Shared services defined.
Shared services refers simply to the consolidation and sharing of services by different units or locations within an organisation. Shared service approaches typically are driven by the desire to achieve economies of scale, enhance consistency or standardisation across the organisation, improve quality, leverage technology investments, manage labour costs within certain functions, and provide greater value to the business.
Services most likely to be shared among the various units or locations of a company include finance, purchasing, human resources and information technology. HR shared service operations can be configured in a variety of ways, but generally handle HR administration/transactions and deliver day-to-day HR services to HR’s customers, including employees and managers. These services can include payroll, benefits administration, salary administration, training administration, employee relations and other responsibilities of the HR function.
HR shared service centres often represent the first line of communication with employees regarding these various services and issues, as well as more advanced advice and support.
In this context, shared service models provide an excellent opportunity to exploit a flexible multicountry infrastructure, but the context also adds additional layers of complexity to an already challenging environment.
HR shared services was originally seen as most suitable for “e-enabled” sectors such as technology, telecommunications and financial services. While it has certainly been deployed in these sectors, other industries are increasingly using this service model in direct response to the global shift of business operations and the impact on support services.
Offshoring and outsourcing: Site selection for shared services
Offshoring and outsourcing have developed simultaneously with the evolution of shared services. The labour arbitrage available in offshoring by relocating activity from traditional locations to emerging economies – particularly in Asia and Eastern Europe – has proven irresistible. However, it has also introduced new challenges in terms of organisational change and culture within the HR function. Offshoring, which has changed from just a cost-reduction strategy to a strategic means of global staffing, can exist within an internally sourced or outsourced model. Total outsourcing – the transfer of day-to-day responsibility for transactional tasks to a third party on a fee-for-service basis – whether offshore or not, has been seen as a natural evolution of the traditional sourcing strategy and as the ultimate fate for the HR function (that is, “improve or go”).
There are benefits and risks to outsourcing (whether offshore or locally). Some of the benefits include a shifting of responsibilities to the most efficient provider, cost reductions due to labour arbitrage, scalability and ready access to advanced technologies, and process improvements. But with outsourcing, new risks appear, including the loss of service delivery under day-to-day control, language and cultural compatibility concerns, time zone issues, labour supply and turnover, intellectual property protection and lack of acceptance by internal staff.
HR technology: Reaping the benefits
Technology continues to play an increasingly critical role in managing HR business processes and delivering services. In recent years, HR technology has shifted from a focus on software to solutions, from long-term licensing to software as a service, and from stand-alone products to product suites. For example, talent management suites are becoming more popular. In particular, there is growing interest in solutions related to recruitment, talent management, learning and compensation management – areas now with significant opportunities to create virtual centers with functional expertise that can deliver consistent quality services to a global customer base.
Full-service and integrated solutions have been primary enablers and critical success factors in lowering HR operating costs, whether or not HR uses a shared service model. In particular, better functionality (such as self-service and multicountry capability) and better integration (such as between HR and payroll applications, whether ER P (enterprise resource planning) or “best of breed”) have improved the effectiveness of multicountry shared service implementations.
On the other hand, poorly deployed technology has been detrimental to many shared service centres. In particular, a failure to establish high quality data undermines the ability to use the system and trust it as a reliable system of record.
Other deficiencies have come from underutilising employee and manager self-service and other functionalities, and failing to simplify the underlying HR processes. These challenges, however, usually relate more to implementation capability than to technology capability.
Technology will continue to provide growth opportunities for shared services and for multicountry applications. For example, within the last 18 months alone, clear opportunities have developed in multicountry payroll technology. Once seen as strictly local, payroll can now be delivered regionally or globally.
Technological capabilities are keeping pace with an evolving vision of a global HR service delivery model. The forces reshaping the HR function are having an equally profound impact on the design and proliferation of shared service approaches. The increased complexity in both the business and the HR environments that surround shared services decisions presents both challenges and opportunities.
The value in exploiting these opportunities is the flexibility of the solution. Again, while best practices have their place, a shared service strategy must be custom built for each organization and its customers.
When expectations don’t match reality
For one US-based organisation, outsourcing administrative HR functions was the logical shared services solution. With the move to outsourcing, the organisation was counting on the transition of retained HR staff into HR business partners to work with the company’s “local CEOs” in more than 1,000 locations on issues such as workforce planning, employee retention and employee relations.
While the model was sound, the execution wasn’t. The implementation team underestimated the differences in the skills and competencies required in the old roles versus what was needed in the new roles. While some strategic-minded individuals were successful, most were not.
Instead of relationship building and partnering, many of the new HR partners remained focused on administrative transactions – sometimes duplicating or undoing the work of their outsourcing vendor. Trust and credibility quickly eroded, and the local CEOs questioned the validity of the model because not only were they not receiving strategic HR guidance, but they were also confused as to the value of human resources outsourcing (HRO), given the high number of errors, duplication and complaints from employees.
The HR leadership responded to this situation by partnering with the HRO vendor to develop and implement a targeted change management and communication campaign led by a dedicated team. As a first step, the campaign focused on clarifying the roles and responsibilities of the HR partners and the HRO provider using specific examples. By providing clear guidance on how employees should work directly with the HRO provider, and specific examples of what HR partners were not supposed to do, the HRO relationship began to stabilize.
Once the immediate pain points were remedied, the team focused next on delivering training to the HR partners on how to become truly strategic advisers to their business leaders. While the majority of the HR partners survived the journey, some decided to leave the organisation and others found roles more suitable to their skill sets.
Today, the organisation is working to identify the next phase of services to be outsourced and is ensuring that the significant change management issues faced early on are being addressed as part of the implementation process.
Anne-Magriet Schoeman is the Talent/Country Leader at Mercer Consulting (South Africa) Proprietary Limited, www.mercer.com.
This article appeared in the November 2015 issue of HR Future magazine.