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TM OBTransformation.com. C-Level Trends of Note ISSUES OF NOTE Funding New Business Entering New Markets Globalization REQUIRES Innovation Flexibility.

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Presentation on theme: "TM OBTransformation.com. C-Level Trends of Note ISSUES OF NOTE Funding New Business Entering New Markets Globalization REQUIRES Innovation Flexibility."— Presentation transcript:

1 TM OBTransformation.com

2 C-Level Trends of Note ISSUES OF NOTE Funding New Business Entering New Markets Globalization REQUIRES Innovation Flexibility Responsiveness CHALLENGE Transforming Significant Investments in IT and Business Processes Funding the Transformation

3 Challenge Economic value and measurement Innovation as a means to growth Business agility and responsiveness to change Responsiveness to market and company goals Quality service and delivery for both external and internal customers. Take significant investments in IT and business processes and transform them to provide:

4 C-Level Trends of Note ISSUES OF NOTE Funding New Business Entering New Markets Globalization REQUIRES Innovation Flexibility Responsiveness CHALLENGE Transforming Significant Investments in IT and Business Processes Funding the Transformation Limited Capital Available

5 Providers Trends of Note DESIRE Win Transformation Business Grow MARKET DYNAMICS Extremely Competitive Little Differentiation Cash Generating CHALLENGE Differentiate Offerings Maintain Margin

6 Providers Trends of Note DESIRE Win Transformation Business Grow MARKET DYNAMICS Extremely Competitive Little Differentiation Cash Generating CHALLENGE Differentiate Offerings Maintain Margin Leverage cash to differentiate and win new business

7 Value Alignment Time & Materials Pay on Performance Pay Per Utilization Transaction - Based Pay on Results Fixed Price Incentive Based - Gainsharing Incentive Based – Business Performance Benefits Funding Carve Out Shared Risk/Reward Resource Pool Rewards Based Investment Based Consumption Based Performance Based Partnership Maturity Model Equity Based CHOOSE HERE NOT HERE Copyright Michael Filak 2008 Partners should be chosen on the basis of what economic value and alignment they can bring

8 Redefine Sourcing Partnerships Partner absorbs some of the investment costs Ensure alignment Allocate risk to partners best positioned to neutralize the risk The cost of capital for software projects undertaken by companies who own the projects outcomes are much lower than for the peer projects undertaken by companies for hire A provider who has real skin in the game is likelier to deliver as promised than an equally expert provider who doesnt Company receives Reduction in Upfront Cash Requirement Reduced Risk Higher ROI More Transformation for the Same Amount of Budget

9 How It Works Apply specific methodology for agreeing on and tracking project milestones and outcomes Normalized license and margin deferral clauses Investment Equity/JV Provider is an execution agent whose fees are partially deferred until, and/or contingent upon project milestones and/or project outcomes Provider is a contributing provider of funds for project financing, and an owner of a part of resulting cash flows Provider is a legal co- founder and co-owner of an income-generating entity Establish new legal entity with investments from clients and Provider Establish all required Accounting, Reporting, HR, etc. procedures Establish management structures, etc. Create new/ modify existing set of internal account procedures to obtain internal P&L tracking actual financial performance of transformed process Supplement management structures as needed Rewards

10 Isolate a project or group of projects that can be tied directly to business-based KPIs Determine funding requirements and develop a business plan (modeling of expected returns) Determine project financing options Create a sharing mechanism that gives the funder an acceptable return Agree upon appropriate contract terms ProviderClient Funds Project 1Project 2Project N Opportunity Thesis Returns

11 Where It Works - Examples New Product Development – Universal/ Time Warner New Geographies – RChina Transformation/Lower TCO – CA Procurement And…..

12 Investment targeting returns of unlevered ROI of greater than 25% Operational savings in the range of 15% - 20% annually – direct impact to EPS Cash generated to provide fund strategic projects and initiatives. Positive impact on the balance sheet. Process performs more effectively than previously. Newco Co-Ownership Provider Anchor Client Business Process Services Agreement Customer 1Customer 2Customer N PE Services Fees Equity Carve Out

13 Examples Genpact EXL

14 Mutually Beneficial Benefit Meaningful reduction in CAPEX through partners who invest in your transformation More projects for the same budget Measured economic value and performance Reduced risk of transformation execution Outcome-based fee structure Differentiation Win new business Utilizing capital effectively Investment protects margin ClientProvider Alignment


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