The document discusses McGraw Hill Financial's outsourcing of its finance and accounting processes. It provides an overview of the company's outsourcing approach, including establishing process "towers" and outsourcing 90-95% of transactional activities. It describes the goals of achieving higher growth, synergies, scalability, and business impact through end-to-end process transformation. Key challenges included outsourcing finance while implementing a new ERP system and challenges around controls, separation, communication, and change management.

1. Michelle Ferguson, Senior Vice President, McGraw Hill
Financial, and
Sanjay Tripathy, Principal, Booz and Company,
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2. Agenda
McGraw Hill Financial - A New Company with 125 Year Heritage
Speaker Introductions
Scope of Global Business Services
Outsourcing Approach
Challenges and Lessons Learnt
Trends in End to End (E2E) BPO
Q&A
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3. 





A new company, with a 125‐year‐old heritage, focused on
providing essential intelligence
Our vision is to be the foremost provider of ratings,
benchmarks, and analytics in the global capital and
commodity markets
Strong balance sheet enables financial flexibility
Will continue to invest in businesses while returning cash to
shareholders
Solid track record of top‐ and bottom‐line growth
2013 guidance indicates solid growth:
 High single‐digit, top‐line growth
 Adjusted diluted EPS guidance of $3.15 ‐ $3.25
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4. 


© 2013 IAOP® All Rights Reserved
Senior Vice President, Global
Business Services
• Finance
• Human Resources
• ERP System
• Global Real Estate
BBA – University of Notre Dame
• Advisory Council for DeBartolo
Performing Arts Council
• Member of Alumni Board
MBA – Columbia Business School

5. 
Senior Principal, Americas Leader for Outsourcing and Shared
Services Advisory, focused across industries for • Strategy, Operating Model, Organization Design, Business and
Cost Transformation, People and Change
• Fit for Growth (FFGTM) platform
• Finance and Accounting
• Procurement
• Human Resources
• Customer Relationship Management
• Real Estate and Facilities Management
• KPO, Analytics, R&D and Engineering Services
• Platform and SaaS Services
• Other G&A Functions
• Governance, Transition, Re-negotiations
• Global supplier relations

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Over 18 years of global industry and consulting experience

6. McGraw Hill E2E Finance Outsourcing
•
Process “towers” with cross functional support
–
–
–
–
–
–
–
•
Global Finance and Accounting – Order to Cash, Procure to Pay, Record to Report
ERP Implementation
Global Payroll
Global Employee Care / Special Programs
Global Sourcing and Disbursements
Special project support (e.g., People Fluent, Physical Separation)
Cross tower support (financial planning/estimating, contract administration, service
delivery and governance)
OBJECTIVE: Deliver predictable, scalable, lower cost Finance/HR
service consistently across company. Outsource transactional
activities to global partners
–
–
–
–
–
–
Relationships with industry leading providers that have global capabilities
Strong governance
Measurements focused (e.g., service level agreements, process health)
Aligned to support our businesses
Process improvement mindset with end to end transformation
Opportunities for direct access, self service
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7. McGraw Hill E2E Finance Outsourcing
Transformation Goals
 Achieve higher and sustained
global growth
 Capture horizontal synergies
across businesses
 Drive scalability and
predictability in cost structure
 Drive business impact through
end to end process
transformation
 Treat talent and data as
strategic corporate assets
Growth: Position great businesses for scalable
growth
Performance: Enhance business impact with end to
end process transformation (e.g. Order to Cash)
People: Become a high-performance employer of
choice
Cost: Reshape to be fit for growth with best in class
economics
Operating Model: Increase speed, agility and global
connectivity, while building enterprise capability
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8. McGraw Hill E2E Finance Outsourcing
Growth & Value Plan
Theme
Organization
Architecture
P&Ls
Governance &
Decision-Making
Capabilities & Talent
Collaboration &
Alignment
Culture
Change Orientation
Geographic Leadership
Critical Metrics
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“Evolving”
Stand Up MHFI
“Sustained High Performance”
 Vertical and layered
 Flatter and compressed
 Competing metrics and opaque allocations
 Transparent, consistent, precise
 Uneven criteria and pace
 Clear, selective shifts to align on emerging
enterprise decision rights
 Individual business-based
 Selective shared enterprise capabilities &
talent
 Shifting to greater flexibility and
cross-business leverage
 Leadership alignment, with mechanisms
established and integration underway
 Publishing heritage, avoidance of risk
 Market orientation with risk management
 Hesitant but building momentum
 Shared common purpose and vision
 US-focused with shifting focus to global –
Limited accountability for regional results
 Regional measurement with cross-LoB
management and accountability by
geographic sub-region (i.e., ex-Americas)
 Revenue and profits
 Financial and strategic metrics, with clear
accountability

9. McGraw Hill E2E Finance Outsourcing
Outsourcing Approach: A swift yet structured process
Rapid Outsourcing Approach and Timeline
Month 1
Month 2
Month 4
Month 5
Month 8
Provider Selection & Contract Development
RFP Responses
& down-selection
Base Case
Solution
Development
Site Visits &
Inbound Due
Diligence/BAFO
To be Vision
Outsourcing
Objectives
RFP/Spec
Package
MH specific activities
Joint activities with Provider
Provider
Selection
Negotiations and
Contract Award
Outbound Due
Diligence
Transition
Begins
Transition
Ends
Governance Design & Transition
Planning
Change and Risk
Management
Communication and Change Management
Engagement Package
& MSA to PreSelected Providers
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Providers Down
Selected
Provider Selected
Contract
Awarded

10. McGraw Hill E2E Finance Outsourcing
Order to Cash E2E scope across Regions,
Business Units and GBS
Order Management
and Billing
Credit Risk and
Contract Admin
Customer Master
Cash
Application &
AR
Collections
Deductions
Management
Critical Success Factors

Outsourced Services
•
•
•
•
•
New Account Setup
Changes in Existing
Accounts
Price Mapping
Billing Types/Cycle
Tax Status
•
•
•
•
•
•
Initial Analysis
Review of Credit Limits
Receive/Validate
Contracts
Contract
Renewal/Extension
Contract Audits
Ensure compliance
•
•
•
•
•
•
% Outsourced: 90
% Outsourced: 90
Receive/Validate and
Enter PO
Order Fulfillment
Regular Open Order
Analysis
Invoicing Generation
and Presentment
Shipping and Freight
Details
Pricing Support
% Outsourced: 95
•
•
•
•
•
Customer
Segmentation
Self-Payer
Analysis
Call Prioritisation
Issue Coding and
Analysis
Research Bad
Debts
% Outsourced: 85
•
•
•
•
Processing/Cleari
ng Lockbox
Misapplied Cash
Exception Coding
Research
Unapplied Cash
and Credits
•
•
•
% Outsourced: 95
◦
Identification and
Validation of
Disputes
Resolution on
Short
Payments/Deductio
ns
Credit Memos and
Reconciliations
◦
◦
◦
% Outsourced: 85
Retained Services
• Exception Approvals

• Define Credit terms
• Develop and
Review Credit
Policies/Recommen
dations
• Exception Approvals

• Exception Approvals
• Order Release
Matrix
• Establish and
Maintain Billing
Policies

• Collection
Policies
• Strategic and
Government
Accounts
• Banking of
cheques
• Approval of writeoffs

• High-dollar
write-offs
• Deductions
Approval


◦
 OTC Process in Scope
Business Outcome E2E SLAs
Metric Category
Service Level Name
 Resolve Order Management
backlog issues for credit related
problems within 24 hours.
 Unapplied Cash / Credits &
unidentified as %age of total
collections.
Efficiency
 Sales Orders and Changes
processed within 24 hours of
receipt
Supplier
Relationship
MHE Only
Formula
 Resolved order management backlog issues for
credit related problems/All credit related backlog
issues
All business
 Value of unapplied cash and Credits/Total value of
units
ledger.
All business  Number of requests processed within 24
units
hours/Total requests received
Measuremen
t Window
Daily
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
Monthly
Monthly
 Number of manual bills correctly processed within
48 hours/Total number of manual bills created during
Monthly
the month
All business  AR balance/Sales in the period*number of days in
 Days Sales Outstanding
Daily
units
the period
MHE Only  Number of deductions/charge backs (from short Deductions Outstanding
Monthly
payment of invoices)/Total number received in month
 Cash Collected as percentage All business
Monthly
of gross billings (or as a
units
 Cash collected in month/Gross billings or Beginning
(rolling 12
percentage of Beginning AR - for
AR
month periods)
MHE)
 Dispatch of Bills within 24
All business
 Number of bills dispatched within 24 hours/Total
hours of business unit
units
Monthly
number of bills created in a period.
requirements (to be agreed).
 Manual billing requests
processed within 48 hours
Effectiveness
Business
Units
Collaboration upfront with supplier during
joint solutioning to design/enable
MHE Only

Outsource End to end scope to enable
standardization, centralization, and process
improvements
Interim and future state process
Clear SLAs tied to performance outcomes
Engage global regions and business units in the
design, implementation
Leverage supplier tools, best practices and
expertise to move the needle on performance tied
to business outcomes to achieve more than labor
arbitrage
Agreement with supplier on clear milestones
around transition, process improvements,
productivity levers with risk sharing models
to drive transformative improvements
Established collaborative governance
including retained organization design,
decision rights, services delivery design,
implementation

11. McGraw Hill E2E Finance Outsourcing



Atlas ERP Implementation
◦ Project One launched June 2010; Golive July 2012
 Replacement of Lawson Financials
with Oracle 12 e-Business Suite
 Chart of Accounts
Atlas Hard Separation
◦ Project launch March 2012; go-live
January 2013
◦ Financial and operational segregation
◦ Separate and distinct bank accounts
and ledgers
Atlas Physical Separation
◦ Project launch January 2013; go-live
February 2014
◦ Two independent Oracle environments
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12. McGraw Hill E2E Finance Outsourcing
Business
Focus Area
What they do
for us
Locations
Finance
Hyderabad, India
Dalian, China
Bucharest, Romania
Juarez, Mexico
Payroll
Global Payroll
Manila, Philippines
HR services
Customer Service
Support: Portal, Taleo,
Success Factors,
Workday
Charlotte, NC
Woodland Hills, TX
Gurgaon, India
System development
Oracle
Kolkata, India
Quality control
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AP, OTC, R2R
Oracle
Chennai, India
Bangalore, India

13. McGraw Hill E2E Finance Outsourcing

Challenges were many…
Outsourcing Finance and going live with a new ERP system the same day
Outsourcing Payroll, a new Human Capital Management System for MHE at
the same time
Understanding key controls early in the project lifecycle
Enabling company separation

Lessons Learned were many…
Communicate, communicate, communicate
Coordination
Project management
Know a Project Manager when you see one
Need different skill set in the leadership team
Don’t panic, overreact to anecdotal and isolated issues
One group does contract administration
Pricing, SOW, MSA, IT Requirements
Invest upfront in Governance, Retained Org, Roles and Responsibilities,
Decision Rights
© 2013 IAOP® All Rights Reserved

14. Trends in End to End (E2E) BPO
What E2E Transformation Outsourcing Involves
100
Labor Cost
Reduction
+
Operational
Improvements
+
Process
 Align partner and
client incentives to
reduce cost of service
Transformation Benefits are Not Materializing
and Governance Costs are Mounting
20
 Partner with client to
improve operations
and share in the
benefits
35%
Target
5
15
 Leverage gain share
models to align
partner and client
incentives
5
5
 Enablers for
transformational
partnership
– Benefits
Realization Model
Transformation
60
65
– Assets to enable
productivity
improvements
+
Technology
Enablement
Transformational E2E BPO Deal Economics
– Governance
structures
 Shift clients’ fixed
costs to a more
variable model
Source: Booz & Company Database and Experience
© 2013 IAOP® All Rights Reserved
Baseline
Cost
Cost
Arbitrage
Process
Process & Target Cost
Retained
Improvement Platform
Goverance
Standardization
Value Drivers
Organization
Total EndState Cost
Business Case Projection

15. Trends in End to End (E2E) BPO
Sell Side Dynamics (Suppliers)
Buy Side Dynamics (Clients)





Recognition that global E2E process view
enables a holistic service delivery design that
pulls on multiple levers including
standardization, automation, shared services
and outsourcing
Recognition that enduring and transformational
savings can only be achieved when a service
provider has control over end to end processes
Transformation end to end processes is difficult
to achieve internally when processes are
fragmented and process governance is difficult
to institutionalize
Scalable affordable technology platforms are
critical to E2E transformation and are best
accessed through third party solutions
End to end process outsourcing rationalizes and
consolidates multiple transactional service
providers and creates a focused set of strategic
provider partnerships
© 2013 IAOP® All Rights Reserved




Improved ability to bundle domain
expertise and outsourcing expertise into
bundled and integrated process
transformation solution
More advanced, sophisticated global end
to end process solutions from service
providers supported by proprietary tools
Growing domain expertise on how to
drive process innovation and
standardization based on network effect
of serving scores of diverse clients
Increasing appetite to commit to
productivity improvements, best-in-class
service levels and gain-sharing
agreements

16. Trends in End to End (E2E) BPO
Finance E2E
Distribution of FAO Contracts with End-toEnd Scope Over Time
Number of new contracts
100%
End-to-End
Scope
460
268
87
37%
Type of End-to-End Scope in FAO Contracts
Frequency of Inclusion
51%
Purchase to Pay1
55%
70%
75%
Order to Cash1
Traditional
Piecemeal
Scope
63%
Record to Report1
45%
30%
Up to 2008
2009-2011
2012-2013
Sample Size: :815 multi-process FAO contracts signed as of December 2012
Source:
Booz & Company Deal Database, Gartner, Everest Group,
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33%

17. Trends in End to End (E2E) BPO
Finance E2E
Scope of Frequently Outsourced F&A E2E Processes
Record-to-Report
Procure-to-Pay
Order-to-Cash
Collections &
Accounts Receivable
Order Management &
Billing
Manage &
Process
Collections
Maintain
Customer
Master Data
Manage Sales
Orders
Manage
Customer
Requests &
Inquiries
Manage &
Process
Disputes &
Deductions
Maintain A/R
Ledger &
Apply Cash
Manage
Contacts
Order
Service
Customers
Transaction
Processing &
Travel
Financial Integrity
Authorize &
Manage
Credit
Perform
Revenue
Assurance
Activities
Help Desk
Business Impact
Effectiveness
3rd Party &
Intercompany
Invoices/credi
ts
Vendor
Statement
Reconciliation
Irate Creditor
Reconciliation
s
Payments &
Remittances
Vendor
Master Data
Maintenance
Interface
Management
Manage &
Process
Collections
Manage &
Process
Disputes &
Deductions
Period Close & Data
Integrity
 Improve
 Increase
DSO
Order and
billing
 Reduce
accuracy
collection
s cash
 Improve
float
contract
complianc
 Optimize
e
reserves
 Reduce
overpayments
 Increase
contract
compliance
 Increase PO &
AP processing
efficiency
 Identify
duplicate
invoices
 Optimize
discount
capture
 Identify
duplicate
invoices
 Reduce time to
close
 Improve month
end close
processing
efficiency
 Reduce manual
journal entries
 Reduce
exposure
-aged
open
items
 Increase
Balance
sheet
integrity
 Optimize
& crash
period
Maintain
Customer
Master Data
Manage Sales
Orders
Manage
Customer
Requests &
Inquiries
Maintain A/R
Ledger & Apply
Cash
Manage
Contacts
Support
Center
Financial &
Government
Perform
Reporting
Authorize &
Revenue
Service
Customers
© 2013 IAOP® All Rights Reserved
Manage
Credit
Controls
 Reduce writeoffs
 Improve
collections
efficiency
Payment
Accuracy
Controls
Asset & Transactional
Processing
Working
Capital
 Reduce
cancellation of
orders
 Capture invalid
deductions
 Optimize trade
promotion
 Improve order to
bill cycle TA
Expense
Claims
Receipt &
Scanning (BSS
EDM)
Efficiency
Assurance
Activities
Source: Booz & Company Research

18. Trends in End to End (E2E) BPO
Supplier Portfolio for E2E Processes
Multi-tower Global BPO
Focused Functional Pure
Service Providers
Plays
Legacy Indian-heritage IT
Service Providers
Target
Market
 Primarily large market global
buyers, though have started
pursuing smaller opportunities
as well
 Target both mid-market and
large-market opportunities
 No rigorously defined market –
opportunistic in deal pursuits
Typical
Solution
Approach
 A platform-agnostic approach
with a good mix of onshore and
offshore delivery
 A combination of custom &
platform-based solutions
 Flexible approach depending on
the client situation with heavy
reliance on offshore delivery
 Ability to combine consulting,
technology, and process
capabilities with global reach
 Ability & experience to cover
multiple BPO towers under one
deal
 Balanced value proposition
 Value proposition centered
around cost & quality impact with around near term cost reduction
spike in transaction-intensive
with a spike in transactional
processes
processes
 Deep functional domain
 Ability to provide bundled F&A
experience
services with HR (e.g. TCS,
Infosys, Wipro,)
Key Value
Proposition
Source: Booz & Company Experience, Not exhaustive, with overlaps
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19. Trends in End to End (E2E) BPO
Description of Supplier Sourcing Models
4
Best-of-Breed Approach
Hybrid Approach
 Company outsources specialized parts of the
process to different vendors, as well as
disaggregates volume across multiple vendors
 Managing the resultant portfolio complexity
requires very mature VM capabilities
 Best suited for processes that have large scale
and scope
 Company outsources clusters of similar or related
sub-processes to different vendors, in order to
leverage their respective expertise / specialization
 Clusters generally require materially different
expertize and / or assets
 Interfaces & handoffs between clusters are relatively
few, but are clear, well defined, & can be remotely
managed; Best suited for non-core processes with
broad scope / high complexity
Disintegrated
SUB-PROCESSES
2
1
3
Exclusive Partnership Approach
Risk Diversification Approach
 Company keeps process integrated but spreads
volume across multiple vendors
 There is sufficient volume to enable more than
one vendor to realize economies of scale
 Company diversifies risk and gains ongoing
performance / price improvement by creating
competition between vendors
 Best suited for core processes with moderate
scope but large scale
Aggregated
Integrated
 Company outsources a process in its entirety to
a single vendor
 Relationship is managed as a strategic
partnership, with open collaboration and
information sharing
 Potential for high performance and
diversification risk requires high level of trust
 Best suited for non-sensitive processes with
small-to-medium scale
Disaggregated
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SUPPLIERS

20. Trends in End to End (E2E) BPO
BPO Service Provider Selection Criteria



Strategic Selection Factors




Key Criteria for Selecting a Service Provider
End to End BPO Services?
Improve Costs: provide top quartile pricing and commit
to >50% reduction in operating costs and 5% YoY
Ability/Track Record to Deliver E2E
reductions
Deliver Quality Service: adhere to SLAs and other critical
KPIs and deploy clear recourse/remediation clauses
Provide Flexible Commercial Terms: that reflect the
scale impact of end to end processes and bundling;
demonstrate flexibility in pricing strategies
Industry Specific Services
Financial Stability
Ability to Focus on Business
Outcomes, as Opposed to an
Provide Scalability: to flex with changes to volumes and Effort-Based Approach, to Pricing
requirements, and to react quickly to business changes
Demonstrate Domain Process Expertise: Showcase
specialized depth in world class practices and ability to
leverage these across diverse clients in targeted
industries
Drive Future Innovation and Transformation: redesign
end to end processes that simplify work and radically
improve the service levels and move the needle on
critical business metrics
Global Presence/Scale
Ability to Transform Processes
Ability to Provide Innovation
(i.e. New-Sources of Revenue)
in the Future
Brand Recognition
Trusted Partner/Seat at the Senior Table: demonstrate
cultural fit and C-Suite impact as assessed through
Critically Important
good-faith in solutioning and negotiations
Quite Important
Source: Booz & Company BPO Experience Source: HFS Research
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Nice to Have
Not Important at All
0%
20%
40%
60%
80%
100%

21. Tends in End to End (E2E) BPO
Strategic Success Factors
1 Clear Understanding of Your Competitively
Differentiating Capabilities
Tactical Success Factors
5 Create Coherent, Sourcing Strategies
“Optimize Internally vs., Outsource,? Captive or
Outsource,? Vendor Platform or Legacy Platform?”
“What Matters in Your Markets?”
2 Clear Understanding of Your Performance Gaps
6
“What Is the Benefit and the Cost to Achieve from
Internal vs. External Transformation?”
3 Strong Process Ownership and Knowledge
7 Attention to Commercial Terms
“How Is Clear Accountability and Risk Sharing
Established?”
“Understanding of End to End Process Baseline,
Value Drivers and Performance Upside”
4 Strong End to End Process Governance
“Ability to Drive to Decisions on Standardization
and Transformation Aspirations”
 Successful outsourcing strategies are built on clear and
disciplined operating model blueprints
– Capabilities that determine market success
– Capabilities where cost can be managed aggressively
– Capabilities we are good at and where we need
improvement
 Governance is established early – blueprint decision
processes are clearly understood with no workarounds
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Utilization of a Multi-Vendor Portfolio
“Which Vendors Best Match Your E2E Processes?”
8
Deep Change Management Strategies
“What is the Transition Plan and Change Impacts?”
 Tactical success factors translate the blueprint into sourceable packages
– Careful articulation of business processes as opposed to
activities
– Bundling of these processes to best leverage markets –
and the capabilities of each vendor
 Accountability and change management ensure successful
execution

22. © 2013 IAOP® All Rights Reserved