Building a World-Class Organization World-Class Defined Building a World-Class Organization NASC National Conference – Denver Colorado By: Penny Weller, Senior Director The Hackett Group March 2008

Agenda World-Class Defined and The Hackett Group Role of Shared Services – why so many organizations have gone this way Trends in Shared Services

World-Class Defined

Hackett Value Grid™ − the foundation for how Hackett defines world-class performance Hackett Value Grid™ (Finance example) EFFECTIVENESS Industry relative total excess return Operating profit volatility Cost of capital Days sales outstanding Days payables outstanding Days Inventory on-hand Quality metrics Accuracy of forecasts and analysis Functional role in strategic decision making Percent of time analytic focus in on proactive decision making EFFICIENCY Overall function cost as a % of revenue Process cost as a % of revenue Technology cost per function FTE Staffing levels by process Cycle times and iterations Unit cost of transactions Utilization of self-service for inquiry Application complexity Automation of transactions Reliance on spreadsheets Percent of business reports distributed electronically

Unique process taxonomy spans SG&A multiple functions across 59 process groups Procurement Supply Data Management Requisition & PO Processing Supplier Scheduling Receipt Processing Compliance Management Customer Management Sourcing Execution Supplier Management & Development Function Strategy & Performance Management Sourcing & Supply Base Strategy Function Management Finance Cash disbursements Revenue cycle Accounting and external reporting Tax management Treasury management Compliance Management Planning & Performance Management Business Analysis Function Management Human Resources Total Rewards Administration Payroll Services Data Management, Reporting & Compliance Staffing Services Workforce Development Services Organizational Effectiveness Total Rewards Planning Strategic Workforce Planning Function Management Information Technology Infrastructure Management End User Support Infrastructure Development Application Maintenance Application Development & Implementation Quality Assurance Risk Management IT Business Planning Enterprise Architecture Planning Emerging Technologies Function Management Hackett’s taxonomy ensures an apples-to-apples comparison

Hackett insights are based on work with 2,700 of the world’s leading companies 97% of the Dow Jones Industrials 73% of the Fortune 100 88% of the Dow Jones Global Titans 73% of the DAX 30 45% of the FTSE 100

Does being World-class matter? $6.3 million in savings per $1 billion of revenue $1.7 million in savings per 10,000 employees $1.9 million in cost savings per $1 billion of spend World-class are investing more in IT Median 1.24% 51% Median 1,995 9% Median 0.82% 23% 5% $9,198 WC $8,701 Median WC 1,822 WC 0.63% WC 0.61% Overall Finance cost as a % of revenue Overall HR cost per employee Overall Procurement cost as a % of spend Overall IT cost per end user AND IS THERE A DIFFERENCE IN THE PERFORMANCE OF WORLD CLASS FIRMS VS THE AVERAGE COMPANY – YOU BET THERE IS COSTS RANGE FROM 13 – 45% LOWER AT THESE FIRMS WITH THE EXCEPTION OF IT – WHERE WE FIND WORLD CLASS FIRMS ACTUALLY SPENDING SLIGHTLY MORE AND KEEP IN MIND – THESE ARE WORLD CLASS FIRMS WHICH MEANS THEY DIDN’T GET HERE ON COST ALONE – THEY HAD TO BE PERFORMING AT THE UPPER QUARTILE ON EFFECTIVENESS AS WELL SO WHAT DOES THIS MEAN – WHAT WE SEE IS THAT WC FIRMS ARE SPENDING PRODUCTIVELY IN TECHNOLOGY WHICH IS ENABLING THEM TO DRIVE PERFORMANCE ACROSS THEIR OTHER FUNCTIONS Hackett 2007 Functional Performance Data - Select SG&A Functions What are your performance improvement opportunities? 2007 Finance Benchmark

Key Focus Areas for Finance

World-class Finance organizations continue to differentiate themselves from the peer group Finance cost as a percent of revenue ERP implementation Beginnings of shared services Shift from mainframe to client server Refinement of shared services Advent of web and self service Data warehousing increasing Maturing shared services Globalization Increasing focus on planning and analysis Sarbanes-Oxley 2007 Finance Benchmark

Finance is being transformed….. Traditional Finance Emerging Finance Transactional services Analytical services Analytical services Process & Technology Enablers Traditional Shared Services Transactional services Focus – Managing The Numbers Focus – Managing The Business

With decision support processes being added to the mix, a new chapter is being written in the history of shared services Historically, the shared services story has essentially been the consolidation of transactional processes That story is changing; increasing numbers of companies are moving higher-value finance processes, such as performance reporting and business analysis, into shared services organizations Moving activities performed in shared services further up the value chain is a core element of the emerging finance delivery model 2007 BOOK OF NUMBERS™ Research Series: Performance Metrics and Practices of World-Class Finance Organizations

Finance Shared Services 12

“The secret of world-class companies’ success—basically, their ability to do more with less—lies in getting the mix right: streamlining processes, embedding controls within the processes, reducing or eliminating manual handoffs, and leveraging the functionality of technology are essential to driving lower error rates and lower overall costs.” Profile of World-Class Finance

What is Shared Services? (Definition) Shared Services is an approach (operating model) used by companies around the globe to organize and deliver internal support services more efficiently and effectively. It generally involves removing work activities from business units, and standardizing & consolidating the way in which those services are delivered to provide value to the business units in the form of reduced overall G&A costs and increased service performance. 14

World-Class Finance Shared Services Customers Employees Business Units Suppliers Strategic Alignment/ Partnering People/Organization Shared Services Operations Customer to Cash Hire to Retire Account to Report Procure To Pay Process Technology Technology Leverage

Process Management & Technology Leverage Offshoring Outsourcing Many have achieved initial success - what’s next – expanding scope & geographies -- how to be ‘virtual’ – process, technology or sourcing Expanding scope of services Expanding geographies Global hubs Regional centers Competency centers World-Class Next Quantum Leap? Quantum Leap Forward Virtualization ‘location neutral’ Process Management & Technology Leverage Offshoring Outsourcing Standardize Centralize

Key shared services’ operating principles Benefits primarily from “economies of scale” and standardization Shares resources and costs across business units Provides process or knowledge-based services Operates with a “business mentality” Uses contractual arrangements (SLAs) to define service level and responsibilities Embraces metrics to sustain contribution; typically including internal charging to drive desired performance Uses an end-to-end approach to ensure the entire process is optimized

Shared Services Combines the Benefits of Both Centralized and Decentralized Operations Lean, Flat Organization Remote from Business Variable Standards Independent of Business Common Systems & Support Business Unit Maintains Control of Decisions Unresponsive Different Control Environments Synergies Consistent Standards & Controls No Business Unit Control of Central Overhead Responsive to Client Needs Higher Costs Economies of Scale Greater Visibility Inflexible to Business Unit Needs Duplication of Effort Dissemination of Best Practices Companies impacted by regulations like Sarbanes Oxley see many benefits from shared services

Shared Services so much more than “centralization”… Business Unit – Corporate Centralized Processing Shared Services Supplier/Partner Business Value Service Provider Allegiance to Customers Pooled Resources Economies of Scale Shared Measures and Rewards “How Can I Help?” Accountability Two-way Responsibility Metric-Centric Passion for Process Management Staff Cost Center Controls Functional Specialist Allegiance to Departments Functional Organization Boxes Bureaucracy “My Job Performance” “Not My Job” Entitlement Up the Ladder One-way Feedback Maturity

World-class organizations use shared services to a greater extent in many processes Shared service utilization Source: Hackett SG&A Benchmark Population 2007 20

Shared Services enables world-class performance 60% Less Transactional Processing Staff 63% Fewer Errors in Billing 38% More Training Error Rates Transaction Processing Staff Hours of Training Finance 5% More Technology Investment 100% More Mature Balanced Scorecard Programs Peer group World-class Technology Spend Balanced Scorecard

Shared services decisions “Functional Analysis” How am I performing compared to peers? Develop the business case well enough to achieve executive and business unit support “Location Assessment” What location best meets my organization today and into the future? “Insource or Outsource” Should I implement a shared services strategy with my internal team or partner with an outside organization? “Size of the Prize” How big is the Opportunity from Shared Services? “Process Transformation” How do I design my processes to take advantage of best practices? How to measure success? KPIs, Scorecards

World-Class Finance Shared Services How to transition more easily…five key areas

Tools with the Highest Optimization Effect 2007 Finance Shared Services Performance Study

Finance Shared Services – Savings without a formal continuous improvement process and culture in place Planned Achieved Percentage represent overall companies (101 companies) 69% of SSOs plan to save 20% or more costs 46% of SSOs have saved 20% or more costs >60% 41 to 60% 21 to 40% 11 to 20% 1 to 10% No Change

Finance Shared Services – Savings with formal continuous improvement process and culture in place Planned Achieved Percentage represent overall companies (101 companies) 77% of SSOs plan to save 20% or more costs 81% of SSOs have saved 20% or more costs >60% 41 to 60% 21 to 40% 11 to 20% 1 to 10% No Change

World-class shared services Leadership support and execution Passion around process Customer respect Sourcing and technology People-driven culture

1. Leadership support and execution Project plan accepted at the top Walk the talk don’t “back down” acknowledge as a key initiative Build “tension” – stretch goals Performance gaps Make the “tough” decisions Sense of urgency Assign “stars” – transformation team, global process owners

2. Passion around process Metric-centric: (scorecards, strategy maps) Quality, Cost, Delivery Benchmark externally End-to-end process design Value ideas and creativity Quick wins! Continuous improvement 6 Sigma, LEAN, Baldrige Activity based management Directionally correct? Quality In addition, almost 250 members have leveraged Hackett Advisors for continuous advice in their improvement initiatives. These clients are members of our Business Advisory Services, receiving monthly research, Advisor Inquiry and participation in Peer Learning events. Time

With Quality Program - Lower Accounts Payable Cost Process Cost per invoice $4.30 38% $2.68 Without Quality Program With Quality Program Source Hackett Process Benchmark Research

Achieve greater cost savings and quality improvements Achieve 40% or greater reduction in process cost Achieve 40% or greater improvement in quality output 24.0% 20.0% 51% 37% 12.6% 11.8% Without Quality Program With Quality Program Without Quality Program With Quality Program Source Hackett Process Benchmark Research

End-to-end process design Organization appoints global end-to-end process owners within shared services who have responsibility for process standardization and process direction on a global basis develop targets accountable for process measure success

3. Customer respect – internal partnerships Market the center – clear messaging Connections – integrate with other initiatives and teams, customer councils, governance Invite self and promote contributions Alignment of functional priorities with business Customer surveys – leader involvement Complaints are gift In addition, almost 250 members have leveraged Hackett Advisors for continuous advice in their improvement initiatives. These clients are members of our Business Advisory Services, receiving monthly research, Advisor Inquiry and participation in Peer Learning events. Voice of the Customer

Organizations utilizing Service Level Agreements (SLAs) have lower costs per transaction Accounts Payable Cost per invoice (1st Quartile) Travel Expense Cost per record (1st Quartile) $6.03 $1.56 72% $1.68 44% $.87 REMOVED “IN AP AND TRAVEL EXPENSE” <20% SLA Utilization >60% SLA Utilization <20% SLA Utilization >60% SLA Utilization Source Hackett Process Benchmark Research 34

4. Sourcing and technology Focus on reducing business complexity Alignment of functional priorities with business Leveraging ROI on technology for both transaction processing as well as information access In addition, almost 250 members have leveraged Hackett Advisors for continuous advice in their improvement initiatives. These clients are members of our Business Advisory Services, receiving monthly research, Advisor Inquiry and participation in Peer Learning events.

5. People-driven culture Clear purpose and mission Engagement Create the culture Encourage risk taking Celebrate success Formal change management Formal process management Metrics that focus on desired behaviors – performance Commitment to invest in people In addition, almost 250 members have leveraged Hackett Advisors for continuous advice in their improvement initiatives. These clients are members of our Business Advisory Services, receiving monthly research, Advisor Inquiry and participation in Peer Learning events.

Change management Formal change management process in place to include activities like ensuring major process changes agreed to with customers before implementation Too often, an SSC thinks they know what their customers want or how best to provide services.

Change management 26,667 12.0 8.83 26% 79% 5,461 Without Change Travel Expense Reports per FTE (1st Quartile) Span of Control Accounts Payable (Median) 26,667 12.0 8.83 26% 79% 5,461 Without Change Management Program With Change Management Program Without Change Management Program With Change Management Program Source Hackett Process Benchmark Research

Hackett Finance Shared Service Advisory Members Services provided                                                                                                                                                                                                                          2007 Finance Advisory Membership 39

Hackett Finance Shared Services Advisory Members Services provided                                                                                                                                                                                                                          2007 Finance Advisory Membership 40

2007 Finance Shared Services Performance Results 41

The Hackett Value GridTM Although this is a sample, each dot on The Hackett Value Grid will represent organizations that participated in the 2007 Performance Study. The star will represent your organization and indicate how it compares in the areas of efficiency and effectiveness to the other participants. EFFECTIVENESS Partnership Quality Talent Management EFFICIENCY Cost Cycle Time Technology Enablement Complexity Governance

Executive Summary No surprises that the survey shows that Finance Shared Services are well established and are delivering benefits What we have found is: Increasing value add within SSOs – 25% of world-class SSOs already have business analysis in their SSO with 75% intending to within the next three to five years Increasing focus on talent – world-class SSOs make a higher investment in staff training and benefit from a markedly lower turnover of staff compared the peer group (42% have staff turnover below 5% compared with only 16% of the peer group) And there are still some basic ways to improve SSOs: Governance – 16% of SSOs are still operating without SLAs Addressing activity drivers – 33% of world-class SSOs are now explicitly pricing to change behavior

The 2007 Finance Shared Services Performance Study Included 167 Organizations Across Various Industries and Geographies – The Following is a Partial List Alcoa, Inc. Alfred McAlpine Infrastructure Services Ltd. Avis Rent a Car System, LLC BAE Systems PLC Basell Polyolefins UK Ltd British American Tobacco p.l.c. The British Council Cargill, Incorporated The Caterpillar, Inc. Citibank, NA The Coca-Cola Company COLT Deutsche Lufthansa AG Diageo plc DPD GeoPost (Deutschland) GmbH & Co Kg Global Hyatt Corporation Gold Fields Shared Service (Pty) Ltd H.B. Fuller Company H.J. Heinz Company Infineon Technologies AG InterContinental Hotels Group PLC International Paper Company Marriott International, Inc. Metso Shared Services Oy NetworkRail NHS Shared Business Services Novo Nordisk A/S Pitney Bowes Inc. RWE Systems AG Sappi Fine Paper Seagate Technology LLC Siemens AG Sprint Nextel Corporation State of Tennessee Tetra Pak International Viacom Inc.

Finance Shared Services General Demographics Size of Companies in Study Employee Size in Study Industry Distribution in Study WC demographics. Bar chart complexity?? The median company is at $9 Billion in revenue The median company is at 26,000 employees We have a good mix of industries participating in the study 2007 Finance Shared Services Performance Study

Finance Shared Services Demographics $12B < $1B $1B - $5B $5B - $10B $10B - $25B > $25B 42K < 10K 10K – 20K 20K – 45K 45K - 75K > 75K 2 1 2 3 - 4 > 4 12 1 2 - 5 6 - 16 > 16 World-Class World-Class Range 2007 Finance Shared Services Performance Study

Reasons for Selecting the SSC Location 2007 Finance Shared Services Performance Study

Scope of Finance Shared Services – People 2007 Finance Shared Services Performance Study

Benefits from Business Support in Finance Shared Services Degree of Process Standardization 2007 Finance Shared Services Performance Study

Percent of Annual Voluntary Employee Turnover 2007 Finance Shared Services Performance Study

Degreed and Certified Shared Services’ Employees

Number of Annual Training Hours Per Service Center Employee 2007 Finance Shared Services Performance Study

Finance Shared Services – Level of Success in Targeted Benefits Corporate Strategy Improve Service, Quality, Accuracy and Timeliness Group Similar Tasks and Expertise for a Critical Mass High Medium Low None World-Class Reduce Redundant Tasks Reduce Administration Costs Reduce Headcount and Salary/Wages Percentage represent overall companies (101 companies). Add wc dot 2007 Finance Shared Services Performance Study

Finance Shared Services – Level of Success in Targeted Benefits (cont Reduce Infrastructure Costs Improve Working Capital High Medium Low None World-Class Standardize Services Simplify Roll-out and IT System Support Percentage represent overall companies (101 companies) 2007 Finance Shared Services Performance Study

Finance Shared Services – Savings Planned Achieved Percentage represent overall companies (101 companies) 73% of SSOs plan to save 20% or more costs 65% of SSOs have saved 20% or more costs >60% 41 to 60% 21 to 40% 11 to 20% 1 to 10% No Change World-Class 2007 Finance Shared Services Performance Study

Result of SSO Implementation Productivity Quality Customer Service Percentage represent overall companies (101 companies) 89% of companies saw more than 10% of productivity improvement 82% of companies saw more than 10% of quality improvement 79% of companies saw more than 10% of customer service improvement >60% 41 to 60% 21 to 40% 11 to 20% 1 to 10% No Change Negative Impact World-Class 2007 Finance Shared Services Performance Study

Number of ERP Systems Utilized by Your Staff ERP Utilization Percent of Countries or Business Units that are Using Standardized Processes Number of ERP Systems Utilized by Your Staff World-Class Peer Group 2007 Finance Shared Services Performance Study

Finance Shared Services – Future Plans Rank order 2007 Finance Shared Services Performance Study

Finance Shared Services – Moving Up The Value Chain Strategy Decision Support Transactions Eliminate . . . Automate . . . Offshore Shared Service Organizations are eliminating work as they deliver benefits, and are taking on additional responsibility for decision support activities

Scope of Finance Shared Services – Decision Support Today Future 2007 Finance Shared Services Performance Study

Finance Shared Services Trends in Shared Services – Outsourcing - Offshoring

On-going Research – Business Process Sourcing - Decentralized Centralized / shared services – onshore within the country or region being serviced Centralized / shared services – offshore at a lower labor cost location outside the country or region being serviced Outsourced onshore or offshore – to a third party Fully automated – manual intervention is minimal www.thehackettgroup.com/studies/sourcing

Finance – Overall – 2005 through 2010 In three years 2007 Finance Business Process Sourcing Study Performance Study

Finance – Overall – Focus on 2007 Actual Compared to Planned 2007 Finance Business Process Sourcing Study Performance Study

Contact Information  Penny Weller, PhD, CMA Finance Shared Services and Account to Report Advisory Programs The Hackett Group 1117 Perimeter Center West, Suite N-500 Atlanta, GA 30338-5451 pweller@thehackettgroup.com www.TheHackettGroup.com