Shared service and HR

　　IHRIM Journal . September/October 2003 1

　　SUPERMARKETS1 AND GROCERS

　　As introduction, a metaphor may be useful in describing the development of shared services. Imagine or remember the world before the supermarket. In each town or village there were a number of small shops, a butcher, baker, grocer for example.

　　It is easy to look back on the pre-supermarket era with a warm nostalgic glow. If well run, the local green grocer offered a friendly service and good local produce, and would know the suppliers and most of the customers personally. The shopkeeper would serve the customer from behind a counter, as they knew the produce best! Shopping was a pleasant social experience, and involved visiting a number of shops to get what was needed.

　　But, what appeared in the shop was subject to the vagaries of weather, season and local suppliers. Tomatoes were impossible to find in winter. The shop was only open for a few hours per day and perhaps even closed for lunch. If the customer didn’t like the shopkeeper, shopping could be a painful experience. The inefficiencies were passed on in the form of cost to the customer, and the bottom line — food was expensive.

　　Then, “in 1916, a paradigm shift in grocery store science occurred. Clarence Saunders invented the self-service grocery store. The first Piggly Wiggly opened on September 9, 1916 in Memphis, Tennessee.

　　The concept of the “self-serving store” was patented by Saunders in 1917.”2 Along came the supermarket and by offering convenience, vast choice, self-service with a basket, cheaper produce and consistency at the expense of the personal service, it put most of the grocers and butchers out of business.

　　Shared service has begun to do the same to HR. The “friendly” local HR person, who understands the local issues and knows most of the local people, is being replaced with a cheaper, consistent, impersonal call center and technology-based self-service. Local policies and quirks are replaced with standard policies and processes.

　　The HR supermarket is here, like it or not.

　　SHARED SERVICE AND OUTSOURCING

　　It is difficult to discuss shared service without mentioning outsourcing, but it is beyond the scope of this paper to delve into the pros and cons of outsourcing. The outsourcing community has initiated much of the drive to shared service, as HR outsourcing relies predominately on a shared service model.

　　Outsourcers are a major contributor to the development of shared service models. 3 If outsourcers are to succeed they require a profitable business model that delivers an agreed and measurable service level consistent with clear economies of scale and repetition. Shared service is a key component of this model.

　　The outsourcing debate has helped make the rational measurement of HR service and cost a part of modern HR.

　　Whether an HR outsourcer can save an organization money in the long-term and deliver better service is yet to be proven, but the process of building a business out of HR processes has brought about a more rigorous assessment of HR costs and service. Organizations that choose not to outsource can still learn much from the outsourcers. The “threat” of outsourcing has forced many complacent HR functions to improve.

　　The rapid growth of the BPO market is also a validation of the shared service model of HR delivery. Human Resources BPO is the fastest-growing segment of HR services spending. In 2001, U.S. spending totaled US$4.1 billion, and IDC projects that it will grow at a 29.8 percent compound annual growth rate (CAGR).4 According to Gartner, human resources (HR) is the most outsourced business process, with worldwide HR business process outsourcing (BPO) revenue on pace to reach US$46 billion in 2003, an 18 percent increase from 2002 revenue of US$39 billion.

　　By 2004, HR BPO is forecast to reach US$51 billion and represent 39 percent of all BPO revenue.5 Outsourcing doesn’t change what needs to be delivered (Employees still need to be paid, for instance.), merely how the delivery is financed. The advantages and disadvantages of shared service are similar, whether outsourced or not. Outsourcing is typically a form of shared service provided by a third party.

　　SHARED SERVICE AND CALLCENTERS

　　Shared service centers and call centers This article serves as an introduction to HR shared service. Without much hype or preordained vision, shared service plays a significant role in HR delivery today. This article aims to provide an overview of the key issues and points out some of the specific challenges of shared service, albeit from a mainly European perspective. It also suggests some areas for further debate. dominate the service landscape. Banks, insurance companies, utilities, phone providers, airlines, governments and retailers use them extensively in the sales and customer support process.6 The service delivery model has developed rapidly, fundamentally changing the nature of customer service. Despite challenges, the model is proven. The history of shared service can be traced back to the oil industry of the 1970s.7 Call centers and shared service, when staffed and run effectively, offer significant improvement over traditional service methods. Twenty-four hour service via the phone or e-mail is commonplace in industries that used to be office-hours bound.

　　Complaints and issues can be tracked, trends analyzed and processes improved. Service levels in society have improved, partly as a result of a move to service- focused models.8 In comparison with how long it took to get a phone or change an address with a bank 20 years ago, the progress today is remarkable. Many things that involved standing in queues and completing lots of forms are done with an e-mail, Web application or telephone call.

　　Call centers and shared service deserve some of the credit for this improvement.

　　Shared service can be taken too far though, and it is not the answer for every process. When badly designed or poorly staffed, it can fail dramatically.

　　An area that is in need of significant work is HR for service centers. Service centers create significant challenges for career planning, job satisfaction and compensation, and are often blighted by high employee turnover. The worse call centers are seen to be the modern equivalent of the Dickensian workhouse. More research is needed to solve the people challenges of service centers.

　　Service centers have limits, and it is simply wrong to suggest that all processes would benefit from a service center model.

　　Some processes only work with real-time face-to-face interaction. The challenge is to identify those few vitally important cases where such personal interaction is essential. This is as much a challenge for a bank looking to offer complex financial services as it is for the HR function.

　　In the UK, the banks have been accused of pushing the shared service call center model too far. In response, a hybrid model of service delivery is emerging, combining Web-based services, telephone call centers and personal service.

　　But shared service is now a significant trend. According to a recent study by Bywater, over 90 percent of the European 500 are considering some form of shared service, with HR the second most prevalent function (after Finance).9 Other studies provide similar statistics.

　　Many multinational companies have implemented HR shared service centers, some on a national basis, others on a regional basis and others on a global basis.

　　Examples of organizations deploying HR shared service include IBM,10 Siemens, Gillette, Cable and Wireless,11 SAP, Ford, HP, Leeds City Council, Centrica,12 Procter &Gamble13 Henkel, Vertex,14 BP, Shell, RBS, Nestle, Motorola, Ericsson, Compass, Eastern Health Services, Philips, Zurich Financial Services and Barclays.15 In the drive to reduce costs, a large bank has built its HR shared service center in India.16 Shared service has gained traction across all industries, and it could be argued that shared service is becoming the predominant model of HR service delivery in large organizations. It is also interesting to note that the majority of large consulting organizations that sell shared services have implemented them internally.17

　　In the UK, the government sector has embraced shared service, Leeds City Council, Staffordshire, Westminster and other London boroughs, Salford, Hertfordshire and a number of others as well as the health services are all moving to a shared service model. At a central government level, shared service is also having an impact. Examples of shared service best practice can be readily found in the UK public sector. The decision has partly been driven by the government’s 2005 edelivery initiative, but also by a need to cuts costs and improve service. Indeed, a number of years ago Ulrich noted, “The concept of shared service has suddenly and without much fanfare, become a model for the organization and delivery of staff operations, including human resources.” 18

　　Despite this significant move to shared service, there is limited academic research available on HR administration and shared service, at least that I have been able to uncover.19 Much of the HR research has been focused on how HR can become more strategic — human capital management, HR as business partners, etc. There is little on the more prosaic components of HR. Stripping costs out of administrative processes, while maintaining or improving service levels, has received relatively little attention. It seems that strategy is more fun.

　　However, in the UK, the Institute of Employment Studies has recently done some interesting research. This study is well worth reading, as it is well researched and bereft of any subliminal sales message.

　　20 However, given the impact that shared service has on the business, the HR function, and its cost implications, more empirical research on best practice would be welcome. Most of the research to date is vendor- and consultant-driven.21

　　SHARED SERVICE — A GLOBAL STORY

　　Most organizations are looking at methods of squeezing costs out of every business function. The drive to strip out costs from all parts of the business is relentless and ruthless. Online procurement and auctions have helped reduce cost from the purchasing cycle.22 Integrated supply chains have dramatically lowered cost of production. Production has been shifted to low-cost countries or has been sold off altogether.23

　　In the same way that organizations have shipped production to the most cost-effective country, services are also on the move. The recent explosion of offshore outsourcing deals for IT and customer support functions illustrate how far organizations are prepared to go to reduce costs.

　　This is not a new trend, but an extension of one that Marx identified over 150 years ago: “In place of the old wants, satisfied by the production of the country, we find new wants, requiring for their satisfaction the products of distant lands and climes. In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal interdependence of nations for material and intellectual production. The need of a constantly expanding market for its products chases the bourgeoisie over the entire surface of the globe. It must nestle everywhere, settle everywhere and establish connections everywhere.”24 To put this is a more modern context, Deloitte Consulting believes that in the next five years, two million jobs in West- ern financial institutions will be moved overseas. Given that Britain accounts for 10 percent of all outsourcing to Asian economies, this translates to 200,000 British jobs heading East. Deloitte forecasts that US$356 billion worth of financial services activity by turnover will be moved away from first-world economies in the next five years. The institutions that shift the work offshore will save US$138 billion. Adecco, the recruitment firm, has predicted the transfer of 100,000 jobs in call centers alone from Britain to India by 2008.25 Service centers are migrating it seems.

　　Traditional methods of HR delivery are under the same cost microscope, and it is unlikely that this migratory trend will pass HR by. Human Resources is not immune to the forces of globalization. Already a number of UK banks are moving HR administrative functions either offshore (India typically) or near-shore (Poland or Czech Republic for instance). Major BPO providers are establishing centers in India (Exult for example).26 Companies in India are training call center operators to understand and even mimic local accents.27 Human Resources greengrocers are in for a shock.

　　THE STRATEGIC ELEMENT OF HR

　　This article will not dwell at length on the “is HR strategic?” debate. There are a number of stirring visions of the HR function as the vanguard of change and strategic leadership.28 Human Resources’ potential to be strategic is not doubted here, yet despite this, in most organizations today, HR is still predominately perceived as a support function by the organization it attempts to serve.29 The day-to-day reality is to support employees and managers in coping with people related issues.30 A cynical test of HR’s perceived strategic value today is the number of HR directors who have become CEOs.

　　Several years ago Brockback31 commented in the Harvard Business Review that HR couldn’t be strategic unless it learns to do the basics right. Stewart’s32 seminal blow up HR article still asks some awkward questions of HR today. As Reilly noted more recently, “Whether it likes it or not, the HR function is frequently judged on the capacity to do the basics right. And this applies to senior managers as much as to shop floor workers.”33

　　Machin and Williamson note, “Most HR professionals would admit to feeling that sometimes they do not get the respect that they deserve. Indeed over the last few years, doubts about the contribution of HR, in its current form, to organizational performance have been increasing, to the point where some commentators are asking whether the function should be disregarded altogether.”34

　　Most administrative tasks don’t require a deep and meaningful personal relationship with an HR person. In the same way that most people are happy to order a new credit card without meeting the bank manager, much of HR’s routine work can be done with limited face-to-face contact.

　　If HR doesn’t assess shared service, Finance or IT may do it on HR’s behalf. This is especially so in organizations that have successfully deployed shared service and call centers in other business functions. If Customer Care and Finance operate under a shared service model, the pressure on HR to do the same may be considerable.

　　Yet the supermarket has not killed off all shops, on the contrary, it has encouraged the development of specialized, high value-added, high profit margin stores that focus on delivering goods and services that are complex, different, rare or hard to find. Customers do occasionally value personalized professional advice and specialized service, and are prepared to pay for it. The shared service supermarket is not the answer to all HR issues, but it can create an environment where the routine and the strategic can be given the correct amount of differentiation.

　　The HR function that is able to identify those unique and valuable services and offer them in a personalized and knowledgeable way, while at the same time ruthlessly reducing the cost of routine processes will have achieved the right mix of services in the corporate mall.

　　As Lenz noted, “The successful organizations managed to integrate the competitive features of customer focus and flexibility with the equally competitive features of economies of scale.”35

　　A LOT OFTHE JUSTIFICATION FOR

　　SHARED SERVICE IS ABOUT COST REDUCTION

　　Eighty percent of respondents to a survey conducted by Gartner cite cost savings as the biggest driver of HR outsourcing.36

　　At a recent conference, leading global organizations were clear that HR headcount reductions were a key driver behind the shared service model. They have reduced HR headcount by 30 percent and in some cases 50 percent.37 As one participant put it, “If manufacturing is cutting headcount yet delivering better product faster, we in HR need to do the same.”38

　　The Bywater study noted that 78 percent of organizations see cost reduction as the biggest driver for shared service introduction. 39 A Mercer study noted most of the business impact surveys suggest that the potential savings from shared services are between 15 and 40 percent of labor cost.40 This is perhaps indicative of the current state of the economy, and some organizations that have a myopic focus on cutting cost and fat may induce an unhealthy corporate anorexia. Shared service should be seen as more than just a quick route to strip off a bit of the HR function. If that is the only driver, then service is likely to suffer, and costs will climb back in the long run. Any obsession is normally unhealthy, and low HR staffing ratios should not be seen as the only measure of HR success. Research, both by HR academics and financiers, highlights the limitations of cost-based valuations.41 Recent corporate ethical incidents point to an unhealthy focus on the tangible measures in many organizations. Nevertheless, sometimes HR needs to speak the language of cost savings, even if there is a great intangible benefit, too. Human Resources has often failed to secure the capital investments it requires to be strategic, because of an inability to articulate benefits in the language of the purse-string holder, the accountant.

　　Shared service should be seen as part of a broader HR service model, not just as a cost cutting component. In the Bywater study, 64 percent of participants saw improving service standards as a major driver.

　　Can shared service offer better service than traditional HR methods? Yes, provided that shared service offering is part of a well-thought-out HR delivery model.

　　HR DELIVERYMODEL

　　Over the past decade a new model of HR delivery has developed. Many organizations now separate consultative HR services from administrative ones. Again, Ulrich deserves considerable credit for this to explore the model in detail, but it is worthwhile providing a brief overview.

　　Human Resources is split into three clear roles. Figure 1 illustrates how the differing foci and roles fit together.

　　Business Partner: A consultant to the line organization — able to provide strategic input to line managers, and align HR with business. This resource typically sits within the business. In a leading bank, these people are called account managers.

　　They are responsible for growing the relationship with the line as a partnership.

　　They sell the value of HR to the line! Specialist or Expert: HR is often complex and requires significant expertise (European labor law is an example). This expert typically designs policy and provides expert advice. The term specialist has a different meaning in U.S. organizations than it does in many European ones.

　　In the U.S., specialist is sometimes used to denote the bottom of the corporate hierarchy, an apparent euphemism for clerk.

　　In continental Europe, the term specialist is synonymous with expert, so to be labeled a specialist is something of an accolade.

　　By centralizing expertise, organizations enable greater specialization. The complexities of European labor law are such that it is impossible for a generalist to know all the rules. The specialist will be called on to resolve complex issues, develop policy and consult to the line on strategic issues. The management of this role creates the greatest challenge: how to motivate and develop HR experts is one of the biggest issues facing shared service adopters.43

　　Administrator: Provides transactional support and processes routine queries, handles administrative issues quickly and accurately, at the lowest possible cost, and typically sits in the service center. Some organizations use the customer relationship management term agent to describe this role. This role requires the greatest technology support.

　　WHY SHARED SERVICE — ISTHERE

　　MORETO ITTHAN JUST COST SAVINGS?

　　Besides the obvious cost saving benefits, what are the other benefits and drivers?

　　Reilly notes (in probably the most extensive study on shared service to date in the UK) that there are three key drivers for shared service: cost, quality and organization change.44 The cost driver has been discussed earlier, but the quality and organizational change elements are at least as significant.

　　There is a perception that shared service lowers the quality of HR service and reduces the options available. The feedback to date from successful shared service projects is the opposite. A report about Barclays Bank recently noted, “The SSC exceeded its target of a 44 percent reduction in head count by the end of 2002, which not only illustrates the cost savings involved, but is a whole year ahead of schedule. Line managers can get the input they need more easily than before. Staff feedback is good because they are dealing directly with HR rather than filling in forms. The working shifts and environment have also been changed so that the SSC can cover the company for more hours than before.”45

　　Employee and manager satisfaction is improved. Organizations such as Ford talk of significant improvement in employee satisfaction.46 Validating employee satisfaction requires an investment in measurement.

　　The use of software helps to track empirical factors such as time to handle query, quality of response and number of escalations. Several organiza- Figure 1. HR Service Delivery.

　　Source: Arinso International. TO BE HR Service Delivery

　　HR Operates in Three Business Lines

　　Conceptualisation of HR Intelligence into HR Strategies/Processes

　　Conversion of HR Strategies and Processes to content specific HR processes to support a specific busines

　　At a recent HR shared service conference, the overwhelming majority of companies applied benchmarking and had initiated a regular comparative analysis.47 Hackett, SBPOA, Saratoga, and IBM global services all provide excellent statistics for HR benchmarking.

　　Reilly and others note there is a clear improvement in HR service with successful shared service. Anecdotal evidence from conferences and consulting feedback reinforces this. Reilly notes the main quality improvement elements in some detail.

　　Human Resources has a desire to:

　　. Be more professional in the work it does,

　　. Achieve greater consistency and accuracy,

　　. Be more aware of best practice internally and externally,

　　. Use better processes to complete its work, and

　　. Deliver work on time and on budget.

　　This would deliver an incremental improvement in service, but Reilly goes on to note that the research uncovered a significant drive for HR to become more customer orientated. He summarized this as follows:

　　. Being consumer-, not producer-driven,

　　. Become more accessible (open more hours and ease the process of contact),

　　. Improve the supply of information,

　　. Offering better quality support in-line with customer needs, and

　　. Operating user-friendly services.48

　　He also stressed the desire for continuous improvement — to offer better services on a consistent basis. By introducing this model, senior HR people were looking to affect an attitude change, a move to customer service rather than policy enforcement.

　　Clearly, the desire and evidence point to shared service being more than just cost reduction exercise.

　　ORGANIZATION CHANGE

　　Recently, Alf Turner, HR services director from BOC, an early European Shared Service pioneer, commented, “Separation of strategy from service delivery and the creation of shared services are in that league of change as the switch from welfare to personnel in the 1930s, and from personnel to human resources in the 1980s.”49 HR has the opportunity to reinvent itself and shed the administrative baggage. Shared service doesn’t replace all HR functions with a browser and a telephone.

　　Part of the attraction of HR shared service is that it is supposed to free the HR professional from the distraction of administration.

　　A caveat, however, it also removes much of the excuse for not delivering strategic value. Without the burden of administrative drudgery, will the HR professional soar on the wings of newfound creativity and vision? Stripping out administrative and transaction work from the traditional HR function raises some fundamental questions about what is to be done do with the remaining parts of HR. It is easy to talk about strategy; the challenge is to deliver it.

　　If the HR function is not absolutely clear on the roles of the shared service center, the subject matter expert and the HR business partner, then HR will only generate confusion and mistrust in the line and with employees. Ken Meyer from Ericsson50 was emphatic in stressing the importance of clear role definition.

　　The role of the expert requires particular attention.

　　It is questionable whether an organization

　　could successfully deliver HR shared service without a clear plan for the delivery of the HR services that aren’t part of the shared service center. Shared service can’t be considered in isolation of an HR strategy. Yet a recent IBM survey found that all HR directors talked of strategy, yet over 60 percent did not have a written strategic plan.51 Figure 2 serves to illustrate the need for clarity and an exact division of activities.

　　Sluys53 suggests that every HR activity needs to be documented, and the division of work needs to be crystal clear.

　　MODELS OF SHARED SERVICE

　　There is no single model of HR shared service, and many HR projects today involve some elements of shared service (see Figure 3). The extent to which HR shared service is deployed is a function not only of HR’s willingness, but also of the organization’s culture and desire for change.

　　BUILDINGYOURMODEL

　　Shared service does not have to be an all or nothing choice. It can start small and grow. Equally, functions that are performed in-house today could be moved to shared service as a precursor to outsourcing.

　　Organizational culture determines the likely shared service makeup. A move to greater centralization than is the corporate norm will require significant political will.

　　Some organizations have used service centers to deliberately change organizational behavior, to shift mindset and realities to become a more global company, rather than an association of local firms.55

　　Global organizations are often trying to build a single way of working wherever possible. Shared service can help bring about this fundamental change in behavior, as it does break down many existing silos and policy islands. Shared service can expose local or divisional practices that run counter to the organization’s broader vision, and if not managed create significant problems.

　　TECHNOLOGY AND SHARED SERVICE:

　　AUTOMATING INTERACTION

　　Technology plays an enabling role and it is difficult to conceive of shared service without a significant technology component.

　　Traditional HR interaction involves a lot of synchronous communication, either on the phone or face-to-face. This is the most expensive form of support. A goal of shared service should be to replace expensive support methods with cheaper ones, without reducing the quality of service.

　　If an employee can get the exact answer to a question about holiday entitlement with a few clicks of a mouse, this offers a cheaper, yet faster service than calling or e-mailing the local HR person.

　　MULTI-CHANNEL ACCESS

　　Employees should be able to interact with the HR function through the most convenient method, be it the telephone, a meeting, the Web or even SMS. The answer should be consistent, even though the delivery method differs. This calls for a clear integration strategy where the tech- September/October 2003 . Scope Limited Large

　　Risk Low High

　　Reward Lower Higher

　　Functional One process HR – complete Back-office (payroll or process, Finance, HR and benefits) recruitment, procurement admin, payroll, reward Economic Cost center Profit center Spin off model

　　System Status quo National Single core model (many systems) sytsems Global system Location Virtual Centralized Green field model

　　Delivery Support line HR Support Support

　　model employees employees, managers and suppliers

　　Coverage Single company Single group Multi group

　　Provision Internal Mixed BPO

　　Figure 3. Models of Shared Service.

　　nologies and people need to talk to each other (see Figure 6).

　　TRANSACTION ENGINE

　　In the first instance, shared service is about administrative efficiency. This requires a strong transaction engine that automates much of the administrative burden. The transaction engine should be able to handle complex company rules and be easily configured to add or take off new divisions and even whole businesses. The application should handle legal and administrative requirements out of the box. In a European context, much of HR administration involves legal compliance.56 The transaction applications should help, rather than hinder compliance. Issues of performance, scale and stability are fundamental.

　　Without a sound transaction solution, shared service will simply expose system weaknesses to the whole organization.

　　Figure 4. Organisations with Multiple Business and HR Functions. Source: Mercer54

　　Maximum consistency

　　. standardized across business units

　　. integrated/same platform

　　. consistent processes

　　. shared staff

　　. single outsourcing contract (for Business Process Outsourcing Some consistency

　　. standardization encouraged across business units

　　. integrated/same platform

　　. consistent processes

　　. duplicate and fragmented staff

　　. separate cotracts, or single contract with multiple serivce level agreements No consistency . autonomous business units

　　. separate platforms

　　. inconsistent processes

　　. duplicate and fragmented staff

　　. multiple different ervice level agreements . complex vendor management

　　Ability to leverage the sharing of resources

　　Low High

　　Ability to leverage outsourcing

　　Low High

　　Service Centre (Inclusive Technology Centre)

　　Internet Intrament e-mail forms

　　Case Workers

　　Expertise Centres

　　% of HR Tasks 100% 66% 28% 5% 1% Inquiries

　　. Employees

　　. Management

　　. HR Professionals

　　Self Service

　　Tier 0

　　E-HR Portal

　　IVR

　　Kiosks

　　Tier 1

　　Service

　　Agents

　　Tier 2

　　Subject

　　Matter

　　Experts

　　Contact Centre

　　Tier 3

　　Policy Experts

　　Process Content Owners

　　Effective &Efficient HR Service Delivery

　　through Shared Services Centre . . .

　　“Resource” optmisation through use of self-service and cell centre support tools

　　Figure 5.

　　Source: Arinso International

　　INTERACTIONTOOLS

　　Service centers that provide customer support focus on creating a solution where every call or access is monitored, problems escalated and service levels measured. They also analyze patterns and frequencies to identify areas of potential or emerging concern. These tools can be applied to HR shared service, too. Telephony systems can pass caller information to HR systems, enabling the HR agents to recognize the employee before they even pick up the phone. Even basic call center management software can help predict staffing requirements and monitor service levels. Scripting tools allow firstlevel support to offer a more consistent service at a lower skill level. Most organizations have invested in these technologies for customer service and leverage them for HR.

　　POLICYMANAGEMENTTOOLS

　　Many HR queries relate to policy. Providing clear policies and guidelines helps both the employees and the HR agents. It creates clarity and consistency, and reduces the number of queries and escalations.

　　Don’t underestimate the challenges of maintaining a policy solution. There are a number of specialist HR policy management tools, but it is well worth considering how to integrate HR policy management into the corporate document, policy management and portal platform.

　　EMPLOYEE ANDMANAGER

　　SELF-SERVICE

　　Providing simple-to-use Web access to HR data reduces the cost of providing HR service. The hard benefits of self-service are relatively well documented, so I won’t dwell on them here.57 It is important to position employee self-service (ESS) and manager self-service (MSS) as part of the shared service strategy, but they are not the only channel. Sluys notes that at one major customer, ESS was the predominant channel for HR administrative enquiries, but that the telephone was the predominant channel for payroll enquiries.

　　BILLING AND COSTING

　　If the shared service model involves charging back the cost of services — a profit center model — an organization needs to be able to bill for services and accurately measure service delivery. An organization may wish to leverage existing investment in enterprise resource planning (ERP) systems for this. Implementing a separate costing and billing application just for the HR shared service center is probably an expensive route.

　　TECHNOLOGY ISTHE EASY PART

　　As a technology vendor it is tempting to talk about the central role technology plays in shared service, but technology is the easy part. Human resources systems have been around for many years, and are proven. Call center and case management tools are also well established. Employee self-service has existed in many organizations for over five years.59 Assuming a sound technical infrastructure and an HR system that can cope with the legal and September/October 2003 . administrative challenges, technology should be relatively straightforward.

　　In today’s economy, assess the financial viability of the vendor carefully and align the HR shared service with IT shared service to avoid building an HR island. The greatest technology challenge is interfaces.

　　The more processes that run in one application, the less your cost of interfacing will be. For every “best of breed” application, beware of the mongrel interface!

　　EUROPE AND SHARED SERVICE60

　　According to Aust et al., “In the United States the shared service center (SSC) is an established business model with 16 of the top 20 Fortune 500 companies adopting the practice. In Europe it is estimated that 50 percent of multinationals are either already using SSCs or planning to do so.61 Shared service has been a great success in the U.S. The homogeneous language and legal system allow significant economies of scale. Downsizing and redundancy are far cheaper and socially acceptable than in Europe. Multinationals should not underestimate the complexity and differences between European countries.

　　There is often a business case for shared service on a pan-European basis, so it is vital to avoid dropping in an American business case and expecting it to work. United States assumptions need to be tested against local labor laws and organizational realities.

　　WORKS COUNCILS AND EMPLOYEE REPRESENTATION

　　Typically, and this varies from country to country, employees have a much stronger say in reorganizations and disposals than in the U.S.: in Germany this is known as Mitbestimmung (deciding together).

　　In the space of this article it is not possible to provide an explanation of European labor regulations and the industrial relations framework. But the key points to be aware of are:

　　1. The union movement, although somewhat weaker than in the past, is still strong, especially in traditional industries in continental Europe.

　　2. Supervisory boards in Germany consist of 50 percent employee representatives. (The supervisory board is the highest level of corporate governance and approves major decisions made by the executive board.) Many other continental countries have similar models.

　　3. Much stronger state involvement in corporate redundancy actions.62 The works councils need to be involved early, and any headcount reductions will need careful justification and negotiation.63 I’ll rely on a rather lengthy quote from the European Foundation for the Improvement of Living and Working Conditions to illustrate the issues of a significant organizational change:

　　BETRIEBS.NDERUNG, or substantial alteration to the establishment, is a64... concept that relates to an instance of codetermination within the works constitution (Works Constitution Act &&111 ff.). It covers major decisions on the closure, reduction of operations or relocation of the establishment or of important parts of it, amalgamation with other establishments, fundamental changes in the establishment’s organization, objectives or equipment, and the introduction of radically different work methods and production processes. Rationalization programmes and the introduction of new technologies are examples falling under this heading. The assumption is, for the cases listed, that the changes may result in serious disadvantages for the workforce or for large sections of it.

　　Consequently, in establishments regularly employing more than 20 employees eligible to take part in works council elections, the works council must be given prompt and full information on any such proposed changes. In practice, substantial alterations to the establishment constitute the main area of use of the participation, information and co-determination rights of the works council in economic matters, and entitle the works council to a reconcilement of interests and a “social plan. “ In France for instance, “Companies with a workforce of 50 employees or more are required to develop a redundancy programme (plan social) when they intend to make redundant more than nine employees within a 30-day period. A redundancy program is a series of measures designed to avoid redundancies or curtail their number and to facilitate the redeployment of those made redundant.”

　　The UK labor market is considerably more flexible than the German or French markets, but there is still a significantly stronger set of worker rights than in the U.S. Any ROI study will need to take into account the cost of redundancy programs and other labor law-related matters. The more early negotiations and discussions that begin with works councils and other representative bodies, the better.

　　It sounds obvious but Europe is not one country, but a number of countries.

　　Most administration law differs greatly

　　from country to country. Although European Directives have gradually begun to harmonize legislation, there are considerable country level variations. (Data protection is an example of this, where there is a Directive, but differing national interpretations thereof.)

　　There is little correlation between country size and administrative complexity.

　　A relatively small country, Belgium has an equivalent compliance burden to France, for instance. The centralization benefit needs to be assessed carefully against the cost of redundancy and the political fallout.

　　The Mercer report goes on to note, “Whilst the various national cultures, languages, and legal frameworks across Europe mean that set-up issues are more complex than in the U.S., the business case is nevertheless very strong. Many companies continue to duplicate HR activities across Europe and overlook opportunities to standardize policy and practice.

　　Specifically, the high salaries and workforces employed by multinationals in Europe enable economies of scale that deliver substantial ROI, and the consistency that is being introduced by the EU regulations means that centres of expertise are an effective option for ensuring consistency and quality of service across Europe.”

　　It is in the interest of global HR directors to better understand the complex nature of HR in Europe. At the risk of oversimplification, there are a number key areas to grasp:

　　1. The burden of legal compliance is typically greater than in the U.S.

　　2. Employee representation is more powerful.

　　3. Governments are much more likely to intervene.

　　4. The cost of redundancy is significantly higher.

　　5. What works in one European country will not necessarily work in another. A significant number of senior HR professionals in Germany have trained as lawyers, such is the complexity of legislation and its impact on HR processes.

　　However, successes at PWC, Gillette, IBM, Du Pont, Ericsson and others prove that shared services work in Europe. It is more

　　THE DISADVANTAGES AND RISKS OF SHARED SERVICE

　　Shared service is here to stay and is proven at many organizations. Nevertheless, it is important to understand the risks and disadvantages of shared service. Reilly notes a number of disadvantages of shared service.

　　1. Neglecting the importance of the knowledge and experience of those who performed administrative roles in the past and the loss of personal relationships based on knowledge and culture,

　　2. The risk of deskilling some administrative jobs to the point of tedium.

　　3. Asking too much of the business facing HR managers in concentrating on strategy and change management,

　　4. Potential difficulties for career development because of overspecialization,

　　5. Boundary management issues — where does policy end and implementation begin,

　　6. Communication difficulties,

　　7. Absence of accountability, since HR managers in the business have no control of the quality of service delivered by the shared service center,

　　8. Lack of local knowledge, especially in heavily centralized shared service,

　　9. Loss of face-to-face contact, and

　　10. Large-scale capital investment. It is interesting to note that technology is not seen as an inhibiting factor and that, like most large-scale projects, change and people management issues dominate.

　　The management of change is the single greatest risk.

　　According to Machin and Williamson, “While HR professionals see themselves as guardians of change management and are happy to oversee the implementation of such programs within the organization, they may be unwilling to embrace change themselves.”68 Factors to be considered to minimize loss of knowledge and overspecialization include job rotation and regular training. The challenges that organizations face in deploying shared service apply equally to HR.

　　CONCLUSIONS

　　The HR supermarket is here and it isn’t going away. Human Resources functions that act in denial are likely to go the way of the green grocer who didn’t adapt to the supermarket. Successful HR departments must balance low cost, high accuracy administrative delivery with high-end valueadded service. Whether they own the supermarket, or bring it in from elsewhere, they will need to deliver administration convenience at rock bottom prices. Only then will the funding and the respect exist to build strategic, valued services. Organizations need to decide what parts of HR are “supermarket” materials and what are not. As with the supermarket, the consumer will play a decisive role.

　　REFERENCES

　　http://www.sharedxpertise.org

　　www.ies.org.uk

　　www.hrotoday.com

　　www.partnersforchange.co.uk

　　www.bywater.co.uk

　　www.arinso.com

　　http://www.accenture.com/xd/xd.asp?it

　　=enweb&xd=services inance pm_sspov.

　　xml

　　http://www.conference-board.-org/publications/ reports.cfm

　　ENDNOTES

　　1 “History of Supermarkets in the UK,” see http://www.bbc.co.uk/food/ foodjunkies/ chrono_supermarket.shtml

　　2 http://geography.about.com/library/ weekly/aa112398.htm

　　3 Arinso, Exult, Accenture, Axon, IBM, Partners for Change, and others are the best source of information on shared service models.

　　4 “HR BPO: Making Sense of the Market Opportunity and the Changing Competition,” Analyst: Marc Pramuk, IDC

　　5 Cited at http://www.sharedxpertise. org/modules.php?op=modload&nam e=News&file=index&catid=&topic=22 6 Four percent of the U.S. workforce is employed in call centers (www.callcenterops. com)

　　According to Datamonitor there are 1.2 million agent positions in EMEA. Cited at http://www.callcentermagazine.- com/shared/article/showArticle.jhtml?articleId= 10000028

　　7 Realizing the Potential of Shared Services, Bywater Consulting, 2001

　　8 There is a contraposition that service levels in society have deteriorated — interminable decision trees, long holds — “Your business is important to us, etc.,” with no follow through, and so forth. This points to a poor execution of service delivery, rather than a problem with the model itself.

　　9 Bywater study IBID.

　　10 The IBM global center in Portsmouth UK is a great showcase for innovative

　　use of HR technology.

　　11 http://www.partnersforchange.- co.uk/partners.html Early indications suggest that C and W are on track to achieve the business case target to reduce more than 30 percent of all HR costs.

　　12 http://www.axon.co.uk/axonglobal /files/casestudies/centrica%20121201.pdf

　　13 D. Prior, N. Rayner, Gartner Research Note Case Studies, CS-15-347325 February 2002 How Procter &Gamble Runs Its Global Business on SAP

　　14 http://www.xayce.com/News/-vertex_ hrplus.htm?Page=55

　　15 http://www.paconsulting.com/- news/media_about/200302062.asp

　　16 “Partners for Change Success Story.” Standard Chartered Bank www.partnersforchange.co.uk

　　17 Accenture and PWC Global (now part of IBM) for example

　　18 Dave Ulrich University of Michigan “The New Frontier Revolutionizing Transactional Service Delivery”http://www.corporateleadershipcouncil.com/CLC/1,1283, 0-0-Public_Abstract-22427,FF.asp

　　19 The author would be pleased to be disproved on this point

　　20 Reilly, Shared Service and the Realignment of HR, Institute for Employment Studies, UK, 2000

　　21 Most of the major consulting firms offer excellent primers to shared service. See for instance http://www.accenture.- com/xd/xd.asp?it=enWeb&xd=services inance fpm_sspov.xml&c=akris&n=povs&t =aff.

　　22 UK local government research points to reductions in the price of goods and services could be as much as 8 percent officers’ time and transaction costs could be cut by up to 70 percent. Combined savings, in some cases, could result in a reduction as large as 15 percent. http://www.lgolpathfinder.gov.uk/ en/1/matters.html.

　　23 The sports shoe industry is an obvious example of this. No Logo by Naomi Klein provides a well-written view of the impacts of global capitalism.

　　24 Marx, Communist Manifesto

　　25 Cited in the British Sunday Times, 8 September/October 2003 . IHRIM Journal 10

　　26 www.exult.net

　　27 Sunday Times IBID

　　28 Ulrich etc.

　　29 See for example Stewart, Tom, “Taking on the Last Bureaucracy,” Fortune January 15 1996

　　30 Stewart, IBID

　　31 Cited in Galford R, Why Doesn’t This HR Department Get Any Respect?, HBR, March 1998

　　32 Stewart Tom, “Taking on the last Bureaucracy,” Fortune January 15 1996

　　33 Reilly, Paul, HR shared service and the realignment of HR, IRS study 2000

　　34 Machin and Williamson, Changing Technologies, Partners for Change May 2001

　　35 Cited in Reilly IBID

　　36 http://www.abqtrib.com/shns/ story.cfm?pk=OLIAN-03-14-03&cat=FF

　　37 At the SSBPOA conference in May, at least eight multinational spoke of HR headcount reductions of at least 35 percent.

　　38 SBPOA event

　　39 Bywater study, page six (this is an excellent study, see www.bywater.com)

　　40 Mercer Consulting, “HR Shared Service Centres in Multicountry Regions,” 2002

　　41 See Ulrich, The Bottom Line Isn’t, 2003, Flamholtz, “A model for Human Resource Valuation,” The Accounting Review, April 1971 Grojar J.E and Johannson U, Human Resource Costing and Accounting. Joint industrial society Stockholm 1996 Grojar J.E and Johannson U, Human Resource Costing and Accounting. In Human Resource Management in Northern Europe, Blackwell, 2000

　　42 See Ulrich, Dave, HR Champions, 1998

　　43 Proceedings of the SBPOA conference May 2003

　　44 Reilly, “Shared Service and the realignment of HR,” Institute for Employment Studies Page 13

　　45 http://www.paconsulting.com/ news/media_about/200302062.asp

　　46 IBM global Services presentation, June 2003

　　47 SPBOA Brussels Conference May 2003

　　48 Reilly IBID

　　49 Cited in Reilly IBID

　　50 Ericsson head of HR shared service SBPOA event

　　51 IBM global Services presentation June 2003

　　52 SBPOA conference, Brussels, May 2003

　　53 Arinso CEO SBPOA conference, Brussels, May 2003

　　54 Mercer, HR Shared Service in Multicountry regions, 2002

　　55 Mayer from Ericsson spoke of this

　　56 Working time regulations create much of the complexity in holiday and overtime management. Benefits have far greater state of involvement than U.S. ones. Data protection legislation limits the nature and purpose of data collection. These regulations vary greatly by country, and are a major component of HR cost.

　　57 See Cedar study and Deloitte-SAP study. (Much of the ESS research is vendor or consultant driven.)

　　58 SBPOA Conference

　　59 SAP reckons it has sold over 9.5 million ESS licenses.

　　60 The Mercer reports makes interesting reading.

　　61 “The future for shared services.” Geraldine Aust Roy Barden Des Quinn Mark Williamson, Partners for Change

　　62 October 2002, the French government appointed Claude Viet to the new position of impact of company restructuring and its effect on employees. http://www.eiro.eurofound.eu.int/2002/11/I nBrief/FR0211103N.html

　　63 http://www.eiro.eurofound. eu.int/2003/06/InBrief/FR0306101N.html An example of a works council dispute

　　64 http://www.eurofound.ie/emire/ GERMANY/SUBSTANTIALALTERATIONTOTHEESTABLISHMENT-DE.html Makes a useful introduction to works

　　councils and other European concepts

　　65 http://www.eiro.eurofound.eu. int/2003/04/Feature/FR0304105F.html (hyperlinks from the Web site)

　　66 Mercer IBID

　　67 Reilly IBID

　　68 Machin et al IBID Thomas Otter has worked in the field of HR information systems for the last decade, mainly with SAP. He has advised companies from around the world on HR systems strategy and practice. Heis a regular speaker at SAP events and on the HR conference circuit, and is a senior member of the SAP HR EMEA team. Mr. Otter holds a bachelor’s in industrial relations and Politics, a post graduate diploma in HR management, and a master’s in information technology law. He is currently working on a doctorate, exploring the relationship between enterprise software and law. He resides in Ladenburg, a medieval German town, with his wife and two young daughters and can be reached at

　　thomas.otter@sap.com.

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