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Target Operating Model (TOM)

Discussion Document

Deloitte Consulting LLP


July 2009

Contents

Introduction and Background 3


Deloittes Point-of-View and Market Intelligence
Our Approach and Methodology

13

Project Timeline and Resources

16

Meeting Objectives

Gain consensus on project objectives and goals

Share our perspective on developing and institutionalizing operating models and key success factors

Describe the proposed approach to develop and implement a new operating model

Provide an overview of how Deloittes methods can be used to accelerate the project

Discuss next steps to initiate the project

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Background GIFT and TOM


The Target Operating Model (TOM) project is a key component of AIU Holdings Finance General Insurance Finance
Transformation (GIFT) Program Guardian and will be targeted towards increasing capabilities and decreasing costs.
GIFT
Program Imperatives

TOM
Project Objectives

Increase Transparency Significantly improve walkback capabilities from financial reports to source
transactions

Develop baseline Develop single source of truth


current state footprint to support proactive future
workforce planning

Greater Standardization of Technology - Create a


common financial language and technology platform

Define future state operating model Develop


future state Operating Model which meets the goals of
capability improvement and cost savings

Improve Information - Improve quality and timeliness


of information available to stakeholders

Achieve business benefits Demonstrate


measurable business value and success; realize
benefits through the rationalization of headcount,
locations, process and labor arbitrage

Standardize Processes - Standardize accounting


processes, rules, and controls

Create business and employee buy-in Gain


leadership alignment around the Operating Model
design, benefits and roadmap; gain employee buy-in
to the new ways of working, roles and responsibilities
and governance

Leverage Operating Model - Leverage shared


services and centers of excellences

Implement future state design Implement the


future state operating model via a standard systematic
and repeatable methodology

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Background AIUH Finance Organization Design Project


Since the TOM project was originally scoped, in support of project ATLAS, a Finance Organization design initiative has been
started to conduct current state analysis, evaluate organization design options and define key function activities. Goals of
this initiative include:
Identify core responsibilities of AIUH Finance (i.e., which functions should exist at the AIUH level)
Conduct current state analysis to determine which functions exist within Domestic Insurance and Finance Insurance
Define governance and control model for AIUH functions
Develop recommendations for sub-functions that should reside with AIUH vs. Business segments
Support Function Leads in developing detailed organizational models and check against high level cost baseline

While the scope of the two initiatives might appear to overlap, we believe that both initiatives are complimentary and key in
achieving the organizations goals as related to the future state operating model ,and the two initiatives in conjunction can
answer the following key questions:
How can Finance most effectively support / interact with the rest of the organization ?
What is the optimal global Finance organization / operating model (Local vs. COE vs. Shared Services)?
How will current on-going initiatives impact and optimally be integrated with the future Finance service delivery model?
What capabilities are needed to support the future Finance operating model?

SHOW APPROACH HERE?

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The broader landscape of in-flight and planned initiatives across the enterprise will
both be impactful to and impacted by TOM
Initiatives are underway that will demand significant time and attention of leadership and key knowledge resources
GIFT Program will
ATLAS will
Separation will
Reinsurance will
Global Claims Initiative

GIFT Release 1:
CFP for CI
Finance
Organizational
Model

2010

ATLAS Treasury

ATLAS Investments

GIFT Release 2:
CFP / CD (UK)

GIFT Release 3:
CFP / CD (EUR)

GIFT Release 4:
CFP / CD (JAP)

OneClaim (UK)
Auto

2011

2012

AIU Holdings
Separation (IPO)

2013

ATLAS - Other

Reinsurance
Release 1

Reinsurance
Release 2

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2014

The objective of the Target Operating Model (TOM) project is to design a world-class
Finance organization for AIU Holdings
The project goals for TOM include the following:
Design and implement the appropriate operating model which best meet the requirements, state of readiness and maturity of
both AIU and CIs finance functions
Identify key functions and/or processes for redesign to conform with the new organization model (e.g., CoEs, Shared
Services) and enabling technology infrastructure
Identify and realize business benefits through cost optimization, capabilities development and controls management
Identify opportunities for outsourcing across the finance organization, including Finance IT, business processes, and functions
Align TOM to overall corporate strategies, organizational vision, and impactful initiatives as necessary, as they affect the
design and implementation of the program

Now overlapping with slide 4 Just a few


deltas that we maybe can incorporate
into the earlier slide

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Deloittes Point-of-View and Market Intelligence

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Deloitte is uniquely qualified to assist AIU Holdings with this TOM effort
Deloittes Finance Transformation offering has been recognized as the market leader by Kennedy Informations evaluation
of the FT market and competitive landscape.
Key Highlights
Deloitte received the highest rating of
Strong across all Finance Management
Core Capabilities, across categories of
CFO Vision & Strategy, Finance
Organization, F&A Processes, F&A
Technology, Execution, and Value
Enhancement
Deloitte is a leader for global shared
services combining process, technical
knowledge, change management capabilities,
understanding of technology, and insight on
labor and tax issues
Deloitte is the only provider rated
strongest in 14 of 16 FT core categories and
assessed as having advanced depth and
breadth of capabilities
Deloitte has an advantage in meeting the
needs for clients to engage a tax strategy
advisor as they consider global business
integration strategies

*Source: Kennedy; Finance Management Consulting Marketplace 2009-2012; BNA Subsidiaries, LLC; reproduced under license.

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From our experiences with AIG and in industry, we understand both the key success
factors and challenges in the design and execution of TOM

Cultural

Competing
Priorities

Unclear Scope
and Objectives

Alignment with
Other Strategic
Initiatives

Decision Making

Inability to
Execute Strategy

Complexity and
Speed of Change

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We have assisted many clients in redesigning their operating models, and are seeing a
trend towards a more centralized F&A Organization
Many Fortune 500 Companies Have Moved Or Are Moving To A Balanced And Centralized Finance Delivery Models To Gain
Synergies

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Insurance companies have some unique learnings to gain from their operating model
redesign efforts
Within the Financial Service Industry, varying organization structures exists. Examples of decentralized, centralized and hybrid
models exists across leading insurance and finance companies.
Insurance Company #1:

Insurance Company #2 & #3:

Insurance Company #4:

Finance is decentralized by line of


business - each business unit
submits its own 10K filing

Financial reporting activities


centralized at corporate level but
remaining functions decentralized

Strong control over external


reporting functions and other key
functions centralized

Independent
Business
Unit

Controllership
Carve-out

Centralized
CFO

Finance Company #1:

Finance Company #2:

Finance Company #4:

An Independent product line BU


Org structure with a strong focus
on outsourced shared services

An Independent product line BU


Org structure with a strong focus
on outsourced shared services

Centralized organization with


strong CFO control over financial
and regulatory reporting

Finance Company #3:


Historically, an Independent
product line BU Org structure,
evolving into a centralized
finance function

Both Finance Company #1 and Insurance Company #1 are moving towards more centralized models:
Finance Company #1: A finance transformation initiative underway, to move transaction activities offshore and allow onshore resources to focus
more advisory activities
Insurance Company #1: While the current structure provides the opportunity to produce results quickly, there are multiple redundancies and
less consistency across the organization. As a result, the company is considering moving to a more centralized operating model
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We have also seen a growth in F&A outsourcing activity


F&A continues to grow because of the breadth of business processes that are sourcing candidates; the F&A business
outsourcing market size has grown to approximately $32 billion
AP, AR, and GA appear in more than 80 percent of right sourcing strategies, and more than 70 percent have an offshore component
Mainland Europe is currently adopting services as quickly as North America and the U.K.
Approximately 85 percent of Sourcing contracts have 5- to 10-year terms (the average is 6.8 years)

F&A Sourcing Scope


External Reporting

Transaction Processing
Accounting to Reporting (General Accounting)
General Leger

Source to Settle

Order to Cash

Consolidations

Monthly /
Quarterly Close

Financial
Reconciliation

Requisition
Materials

Purchasing /
Procurement

Order Entry

Billing

Legal Entity
Reporting

Statutory
Reporting

Fixed Asset
Accounting

Tax Planning /
Accounting

Benefits Admin. /
Accounting

Inquiry Handling

Payment
Processing

Accounts Payable

Cash Application

Collections

Regulatory
Reporting

Rating Agency
Relations

Premium
Accounting (Ins)

Re-insurance
Accounting (Ins)

Investment
Accounting/
Securities Pricing
(FS)

Daily P&L / Mark


to Market /Middle
Office

Procurement.
Card Admin

Bank
Reconciliation

Treasury / Trust
Management

Investor Relations

Accounting

T&E
Accounting /
Reimbursement

Business Decision Support

Finance Management

Planning
Strategic
Planning

Budgeting &
Financial
Planning

Control
Accounting / Tax
Policy

Forecasting

Internal Audit

Expense /

Performance
Measurements

Multi-Dimensional
Reporting

Source: Deloitte Research, IDC

Profit Center /
Customer /
Producer
Profitability

Acquisitions &
Divestitures

Key
Not
Typically
Outsourced

Internal
Consulting

Project
Management

Specialized Expertise

Management Reporting
Revenue
Key:
Allocations

Financial Analysis

Less
Commonly
Outsourced

Most
commonly
Outsourced

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Risk Management
(CM)

Actuarial Analysis
/ Reserving (Ins)

Real Estate
Mgmt.

Finance Function
Management

Human
Performance
Management

Business Liaison

Training &
Development

Our Approach and Methodology

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Deloitte has experience in implementing Target Operating Models, and can leverage
methodologies and toolsets that encompass people, process and technology
A proven toolkit of established TOM accelerators and tools: Deloitte has a significant knowledge base that will be invaluable for
this project. This includes best practice operating models, process models/processes, organization designs and governance
frameworks as well as numerous examples of these from recent client experiences. We also have a suite of tools and methods that
our teams use to ensure consistent quality outcomes on our engagements and often enable us to accelerate project timelines. The
table below outlines some of our key materials and tools which are relevant to this engagement.

Organisation Design
Target Operating Model Design

Deloitte has an established business


design group that specializes in the
detailed design and implementation of
organizational structures
Deloittes Target Operating methodology
provides an end-to-end view of the
required target functions and capabilities
of an IT Organization.

Deloittes Cultural DNA assessment

Provides a hard and tangible way to


understand the soft and complex issue
of culture. It is a rigorous and
statistically valid tool which provides
insights into behaviors, behavioral
drivers and barriers for change.

Our approach goes significantly beyond


wiring diagrams and job mapping. We
adopt a hypothesis driven approach that
defines the capabilities required to
deliver against strategic objectives.

Deloitte IT Skills Framework

Rapid IT Service Diagnostic tool

Deloittes Skills Framework tool assesses


the skills capabilities in an organization,
and aligns this to the organizations
needs.

Deloittes diagnostic tool is an ITIL


version 3 aligned assessment tool which
provides a structured and
comprehensive approach to quickly
understanding current state maturity
across the entire IT process, control,
organizational, and supporting
technology spectrum.

We can also draw on a best practice


framework called Skills Framework for
the Information Age (SFIA).

Process Design

Deloitte Intelligent PMO

Deloittes process design approach


includes a number of tools to support
specific parts of the design process.
These include:

Deployment of a standard PMO often


does not provide the necessary insight
to steer a program intelligently and
highlight the real risks and issues ahead
of time.

RACI modelling for establishing clarity


around roles, responsibilities and
interfaces.

Deloittes iPMO is designed to deliver


complex technology programs ensuring
integration, Information-lead and
intelligent management of programmes.

Governance structure design.


Capability mapping tools.

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Best Practice/ Benchmarking

Deloitte research and our substantial


experience of IT organizations allow us
to offer comparisons across all
industries, Our practitioners are highly
skilled in implementing leading practices
and technologies.

Approach framework
Our approach is designed to help you define options and gain stakeholder consensus

Identifying and aligning the finance


function behind an organizational
strategy is the critical first step in
developing a Target Operating Model
strategy

Organizational
Strategy

Current State
Assessment

Conducting an assessment across


functions within the Finance organization
will help identify opportunities and key
activities that need to be incorporated in
developing a future target operating
model

Create a common set of service delivery


design principles, and formulate a
supporting future state vision.
Benchmark the vision to internal and
external data points.

Service Delivery
Analysis &
Selection

Future State
Vision

Determine the future shape of the


operation by using the previously defined
design principles and strategy to create
service delivery options. Analyze ,
prioritize and select the most viable
option for subsequent implementation.

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Design and completion of detailed


architectures for the selected Target
Operating model, e.g. detailed IT, people,
process etc. architecture underlying the
TOM, including a detailed business case
and financial impact assessment.

Design

Implementation

With a target operating model design in


place, a detailed implementation plan
and roadmap clearly highlighting
responsibilities, dependencies and
sequencing of steps is needed to
execute and deliver the future state
operating model

Organizational Strategy
Identifying and aligning the finance function behind an organizational strategy is the critical first step in developing a Target Operating
Model strategy
Organizational
Strategy

Current State
Assessment

Service Delivery
Analysis &
Selection

Future State
Vision

Rationalization of functions across regions


Leadership consensus and alignment
Understanding the consistency with which these have been
communicated, understood & applied

Objectives List: Conduct executive interviews and/or


workshops to identify and confirm strategy objectives

Activities &
Deliverables

Align Objectives: Review vision and organization structure


designs from the Finance Org Model team and revise to fit
with finance strategy objectives
Voice of the Customer Analysis: Conduct surveys across
functions and business units to understand issues and needs
regarding Customers, Products and Channels

Organization Design
Balanced scorecard

Toolsets &
Accelerators

Implementation

Sample Output Charter with Guiding Principles

Confirmation of the strategy, objectives and critical success


factors (CSFs) developed by the Finance Org Model project

Goals &
Objectives

Design

Operation Model Value Chain


Voice of the Customer Surveys
Product & Service Segmentation

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Current State Assessment


Conducting an assessment across functions within the Finance organization will help identify opportunities and key activities that need
to be incorporated in developing a future target operating model
Organizational
Strategy

Current State
Assessment

Service Delivery
Analysis &
Selection

Future State
Vision

Identify where existing initiates on-going/planned impact TOM


Capture key FTE, Business and Financial metrics and identify
duplications, costs, and system constraints

Current State Footprint Analysis: Understand, validate and


map the current organization and processes to help in
developing the TOM definition

Activities &
Deliverables

Change Management Documentation: Capture current and


planned change management activities
Function Analysis: Assess performance across functions
using an industry maturity model and identify deficiencies

Cultural DNA Assessment


Rapid IT Service Diagnostic Tool

Toolsets &
Accelerators

Implementation

Sample Output Functional Analysis

Establish definition of current operating model and


architecture (e.g., process, org, technology), including
opportunities to leverage shared services and outsourcing

Goals &
Objectives

Design

Value chain analysis


Maturity Model
Resource/Skill/Function Database

- 18 -

Future State Vision


Create a common set of service delivery design principles, and formulate a supporting future state vision. Benchmark the vision to
internal and external data points.
Organizational
Strategy

Current State
Assessment

Service Delivery
Analysis &
Selection

Future State
Vision

An operating model matrix, as shown below, can be used to illustrate the focus of
Finances strategic choices. For example, a cost efficient transaction processors
likely focus will be the Shared Services quadrant.

Align to Finance Org Model initiative vision and confirm


design principles for TOM
Compare vision to industry practices through
benchmarking

Confirmed Future State Vision: clearly defined operational


design principles and confirm through executive workshops

Activities &
Deliverables

Benchmarking Study: analysis of gaps in key design


principles as compared to industry leading standards
Financial Model 2x2 Matrices: analysis of to-be states
across all finance functions

Finance Transform Maturity Matrices


Best Practice Benchmarking

Toolsets &
Accelerators

Implementation

Sample Output 2x2

Establish future state vision for service delivery channels


(e.g., COE, shared services, regionalization, etc.)

Goals &
Objectives

Design

Sourcing Matrix
Key Design Principles

- 19 -

Service Delivery Analysis & Selection


Determine the future shape of the operation by using the previously defined design principles and strategy to create service delivery
options. Analyze , prioritize and select the most viable option for subsequent implementation.
Organizational
Strategy

Current State
Assessment

Service Delivery
Analysis &
Selection

Future State
Vision

Analyze the opportunity and costs implications associated


with each option and review with stakeholders
Make the final selection for future state TOM model

TOM Options: identify viable TOM options showing


functions, sub-functions, location / region and use of COEs
/ shared services

Activities &
Deliverables

Scorecard and Evaluation Criteria: create criteria for


evaluation and prioritization of TOM options
Prioritized Options List:: facilitate workshop with key
stakeholders to discuss and rank options by priority

Prioritization Matrix
Process Rationalization

Toolsets &
Accelerators

Implementation

Sample Output Process Rationalization

Develop options based on previously defined vision and


design principles

Goals &
Objectives

Design

Location Feasibility Study


Shared Services / COEs / Sourcing Strategy

- 20 -

Design
Design and completion of detailed architectures for the selected Target Operating model, e.g. detailed IT, people, process etc.
architecture underlying the TOM, including a detailed business case and financial impact assessment.
Organizational
Strategy

Goals &
Objectives

Current State
Assessment

Service Delivery
Analysis &
Selection

Future State
Vision

Implementation

Sample Output Future TOM Design

Based upon the selected service delivery option, develop


the detailed IT, people, process etc. architecture underlying
the selected TOM

CFO

Identify the related metrics (cost, financials etc.), create a


cost / benefit analysis and create the detailed business
case and funding request

Finance Exec

Head of
Business
Partners

Detailed TOM Design: create detailed organizational


charts showing functional, systems and resource
architecture models, including governance and
accountability

Management
Accountant (Inv.
Perpetual)
2 FTE
Non IP UK
Business Units
2 FTE

Business Case: create opportunity cost and benefit


analysis, including financial impact assessment

Head of FAC

Head of
Transaction
Processing

Financial
accountant
2 FTE

Head of Tax

Transactions
Assistant

Financial
Controller

BP Exec.

Activities &
Deliverables

Design

Head of Process
Control and
Improvement

Systems Analyst
2 FTE

Senior Transaction
Processing

Indirect Tax
Manager

Direct Tax
Manager

Accounts Assistant
(VAT)

Direct Tax
Accountant
2 FTE

Head of
Treasury

Treasury Assistant
1 FTE

AP
5 FTE

AP/FA
1 FTE

BP Exec.

Key
Management
Accountant 2 FTE

BP Exec. Offshore

Operating Model Design

Management
Accountant
(Offshore)
2 FTE

Diagnostic Process Blueprint

Toolsets &
Accelerators

Business Case / Financial Model Framework

BP Exec. ESS &


EBS

Key Metrics Measurement and Tracking Tool

BP Exec. ECS
2 FTE

Lean 6 Sigma methodology

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AR
1 FTE

Cash Processing
1 FTE

Accounts Assistant
(Feesharing)

Commissions
1 FTE

Corporate General

Corporate Aligned to
Business

Region

Implementation
With a target operating model design in place, a detailed implementation plan and roadmap clearly highlighting responsibilities,
dependencies and sequencing of steps is needed to execute and deliver the future state operating model
Organizational
Strategy

Current State
Assessment

Service Delivery
Analysis &
Selection

Future State
Vision

Review project portfolio for consistency & alignment


Design authority established to govern the implementation and
identify milestones
Implementation work initiated

Roadmap: Develop roadmap detailing activities, sequencing


of steps, desired outcomes, and dependencies

Activities &
Deliverables

KPI Documentation: Identify key performance indicators


(KPIs) to track the success of the implementation
Project Management Office Charter: Agree / achieve
roadmap sign off and establish project management authority
Deployment: Begin to execute on the roadmap by clearly
defining short-term next steps and responsibilities

Portfolio management methodology (PMM)


Program Interdependency Planning

Toolsets &
Accelerators

Implementation

Sample Output Implementation Plan

Design an implementation plan and roadmap based on TOM


analysis, highlighting sequencing and dependencies

Goals &
Objectives

Design

Change Readiness Assessment


Key Industry Benchmarks
Prince 2???

- 22 -

Project Timeline and Resources

- 23 -

Project Timeline
Timeline (weeks/months)
1

10

11

12

Organizational Strategy
Identify and confirm
strategy objectives
Align objectives to fit with
finance strategy objectives
Conduct surveys to
understand issues and
needs regarding
Customers, Products and
Channels

Current State
Assessment
Understand, validate and
map the current
organization and
processes
Capture current and
planned change
management activities
Assess performance
across functions using an
industry maturity model
and identify deficiencies

Future State Vision


Confirm Future State
Vision through executive
workshops
Conduct benchmark
analysis of gaps in key
design principles as
compared to industry
leading standards
Analyze of to-be states
across all finance
functions using financial
2x2 matrices

Service Delivery
Analysis & Selection
Identify viable TOM
options showing functions,
sub-functions, location /
region and use of COEs /
shared services
Create criteria for
evaluation and
prioritization of TOM
options
Facilitate workshop with
key stakeholders to
discuss and rank options
by priority

Design
Create detailed
organizational charts
showing functional,
systems and resource
architecture models,
including governance and
accountability
Create opportunity cost
and benefit analysis,
including financial impact
assessment

Milestone

- 24 -

Organization chart
Descriptive header
Label
Line 1
Line 2

Label

Label

Label

Line 1
Line 2

Line 1
Line 2

Line 1
Line 2

Label

Label

Label

Label

Label

Label

Line 1
Line 2

Line 1
Line 2

Line 1
Line 2

Line 1
Line 2

Line 1
Line 2

Line 1
Line 2

- 25 -

Key Success Factor / Our Experience (Sameer Shah)


General
Pitfalls

market success factors

to avoid given our knowledge of AIU Holdings

Potentially

highlight regulatory and tax concerns (e.g., data may need to reside in Japan)

- 26 -

Copyright 2008 Deloitte Development LLC. All rights reserved.

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