Global Sourcing - HD class CBS

The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009

The Challenge from

Local to Global Development By Jens Brinksten


Agenda

Setting the scene

The phases

First investigation and milestone

Second investigation and milestone

Pilot project phase and third milestone

Partner phase and fourth milestone

SimCorp Ukraine LLC

Overall lesson learned and conclusions

Q & A


© 2009 IAOP® All Rights Reserved

Setting the scene…

My name is Jens Brinksten,

I hold an MBA and HD-R from CBS

I am currently CEO of Refugees United

I have been SVP in SimCorp A/S, CEO of SimCorp Ukraine, CEO of Ernst & Young

in Uzbekistan, Director of KPMS’s Consultancy & Financial Advisory Service in

Central Asia and Director of EBRD’s Post-privatisation Fund in Uzbekistan.

I founded the outsourcing firm TechOutSys and have worked for a number of big

Danish companies in outsourcing questions, such as SimCorp A/S

During the past 22 years I have worked in more than 20 countries and started up

operational companies and operations in 16 countries

I have worked with privatisation and globalisation since year 1990

I have lived outside Denmark more that 10 years, mainly in East Europe and

Central Asia




Who is SimCorp?

SimCorp develops and globally markets the investment management

system, SimCorp Dimension. Their product helps customers perform

the many tasks needed to stay ahead in today's international financial

markets.

The SimCorp product, SimCorp Dimension, meets the market's need

for an advanced system, which can exploit new technology and handle

complex transactions on a global scale. Since the customers, driven

by the need for continual efficiency gains, increasingly demand

integrated and flexible solutions, SimCorp's product is positioned to

exploit the growing market potential.




2001/02

First investigation phase

2001/02

First milestone

2004/05

Second investigation phase

2005

Second milestone

2005

Pilot project phase

2005

Third milestone

2005/07

Partner phase

2007

Fourth milestone

2007/08

SimCorp Ukraine LLC and ongoing…

The timeline which we will go through today...



First investigation phase – 2001/02

Motive

The major motive was to investigate the possibilities in outsourcing,

both external (potential partners) and internal (was SimCorp ready

to outsource), because the market in Denmark for qualified software

engineers became tighter, and SimCorp needed people for realizing

the company’s growth strategy.

Aim

Set up demands and try to investigate if there were potential

partners, who lived up to the expectations of SimCorp.

To test if SimCorp internally would be able to handle and cooperate

with a foreign partner in regard to product development.

Why?



First investigation phase – 2001/02

Preparation

Preparation of requirements to a partner profile and other external

conditions

Profile (solid firm, references, price level, experience with firms similar

to SimCorp)

Staff (English proficiency, communication skills in general, educational

level, etc.)

Managerial competencies (both top management and middle

management)

Security (person, access, data and data connection)

Logistic and infrastructure

Stability (country and politics)

If possible, knowledge of the programming language APL (very

specialized development language for financial application)

How/What?



First milestone - 2002

Execution

SimCorp’s visit to St. Petersburg, Russia – the biggest IT cluster in a

2-3 hours flight distance from Denmark – together with a

governmentally supported project, MindMatch (near-shore was a

pre-request)

There were discussions with the Russian IT industry organizations

and representatives from a number of companies

Additionally, there were arranged 5 “face to face” meetings and

visits to different potential partners in St. Petersburg during the

visits.

How/What?




Conclusion

After visiting St. Petersburg it was concluded that despite several of

companies lived up to a number of set criteria, no one was obviously

ready to a cooperation with a company like SimCorp.

Internally in SimCorp, it also gave a lot of resistance. People were

very skeptical regarding outsourcing and the possibilities for using

outsourcing in SimCorp, because of “their” highly specialized

product.

So at that time, SimCorp neither could find any suitable partners nor

was internally ready for an outsourcing “adventure”…

The outsourcing idea was put back on the shelf…

How/What?




Lesson learned

First “sell” the idea internally, before going out and investigating,

because if employees are not involved, then they react negatively

and against the idea…

Get the top management to support the idea strategically, so people

understand it will become a vital part of the company’s strategy…

Have a clear vision of the long-term strategy for outsourcing, so that

you can set up an overall plan and guideline for the project, including

exit strategy, etc.

Be ready to say NO… and turn down the project

How/What?



Second investigation phase – 2004/05

Motive

After a couple of years, it became obvious for SimCorp, that the

company needed external resources, because it became very

difficult to find and hire qualified people in Denmark.

Aim

SimCorp hired a small consultancy firm, specializing in IT offshore

outsourcing, to perform a qualified investigation, and through these

findings establish a knowledge basis for making final decision of,

whether SimCorp should try out outsourcing as a business model for

expanding development capacity.

Why?




Preparation

Similar to the first investigation, but this time

also with focus on long term availability of

resources (universities, etc.)

Investigation of more countries (geopolitical

investigation, cultural evaluation, etc.), so a

more comprehensive evaluation could be done

for overall conclusions

Focus on infrastructure and security

Internal readiness in SimCorp was ensured

through information meetings and establishment

of focus groups

Near-shore region

Countries

Cities/

clusters

Firms

How/Where?




Execution

Country investigation

Visit to and investigation of 4 countries,

which were selected based on a set of

criteria, put forward by a steering committee

An overall “ideal” country profile was

prepared for evaluation

2 countries were selected for closer

assessment (Lithuania and Ukraine).

Ukraine got priority, because of better long-

term conditions i.e. availability of technical

universities and national mentality (pro-west)

Russia/Bulgaria

Ukraine/Lithuania

Lithuania/

Ukraine

UKRAINE

How/Where?




Execution

Potential partner investigation

Visit to Ukraine, and selection of 8 potential

vendors

Preparing an overall partner profile

Special requirements regarding knowledge and

willingness to special education (APL and financial

understanding, incl. high level of English)

Selection of 3 vendors for Due Diligence. Two

were selected and presented for a MoU. One

vendor withdrew, and one vendor accepted

starting up a pilot-project

One more firm was selected as a second test firm

for a pilot and accepted the MoU

8 firms

3 firms

1 + 1 firm

How/Whom?



Second milestone - 2005

Conclusion

It is very important to evaluate the potential country with the long

term prospective in mind

In regard to potential partners, you should NOT go on compromises

with your demands (have a good gut feeling…)

One should set up very clear terms to the potential partners and the

cooperation agreement, including expected future contractual terms

for the entire intended cooperation process, in first hand develop a

MoU for the pilot period

SimCorp spoke with managers, but also interviewed team leaders

and business analysts from the potential partner firms, so SimCorp

got an better idea of the competence level during the Due Diligence

process

How/Where?



Second milestone - 2005

Conclusion

Focus areas (all parts of a MoU)

Pre-conditions to the partner and the employees involved in the start up

phase, including cost- and risk-sharing, which gives motivation…

How do SimCorp end this fast and easy for both parties, if the pilot does

not work out as expected

Conditions in connection to running the operation, incl. staff

specification, staff turn-over, educational level, special expected

training, costs sharing for training, roles and responsibilities, etc.

Exit conditions and future growth opportunities

SimCorp was here looking for JV possibilities, both as a potential

umbrella for a bigger setup, but also as a “carrot” for the partners

Internally, SimCorp management considered the possibility to

establish an own setup in the longer perspective…

How/Where?



Pilot project phase – 2005

Start-up of pilot project

There are hired staff to the project and they are checked by

SimCorp and several are replaced (if more then 20% are rejected or

replaced, then the partner should cover the costs for replacements)

The first training takes place in SimCorp’s premises in Copenhagen

Secure Citrix connection is established and SimCorp gets own

secure rooms at the partners’ premises

Overall communication is tested and started up, so management in

SimCorp can follow the pilot project

Pilot plan is set up together with key milestones and objectives

How?



Pilot project phase – 2005

Lesson learned

You need to be very clear in your wishes and demands in the MoU

Get everything in a written form (MoU)

Think through the whole process from start to end, so the contract

between you and your partner foresees all potential scenarios

(contingencies) in the cooperation process

Be ready to close the project (milestones), if it does not work out!

Keep your internal organization informed about every step in the

process, so they understand the expected steps

Establish a steering group with participants from all internally

involved parties. Appoint a Project Manager for being overall

responsible for the project…

Have a clear mind about the next steps…

How?



Third milestone - 2005

The pilot projects are finished with satisfactory results, and it is

decided to continue full-scale cooperation with both pilot companies

The resources in the project will be incorporated in the overall

development strategy of SimCorp, which requires much more training

and knowledge transfer about SimCorp and SimCorp Dimension.

A contract (Cooperation Agreement) is signed, with focus on a long

term relationship (based on the MoU), but covers areas such as:

Selection of all staff

Training, staff development, special APL and financial training, etc.

Organizational setup, so it fit into the SimCorp organization

Security of premises

Equipment, etc.

Bonus, salaries, benefits, promotions, etc.

How?



Partner phase – 2005

SimCorp expatriates a full-time Project Manager to Kiev

SimCorp starts up an educational program for the outsourcing staff

(SimCorp Academy), which covers deep financial knowledge and

technical knowledge used in SimCorp Dimension

Measurement of productivity is started, so the resources can be

compared to all other SimCorp staff

Two more full-time employees are expatriated to Kiev, as trainers

and coaches

The offshoring development capacity is gradually increased to

around 45 to 50 people (both developers and testers)

English training is intensified, for better communication

Involvement of as much Danish staff as possible on all levels, for

getting more acceptance in the organization

How/Operation?



Partner phase – 2005/07

Conclusion

The training and development of the staff goes well and the

knowledge and skills level increases

The productivity increases

But Ukrainian staff are very young and inexperienced, both

professionally and personally, so the maturity sometimes does not

follow the norms in SimCorp

SimCorp invests app. € 20.000 in each employee during the first 18

months in training, development competences and knowledge

sharing (travels, courses, training, etc.), which all is needed for

being a part of the development organization in SimCorp

The project can be evaluated as a “success story” for SimCorp,

even that there is still some resistance in the home organization

How/Operation?



Partner phase – 2005/07

Lesson learned

Project Management needs involvement of senior employees,

because by sending inexperienced staff with such a mission neither

will earn respect of partners nor that of home employees…

Offshore outsourcing is not cheap, requires a lot of resources, both

in terms of investments and hours from internal staff…

A lot of training and effective knowledge-sharing is a key to success

with a complex product as SimCorp’s

Again contracts (Cooperation Agreement) are the key to success!

Communication on all levels is a crucial element of the overall

success, because this is the only way everybody learns to accept

each other as persons and professionals

How/Operation?



Fourth milestone - 2007

The setup in Kiev reaches a critical mass level, where it becomes

strong enough to be integrated in the full development cycle in

SimCorp, but there are some constraints:

If developers should work with client data, they need to be fulltime employees of

SimCorp according to client contracts.

It is the aim to give all people who work for SimCorp the same basic working

conditions and benefits…

With other words… How to secure SimCorp’s investment in people and

knowledge and still promote and develop the setup in Kiev?

According to the existing contracts SimCorp consider the opportunity

to establish JV with the existing partners

Would it be possible to retain existing staff?

Would it be possible to move around on Kiev staff, if it is not a 100% owned

company?

Contractual obligations to clients, etc.

How/Operation – Next step - Transformation?



Fourth milestone - 2007

With all the question marks in mind, and the wish to “run” the

operations on 100%, it is decided to establish a wholly owned

subsidiary in Kiev

Because it is not considered to be sufficient enough to cover security clauses

regarding client data in SimCorp client contracts, if it is not a 100% owned

subsidiary

It will be easier to make decisions and form the offshoring development capacity

as an integrated SimCorp company

It will be easier to implement all normal SimCorp staff benefits in a 100% owned

subsidiary

Retention of staff would hopefully become easier, and the acceptance of Ukraine

staff in the total organization should be improved

Finally, this is a decision, which is made because of positive results

and experiences!




SimCorp Ukraine LLC – 2007/08

Transfer of staff

SimCorp starts up the negotiations regarding moving existing

partner employees into a SimCorp owned company…

SimCorp divided the employees into two groups, A) Senior important people with

key knowledge and skills, B) Other qualified people

The negotiations are, of course, focused on the lost revenue for the partners,

and here it is agreed to have a transition period of 18 months, which means the

employees will stay as consultants in 18 months, where SimCorp would pay for

them as for partner employees

The above mentioned 18 months period is also considered as a trial period for all

B-employees. A-employees are “taken over” already from the establishment of

the new company.

There is also set a final take-over price for the employees, which is only paid, if

the employees pass the 18 months trial period with satisfactory results

There are made a number of different agreements regarding HR support, etc.

Today all Ukrainian resources are SimCorp employees




SimCorp Ukraine LLC – 2007/08

SimCorp starts the establishment of a subsidiary in Kiev (LLC)

SimCorp hires a professional management to the company

The long establishment process starts in October 2007 and by

February 2008 the new company is more or less established with

the office space (planned to 150 people), furniture, internet

connections, IT equipment, etc.

Next step is to establish all administrative functions in the company,

including HR, Finance and Administration, internal IT support, etc.

In March 2008, the major establishment is finished and the company

starts working as an integrated daughter company of SimCorp.




SimCorp Ukraine LLC – Today

SimCorp have of course experienced a number of challenges since

the establishment of SimCorp Ukraine LLC, such as:

Discipline problems with employees, which came from the original outsourcing

project (here SimCorp have had to say goodbye to several people)

Infrastructure problems (bandwidth)

Communication challenges (SimCorp have now installed 2 video conference

rooms) and SimCorp have increased English training

Acceptance problems between “old” SimCorp employees and Kiev-based

employees

Level of local management and management skills (here SimCorp have enforced

special management training for Kiev-based managers)

Team building of employees “taken-over” from the two partners, and those hired

directly to the new company is not always easy

All administrative areas in relation to employees, authorities, technical setup,

building, etc., etc.

Operation?



SimCorp Ukraine LLC – Today

SimCorp Ukraine LLC today

Since establishment in February 2008 SimCorp hired more than 70 people and

performed 3 SimCorp Academies, and SimCorp are still growing

Have increased productivity with around 50% (have around 35% of the total

production of code in SimCorp)

Have lowed the cost per employee in Kiev with around 3.600 EURO per year,

which on a yearly basis gives a cost saving of 432.000 EURO since the own

subsidiary start up and compared with the costs in the past

The turnover of people has fallen drastically, and it is not just because of the

financial and economical crisis…

Operation?




Overall lesson learned

Key elements in a successful outsourcing and insourcing:

Management and decision wise:

Thorough investigation and preparation

Clear goals regarding demands, profile of partners and external

conditions

Clear milestones and evaluation points

Ability and courage to say STOP and NO

The project should be approved and supported from the top

management, and it should be clearly communicated that it is a

company’s goal to succeed

Clear long term overall company strategy

Constant communication to all involved parties (internal and

external)

Operation?





Contractual wise:

Prepare always either a LoI (letter of intention) or MoU in the

preliminary phase, when you start up a corporation, so all involved

parties no the conditions for the corporation

Think through the whole expected scenario from the first contact to

the exit (both in case of unsuccessful and successful exit)

Focus on all potential ways of continuing the project both with or

without the selected partner/partners

Setup terms and conditions for staff in case of changes in the

cooperation (remember the staff carry the investment element,

because of training and knowledge transfer, etc.), how can SimCorp

get them to stay with the project or company, etc.

Operation?





Other learning points:

Outsourcing vendors’ commitment then to fall during the

cooperation period, because they get new clients and new focus

areas, make sure you keep their focus on YOU!

Use experienced project managers, with extensive knowledge and

understanding of culture and local management skills

It is “easy to be popular, but difficult to be respected” in many

countries as a foreign manager…

Keep regular follow up meetings and have clear measurement

points and milestones (steering committee, reporting, evaluations,

etc.)

When all involved parties operate in 2nd languages, then there are

huge possibilities for misunderstanding and mistakes

Operation?




Conclusion

Planning and a clear view of the total expected operation on both

short and long term is a key to success

Good preparations and preparatory work pays off

The contractual framework should be thought well through, with all

possible scenarios

You can not use standard contracts in a full-scale and long-term

outsourcing/insourcing operation, as there are no standards, which

cover all potential scenarios…

Involve experienced people from day one and do not “just” select

the one who wants or a “rookie”, because in the long run it is very

expensive and will give extra “challenges” and problems..

Remember the 3 T’s – “Things Take Time” – it is a key point to

remember, if you want to operate in outsourcing...

Operation?

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