CBS HD-IB October 2011

The 2009 European Outsourcing Summit Marriott Chicago Downtown | September 22, 2009

The SimCorp Challenge “From Local to Global Development”

CBS – HD-IB, October 18, 2011

By Jens Brinksten, SVP – SimCorp A/S


Agenda

Setting the scene

The phases

Period 2001 to 2005

Pilot project phase…

Partner phase and transfer…

SimCorp Ukraine LLC

Overall lesson learned and conclusions

Q & A


Setting the scene…

My name is Jens Brinksten,

I hold an E-MBA and HD-R from CBS

I am currently SVP and Head of SGS in SimCorp A/S

I am former CEO of SimCorp Ukraine LLC

I have been CEO of Ernst & Young in Uzbekistan, Director of KPMS’s Consultancy

& Financial Advisory Service in Central Asia and Director of EBRD’s Post-

privatisation Fund in Uzbekistan.

I founded the outsourcing firm TechOutSys and have worked for a number of big

Danish companies in outsourcing questions, such as SimCorp A/S

During the past 21 years I have worked in more than 20 countries and started up

operational companies and operations in 15 countries

I have worked with privatisation and globalisation since year 1990

I have lived outside Denmark more that 10 years, mainly in East Europe and

Central Asia



Who are we in SimCorp?

SimCorp develops and globally markets the investment management

system, SimCorp Dimension. Our product helps customers perform

the many tasks needed to stay ahead in today's international financial

markets.

The SimCorp product, SimCorp Dimension, meets the market's need

for an advanced system, which can exploit new technology and handle

complex transactions on a global scale. Since the customers, driven

by the need for continual efficiency gains, increasingly demand

integrated and flexible solutions, SimCorp's product is positioned to

exploit the growing market potential.

We are currently present in 16 countries and have around 1.100

employees Worldwide, of which 130 are in Kiev, and we have

employees from more than 40 countries Worldwide.



History

Founded in 1971 SimCorp has 40 years of experience developing

solutions for the financial industry. Headquartered in Denmark with

several international subsidiaries, SimCorp is listed on NASDAQ OMX

Copenhagen A/S and continues to create value for its customers,

shareholders and employees alike.

Customers

Our customers include financial institutions, asset managers,

insurance companies, pension funds, mutual funds, banks and

mortgage lenders and they all rely on our ability to constantly be on

the cutting edge of the financial industry.



2001/02

First investigation phase

2001/02

First milestone

2004/05

Second investigation

phase

2005

Second milestone

2005

Pilot project phase

2005

Third milestone

2005/07

Partner phase

2007

Fourth milestone

2007/08

SimCorp Ukraine LLC and

ongoing…

The timeline which we will go through today...


The period 2001 to 2005…

The period from 2001 to 2005

SimCorp did several investigations (2001 and 2004/05), because it

became more and more difficult to find qualified resources in

Denmark, why the SimCorp Management acknowledge the need for

sourcing (SimCorp went to the Radar Zone for investigating the

potential possibilities)

But it was obvious that SimCorp neither could find any suitable

partner nor was the company internally ready to work with

outsourcing before 2005 (Feasibility Zone – readiness to perform the

needed tasks in connection to a sourcing operation)

Radar Zone

Feasibility

Zone


The period 2001 to 2005…

Lesson learned

Be thorough and critical in your investigations (Radar Zone)

Be ready to say NO… and turn down the project idea

Get full strategic commitment from the top management

To avoid resistance internally, keep all involved parties informed

about all steps in the process and the results

First when you feel, that you have knowledge enough and the

organization is ready, then you can go further… (Feasibility Zone)

Radar Zone

Feasibility

Zone


Pilot project phase – 2005

After the second investigation in 2004/05, SimCorp finds two potential

partners in Ukraine

There are drafted and signed Memorandum of Understanding’s (MoU)

with the two potential partners, before starting up pilot (test) projects

Focus areas in the MoU’s

Pre-conditions to the partner and the employees involved in the start up

phase, including cost- and risk-sharing, which gives motivation… Risk

management is a key issue in the overall evaluation!

How do we end this fast and easy for both parties, if the pilot does not

work out as expected


Pilot project phase – 2005

Conditions in connection to running the operation, incl. staff

specification, staff turn-over, educational level, special expected

training, costs sharing for training, roles and responsibilities, etc.

Exit conditions and/or future growth opportunities

SimCorp was here considering JV possibilities, both as a potential

umbrella for a bigger setup, but also as a “carrot” for the partners

By doing this thorough investigation and preparation (risk

management) before signing up with the two pilots, then

SimCorp manage to get into the Comfort Zone, because they

have strong control of the overall situation including potential

risks

Comfort Zone


Third milestone - 2005

The pilot projects are finished with satisfactory results, and it is

decided to continue full-scale cooperation with both pilot companies

At this point SimCorp enter the Readiness Zone, because of the

satisfactory results in regard to risk, performance, internal resources

and readiness, trust to the setup and the partners involved

The resources in the project will be incorporated in the overall

development strategy of SimCorp, which requires much more training

and knowledge transfer about SimCorp and SimCorp Dimension.

READINESS


Third milestone - 2005

A contract (Cooperation Agreement) is developed and signed, with

focus on a long term relationship (based on the MoU), but it covers

areas such as:

SimCorp will select all staff

Training, staff development, special training in e.g. APL and financial

training, etc. According to SimCorp standards

Local organizational setup, so it fits into the SimCorp organization

Security of premises

Equipment, data-lines, etc.

Bonus, salaries, benefits, promotions, etc. (Quasi-integration)

Exit strategy (JV possibility, etc.)

All issues where SimCorp wishes to have influence…


Partner phase – 2005 to 2007

The development goes well and the teams and groups grow and

SimCorp sees the first real results of the potential sourcing strategy…

There are established more intensive training and knowledge sharing

between employees in Denmark and partners employees in Kiev…

SimCorp starts to implement the project groups in Kiev in the overall

future development strategy for both code development and testing,

which include domain related test teams…

The future goals and wishes for uses of sourcing become a part of the

strategy discussion inside SimCorp management!


Fourth milestone - 2007

The setup in Kiev reaches a critical mass level, where it becomes

strong enough to be integrated in the full development cycle in

SimCorp, but there are some constraints:

If developers should work with client data, they need to be fulltime

employees of SimCorp according to client contracts.

It is the aim to give all people who work for SimCorp the same basic

working conditions and benefits…

In other words… How to secure SimCorp’s investment in people and

knowledge and still promote and develop the setup in Kiev?



According to the existing contracts SimCorp considers the

opportunity to establish JV with the existing partners, with focus on

some key issues:

Would it be possible to retain existing staff?

Would it be possible to move around on Kiev staff, if it is not a 100%

owned company?

Contractual obligations to clients in respect to “live” client data, etc.



With these key questions in mind, and the wish to “run” the

operation 100% controlled by SimCorp, it is decided to establish a

wholly-owned subsidiary in Kiev (captive offshoring)…

Because it is not considered to be sufficient enough to cover security

clauses regarding client data in SimCorp client contracts, if it is not a

100% owned subsidiary

It will be easier to make decisions and form the offshoring development

capacity as an integrated part of the overall SimCorp development

strategy

It will be easier to implement all normal SimCorp staff benefits in a

100% owned subsidiary



Retention of staff would hopefully become easier, and the acceptance of

Ukraine staff in the total organization should be easier to implement…

Finally, this is a decision, which is made because of positive results

and experiences with sourcing and operating in Ukraine…

But one major focus area is the question about, how SimCorp can

secure the investment in staff, and how SimCorp can get the

staff over in the new company smooth and without loosing

competences and qualified people!

Remember that Ukraine is a relations-based country, and the

employees are loyal to the existing partner, and many of them have

special local benefits, such as loans from partners, etc., so it becomes

important to avoid conflicts in the transition of staff!


SimCorp Ukraine LLC – 2007/08

With the focus on especially the smooth transfer from the existing

partners to SimCorp, a transfer model is created (BOT alike):

Transfer of staff (1)

SimCorp starts up the negotiations regarding moving existing

partner employees into a SimCorp owned company… through an

Addendum to the existing Corporation Agreement

SimCorp divided the employees into two groups, A) Senior important

people with key knowledge and skills, B) Other qualified people

The negotiations are, of course, focused on the lost revenue for the

partners, and here it is agreed to have a transition period of 18 months,

which means the employees will stay as consultants in 18 months,

where SimCorp would pay for them as for partner employees



Transfer of staff (2)

The above mentioned 18 months period is also considered as a trial

period for all B-employees. A-employees are “taken over” already from

the establishment of the new company.

There is also set a final take-over price for the employees, which is only

paid, if the employees pass the 18 months trial period with satisfactory

results, otherwise the employees are transferred back to the partner

Up to 4 months full salary cost for A-employees

3 months full salary cost for B-employees

On top of the buy-out there are made different agreements regarding

HR support, internal IT support, etc.



We have of course experienced a number of challenges since the

establishment of SimCorp Ukraine LLC, such as:

Discipline problems with employees, which came from the original

outsourcing project (here we have had to say goodbye to several

people)

Maturity problems, you need to balance the age-groups of employees,

we had too many young and immature people, so we changed our HR-

focus…

Infrastructure problems (bandwidth) and electricity…

Communication challenges (we have now installed 2 video conference

rooms) and we have increased English training



Acceptance problems between “old” SimCorp employees and Kiev-

based employees

Level of local management and management skills (here we have

enforced special management training for Kiev-based managers)

Team building of employees “taken-over” from the two partners, and

those hired directly to the new company is not always easy

All administrative areas in relation to employees, authorities, technical

setup, building, etc., etc.



SimCorp Ukraine LLC today:

Since establishment in February 2008 we hired more than 100 people

and performed 7 SimCorp Academies, and we are still growing…

Have increased productivity with around 50% (have around 35% of the

total production of code in SimCorp)

Have lowered the cost per employee in Kiev…

The turnover of people has fallen drastically, and it is not just because

of the financial and economical crisis…


SimCorp Ukraine LLC – 2011 and on-going

SimCorp Ukraine LLC today:

Because of the maturity of the organization, then the management

structure was changed to a clean local management…

The focus is now on building on the experienced staff and give them

empowerment to lift the firm to the next level

The single groups are now totally integrated in the entire development

organization and all processes of SimCorp

Strategically SimCorp in Ukraine will grow, because SimCorp still have

a huge challenge to find qualified staff in Denmark

More internal tasks are being planned to move to Kiev in the future



Overall lesson learned

Key elements in a successful outsourcing and insourcing:

Management and decision wise (getting to Readiness through the

other zones):

Thorough investigation and preparation

Clear goals regarding demands, profile of partners and external

conditions

Radar Zone

READINESS

Comfort Zone Feasibility

Zone



Overall lesson learned

Clear milestones and evaluation points

Ability and courage to say STOP and NO

The project should be approved and supported from the top

management, and it should be clearly communicated that it is a

company’s goal to succeed

Clear long term overall company strategy

Constant communication to all involved parties (internal and external)

READINESS



Contractual wise (Risk assessment):

Prepare always either a Letter of Intention (LoI) or a

Memorandum of Understanding (MoU) in the preliminary phase,

when you start up a cooperation, so all involved parties know the

conditions for the cooperation

Think through the whole expected scenario from the first contact

to the exit (both in case of unsuccessful and successful exit)

Focus on all potential ways of continuing the project both with or

without the selected partner/partners

Setup terms and conditions for staff in case of changes in the

cooperation (remember the staff carry the investment element,

because of training and knowledge transfer, etc.), how can we

get them to stay with the project or company, etc.



Other learning points

Outsourcing vendors’ commitment tends to fall during the

cooperation period, because they get new clients and new focus

areas, make sure you keep their focus on YOU!

Use experienced project managers, with extensive knowledge

and understanding of culture and local management skills…

It is “easy to be popular, but difficult to be respected” in many

countries as a foreign manager…

Keep regular follow up meetings and have clear measurement

points and milestones (steering committee, reporting,

evaluations, etc.)

When all involved parties operate in 2nd languages, then there

are huge possibilities for misunderstanding and mistakes, so go

after people with good language skills from day one…



Conclusion

The contractual framework should be thought well through, with

all possible scenarios

You can not use standard contracts in a full-scale and long-term

outsourcing/insourcing operation, as there are no standards,

which cover all potential scenarios…

Think through the whole live-cycle from start to different end

scenarios

Balance the staff with young and experienced people...

Involve experienced people from day one and do not “just” select

the one who wants or a “rookie”, because in the long run it is

very expensive and will give extra “challenges” and problems..

Remember the 3 T’s – “Things Take Time” – it is a key point to

remember, if you want to operate in outsourcing...


Education

CBS HD-IB October 2011