Elix-IRR Partners LLP

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2 INDEX Chapter 1. INTRODUCTION Highlights of the 2012 Report Page EXECUTIVE SUMMARY WHY Outsourcing Drivers are Changing Regulatory Environments Global Strengthening of Regulatory Regimes Regulation Breadth under RRP Opportunities for the Industry Focal Points for RRP 4. WHAT Global Trends in Outsourcing & Offshoring Global Outsourcing Activity in FS Regional Trends in Deal Activity FS Back Office Outsourcing Candidates BPO Trends in the Outsourcing Market ITO Trends in the Outsourcing Market KPO Trends in the Outsourcing Market 5. HOW FS Sourcing Strategies Achieving Strategic Goals Service Management Frameworks Market Analysis: Lessons Learned 6. WHERE Global Trends Focus on Africa Near shore out sourcing WHO Top 15 Global FS Deals by Value Regional Analysis of Global Top 10 FS Deals Top 10 FS Outsourcing Deals in North America Top 10 FS Outsourcing Deals in EMEA Top 10 FS Outsourcing Deals in Asia Pacific Regional Summary of Key Trends ELIX-IRR S FINANCIAL SERVICES TRANSFORMATION CAPABILITIES IN SUPPORTING OUR CLIENTS CONTACT US Annex A 81 2

3 1. Introduction 3

4 1. Introduction This is the third year Elix-IRR has produced Trends in Outsourcing & Offshoring in the Financial Services Industry. This study is widely read by senior executives in financial institutions and the service providers and consultancies within the sector. The insights have been broadly recognised as valuable contributions to the considerations of Financial Services (FS) institutions furthering their regional and global sourcing strategies in the wake of the global financial crisis. As with previous years this research will provide an overview of the trends in outsourcing and offshoring by major financial institutions in the last 4 years, focussing in detail on performance in 2011 and making predictions as to the conclusion of We will cover: Why What How Where Who The pre-eminence of regulatory focus in shaping the overall FS landscape continuing in 2012 Functions and trends seen in the outsourcing deals in 2011 outsourced/offshored Sourcing best practice as outsourcing arrangements mature The popular and emerging locations for delivery of outsourcing activity A summary of major outsourcing transactions by key FS players and service providers The study also provides supporting data for the current outsourcing landscape for the FS industry. A glossary of terms has been provided in Annex A for reference. 4

5 Highlights of the 2012 Report The following are key sections and insights to this 2012 report, bringing new perspectives and industry insights from Elix-IRR. New Regulation changes the way FS institutions work with Service Providers This section describes how the regulatory environment surrounding the FS industry in 2012 is increasingly coming to shape relationships with service providers We analyse in detail Recovery and Resolution Plans, as a culmination of many of the regulatory objectives of the past year, and where opportunity might arise for the industry Annual Review of Deal Activity We take our annual look at market activity from 2011, both new deals and renewals, and assess the latest trends from BPO, ITO, KPO and geographical perspectives The role of Service Management Understanding some of the key levers to executing a best practice sourcing strategy is key We assess how effective management of service providers lies at the heart of a successful outsourcing relationship Global Trends in the Market - Major Activity Locations We cast our eye across the globe to find out where major industry activity has occurred Following on from our last report, our experts update the situation in Africa, an emerging location for outsourcing activity Top 10 Global FS Outsourcing Deals by Region This section presents the top ten FS outsourcing deals for each of these regions: North America, EMEA and Asia Pacific Information on deal ranking, company name, service provider, total contract value, outsourcing domain and key descriptions of activities 5

6 2. Executive Summary: FS Outsourcing Trends from 2011 and 2012 So Far 6

7 Executive Summary 1. Reasons for Outsourcing and Offshoring Regulatory and market challenges ensure continued focus on cost models The global economy continues to show signs of recovery and most global banks have shown improved profitability up to Q Global regulators continue to impose tightening regulations in order to affect behavioural change through policy and legislative means Ever-increasing capital requirements on banks from global regulatory change are driving changes in business models causing a greater focus on cost efficiency Enhancing systems and platforms will help deliver full regulatory compliance but changes to support models will be needed to help deliver substantial cost reductions Tactical sourcing strategies evolve to meet the strategic change challenges Tactical sourcing strategies have achieved cost reductions and productivity gains in the last 2-3 years Increasing desire in 2012 to move to transformational outsourcing to realise enterprise-wide productivity gains, global synergies and increased margins Companies continue to look towards suppliers to help commercialise their assets, but the development of internal commercial skills in the sourcing function is becoming more prevalent Internal sourcing departments are becoming better equipped to view the business and find economies of scale to optimise vendor relationships as a whole A growing need to look across the change portfolio Systems integrators will increasingly find opportunities to support technical change across global technology platforms Suppliers and vendors have continued to develop benefits from process and technology innovation to improve the speed to market of new products and services because innovation comes at a cost By taking a strategic view of the entire change portfolio in 2012, companies are starting to achieve greater synergies and will be able to inter-lock the strategic change agenda with the service management framework for a sustainable Total Cost of Ownership 7

8 Executive Summary 2. Trends in Functions Outsourced / Offshored Financial Services outsourcing returns to growth overall FS Outsourcing market trends are showing signs of continued recovery In 2011 companies were prudent and looked to traditional cost reduction opportunities in the outsourcing market. In 2012 this is continuing with a rise in ITO and BPO deals New entrants to outsourcing were mid-tier banking and insurance institutions In 2012 we have seen a rise in BPO and ITO deals, with some also landing in 2013, as well as a number of renewals pending As macro-economic instability continues however with further state-aid investments made to boost growth, many large banks have initiated the design activity for innovative large scale outsourcing or further transformation of their existing support models 3. Operating Models for Outsourcing and Offshoring Operating models are maturing and companies new to outsourcing have a shorter learning curve Legacy outsourcing approaches are now being challenged to leverage global synergies and economies of scale without falling foul of cross border restrictions and cross border data restrictions FS companies are building upon their existing, internal sourcing skills by increasing commercial skills, negotiation techniques and challenging suppliers to be more innovative The front line business areas are increasingly engaging internal sourcing resources in the forward planning for change to achieve more with less Tightening margins are generating increased demand for transformational solutions with a rapid pay back This puts renewed pressure on suppliers to deliver current solutions quicker than they would have previously 8

9 Executive Summary 4. Popular and Emerging Destinations for Delivery Traditional offshore locations of choice are under pressure India remains the dominant location, particularly for ITO services however in the last two years salaries have risen circa 10-15% (in $ terms), despite the slow economic recovery Increasing pressures to near-shore in USA and EMEA brings opportunities for markets in Asia, South America, Africa and Eastern Europe. Drivers for these opportunities include timezone benefits, higher quality and greater customer satisfaction Increasingly the middle office processing requirements and KPO are being considered for outsourcing to achieve further savings on labour arbitrage for perceived specialist skills although near shore solutions are seen as preferential Africa emerging as a BPO location generating significant market interest Providers are coming away from traditional markets faced with political pressure in advanced economies to bring jobs home 5. Major Outsourcing Deals and Key Service Providers Service provider acquisitions in 2012 Leading service providers continue to achieve increases in revenue, operating margin and headcount through acquisitions in niche, analytical software, specialist processing services and cloud based technologies We begin to see early acquisitions in the African region, with contact centres, customer care and business continuity services targeted 9

10 Executive Summary 5. Major Outsourcing Deals and Key Service Providers (cont) Indian providers invest in emerging markets Large Indian players are adding to their capabilities in both onshore and nearshore locations and growing their presence outside India. Benefits include: High-quality, medium-cost back office and call centre capabilities Availability of skills to service offshore clients is high Industry knowledge and experience Governmental incentives When factored in these incentives have the potential to reduce costs to a comparable level with India A recent example of an Indian provider investing in emerging markets includes WNS recent acquisition of South African BPO provider Fusion Outsourcing Services IBM displaced in 2011 for largest new deal won (despite renewing the largest deal with BNP Paribas) Looking back on 2011, IBM lost its prime position in terms of high-value contracts in North America and Asia Pacific In North America, T-System Services were awarded a US$1.7bn ITO contract by Capital One In Asia Pacific, the outsourcing downturn was evident with the largest outsourcing deal at US$307m, awarded by HDFC Bank to Reliance In EMEA, IBM retained the top new deal with US$1.3bn with la Caixa and a total regional value of $1.5bn However IBM extended a significant joint venture deal with BNP Paribas for data centre outsourcing Near-shoring strategies by companies have had an impact upon global service providers who offer best shoring on the basis of leveraging sales based on cost reduction through labour arbitrage Sources: Elix-IRR analysis, IAOP, BPeSA, IDC, press releases 10

11 3. Why: Why the Regulatory Environment is continuing to drive the shape of Financial Services Outsourcing in

12 Outsourcing drivers are changing, becoming more varied and global in their reach In our last report we focussed on outsourcing deals with innovation triggers resulting in product & process outputs. In this report we note that the drivers for outsourcing continue to be affected by market headwinds and having to comply with increasingly stringent regulation. As a consequence banks are looking for innovative sourcing solutions that change the support cost paradigm while enabling focus on regulatory compliance. We will be assessing regulatory drivers and how they provide new opportunities for the outsourcing industry. COMMENTARY Our report will be focussing on the regulatory environment and its effect on the outsourcing market We see increasing scrutiny from regulators contributing to decreasing RoE requiring banks to emphasise cost cutting In turn this leads to a reduction in investment appetite, even for the regulatory and compliance solutions The cyclical nature of these prevailing conditions is amplified as they constrict and tighten on banking operations further. The over-riding risk therefore is loss of competitive advantage and market share 12

13 A greater variety of factors are now driving the regulatory environments surrounding Financial Services Political Economic Social Technological Legal Environmental Customer Regulating to ensure financial institutions can support themselves in times of stress and not depend on public money Damaged reputations caused by on-going and highly publicised incidents Increased capital requirements levied by regulators Direct/indirect cost-cutting in response to bottom line pressure Lack of investment appetite driven by regional market instability and the cost of capital pressures Regulators prioritising protection of socio-economic stability Head count reduction necessitates fewer people doing more Key personnel have more personal regulatory responsibility and less time available to focus on strategic direction Reduction in investment programmes, priority given to regulatory compliance Complex highly integrated infrastructure leads to high indirect costs of change programmes Regulatory pressure globally Emphasis on risk mitigation (financial and reputational) Volcker Rule, FATCA, Dodd Frank, Basel II & III, RRP Client Money Segregation, Transaction Reporting, KYC Head count reduction and off-shoring Focus on building footprint in faster growing markets Ongoing buy side out-sourcing of processes and services Regulators supporting customer freedom to switch between banks Sustained loyalty less assured as customers are better informed to buy financial products and services Three conclusions for the FS Outsourcing Industry present themselves: 1. Coupled with downward pressure on margins, regulatory pressures are driving reviews of operating costs, headcount and business rationalisation and transformation 2. The investment budget for change and innovation will be focused on regulatory, compliance, cross-border data protection initiatives and cost reduction 3. Focussing on core banking competencies will provide an opportunity to evolve new and existing shared services and outsourcing arrangements; driving financial institutions to do more with less Given global regulatory pressure these opportunities are universal 13

14 Greater variety of regulatory drivers are matched by a global strengthening of regulatory regimes US Regulation Dodd Frank Volcker Rule Financial Stability Oversight Council Securitization Reform Derivatives Regulation increased transparency Consumer Protection Reform Credit Rating Agency Reform Capital Requirements Living Wills Bank Levies First proposed by IMF in 2010 UK France Germany Austria South Korea Proposed Netherlands ~2013 Possible EU Financial Transaction Tax EU Regulation EMIR aims to increase stability within OTC derivative markets PRIPs aims to achieve consistent and effective standards for investor protection MiFID aims to enhance investor protection, improve crossborder market access and promote competition in the financial markets across the EU AIFMD to impact how AIFMs distribute funds and operate business The concept of regional regulation is almost a moot point for global players with entities & clients spread across the world Basel III Aims to strengthen regulation, supervision, risk management and transparency by regulatory standards on: Capital adequacy Stress testing Liquidity Stability Recovery & Resolution Plans (RRPs) Banks will be required to produce RRPs to give regulators a crisis management plan setting out necessary steps and powers to ensure bank failures are managed in a way to avoid financial instability and to minimise public costs Regulated under the Dodd-Frank in the US June European Commission adopted a legislative proposal for bank recovery and resolution COMMENTARY Globally, regulators have introduced greater levels of stringency to banking operations in order to safeguard consumers and public funds In addition, a perfect storm is being created by natural downward pressure on margins as the result of lower growth occurring at the same time The challenge for Financial Services firms becomes how to increase shareholder value whilst satisfying regulators This presents significant opportunities for the outsourcing industry as banks look to how they can rationalise and consolidate their activities THE SOURCING OPPORTUNITY Smart players in the outsourcing industry will increasingly be seen tying outsourcing offerings to compliance requirements and bottom line growth Robust sourcing strategies and outsourcing firms capabilities offer a breadth of support that will be well placed to support Financial Services clients meet their regulatory and financial challenges The following section will focus on the rise of Recovery and Resolution Plans (RRPs). Perhaps one of the most relevant developments in regulation for service providers in the last 12 months. RRPs are also one of the most wholesale from a compliance point of view, bringing together many of the components of other regulatory initiatives (e.g. capital adequacy, robust liquidity positions, balance sheet stability) with the practical measures to achieve either Recovery or Resolution. RRPs provide a stern challenge from the point of view of both compliance and ongoing execution of business strategy 14

15 The breadth of regulation under Recovery and Resolution Plans creates opportunity for the Industry Global regulators are moving to safeguard the wider global economy from the fallout of another financial crisis in the future. Analysis of the rise of RRPs reveals that alternative sourcing models can play a major role. the CONTEXT Globally financial authorities are taking a legislative, policy driven approach to transforming regulatory regimes to ensure that banks Too Big to Fail can do so in an orderly manner thereby minimising risk to consumers, taxpayers and deposit holders This is being compounded by a general shift in emphasis from Bail Out to Bail In where large banks faced with potential failure are being urged by Central Banks and regulators to recapitalise using private capital, not public money. This results in significant restructuring of balance sheets and risk management portfolios RRPs are being mandated in order to recover a bank from severe threats to its survival (Recovery) or wind the bank up in an orderly manner protecting consumers and the public purse (Resolution) the FOCUS Systemically Important Financial Institutions (SIFIs) are the banks which will invite most scrutiny, particularly SIFIs with global reach (G-SIFIs), due to the disproportionate consequences of disorderly failure from a political, economic or socio-economic perspective The complexity of achieving compliance is magnified when set against a backdrop of existing and unprecedented regulatory change driven by major legislative or policy events such as Dodd-Frank, Basel III, the Vickers Report (UK) and tightening margins the COMPLEXITY All areas of banks will require both strategic and detailed analysis to understand which entities do what business, how they are funded and how they might be allowed to fail IS & IT strategies will form a core component to winding entities up as infrastructure, applications and users will need to be segregated Significant consideration will also need to be given to how can staff be safeguarded against the failure of a particular entity so that they can continue to support surviving business the CONCLUSION Changes to Operating Models, the need to segregate entities and the risk sharing potential of executing the right sourcing strategies can lie at the heart of future compliance efforts Systems integrators and major outsourcing firms have both the industry expertise and the technical insight to play a major role in the diagnostics, planning and execution of RRP strategies 15

16 The focal points for RRPs are opportunity areas where sourcing and outsourcing specialists can play a role Elix-IRR s work with major global banking institutions reveals recurring themes which come under scrutiny in developing RRPs. Our analysis asserts that a number of these hold opportunities for the major outsourcing players. RRP FOCUS AREAS KEY SOURCING CONCLUSIONS Group Risk Assessment Analysing the bank by entity to define the most critical parts and any retail impact Liquidity Recovery Ensuring a robust liquidity position exists in times of stress Capital Recovery Ensuring capital adequacy during times of stress Support & Business Contingency Ability to be able to segregate IT effectively in failure without harming BAU elsewhere Future commercial models will need to provide evidence of compliance to regulators, compounded by ongoing scrutiny on cross-border data protection. However we envisage suppliers being able to leverage this as an opportunity to innovate. The importance of liquidity utilisation and it s many drivers and usages is an area where banks are struggling to provide the necessary data. Innovative vendors will be able to create utility solutions to this emerging issue. Banks will be keen to remove assets from their balance sheets in order to aid their capital ratios leading to broader opportunities for vendors to take over human capital & IT assets. Robust sourcing strategies can help alleviate the pressure on CIOs to understand how to configure their future IT landscape. In light of 20+ years of technology and group integration efforts careful consideration will need to be given to how technology assets can be unwound in the event of failure of a specific entity or group of entities. Governance Establishing management structures to operate during times of severe stress People & Organisation Reviewing entity employment arrangements and safeguarding the future The complexity of corporate structures and organisational design drives a level of complexity which will be very challenging to unwind. Outsourcing players already engaged in BPO / HRO for multiple parties should position themselves as solution providers able to support the wind-down of entities whilst safeguarding staff from the failure of any particular entity and continuing to support the remaining business. 16

17 4. What: Global and Regional Trends Sourcing Market Analysis (BPO, ITO and KPO) 17

18 Global Trends in the Overall Outsourcing & Offshoring Market US$bn Overall growth of the outsourcing industry is picking up despite global economic pressures % US$bn Growth in Outsourcing Market, BPO 153 (36%) ITO 258 (61%) KPO 11 (3%) CAGR % 2011: Outsourcing Market breakdown by type, region and vertical 422 Asia Pacific 78 (19%) Americas 201 (48%) EMEA 143 (34%) FS 83 (20%) Non-FS 339 (80%) The outsourcing market grew by a nominal 8% from 2010 to 2011, an indication that the industry has picked up pace after a fall in size from 2008 to 2009 EMEA and Americas still account for the majority of the outsourcing market though the Americas market share is decreasing with a 5% growth rate from 2010 to 2011 compared to 12% in EMEA and 8% in Asia Pacific. This reflects larger transaction values and the trend towards expansion of contracts at renewal Financial Services is the largest vertical for outsourcing services accounting for some 20% by value The US is the largest outsourcing consumer by country and this will be the case for the foreseeable future Cost is still the main driver for outsourcing; however, there are an increasing number of other factors that play a role in the outsourcing decision process, e.g. achieving speed, agility, flexibility and innovation as well as access to technical and/or industry specific expertise and skills We believe outsourcing advisory firms increasingly influence the decision-making of buyers of outsourcing services ITO and BPO outsourcing activity continue to generate the largest proportion of revenue in the outsourcing market Source: Evalueserve, 2011, IDC, 2012 & Elix-IRR analysis, Note: Vertical-specific BPO not included

19 % of TCV % of TCV TCV ($ Bn) ACV ($m) Global ITO and BPO Outsourcing Deal Activity in FS BPO deals continue to show growth while ITO deals are declining from a high in Market activity in 2011, as in 2010, was driven by renewals and extensions and not by new outsourcing deals. New Deals: TCV of Global ITO vs. BPO Global ITO Deals New vs. Renewed While the Total Contract Value of deals remained the same between 2010 & 2011, we have seen an increase in the proportion made up of BPO deals ITO activity fell for the first time in 2011 when, despite growth in North America and EMEA, the value of ITO deals in Asia Pacific fell by over 70% BPO continues to trend towards previous 2008 highs, buoyed mainly by robust growth in North America, particularly in the insurance sector ITO new deals ITO BPO ITO renewed deals New Deals: Avg Contract Value of Global ITO vs. ITO BPO BPO BPO CAGR -10% ITO CAGR +8% Global BPO Deals New vs. Renewed In addition to the increase in Total Contract Value of BPO deals and decrease of TCV of ITO deals, we see a similar trend in the average contract value between Where nervous markets saw BPO average contract values decrease 40% from 2008 to 2010, we see a trend towards recovery with BPO average contract values up almost 50% in the last year North America is the only region to have recorded a fall in average ITO contract value, having a marked effect on the global average BPO new deals BPO renewed deals % 68 % 34 % 32 % % 49 % % 66% % % % % % % % % The trend towards a greater proportion of value coming from renewed deals continues, with roughly two thirds of ITO TCV in 2011 being renewals This is likely indicative of a maturing of the marketplace, with most companies already having some level of outsourcing in place The majority of contracts in the Asia Pacific region are new, possibly indicative of the emergent market for outsourcing there Source: IDC 19 The strong trend towards increased renewed deal proportions has continued, with a full 71% of BPO TCV coming from renewed deals in 2011 The North American BPO market was biased towards new deals from , before a sizable shift in 2011 to 80% of value being derived from renewals A similar shift occurred in EMEA in 2010 and was sustained in 2011, possibly indicative of market maturity Note: The data above excludes South America

20 What: Regional Trends 20

21 Total Contract Value ($ Bn) Total Contract Value ($ Bn) Total Contract Value ($ Bn) Regional Trends in New Deal & Renewal Activity The North American outsourcing market has shown a strong return to growth between as it recovers to 2008 levels. However, growth in EMEA has slowed down substantially, whilst no mega-deals over $500m have taken place in Asia Pacific. Of the $19.1bn of new deals in 2011 $6.1bn were in North America, $12.2bn in EMEA and only $0.8n in Asia- Pacific North America $ TCV CAGR 91 $ % 85 $ % 62 $ No. of Deals Asia Pacific $ $ % TCV CAGR +4% $ $ No. of Deals Whilst outsourcing activity has still not returned to 2008 levels, the Total Contract Value (TCV) increased by over 50% between This positive trend is visible in both ITO and BPO activity, with BPO showing very substantial increases Colour Key: EMEA TCV CAGR +14% $ 8.4 $ 9.5 $ % 143 $ No. of Deals Whilst over the period there has still been growth in Asia Pacific, we have seen a very substantial decline of almost three quarters of TCV over the past year The most substantial fall was in BPO activity, losing over 98% of total contract value due to new contracts halving compared to 2010 Growth in Outsourcing is highest (hot) Outsourcing activity is high and still growing (warm) Outsourcing activity is decreasing (cooling) The previously strong upward trend has flattened in the past year, with a slight fall in Total Contract Value EMEA deals accounted for ~ 64% of all global deals in 2011 There has been an increase in the number of deals, but a concurrent fall in their average value 21 Source: IDC BuyerPulse Contracts Database, August 2012

22 What: Sourcing opportunity for FS Sourcing Type Analysis (BPO, ITO and KPO) 22

23 FS Back Office outsourcing candidates In Elix-IRR s experience, processes that are repeatable, high-volume and administrative in nature are potential candidates for efficiency gains arising from outsourcing. In the following section we analyse the overall outsourcing market in 2011 and then focus on the application of the following three sourcing types: BPO, ITO and KPO OPERATIONS Investment Banking Wealth Management Retail Banking SUPPORT FUNCTIONS HR Finance Procurement FM & Real Estate CONTROL RESEARCH AND ANALYTICS Governance and Assurance Legal & Compliance Research & Analytics IT Management Application Infrastructure Helpdesk Key 23 BPO ITO KPO

24 What: BPO Analysis 24

25 BPO Trends in the FS Outsourcing Market Financial Services has been a critical driver in the growth on BPO volumes and values in the past. Elix-IRR believe there is still significant value to be obtained by extending the scope of BPO to a broader set of functions across the back office. Below we describe a selection of major processes which are typically retained, possible outsourcing candidates or processes that are often outsourced OPERATIONS* Investment Banking Wealth Management Retail Banking Operations Control Business Development Service Management On boarding AML/KYC Management Cash and Liquidity Management Investor Custody Services Collateral Management Confirmations Settlements Customer billing Payments Processing Business Development Origination /account opening Account servicing Cash and Liquidity Management Account Services Data Management Clearing and Settlements Payments Processing Sales Generation Strategy Customer Queries Reconciliations Statements Card Manufacture SUPPORT FUNCTIONS* HR Finance Procurement FM & Real Estate HR Strategy Business Partners Collateral Management Units Recruitment Case Management Budgeting Process Regulatory Reports Tax Filing Treasury Payments Accounts Payable Account Receivable Category Management Spend Management Procure to Pay Reporting Leasing Network and Space Management Landlord Services Communications Transport Services Buildings Maintenance Cleaning Reception *Selected processes are intended to be indicative of the business areas under discussion. We do not purport to be representing the totality of capabilities undertaken in the course of daily banking business 25 Key: = Typically retained = Possible candidate for Shared Service/Outsourcing = Suitable for Shared Service/Outsourcing

26 Total Value of Outsourcing Spend ($ Billions) Overall BPO Trends in the Outsourcing Market Banking and Financial Institutions along with central and federal government clients, were critical in driving the demand in the BPO market Total BPO Spend Globally CAGR +3% % Source: Evalueserve, 2011, IDC, 2012 & Elix-IRR analysis, Note: Vertical BPO figures are not available within total global BPO spend figures. However, the following pages show the break out of vertical BPO versus other outsourcing domains for new deals. With the rise and increasing importance of vertical BPO deals in FS over the past decade, we estimate that, for the FS market, vertical BPO is at least as large as traditional BPO domains 26 BPO outsourcing has seen a moderate 3% growth over the past few years, though this has picked up in 2011 There has been a noticeable increase in the number of BPO deals over the last 12 months in both North America and EMEA Asia Pacific experienced a downturn in 2011 as the global recession impacted the region South Africa have introduced incentive schemes for job creation and India service providers are increasingly interested in the region for alternate delivery models BPO demand in Financial Services is driven by demand for credit card processing, insurance services, investment bank processing and payment processing Buyers are increasingly looking at bundled ITO/BPO options, which reflects increasingly integrated sourcing strategies BPO vendors focus on strengthening operational excellence capabilities, platform BPO assets, and business analytical services as levers for the expansion of existing deals, new deals and renewals Latin America will continue to increase in attractiveness as a near-shore destination for the US

27 FS BPO Activity by Outsourcing Domain There has been a substantial rise in the value of Vertical BPO activity in North America. The same domain has shown substantial falls in value in EMEA and Asia Pacific, respectively it is, however, still the dominant BPO activity in all regions. BPO Sub-Domain Outsourcing Activity based on 2011 TCV ($m) Key: HR = Human Resources F&A = Finance & Accounting Vertical BPO = BPO specific to FS Industry North America EMEA Asia Pacific Total: $3.3bn Total: $2.5bn Total: $4m There has been a substantial ($2.2bn) rise in the value of Vertical BPO activity in North America, and consequently, its share of all BPO contract value has risen from 36% in 2010 to 82.8% in There were significant extensions to existing, large scale deals for periods of 5 7 years, indicating a deepening of established relationships Customer care contracts increased from a low base to $297m in EMEA, with a small number of deals in North America and none in Asia Pacific. Globally, this has more than accounted for the fall in this domain in North America, showing an increase of 2% of global BPO activity HR Outsourcing fell by almost $400m in North America, having accounted for 46% of deals in 2010 to only 7.1% in This reflects that the early advantages of HR outsourcing have been achieved and our experience is that new entrants to outsourcing will come to the market with a multi-sourcing transformational strategy rather than labour arbitrage F&A Outsourcing fell in Asia Pacific from 56% of all BPO deals in The trend for all support functions is to create organisationwide synergies with sourcing strategies Source: IDC, 2012, Elix-IRR analysis,

28 Total Contract Value ($m) Total Contract Value ($m) Total Contract Value ($m) Regional Analysis of FS Industry BPO Activity Overall activity in FS-specific BPO (banking and insurance operations processes*) has dipped below 2008 levels with the majority of new deals being in EMEA. North America 6,000 4,000 2,000 0 EMEA 3,000 2,000 1,000 0 Asia Pacific 55 5, , $ CAGR -16% 55 1, $ CAGR -4% 30 2, $ CAGR -67% , , , , No. of Deals No. of Deals No. of Deals While the number of deals happening each year has been relatively constant over the period, the TCV has varied substantially There has been a substantial increase between , although TCV is still at around 20% below 2008 levels The TCV of BPO has seen relatively little change over , with a slight overall decline It will be interesting to see whether 2012 and 2013 analysis will show whether patterns of growth followed by decline persist BPO activity has stalled in Asia Pacific, with TCV falling by 98% from its high of 2010 Only three BPO deals occurred in the region in the last 12 months compared to 13 BPO deals in 2010, highlighting the effect of the economic crisis which has now hit the region (particularly Australia and Japan) *NOTE: Banking and Insurance operations processes include but are not limited to trade processing, loan administration, billing services, payments services, document and data management, account processing and reconciliation etc. 28 Source: IDC BuyerPulse Contracts Database, August 2012

29 Average Contract Value ($ million) Average Contract Value ($ million) Average Contract Value ($ million) FS BPO Average Contract Analysis by Region Average Contract Value for BPO deals is far lower than ITO particularly for renewals. The upturn in Asia Pacific in 2010 has come to a halt there were only three new deals in North America EMEA % % KEY New Deals Renewals BPO activity showed a substantial decline , which was sustained into 2010 Renewed contracts rose by 20% from 2008 to 2011, although new BPO contracts have fallen further still and are now at 72% below 2008 level % +132% New deal figures in 2011 have still not returned to their 2008 highs, but have picked up in the last year Data on renewals shows more fluctuation than that of new contracts, but despite a fall from the spike of 2010, Average Contract Values remain well up over the period. This is a reflection of the number of contracts expanded on renewal. Asia Pacific % % After a promising 2010, figures for both new and renewed contracts in 2011 have crashed. In total there were three new deals in 2011, with an average value of just over $1m, and no renewed contracts. Source: IDC Research, 2012, Elix-IRR analysis. 29

30 Examples of BPO Outsourcing Activity Wing Lung Bank outsources operation management to Accenture (deposits, loans, payments and customer servicing) ING sign new deal with Cognizant to provide an insurance and finance business process centre of excellence BACS payment debit and credit processing services are outsourced by LBG to Parseq ( ) HCL Technologies set up back-end processes for loans, financial products and customer service at Citi (July 2012) MidSouth Bank outsources payroll and HR services to Inova Payroll Zurich used Procurian and Genpact to restructure and manage procurement infrastructure ISS manages and delivers facilities management services to Barclays operations in the UK, Europe, the Americas, Asia Pacific and the Middle East (July 2012) 30

31 Future Trends in BPO in Financial Services BPO - Generic There will be a major focus on customer data sovereignty and the rapidly changing legislation on physical location of data and its use. This has the potential to impact some BPO deals until specific countries / regulatory bodies clarify their stance Service Management professionalisation organisations will realise the value of a skilled, retained organisation to lead on the refinement of supplier relationships and the longer term outsourcing benefits Emerging geographies in Asia Pacific, Africa and Latin America will contribute further in the next 12 months BPO - FS Specific Ongoing regulatory pressures and reducing margins have resulted in wholesale banks looking for opportunities across their environment Banks are looking beyond labour arbitrage and seeking broad ranging productivity gains to: inter-lock the business strategy with sourcing approaches Obtain significant, step change savings over time Snapshot: Trends in BPO Payments Processing Outsourcing will be more focused at achieving productivity gains (and financial savings) across the enterprise KYC and Single Customer View strategies will develop further and require elements of business process re-engineering prior to outsourcing Increasingly a move to outsource payments processing in the sector 31 An increasing move to outsource payments processing in the sector Considerations must be made in regards to data protection and regulatory issues, as well as customer s perceptions of off-shore data access Larger U.S. banks often have their own payment factories Further outsourcing and offshoring is being considered by banks and credit card operators to reduce cost and improve margins New banks and innovative mobile payments operators have more flexibility and have the potential to establish lower cost payments operations by optimising locations world-wide

32 What: ITO Analysis 32

33 Total Value of Outsourcing Spend ($ Billions) ITO Outsourcing: In Summary As with BPO, Financial Institutions combined with central and federal government clients drove the demand in the ITO market in IT* Management Application Infrastructure Helpdesk Service Management Strategy & Architecture Change Management Business Requirements Solutions Development Testing Maintenance Data Centre Network Management VOIP Disaster Recovery Tier 1 call centre Incident Management *Selected processes are intended to be indicative of the business areas under discussion. We do not purport to be representing the totality of capabilities undertaken in the course of daily banking business Key: Total Information Technology Outsourcing Spend Globally CAGR +4% % = Typically retained = Possible candidate for Shared Service/Outsourcing = Suitable for Shared Service/Outsourcing There has been moderate growth in the total ITO spend over the period, with growth picking up substantially to 8% in 2011 The key market drivers for ITO are cloud computing and Remote Infrastructure Management Outsourcing (RIMO) as well as consumerisation of data storage and social media solutions Industry-specific offerings will continue to increase, and vendors must improve their knowledge of their client's business and industry Competition is fierce and margin pressures grow higher, even as the market begins to improve Striking the right balance between offshore, near-shore and onshore offerings will be key to vendor success ITO customers are still testing to find the right balance between captive centres and outsourcing

34 FS ITO Outsourcing Domain Activity Infrastructure services continue to dominate ITO activity in all regions followed by Applications Maintenance in North America and Network & Desktop Outsourcing in EMEA and Asia Pacific. ITO Sub-Domain Outsourcing Activity based on 2011 TCV ($m) KEY: ISO = Infrastructure Services Outsourcing AM = Applications Maintenance NDOS = Network & Desktop Outsourcing HAM = Hosted Application Maintenance HIS = Hosted Infrastructure Services North America EMEA Asia Pacific Total: $2.8bn Total: $9.7bn Total: $755m Infrastructure services, as in previous years, continue to be by far the most common form of IT outsourcing. ISO now accounts for over 80% of all ITO market activity, having risen by $550m in North America and $1200m in EMEA since 2010 In North America ISO dominates with 92.6% of market activity share In EMEA and Asia Pacific, whilst still dominant, NDOS and AM activity also represent non-trivial proportions of activity Other Sub-Domains do not contribute significantly Market uncertainty and the pressure to improve bottom line returns from infrastructure estates is likely to be fuelling the dominance of ISO. From a rationalisation perspective focussing on hardware procurement is an attractive option for quick savings, fuelling outsourcing activity Source: IDC, 2012, Elix-IRR analysis,

35 Average Contract Value ($ million) Average Contract Value ($ million) Average Contract Value ($ million) FS ITO Average Contract Analysis by Region Average Contract Value in ITO has grown both in North America and in EMEA driven in the main by renewals. North America % KEY New Deals Renewed Deals While the value of new North American deals has decreased overall since 2008, it remains above 2009 levels There is a tendency in North America for Total Contract Values to be largely biased towards new deals one year, followed by a sizable shift to renewals the next. This oscillatory nature is also visible in these Average Contract Values, where the higher amplitude in renewed values is driven by a market shift towards fewer, much larger deals. EMEA % After falling in 2009, the value of renewed deals has grown substantially in the past two years Conversely, after seeing a spike in 2009, new EMEA contracts have fallen an average of 45% YoY throughout the period. However, the number of deals is growing YoY. Asia Pacific % Source: IDC, 2012, Elix-IRR analysis, 2012 Having shown substantial growth prospects from 2008 to 2010, the size of the ITO market in Asia Pacific has plummeted Renewed contract value fell by 86% in the year to 2011, and new deals by 56% The smaller quantity of deals in Asia Pacific means that a single very large deal can drastically change the Average Contract Value. For example: in 2010, there was a $1.08bn renewal deal, without which the ACV would have been <$67m. 35

36 Examples of ITO Outsourcing Financial Services has been a critical driver in the growth on ITO transactions in the past. Elix-IRR believe there is still significant value to be obtained by extending the scope of ITO to a broader set of functions across the back office, particularly driven by the increasing need for Banks to reduce IT related operating expenses. BT is helping CLSA to flex its communication and IT requirements by implementing an innovative, global utility based pricing model for BT's networked IT services and the deployment of BT Unified Trading for trading communications Nordea outsources development and maintenance of existing and new applications in the areas of risk management, treasury, human resources and procurement management to Accenture (6/2012) Ratnakar Bank outsources IT Infrastructure to Netmagic Solutions (10/2012) Deutsche Bank IT service desk, service operations and ITIL services have been managed by Tata Consulting Services since September Key: = Typically retained = Possible candidate for Shared Service/Outsourcing = Suitable for Shared Service/Outsourcing

37 Future Trends in ITO ITO Outsourcing will continue to be driven by large buyers negotiating global deals, but there may be more innovation in sourcing strategies to allow commodity purchases from more than one enterprisewide supplier (internal marketplace). This will encourage supplier competitiveness and ensure best value for money Cloud computing will become increasingly mainstream with the initial security concerns allayed. There will also be a greater potential to deliver customer-centric solutions such as the Single Customer View Mature outsourcing organisations will seek to link business demand and horizon plans to ITO to ensure rapid go to market delivery through robust Service Management Spend Reviews due to lower margins and higher investment in regulatory change initiatives. Buyers will challenge the suppliers to do more with less Customer participation will increase because business customers will continue to want to work more closely with ITO suppliers to understand how to make best use of virtual offices, collaboration software and achieve more without business process re-engineering Near-shoring will be more prevalent in response to government and economic pressures, especially in the USA 37

38 What: KPO Analysis 38

39 KPO Outsourcing Knowledge process outsourcing is being used to transform elements of the operating models for complex, judgement driven and fee-earning activities within Financial Institutions RESEARCH AND ANALYTICS Legal & Compliance Research & Analytics Market Abuse PA Trading Conflicts Control KYC Legal Drafting Anti Money Laundering Transcription and Document Management Legal Research Quantitative Analytics Qualitative Analytics Industry Reports Market Intelligence Virtual Data Rooms The growing maturity of KPO service providers is allowing firms to use KPO as an enabler of new operating models across a range of functions whilst addressing potential challenges of talent retention in their home location 39 Key: = Typically retained = Possible candidate for Shared Service/Outsourcing = Suitable for Shared Service/Outsourcing

40 Total Value of Outsourcing Spend ($ Billions)* KPO Trends in the Outsourcing Market KPO usage continues to grow at a significant rate of just under 20% annually albeit from a low base as Financial Service firms seek to deploy KPO solutions to knowledge intensive work processes. Total KPO Spend Globally +24% CAGR % Source: Evalueserve, 2011 The growth in Knowledge Process Outsourcing (KPO) continues into 2011, with a trend growth of 24% from Total KPO spend in 2011 was almost 70% higher than in 2008 Competition is intensifying as KPO niche players are increasingly challenged by major BPO providers extending their services through acquisition KPO is being used to transform the operating models for complex, judgement driven and fee-earning activities of a range of firms within Financial Services The fastest growth in KPO is seen in: Banking and financial research services Quantitative analysis Business information An upcoming KPO area includes data analytics and content monitoring and creation for social media activities. In the last 12 months, an increasing number of BPO service providers such as Capgemini have now launched their social media management service, while others such as Genpact have acquired a social media analytics firms *Evalueserve revised published data for

41 Examples of KPO Outsourcing KPO is beginning to reach beyond simple analytics with firms starting to outsource higher value Knowledge-based activity. Increasing margins is a driver but so is overall growth in M&A activity in the industry during 2011, which we see continuing in 2012*. RESEARCH AND ANALYTICS Legal & Compliance Research & Analytics Market Abuse PA Trading Conflicts Control KYC Legal Drafting Anti Money Laundering Transcription and Document Management Legal Research Quantitative Analytics Qualitative Analytics Industry Reports Market Intelligence Virtual Data Rooms Some large investment banks are increasing their use of external counsel for initial drafting of contracts both for service provider contracts and for client transactions. This practice enables firms to reduce the number of permanently employed lawyers. Large banks are also starting to move legal functions to near shore locations as a way of reducing the cost of providing legal services to the wider organisation Many of the leading investment banks, private equity firms and hedge fund businesses now source equity research on a range of corporates within different industry sectors from providers based largely in India. This has included: Quantitative modelling and valuation of companies based on quarterly and annual filings Detailed risk analytics to support business strategy formulation and decision making * Financial services M&A to drive growth in 2012, 15 Nov Key: = Typically retained = Possible candidate for Shared Service/Outsourcing = Suitable for Shared Service/Outsourcing

42 Future Trends in KPO in Financial Services Continuing consolidation in the KPO space as niche providers are subsumed within larger, better funded companies Broadening of capabilities by KPO firms as they seek to off-set income loss within the core client base of investment banks Blurring of the boundaries between BPO and KPO service providers as BPO looks to develop more complex, higher margin services to complete with traditional KPO providers Focus on ensuring KPO providers are able to meet the increasingly stringent standards imposed by regulators on all banks when using third parties to deliver services KPO increasingly used to supplement existing capacity and capability, rather than to migrate the activity in its entirety to a third party provider as with BPO and ITO 42

43 5. How: Sourcing Maturity & Service Management 43

44 FS Sourcing Strategies Looking across the spectrum of Financial Services reveals different banks demonstrate different operating models for the delivery of their support functions Our last report highlighted different models of outsourcing and offshoring across the spectrum of service providers depending on the maturity of the services and their internal capabilities Increasingly the models are maturing to meet the changing needs of business to rapidly go to market with new products and service Customer-centric strategies are now aligning with sourcing models to ensure business are more competitive and to support gains in market share Clients are increasingly discussing how the advantages of industrialisation will help with increasing regulatory constraints and compressed margins Both ITO and BPO are increasing in the Transformational Outsourcing and Commercialisation stages of the maturity model. To support speed to market companies are turning to multi-sourcing and an enterprise-wide Business Services Strategy but caution is essential in managing these arrangements as they require: - Capability/functions and strong relationships with the Sourcing function - Consistent alignment with business drivers and the sourcing portfolio - Increased commercial competencies than were required for core service management - Empowering sourcing teams to optimise execution and attune commercial agreements to the best competitive advantage 44

45 Improving the Chances of Achieving Strategic Goals Only a third of organisations achieve 80% of their goals for their sourcing strategies. This provides centralised service management functions an opportunity to drive out further efficiencies Senior Executive s rate sourcing success Why goals are not fully met 48% Somewhat successful 24% 28% Successful Outstanding success Satisfaction is not solely attributed to cost reductions Service quality and relationship management are key aspects The success ratio of projects continues to fall short of strategic goals Inadequate management capability to oversee large, potentially complex multi-sourcing arrangements Lack of integration between the business strategy and tendency to select service providers on price Transition activities over-run and affect the service delivered or impact on achieving the strategic goals. 43% of projects fail to deliver on time and 33% exceed the budget Performance monitoring along with supply and demand management does not track or address the most appropriate key performance metrics for the organisation Transparency and control of sourcing decisions are not prioritised Sources: Gartner 2012, Elix-IRR analysis Increase the likelihood of achieving strategic goals Ensure the stages of the sourcing strategy (vision, operating model, delivery options, selection, negotiation, transition, transformation) aligns to the strategic goals Refresh the sourcing strategy to ensure the business strategy remains aligned and improve the competitive position A number of sourcing scenarios may be required to obtain the best service value Through developing a robust Service Management Framework it is possible to significantly improve the success rate of achieving a particular sourcing strategy 45

46 Value The Importance of Service Management For companies to move beyond achieving pure cost efficiencies from their sourcing operating models, it is essential they establish a robust service management framework to manage client/supplier relationships and the delivery of quality service Historic reason to outsource More strategic focus on value creation Sourcing 3.0 Sourcing 2.5 Industry Utilities / Joint Ventures Sourcing 1.5 Sourcing 2.0 Commercialisation Sourcing Maturity Step Change Sourcing 1.0 Service Management Service Integration Tactical Cost Sourcing Maturity Strategic The trend towards service management frameworks and skill professionalisation is at the heart of business forecasting for new products, services and market strategies. This allows companies to negotiate better sourcing deals, prepare strategic suppliers in advance for rapid go to market delivery and also to achieve enterprise-wide economies by leveraging the supply chain across the back office 46

47 1. Service Planning Evolving framework for Service Management The growing recognition of the value of Service Management in assisting organisations to achieve their objectives is reflected in the range of activities which Service Management is required to touch Management Framework this is the best of the best from what Elix-IRR sees in the market Overall xxx interface between the support functions and the rest of the organisation including Clients in the Corporate Centre and Business Divisions and Suppliers outside of FS Institutions. It describes definitions, components and capabilities of the overall Framework 5 End-to-end Service Management Focal point of end-to-end service provision to Clients Manages demand & supply relationship between Clients (demand) and Service Delivery (supply) Agrees Service Levels with Clients and Run the Bank Service Delivery Brokers the demand from clients Uses relevant Management Information to review and refine services 1 Service Planning Control and compliance Produces and maintains management reporting including KPI / SLA performance reports Risk Management Operations Control Conducts satisfaction surveys 5. End-to-end Service Management 2. Service Development 3. Service Delivery 6. Supplier Relationship Management 4. Management and Support 4 Management and Support Strategic planning & direction Enterprise & Solution architecture Principles & Mission statement SLA structure & principles Owns governance structure, org design, roles & responsibilities Owns Service Catalogue Governs requests for new services 2 Service Development 6 Supplier Relationship Management 3 Service Delivery Strategy translation and integration Owns contractual relationships Manages service delivery on the Approval processes of new business Engages suppliers when new services are needed ground opportunities Manages suppliers in a consistent manner Gateways and hand-over Communication processes to Business As Usual Controls supply part of demand & supply equation team FS Institutions incorporated into this assessment include: 47

48 Benefits of a Service Management Framework Successful organisations have 6 key Building Blocks of the Service Management Framework, where the existence of all 6 increases the chance of achieving the sourcing vision, goals and strategy. Building Blocks Description Benefits 1 Service Manager: Single Point of Contact A Service Management layer is created, within which Service Managers act as a single point of contact for their client Their main responsibilities include: Establish Strategic partnership with their Client(s) Ensure high levels of service and assist in offering tailored solutions Challenge Client demands and requirements Review performance metrics to ensure agreed service standards are met Address issues of Client dissatisfaction Strategic relationship with Clients empower Service Managers Greater responsibility and accountability facilitates linking rewards to performance Motivated Service Managers continually seek ways to improve service Enhanced motivation for Service Managers further reinforces the Service Management mindset Faster decision making process 2 Contractual Mechanics Contractual mechanics are the contractual tools/ documents which enable the organisation to formalise agreed Service standard levels and to allow for a robust performance measurement reporting process Examples of contractual mechanics include: Master Service Agreement (MSA) a high level agreement between Client and service provider Service Schedule sub-agreements within an MSA containing more specific service requirements Service Level Agreements (SLAs) detailed service measures, e.g. time, quality, customer satisfaction, cost, volume, etc Service Catalogue Master document which records a comprehensive list of all services being offered to the Client Ability to monitor compliance to SLAs and measure performance Faster identification and resolution of areas not meeting agreed service levels Embedded culture of regular service levels and contract review to ensure relevancy Consistency of service delivery can assist the business to focus on attaining its objectives 48

49 Benefits of a Service Management Framework (cont.) Building Blocks Description Benefits 3 Central Service Management Office A distinct Central Service Management Office (CSMO) function, inclusive of a Service Management Office Lead, is responsible for the overall governance of the Service Management Framework within an organisation. Responsibilities of the Central SMO include: Supporting service management forums Oversight on alignment of the Service Management Framework Providing guidance and direction Provide depository for maintaining overarching contractual mechanics documentation Responsibilities of the Central SMO Lead include: Delivering the rollout of the service management Framework Providing guidance and direction to Service Managers Central coordination and alignment of the Service Management Framework Ensures consistency in approach Greater efficiency by leveraging economies of scale 4 Governance A well-defined Governance structure is required with clear reporting lines Centrally coordinated regular service forums encourage open discussion of service and cost metrics as well as strategic implications Open clear communication leading to a more proactive relationship Regular forum highlights issues and risks in a timely fashion Visibility on potential conflict and issues for escalation and prioritisation 49

50 Benefits of a Service Management Framework (cont.) Building Blocks Description Benefits 5 Performance Reporting Regular and robust performance reporting processes Service metrics are reported and highlighted in dashboards to management A Central dashboard will roll up the RAG status and key performance metrics from each area to Exco or other senior management tiers as appropriate Consistency in reporting methodology across the organisation Instil mindset and routine of regularly measuring and monitoring service levels 6 Central Software Tools A centrally-run integrated reporting & performance software tool can help to monitor and track service performance Fully automated dashboard provides greater visibility and consolidation of service reporting Document vault acts as central depository house and provides document management system Automatic alert and notification when service level agreements are not met Real time and up-to-date comprehensive management information Ease of use and drill down functionality Facilitates comparison of service level RAG status between locations or business areas This Service Management assessment included the following FS institutions: 50

51 Embedding the change Typical Challenges Typical challenges exist when embedding the Framework, which need to be resolved for maximum impact. Challenge Obtaining Buy-in Service Transition Retained Organisation & Governance Metrics, Measures & Reporting Non-performance Capacity Transformation & Innovation Response (from Elix-IRR survey) Engage the business areas in the design phase and collaborate on the Run the Bank model Regular communication to senior stakeholders is necessary for on-going sponsorship Engagement and involvement in governance to support prioritisation discussions Communicate financial and non-financial business benefits and customer-centric benefits Payment milestones are an effective way to communicate the need to deliver on transition; business dependencies and enablers associated with transition are important context Key staged, measures of success are essential rather than a final date of transition Retain middle or senior executive oversight of the project to assist the strategic project focus Avoid the temptation to make the retained structure a clerical function to oversee contractual performance. Increasingly complex contractual arrangements will require senior management involvement in order to intervene prior to performance failure. Agree transparency on key measures and metrics to ensure the relationship is successful. Buying scalability, agility and supporting rapid Go To Market launches needs to be continually tested and proven and enshrined as contractual obligations in the form of performance standards documented as service level agreements and key performance indicators Sharing horizon plans for change with third parties helps them prepare for change Ensuring that informal and formal routes are known and agreed for non-performance including remedies such as step-in rights and service credits Clerical/administrative support functions need to be empowered by the business areas or the business areas support remediation Create a rolling 12-month forward look of business and customer change to assist in planning and understanding business and technology embargoes and critical business events (AGMs, etc) Ensuring the skills and capabilities are available to support an agile and responsible service Third parties focus on Transformation and Innovation to enhance the commercial attractiveness of their engagement. Ensure that appropriate attention is given to the core services when periods of Transformation and Innovation are in place with specific metrics. Provide a contractual framework for sharing any benefits which arise from these activities 51

52 Service Management Framework Real Examples Bank Approach Rationale Implications Elix-IRR see many banks beginning to create a co-ordinated and centralised service management framework. Global Expense Management function manages demand and supply relationship by providing a cost reduction focussed interface between business and procurement incl. a cost analytics capability. Some functions have effectively centralised service management, e.g. Infrastructure Have pushed to centralise as much of the management framework as possible and consolidate operations between different banking divisions although centralisation has not been able to align service and supplier management sufficiently Centralised the overall management of spend and supplier performance by category to improve negotiation with suppliers and improve the value of management information on spend. A centrally controlled management framework to ensure shared but common strategy and initiatives across the whole group, combined with an ability to align strategy with service and vendor management more easily. Close alignment between Group Shared Services function (Service and Supplier Management) and centralised strategic functions address unclear interfaces between business and support functions across the Group, but consistent framework not yet in place. Moving away from a find/ get/ keep arrangement for sourcing to a unified strategic sourcing and procurement function and a stronger management framework for engaging and managing suppliers under a single executive Centralised management of supplier performance by category. Standardised approach to supplier selection, negotiation and management. Close collaboration with the business areas for supply and demand trends. Professionalised and defined the competencies and skills by role Centralised the management of supplier selection, negotiation and performance across the Group. Actively seeks to consolidate existing supplier arrangements by analysis of Group spend by category. Dedicated business relationship managers assigned for service management reporting and supply and demand forecasting. Strategic unit oversees the direction, Group-wide architectural decisions on sourcing strategies and engagement with business areas for supply and demand insight. Separate function executes the servicing supplier management framework and governance on performance metrics. FS Institutions incorporated into this assessment include: Vendor management is still largely devolved into the relevant functions leading to regional and business unit fragmentation and not well co-ordinated except for a small set of major global suppliers who receive particular focus (e.g. IBM, SAP) Economies of scale through reducing the cost involved in the management framework. Risks the loss of compliance in regional departments as the framework is withdrawn from these areas. Greater consistency in the management of vendors and improved purchasing leverage based on better management information. Domestic Retail Country X and Corporate Investment Banking are still like different banks with inconsistent consolidation plans. Centralising support services should maximise economies of scale and reduces costs but risks failures in customer service as specialised regional service capabilities are lost. Implementation of a Group wide Service Management Framework without a consistent Vendor Management Framework risks shortfall on Service delivery objectives promised to Business. With the old set up there were separate owners for strategic sourcing, procurement and management so communication of sourcing strategy between the departments was difficult Consolidated view of supplier performance and consistent approach to service management via robust framework. Business areas retain final decision on supplier and budgets, potentially compromising Group level economies of scale. Able to achieve economies of scale inter-company via the extension, consolidation or management of new contracts. This realises significant savings for the Group as part of wider transformation objectives. Alignment of the strategic and operational functions would aid business planning and oversight of supplier management metrics to objectives and obtain a comprehensive view of risk on delivery of services to the business. 52

53 Market Analysis: Lessons Learned Many banks are undertaking a similar journey towards building a powerful and effective Service Management Framework that can leverage best practice across their legal entities as they look to reduce their cost base and to improve quality of service Many banks use a similar approach to create a common Framework across functions, but with various degrees of success in fully implementing these models Potential reasons for such difficulties are due to components of the Service Management Framework not being appropriately addressed or unclear interfaces between the layers Organisations commonly face the challenge of balancing strategies of industrialisation and rationalisation across their organisations with the requirement for focussed product and/ or Client specialisation A strong Service Management Framework is key if a bank is to effectively deliver its sourcing strategy and operating model 53

54 6. Where: Global Trends from 2011, Africa Update & the Growth in Near Shore during

55 Global Trends North America had fewer mega-deals coming to the market in 2011, yet there was expansion of existing outsourcing deals EMEA continued to grow in BPO and ITO and the BNP Paribas joint venture with IBM matured further to cover data centres IBM lost prime position in North America and Asia Pacific regions although their niche market acquisition strategy continued Deutsche Bank and Barclays have focused on Manila for offshoring their Accounting hubs As the cost base rises for Indian service providers, they are looking to South Africa for comparable alternatives. The South Africa government have deployed incentive schemes to make the destination a viable alternative. Gartner is predicting that South Africa will generate some 40,000 outsourcing related roles by 2014 Established centres Emerging centres North America: Significant number of megadeal renewals, extensions and expansions Egypt and Morocco: Regional unrest highlighted in location selections Eastern Europe & Ireland: Contact centres, procurement and F&A for Europe and Middle Eastern markets India: Delivery models diversify to include nearshore capabilities China: Application development and maintenance, data processing for global businesses Philippines: Manila has come a significant Accounting hub for banks South America (Brazil & Chile): Application development and maintenance for North America South Africa, Mauritius and Ghana: Further developments in BPO domains and acquisition of niche vendors by global service providers There is increasing political pressure to ensure sourcing strategies consider near-shoring to bolster local economies and address unemployment statistics, especially in the UK and USA 55

56 Africa Update South African corporates are acutely aware of the benefits available as the region continues to emerge as a key sourcing destination for both local and global vendors. Acquisition of South African processing and niche technology providers have increased in the last year and provide vendors with an ideal gateway to develop into the rest of Africa. Commercial Banks At least two of the region s big 4 banks are actively reviewing their sourcing strategies New banking businesses and franchises are opening across the continent with proven, rapid startup models Skills The government offers a wide range of incentive schemes to encourage the growth of new enterprises and the creation of sustainable employment ABSA and other global companies have been investing in skills in the region Vendors Significant acquisitions by global vendors are expanding their niche services in BPO and KPO offerings Vendors such as AirTel utilise global relationships with IBM and Tech Mahindra to build capability in new destinations such as South Africa South Africa Incentives The South African Department of Trade & Industry have created an incentive programme for any company bringing sustainable employment to the region, making cost of operations for vendors comparable with Indian destinations 56

57 Africa is a growing centre for outsourcing In Northern and Sub-Saharan Africa the market continues to grow. Accompanied by supportive government policymaking we see the macro-economic environment continuing to be favourable to growth in outsourcing activity. Context Opportunity Next steps Africa is and will remain one of the world s fastest-growing regions According to The Economist, six of the world s ten fastest-growing economies from were in sub-saharan Africa Over the next 20 years, Standard Chartered forecasts that Africa s economy will grow at an average annual rate of 7%, which is slightly faster than China s expected growth rate Countries in Africa are positioning themselves on the global outsourcing map and are increasingly becoming competitive destinations for both BPO and ITO services Several multinationals have been investing in Africa to service the local and regional markets as well as leveraging it as a global delivery hub Northern Africa has already seen many outsourcing successes with Morocco, Tunisia and Algeria serving French-language support requirements Ghana, Kenya and Mauritius are emerging as attractive locations for regional delivery indeed Accenture has a well-established call centre and IT delivery centre business in Mauritius due to attractive tax and labour legislation Governments and the private sector have made important progress in improving broadband connectivity and reducing prices. The fibre optic SEACOM subsea cable went live in 2009, and since then we have seen a dramatic reduction in connectivity costs Technology parks have been developed (and are planned) to promote the growth of the Outsourcing industry in Africa Investments from MNC s as well as continued demand for local and regional service delivery from them will be very important to any country which wants to succeed as an outsourcing destination Government support is essential to enable Africa to succeed as an outsourcing location. The Ghanaian and Kenyan governments are promoting the outsourcing industry through tax breaks and infrastructure development Governments must become users of outsourcing services, increasing credibility and creating demand essential for continued growth in the industry On-going investments by global outsourcers in the region to develop the infrastructure, connectivity and skills base 57

58 Examples of Acquisitions and Investment in Africa Global vendors continue with the acquisition strategies of niche companies to extend their specialist services. Indian vendors such as Wipro have implemented an Africa Strategy to diversify their delivery models, extend their capabilities and take advantage of government incentive schemes to manage their cost base Acquisition Tech Mahindra completed their acquisition of Satyam Computer Services Limited in March 2012 Services BPO, ITO, service desks, software centres and products Rationale The merger resulted in the creation of a new offshore services provider for Tech Mahindra with approximately US$2.4bn in revenues, a 75,000+ strong work force and 350+ active clients (including Fortune Global 500 companies), across 54 countries The move allows a diversification in the delivery model for Tech Mahindra Acquisition WNS announced the acquisition of Fusion Outsourcing Services in June 2012 Services Customer care, contact centre BPO services and business continuity Rationale Based on Fusion s existing book of business, the acquisition is expected to contribute incremental revenue of $9 million - $10 million for WNS in fiscal WNS expects the transaction to be neutral to adjusted earnings per share in fiscal 2013, and accretive in fiscal 2014 Acquisition HCL Axon announced a strategic partnership with UCS Group and a take over of the UCS Group s Enterprise Solutions SAP practice Services UCS SAP practice offers Tier 1 retail and wholesale SAP project implementations Rationale This partnership will allow UCS Group to grow its annuity services business internationally besides expanding HCL Axon s market presence in South Africa The acquisition will also boost HCL AXON's existing enterprise-software capabilities and deepen the company's market presence, especially in the retail sector, in South Africa Source: Press releases 58

59 Examples of Acquisitions and Investment in Africa IBM have been particularly active in the African acquisition market. Acquisition IBM announced the signing of 5 strategic agreements in the Kenyan Financial Services sector in December 2011 Services IBM will provide technology services to five Kenyan banks to support their rapid growth and to help them launch new services such as mobile and internet banking Rationale According to IBM, Africa's financial services sector is currently worth over $100 billion and will continue to grow at double digit percentages through 2020, outpacing Africa's gross domestic product growth Services Created new facilities, offices, training, staffing and recruitment, sales and marketing capabilities Rationale IBM continues to expand its operations across Africa as part of an increased presence in key growth markets Recent opening of offices in Mauritius, Tanzania, Senegal and Angola Established business hubs in South Africa, Kenya, Nigeria and Egypt IBM's increased presence is part of a broad program of investment the company is making across Africa IBM is now present in more than 20 African countries Source: Press releases 59

60 Growing Importance of Near Shore The rise of Near Shore is set against a policy background in the major economies which is looking to redress perceived employment imbalances and bring jobs home. The global regulatory environment also requires data protection across borders which is more easily achieved closer to home. Context Drivers for near shore Examples On-going economic pressures mean offshoring and outsourcing remain key levers for most major corporates in trying to reduce their cost base Local political pressure intensifying against sending jobs offshore Many of the typical offshore destinations continuing to experience double-digit rates of inflation Banks have embraced near shoring sourcing strategies as an alternative to traditional off shore destinations such as India Legislation and incentives to locate jobs onshore Cultural alignment and language skills Time zone and proximity to clients Increasing levels of data protection making it more onerous to be able to move data to different legal jurisdictions Improved levels of staff and knowledge retention Wage inflation, high attrition and productivity differentials Citibank has developed near shore operations and IT centres in Florida for its US business and in Northern Ireland for its European/UK business Deutsche Bank has built customer service operations for its Capital Markets clients in Birmingham in the UK and Jacksonville, Florida in the United States UK retail banks are developing near shore customer contact centres 60

61 Social Factors Key Factors to Consider When Selecting an Offshore or Nearshore Location Economic Factors Political Factors Anti-Outsourcing Rhetoric Political rhetoric and tone in US/Western Europe is increasingly levelled against firms looking to outsource/offshore operations Legislation Rhetoric is beginning to be matched in some locations by legislative action to penalise firms that move jobs offshore Labour Costs Wage inflation remains low in Western Europe and America at around 2-3% compared to 11-13% in India Real Estate Costs Rapidly increasing in tier 1 offshore locations. Recession and property bust in US and Europe means tier 2 locations onshore are increasingly attractive. Productivity Loss Our experience with our clients shows that offshoring operations can cost a company between 20% to 60% in the first 1-3 years depending on the quality of resources at the offshore location Hidden Costs Language Skills/Cultural Factors While this is less of a challenge for English language skills, Western European countries have found language skills scarcer and often of lower quality Staff Retention Failure to retain staff can be very expensive. The BPO attrition rate is 55% in India and 30% in China, compared to 20% in the UK. This can cost between 25-40% of the average annual salary of the lost resource Location & Time Zone Key Factors Transition costs such as training, recruiting and on-going management costs can contribute to around 10-15% of the cost of an outsourcing deal Working in a common time zone can yield significant value for businesses 61 Examples The US have devised punitive measures to dissuade companies from offshoring. The Call Center Worker and Consumer Protection Act, if passed, will make companies who offshore call centres ineligible for any indirect federal loans or loan guarantees for five years. The legislation would also require overseas call centre employees to reveal their location to U.S. consumers and give them the right to be transferred to a call-centre in the US. Recent studies show that office space prices have reduced considerably in regional UK cities such as Birmingham, Manchester, Newcastle, Belfast and Cardiff. Currently, the average serviced office rents (per person) is at 125 per person per month in Birmingham and 82 in Manchester, down from 2011 highs of 159 and 96 per person per month (around 20 per cent) respectively. Such trends are also true for US cities like Jacksonville, Raleigh, Detroit and Atlanta where office space is both plentiful and cheap compared to Tier 1 cities in low cost emerging markets When Citibank relocated some IT development and support from London to Belfast in Northern Ireland, they found at critical moments in projects or during severe incidents it was very simple for management from London to go on-site and be more hands-on during those periods Deutsche Bank benefitted from relocating its capital markets client services operations from London to Birmingham with ability to retain several key management staff which significantly reduced the risk of knowledge loss and reduced time to transfer

62 7. Who: Major Outsourcing Deals 62

63 Top 15 Global FS Deals by value in 2011 There have been major shifts in deal activity from 2010: Significant number of renewals and mega-deal extensions in North America Evidence the economic downturn impacted Asia Pacific region after strong outsourcing trends of 2010 #10 #11 Bank of Montreal $397m National Bank of Canada $342m #6 RBS $665m #15 Scottish Widows $310m Colour Key: Areas of High Outsourcing Deal Activity (both ITO and BPO) #5 CIBC $850m #12 ING U.S. (USFS) $330m #2 Capital One $1.7Bn #14 The Hartford $310m #7 PIMCO $600m #1 BNP Paribas $4.07bn #3 La Caixa $1.36Bn Allianz $489m #9 BNP Paribas and IBM extended their joint venture for $4.07bn Of the top global 15 deals, 1 was from Africa by Old Mutual for a $315m ITO contract to T- Systems In the top 15 deals, EMEA featured two BPO deals (RBS and Scottish Widows) and 4 ITO deals #4 Blue Cross & Blue Shield of Rhode Island $1.2Bn #9 Blue Shield of California $400m #13 Old Mutual South Africa $316m #8 Deutsche Bank $502m In North America, with the exception of Capital One and ING, the trend continued for most deals to be undertaken by Canadian banks and mid-tier US banks The PIMCO deal (#7) with State Street represents one of the largest investment management operations outsourcing deals in the industry 63 Large mega outsourcing deals in Asia Pacific, specifically in Australia, were not prevalent in the last 12 months, compared to the year before that, signalling the effect of the economic downturn finally reaching the region. None of the Top 15 deals we made in this region in 2011 Source: IDC, Press Releases

64 Total Deal Value ($ billion) Regional Analysis of Global Top Ten FS Deals in 2011 North America continues to demonstrate its importance in driving global outsourcing deal values. Value of Top Ten Deals by Region $0 North America EMEA 2.5 Total Value of Top 10 Deals Total Value of Top 3 Deals Asia Pacific This year, the Top 3 EMEA deals only make up 66% of total value of Top 3 North American deals, in comparison to last year when they were more than double the value of the Top 3 North American deals. The value for Top 10 EMEA deals has reduced significantly by 46% from $8.5 billion in 2011 to $4.6 billion. The value of the Top 10 North American deals has grown by 33% from $4.8 billion in 2011 to $6.4 billion In North America, 3 of the Top 10 deals were by the Blue Cross Blue Shield Association, a federation made up of health insurance organisations In North America, 3 of the Top 10 deals were carried out by Canadian banks TSYS was awarded the largest deal in North America at $1.7 billion by Capital One, and the second largest deal in EMEA by RBS There are no deals this year over $500 million in value in Asia Pacific as result of the lack of mega deals taking place in Australia. This trend continues from the previous year. Source: IDC Aug 2011 July 2012 Geographic Region 64

65 7. Who: Regional Analysis for

66 Top Ten FS Outsourcing Deals in North America Rank Company Service Provider Total Contract Value Domain #1 $1.7Bn BPO #2 $1.2Bn BPO #3 $850m ITO Description The company originally signed a 5-year contract with Capital One in 2005, with processing beginning in 2006 and 2007 after its then 49 million card portfolio was converted to the TSYS system TSYS will now continue to process Capital One's consumer and small business credit cards in North America until Sept. 30, 2017 Under the terms of the agreement, Catamaran (formerly SXC Health Solutions Corp.) will provide a full suite of PBM services, including claims adjudication, pharmacy network management, clinical programs and mail SXC's services will begin January 1, 2013, and will support approximately 450,000 BCBSRI members with an annual drug spend of approximately US$400 million per year Information regarding the scope of the extended contract is very limited - under CIBC s previous contract with them, HP supported the bank's enterprise infrastructure, including Internet banking, branch tellers, point-of-sale, wire payments, fraud detection systems and CIBC's automated banking machines this is believed to continue HP was also responsible for data center and network infrastructure management, host (mainframe and HP Non- Stop systems) and midrange transaction processing, application services, operating systems, storage and desktop messaging Source: IDC, Press Releases 66

67 Top Ten FS Outsourcing Deals in North America Rank Company Service Provider Total Contract Value Domain #4 $600m BPO #5 $400m ITO #6 $397m BPO #7 $342m ITO Source: IDC, Press Releases 67 Description State Street Corporation will provide an array of investment manager operations outsourcing services for $1.3 trillion in assets This represents a renewal of one of the first and largest investment manager operations outsourcing relationships of its kind in the industry Over the last decade, State Street has provided services including custody, accounting, valuation services, trade processing, collateral management, pricing, derivatives processing and IT development HP and BSC have a relationship spanning more than 43 years HP will continue to provide technology infrastructure & applications, applications development & management services and connect existing centres of excellence with software professionals across Blue Shield projects Aon Hewitt will continue to provide a comprehensive suite of HR and benefits administration services including payroll, workforce administration, health and welfare administration, recruitment services, and compensation administration among many others As part of the new agreement, Aon Hewitt will add a variety of new services as well, further expanding the solution suite for the Bank of Montreal Aon Hewitt will implement its newest technology and solutions For 11 years, CGI has provided the National Bank of Canada with application development and support services National Bank will continue to benefit from the expertise of CGI and its professionals in maintaining and developing its banking information systems

68 Top Ten FS Outsourcing Deals in North America Rank Company Service Provider Total Contract Value Domain #8 $330m BPO #9 $310m BPO #10 $250m ITO Source: IDC, Press Releases 68 Description Under the terms of the new agreement, Cognizant will hire more than 1,000 ING U.S. employees in Minot, North Dakota and Des Moines, Iowa to create a world-class, U.S.-based centre of excellence for insurance and finance business process services ING have said that leveraging Cognizant's expertise will help them to operate more efficiently, while delivering the high levels of support their customers and distribution partners have come to expect Accenture will provide The Hartford with management and technology consulting as well as finance and accounting (F&A) business process outsourcing (BPO) services. According to the agreements, Accenture will help The Hartford to: Simplify and standardise processes and tools across the finance department; Identify appropriate investments in technologies to increase speed to market; Improve process consistency and reduce cost; Streamline the finance organisation to empower leaders and remove redundant oversight; Increase the speed of decision-making The agreement includes ownership, management and support of a variety of technology systems and functions, including mainframes, servers, desktop PCs, telephone systems, networks and technology security This agreement is expected to provide BCBSNC with business flexibility and significant operational cost savings, as well as offer professional development opportunities for BCBSNC employees in affected business areas

69 7. Who: EMEA Analysis for

70 Top Ten FS Outsourcing Deals in EMEA Rank Company Service Provider Total Contract Value Domain #1 $4.07bn ITO #2 $1.36bn ITO Description IBM extended is Joint Venture with BNP Paribas at the end of 2011 BNP Paribas S.A. provides a range of banking and financial services worldwide and is headquartered in Paris The BNP Paribas Partners for Innovation (BP2I) joint venture agreement was established in It was further extended in 2004 with data processing operations. BNP Paribas exercises significant influence over BP21, which is owned on a 50/50 basis with IBM BP21 is staffed essentially with BNP Paribas employees and its offices and data centres are owned by the Group. Spanish savings bank la Caixa and IBM established a 10- year strategic services relationship As part of the agreement, IBM will help Serveis Informatics la Caixa manage the infrastructure technology budget of la Caixa of more than 2 billion over 10 years The IBM-provided scope is about 50% of this budget ( 1Bn over 10 years) the remainder is directed to additional service providers The new strategic alliance is expected to save la Caixa 400m over the term of the agreement IBM has been the privileged technology partner of la Caixa for 50 years Source: IDC, Press Releases 70

71 Top Ten FS Outsourcing Deals in EMEA Rank Company Service Provider Total Contract Value Domain #3 $665m BPO #4 $502m ITO Description TSYS has been awarded a long-term payment extension by RBS Group, the estimated value of which is 420m over 13 years TS2, TSYS outsourced payments processing solution, has been used by RBS since 2001 This extension means TSYS will continue to provide payment processing and related services for RBS' UK and Irish consumer credit and commercial businesses for 12.5 years and its US consumer credit and commercial businesses for 13 years TCS (Tata Consultancy Services) will deliver a global application service desk, ITIL (IT Infrastructure Library) services, besides other software solutions, to the bank at locations across 7 countries - the United States, United Kingdom, Germany, Hungary, Philippines, Singapore and India TCS will partner with Deutsche Bank to transform to an ITIL-aligned model, aimed at significantly improving service delivery through this framework of best practices The team will leverage the concept of LEAN to eliminate non-value added activities and provide cost efficiencies to the bank Source: IDC, Press Releases 71

72 Top Ten FS Outsourcing Deals in EMEA Rank Company Service Provider Total Contract Value Domain #5 $316m ITO #6 $310m BPO #7 $275m ITO Source: IDC, Press Releases 72 Description Old Mutual and T-Systems in South Africa have agreed an IT infrastructure management deal valued at R2.58 billion extending the existing relationship between the two partners to 2019 Referred to as Equinox, the deal puts a strong focus on innovation. It will help set up processes to reduce Old Mutual s operating costs over the 7-year period and provide the organisation with a platform for innovation that supports its Long-Term Savings (LTS) strategy The partnership will accelerate Old Mutual s ability to deliver on its commitment to improving customer service, and increasing IT operational efficiency State Street will serve as the preferred single provider of middle office, custody, fund accounting, depositary, securities lending and investment administration services for Scottish Widows and SWIP The consolidated portfolios include investment accounting for more than 200 billion of assets and the services currently supported by other providers will migrate to State Street during the next 18 months. The deal will help Lloyds Banking Group positively address the many changes taking place in the industry, such as Solvency II HCL Technologies has been awarded a large outsourcing contract by Union Bank of Switzerland (UBS). IDC estimates the deal to be US$275 million over 5 years HCL Technologies will deploy about 1,000 professionals to handle this project who will be located across the globe including India. The company is setting up an offshore delivery center (ODC) in Bangalore for UBS, operational from April 1, 2012

73 Top Ten FS Outsourcing Deals in EMEA Rank Company Service Provider Total Contract Value Domain #8 $250m ITO #9 $240m BPO Description HCL Technologies Ltd will provide Applications Support transformation services to Deutsche Bank AG Markets arm The service factory delivery model implemented by HCL is expected to significantly enhance productivity, driven by transparent Service Level Agreements (SLAs) and performance metrics, and comes as Deutsche Bank endeavours to move away from a traditional applications support model to a set of unique process driven services governed by global standards like Information Technology Infrastructure Library (ITIL) and LEAN The transformational program, which will result in significant vendor consolidation, involves the management of key banking applications that are the backbone to Deutsche Bank's critical businesses. Serco Group Plc has been awarded a 10-year contract by Aegon N.V to provide customer contact and services. The deal is worth 150 million over 10 years The agreement is expected to see Serco deliver a wide range of life and pensions services for AEGON. These include managing all aspects of the customer journey from initial underwriting through to claims management for the AEGON Individual Protection (AIP) suite, which comprises a full portfolio of life assurance, critical illness, disability and income protection products IBM will assume responsibility for the development and support of Ukrsotsbank's information systems and applications, as well as the management of the bank's IT infrastructure #10 $200m ITO By tapping into IBM's vast cumulative knowledge, Ukrsotsbank plans to improve customer service, increase performance efficiency and lower operational risk across its country-wide network of nearly 400 branches, as well as help the bank achieve 73 significant operational savings Source: IDC, Press Releases

74 7. Who: Asia Pacific Analysis for

75 Top Ten FS Outsourcing Deals in Asia Pacific Rank Company Service Provider Total Contract Value Domain #1 $308m ITO #2 $236m ITO #3 $223m BPO Description Reliance Communications has been awarded a 15 year outsourcing contract by HDFC Bank for building and managing a data centre The project is the largest-ever outsourced in this sector Reliance will be establishing the facility in different stages. During the first phase of the data centre, it will get ready in one year and the entire project is scheduled to be completed in two years time Currently, CSC provides Australian insurance firm AMP with fully outsourced managed infrastructure services for mainframe, network, desktop, service desk, cloud service and information/system security CSC s services will enable AMP to maximise efficiencies from the integration of all infrastructure services across the new AMP/AXA entity. CSC will continue to deliver advanced and consistent services across all AMP business units, and work has already begun on the technology integration WNS is to provide end-to-end insurance outsourcing. The deal is worth A$220 million over a period of 5 to 7 years Suncorp will set up a A$ million onshore facility in Australia in addition to offshoring 2,000 jobs to India through the end-to-end insurance outsourcing with WNS and F&A outsourcing with Genpact. #4 $120m ITO Source: IDC, Press Releases 75 ANZ will consolidate 40 outsourcing deals and transfer 360 staff to Capgemini under a new managed services agreement for IT testing and environment management ANZ needed Capgemini to support change for approximately 800 applications and more than 280 projects at a pace that we cannot achieve alone As part of ANZ s 2017 technology roadmap, they have said that they need to continue to access increasingly scarce IT skills

76 Top Ten FS Outsourcing Deals in Asia Pacific Rank Company Service Provider Total Contract Value Domain #5 $84m ITO #6 $81m BPO #7 $80m ITO Description Under the new agreement, which expands on an agreement first signed in 2000, IBM will deploy new technologies to improve customer service and sustainability, and upgrade existing systems IBM will provide a range of advanced technologies which, together with the existing environment, will create additional synergies, flexibility and choice for users The deal provides the upgrade path for Westpac's workplace environment, ensuring the latest technology is deployed and there is a migration path to the latest operating systems The other part of the previously listed Suncorp BPO outsourcing deal this year offers an $81m contract for Genpact to outsource finance and accounting services to India TPI served as adviser during the bidding process. Accenture, ExlService, and Infosys Ltd. also bid on the deals The bank's aim is to ensure it understands more about the reason a customer is calling and then be able to have the call answered by the most suitably skilled customer service representatives Gen-i (Telecom Corporation of New Zealand) said that the high volume customer service solutions require IT systems that are both exceptionally reliable and able to cope with surges in demand. The platform handles over 100 million calls per annum, with high levels of self service, and it intelligently routes calls to over 1,500 agent representatives Source: IDC, Press Releases 76

77 Top Ten FS Outsourcing Deals in Asia Pacific Rank Company Service Provider Total Contract Value Domain #8 $74m ITO #9 $28m ITO #10 $27m ITO Description BT is helping CLSA to flex its communication and IT requirements by implementing an innovative, global utility based pricing model for BT's networked IT services and the deployment of BT Unified Trading for trading communications The project includes a strong professional services component aimed at managed security & firewall services, application optimisation, device management and a 24/7 maintenance and support team Dah Sing Bank has appointed Atos Information Technology HK Limited as its new data centre services provider It won this deal over a major global competitor, thought to be IBM Dah Sing Bank said that this new service partnership will enhance its ability to provide quality services to its customers, beginning close to the end of 2012 IBM Global Services has been awarded a contract by Manappuram General Finance & Leasing Limited to transform its IT systems in support of its growth plan They will build and manage the entire IT infrastructure for Manappuram Finance and deliver application transformation benefits through implementation of leading business solutions in Finance, Human Resource Management, Business Intelligence Collaboration tools and Document Management Source: IDC, Press Releases 77

78 Regional Summary of Key Trends in the Global Outsourcing Market North America Key Trends: BPO deals continue to dominate (6 out of top 10 deals ) 7 out of 10 deals on or nearshore Analysis: Capital One accounted for the most significant deal of the Year renewing their contract with T-SYS for $1.7bn to see TSYS continue to supply their North American credit cards until The Canadian banking sector has shown strong demand for HP (ITO), AON-Hewitt (BPO) and CGI (ITO) from CIBC, Bank of Montreal and National Bank of Canada respectively A final observation was the strength of demand from healthcare providers mobilising in light of new legislation in the US EMEA Key Trends: ITO showing strongest demand (7 out of top 10 deals) Likewise banking, where 9 of the 10 deal were for banks. Just one insurance provider was represented (Aegon) Analysis: IBM were the big winner. The top two deals went the way of IBM with combined TCV of $5.43bn IBM also appeared two further times in the top ten as large systems integrators performed well (IBM, TATA, HCL) Serco s appearance on the list is notable as the predominantly public sector focused UK group continue to expand into the private sector following their acquisition of the Listening Company, the London based customer services outsourcer. Asia - Pacific Key Trends: ITO showing strongest demand (8 out of top 10 deals) Australia bringing through demand, despite a reduction in so-called mega-deals Analysis: Systems Integrators continuing to perform strongly (IBM, CSC, Capgemini, BT, ATOS) The fact that the large systems firms are performing well reflects a tendency to continue to prefer suppliers based in the developed world Marking a departure from our previous report we have not observed as much A-PAC to A-PAC activity. 78

79 Elix-IRR s financial services transformation capabilities in supporting our clients Elix-IRR have transformation capability in all areas of financial services support functions. Our experienced staff also understand the decision making processes and methodologies which sit underneath these functions. We enable operational excellence and creation of innovative new revenue streams. COMMENTARY Elix-IRR have found that each support function has a unique set of challenges which renewed sourcing arrangements need to address. Elix-IRR are experts in the following key areas of sourcing considerations : target operating models, effective organisational design, access to sourcing expertise, quality assessments of best locations, accurate vendor selection and shared services design. For more information on how we might be able to support your business meet the challenges of the future please contact us 79