Transformation of Accounting Processes Bayer s Accounting Operating Model

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Leverkusen, June 16

th

_{, 2015}

Markwart Lutterbeck/Ake Roesmann

Transformation of Accounting

Processes

Bayer´s Accounting Operating Model

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Page 2 • 8. Praxisforum BPM & ERP

Agenda

_{Starting Point and Objectives of Transformation}

Process Governance and Shared Service Center

Expansion

Additional Concepts

Outlook

(3)

Within the organizational structure of the Bayer Group

Accounting is centrally managed and steered

Currenta

Bayer Business Services

Bayer HealthCare

Bayer MaterialScience

Bayer CropScience

Business areas

Service areas

Holding company

Corporate Center

Bayer Technology Services

Bayer AG

Group Management Board

Group Structure

< 100 FTE in Corporate Center > 700 FTE in BGP around the world

Group Accounting

(ACC)

1700 FTE in Shared Service Centers

(4)

Transformation of Accounting Processes

Process Governance for 12 Standard Processes

and 32 Enablers

700 transitions and 350 fit gaps in order to reach process standardization

realized

2400 job descriptions changed and 1700 FTEs moved into Shared Service

Center organization

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Global Challenges: A benchmark analysis unveiled

optimization potential for Bayer’s Accounting operations

Quartile 3 Quartile 2 Quartile 1 Quartile 4 Accounting costs as % of revenue Objective Bayer Business Complexity Suboptimal organizational discipline Suboptimal Demand Management Fragmented Process Governance Under-Exploited Labor Arbitrage Optimization Potential Benchmark 2010 SSC Expansion

Governance & Responsibility TransformationStrategy

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Agenda

_{Starting Point and Objectives of Transformation}

Process Governance and Shared Service Center

Expansion

Additional Concepts

Outlook

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Process Governance: standardization is the main lever

for delivering efficient and excellent Accounting services

Operating Lever and Importance

Targets and Outcomes

Cost

pressure and

efficiency

Process standardization and automation (enabler)

1

Activity split

2

Challenge

Service quality increases with

consistent global process standards and excellence

Central KPI based process management for internal and external benchmarking

Agile reaction to change Lean and efficient operations

Efficiency gain through automation (enabler) and labor arbitrage

• FDP Challenges in Accounting • February 2015 Page 7

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Process Governance: Next generation organizational

service delivery models are characterized by global SSO

with global processing

Global Service Delivery Model

First generation service delivery models Next generation service delivery models

Decentralized accounting Consolidated accounting Regional platforms Global accounting network Fully global processing

July August September October November December January February March April June

Local accounting Country level SSCs Regional shared services Global SSC network Global SSC organization

Local accounting ‘Solution’ outsourcing Functional near-shore BPO Selective off-shore BPO Single global BPO model

Adidas Novartis Bayer 2011 BASF Merck MSD HP O u ts o u rc e d C a p ti v e S S C Philips JCI Maersk Unilever Stora Enso Henkel Siemens Ford Bayer 2015

Source: Ernst & Young

• FDP Challenges in Accounting • February 2015 Page 8

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Process Governance: The Shared Service Center target

set-up established

Global Office Barcelona Service Area: All countries Service Area: All countries Global Office Global Office Manila Shanghai Gdansk Service Area: Western Europe, LATAM Service Area: Western Europe, LATAM Front Office EU + LATAM Front Office EU + LATAM Service Area: Germany, Eastern/ Southeastern Europe, Scandinavia, Switzerland Service Area: Germany, Eastern/ Southeastern Europe, Scandinavia, Switzerland Front Office EEU Front Office EEU

Service Area FO:

Southeast Asia, GB/I, USA, Canada

Service Area BO:

Global (w/o China)

Service Area FO:

Southeast Asia, GB/I, USA, Canada

Service Area BO:

Global (w/o China)

Front Office / Back Office SEA Front Office / Back

Office SEA Service Area:

China, Hong Kong, Taiwan

Service Area:

China, Hong Kong, Taiwan

Front Office / Back Office Greater China

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Process Governance: House of Accounting part of BHC

Process MAP

Process Areas (Tier 1)

Strategy & Governance Monitor & Improve the Company

Financial Performance Management Discover & Develop

Product Supply Product

Commercialize Product

Accounting

Communication Engineering

Health, Safety & Environment Information Technology

Legal Market Access Personnel & Training

Procurement Product Quality & Safety

Plan & Move Product

M a n a g e m e n t P ro ce sse s C o re P ro ce sse s S u p p o rt P ro ce sse s Legal Entity FASS Global Office (GO) Front Office (FO) Back Office (BO) Regional Accounting / Accounting Platform F&A IT Global Accounting SGs Process Governance & Internal Controls

Corporate Accounting

House of Accounting

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Accounts Payables (AP) Accounts Receivables (AR) Travel & Expenses (T&E) Inter Company (IC)

Value Flow (VFC) Reporting (REP) General Ledger (GL) Asset Management (AA) Closing (CL)

Process Governance: Global standardized processes,

enablers, activity splits and authorization concept

12 Accounting Processes – base for global processing (Tier 2)

Transactional Accounting (TRA) General Accounting (GA) Internal Accounting (IA)

Tax Operation (TO)

Product Costing (PC) Service Accounting (SA) Process Governance & Internal Controls

Regional Accounting ACCOUNTING PLATFORM SSC Global Office (GO) SSC Back Office (BO) SSC Front Office (FO) IC GL IA T&E AP AR IC * IA T&E AP AR AA GL F&A IT Business Partnering BMS BHC BCS Central Accounting IA TRA GA

* SSC BO for IC with direct link to the AccP (C-Cluster)

Global Accounting SGs Corporate Accounting

Cl REP PP IA TO

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Page 12 • 8. Praxisforum BPM & ERP Legal Entity FASS Global Office (GO) Front Office (FO) Back Office (BO) Regional Accounting / Accounting Platform F&A IT Global Accounting SGs

Process Governance & Internal Controls Corporate Accounting House of Accounting 45% 7% 6% 17% 67% 55% 45%

Accounts Receivable (AR)

95%

Accounts Payable (AP)

94%

Travel & Expense (T&E)

93%

Inter Company (IC)

83%

Tax Operational (TO)

33%

General Accounting (GA)

45%

Asset Accounting (AA)

55%

Internal Accounting (IA)

5%

55%

Accounting Processes

Process Governance: Global standardized processes,

enablers, activity splits and authorization concept

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Process Governance: Global standardized processes,

enablers, activity splits and authorization concept

= Critical = Other = Mandatory enablers

Status Enabler implementation: Automation is well on track, about

85% will be completed by end of 2015

Transactional Accounting (TA)

01. Automatic AR Clearing 02. AR Process Harmon. 03. AP Workflow Harmon. 04. Redesign IMS Applications 05. SAP-VIM

11. AP Centraliz. / Harmon. 12. T&E Tool

14. IXB Tool

15. Paperless IC Doc. Flow 16. Autom. Accrual Posting

General Accounting (GA)

17. WPA

18. Provision Tool

19. Closing Tool Runbook 23. AKM / RRT

24. ACR Tool

27. Workflow Tool (SAP-SSF) 26. Value Flow Catalogue

28. Material Ledger

Internal Accounting (IA)

89% 98% 87% 78% 100% 64% 82% 93% 95% 90% 91% 98% 89% 93% 92% 94% 77% 36% Completion Box TA GA IA Total

In Scope 2015 Finished in 2015 Total Finished

235 97 205 In Scope Total 145 64 152 1221 769 994 86% 90% 66% 537 361 2984 80%* *Status 2015-05-11 1.061 537 474 2012/13 973 2014 2015 2016 Enabler implementations 35% 32% 18% 16%

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Transitions are in line with the planned Roadmap: Last

wave in stabilization

Transition Overview

_‒

July 2015

Main transition:

Not started yet Ongoing

In stabilization/closed

(further enabler roll-out projects planned) Out of scope

West and Eastern Europe: All transitions completed Asia - SSC Shanghai: China TE/Concur project in process

harmonization phase.

Asia - SSC Manila: India, Pakistan is closed Latin America: ConoSur and Andina are closed

Frozen due to BMS Carve Out: Centro and Ukraine, Bangladesh,

Japan (II) , BO move Latin America # LE Transitions by July 2015 Total Completed % AccP 351 336 96% BO 194 154 79% FO 196 183 93% Overall 741 673 91%

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Agenda

_{Starting Point and Objectives of Transformation}

Process Governance and Shared Service Center

Expansion

Additional Concepts

(16)

Multi Project Management

Multi Project Management approach developed to structurally work through projects

Centralized Project Steering to align an efficient coordination of resources

Professional Accounting Operations –

< 30 additional concepts are in place (1)

Professional Accounting Operations supported by

additional concepts

Knowledge Management

Knowledge Management set-up supports the vision of establishing a self-learning organization

Interactive collaboration

Closely linked with training concept

Development options in new GAC organization Definition of target jobs and development position

Establishment of new career paths and development measures

Talent Management D e si g n Continuous Improvement Process / KPI Concept

Objective to monitor performance and identify early warning signals

Further optimization efforts will ensure sustainable operations in GAO

ICS Control Evaluation

New System live for ICS Control Evaluation

ICS strives for efficiency in ICS control performance via control automation and incident based control testing => Continous Control Monitoring

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Continuous Improvement - KPI dashboard

Process Standardization and Service Excellence - Higher volumes are handled with

improved process quality

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Professional Accounting Operations -Tools and concepts (2)

Several concepts have been developed and rolled-out

Documentation

Global documentation of all accounting relevant processes & activities

Country specific documentation to ensure knowledge management and handover to SSC

Transition Methodology

Efficient and effective transition management concept developed Structures project methodology and project planning

Provides standard tool kit, guidelines and project deliverables Includes Change Intensity Assessment

Master Data Demand Management

Tool to collect, analyze and approve F&A demands Defines one central F&A demand management process

Enables GPOs to perform their global process governance for F&A processes

Charging Modell

A new charging methodology was developed to ensure transparency

Charging KPIs and SLA targets were defined in close alignment between GPOs and SDMs

LEGAL ENTITY (receives 2 invoice s) G O B O F O House of Global Accounti ng Operatio ns AccP

Globally harmonized Vendor Master Data process & tool landscape

End-to-end process integration including SAP interface, compliance and anti-fraud measures

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Agenda

_{Starting Point and Objectives of Transformation}

Process Governance and Shared Service Center

Expansion

Additional Concepts

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Outlook End-to-End Process Governance

Legal Entity FASS Global Office (GO) Front Office (FO) Back Office (BO) Regional Accounting / Accounting Platform F&A IT Global Accounting SGs

Process Governance & Internal Controls Corporate Accounting

Accounts Receivable (AR) Accounts Payable (AP) Inter Company (IC) Tax Operational (TO) General Accounting (GA) Asset Accounting (AA) Internal Accounting (IA)

Discover & Develop Product Supply Product Commercialize Product

Communication Information Technology Legal Market Access …. M a n a g e m e n t P ro c e s s e s & o th e r S u p p o rt P ro c e s s e s Subprocess 1 Subprocess 2 … … … … … Subprocess 1 Subprocess 2 … … … … …

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