Dynamics with Business Process Outsourcing

1
(No Transcript)
2
Dynamics with Business Process Outsourcing Impacts
and Implications Rick Beers Dir Business
Process Architecture Corning Incorporated
3
Dynamics with Business Process
Outsourcing
Discussion Objective Using Cornings Shared
Services experience as a starting point, provide
the client view of BPO
the impacts upon clients of Procurement
outsourcing and the opportunities for
Systems
Integrators, Vendors and Service Providers

• Topics
• Corning Profile
• Corning Shared Services
• Corning and BPO
• BPO Circumstances
• Implications and Opportunities

4
Dynamics with Business Process
Outsourcing

• Topics
• Corning Profile
• Corning Shared Services
• Corning and BPO
• BPO Circumstances
• Implications and Opportunities

5
Dynamics with Business Process
Outsourcing

• Founded 1851
• Headquarters
• Corning, New York
• Employees
• Approximately 25,000 worldwide
• 2004 Revenues
• 3.8 Billion

6
Dynamics with Business Process
Outsourcing
Corning has manufacturing operations in 23
countries.

• Europe
• Denmark
• France
• Germany
• Italy
• Netherlands
• Russia
• Spain
• U.K.

• Asia
• Australia
• Hong Kong
• India
• Japan
• Korea
• PRC
• Singapore
• Taiwan
• Thailand.

• Americas
• Brazil
• Canada
• Mexico
• U.S.
• Dominican Republic

• Africa
• South Africa

7
Dynamics with Business Process
Outsourcing
Corning is a highly diversified corporation
represented in 7 Industry Verticals
Optical Fiber
Controls and Connectors
Corning Cable Systems
Telecom
Display Technologies
Consumer Electronics
Life Sciences
Life Sciences
Semiconductor
CPG
Specialty Materials
Automotive
Steuben
Healthcare
Environmental Technologies
Ophthalmic
8
Dynamics with Business Process
Outsourcing
Divisional diversity drives Cornings ERP
Architecture Single Global Instance of Finance
tied to Global Supply Chain Instances
9
Dynamics with Business Process
Outsourcing

• Within that diversity however, there are common
  themes
• Asset Intensive, Mixed Mode Manufacturing
• An OEM supplier (with one exception)
• Relatively few customers and vendors
• Specialty products attributes-driven

10
Dynamics with Business Process
Outsourcing

• Topics
• Corning Profile
• Corning Shared Services
• Corning and BPO
• BPO Circumstances
• Implications and Opportunities

11
Dynamics with Business Process
Outsourcing

• During 2002, in response to business conditions,
  Corning undertook a far reaching Corporate
  initiative to evaluate the administrative
  functions of HR, Finance, IT and Indirect
  Procurement.

• Company realities
• Top Quartile performance requirement
• Business Process Outsourcing (BPO) potential
• Alternative organizational models

12
Dynamics with Business Process
Outsourcing
At year-end 2002, a decision was reached.

• We would not adopt a large scale BPO model
• We would outsource selectively over time
• We would organize around a Shared Services model
  structured as if we were a Service Provider
• Procurement
• Finance
• HR
• IT

Business Process Insourcing The model emulates
BPO dynamics
13
Dynamics with Business Process
Outsourcing

• Properly executed, a Shared Services model can
  have a variety
• of positive impacts
• Head Count Reduction
• Spend Reduction
• Leveraged Skills
• Management Focus
• Risk Reduction / Control
• Agility (MA, etc)

Efficiency
Effectiveness
14
Dynamics with Business Process
Outsourcing
Three Imperatives

• Underlying Premise
• Enterprise Value was to be gained by centralizing
  common, non-differentiating business processes
  previously performed within business units as
  long as no harm is done to business units

• Strict accountability has been the key to
  acceptance
• Broad use of Service Level Agreements

• The shared services unit provides a service but
  does not
• own the end to end process within which that
  service
• resides.
• Again, very similar to BPO dynamics

15
Dynamics with Business Process
Outsourcing
As an Aside What is an End to End Process?
Michael Hammer 2004
16
Dynamics with Business Process
Outsourcing
Consider a typical Procurement end to end
process
However End to End Effectiveness
is what really matters
The Efficiency of each of these tasks is
interesting.
17
Dynamics with Business Process
Outsourcing
Careful consideration needs to be given of the
processes to move to a Shared Service. For
Corning

• CRM
• Supply Chain Planning
• Direct Matl's Sourcing

• Cost Management
• Maintenance Mgmt.
• Production Mgmt.

Unique
Process Commonality

• Billing-Receivables
• Req. to Pay
• Ind. Matl's Sourcing
• Payroll

• Customer Service
• Order Mgmt.
• Inventory Mgmt.

Common
Shared Services Zone
Non-Differentiating
Differentiating
Business Unit Impact
18
Dynamics with Business Process
Outsourcing
Consider Source to Settle for Direct Materials
Division 1
Division 2
Corning Shared Services
CSS
Division 3
Division N
19
Dynamics with Business Process
Outsourcing
Unfortunately, there has been a problem. End to
end process flows that were closely integrated
within each division have been disconnected. For
direct materials
Division 1
Division 2
Division 3
Division N
This also aligns with a key BPO dynamic
How to deal
with an end to end process that is disconnected?
20
Dynamics with Business Process
Outsourcing

• Topics
• Corning Profile
• Corning Shared Services
• Corning and BPO
• BPO Circumstances
• Implications and Opportunities

21
Dynamics with Business Process
Outsourcing
Corning has been carefully attempting various BPO
opportunities since the 2003 reorganization. Two
attempts in Procurement have yielded opposite
results and a wealth of experience.

• eSourcing Reverse Auctions for commodities
• Storeroom Operations

22
Dynamics with Business Process
Outsourcing
eSourcing at Corning

• Began 2004 with the intent of a 12 month pilot
• Expectation of 30 events in 2004
• Contracted with FreeMarkets with a Successful
  Result
• Preferred over ERP application due to
  consultative element
• Intent had been to revert to ERP application
  after pilot, as event volume increased and
  internal knowledge was gained
• However, as of April 2005, we are at 600 events
  and growing
• Satisfaction very high with FreeMarkets
• Positive surprise Commodity Expertise
• Long term plan being evaluated
• Downside Connectivity into Master Data Files
• Limitation Not possible for direct materials due
  to the need for end to end process
  interoperability with Planning application
• Possible Concern Acquisition by Ariba might
  shift emphasis to application over service

23
Dynamics with Business Process
Outsourcing
Storeroom Operations

• MRO and some indirect materials
• After pilot, contracted with a firm specializing
  in such BPO and began roll-out in early 2004
• Unsuccessful and being brought back in house.
• Pricing model flawed for Cornings use service
  priced per ordered. Materials purchased are
  high cost, specialized and low volume.
• Vendor provided little consultative assistance
• Significant interoperability problem no systems
  linkage into approval workflow within ERP
  application.
• Concept is still sound, but appears impractical
  for our use

24
Dynamics with Business Process
Outsourcing

• Topics
• Corning Profile
• Corning Shared Services
• Corning and BPO
• BPO Circumstances
• Implications and Opportunities

25
Dynamics with Business Process
Outsourcing
As compelling a case may be for BPO in itself, it
often has impacts within a client that make it
impractical.

• Complexity
• Energy spent managing complexity detracts from
  creative energy
• Interoperability
• Transactional flows AND Information
• Governance
• The responsibility of many is the responsibility
  of none

26
Dynamics with Business Process
Outsourcing
As an example, consider the Corning Source to
Settle example with Storeroom BPO
MMS
Insufficient integration was designed to create
the degree of interoperability required for
approval workflows within the transaction system
27
Dynamics with Business Process
Outsourcing
Organizational impacts have been significant

• Complexity
• One more pain in the neck to deal with..
• Interoperability
• Automated transactions became semi-automated
• Governance
• Who owns accuracy (six sigma measure) of
  storeroom transactions

28
Dynamics with Business Process
Outsourcing

• Topics
• Corning Profile
• Corning Shared Services
• Corning and BPO
• BPO Circumstances
• Implications and Opportunities

29
Dynamics with Business Process
Outsourcing
A significant opportunity exists for Service
Providers who take a more holistic approach to
customer engagement. Competitive
Differentiators

• Readiness Assessments
• Is a customer ready
• What are internal process flows
• What is state of data management
• Integration Guidance
• Goal Maintain required level of process
  interoperability
• What is best answer for a given condition
  (Interface, SOA, workflow)
• Category Expertise
• Commodity, Industry, Channel
• Catalogue
• Best Practice Expertise
• With using the service/product offering.

30
Dynamics with Business Process
Outsourcing
There are, however, negative implications
possible.

• Overlap of SIs, Apps Vendors and SPs
• Vertical integration is a constant
• Alliances?
• The Game Boy mentality within customers
• Dont bother me with details, just make the
  system work.
• Our processes and challenges are unique your
  solution needs to accommodate me
• Customer Retention
• What happens after a SP educates the customer?

31
Dynamics with Business Process
Outsourcing
The one overriding point, however, is that
A great System or Service is NOT the goal for the
customer. End to End Business Process
Excellence is. That is what must define the
engagement between a customer and its BPO
Provider.