Shared, Services, Option, Organisation

How to set-up the HR Shared Services option in your Organisation - Part I

02 Sep 2003 | (News)

by Peter Reilly, Institute of Employment Studies
Tony Williams , Head of HR Shared Services, Royal Bank of Scotland Group

Over the next 3 issues we will be sharing our views on ‘How to set-up the HR Shared Services option’ based on the findings of our book which is due to be published soon (1). In this first issue, we consider the organisational context for HR Shared Services and whether you are ready to implement this approach in your company. Having established that your organisation is ready for change, the second issue will share some key learnings from organisations who have progressed the shared services option on how to create the right solution. Finally, we will give our opinions on what we think are the critical success factors for ensuring that your HR Shared Services model delivers against the different, and sometimes contrasting expectations, within your organisation.

How do you know you are ready for the shared services option ?

A good place to start, when assessing readiness for HR shared services within your organisation, is to actually agree on what it is (and isn’t).

In our view, shared services has to have 3 key attributes:

1. The nature of the services are determined primarily by the customer
2. There is common provision of services
3. They are available to a number of users

For us, the key issue is the first one and put simply by David Ulrich “the user is the chooser”. Obviously in practice how much of a shared services approach is ‘customer-pull’ or ‘supplier push’ varies greatly and some shared services examples have been centralisation by another name. However, the discipline of the concept of ‘choice’ can give ‘real’ shared services businesses a more commercial focus than its centralised functional predecessors.

So what’s in an HR Shared Services function?

Taken to the extreme, the answer to this question based on our logic so far is anything that the customer wants. However, in reality there are some common themes found across the 100 or so companies looked at. An emerging theme from our research suggests that there are 2 levels of HR work increasingly found in HR Shared Services; Administrative & Advisory/Specialist. Examples of each are given below:

A. Administrative

i) General HR administrative services including recruitment processing
ii) Payroll (can be often seen in Financial Shared Services too)
iii) Benefits administration including savings and investments, cars, pensions and healthcare
iv) Training administration
v) Basic telephony queries on policy information and general process queries.

B. Advisory/Specialist

i) Relocation and expatriation
ii) Absence tracking and management
iii) Management Information provision
iv) Occupational Health and Safety
v) Specialist recruitment
vi) Acquisition support
vii) Case management support to line managers

More and more organisations are adding the ‘second-level’ services to their Shared Services model in response to customer demand. In our opinion, the more advisory/specialist services you offer, the nearer you’ll probably be to genuine shared services rather than centralisation.

But are we ready for HR Shared Services?

In the 3rd issue we will be talking about critical success factors however our experience has taught us that setting the criteria for success is something you need to work out right at the start. If you don’t, guess what, your senior management will tell you it is not working.

We think there are four principal reasons for organisations to introduce HR Shared Services and if you have 2 or more of these than you’re ready:

i) Cost savings
ii) Quality improvement
iii) Organisational change
iv) Technological development

Our assessment of many organisations is that the first two reasons are the more frequently seen, albeit cost savings alone are more often the mandate for centralisation, not shared services. Indeed, for those organisations who are under pressure to radically reduce their back-office or non-customer facing costs, whilst centralising services remains an option, pure shared services will not be achievable.

Many organisations including The Royal Bank of Scotland have used centralisation of HR services first to achieve considerable effectiveness, especially on the back of the successful NatWest acquisition. Other organisations, who are starting from a more devolved HR delivery platform, are using the cost saving efficiencies achieved through centralisation as part of their HR shared services strategy. The potential scale of saving can be up to 40% (akris.com/Andersen Survey 2001) and many organisations are reinvesting part of these savings in newer technologies to achieve step change in the way in which HR transactions are delivered. In our view, this is when the case for HR Shared Services is at its most compelling.

Whilst the reasons for looking at shared services are clear, often conflict of expectations can arise and the ‘virtuous’ circle becomes ‘vicious’. Our research identified some examples where conflict of expectations between cost savings and service improvements arise from different stakeholders. This is where the readiness for HR Shared Services can be at its most tentative.

If your organisation has successfully rationalised its HR delivery then the availability of cost savings are pretty much exhausted without considerable investment in ‘e-hr’ type technology, such as enterprise HR Information systems (Peoplesoft, SAP, Oracle) and web-based front-end tools providing information and transaction capability. This investment can be sizeable for large international PLC’s.

The main issue for us is to ensure that you engage the senior management of your organisation. You need to agree, unreservedly, why you are seeking to introduce shared services and ensure they remain your driving reasons for change all the way through your programme.

What about changing HR’s mandate?

Some organisations use the creation of HR Shared Services as a catalyst for repositioning the role of the HR function in the business. However, our advice is to get the basics right before discussing the strategic role that HR can play. Whilst it may be very worthy for HR to aspire to such a role, in isolation, changing the HR function may well be viewed suspiciously by the business leaders. Many HR teams have had a very difficult ride when seeking business support to an HR change programme without demonstrating tangible benefits to the business either in reduced cost or improved service. The creation of the business partner model and centres of excellence are developments that HR might seek to introduce, but initially the shared services model must address the primary concerns of their customers.

Conclusions

So we’ve covered what shared services is (and isn’t), what it might consist of, reasons why you might consider shared services and, as a result, whether you are ready and some pitfalls to avoid. We hope this is helpful and whets your appetite for our next article on how to create a shared services function.

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