Creating an HR Shared Service Center within Royal Mail Group plc

The journey to create an HR Shared Service center in Royal Mail really began in 1994, shortly after the UK's government, the sole shareholder, failed in its attempt to privatize Royal Mail. Immediately, the government conducted an independent review of the support services in the organization and concluded that they could be further streamlined. Up to this point in our corporate history it would be fair to say that every operational unit – in excess of 100 – had, in effect, its own administrative support unit providing a range of services covering the whole spectrum from finance to HR. Various projects were then initiated and it was at this time that the term "Shared Service Center" was introduced into our corporate vocabulary!

Finance was the first unit to create a number of SSCs to provide support to the whole organization. Between 1998 and 2001, a small number of centers were created to service payroll, financial reporting, accounts payable and accounts receivable. Significant savings were generated in this period and some of this money was reinvested in a new suite of SAP financial systems. However, the key learning from this work was used directly by a large number of key team members to create one of the largest HR shared service centers in Europe within a two-year time period.

Historically, HR at Royal Mail was run within individual business units. This led to a large number of teams operating nonstandardized procedures. In January 2003, a new Group HR Director - Tony McCarthy - was appointed and significant changes were introduced. From the outset, McCarthy set out to transform HR by implementing the Dave Ulrich 3-box model which consists of experts, business partners and an SSC all working as part of the same community. This had a great impact because it not only created the "burning platform" to do something different, but also enabled any tensions to be resolved within the HR community.

Very simply we wanted to create a top-class HR team that:

• Provided a single point of contact for customers via phone, fax or e-mail
• Provided local face-to-face contact to deliver those services which could not be sourced remotely – such as recruitment, learning delivery, health and safety inspections, and the more complex advice and support
• Centralized all other processing activities in order to drive in standardization and drive out cost
• Was ISO-accredited to ensure that all processes were subject to both strict change control and continuous improvement
• Had a completely different way of working for our teams and liberated their thinking and their own individual learning
• Was Investors in People (IiP) accredited to ensure employees' support processes were consistent and represented good practice
• To create the shared service box of the Dave Ulrich 3-box model
• To make cost savings
• To put in place a continuous improvement capability
• To provide a single point of access for all employee enquiries

The most important part of any organization is the people who work there. In our SSC we set out to create an environment where:

• Our people were paid an upper quartile reward package based on median pay but with a bonus package based on business unit performance that meant their package was the best available
• Our people are rewarded fairly for performance
• Qualifications and professional development are encouraged for everyone
• We have only seven levels within our organization structure so there is the minimum of bureaucracy
• Flexible working was introduced to ensure people could work hours and days that suited firstly the employer, and then the team member
• Introduced a shorter working week to promote work-life balance
• Development of people takes place as part of our every day work

When contemplating a change of this size, it was vital that we could maximize our economies of scale by centralizing as much of our administration activity as possible. Consequently, we established central teams to drive the following processes:

• Recruitment
• Learning
• Health & Safety
• Advice & Support

Royal Mail had previously centralized payroll and pensions administration and those units were migrated into the new structure.

The contact center, which had earlier been established to resolve payroll enquiries, was extended to cover the whole range of people processes – including advice and support not requiring face-to-face contact.

Once established, we then immediately sought to get the new centralized process accredited to the ISO EN 9000 standard to give us a sound basis to move forwards. It was vital to get in place the disciplines associated with process change, and to start and get a clear focus on continuous improvement. Once this foundation was in place, we then embarked on a number of Six Sigma and Lean production training sessions coupled with the training of a number of project managers who could start and pave the way.

After a slow start we are now starting to see the first signs of process improvement emerging. By way of example, when we began to measure the end-to-end recruitment process we discovered a number of bottlenecks, which enabled us to implement a number of process changes to deliver a better service at lower cost.

At the outset, we made a conscious decision not to implement any new core systems. Instead, we chose to optimize our existing systems – Infinium and SAP. Had we decided to implement new core systems then we would have run out of time and not delivered our benefits in line with our business case.

There were some systems that we did implement because we believed they would make a difference to both our customers and to our overall cost reduction program.

The main systems implemented have been:

• E recruitment – applications can now be made directly via the Internet by prospective employees
  E appraisal – appraisals are now done electronically, thus providing vital performance data information on line 8
  SAP EIC – all contacts with employees whether via phone, fax or e-mail are recorded, thus providing a complete history of any contact. Trends are then analyzed to highlight any possible improvement opportunities
• Knowledge Management Portal – there are many people-related policies and procedures so we set out to create a database of everything we needed. This has been a challenge, but one we are well on the way to tackling.

The key to any successful project outcome is to deliver the financial benefits that were promised by the project. In our case our financial benefits derived from headcount reduction. So from the outset, we ensured that all HR people were charged to a separate cost center owned by us. This enabled us to see the costs associated with the people that would be affected by the change. It also allowed us to have total transparency over the appointments process. Once a person was appointed we could then run a simple spreadsheet on a weekly basis to highlight the designation of the others, and track their movements. We met on a weekly basis to review our progress, too. Consequently, we could track our benefits with precision right back to the financial ledgers.

We have learned many things from this initiative, but these are the six key points:

• Communicate/communicate/communicate – and never ever miss a chance to do it face-to-face. The only way that change can be delivered successfully is for all people to embrace the change and the only tool open to us is face-to-face communication
• Always keep your deadlines when you make promises to your people
• Always put the people factor at the forefront of decision-making and seek to create personal certainty at the earliest opportunity
• Payroll centralization, which had been done a few years ago, gave us some important pointers. However, the centralization of recruitment activity proved to be a greater challenge. This work probably took up more of our time than all the other activities put together
• Measurement in HR appears to be an alien concept! However, it is the one tool that gives customers the confidence that we are on top of the job. So it has to be a must have!
• Customers are not used to either providing detailed specifications or detailed plans of activity. To get the shared service center to work effectively specifications and plans are essential

Vital Statistics

• Headcount has reduced by a net 1450 people
• Significant savings have been generated
• 96% of our customers (Royal Mail Group employees and agents) are happy with the service that is provided
• Made services easier to access
• Established a shared service center obsessed with measurement!
• Disproved the myth that "HR cannot be changed whilst the business is undertaking a change." Yes, it is true that whilst our parent organization has undertaken the most radical restructuring in its entire 350-year history, we have transformed HR – so much for the myth!

Our journey time has been relatively short – just two years from inception to implementation; but during that time we have achieved a lot. We still have some way to go in systems terms but we now have in place a lean team that supports the company.The key thing is that in a recent survey of our people, over 75% said they enjoyed working for Royal Mail, compared to 50% a year ago. This has been an amazing journey!

Royal Mail Group in context:

• Delivers 84 million items to 27m UK addresses every day.
• Serves over 28m customers per week through 14,600 Post Office® branches.
• Each year our domestic and European parcels businesses deliver some 285 million parcels
• Employs over 196,000 people
• Pays over 160,000 people weekly
• Receives 30,000 calls to the HR contact center every week.
• Our final salary pension scheme is the fifth largest occupational pension scheme in the UK, with 180,000 members and 250,000 pensioners.

Additionally Royal Mail has just completed one of the UK's biggest corporate turnarounds moving from a loss from operations of £318m in 2001-02 to a profit from operations of £537m within 3 years. A total of £218m of this profit was given back to our people through a Share in Success payment of £1,074 to every eligible person in the company.