NASSCOM BPM Summit 2014: Master Clas: Business case development beyond cost savings - Bill Huber,...

‘Business Case Development Beyond Cost Savings”

Bill Huber, Managing Director, Alsbridge

NASSCOM - September 16, 2014

© 2014 Alsbridge Proprietary & Confidential

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The Alsbridge Difference

Pragmatic focus on expense reduction, not general management consulting

Independent—Alsbridge does not offer operation of services we source

“No divorce” track record for all agreements we have advised upon

Data-driven decisions using the industry’s most complete database

Engagements address over $5 billion in annual market spend

Chosen to World’s Best Outsourcing Advisors list by IAOP for past five years

More than 200 professionals with an average of 20 years industry experience

The Right People

Largest Provider Data

Integrated Services

PLAN

Transformation

Sourcing

Strategy

EXECUTE

Change

Management

Selection &

Negotiation

GOVERN

Vendor

Management

IT Asset

Management

ASSESS

BenchmarksOpportunity

Assessments

COST

REDUCTION

RISK

MITIGATION

BUSINESS

ENABLEMENT


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Bill Huber, Managing Director

Background Bill is a Managing Director with Alsbridge. Previously, he led IBM's Sourcing

Managed Services for its portfolio of more than 30 external customers. In this role

he had global responsibility for leading the client sourcing team comprising

consulting managers, sourcing consultants and global category strategy leaders.

Prior to IBM, Bill was a partner in ISG's (formerly TPI) BFSI Vertical and

responsible for both Business Development and Delivery of Strategic Advisory

Services. In this role, he focused on Business Advisory Services in the area of

SG&A and operational transformation and served as a trusted advisor to the world's

largest corporations.

Credentials Global responsibility for leading the client sourcing team for Managed Services

Led implementation and transformational initiatives in the areas of Information

Technology Outsourcing and Business Process Outsourcing.

Served as CPO for Wachovia.

Chairman of the Board of the International Association for Contract and

Commercial Management (IACCM)

Served for four years of the Board of Directors and was twice elected Chairman

of the Board of the International Association for Contract and Commercial

Management (IACCM)

Key Areas of

Expertise

Sourcing Strategies

Shared Services

International Contracting

IT Contracting

Contract Negotiations

Bill Huber,

Managing Director

Alsbridge, Inc.


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Introduction

The global BPM industry is fast shifting from a cost-based proposition to a

value-add proposition.

Next generation models such as Business Process as a Service (BPaaS),

cloud, analytics, and robotics are challenging the established paradigms of

sourcing.

The value proposition is generally related more to a benefit to the client

OTHER THAN reducing the cost of delivery.

As a result, existing BPM buyers are moving up the value chain and

increasingly seek to realign their BPM relationship to their next generation

imperatives and new world realties.

Unfortunately, there is not currently an industry standard approach to

estimating and managing the value beyond cost savings.

This has limited growth within BPO and should be addressed by the industry


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Examples of Value Based Capabilities Sourcing

Source to Pay BPO

• The value is derived from reducing third party spend through strategic sourcing, innovation in category management, and improved compliance tracking through workflow controls on transactional buying and analytics derived from accounts payable.

Inventory management and back-end product support

• Much of the value is derived through more effective controls and analysis, resulting in a reduction in necessary inventory levels, and better capture of product failure mode data, and more timely feedback to the manufacturing and product design process.

Risk management

• Improved tracking and analysis of key risk points results in better and more timely risk data, a mitigation of overall risk, reducing the frequency of costly incidents, loss of business and other costs of regulatory compliance.

Marketing Data

• Value is derived from more timely capture of marketing effectiveness data, enabling more timely adjustments to marketing and product strategies to improve revenue.


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Characteristics of Value-Based Capability

Sourcing

The client acquires a new or enhanced capability through sourcing

The cost of sourced services may be more than the client is currently spending

The sourced service relies heavily on a combination of analytics and automation with a basic transactional service, often in a BPaaS model.

There is an expectation of increasing automation over the life of the contract

The process controls associated with BPM enable a significantly higher quality of data capture, which helps to drive improved analytics, producing actionable insights to management

The benefits of the BPM may occur upstream or downstream from the in-scope process. These benefits can be top-line or bottom-line.

Realization of the value may be dependent upon the client acting upon the information and insights resulting from the BPM to achieve the value

A more holistic governance approach is required to realize the benefits, as vendor management is not sufficient to drive necessary actions within the Client organization.


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Typical BPO Business Case

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Total

NPV of Current Internal Run Rate, with

projected volume growth 10,000,000$ 10,500,000$ 11,025,000$ 11,576,250$ 12,155,063$ 12,762,816$ 68,019,128$

NPV of Necessary Investments to sustain run

rate (e.g. technology refresh) 500,000$ 300,000$ 800,000$

Base Case 10,000,000$ 10,500,000$ 11,525,000$ 11,576,250$ 12,455,063$ 12,762,816$ 68,819,128$

NPV of retained organization 6,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 16,000,000$

NPV of service provider run rate costs, with


Additional Governance Costs 500,000$ 500,000$ 500,000$ 500,000$ 500,000$ 500,000$ 3,000,000$

Run Rate Savings 500,000$ 2,000,000$ 2,905,000$ 2,833,850$ 3,587,815$ 3,768,223$ 15,594,887$ 23%

One Time Costs

Client HR One Time Expense 1,000,000$ 1,000,000$

Service Provider Transition Costs 1,000,000$ 1,000,000$

Client Transition Costs 1,000,000$ 1,000,000$

Transaction Expense 1,000,000$ 1,000,000$

Total One Time Costs 4,000,000$ 4,000,000$

Net Savings (3,500,000)$ 2,000,000$ 2,905,000$ 2,833,850$ 3,587,815$ 3,768,223$ 11,594,887$ 17%


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Business Case with Improved Upstream or

Downstream Process






Base Case 10,000,000$ 10,500,000$ 11,525,000$ 11,576,250$ 12,455,063$ 12,762,816$ 68,819,128$





Run Rate Savings 500,000$ 2,000,000$ 2,905,000$ 2,833,850$ 3,587,815$ 3,768,223$ 15,594,887$ 23%

One Time Costs






Net Operational Savings (Investment) (3,500,000)$ 2,000,000$ 2,905,000$ 2,833,850$ 3,587,815$ 3,768,223$ 11,594,887$ 17%

Run Rate Cost of Affected Area 1 10,000,000$ 10,500,000$ 11,025,000$ 11,576,250$ 12,155,063$ 12,762,816$ 68,019,128$

New Run Rate Cost of Affected Area 1 10,000,000$ 9,000,000$ 8,100,000$ 7,290,000$ 6,561,000$ 5,904,900$ 46,855,900$

Run Rate Savings of Affected Area 1 -$ 1,500,000$ 2,925,000$ 4,286,250$ 5,594,063$ 6,857,916$ 21,163,228$ 31%

Total Run Rate Savings 36,758,115$ 27%

Total Net Savings 32,758,115$ 24%


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Business Case with Investment in Core Process

but Impact to Upstream or Downstream Process






Base Case 10,000,000$ 10,500,000$ 11,525,000$ 11,576,250$ 12,455,063$ 12,762,816$ 68,819,128$





Run Rate Savings (1,000,000)$ (500,000)$ 355,000$ 232,850$ 934,795$ 1,062,142$ 1,084,787$ 2%

One Time Costs






Net Operational Savings (Investment) (5,000,000)$ (500,000)$ 355,000$ 232,850$ 934,795$ 1,062,142$ (2,915,213)$ -4%

Run Rate Cost of Affected Area 1 10,000,000$ 10,500,000$ 11,025,000$ 11,576,250$ 12,155,063$ 12,762,816$ 68,019,128$

New Run Rate Cost of Affected Area 1 10,000,000$ 9,000,000$ 8,100,000$ 7,290,000$ 6,561,000$ 5,904,900$ 46,855,900$

Run Rate Savings of Affected Area 1 -$ 1,500,000$ 2,925,000$ 4,286,250$ 5,594,063$ 6,857,916$ 21,163,228$ 31%

Total Run Rate Savings 22,248,015$ 16%

Total Net Savings 18,248,015$ 13%


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Calculating the Benefits

Upstream or downstream impact – effect of the core process change to

upstream or downstream volumes

Sourcing or procurement – effect to external spend

Inventory management – effect to cost of inventory

Risk Mitigation – (Baseline probability x dollar impact) – (mitigated probability

x dollar impact)

Revenue Enhancement – More complex but can work if structured

conservatively with no perceived windfall. Must work politically as well as

mathematically!


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Business Case Requirements

Determine Assumptions to be used by Client Finance Organization (cost of

capital, growth assumptions, hurdle rate, etc.)

Provide detailed visibility and granularity into assumptions on affected areas

• Detailed Baseline

• Assumptions

• Dependencies

• Formulas that will be used to Measure

• The Measurement Process

Be conservative to protect the perceived integrity of the business case.

Perception of “over optimism” cannot be easily reversed. Credibility is key!

Define the necessary contractual and governance frameworks to make it work.

• Value can only be achieved through executive cooperation between provider and client.


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Questions?

Bill Huber

Managing Director

[email protected]

(704) 806-3910

NASSCOM BPM Summit 2014: Master Clas: Business case development beyond cost savings - Bill Huber,...

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Transcript of NASSCOM BPM Summit 2014: Master Clas: Business case development beyond cost savings - Bill Huber,...