volUME 2
Design
TRANSFORM
Run
N o. 2
LEAN
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jun e 2016
D I G I TA L
Research Special
The latest developments in finance, digital adoption, industrial IoT and retail banking
A European publisher’s digital journey
Silicon Valley jumps into the intelligent operations fray
Why tech innovation predictions miss targets
page 08
page 14
page 32
COMPLEX IS WHAT WE DO BEST. Solving vexing issues. Offering solutions to problems that have resisted automation. Enabling dramatic business transformation using our deep experience, cutting edge automation and artificial intelligence technology. Rage and Genpact are reimagining business process innovation, enabling even the most traditionally manual processes to be more automated, intelligent and adaptive. It’s Possible with Rage AI.
FROM THE PUBLISHER’S DESK
Research finds that true digital success requires organizational change It’s about managerial transformation, not just technology
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he last three months have brought another wave of learning, possibly best encapsulated by one finding: Companies that best harness digital excel at organizational change—not just technology. That was a major conclusion that came out of studies conducted by the Genpact Research Institute with partners ranging from Harvard Business Review Analytic Services, to Industry Week and GE, to the analyst firm HfS Research and consumer pollster YouGov. The HBR AS study revealed that digital leaders—the one-third of companies that are already capturing significant impact from digital transformation—aren’t perfect. They still struggle with the ability to experiment quickly, with entrenched and inflexible legacy systems and with functional silos. But they’ve gotten better at designing digital interventions, so they are both more holistic and more focused on what matters. As a result, they are able to turn their organizations and business processes around more effectively. Digital leaders are also four times more likely to be in a position to productively align interventions with business outcomes, thereby limiting the risk of unnecessary work and related complexity. That said, only 40 percent do so, and a tiny 11 percent of other respondents claim they are able to do the same. In a similar vein, digital leaders are three times more likely than others to connect front- and back-end systems and operations in a way that meets endcustomer expectations. But that outcome is still limited since an underwhelming 36 percent of leaders are able to do so compared to 13 percent of others. This is a special, research-rich edition of Intelligent Operations—the only magazine dedicated to understanding how digitally powered transformation of business operations can help generate enterprise impact. It’s replete with studies and analysis across many business areas. In addition to the overall digital study already mentioned, four other major research projects conducted by the Genpact Research Institute have been summarized.
In financial services, over 7,000 bank account holders across five countries gave their opinion on their interaction with their banks across a range of digital and traditional channels, with some surprising results. In manufacturing, Genpact worked with Industry Week and GE to explore how the Industrial Internet of Things (IIoT) is being harnessed by hundreds of companies—and what struggles they experience. In the realm of the chief financial officer, HfS Research surveyed hundreds of executives to understand how digital is reshaping that world, bringing to the fore some intriguing implications on the required skill set of future finance leaders. Finally, the Institute conducted a meta-analysis of almost 10 years of analysts’ reports related to new-technology adoption and detected a potential “optimism bias” especially pronounced when those new tools rely on legacy systems. Feel free to access and share the online version of this magazine at genpact.com/leandigital as well as the diagnostic that enables your organization company to benchmark itself against its peers at ratio.genpact.com.
GIANNI GIACOMELLI
Chief Marketing Officer and Chair, Genpact Research Institute Genpact
INTELLIGENT OPERATIONS JUNE 2016
In this issue INTELLIGENT OPERATIONS | VOLUME 2, ISSUE 2
RESEARCH SPECIAL What is holding back the digital revolution? Missing the forest for the trees Page 22
Mastering digital transformation in finance Ahead: the long but promising road Page 24
Why are consumers nonplussed by banks’ digital efforts? Front-end tech isn’t enough to delight customers Page 26
Transforming industrial businesses with the Internet of Things Enterprise revolution, not just tech Page 28
14 FROM THE FRONTLINE 06 Breaking down silos
Changing the legacy mindset
08 Transforming the finance function
An untapped potential for advanced operating models
THE MACRO VIEW 10 Volatility and Adaptation Index (VAI)
Low levels: opportunity or blind spot?
12 CFO challenges in a digital world
The future looks promising
MAKING OPERATIONS INTELLIGENT
June 2016, Volume 2 Number 2 The contents of Intelligent Operations are covered by copyright and all rights are reserved. No material in this publication may be reproduced in any form without permission. Intelligent Operations is published by Genpact Research Institute, a unit of Genpact, a global leader in digitally-powered business process management and services which generates impact for hundreds of clients including approximately one-fifth of the Fortune Global 500. www.genpact.com
14 Silicon Valley jumps into the intelligent operations fray The view from Palo Alto 16 The brave new world of operations disruption
Analytics underpin the change
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32
18 Lean Digital takes on finance
36 Game for improvement
Seeing possibilities in recent technologies
20 Reducing third-party risk in the digital age
Process harnesses technology
INNOVATION When you shouldn’t believe the hype
INDUSTRY ROUNDUP 34 Regulatory affairs for big pharma can be agile and scalable
Strong process governance—not sleight of hand—made this company a winner
36 On-time payment matters
Satisfied suppliers and substantial savings
TALENT CHALLENGE
32 Four years late
Freeing up resources to help R&D
39 Winning the talent war in financial services
A new academy tackles risk management
VIEWPOINT 42 Leader’s view: The surprising first step of building a digital-ready culture
Organizational design drives vision
Archive To advertise, contribute or receive a copy, email intelligent.operations@genpact.com.
Publisher Gianni Giacomelli
Editor Amrita Thapar
Contributing editors Prashant Shukla, Sandra Higgison
Associate editors Stephane Cote, Rosa Harris, Kenneth Waldie
Production manager Kavita Yadav
Cover design The Delve Group
Design Timeus Interactive
Design Consultant Yvonne Pensgen
FROM THE FRONTLINE
Breaking down silos A plan for the legacy organization
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entral to this issue of Intelligent Operations is the research that Genpact did in cooperation with Harvard Business Review Analytic Services on how to successfully implement digital strategies. I was struck by the answers executives gave to one particular question: “What barriers stand in the way of leveraging digital technologies?” The number one obstacle cited was the “inability to experiment quickly.” I’ll come back to this at the end of this article. But let me first comment on the number two and three barriers, which scored equally: “legacy systems” and the “inability to work across siloes.” Of course, the response regarding legacy systems does not come as a surprise. Unfortunately many large corporations still struggle with too many instances of the same ERP system or—even worse—with many different versions of ERP systems. We all know ERP harmonization programs are time-consuming and costly. Indeed, very often the reason corporations can’t spend time and money on new digital opportunities is because they wish to sort out their legacy systems first.
The shortcomings of legacy organizations
BY PASCAL VISEE
Executive advisor, former Unilever Chief Enterprise Support Officer
What did come as an initial surprise was that functional silos are seen to be just as prohibitive as legacy systems. But I then realized that functional silos are also a kind of legacy—a legacy organization. This barrier dates back to the industrial era, when corporations were essentially running machine-based business models. At a country level, companies put matrix organizations in place with a combination of vertical functional pillars and horizontal span-breaker units, such as divisions and regions and business units. Operations were split according to function and the coordination between the different functional operations was left to the span-breaker unit heads. In the industrial era, the matrix organization was a sheer necessity: It was the only effective way for management to deal with the complexity of the multinational company. But in the information era, companies at last have an alternative.
The end-to-end process Operations can now much more easily be organized as end-to-end processes breaking away from functional silos. The functional orientation can be replaced by a process orientation, which is preferred because it is geared toward the satisfaction of customers. In other words, the process orientation has an external customer bias, whereas the functional orientation often becomes hopelessly internally focused. This is because end-to-end processes:
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INTELLIGENT OPERATIONS JUNE 2016
l
Follow the value-creation process from beginning to end, often crossing multiple functional borders, such as order to cash from customer development to logistics to finance.
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Don’t stop at the company walls, thus including the front-end interaction with suppliers and customers.
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Seamlessly link front-end processes with the back-end processes that determine those front-end interactions.
FROM THE FRONTLINE
What did come as a surprise to me was that functional silos are seen to be just as prohibitive as legacy systems. I then realized that functional silos are also a kind of legacy—a legacy organization Designing, transforming and running of these end-to-end processes requires specialized knowledge. Global business services (GBS) organizations are being established by large corporations to take responsibility for the end-to-end management of support operations. The legacy functional split is then replaced by an operational model based on a well-defined end-to-end process architecture. Intriguingly, this process architecture bears a great deal of resemblance to Osterwalder’s famous Business Model Canvas, which is recommended for start-up companies. In other words, in the information age even multinational companies will have to rethink their operational structure from the ground up and begin behaving as start-ups do. The difference with start-ups, of course, is that multinationals have to deal with their legacy organization and their legacy systems—and they need to do things at a much larger scale. Start-ups are not hampered by functional silos. They are on top of their process architecture and they keep experimenting as they go. Many use the Lean start-up method based on a build-measure-learn feedback loop. When there is a need, sharp turns or pivots are made. That brings me back to the number-one barrier for implementing digital technologies the “inability to experiment quickly.” How—if ever—can a multinational company adapt the agility that start-ups have in the way they are applying their learning feedback loops? In large corporations quick experiments are seldom done. Instead their so-called experiments often come in the form of large, bureaucratic projects, confined within functional borders and taking months and years instead of days and weeks.
Hope in the form of Global Business Services But there is hope. Companies that have embraced the concept of Global Business Services may be close to a solution. When GBS organizations are truly based on a global process architecture, they can enable the company to do many small-scale experiments in parallel in multiple countries. In other cases, experiments may already be happening naturally, because of the different ways to operate that many local entities present. Only when process or system innovation experiments are successful in, say, a minimum three or four countries, should a company decide to invest more and rapidly scale up. This process of controlled experimentation can be seen as the equivalent of a Lean start-up, but for multinational companies. It allows them a way forward to scale up fast, based on a continuously learning portfolio. The clear conclusion is this: If silos stand in the way of implementing digital strategies and quick experiments are not done, then consider establishing an endto-end process-based GBS organization. Your GBS should be aiming to do things cheaper and better—at scale and for the benefit of the customer. It can also drive process and systems innovation by doing quick experiments and—should these meet with success—scaling them up fast. By doing so you begin to build digital into your company’s DNA. IO
INTELLIGENT OPERATIONS JUNE 2016
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FROM THE FRONTLINE
Transforming the finance function Harmonization takes efficiency all the way to effectiveness
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Finland and a big part based offshore in Kolkata, India. It is one team but it is organized in a virtual way in different locations.
What led Sanoma to look for ways of transforming its financial processes?
Genpact definitely helped us a lot in designing this organization and managing the change, from day one deploying a dedicated change manager, helping us by showing examples of how they did it with other clients: ‘It might not work for you but let’s go through it and review all the options.’ And for us—not having experience with these huge transitions— that helped a lot. And at the same time we had good qualitative discussions about ‘what would you expect from a retained organization?’
anoma Corporation is a leading consumer media and learning company based in Helsinki. In a recent engagement, Genpact used its Lean Digital℠ approach to help Sanoma successfully reimagine its finance operations. To gain insights into the ways that transformed processes improved both efficiency and effectiveness, Intelligent Operations interviewed three of Sonoma’s finance leaders: Steven Flipse, CFO; Sander van de Luur, VP group finance control; and Saskia van Hoppe, director financial shared services.
[Steven Flipse] As publishers, we operate in a very, very challenging climate locally and we also have to deal with a lot of competition from international players. So there is a lot of top-line pressure at the moment and as we try to maintain our market shares, there is margin erosion so there is a lot of pressure on the bottom line as well. When we began the journey with Genpact two-and-a-half years ago our reasons were simple: First take costs out and second make fixed costs variable. But those weren’t the only reasons. We did it for efficiency but we also wanted effectiveness. I have a strong belief that since we are all the same platform in Finland and the Netherlands and we speak the same language, that standardization and harmonization of processes will help us drive our businesses.
How did Genpact partner with Sanoma to design and manage change? [Sander van de Luur] We started this project to investigate possibilities for efficiency improvement and one of the elements that came up was ‘let’s look at our core transactional finance processes and see what can we improve.’ We still have one finance team, we have one financial shared service center partly based in the Netherlands and partly based in
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[Saskia van Hoppe] When we met the Genpact people in the Kolkata office there was just a human click. I think that was the most important reason why we went with Genpact besides the fact that we really believed that they could do it. We see it in the way they ask us questions and implement best practices. So it is not always that we tell them how they should do it but they also trigger us by asking: ‘are you sure you want to do it like this?’ Also the Lean method—I really love that way of approaching projects.
Can you give examples of how Lean DigitalSM helped to drive transformation? [Flipse] I am a very strong believer in robotizing and I see Genpact taking the next steps into robotizing. Seeing is believing and we now have our first examples of very simple processes but robotized. No one internally could believe ‘can you robotize that?’ But there are examples now. [Van de Luur] Genpact also deployed a nice tool called the duplicate payment tool. We have used the tool to go back—a few months back or a year back—to analyze payments that we have done. And we did come across some payments that were accidentally paid twice and we have been able with the help of Genpact to recover a part of that.
STEVEN FLIPSE CFO, Sanoma Corporation
SANDER VAN DE LUUR VP group finance control, Sanoma Corporation
SASKIA VAN HOPPE Director financial shared services, Sanoma Corporation
What impacts did this transformation have on business outcomes? [Flipse] What I have seen so far is that we delivered on the business case. And on top of that we have seen some areas of improvement. We get in the cash a little bit earlier than we did before; we are improving on intercompany reconciliations; we are improving our barter processes. Those were our weak spots but together we have the Lean approach, we have black belt experts on it and we are able to make the next steps. At the moment we have success but I think it will have a greater impact on our business in one or two years’ time. IO
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THE MACRO VIEW
Volatility and Adaptation Index (VAI) The lowest levels since 2013 should not mean complacency
A
dapting to volatile business conditions has become a fact of life for business leaders in recent years as they have reacted to events such as profit warnings, cost cutting, regulatory changes and market shifts. The Genpact Volatility and Adaptation Index (VAI), launched in 2013, provides business leaders with the intelligence needed to plan and execute adaptation measures, often by transforming business operations. The overall VAI fell to 12.8 at the end of 2015 from a high point of 42.8 in 2013, reflecting a relatively calm period after years of unprecedented turmoil. Adaptation responses—especially leadership changes—were elevated in 2015, while volatility events decreased. Financial conditions, while remaining the most important source of volatility, eased significantly during the year.
The results reveal not only a disconnect between enterprises’ volatility and adaptation responses, but also the uncertainty and risk expectations that have been highlighted by many economists and are reflected in today’s jittery capital markets. Although the global economy remains somewhat unstable, the index’s continued decline indicates that volatility at companies does not always correlate to marketplace fears. Going into 2016, these relatively stable circumstances have presented organizations with an opportunity to complete adaptation measures and get ready for future disruptions. Success in adjusting quickly is likely to be a decisive competitive advantage. Volatility events and the adaptations they trigger vary sharply across industries. Life sciences and consumer goods both
experienced increases in volatility and adaptation during 2015. Still, their overall VAI levels remain lower than retail banking, which, along with commercial banking and capital markets, nonetheless saw easing conditions during the year. At the opposite end of the spectrum, the high-tech sector was stable, with the lowest level of volatility and adaptation of any of the industries included in the index.
The latest VAI reveals not only a disconnect between enterprises’ volatility and adaptation responses, but also the risk expectations highlighted by many economists
Figure 1: Volatility and Adaptation Index | Feb’15 to Jan’16
volatility events adaptation responses
Leadership change
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Acquisition or geographic expansion
Restructuring
Financial condition
OVERALL Industry, regulatory or geographic change
THE MACRO VIEW Figure 2: Volatility and Adaptation Levels by industry | Feb’15 to Jan’16 High Tech Insurance
2
13
Manufacturing Healthcare
16
A disconnect in responses An analysis of the VAI reveals a disconnect between volatility levels and the responses implemented by enterprises, as adaptation activity lags behind previous volatility events. Moreover, the relative stability of financial disruptors is at odds with both bleak economic forecasts and nervous capital markets. Less than 20 percent of 2015 volatility was due to worsening financial conditions—a major decrease from earlier periods and a signal that the time for successful adaptations is fast approaching. Rapid strategy formation and organizational alignment may well prove critical in the coming months,
Commercial Banking
19
Retail Banking Life Sciences Capital Markets Consumer Goods
39
as leading enterprises take advantage of current conditions to heighten their agility. The time is ripe for a far-reaching transformation, like embracing digital, rather than taking tried-and-tested but ultimately short-term actions. Three key strategies can enhance this transformation. First, observe the practices adopted by early movers, many of which are monitored by the VAI. Second, create an internal burning platform by communicating competitors’ practices. Third, employ Lean management principles to align strategy with execution and sustain the pace of change. Together, these measures can empower workers to contribute fully and can generate material impact by efficiently delivering value to customers.
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51
54
56
About Genpact’s Volatility and Adaptation Index Global companies have experienced unprecedented volatility in recent years and are adapting to compete under new conditions. These radical shifts result from several factors including profit warnings, cost cutting, government regulations, M&As and leadership changes. The Genpact Volatility and Adaptation Index (VAI) tracks these trends across a sample of more than 800 companies in nine industries. The index is a predictive tool providing business leaders with the intelligence needed to undertake adaptation measures, often by transforming business operations. IO
Figure 3: Volatility Trends | 2013 to 2015
Financial pressure as as a volatility trigger Sharp increase
123%
-16%
M&A as an adaptation response Decline
Leadership change as an adaptation response Marginal increase
12% 2013
2014
2015
INTELLIGENT OPERATIONS JUNE 2016
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THE MACRO VIEW
CFO challenges in a digital world Leaders see great prospects in transformation
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oday’s CFOs are taking on much broader roles as their companies adapt to an increasingly digital world. That was the keynote message at a recent dinner briefing in London, hosted by Finance Director Europe (FDE), in association with Genpact. Steve Dunkerley, associate editor at FDE, spoke to leading European CFOs to discuss this idea in more detail and see how these challenges can be addressed.
The changing role of the CFO The scope and impact of digital transformation on the finance function can be seen in a recent study (http:// www.genpact.com/about-us/finance-inthe-digital-age) by HfS Research with 160 F&A service buyers. Eighty-four percent of respondents agree that enterprises that embrace digital transformation across business units will outperform their competitors within two years. Moreover, three-quarters say that the new wave of digital technologies is fundamentally changing the way that finance functions operate. And yet half of buyers are not satisfied with the current impact of digital technologies on their F&A processes. This highlights important challenges for CFOs as their roles change. There is consensus among the interviewees that they encounter three fundamental challenges to successfully implement digital transformation in the finance function. They must establish talented teams; understand, select and implement
“The biggest challenges I face today are all around the journey from local to global.” David Long, global director of operational finance & finance transformation, Dentsu Aegis Network
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the most appropriate technologies; while also re-defining their traditional roles. “The biggest challenges I face today are all around the journey from local to global,” says David Long, global director of operational finance and finance transformation, Dentsu Aegis Network. “We’ve got every possible permutation of processes in the world and one of my personal challenges is to form a team that can move from the old world to the new world with the best combination of people, process and systems.” Other CFOs agree that technology choices and team building are ongoing challenges. As Mark Evans, CFO for Telefónica UK (O2) puts it: “Digital technology is fundamentally changing customers’ behavior and business models, which is both a threat and an opportunity if we can foresee the next evolution.” He adds that talent management is a key part of this challenge: “Every highperformance business needs to be able to attract, retain, develop and motivate high-performance individuals while also establishing a connection with the brand.” Bill Castell, CFO of corporate banking for Barclays, points out that CFOs must also reshape their functions to reflect the role of digital technology in empowering their customers: “I think the expectations and behaviors of our end customers are changing in terms of more instant demand and an expectation of real-time data analytics.” As a result,
Castell says, CFO challenges now include getting the balance right between pure finance and managing the customer, establishing leadership in a changing environment and moving from being a technical expert to a leader.
The talent factor Digital trends manifest themselves differently across business lines. “Keeping and attracting talent is an important part of the identity of the finance function within the organization and the role it plays in becoming a strong part of the business,” says Bruce Marson, director of financial control, EMEA, Dentsu Aegis Network. “We’re looking for people from outside the media industry who have big industry experience that will help us to develop processes and systems and also people from bigger media agencies who can bring commercial knowledge.” To combine these competencies effectively, Marson says, finance teams need access to external data from sources like Google and Facebook and a strategy for putting it all together to create powerful information for clients. Doug Alexander, EVP finance operations at Shell, also stresses the interdependency of people, technology and data in his industry. “We have been on a journey starting with globalization and consolidation of our systems and processes to drive transformation. We’re reducing costs and increasing efficiency in the context of the
“Digital technology is fundamentally changing customers’ behavior and business models, which is both a threat and an opportunity if we can foresee the next evolution.”
“I think, in the end, expectations and behaviors of our end customers are changing in terms of more instant demand and an expectation of real-time data analytics.”
Mark Evans, CFO, Telefónica UK (O2)
Bill Castell, CFO corporate banking, Barclays
THE MACRO VIEW
“We are focusing on getting the right people in the right place with the right skills to transform the organization.”
“Keeping and attracting talent is an important part of the identity of the finance function within the organization and the role it plays in becoming a strong part of the business.”
“If you want to have a perfect customer journey then you need to integrate the mid and back offices and apply technology end to end—not in bits and pieces.”
Doug Alexander, EVP finance operations, Shell
Bruce Marson, director of financial control, EMEA, Dentsu Aegis Network
Barend van Doorn, VP and head of services and capital markets, Europe, Genpact
interdependence of people, process, data and technology to drive the outcome. We are focusing on getting the right people in the right place with the right skills to transform the organization.” The need for digital transformation is accelerating as the demand for real-time analytics and customer services intensifies, enhancing the role of the finance function as a strategic partner in the business. “The impact that digital is having on the finance function is accelerating,” says Castell. “Cloud technologies and big data in particular are moving us away from the traditional role of data mining, reporting and simple planning towards delivering insights based on advanced analytics. This is transforming us into a partner rather than a pure finance function, giving us much greater impact and bearing on the overall business strategy of the organization.”
An end-to-end approach Making the right choices is complicated by digital technologies that are evolving rapidly. As Alexander explains: “In the future, cognitive and artificial intelligence will have a big impact, but it’s still emerging. Today
we are focusing more on the basic end of the spectrum such as automation, ERP systems and robotics.” Other CFOs see a similar array of choices, but with technology advancing so quickly they are challenged to avoid a piecemeal approach. Genpact has found that companies are wasting nearly $400 billion per year on digital initiatives that do not generate the expected return on investment. This is largely because digital technologies are adopted sporadically and at different interfaces of the business rather than holistically and end to end. Barend van Doorn, VP, Genpact’s head of financial services and capital markets in Europe, says that failure to align strategy across different parts of the organization is at the heart of the poor ROI that many companies experience. “What I see customers doing in the first phase is implementing digital in the front end of their organizations, like the internet, social media, and mobile,” he says. “But if you want to have a perfect customer journey then you need to integrate the mid and back offices and apply technology end to end—not in bits and pieces.”
Van Doorn advocates the adoption of a Lean Digital approach, which combines design thinking methods that focus interventions on the end user, with leading technologies and Lean practices that embrace end-toend process design. “Approach automation from an end-to-end perspective and apply Lean management principles to automate the processes that really matter,” he says, “because if you automate broken processes you still have an overall broken process.” So the best approach is to apply Lean principles to digital.” Today’s CFOs lead the finance function by adopting a broader role as strategic advisor to the business. Each CFO needs to address challenges that are unique to the organization, but will be rewarded for their abilities to recognize the interdependencies among people, processes and technology and the foresight to approach digital transformation end to end across the front, middle and back office. By doing this, CFOs will have greater impact and outperform the competition. IO This article was also published by Finance Director Europe.
INTELLIGENT OPERATIONS JUNE 2016
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MAKING OPERATIONS INTELLIGENT: TECHNOLOGY
Silicon Valley jumps into the intelligent operations fray Lean Digital Innovation Center ushers in a new era
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ere’s a conundrum. Why does it take less than an hour to open a new checking account but weeks for banks to complete compliance on anti-money-laundering and other back-office functions? The reason, say those spearheading digital transformation, is that many financial institutions have embraced digital to improve front-end customer engagement. Yet while that’s a good first step, it’s not the whole story. For a truly seamless customer experience, appropriate technology must be deployed beyond the front end to permeate every aspect of an enterprise. Addressing that reality is critical for many other industries, too. That’s a challenge Genpact’s Lean DigitalSM Innovation Center recognizes. Located in Palo Alto, in the heart of California’s Silicon Valley, the center expands Genpact’s presence in the area and leverages the operational knowledge of the company’s more than 70,000 associates in 25 countries. The center combines disruptive process-centric technology, design thinking methodology and Lean principles—that is, maximizing customer value while minimizing waste—to help clients reimagine their organizations
as truly integrated digital entities. And the expansion is timely, Sanjay Srivastava, chief digital officer and a senior vice president with Genpact, said in a recent interview, adding that too many industries are behind the curve and need guidance when it comes to digital transformation. “The banking and financial sectors are the most obvious candidates,” he said. “These firms are literally tech companies that move money. But these industries aren’t alone in placing too much emphasis on engagement. Many organizations have put a lot of effort on the front end, user interface or on enterprise processing apps. There are very few concerted efforts between the worlds of the front end and the back office. That may be fine in industries such as media, or B2C advertising. But it is not enough for companies that have supply chains, whether virtual or physical, which are more complex and straddle many enterprise layers.” To make the flow of money smoother in the financial sector, the center has helped redesign systems for finance and accounting, banking and insurance. Using its Lean Digital approach, Genpact has been able to automate and speed up loan processing, financial spreading, accounts
receivable, procurement, insurance administration and other functions that otherwise would have demanded many hours of human labor. The same techniques are also being applied to other industries—manufacturing, consumer goods, life sciences and hightech enterprises, for example.
Building on synergies Integrating digital throughout an enterprise requires a level of capability that combines the power of processcentric technologies, design thinking and deep domain expertise. If companies lack these skills, they risk losing business to disruptors and upstarts. That’s why the center’s unique approach helps equip companies with enterprise-wide innovations that overcome the inertia sometimes caused by legacy systems and procedures. At the same time, combining Lean practices and digital technologies ensure that legacy is integrated into innovations wherever appropriate and necessary, bringing new value in the process. The Lean Digital Innovation Center also benefits from the synergies Genpact builds between its partner and client ecosystems, resulting in original, workable solutions for better and quicker return on investment. The center leverages the power of cuttingedge digital tools such as robotic process automation, natural language generation, natural language processing, machine learning, advanced visualization, dynamic workflows, digital security, mobility, Internet of Things, big data analytics and other disruptive technologies.
‘The world’s most pioneering work’ “We are unique in a couple of ways,” Srivastava said. “First, we run one of the world’s largest sandboxes that we use to effectively pilot, prototype and implement the best digital technologies. As a result, we drive some of the world’s most pioneering work in human-machine interactions. Another differentiator is our deep and concentrated focus around bringing the middle and back offices into the digital age so that they can match the transformation the front offices have already seen and collectively deliver true end-to-end transformation.” 14
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MAKING OPERATIONS INTELLIGENT: TECHNOLOGY end integration offer a smooth ride. Today’s digital age brings new tools that make end-to-end transformation more easily attainable.
Key to the center’s success are three components that help companies deliver a fulfilling customer journey: l
Customer-focused design thinking workshops to help identify and reframe problems and develop innovative ideas that can easily scale for immediate business impact
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A digital incubation program using carefully selected cutting-edge digital technology disruptors with proven success in quickly developing real-life
solutions that add value to the customer experience; and l
A co-innovation lab that brings enterprise executives together with technology and business process experts to turn ideas into actionable prototypes through rapid development in a hackathon style
These techniques have helped companies enhance the customer experience. The journey no longer begins and ends at engagement because front- and back-
“Ten years ago it was a lot easier to work on front- or back-office silos,” explained Srivastava. “There was a lot of value in each of them independently and frankly that was hard enough, because the technology did not allow for the iterative process and the service design that we really needed. Now we have advanced technology and we need Lean Digital. It’s focused on solving problems surgically, yet in an end-to-end fashion, from the customer interface to the back office. “The coalescing of our Lean Digital approach is, we feel, world-changing,” Srivastava concluded. “We don’t say this lightly. The innovative combination of Lean principles, design thinking and process-centric digital technology, coupled with our deep business domain expertise, gets to results faster. We help solve the number one challenge that clients have, which is navigating the legacy systems and processes to enable nimbler change management.” IO
ONLY 33% OF DIGITAL BUDGETS WILL FUND SUCCESSFUL INITIATIVES. On average, the other 67% or $394 billion is wasted.* Much of this is due to burden of legacy technology and processes. The most effective way around these complexities is Lean Digital. It’s our practical front-end to middle and back-office approach that focuses on what generates step-change business impact and avoids what doesn’t. Lean Digital allows your teams to design, transform and continuously adapt how your enterprise runs – ensuring less waste of your technology investment. To discover what Lean Digital can do for your organization, take the Lean Digital Diagnostic at LeanDigital.com
LEAN DIGITAL
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*Source: Genpact Research Institute, “Putting digital to work - the Lean Digital way” September 2015. ©2015 Genpact.
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MAKING OPERATIONS INTELLIGENT: ANALYTICS
The brave new world of operations disruption How analytics underpin the change
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he case for disruption is well established by Harvard Business School professor Clayton Christensen. A new player storms onto the scene with a new product or service that results from an innovative process enabled by technology. The disruptor’s offering typically re-segments an existing market, establishing the firm as a leader in the new segment, or it enlarges an existing market by bringing new buyers off the sidelines and creating an offering that is “good enough.” The cost structure the disruptor achieves through the reimagined, novel use of process enabled by technology acts as a barrier against copycatting by existing firms. This lower cost structure also acts as a prophylactic, giving the disruptor the time and space it needs to mature and perfect its operating model before encroaching up-market, destroying maladaptive firms and transforming the industry for the better.
Every industry has a disruptor A global taxi company that owns and operates not a single taxi, a global telephone company that possesses no communications infrastructure, a bank that has no money, or even a movie house that does not own a single cinema—in all of these examples, a single firm has disrupted its industry with the application of novel process, enabled by technology. The BPO industry and in many respects the broader advanced operations environment (including Global Business Services [GBS]) have followed the same path. Genpact’s evolution is a good example of this change. What do the examples above tell us about the future?
allowing you to change direction very quickly. But that’s also what makes it particularly unstable and slow. By comparison, a bicycle is both fast and stable, but not nearly as maneuverable. The characteristics of a tricycle place it in between these two. What if we want a vehicle that is agile, stable and fast? I can’t imagine any combination that helps me achieve that outcome. But that is because I am stuck in a paradigm that prevents me from imagining all the new possibilities that exist due to advances in analytics and digital technologies. As long as my point of departure is a paradigm premised on leveraging human resources to pedal a vehicle, I won’t be open to seeing the possibilities presented by these new technologies and that also present the possibility for discontinuous change. The F-35 Joint Strike Fighter is a flight platform that should not be able to fly. It is inherently unstable and it evinces a characteristic that aeronautics engineers call static instability. The air frame, without something to help it overcome its inherent architectural design deficiency, would wobble uncontrollably as it moves through the air, making any reasonable level of performance impossible. Yet it is
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The F-35 (and indeed, most modern aircraft) utilizes a technology called fly-by-wire that allows the flight computer to automatically stabilize the aircraft—all without pilot intervention. The point here is that the flyby-wire technology takes an airframe that is inherently unstable by design and makes it stable when necessary—for example, for speed—or adjusts the control surfaces of the aircraft to make it unstable when it needs to be—for example when the airplane needs to be highly maneuverable. (Think of what makes a unicycle so maneuverable).
A global taxi company that owns and operates not a single taxi, a global telephone company that possesses no communications infrastructure, a bank that has no money, or even a movie house that does not own a single cinema
ANALYTICS & TECHNOLOGY CAN BREAK TRADITIONAL TRADE-OFFS, Analytics & technologyARE can break traditional trade-offs, But only BUT ONLY IF OPERATIONS RE-IMAGINED WITH ANALYTICS &if operationsAT areTHEIR reimagined TECHNOLOGY COREwith analytics & technology at their core Traditional process design trade-offs unsolved by older analytics & technology
New architectures, not otherwise available, become possible if imagined in the context of analytics & technology Reimagine process in context of analytics & technology
The paradigm shift Our point of departure may possibly be from a new paradigm, one in which the framing question is: How do we operate this particular process with no human resources? To stretch my own imagination, I’ve become fond of a particular metaphor that I think illustrates this quite nicely. We have all ridden (or at least attempted to ride) a unicycle, bicycle and tricycle. A unicycle is extremely maneuverable,
an extremely high-performance aircraft because its design leverages a very specific advanced technology.
DESIGNED FOR | agility |
stability
|
speed
|
- TRADITIONAL PROCESS ILLUSTRATIVE
INTELLIGENT TECHNOLOGY SYSTEMS (e.g. fly-by-wire controls) enable unprecedented agility, stability AND speed INTELLIGENT OPERATIONS
MAKING OPERATIONS INTELLIGENT: PROCESS
Lean digital takes on finance Shantanu Ghosh tells HfS about Genpact’s transformational programs
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an finance executives embrace digital to break away from some of the legacy mindsets, processes and technologies that the function has come to rely on? That was the topic of an April 2016 post in Horses for Sources, the blog from analyst firm HfS Research. The article featured an interview with Genpact Senior Vice President and Business Leader Shantanu Ghosh, senior vice president and global head of CFO and transformation services. The interview was conducted by Phil Fersht, CEO, founder and industry analyst at HfS. This is a condensed version.
Shantanu, can you tell us a bit about what you’re up to at Genpact today? I lead the global financial accounting, sourcing and procurement service lines. I also lead consulting across Genpact. But the complexities, the scale and the types of solutions involved in my remit have all transformed so rapidly in the last few years that it feels like I’m doing a new job every day.
Genpact has been racking up a lot of wins lately. Can you tell us what you’ve been doing to account for these successes? It’s the combination of a few different things. We’ve carried out three or four years of sustained development in our domain capability and front-end capacity and in this business it takes a little while to
engage with clients at a new level. But as we engaged with more and more clients, we managed to get into a virtuous cycle, because they see the value that we’re bringing to the table—and the advisors see it as well. Combine that with a more proactive approach to solutions and business opportunities and a strong focus on integrating more technology, analytics and Lean and Six Sigma principles into our process solutions. All that has helped to create a differentiated view in the market that we’re branding as Lean Digital.
Do you think there’s something unique about your approach compared to others in the market? A secret sauce? It’s not really a secret sauce. We go very deep in building domain expertise in a few chosen verticals and service lines. We focus on the possibilities inherent in new digital technologies, which has resonated with clients because it’s shifted the value equation away from cost alone to encompass many other factors. But I think what has changed the most has been our culture. Specifically, I’m referring to the level of experimentation that we’re able to do now, in terms of both solutions and commercial constructs. This is largely due to the confidence we’ve built up in our vertical and service mind domain expertise and in our capability to attempt really big, transformational programs for our clients. We put a stake in the ground and really
push the boundaries and we measure success not in terms of effort spent but in results and performance.
How do you see digital impacting finance in the medium term? Most financial professionals think of digital as having a major impact on cost and cycle time. I hear a lot of stories about what’s happening in the financial services world involving fintech and robotic automation and stuff like that. But there are a couple of other factors at work that are often less widely appreciated. The first is the unprecedented level of flexibility or agility that this is bringing to finance operating model. The second is that with a greater level of data leveraging, analytics, predictive modeling and forecasting, you can become a better business partner. I think more people should understand that as the fundamental shift that it truly is.
We focus on the possibilities inherent in new digital technologies, which has resonated with clients because it’s shifted the value equation away from cost alone to encompass many other factors In which areas do you think digital is making the greatest impact? Genpact’s entire positioning of our solution structure and the whole Lean Digital platform is based on the premise that a lot of digital disruption and innovation has happened in the front office, changing how customers interact in a B2B or B2C environment. But one of the biggest lessons from that front-office innovation is that after the initial hype, it can lead to severe customer dissatisfaction. So we focus exclusively on making middle- and back-office transformations a reality for our customers, ensuring that the frontend transformation journey that many of them are on is something they can use to delight the customer.
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MAKING OPERATIONS INTELLIGENT: PROCESS
What’s the role of robotic automation in this? The hype surrounding robotic automation will morph from today’s concept, where it primarily mimics a human task, to the application of bundled technologies, which includes robotics, machine learning, cognitive algorithms, visualization, and others. This transforms a process fundamentally. And we’re seeing increasing application of purpose-built solutions across the whole value chain of a commercial operation, incorporating various digital technologies to great effect. So our focus for now is about bundling digital and process solutions, rather than sticking exclusively to robotics. Put plainly, we don’t want to feed the hype at the cost of true value.
How would you describe the current state of the finance profession? Almost every study done with financial professionals has shown deep dissatisfaction with the potential to be a business partner compared to the reality. If you look at traditional finance skill sets, there’s been a lot of emphasis on the technical aspect of finance followed by
a grounding in operational delivery. So traditional management training consisted of going through sales offices, corporate offices and profit centers learning how operational finance worked in each location. Then you did the same thing in treasury in this company and that company and you eventually became a CFO. For the people who made it, that’s how they went through the pyramid.
So you think the old model is changing? I think it is changing fundamentally. The necessary skill sets are different. Given the sheer volume of data that gets spewed out of the systems—and what we can do with that data in terms of modeling, forecasting and so on—analytical literacy is a musthave. Risk management is transforming from the static view of controlled definitions and one-time control setup to a far more dynamic, multivariate and global model. And mindsets are shifting from cost-to-serve and managing cost-to-serve and cycle time to creating truly agile and flexible operating models—not only in finance, but in the core supply chain itself. The sources of talent are going to
SHANTANU GHOSH SVP & Global Head, CFO and Transformation Services
have to change, so the curriculum will have to change. IO The full interview with Shantanu Ghosh is available on the HfS Research blog www.horsesforsources.com/shantanu-ghosh_041516
DON’T LET LEGACY PROCESSES AND TECHNOLOGY SLOW DOWN YOUR DIGITAL. Discover LEAN DIGITAL genpact.com/leandigital
LEAN DIGITAL
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MAKING OPERATIONS INTELLIGENT: PROCESS
Reducing third-party risk in the digital age Processes harnessing the right technology
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hen a major retailer suffered a massive data breach after its credentials were stolen from a third-party vendor, it had serious consequences to manage. Over 40 million credit and debit card accounts were compromised, which resulted in 140 separate lawsuits, payment of millions of dollars in claims and incalculable damage to the retailer’s reputation. Events like this—triggered by distributors, agents, joint-venture partners, contractors and other third parties—are no longer infrequent. As global supply chains grow longer and more complex and regulators extend their reach, organizations are risking reputational damage if they fail to establish comprehensive third-party risk management (TPRM) programs. While most global enterprises acknowledge these threats, few have moved beyond ad hoc approaches and stop-gap solutions. Organizations face exposure to information breaches—as well as to operational, regulatory, geopolitical threats, among many others. All these add up to reputational risk. These risks become even more critical in the face of pressure to reduce overall procurement costs that increases reliance on suppliers in emerging markets where corruption and illegal business practices are more prevalent. Increasingly complex supply chains require accurate data interchanges with a growing number of diversified suppliers as organizations have less direct contact with their customers. Third-party failures can result in both regulatory fines and operational losses that are difficult to predict but potentially devastating. Regulators have become more aggressive in enforcing frameworks such as the Foreign Corrupt Practices Act and guidelines from the Organization for Economic Co-operation and Development. They are also expanding their reach well beyond the traditional realms of banking and finance. Social media continues to exert a powerful influence over consumer sentiment, calling greater attention to ethical practices in the supply chain. 20
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All of this is further compounded by the fact that many investments in digital risk management technologies, such as workflow or language processing tools, fail to deliver the expected results because they are not entirely aligned to the core business of the enterprise.
Ad hoc approaches don’t work Despite this demanding risk environment, many enterprises persist with an ad hoc approach to TPRM. By solely reacting to external events and attempting to patch gaps in business processes as they appear, they end up with incomplete solutions. Traditionally, companies operating internal TPRM programs have had relatively easy access to financial risk scores when screening their suppliers. But they face significant hurdles when it comes to non-financial risks that require the interpretation of large volumes of data from both local and remote audits. Designing and running in-house TPRM programs can also be expensive and timeconsuming due to limited awareness of evolving regulations and a lack of access to the right skills and technology. Some industries with common supplier bases, such as the automotive and pharma sectors, have formed industry councils to share supplier risk assessments and best practices. But since risk audits are generally not a core competency of these organizations, the benefits have been limited.
For these reasons, many enterprises have yet to implement TPRM frameworks that manage risk across end-to-end business processes on a global scale. But awareness is growing that current approaches need a fundamental overhaul.
Holistic, end-to-end TPRM To anticipate, prevent and manage adverse events throughout their operations, global enterprises need enhanced visibility of their third-party risks. They require more efficient risk assessments to support targeted mitigation strategies and the ability to predict potential outcomes throughout their operations. Subhashis Nath, vice president, enterprise risk solutions and a global senior partner of the enterprise risk and compliance (ERC) practice at Genpact, points out that digital technologies play a key role in an integrated third-party risk management program. “To increase the likelihood of TPRM initiatives achieving the expected outcomes, organizations can adopt Genpact’s Lean Digital approach,” he says. “It combines digital technologies, design thinking methods that focus on the end customer and Lean principles that offer greater agility.” This approach tightly aligns risk processes to business outcomes and helps overcome the challenges from legacy operations by driving the right choices end to end rather than focusing on quick wins or individual parts of the process. This results in a simple transformation with fewer changes required. Deep risk management knowledge is required to design robust policies, procedures, guidelines and governance processes. This domain expertise helps identify the threats associated with
MAKING OPERATIONS INTELLIGENT: PROCESS A best-in-class risk management process enabled by digital technologies
3. Audits that direct resources where they’re needed most: The right combination of on-site and remote-site audits is key to reducing assessment cycle times and rapidly formulating action plans. This balance has become essential as costcutting pressures push supply chains out to smaller suppliers that may be missed by ad hoc approaches. Digital tools can help solve this puzzle, enabling the allocation of limited resources to the right areas and focus to be placed on the risks and geographies where these tools can have the greatest possible impact. 4. Targeted action to limit damage—or prevent it altogether: Corrective and preventative action requires efficient targeting of remediation plans, which depends on the assessment of several complex parameters, including the organization’s risk appetite and the importance of the vendor. This involves working with the vendor to improve processes or, as a last resort, recommending termination of the relationship.
D I G I TA L E N A B L E R S PROCESS MODULES
2. Comprehensive risk assessments that present the complete picture: Equally important is the need to improve both the depth and scope of risk assessments: Digital technologies, such as natural language processing, workflow tools and advanced analytics, offer effective enablers. These solutions can transfer audit information in real time and facilitate the analysis, scoring and aggregation of results across a region or around the world. Dashboards, structured scoring mechanisms and advanced visualizations enable decision makers to zoom in on potential trouble spots with unprecedented precision.
VA L U E P R O P O S I T I O N
optical character recognition
CLIENT SYSTEMS
NETWORK FIRMS
SUPPLIERS
1. Best-in-class screening to cut through the noise: Direct person-to-person contact between buyers and suppliers is fast becoming the exception rather than the rule, placing greater reliance on data-driven communications. Data from top global vendor screening databases like LexisNexis, Dow Jones and Thomson Reuters can be interpreted using cognitive computing, machine learning and robotic automation. This technology helps separate true “hits” from false positives while maintaining an audit history to demonstrate due diligence.
SOURCES
Four key processes
D ATA B A S E S
business and regulatory requirements and prioritize third parties that should be assessed with additional rigor.
analytics model building
scoring engines natural language processing
eg SAP Ariba
advanced visualizations
machine learning
report automation SOURCES
cognitive SOURCES intelligence
T HIR D PA RT Y SC R E E NING
dynamic workflows
DU E
COR R EC TI V E
DILIG E NC E
AU DITS
/ R IS K
Increases depth and scale of risk coverage
Pulling it together with Lean Digital Integrating these four processes into a cohesive whole can be a challenge, but there are tools available to help. “That’s where Lean Digital comes in,” says Nath. “A comprehensive TPRM program supported by Lean Digital generates substantial impact on business outcomes by effectively targeting sources of risk and enabling readyto-action reporting and rapid execution.” As a result, companies can mitigate the losses from regulatory fines, business continuity disruptions and reputational damage while simultaneously improving resource utilization by fully embedding TPRM into their business processes. “By delivering intelligent risk management operations with greater visibility and control, organizations can sense, act and learn from the outcome of their actions,” he adds. “Lean Digital is a key element of the most responsive and proactive programs that identify and manage third-party risks.”
Impacts Companies that proactively address their third-party risks reduce the threats facing their businesses while
& P R E V E NTATI V E ACTI O N
A SS E SS ME NTS
Increases speed to execute riskmanagement activities
Manages risk proactively
risk SOURCES algorithms
Enables continuous improvement through datadriven insights
Provides real-time visibility on third-party risk Enables end-to-end process controls
Reduces costs of assessments
increasing productivity as they comply with regulations. l
Compliance rate increased by 50 percent with significant cuts in compliance costs by adopting TPRM A leading financial services firm adopted a comprehensive TPRM framework that included controls assurance, audits and risk remediation plans with ongoing monitoring through a series of simple, responsive dashboards. As a result, the firm increased its internal TPRM compliance rate from 40 percent to 90 percent in less than a year and slashed compliance costs by half by combining remote and on-site execution.
l
Third-party screening eliminates corrupt suppliers from high-risk territories A footwear and apparel manufacturer ran an end-to-end screening process with built-in data analytics to assess the company’s existing network of third parties in high-risk territories. This enabled the company to identify over two dozen potentially problematic third parties, reduce the risk of regulatory penalties and enable greater protection from potentially incalculable damage to its reputation. IO INTELLIGENT OPERATIONS JUNE 2016
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RESEARCH SPECIAL
What is holding back the digital revolution? Enterprise transformation, not just technology
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hat distinguishes a company that successfully transitions to digital from an organization mired in the status quo? Surprisingly, it isn’t budget, silos or legacy systems. A recent Harvard Business Review Analytic Services (HBR AS) survey suggests that the answer can be expressed in a single word: culture. Most companies recognize that digital transformation is central to seizing a competitive edge in a crowded marketplace. Yet if their culture doesn’t truly support change, the survey indicates that these enterprises often fail to take full advantage of the benefits digital offers. That failure appears pervasive: only about one-third of polled executives think their use of digital technologies is having a significant impact. Such widespread subpar performance should be cause for concern. To uncover the nature of the underlying challenges, the study compared the habits of digital leaders (companies that say they are achieving the highest levels of positive business outcomes) and digital strivers (companies that report much weaker impact). The findings helped reveal where some of the divisions lie.
Vision, change management and risk Culture and vision go hand in hand. Only 24 percent of digital leaders say they lack a well-defined direction for the use of digital technologies, while nearly half the striver organizations say so. The implication is that many companies recognize digital transformation as desirable—indeed, necessary—but they are not clear on exactly why or on how to make it happen. Compared to strivers, leaders also tend to exhibit a firm grasp of the subtleties of change management and they mobilize their internal functions to take advantage of digital opportunities as they arise: Only 37 percent of leading companies say change management is a significant obstacle versus 50 percent on the part of non-digital leaders. But perhaps a key marker of the cultural difference between the two groups is that digital leaders are not afraid of risk: Less than one-third suffer from a risk22
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averse culture compared to a majority of strivers.
Seizing the competitive advantage A visionary corporate culture also creates an environment where leading-edge technologies can thrive. Advanced analytics, social media and mobile technologies are well known to enhance customer understanding and engagement—and digital leaders are best positioned to act on those insights to achieve marketing-related business outcomes. In fact, according to the study, organizations with better digital cultures are more adept at using technology to heighten competitive advantage in practically every way. Some 75 percent of leaders leverage it to increase market share while 80 percent say digital creates new market segments and nearly 81 percent say the technologies increase business from existing ones.
The broader the buy-in, the better A culture that enables success spans the breadth of an organization. Historically, IT and finance have driven large-scale enterprise technology investments like ERP systems and have focused on cost
savings. But the dramatic rise of innovators like Google and Amazon has helped give a voice to other functions, from marketing and sales to R&D. This shift has reshaped how some companies place their bets in terms of technological investment, particularly among those that lead the field. Digital leaders outperform others on the cost and operational side of the equation. Eighty percent strongly agree that their digital efforts have improved the use of assets while only 39 percent of other companies say the same. A full 70 percent say digital technologies have played a
TO WHAT EXTENT IS YOUR ORGANIZATION CURRENTLY SUPPORTING Figure 1:WITH Digital technology support EACH OF THE FOLLOWING DIGITAL TECHNOLOGIES? digital strivers
digital leaders
69%
Improving decisions
(e.g., better view of performance and customers)
31% 66%
Launching new business models
26% 79%
Launching new products and services
39% 66%
Improving non-customer-facing operations
(e.g., middle and back office operations such as accounting, sales operations, auditing and procurement)
33% 78%
Improving customer-facing touch points and experiences
44% 0%
50%
100%
RESEARCH SPECIAL significant role in reducing costs while only 43 percent of other companies report the same impact. However, product and business innovation through technology is gaining similar—or even greater—priority. And for leading firms, the use of technology to launch new products, new services and new business models is fast becoming business as usual (see Figure 1).
The metrics challenge Some aspects of digital transformation have proven so demanding that even those organizations with supportive cultures and proven track records of success are struggling. For example, only about 20 percent of respondents say they have implemented a systemic, enterprise-level process to design and execute digitally enabled solutions. The weakness typically manifests in the complex task of aligning front- and back-end operations to meet customer expectations and an inability to make course corrections. Overall, 45 percent of companies are putting significant digital support behind middle- and back-office functions. But only
21 percent say their company’s back-office functions support an improved customer experience. Digital leaders are somewhat better than the rest in this regard—36 percent versus 13 percent—but in the absence of these benchmarks, in too many instances, true digital transformation remains elusive without this alignment. The trigger for this apparent lapse may lie in how enterprises typically approach digital transformation. The process tends to begin at the board level, then becomes the responsibility of those on the front lines. What’s missing is a middle layer capable of driving digital development and insuring that these investments make the greatest possible impact.
From stagnation to transformation The HBR AS research demonstrates that the mandate to transform digitally is rising to the top of corporate agendas. What’s more, it has an impact on all aspects of an enterprise and incorporates an overall vision of the organization. While many firms have a long way to go before they
can claim that their digital transformation has delivered on its promises, a high-level commitment to the process is essential for an improved outcome. In the end, making the shift to digital is less about abandoning legacy IT and more about discarding legacy mentalities. Digital leaders in the survey more often have an eye for the corporate applications of digital technology and how to align them to business outcomes. Leaders are agile, eager to experiment and quick to implement improvements when they see changes working. And they take risks. In other words, the difference between success and failure—between transformation and stagnation—may not be a question of resource allocation or budget, but one of culture. Modeling the culture of digital leaders can make all the difference. IO The full report report, What is Holding Back the Digital Revolution? is available here: http://www.genpact.com/lp/what-isholding-back-the-digital-revolution
HOW LEAN IS YOUR DIGITAL? TAKE THE DIAGNOSTIC at: http://ratio.genpact.com
THE LEAN DIGITAL RATIO TOOL The diagnostic will take about 5 minutes to complete, and will visualize your results against a benchmark of your peers. INTELLIGENT OPERATIONS JUNE 2016
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RESEARCH SPECIAL
Mastering digital transformation in finance A long but promising road ahead
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igital technologies have transformed business models for many enterprises and are now an essential survival tool for incumbents facing disruptors. Their adoption has been most visible in customer-facing functions, where improving customer engagement and experience have been the driving forces for much technology investment. Many companies are now realizing that they cannot achieve real business outcomes from digital investments without aligning initiatives across the front, middle and back office. But a new study commissioned by the Genpact Research Institute found that most finance functions fail to obtain optimal performance from their investments in digital technologies. The root cause is the failure to take an integrated approach. The study, entitled Finance in the Digital Age, was conducted by HfS Research and included a survey of 160 enterprise F&A services buyers in addition to related advisors and service providers. It found that the vast majority of F&A professionals believe that enterprises that embrace digital transformation across business functions will outperform their
competitors in the next two years (see Figure 1). Moreover, they also agree that the new wave of digital technologies is fundamentally changing the finance function. Yet many companies still struggle to achieve true transformation. Nearly half of F&A executives are not satisfied with the impact of digital technologies on their businesses and only nine percent believe they achieve optimal performance from their current processes.
Disconnects within management The study revealed a significant disconnect between senior finance executives and middle management—the front-line professionals running day-to-day F&A processes (VP and below). For one thing, senior executives are far more satisfied with the current digital landscape. About 18 percent say they are very satisfied with the impact of digital technologies on their F&A processes whereas only three percent of finance professionals say so. For their part, finance professionals perceive a much stronger need for operational efficiency and a data-driven business, with 45
percent citing operational efficiency to free up staff for more complex tasks as having a “huge impact,� compared with only 27 percent of senior management. Interviews with survey respondents found that one of the biggest sources of disappointment at the operational level is the lack of data quality and readiness within disparate F&A processes. The study highlights how finance professionals will have trouble achieving efficiencies in their processes without data alignment across financial systems and enterprise resource planning systems, paperless document processing and a move away from manual spreadsheets and emails.
High expectations for robotics and machine learning With pressure for change coming from middle management, survey respondents anticipate that all types of digital initiatives will have a growing impact on F&A processes over the next two years, including analytics/big data, collaborative tools, cloud-based/SaaS platforms and mobility tools. But two technologies stand out as holding particular promise. The proportion who say that robotic process automation has at least some impact jumps to 58 percent in two years compared with only 34 percent today (see Figure 2). For cognitive computing and machine learning, the proportion surges from 44 percent to 67 percent over the same period.
Figure 1: Finance professionals buy into digital transformation
?
To what extent do you agree / disagree with the following statements?
Enterprises that embrace digital transformation across business functions will gain more ground than their competitors in the next couple of years
35%
Successful digital transformation impacts the whole service experience for end customers and internal employees by integrating the front, middle and back office processes The new wave of digital technologies is fundamentally changing the way that the finance function operates Finance professionals who embrace digital technologies will experience faster career progression
32% 23% 25%
Service providers that fail to embed more digital capabilties within their finance and accounting operations will see their value proposition fade away agree strongly
24
agree somewhat
INTELLIGENT OPERATIONS JUNE 2016
neutral
disagree somewhat
49%
28% disagree strongly
13%
50% 53% 51% 46%
16% 16%
7%
19% 4% 18%
6%
SOURCE: HfS Research Ltd. 2016; Sample - 160 Enterprise F&A Buyers
RESEARCH SPECIAL The overall correlation between customer satisfaction and usage of a banking product is 0.8, so while satisfaction clearly matters, banks still face considerable risk of losing satisfied customers. Indeed, in spite of relatively strong satisfaction among users of various banking products, more than half of survey respondents have already changed or are considering shifting at least one product to a provider other than their primary bank.
Why are consumers nonplussed by banks’ digital efforts? Front-end technology isn’t enough
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anks are pouring billions of dollars into improving online and mobile applications, reconfiguring branches and ATMs and delivering their products and services across an omni-channel ecosystem. But new research reveals that they are falling short of delivering an outstanding customer experience. For the most part, they have focused too strongly on front-office improvements at the expense of integration with the middle and back offices. The result is an unacceptably low ROI on digital investments and lost opportunities to retain customers. The study was conducted by the market research firm YouGov in late 2015 and included a survey of more than 7,000 retail bank customers in the US, Europe and Australia. A previous survey in early 2014 found that certain digital channels, especially online banking, were overtaking traditional channels. This trend has continued: Estimates show that in 2015 alone the global banking industry invested about $85 billion in digital technologies. To assess the impact of this effort, the latest research focuses on the quality of customer engagement with their primary banks. The new findings confirm the success of online banking, which is both ubiquitous and satisfying for customers as well as mature 26
INTELLIGENT OPERATIONS JUNE 2016
enough to be considered “old digital.” Physical services from branches and ATMs are also positively rated. But customers are lukewarm about newer digital channels such as mobile, interactive voice response (IVR) and chat. And half of all customers are now looking for alternatives from institutions other than their primary bank, especially for complex products like wealth management and mortgages.
Newer digital channels are underused While use of physical channels such as the ATM or the branch are close to universal in the countries studied and online banking use is also widespread, large segments of customer populations have never used the newer digital channels. For example, even though mobile banking satisfaction is high among customers who use it, the proportion who do not use it ranges from 63 percent in Germany to 34 percent in Australia. Similarly, mobile non-users make up 67 percent of those over age 55 and 27 percent of the 18-34 cohort. Uptake of IVR and chat is also lagging behind— even though banks have pushed these channels—because satisfaction levels are low, especially for IVR. Even when high levels of satisfaction are achieved, this doesn’t guarantee loyalty.
The propensity to seek alternative providers peaks for products with relatively high satisfaction and usage levels, including credit/debit, savings/checking, transfers and payments. The tendency to switch is also highest among older age groups, which are generally the most satisfied with their primary bank. So it appears that the more importance customers attribute to a product, the more likely they are to be on the lookout for alternatives.
Nationality, age, factor into banking behavior These findings vary considerably across countries and age groups. The full research report, entitled Are banks’ digital efforts delighting clients? provides detailed breakdowns of satisfaction and usage by product and channel across five countries and three age groups. For example, customers in the US and Australia are more likely than their European counterparts to use newer digital channels like mobile, chat and IVR from their primary banks but also tend to explore alternative providers more frequently even though they express high overall satisfaction with their bank. And customers aged 55 and older are most satisfied with their primary bank’s products but they are also most likely to consider switching to an alternative provider. The accompanying charts show satisfaction indexes based on a rating scale of -2 (very dissatisfied) to +2 (very satisfied).
Reimagining banking operations Most banking products don’t show significant increases in usage as customer satisfaction goes up. (Wealth management, the least fungible of banking services, is the exception.) This raises the question of how banks can reimagine their operations to retain older customers while also attracting younger customers. Simply offering customers the ability to connect through digital channels does not
RESEARCH SPECIAL
Transforming industrial businesses with the Internet of Things It’s about strategy, not just tech
H
ow humankind and machines interact is changing forever thanks to the Industrial Internet of things (IIoT). It’s positioned to transform entire industries, including hi tech (computers and electronics, among other endeavours), medical technology, aerospace and heavy equipment manufacturing. Global enterprises are allocating resources in ever-increasing amounts to adopting the technologies of IIoT. Most say explicitly that it is critical to the success of their goals. But amidst the hype, something else emerges. Investment may not be enough. It must be guided by a clear strategy that’s skillfully implemented. New research reveals potential trouble on the horizon. Case in point: IW Custom Research conducted a study on behalf of the Genpact Research Institute in collaboration with GE and Industrial Internet Consortium. It delivers a sample of more than 170 senior executives representing a wide range of industries and levels of annual revenue. It finds that while a great majority of organizations are convinced of the benefits and opportunities that IIoT represents, many lack a decisive strategy and a clear path to its execution. Others worry that more reliance on advanced technologies will greatly increase their exposure to cyberattacks. The result is a hazy vision of what lies ahead, with great disparity in terms of projected impact and the potential effects of implementing IIoT.
Growth and agility are two top objectives More than four out of five senior executives (81 percent) say that successful adoption is critical to future success. What’s more, respondents who rate their organization’s IIoT usage as more advanced than competitors (leaders) are nearly unanimous in this opinion (97 percent) compared with only 76 percent of other firms (laggards). Leaders make up onequarter of all respondents (see Figure 1). The majority of all respondents (77 percent) see the ability to spur growth as the top opportunity from an effective 28
INTELLIGENT OPERATIONS JUNE 2016
IIoT implementation. Agility also is the top expected benefit for IIoT, cited by 75 percent of the respondents. However, leaders are more focused on growth (90 percent) and agility (85 percent) while others are less clear cut on their priorities.
Wanted: A clear strategy One critical element that distinguishes the leaders from the laggards is formulating strategy. The study reveals that only about one in four enterprises has a clear strategy in place for implementing the technologies associated with IIoT. Leader organizations are also three times as likely as their less prepared counterparts to have effectively executed such a strategy. The message is clear: Most enterprises have a long way to go before they are ready to incorporate IIoT technologies into their operations to optimal effect.
Data security and privacy safeguards top concerns The study reveals enterprises face many obstacles in implementing IIoT initiatives—and that leaders disagree with laggards about which obstacles are
most problematic. Organizations at the forefront are primarily concerned with the ongoing challenges of utilizing complete data systems to best effect. For example, more than half of them point to data security as being potentially problematic, followed by concerns regarding privacy and confidentiality safeguards. Those less prepared, meanwhile, are struggling to integrate IIoT technologies into their legacy infrastructure. Many lack the agility for rapid, lightweight experimentation. Nearly one-third say that they are hampered by lack of budgets. The starkest contrast between the two groups appears when considering the challenges neither finds particularly urgent. Very few leaders say that their IIoT implementation suffers from an unclear business case. Even fewer say their workforce lacks the necessary skills for ongoing operations. More than twice as many laggards find themselves severely challenged in both areas. Both groups are nearly unanimous, however, in their desire to take on the IIoT challenge: Fewer than one in four all told say they suffer from a low appetite for risk.
RESEARCH SPECIAL
The specter of cyberattacks The threat of cyberattacks is a constant presence in a highly technological and global economy. According to the study, a majority of senior executives believe that implementing IIoT increases the risk of cyberattacks and nearly half (45 percent) expect to come under attack at least once in the next 12 months. Worse still, a majority of companies do not have an up-to-date response plan in place to prevent cyberattacks or mitigate losses caused by one. Companies advanced in IIoT understand that while increased reliance on leading-edge technologies can naturally lead to increased exposure to certain types of risks, those same technologies can help to fight the threat. A majority of these companies’ leaders assert that the interconnectivity of IIoT technologies is a powerful tool to proactively manage the risk of cyberattacks, in effect halting the spread of infection before it can inflict serious harm. But most who are less prepared don’t agree: Only one-third say that interconnectivity can help to mitigate such risks.
Evolution or extinction Senior executives have high expectations for the elements driving operational improvement. Nearly 80 percent of companies at the forefront say IIoT technology is making a major impact on their enterprise’s operational efficiency. Yet only slightly more than 50 percent of those that aren’t up to speed on IIoT can say the same. Similar gaps appear between the two groups in terms of major growth drivers such as generating new products, enhancing the customer experience and finding new revenue streams and business models. The enterprises that best understand and leverage the new technologies are also those that are reaping the greatest benefits. It comes as no surprise that leaders can expect greater financial impact from IIoT initiatives than can those moving more slowly. But the projected gap between the two groups is glaring. Leading firms anticipate an average annual positive impact of $526 million through their use of 30
INTELLIGENT OPERATIONS JUNE 2016
digital technologies alone. Compare that figure to the $126 million projected by the laggards. Similar chasms exist in terms of the impact from IIoT-specific process redesign ($530 million versus $88 million) and advanced organizational models that leverage IIoT ($446 million versus $59 million). Leaders clearly have a better understanding of the significance of operating model transformation and the interdependencies of each of the initiatives that helps them estimate and realize impact better. A holistic architecture that harnesses IIoT technology, process redesign and advanced organizational structures catering to process-specific differences brings forward synergies that enable them to generate considerably higher impact, faster.
The bottom line The study’s findings could hardly be clearer: Adapting to and investing in IIoT are critical for growth and advantageous positioning in the increasingly competitive global marketplace. But the optimism around IIoT’s potential is not matched by a coherent strategy and execution. As experienced in many digital transformation projects, this could also result in misguided efforts, ending up in initiatives that return inadequate ROI. What’s more, these mistakes could provoke strategically dangerous delays in adopting digital business and operating models—and that could result in significant missed opportunities. The research shows that success typically requires the ability to work cross-functionally—across IT, analytics, and business groups—to drive process transformation not just at the front end, such as in the field, but all the way across the middle and back office that support the front in scalable ways. Genpact uses this approach in what it calls Lean DigitalSM, as it harnesses Lean principles and a deep understanding of industrial manufacturing, as well as humancentered design. The benefits of using such an approach are significant growth, cost efficiencies and business agility for years to come. IO
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INNOVATION
Insight two: The value of clean integration points Some technologies benefit from comparatively clean integration points with existing operations and systems. For example, the evolution of biometric authentication has been steady because the technology can integrate into pre-existing systems that are frequently updated due to ongoing security and compliance threats. Speech recognition, which substitutes for traditional keyboard-based input, is another example. Similarly, eCommerce technology, despite the complexity of its integration into supply chain and customer relationship management, benefits from almost 20 years of experience.
Four years late Why tech innovation predictions miss targets
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redictions are hard—especially about the future,” said Nobel Prize physicist Niels Bohr. At no time has this been more apt. Today, enterprises are complex, global and run on the interplay between people’s rational and emotional choices and related organizational constructs. That may help explain why a recent study of 22 technologies by the Genpact Research Institute found that companies generally underestimate by about four years the time needed to adopt innovative technologies. To understand this discrepancy, the research divided the technologies into four categories based on their influence on legacy (see Figure 1). The common assumption is that organizations adopt ground-breaking technologies when these products are technically mature, priced well and serve a productive purpose. It would seem to follow that when new technologies reach an attractive price point, the strongest teams of IT and business experts will find the right use cases and start deploying them. However, reality is more chaotic. Technology maturity and meaningful use cases do help drive adoption, but the study shows that they are not the only factors. This is especially so in operations such as the middle and back offices of large enterprises with entrenched pre-existing processes and legacy technologies.
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Many companies have invested for decades in now-obsolete technologies with customized implementations that cement them in the wrong place. This might affect the processing of credit cards, of insurance claims, the reconciliation of invoices in the order-to-cash cycle of consumer product firms, the management of regulatory affairs and compliance filings in life sciences firms and the synchronization of supply chain and financial forecasts in industrial equipment services, to name just a few areas. As well, legacy operations as a whole may include obsolete, poorly documented processes and organizational models that contribute to complexity and cause delay in transformation.
Insight one: Mature technology does take time Four particular insights emerged from the study. First, in some cases mature technology really does take time. Consider holographic augmented reality, virtual assistant and natural language technologies. Such technologies are often experimental and their evolution can be unpredictable. Similarly, marketing technologies can also fall short of largescale stability because of continuous and rapid obsolescence: Indeed, thousands of marketing technology start-ups tend to disorient many marketers.
These products have also seen the emergence of Application Programming Interfaces. APIs are a boon for integration and can help disruptors move up the maturity curve quickly. Fintech companies like Mint, for example, can extract personal payment data from bank records.
Insight three: The last mile is the longest The study also found that the last mile of industrialization appears longest. It is perhaps no surprise that SaaS for HR and talent management started developing— and has been most successful—in mid-size companies served by the likes of Intuit and Workday. Given the slow rate of change in traditional manufacturing environments, 3D printing may follow the same path. Midsize firms may quickly find disruptive use cases such as the printing of prototypes or the development of smaller replacement parts for large industrial equipment. To be sure, progress has been faster with many SaaS solutions, where pre-existing systems in such areas as sales, marketing, HR and procurement have been limited. However, it generally takes a long time for technically mature solutions—what Gartner calls the slope of enlightenment—to reach wide-scale productive use.
Insight four: Legacy issues are complex Why is this so? The answer seems to be found in legacy environments. When deep integration becomes necessary to better master data management, to develop twoway synchronization with financial systems, or for more granular and faster analytics, architectural issues grow exponentially.
INNOVATION
INFLUENCE ON / OF LEGACY | LIMITED | Virtual reality Augmented reality Speech recognition Natural language question answering Smart advisors
| SOME | Volumetric and holographic displays Virtual assistants Biometric authentication methods Big data Predictive analytics (big data) Internet of Things (big data) Sales force automation SaaS HR management SaaS Marketing resource management SaaS SaaS procurement
Older machines are often hard to retrofit. Supply chain planning and financial management SaaS in large enterprises will need to replace or complement older ERP technologies with heavily controlled process steps that can have complex ramifications. Large manufacturers will struggle longer with older but thoroughly integrated systems. The same may also happen with cloud ERP for large enterprises. Adoption of the Internet of Things will likely hinge on similar considerations, as its value proposition largely relies on networks.
| SUBSTANTIAL |
| VERY SIGNIFICANT |
Cloud computing
Financial management SaaS
Internet of Things Enterprise 3D printing Supply chain (execution) SaaS
Supply chain (planning) SaaS Cloud ERP for large enterprises
E-commerce SaaS
Legacy operations also fulfill a compliance role involving years of checks and balances, the study found. Regulatory compliance is often partly responsible for maintaining convoluted old systems. Reimagining processes requires significant business domain expertise, often in short supply in technology-focused staff.
Different plans called for Technology adoption and maturation is vastly different in front-end and B2C processes compared to B2B and mid-to-back-office processes,
so each may call for different plans. B2C adoption depends more on mature technology and its affordability. By contrast, in B2B, where legacy operations are significant, operating model maturity helps drive adoption and can prevent transformation failure. Innovation is always relatively unpredictable. But leaders can improve the odds of success—and that’s essential because early adopters harness technology to upend the competition. Realizing that the presence of large legacy operations is a hard constraint will help transformation teams apply the right change management: A bimodal approach that treats new and traditional technologies differently is becoming prevalent in IT departments. Beyond IT, a holistic Lean DigitalSM procedure has grown out of the need to harness new technology nimbly in large enterprises. In the end, innovation is not just about “shiny objects.” It is about the creativity, grind and sweat involved in reimagining how existing business processes can harness the power of new technologies. IO
THE HARDEST WORKING DIGITAL IS LEAN DIGITAL. INTELLIGENT OPERATIONS JUNE 2016
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INDUSTRY ROUNDUP
Regulatory affairs for big pharma can be agile and scalable Disciplined processes free up resources and help R&D
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ith settlements for non compliance sometimes reaching several billion dollars, big pharma faces immense pressure to maintain regulatory and safety vigilance while reducing costs. Speed-to-market, managing regulatory complexity and maintaining compliance are equally critical to retaining market share. In this environment, a global pharmaceutical firm struggled to manage its regulatory affairs (RA) function through vendors and contractors spread over several countries. Keeping pace with new product introductions was a particular challenge, forcing frequent reliance on short-term and expensive arrangements to augment staff during surges in demand. As a result, the firm’s highly skilled Chemicals, Manufacturing and Controls (CMC) resources were stretched thin by a large volume of routine regulatory lifecycle management activities, leaving little time for high-value commercial projects.
Genpact Pharmalink The pharma major turned to Genpact’s Pharmalink for assistance. Its use of Genpact’s regulatory services over a number of years had established confidence in Pharmalink’s performance, leading to a strategic long-term partnership. With access to a global network of qualified regulatory professionals the firm was able to delegate the administrative tasks within the CMC section of license renewals. And because
the provider brought experience and product knowledge, the engagement expanded to authoring Common Technical Document (CTD) dossier sections for license renewals. Task by task, the scope grew into performing all CMC requirements for license renewals. By 2014 a dedicated Genpact Pharmalink organization was managing all CMC requirements and providing submissions as well as publishing support across multiple lifecycle management activities. This support went beyond license renewals to incorporate new product submissions in emerging markets, including authoring CMC, compiling regional and ancillary documents and responding to Health Authority (HA) questions. This delivery model gave the pharma company access to both on-shore and remote resources, driving efficiency and scalability as global compliance demands increased. A dedicated team helped to address spikes in volume, with technical staff added as required for specific projects and tasks.
End-to-end process transformation The advanced operating models designed by Genpact Pharmalink in collaboration with the client transformed the RA function in several respects. Processes were redesigned and standardized for global delivery. Lower risk activities were decoupled and delivered from costeffective near- and off-shore service
Figure 1: Strategic partnership evolution from resource support to global hubs for lifecycle management activities
2014 2009 2004 1998 • Interim skilled resource support • Focused on UK/Irish regulatory group
• Manage and execute transition of acquired company for EU • Partner EU group relocation
• Extend partnership to EU, UK and US • Support for M&A compliance projects • High value project based engagement
• Dedicated Genpact Pharmalink organization manages all CMC requirements, submissions and publishing support across multiple activities in lifecycle management • Engagement evolves to strategic outsourcing model
centers. A follow-the-sun support model ensured faster turnaround times. The dedicated Genpact Pharmalink team embedded within the pharma major’s organization focused on submissions for multiple products, reducing time to file in emerging markets, enhancing product knowledge, history and awareness. Well-defined procedures and metrics made compliance control transparent and complexity easier to manage. An automated system helped to consolidate multiple requests for similar data for each product sent to manufacturing sites across the globe to a minimum number of bogus requests. Ultimately, requests were consolidated and harmonized across 100 countries through a single system with a defined dictionary of available documentation. Workload and assignments from in-house teams in 100 countries were systematically disaggregated, industrialized, standardized and then allocated to hubs in lower-cost locations. These shared services centers managed high-volume information and documentation requests.
The pharma company gained access to both on-shore and remote resources, driving efficiency and scalability as global compliance demands increased Business impact These advanced operating models resulted in agile, responsive, sustainable and scalable lifecycle management operations for the pharma firm’s regulatory affairs function, managing planned and unplanned activities and improving compliance across 100 countries. This enabled the firm to use its internal resources for high-value commercial priorities, including more than 400 clinical trials in 75 countries. Greater efficiency and standardization, combined with off-shore service consolidation, helped drive cost reductions of approximately 30 percent. IO Genpact Pharmalink is the global regulatory affairs organization of Genpact.
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INTELLIGENT OPERATIONS JUNE 2016
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Real-time data in Company:
GlobalTrade Coffee Inc.
Period:
Year Ending 31 March 2015
Purpose:
To document current year revenue review and comparison to prior years
Prepared by:
Louie Hardy
Date:
10 November 2015
The following report provides a summarised analysis of revenue for GlobalTrade Coffee Inc. for the year ending 31 March 2015, with comparisons between this and the previous two years ending 31 March 2014 and 2013.
1. Summary TABLE 1. Revenues by product USD ($)
2015
2014
2013
$
$
$
Var
Var %
Var
Var %
Arabica Sacks
8,277,700
5,690,000
4,765,000
2,587,700
45
925,000
19
Barako Sacks
3,717,500
4,970,000
4,125,000
(1,252,500)
(25)
845,000
20
Java Sacks
7,512,550
6,248,000
5,673,000
1,264,550
20
575,000
10
Merdeka Sacks
5,544,000
5,626,000
5,874,000
(82,000)
(1)
(248,000)
(4)
22,534,000 20,437,000
2,517,750
11
2,097,000
10
Products
TOTAL
25,051,750
2015 v 2014
2014 v 2013
CURRENT YEAR Revenues rose by $2.5m from $22.5m in 2014 to $25.1m in 2015 (11%). From a product perspective, the main drivers for the increase in revenue come from Arabica Sacks and Java Sacks. Revenues from Arabica Sacks increased by $2.6m from $5.7m in the prior year to $8.3m in the current year (45%), and revenues from Java sacks rose by $1.3m from $6.2m to $7.5m (20%). These increases overcame a decrease in revenues from Barako Sacks, which fell by $1.3m from $5m to $3.7m (-25%). A detailed breakdown of revenue by product can be found in section 2. THREE YEAR TREND Revenues have trended upwards from $20.4m in 2013 to $25.1m in 2015 (+$4.6m overall, 22.5%). From a product perspective, the main drivers for the increase in revenue come from Arabica Sacks and Java Sacks. Arabica Sacks revenues increased from $4.8m to $8.3m over this period (+$3.5m overall, 74%)
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INDUSTRY ROUNDUP
Game for improvement Strong process governance attacks the transformation gamble
A
Fortune 500 hospitality company that featured casinos, hotels and golf resorts was focusing on consolidating its position as an industry leader. But it was also struggling with managing F&A processes in four areas: corporate, consolidated finance operations, properties and offshore accounts payables. The dilemma: How do you fix and document a process that is broken end to end without extra manual effort? How do you address the high number of controls and determine how to tackle a complex array of legacy systems? The company needed to improve the accuracy of financials and reporting, transparency and ownership of processes and controls. It also had to respond to the scrutiny of the controls environment and curtail rising compliance cost—all the while continuing
to boost customer and employee satisfaction. It was clearly not going to be just the luck of the draw.
Opportunities for improvements When Genpact’s team performed a root-cause analysis that assessed over 600 activities in the finance, IT and HR functions, it uncovered 48 opportunities that would yield improvements of over 20 percent in both efficiency and cost rationalization. This company had classified 78 percent of its controls as key controls, compared to an industry benchmark of 35 percent. Based on these findings, an operating environment framework was mapped for strong process governance, policies were identified and strategic guidance was established. In addition
On-time payment matters European insurer enhances supplier satisfaction
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or a European insurance leader, a seemingly straightforward goal seemed elusive—how do you improve the Payment on Time (POT) rate across the firm’s Europe’s operations? Spiraling procurement costs coupled with a lack of metrics around the current, but unstable, processes represented a significant stumbling block at the very outset. The accounts payable function still relied on manual, paper-based processing that hurt productivity and slowed the flow of information to decision makers. Limited insight into vendor/assessor information, quotes and invoices increased susceptibility to fraud, over-payment and duplicate payments. The lack of a comprehensive enterprise workflow stifled efforts to streamline processes and reduce manual activities. An inability to adequately monitor the progress of invoices and an unclear approval structure led to accountability issues and impacted the quality of services delivered. So when the company turned to Genpact to set things in order, the first step to be put
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in place was an end-to-end accounts payable document management solution to digitize much of the paper inputs into the process. Processes were then standardized using common minimum practices and technology enables. Moving to a single workflow reduced data-entry efforts and created visibility into key metrics like POT, purchase order penetration percentages and cycle times. As a result, the team discovered that POT rates were ranging below 40 percent across operations. Underlying problems included delayed invoices from business users and suppliers, with about one-quarter of invoices delayed up to 40 days. A slow and cumbersome invoice approval process, insufficient payment run frequency and low purchase order penetration rates exacerbated the problem.
to redesigning processes to minimize complexity and manual effort, Genpact provided process documentation to drive standardization, best practices and value, as well as greater efficiency and effectiveness. A defined Internal Control Risk Framework (ICRF) allowed for a dramatic reduction in key controls. A unified system architecture and operational reporting framework improved flexibility and predictive reporting, to support business growth. This gaming major benefited from a more customer-focused model to provide efficient services to the business and support its profitable growth. Opportunities were identified that would boost efficiency by 20 percent, cut key controls by 25 to 30 percent, and lower compliance costs. Automation and greater integration in record to report would reduce close cycle times by 10 to 15 percent while the recommended changes to the H2R process projected cost benefits of $16 million over five years. IO
across the accounts payable process, Genpact implemented a simplified approval flow and escalation matrix to enable the continuous monitoring of invoices and reduce invoice receipt cycle times. Backdated purchase orders were booked as “non-PO” to more appropriately categorize spend according to industry standards and suppliers were trained to correctly tag invoices to the appropriate scanning centers. Payment run frequency was increased to reduce and prevent overdue invoices and improve cycle times. Finally, an issue-resolution tool was integrated into the process to better track invoice and payment activities and more easily identify and escalate issues.
Design and implementation
As a result of the solution, the insurer significantly improved POT rates while reducing costs. Specifically they improved the POT rate from 38 percent to 90 percent across European operations, strengthened compliance to the European Payments Directive 2000/35/EC and achieved a $5.4 million cost reduction in the accounts payable process.
Genpact started monitoring both business users and suppliers to identify and alleviate habitually late submissions. After working closely with stakeholders
Enhanced supplier relationships as a result of the overall improvement of ontime and advanced processing of invoices was also a natural outcome. IO
kyc.com An industry led initiative to standardise processes and centralise operations
Centralised service for connected due diligence processes Consolidated view of overlapping data points for KYC, Financial Regulation, Tax and Counterparties
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Advancing client onboarding readiness with digitisation, quality at source and an integrated ecosystem
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Markit Genpact KYC Services Limited and its affiliates make no warranty, expressed or implied, as to the accuracy, completeness or timeliness, or as to the results to be obtained by use of the products and services described herein, and shall not in any way be liable for any inaccuracies, errors or omissions therein. Copyright Š 2016. All rights reserved. Any unauthorised use, reproduction or dissemination is strictly prohibited.
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Our Enterprise Risk and Compliance Services assess, design, and transform risk and control environments
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TALENT CHALLENGE
Winning the talent war in financial services Building a Risk Academy to upskill consultants—at scale
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ow do financial services firms attract and retain competent risk management professionals, while they continue to face increasing pressure from regulators? Human capital management is the industry’s top priority, as demographic shifts, such as the growing prominence of millennials, only magnify these challenges—especially when tasks are not necessarily perceived as prestigious. The Dodd-Frank Act Stress Test (DFAST) and the Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR) in the United States are examples of evolving regulatory frameworks that push up demand for skilled risk specialists. To comply, financial institutions are expected to develop a comprehensive system of controls; to build, validate and document risk models; and to manage a growing volume of enterprise-wide data analytics.
The Genpact Risk Academy With a roster of more than 2,000 risk management professionals, Genpact is acutely aware of this critical scarcity of talent. That’s why it has created the Genpact Risk Academy, in partnership with the Institute for Certification of Computing Professionals (ICCP). The result is a winwin for those joining the work force or who need to retool or retrain in the digital era— and for companies that need this talent.
The Academy offers a comprehensive certification program for data scientists in the financial services industry addressing the regulatory compliance needs of clients in the banking and financial services market.“In association with industry partners like ICCP, Genpact is continuing to provide our professionals with opportunities to expand and strengthen their risk and compliance capabilities,” says Manish Chopra, senior vice president and global business leader, risk services at Genpact. “As a result, we can provide more strategic counsel to our clients and help them make the most of their data and analysis to effectively manage risk and comply with everchanging regulatory requirements.”
Linking the CRO and the CFO The need for more sophisticated risk management competencies is evident. It stems from the fact that regulatory frameworks such as DFAST, CCAR and Basel III focus in part on the interconnections between the economic and business environments. Such compliance demands a higher level of strategic thinking on the part of risk professionals in addition to more complex data analytics. Chief risk officers (CROs) and their teams are expected to model complex scenarios involving multiple external factors, such
as the institution’s reputation and the implications of political events. They also need to look beyond the financial services industry to analyze the impact of changing trends that may affect their customers and the broader economy. And all of the intersections between these issues must be accurately interpreted and reported. To excel at these tasks, there is a growing need for deep collaboration between the CRO and the chief financial officer (CFO) to align data from across the enterprise.
Creating a single source of truth The need for enterprise-wide visibility into risk has generated demand for data warehouses and other systems that attempt to eliminate silos. But CROs can no longer be satisfied with a seemingly holistic view from their own risk management systems. They need experts who can analyze risk in the context of other financial and operational issues across the business. This requires an understanding of a broader set of systems, processes and technology and the ability to connect the dots to create a single source of truth. What’s more, risk professionals must be capable of questioning the policies of CFOs and other executives—and sometimes even challenging them. Advanced analytics, modeling tools and automation are enhancing the ability to create that single source of truth and managing data more effectively while at the same time reducing compliance costs. But implementation comes at a price—not only in financial terms but also in developing new skill sets and competencies that risk professionals need.
Building the talent pipeline To meet their expanding demand for risk management talent, financial institutions must move beyond simply seeking out the smartest graduates from leading schools. They need people who are capable of applying new technologies to a continuously evolving set of problems. One approach is to partner with top universities, many of which have integrated training in analytics and associated software as part of their risk management programs. Many INTELLIGENT OPERATIONS JUNE 2016
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TALENT CHALLENGE
Financial institutions need people who are capable of applying new technologies to a continuously evolving set of problems CROs also leverage relationships with a strategic managed services partner. Such engagements provide several benefits: l
Best-in-class work management tools and processes that separate simple and complex tasks, matching the right person with the right job and maximizing the capabilities of the talent pool
l
Optimizing technology, tools and processes through economies of scale from systems deployed across multiple clients
l
More effective knowledge management procedures gained from consistent methods of documenting artifacts and minimizing risk
l
Hiring at scale from a larger pool of top talent invested in ongoing training
l
Filling skills gaps by integrating the talent pool of the managed services partner with internal capabilities
By supplementing internal risk management teams with resources from a managed service provider, financial institutions can secure a strategic ally in the war for talent. But they must carefully evaluate the training and competencies of the consultants they hire to be sure that they are capable of using the latest technologies and tools. The Genpact Risk Academy meets these needs by ensuring that the company’s risk consultants keep abreast of key industry issues and regulatory developments. It combines ICCP’s command of risk management and compliance methodologies with Genpact’s deep domain expertise. The program includes two levels of certification: Associate Business Data Management Professional (BDMP) and Certified Data Professional–Data Management (CDP-DM). It incorporates extensive online assessments of key data analytics skills. Among these are business and technology management, data warehousing, business intelligence, data and information quality, data governance and stewardship and data development. Training includes more than 35 classes delivered by industry experts via online assessment tools. IO 40
INTELLIGENT OPERATIONS JUNE 2016
PUTTING DIGITAL TO WORK THE LEAN WAY
VIEWPOINT
Leader’s view: The surprising first step of building a digital-ready culture Clarify the value proposition of change
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ur story on page 22 of this issue, What is holding back the digital revolution? focuses on the critical role of culture in establishing a vision for enterprise-wide digital transformation. It concludes that this vision must be led from the top and must permeate every part of the enterprise. Intelligent Operations asked Filippo Passerini, former CIO and president, global business services at Procter and Gamble (P&G), for practical advice about how business leaders can drive the implementation of a digital vision while making it part of their culture.
What makes embedding a digital vision into the culture so difficult? Conceiving a digital vision is not in itself a huge problem; people are generally motivated to align with ideas coming from the top of the organization. The cultural barrier is in articulating the vision to the people who must put it into action. To do that, you need to translate the vision into something very concrete for different parts of the business, because innovation always happens at the intersection of what is and what’s possible. People need to understand how the value proposition applies to their own work culture. It can change quickly if we start with clear definitions of the business needs and how digital technology can help to deliver them.
Who is best equipped to lead articulation of the value proposition? I think that digital technology professionals need to take a stronger leadership role in this area. They understand the technology and what it can do—but they also need to understand the business as well as their business counterparts do. That enables them to focus on the essence of digital transformation, which is all about enabling faster, better decision making through easier access to information. By automating business processes, eliminating unnecessary human activity and speeding up the cycle time of whatever business process is involved—supply chain, sales, 42
INTELLIGENT OPERATIONS JUNE 2016
marketing, or manufacturing—it’s possible to run the business better and faster. The right organizational design is also critical to driving the vision. At P&G we did that by embedding the people with expertise in digital technology into our business units. We created communications materials to foster alignment across business units and to eliminate fragmentation and duplication of data. At least at the beginning, managing this centrally is the most effective way to harmonize execution and ensure consistency.
Can you provide an example of how a focus on value articulation guides digitization? You need to start with the business goals and priorities. For example, at P&G we determined that we needed to bring product innovations to market faster. We started by assessing the time required for each step of the value chain, from the moment our labs came up with a new product innovation to the moment it reached the supermarket shelf. We divided all that into activity systems, then assessed the potential for digitization at each stage. Of course, digital cannot influence some of those processes much (for example, speeding up the production lines). But we discovered that digitization could greatly speed up the process of testing new packaging designs. Our previous process involved creating physical mock-ups of new packages, like a new box for detergent or a new bottle for shampoo. Making a mock-up would normally take several weeks. Then we would bring in consumers to give us feedback. We’d incorporate this feedback to build a new physical mock-up, taking a few more weeks. This whole process could add up to months. With an integrated view of both the digital technology and the business process, our team developed a method of testing packages using virtual reality. P&G’s consumer testers can now “walk” through
FILIPPO PASSERINI
Former CIO and president, global business services at Procter and Gamble (P&G)
a store and see the packaging on a virtual shelf, in the same context as real shopping. By applying changes to package designs in virtual reality, the product can be quickly re-tested with consumers and the design can ultimately be passed on to the supply chain in a digital format. The outcome was that we reduced package cycle time significantly, thus accelerating our product innovation to market. The objective of our broader digital program is to achieve this kind of transformation across a number of business processes. All this, while eliminating unnecessary steps in work processes. It’s an acceleration of the entire business model of a company.
Does this kind of success story help to accelerate broader cultural change? Yes it does, because to understand how the benefits of digital technologies add up to enterprise-wide transformation, people need to see where the value creation takes place. It’s also important to demonstrate successful initiatives to see the investments required in the light of the business value being created. That’s what I mean when I talk about a clear articulation of value. We need to go very, very deep in understanding where value is generated. It could be the top line, the bottom line and in most cases it will also translate into greater productivity for the employees. IO
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THIS YEAR $593 BILLION WILL BE SPENT ON DIGITAL PROJECTS. $394 BILLION WILL BE WASTED. *
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. *Source: Genpact Research Institute “Putting digital to work - the Lean Digital approach” 7/2015