Performance Management by Outsourcing. Zürich, 25 th August 2009 Daniele Lisetto

Performance Management by Outsourcing Zürich, 25 th August 2009 Daniele Lisetto 1

Contents 1 Introduction AXA Technology Services 2 WGR Context 3 Regionalisation (MESD) 4 Performance Management by Outsourcing 2

AXA Tech Global The Beginning AXA Tech exists for almost 7 years January 1, 2002: AXA Technology Services (AXA Tech), a wholly owned subsidiary of the AXA Group, is established to provide IT infrastructure services to AXA companies worldwide This day we have started from scratch 3

AXA Tech Global Group Strategy Productivity, quality and innovation are the main drivers for AXA Tech Strive for operational excellence Product innovation Core business expertise Distribution management Quality of service Productivity AXA Tech Mandate Introducing innovative infrastructure technologies to enable business differentiation. Providing high quality infrastructure services to our clients, meeting or exceeding service levels. Delivering productivity improvements to achieve unit price positioning 20 % below peers and help Op Cos rationalize their consumption. By leveraging Group resources and human capital Drive revenue growth, margins and productivity To create superior Value for all stakeholders 4

AXA Tech Global Internal Service Provider With the move from a cost center based service delivery unit to a high-class internal service provider AXA Tech combines the best of two worlds Cost center Internal Service Provider External Service Provider Strategic alignment with client OpCo Direct and personal relationship with client Professional service delivery Financial transparency Performance standards, process transparency International group wide bestpractice Commercial service/product view limited limited 5 AXA Tech

Current State of IT - Market Group CH (2005) Target 2.5 % in 2008 (cost leadership) The current cost profile has developed due to: Complexity of the system landscape through natural growth and, the associated, high operating costs Sub-optimal management of Infrastructure outsourcing Insufficient industrialisation of processes in IT service delivery 7

ProductUnderwriting Vertrag Schaden / Leistung Vertrieb / Distribution Partner Analytische Fokusbereiche Finance Business Common Personalwesen Risk Management Security & Codeverwaltung IdentityWorkflow Office Automation Intranet/Internet Dok.Management IT Common Datarouting Business Intelligence Data IntegrationArchivierung Asset COMMITED STRATEGY The one slide IT strategy 2006-2008 for CH Competent Partner Core Strategy Focus on Efficiency Risk Management Common Values Foundation Strategy Processes IT processes lead to Higher efficiency and homogeneous architecture CHF CHANGE RUN Financials t Central Architecture Steering Common architecture enables risk transparency & drives to reduce heterogeneity thus reducing cost of operation P D Sourcing Supply Side WGR IT Make Demand Side B S Reduced operating costs make room for change Clearly defined services delivered at the optimal cost/benefit-ratio and sourced appropriately TAP Predefined platforms for targeted application delivery Domain Strategies Business areas and domains Technical areas Application Landscape Application landscape identifies functional separation of the Systems in business areas Standardisation & Consolidation Standard technical platform implementations drive standardisation and infrastructure consolidation Lifecycle Analysis Used to identify required actions SAP Build Plan Buy is preferred over Make. A build plan for SAP is defined for ERP functionality Integration, Security & Systems Management A common solution framework for each area is defined SAP People Focused training programs prepares employees for future needs 8

Best Practices for Cost Savings* are Employed widely by WGR IT (Examples) Domain strategies 2.2 Introduction of SAP 2.1 Application landscape consolidation 5. Offshoring: Smart- Tasking Str 8: RUN-2-CHANGE 4. Improved Outsourcing relationships 4.1 Data centre contract 4.2 Network 4.3 Mail Infrastructure 15 % Potential savings (% of total IT cost) <5 % Completed Planned or in progress Strategic Programs Prioritize Development efforts (5-9%) Limit maintenance budget (6%) Short-term negotiation Right-size governance (1-3%) Streamline development processes (6-10%) Data centre Consolidation (4-9%) IT Infrastructure/ IT support (3-7%) Skills/ Culture Relevant for DC visit IT architecture <1 year Ease of implementation >3 years Prerequisites for sustained improvements Project Portfolio Process 1.1 SOP Initiative 1.2 ITIL Initiative 3.2 Platform Consolidation Programme 3.1 Platform Consolidation programme (TAP) 3.3 Migration Print- System (Primo) 3.2 Consolidation EWP 3.2 Consolidation MFP Project Gamma * Source: BCG Study "IT Cost Cutting" 2005 9 Lunch & Learn Architecture Training Strict architecture steering anchored in the strategy and IT organisation 3.2 Consolidation ZUM 3.4 MIPS Reduction

Regional Structure Scope AXA Tech UK FTE 510 Poland Ukraine CZ/SK Management Control 01.01.2008 AXA Tech CH FTE 360 Hungary 11

Unit price difference compared to market Cost Benchmark 2007 AXA Tech CH has improved its cost position significantly and is in line with AXA Tech aspiration 0% -5% -10% -15% -20% -25% -30% -35% Benchmark AXA Tech CH 2005 2006 2007 2008 2009 2010 2011 2012 Benchmark % with region Benchmark % w/o region AXA Tech Aspiration AXA Tech Position (*) Results 2007 measured and approved by COMPASS 2005/2006/2008 estimated based on COMPASS feedback and budgets (**) Peer group: Allianz Suisse, ABN AMRO, Clearingzentrale Schweizerischer Regionalbanken, Credit Suisse, ZFS, Finanz IT, Generali, Zürcher KantonalBank, Zürich Agrippina Versicherungsgruppe AG 12

Regional Case Guiding Principle Region formed 01.01.2008 with UK and CH as equal partners Creation of region Middle Europe with data centre CH as of 01.01.2008 UK and CH join region as equal partners Consolidation of UK data centres starts Q2 2008 and finishes Q4 2010 2600 servers identified for migration Changes to contracts Mainframe will be in sourced from IBM Print contract with CS got extended SAP contract with IBM will be extended Region Middle Europe takes full management control in CEE 01.01.2008 Initially led by CEE SD head; teams not merged with rest of SD organization CK/SK data centre migration in 2008 Integration of SD organization in 2009 13

Mid Europe DC Transformation Hosting Strategy AXA Tech UK Mainframe MIPS: 2931 Location: AXA Tech GE AXA Tech CEE Poland (Scope Expansion) Mid Europe Data Center (after consolidation) AXA Tech CEE Czech Rep / Slovakia (Scope Expansion) 14 N. servers: ~3700 MIPS: 7050 Storage in TB: ~450 Location: Winterthur & Balzberg AXA Tech CH Main Locations: Winterthur AXA Tech CEE Poland (Scope Expansion)

People Off-shoring Offshoring used in region since 2005 Currently around 30 % of positions in the UK and around 10 % of positions in CH off shored Clear off shoring strategy in place using India / CEE for labour arbitrage as part of virtual teams and SLA based service provision 15

Cultural Awareness Village Market The well oiled village market Well oiled machine 16

Some outsourced suppliers today Key elements AT India Internal Captive and group organization Scope expansion is easy Growth balanced Expertise retained within group Collaborative and participative NIIT India 3rd Party for IT service provision Developed and mature organization for engineering activities Experienced in diverse functions Internal record is constructive and positive Application and Infrastructure support experience in house DELL Help desk Volume based High dependence on management 18

Outsourcing Relationships Base Understanding Generic Metrics Process Definition Clear process description Definition of job roles roles/responsibilities with clear KRAs* Formalize / standardize end-to-end process with clear hands-offs between onshore and offshore location (e.g., shared methodology between clientfacing core team and resource pool in application) Document modification of existing roles (e.g., security rights vested in a given role) and create new roles (e.g., retained organization) as relevant Customer relevant KPIs (e.g.., ticket resolution time) need tracking in addition to SLAs between onshore and offshore team) Governance/coordination On-boarding/re-skilling Business reviews Escalation mechanisms Regular meetings Review of SLAs Training and on-boarding mechanisms for new employees in offshore location and re-skilling of onshore employees (e.g., knowledge of specific applications "owned" by long-tenure resources) Detailed definition of performance review whit business stakeholder (who reviews what with whom) Escalation hierarchy to tackle major issues (e.g., incident resolution) Performance improvement Baseline performance Performance metrics and targets Incentives to support ongoing improvements Monitor impact of off shoring on process performance and track improvement Set clear performance targets for end-to-end processes (i.e. customer relevant metrics e.g., overall incident resolution times) as well as specific targets for onshore and offshore teams (e.g., internal SLAs) Introduce incentive to sustain productivity enhancements (e.g., staff augmentation for team under significant workload) Activity specific enablers Standardization/automation of specific tasks Rationalize tool sets and application portfolio Language specific knowledge and business context knowledge Proximity of time zone with off shored location 19 A number of activities (e.g., logical backup management) could be automated to reduce/consolidate workforce Country specifics (e.g., for smaller countries in Mediterranean regions) tools/procedures must be eliminated to facilitate consolidation and off shoring Maintain SWAT team on site for high risk area where outages can severely affect the business (e.g., incident resolution for network)

Process evaluation Maturity of Outsourced supplier Controlled Chaos Processes Orderly Coordination Rigorous Process 20

Period progression Maturity of Outsourced supplier Initial Facts Spreadsheets Workstations Defined Ladder of Intelligence Controlled Chaos Repeatable Data Relational Databases Email Server Farm Defined Information Data Warehouse Intranet Search Laptops Orderly Coordination Managed Knowledge Knowledge bases Analytics Storage/SAN Optimized Rigorous Process Business Wisdom Modeling Forecasting Virtual Data Stores 21

Relationship Dependence Maturity of Outsourced supplier Mission Critical Strategic Tactical Partner Initial Facts Contract Spreadsheets Firewalls Workstations Strategic vs. Tactical Repeatable Data Defined Relational Databases Email Server Farm Information Data Warehouse Intranet Search Laptops Managed Knowledge Knowledge bases Analytics Storage/SAN Optimized Rigorous Process Business Wisdom Modeling Forecasting Virtual Data Stores 22

Possible lessons learned General Decision should be tied to your mission & strategic direction Form a small team of appropriate stakeholders to take on the outsourcing project For technical discussions, engage your technical experts Before you outsource, define the services (with KPI's) Time consuming to compare similar services when outsourcing Engage an outsourcing specialist if no internal know how Start outsource by back office services Do not underestimate the different cultures Be flexible on estimate final costs Make sure that the supplier you choose understands your market and your industry Understand the impact on internal staff Make sure you have an exit strategy 23

Possible lessons learned Performance Management Schedule regular progress reviews and measure regularly at face-to-face meeting (at least monthly) Manage the relationship and be hands-on for at least the first year Allow mistakes and learn from them Communicate both the positives and the challenges to your provider and to your internal executive staff Include in organizational staff events Be realistic about how things will go during for the first 6-12 months Treat your provider with respect Performance Management is a key success factor for outsourcing! 24

Conclusion A successful outsourcing relationship must be well developed actively monitored and maintained by a management team that plays an active role in choosing the supplier, monitoring the provider's daily operations and keeping an eye out for internal changes that my affect the agreement. 25

Questions and Answers? 26