“fuel for growth” creating strategic advantage through business transformation hugh...

“Fuel for Growth” Creating strategic advantage through business transformation

Hugh Scott-BarrettGroup COO

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GSS - vehicle for delivering x-SBU operational synergy opportunities Restructuring programmes to date concentrated within (S)BUs, focus is

now on broader agenda of x-(S)BU synergies

Group COO, GSS and Group Business Team (GBT) established Jan 2004 to realise (S)BU synergies

Real opportunity to deliver step-change in performance across Services cost base of ~EUR 5bln

Benchmarking against top-quartile Banks revealed significant potential to take out costs

Current estimates point to at least EUR 500 mln annual savings from 07 onward (delivered by IT, Real Estate, HR, Procurement and Transaction Processing)

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Increased cost efficiencies

Improved service quality

Mitigation of operational risk

Increased agility

Creating ‘Fuel for Growth’GSS Objectives

Profitable Growth

Release of Funds

Efficiency Improvements

New Investments

At Least

EUR 500mln

....to support further strategic flexibility

GSS’ goal - to create ‘fuel for growth’

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Note 1: This excludes annualised savings relating to the EDS outsourcing deal (previously announced)

45

215

140

4555 500

0

100

200

300

400

500

600

IT RealEstate

Off-shoring

HR Other Total

€m

1

CommentsGSS Savings 2007 Onwards

GSS - will release at least EUR 500mln of annual savings by 2007

Represents ~ 10% further

reduction across the Services cost

base (EUR 5 bln)

Delivered by EUR 700 mln - EUR

725 mln spend over 2005-2007

period

Details of major GSS initiatives are

provided as attachments to this

presentation

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GSS - limited P&L impact in 2005 and positive impact from 2006 onwards

Funding details will be announced in either the third or fourth quarter

This may include a one-off charge to the 2004 profit and loss account

Significant proportion of funding requirement will be offset against savings over the period

Limited negative impact in 2005, with positive impact on cost base expected in 2006/2007, assuming one-off charge is made in 2004

0 6FTESOperating Expenses

0

5000

10000

15000

20000

25000

30000

2001 2002 20032500

2550

2600

2650

2700BU-NL

# FT

Es

EU

R M

lns

0

5000

10000

15000

20000

25000

2001 2002 20033000

3500

4000

4500

5000

5500WCS

# FT

Es

EU

R M

lns

Strong track-recordRestructuring 2001-2003

GSS - building on existing experience

AAB has developed strong cost management culture

Biggest savings been driven by WCS and BU NL restructuring– WCS and BU NL reduce headcount

by ~20 %– Combined operating expenses

reduced ~12.5%

GSS will continue to build on on this success by leveraging an experienced management team to drive this forward

0 7Note 1 (incl. Finance, SDS, Change Management & Communications)Note 2 (incl. Global Real Estate & Facilities Management, Global Procurement & Information Management)

Group COO

Hugh Scott-Barrett

Note 1 (incl. Finance, Strategic Decision Support (SDS) & Communications)Note 2 (incl. Global Real Estate & Facilities Management, Global Procurement & Information Management)

GSS CEO

Ron Teerlink WCS TOPS transition prog.

WCS Offshoring

EDS IT outsourcing

GSS CFO Note 1

Caroline Rainbird WCS Change Management

WCS Offshoring

Group Offshoring

GSS CIO

Lars Gustavsson WCS IT transition prog.

EDS IT outsourcing

HR (GSS)

Madelon Flint WCS TOPS transition prog.

EDS IT outsourcing

ACES

Meera Sanyal Building offshore centre

Group Offshoring

Corporate Services Note 2

Jolle Dekker Global Procurement

Global Real Estate

European PaymentsCentre

Robert Langefeld BU (NL) transformation

WCS restructuring

GSS ExCo

GSS Management Team has considerable delivery experience

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GSS - strategy already delivering results

Shared Services &

Process Improvement

Outsourcing /Joint Venturing

Offshoring

ExamplesTechniques

Efficiency improvements from consolidation will be underpinned...

....by Centres of Excellence

Non core services sourced from external providers

Quality services can be delivered from low cost locations

IT

ACES1

Rationale

EuropeanPaymentsCentre

Global Real Estate& Facilities Management

Doing already

1: ABN AMRO Central Enterprise Services in India

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Technology outsourcing in WCS is already delivering valueScope of existing transaction

EUR 1.3bln, 5 year deal covering top 7

WCS locations signed with EDS (now

extended to 10 locations

2,300 FTEs transferred to EDS

User base ~ 20,000 FTEs

Data centres ~ 6 (large)

Sites ~ 60 using 3,500 server

ADM effort transferred ~ 1,200 man

years

Impact

At least EUR 40m savings on track for 2004

At least EUR 300m savings by 2007/2008

Consolidation benefits in progress

Improved flexibility and agility

Capabilities developed

Vendor management experience

Contract structuring and negotiation

Effective communication

Benefits tracking & change management

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Note 1 - This represents the entire Technology cost base for ABN AMRO Group

… which will help in driving group-wide IT consolidation through GSSScope of new transaction

Group IT cost base of ~ EUR 2.4bln Note 1

Group IT FTEs ~ 9,000 FTEs

User base ~ 100,000 FTEs

Datacentres ~ 35

Sites ~ 6,100 using 7,000 servers

ADM effort ~ 3,800 man years

Self service cash devices ~ 11,000

Timetable

RFP issued on 12th July

Formalise execution strategy and vendor

selection by end Q4 2004

Strategy execution starts Q2 2005

Select initiatives which will deliver ‘low

hanging’ rationalisation savings by

Q1 2005

Expected Value

Minimum of EUR 215 mln of annualised

savings by 2007

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Value of IT consolidation is real and supported by external benchmarking Current IT spend positions ABN AMRO in third quartile in its peer

group based on IT Benchmarking conducted with external advisers

Emphasis placed upon analysis of “Horizontals”, identifying savings through cross (S)BU sharing:– Application Development & Maintenance ~ 40%

– IT Infrastructure (Voice/ telecom, data centres and desktop) ~ 60%

GSS’ objective is to close “value gap” and position group-wide Technology spend in the top quartile

0 12

0

500

1000

1500

2000

2500

3000

2003Actuals

2004Forecast

2005Forecast

# FTEs

Added ValueProcessing

StandardProcessing

21001900

800

i

2600

/Target

Analysis of current initiatives

Captive offshore centre also delivering benefits

Impact Existing (S)BU initiatives on track to deliver

~EUR 25mln annualised savings from 2005

New GSS opportunities (additional ~EUR 45mln)

Improved service quality and improved flexibility

Capabilities developed Robust infrastructure to support remote

processing in India (e.g business continuity)

Knowledge & expertise

Migration risk mitigation using standardised approaches and methods

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WCS CCC PCAM

GSS is an internal services company working across the (S)BUs to realise cost

efficiencies

NA BR NL

Services Services Services

COO Committee

NGM

GSS governance - the COO driven approachOperating model Comments

COO Committee responsible for setting

cross (S)BU strategic agenda

GSS is responsible for delivery and

accountable to the (S)BUs

Funding of GSS initiatives managed

centrally through ‘gated’ funding

GSS will track and report regularly on

realisation of benefits

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Results will be measured in several ways Tracking of operational efficiencies will be through a combination of:

– Absolute reduction of cost in some areas

– Improvements in efficiency ratio and

– KPI reporting for service drivers (cost, operational risk, service quality, agility/ flexibility)

(S)BU impact of savings will be disclosed - expectations are that WCS, BU NL and BU PC/NGM will be major beneficiaries of savings

Reporting of results will be on a 6 monthly - adjusted for scope and volume changes in the period

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Conclusions ABN AMRO has a proven capability to deliver significant

transformation programmes

GSS will be vehicle for realising at least EUR 500 mln annual savings from 2007 onward

A ‘one company’ approach for Services delivery underlines belief that shareholder returns can be enhanced by enabling increased business performance

Further details will be delivered with end of year results

Appendix 1Action Track overviews

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High-level Description of Action Track Specific Initiatives Delivery Milestones

…Manage Operational Risk KPIs

Delivery Risks

KPIs

Key Risks How mitigated

...Create Value

...Improve Service Quality

…Increase agility

KPIs

Date MilestoneKPIs The IT Action Track is examining the rationale for the consolidation of IT Service Provision across all (S)BUs

Internal and/or external consolidation has identified a value gap with our top quartile Peers of at least €215m

The IT Action Track aims to reduce this Value Gap via the implementation of both Vertical and Horizontal Savings Initiatives

Applications Development & Maintenance (ADM) via Offshoring/ Appl. Rationalisation

IT Infrastructure

At Least

40% saves

60% saves

Customer Satisfaction Surveys

Speed of Delivery

Higher quality staff involved in Service Provision

Access to Centres of Excellence within specialist Technology organisations

IT Service provision will be transferred to World Class Service Providers or consolidated internally

Fewer service relationships to manage

SLAs

Reduction in capital utilised

Conversion of IT fixed to variable cost

Funding Charge

FC: VC ratio

Key-man attrition Select a vendor with proven capability to manage staff transfer

Lack of Business Support

Brief business on a frequent basis

Governance Effective governance structures implemented to allow strategic technology decisions to be made

Social Legislation NL Workers Council/ ESC and other Employee Representative bodies kept informed of developments

Completed RFP published to market

Q4 2004 Vendor response deadline

Q4 2004 Complete vendor evaluations

Note 1

Q4 2004 Formalise execution strategy

Q2 2005 Strategy execution

Technology

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Specific Initiatives Delivery Milestones


KPIs

...Create Value

Space efficiency gains and surplus space elimination

Facilities management rightsizing

At least

€130m savings

€ 10m savings

GREFM is responsible for Real Estate and FM of WCS, PC-NGM, AM,CC and GSS

Mandatory advice role on major property projects (larger than EUR 5 mn) in the home markets

Savings realised by reducing number,as well as the square meters, per work station, surplus space elimination, facilities management cost reductions and proactive lease restructuring


…Increase agility

KPIs

Date MilestoneKPIs

Proactive geographic headcount planning by SBU / BU s

City plans and proactive key lease event management

Best practice space efficiency programmes

FTE forecasts

Sq m & desks available

Sq m per FTE

IAS reporting - surplus space provisioning /management

Property governance implementation on leases and capex

Align and optimise timing of additional geographic offshoring strategies with existing lease exit strategies

Prov’n & sq m surplus

Value & sq m of leases signed

Overlap/dual property costs

Global portfolio lease flexibility

Optimisation of surplus space

% lease break within 36 months

% surplus

Programmes delivered and resultant surplus space eliminated

2004 Confirmation of action tracks, accountability/responsibility, programming, resources & reporting

2006

2007

First wave property elimination following commencement of efficiency etc programmes

Disposal and efficiency programmes activated

2005

Delivery RisksKey Risks How mitigated

Surplus space not eliminated

Facilities mgm’t rightsizing

Proactive lease restructuring

Market conditions prevent achievement of subletting goals

Effective x-(S)BU governance implemented

(S)BU commitment to programmes

Transparency over programmes

Focused disposal programme

High-level Description of Action Track

Group Real Estate and Facilities Management (GREFM)

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Delivery Risks

KPIs


...Create Value Offshoring is focused on migrating processing activities to lower cost locations and delivering benefits through:


…Increase agility

KPIs

Date Milestone

• ....

KPIs

Reduce operational costs

At least

€ 45m savings

Adoption of process improvement methods (e.g. Six Sigma)

Maintain service levels during transition

Improve service levels post transition

Long term BCM strategy

Robust release management process

Creating a more flexible workforce

Creating shared services across different time zones

2004

2005

2006

Recruit 1100 FTEs in India

Recruit 700 FTEs in India

Recruit 300FTEs in India

Staff retention in send sites

Operational Risk/BCM

Competitive recruitment market in India

Communications plan

Staff support services

Adoption of captive offshoring model

BCM implementation and testing included in standard methodology

Evaluate second low cost location

Investment in ACES culture

Roll-out of career development plan

Regular assessment of salaries against market

# of processes six sigma compliant

Service Levels by process

Service levels by process

Strategy definition (completed)

Approved sign off by migration

Improved service quality: Experience over the last 2 years shows that we can make significant improvements to service quality

Low cost of service: There are clear cost benefits with typical savings ranging between 40–50%, primarily through labour cost arbitrage

Variable/flexible resourcing: Locations such as India provide large pools of educated resources at short notice allowing volume fluctuations to be managed more effectively

Asset utilisation: Offshoring enables cost effective 24/7 operations, thus significantly improving asset utilisation. i.e. desk and workstations can be optimised through shifts working on a 24x7 basis

# countries serviced from global hub


Note 1 - Excludes GSS offshoring opportunities - these have been reflected in the other GSS Action Tracks e.g. HR, Procurement

Note 1

Offshoring

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Specific Initiatives Delivery Milestones Globally co-ordinated sourcing and

category management of key categories of spend

The establishment of 4 Regional procurement units (AmLo, NA, Brasil and ROW) to maximise regional economies of scale and skill

The development of a global functional infrastructure of policies, processes, systems and staff development plans to support the regional units and enable the realisation of the benefits of better sourcing

The implementation of global performance management


Delivery Risks

KPIs


...Create Value


…Increase agility

KPIs

Date MilestoneKPIs

Regional SLAs, enabled by:

Global training curriculum

Global e-Sourcing platform

Implementation of Global policy framework

Rollout of a single global repository of contracts data

Suite of model contracts

SLA

# of users

Compliance & Coverage

Q4 2004

Q4 2004

Q1 2005

Q1 2005

Global eSourcing Platform across major regions

Delivery of global training curriculum and programme

Mobilisation of Outsourcing Centre of Excellence

Mobilisation global Supplier Relationship Management

Poor business buy-in

Benefit leakage through low levels of compliance / control

Poor supplier mgt

Resource capability

Continue to actively engage Senior Management

P2P compliance mgt solutions

Mobilisation of supplier relationship management

Continued training and development of staff

Multiple initiatives at regional/global level covering process improvement, revised commercial terms and better supply and demand management

At least

€ 35 m savings

The establishment of an outsourcing centre of excellence

N/A


Procurement

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Increased employee satisfaction, and its positive impact on attrition and retention

Improved employee access to organisation learning and information, anytime, anywhere

Improved access to HR information, leading to informed decision making and enhanced strategic focus

Increased productivity leading to increased company profits

SLAs

Reduction in number of regretted leavers

Improvement in HR : FTE ratio

Q4 2004

Q3 2005

Q4 2005

Operating model design complete & senior management appointed

PeopleSoft 8.8 upgrade complete

GSS HR Shard Service Centre established


Delivery Risks

Global technology platform (PeopleSoft)

Standardised, global processes

# of countries that have access to PeopleSoft

SLAs

Data protection issues across global borders

Concerns that shared services may increase the unit cost for the (S)BUs due to cost allocation mechanism to fund the shared services operation

Efficiencies may not be realised if managers have access to alternative channels for HR transactions

KPIs


4 regional hubs with streamlined / standardised global processes allows easy integration in the case of acquisitions

Addressed on a case by case basis taking legal advice

Clear and transparent cost reporting, with costs benchmarked to the market pricing

Ensure that shadow HR operations do not re form within the (S)BUs

...Create Value

Annual steady state cost reduction based on headcount and cost efficiency savings

At least

€ 45m savings

The HR service delivery action track covers the transformation of HR with the development, detailed design and implementation of a new target operating model. The operating model is built on four pillars of HR namely: Group HR, Business Partners, Centres of Expertise and HR Operational Shared Services. The transformation of HR will lead to a step change in HR across the Bank with a focus on high quality service delivery and associated benefits including cost reduction


…Increase agility

KPIs

Date Milestone

# of staff roles migrated to hubs

KPIsHigh-level Description of Action Track

HR Shared Services

Appendix 2Insourcing Opportunity

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Example of ABN AMRO Insourcing OpportunitiesABN AMRO Trade Services Capability ABN AMRO well placed to become one of the industry

leaders for delivery of Outsourcing / Strategic Partnership services– global presence, brand recognition, award winning product

capability

– not seen as competitive threat by local banks

– track record of delivery

– cost pressures in industry requires focus on core-competencies

60% of mid-tier FIs will outsource (part of) non-strategic processes (source BCG payment study & Deloitte Consulting)

AAB demonstrated success – Barclays and AIB Trade Servicing Agreements

– GTA established ~ 30 insourcing relationships in US, Asia, and Europe, CFA outsourcing deals include X-border payment processing, CLS white labelling and Corporate Account Services

– FX: initials steps made and a small number of mandates won

Barclays Case Study re ABN AMRO Selected ABN AMRO on basis of:

– Leading Trade Bank/ seen by customers as a partner

– Global offshore processing centre in India with Insourcing

experience

– Geographic reach

Business Model adopted– Barclays Front Office systems

– ABN AMRO undertakes back office processing

Current status– Started migrations in January

– Rollout scheduled for completion by August

– 3 weeks after conversion, performance @ 98%+

Benefits realised for Barclays– Significant cost reduction

– Enhanced service provision

– Improved service levels

– Improved flexibility to grow into new geographies

Barclays concludes that this is a “Win-win solution based on a successful partnership”

“fuel for growth” creating strategic advantage through business transformation hugh...

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