new research, they also pinpoint the greatest opportunities to be gained from advanced operating models whose full potential has yet to be tapped.

"Industrialization" of sourcing and procurement operations 98 Global Business Services (GBS) can benefit the sourcing and procurement function because they have the ability to streamline processes under a unified—although not always centralized—operating entity. This paper presents a scientific, granular approach to procurement transformation, proven through industry-specific experiences.

The supply chain: The CFO's crystal ball 104 There is a secret weapon in the CFO's battle to stay ahead of globalization and a fast-evolving marketplace filled with complexity and risk. That is the data gleaned from examining the supply chain—a primary source of information that can help to accurately forecast a company's revenue outlook.

Inventory optimization: The benefits of building a smarter supply chain 106 The global economy has given rise to tougher competition, quicker product obsolescence and increased outsourcing—all of which have created a greater need for companies to maintain a tight control over their inventories. A survey of 500 companies by Aberdeen Group found that 57% wanted to reduce their inventory carrying costs. But getting a better grip on inventories is easier said than done. Learn how world's leading companies are optimizing their inventories.

Demand forecasting: Helping drive business results 110 An environment of uncertainty calls for organizations to use sophisticated demand forecasting tools to deliver business benefits. Through experience gained in over hundred eBusiness suite implementations, Genpact understands the fundamental factors which need to be considered while implementing a demand forecasting tool. This white paper shares that better integration of such tools with processes can yield higher pay-offs.

93 RESEARCH REPORT Transforming procurement operations through advanced operating models

Procurement executives believe there is untapped potential for advanced operating models to address the top enterprise challenges.

About the research vary widely across business functions. The three levers of operating model transformation—technology, process In 2014, Genpact commissioned a research project conducted reengineering, and advanced organizational structures (shared by an independent research firm. The goal was to assess the services, business process outsourcing, and hybrids)—create potential for new operating models across a wide spectrum impact differently. Using commissioned research, Genpact of industry sectors and functions. More than 900 senior-level has examined these trends to understand how institutions are executives completed the survey. Respondents were screened driving transformation to achieve business impact. based on their ability to materially influence functional decisions. This analysis complements other research and insight derived from Genpact’s experience designing, transforming, and Procurement executives believe cost operating business processes and operations. reduction is the top challenge, by far, This document presents findings drawn from 121 senior facing their enterprises procurement executives from across all industries. About 60% • About 65% of procurement executives identified cost of the procurement executives surveyed are based in North reduction as one of the top three challenges facing their America, predominantly with large companies with more than company. 10,000 employees. • Regulatory compliance (46% of respondents) and customer Introduction satisfaction (41%) ranked far behind. • These responses contrast somewhat with those of executives CPOs and other senior executives are challenged to adapt to a in other functions who were more likely to point to regulatory rapidly changing business environment and to create greater compliance or growth and scalability as their firms' top business value. Transforming business processes to implement challenges (Figure 1). advanced operating models is a big part of the solution, but levels of process maturity and preparedness for transformation

94 % of respondents from various functions stating challenge as among the 'top 3' for their company

Ensure compliance to Increase customer Reduce capital and Manage regulations satisfaction asset intensity risk Increase growth and Enable company’s Enable agility and Reduce scalability innovation adaptability costs

0 10 20 30 40 50 60 70

Overall

Finance

Procurement

Marketing

Operations

n=912 from all industries

Figure 1

Sourcing/category management is seen • "Impact indexes" weighed the impact of each function as addressing the biggest challenges according to the importance of the business challenges the function addresses. • The majority of procurement executives said that sourcing/ • This analysis showed that sourcing/category management is category management can have material impact on multiple most likely to have a broad impact, followed by supplier risk challenges. and performance management and business intelligence and reporting (Figure 2).

Function impact index* combining stated importance of challenges and stated ability of a function to address them

Sourcing/category management 191

Supplier risk and performance management 174

Business intelligence and reporting 156

MDM 136

Transactional procurement 122 *Impact of a function on a company's n challenges is defined as f(xi) = ∑ j xijyj, where xij is the % of respondents who believe that improvement in the function xi will have a material impact on the challenge yj ; yj is the % of respondents citing the challenge as among the ‘Top 3’

n=121 procurement executives Figure 2

95 Size of the circle indicates importance of

s o

t challenge and size of the slice shows the n

o d s i proportion of executives who say the function t e 90 a r

c a d n Size of the bubble proportional Sourcing/category can have material impact on the challenge p e u t f e

a r to impact of function on many management t p d s

e r strategic challenges

i 80 f o s i

e c d i e e n r p a a s p

p n i e m 70 Supplier risk and

r Increase

o Reduce Manage e p c r

performance customer

f

u cost risk t y o r

a management satisfaction e % v m 60

S Transactional

S 50 procurement E N

D 40 MDM E Ensure Manage Reduce risk cost R compliance to regulations A 30 Business P intelligence E and reporting R 20

P 20 30 40 50 60 70 80 90

% of companies stated as very mature Manage Ensure Reduce M AT URI T Y or mature in the specified functions risk compliance to cost regulations

n=121 procurement executives

Figure 3

Business intelligence (BI) and reporting • Business intelligence and reporting as well as master data as well as master data management management were at the other side of the spectrum (Figure 3). (MDM) were least mature and least prepared to evolve further Procurement executives saw advanced • Transactional procurement was seen as the most mature organizational structures as more function, with 72% of procurement executives rating it broadly applicable, but technology mature or very mature. initiatives may generate slightly greater • The sourcing/category management function, however, was monetary impact more frequently seen as prepared to transform further, with 76% of executives rating it prepared or fully prepared. • Advanced organizational structures (shared service centers, business process optimization, or a hybrid) were regarded

AVERAGE $ IMPACT1 1Annual $ impact is the impact of operating model initiatives in Column width proportional to % of US$ per annum including reduction of cost, capital required, respondents stating that the initiative improvement of cash and revenue growth will have a material impact

OVERALL PROCUREMENT MATURE IMMATURE $126m $120m $121m $106m $107m $ 99m $84m $82m $65m

TECH BPR SSC/BPO/ TECH BPR SSC/BPO/ TECH BPR SSC/BPO/ Hybrid Hybrid Hybrid

TECH - Radically improved use of technology BPR - Business Process Reengineering BPO - Business Process Outsourcing, SSC - Shared Services

n=121 procurement executives (77=mature; 44=not mature) Figure 4

96 by most procurement executives as having a bigger material impact on key business challenges than other levers of operating model transformation.

• The research has shown that improved use of technology can provide the biggest financial impact where the technology is applicable, though the expected impact varies substantially depending on the maturity of the procurement function.

• Executives who rated their company’s procurement functions as immature expected larger financial impacts from advanced organizational structures and business process reengineering (but not technology) than executives who rated these functions as mature (Figure 4).

Conclusion Senior procurement executives are challenged to adapt to a rapidly changing business environment in an economy that remains unpredictable. The researchers examined how those challenges can be tackled with three levers of operating model transformation: Technology, process reengineering, and advanced organizational structures.

The related transformation of operations is an untapped strategic lever for the CPO as well as the CEO. However, it is sometimes seen as a formidable undertaking.

Our experience of advanced operating models clearly indicates that there are agile and practical ways to drive positive change. The key is to design, transform, and run the processes that power advanced operating models so that they closely align with measurable business goals, thus avoiding saddling the company with unnecessary and often unmanageable complexity.

This approach focuses more rigorously on the sources of impact and deliberately disregards any practice that does not yield material outcomes. It also takes a more objective and holistic and practical look at technology, analytics, and organizational practices.

Finally, this approach harnesses the process and organizational levers available from established disciplines, such as reengineering, shared services, outsourcing, and global delivery. We think there is a smarter way to transform operating models and address the most complex strategic challenges. This is a way for CPOs to make their enterprises more intelligent and generate material impact.

This report presented the highlights of research findings.Discover more in the full report1.

For more information, visit www.genpact.com/home/solutions/direct- procurement, and www.genpact.com/home/ solutions/indirect-source-to-pay © Genpact 2015 1 http://go.genpact.com/CPO-advanced-operating-models-research14-reg.html

97 WHITE PAPER “Industrialization” of sourcing and procurement operations

The sourcing and procurement function is increasingly mandated to contribute to the growth and agility necessary in these volatile and uncertain times. Its current operating models are, however, seldom able to deliver on these expectations—often lacking enough resources to tackle at scale emerging challenges, such as analyzing global and fragmented supply chain risks, as well as enabling frequent changes of company “perimeter” brought on by geographic expansion, M&A, and so on.

Global Business Services (GBS), an evolution of shared services with a larger global footprint serving multiple functions, can benefit the sourcing and procurement function because they have the ability to streamline processes under a unified—although not always centralized—operating entity. Decoupling business functions combines the advanced use of metrics, scientific process management, specialized data analysis, and effective IT enablement. It can industrialize business support processes and operations and—when combined with end-to-end process management—can result in the ability to scale, lower costs, and superior delivery. The resulting transformed business processes enable faster decision-making and the ability to adapt to market conditions. This paper presents a scientific, granular approach to procurement transformation, proven through industry-specific experiences.

Enterprise strategy and the demand many procurement organizations' DNA, such as creating POs, helping execute contracts, responding to supplier on procurement issues, and running routine negotiations with suppliers. Procurement leaders, now more than ever before, are key Contributing to the growth agenda warrants closer players in the transformation of their company's operating alignment to business operations and closer involvement in models; however, their function is routinely strained by such decision-making processes challenges as: • Moving beyond cost savings. Procurement faces, and • Tactical, transactional activities are still the core of often struggles with, the consistent demands of contributing

98 to "higher touch" roles, such as category management, We have already1 stressed the industrialization potential across demand forecasting/management and supplier risk, and functions within various industries. Figure 1 below reveals that relation management, over and above driving costs from procurement is one of the least "industrialized" functions supplier contracts based on its limited inclusion within captive outsourced Global Business Services (GBS) when compared to business processes • Solving for globalization and centralization. Serving such as F&A, HR, and IT. Taking industrial manufacturing as global markets and newer geographies can sometimes be at an example, Genpact estimates that 30% of the existing odds with the centralization of the procurement function. procurement activities can be industrialized through sourcing The central and regional procurement leaders are asked to and direct/indirect procurement support. deliver greater value from global activities while providing efficiency at reduced operating costs Across industries, companies display a reduced propensity to manage procurement processes when they are • Factoring supply chain risks, such as supplier bankruptcy, compared to finance, HR, and IT processes financial crisis, natural disasters, and price/currency volatility, are a "byproduct" of business volatility. The supply chain is 1% 4% 11% 11% 6% 8% prone to controllership risks because of its multiple physical 20% 19% 15% 18% 27% and transactional hand-offs 8% 6% 31% 10% 43% 13% • Evolving technology and analytics beyond the 61% 38% 9% comparatively limited current use. Limited automation has 69% often resulted in a lower (and slower) than expected ROI on 58% 40% 17% 44% 11% technology. Predictive analytics—employed for commodity 33% 17% 17% 17% price volatility, price forecasting, and so on— is still 4% 5% 4% 6% BFSI Energy Healthcare Manufacturing, Technology Telecom Others underutilized and distribution and utilities retail Industrialized procurement Procurement processes HR processes Industry-specific processes Financial processes IT processes operations: A key to agility and Source: Everest GIC database; Genpact analysis resilience Figure 1 - Significant potential may still exist for "industrializing" Industrialized operations can, when executed well, help procurement operations access new growth opportunities, create resilience to hostile market or regulatory conditions, and facilitate enterprise-wide As Figure 2 shows, we estimate that this effect can translate product and business model innovation. They also enable faster into business benefits amounting to $30 million for every $1 innovation in volatile marketplaces. billion revenue in manufacturing companies.

For instance, increasing the size of a large operation by 20% DIRECTIONAL (or strengthening business infrastructure in a new country) 50,000 71 Retail Opportunity in both typically takes a year or two, but industrialized operations can 45,000 direct cost and business impact Aerospace & Defense often achieve this 40,000 Hi-tech 55 35,000 Telecom in half the time. For 1 Taking industrial Payers - Health Automotive 30,000 53 144 some processes, 107 manufacturing as an 54 25,000 Pharmaceuticals 68 when the scale of example, Genpact 20,000 business process 16 CPG Average revenues Average 15,000 Providers - Health estimates that 30% Opportunity in Process industries 32 service is increased 30 39 10,000 enabling business 38 impact, beyond of the existing Industrial machinery by a factor of ten direct operations 5,000 Medical devices cost due to consolidation, procurement activities 0 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.5 1.6 the shared model can be industrialized % Core industrializable2 spend can deliver a 50% through sourcing Source: McKinsey, Genpact Analysis savings in cost per 1. Average revenues for Fortune 500 companies in relevant vertical and direct/indirect 2. % Industrializable spend shows the cost companies pay for core operations – F&A, procurement and supply chain transaction. (A leaner, All figures in US$ Millions procurement support. X Size of bubble represents industrializable procurement support operations cost more predictable cost structure also enables resilience and the consistent global Figure 2 - Companies can realize significant business impact from application of best practices.) industrializing procurement support functions

1Helping industrial manufacturing companies outperform through right operating models for support functions

99 Some of the most common procurement areas that can be 80 "industrialized" include: 70 60 • Spend analytics: Spend extraction, cleansing and 50

categorization; supplier market research; supplier risk 40 assessment 30 20

• Sourcing strategy and vendor negotiations: Supplier in GBS of processes Occurence 10 profiling, supplier market analysis, sourcing analytics, 0 - 2 years 2 - 5 years 5 - 10 years >10 years preferred vendor selection, and negotiation and e-contracting Maturity of GBS (years)

• Source to Pay compliance reporting: Source-to-contract F&A Procurement business cycle by driving contract compliance, transaction Figure 4 - The procurement function gets included in more mature compliance (e.g., only POs driven through preferred vendors) GBS setups than finance and accounting and discount capture

While the creation of a shared entity is important for harnessing Procurement’s place in the scale and labor cost arbitrage, advanced business processes operations maturity curve must optimize processes end-to-end, including those that do not belong to The evolution of GBS typically follows three phases (Figure the industrialized Most of the industrialized 3), with focus and achievements shifting over time from entity. Data- foundational (often direct-cost driven) activities to more driven process (and globally strategic ones. A typical company's full realization of benefits improvement delivered) procurement using the GBS model is achieved when it moves beyond the first frameworks two phases, which can take between five and ten years. like Genpact's operations are found However, forward-lookting organizations have successfully Smart Enterprise in 5- to 10-year-old GBS Processes (SEPSM) shortened the path and benefited from the experience of best- organizations. in-class early movers. have distilled the Lean Six Sigma experience of the last decade and can Life sciences GBS experiences display maturity curve help organizations to measure and improve procurement Maturation of practices starting to enable leapfrogging processes—in turn, enabling their operations to reach world- class levels faster and leapfrog on the maturity curve.

For example, in one major pharmaceutical company (a Genpact Setup Growth Maturity client) that spends more than $9 billion on procurement 0-2 years 2-5 years 5+ years annually, a supplier risk assessment provided valuable insights Reduce complexity, Operational excellence, Maximize effectiveness drive efficiency efficiency, variable cost and continue to drive cost for contract and price negotiation and lowered their risk

• Consolidate • Process of being hit by supplier bankruptcy. By setting up a system internal buy-in optimization • Stabilize with defined to periodically analyze key factors such as the supplier's • Push standardization operations SLAs and KPIs financial performance, industry ratings, cost-out initiatives, (people, process, • Target global and advanced technology), SLA centers with technology (e.g. cloud best practices, business strategies, and strategic initiatives, the computing) with • Sharing of 10-25% net additional 10-15% processes with cost savings company established bankruptcy indicators and benchmarked cost savings a cost impact of vendors against their competitors. The system let them segment +5-10% • Radically expand scope (functional, • Ad hoc solutions geographic) suppliers into high, medium, and low risk categories and lent with duplication • Clarify new business Key strategic challenges of activities significant advantage in negotiations. The procurement function between case corporate and • Aggressively explore has already shared and outsourced key components of high- GBS hybrid models end operations like spend analytics, supplier risk and relation management, and category management. Figure 3 - The full benefits of GBS are realized after the foundational Other situations where we have witnessed successes include: stages are completed • A global beverage player: Increased spend under Figure 4 shows that most of the industrialized (and globally management through initiatives such as increasing spend delivered) procurement operations are found in 5- to 10-year- visibility, designing metric structure for monitoring, reporting old GBS organizations. and benchmarking, identifying relevant technology stack, identifying change management interventions, and

100 purchasing channel standardization Boundary What efficiency, effectiveness, risk, and • An aerospace supplier: 18% cost savings through sourcing a conditions standardization are acceptable during from lowest cost and after transformation? country (LCC) Advanced operating Will resources released from transaction Resource through an end- models, including processing and control be reoriented b redirection to-end advanced the industrialization toward decision support? and globally- of higher-touch What structure and operating model delivered program Organizational c should the Finance organization have to support operations, choices management support the emerging business model? including sourcing, have enabled the What new processes, people practices, procurement, procurement function New delivery d and technologies are required to achieve and logistics, in DNA to leverage a robust the desired objective? addition to part platform in order to Source: Genpact experience development, create capacity and Figure 5 - Actionable choice patterns emerge by triangulating four contracts themes negotiation, acquire sufficient identify top areas for improvement, assess the feasibility and and new work capabilities to assume a risk of options, and conduct a preliminary analysis of benefits transfers, ensuring more strategic role. such as cost, efficiency, or effectiveness improved timeliness for deliveries • Identify delivery alternatives. Assess options for consolidating processes into internal global shared These examples illustrate how advanced operating models, operations, externally sourced operations, or a combination including the industrialization of higher-touch support of both operations, have enabled the procurement function to leverage a robust platform in order to create capacity and acquire • Determine change implications. Outline both financial sufficient capabilities to assume a more strategic role. and risk-related implications for each location and structuring option (e.g., various types of risk) Toward an advanced procurement - Build a business case for each alternative. Compile a high-level business case that encompasses process operations model improvement, organizational structuring options, location Scientific understanding of the operating model of procurement choices, and change implications organizations, such as SEPSM, are now mature and allow • Develop a detailed roll-out plan. Develop a roll-out plan organizations to correctly estimate the end-to-end business to reach the targeted operating model by process and by impact of target operating model choices, hence facilitating location effective design and more targeted change. Still, building out GBS capabilities is not banal. The variability across scope, • Build the final business case. Identify emerging options for location, and delivery models indicate that while broad each process and develop financial and implementation plans strategies and comparisons have a place in this process, each business case is heavily dependent on company-specific factors. Summary A thorough analysis of the following four dimensions, described In this paper, we shared Genpact's analysis and examples of in Figure 5, is critical to selecting the right target operating or how leading procurement organizations are transforming delivery model. their operating models. As discussed in a previous paper, "The • Review as-is state and rationale. Understand the current Adaptive Roadmap"2, business agility in times of unprecedented state of performance, identify candidates for improvement, volatility is an imperative that demands a new role for many and review the process and sub-process practices functions. Embracing new operating models can make companies not only more resilient, but also able to out-perform • Identify top improvement opportunities. Use best- competitors in times of volatility3. practice metrics and frameworks to benchmark key areas,

2 http://www.genpact.com/docs/resource-/the-adaptive-roadmap-whitepaper.pdf 3 Innovation and industrialized business operations: An industry-specific view 101 For organizations looking to redefine their procurement operating models, a significant amount of specialized knowledge is needed to navigate the continuum of design choices. While every company and every industry presents unique challenges, in such a specialized field, it is possible to leverage the experience of early and sophisticated adopters. Combining this experience with a clear understanding of the organization's strategic needs, capabilities, and industry context can help craft the right strategy for a target, advanced, and possibly "industrialized" operating model.

102 For more information, visit www.genpact.com/home/solutions/ reengineering/global-business-services and www.genpact.com/home/solutions/indirect-source- to-pay © Genpact 2015

103 POINT OF VIEW The supply chain: The CFO’s crystal ball

There may be a secret weapon in the CFO’s battle to stay ahead of globalization and a fast-evolving marketplace filled with complexity and risk. If you are overlooking the possibilities in your supply chain, you’re probably not alone.

This weapon has been there all along, as an integral part of a supply gap in critical commodities, and a technical analysis of company's everyday operations that holds the key to improving historical and current movements of primary price and volume. working capital and cash flow and better understanding risk. It can even predict revenue and profitability with a far greater For example, aluminum is a key raw material for a global wind degree of certainty than most people ever imagined. turbine manufacturer based in India. The company needed up- to-date market analysis, assessment and projection of aluminum This secret weapon is in fact the data gleaned from examining prices in order to make timely and advantageous sourcing the supply chain—a primary source of information that can help decisions. By developing an analytical model, the manufacturer forecast a company's revenue outlook. Understanding what more accurately forecast commodity prices and made better factors affect products as they move through a supply chain, decisions with regard to sourcing, ultimately lowering its and how those factors impact pricing and customer satisfaction, purchase price by 8%. provides a near real-time model a CFO can use to gain a more accurate idea of market factors affecting the company. Even one This ability to factor in variations and adjust the model in near critical component or raw material can significantly impact an real-time significantly improved the organization's ability to organization's entire approach to sourcing and its profitability. adjust to changing market conditions and seize opportunities. The better the CFO is able to sift through complex data sets and form a clear picture, the better the supply chain teams can Forecasting commodities forecast and set targets that drive better results. pricing: critical to beating market volatility Improve your inventory turns The past few years have seen great increase in market volatility, With a double-dip recession looming and high uncertainty especially around oil and commodities. CFOs can overcome the regarding the banking system, prudent fiscal management challenge of balancing inventory investment and procurement of working capital has become the acute need of the hour. cost by developing an analytical model that scrutinizes Improving inventory turns is a major concern within the supply macroeconomic factors affecting metals and provides a price chain and an obvious focus for any CFO concerned with driver analysis of the factors that cause price variations. The optimizing working capital. CFOs need in-depth understanding model can also provide fundamental analysis of the demand of the composition of their inventory investments and the

104 ability to transform the inventory base into its most productive and profitable form through multi-criteria inventory classification The CFO and the supply chain and optimization of safety stock and service-level requirements. Progressive organizations are leveraging technology to integrate the CFO into the supply chain organization, using ERP systems One major aviation company achieved a 48% drop in raw and reporting that allows CFOs to extract data that aids in materials inventory (from $60 million to $31 million) in seven timely decision-making. Such an entwined operation benefits months by taking a close look at how the entire process both functions. The CFO is better able to forecast revenue and was managed. It had no comprehensive, centralized view of profitability, decreasing risk and increasing cash flow. The supply part level inventories, and determined policy levels for order chain team is better able to create and deliver on plans that quantities by manual judgment. mirror the organization's operational capabilities and goals. This close integration has resulted in some organizations giving the After a thorough analysis of order policies and transit times, the CFO direct responsibility for the supply chain function. company was able to optimize carrying and transaction costs. It instituted weekly reviews of assigned inventory targets with Companies seeking a way to get control of working capital and supply chain planners and segmented its inventory into four see farther into the future would do well to take a close look at clearly defined categories. A demand pull system for select parts their supply chain. It just might provide the secret weapon they as well as a web-based inventory analysis tool helped establish need to stay ahead of both the competition and the market. tighter controls and more timely and accurate understanding of inventory levels. This improved inventory turns from 12 to 17.

Drive out risk end-to-end Volatility impacts the end-to-end supply chain, which in today's global supply base can be quite deep and extended. The supply chain is prone to controllership risks because of its multiple physical and transactional hand-offs. The CFO who clearly understands the entire procurement and fulfillment process and the workings of the physical supply chain is much better positioned to understand the cascading effect of risk. Clear insight into the drivers of supply and demand, costs and the end-to-end process can enhance the CFO's role in guiding policies that mitigate risk1 and drive better results overall. Start with a thorough financial evaluation and peer benchmarking of the company's supplier base.

For one major pharmaceutical company that spends more than $9 billion on procurement annually, such a supplier risk assessment provided valuable insights for contract and price negotiation discussions with vendors and lowered their risk of being caught in supplier bankruptcy issues. By setting up a system to periodically analyze key factors such as the supplier's financial performance, industry ratings, cost-out initiatives, best practices, business strategies and strategic initiatives, the company established bankruptcy indicators and benchmarked vendors against their competitors. The system let them segment suppliers into high, medium and low risk categories and lent significant advantage in negotiations.

For more information, visit www.genpact.com/home/solutions/direct- procurement © Genpact 2015 1http://businessfinancemag.com/article/new-game-supply-chain-risk-management-0512

105 WHITE PAPER Inventory optimization: The benefits of building a smarter supply chain

The global economy has given rise to tougher competition, quicker product obsolescence and increased outsourcing—all of which have created a greater need for companies to maintain a tight control over their inventories. The cost of failure can be steep, as seen with the number of multinationals that have taken as much as $2.25 billion in write-offs in a single quarter. But getting a better grip on inventories is easier said than done. Too many companies still lack the dashboards and other tools necessary to monitor their inventories by product type, customer and cost. This hampers their ability to forecast demand. The result is that companies wrestle with inventories that are stale, obsolete, or out of sync with demand. Not surprisingly, a 2011 survey of 500 companies by Aberdeen Group found that 57% wanted to reduce their inventory carrying costs.

As a result, companies globally are increasingly looking current inventories by customer, cost, product line and other for "Inventory Optimization" solutions that can help them categories. This helps them plan and optimize their inventories reduce working capital and minimize the need for write-offs across multiple sites, build demand forecasts and simulations of obsolete stocks. They are looking to recapture the sales to predict future inventory needs—and develop strategies for lost when the inventory exists, but is on the wrong side of reducing the risk of inventory obsolescence. the world. A study by IDC Manufacturing Insights found The benefits from these new capabilities are immense. that organizations that used software and other solutions to Genpact's solutions have helped clients: "optimize" their inventories, cut their holdings by as much as 25% in one year—and saw discounted cash flow rise above • Reduce their inventories between 5% and 15% and achieve 50% within two years. greater visibility across their supply chain

As a leader in Inventory Optimization, Genpact has helped • Develop demand forecasts that are 20% to 35% more clients by managing more than $5 billion in inventories and accurate 500,000 different SKUs, thereby generating a combined • Cut inventories by 15% to 25% through the use of multi- $250 million in inventory savings. By combining its experience criteria classifications in business process and supply chain management with its • Improve customer-service levels by 15% to 25% through proprietary tools and analytics, Genpact helps companies better forecasting and customized replenishment policies develop robust dashboards for monitoring inventories. along with regular reviews of supplier lead times Genpact's solutions enable these clients to segment their

106 Introduction same IT platform and tools. Visibility management: Historically, organizations took an unscientific approach to inventory management, raising or lowering their stockpiles In today's world, even mid-sized companies are now managing in part on seasonal patterns. Even today, many organizations supply chains that stretch from one end of the world to the still allow each business unit, factory and distribution center other. Given the dispersed nature of the modern supply chain, to manage its own inventories with little coordination. companies now need real-time visibility into the flow of goods Furthermore, many of these organizations have no standard from suppliers, their subcontractors and the transportation policies for determining the optimum inventory levels at each firms that shuttle all of these goods around the world. location—which, in turn, affects production scheduling. Genpact provides the dashboards and centralized systems Today's solutions for optimizing inventories offer many that give clients a comprehensive view of key forecast and benefits over those traditional methods. For one, they help inventory metrics. This enhanced information then enables companies better forecast demand; reduce inventory levels them to better segment their inventory, prioritize remedial with minimal effect on sales or profits, and better sync actions and set realistic targets for improvement. Our Visibility production with distribution. Management solutions provide the right mix of technology, analytics and ongoing services:

Genpact’s solutions • Genpact develops custom dashboards providing key performance metrics and trend analysis, and allows users to Genpact offers Inventory Optimization solutions which, drill into details such as time, location and product family when compared to competition, are easier to customize and take less time to implement. While typical vendors only • Our solutions are built on Qlik View, a flexible, cost-effective provide software-based products that are time-consuming and proprietary IT platform that enables a custom-fit and disruptive to install, Genpact offers solutions that can be technology around our client's reporting process either installed on-premise or based in the cloud via mobile • Even at the point where other vendors have left, Genpact applications. provides ongoing services such as internal and external Regardless of the delivery method, Genpact offers five benchmarking on key metrics solution modules that map into the most critical issues of Inventory classification: inventory management: visibility management, inventory classification, demand forecasting, planning and optimization Given the competitive pressure for suppliers to offer their and obsolescence management. These modules can be customers a wider range of products and services, it isn't deployed individually or sequentially, given that they use the uncommon to see companies today juggling hundreds of

Inventory Turns Inventory Segmentation On-hand Inventory ($ in Millions) 2.7M 5 8 3.9M 1.6M Target Target 2.5 Synthetic Fabrications 4.08M 2 11 400K 5M

Order Backlog ($) Bases Average Days of Supply (Days) Chemical Analytical 67,500 120 93,750 41,250 85 155 Target Overall Target 116,006.5 142.2 15,000 120,000 50 190 Piping Consumables Equipment Lab Forecast Accuracy (MAPE) materials Service Level (%) 50 50 Target Fiber 25 75 Packaging 25 75 Target 4 78 0 100 0 100

Genpact provides dashboards that enable clients to manage their inventories in real time

107 thousands of SKUs. The challenge is for these suppliers to be clients better respond to dynamic market conditions. The clients able to locate and redistribute each of these products cost- get real-time market intelligence to help forecast accurately. efficiently. Genpact enables clients to segment their inventory by customer type, product type, location and many other categories. This enables companies to reduce excess inventories, A leading energy company improved focus their investments in the highest-performing segments— visibility and lowered inventories and, in turn, boost their financial performance. Genpact offers The Challenge: A leading global supplier of power- clients: generation technologies was struggling to manage its • A cloud-based, in-house solution that integrates with their inventories, which included 45,000 parts in its supply existing ERP systems. That means clients pay just for the chain. The energy giant had no visibility into inventories at solution, and not an expensive infrastructure different locations and was having to write off inventories • A multi-faceted approach to inventory classification with that were quickly becoming obsolete. metrics for financial (e.g., gross margins), operational (e.g., The Solution: Genpact integrated data from multiple velocity of movement) and customer-oriented (e.g., high- systems to provide complete visibility of inventory, set volume products) criteria up customized reporting and dashboards with full view • Algorithms based on Analytical Hierarchy Processes at all levels of the supply chain. Genpact team also set

• Segmentation strategy design, including periodic up a weekly review process which highlighted potential modifications based on business changes opportunities to utilize existing inventory lying at multiple locations. Demand forecasting: The Result: The company succeeded in liquidating nearly Predicting future demand can be difficult, given the seasonal $5 million in inventory. nature of many markets and changes in competitors' offerings. Genpact offers advanced forecasting models that take into account the ongoing volatility in demand. We help clients create standard processes that improve the accuracy of their Planning and optimization: forecasts and better adapt to dynamic market conditions. Genpact's replenishment and distribution processes help Genpact's Demand Forecasting models incorporate advanced companies analyze supply and demand to predict their order algorithms (e.g., Croston, Fourier) designed to handle dynamic and fill rates. Our planning processes help clients optimize their and intermittent demand while reducing forecasting errors, lead times by making continuous adjustments based on supplier exception management and scenario development to help inputs. This helps companies minimize their carrying costs, stock-out costs, and ordering costs while maintaining adequate service levels. Genpact provides the planning analytics that help companies develop:

Data Sources Demand Data • A hybrid approach to customized replenishment policies Continuous Integration that account for inventory classification, demand pattern, customer criticality and other business-specific parameters

• Customized business policies and strategies, such as higher safety stock for top-selling products and relatively lower safety stock for low-selling products Time Series Causal Event-driven Estimates Models Inputs (Plans & • Genpact provides these analytics over a flexible and cost- Revisions) effective IT platform to custom-fit technology and process

Obsolescence management:

In many industries, product cycles have become so short that some goods can become obsolete within months of their Forecast Engine launch. Genpact's Obsolescence Management solutions help companies identify—and then adapt to—any risks that could

Genpact's Demand Forecasting analytics uses exception management for more efficient planning

108 render their products obsolete earlier than expected. These Genpact provides its Inventory Optimization services as one- solutions enable companies to: time engagements or as part of long-term arrangements. By using a modular approach and flexible delivery via the cloud, • Minimize their working capital and boost profits by releasing Genpact can deploy solution modules in as few as two months. cash from excess inventory That, in turn, enables clients to generate early results in as few • Redeploy inventories more effectively as four months—with little or no upfront investment.

• Identify existing and potential obsolescence A global transportation provider charting • Estimate the risk of obsolescence a new road through forecasting

Why Genpact The Challenge: A global transportation company struggled to manage its inventories, which resulted in heavy Genpact's Inventory Optimization solutions leverage the customer dissatisfaction and penalties when equipment extensive skills and resources we developed during our years as was unavailable. A key reason was the company's highly a subsidiary of GE. Genpact combines our custom analytics and decentralized supply chain, which included more than proprietary "Inventory Optimizer" tool, as well as our expertise 350 customer service centers and more than 100,000 in business process management, supply chain management, Six Sigma and Lean Six Sigma to develop actionable solutions SKUs. Lacking sophisticated forecasting and optimization for clients. tools, much of the recordkeeping was done in ad-hoc spreadsheets. Genpact brings to each assignment: The Solution: Genpact set up a robust forecasting engine • Extensive experience in inventory management and analytics. that captured seasonality and regional variations, and a Genpact employs more than 250 experts in supply chain multi-criteria classification module coupled with statistical- analytics and more than 150 inventory specialists spread and heuristics-based inventory modeling. across three global locations. Our global delivery model provides cost efficiencies and enables Genpact to leverage The Results: This solution enabled the company to reduce local market insights, as warranted stock-outs by 85%, aged inventory by 30% and ordering

• Specialists, the majority of whom have earned advanced costs by 30%. The company also realized a 25% increase in degrees, possess experience in multiple industries, and productivity in its customer service activities. experience in the leading third-party applications including FGS, Servigistics, I2, SAS, ARENA, Xelus, Manugistics, APO and ODP

• A world-class Supply Chain academy for training and development

• Proprietary tools that are modular, configurable, technologically unobtrusive—and that supplement current ERP and IT infrastructures. This includes our integrated forecasting application, PRODE, and our proprietary Inventory Optimizer tool

• Robust process and domain understanding, and rigorous methodologies based on Six Sigma and Lean Sigma. Our specialists have worked on more than 60 Six Sigma projects and more than 500 Lean projects

For more information, visit www.genpact.com/home/solutions/analytics- research/other-analytics-services/inventory- optimization © Genpact 2015

109 WHITE PAPER Demand forecasting: Helping drive intelligent business results

Many companies are still using demand forecasting approaches that are not sufficient for this competitive, global environment. This makes it difficult to produce and adjust forecasts - and virtually impossible to broaden the range of data used to create forecasts. This can lead to a number of business issues and increase the risk of missing market opportunities. To avoid such problems, intelligent enterprises now have the option of using Oracle Demantra software. But, as with any powerful tool, it is extremely important to use it correctly, considering several fundamental factors. Understanding and acting on these factors can help ensure better forecasts and a solid return on investment.

For enterprises, the accurate forecasting of demand is Overall, forecasting is often a time-consuming process that becoming an increasingly critical issue. In recent years, they tends to produce little more than an 'educated guess' and have had to contend with global competition, the increased provides only a fragmented view of expected demand. This use of extended enterprise models, the rise of global supply can lead to a number of business issues. Often, companies chains and ever-shorter lead times for products. These realities need to produce and carry more inventory to compensate for have made cost control, leaner inventories, increased speed forecasting uncertainty. And overall inaccuracy increases the and accuracy critical to meeting the needs of the complex risk of missing market opportunities, or incurring the expense marketplace. However, many companies are still using of overproducing products for a slowing market. demand forecasting approaches that are not sufficient for this competitive, global environment. Many rely on largely To avoid such problems, enterprises now have the option of spreadsheet-based manual processes. This makes it difficult using Oracle Demantra software. The demand forecasting to produce and adjust forecasts and virtually impossible to capabilities of this solution can typically bring significant broaden the range of data used to create forecasts. benefits to supply chain planning and the entire enterprise.

Too often, companies use varying methods for formulating But, as with any powerful tool, it is important to use it forecasts, often in silos. For example, it is not unusual to find correctly. Companies can benefit from considering several one forecast guiding the service operation while another is fundamental factors when implementing Demantra. used by manufacturing. Additionally, forecasts may not be Understanding and acting on these factors can help ensure consolidated and integrated across departments. Thus, the better forecasts and a solid return on investment. enterprise as a whole—not to mention its supply chain partners—does not have a consistent, accurate forecast underpinning its decisions.

110 The payoff: Better forecasts should companies do to make the most of these tools and specifically, the Oracle Demantra software? One key success Through experience with more than 100 Oracle eBusiness factor is the use of sophisticated analytics in conjunction with Suite implementations and ERP forecasting projects for the Oracle software. With proper methods, analytics can be global customers, Genpact has found that the use of used to take a more holistic approach to demand forecasts-one advanced forecasting tools can bring significant business that draws on first-hand information about shifts and trends in results. customer behavior. This Primary Customer Intelligence (PCI) can be a critical input to forecasts, along with the traditional inputs With Demantra, for example, the forecasting accuracy of such as market intelligence and macro- and micro-economic companies increases manifold; the software's use of forecasting variables. PCI data can also be used for customer segmentation models reduces manual efforts and errors and increases the and to determine sales conversion probability. company's ability to feed historical data, into forecasting models. The software makes it easier to produce a consolidated forecast to drive supply chain planning processes. It also gives Genpact developed an analytics-based model for companies the ability to perform ‘what-if' analysis to streamline collecting highly granular PCI data, and using it the smoothing of forecasts. as reference points to optimize forecast models. Experience has shown that this approach, which Although each company is different, experience has shown combines operational and PCI data in a closed-loop that the use of sophisticated forecasting tools can be highly cycle of statistical output, usually increases forecasting effective, if they are used in conjunction with integrated, accuracy by 14%. The result, typically, is a 10% well-designed processes. Companies can typically increase reduction of inventory costs in the short term. The use accuracy, or the 'confidence level' in forecasts, to 90% of synchronized demand planning with adjusted sales immediately following implementation - compared to the estimates can often lead to a 20% inventory reduction 30-50% associated with traditional methods. In addition, and a 10% sourcing cost reduction in a year. it is not unusual to see the number of products that can be included in forecasts expand from a handful to 90% of key products, or to see reductions of 50% in the amount of effort needed for forecast consolidation and smoothing. Build the foundation for superior performance Such improvements can have a significant impact in terms of overall competitiveness. With better forecasting, companies Looking beyond the Demantra solution and associated can be in a position to sense and respond to changes in analytics, there are a number of related factors that companies demand. They can improve the management of product need to address if they are to get the most out of tools and see life cycles, promotions and other events. They can also create a solid return on investment. For example, companies should: a demand driven organization that enjoys higher service levels and sales, more satisfied customers, and lower inventory and • Have a stable operational system that provides a distribution costs. "single point of truth" It is very important to have enterprise business applications with day-to-day information used across the organization, Genpact helped a global aircraft components manufacturing and services company enhance its so that operational information in forecasts is consistent and forecasting. This effort involved not only the use of up-to-date. Master data should be cleaned and validated, sophisticated tools, but also the rethinking of forecasting with the involvement of the appropriate business decision frequency and the implementation of three separate makers—again, to ensure consistency and accuracy. In forecasting approaches for three market segments. As essence, the quality of the forecast depends on the quality of a result, the percentage of end products covered by this operational data, and errors and defects in that data will forecasts jumped from less than 10% to more than 87%. lead directly to errors and defects in forecasts. Accuracy, which had not been adequately tracked before, quickly reached 87%. Not only did the forecasting quality • Implement Oracle Advanced Supply Chain Planning improve, the time taken to produce forecasts dropped by This essentially makes it possible to more effectively leverage 50% from 36 person-days per month to 18 person-days accurate Demantra forecasts in the company's broader per month. supply chain planning and optimization processes. The quality of holistic forecasts, combined with the sophisticated capabilities of Oracle Advanced Supply Chain Planning, can Leveraging analytics and the external result in greater efficiencies and better control throughout the planning process. view The effective use of such software requires more than just the implementation and use of new tools. The question is, what

111 • Make forecasting a continuous activity Companies can use the flexibility of Demantra forecasting tools to increase the frequency of forecasts. This is key to staying in step with rapidly changing customers and markets. Traditionally, companies have done strategic forecasts (with three- to five-year horizons), tactical forecasts (one- to two- year horizons) and operational forecasts (one month to one year horizons) in discrete steps. With the combination of Demantra and analytics, companies can have planners and analysts develop forecasts more often, link strategic, tactical, and operational forecasts and continuously smooth forecasts, all of which helps keep forecasts in line with changing business realities. Forecasting processes and planners' roles and responsibilities should be redesigned to enable this continuous forecasting.

In a competitive, fast-moving world, better demand forecasting can be a vital enabler of reduced inventory, lower costs and an improved ability to stay in step with changing customers. With Demantra, Oracle gives companies the software tools for accurate forecasting. But companies need to consider the broader context in which the software operates, and employ the analytics, technologies and processes needed to take full advantage of demand forecasting using Demantra. Those that do will be in better position to match supply and demand, and remain competitive in a constantly changing business environment.

112 For more information, visit www.genpact.com/home/solutions/ procurement-supply-chain/forecasting-planning © Genpact 2015

113 About Genpact

Genpact (NYSE: G) is shorthand for "generating business and unique DNA in Lean Six Sigma to clients outside impact." We design, transform, and run intelligent the GE family, and then in August 2007, we became business operations including those that are complex and a publicly-traded company (NYSE: G). Since becoming specific to a set of chosen industries. The result is advanced independent, we have expanded rapidly from 32,000 operating models that foster growth and manage cost, employees and a revenue of US$823 million, to the current risk, and compliance across a range of functions such 67,000+ employees and 2013 revenues of US$2.1 billion. as finance and procurement, financial services account Bain Capital became Genpact's largest shareholder in servicing, claims management, regulatory affairs, and November 2012 with the strategic objective to grow the industrial asset optimization. Our hundreds of long-term company further. clients include more than one-fourth of the Fortune Global Genpact has significant expertise accumulated over these 500-and of those, over 10 are in the top 25. 16 years of experience running operations for more than Genpact began in 1997 as a business unit within General 800 complex enterprises and learning from the feedback Electric-and this heritage has contributed to our deep loop of such extended enterprises. We remain loyal to our understanding of process. As GE made Lean and Six heritage of operational excellence as an extension of our Sigma pervasive, Genpact applied this same industrial clients' business-reflected by the best client satisfaction engineering ethos to business processes operations for scores in the industry. Our global critical mass, however, the first time in the world. Built with this single-minded doesn't dilute our flexible and collaborative approach. Our passion for process science and operational excellence, experienced management team drives client partnerships Genpact's resulting Smart Enterprise Processes (SEPSM) personally and manages global operations in 25 countries methodology focused on delivering business impact around the world, with main offices in New York City while safeguarding costs and limiting initial investment- where key executives and corporate functions are based. igniting the global business process outsourcing (BPO) For more information, services industry. This proprietary SEPSM framework visit www.genpact.com/technology-impact or integrates effective technology and data-driven insight email [email protected]. into the fabric of enterprise processes to help our clients be more competitive. In January 2005, Genpact became an independent company to bring our process expertise

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1 Presence in 25 countries 2 As of 2014 115

Genpact Research Institute

The Genpact Research Institute is a specialized think tank harnessing the collective intelligence of Genpact-as the leading business process service provider worldwide - its ecosystem of clients and partners, and thousands of process operations experts. Its mission is to advance the "art of the possible" in our clients' journey of business transformation and adoption of advanced operating models.

www.genpact.com/research-institute

For more information, visit www.genpact.com/technology-impact or email [email protected].

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