16th Annual Shared Services Week Orlando – March 9th 2012

The Journey to World-ClassOffice Depot Capgemini

--Transforming Customer to CashTransforming Customer to Cash--Leveraging the skills and tools of a BPO

partner to create a holistic solution

About Office Depot

HISTORY & VISION OUR BUSINESS OUR TEAM

INCORPORTATED IN 1986 WITH 1st

STORE OPENING IN FT LAUDERDALE

HEADQUARTER IN BOCA RATON, FLORIDA WITH 40,000

ASSOCIATES WORLDWIDE

OUR VISION DELIVERING WINNING SOLUTIONS THAT INSPIRE

WORKLIFE™

2011 SOLD $11.5 BILLION OF PRODUCTS AND SERVICES TO

CONSUMERS AND BUSINESSES OF ALL SIZES THROUGH OUR STORES, CATALOGS, INTERNET, CONTRACT DELIVERY AND B2B ECOMMERCE

PRESENT IN 60 COUNTRIES THROUGHOUT NORTH AMERICA,

EUROPE, ASIA AND LATIN AMERICA

CELEBRATING 25 YEARS AS A LEADING GLOBAL PROVIDER OF

OFFICE SUPPLIES AND SERVICES

9 PUBLIC WEB SITES WITHIN NORTH AMERICA WITH OVER 40 ACROSS

THE GLOBE + ANOTHER 15 CUSTOMIZED BUSINESS SITES

GIVING BACK TO THE COMMUNITY WITH PROGRAMS SUCH AS

NATIONAL BACKPACK – OVER 2.3 MILLION BACKPACKS DONATED

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About the Presentation

• Office Depot has embarked on a Journey to become a World Class Finance Organization

• The underlying message in Finance over the past decade has been simple and to the point “Do More with Less”

• These constant pressures have pushed many Finance Organizations to the Breaking Point• The contradiction comes from the simple point that most finance organizations are not

equipped to support the order• A lot of research points to the way Finance Organizations are organized• While the current economy is raising the rate of change to unprecedented levels,

many Finance Organizations are structured in the same way they have been for the past 20 years

• Look at what has happened in the book industry (Borders, Waldenbooks)• Look at Kodak and the Camera industry

Traditional Finance Structure

• The inherent issues with the typical Finance Structure Builds a Strong Case for a Shared Services Model

1. Instability. According to Watson Wyatt Finance Associates are changing jobs every 3 years on average. Companies lose 1/3rd

of their employees annually. Employee promotions often make matters worse.

2. Inflexibility. Companies hire for the best skill that matches the requirement of the open position. Problem. Business needs are changing faster than the skills and abilities of its specialists. Model doesn’t support lateral movement and learning throughout the organization at the pace of change

3. Inefficiency. When a company identifies a set of activities, creates a job around it, and hires someone for that job, that person has little incentive to find ways to streamline that job out of existence, even if they are capable of it. In addition, when that person is promoted they tend to hire people in their own image and encourage the job to be done the same way they had been doing it…this can naturally perpetuate an outdated process…

Typical AR/ Coll Organization

Cost of replacing Finance Professionals

What is the answer?

• Top consulting firms such as AT Kearney and the Hackett group point to Finance Outperformance only possible with the appropriate Service Delivery Strategy (SDS). At the core of this is the Service Delivery Model

• The Service Delivery Strategy optimization is based on the realization of economies of scale, scope, and skill. Said otherwise its determining which finance processes are done where, how, and by whom

• In simple terms, for Office Depot; the Service Delivery Strategy Consists of our Strategic Plan, Service Delivery Operating Model, and Transformational Roadmap

Background

To get started we needed to understand 2 things……

1. How do Office Depot’s people, processes, practices and technology compare to those of World-Class organizations2. To identify specific actions to take to achieve World-Class performance

Global Finance Organization

Initial Focus: Cash Disbursements, Revenue

Cycle, & PPM

Benchmarking

Executive Interviews

Best Practice Workshops

When Compared to World Class When Compared to World Class –– We hadWe had………………..

Higher Baseline Costs

Adopted only 50% of Hackett's Best Practices

Much Higher Percentage of Finance Staff Performing Transactional Work

Lots of Systems Providing Little Business Insight

Lacking Global Process Owners

Lacking Desk Procedures and Accountability Matrixes

100’s of reports with little actionable data

Service Delivery Strategy

• Working with our advisors it became apparent that in order to outperform in Finance we needed to develop the appropriate Service Delivery Strategy.

• The Service Delivery Strategy optimization is based on the realization of economies of scale, scope, and skill. Said otherwise its determining which finance processes are done where, how, and by whom

PEOPLE TECHNOLOGY

PROCESS

PEOPLE• Global Process Owners• Shared Service Center

Technology

PROCESS

FromFrom ToTo

• Functional Silo’s• Transactional Doers

• Systems View –End to End• Service Levels are the

foundation

• Not Defined• Functional Focus• Legacy ways

•All three areas must work in Harmony - One cannot be successful without the other.

• Viewed as Constraint• Manual• Tons of Reports

• Becomes Enabler• Partnered Leveraged• Automation / Few Reports

Analogous to Office Depot’s Racing Team

Balance - People, Process, Technology

PROCESS

PEOPLE TECHNOLOGY

Developing the Service Delivery Model

Timeline for SDM Implementation – Where are we today ? What has been Done?

Benchmark Completed with Hackett GroupStrategy Completed with AT KearneyBPO Agreement Completed with Capgemini AP & Collections Implementations CompleteCollections tool design, build, test Complete – Go Live April 2012

Office Depots Revenue Cycle revealed a majority of the Medium toOffice Depots Revenue Cycle revealed a majority of the Medium to Highly Achievable & HighHighly Achievable & HighValue Best Practice OpportunitiesValue Best Practice Opportunities

Initial situation

Office Depot needed to improve Customer -To-Cash process in order to:•Save costs•Improve Quality•Enhance Management Processes

Office Depot expected that outsourcing drive significant cost savings through lower labor costs and headcount reduction resulting from efficiency gains, as well as providing access to world class finance talent

150 FTEs in:Cash ApplicationCollectionDispute Mgmt

150 FTEs in:Cash ApplicationCollectionDispute MgmtC

2C S

cope

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Efficient & Effective – Attain the Best possible blend of People Process & Technology

Efficient

Effective

Output / Outcomes

Resource

PEOPLE TECHNOLOGY

PROCESS

World Class Finance Organizations are far more efficient and effective than peer group in revenue cycle activities. This can be attributed to:

1. Process – Simplified and Standardized

2. Technology – Implemented Best of Breed enabling technologies

3. People – Leveraged Global Business Services Group & Near-Shore and/or Offshore Outsourcing strategies

““Their Front Office Is Our Back OfficeTheir Front Office Is Our Back Office”” Jack Welch, GE Jack Welch, GE

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Collections - Key Characteristics

• A key characteristic of these recessionary times has been slowing customer payments – this evidenced in the percentage of current receivables and best possible DSO

• Top performers are maximizing the return of the receivables portion on the working capital –Cash Remains King

• Office Depot is following the same approach. Partner with the organization whose focus and competency is on the things we would like to improve upon.

• The time and investment required to build the capabilities in house - not attractive for Office Depot.

• Instead we are building these capabilities with our provider while simultaneously reducing cost of operations through the arbitrage

The strategic goals

Focus on the OutputsFocus on the Outputs

Lower DSO Improve Working Capital Management

Revenue Assurance – Reduce Revenue Leakage

Improved process efficiency

Improved quality of work in areas that drive performance i.e. reduction of bad debt write offs, efficient collections

Enhanced analytics to improve effectiveness

Reduce risk through better information

Work with a business partner that drives the business performance metric

InputsInputs

PeoplePeople

ProcessProcess

TechnologyTechnology

Service Delivery Model

C2C Enablers

Command Command CenterCenter

Devoted team providing business insights and analytics to support delivery

GPMGPM Establish Global Process Owners and Subject Matter Experts on both Sides

Governance Governance Standard governance model including command center controls

TrainingTraining Continuous training and development programs

OTC ProOTC Pro World Class Collections tool

DialerDialer Predictive Dialer increases account touches for small balance non strategic accounts

Transera / Nice Transera / Nice 100% Call Monitoring and Recording. Call Associated Data availability

BP OpenBP Open Work Flow Capability

Technology

People

C2C Enablers

SegmentationSegmentation Front and Back office segmentation and dispute support structure

StrategiesStrategies Specific strategies based on account segmentation and portfolio

QA QA Continuous monitoring, controls, and training

EscalationsEscalations RACI matrix and detailed support and escalation – clear accountability

Process DocsProcess Docs Library of detailed process maps and desktop procedures for executing work

Guatemala CityGuatemala CityBangaloreBangalore

Process

Additional Best Practices Adopted

• Documented processes• Extensive training program

ensures compliance• Established and active

monitoring of quality control measures

• Implementation of proven collection strategies to improve cash flow

• Segregation of administrative tasks allow front office to focus on customer contact

• Streamlined dispute resolution process

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Webcollect – technology support for O2C

Governance and control• Visibility into activity and performance• Measure and monitor in real time

Performance management• Trending over 100 KPIs• Insight into actions• Reporting

Automation and productivity gains• Single page account work screen• Automatic collector assignment• Automatic past due ranking

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Governance model - Roll-up Structure

A defined governance structure is key to an effective operating model. Governance is key to both successful transition and delivery.

QuarterlyBusiness Review

EXECUTIVE STEERINGQuarterlyBusiness Review

Monthly Governance MANAGEMENT STEERING Monthly

Governance

Weekly Transition

Status TRANSITION

MANAGEMENTCOMMERCIALOVERSIGHT

Weekly Performance

Daily Transition Call SERVICE TOWER

MANAGEMENTSERVICEDELIVERY

Daily Check Point

TRANSISTION STATE STEADY STATE

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Lessons learned – BPO partner transition

• Manage expectations– Gain early alignment on IT requirements to set expectation– Clearly define scope and contain scope creep

• Documentation– Lack of existing process documentation added to the

difficulty of understanding the requirements in some areas

• Vendor relationships– Transparency key to successful relationship– Active management of process knowledge transition– Ensure that enough time is spent in due diligence phase

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THANK YOU

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