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Over the past decade the HR shared services model has gained ground - whether in public-sector organisations clubbing together to take advantage of economies of scale, or in multinationals seeking to standardise processes. But it is not easy to implement, especially where service is shared over several organisations or countries. How do managers overcome the inevitable boundary problems?
The public sectorShared service centres have been slow to take root in UK public-sector HR functions, with many organisations doubtful about the benefits. But financial constraints mean there is more pressure than ever to adopt at least this leg of the Ulrich model. Governments of all hues will look at the back-office cost savings to be gained through economies of scale as too good an opportunity to miss. This trend started several years ago with the publication of the Gershon review into public-sector efficiency and will intensify, following April’s budget announcement to make further savings in back-office, procurement and property running costs, rising to £9 billion by 2013-14.Yet some public-sector organisations are too small to achieve such efficiencies. The obvious solution is for organisations to band together to deliver HR services. The options range from ad hoc rounds of joint recruitment, through shared HR software procurement, to setting up a common service centre. In the latter case, one organisation can take the lead for other, usually smaller organisations. For instance, the HM Prison Service shared service centre performs administrative work for the Prison Service, Home Office and UK Borders Agency. Or they can create a separate common entity, even a joint venture company as Cambridgeshire and Northampton County Councils and Slough Borough Council intend to do.However, setting up partnership-based shared services is not straightforward. At the basic level there may be different political views on ownership. For example, Conservative administrations might encourage outsourcing in a way Labour might not. If outright outsourcing has been rejected, but third-party capital and expertise are sought, the partners have to determine in what form this is acquired and how deployed. This often means balancing job protection requirements in the local economy with cost reduction ambitions and the need to ensure improved service delivery. It also leads to set-up issues with all the usual Tupe problems if staff are transferred across.And then, operating service centres across organisational boundaries is challenging – especially the governance arrangements. How do you get a service delivery model agreed by independent organisations that may be cooperating reluctantly, driven together only by an imperative to save money and comply with the demands of a Gershon-type cost-cutting agenda? The sort of governance issues faced by partnerships include:- Different organisations wanting different services – at the extreme, one might want recruitment, another redundancy support.- Ability (or readiness) to contribute financially may vary across the partnership.- Agreeing key performance indicators, and the level at which they should be set.- Historical attachment to services, suppliers, modes of operation and the like might make procurement contentious.- Reconciling IT systems or work processes.As the experience of Cheshire HR Service shows the only way to deal with these issues is to create robust decision-making processes with clear accountability. Differences of opinion need to be brought to the surface and dealt with. In particular, the financial arrangements must be transparent and fair. There should be change mechanisms that recognise that, as circumstances alter, so should the terms of the deal. Innovation (new services or customers) must also be permitted so that the centre does not atrophy.
The private sectorIn the private sector, economies of scale cannot easily be achieved by partnership with other companies. Clearly, outsourcing is an alternative. But for multinationals, going global in service delivery is another, potentially more rewarding route. For example, Shell has created international HR service centres in Krakow, Manila and Kuala Lumpur.Although centres such as these are within the same company, they can suffer some of the same problems as those shared by several organisations. Agreeing service standards and managing against them can still be a problem, especially in decentralised companies or those where the headquarters themselves have a parochial view of the world.There can be wide variation between locations in HR policies and practices, terms and conditions and legal frameworks, and this diversity is often accentuated by the existence of many poorly integrated IT systems and hundreds of suppliers with strong local attachments. International centres also face barriers of language and culture which can make remote service delivery inefficient. Economies of scale are hard to obtain for business locations employing few staff, especially where these are very different to the norm. Within each service centre there are difficulties in getting team coherence across a diverse workforce. For instance, in business software provider SAP’s centre in Prague there are 34 nationalities and 27 languages. Such centres can also experience problems in recruitment and retention as companies tend to congregate in the same “first choice” location – such as Prague.How do organisations overcome these obstacles? First, they recognise the limits of economies of scale, so they will not include smaller operating companies within the service centre coverage. Second, they push back on local protestations that their circumstances are unique. Companies that follow this path believe that differences are exaggerated and that most HR policies and practices can be accommodated by a cross-national delivery mechanism. They accept that some tasks have to be done locally, but they limit the number (and consequent cost) as much as possible. This approach is then reinforced by a drive to standardise not only systems and processes, but even, in some cases, policies. The simplification and automation of the HR basics also helps. Lastly, there is an imperative to arrive at more sensible procurement arrangements that allow fewer suppliers to be hired at cheaper rates and to commonly agreed specifications. In some organisations all decisions on managing this change are centralised. Others, such as Vodafone, as reported in the CIPD research The changing HR function: transforming HR, engage operating firms in agreeing which practices should be standard (and whose standard should apply) and what is bespoke. But once established, there are usually some corporately organised governance processes put in place to decide on the difficult compliance cases and guide future standardisation. For example, Shell decides on its exceptions at HR leadership team meetings where shared services, business partners and “process owners” are represented. In the more centrally managed firms this often means the centres of expertise taking the lead in pushing commonality, say in talent management or reward processes. In this situation, deviations from the norm are very much the exception.Many of the people problems faced by international service centres – and their solutions - are no different from local centres. However, the need for language skills often means recruiting graduates into administrative or contact centre jobs. Retention and motivation could be more difficult, but the centre can be used as a stepping stone towards an international career. Shell uses graduates in its service centres. Benefiting from a high investment in self service, they tend to deal more with policy advice than the lower end of contact centre work. As a result, Shell’s attrition rate is low compared with similar operations.Making it happenThough efficiency drives may come from different sources, HR in any sector needs to focus on the lowest possible delivery cost consistent with acceptable levels of service. Generating economies of scale is essential, and cross-organisational partnerships or global operating models are two means towards this end.But you need determination to succeed against the almost inevitable scepticism or even outright hostility from those within HR, from line customers, senior management or, in local government, politicians.CEOs (and politicians) may oppose losing their own HR function, as it is a demonstration of power and status, or object to sharing with more powerful partners. Line management may dislike the further distancing of HR from their own location and HR itself faces job loss or relocation, and more fractured career paths.So HR leaders will have to bring home the realities of delivering the most efficient service, while maintaining quality and customer service. This means investing in IT to harmonise and standardise systems and automating as much as possible. It means retaining the right level of local staff to contribute to the strategic development of business units and to deal with the genuine issues that cannot be handled remotely, while withstanding local special pleading to sit outside the model. And it means ensuring there are effective decision-making processes that settle the design and manage the service delivery in a way that meets organisational objectives.Case Study: Cheshire HR Service warms to the power of fiveFive NHS organisations in the north west have adopted a novel approach to sharing HR. They are all members of Cheshire HR Service, formed in 2006 as a partnership constructed around service-level agreements.Because the statutory requirements of NHS trusts make it hard to establish a separate legal entity, East Cheshire NHS Trust, based at Macclesfield District General Hospital, acts as host, providing the service to employees in its own organisation, in the two primary care trusts and in their two community health organisations. It has service-level agreements with each customer organisation.The partners also have accountability, governance and risk-sharing arrangements covering issues such as redundancy liability should the service cease, and have input into management arrangements.The service’s 120 staff are based in various locations and include business partners working for each organisation but employed by East Cheshire. The service also includes an HR administration centre, a learning and development function based at two sites, outsourced payroll, an employee well-being service and staff counselling.Sally Campbell, director of HR and workforce for East Cheshire trust doubles as HR director of the shared service, while Claire Macconnell is its dedicated HR business manager. Campbell and Macconnell sit with the CEOs, chief operating officers and HR directors of the five organisations in an overarching strategy committee and with the five finance directors on a sub-group.The governance framework was straightforward to establish. But it has taken time to embed new processes, create the detailed service level agreement specifications and work with the financial model. All are in the final stages of agreement and staff were transferred to East Cheshire in April.