Is it time to visit the shared services shop?

For far too long, shared services has been off the radar of organizational strategy. Five, macro-economic trends, however, are compelling organizations to pay a visit to the HR shared services shop.

The key priorities for HR organizations in India have always revolved around efficiency improvements that are focused on organizational development and process. HR shared services, however, have never featured in the scheme of organizational efficiency plans. With global proliferation of the shared service model, HR organizations in India are gradually adopting the shared services model for leveraging the efficiencies of scale and skill. Pankaj Bansal, co-founder and CEO of PeopleStrong highlights that, “Shared services should not be looked upon as a process; it is an alternative HR delivery model.” Shared services, if implemented well, can help an organization realize significant benefits of cost, scale, skill, and delivery.

Before understanding the opportunities for implementing a shared service model, an organization needs to understand the role of an HR professional. According to N.S. Rajan, Asia Pacific Head of Human Capital, Ernst & Young, “The role of an HR professional is that of an alchemist.  The human resources function in an organization is the sole owner and facilitator of transformation.”  The shared service model has the potential to transform modern-day organizations toward operational and functional efficiency.  “Shared services,” Rajan continues,” is part of the umbrella of transformation that the present-day organizations demand. It is a path to reach every customer of the business.”

Many organizations find it difficult to drive the business case for HR shared services. Kamal Singh, Director and CMD of All India Management Association comments, “the shared service model has become the need of the hour for business efficiency. Organizations that do not have efficiency on the strategic agenda will fall behind.” Through the shared services model organizations can maximize efficiency of the function through access to resources, competencies, and skills of a specialized service provider.  Rohail A. Khan, Executive Managing Director at ACS, Xerox highlights that shared services present HR with the opportunity to become truly strategic.  The transformation in the operating environment is driving the business case for HR shared services.  There are five key trends driving the business case for HR shared services:

The budget shopper. Buying propensities are shifting in organizations. The average deal size is shrinking and large galactic deals are no longer the order of the day. The key reason behind this trend is because there is very little margin for failure in today’s hyper competitive economic environment, and failure on the part of the provider translates into failure on the part of the organization. Organizations are hedging the risk of failure through shrinking deal sizes and larger volumes of deals. Platform-based solutions account for the largest area of growth.

From delivery to outcome. Organizations are increasingly looking at outcome-based value proposition. With the heightened focus on efficiency the reliance toward technology, services, innovation, and outcomes are increasing.

Any-medium, any-device, any country. There is a growing focus on usability and innovation. The complexity of modern day organizations is much larger than what it was 20 years back. Most organizations deal with multiple generations of employees; some organizations even have 4-5 generations of employees in the workforce. The diversity of the workforce introduces complexities in the form of behavior change, technology interactions, and service ethics.  Serving the needs and requirements of this multi-generation, multi-cultural workforce individually can become overwhelming for organizations.  It is, therefore, the need of the hour to find ways where employees can self-service. The business case for shared services, therefore, is to transform to an environment of “any-medium, any-device, any country.”

ERP to optimized resource planning. Organizations are gradually moving away from deployment of expensive enterprise resource planning platforms toward more efficient platforms capable of executing smaller and more specific tasks. The reliance in ERP is gradually declining as the market is gradually shifting toward intelligent systems capable of high-level analytics as compared to traditional ERP systems.

SOLOMO― Social, local, mobile. There proliferation of cloud technologies, social-media, and end-user computing is compelling enterprises to respond favorably toward technology. Studies indicate that technology has become one of the most important drivers for engagement and EVP across industries, geographies, and organizations.

With the macro-economic changes in the global economy and the changing composition of organizational workforce, the importance of shared services is growing increasingly. Organizations looking to remain competitive will increasingly need to rely on innovation, efficiency, and technology. With decreasing product lifecycles and the hyper-competitive market, shared services appears to be the answer to how organizations can sustain their competitive edge.  Perhaps, it is time to pay a visit to the shared services shop!

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Speak the right shared service language

Most business case conversations about deciding whether to outsource an HR process depend on approximations and “gut feeling.” HR finds it difficult to communicate outsourcing metrics in business-friendly terminology. Speaking the right language can prove to be the difference between go or no-go decisions to outsource an HR process.

In order to standardize and make operations more efficient, organizations outsource various components of the HR value chain. From basic non-core processes, such as Payroll, Benefits Administration, and Employee Record-Keeping, HR service providers have steadily evolved over the years into servicing central core functions, such as human capital management. Most organizations still struggle with identifying the baseline criteria for outsourcing decisions. The key criteria for outsourcing decisions are typically grounded on opinion and approximations around what constitutes core and non-core HR competencies.  In the organizational context, it is typically a team of senior leaders who debate and discuss the primary reasons why a particular process should be outsourced; and on most occasions these discussion lack data-driven arguments. Oftentimes, disagreements arise because it is difficult to obtain quantitative data to differentiate core from non-core functions. Experts recommend four business communication tips backed by data-driven metrics that can help drive the business case.

Skill-Level Enhancements― There are two ways by which outsourcing arrangements provide an opportunity to access and enhance skills level. Firstly, the organization gains access to specific process skills of the outsourcing service provider. Owing to the service provider specializing in specific processes, the organization gains access to higher skills in executing those processes. In addition, outsourcing frees up time for internal staff to enhance skills, and employ their existing skills in higher-level work. In outsourcing discussions, skill enhancements need to be discussed in terms of value. Quantitative insights on effectiveness, efficiency, and skill level enhancements can help drive these value conversations. What would make sense to the business― it is worth saying that outsourcing the process can reduce turnaround time by X unit points. Hard figures are hard to contest.

Better Spend Alignment― Through the reduction of fixed costs by achieving economies of scale, outsourcing arrangements can prove more financially viable than setting up internal operations. There are also opportunities for lowering labor costs by gaining access to professionals with specific skills in more cost-effective locations. An outsourcing arrangement also offers the opportunity to create innovations within organizational processes by accessing the expertise of multiple clients accessible to the service provider. In terms of quantifiable data, these translate into the one on one mapping of cost differentials associated with infrastructure, staff, process development, and innovation between owned and outsourced processes. Business is more interested in knowing how outsourcing a particular process lowers direct labor costs by X units, skill development costs by Y units, and innovation costs by Z units.

Reduction of Resource Loss― Oftentimes the company bears the costs and risks of losing employees, thereby resulting in additional costs of hiring, training, service risk, and execution delay. Outsourcing ensures that the risk of resource loss is borne by the service provider. While presenting an argument it is important to quantify the monetary value of hedging risks of resource loss. Business language for resource loss reduction revolves around how outsourcing hedges risks of resource loss by X units per unit of output/service.

Improved Technology Access― Outsourcing can result in upgrading processes into more advanced technology platforms that may otherwise by prohibitive to roll out internally within the enterprise. In addition to quantifying the direct monetary gain of utilizing an advanced technology platform, it is necessary to quantify how the introduction of advanced technology affects business efficiency metrics. Rather than saying that outsourcing opens access to higher technology of a service provider, it is worth mentioning the extent of how the technology improves unit productivity and service efficiency.

While greatly helping push the business case for outsourcing, speaking the language of business also helps an organization define clear service expectation metrics. HR can leverage various tools to collect and track metrics for driving the business case. But the biggest transformation, that many experts believe HR needs to bring, is a change in mindset that embraces analytics and data-driven decision making as a part of everyday existence.