Deutsche Banks P2P Outsource

One of the world’s leading banks went for a radical approach when it decided to outsource its procurement. Mark Whitehead spoke to its head of global sourcing operations, Dr Bernadette Margel.

The year 2002 saw a new sense of urgency at Deutsche Bank over the changes needed to bring its operations up to date. In the previous ten years it had grown massively through an aggressive acquisitions policy and was now one of the world’s biggest banks with about 65,000 employees serving more than 21 million customers in 74 countries.

It had gained a place among the global leaders in corporate banking and securities, transaction banking, asset management and private wealth management, and had a significant retail banking franchise in Germany and other countries in continental Europe.

But an examination of the bank’s procurement operation showed that, for example, only a small percentage of spend was done through purchase orders. Purchasing was highly decentralised, with a significant portion of goods and services acquired directly by managers from a large number of suppliers. There was little standardisation of demand specifications, and no real end-to-end management of the purchasing process. This meant, predictably, that there was not much management information available on the procurement process, and controls over spending were often left to individual business line managers. The possibilities for leveraging the best deals in the market place were limited by the degree of decentralisation and related information deficiencies.

Dr Bernadette Margel, who joined the bank in June 2004 as Head of Operations for Global Sourcing, says it was clear that the situation was recoverable. ‘Overall, it worked,’ she says, ‘but we had no visibility about how well it worked and very little capability to make improvements in the way it worked.

‘A well-oiled machine should be able to deliver effective and efficient services to the business. We were nowhere near where it could be. It wasn’t fundamentally broken, but we saw there was a huge gap between where we were and where we should be.’

She characterises Deutsche Bank as very fast-paced and forward looking, and very open to rapid decision making and delivery. On the investment banking side, bankers need to be able to make split-second decisions while juggling millions of dollars. In retail its customers and competitors. That high level of skill and sense of immediacy and customer focus are hard-wired into the bankers’ brains and carry over into the expectations they have of the infrastructure that serves them.

But the bank recognised its main energies were directed towards its customers, not towards streamlining back office functions like procurement. ‘The bank’s orientation was correctly focused towards the marketplace and about serving the client,’ says Dr Margel. ‘It needed to focus on supporting the bank’s front office rather than revitalising the infrastructure.’

Something needed to be done to bring procurement into line with the rest of the leading-edge character of the organisation, and several solutions were considered. These included the option of building a solution in-house. But the verdict was that it would be too slow and there were not enough in-house specialists to make it work.
Licensing a range of off-the-shelf IT applications was also an option. But the challenge at hand was far more than a technology issue and an external change agent would be needed to link and transform decentralised processes. The bank also considered hiring an external vendor to build the solution, with the idea that it could then be managed in-house.

Or the entire procure-to-pay process could be outsourced. This solution, the procurement professionals at Deutsche Bank judged, would give the quickest results. It would mean sharing the risks with the outsourced provider, saving money through the use of multi-client service centres, and avoiding large investments in new technology. And the outsourced provider would be likely to offer steady innovation in terms of processes and technology.

Outsourcing was thought to be a catalyst for change in the organisation. ‘The outsourcing option proved to be the most attractive to us,’ says Dr Margel. ‘One of the benefits of going through the outsourcing process was that it would mean working with a partner whose raison d’etre was delivering purchase-to-pay service value. It wouldn’t see procurement as just a back office function which is necessary to the bank’s business but not a core activity. Instead, P2P would be its strategic centre.’

When it came to selecting an outsourcing partner, Deutsche Bank’s managers were clear on the criteria involved. The provider had to be able to offer a range of expertise to make it work. It needed to have the right experience in the entire process, from sourcing through category management, transaction processing, compliance management and payment operations. It had to be able to integrate all the operations involved, and have expert knowledge of the technology enablers. It needed a collaborative approach and cultural compatibility with the democratic way of working at Deutsche Bank. And it needed financial strength to be able to make the necessary investment in the reform programme.

Accenture was chosen as the outsourcing partner because it was thought to have the global presence needed to support the bank’s geography, a compatible culture and working style, and a proven record of combining IT, service delivery and consulting capabilities. ‘They had a lot to gain by us contributing our perspectives of P2P in the banking environment,’ says Dr Margel, ‘while we had lots to gain because we anticipated their offering of a robust delivery platform.

When it came to the outsourcing operation, Deutsche Bank went for a very swift changeover with a ‘lift and shift’ approach, in which processes and systems were transferred wholesale, whatever state they were in, to Accenture personnel.

About six weeks was allowed in each of the bank’s eight regions to complete the process. Accenture personnel were brought in to familiarise themselves with the operation and the roles they were to take up. Small teams of between two and four bank procurement personnel were left in place in each region and the remaining roles were devolved to Accenture.

It was a radical programme, Dr Margel admits. ‘We were making a fundamental change in the way we were delivering the service and that was going to have an impact. We weren’t doing it to reduce internal headcount, but that was of course a consequence of the process. It wasn’t an initiative to reduce labour costs, but rather to change fundamentally the way we worked.’

The bank made some changes to the roles of its own people at the same time the lift-and-drop process was taking place, to create an organisation that could manage the Accenture relationship.

The bank went for a ‘soft partnership’ in which both parties stood to benefit from the relationship. ‘Accenture gets our business, and learns from us the capability it needs to build in order to be able to market its business to the rest of the industry,’ says Dr Margel. ‘We get the benefit of Accenture’s knowledge and experience and in transformational change and service delivery. We both have something to gain out of making it a success.’

The partnership means that Accenture staff are deeply embedded in the bank’s operation. ‘If you were to visit our offices, you would see Accenture and Deutsche Bank people sitting together,’ says Dr Margel. ‘It works very well. I can’t imagine how it would work any other way. There may come a time when we decide to do more work remotely, but at the moment, while we have a very focused programme to transform the Bank’s P2P activity underway, we definitely need the Accenture team working very closely with us.’

The results of the project so far have been very positive, Dr Margel says. Cost-savings forecast for this stage of the project have been achieved, and there is an improved focus on measurement of transactional capability. Procurement managers now know where the ‘bottlenecks and break points’ are much more clearly than in the past, and spend savings are also on track to deliver against forecast.

‘We can now see the benefits of improving both visibility and transparency,’ says Dr Margel. ‘What we need to do is drive that out into broader business value, focusing on being able to call up the right kind of information to improve our sourcing decisions and also to improve controls over client and vendor activity.’

The key point for managing a relationship with an outsourced provider, Dr Margel says, is that it must be collaborative. ‘It’s not just a matter of taking all your problems and handing them over to the service provider. Sometimes you have to work together to solve problems so that you can maximise the value of the changes you are trying to drive within your business. You have to expect some challenges as well as some surprises in working with your partner.

‘You need to make sure you have people who take responsibility for managing the relationship and maintaining morale, because it all takes a lot of hard work. You need to find champions who will stand up and support the changes because they can see their value. That will go a long way towards developing your credibility.’