CIPD - HR shared service centres

HR practice

Revised February 2008

This factsheet gives introductory guidance. It:

considers the role of HR shared service centres
explores key considerations in designing an HR shared service centre
outlines some objectives and issues in implementing an HR shared service centre
lists some key issues in HR service centre management.

What are shared service centres?

Shared service centres provide services needed by several, if not all, other parts of an organisation. Two distinctive features of HR shared service centres are:

they offer a common service provision of routine HR administration and, sometimes, additional HR services
they are service-focused, enabling the customers of the shared service to specify the level and nature of the service.

An increasing number of organisations are exploring the option of HR shared service centres, including the use of ‘offshoring’ whereby the service centre is located in a geographically remote location. CIPD has published a survey on offshoring which contains further details about this option¹. Often the introduction of a shared service centre is just one element of a wider change to the way that the HR department operates and is structured. For example, a shared service centre is often introduced at the same time as there is a move to introduce business partners and centres of excellence as there is a corresponding increase in the number of people management activities that are devolved from the HR department to the individual employee. In other words the use of shared services within HR is one part of a wider HR transformation.

Some high-profile organisations have set up HR shared services, mainly global and multinational companies, for example, IBM, Shell, Standard Chartered Bank, Lloyds TSB and Royal Bank of Scotland. There is also increasing take-up in the public sector including the National Trust and a number of local authorities, in particular.

The content of shared services will vary from one organisation to another. A shared service centre can provide the full service from routine administration in, for example, recruitment, payroll and training, right through to supplying specialist HR information and advice on HR policy and practice.

HR shared service centres can be resourced by in-house personnel or they can be outsourced to specialist third party outsourcing providers. In practice, it is becoming more common to see hybrid models. One example of a hybrid model might be whereby the majority of the HR services are provided through an in-house shared service centre, with a few specialist areas being outsourced (for example, employee ‘wellness’ or recruitment). A different example could be where the administrative activities are outsourced to one provider and other specialist areas are outsourced to separate specialist providers.

A recent CIPD survey² identified that some 28% of organisations have introduced centralised provision of shared administrative services. Of these 69% deliver them wholly in-house, 28% partially outsource them and 4% wholly outsource them. However, survey respondents anticipated a general shift towards more outsourcing of their HR shared services, with some 11% expecting that these will be fully outsourced in three years time.

Why introduce an HR shared service centre?

Shared know-how - the benefits associated with the sharing of knowledge and practice across the organisation. This may involve sharing best practice in business and HR processes, leveraging HR expertise, pooling knowledge about what works across different parts of the organisation and different geographical regions, and sharing knowledge about customers and markets.
Reducing costs and avoiding duplication of effort - the benefits from economies of scale and elimination of duplicated effort can streamline and simplify services to reduce costs. There is also the potential to exploit common buying power from shared services for example, training and development providers. Cheaper relative wage costs are also a factor contributing to establishing shared services centres in certain offshore locations (for example, the Indian sub-continent and Eastern Europe).
Improving quality of service to customers - the benefits from more efficient processes can deliver greater consistency, timely and accurate information and advice to customers,. With the increasing requirements for organisations to understand, measure and manage their human capital, these improvements in information availability are of increasing importance. Sharing services can also help to reduce competition and rivalry between different parts of the business.
Responding to and facilitating organisational change - the benefits of greater structural flexibility, improving organisational learning, and freeing up HR from the more day-to-day routine enquiries are seen as an important levers for re-positioning the contribution of HR as a business-driven function focused on facilitating and supporting organisational change.
As a precursor to outsourcing - it might be easier to argue the business case for outsourcing when it is possible to clearly demonstrate the maximum efficiencies that can be achieved internally. Where this is the driver, careful consideration of wider outsourcing requirements will also need to be made made - see our factsheet on HR outsourcing for more information.
- Go to our factsheet on HR outsourcing
As a possible profit centre - organisations sometimes actively seek to act as a shared service provider for other third party organisations. In this way they believe they can take advantage of their own shared service centre expertise and /or any spare capacity within their own centre.

Shared services are increasingly enabled by technology. Many organisations have introduced call- centre technology and/or intranet systems for on-line self-service as part of their shared service provision. This is seen to have benefits both for employees and managers. For employees, an intranet can allow them to update their personal details or change their flexible benefits, for example. For managers, it can mean huge savings in their time. For example, at salary review time, managers are able to see details of individuals' salary increases on a secure area of the employee self-service system rather than spending time revising and signing salary letters. The implications of technology on HR have been covered in recent CIPD research in this area^3,4.

Organising HR shared services

A lot of thought needs to be given when looking to set up an HR shared service centre. Some of the areas to take into consideration include:

Determine a clear case for creating shared services that is based on the value-added to the business. How will shared services help the organisation manage its business more effectively? Decisions about whether a shared service environment is appropriate need to reflect a full stakeholder perspective - including leaders in the individual business units and employees.
Review and redevelop HR processes. How do we organise our HR processes to most effectively deliver the service our customers expect? Simply pulling processes together in a central hub is unlikely to deliver a more streamlined, customer-driven service. Moving to a shared service provision requires a fundamental re-engineering of HR processes.
Explore options for the structure of the shared service centre. How can the centre most effectively be structured to deliver its business objectives? Multinational organisations need to decide whether the shared service is most effectively delivered through a number of centres based on, for example, business groups, regions or through a global shared service. A key factor in helping managers to make this decision is the number of people employed in the operating countries. For example, Standard Chartered Bank introduced their shared service centre on a global basis, despite the company having a large geographical spread, because the numbers of people employed in each of the countries was relatively small⁵. Others, for example, IBM, introduced their shared services on a regional basis, or in the countries where they have the largest numbers of employees, as in the case of PricewaterhouseCoopers.
Clarify the role, responsibilities and accountabilities of the HR shared service centre. The content and scope of the HR shared services centre can vary between organisations, but they largely fall into two types:
- basic administration of, for example, relocation services, maternity leave and recruitment services
- providing specialist information and guidance to employees and managers on HR policy and practice and employment law.
The centre may also offer pooled internal consultancy and project support.
Clarify and communicate the role and responsibilities of the customers (eg line-managers). If the shared service centre model will require them to act differently (which it is likely to, for example through the introduction of on-line self-service), they must be given the appropriate support.
Agree performance indicators to ensure the services are being delivered to plan by using for example, service level agreements and a performance management framework to measure the effectiveness of the service delivery.
Specify the scale of capital and the nature of the resources required to get the right technology and organisation infrastructure in place. Don't underestimate!

Implementing an HR shared service centre

In addition to general change management issues that need to be considered when implementing any major change initiative within an organisation. See our factsheet on change management for more information on this topic.

Go to our factsheet on Change management

Some specific further ingredients for successful implementation of a shared service centre include:

Project teams comprising key stakeholders in the shared service centre. The role of the team is to ensure there is broad agreement about the business case for an HR service centre, including the role, scope and accountability of the centre and the resources required to deliver the service centre.
Piloting and phasing the transfer of activities. This can help to keep up the momentum for change, minimise disruption to the business and identify early problems that might hinder the effective implementation of the full service centre. This is a key opportunity to validate existing data before transferring to the new system. In organisations where the service centre supports a number of countries, activities can be transferred on a country-by-country basis.
Communication and involvement before, during and after the implementation. These both play a key part in:
- gaining support for the HR service centre, especially from line managers and HR staff
- informing customers of the services available from the service centre and encouraging them to use it.
A wide range of communication tools can be used, including briefings with senior managers that are then cascaded throughout the organisation, videos, explanatory brochures, a guide for line managers, a dedicated website, and so on. It is also important to inform new employees of the arrangements for making HR-related enquiries.
Recruitment and training. Customers' perceptions of the service centre and their willingness to use it will be influenced by the quality of service they receive from its staff. Ensuring staff in the service centre have the appropriate knowledge, information and skills is vital. The skill set required will depend on the range and level of roles in the centre. Customer service and call handling are often seen as the minimum requirement. Where the centre provides more specialist services, HR knowledge is also essential.
Ongoing communication and training after the implementation. Customers early experience of the shared service centre will determine how readily they adopt to the new ways of working. It is quite likely that there will be unexpected demands for information, clarification, so setting in place channels for ongoing communication and training are an important consideration in the period after the implementation has occurred.

Issues in HR service centre management

Career paths. Transferring HR activities to a shared service centre can have knock-on effects on existing career paths. Involving staff in the design of the centre and being explicit about career development and opportunities can help to prevent some of the resistance that may arise in transferring some HR activities to a shared service centre. Some organisations have opted to keep their HR service centre separate from the wider HR function. Others have encouraged those wishing to develop a career in HR to acquire wide-ranging HR knowledge in the centre through, for example, rotating around different business streams, and then moving to line or specialist roles in HR or elsewhere in the organisation. Further information on career paths can be found in our recent survey on HR career paths⁶.
Skills requirements. In addition to the need to re-define career paths, the skill requirements must also be clearly defined. Traditional HR skills will be supplemented by requirements for project management skills, contracting skills, customer service skills - none of which were previously in the domain of HR professionals.
Job design. It is important to maintain a level of skill and variety in the design of the jobs in the shared service centre, particularly if people working in the service centre previously undertook a wide range of tasks. It is also important to ensure that HR managers operating out in the business have a good understanding of the way the service centre operates so that they can leverage these resources appropriately.
Maintaining close relationships with the business. Shared service delivery can result in less face-to-face contact and more remote relationships with the business. It is critical to ensure opportunities for fostering close relations with the business are built into the management of the centre and wider HR function.

References

CHARTERED INSTITUTE OF PERSONNEL AND DEVELOPMENT. (2006) Offshoring and the role of HR. Survey report. London: CIPD. Available at http://www.cipd.co.uk/surveys
CHARTERED INSTITUTE OF PERSONNEL AND DEVELOPMENT. (2007) The changing HR function. Survey report. London: CIPD. Available at http://www.cipd.co.uk/surveys
CHARTERED INSTITUTE OF PERSONNEL AND DEVELOPMENT. (2006) HR and technology: beyond delivery. Change agenda. London: CIPD. Available at: http://www.cipd.co.uk/researchinsights
PARRY, E. at al. (2007) HR and technology: impact and advantages. Research into Practice. London: CIPD. Available at: http://www.cipd.co.uk/bookstore
ARKIN, A. (2002) The package to India. People Management. Vol 8, No 2, 24 January.
CHARTERED INSTITUTE OF PERSONNEL AND DEVELOPMENT. (2005) HR: where is your career heading? Survey report. London: CIPD. Available at http://www.cipd.co.uk/surveys

HR shared service centres

What are shared service centres?

Why introduce an HR shared service centre?

Organising HR shared services

Implementing an HR shared service centre

Issues in HR service centre management

References

Further reading

Books and reports

Journal articles