Beyond Cutting Heads -

Transformational Cost Management

December 11, 2008

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Agenda

• Why cost management is important

• Transformational cost management opportunities

• Case example:
-Brokerage Co
-Product Co
-Bank Co
GXC

• Making it Happen

• Getting started
Beyond Cutting
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Bain's prior written consent.
Management
 Market leaders should expect to achieve
better bottom line performance

EBIT Margin

15%
• Scale advantages drive
down cost of inputs
Giant Eagle • Cumulative experience
10 Kroger translate to lower process
Supervalu
Publix costs
Weis

5Winn-Dixie

Safeway
Stop & Shop
Is your company
0 performing in or above the
Pathmark
$20B
GXC “normative band”?
Giant Food Store Sales
A& P Carlisle/Tops
-5
0.1 0.2 0.5 1 2 5

RMS for U.S. retail grocery (2006)

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Bain's prior written consent.
Management
 Low cost position is a key differentiator
between leaders and followers
Market leaders
SG&A cost as % of revenue (CY07)

50% 47%

40
36%

31% 31% 31%

30
27% 26%
23%
21% 21%
20 19%

14%
12%
10%
10
4% 5%

GXC
0

CY07 SG&A ($B) 25 5 23 21 70 13 5 1 10 4 15 3 31 13 1 1

CY07 Revenue ($B) 80 14 233 172 379 63 38 6 46 13 58 6 119 40 23 19

CPG Auto Retail Semi. Media Software Telco Airlines

Beyond Cutting
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Source: Capital IQ Transformational
4
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Bain's prior written consent.
Management
Best practices in cost management

Typical issue Best Best Practice

Practice Approach

1.
1 Operations • Holistic: Design the right
divorced from operating model for each
strategy segment of the business

2.
2 Focus swings widely • Focused on maximizing
between cost and value: Consider impact on both
service satisfaction efficiency and effectiveness-
think big!
3.
3 Management gaps • Smart use of IT: Use IT to
masked with support processes, but do not
technology rely on it to solve all problems

4.
4 Lack of accountability • Program office: Coordinate
for results; teams cross functions,
GXC
intervene early
working in silos when needed

5.
5 Lack of consistency • Stay the course: Set stretch,
over time realistic targets staged over
several budget cycles 18
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Bain's prior written consent.
Management
Agenda

• Why cost management is important

• Transformational cost management opportunities

• Case example:
-Brokerage Co
-Product Co
-Bank Co
GXC

• Making it Happen

• Getting started
Beyond Cutting
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Transformational
6
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Bain's prior written consent.
Management
6 key levers for transformational cost
reduction

Service segmentation/
Complexity reduction Capability sourcing
Self-service
• Reduce complexity- • Centralize support • Shift less profitable
driven costs in the functions to drive scale customers to lower
business by pruning efficiencies “cost-to-serve”
unprofitable products • Appropriate use of 3rd support
parties to achieve BDP • Increase use of self-
unit costs and/or service technologies
improved service

Organizational
Re-engineering Lean six sigma
simplification

• Fundamental re-design • Reduce waste within • Delayer the

of core business business processes organization and
processes to • Shift operational model
GXC
increase span of control
significantly reduce from push to pull • Streamline decision-
costs and increase making processes to
service • Drive out “cost of bad
quality” increase
• Eliminate unnecessary responsiveness
technology platforms/
components
Beyond Cutting
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Bain's prior written consent.
Management
What are the symptoms of complexity
weighing down a company?
Manufacturing Retail Service
Is your total # SKU’s Do your fastest- Does your sales force
or possible product turning SKU’s sell over struggle to
configurations over twice as frequently communicate your
Number of 1,000 or more than as your slowest? Are most profitable
offerings: 50% higher than the your inventory turns offerings to core
lowest complexity over 10% slower customers because of
competitor? than competitors? their complexity?
Sales Do less than 20% of SKU’s or product configurations or service
volume: offerings make up more than 80% of your sales volume?
Have any of your Does your approach to Can you bundle
competitors created segmentation aim at offerings to meet
Modularity: modular or bundled “offerings to attract specific segment
products? the many” rather than needs?
GXC
“delight the few to
attract the many?”
Does complexity Do you find that you Does confusion cause
Where show up early e.g. frequently have to excessive error
complexity engineering (change discount to sell slow rates, low close rates,
orders) or assembly moving inventory? or frequent customer
shows up: (unpredictability)? abandonment?
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Bain's prior written consent.
Management
 Identifying complexity: Does large percent of
profit result from a small percent of clients?
Example

Cumulative profitability from Cumulative profitability from

BU1 clients BU2 clients

100%
100%
25% 7%
80%
80%
5% of clients 20% of clients
Cumulative
make 80% of make 80% of
profitability
profit profit

>60% of >30% of
clients are GXC clients are
unprofitable unprofitable
5% 37% 20% 69%
0 100 200 300 400 500 600 0 20 40 60 80 100 120 140
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Bain's prior written consent.
Management
Model T approach eliminates unnecessary
complexity and prevents relapse

Zero-base cost Add back what

of complexity customers need

Keep complexity out

• Cost out the “one • Get to a laser sharp
product” or service understanding of
process and assess the priority customers
impact on quality needs

• Quantify how processes, • Balance innovation

cost, and quality and complexity
change as complexity is required to meet true
layered back in customer demand
GXC

• Put in place practices that prevent the proliferation

of products and services
• Reassess the optimal fulcrum point as customer
needs and technologies evolve
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Bain's prior written consent.
Management
Different sourcing strategies can/should be
pursued by function
Outsource Domestic Outsource Offshore
- Non-strategic activities - Non-strategic activities
 Common across industry  Common across industry
 Provides no competitive  Provides no competitive
advantage advantage
Contractual - Complex technology &
processes
- Straightforward technology &
processes
- Not labor intensive - Labor intensive
- Scale advantages - Scale advantages
- Non-critical - Non-critical
Type of
Control Retain In-House Captive Offshore
- Strategic activities - Strategic activities
 Customer contact  Customer get in touch with
 Provide competitive  Provide competitive advantage
advantage - Straightforward technology &
Ownership - Complex technology & process processes
- Not labor intensive - Labor intensive
- No scale advantages
- No scale advantages
GXC - Mission critical
- Mission critical - Regulatory/compliance limitations
- Regulatory/compliance
limitations

Near Far
Physical
Proximity Beyond Cutting
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11
Transformational
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Bain's prior written consent.
Management
Outsourcing raises some critical
organizational questions
• How should we think about sourcing • What frameworks should guide decision
strategy (big vs. small scale, fast vs. making?
slow)?
• Across functions and
• What is the right governance processes, what decisions and
structure? capabilities should be
Ac controlled by the center,
• How do we get the BU’s c
bi ou BU’s or outsourcer?

p
engaged/interested?
lit nt

hi
• How do we retain the synergies
ie a-

rs
s that comes from cross-

e
• How do we ensure a good ad functional collaboration?
Le
cultural fit between
outsourcers and us? Culture
• How will outsourcing
change the culture of our Fr • What SLAs should be put
on

e
company? Is that a bad in place to hold an

pl
t-
lin outsourcer accountable?

eo
thing?
e
P GXC • How do we hold the BU’s
accountable for delivering
• How do we ensure seamless execution local results?
from the customer’s perspective?
• What skill sets are
• How do we ensure the BU’s deliver local required to manage
results during time of change? partnerships versus
people post outsourcing?
Beyond Cutting
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12
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Bain's prior written consent.
Management
Capability sourcing process

Capability • Capability sourcing blueprint

sourcing
• Implementation path
blueprint
• Managed base case development
Partner • RFI: partner screening
selection
• RFP: analysis and shortlist
Deal structure • Deal construct
& contract • Negotiated T&Cs and SLAs
negotiation

Transition & • Retained organization

migration GXC
• Communications

Ongoing • Governance
management • Vendor and change
management
Beyond Cutting
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13
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Bain's prior written consent.
Management
 What are common symptoms of service ops
opportunity?
What we hear…
“We need a way to reward “We have doubled in scale, but “Our front line churn levels
our best customers with our cost per transaction is are way too high, we can’t keep
better service” not dropping…” up with training…”

“We are spending too much “Our competitors pick up the

money on the wrong “We developed a great phone much faster…”
customers” website, but traffic is still
really low…nobody is using “We have a ridiculous backlog
“We don’t know which it…” of unresolved customer
customers make us money” complaints”
“We collect a ton of data that “Our competitors are “We can’t get our bills out on
never reaches marketing” establishing call centers time…when we do, they are
abroad at much lower costs…” not accurate…”
“Our product is getting harder
to differentiate and the
“We need to lower our fixed We have a lot of initiatives going
money will be made in
cost…” on, but don’t know which
services… not sure how to GXC
ones are working”
capture it…”

Have service operations Have service operations Are effective and efficient
been designed for the been developed to exploit service operations being
purpose? all performance levers? delivered?
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Bain's prior written consent.
Management
Rigorously balance the tension between cost,
quality, and speed over time
Maximize customer satisfaction
Reduce cost
to drive revenues
• Minimize inefficiencies • Deliver service value propositions
- Streamline processes consistently and effectively
- Optimize channel mix/sourcing - Eliminate pain points
- Eliminate process inefficiencies - Ensure front-line staff have
necessary resources and training
• Focus investments on most
important touchpoints • Increase loyalty
- Adjust service levels per segment - Eliminate root causes of defection
- Eliminate “bad volume” - Increase penetration
- Increase share of wallet
• Minimize customer acquisition cost
- Enhance service offerings for high
- Selective investments in target value customers
customers
GXC

Goal:
Maximize life-time
value of customers
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Management
 Holistic approach - The right delivery model
for each customer segment
Design Develop Deliver
• Who are we designing the • What infrastructure is • How do we optimize
service experience for? needed to deliver our value performance in each service
• What is the value of our proposition in a cost-effective delivery channel? How to
and flexible manner? continuously raise the bar?
target segments?
- What channels? - Cost and revenue uplift
- How much are we willing to
spend on each segment, given - What sourcing model? - Service levels/consistency
their value? - What organization? - Labor productivity
- How much are we spending - What technology? • What initiatives will help us
today, and where are the
• What trade-offs in cost, maintain our relative
gaps?
benefits and flexibility need to performance gap?
• What service value be made? • How do we create and
proposition will we offer each - What is the expected ROI of maintain an effective and
customer segment? improvements in service
motivated front line
- How does it map each infrastructure?
segment’s needs/expectations?
organization?
• How do we prepare for and - Recruiting
- What are the expected
benefits?
respond to changesGXCin - Training
customer needs and the - Incentives
• How will our services create competitive landscape? - Performance management
competitive differentiation?

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Management
What is Business Process Redesign?

Business Process Redesign Business Process Redesign

is not... is...

 Incremental process  The fundamental rethinking

improvement of an entire business system

 Repackaged cutbacks or  Real improvement in critical

automating/ outsourcing performance measures:
existing inefficient service levels and efficiency
processes

 A “one-shot” deal  An ongoing way of

GXC

continuously improving

 A quick fix  The foundation of strategy

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Management
Strategy has very different implications
on key processes (example)
Progressive Insurance GEICO
Goals & • Grow share through precise customer • Grow aggressively through direct
strategy: segmentation, tailored pricing, and sales, excellent customer service,
“Immediate Response” claims process and cost management
- Focus on high-risk drivers/ vehicles - Focus on safe drivers

Claims 1 4 Documents
submitted to
Customer
process: reports
regional
claims
accident
processing
dept

Regional
2 Adjuster 5
Immediate claims dept
reviews
scans
Response damage at
documents
Vehicles on the claims office /
into central
road 24x7 repair shop
system

3 6
Adjuster
GEICO issues
collects
claims check
documents
GXC

Adjuster often
writes a check
on the spot

>70% of claims handled 30% of claims handled

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Management
Linking the scope, process KPI’s and goals to
strategy is critical to success

1 Review strategy statement

Core Full Potential Adjacency Growth
•Define “5 C’s” •Define growth vectors
- Customers, channels, - Customers, channels, Define goals
costs, capabilities and products, geographies, 4 by process
competitors value chain (back/
•Identify levers to forward integration
Process B
achieve full potential •Identify growth levers
- Revenue & cost levers - Capabilities Process A
- Technology/IP
- Partnerships/M&A Strategic Role: Redesign
- Org effectiveness - Assets
- etc.
Superior customer 5 processes
- etc. experience
Imple-
From To Mobilize ment,
Prioritize key Distill KPIs • Cost DiagnoseRedesign
2 3 - KPI 1
/pilot deliver,
processes by process - KPI 2 etc.
measure

• Time/speed
Strategy P&L Process B GXC
- KPI 1
Finance HR Legal Process - KPI 2 etc.

Procure-
• Cost A • Effectiveness/quality
Ops. Sales &
ment & IT Support - KPI 1 - KPI 1
Support Marketing
Logistics - KPI 2 etc. - KPI 2 etc.

USA Europe APAC BU 1 BU 2 • Time/speed

Supply Chain - KPI 1
Customer Management - KPI 2 etc.
Product Management • Effectiveness/quality
R&D - KPI 1 Beyond Cutting
- KPI 2 etc. Heads -
Transformational
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Management
Lean and Six Sigma should be combined to
embed breakthrough improvement
Lean Manufacturing + Six Sigma
• Eliminates waste • Removes process variation
- Non value-add activities - 6=3.4 errors/million instances
- Inventory • Is a management philosophy
- Scrap/rework - Broad corporate commitment
- Downtime (CEO level)
• Is an “operational philosophy” - Viewed as part of an ongoing
- Ongoing exercise transformation
- Embedded in the culture • Uses constant application of a
- Requires system redesign standardized approach
- DMAIC
• Uses standard techniques GXC

- Kaizen, Jidoka
- Kanban, SMED, Chaku-Chaku

Reduce lead times Eliminate errors Beyond Cutting

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Management
Lean Enterprises achieve more speed with
lower waste and variability
Xerox made lean enterprise a … and has dramatically
corporate-wide strategy in 2002… improved its profitability
Net income Profit margin
Lean Six sigma (bar, $M) (line, %)
Speed+ Low cost Culture + Quality 1,000 978 6%
Lean 859
Lean speed Six sigma Enterprise
750
enables six quality enables launched 4
sigma quality lean speed 500
(faster cycles of (fewer defects 360
2
experimentation/ means less time 250
learning spent on rework) 91
0
0
• 30 full-time deployment managers -94
• >600 Black Belts/Master Black Belts -250 01 02 03 04 05 -2
Inv.GXC
• 2,500 Green, ~30,000 Yellow Belts Turnover6.3 7.0 7.6 8.0 7.9
• >1,600 projects done or underway ROE -6% 5% 14% 18% 15%

Xerox shares up ~100% since launch Beyond Cutting

Heads -
Source: Xerox; Yahoo finance; Lit research Transformational
21
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Bain's prior written consent.
Management
Do you need to consider organizational
redesign?

Organization Simple is System, not just

follows strategy good structure

• Is our top-line • Does our structure • Can we accomplish

organization structure provide clear P&L our goals by
aligned with what ownership as much changing key
drives value in our as possible? enablers, as opposed
business? • Have we eliminated to changing structure?
- For customers bureaucracy and
- For costs complexity?
• Is our structure • Does our structure
GXC
consistent with the speed up decision-
role our center making?
should play?

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Bain's prior written consent.
Management
 6 steps to designing a “decision-driven”
organization

2. Define optimal org model

3. Finalize 5. Drive
1. Identify 4. Appoint
2a. Architecture 2b. Decision roles/ the implementa-
the value options accountabilities key people
(‘hardware’) (‘software’)
“blueprint” tion

• “Follow the • Identify full range of • Appoint • Summarize final

• Cascade design
money” possible org models – top top-tier structure/
of structure and
- Critical structure and roles leadership rolesroles (2-3 levels)
decisions team
• Evaluate versus guiding • Design critical • Put in place
- Value drivers principles critical enablers
elements for ‘go live’
• Assess strengths -Including enablers to -Job scopes (e.g. measures
& weaknesses of make each option work -Budgets/ P&L info & incentives)
current -Decision processes • Drive decision
organization -Top team effectiveness
objectives
GXC

Guiding principles Preferred Blueprint for new Top team New org fully
for org redesign option org and enablers in place implemented

6. Communicate and lead change

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Management
Agenda

• Why cost management is important

• Transformational cost management opportunities

• Case example:
-Brokerage Co
-Product Co
-Bank Co
GXC

• Making it Happen

• Getting started
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24
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Bain's prior written consent.
Management
 Brokerage Co.’s application processes are
more complex than competitors’
Web Applications Paper Applications
Average # of fields in
# of screens (indexed) brokerage and IRA accounts (indexed)
100
100 125 118

80 100 98
70
83
76
60 75 72 71

40 36 50

20 17 GXC
25

0
0
Brokerage A B C Brokerage A B C D E
Co Co

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Source: Disguised Bain case example Transformational
25
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Management
 Complexity reduction simplified application
processes
Paper Applications Web Applications
Weighted # of fields (indexed) # of screens (indexed)
60
125 120 60

100
86 89 42
-34 40
75
31
-29
50
20

25

GXC

0 0
Current Reduction New Competitor Current Reduction New Competitor
best practice best practice

28% reduction in # of fields 50% reduction in # of screens

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Source: Disguised Bain case example Transformational
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Management
 Cutting complexity in the account opening
process delivered 20% cost savings…

Account Opening Costs (indexed)

100

80
80

-10 64
60 -6

40

20
GXC

0
Current Simplify account Improve account Full potential
opening funding

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27
Source: Disguised Bain case example Transformational
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Management
… and substantially cut customer frustration,
improving revenues
Web abandonment rate (indexed) Web-generated
80% revenue (indexed)

70% $300M

60

49% 200

40 Revenue
up 120%
Targeted
25%
100
20
12%
GXC

0 0
Brokerage A B C Current Improving Full
Co Competitors process potential

Note: Abandonment rate is assumed to be proportionate to number of screens Beyond Cutting

Source: Disguised Bain case example Heads -
28
Transformational
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Bain's prior written consent.
Management
 Brokerage Co. also simplified its customer
communication, with further benefits

Current Client Communications Volume

Eliminate unnecessary letters

Shift to electronic delivery

Volume needed to be mailed

Consolidate communication to
each client

Rationalize letter platforms

Migrate to digital
publishing GXC

Potential volume

30% cost savings and better

service in client communications
Beyond Cutting
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29
Source: Disguised Bain case example Transformational
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Bain's prior written consent.
Management
Agenda

• Why cost management is important

• Transformational cost management opportunities

• Case example:
-Brokerage Co
-Product Co
-Bank Co
GXC

• Making it Happen

• Getting started
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Bain's prior written consent.
Management
Product Co wanted to identify potential
savings through outsourcing
Key questions: Objective:

•1 What is the right location for each

function? • Clear
expectations
•2 What efficiency gains can be
expected? • Optimal
3
structure
• What are the governance and control issues
that need to be addressed in order to ensure a • Efficient
successful SSC?
governance
•4 What is the optimal “ownership”
structure for the SSC? • Clear
GXC
implementation
•5 What is the right migration path? roadmap
-Short vs. long term geog. scope

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Management
Key first step was to simplify the
organization structure

President

External
N.A. Shared suppliers
VP Finance VP HR Service Service
Center Provider

Finance
Service
HR Provider

SBU 1 SBU 2 SBU 3 SBU 4 SBU 5

GXC

Key support functions consolidated into a

regional shared services center
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Management
Centralized model cost structure was
assessed to define a baseline
Central Finance overhead split PRELIMINARY
$0.9M
$4.6M $3.4M $3.3M $2.1M $1.7M $1.3M $0.9M $0.6M Total = $18.8M
100%

Expenses

80

60

40
SWB

20

GXC
0
A/P A/R Payroll Reporting GL Best Commoddity/
Logistics Practice Currency

Comp Dvp

People 41 25 15 10 9 5 4 5 5

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Management
Savings estimates from outsourcing were
consistent with current gap from BDP targets
Finance benchmarks Linkage with outsourcing

Finance as % of NSV • Current savings come from

process and systems
1.5% 1.4% improvements
• Overall savings range of 25-
~$15M in
1.1% additional savings 35%* means that the value
from getting to
best in class from using outsourcing in
1.0
finance is around ~$13-$19M
0.8%
• These additional savings
would close the gap with best
in class companies
0.5
• This is consistent with
company analysis which
GXC
shows that best in class
0.0 companies couple efficient
2005 Average/ Best in systems and processes with
Target class
optimal sourcing
Finance
$67M $53M $38M
overhead
Beyond Cutting
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Bain's prior written consent.
Management
 Initial assessment identified potential
functions that could be outsourced
HR transactional Finance/accounting HR consultative
cluster transactional cluster cluster
• Reporting • A/P • Training and development (all
- Maintenance and execution - Logistics payables (currently of MFUSA) administration
- Associate records management CAS management) - Executing Learning
- Standard reporting - Inter-company management systems

• Comp and benefits • Credit • Staffing

- Pay administration - Set-up documentation - Reporting: Standard
- Benefits administration - Soft collections - Administration
- Benefits call center - Domestic relocation
• Accounts receivable
- Payroll call center - Apply cash receipts
• Associate call center - Create deductions based on
customer remittances**
• Payroll* - Daily cash receipt
- Administration reconciliation
- Call center - Cash and AR forecasting
GXC
• Daily cash management
Currently in BU Finance • T&E management and
Currently in BU HR reporting

Currently in ATBC

Beyond Cutting
Heads -
Transformational
35
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Bain's prior written consent.
Management
Between $5-9M could come from outsourcing
three areas in a consolidated Finance group
Upper bound Lower bound
Implied Cost/unit
Lowest
Current Units/ Cost per savings based on Implied
cost/out-
cost year unit based on typical savings
sourced
BIC savings

Payroll $3.35M 360K $9.3 $3.4 $2.1M $6.5 $1.0M

A/R $3.4M 200K $17.0 $2.0 $3.0M $8.5 $1.7M

A/P $4.6M 280K $16.4 $2.0 $4.0M $8.2 $2.3M

Sub-total $11.6M $9.1M $5.0M

Other areas that are good candidates for outsourcing

• Reporting GXC

• General ledger
• Commodity and currency accounting

Beyond Cutting
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Transformational
36
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Bain's prior written consent.
Management
Optimal sourcing helped achieve a much
leaner organization

Savings as a % of NSV

1.5% 1.40

1.0 -0.30
-0.15 0.80

%NSV -0.15

0.5

GXC

0.0
2005 Restructuring Savings Other finance Target
savings from top 3 functions

Value $67M $53M $8M $8M $38M

Beyond Cutting
Heads -
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37
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Bain's prior written consent.
Management
Agenda

• Why cost management is important

• Transformational cost management opportunities

• Case example:
-Brokerage Co
-Product Co
-Bank Co
GXC

• Making it Happen

• Getting started
Beyond Cutting
Heads -
Transformational
38
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Bain's prior written consent.
Management
Bank Co had significant credit overcapacity
and underperformed versus competitors
Risk
Decision Adminis-
Origination Assess- Collaterals Monitoring Workout
Making tration
ment
Percent of
total credit
18% 15% 14% 6% 22% 6% 6%
capacity
utilized
Throughput Time Processing Time
8.0
4 8
3.5
3 6

4.0
2 4 3.5

1
1.0 1.0 2

0 0
Bank Co Competitor A Competitor B GXC Bank Co Competitor A Competitor B

Bank Co was experiencing steadily

diminishing results and was not
achieving shareholder ROE goals Beyond Cutting
Heads -
39
Transformational
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Cost
Bain's prior written consent.
Management
Redesign spanned a number of different
functions,…

Risk
Decision Adminis- Work-
Origination Assess- Collaterals Monitoring
Making tration out
ment
Organizational
Structure


Concentration of administrative work in the
Complete data service centers
capture and 
2-step administration (POS/service center)
Personnel decision
making at point
of sale Service teams for case completion

IT Object-oriented
Computerized files
database
Decision through Harmonization of
local scoring accounting systems
GXC

Clockwor
kPapers
Graphtitle Streamlining of papers
and
Pre-prints
Product complexity Tight service and cost controlling
Rules
for
reduction
Teamwor
k
Teamwor
k

Beyond Cutting
Heads -
Transformational
40
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Bain's prior written consent.
Management
…streamlined the number of people involved
in credit processing,…
People
Involved Steps:
1
2

FL
3
4

Current Credit
5
6
7

NL
Processing 8
9
10
11
12

Central
13
14
15
16
17

People
Involved Steps:

Redesigned Credit 1
GXC
Processing 2
3
4
5
6
Beyond Cutting
Heads -
Transformational
41
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Bain's prior written consent.
Management
… cut processing time by 45%, and
documentation time by more than 70%,…

Current Documen- Adminis-

Risk
Credit Origination Assessment tation Collaterals tration Monitoring Workout 730 min
Processing
125 min

Redesigned
Credit 35 min 395 min
Processing

GXC

Beyond Cutting
Heads -
Transformational
42
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Bain's prior written consent.
Management
 … and resulted in 44% FTE reduction and
20% overall cost savings
Headcount reduction

Risk Documen- Adminis-

Origination Assessment tation Collaterals tration Monitoring Workout

FTEs

100% (6%) - 44%

(8%)
(10%)
(7%)
(12%)
(1%) ±0% 56%

Current process GXC Future process

20% overall cost savings

Beyond Cutting
Heads -
Transformational
43
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Bain's prior written consent.
Management
Focused change management process was
necessary to get lasting results
The Change Mobilization Program Results
Roadmap and Governance Management Measurement

Burning platform Aligned leadership Set-up to execute Right success

necessary required effectively with measures
robust plans essential

• Business case for • Sponsorship, • Program • Program Metrics

change Leadership and Management and Scorecards
• Change readiness Governance Processes and • Financial Results
diagnostic • Team Mobilization Tools Tracking
• Program design and Development • Program Office • Business
- Team selection design Dashboards
and allocation - Roles
- Resources and - Responsibilities
Incentives GXC
- Staffing
- Training and
Capability • Project/Initiative
Building Management
Tools
• Communications
- External
- Internal Beyond Cutting
Heads -
Transformational
44
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Bain's prior written consent.
Management
For example, comprehensive business
dashboard tracked implementation results
OP II (accumulated) Market share of AuA in FL AuM as % of AuA
AuA Financial Financial Customers Internal Business Process

50000 300 0.44 0.18

45000
250 0.42 0.175
40000
35000 200 0.17
30000 0.4
25000 150 0.165
0.38
20000 100 0.16
15000 0.36
10000 50 0.155
5000 0 0.34 0.15
0 Year 1 1Q Y2 2Q Y2 3Q Y2 4Q Y2 Year 1 1Q Y2 2Q Y2 3Q Y2 4Q Y2 Year 1 1Q Y2 2Q Y2 3Q Y2 4Q Y2
Year 1 1Q Y2 2Q Y2 3Q Y2 4Q Y2
Actual Target Actual Target Actual Target Actual Target

Year 11Q Y2 2Q Y2 3Q Y2 4Q Y2 Year 11Q Y2 2Q Y2 3Q Y2 4Q Y2 Year 11Q Y2 2Q Y2 3Q Y2 4Q Y2 Year 11Q Y2 2Q Y2 3Q Y2 4Q Y2

Actual 39012 Actual 200.1 Actual 41.6% Actual
Target 39012 41086 43160 45233 47307 Target 235.3 62.2 124.4 186.5 248.7 Target 41.6% 41.9% 42.3% 42.6% 42.9% Target 16.3% 16.7% 17.1% 17.4% 17.8%

Satisfaction of Bank Employee satisfaction

Cost/income ratio Financial ROE Financial Customers Learning & Growing
0.37 0.22 1 5

0.36 0.2 4
0.95
0.35
0.18
3
0.34
0.16 0.9
0.33 2
0.14
0.32 0.85 GXC
0.12 1
0.31

0.3 0.1 0.8 0

Year 1 1Q Y2 2Q Y2 3Q Y2 4Q Y2 Year 1 1Q Y2 2Q Y2 3Q Y2 4Q Y2 Year 1 1Q Y2 2Q Y2 3Q Y2 4Q Y2 Year 1 1Q Y2 2Q Y2 3Q Y2 4Q Y2
Actual Target Actual Target Actual Target Actual Target

Year 11Q Y2 2Q Y2 3Q Y2 4Q Y2 Year 11Q Y2 2Q Y2 3Q Y2 4Q Y2 Year 11Q Y2 2Q Y2 3Q Y2 4Q Y2 Year 11Q Y2 2Q Y2 3Q Y2 4Q Y2

Actual 34.9% Actual 21.8% Actual Actual
Target 0.0% 0.0% 0.0% 0.0% 0.0% Target 15.9% 15.6% 15.4% 15.1% 14.8% Target 0.0% 90.0% 90.0% 90.0% 90.0% Target 0 4 4 4 4

Beyond Cutting
Note: AuA = assets under administration; AuM = assets under management
Heads -
Transformational
45
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Bain's prior written consent.
Management
Agenda

• Why cost management is important

• Transformational cost management opportunities

• Case example:
-Brokerage Co
-Product Co
-Bank Co
GXC

• Making it Happen

• Getting started
Beyond Cutting
Heads -
Transformational
46
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Bain's prior written consent.
Management
An integrated 4-step approach delivers
transformational results
Build factbase Assess Design Prioritize and plan

Key • Understand • “Opportunity • Test hypotheses • Detailed initiative

Activities business hunt” from diagnostic planning
objectives and - Expenses
• Detailed redesign
- Deliverables and
performance - Headcount key activities
for highest value - Benefit timeline
structure
• Scope and goals for opportunities - Schedule and
- Process redesign
project • Assess costs and milestones
- Footprint - Owners and
• Inventory of costs - Sourcing effort for each resourcing
and outputs opportunity
• “Size the prize” • Program
- Function
and set initial • Mobilize quick hits management
- Process
targets • Prioritize structure and
- Type
- Platform
- Cost opportunities resourcing
- Effectiveness
• Core process • Commit leadership • Define dashboard
• Preliminary and build
mapping • Set Metrics and
prioritization consensus
• Benchmarking incentives
GXC
• Assess org • Set detailed
- Costs • Define change
readiness targets
- Practices management plan
Output • Project scope • Key opportunities • Prioritized initiative • Implementation
list plan
• Point of departure • Quick hits
• Performance gaps • Change hurdles • Project ROI • Roles and resp.
• Buy-in across key • Program
Beyond Cutting
stakeholders managementHeads -
Transformational
plan
47
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Bain's prior written consent.
Management
Assessment results in high-level view of
opportunities for impact
EXAMPLE

A longer term Should Inventory approach

suggests a larger, 47% reduction
PRELIMINARY

Assumption Rationale
DIOH
 Lead Time  Air freight high value and
- 25% reduction phase out SKUs and
200 - 0 variability increase factory direct

162  Forecast accuracy 

shipping
Increase focus on high
“Pain-Gain Prioritization”
- 70% value SKUs and demand
pooling through
150 postponement, DC
Transit consolidation, and VMI
 Production time  75% reduction in “safety Opportunities have been prioritized based on
time”
the Pain/Gain matrix
- 50% reduction
100 85 7 days for A & B SKUs, 14
 Production frequency 
Safety - 7-14 days days for C SKUs
Transit  Adjust capacity for PRELIMINARY
seasonality Pain / Gain Matrix
50 Cycle  Raw Material  50% on consignment/VMI = Improved Execution
Safety - 50% reduction
WIP High 20 = Marketing Actions
Cycle  WIP  90% for Should Cost
WIP pilots and 45% for others
RM RM
- 60% reduction Mfg Cycle = Mfg Actions
0 Time &
2004 Should Inventory  Tiered service level  98% for A SKUs, 95% for Flexibility = Network Actions
15
B and 90% for C SKUs

Source: Bain Statistical Inventory Model 14

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"Gain" DC Consolidation
Forecasting & Planning

10
DIOH SKU
Lifecycle
Impact Mgmt

“Size of the prize”

SKU
GXC Postponement
Complexity
Mgmt
Lead Time
Reduction
Statistical
5 Inv Mgmt

$30M
Inventory
Vendor Mgmt /
Savings
Consignment
Low 0
1 2 3 4 5

"Pain"
High Low
Difficulty of Implementation
15
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Beyond Cutting
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48
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Bain's prior written consent.
Management
 Implementation plan should prioritize for
biggest impact
Create long EXAMPLE
term plan

Deploy Point Space/assortment Pricing Network

Solutions optimization optimization optimization $5M to $10M
Performance
Wave 1:
Tracking Data mgmt $6M to $10M

Wave 2: Forecasting Replenishment $15M to $20M

Customer
Wave 3:
interaction $1M to $3M

WMS
Wave 4:
complete Variable sourcing $8M to $12M

Corporate
$1M
GXC
to $2M Wave 5:
Planning

2H FY’02 1H FY‘03 2H FY’03 1H FY’04 2H FY‘04 1H FY‘05 2H FY‘05 1H FY‘06 2H Y’06 1H FY‘07 2H FY‘07

Beyond Cutting
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49
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Management
A centralized program structure ensures
coordination and oversight
• Strategic prioritization EXAMPLE
Steering
Steering • Resource allocation
Committee
Committee • Conflict resolution

Program • Program Monitoring

Office Program
Program Director
Director • Initiative prioritization
• Conflict resolution

• Resource Coordination
Program
Program Support
Support • Project Monitoring
• Communications

Core
Core Initiative
Initiative Teams
Teams

•Each team comprises

Category
Category Vendor-to-
Vendor-to-
Availability
Availability Shrink
Shrink GXC - Team leader
Management
Management Shelf
Shelf
- 4-8 team members (FTE)
• Store • Optimize • Store • Cross-
Ordering SKUs forecasting Docking
- Process • Forecasting • Store • Slow Movers
- CAO - Turns processes • Frozen DC
• DSD Mgmt - Promo • Case Pack • Network
• Ad Break • Space Configuration
Planning Beyond Cutting
• Vendor Mgmt Heads -
50
Transformational
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Management
Set aggressive targets and monitor closely to
drive continuous improvement
Example

We’ve established continuous improvement

targets for the S&M guardrails through 2010
Guardrail Metric Target Value Actions
Could reach 1.5x
by adding ~225
incremental Sales HC
1.3x 1.4x

1
Sales vs. Mktg • Reduce Support HC
Headcount (X:Y) 0X 0.7X 1.3-1.5X 2X by 145 heads and
reposition as Sales HC
Adding ~225
Sales HC would
2.6x 3.3x get us to 3.6x • Maintain flat HC in
Marketing
2
Sales vs. Support
Headcount (X:Y) 1X 2.6-3.3X 5X • Continue to shift HC to
emerging markets and
high-growth businesses
7-9% 9.5%*

Total Sales and • Revisit S&M expense

3
Mktg Expense GXC target in Plan 2009
5% 7-9% 10% 12%
(% Sales)
Benchmark Current
Legend S&M Phase I
range
2010 target

* Intel ’08 projection

52
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Beyond Cutting
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51
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Bain's prior written consent.
Management
Agenda

• Why cost management is important

• Transformational cost management opportunities

• Case example:
-Brokerage Co
-Product Co
-Bank Co
GXC

• Making it Happen

• Getting started
Beyond Cutting
Heads -
Transformational
52
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Bain's prior written consent.
Management
Typical cost transformation program benefits

• Financial:
- Identification of opportunities to reduce costs by 20-30%
• Strategic:
- Opportunities prioritized according to profit potential and ease of
implementation
- Understanding of the capabilities and costs necessary to realize
opportunities
- Cross-coordination among all opportunities to ensure maximum
profit uplift
- “Quick wins” identified ready to be piloted to cover the cost of longer
term initiatives
• Organizational: GXC

- Management team aligned with next steps to realize opportunities

- Enhanced capabilities and skills for the team
- Adding the “efficiency gene” to the culture

Beyond Cutting
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53
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Management
10 questions you should consider

1. Does your company achieve cost leadership today?

2. Is your leadership team aligned on the need to drive
efficiency?
3. Do you understand where the biggest cost gaps are?
4. Are costs scaling slower or faster than growth in
revenues?
5. How much waste is there in the core processes?
6. How is complexity adding costs across the organization?
7. Are you getting the performance you need form core
business processes?
GXC

8. Are there 3 parties that can deliver better quality at

rd

lower costs?
9. Is your organizational model still effective?
10. How ready is the organization to take on a transformation
program? Beyond Cutting
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Transformational
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Bain's prior written consent.
Management