ESS Face to Face February 28th , 2005

Agenda

> Introduction
ESS Organization Update IT Strategy Communication

> IT Shared Services

Hugh Sheridan Frank Vastano

> Offshoring, Project SDI > 2005 Objectives and Themes > Merck News

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ESS Shared Service Model February 27th 2005

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2005 Objectives
> Shared Services IT:
Complete the implementation of the IT shared services operating model including organizational design, service levels, operating procedures and funding model (4Q). Realize approximately $750k in operating expense savings through application co-location and the elimination of redundant activities (4Q). (Scope: Finance/HR Trans Systems, Owner/Plan: Sheridan, Establish Engineering/Ops capability: Piscitello, Id/Effect Opportunities: Lotier/Blair) (stratmap intersection: OPEX/Internal Process)

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Value Proposition

Value Proposition

Economies of scale through common demand and leveraged knowledge expertise

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2005 Plan
1Q05
Operating Model Savings Opportunities

2Q05

3Q05

4Q05

Org Design, Processes, Governance, Service Levels, Funding Model Application Co-location and Elimination of redundant activities Implementation of Integration, Decision Support and IM Services Canada JDE Consolidation Global Consolidation Plan Consolidation

Finance

Restructure IT Support for PTP Finance IS Integration EZ-Expense Upgrade for Corp HRIS Integration EZ-Expense Upgrade for USHH Global Consolidation Plan Consolidation

HR

MRL PeopleSoft time tracking supporting CLPA US PeopleSoft time and labor implementation for US PeopleSoft Payroll for US requirements, development and testing for 1Q06

Global Infrastructure New Shared Service

Integration with GI Shared Services Plan and Implementation of Integration, Decision Support and IM Shared Services
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IT Strategy Map Strategic End State

Drive Innovation Deliver Business Value Operate with Excellence Manage Risk

Strategy

Financial Perspecti ve

If we succeed, how will we look to the corporation High Value/High Strategic IT Cost Structure as a whole? (How will Optimized assessUse of Assets Merck our Return Initiatives Focused Optimized Focused contribution to its success?)
Worldwide Service Attributes BusinessQuality Driven Focused To achieve our Relationship Image

Manage Investment

Drive Efficiencies

Custome r Perspecti ve

vision, how must we look to our Value-Driven Integral customers? (How will our customers understand Trusted Predictable, & Innovative Partner Cost- our contribution?) Reliable &
Responsive Effective

Internal Process Perspecti ve

Breakthrough To Opportunities

as a whole, at which processes must we excel? Continuous Improvement

Business & our vision, Technical Acumen

Architecture & Information satisfy our Management

Portfolio & customers Governance

End-to-End Regulatory & Service and the corporation Compliance Delivery

Organizatio nal Capabilities Perspective

To achieve put in place?

Leadership

what

Innovative Thinking

Engineering & capabilities must Discipline Operational we

Adaptability and Diversity

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Shared Services Benefits

Benefits
Budget

Benefits

Business Clients
Financial Savings

ESS
Cost Efficiencies

Quality of service

High Service Quality

Reuse and Integration

Delivery time-to-market

Time savings

Time Efficiencies

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Benefits Realization
Financial Savings and cost efficiencies

Benefits

Year

Activity

Savings

Status

2005 2005 2005 2005 2005 2005 2006 2006

HRIS Integration Finance SLAs and SOPs PeopleSoft Payroll Puerto Rico JDE North America consolidation Global JDE Licensing Optimization

600K 550K 100K 300K 200-400K

Completed In Progress In Progress In Progress In Progress Planned Planned Planned

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Document Management Shared Services 300K PeopleSoft Payroll US PeopleSoft Banyu integration 500K 100K

Organization Models (Industry Trends)

Hybrid Approach Basic Model Marketplace Model
* Consolidation of transactional and administrative work * Includes professional and advisory services

Organization Model

2007 Advanced Market Place Model

Independent Business Model

* Client choice of supplier * Separate business entity

* Focus on economies of * Separates governance * Market based pricing scale and service functions

* Profit is retained

* Services charged out to * Services charged to * Possible external sales if * Multiple organizations recover fully loaded recover fully loaded surplus capacity as customers costs costs * Objective is to reduce * Objective is to reduce costs and standardize costs and improve processes service quality * Objective to provide * Objective is to generate clients choice of most revenue and profits cost effective supplier for service company

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ESS Professional Services Operating Model

IT Shared Services

Integration Management Office ESS Shared Services GI Shared Services

Clients Account Management Program Management

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Operating Model
Business Business
Corporate Functions
Finance HR Legal/PA Procurement MRL

Organization Model

Business Divisions
MMD HH

Division IT Division
Corporate RIS A&IT HH
Support Run Services

Application Services
(Development & Maintenance) (Development & Maintenance)

e hcr A es p e n etii hcr A esi r p et n E t i r t

Architecture Services

Manage GI Strategy

ESS ESS

Global Infrastructure Global

IT Process Management IT Process Management

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Prog. Mgmt., Engineering & Implementation

Define & Refine Services

Build Services

Relationship Management

Client Services

ESS Organization Structure

Organization Model

Client Services
Finance, Global Procurement, Legal, IS & Public Affairs

Client Services HR

Architecture Services

Application Services

Information Management Services Policies & Procedures Standards development Usage guidelines Training & Education Enterprise IM requirements IM Strategy and planning Enterprise reference consultation IM Innovation Consultation

ESS Services

Business Relationships Account / Demand Management Portfolio Management Business analyst

Business Relationships Account / Demand Management Portfolio Management Business analyst

Application and Information Architecture Architectural strategy and plan

Project Management Application Engineering (inc web application & IM development) Application Support Service Management

Financial management Comm. Human Resources Administration processes Measurement and Reporting

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Shared Service Model Services

External Shared Services
Enterprise Client Services Enterprise Application Services (Engineering and Support) Enterprise Information Management Services Enterprise Decision Support Services
3Q05

Services

ESS Internal Shared Services

ESS Architecture Services ESS Project Services ESS Integration Services
In Progress

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External Shared Service Definition

Client Services
> Responsible for partnering with the relevant clients. This included participating in Strategic Planning process and aligning IT and client strategies, as well as supporting Portfolio management processes

Services

Information Management Services

> Responsible for development and rollout of information management strategies for Corporate and Business Divisions clients. This includes development of an information management culture, enabled by deployment of common standards, policies and procedures, usage guidelines, training and education

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External Shared Service Definition

Application Services
> Responsible for management, development and support of all new applications / enhancements. Applications include enterprise and corporate application, web based applications and information management products. Project Managers will be deployed to define, manage and deliver projects. Service Managers will provide specific product / service expertise and be responsible for delivery of service as defined in Service Level Agreements

Services

Decision Support Services

> Responsible for providing consistent and reliable decision support reporting services to ensure the integrity, operability and availability of Mercks information asset. Responsible for supporting the design and development of data warehouses and the necessary supporting data marts. Responsible for supporting the integration of Mercks information across these data marts into the reporting solutions

>

>

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Internal Shared Service Definition

Architecture Services > Responsible for management of Application and Information Architecture. This will include developing a architectural strategy and plan in response to changes in business or functional strategies.
Integration Services

Services

Responsible for providing policies, procedures, reusable assets and specific solutions in support of Mercks enterprise integration needs.

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Internal Shared Service Definition

Project Services
>

Services

Responsible for managing and deploying shared compliance, system testing, release management and resourcing (staffing) services to ESS Projects. Compliance will be monitored according to both regulatory and internal Merck requirements. Release Management is the coordination of the overall release of new technologies / functionalities. Resource Managers will administratively manage and deploy resources from a single resource pool. Deployment will be based on matching resource competency with client demand. Resource managers will not be responsible for formal staff (performance / development) management functions

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Shared Services Next Steps

> Professional Services Phase Two > Enhanced Service Definitions > Global Infrastructure Integration > Detailed Consolidation Plans

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Professional Services Implementation Team Members

> Bisschops, Marcel; > Callahan, Brian T; > D'Angelo, Dawn M.; > Griggs, Ken; > Hsi, Amy; > Hsiou, Yu; > Kamel, Sherif; > Mure, Michael; > Sa, Vilma; > Schwab, Rosanne C > Semanchik, Scott M.; > Sheridan, Hugh > Vastano, Frank L.; Enhance Recommend Assess

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PSM Implementation Team Meeting Outcome

> Assess education/skill relevant to role > Invest in team building > Capture lessons learned and develop action plans (continuous process improvement) > Define workflows by projects in relation to project size and roles > Work with Global Infrastructure to strengthen integration points > Build and leverage shared service capabilities (testing, PMO,)

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Proposed Development Team Structure

X-Small
ESS Client

Small
ESS Client

Medium
ESS Client

AM/PM

Architect

AM/PM

BA

Architect

AM/PM

BA

PM/Dev

GI

PM

GI

TL

PM

TL

GI

Dev Team

Dev Team

Dev Team

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Proposed Development Team Structure

Large Program
ESS Client

AM

BA

GI

PrgM

Architect

TL

PM

PM

TL

PM

TL

Dev Team

Dev Team

Dev Team

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Proposed Operations Team Structure

ESS Client

GI

PrM

Architect

Ops Team

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If You Have Questions About PSM

Talk to any of the PSM Reps

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Enterprise Systems & Services (ESS)

IT Off-Shoring & Project SDI How Does It Impact ESS?

February 28, 2005

Off-Shoring Project SDI

1 2 3 4

What Is Project SDI? What Is Project SDI?

How Does SDI Support The ESS PSM?

How Does SDI Support Career Development In ESS?

Project SDI Next Steps

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Mercks Goals For Off-Shoring

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Pharma Industry Is Getting Aggressive About Offshoring

Activities
Applications for mainframe, AS/400, Lotus Notes, Domino, SAP Data management for clinical trials Systems development, maintenance and support Data management for clinical trials Applications maintenance and development for select applications Application management services

Location
India

Vendor
Tata Consultancy Services (TCS)

Comments
400-700 FTEs in IT worldwide by beginning 2006 Dedicated offshore development center

Top 10 Pharma - 1

Montevideo (Uruguay) India

Tata Consultancy Services (TCS) Accenture

Top 10 Pharma - 2

Top 10 Pharma - 3

India

mPhasis

Top 10 Pharma - 4

India

Infosys mPhasis

Dedicated offshore development center for application management

Top 10 Pharma - 5

IT systems management

India

Satyam

Top 10 Pharma - 6

20 million of IT services
Application development and maintenance

TBD TBD

TBD TBD
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Top 10 Pharma - 7
Source:

McKinsey research; expert interviews

Pharma Industry Leveraging IT Offshoring

Activities Offshored
Application management Dedicated offshore development center for Application management services Application IT systems management

Location
India India

Operating Model
Outsourced Outsourced

Vendor
mPhasiS

Infosys

India

Outsourced

mPhasiS

India

Outsourced

Satyam

Dedicated offshore development center Applications for mainframe, AS/400, Lotus Notes, Domino, SAP Data management for clinical trials Systems development, maintenance and outsourcing

India

Outsourced

TCS

Montevideo (Uruguay)

Outsourced

TCS

Source:

Press research, expert interviews

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Project SDI (Systems Development India)

A project team was appointed (Terry Jacklin, Fred Puelle, Nick Riccio, and Frank Vastano) by the ISLT in November, 2004 to review work completed earlier in the year that identified opportunities to shift Merck IT spend to more strategic initiatives An approach was designed, with the help of McKinsey consultants, to focus on commodity activities that are being performed by contractors and project-based vendors An implementation plan was developed that properly balances savings realization and risks by setting forth an aggressive vendor selection timeline, but allowing sufficient time for knowledge transfer and dual operations Target spend was identified in ESS, USHH, MMD, and Infrastructure (DBAs) that could be offshored to realize $2.8 to 5.1 million of expense savings in 2005 Nine vendors were engaged to bid on an RFP that was issued on January 10, 2005, which used a modular structure to enable the selection of 2-3 vendors for the initiative Vendor selection is targeted for March 7, 2005
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Focus Of Current Effort

Labor spend, $ Millions Focus to date Additional opportunity to investigate

Capital

Expense

Contractor

~100

~90

Identified 2.8-5.1 in contractor expense savings Need to identify additional opportunities in this category

Employee

~50

~275 Later we would look to expand into capital work

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Approach For Identifying Off-Shoring Candidates

Division applications/ activities

Other IT activities supporting Division (e.g., DBAs)

>Project groups >Project work >Maintenance work

>Activity groups

>Filter to identify offshorable projects >Projects to offshore

>Filter to identify offshorable activities >Activities to offshore

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RFP Module Definition

FTEs
>Module >Web Dev/ Support >Testing >ESS
Web Support: 4.5 Web Dev: 16 Project Charlotte: 20 CIM: 6 EZ-Buy: 4 Finance: 3.2 HR: 16 Helpdesk: 34 Sales Portfolio Testing: 30 50

>USHH

>MMD-A&IT

>Infrastructure DBA

>Total
20.5

>ESS

29.2

>USHH Helpdesk >USHH Support >MMD/ Infrastructure

Total 69.7

34

Portfolio Applications Support: 60* MMS Impact: 3 QRIS LIMS: 4 124 7 7 DBA: 7

60*

14

207.7

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Off-Shoring Project SDI

1 2 3 4

What Is Project SDI?

How Does SDI Support The ESS PSM? How Does SDI Support The ESS PSM?

How Does SDI Support Career Development In ESS?

Project SDI Next Steps

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The ESS Professional Services Model

ESS Professional Services Roles:
Account Managers Program Managers Resource Managers
Requirements Design Concept Requirements Design Concept

Project SDI Candidate

Construction Installation Operation Retirement Construction Installation Operation Retirement

Budget Planning Day-To-Day Activities Organizational Support Large Capital Projects Small Projects (Capital Or Expense)

A c c o u nt M a n a g er

ESS Centers Of Excellence Technology Contractors Other Merck Centers Of Excellence Package Vendors Offshore Vendors
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Program Manager #1

CLIENT

Program Manager #2

Off-Shoring Project SDI

1 2 3 4

Recent Activities

Current Vendor Ranking

How Does SDI Support Career Development In ESS? How Does SDI Support Career Development In ESS?

Project SDI Next Steps

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Common Platform Organizational Transition (Phase I)

Professional Services Model (PSM)
Operational Support

Portfolio Management Model (PMM)

Common Platform Development
Project SDI
50%

Grade 4 Grade 5 Promotions Grade 6

Concept & Requirements

30%

Grade 4 Grade 5

Candidate

Grade 6

Grades 7-9

Grades 7-9

Contractors
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Common Platform Organizational Transition (Phase II)

Professional Services Model (PSM)
Operational Support

Portfolio Management Model (PMM)

Common Platform Development
Project SDI

Grade 4 Grade 5 Design & Development

Grade 4 Grade 5

Candidate

Grade 6

Grade 6

Grades 7-9

Grades 7-9

Strategic Outsourcing

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Off-Shoring Project SDI

1 2 3 4

Recent Activities

Current Vendor Ranking

Preliminary Financial Analysis

Project SDI Next Steps Project SDI Next Steps

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Project SDI Next Steps

> March 2, 2005 Team Decision Meeting & Reference Calls > March 3, 2005 Recommendation Memo To Sponsors > March 7, 2005 Decision From Sponsors > March 8, 2005 Thru March 9, 2005 Prepare Vendor Communication > March 10, 2005 Thru March 11, 2005 Announce Decision To Vendors > March 12, 2005 Knowledge Transfer Phase Begins

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2005 ESS Objectives & Themes

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ESS 2005 Objectives and Themes

Deliver Business Value through IT Enabled Solutions
Finance Transformation Merck Production System Common Platform Integrated Talent Management and Global Compensation MRL CLPA
Build and Create the ESS Global Shared Services Model Enterprise Document Management Strategic Sourcing, Project SDI ESS and GI Integrated Shared Services Model Quality Assurance, Program Management, Metrics, Communication, Change Mgmt
Simplify and Standardize the Global IT Environment
PeopleSoft Banyu Integration, U.S. Payroll and Time/Labor EZExpense Upgrade Charlotte Technology Center Six Sigma Production Environment

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