State of the Business Process Outsourcing (BPO) Industry September 3 rd , 2004

1. State of the Business Process Outsourcing(BPO) IndustrySeptember 3rd, 2004

2. Mark B. Hodges – Chairman & Foundermark.hodges@equaterra.com; 281-733-0263 • EquaTerra – co-founded the first sourcing lifecycle management company. Assists clients in the assessment of internal transformation (e.g. shared services) vs. external BPO including Outsourcing Centers of Excellence. • Exult – played key executive roles in creating the first comprehensive, global HR and F&A outsourcing company. • TPI – founded and led their BPO practice. • GartnerGroup – advised emerging and mature BPO and ITO services companies. • G2 Research – advised companies on commercialization of their business functions into outsourcing companies.

3. We support the G & A process improvement lifecycle… EquaTerra Overview Knowledge & Education Strategy & Assessment Insource or Outsource Advisory Governance G & A Processes - Human Resources, Finance & Accounting, Information Technology, Procurement, CRM Across Industries - Manufacturing, Consumer Products, Utilities, Energy, Financial Services, Healthcare, Public Sector, etc.

4. Content Overview • Why are Corporations Signing BPO Contracts? • State of the BPO Market • A Pragmatic Approach for Evaluating BPO for your Company • Realizing the BPO Business Case: Governance

5. Why are Corporations Signing BPO Contracts?

6. BPO Demand Catalysts • Lack of resources and focus for process improvement • Shareholders and stock price pressures • Lack of capital for ERP investments • Change: M&A, divestitures, contraction, growth • Focus on value added, business partner activities • The denominator (# of employees) keeps getting smaller • Regulatory pressures

7. What are the Alternatives to BPO? • Continue course of existing services with additional cost reduction: • reduction of people and administrative products and processes • service improvement within corporate staff functions and • “captive” offshoring • Continue opportunistic outsourcing with individual process providers • Substantial investment in technology to further enable MSS and ESS and • reduce G&A FTEs • Change G&A functional grades and pay structure and benefits structure (market-based vs industry-based) • Do nothing • Comprehensive BPO

8. In-Scope Functions for BPO |Exiting the Administrative Transactions Business Process Examples Human Resources Information Technology Finance & Accounting Procurement Other Process Layers Governance Strategy Governance Policy Decisions Consultative Expertise Development Reengineering Innovation Administration Operations Administration Execution Context Systems Systems Technology Transactions Infrastructure Legend: = Client = Collaborative = BPO Provider

9. The BPO Value Proposition is Compelling • Guaranteed cost savings on 7-10 year contract • Cost savings of 15% - 25% vs. existing baseline costs • BPO provider funds transition costs for in-scope processes • Provider makes investments in ERP technology and other technology applications • Savings can be front loaded or begin after the transition of each process • BPO provider often assumes employee and process costs post transition of each process • BPO provider takes responsibility for IT personnel, systems hosting and ongoing maintenance costs • Client retains ERP license costs • Overall implementation timeframe often 12-24 months faster than internal transformation

10. State of the BPO Market

11. The HR Function | 23 Processes Compensation, Benefits & Rewards Organizational & People Development Workforce Planning & Deployment Employee Data Management Human Capital Services • Compensation • Benefits (DC, DB, H&W) • Payroll • Travel & Expense • Organizational Development • Performance Management • Training • Employee Development • Succession Planning • Data Records and Management • HRIT/HRIS • Employee & Manager Self Service • Workforce Analytics • Recruiting, Staffing & Resourcing • Expatriate Administration • Domestic Relocation • Workforce Deployment • Severance Administration • HR Strategy • Labor & Employee Relations • 3rd Party Vendor Management • Employee Communications • Policy & Legal Compliance

12. HR – What Can be Outsourced? Standardization/ Efficiency/Defined Service Management Involvement/ Knowledge Transfer • HR Strategy • Workforce Planning • Talent Management • Labor Relations • Policy & Legal Compliance • Site specific policy development • Site specific employee relations • Substance Abuse Testing Specific Division/Location “Strategic” Activities • Organizational Development • Compensation Design • Benefits Design • Learning Development • Succession Planning • Performance Management • Staffing Policy and Tools • Communications Development • Vendor Management • Learning Administration • ESC and Tier 0/1 Inquiries • Severance/Outplacement • Payroll and T&E Administration • Relocation/Expatriate Admin. • Compensation Administration • Benefit Administration • HRIS/HRIT & Data/Records • Staffing Administration “Transactional” Activities “Consultative” Activities Generic/ Companywide

13. Since 1999, Many Corporations Have Adopted HRO • American Express (Mellon) • Avaya • BASF (Mellon) • AT&T • Bank of America • Bank of Montreal • BC Hydro • British Aerospace • British Petroleum • British Telecom • Cable & Wireless • CIBC • Circuit City • Dynegy • Equifax • Fifth Third Bancorp (Convergys) • Fleet Boston • Gateway • Goldman Sachs • GE • General Motors • Goodyear • IBM • International Paper • Lincoln National • Lockheed Martin (Mellon) • McKesson • Medco • Motorola • Procter & Gamble • Prudential Financial • Rohm & Haas • Sony • Telecom Italia • Unisys • Williams

14. Accenture • ACS • EDS • Exult The Universe of Potential HRO Providers

15. The Finance & Accounting Function 33 Processes Financial Reporting& Data Transaction Management General Accounting Tax Consulting & Compliance Risk Management Financial Analysis Financial Management • Accounts Payable • Accounts Receivable • Travel & Expense Reporting • Leases • Credit • General Ledger Accounting • Revenue/ Cost Accounting • Debt/ Equity Accounting • Statutory Accounting • Business Unit Accounting • Tax Compliance & Planning • Reverse Audits • Financial Accounting & Reporting • ERP or Financial System • Policies & Procedures • Controls & Design • Controls Implementation • Internal Audit Services • BusinessContinuity Planning • Business Process Risk Assessment • Transaction Analysis • Exception Reporting & Resolution • Operating Budgets • Capital Investments • Treasury Functions • Debt Equity Financing • Cash Management • Performance Analysis

16. F&A Services | What Should be Retained? Methods of Adding Value Standardization/ Efficiency/Defined Service Management Involvement Knowledge Transfer • Inventory Accounting • Cost/Plant Accounting • Sales/Marketing Accounting • Site specific analysis • Project accounting • Senior Finance Management • Financial Analysis • Financial Planning • Management Reporting • Budgeting/Forecasting • Credit Policy Specific Division/Location Process Characteristics • Accounts Payable • Travel and Entertainment • Fixed Asset Accounting • Accounts Receivable/Collection • General Accounting • Payroll Processing • Employee Administration • Cash Application • Banking and Cash Management • Billing • Tax Compliance/Planning • Internal Audit • Banking • Risk Management • Treasury Management • External & Statutory Reporting Generic/ Companywide

17. Accenture Equitant • Equitant • ACS • GE • Cap GeminiErnst & Young • Creditek • Deloitte Consulting • EDS • Xansa • Exult • HP Leading F&A BPO Providers • OPI PwC (IBM) • SourceNet Solutions • Unisys

18. HP F&A BPO Providers | New Entrants Perot Systems Ephinay EXL WNS

19. A Pragmatic Approach to Evaluating BPO For Your Business

20. A Staged Approach | Stages 1, 2 & 3 • Get these right, the first time . . . STAGE 1 Analysis, Education, RFI and Sourcing Strategy (4 – 6 weeks) STAGE 2 Relationship Development and Structuring (8 – 10 weeks) STAGE 3 Bid Evaluation, Negotiation and Transition (6 – 8 weeks) • JOINT ACTIVITIES • Distribute RFP • Visits by BPO providers • Reference site visits • Negotiations • Governance and RM Build and Implementation • Transition Planning • JOINT ACTIVITIES • Analysis of Costs and Processes • Education • Sourcing Strategy • RFI or RFP • JOINT ACTIVITIES • Statements of Work • Service Levels and Volumetrics • Financial Analysis • Develop Business Case • Pricing • Governance and RM Design

21. A Staged Approach | Stages 4, 5 & 6 • Design with the end in mind . . . STAGE 1 Analysis, Education, RFI and Sourcing Strategy (4 – 6 weeks) STAGE 2 Relationship Development and Structuring (8 – 10 weeks) STAGE 3 Bid Evaluation, Negotiation and Transition (6 – 8 weeks) • JOINT ACTIVITIES • Distribute RFP • Visits by BPO providers • Reference site visits • Negotiations • Governance and RM Build and Implementation • Transition Planning • JOINT ACTIVITIES • Analysis of Costs and Processes • Education • Sourcing Strategy • RFI or RFP • JOINT ACTIVITIES • Statements of Work • Service Levels and Volumetrics • Financial Analysis • Develop Business Case • Pricing • Governance and RM Design

22. Determining Best Practice Service Delivery for BPO Key Inputs Internal Costs & FTE Baselines Future State – Initial Design Current Service Levels & Volumetrics Internal Future State Service Delivery BPO Providers – RFI or RFP Approach ERP Best Practice Maps External EquaTerra Knowledge & Tool Sets

23. The Definitive BPO Checklist • Statement of Work (process maps, documented activities, future state) • Service Levels, Methodology and Service Level Agreement • Financial Model (5-10 year projection) • Schedules (e.g. existing 3rd party contracts) • List of Likely G&A BPO Providers • Pricing and Charging Units • Exhibits (e.g. in-scope countries, personnel) • Sourcing Strategy • Service Contract and Business Terms • Service Delivery Management • Contract Management • Governance • Financial Management Pre-RFP RFP Governance & Relationship Management

24. BPO is growing in other functional areas across all major industry segments 11.7%CAGR Solution Areas Opportunity2004 Sectors Opportunity2004 $5 $10 $15 $20 $25 $20 $10 $30 $40 Billions Public $12.4B $20.1B, 13% CAGR F&A Communi-cation $12.0B $37.9B, 12% CAGR HR Distribution $24.4B $21.3B, 15% CAGR Proc. Energy & Industrial $17.6B $8.9B, 15% CAGR CRM Financial Services $23.1B Source: IBM analysis based on multiple industry sources (Gartner, Dataquest, IDC, AMR)

25. . . . as more leading corporations adopt BPO IT, F&A and HR (Two or More) F&A HR Bank of America Bank of Montreal Barclay’s Bank BC Hydro British Aerospace British Petroleum British Telecomm Dynegy Equifax Gateway General Motors GE International Paper Lucent MRG Motorola Nortel Procter & Gamble Prudential Financial Royal Dutch Shell Telecomm Italia Thomas Cook AFC Enterprises Airgas ANZ Bank AT&T Wireless Compaq Cisco Fox Media Hewlett Packard Home Depot Ingersoll Rand Microsoft Vivendi BASF Cable and Wireless Celanese CIBC Fifth Third Goldman Goodyear IBM McKesson Sony State of Florida Unisys United Healthcare IT outsourcing has been in existence since the late 80’s, and is not listed separately. It is included in most of the agreements across areas.

26. BPO Sourcing Strategy – Sample Decision Set Service Delivery Model • Standard • Tailored In-Scope Employees • Terminated • Transitioned • Multi-shore • Onshore Location Maximizing Organizational Comfort Maximizing Cost Savings Technology • Provider Site • Client Site Scope - # of Processes • > 10 • < 5 • 75% • < 50% Scope - % of Processes 10% - 20% Annual Run Rate Savings Key Factor 30% - 50% Annual Run Rate Savings

27. Leading G&A BPO Providers Comprehensive F&A HR IT • Accenture • ACS • CGEY* • Hewlett Packard* • IBM (PwC) • Perot Systems* • Accenture • ACS • CGEY • Hewlett Packard • IBM (PwC) • Perot Systems • Accenture • ACS • CGEY* • Hewlett Packard* • IBM (PwC) • Perot Systems* • Accenture* • ACS • CGEY • Hewlett Packard • IBM (PwC) • Perot Systems • Deloitte • Ephinay • Equitant • OPI • Sourcenet • Unisys • WNS • Xansa • Aon • Arinso • Convergys • EDS • Exult • Fidelity (FESCO) • Hewitt • Mellon • SynHRgy (Mercer) • CSC • EDS • Infosys • Keane • SAIC • Satyam • Unisys • Wipro * “Comprehensive” services could be delivered with an existing partner

28. What Customers are Finding: Offshore BPO • Improved Quality • Decreased Concentration Risk • Dramatic Cost Savings • Time Compression and Multiple Shifts • Top Global Talent • Resource Flexibility • Closer Location and Access to Global Markets

29. Stage 1 Stage 2 Stage 3 Analysis, Education and Sourcing Strategy (Months 1 & 2) Bid Evaluation & Negotiation (Months 5 & 6) RFP Development and Pricing (Months 3 & 4) • Analysis of Costs & Processes • Validate Phase I results • FTEs • Indirect & Direct Costs • Sub-processes • Projected Investments • Education • Governance & Relationship • Management (RM) Reqs • Retained processes • Retained organization • Internal improvement • opportunities. • RFI Process • Sourcing Strategy • Single vs. multiple providers • Selective vs. comprehensive • Intelligence on BPO providers • Business Terms • Sole source or competitive bid • Distribute RFP • To qualified BPO providers • Based on Sourcing Strategy • Visits by HRO providers • Preliminary evaluation • Shortlist determination • Preliminary negotiation • Reference Site Visits • 3-5 customer visits • Negotiations • Final business terms • Final legal terms • Final negotiation • Governance & RM Build & Implementation • Transition Planning • Statements of Work • Accounts Payable • Payroll • Accounts Receivable • Travel & Expense Reimburs. • Service Levels • Current • Target (internal vs. external) • Financial Analysis • Economic factors • Productivity factors • 5 – 10 year projection • Develop Business Case • Cost savings • Process improvement • Tangible & Intangible • Pricing • Fixed vs. variable • Output-based pricing • Governance & RM Design Key Activities 180 Day Project Plan

30. BPO: Realizing the Business Case • Key Characteristics for BPO Success • Common Pitfalls in the BPO Process • Governance & Relationship Management • Key Market Terms and Conditions

31. Key Characteristics for BPO Success

32. Common Pitfalls in the BPO Process

33. Outsourcing Governance | Maximizing the Value of BPO PROCESS CONTRACT MANAGEMENT SERVICE DELIVERY MANAGEMENT Informed Decisions Effective Execution Costs Compliance Competitive • Service Provider Performance • Program Management • Internal Services • Financial • Administration ENTERPRISE CAPABILITY PEOPLE TOOLS Satisfaction Planning Driving Value RELATIONSHIP MANAGEMENT • Governance Protocols • Corporate Standards and Policy • Customer Care Monitoring • Communications

34. Contract Management | 12 Processes • Facing Service Providers and Business Units CONTRACT MANAGEMENT • Financial • Payments • Invoice Verification • Service Provider payments • Charge Back • Analysis & Planning • Forecasting & Tracking • Consumption Analysis • Financial Compliance • Administration • Contract Change Control & Documentation • Internal Controls & Review • Benchmarking & Competitive Analysis • Third Party Vendor Contracts PROCESS Controlled Costs Consistent Compliance Informed Decisions Effective Execution ENTERPRISE CAPABILITY PEOPLE TOOLS Coordination and Collaboration

35. Relationship Management | 9 Processes • Facing Service Providers and Business Units PROCESS PROCESS Controlled Costs Consistent Compliance Informed Decisions Effective Execution ENTERPRISE CAPABILITY ENTERPRISE CAPABILITY TOOLS PEOPLE Coordination and Collaboration Satisfaction Planning Driving Value RELATIONSHIP MANAGEMENT Customer Care Monitoring Communications Planning & Review (Monthly, Quarterly, Annual) Renegotiation & New Services • Governance Protocols • Decision Rights • Steering Committee(s) • Issue Management • Corporate Standards & Policy

36. Service Delivery Management | 11 Processes • Facing Service Providers and Business Units SERVICE DELIVERY MANAGEMENT PROCESS • Service Provider Performance Breach Tracking & Monitoring • Notification & Reporting • Problem Escalation & Resolution • Program Management • Forecasting & Budgeting • Work Initiation & Authorization • Project Monitoring • Notification & Reporting • Internal Services Security Management • Business Continuity Management • Consumption Advisory Services • Regulatory Compliance ENTERPRISE CAPABILITY Informed Decisions Effective Executions Controlled Costs Consistent Compliance ENTERPRISE CAPABILITY TOOLS PEOPLE Coordination and Collaboration

37. Effective Contracting | Key Terms & Conditions • Strong governance and relationship management • Key client control rights and approvals • Key service provider personnel • Service provider actions that could negatively impact the business • Key subcontractors • Software that is introduced into the client’s environment • Notification when the location of service provision is changed • Right to use 3rd parties – non-exclusive • Termination rights • Change of control • Convenience • Cause (with known & minimal costs) • Financial performance credits • Continuous improvement of service levels each year • Meaningful benchmarking & performance reviews

38. Questions? • Please contact: • Mark B. Hodges • Chairman & Founder • EquaTerra • mark.hodges@equaterra.com; 281-733-0263