The topic on shared services while not new to me but, attending the 9th Annual Asian Shared Services & Outsourcing for HR Conference May 4-5, 2011 Kuala Lumpur, Malaysia, gave me new insights in the the current state of HR transformation. I’ve summarized key learning and added my own ideas in this blog post.
A key purpose of shared services is to take advantage of economies of scale and cost-savings by combining common HR functions. This often involved centralizing back-office functions from multiple HR groups under a single shared service team.
Centralized shared-services function requires a standardize processes approach and ultimately allowing front-line HR to focus on strategic and business partner work.
Shared Services Continuum
At a basic level, organization pull together “back-office” administration under one roof in a single location, managed as a single team. Efficiency gain is derived from the elimination of the work that was previously done in multiple groups and locations. Processes and business workflow should be reengineered for optimal results. However, in most cases, work is simply relocated to a new location but, workflow is reconstructed in much the same manner as before the centralization. The idea is to not create disruption to existing service model and customer satisfaction.
Where centralization doesn’t go far enough, a shared service model takes advantage of economies of scale and process reengineering to optimize HR service delivery. High performing shared services organizations focus on customer service delivery by developing service level agreements (SLA), with performance metric score-cards. Cost is managed. A true shared service model looks at end-to-end processes globally.
Companies are increasing their presence in the global marketplace. The consequence for HR is delivering global policies relevant to the new market, weaving in corporate policies with local practices. Companies gain by leveraging the consistency of a shared service model globally in disparate locations.
Companies with matured shared services framework may look for furthering means of cost-reduction and labor arbitrage. Some have turned to third-party service providers to manage the organization’s transactional tasks on a fee-for-service basis. Companies may outsource a specific function such as payroll or staffing. Other organizations may implement a strategy of outsourcing the entire shared services function. Only the strategic and business partnering function remains in-house.
The approach a company takes depend on the business strategy and HR organization circumstances unique to each company. There is no right or wrong solution but making the most appropriate decision to delivering HR services to employees.
Foundation for Shared Services
After a company evaluates and determines there is benefit of a shared service function, it moves towards the design stage. Designing shared services requires consistent processes and a standardized HRMS.
Creating shared services capabilities require process reengineering, the process by which HR organizations thoroughly evaluate, assess and align HR policies. Global consistency is a strict requirement. Only critical country exceptions are allowed, typically for legal purposes. Allowing for business process exceptions, continuing to do things they used to be, creating process excursions, erodes the benefit of shared services.
The second element is creating a global HRMS platform. A common infrastructure allows for the “sharing” of business processes, service delivery and knowledge-base across the globe. The shared service center maintains all data related to the entire employee life-cycle.
Companies also rely on “employee self-service” to reduce reliance on in-person contact with HR for basic queries and administrative services. Self-service is built on the premise of consistent policies which applies to employees globally. Moving HR to the intranet is an accepted practice.
Managing expectations is essential in developing a shared service program. Employee will want to maintain the same level of direct one-to-one contact which they are accustomed. Another task is convincing the management teams the value of offloading tactical work and while line managers will want to see higher strategic work delivered by HR.
Finally, the HR team will need to be retrained on skills to perform in a shared service center. Front-line HR will need to develop strategic consulting skills to work with business units.
Any change will require executive sponsor such as the CEO and CHRO.
Managing Culture Shift
A careful assessment of the organization and HR culture will determine the level of adaptation needed for a shared services model.
|Direct HR involvement at all levels; low use of technology||Leverages on technology; direct HR involvement in strategic capacity|
|Talk to HR rep in person Same level of contact for all employee levels||Online Transactions
Utilizes employee/manager portals
|HR is the frontline for employee engagement||Line manager is the frontline for employee engagement|
|HR provides all HR services||Transactional work is delivered by a shared service team|
In part II of the blog, I’ll cover the types of functions that would typically be housed in a shared services organization. We’ll discuss location strategy to the service hub. Finally, having a change management strategy is critical to implementing an HR shared services.