Achieving True Globalization Through Global Payroll

SSON News and Analysis
Posted: 07/09/2012

 

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Putting in place a global payroll system offers numerous advantages in terms of economies of scale, ease and accuracy of reporting, and the kind of general efficiency improvements that come along with any centralization program of this nature. But some of the secondary effects of such an implementation, while less obvious and less immediate, can have a profound impact on a global organization in the longer term, an impact which goes far beyond the first-level gains obtained through improving efficiency and reducing costs.

The key to one of the biggest of these secondary advantages lies in the word "global". Moving from a disaggregated, local-facing payroll structure to a single global system can drive an organization towards a state - both structural and philosophical - of globalization which might not otherwise have been attainable at that time. Put simply, the very process of forcing part - and a key part, at that - of the organization to operate globally has consequences not only for other activities and functions, but also for the mindset of those driving the business forwards.

"A uniform way of paying a workforce can make operational parts of an organization look at unifying other areas of the business when they see how effective it can be - from looking at employee engagement and Human Capital Management overall to looking at other global tools that could be used for HR, Accounts, Sales, Stock Management etc," says Jeanette Hibbert, Kerry Group’s UK Payroll Manager. "Global working can allow for greater spend on a large EMS, rather than small disparate systems that don't interface with other software, give poor detailed reporting and need much IT resource and localized knowledge for support and maintenance."

A company with operations in various parts of the world might be considered to be a global organization - but if those operations have little connection with each other apart from the name of the business, can it truly be considered to be globalized as well as global? Obviously the precise definition of what constitutes a truly globalized organization is open to interpretation - but it’s a pretty safe bet that most of those interpretations would include the development of a common organizational culture backed up by consistent processes, corporate branding and reporting - and supported by the full inclusion of even the most ground-level staff into the global organizational "family".

StrategicStraits’ Sirin Koprucu writes that for a global organization to be truly "great", it must "capitalize on full international potential": "Employees and volunteers at local sites are true business partners to global operations and contribute to drafting international strategic plans. They are the eyes and ears for strategic alliances, membership feedback, government environment, and investment ideas. They also are triggers for potential change and for keeping a large organization relevant to its audiences."

One way for an organization to create this inclusion within a global umbrella, of course, is to centralize HR processes - including payroll. Even at a very basic level the receipt of pay from a central hub binds employees within the bounds of the corporate family, even in an era of somewhat disintegrating intra-corporate loyalty. More abstractly perhaps, the kind of mindset required to generate the global benefits described by Koprucu - that most contested of phrases ‘thinking globally, acting locally’ - can surely only derive from the employees’ initially feeling part of a global enterprise.

At the other end of the spectrum, the structural and procedural aspects of a commercial entity are just as crucial to generating ‘true globalization‘.

"In our understanding ‘true globalization’ means that the company is represented globally, and has clearly formalized business processes and organizational structure in all of the entities," says Daniil Shash of Intercomp Global Services. "All of the offices should report to single headquarters by standardized, theoretically automated, reports. Payroll is one of the important back office business processes. Without global payroll in place in a company it cannot reach ‘true globalization’, since each of the offices will manage payroll process by themselves using their own technologies and regulations. This will also make reporting to headquarters much more difficult… One of the tasks of a global payroll is to standardize all payroll processes in each of the locations of a global company. It brings additional coherence and compliance with local legislations in each country."

The issue of compliance is crucial. If an organization is to operate on a global and globalized level, those at the top must be confident that it is doing so in accordance with all relevant legislation - and this means not only staying abreast of regulations in dozens of different countries, but being able to ensure accurate and swift reporting back to HQ. This applies as much to payroll as to any other function - especially if an organization is expanding rapidly and taking  on staff in multiple geographies over a short period.

Furthermore, and beyond the compliance factor, at such a delicate time in terms of the global economy companies need to have their metaphorical fingers firmly on their own pulses in terms of possible weak spots within - especially those weak spots with a direct bearing upon the bottom line. High-quality reporting on a global level can be as much an indicator of strength and weakness as it is a safeguard in compliance terms.

"If you don't have sophisticated reporting tools (or skills) that can extract data to build meaningful, timely management information from varying systems - this would be a real handicap to globalization on any level," Hibbert says. "If it takes three weeks (I have known organizations where it has taken up to two months to consolidate data) to get management information from various systems in various countries - the reports are out of date and therefore do not give an accurate account of relevant information."

It’s not just the implemented transformation which helps drive globalization, either - it’s the process of implementing it. A disparate organization operating in various geographies worldwide, but looking to move into a more globalized modus operandi, has a number of different options before it. But the drivers behind "moving to globalization" are manifold and include such constant factors as cost savings, efficiency gains, quality improvements and countless others - and the solutions to the situation once all these potential drivers have been assessed are likely, depending on the size of the organization, to include some form of shared-services-type centralization, perhaps with a bit of outsourcing thrown into the mix for good measure.

As SSON members will be more than aware, that form of transformation isn’t exactly an overnight activity - especially if the "global" mindset mentioned earlier isn’t already in place. For some organizations it will be a case of "full steam ahead" regardless; for others, however, it is a question of phasing in different activities and accelerating the transition as it becomes more familiar within the organization. Moving payroll onto a global footing could be seen as leading the charge towards operating on a global model; the benefits of this kind of transition would be felt across the business, with payroll impacting upon functions as distinct as HR and F&A at once.

"Globalizing payroll should comes as a result of a business strategy to globalize services - this doesn't necessarily need to be a top down strategy - but backing of Senior Management is important to the buy-in and success of the project," says Hibbert. "The culture of any organization can also play a vital role in this. Globalizing usually means a shift in organizational culture - if this doesn't happen the project won't be a resounding success. Prerequisites [for a successful payroll-globalization transformation] would be a sound IT infrastructure, or the ability to invest in one, excellent multi-country payroll and project management skills, either through in-house resource or via consultancy (in which case a good level of knowledge of the company and its strategies should be given), the desire and ability to achieve globalization and the ability to sell the benefits to all concerned."
 
Some transformation projects, of course, are more radical than others - and if an organization is looking to utilize outsourcing as a significant part of its transformation, payroll can again be a useful trailblazer. To a certain degree some of the softer benefits associated with implementing global payroll - particularly the philosophical and attitudinal changes described earlier - might be less when using a provider since following an outsourcing transition less of the retained workforce will be involved in the process; however, the usual benefits of outsourcing in terms of cost-savings, efficiencies and the ability to concentrate on core processes might well outweigh these disadvantages - and anyway, the shift in mindset required to deal with an increasingly outsourced operation will be just as important as ‘thinking globally’.

"We can say that global payroll outsourcing would add value to any business which has multiple offices in different locations," says Intercomp’s Shash. "Of course outsourcing would be more interesting for companies with bigger amount of offices and a smaller amount of employees in each office, since this structure makes it really expensive and complex to have payroll processing in-house... When switching to a payroll outsourcer all the payroll related processes are usually reviewed and standardized: for example, HR processes, time and attendance etc. All of the processes in company are connected to each other, so by standardizing and improving some of them your next step would be standardizing other ones. Additionally after outsourcing payroll to a third party, the company is able to concentrate on its core functions and spend more time on improving core processes. 

"When expanding globally every cent has its value and in this case saving costs on payroll is very important. Of course people are the moving power of global expansion in every company. Having all employees satisfied with their salary, having this salary paid on time and correct is very important in this situation. This is another reason that adds more value to payroll outsourcing to a global provider when expanding. One could ask – what is the advantage of global outsourcing provider over local providers? The difference is that working with one company you have a single agreement, single SLA, single process in place. This helps you to concentrate on expansion instead of spending time controlling payroll providers," Shash concludes.

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SSON News and Analysis
Posted: 07/09/2012

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