Consolidating the business of HR

Reorganizing benefits administration, payroll and other functions through shared services and — potentially — outsourcing.

There are your HR personnel located? Are they scattered across divisions and sites, performing similar tasks? Consolidating human resources staff under one roof — termed shared services — is a strategy that allows for greater efficiency, laying the groundwork for a more strategic deployment of HR.

Shared services evolved over the last decade as a strategy for the delivery of internal services within large multi-national private sector organizations. The consolidation of backroom transactional processing activities brought significant cost savings through reductions of duplication, the development of common standards and processes, and the application of technology to processes.

Early adopters of shared services were typically chief financial officers in Fortune 100 companies who foresaw the cost saving opportunities by combining accounts payable and receivables. They built huge global shared service centres and proved that the service could be effective and centrally delivered. Although shared services had most appeal for large companies with huge decentralized processes across provinces and even countries, small and mid-sized companies can benefit from shared services by adopting some of the disciplined practices that make it a great improvement over the bad old days of centralization.

More recently, shared services has emerged as an important enabler for HR departments looking to improve service delivery.

So what HR services are commonly consolidated? Common areas that are included in a shared services model include:

•benefits and pension administration;

•payroll;

•relocation assistance; and

•recruitment support.

Emerging shared services include:

•global training and development;

•succession planning; and

•talent retention.

What’s the attraction of a shared services model for HR? Shared services is basically a model for good business practices like agreeing to do annual customer service surveys, benchmarking services with outsourcers and generally running HR services as if internal clients have choices.

In its purest form, shared services begins with physical consolidation in order to capture scale. Many of the HR departments adopting shared services, such as Hewlett Packard, Kraft, Honeywell, GE, Ingersoll Rand, realized huge savings because their shared services centres needed considerably less staff following consolidation. Productivity goes up and it offers HR groups the opportunity to significantly re-engineer processes.

Too many of human resources’ products and services are pushed to the business units and regions. The consolidation of services allows for an economy of scale that can increase offerings. Although services, such as benefits administration, will be standardized, flexibility can be offered to internal clients in other areas such as training and development. Management and front-line staff should have some choice over the products and services they receive and in what format. Maybe they don’t want a standard three-day, one-size-fits-all training program.

One thing is certain, decentralization is no longer a viable strategy, especially for transactional services. If you started a company today, you would not put an HR group in each geographic region or business unit. There is enormous duplication in this kind of model that is quite simply no longer affordable.

In organizations with a history and culture of decentralization, there will be enormous resistance and irrational arguments made in order to retain transactional service at the local level even though it makes no business sense. For example, some executives have said that dental claims administration is strategic; that if it is not done locally, morale could suffer, people could become unhappy and generally the sky could fall down.

There is no rational argument for employees needing a Joe or Susie physically sitting in their office answering dental claim inquiries. What employees want is instant, fast, accurate information — they don’t care how or who gives it to them.

There is a proviso about regional or national sensitivity, however. For example, if a central call centre is located in the United States to handle questions about benefits, it can be off-putting for Canadians with inquiries to hear comments, such as, “You need to check with your HMO on that.” Be sure personnel answering the phone are aware of issues in the jurisdictions where employees call from.

A contract between HR and its clients
Shirley Fudge, vice-president of human resource shared services at Scotiabank, is running HR like a business with service level agreements that create a real accountability for meeting stated standards and levels of service.

Her service level agreements include a list of products and services with the turnaround times clearly spelled out just like any business process outsourcer would have to do. For example, it is clearly stated how many hours for an inquiry to be answered, how many days for recruitment to be completed.

She has built a strong internal group dedicated to customer service which helps HR at Scotiabank get ready for the future by understanding the department’s own business and knowing where costs and customer-satisfaction levels land.

This will enable Fudge to make fair and tough comparisons when business process outsourcers come knocking.

Outsourcing
Full-scale human resources outsourcing is still relatively new and many companies are watching to see what happens. But when HR is run like a business, inevitably the question of outsourcing will arise. Does it make sense for the HR department to provide a service or can it be done cheaper and through outsourcing?

Business leaders must constantly make decisions on how to invest precious capital. Although it may be tempting to consider building big internal e-enabled services with employee and manager portals, it’s important to ask if that is the best use of scarce company capital? Is it better to let an outsourcing partner deal with the development of a portal?

The debate over outsourcing is still a contentious one amongst HR professionals. Even though most large business process outsourcers, such as Exult, EDS, IBM and PricewaterhouseCoopers, take on the staff from the client organization, there is no doubt outsourcing is a very big step and can be a gut-wrenching time for HR departments weighing the pros and cons.

But shared services discipline will put HR in a better position to make rational decisions based on fair and tough comparisons of price and value and to build good agreements and contracts.

One of the key lessons from world-class practices of outsourcing is to be clear on why you are outsourcing. How else can HR compare its operations with a business process outsourcer if it has not been running like a business? Without that discipline in place — knowing today’s cost and how customers perceive the standards and level of quality of services — it’s impossible to know if the outsourcers quotes on prices are as good as yours or better?

It is often said that the real value of human resources is at the strategic end in areas such as workforce and succession planning, talent development and strategic recognition.

That is probably true but not at the expense of the core menu of services that people have come to need and expect. HR must have the basics right before moving on to strategic value. There is an old story about an internal HR conference in a major company where the CEO had been invited to speak on the topic: HR as a Strategic Partner. The CEO just had a very poor service experience when an offer letter to a hot new executive had been full of errors. The CEO stepped up to the podium and said, “Don’t talk to me about strategic value when you can’t even get an offer of employment right.”

Shared services is not a magical one-time fix for everything wrong. The point of shared services is building basic business discipline, knowing the costs and perceived value of what you deliver. Running HR like a business means taking advantage of economies of scale and leveraging expertise.

On the transactional side, you need to consider if there are opportunities to improve consolidation. With professional services, you need to see how you can get HR expertise used. Having decentralized organizational development for example is not a good use of company resources. It would be better to pool that expertise and create specialties so the whole company can access the talent. These are winning business propositions for any sized company. In smaller firms, if you want to push the envelope, you may consider getting a group of small-sized companies to pool expertise and try sharing common services.

Consider how to best use shared services on the road to value. You don’t have to name it shared services or make a big announcement. Just get the HR function ready so it’ll have the right information to decide when it’s time to move down the road to outsourcing.

Barbara Quinn is a senior partner with CAIL Consulting Group Inc. She co-authored the best-selling book Shared Services: Mining for Corporate Gold. Her new book Snap, Crackle or Stop: Change Careers and Create your Own Destiny is due out under Perseus in the U.S. and Canada in May 2002.

To read the full story, login below.

Not a subscriber?

Start your subscription today!