Ever since the Gershon review of public-sector efficiency in 2004, there has been pressure to reduce back-office costs in the UK. The emerging assumption for HR has been that organisations in the public sector would best achieve greater efficiency via shared services, either through consolidation of their own services or in combination with other organisations. Within central government, increasing pressure has been placed on smaller departments to link with larger ones that offer shared services, such as the DWP or HMRC. Now, with significant cuts looming as a result of next month’s spending review, further reconfiguration is likely.

Dutch courage
If radical change really is contemplated, one option is to have a single HR shared services centre for the whole of the civil service. It may sound fanciful, but this is just what the Dutch government did. Faced with the need to save money yet also improve HR effectiveness, the Dutch government decided at the beginning of 2003 to reorganise its HR function. This involved the delegation of HR tasks to the line, the adoption of self-service technology and the creation of an HR business partner role. Key to all this was establishing “P-Direkt”, an HR shared service centre combining HR for transactional services for all government ministries. The aim was to save €500 million (£416 million) between 2004 and 2015 by:
- cutting workforce numbers
- removing duplication arising from the autonomous status of the ministries
- consolidating dispersed expertise
- encouraging greater collaboration between ministries
- bringing more coherence to service delivery.

Further, the hope was that line managers would benefit. They were dissatisfied with the function’s service because HR advisers were devoting up to a third of their time to administration instead of support and partnering.

The initial plan was that P-Direkt would start offering HRM services to 128,000 end-users (employees, managers and HR professionals) at the beginning of 2006. As it turned out, the outcome was a bit different.

Requiring an acceleration in cost reduction, a newly elected Dutch government wanted P-Direkt to be operational within two years rather than three, which put the project under increased time pressure. Moreover, the decision to launch P-Direkt was made without having first established a sound business case, appropriate control mechanisms or determining the responsibilities of the ministries in the establishment of P-Direkt.

As a result, implementation was inevitably driven top-down with little involvement of the ministries. This was a mistake. For shared services to work, HR processes have to be simplified and harmonised. This was a task for the ministries – but they were not motivated to help, given their exclusion from earlier key decisions. On top of this, in a tale familiar to the UK, the procurement of the underpinning IT architecture failed. Against this background, P-Direkt was abandoned.

Take two
With the lessons learnt, the Ministry of the Interior and Kingdom Relations decided to restart the P-Direkt project. This second attempt was characterised by a gradual, dual-phase approach. During the first phase (2007-09) the following projects were executed:
- simplification and harmonisation of HRM processes
- development of an HR portal to house employee and manager self service
- development of a common payroll system
- development of a central HR information system for running HR administration.

This time round there was much more stakeholder engagement. All ministries themselves had to harmonise and simplify their HR processes. This was essential to develop employee and management self-service systems. To demonstrate the enhanced ministry involvement, four ministries jointly developed the common payroll system that other ministries gradually started to use from the end of 2007.

Similarly, the employee and manager self-service applications were jointly developed by two ministries (the Ministry of Finance and Ministry of Transport, Public Works and Water Management), with the Ministry of Justice being responsible for developing the HR information system. The other ministries were responsible for supplying personnel data needed for effective self-service applications. By June 2008, 17 of the 26 self-service applications were ready for use and the remaining nine were done by the fourth quarter of 2008. Especially interesting in the UK context, €17 million was spent in 2009 alone on hiring external consultants to develop these IT applications.

The rollout of self service gradually extended both P-Direkt’s user base and the range of services offered to customers. Several problems were encountered, such as bugs in IT or sub-optimal HR processes. Also, the digitalisation and conversion of personnel data to P-Direkt’s databases revealed that personnel data had not been well maintained by all the ministries – something that took a substantial amount of effort to rectify.

Inside P-Direkt
The goal of the project’s second phase was to bundle and consolidate HR administration in one contact centre within P-Direkt to provide information to customers through a front-office helpdesk and to conduct manual administration as a back-office activity. In comparison with the IT phase, only nine months were allocated to get the service centre going, a schedule that was too tight to build staff capability before the launch. Further, because of the progressive rollout of the user base, the contact centre started operations without a full complement of staff.

Employees were transferred from the ministries and gradually trained to fit their new jobs. Some administrators remained within the ministries to take care of administrative HR processes that could not be standardised across government. Decisions on which HR administrators were to be employed at P-Direkt were a joint effort, with the ministries aiming to avoid an unequal distribution of HR administrative capacity. However, despite these efforts and extensive retraining of staff, the contact centre was largely left with functional specialists rather than generalists.

Based in two locations in the Netherlands, but organisationally positioned within the Ministry of the Interior, P-Direkt is now fully operational, employing the equivalent of 300 full-time staff. With approximately 70,000 end-users in eight ministries, it offers:
- employee and manager self services (HR portal)
- information services (HR portal, contact centre)
- personnel data and management information (HR portal).

Moreover, the payroll service is offered to 128,000 end-users in 12 ministries. The only exception is the Ministry of Defence, which has its own HR shared service centre.

The net result
A report from the Dutch University of Twente found that line customers saw benefits in the harmonisation of HR policies. “If you want employees to cross interdepartmental borders, then P-Direkt really contributes to this because it develops standards that enable employees to switch to other ministries,” said one line manager.

For their part, HR advisers indicate that they have more time available to spend on strategy, as they are freed from administrative tasks. As one HR adviser said: “For me, the benefit of not conducting HR administration any more is that it saves a lot of time. I can now partner with a line manager.”

Despite these benefits, P-Direkt ran into several start-up problems. There were still concerns among employees and managers that they were spending too much time undertaking HR administration because the self-service modules were not sufficiently user-friendly. There have been complaints that it can take up to an hour to find an employer’s certificate in the HR portal, for instance. However, these difficulties can be partly explained by unfamiliarity. As one employee pointed out: “We have got to get used to the system and learn how to operate it. It takes less time once you know how to handle it.”

Fluctuations in the quality of the services provided by the contact centre have also been experienced. On occasion, response times to enquiries have been long, sometimes up to several weeks, although this is now improving, and the problem-solving capacity of service-centre employees has also varied significantly. The original intention was to employ generalists in the contact centre able to handle a broad range of enquiries. However, this plan had to be postponed once functional specialists were appointed and it was recognised that it would take time for these employees to get used to a new way of working and get acquainted with the redesigned processes. Instead, all staff rotate between a first-tier call-handling service and carrying out specialist, second-tier follow-up work: a job design that is expected to lead to the gradual acquisition of a full skills set by everyone on the team.

Lastly, managers express concern that they cannot use several of the HR metrics, such as absence or workforce composition, to monitor people management performance, because they believe the management information is untrustworthy. In fact, the University of Twente report found some 20 per cent of the management information was considered unreliable.

Food for thought
The P-Direkt case illustrates some universal truths in HR transformation, but also offers some specific messages that should give the UK government pause for thought.

It has become a well-established fact that the consolidation of HR services through shared services is only possible if you simplify and standardise policies and practices. You cannot benefit from economies of scale if shared services staff are having to deal with disparate terms and conditions, as you are simply moving resources from one location to another.

The same argument applies to automation: if an integrated HR information system is missing, or if the data is unreliable, staff productivity and output quality are, at best, sub-optimal. The first iteration of P-Direkt ignored these basic principles and suffered as a result.

What the Dutch government recognised at the second attempt was that more time was needed for development, not least because phasing the implementation reduces risk and allows time to adjust. Sensitivity to the need for client engagement was also more evident the second time around.

A further important lesson is to get the resourcing model right. First, match people with jobs and then allow time for them to develop the necessary knowledge, skills and experience.

The problems encountered by P-Direkt do not imply that the model itself is dysfunctional; rather they demonstrate that large HR transformation projects can experience start-up problems, which impair service quality during the early period of operation.

In attempting such a model, there would probably be tension within the UK coalition government between the “small is beautiful” school, wanting to see power devolved from the centre, and those who eye up the savings that could accrue from building a common service infrastructure. The message from the Netherlands is that HR policy and process standardisation is essential to a successful change. This would ultimately require the government to accept that the civil service is a single employer.

The consequent harmonisation of terms and conditions might reduce administrative costs and facilitate the transition to a common shared services centre, but it would be challenging to execute in an environment of job cuts and limited funding.