merck

ESS Face to Face

February 28th, 2005

Agenda

> Introduction

• ESS Organization Update

• IT Strategy Communication

> IT Shared Services - Hugh Sheridan

> Offshoring, Project SDI - Frank Vastano

> 2005 Objectives and Themes

> Merck News

ESS Shared Service ModelESS Shared Service Model

February 27th 2005

2005 Objectives

> Shared Services – IT:

• Complete the implementation of the IT shared services operating model including organizational design, service levels, operating procedures and funding model (4Q).

• Realize approximately $750k in operating expense savings through application co-location and the elimination of redundant activities (4Q). (Scope: Finance/HR Trans Systems, Owner/Plan: Sheridan, Establish Engineering/Ops capability: Piscitello, Id/Effect Opportunities: Lotier/Blair) – (stratmap intersection: OPEX/Internal Process)

Value Proposition

Economies of scale through common demand

and leveraged knowledge expertise

ValueProposition

2005 Plan

4Q053Q052Q051Q05Operating

ModelOrg Design, Processes, Governance, Service Levels, Funding Model

Application Co-location and Elimination of redundant activitiesSavings Opportunities

EZ-Expense Upgrade for USHHEZ-Expense

Upgrade for Corp

Restructure IT Support for PTP

PeopleSoft Payroll for US requirements, development and testing for 1Q06

US PeopleSoft time and labor implementation for US

MRL PeopleSoft time tracking supporting CLPA

Finance

HR

Integration with GI Shared ServicesGlobal

Infrastructure

HRIS Integration

Finance IS Integration

Implementation of Integration, Decision Support and IM Services

Global Consolidation Plan

Canada JDE Consolidation

Consolidation

ConsolidationGlobal Consolidation

Plan

Plan and Implementation of Integration, Decision Support and IM Shared ServicesNew Shared

Service

““If we succeed, how will we look to the corporation If we succeed, how will we look to the corporation as a whole?” (How will Merck assess our as a whole?” (How will Merck assess our

contribution to its success?) contribution to its success?)

Drive EfficienciesDrive EfficienciesManage Investment

Manage Investment

Strategic IT Focused

Use of Assets Optimized

Cost Structure Optimized

Cost Structure Optimized

High Value/High Return Initiatives

Focused

High Value/High Return Initiatives

Focused

IT Strategy Map Strategic End State

Financial Perspecti

ve

Internal Process

Perspective

Customer

Perspective

Organizational

CapabilitiesPerspective

DriveInnovation

Deliver Business Value

Operate with Excellence

Manage Risk

““To satisfy our customers and the corporation To satisfy our customers and the corporation as a whole, at which processes must we as a whole, at which processes must we

excel?”excel?”

““To achieve our vision, how must we look to our To achieve our vision, how must we look to our customers?” (How will our customers understand customers?” (How will our customers understand

our contribution?)our contribution?)

““To achieve our vision, what capabilities must we To achieve our vision, what capabilities must we put in place?”put in place?”

IntegralPartnerIntegralPartner

Business-Driven

Business-Driven

TrustedTrustedValue-Driven& Innovative

Worldwide Service Attributes

Cost-Effective

Cost-Effective

Quality FocusedQuality Focused

Predictable,Reliable &

Responsive

Predictable,Reliable &

Responsive

Relationship Image

Continuous Improvement

Breakthrough Opportunities

Regulatory &Compliance

End-to-EndServiceDelivery

End-to-EndServiceDelivery

Portfolio &GovernancePortfolio &

Governance

Architecture &Information

Management

Adaptability and DiversityAdaptability and Diversity

Leadership Engineering &Operational Discipline

Engineering &Operational Discipline

Business & Technical Acumen

Innovative Thinking

Strategy

Shared Services Benefits

Benefits Business Clients ESS

Budget Financial Savings Cost Efficiencies

Quality of service High Service Quality Reuse and Integration

Delivery time-to-market Time savings Time Efficiencies

Benefits

Benefits Realization

Financial Savings and cost efficiencies

Benefits

Year Activity Savings Status

2005 HRIS Integration 600K Completed

2005 Finance SLAs and SOPs 550K In Progress

2005 PeopleSoft Payroll Puerto Rico 100K In Progress

2005 JDE North America consolidation 300K In Progress

2005 Global JDE Licensing Optimization 200-400K In Progress

2005 Document Management Shared Services

300K Planned

2006 PeopleSoft Payroll US 500K Planned

2006 PeopleSoft Banyu integration 100K Planned

Organization Models (Industry Trends)

Basic Model Marketplace Model Advanced Market Place Model

Independent Business Model

* Consolidation of transactional and administrative work

* Includes professional and advisory services

* Client choice of supplier

* Separate business entity

* Focus on economies of scale

* Separates governance and service functions

* Market based pricing * Profit is retained

* Services charged out to recover fully loaded costs

* Services charged to recover fully loaded costs

* Possible external sales if surplus capacity

* Multiple organizations as customers

* Objective is to reduce costs and standardize processes

* Objective is to reduce costs and improve service quality

* Objective to provide clients choice of most cost effective supplier

* Objective is to generate revenue and profits for service company

Hybrid Approach

OrganizationModel

2007

ESS Professional Services Operating Model

ClientsESS

Shared ServicesAccount

ManagementProgram

Management

Integration Management Office

GIShared

Services

IT Shared Services

En

terp

rise

Arc

hit

ectu

reE

nte

rpri

se A

rch

itec

ture

En

terp

rise

Arc

hit

ectu

reE

nte

rpri

se A

rch

itec

ture

IT Process ManagementIT Process ManagementIT Process ManagementIT Process Management

Global InfrastructureGlobal InfrastructureGlobal InfrastructureGlobal InfrastructureESSESSESSESS

BusinessBusinessBusinessBusinessCorporate FunctionsCorporate Functions

Legal/PA ProcurementFinance HR

Business DivisionsBusiness Divisions

MRL MMD HH

Operating Model

De

fin

e &

Re

fin

eS

erv

ice

sD

efi

ne

& R

efi

ne

Se

rvic

es

Bu

ild

Se

rvic

es

Bu

ild

Se

rvic

es

Division ITDivision ITDivision ITDivision ITHHRIS A&IT

Architecture ServicesArchitecture Services

Corporate

Ru

n S

erv

ice

sR

un

Se

rvic

es

Manage GI StrategyManage GI Strategy

Su

pp

ort

Su

pp

ort

Re

lati

on

sh

ipM

an

ag

em

en

tR

ela

tio

ns

hip

Ma

na

ge

me

nt

Pro

g.

Mg

mt.

, E

ng

ine

eri

ng

&

Imp

lem

en

tati

on

Pro

g.

Mg

mt.

, E

ng

ine

eri

ng

&

Imp

lem

en

tati

onClient ServicesClient Services

Application Services

(Development & Maintenance)


(Development & Maintenance)

OrganizationModel

ESS Organization Structure

Information Management

Services


Architecture Services

Client Services

HR

Client Services

Finance, Global Procurement, Legal, IS & Public Affairs

ESS

Services

• Business Relationships• Account / Demand Management• Portfolio Management• Business analyst

• Business Relationships• Account / Demand Management• Portfolio Management• Business analyst

• Application and Information Architecture

• Architectural strategy and plan

• Project Management

• Application Engineering (inc web application & IM development)

•Application Support

• Service Management

• Policies & Procedures • Standards development • Usage guidelines• Training & Education• Enterprise IM requirements• IM Strategy and planning• Enterprise reference consultation• IM Innovation Consultation

• Financial management• Comm.• Human Resources Administration processes• Measurement and Reporting

OrganizationModel

Shared Service Model Services

Enterprise Information Management Services

Enterprise Client Services

ESS Architecture Services

Enterprise Application Services (Engineering and Support)

ESS Project Services

ESS Integration Services

External Shared Services

ESS Internal Shared Services

Enterprise Decision Support Services

Services

3Q05

In Progress

External Shared Service Definition

> Responsible for partnering with the relevant clients. This included participating in Strategic Planning process and aligning IT and client strategies, as well as supporting Portfolio management processes

> Responsible for development and rollout of information management strategies for Corporate and Business Divisions clients. This includes development of an “information management” culture, enabled by deployment of common standards, policies and procedures, usage guidelines, training and education

Services

Client Services Information Management Services

External Shared Service Definition

> Responsible for management, development and support of all new applications / enhancements. Applications include enterprise and corporate application, web based applications and information management products. Project Managers will be deployed to define, manage and deliver projects. Service Managers will provide specific product / service expertise and be responsible for delivery of service as defined in Service Level Agreements

> Responsible for providing consistent and reliable decision support reporting services to ensure the integrity, operability and availability of Merck’s information asset.

> Responsible for supporting the design and development of data warehouses and the necessary supporting data marts.

> Responsible for supporting the integration of Merck’s information across these data marts into the reporting solutions

Services

Application Services Decision Support Services

Internal Shared Service Definition

> Responsible for management of Application and Information Architecture. This will include developing a architectural strategy and plan in response to changes in business or functional strategies.

Responsible for providing policies, procedures, reusable assets and specific solutions in support of Merck’s enterprise integration needs.

Services

Architecture Services Integration Services

Internal Shared Service Definition

> Responsible for managing and deploying shared compliance, system testing, release management and resourcing (staffing) services to ESS Projects. Compliance will be monitored according to both regulatory and internal Merck requirements. Release Management is the coordination of the overall release of new technologies / functionalities. Resource Managers will “administratively” manage and deploy resources from a single resource pool. Deployment will be based on matching resource competency with client demand. Resource managers will not be responsible for formal staff (performance / development) management functions

Services

Project Services

Shared Services Next Steps

> Professional Services – Phase Two

> Enhanced Service Definitions

> Global Infrastructure Integration

> Detailed Consolidation Plans

Professional Services Implementation Team Members

> Bisschops, Marcel;

> Callahan, Brian T;

> D'Angelo, Dawn M.;

> Griggs, Ken;

> Hsi, Amy;

> Hsiou, Yu;

> Kamel, Sherif;

> Mure, Michael;

> Sa, Vilma;

> Schwab, Rosanne C

> Semanchik, Scott M.;

> Sheridan, Hugh

> Vastano, Frank L.;

Assess

Recommend

Enhance

PSM Implementation Team Meeting Outcome

> Assess education/skill relevant to role

> Invest in team building

> Capture lessons learned and develop action plans (continuous process

improvement)

> Define workflows by projects in relation to project size and roles

> Work with Global Infrastructure to strengthen integration points

> Build and leverage shared service capabilities (testing, PMO,…)

Proposed Development Team Structure

ESSClient

AM/PM

PM/Dev

ESSClient

AM/PM

PM

Architect

DevTeam

ESSClient

AM/PM

PM

Architect

DevTeam

TL

BA

X-Small Small Medium

GI GI GI

BA

DevTeam

TL

Proposed Development Team Structure

ESSClient

AM

PrgM Architect

DevTeam

TL

BA

Large Program

PMPMPM

DevTeam

TL

DevTeam

TL

GI

Proposed Operations Team Structure

ESSClient

PrM

OpsTeam

ArchitectGI

If You Have Questions About PSM

Talk to any of the PSM Reps

Enterprise Systems & Services (ESS)

IT Off-Shoring & Project SDI …

… How Does It Impact ESS?

February 28, 2005

Off-Shoring Project SDI

What Is Project SDI? What Is Project SDI?1

2

How Does SDI Support Career Development In ESS?

4 Project SDI Next Steps

How Does SDI Support The ESS PSM?

3

Merck’s Goals For Off-Shoring

Pharma Industry Is Getting Aggressive About Offshoring

Source:McKinsey research; expert interviews

Activities

• Applications for mainframe, AS/400, Lotus Notes, Domino, SAP

• Data management for clinical trials

• IT systems management

Location

• India

• India

Vendor

• Tata Consultancy Services (TCS)

• Satyam

Comments

• 400-700 FTEs in IT worldwide by beginning 2006

• Dedicated offshore development center

• Applications maintenance and development for select applications

• India • mPhasis

• Application management services

• India • Infosys

• mPhasis

• Dedicated offshore development center for application management

• Systems development, maintenance and support

• Montevideo (Uruguay)

• Tata Consultancy Services (TCS)


• India • Accenture

• Application development and maintenance • TBD • TBD

• 20 million of IT services • TBD • TBD

Top 10 Pharma - 1

Top 10 Pharma - 7

Top 10 Pharma - 5

Top 10 Pharma - 4

Top 10 Pharma - 2

Top 10 Pharma - 3

Top 10 Pharma - 6

Pharma Industry Leveraging IT Offshoring

Activities Offshored Location Operating Model

Source:Press research, expert interviews

• Application management India mPhasiS

• Dedicated offshore development center for Application management services

• Application

India Infosys

• Dedicated offshore development center

• Applications for mainframe, AS/400, Lotus Notes, Domino, SAP


India TCS

• Systems development, maintenance and outsourcing

Montevideo

(Uruguay)

TCS

• IT systems management India Satyam

Vendor

Outsourced

Outsourced

OutsourcedIndia mPhasiS

Outsourced

Outsourced

Outsourced

http://www.pfizer.com/main.html

http://www.jnj.com/index.jsp;jsessionid=PCNYPVRVYMDZ2CQPCCGSZOYKB2IIQNSC

Project SDI (Systems Development India)• A project team was appointed (Terry Jacklin, Fred Puelle, Nick Riccio, and Frank Vastano)

by the ISLT in November, 2004 to review work completed earlier in the year that identified opportunities to shift Merck IT spend to more strategic initiatives

• An approach was designed, with the help of McKinsey consultants, to focus on commodity activities that are being performed by contractors and project-based vendors

• An implementation plan was developed that properly balances savings realization and risks by setting forth an aggressive vendor selection timeline, but allowing sufficient time for knowledge transfer and dual operations

• Target spend was identified in ESS, USHH, MMD, and Infrastructure (DBAs) that could be offshored to realize $2.8 to 5.1 million of expense savings in 2005

• Nine vendors were engaged to bid on an RFP that was issued on January 10, 2005, which used a modular structure to enable the selection of 2-3 vendors for the initiative

• Vendor selection is targeted for March 7, 2005

Focus Of Current Effort

• Identified 2.8-5.1 in contractor expense savings

• Need to identify additional opportunities in this category

• Later we would look to expand into capital work

Capital Expense

Contractor

Employee

~100

Labor spend, $ Millions

~50

Focus to date

~90

~275

Additional opportunity to investigate

Approach For Identifying Off-Shoring Candidates

Division applications/ activities

Other IT activities supporting Division (e.g., DBAs)

>Project groups >Activity groups

>Project work

>Maintenance work

>“Filter” to identify offshorable projects

>“Filter” to identify offshorable activities

>Projects to offshore

>Activities to offshore

RFP Module Definition

>Module >ESS >USHH >MMD-A&IT>Infrastructure DBA >Total

FTEs

• Web Support: 4.5

• Web Dev: 16

20.5>Web Dev/ Support

• Project Charlotte: 20

• Sales Portfolio Testing: 30

50>Testing

• CIM: 6• EZ-Buy: 4• Finance: 3.2• HR: 16

29.2>ESS

• Helpdesk: 34 34>USHH Helpdesk

• Portfolio Applications Support: 60*

60*>USHH Support

• MMS Impact: 3

• QRIS – LIMS: 4

• DBA: 7 14>MMD/ Infrastructure

69.7 124 7 7 207.7Total

What Is Project SDI?1

2

How Does SDI Support Career Development In ESS?


How Does SDI Support The ESS PSM? How Does SDI Support The ESS PSM?

3


The ESS Professional Services Model

ESS Professional Services Roles:• Account Managers• Program Managers• Resource Managers

Account

Manager

ESS Centers Of Excellence

Technology Contractors

Other Merck Centers Of Excellence

Package Vendors

Offshore Vendors

Program Manager #1

Program Manager #2

• Budget Planning

• Day-To-Day Activities

• Organizational Support

• Large Capital Projects

• Small Projects (Capital Or Expense)

CLIENT

Concept Concept Requirements

Requirements Design Design

Construction Construction

Installation Installation

Operation Operation

Retirement Retirement

Project SDI

Candidate

Recent Activities1

2

How Does SDI Support Career Development In ESS? How Does SDI Support Career Development In ESS?


Current Vendor Ranking

3


Common Platform Organizational Transition (Phase I)Professional Services Model

(PSM)Portfolio Management Model

(PMM)Operational Support Common Platform Development

Grade 4

Grade 5

Grade 6

Grades 7-9

Grade 4

Grade 5

Grade 6

Grades 7-9

50%

30%

Concept & Requirements

Promotions

Contractors

Project SDI

Candidate

Common Platform Organizational Transition (Phase II)Professional Services Model

(PSM)Portfolio Management Model

(PMM)Operational Support Common Platform Development

Grade 4

Grade 5

Grade 6

Grades 7-9

Grade 4

Grade 5

Grade 6

Grades 7-9

Strategic Outsourcing

Design & Development

Project SDI

Candidate

Recent Activities1

2

Preliminary Financial Analysis

4 Project SDI Next Steps Project SDI Next Steps

Current Vendor Ranking

3


Project SDI Next Steps

> March 2, 2005 – Team Decision Meeting & Reference Calls

> March 3, 2005 – Recommendation Memo To Sponsors

> March 7, 2005 – Decision From Sponsors

> March 8, 2005 Thru March 9, 2005 – Prepare Vendor Communication

> March 10, 2005 Thru March 11, 2005 – Announce Decision To Vendors

> March 12, 2005 – Knowledge Transfer Phase Begins

2005 ESS Objectives & Themes2005 ESS Objectives & Themes

ESS 2005 Objectives and Themes

Deliver Business Value through IT Enabled Solutions Finance Transformation

Merck Production System

Common Platform

Integrated Talent Management and Global Compensation

MRL CLPA

Build and Create the ESS Global Shared Services Model Enterprise Document Management

Strategic Sourcing, Project SDI

ESS and GI Integrated Shared Services Model

Quality Assurance, Program Management, Metrics, Communication, Change Mgmt

Simplify and Standardize the Global IT Environment PeopleSoft – Banyu Integration, U.S. Payroll and Time/Labor

EZExpense Upgrade

Charlotte Technology Center

Six Sigma Production Environment

merck

Documents

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