The changing Role of the CPO Moving to Portfolio Maturity

1. The changing Role of the CPO Moving to Portfolio Maturity CIPS European Procurement Directors’ Forum 2011-05-11 Presented by: Karen van Vuuren Chief Procurement Officer, Absa Bank, South Africa

2. 1. Game Changer What value are the best CPOs delivering?

3. Breakthrough Value – the new CPO game plan What does Absa Group Sourcing do? Business is increasingly expecting CPOs to deliver not only standard projects with a simplistic “Buy Impact”, but also Breakthrough Value using more sophisticated techniques to deliver benefits across the value spectrum of “Demand and Cost Structure Impact”, right up to and including “Product and Brand Impact”.

4. Increased Focus on the Quality of Deals is needed What does Absa Group Sourcing do? In order to increase the % Breakthrough Value being delivered, it is not enough for CPOs anymore to focus on improving their organisations Functional Maturity (People, Process and Technology); the quality of Sourcing Solutions need to be improved upon as well, by concurrently strengthening in terms of Portfolio Maturity as well.

5. 2. Context Where do Banks play in this game and how does Absa compare?

6. Research – Global Banking Trends The lasting impact of the financial crisis has led to the cumulative effect of reducing high performing banks’ RoE to single digit levels. For these banks to achieve an improved RoE going forward, they will need to attain both an increase in revenue and a decrease in costs, while focusing on customer centricity and strategic positioning. • Leaders will succeed in lifting profitability and ROE back to double-digits by: • Optimising pricing • Improving risk management practices across the organisation • Putting the customer at the center to rebuild trust and loyalty • Forcefully reducing non-strategic costs • Getting to “fighting weight” through strategic acquisitions and divestitures The cumulative effect of the increased costs of funding, liquidity and capital may reduce average high performing RoE from 26% to 15% • Group simplification • Branch rationalisation • Direct channel push • Process transformation • Procurement optimisation • Factories/Shared services • Outsourcing and off-shoring • Platform consolidation • Customer pull (new fee income streams) • Offering simplification (needs based) • Marketing capability enhancement (maximising cross-selling, up-sell, acquisition and retention) • Divestitures • Low cost Bank creation • Mergers and Acquisitions (M&A) 26% -5% 15% -5% -6% 1-5% -6% -6% 1 - 5% 5% 3% -6% 5% 4% 1% -2% 1% 3% -3% High Performer RoE 2007 Higher Capital Ratio De-leveraging Higher Cost of Funding Reduced Fee Income NPL Provision Increase Post Crisis Base Price Optimisation Effective Risk Management Effective Customer Management Strategic Cost Reduction Inorganic Growth Post Crisis Strategic Options RoE Evolution(1), 2012 (%) Note: NPL: Non performing loans (1): Based on a selection of high performing banks Source: Accenture Analysis; Financial Services Authority; Bank of England; Credit Suisse; Bloomberg

7. 3. Credentials Who is Absa Bank and how is it performing? What does Absa Group Sourcing do and how well do they do it?

8. Absa Results 2008 - 2010 Headline earnings (Rm)  6%  6%  24%

9. Research – Global & Local Banking Benchmarks (By Accenture) Leading global and local banks’ Return on Equity (RoE) and Cost to Income ratios have deteriorated post the financial crisis. However, Absa’s efficiency and RoE still remains competitive relative to both its local and global peers. Cost to Income Ratio (%) Peer Performance South African Banks Peer Performance Return on Equity (RoE) Cost to Income Ratio (CIR) Source: 2009 Annual financial statement reported figures Source: Annual financial statement reported figures • Absa’s cost to income ratio relative to leading international and South African banks falls within the range of the more efficient banks • 2009 has seen Absa’s CIR deteriorate from previous years’ advances in reduction. This is however consistent with global and local trends post the financial crisis • Relative to its local peers, Absa is performing well and is second in RoE and efficiency, with it’s RoE at 15.5% and CIR at 49.6%

10. Where do banks spend their money and how does Absa compare? Where do banks spend their money and how does Absa compare? In terms of Accenture benchmarking, Absa compares well with other banks against major spend categories, as detailed below. Absa Group Sourcing provides business with support via two Sourcing Practices, namely IT Sourcing and Products and Services (P&S) Sourcing. IT Sourcing (31% of spend) as well as P&S Sourcing (44% of spend) each consists of 4 category teams. (HR & Marketing are covered by one team). Absa Bank R13.283 b (2010 annual spend) Operations R1.530b (12%) Benchmark: 15% Profees R0.973b (7%) Benchmark: 10% IT R4.062b (31%) Benchmark: 35% Marketing R0.946b (7%) Benchmark: 10% HR R0.457 (3%) Benchmark: Unknown CRES R1.953b (15%) Benchmark: 15% IT Category Matrix Excludes non 3rd party spend of R4.8 billion; HR grouped with General Bank Expenses (per Accenture benchmark) Preferred Supplier List (PSL) has a total of 1045 preferred suppliers Source: Figures obtained from GSMIS with PSL & Exclusion as a filter (31 Dec 2010). 10

11. What does Absa Group Sourcing do? What does Absa Group Sourcing do? Group Sourcing (GS) assist with the sourcing of goods and services from Third Party Suppliers as well as Supplier Relationship Management. Absa has a locked in spend (committed in contracts) of R8.5bn (64%) of a total annual spend base of R13.283bn. Top 10 P&S Suppliers – end Dec 2010 (Also see Appendix A2) • GS is responsible for managing an annual spend of R13.283bn with 1044 preferred suppliers. The 20 largest suppliers account for 35% of total 3rd party expenditure and our top 100 suppliers represent 64% of spend. • Management of these suppliers and the cost they represent to the bank are of critical importance to business success. Absa’s concentrated supply base makes Supplier Relationship Management easier. • GS is part of the Services Cluster, reporting into the GCOO. GS has 81 FTEs and had an 2010 budget of R102m. • The benefits target for 2010 was R650m, against which R835m benefits were delivered (refer to Part 3 for more details). • In addition to direct sourcing activities and delivering benefits, GS also provides the following services to the Group: • assistance on Supplier Relationship Management (SRM) • Policy setting and advice in terms of the Sourcing and Supplier Management Policy (SSMP) • Procure to Pay (P2P) activities and compliance tracking • Support on Sourcing platforms (SAP SRM and One Source). • Absa scored 18.38 points out of a potential 20 on Preferential Procurement against the BBBEE Codes of Good Practice scorecard, with 98.48% of spend being with BBBEE accredited suppliers, incl. 15.70% with Qualifying Small Enterprises (see Appendix B). Top 10 IT Suppliers – end Dec 2010 (also see Appendix A3)

12. Absa Group Sourcing Strategic Framework Vision To be the provider of choice for Sourcing Services throughout Africa for the Barclays Group Mission Cost Down, Value Up – powered by “Inside Out” Purpose To provide our Absa business partners with a customer value proposition, which ensures sustainable and controlled total value management of goods and services End-to-end Value Chain Positioning Partnering with Absa end-to-end to collectively select, enable and grow the right sourcing solution with respect to continuous business improvement Integrated Service Delivery Model Direct Customer Services Category Management Supplier Management Procure to Pay Ethics & Governance Customer Value Proposition: Ensuring Cost Down Value Up Employee Value Proposition: Powered By Inside Out Risk & Compliance Cross-Functional Services Business Integration Business Performance Management Business Partner Services – Legal, Communications, Finance, Change, HR Enablers • Effective Cost Management • Effective Risk and Compliance Management • Management Information (MI) • Human Resource Management • Strategic Alignment to Customers • Information Technology (IT) & System Performance Core Differentiators • Group Executive Support • Innovation • Passionate and committed people • Diversity • Team spirit • Strong regional visibility • Excellent deal makers Values People: We value our people and treat them with fairness Customer Service: We aim to exceed the needs of our customers Responsibility: We take responsibility for the quality of our work Integrity: We demonstrate integrity in all our actions Leadership: We display leadership in all we do

13. How well does Absa Group Sourcing do? AT Kearney benchmark In terms of the AT Kearney benchmark of 1,000 companies globally, Absa Group Sourcing has shown significant improvement, now at overall 1st quartile performance. 1st Quartile 2nd Quartile Results from 1stassessment Sept 2009 Target 12-18 months after 1st assessment 3rd Quartile 4th Quartile Quartile ranking Results from 2nd assessment Nov 2010 OverallScore 1.68 0 0.93 1.20 1.47 3 Highest scores competitors (available in database Key: Your score Industry group average Average scores competitors (available in database

14. How well does Absa Group Sourcing do? AT Kearney Benchmarking Results AT Kearney benchmark Group Sourcing’s Improvement from 1.25 in September 2009 (2nd Quartile) to 1.64 (1st Quartile) in November 2010.

15. Absa Group Sourcing works in pre- & post contract space Sourcing works on Pre-Contract and Post-Contract Management Pre-Contract: Category Management Post-Contract: Supplier Relationship Management (SRM) 2nd Quartile @ 130 points 1st Quartile @ 191 points

16. 4. Pre-Contract: Is Absa getting the best deals? What benefits have been delivered? Pre-Contract: Category Management 1st Quartile @ 191 points

17. Is Absa getting the best deals? Is Absa getting the best deals? GS embarked on a major benchmarking exercise for the top 20 IT and Non - IT deals to measure past deals’ commerciality. Gartner is benchmarking the top 10 IT deals and will indicate these in classifications from Gold to Bronze deals (due end Q1), while Purchasing Index is benchmarking the Non-IT deals. Below is an extract of the latest Profees benchmarking report. • IT Consultants – In many cases some 50% of IT staff are consultants and this is influenced by a perceived need to have flexibility over employing these consultants as IT workload may ebb and flow in the future. PI’s concern with this is twofold: • • That Absa Intellectual Property (IP) may rest with longer term consultants, and this may be put at risk, should those consultants leave • • Absa may be incurring extra costs by employing so many consultants, not only in rates, but, paradoxically, finding interim work for the more valuable consultants, in order not to lose their services between projects • PI recommends that consideration be given to shadowing key consultants thoroughly to ensure that IP remains in the business and that, where possible, key consultants be offered longer term contracts or full-time employment. PI understands that PO s are being raised in advance for business consultants who are billing on a time and materials basis. Has this been extended to IT contractors and consultants? PI believes that this could provide better control and management information for Absa. • OVERALL ASSESSMENT: • “The rates comparisons at the end of the report are fairly brief and cover widely defined skill sets. Absa’s rates bands seem to be competitive.” • Recommendations under investigation: • Savings - PI recommends that consideration be given to segregating larger consulting services (or project budgets) into defined, separate amounts in the relevant business unit (BU) budget, once the works authorization has been approved. When savings are identified and agreed during the life of the project, the savings can be taken out of the budget immediately. This savings amount can either be used for other projects/assignments or for project scope creep or ‘banked’ as savings. • Skills Transfer – PI believes that more emphasis should be placed on trying to secure skills transfer, particularly for consulting assignments which are repetitive in nature, e.g. systems implementation. In relevant cases, the SLA should make specific mention of skills transfer and how it will be measured. In the longer term, it may be worth paying extra for this to ensure that relevant skills migrate to Absa’s own staff. Consulting Bands – PI suggests that Absa consider expanding the number of consulting definitions to assist specifically in obtaining more specific quotes for IT consulting staff .

18. What benefits have Absa Group Sourcing delivered? What benefits have Group Sourcing delivered? GS focuses primarily on the delivery of cost reduction targets and has a strong track record of delivering ahead of expectation. 2010 Savings Breakdown • Group Sourcing primarily focuses on cost reduction activities. Of secondary importance are cost avoidance targets, where Sourcing works to mitigate cost increase requests (e.g. inflation). • All Sourcing targets are worked up with the Business and managed through the Category Advisory Board (CAB) process, ensuring business oversight and alignment for all deals impacting the Income Statement. • Commodity Sourcing Strategies (involving volume consolidation, specification rationalisation, demand management and supply base consolidation) are being refined and Category Management skills updated. • The sourcing methodology used to achieve these benefits is contained in the Sourcing and Supplier Management Policy (SSMP). • During 2010 Sourcing delivered R556m benefits in the year (ITY), which amounts to R664m on an annual basis (ARO). • Based on a mapping exercise conducted by SC Finance, during which the same tracking methodology as that employed in SCIP was utilised, it was found that R492m ARO had a bottom line impact during 2010, made up as follows: • Cost reduction = R316m • Cost Efficiency = R176m 2010 Cost Reduction = R316m 2010 Cost Efficiency = R176m 2010 Other = R168m 2011 Savings Pipeline • Using this same methodology, the 2011 Savings Pipeline consists of: • Cost reduction = R260m • including R250m IT – IT Management target + R10m (including Profees and Travel)SCIP • Cost Efficiency = R240m PnS • Cost Avoidance = R150m

19. 5. Post-Contract: How well does Absa management its Suppliers? How will SRM be improved in 2011? Post-Contract: SRM 2nd Quartile @ 130 points

20. ABSA 3rd Party Supplier Management How well does Absa Manage its Suppliers? Absa’s Third Party Supplier Management The CIGLS on Third Party Supplier Management (TPSM) to establish better supplier management across Barclays closed in December 2010. As part of the CIGLS the Absa supply base (>R1m per annum) was re-segmented based on risk. A consistent SRM Framework was developed and will be implemented in 2011, supported by SRM capacity building. • Absa has a high reliance on 3rd arty suppliers, especially its Top 10 suppliers, making effective management of these relationships critical for business success. • By understanding the risk in supplier relationships, we are beginning to make better decisions on how to control, mitigate, defer or accept such risk. • As part of the CIGLS on TPSM eight minimum global control standards (Beam standards) were developed jointly with Barclays to establish Absa’s minimum standards when it comes to supplier operations that impact on one or more of Absa’s controls. • Working with Barclays, Absa released an updated Sourcing and Supplier Management Policy (SSMP) in June 2009, increasing the focus on managing suppliers. The policy was refresh in November 2010. • Absa now categorises suppliers into High (H), Medium (M) and Low (L) Risk Categories, using a Segmentation Tool, which highlights the applicable minimum control standards. • Based on the September 2010 segmentation Absa now has 9 H and 154 M risk suppliers to manage, up from 4 H & 31 M risk suppliers previously managed. • The previous 4 H and 31 M risk suppliers have Supplier Relationship Managers (SRMs) and Accountable Executives (AEs) in place to drive performance and risk management. • SRMs and AEs are being identified and/or appointed for the newly identified H and M risk suppliers. • A consistent SRM framework was finalised to be rolled out across Absa during 2011. Capacity building for current and new SRMs will be one of the main focus areas for 2011.

21. How will SRM be improved in 2011? How will SRM be improved? GS hosted a launch event on 17 & 18 Jan 2011for all Absa impacted colleagues to welcome SRMs and Service Managers to the Absa SRM Community , signalling focus on uplifting SRM capability as a key business enabler. This also enables GS to utilise in the different levels of SRM maturity across the bank to fast track the process. Building a ‘true’ SRM Capability Creating a SRM community • Roll out ‘SRM in a box’as the ‘how to guide’ for anyone performing the SRM role. • Utile the interactive SRM portal providing access to the handbook, tools and processes, driving collaboration across the Global Service and Supplier community to facilitate knowledge sharing and consistency. • Highlight linkagesbetween Supplier Risk and Valuemanagement activities to facilitate understanding of both in the wider business context. • Access to tailored training events via Lunch and Learn sessions, external speakers etc. • Tailored Factiva news alerts service to equip SRM community with improved MI. • We are investigating establishing an accreditation programme to enable us to ‘certify’ our SRMs and working on an internal Six Sigma training programme for SRMs. • In Absa, we have not made a significant investment over the past few years in educating SRMs and service managers to understand how to effectively manage supplier risk. We also did not address the wider aspects of SRM and therefore need to mobilised a project to: • Create clarity around desired competenciesfor Best in Class Service and Supplier Management • Standardise Service and Supplier Manager role profiles • Standardise 2011 PD objectives for all Service and Supplier managers, as well as Accountable Executives • Create a tailored training curriculum based on thorough assessment of individual needs and build this into the Absa training curriculum being established • Create relevant training materials in support of training curriculum • Engage with Absa AEs to communicate the SRM Programme and ensure ongoing alignment & engagement. • Access capability & skills of current and new SRMs to refine training and development plans. • Leverage off and align with Barclays’ Top Tier SRM Development Programme* and ensure “fit for use” in Absa environment. • Ensure alignment to Barclays initiatives regarding Global Suppliers, i.t.o. establishing Lead Supplier Managers and Lead AEs. • Maintain current SRM activities and structures in the business until pilot programmes are completed. *(SRM Community development, capability development, SRM Portal, SRM Toolkits)

22. Breakthrough “Value Up” Business Case The value that can be delivered through effective SRM is significant and far outstrips the value associated with pure ‘Cost Down’ activity, the business case is compelling and we cannot afford to miss out on unlocking this value. 23% Source: IPFL – The International Procurement Leadership Forum Source: Future Purchasing

23. Robust Value Release Framework Improved supplier performance management will yield benefit to both Absa and its suppliers: • Share strategic objectives • Develop pipeline of value creation initiatives • Track and report progress • Minimise risk under the contract • Work with supplier on mitigation strategies • Realise the commercial benefit the contract intended • Ensure business and supplier alignment Value Release Risk Management Value Contracts Management

24. What is ‘Value Release’ for Absa? Unlock short term and long term value from our strategic suppliers over and above what is designed in the transactional contract Supplier Management Benefits Service & Supplier Managers enabled Sourcing Benefits Category Plans Sourcing Levers Post Contract Value Release Levers Toolkit, training, workshops Track and report benefits Benefit Approval Rules Cost reduction, cost avoidance, rebates, commissions and income generation 24

25. Value Release ‘in a box’: value levers 25

26. 6. Bottom Line How well is Absa Sourcing performing? How is Barclays being leveraged?

27. How well is Absa Sourcing Performing? How well does Group Sourcing perform? B+ A

28. How is Barclays being leveraged? 24 25 27 27 36 35 25 30 27 10 3 5 11 2 28 31 29 30 13 1 37 20 2 3 12 14 7 21 28 31 8 11 27 32 6 1 4 15 28 22 34 33 11 10 5 16 23 34 39 12 19 32 26 22 38 35 10 9 8 17 24 20 18 25 37 36 27 Sustainability People Customer Numbers & Control 19 13 21 7 23 17 14 6 26 7 36 27 Customer Customer Numbers & Control People Sustainability 2010 Sourcing Improvement Programme Collaboration alignment with Barclays GRB and CIBWM 2010+ Collaboration Agenda • We are pursuing a joint Improvement Agenda in the each of the four areas of the Balanced Scorecard, namely on • ‘Customer’, • ‘People’, • ‘Numbers & Control’ • ‘Sustainability’. • The rings represent the various levels of collaboration. The nearer the centre an GRB item appears, the greater level of collaboration and vice versa. • Detail of the 37 joint initiatives can be found in Appendix 5. Planning and Design together. Execution and Implementation separately Collaboration Level 2 Collaboration Level 0 No Collaboration Planning and Design together. Execution and Implementation jointly Alignment Level 3 Collaboration Level 3 Collaboration Level 1 Inform and sharing

29. Absa is towards driving Portfolio Management What does Absa Group Sourcing do? In order to increase the % Breakthrough Value being delivered, it is not enough for CPOs anymore to focus on improving their organisations Functional Maturity (People, Process and Technology); the quality of Sourcing Solutions need to be improved upon as well, by concurrently strengthening in terms of Portfolio Maturity as well.

30. Questions Presented by: Karen van Vuuren (FCIPS)Absa Chief Procurement Officer karen.vanvuuren@absa.co.za Mobile: +27 83 274-9926