“ Building a Global Community” ONCE Global Summit 2005 May 4 – 6, 2205 Milan, Italy

1. “Building a Global Community” ONCE Global Summit 2005 May 4 – 6, 2205 Milan, Italy Hosted by i-Faber (www.1City.biz)

2. Dynamics with Business Process Outsourcing Impacts and Implications Rick Beers Dir: Business Process Architecture Corning Incorporated

3. Dynamics with Business Process Outsourcing Discussion Objective Using Corning’s Shared Services experience as a starting point, provide the client view of BPO: the impactsupon clients of Procurement outsourcing and the opportunities for Systems Integrators, Vendors and Service Providers • Topics • Corning Profile • Corning & Shared Services • Corning and BPO • BPO Circumstances • Implications and Opportunities

4. Dynamics with Business Process Outsourcing • Topics • Corning Profile • Corning & Shared Services • Corning and BPO • BPO Circumstances • Implications and Opportunities

5. Founded: 1851 Headquarters: Corning, New York Employees: Approximately 25,000 worldwide 2004 Revenues: $3.8 Billion Dynamics with Business Process Outsourcing

6. Dynamics with Business Process Outsourcing Corning has manufacturing operations in 23 countries. • Europe • Denmark • France • Germany • Italy • Netherlands • Russia • Spain • U.K. • Asia • Australia • Hong Kong • India • Japan • Korea • PRC • Singapore • Taiwan • Thailand. • Americas • Brazil • Canada • Mexico • U.S. • Dominican Republic • Africa • South Africa

7. Dynamics with Business Process Outsourcing Corning is a highly diversified corporation represented in 7 Industry Verticals Optical Fiber Controls and Connectors Corning Cable Systems Telecom Display Technologies Consumer Electronics Life Sciences Life Sciences Semiconductor CPG Specialty Materials Automotive Steuben Healthcare Environmental Technologies Ophthalmic

8. Dynamics with Business Process Outsourcing Divisional diversity drives Corning’s ERP Architecture: Single Global Instance of Finance tied to Global Supply Chain Instances

9. Dynamics with Business Process Outsourcing • Within that diversity however, there are common themes • Asset Intensive, Mixed Mode Manufacturing • An OEM supplier (with one exception) • Relatively few customers and vendors • Specialty products; attributes-driven

10. Dynamics with Business Process Outsourcing • Topics • Corning Profile • Corning & Shared Services • Corning and BPO • BPO Circumstances • Implications and Opportunities

11. Dynamics with Business Process Outsourcing During 2002, in response to business conditions, Corning undertook a far reaching Corporate initiative to evaluate the administrative functions of HR, Finance, IT and Indirect Procurement. • Company realities • Top Quartile performance requirement • Business Process Outsourcing (BPO) potential • Alternative organizational models

12. Dynamics with Business Process Outsourcing At year-end 2002, a decision was reached. • We would not adopt a large scale BPO model • We would outsource selectively over time • We would organize around a Shared Services model structured as if we were a Service Provider • Procurement • Finance • HR • IT Business Process Insourcing The model emulates BPO dynamics

13. Dynamics with Business Process Outsourcing • Properly executed, a Shared Services model can have a variety • of positive impacts • Head Count Reduction • Spend Reduction • Leveraged Skills • Management Focus • Risk Reduction / Control • Agility (M&A, etc) Efficiency Effectiveness

14. Dynamics with Business Process Outsourcing Three Imperatives Underlying Premise: • Enterprise Value was to be gained by centralizing common, non-differentiating business processes previously performed within business units as long as no harm is done to business units Strict accountability has been the key to acceptance • Broad use of Service Level Agreements The shared services unit provides a service but does not own the end to end process within which that service resides. • Again, very similar to BPO dynamics

15. Dynamics with Business Process Outsourcing As an Aside; What is an End to End Process? Michael Hammer 2004

16. Dynamics with Business Process Outsourcing Consider a typical Procurement end to end process: ……However…… End to End Effectiveness is what reallymatters The Efficiency of each of these tasks is interesting…….

17. Dynamics with Business Process Outsourcing Careful consideration needs to be given of the processes to move to a Shared Service. For Corning: • CRM • Supply Chain Planning • Direct Matl's Sourcing • Cost Management • Maintenance Mgmt. • Production Mgmt. Unique Process Commonality • Billing-Receivables • Req. to Pay • Ind. Matl's Sourcing • Payroll • Customer Service • Order Mgmt. • Inventory Mgmt. Common Shared Services Zone Non-Differentiating Differentiating Business Unit Impact

18. Dynamics with Business Process Outsourcing Consider Source to Settle for Direct Materials Division 1 Division 2 CSS Corning Shared Services Division 3 Division N

19. Dynamics with Business Process Outsourcing Unfortunately, there has been a problem. End to end process flows that were closely integrated within each division have been disconnected. For direct materials: Division 1 Division 2 Division 3 Division N This also aligns with a key BPO dynamic: How to deal with an end to end process that is disconnected?

20. Dynamics with Business Process Outsourcing • Topics • Corning Profile • Corning & Shared Services • Corning and BPO • BPO Circumstances • Implications and Opportunities

21. Dynamics with Business Process Outsourcing Corning has been carefully attempting various BPO opportunities since the 2003 reorganization. Two attempts in Procurement have yielded opposite results and a wealth of experience. • eSourcing: Reverse Auctions for commodities • Storeroom Operations

22. Dynamics with Business Process Outsourcing eSourcing at Corning • Began 2004 with the intent of a 12 month pilot • Expectation of 30 events in 2004 • Contracted with FreeMarkets with a Successful Result • Preferred over ERP application due to consultative element • Intent had been to revert to ERP application after pilot, as event volume increased and internal knowledge was gained • However, as of April 2005, we are at 600 events and growing • Satisfaction very high with FreeMarkets • Positive surprise: Commodity Expertise • Long term plan being evaluated • Downside: Connectivity into Master Data Files • Limitation: Not possible for direct materials due to the need for end to end process interoperability with Planning application • Possible Concern: Acquisition by Ariba might shift emphasis to application over service

23. Dynamics with Business Process Outsourcing Storeroom Operations • MRO and some indirect materials • After pilot, contracted with a firm specializing in such BPO and began roll-out in early 2004 • Unsuccessful and being brought back in house. • Pricing model flawed for Corning’s use: service priced per $ ordered. Materials purchased are high cost, specialized and low volume. • Vendor provided little consultative assistance • Significant interoperability problem: no systems linkage into approval workflow within ERP application. • Concept is still sound, but appears impractical for our use

24. Dynamics with Business Process Outsourcing • Topics • Corning Profile • Corning & Shared Services • Corning and BPO • BPO Circumstances • Implications and Opportunities

25. Dynamics with Business Process Outsourcing As compelling a case may be for BPO in itself, it often has impacts within a client that make it impractical. • Complexity • Energy spent managing complexity detracts from creative energy • Interoperability • Transactional flows AND Information • Governance • The responsibility of many is the responsibility of none

26. Dynamics with Business Process Outsourcing As an example, consider the Corning Source to Settle example with Storeroom BPO MMS Insufficient integration was designed to create the degree of interoperability required for approval workflows within the transaction system

27. Dynamics with Business Process Outsourcing Organizational impacts have been significant • Complexity • One more pain in the neck to deal with….. • Interoperability • Automated transactions became semi-automated • Governance • Who owns accuracy (six sigma measure) of storeroom transactions

28. Dynamics with Business Process Outsourcing • Topics • Corning Profile • Corning & Shared Services • Corning and BPO • BPO Circumstances • Implications and Opportunities

29. Dynamics with Business Process Outsourcing A significant opportunity exists for Service Providers who take a more holistic approach to customer engagement. Competitive Differentiators: • Readiness Assessments • Is a customer ready • What are internal process flows • What is state of data management • Integration Guidance • Goal: Maintain required level of process interoperability • What is best answer for a given condition (Interface, SOA, workflow) • Category Expertise • Commodity, Industry, Channel • Catalogue • Best Practice Expertise • With using the service/product offering……….

30. Dynamics with Business Process Outsourcing There are, however, negative implications possible. • Overlap of SI’s, Apps Vendors and SP’s • Vertical integration is a constant • Alliances? • The “Game Boy” mentality within customers • “Don’t bother me with details, just make the system work”. • “Our processes and challenges are unique; your solution needs to accommodate me” • Customer Retention • What happens after a SP educates the customer?

31. Dynamics with Business Process Outsourcing The one overriding point, however, is that: A great System or Service is NOT the goal for the customer. End to End Business Process Excellence is. That is what must define the engagement between a customer and its BPO Provider.