To Share or Not to Share: Exploring Boundary Conditions of HR Shared Services Value

SSON introduces our new columnist, HR Management expert Dr. J.G. Meijerink Before starting my first column for the SSON, please allow me to introduce myself. Together with my colleagues prof. dr. Tanya Bondarouk and Marco Maatman, MSc., I have been conducting research into the value of HR shared services since 2009. Throughout the years, we have sought to answer the question of which practices allow organizations and employees to reap the promised benefits of HR shared services – in terms of cost reduction, HR service quality improvement, and strategic change. Through these columns I would like to share with you our findings and the implications of my studies into HRM and shared services. An important question that deserves attention when establishing a new HR SSC or expanding the scope of existing ones is: which HR activities can be best standardized in an SSC and which should remain decentralized at the discretion of the individual business units? To address this question, dr. Erwin Hofman and I applied a design methodology that is traditionally applied by product innovation managers, called platform thinking. Key to platform thinking is to search for commonalities across product components (such as a steering wheel, engine or gears in the case of cars) and share those components with high commonality across different products (e.g. a Skoda, Volkswagen, Seat or Audi car as done by the Volkswagen group) in order to offer customized products against low costs. One important design criterion for standardizing and thus sharing product components is the degree of differentiation in need, that is, the degree to which the need of users differ (1) across time and/or (2) across users. The higher the differentiation in need, the harder it is to standardize product components. With some adjustments, the platform thinking principle can also be applied to shared service design, because in this case, HR activities (as components of HRM processes) may be shared across business units, which likely depend on differentiation in need: the extent to which business units have different expectations, needs and interests regarding specific HRM activities. As expected, HR activities with low differentiation in need produced higher levels of value (i.e. had higher quality and were offered more efficiently) when centralized in an HR SSC, whereas those with high differentiation in need were better kept decentrally, at the business unit site, to deliver high value. Hence, this does not only prove the value and utility of platform thinking for new HR service design, but also provides evidence for the added value of HR SSCs in providing better and more efficient HR services than traditional channels – as long as a homogenous need exists. Remarkably though, we found that the differentiation in need for HR activities was negatively related to the value of those HR activities. In other words, the quality and efficiency of all HR delivery channels (HR SSC, HR outsourcing, HR business partner, line managers) drops – yes, even when they provide the ‘right’ HR activities – when business units become increasingly heterogeneous. One explanation for this might be that differences in expectations require business unit representatives to align interests, which can be a time-consuming effort involving high costs. Furthermore, an HR service provider might spend too much time and effort in trying to make sense of all idiosyncratic business unit expectations, thus harming the efficiency of its service provision. The bottom-line, therefore, is that HRM services not only have to be sourced properly, but it is equally important that HR SSC stakeholders – in particular the clients, the business units – align their interests and expectations before establishing an HR SSC that is guaranteed to add value.

To Share or Not to Share: Exploring Boundary Conditions of HR Shared Services Value

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To Share or Not to Share: Exploring Boundary Conditions of HR Shared Services Value

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