Capgemini Consulting is the strategyand transformation consulting brandof Capgemini Group

© 2009 Capgemini - All rights reserved

Best practice for trade transactionsChallenges and guidelines on how to make it happen

Copenhagen June 16, 2009

Topics during the session

2

• Introduction

• The challenge

• The remedy

• The key to make it happen

Purpose and content

Best practice for trade transactionsChallenges and guidelines on how to make it happen

3

• To outline some of the underlying challenges in optimising a value chain such as in Trade Finance

• Share our experiences on how to make it happen

Purpose of the session

• The challenge

• Factors that drive the need to coordinate activities and resources in complex value chains

• The challenge for modern organisations to cope with increasing dynamics and complexity and its implications on performance

• The remedy

• Approaches which are used to optimise value chains and improve performance

• The key to make it happen

• Key success factors in managing transformation of complex value chains

• Observations on improvement areas in Trade Finance

Content in the presentation

Topics during the session

4

• Introduction

• The challenge

• The remedy

• The key to make it happen

The organisational hierarchy is used as the as the vehicle to manage coordination of activities and resources in value chains

5

The origin of the hierarchy

The traditional model for the company

The logic behind the growth

• The hierarchical structure has been the primary vehicle for managing the coordination of resources and value added activities

• The hierarchy originates from the church and military

• The capitalisation on transaction costs and economies of scale implied that organisations grew in size

• “The explanation for the emergence of the hierarchy is its superior capacity to manage flows of information.” (Scott, 1992; Arrow, 1974)

The background of the organisation

The hierarchy has been the most effective way of organising complex value chains capitalising on transaction costs and economies of

scale

The need to manage coordination in an organisation is driven by the characteristics of the underlying value chain

6

Value chains with high degree of interdependence, complexity, and uncertainty imply a massive need for coordination of resources and value added activities

• ComplexityThe number of different elements that must be dealt with simultaneously by the organisation

• InterdependenceThe extent to which the elements are interrelated so that the state of one element affect the state of the other

• UncertaintyThe variability of elements upon which work is performed or to the extent to which it is possible to predict results in advance

Drivers affecting the need for coordinationUncertainty ?

Inter-dependence

Complexity

Drivers of need for coordination

Reciprocal

Pooled

Sequential

Few elements Many elements

Simple

Difficult

Source: Thompson

The benefits of the organisational hierarchy increases as the complexity of the value chain increases

7

Benefits of the hierarchy

as an instrument to manage

coordination

Need for coordinationas a function of

interdependence, complexity, and uncertainty

The hierarchy performance-gap

The hierarchy is effective in managing complex value chains, but at some point it gets too complicated resulting in the hierarchy performance gap

• The benefits of the hierarchy increases as the value chain gets more complicated

• However, at some point the internal structure gets to complicated and overloaded

• At this stage, increasing need for coordination in the value chain will reduce the organisational performance

”Big company disease”

Need for coordination Capacity to

manage coordination

Performance gap

- =

It is confirmed that some of the major companies in Utilities suffer from the “Big company disease”

8

120

100

80

60

40

20

00 250.000 500.000 750.000 1.000.000

Cost to serve (Euro/customer)

Number of customers

Example of negative economiesof scale in Utilities

The bigger firms have significantly higher cost to serve customers than smaller firms

• A comparison of cost-to-serve in Utilities shows that big firms often have higher costs per customer than smaller firms

• A closer investigation of the big companies often reveals that they suffer from the “Big company disease”

• “With 10 000 employees or more it becomes very challenging to transmit information... It´s good for a company to grow bigger, but as an organisation grows bigger, the phenomenon of big company disease increases. You must apply the right medicine before it´s too late”.(Source: Fortune Magazine Masaharu Matsushita, Chairman of Matsushita Electric Industrial Company, 265 000 employees and 300 group companies)

“Big company disease” today

Company X

Company Y

Source: Benchmark data from 2006

Topics during the session

9

• Introduction

• The challenge

• The remedy

• The key to make it happen

The performance gap can be bridged by reducing the need for coordination and / or increase the capacity to manage it

10

Need for coordination Capacity to

manage coordination

Performance gap

- =

Situation in firms with “Big company disease”

Remedy #1: Reduce need Remedy #2: Increase capacity

Lateral

Vertical

Lateral relations often have the greatest impact on the organisations ability to manage coordination

Source: Gailbraith

• Reduce need for coordination by simplificationSimplify the underlying structure of the value chain e.g. organisation structure and processes

• Increase capacity to manage coordinationIncrease the capacity to manage coordination by boosting vertical and / or lateral coordination mechanisms

How to bridge the gap

An array of lateral relations can be applied to facilitate coordination across organisational boundaries

11

Lateral relations

Different lateral relations can be applied at the same time in an organisation

Lateralrelation

DescriptionImpact on

coordination

Central organisation

Centralization of resources conducting activities within the specified scope

Stronger

Processes

Cross-functional process outlining roles and responsibilities within different units

Resources can be organised both in central functions and locally

ForumsForums with members of representatives from different units

Liaison rolesSpecial individual roles assigned for coordination across units on an ad-hoc basis

Weaker

Processes is a powerful tool to structure and coordinate activities and resources in a value chain to improve lead time, cost and quality

12

Level 1: Process relationship map

Level 3: Process chart Level 4: Roles and responsibilities

Process A Process B Process C

The process documentation spans from high level to more detailed roles and responsibilities (RACI)

“Make things as simple as possible but no simpler”

(A. Einstein)

Process D Process E Process F Process G

Process H Process I Process J

Sup-Process Relationship Map: Problem ManagementSup-Process Relationship Map: Problem Management

Other IT-processesOther IT-processes

Incident Management

Configuration Management

Risk Management

Policy for Problem

Management Set

Problems Logged and Classified

ErrorsAssessed

ErrorsResolved

Errors Closed and Reported

Policy for Problem

Management

2: Information on previously reported incidents, resolved incidents, and work-arounds

3: Information on problems

Logged andclassifiedproblem

Identified root cause

Resolvederror

5: Potential incidents and probability-levels, probable negative impact of incidents and levels of severity, pro-active measures to

reduce probability-levels, re-active measures to minimize negative impact of incidents

10: Information on the currentIT-configuration, approved request for change in the IT-configuration, rejected

request for changein the IT-configuration

11: Request for changein the IT-configuration

Preventative Maintenance

4: Information on previouslyreported incidents and

problems, resolved problems, and work-arounds

Level 2: Sub-process relationship map

The process and the line organisation perspective inhere a potential conflict which needs to be resolved

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Org

an

izatio

n ?

Line managerProcess owner

Authority Authority

Authority

Management processes

Support processes

Main processes

The Process Governance model sets the optimal balance between the line organisation and the process perspective

Process 1

Process 2

Process …

Process ?

Process Governance“We need to adopt a new way of thinking to be able to

solve the problems caused by the old way of thinking”

(A. Einstein)

One of our European clients with over 30.000 employees has chosen a balanced process governance model to improve performance

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Responsibility

Function-oriented model Balanced model Process-oriented

model

Process Owner

Line Manager

Process Owner

Line Manager

Process Owner

Line Manager

Design and improve processes X X X

Authorize improvements X X X

Implement processes X X X

Set process KPIs X X X

Set goals for process KPIs X X X

Define the resources / budget needed to fulfil goals X X X

Provide resources for execution of process activities X X X

Manage resources during execution of activities X X X

Ensure that goals are fulfilled X X XNote: This is only a very high level description of how responsibilities are allocated. The full version needed to do the job inheres a much greater resolution of roles and responsibilities ref. page 12 in this document

The governance model outlines responsibilities for different line- and process roles to balance the process- and organisational perspective

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Sub-processes in Process Governance

Design andImprove Process

Implement Process

Set Process KPIsand Goals

Manage DailyOperations

Review and Manage Process

Performance

Distribution of accountability for activities in each sub-process*

Roles

Sub-processes in Process Governance

Design and

Improve ProcessImplement

ProcessSet Process KPIs

and Goals

Manage Daily

Operations

Review and Manage

Process Performance

Pro

cess roles

Executive Process Director

40% 6% 15%

Process Forum

Process Owner 56% 50% 69% 79%

Process Development Team

Process Manager 25% 10%

Lin

e roles

CEO

Head of Mgmt System

Line/Unit Manager 4% 19% 15% 90% 21%

Employee

* Even if one role is accountable other roles may be responsible or consulted

Note: This is only a very high level description of how responsibilities are allocated. The full version needed to do the job inheres a much greater resolution of roles and responsibilities ref. page 12 in this document

Topics during the session

16

• Introduction

• The challenge

• The remedy

• The key to make it happen

Successful transformation of complex value chains is contingent upon a well-managed approach to change management

17

Process Development Team

Process Managers (local super-users in each unit )

Line Managers and Employees

The only one who likes change is a wet baby…

Model for implementing processes

The optimal way of driving the transformation

Low High

Low

High

Optimal

bal

ance

Start

Goal

Support / Trust

Too high pressure in relation to the level of support / trust

Too low

pressure in

relation to the

level of support / trust

Ch

all

en

ge

/P

res

su

re

Different cultures and its impact on change

• Be aware of the cultureand its implications

Key messages for managing the change

• Establish high performance teams to drive the change

• Drive implementation according to the governance model

Ch

all

en

ge

/

P

res

su

re

Low High

Low

HighAggressive

culture with low degree of change

Dynamic culture with

high degree of change

Indifferent culture with no

change

Cosysoft culture with low degree of

change

Support / Trust

Our experience shows that in general, a 20% efficiency potential can be captured though the use of an optimised value chain*

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Process A Process B Process C

Process D Process E Process F

• Reduced lead-times

• Improved quality

• Reduced risk

• Reduced need for working capital

• Reduced need for human resources

.. will lead to Optimisation of the value chain..

• EfficiencyOptimise the value chain through processes and process governance

• Risk Improve risk management procedures policies

• SourcingSet sourcing strategy and outsource non-core activitiesImprove management of suppliers

• Cash managementOptimise cash flow and reduce working capital

• ConsolidationConsolidate organisation (e.g. Shared Service centres) and IT-systems

Examples of improvement areas in Trade Finance

*Compared to an ill functioning non optimised value chain

Capgemini Consulting is the strategyand transformation consulting brandof Capgemini Group

© 2009 Capgemini - All rights reserved

Contact:Capgemini ConsultingRoger Lundegård+46-70-298 4593roger.lundegard@capgemini.com

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