Quick Wins to Establish Shared Services Part II
Joel Roques, Managing Director, The Hackett GroupParticipants:
Christian Braad, CFO, Koncernservice
Yvette Dorman, Senior HR Change Manager, Metropolitan Police Service
Mark Judd, Director of HR SSC, Rolls Royce
Adding value and reinvesting savings
Joel: Two things - if we save some money, how is the business case – where does this money go? Is it purely about savings, are we relocating some of this money to the more value added part of the organization? What have you seen typically, has it been part of the pure business case or has it been added by accident?
Christian: In Copenhagen it is very difficult because each year, you can see the amount of money the shared service center delivers in reprioritizing. You can see what kind of money is taken into administration to make it possible to use cheaper services. So as it is visible, therefore there is no discussion in what kind of benefit the shared service center is delivering.
Mark: I think in our case, it depends on how long you are running as well to allow the track record to be demonstrable. I think the aspirations of the program are easily audited and checked. We can show things like the ‘net’ head count and function has come down. But it is a big transformation piece in an environment that is changing rapidly anyway, because of any number of factors whether it be technology, economics or markets evolving. So it becomes quite difficult and also to an extent, I find that the business loses interest in the history after a period of time. Beyond that they are only interested in looking forward and seeing what you are going to do now to progress and advance the business, rather than spend a lot of time looking back at where it has come from; so I think as long as you have ticked the appropriate boxes on the original business case, and that it can be demonstrated, then the conversations tend to be forward looking more than backward looking More and more, I have been asked about how to use the shared service to drive the business forward, rather than just purely to drive down the unit costs of administration delivery.
Service Level Agreements
Joel: Another big subject linked with the business case is the entire subject of SLAs and ensuring that you do it with the right benefits and looking a how you measure that on a continuous basis. From our own experience at the Hackett Group, it seems that the delivery of SLAs is not in fact as satisfactory as it could be, with no more than forty percent of best aspects like cost and quality, being delivered as satisfactory. What were the difficulties that you had in implementing that?
Mark: I am hoping that somebody like you Joel will start to erode the term SLA from the general vernacular of shared services, because I have heard it now for eight or nine years. And it is not because they aren’t important, they are. I think for me there are a number of ways in which they manifest themselves and one thing which I said very early on to my team is SLAs will be really important if we don’t have them. And if we have them, they will be of very little interest to virtually anybody except ourselves until something goes wrong, and then they will be of interest again.
Recently I was at an event when I was an internal shared service leader, sharing knowledge with people that were sharing outsource suppliers. And the outsource HR person, whose responsibility is to manage the relationship, was saying how much governance they can put into place around the co-ordination and the reducing of SLAs and the governance structure. And I asked how much interest do all sector HR directors and FD’s have in the SLAs, what do you send them? They said nothing virtually, just a brief summary at the end of the month of where we ought to be. And it struck me that I struggle to get my sector HR interested in service level agreements. They shouted very early on that we needed them, we had them, we monitored them, we measured them, every team had theirs, looking in depth whether we meet them or don’t meet them. We blue, red, amber, green performance against those - it sets the shared services, I produced the reports, and I produced various explanations against each SLA on a monthly basis and I’m the only one that is really interested in it, and I need to be. But in reality for me it is a bit like, I am there steering the ship, I’m the one that is interested in it. And as long as everyone feels the right controls and the mechanisms in place to control it, that is about the extent of the interest that I can generate.
Christian; I think that that is pretty much what we were saying; that the SLAs are the rule of the game. And the rules only become interesting when someone is not complying with the rules. Then it becomes important that you actually have the rules, so I think you cannot put enough emphasis on implementing the right SLAs for running a new shared service center. Making sure that you are delivering these things, and also reporting it and discussing it with your customers. And then accepting of course that if sometimes your customers are not as interested in them, that is because you are actually applying the rules of the game, and that is part of the thing.
Joel: So basically we are saying that the SLAs are indispensable, nobody cares as long as you meet them. I would just like to hear from Yvette, is that the same experience that you have had?
Yvette: We haven’t yet got our SLA framework in place. One of the things that we wanted to do during our process reviews and design was to look at where the SLAs were going to sit within the technology so that we could pick up those flags. So we are much later on in the program. One of the things that we have got within the organization is distrust around service level agreements. We had service level agreements twenty odd years ago when HR was centralized, and they were very informal so they have never really been very well received. So going into a shared service center environment, I think that we do need those rules because there haven’t been any rules really, and that will inform the quality. And Mark, you said that it helps the quality and the shared service center staff know what they are operating to, and as long as they operate to that, then that’s the minimum service level that can be achieved, or would be achieved, but I think the reality is that it gives you scope to actually add onto that. I think we have a disadvantage in selling the shared service center as I can’t at the moment tell my manager what level of service they are likely to expect, because we haven’t actually set them out. So it would be interesting to find out from you when you were actually able to define the SLAs – in the transition, or from the implementation – and how you actually went about embedding them?
Mark: We used a number of mechanisms; we baselined our performance before we went live, so we actually charted what we were actually doing, and we baselined it, but we also went out and did the benchmarkings and we then were able to describe what good looked like. We had 250 sets of terms and conditions to administer against other organizations in the study that were doing, so we said we simply cannot see our capability of delivering to top class performance in that service area, so we are aiming for medium or we’ll explain where we are. So we set the SLA as an aspirational SLA in the first instance, and then established the levels for everybody.
We also ran for a while and saw whether it was achievable. And actually we also correlated some SLAs against each other; I will give you an example. I was worried that people would get upset about having to wait too long: we are not a call center but we have a customer service element to it. So we benchmarked against resources that we had available. We set a target of 25 seconds to answer the call, and we set a target of answering 95% of the calls within a certain time before they were abandoned. And we found after a period of time that we couldn’t run the 25 seconds without increasing our headcount, which I didn’t have the budget to do it, so it just wasn’t conceivable. So we were failing consistently on that SLA, but we were hitting 95%, so people were holding on for the extra fifteen seconds for us to answer the phone. So we explained that to the business and said we are not going to increase our resources or your costs. But we are going to reset the time, because we have found that people will wait 35-40 seconds on average, and as a consequence of that we realize it is quite inconvenient but we don’t think it was worth the extra investment. And the team was able to put in a new level for acceptable operating practice, SLA, but we still showed medium performance on the SLA report, and we explained that in discussion. SLAs if they are used as a feature of the language are helpful at certain times, but I think where they dominate the conversation between us as a provider and the customer, they are never good. It is never a good way to communicate in the language of SLAs, as a defensive mechanism. You have got to talk broader around the overall quality of service delivery. It got to be a much wider conversation, but that is how we did it, and we surprised ourselves to an extent that we weren’t that far away from our service levels, as to what we were able to achieve.
SSON: How often do you review your SLAs? Is it a case of reviewing them once a year or do you wait until something happens before doing so?
Christian: We review as a minimum once a year, so we look at our KPIs and what we have we delivered according to SLAs, and if we have not delivered why is that? And if we have overperformed, we ask if these KPIs could be moved up to high quality, and assess if we want that higher quality, because that is also a question: Does the business want higher quality or lower costs? And we continue discussing that with our customer, and saying that yes, you can get an answer on the phone in 25 seconds if you want to pay for it. We need to ask ourselves if it is worth paying the extra to get that quality, or is ok that we’re answering in 50 seconds and that you have lower costs. So when you are deciding your SLAs, you put your price in units on that SLA, and you make that also part of your relationship. Actually our customers have been very constructive in discussing these things, because they are explaining where is important for them, to have let’s say the KPI at a high quality and where is maybe less important and that can give us guidance where to work in the next year too. Yvette: Is there is a ‘one size fits all’ for SLAs or do you have a different approach to different internal businesses?
Mark: I think one of the things is that you have to look at the entire infrastructure you are implementing, because your charging mechanism drives that. The reality is that our business leaders don’t really have the call to demand a different service, because they are not in the position to pay for a different service.
Joel: How do you make the link to the SLA? Does it help you to drive standardization?
Mark: I have had this debate several times, again I think that the problem with an insourced service to an extent is that you operate on two retractable paradigms - you’re not set up to make money, and you operate to a fixed budget.
If you have a group organization you could have a cost based center if you like, certainly we aren’t in our organization. We operate as a partner to an established function. But to commercial standards, which is always a bit of a paradox. So I had questions early on where I had some of the leaders say, well what are the penalties if you come outside your SLA? Of course then I need to make a profit in order to manage the risk of penalties. So I kind of quickly tackled that and said look, the reality is that this is about corporate cost base, it’s not about moving the costs around. Somebody somewhere is going to pay for it, and it is going to hit the share price across the entire organization. So the reality is that the more infrastructure we put in to try and manage costs, and recharge it from an area to another, in an area where we pretty much delivered the same service to all areas of the organization is going to be to the detriment to the business as a whole. Rolls Royce kind of gets that in a sense that it does have a commercial offering in a civil business, to the Airlines called ‘Total Care’, which effectively says; ‘we will sell you an engine, the engine will be sold at a very good price. As part of that deal will provide Total Care support for the engine for the next thirty years.’
So, in principle I said the same thing, I am not going to charge you for each recruitment activity you undertake. You will have to pay for the advertising and agency costs associated with it. But in terms of the core administration angle, we are going to provide the infrastructure. And based on the size of the organization that you are, you will pay for the utilization costs for that service, and the reason for that is that sometimes you will grow and sometimes you will shrink. So we operated that approach for the last couple of years, and to a large extent it takes away a lot of the debate. I actually reduced my headcount because I didn’t have to put up with people counting how much they did. The systems didn’t always support it, so you needed other mechanisms to manage that. It didn’t seem to change the behavior one way or another. And the relative utilization of activity of various businesses is pretty much the same, so if we charged it per unit cost or if we didn’t we would have still seen the same activity levels. And I can see the pros and cons on both sides, but I think I came with the view in the end that it is much better to do it this way in our current organizational structure, because I can talk about net benefits for the business as a whole, as opposed to individual businesses trying to gain a certain leverage over another business.
Christian: I think that if you come to use the activity costs, they will differ according to the type of service you are delivering, because I can see a certain part of HR, a certain part of finance is less important because normally you do not yourself control your demand. But in IT I think it is very important to have this mechanism, and in our case using this mechanism from day one it is actually cutting down the models of IT from about fifteen to around six today, I think we will be down to three more in year two. Because people can see that by changing your way of asking for these different models, you can actually save a lot of money, so in IT I think activity based costing is very important. In some ways in HR and finance, the customer can really say now we are going to reduce the number of invoices, but they still have the same number of invoices to do in another way. But what is maybe important is that in relation to base costing that you actually get your cost visible, both internal in your shared service center and in front of your customer, that could itself be an argument.
Joel: I would just like to go around the table with one very quick question to finish, if you had one quick win, that was the things that really helped me a lot, the thing to give me just to finish, what would it be?
Christian: The most important thing that we have done over the last two years was setting out an automatic process to ask the customers about how they perceive the service, so that we didn’t have to have the argument of simple cases, and of the customer’s view of how we are producing things. And I think that after we had done that, much of our energy has gone into improving the processes, instead of excusing that we are not doing this and we are not doing that. So that is a very important thing.
Mark: I am going to say something very similar because I think that it comes back to the first things that I made, if you come back to change management investment post implementation not exclusively, but with a significant amount of thought in place about how you are going to change after you go live, which is very similar to what Christian is saying, and having the right mechanisms to withstand the impact of the change of service on the customer base. It puts you in a position of great strength, it means you don’t have to apologize for what you are doing. It allows you to be a savior not a victim.
Yvette: For us it is really about the change journey and in weaning the organization off HR, so that they get used to what is coming. The big win for us, although it should have been a lot earlier in our implementation was our intranet site, in terms of accessing HR information in an easy to understand way, fairly quickly, within three clicks or so you have your question answered. If we had introduced that a lot earlier, then we could have started to actually get the organization used to the self-service piece, rather than actually imposing it much later in the change program. I think that is a quick win, and it would have been much more beneficial to us probably about a year ago, or two years ago.
Joel: We have seen on the data, self service is the place where people are investing a lot of money. In my experience, getting the workflow right early has huge benefits that will ripple through the entire implementation, it is probably the most important backbone IT tool, it is quite complex technologically. It will help almost everything along the way of your implementation, and allow you to drive quite a lot of the automation, or the standardizations that you were talking about earlier.