the evolution of the shared service model
DESCRIPTION
The Philips hybrid journey: From internal to external/hybridTRANSCRIPT
The evolution of Shared Service model - Philips Hybrid Journey- Philips Hybrid Journey
Goh Kim LeeSingapore8th Sep 2011
AGENDAAGENDAAGENDAAGENDA
1. Philips introduction.2. Our journey of SSC: from internal to
external/hybrid3. Scope of services4. Evaluation of the first three years
2
4. Evaluation of the first three years5. Next steps
26%
39%
A strong diversified industrial group leading in health and well-being
“…a global company
of leading
businesses creating
value with
meaningful
Founded in 1891Headquartered in Amsterdam, Netherlands
Sales of €22.3 billion in 20101
Growth Markets
Who we are Our businesses Our mission
2010
Confidential
35%
meaningful
innovations that
improve people’s
health and well-
being.”
Growth Markets32% of 2010 sales generated in growth markets
Globally recognized brand (world top 50)Our brand value doubled to $8.7bn since 20042
120,000 employeesSales and service outlets in over 100 countries
€1.5 billion investment in R&D, 7% of sales
2010
Healthcare
Lighting
Consumer Lifestyle
2Source: Interbrand
Healthcare
Philips Healthcare
Businesses1 Sales & services geographies1
Imaging
Systems
Home
Healthcare
Solutions
Patient Care
and Clinical
Informatics
Customer
ServicesNorth America International Growth
Markets
€8.6Billion sales in 2010
36,000+People employed worldwide in 100 countries
450+Products & services offered in over 100 countries
1 Last twelve months June 2011
8%of sales invested in R&D in 2010
45% 34% 21%38% 14% 22% 26%
Consumer Lifestyle
Philips Consumer Lifestyle
Businesses1 2 Geographies1
Personal
Care
Health &
Wellness
Domestic
Appliances
Lifestyle
Entertainment
Mature
Markets
Growth
Markets
€5.8Billion sales in 2010
17,000+People employed worldwide
5%of sales invested in R&D in 2010
1 Last twelve months June 2011 2 Other category (6%) is mainly license income and is omitted from this overviewNote - All figures exclude discontinued operations
60% 40%21% 12% 27% 34%
34%of green product sales in 2010
Philips Lighting
Customer Segments1
Retail Entertainment Healthcare AutomotiveHomes Offices Outdoor Industry Hospitality
Lighting
Confidential
23% 17% 15% 10% 15% 5% 3% 4% 8%
€7.6Billion sales in 2010
54,000+People employed worldwide in 60 countries
5%of sales invested in R&D in 2010
80,000+Products & services offered in 2010
1 Indicative split
6
Global
Cardiovascular X-ray
Unique leadership positions in many marketsExamples of current NPS leadership positions1
Global
UltrasoundGlobal
Patient Monitoring
Regional
Cardiac resuscitation
Regional (USA)
Home Monitoring
Healthcare
Global
Male electric shaving
Global
Mother and Child Care
Regional
(China)
Haircare
Regional
(LatAm, China)
Kitchen Appliances
Global
Oral Healthcare
Global
Professional Luminaires
Global
General Illumination LED
Global
Professional Lamps
Global
Automotive Lighting
ConsumerLifestyle
Lighting
1 Leadership is made up of outright leadership (outperforming the best competitor by >5%) and co-leadership (on par with best competitor, within 5%), globally or regionally
Global
Lighting Systems & Controls
AGENDAAGENDAAGENDAAGENDA
1. Philips introduction.2. Our journey of SSC: from internal to
external/hybrid3. Scope of services4. Evaluation of the first three years
8
4. Evaluation of the first three years5. Next steps
SBS Finance
Our History1998-> Philips established standalone SSC created in Bangkok(Thailand) for
Lighting sector. India setup SSC in Culcutta in 2001.
2002 Philips established multi sectors Shared service centers in Lodz(Poland), Chennai (India) and Bangkok (Thailand) for accounting work
2007 Shared service centers divested to a BPO
Confidential 9
2007 Global SBS Finance created (local captive centers)
2009 Transaction based pricing introduced
2009 Introduction of BPO model in Latin America
2010 Start of rule based controlling project
BPO
Why going captive initially and not directly to outsourcing?
• Philips had 3 key attributes required to be successful:
1. The know-how with prior experiences and knowledgeable staff
2. The presence in off-shore to provide support
3. The scale to generate enough savings (>500FTEs per
10
3. The scale to generate enough savings (>500FTEs per center)
• Strength of approach:
– Capture all the savings initially (but also all the costs)
– Avoid some initial risks of outsourcing• creating a partnership together with transition,
• internal buy-in during the migration from onshore to offshore SSC
Why in 2007?
• Key migrations were done and service centers were due to shrink because of process improvements
– Impact on staff career opportunities
– Cost are no longer optimized because of lower scale
BPO
11
– Cost are no longer optimized because of lower scale
• In a still maturing market with key players still positioning themselves, Philips saw an opportunity to create extra value by divesting the shared service centers.
• Transition risks are limited as Philips hands over a mature existing business (transformations are achieved, staff remains unchanged, governance model already in place, costs are competitive)
AGENDAAGENDAAGENDAAGENDA
1. Philips introduction.2. Our journey of SSC: from internal to
external/hybrid3. Scope of services4. Evaluation of the first three years
12
4. Evaluation of the first three years5. Next steps
SBS Finance
One Service Provider concept
Co
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In
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Re
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orp
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olo
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HC
O2C
P2P
Front Office
Philips
One face to the customer
3. Business Model
Confidential 13
Co
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In
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HC
LI
GM&S
R2R
P2P
(Back Office)
Harmonised processes (value chain)
SBS Finance
BPOSSC‘s
Service processes
RBCI&EB
“Judgement”Based
Controlling
Remains with the sectors
Analysis on sub
SBS FinanceScope of services
Confidential 14
“Rule Based”Controlling
Transactional Accounting
Analysis on sub process level will be the basis for a decision what to bring in scope
Must transfer to SBS F
Our Portfolio includes traditional Finance services but also Procurement and Compliance Mgt
Requisition ProcessingCatalogue ManagementAccounts PayableTravel Expenses & P-CardFreight PaymentsInter Company Accounts Payable
XXXX
XXXX
Procure To PayLocal
Regio
nal
Global
XX
XXXX
Confidential 15
CreditsAccounts Receivable and ApplicationCollectionsInter Company Accounts Receivable
Inter Company Accounts PayablePayment Services
General Accounting and ClosingFixed AssetsExternal ReportingTax AccountingTax Filing and ReportingStandard ReportingCompliance Management
XX
XXXX
XXXX
XX
XX
XXXX
XX
Invoice To Cash
Record To Report
XXXX
XX
SBS Finance
External recognition for our approach…
“The company’s (Philips) approach manifests several critical trends of world-class performance
in finance and shared services, as identified in
16
in finance and shared services, as identified in Hackett research.”
(Source: Hackett case study report on Philips, March 2008)
AGENDAAGENDAAGENDAAGENDA
1. Philips introduction.2. Our journey of SSC: from internal to
external/hybrid3. Scope of services4. Evaluation of the first three years
17
4. Evaluation of the first three years5. Next steps
• Further efficiencies: economies of scale across sectors
• Communication: the BPO contract requires one point of contact per country with
BPO.
• Scope compliance: more than 20% of the work that should be transferred to
SBS Finance
The 6 reasons why Philips decided to create a global SBS Finance organization
18
• Scope compliance: more than 20% of the work that should be transferred to
BPO is still done in the sectors.
• Harmonization: the speed to reach harmonized work instructions is too low.
• Innovation: together with the Finance Excellence Network we can implement
process innovations quicker.
• People: managing knowledge (including back ups) and career opportunities.
Our Vision
We want to be recognized as an excellent
provider of financial services to all Philips
businesses worldwide.
SBS Finance
Vision & Mission
19
Our Mission
We are a business focusing on customer
needs and delivering excellent quality and
sense and simplicity in financial services at
competitive prices to all Philips businesses.
• Depend on each other
Scope: execute the Shared Business Service Finance concept by bringing all transactional accounting into the SBS Finance front office (Philips) or back office (BPO), to be ready by mid 2010. In addition, provide attractive opportunities to our internal customers to migrate rule based controlling work to SBS Finance or BPO
• Delight customers
Customer satisfaction: achieve a high level of customer satisfaction by delivering quality and “sense and simplicity” services at competitive prices.
SBS FinanceOur strategy is linked to the 4 Philips values
20
• Deliver great results
Costs: support Philips in bringing the total Finance costs closer to benchmark targets by pursuing further efficiencies in our front office organizations, by actively migrating the appropriate activities to the low cost centers of BPO, by strongly driving innovation (together with the Finance Excellence Network, BPO and our customers) and through a high level of harmonization and automation.
• Develop people
People: offer a professional and customer oriented environment that provides solid career opportunities for (finance) professionals, but also safeguards essential (accounting) competencies within Philips.
BPO locations
Scope Compliance: close to 80 %
Customer satisfaction
The partnership with BPO is stable and working well
Confidential 21
�Lower cost
�Flexibility and cost variability
�Capacity for outsourcing scope expansion
�Improved service
�Improved BPO relationship management skills
�Leveraging technology
�Better staff retention and motivation
Compared with the initial outsourced objectives:
Savings 2008-2010
The 4 building blocks of SBS Finance
Increasing the efficiency within the standard scope;
De-bottlenecking and further automating processes
Completing the standard scope
Executing for accounting theagreed scope for BPO
Confidential 22
Broadening the scope
Substantial savings inaccounting and controllingby more aggressive outsourcing
Decreasing the BPO Charges
Adapt our way of working toreduce the BPO costs undertransaction based pricing
Harmonization of accounting processes
Results of assessments:
Why harmonisation in accounting:•Less complexity offers next step towards lower costs•less complex customer for BPO (better service/re-locations)•Facilitates faster process improvement
23
45% of processes is more orless harmonized
25% can be harmonized withsome effort
30% will take quitesome effort
Creation of harmonizedWork instructions
a. Impact analysisb. Harmonize if possible
SAP landscapeFiscal requirementsBusiness requirements
2009 2010
Harmonization Roadmap Overview
PROCESS
CHARTER
Framework
PROCESS
DOCUMENTATION
Documentation
Completeness
COMPLIANCE
Scope compliance
Process compliance
Compliance
IMPROVEMENTS
Scope and efficiency
Confidential24
Process Charter scope completeness
Document management
Quality assessment and improvement
Compliance reliability
Process compliance
Audits
Process improvement
AGENDAAGENDAAGENDAAGENDA
1. Philips introduction.2. Our journey of SSC: from internal to
external/hybrid3. Scope of services4. Evaluation of the first three years
25
4. Evaluation of the first three years5. Next steps
Our Strategy towards World Class
Initial Cost Level
Salary Arbitrage Savings
Process Improvement Savings
Current
Confidential 26
�Salary arbitrage is the quick gain for the first few years.
�Savings thereafter would need to come from process improvement initiatives.
�Go for costs, stay for quality
Future Cost Level
World Class
Accounting
Definition RBC:
•No/less face-to-face contact
with the business functions
needed and
•can be captured in work
instructions
•are of routine nature
requiring relatively little
business knowledge
Remains with sectors
BPO is already involved in rule based controlling work on a small scale
Increase Scope of Rule Based Controlling
“RuleBased”
Controlling
“Judgement”Based
Controlling
Present scope of SBSF / BPO
27
This model allows the controller to focus on core business activities and support business functions, e.g. sales,
production rather than transactional activities.
Judgement Based Activities
Rule Based Activities1
Transactional & Accounting Activities1
RB
C P
roje
ct
Sector SBSF BPO Sector SBSF BPO
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Execute
Execute
SBS-F’s role as an analyst How the RBC project will work: business model and scope
Business PartnerScorekeeper
RBC JBC
Analyst
BPO Local FinanceSBS-F
Accounting and controlling function
Move to Shared Service
Environment
Stay with the business
function
• BPO is performing the scorekeeper role which is highly repetitive and standardized
• The analyst function within SBS-F requires also a certain degree of business knowledge forming a value adding front-office function for business reporting and analysis.
• Local finance focuses on the added value part of controlling, requiring in-depth business knowledge building on the pre-work performed by the scorekeeper and the analyst.
28
The roles of finance function and its specializationBusiness skills
Business Partner
• Acts as business advisor, having the total business view
• Active support of commercial decisions• Takes ownership for and actively
manages the financial drivers of value
Analyst
• SBSF as commentator, explaining the business story in numbers and variances
• Support the sectors in their decisions, from a finance angle
SBSF Philips Sectors
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Process
Delivery
Finance skills
Direction
SettingCustodian• Role clearly focused on full scope rule
based accounting and controlling • Works with the business to ensure
compliance and effective controls• Custodian of assets and value
protection; leading the creation and maintenance of financial statements
• Ensure effective monitoring on BPO
Score Keeper• Role focused on repetitive work• Philips efforts to design and BPO to
execute on efficient transactional processes
• Providing standard reporting and analyses
SBSF
SBSF Philips Sectors
BPO
Recent research by Ernst & Young confirms Philips is a leading company in terms of shared services….
Confidential 3030