ESS Face to Face February 28th, 2005
Agenda
> Introduction
ESS Organization Update IT Strategy Communication
> IT Shared Services
Hugh Sheridan Frank Vastano
> Offshoring, Project SDI > 2005 Objectives and Themes
> Merck News
Page 2
ESS Shared Service Model February 27th 2005
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2005 Objectives
> Shared Services IT:
Complete the implementation of the IT shared services operating model including organizational design, service levels, operating procedures and funding model (4Q). Realize approximately $750k in operating expense savings through application co-location and the elimination of redundant activities (4Q). (Scope: Finance/HR Trans Systems, Owner/Plan: Sheridan, Establish Engineering/Ops capability: Piscitello, Id/Effect Opportunities: Lotier/Blair) (stratmap intersection: OPEX/Internal Process)
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Value Proposition
Value Proposition
Economies of scale through common demand and leveraged knowledge expertise
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2005 Plan
1Q05
Operating Model Savings Opportunities
2Q05
3Q05
4Q05
Org Design, Processes, Governance, Service Levels, Funding Model
Application Co-location and Elimination of redundant activities
Implementation of Integration, Decision Support and IM Services Canada JDE Consolidation Global Consolidation Plan
Consolidation
Finance
Restructure IT Support for PTP Finance IS Integration EZ-Expense Upgrade for Corp HRIS Integration EZ-Expense Upgrade for USHH Global Consolidation Plan Consolidation
HR
MRL PeopleSoft time tracking supporting CLPA US PeopleSoft time and labor implementation for US PeopleSoft Payroll for US requirements, development and testing for 1Q06
Global Infrastructure New Shared Service
Integration with GI Shared Services Plan and Implementation of Integration, Decision Support and IM Shared Services
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IT Strategy Map Strategic End State
Drive Innovation Deliver Business Value Operate with Excellence Manage Risk
Strategy
Financial Perspective
If we succeed, how will we look to the corporation as a whole? High Value/High Strategic IT will Merck assess our contribution to its success?) Cost Structure Use of Assets (How Return Initiatives Focused Optimized Optimized
Focused Worldwide Service Attributes BusinessQuality Driven To achieve Focused our vision, Predictable, Reliable & Responsive CostEffective Relationship Image
Manage Investment
Drive Efficiencies
Customer Perspective
how must we look to our customers? Value-Driven Integral (How will our customers understand our contribution?) Trusted
Partner & Innovative
Internal Process Perspective
Architecture & Breakthrough Portfolio & Information To Opportunities satisfy our customers and the Governance Management
at which processes must we excel?
Continuous Improvement
End-to-End Service corporation Delivery
as a whole, Compliance
Regulatory &
Organizational Capabilities Perspective
To achieve our
Leadership
Business & Engineering & Innovative Thinking vision, Acumen capabilities must we Operational Discipline put in place? Technical what Adaptability and Diversity
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Shared Services Benefits
Benefits
Benefits
Business Clients
ESS
Budget
Financial Savings
Cost Efficiencies
Quality of service
High Service Quality
Reuse and Integration
Delivery time-to-market
Time savings
Time Efficiencies
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Benefits Realization
Financial Savings and cost efficiencies
Year Activity Savings Status
Benefits
2005 2005 2005 2005
HRIS Integration Finance SLAs and SOPs PeopleSoft Payroll Puerto Rico JDE North America consolidation
600K 550K 100K 300K
Completed In Progress In Progress In Progress
2005
2005 2006 2006
Global JDE Licensing Optimization
Document Management Shared Services PeopleSoft Payroll US PeopleSoft Banyu integration
200-400K
300K 500K 100K
In Progress
Planned Planned Planned
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Organization Models (Industry Trends)
Hybrid Approach Basic Model
* Consolidation of transactional and administrative work * Focus on economies of scale
Organization Model
2007 Advanced Market Place Model
* Client choice of supplier
Marketplace Model
* Includes professional and advisory services * Separates governance and service functions * Services charged to recover fully loaded costs
Independent Business Model
* Separate business entity
* Market based pricing
* Profit is retained
* Services charged out to recover fully loaded costs
* Possible external sales if surplus capacity
* Multiple organizations as customers
* Objective is to reduce costs and standardize processes
* Objective is to reduce costs and improve service quality
* Objective to provide clients choice of most cost effective supplier
* Objective is to generate revenue and profits for service company
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ESS Professional Services Operating Model
IT Shared Services
Integration Management Office
Clients Account Management Program Management
ESS Shared Services
GI Shared Services
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Operating Model
Organization Model
Business
Corporate Functions
Finance HR Legal/PA Procurement MRL
Business Divisions
MMD HH
Enterprise Architecture
Division IT
Corporate RIS A&IT HH
Support Run Services
Application Services
(Development & Maintenance)
Architecture Services
Manage GI Strategy
ESS
Global Infrastructure
IT Process Management
Prog. Mgmt., Engineering & Implementation
Define & Refine Services
Build Services
Relationship Management
Client Services
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ESS Organization Structure
Organization Model
Client Services
Finance, Global Procurement, Legal, IS & Public Affairs
Client Services HR
Architecture Services
Application Services
Information Management Services Policies & Procedures Standards development Usage guidelines Training & Education Enterprise IM requirements IM Strategy and planning Enterprise reference consultation IM Innovation Consultation
ESS Services
Business Relationships Account / Demand Management Portfolio Management Business analyst
Business Relationships Account / Demand Management Portfolio Management Business analyst
Application and Project Information Management Architecture Application Architectural Engineering strategy and (inc web plan application & IM development) Application Support Service Management
Financial management Comm. Human Resources Administration processes Measurement and Reporting
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Shared Service Model Services
External Shared Services
Enterprise Client Services
Enterprise Application Services (Engineering and Support) Enterprise Information Management Services Enterprise Decision Support Services
3Q05
Services
ESS Internal Shared Services
ESS Architecture Services ESS Project Services ESS Integration Services
In Progress
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External Shared Service Definition
Client Services
> Responsible for partnering with the relevant clients. This included participating in Strategic Planning process and aligning IT and client strategies, as well as supporting Portfolio management processes
Services
Information Management Services
> Responsible for development and rollout of information management strategies for Corporate and Business Divisions clients. This includes development of an information management culture, enabled by deployment of common standards, policies and procedures, usage guidelines, training and education
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External Shared Service Definition
Application Services
> Responsible for management, development and support of all new applications / enhancements. Applications include enterprise and corporate application, web based applications and information management products. Project Managers will be deployed to define, manage and deliver projects. Service Managers will provide specific product / service expertise and be responsible for delivery of service as defined in Service Level Agreements
Services
Decision Support Services
> Responsible for providing consistent and reliable decision support reporting services to ensure the integrity, operability and availability of Mercks information asset. Responsible for supporting the design and development of data warehouses and the necessary supporting data marts. Responsible for supporting the integration of Mercks information across these data marts into the reporting solutions
>
>
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Internal Shared Service Definition
Architecture Services > Responsible for management of Application and Information Architecture. This will include developing a architectural strategy and plan in response to changes in business or functional strategies. Integration Services
Services
Responsible for providing policies, procedures, reusable assets and specific solutions in support of Mercks enterprise integration needs.
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Internal Shared Service Definition
Project Services
>
Services
Responsible for managing and deploying shared compliance, system testing, release management and resourcing (staffing) services to ESS Projects. Compliance will be monitored according to both regulatory and internal Merck requirements. Release Management is the coordination of the overall release of new technologies / functionalities. Resource Managers will administratively manage and deploy resources from a single resource pool. Deployment will be based on matching resource competency with client demand. Resource managers will not be responsible for formal staff (performance / development) management functions
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Shared Services Next Steps
> Professional Services Phase Two > Enhanced Service Definitions > Global Infrastructure Integration > Detailed Consolidation Plans
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Professional Services Implementation Team Members
> Bisschops, Marcel; > Callahan, Brian T; > D'Angelo, Dawn M.; > Griggs, Ken; > Hsi, Amy; > Hsiou, Yu; > Kamel, Sherif; Recommend Assess
> Mure, Michael;
> Sa, Vilma; > Schwab, Rosanne C > Semanchik, Scott M.;
Enhance
> Sheridan, Hugh
> Vastano, Frank L.;
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PSM Implementation Team Meeting Outcome
> Assess education/skill relevant to role > Invest in team building > Capture lessons learned and develop action plans (continuous process improvement) > Define workflows by projects in relation to project size and roles
> Work with Global Infrastructure to strengthen integration points
> Build and leverage shared service capabilities (testing, PMO,)
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Proposed Development Team Structure
X-Small
ESS Client
Small
ESS Client
Medium
ESS Client
AM/PM
Architect
AM/PM
BA
Architect
AM/PM
BA
PM/Dev
GI
PM
GI
TL
PM
TL
GI
Dev Team
Dev Team
Dev Team
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Proposed Development Team Structure
Large Program
ESS Client
AM
BA
GI
PrgM
Architect
TL
PM
PM
TL
PM
TL
Dev Team
Dev Team
Dev Team
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Proposed Operations Team Structure
ESS Client
GI
PrM
Architect
Ops Team
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If You Have Questions About PSM
Talk to any of the PSM Reps
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Enterprise Systems & Services (ESS)
IT Off-Shoring & Project SDI
How Does It Impact ESS?
February 28, 2005
Off-Shoring Project SDI
1 2
What Is Project SDI?
How Does SDI Support The ESS PSM?
3
4
How Does SDI Support Career Development In ESS?
Project SDI Next Steps
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Mercks Goals For Off-Shoring
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Pharma Industry Is Getting Aggressive About Offshoring
Activities
Applications for mainframe, AS/400, Lotus Notes, Domino, SAP
Data management for clinical trials Systems development, maintenance and support Data management for clinical trials Applications maintenance and development for select applications Application management services
Location
India
Vendor
Tata Consultancy Services (TCS)
Comments
400-700 FTEs in IT worldwide by beginning 2006
Dedicated offshore development center
Top 10 Pharma - 1
Montevideo (Uruguay) India
Tata Consultancy Services (TCS) Accenture
Top 10 Pharma - 2 Top 10 Pharma - 3 Top 10 Pharma - 4 Top 10 Pharma - 5 Top 10 Pharma - 6 Top 10 Pharma - 7
India
mPhasis
India
Infosys mPhasis
Dedicated offshore development center for application management
IT systems management
India
Satyam
20 million of IT services Application development and maintenance
TBD TBD
TBD TBD
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Source: McKinsey research; expert interviews
Pharma Industry Leveraging IT Offshoring
Activities Offshored
Application management Dedicated offshore development center for Application management services Application IT systems management
Location
India
Operating Model
Outsourced
Vendor
mPhasiS
India
Outsourced
Infosys
India
Outsourced
mPhasiS
India
Outsourced
Satyam
Dedicated offshore development center Applications for mainframe, AS/400, Lotus Notes, Domino, SAP Data management for clinical trials Systems development, maintenance and outsourcing
India
Outsourced
TCS
Montevideo (Uruguay)
Outsourced
TCS
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Source: Press research, expert interviews
Project SDI (Systems Development India)
A project team was appointed (Terry Jacklin, Fred Puelle, Nick Riccio, and Frank Vastano) by the ISLT in November, 2004 to review work completed earlier in the year that identified opportunities to shift Merck IT spend to more strategic initiatives An approach was designed, with the help of McKinsey consultants, to focus on commodity activities that are being performed by contractors and project-based vendors An implementation plan was developed that properly balances savings realization and risks by setting forth an aggressive vendor selection timeline, but allowing sufficient time for knowledge transfer and dual operations Target spend was identified in ESS, USHH, MMD, and Infrastructure (DBAs) that could be offshored to realize $2.8 to 5.1 million of expense savings in 2005 Nine vendors were engaged to bid on an RFP that was issued on January 10, 2005, which used a modular structure to enable the selection of 2-3 vendors for the initiative Vendor selection is targeted for March 7, 2005
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Focus Of Current Effort
Labor spend, $ Millions Focus to date Additional opportunity to investigate Capital Expense Identified 2.8-5.1 in contractor expense savings Need to identify additional opportunities in this category
Contractor
~100
~90
Employee
~50
~275 Later we would look to expand into capital work
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Approach For Identifying Off-Shoring Candidates
Division applications/ activities
Other IT activities supporting Division (e.g., DBAs)
>Project groups >Project work >Maintenance work
>Activity groups
>Filter to identify offshorable projects >Projects to offshore
>Filter to identify offshorable activities >Activities to offshore
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RFP Module Definition
FTEs
>Module >Web Dev/ Support >Testing >ESS
Web Support: 4.5
Web Dev: 16 Project Charlotte: 20 CIM: 6 EZ-Buy: 4 Finance: 3.2 HR: 16 Helpdesk: 34 Sales Portfolio Testing: 30 50
>USHH
>MMD-A&IT
>Infrastructure DBA
>Total
20.5
29.2
>ESS
>USHH Helpdesk
>USHH Support >MMD/ Infrastructure
Total 69.7
34
Portfolio Applications Support: 60* MMS Impact: 3 QRIS LIMS: 4 124 7 7 DBA: 7
60*
14
207.7
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Off-Shoring Project SDI
1 2
What Is Project SDI?
How Does SDI Support The ESS PSM?
3
4
How Does SDI Support Career Development In ESS?
Project SDI Next Steps
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The ESS Professional Services Model
ESS Professional Services Roles:
Account Managers Program Managers Resource Managers
Concept Requirements Design Construction Installation
Project SDI Candidate
Operation Retirement
Budget Planning Day-To-Day Activities
CLIENT
Organizational Support
Large Capital Projects
A c c o u nt M a n a g er
ESS Centers Of Excellence
Program Manager #1
Technology Contractors Other Merck Centers Of Excellence Package Vendors
Offshore Vendors
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Program Manager #2
Small Projects (Capital Or Expense)
Off-Shoring Project SDI
1 2
Recent Activities
Current Vendor Ranking
3
4
How Does SDI Support Career Development In ESS?
Project SDI Next Steps
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Common Platform Organizational Transition (Phase I)
Professional Services Model (PSM)
Operational Support
Portfolio Management Model (PMM)
Common Platform Development
Project SDI
50%
Candidate
Grade 4 Grade 5 Promotions Grade 6
Concept & Requirements
30%
Grade 4 Grade 5
Grade 6
Grades 7-9
Grades 7-9
Contractors
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Common Platform Organizational Transition (Phase II)
Professional Services Model (PSM)
Operational Support
Portfolio Management Model (PMM)
Common Platform Development
Project SDI Candidate
Grade 4 Grade 5 Design & Development
Grade 4 Grade 5
Grade 6
Grade 6
Grades 7-9
Grades 7-9
Strategic Outsourcing
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Off-Shoring Project SDI
1 2
Recent Activities
Current Vendor Ranking
3
4
Preliminary Financial Analysis
Project SDI Next Steps
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Project SDI Next Steps
> March 2, 2005 Team Decision Meeting & Reference Calls
> March 3, 2005 Recommendation Memo To Sponsors > March 7, 2005 Decision From Sponsors > March 8, 2005 Thru March 9, 2005 Prepare Vendor Communication > March 10, 2005 Thru March 11, 2005 Announce Decision To Vendors
> March 12, 2005 Knowledge Transfer Phase Begins
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2005 ESS Objectives & Themes
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ESS 2005 Objectives and Themes
Deliver Business Value through IT Enabled Solutions
Finance Transformation Merck Production System Common Platform
Integrated Talent Management and Global Compensation
MRL CLPA Build and Create the ESS Global Shared Services Model Enterprise Document Management
Strategic Sourcing, Project SDI
ESS and GI Integrated Shared Services Model Quality Assurance, Program Management, Metrics, Communication, Change Mgmt
Simplify and Standardize the Global IT Environment
PeopleSoft Banyu Integration, U.S. Payroll and Time/Labor EZExpense Upgrade Charlotte Technology Center Six Sigma Production Environment
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