Shared, Services, HR, Measures, Organisation

How to set-up the HR shared services option in your organisation - Part III

02 Sep 2003 | (News)

This article is the final (of three) instalments on how to set up HR shared services in your organisation drawn from our book (1). In the first issue we defined our understanding of what HR shared services is (and is not), why organisations may consider setting up a shared services approach and some key pitfalls to avoid. Last time, we focused on the actual practical steps we believe are essential in getting it right and some of the key decision points to consider. In this final piece, we consider what we believe to be the critical success factors for the many different organisations that have shared service operations. We also give our views on whether or not the implementation of shared services does indeed help get the best value out of HR.

The critical success factors?

A number of articles, surveys and presentations have been written on the subject of critical success factors including some linked to the SPBOA. In our research and book we took a very simplified view of the critical success factors for shared services which fall into 3 categories:

1. Efficiency - are the HR processes and services clear, concise and virtually error-free?
2. Effectiveness - does the shared services function contribute to HR's ability to support business objectives?
3. Economic - are shared services saving money!

Whilst the first two criteria are obvious, the third may seem a little inconsistent with the rationale for setting up 'shared services' summarised in our first article. In this we said that as shared services was primarily driven by the customer, its primary aim is to deliver service improvement. In practice, from the various examples we reviewed, including RBS, cost savings will always feature. The key is getting the balance right between service improvement and cost reduction. Too much emphasis on the latter will produce a centralisation, not shared services, outcome.

Monetary & Measurement

If you accept that delivery of the 3 critical success factors above will help you to determine whether your shared services function is meeting its objectives, then it is key that clear, concise & effective measures are needed to demonstrate this. Again we believe these fall into 3 areas:

i) hard measures - easily quantifiable metrics, including ratios (e.g. HR Processing FTE: employees of organisation), and costs (e.g. total costs of payroll)
ii) process measures - often a sub-set of the hard measures and can be as simple as single-step turnarounds (e.g. 48 hours for payroll queries) or end to end processes (e.g. 30 days to recruit external hires)
iii) soft measures - often over-looked by many organisations, but, in our opinion, this area is the one which will differentiate in the minds of senior stakeholders whether or not your shared services business is working. Good examples include client (stakeholder) and customer (line manager/employee) opinion surveys using measurable scales, senior management interviews for more qualitative data and internal staff satisfaction measures.

Efficiency & Effectiveness

We have often been asked what is the difference for HR shared services between efficiency and effectiveness. This is a fundamental issue for many organisations who have focused on the efficiency of their shared services processes (including RBS) but have not paid enough attention to the effectiveness of their operation. Here are five examples we have come across which may help differentiate your shared services function/business. We have offered up a table to help you compare the process efficiency measures versus the effectiveness (or outcome measures)

Efficiency Measures	Effectiveness Measures
Proportion of induction packs issued on time	% of new entrants who remain after 12 months
Time taken to recruit an external hire	Performance of new hires after 6 months
Number of training courses delivered	Value rating for internal courses
Percentage of payroll errors	Payroll costs per unit of output
Time taken to complete and process by line manager	Value rating of increased income from removal of HR process steps

As you can see, the effectiveness measures are harder to quantify, but many organisations that do have established shared services functions are starting to look at outcome measures (Source; EP-First HR Shared Services benchmark group).

Benchmarking

One way to help understand the perceived or real value of the shared services operation is to compare across similar organisations (not necessarily in the same industry/public sector but more by scale, scope and geographical reach of your shared services operations). Organisations such as EP-First & SPBOA are increasingly providing better comparisons of both efficiency & effectiveness measures. These are being used by the leaders in the shared services field. External comparisons can help the internal business case for change, as well as deal with both real & unreal expectations of senior management.

Reporting

Increasingly, as shared services operations become more business like in their delivery, the value of good reporting tools is being established. In the case studies we looked at, reporting of performance is increasingly becoming a hot-topic across shared service professionals and so in a review of actual success factors it is important to document the emerging trends. One good example is the way in which RBS has adopted the balanced business scorecard as a reporting tool to reflect the importance of cost efficiency, process efficiency, customer and client perceptions and the feelings and development of its own staff. As different stakeholders measure success on different criteria, this balanced approach is proving helpful. However, the need for more effectiveness measures remains.

How do you get the best value out of HR?

We mentioned in our introduction to this article that shared services is becoming a platform for the HR function to change its overall remit and therefore, even in the limited space available, we should close our thoughts by commenting on whether we think its working. In our book, we dedicated a whole chapter on our reflections of the pitfalls to avoid and the potential solutions to mitigate and it is clear that those organisations who also focus on these will succeed. It is also key to point out that in our first issue we did believe that different organisations will have different priorities for its own shared services function so the perception of 'value' will always be difficult to assess generally. In our view, there is no doubt that if your shared services function can demonstrate both increased efficiency (i.e. lower cost) and effectiveness (outcome measures) the verdict will be generally positive. However, regardless of the quality and quantity of measure you use there will always be a perception factor, especially at senior levels of the overall value that the HR function adds. We thought, in conclusion, we would offer two additional things to consider:

- Do your line managers/employees feel that HR is correctly distributing activity between their responsibilities and yours?
- Are you seen as helping the organisation recruit and retain the host of talent and recognising the contribution from your employees?

If these are also positive, the value of HR will be understood and HR shared services will be playing an important part.

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