Sourcing Strategies – How Deutsche Telekom’s HR SSC is Handling an Evergreen Topic

SSON News and Analysis
Posted: 07/09/2012


Given shrinking margins, increased competition and growth opportunities outside the domestic market, the telecommunications industry within Europe is experiencing tremendous change. Deutsche Telekom, as Europe’s leading telecommunications organization, is facing this competitive market situation right now. While Deutsche Telekom’s core business is focused on quality, service and connected and innovative products, the internal support functions, such as IT, finance and HR, have to undergo a transformation process to achieve these goals more efficiently. The cost and quality of internal services (services that focus on Deutsche Telekom’s employees as the main customers) in particular, must be leveraged in order to provide and secure them in the most effective manner possible.

In assessing Deutsche Telekom’s history, two factors stand out as contributing to the company’s extraordinarily challenging situation.

  1. Ex-monopolist and public organization
    While Deutsche Telekom started its privatization process in 1985, the company, as of today, is still 32.5% state-owned. The company, and especially its HR group, is therefore subject to conditions that are rather unique, both within Europe and on a global level. Firstly, the workforce of Deutsche Telekom consists mostly of civil servants and employees who have been employed by the company longer than 15 years – both are protected by special lay-off restrictions and must be provided with adequate employment opportunities within the company should a lay-off occur. Secondly, the company’s business and hence its total workforce management is heavily regulated by trade unions and corresponding social partners within the corporation.
  2. Complexity in processes and systems
    Due to the size of the company and accelerated change in the telecommunications industry, Deutsche Telekom’s processes and systems have grown over the years and added massive complexity to the internal workflows. On the one hand, processes and systems include huge historical data and information; on the other hand, due to the early decentralisation of business units, processes and systems have been individualised by each business unit. Products and services, especially within the HR sector, have been adjusted to meet the special requirements of different employee groups – resulting in non-standardized and complex process structures.

In order to tackle its special competitive situation, Deutsche Telekom introduced a strategy for optimizing internal support processes: particularly "high volume, low skill" processes are to be consolidated in separate internal shared services centers (SSC) to facilitate workflows and leverage economies of scale. The first SSC that Deutsche Telekom founded in 2006 was the HR Shared Service Center, or HR Services (PST) for short. As of today, PST is fully integrated and serves approximately 150,000 Deutsche Telekom employees in Germany.

The product portfolio covers the whole HR value chain from hiring to retiring – focusing on all administrative, national HR products, including some special civil servant- and consultancy services. Within Deutsche Telekom’s global HR strategy, the role of the HR SSC is clearly defined: being one of the main drivers of quality and efficiency in internal services. A central strategy is the HR Business Partner Model, dividing HR functions into Business Partners, Competence Centers and SSC. While the business partners – representing the units and divisions within the company – are actually invoiced for our services, PST management, besides ensuring that SLAs are adhered to, has set itself two main targets: to increase Deutsche Telekom’s employee satisfaction with HR functions and services; and to increase efficiency. In terms of our outsourcing strategies, these two targets play a major role, as they have more in common than one would think.

The increase in process efficiency through standardization, automation and reduced complexity, correlates to the quality of HR Services in various ways:

  • It decreases individual process run-through times.
  • It reduces the potential for error.
  • It diminishes productivity reserves and lack of flexibility resulting from the shrinking organizational size (head counts) and rising order volume.

Sourcing strategy of PST

Our sourcing strategy is of course heavily influenced by and shaped around these two targets – particularly in order to deal with diminishing productivity reserves, as these will be more and more important in the future. For our sourcing strategy, we designed a two-phase model, focusing first on optimizing processes and quality internally; and second, on professionalizing capacity management through the use of "smart sourcing" and expanding further our external sourcing relationships.  

Sourcing strategy – phase 1

Phase one of the sourcing strategy, which started in 2006 and is still ongoing, focuses on a professional governance structure, higher quality standards, and optimized HR processes. This first phase is implemented internally, within the PST.

Governance Structure

A governance structure has been introduced to efficiently manage the HR SSC business. The internal project "Go PST" (governance PST) focused on three major areas:

  1.  Integration and harmonization
    In order to fully profit from our economy of scale through the use of the internal SSC, all administrative HR processes at Deutsche Telekom’s major business units need to be integrated into the PST. The goal is to have one HR SSC for national, administrative HR products and services – in contrast to the former, heavily decentralized "classic model," in which each business unit had devised its own HR services. The key challenge was to harmonize and standardize all HR processes as well as IT systems. During the last two years, PST integrated all of the major business units, such as T-Mobile Germany, T-Systems Business Service, DeTeImmobilien (DT Property Management), etc. In total, PST gained an additional 30,000 customers (employees of these business units) and managed to harmonize HR processes accordingly. Since April 2008, the target of having one integrated HR SSC for all administrative products and services has been reached.

  2. Implementing the Business Partner Model
    During the first phase, Deutsche Telekom’s overall HR structure has also been transformed by implementing Dave Ullrich’s Business Partner Model.  This model is based on HR SSCs focusing administrative efforts and governance on business partners (the order givers) on the one hand, and the competence centers (the product owners) on the other. This structure helps us clearly define responsibilities and add transparency to our negotiations with our business partners – who in the end pay for our services.

  3. Service Level Agreements and pricing
    Since we are able to charge for our services, PST needed to introduce a new understanding of how service is delivered and implement new tools and mechanisms to assess SLAs. These agreements are drafted for each different business partner and for all major products and services; appropriate IT tools were installed to track each SLA. In terms of pricing, we are now implementing a process based on a new pricing tool, which allows us to actually charge differently for different processes. This way our business partners can participate in efficiency increase through lower prices or higher prices, according to complexity. 

Higher Quality

Higher quality means that compared to today, PST will provide even more service to our customers by 2010, at a higher quality, and with enhanced access to respective HR personnel and services.

  1. Higher level of services
    There is a correlation between experiencing and providing service.  This means we need to offer our service employees the same kind of services that DT customers expect from them. To us, a higher level of service means aligning our services with our internal customers’ needs. For example, the birth of a child results in a number of contacts to our customers. The employer has to be informed of the date of birth; the parent has to apply for maternity/paternity leave, request salary confirmation(s), maybe apply for a part-time job, etc. So far, these complexities have been dealt with by employees themselves. In future, PST will act as a guide and provide assistance.

  2. Increased Quality
    Customers experience quality in three different ways:
    1. The time it takes from order to delivery
    2. The correctness of the deliverables
    And one thing which is often missing:
    3. The way customers are treated if 1 and 2 didn’t meet their expectations.
    PST is currently optimizing its production planning- and steering processes to stabilize process running time, even in times of high order volume. We’re improving our complaint process to handle complaints in one to two days, and we plan to increase the share of orders executed at first contact by migrating processes from the back- to the front office.

  3. Enhanced Access
    Besides improved contactability and "first done rate" we will offer our customers an innovative HR portal which focuses on customer understanding and language (HR sometimes uses very specific "insider" vocabulary, for example "Stammdatensatzänderung" – "change in the master file" – when someone gets married). With the help of the new portal, customers will find the information they need in terms that are comprehensible to them. They will also be able to start an order on their own and be offered self-service.

Optimised HR processes 

Reducing complexity in HR products makes process optimization obligatory. Three main drivers enable internal HR processes optimization: standardization, automation and complexity reduction. PST’s goal is to increase process efficiency by a minimum of 30% by 2009 via various tools such as the new document management system that allows us to digitalize and barcode various documents as soon as they reach PST – a critical success factor in process automation. Other tools are being developed in house, through process benchmarking with best-in-class companies.

Sourcing strategy – phase 2

In our sourcing strategy’s second phase we try to find solutions for the challenges of diminishing productivity-reserves and the reduced flexibility resulting from it, analyzing alternatives to building up productivity-reserves, ans developing a sourcing portfolio that is optimized from a cost perspective.

Alternatives for our delivery allocation are:

  1. Outsourcing (process allocation to external partners)
  2. Near-/offshoring (delivery allocation to other European countries in order to optimize factor costs; process-management will remain within the company)
  3. Inhouse delivery
  4. Smart Sourcing (increased flexibility through total/partial process volume allocation for defined processes)

Within our pro-active sourcing management, we analyse alternatives concerning cost- and quality on a process-by-process basis. Alternatives 1 and 2 need to be analyzed with regard to the special employment situation of Deutsche Telekom’s workforce, focusing on possible remaining costs for the company. As these two alternatives are currently still in discussion, we cannot yet outline them here.

As the third alternative, in-house delivery, is similar to today’s optimized delivery, we will focus on the fourth alternative, smart sourcing. In its core, smart sourcing tries to cluster processes according to their value-adding prospects for the company, as well as employees’ qualifications needed in delivering these processes. To cluster processes, we defined three complexity drivers that are embedded within each process:

  1. degree of data input within the process (IT interfaces)
  2. service and consulting needed for the process
  3. number of documents resulting from the process

High values in these three dimensions tend to result in higher employee qualifications necessary for delivery, and therefore imply in-house delivery. Lower values within these dimensions tend to demand lower qualification levels – thereby allowing for possible external assignment.

Next to process complexity, order volume plays a relevant role in deciding which processes may be suited for smart sourcing alternatives. 

Through the sort of peak management that is also used in CRM Management, and which we incorporated in our smart sourcing model, we will be able to react efficiently and effectively to short-term productivity surpluses or shortages. We also aim to leverage quality, offering project services, e.g. for Deutsche Telekom’s internal reorganization projects, that would not be included in the daily business volume. Instead of outsourcing full processes and losing process control and volume, we will outsource capacity-dependent process volume to a smart sourcing partner. This enables PST to utilize highly skilled PST employees for higher-value products in times of capacity shortage. In capacity surplus, we’ll reduce the volume outsourced to our partner in order to occupy our resources with higher-volume processes. To find the right partner for this kind of capacity management, we are looking for providers experienced in peak management and the efficient and flexible management of mass processes.

Our sourcing strategy will prove that it is possible to achieve the targets of quality improvement and efficiency increase simultaneously – and that there is a high correlation between the two.

About the Authors

Tobias Kuehr started his career at Deutsche Telekom in 2002. He has held various international positions, e.g. within the innovation management department of T-Systems International in San Mateo, USA and as a senior consultant of Deutsche Telekom’s internal consulting unit in Bonn, Germany. Before joining Deutsche Telekom’s HR SSC, he was jointly responsible for the business development process of Vivento (Deutsche Telekom’s internal employment agency) focusing on founding new companies in different business fields (e.g. call center-, technical-, and sales services). Within the HR SSC, Kuehr is responsible for business development and optimization. He introduced the internal productivity and efficiency program, which aims to significantly increase efficiency and reduce complexity within HR SSC processes.

Dr. Thorsten Bonne joined Deutsche Telekom in 2001, heading the company’s former department for resource- and knowledge management. In 2003 he took over responsibility for Deutsche Telekom’s internal consulting unit, the Inhouse Consulting, in Bonn, Germany. He has headed some of Deutsche Telekom’s major reorganization projects in various business fields, e.g. organizational restructuring, and founded Vivento, the internal employment agency of Deutsche Telekom. He is now responsible for Deutsche Telekom’s administrative HR Shared Service Center (PST).

SSON News and Analysis
Posted: 07/09/2012


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