SimCorp sourcing "From Local to Global"

The 2009 European Outsourcing Summit
15-16 October, 2009  Copenhagen Marriott Chicago Downtown | September 22, 2009
Business School  Copenhagen, Denmark

The Challenge from
Local to Global Development
By Jens Brinksten, CEO SimCorp Ukraine LLC

© 2009 IAOP® All Rights Reserved


Agenda

 Setting the scene

 The phases
 First investigation and milestone
 Second investigation and milestone
 Pilot project phase and third milestone
 Partner phase and fourth milestone
 SimCorp Ukraine LLC

 Overall lesson learned and conclusions

 Q&A



Setting the scene…

My name is Jens Brinksten,
 I hold an MBA and HD-R from CBS
 I am currently 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 19 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
 I sit on Advisory Board for Centre for Strategic Management and Globalisation at
CBS




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 120 are in Kiev.




History
 Founded in 1971 SimCorp has almost 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...

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



First investigation phase – 2001/02

Motive
 The major motive was to investigate the possibilities in outsourcing,
both external (potential partners) and internal (was SimCorp ready
to outsource), because the market in Denmark for qualified software
engineers became tighter, and SimCorp needed people for realizing
the company’s growth strategy.

Aim
 Set up demands and try to investigate if there were potential
partners, who lived up to the expectations of SimCorp.
 To test if SimCorp internally would be able to handle and cooperate
with a foreign partner in regard to product development.



First investigation phase – 2001/02

Preparation
 Preparation of requirements to a partner profile and other external
conditions
 Profile (solid firm, references, price level, experience with firms similar
to SimCorp)
 Staff (English proficiency, communication skills in general, educational
level, etc.)
 Managerial competencies (both top management and middle
management)
 Security (person, access, data and data connection)
 Logistic and infrastructure
 Stability (country and politics)
 If possible, knowledge of the programming language APL (very
specialized development language for financial application)



First milestone - 2002

Execution
 SimCorp’s visit to St. Petersburg, Russia – the biggest IT cluster in a
2-3 hours flight distance from Denmark – together with a
governmentally supported project, MindMatch (near-shore was a
pre-request)
 There were discussions with the Russian IT industry organizations
and representatives from a number of companies
 Additionally, there were arranged 5 “face to face” meetings and
visits to different potential partners in St. Petersburg during the
visits.




Conclusion
 After visiting St. Petersburg it was concluded that despite several of
companies lived up to a number of set criteria, no one was obviously
ready to a cooperation with a company like SimCorp.
 Internally in SimCorp, it also gave a lot of resistance. People were
very skeptical regarding outsourcing and the possibilities for using
outsourcing in SimCorp, because of “their” highly specialized
product.
 So at that time, SimCorp neither could find any suitable partners nor
was internally ready for an outsourcing “adventure”…

 The outsourcing idea was put back on the shelf…




Lesson learned
 First “sell” the idea internally, before going out and investigating,
because if employees are not involved, then they react negatively
and against the idea…
 Get the top management to support the idea strategically, so people
understand it will become a vital part of the company’s strategy…
 Have a clear vision of the long-term strategy for outsourcing, so that
you can set up an overall plan and guideline for the project, including
exit strategy, etc.
 Be ready to say NO… and turn down the project



Second investigation phase – 2004/05

Motive
 After a couple of years, it became obvious for SimCorp, that the
company needed external resources, because it became very
difficult to find and hire qualified people in Denmark.
Aim
 SimCorp hired a small consultancy firm, specializing in IT offshore
outsourcing, to perform a qualified investigation, and through these
findings establish a knowledge basis for making final decision of,
whether SimCorp should try out outsourcing as a business model for
expanding development capacity.




Preparation
 Similar to the first investigation, but this time Near-shore
also with focus on long term availability of region
resources (universities, etc.)
 Investigation of more countries (geopolitical Countries
investigation, cultural evaluation, etc.), so a
more comprehensive evaluation could be done
for overall conclusions Cities/
 Focus on infrastructure and security clusters
 Internal readiness in SimCorp was ensured
through information meetings and establishment Firms
of focus groups




Execution
 Country investigation Russia/Bulgaria
 Visit to and investigation of 4 countries, Ukraine/Lithuania
which were selected based on a set of
criteria, put forward by a steering committee
 An overall “ideal” country profile was
prepared for evaluation Lithuania/
 2 countries were selected for closer Ukraine
assessment (Lithuania and Ukraine).
 Ukraine got priority, because of better long-
term conditions i.e. availability of technical
universities and national mentality (pro-
West)
UKRAINE




Execution
 Potential partner investigation
 Visit to Ukraine, and selection of 8 potential 8 firms
vendors
 Preparing an overall partner profile
 Special requirements regarding knowledge and
willingness to special education (APL and financial 3 firms
understanding, incl. high level of English)
 Selection of 3 vendors for Due Diligence. Two
were selected and presented for a MoU. One
vendor withdrew, and one vendor accepted 1+1
starting up a pilot-project firm
 One more firm was selected as a second test firm
for a pilot and accepted the MoU



Second milestone - 2005

Conclusion
 It is very important to evaluate the potential country with the long
term prospective in mind
 In regard to potential partners, you should NOT go on compromises
with your demands (have a good gut feeling…)
 One should set up very clear terms to the potential partners and the
cooperation agreement, including expected future contractual terms
for the entire intended cooperation process, in first hand develop a
MoU for the pilot period
 SimCorp spoke with managers, but also interviewed team leaders
and business analysts from the potential partner firms, so SimCorp
got an better idea of the competence level during the Due Diligence
process



Second milestone - 2005

Conclusion
 Focus areas (all parts of a MoU)
 Pre-conditions to the partner and the employees involved in the start up
phase, including cost- and risk-sharing, which gives motivation…
 How do we end this fast and easy for both parties, if the pilot does not
work out as expected
 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 future growth opportunities
 SimCorp was here looking for JV possibilities, both as a potential
umbrella for a bigger setup, but also as a “carrot” for the partners
 Internally, SimCorp management considered the possibility to
establish an own setup in the longer perspective…



Pilot project phase – 2005

Start-up of pilot project
 There are hired staff to the project and they are checked by
SimCorp and several are replaced (if more then 20% are rejected or
replaced, then the partner should cover the costs for replacements)
 The first training takes place in SimCorp’s premises in Copenhagen
 Secure Citrix connection is established and SimCorp gets own
secure rooms at the partners’ premises
 Overall communication is tested and started up, so management in
SimCorp can follow the pilot project
 Pilot plan is set up together with key milestones and objectives



Pilot project phase – 2005

Lesson learned
 You need to be very clear in your wishes and demands in the MoU
 Get everything in a written form (MoU)
 Think through the whole process from start to end, so the contract
between you and your partner foresees all potential scenarios
(contingencies) in the cooperation process
 Be ready to close the project (milestones), if it does not work out!
 Keep your internal organization informed about every step in the
process, so they understand the expected steps
 Establish a steering group with participants from all internally
involved parties. Appoint a Project Manager for being overall
responsible for the project…
 Have a clear mind about the next steps…


Third milestone - 2005

 The pilot projects are finished with satisfactory results, and it is
decided to continue full-scale cooperation with both pilot companies
 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.
 A contract (Cooperation Agreement) is signed, with focus on a long
term relationship (based on the MoU), but covers areas such as:
 Selection of all staff
 Training, staff development, special APL and financial training, etc.
 Organizational setup, so it fit into the SimCorp organization
 Security of premises
 Equipment, etc.
 Bonus, salaries, benefits, promotions, etc.



Partner phase – 2005

 SimCorp expatriates a full-time Project Manager to Kiev
 SimCorp starts up an educational program for the outsourcing staff
(SimCorp Academy), which covers deep financial knowledge and
technical knowledge used in SimCorp Dimension
 Measurement of productivity is started, so the resources can be
compared to all other SimCorp staff
 Two more full-time employees are expatriated to Kiev, as trainers
and coaches
 The offshoring development capacity is gradually increased to
around 45 to 50 people (both developers and testers)
 English training is intensified, for better communication
 Involvement of as much Danish staff as possible on all levels, for
getting more acceptance in the organization



Partner phase – 2005/07

Conclusion
 The training and development of the staff goes well and the
knowledge and skills level increases
 The productivity increases
 But Ukrainian staff are very young and inexperienced, both
professionally and personally, so the maturity sometimes does not
follow the norms in SimCorp
 SimCorp invests app. € 20.000 in each employee during the first 18
months in training, development competences and knowledge
sharing (travels, courses, training, etc.), which all is needed for
being a part of the development organization in SimCorp
 The project can be evaluated as a “success story” for SimCorp,
even that there is still some resistance in the home organization



Partner phase – 2005/07

Lesson learned
 Project Management needs involvement of senior employees,
because by sending inexperienced staff with such a mission neither
will earn respect of partners nor that of home employees…
 Offshore outsourcing is not cheap, requires a lot of resources, both
in terms of investments and hours from internal staff…
 A lot of training and effective knowledge-sharing is a key to success
with a complex product as SimCorp’s
 Again contracts (Cooperation Agreement) are the key to success!
 Communication on all levels is a crucial element of the overall
success, because this is the only way everybody learns to accept
each other as persons and professionals



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…
 With 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 consider the opportunity
to establish JV with the existing partners
 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, etc.



Fourth milestone - 2007

 With all the question marks in mind, and the wish to “run” the
operations on 100%, it is decided to establish a wholly owned
subsidiary in Kiev
 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 SimCorp company
 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 improved

 Finally, this is a decision, which is made because of positive results
and experiences!



SimCorp Ukraine LLC – 2007/08

Transfer of staff
 SimCorp starts up the negotiations regarding moving existing
partner employees into a SimCorp owned company…
 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
 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
 There are made a number of different agreements regarding HR support, etc.
 Today all Ukrainian resources are SimCorp employees



SimCorp Ukraine LLC – 2007/08

 SimCorp starts the establishment of a subsidiary in Kiev (LLC)
 SimCorp hires a professional management to the company
 The long establishment process starts in October 2007 and by
February 2008 the new company is more or less established with
the office space (planned to 150 people), furniture, internet
connections, IT equipment, etc.
 Next step is to establish all administrative functions in the company,
including HR, Finance and Administration, internal IT support, etc.

 In March 2008, the major establishment is finished and the company
starts working as an integrated daughter company of SimCorp.



SimCorp Ukraine LLC – Today

 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)
 Infrastructure problems (bandwidth)
 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

 SimCorp Ukraine LLC today
 Since establishment in February 2008 we hired more than 70 people and
performed 3 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 with around 3.600 EURO per year,
which on a yearly basis gives a cost saving of 432.000 EURO since the own
subsidiary start up and compared with the costs in the past
 The turnover of people has fallen drastically, and it is not just because of the
financial and economical crisis…



Overall lesson learned and conclusions

Overall lesson learned
 Key elements in a successful outsourcing and insourcing:
Management and decision wise:
 Thorough investigation and preparation
 Clear goals regarding demands, profile of partners and external
conditions
 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)




Contractual wise:
 Prepare always either a LoI (letter of intention) or MoU in the
preliminary phase, when you start up a corporation, so all involved
parties no the conditions for the corporation
 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 then 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




Conclusion
 Planning and a clear view of the total expected operation on both
short and long term is a key to success
 Good preparations and preparatory work pays off
 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…
 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...


SimCorp sourcing "From Local to Global"

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