Establishing Shared Services as a Strategic Partner in Business
During the last decade, corporations have searched for ways to slice, dice and chop costs from their operating budgets. One aspect that companies have been examining closely is how to consolidate and streamline various support services in order to gain efficiencies of scale and provide a higher level of service. Many organizations have found that it’s possible to reduce administrative costs by anywhere from 20% to 30% by identifying the most efficient way to deliver a particular service and then creating a customer-oriented mind-set. Absa set itself on this path when it took shared services up as part of a new operating model.
Sharing services is more than a method for cutting costs. The idea is to reduce inefficiency and save money, but also improve customer service. The question is: what is the most efficient way to get a task done, and how to understand the value and costs associated with it?
Shared services are blowing apart the barriers that previously constrained organizations. When done right, shared services allow an organization to guarantee customers a specific service level, at a specific price, and find the least expensive way to deliver the services. In other words, shared services allow an organization to do the work where it should naturally be done.
Absa People Management is in the process of building and embedding a new operating model, focusing delivery on "e-" as the first choice, and the contact center as the second choice, of delivery and information sourcing (tier 1 and 2). This results in HR consulting being positioned at a more strategic level of business consulting. (HR is the term used if referring to generic issues; PM refers to the Absa context.) The new operating model facilitates the creation of a shared services function.
Previously, customer awareness and satisfaction were alien concepts to internal service providers. Recognizing that these issues were rooted in the delivery of staff services, some major corporations have concluded that organizational change was needed.
Global Models and Trends in Human Resources
In a rapidly changing business environment, HR has to cope with the following trends:
- A radically different workforce.
- An ever-changing workforce.
- Globalization (mergers and acquisitions).
- Rapid technological advances.
- HR functions becoming time-consuming and labor-intensive due to the fact that they are moving towards a consultancy framework. Employees are recognized as the most important asset of a company.
- HR focus shifts towards being a change qgent and business partner (in accordance with HR trends and best practice).
The significant growth in HR business process outsourcing (BPO) is indicated by the following trends:
- An expanded technology services market (e-peopleserve, 2002).
- A compelling value proposition (e.g. predictability, flexibility; e-peopleserve, 2002).
- A natural evolution whereby companies feel more comfortable in outsourcing complex services (e-peopleserve, 2002).
- Competitive landscape: HR outsourcing is attractive to providers (e-peopleserve, 2002).
- Technology-enabled delivery (epeopleserve, 2002).
- Models of future corporate structures (with the movement towards a virtual network) indicate an increasing use of outsourcing (compensation technologies).
- Previously, outsourcing was mainly for cost-containment (e.g. cafeteria services, IT network management and security). Today, outsourcing focuses on competitive advantage; many important services are being outsourced (e.g. auditing, personnel administration etc.).
- Enables companies to focus on their core capabilities (compensation technologies).
- Basic technology and enhanced technology is complex and expensive (Human resources, 2003).
- HR executives are looking for ways to attend to strategic business support opportunities and remove themselves from daily operational tasks (Human resources, 2003).
- Improved decision support and control – more reliable employee data and the ability to access this information (Process excellence, proven results, 2002).
However, as opposed to outsourcing, some companies prefer an internal shared people service, preferring a situation where both suppliers and customers are part of the same organization. Staff are also given the opportunity to circulate between shared services and internal customers (Reilly & Williams, 2003).
Shared services provide high-quality, low-cost financial and support services through consolidation of "economy of scale" operations while continuously improving the customer experience, and often meet the following criteria:
- An organizational unit with consolidated, dedicated resources.
- Focusing on the (internal) customer - this is not a corporate entity.
- Provides both transaction processing and selected knowledge-based services to various organizational entities.
- Operates as a business – tend to charge market-rate fees for their products and services and have a bottom line like any other business.
- Service center locations are typically located away from their customer's headquarters.
- Technology is leveraged to improve communications with customers.
- Operating units may be given a choice of whether to use the services (usually when scale has been achieved). Corporate governance, however, usually determines that all services must be delivered by the internal Shared Services organization.
- Use performance measures and service level agreements to ensure internal customer satisfaction.
- Generally operate, organize and receive incentives to enhance overall productivity and quality of service.
Reilly and Williams define three key dimensions that distinguish shared services from other models:
- Primarily, the customer determines the nature of the services provided.
- There is a common provision of services.
- These services are available to a number of users.
At Absa, the shared services model was important for the following reasons:
- With increased devolution of people responsibilities to the line, and administrative work being outsourced or automated, management are beginning to question the value that the HR function can add.
- From a strategic HR perspective, the new operating model in Absa anticipated the shift, positioning HR as a strategic business partner. At the same time an internal shared services function was established so as not to leave the line without support during the transitional and implementation phase of the new operating model.
The case study, a qualitative research methodology, was used to collect information for the consulting report. Yin (1994) supports the use of a case study as a research strategy. According to Stake (1995) the intent of qualitative researchers is to promote a subjective research paradigm. Subjectivity should not be seen as a failing that has to be eliminated, but as an essential element of understanding. In this study, the author of this report simultaneously fulfilled two roles: that of evaluator and that of interpreter.
- The Case Researcher as Evaluator: All evaluation studies are case studies.
- The Case Researcher as Interpreter: The researcher has recognized a problem, puzzlement, and studies it, hoping to connect it better with known things.
Stake says that qualitative inquiry is subjective and new puzzles are produced more frequently than solutions to old ones are provided. The contributions to disciplined sciences are thus slow and tendentious; results pay off little in the advancement of social practice; ethical risks are substantial; and the cost in time and money is very high. Given this information, the reader should be cautious when drawing conclusions. Yin supports this in saying that, for teaching purposes, a case study need not contain a complete or accurate rendition of actual events; rather, its purpose is to establish a framework for discussion and debate in order to learn.
An effort was made towards validation, by means of "triangulation," which Stake (1995) describes as:
- Data source triangulation – see if the phenomenon or case remains the same at other times, in other spaces, or as persons interact differently.
- Investigator triangulation – have other researchers take a look at the same scene or phenomena.
- Theory triangulation – by choosing coobservers, panelists, or reviewers from alternative theoretical viewpoints.
To the extent they agree on its meaning, the interpretation is triangulated. Although triangulation was applied at Absa, it should be done even more extensively and in depth, in order to be able to draw accurate conclusions for the future. In the study, the following process was followed:
- Data gathering – Interviews were conducted with Dennis Farrell, General Manager, People Management Shared Services Absa; literature/document reviews were done; several providers of HR outsourcing services presented their cases to Absa management group; best practice trends were identified and verified against the outcomes of the intervention.
- Organizing the data gathering - a team effort between the consultant and the project sponsor.
- Access and Permission - the author of the report signed confidentially agreements not to disclose sensitive information to other bank groups.
- Observation – in the next step, after the case study is published, more knowledge will be gained in terms of how people experience shared services.
ABSA: Migration to a Shared Services/ Business Process Outsourcing model
According to Reilly and Williams, a key issue that will determine what you put in your shared services, is how much you retain within PM/HR and how much you devolve to line or pass to employees under a self-service system. In Absa, the following services were identified as being used by the whole Absa group (all the business units): payroll, People Management contact center, employee wellness, management services, PM systems and processes and Centers for PM. The decision to include an item or not was determined by whether the work was deemed straightforward (transactional and repetitive?) and whether cost was a primary concern.
Reilly and Williams also state that at a more detailed level, there are questions to answer on the number of staff to be employed; and whether the roles you create in a shared services structure are specialist or generalist in nature. They conclude (2003, p. 30) that if you introduce shared services the constraints experienced will vary from organization to organization. Namely, the outcome of the design is likely to be affected by the following intent:
- Are you going to eventually sell your services externally?
- Are you going to offer them to other parts of the business, e.g. internationally?
- Are you going to create SLAs with your business partners?
- Are you going to count PM costs as part of a corporate overhead?
The Absa internal shared services function is a form of insourcing. The rationale here is that knowledge of the organization and its processes are vital to provide a good service. The shared services function is situated both at corporate HQ and at the decentralized Centers for People Management (Johannesburg, Cape Town, Durban, Pretoria and Bloemfontein) and is run as a cost centre. The shared services function is thus positioned between the corporate organization and the business units (Reilly and Williams).
Reilly and Williams also state that employee self-service or the broader concept of e-PM refers to the electronic means by which staff can gain information, add data to systems, and carry out transactions. In the most developed approaches, the result is a fully integrated, organization-wide electronic network of PM-related data, information services, databases, tools and applications, that are generally accessible at any time by employees, managers and PM professionals. Corporate intranets are the means by which this is done initially: the intranet is the precursor to giving wider access to employee data. Line managers are given on-line access to employee records. This is aligned with the B2E (Business to Employee) portal and has as its foundation both ESS (Employee Self-Service) and MDT (Manager's Desktop).
Ease of access to technology will be an important determinant of how far and fast e-PM is launched, according to Reilly and Williams. In some organizations nearly all employees have a desktop computer. Those that do not would be able to get online through computer kiosks. Absa is conducting an intervention whereby all employees will have access to technology. This intervention is referred to as LAN-DP. Speed of progress within an organization will probably not be determined by technological capability alone, but also by culture - how much is the organization prepared to devolve responsibility to the line managers or employees?
Why consider e-PM options? Reilly and Williams list the following benefits:
- Cost savings - fewer people are needed to deal with queries or transactions as they are managed online.
- Better quality information online as those with knowledge or expertise have loaded the material.
- Improved management information based on better records.
- Higher levels of knowledge-sharing and collaborative working across organizational boundaries.
- Greater proportions of the workforce are able to work remotely.
- More sophisticated and informed decision-making.
- Empowerment of staff so that they have more control over their lives; providing them with easier access to information.
Reilly and Williams list the benefits to colocating a combination of different services in one place:
- Having staff in one place allows techniques like buddying, which helps with cover and coaching.
- Improved learning can be achieved.
- Escalating problems to a higher level of expertise is easier.
The new PM operating model was the key influence on the design decision. The idea is to staff the internal shared services division with people who are generalists, but to expect them to develop an expertise in one subject. This is one method of balancing the generalism/specialism tension.
The Outsourcing Decision
The decision whether or not to outsource has to be taken. We had to settle not only what to outsource, but also why and how to outsource a specific function.
The following should be taken into consideration when outsourcing:
- Determining the contract strategy - BEE (Black Economic Empowerment).
- How to manage the outsourcing process.
- Who is responsible for the tendering process - is there a tendering process?
- Who will assess the tendering process?
- Determining the contract length.
- Developing clear control procedures.
- How will the transition process be managed?
- How and who will manage the contract?
Once the overall design of the structure was in place and specific roles described, staff members had to apply. Reilly and Williams highlight a number of factors to be considered when appointing staff:
- How many posts could be filled internally with little prior training - in other words: how many people could be placed in positions with their current competencies?
- How many jobs could be filled with good internal candidates but substantial training will be needed before they can be fully operational?
- How many jobs offer no choice but to appoint external staff?
- Personal computer literacy is vital.
The employees were faced with the following options:
- Apply for your current post if it falls within the scope of the new operating model.
- Apply for another job if you feel that you could acquire the necessary competencies needed to perform the job.
- Apply for another job in Absa and be redeployed.
- Be retrenched.
The above statements applied to both the roles available in the new PM operating model as well as for the intended shared services function. Absa PM wanted to emphasize continuity in their service delivery as well as customer knowledge and familiarity. Most employees were re-deployed and the retrenchments amounted to only 16.2 percent in total. There is a risk in any new model that the service quality is likely to decline before it improves. Keeping some form of continuity helped smooth the process with the customers and to reassure staff that the implementation process was still a work in progress. Line liked having a single name to contact during the transition period and liked still being served by a person that they knew.
Since the start of this transition, there has been movement in the teams so as to allow greater flexibility of deployment and to avoid too much narrowness in attitude developing. The greatest movement was experienced in the shared services function where a number of new appointments were made.
Reilly and Williams emphasize that the main aim is to ensure that, at the end of the process, you have the right people in the right places as far as possible. This means that you should recognize the distinct skill sets for different roles – not just a question of level, but of type of work. The main aim is to try and balance the benefits of bringing fresh blood with new ideas and experience, with the need for organizational continuity - the knowledge of the organization, how it works, its culture and its people. Another angle to consider is creating flexibility in your resourcing mix.
The shared services function achieved this by appointing a number of new staff members as well as making use of the services of an external, independent consultant who operates as part of the core team. Continuity is achieved by having the original team members in key roles. The flexibility and innovative solutions and views thus come from the new members in the team.
About the Author
People Management Shared Services
Dennis has 23 years of service with Absa, both business- and HR- (People Management) related. Over the past 10 years, his focus has been on strategic HR management and the positioning of People Management as a world class HR organization. Dennis has now implemented an internal People Management Shared Services function within Absa, which allows for flexibility to adapt to change and be positioned to embrace external business opportunities.
Dennis sits on the Editorial Board of Shared Services News.