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.


The timeline which we will go through today...

2004/05
2001/02
2001/02 Second
First investigation
First milestone investigation
phase
phase

2005 2005 2005
Third milestone Pilot project phase Second milestone

2007/08
2005/07 2007 SimCorp Ukraine
Partner phase Fourth milestone LLC and
ongoing…


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)
Radar Zone

 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)
Feasibility
Zone


The period 2001 to 2005…
Lesson learned
 Be thorough and critical in your investigations (Radar Zone)
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) 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
Comfort Zone
have strong control of the overall situation including potential
risks


Third milestone - 2005
 The pilot projects are finished with satisfactory results, and it is
decided to continue full-scale cooperation with both pilot companies
READINESS

 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.


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 and conclusions
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

Feasibility
Comfort Zone 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...

CBS HD-IB October 2011

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