This presentation by Amba Research (www.ambaresearch.com) founder, Andrew Houston, CFA, discusses: - Why would you want to outsource? - What type of work can be outsourced? - How would a company go about outsourcing? - How can a company outsource successfully? - How should the offshore teams be managed/maintained? - How can you maintain continuity in an offshore team? - What kind of service/infrastructure is available when outsourcing? - Is sensitive information properly guarded? - Where can you find good talent for outsourced work? - Arguments against outsourcing - Barriers to overcome to outsource successfully

1. Financial Services KPOBest Practices 18 November 2009 Andrew Houston, CFA Co-founder, Amba Research

2. Knowledge Process Outsourcingin Financial Services WHY would you want to outsource? WHAT type of work can be outsourced? HOW can a company outsource successfully? WHERE can you find good talent for outsourced work? Barriers to success and how to manage them 2

3. The Case for Third-party Outsourcers SAVE TIME: Saves lots of senior management time (something that’s scarcer than money!) CUT COSTS: Costs the same or less in cash terms as an in-house alternative SPECIALIST SKILLS: Provides access to specialist skills not available in-house (e.g. Quants) TALENT POOL: Allows you to cherry-pick the best talent without demoralising the stay-behinds SCALE: Allows you to scale research staffing levels up/down more quickly 3 Why would a global financial institution consider third-party investment research outsourcing? Image from http://www.freedigitalphotos.net

4. What’s High-end Work? Increased judgment required Greater use of job-specific skills Fewer standardised tasks Execution of more complex tasks that take time to learn Higher level of daily interaction with the onshore team 4 Image from http://www.freedigitalphotos.net

5. Preparing the Ground Decide what (and what not) to outsource based on in-house sponsorship Create a team structure that matches both initial- and second-phase profiles Agree on operational procedures and communications protocols Onshore-offshore knowledge sharing: How to handle design and transition phases? Workflow: How is the work to be prioritized, rated and reviewed? Whatare the discrete work steps? Feedback mechanism: Users-direct-to-offshores, or supervisor-to-supervisor? Governance: Frequency of calls, agenda items, participants 5

6. Best and Worst Practicesin Outsourcing What works Maintain good communication and provide frequent, specific feedback Treat offshore associates as full-fledged members of the onshore team (call/e-mail them) Gradually increase the quality of work Ensure sector leader knows what the offshore associates are doing What fails Abdication instead of delegation: 100% of relationship handled by junior staff onshore Reluctant onshore users: The programme must be sold internally and accepted institutionally Infrequent communication and vague instructions 6 Images from http://www.freedigitalphotos.net

7. Team Management Hands-on management leads to lower risks and faster scale-up People management: Team must know roles and be properly trained to meet requirements; build in redundancies Inculcate a quality-oriented culture: A ‘do-it-right-the-first-time’ culture starts with team management Ensure continuity and quality of team output Document work processes and end-user preferences Develop customised training programmes Put career plans in place (with HR) and use planned rotation vs. ‘leave-it-to-chance’ Scale up with deliberate speed Once proof-of-concept is demonstrated, gradually increase the complexity of work Adapt the team structure to reflect and anticipate changing work mix Train the team from the outset in respect of domain knowledge and technical skills 7 Images from ttp://www.freedigitalphotos.net and http://www.office.microsoft.com

8. Mitigating Attrition Minimise unwanted attrition while structuring work tominimise the negative impact of resignations Employee lifespan makes a big difference to success Classroom and on-the-job training improve staff quality Repetitive work must be documented Knowledge must be recorded in an intranet library Supervisors must be capable of training new team members 8

10. Best-Fit Team Selection

12. Sector Material and Models

13. Lectures on Video

14. Continuous Education Programme Sessions

16. Compliance Application Tools

17. Compliance Controls

18. Regular Audits

20. Dynamic Documentation

21. QC Checklists

22. House Calls – Improvement Plans

24. Clients are assigned code names. The identity of a client is only available on a need-to-know basis

25. Any breach of confidentiality results in dismissalImage from http://www.freedigitalphotos.net

26. Where to Locate:Amba Research Experience Sri Lanka Capex and cost structure 15% lower than India Supportive Board of Investment Pool of UK-qualified Chartered Management accountants and overseas educated graduates and good mathematicians – the second-largest number of CIMA qualified personnel in the world, after the UK Excellent spoken English Finite labour market at the high end. Emigration is popular Amba Research started in and continues to expand in Sri Lanka Global consulting giant AT Kearney’s 2007 Global Services Location Index ranks Sri Lanka 29th among the top 50 outsourcing cities Tholons, a US-based outsourcing consultancy, ranked Colombo 7th among 15 emerging global cities and as a Centre of Excellence for Financial and Accounting Outsourcing India Large and diverse talent pool Good telecommunications infrastructure in key cities Domestic capital market can be a source of management talent 11 Image from http://www.freedigitalphotos.net

27. Good Reasons Exist toStay Captive, Too 100% control: Compliance, security, and corporate culture remain in-house No third-party contract negotiation and monitoring costs Can be spun off later if it is big and profitable 12 What might make a captive the best alternative after all? Original image from http://www.freedigitalphotos.net

28. Overcoming Barriers to Success There are five other non-trivial obstacles to successful offshoring Recruiting middle managers: Location in a preferred city helps with offers requiring relocation Controlling operating costs: It’s tough and getting tougher. Do you site the next facility in a tertiary city with less competition and cost, and split senior management? How do you maintain the same culture across locations? What is the fiber availability like? Increasing productivity: Priority needs to be given to teaching young managers to manage. Once they can manage people they can apply project management and professional services best practices to day-to-day team supervision Inculcating a customer service mentality: A continuous process End-user resistance: Momentum results only when most-senior management mandates offshoring 13

29. Contact Details Andrew Houston Mobile: +44 7944 986 461 (UK) Mobile: +66 89 812 4315 (Asia) andrewh@ambaresearch.com Europe: Johan Wissinger Office: +44 20 3201 0033 Mobile: +44 7850 600 596 johanw@ambaresearch.com Website: www.ambaresearh.com 14