Shared Services: Cost Effective, Business Efficient and so Much More

Mention Human Resources ‘change and transformation’ to an HR Director in an organisation of a certain size, and at some point the conversation almost always turns to shared services. At our HR Leaders gathering in Melbourne, Australia, every company in the room, whatever their size, was engaged in some form of HR transformation — some were well on the way, some had just started, and some had come out the other end, but everyone had a personal interest in the topic of transformation.

The one trend that consistently emerged in our Melbourne discussions is HR’s move toward shared servicing, meaning taking the day-to-day transactional business away from HR, allowing the HR Business Partners to act as true strategic partners to the business. The key tasks that the shared service function generally performs include payroll, onboarding, data management (including data entry in HR Information Systems such as learning systems, Helpdesk and compensation administration), HRIS system configuration/ reporting, and projects.

Why all the Sharing?

Shared services involves the creation of a group to provide a service to the entire organisation, where previously the service had been provided by multiple groups throughout the organisation. This may or may not mean that the shared service function is offshore. The original motivation for this move is almost always cost-driven, but in our discussions it became clear that many other advantages came out of the transition.

Advantages

• Cost Effective: As mentioned, the primary motivation for a move toward shared services is almost always with a view to reducing costs. The transactional HR business that can be outsourced to shared services is generally low level and can be executed by less experienced HR staff. When shared services are offshored, they are based in a cheaper location, resulting in cost efficiencies in the form of both overheads and labour. Of course, creating one group in the organisation for a particular set of tasks, where formerly there were many, will also result in economies of scale.
• Transparency: Sharing services is also a more transparent system, in that companies can more easily quantify the costs pertaining to these transactional services, whereas it is difficult to define and separate these costs when handled by an HR Generalist.
• Efficiency: In addition to these cost savings, companies are finding that the shared services team becomes extremely effective at the transactional business they handle, because they are so focused. For example, if there is a question pertaining to the onboarding policy, the business or the HR Generalist can approach the onboarding specialist in the shared services centre, getting their answer quickly.
• Strategic HRBP’s: One more positive ramification in handing over the transactional business to another team is that it frees up the HR Business Partners, allowing them to be utilised as strategic partners to the business. Because they are not involved in the day-to-day HR issues, HRBP’s are able to partner with the business on more critical issues like talent and performance management strategy, as well as organisational development. IBM implemented a shared services strategy seven years ago, and according to Marc Havercroft, Leader HR Strategy, Innovation and Solutions, “We were looking to enable a consistent high level service for our Centre of Excellence to our Business Partners, and thus execute the strategy of true business partners, as opposed to HR police. HR is now a business driver, not a service centre.”
• Empowering the Business: Another common objective of implementing a shared services model is to empower the business to take more responsibility for their human resources/ human capital decisions. The ideal outcome is that the HR Business Partner does act as a partner in enabling the business to own their strategic resourcing, talent management, organisational development, etc. In this way, the business is less reliant on HR for these strategic services and acts more independently, while using the HRBP to aid them in achieving the desired outcome.
• Knowledge and Resource Management: Having a shared service may also bring about better sharing of knowledge and resources between divisions. Havercroft states, “At IBM we have businesses within businesses. The Shared Services Centre has become a ‘catch all,’ spotting potential areas of collaboration and producing greater innovation for our clients locally and globally.”

Challenges

• Separation Anxiety: With any transition involving so many positives, there are bound to be some challenges as well. First and foremost, there tends to be a period of separation anxiety from both sides. HR tends to cling to what they have done in the past, and can be reluctant to hand over the transactional business they are used to handling. Conversely, the business may still rely on HR to fulfil their day-to-day needs, rather than fact finding through a shared services function themselves.
• Multiple Language Support: Global businesses may face an additional challenge when they require multiple language support from a shared services function. The business may need to employ language specialists to deal with a number of different geographies, both on the phone and in written documentation.
• The Change Process: In any organisation, the change process itself can present one of the most significant trials in implementing change. When asked about the key challenges to the shared services model, IBM’s Havercroft responded, “The change process - people in any change need solid Business Process Reengineering methodology and process, and you must have a CxO level champion, and the golden rule of over-communication to all levels of the organisation.” These challenges are not insurmountable, and any change will require an adjustment period, which should be factored into performance expectations in the short term.

Conclusion

It was concluded in our discussions that although initially the HR transformation around Shared Services is generally pushed out to the organisation, at some point this changes to a more consultative environment, from which all parties stand to gain. Whatever transformation the organisation is going through, it is important not to lose sight of the customer and what the organisation is trying to achieve as a whole. It was also agreed that effective and open communication throughout any transformation can mean the difference between confusion and resistance, if not employed, and effective change, which is well received, if done well.

We look forward to our next series of Melbourne HR Networking Sessions, which will be held in May 2014.