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September/October 2003 • IHRIM Journal22

SUPERMARKETS1 AND GROCERS

As introduction, a metaphor may beuseful in describing the developmentof shared services. Imagine or re-

member the world before the supermar-ket. In each town or village there were anumber of small shops, a butcher, baker,grocer for example.

It is easy to look back on the pre-super-market era with a warm nostalgic glow. Ifwell run, the local green grocer offered afriendly service and good local produce,and would know the suppliers and most ofthe customers personally. The shopkeeperwould serve the customer from behind acounter, as they knew the produce best!Shopping was a pleasant social experi-ence, and involved visiting a number ofshops to get what was needed.

But, what appeared in the shop wassubject to the vagaries of weather, seasonand local suppliers. Tomatoes were im-possible to find in winter. The shop wasonly open for a few hours per day and per-haps even closed for lunch. If the cus-tomer didn’t like the shopkeeper, shop-ping could be a painful experience. Theinefficiencies were passed on in the formof cost to the customer, and the bottomline — food was expensive.

Then, “in 1916, a paradigm shift in gro-cery store science occurred. ClarenceSaunders invented the self-service grocerystore. The first Piggly Wiggly opened onSeptember 9, 1916 in Memphis, Ten-nessee. The concept of the “self-servingstore” was patented by Saunders in 1917.”2

Along came the supermarket and by offer-

ing convenience, vast choice, self-servicewith a basket, cheaper produce and con-sistency at the expense of the personalservice, it put most of the grocers andbutchers out of business.

Shared service has begun to do thesame to HR. The “friendly” local HR per-son, who understands the local issues andknows most of the local people, is beingreplaced with a cheaper, consistent, im-personal call center and technology-basedself-service. Local policies and quirks arereplaced with standard policies andprocesses.

The HR supermarket is here, like it ornot.

SHARED SERVICE AND OUTSOURCINGIt is difficult to discuss shared service

without mentioning outsourcing, but it isbeyond the scope of this paper to delveinto the pros and cons of outsourcing. Theoutsourcing community has initiatedmuch of the drive to shared service, as HRoutsourcing relies predominately on ashared service model.

Outsourcers are a major contributor tothe development of shared service mod-els.3 If outsourcers are to succeed they re-quire a profitable business model that de-livers an agreed and measurable servicelevel consistent with clear economies ofscale and repetition. Shared service is akey component of this model.

The outsourcing debate has helpedmake the rational measurement of HR ser-vice and cost a part of modern HR.Whether an HR outsourcer can save an or-

ganization money in the long-term anddeliver better service is yet to be proven,but the process of building a business outof HR processes has brought about amore rigorous assessment of HR costsand service. Organizations that choosenot to outsource can still learn much fromthe outsourcers. The “threat” of outsourc-ing has forced many complacent HR func-tions to improve.

The rapid growth of the BPO market isalso a validation of the shared servicemodel of HR delivery. Human ResourcesBPO is the fastest-growing segment of HRservices spending. In 2001, U.S. spendingtotaled US$4.1 billion, and IDC projectsthat it will grow at a 29.8 percent com-pound annual growth rate (CAGR).4 Ac-cording to Gartner, human resources (HR)is the most outsourced business process,with worldwide HR business process out-sourcing (BPO) revenue on pace to reachUS$46 billion in 2003, an 18 percent in-crease from 2002 revenue of US$39 billion.By 2004, HR BPO is forecast to reachUS$51 billion and represent 39 percent ofall BPO revenue.5

Outsourcing doesn’t change whatneeds to be delivered (Employees stillneed to be paid, for instance.), merely howthe delivery is financed. The advantagesand disadvantages of shared service aresimilar, whether outsourced or not. Out-sourcing is typically a form of shared ser-vice provided by a third party.

SHARED SERVICE AND CALLCENTERSShared service centers and call centers

By Thomas Otter

Shared Service and HR

This article serves as an introduction to HR shared service. Without much hype or preordained vision,shared service plays a significant role in HR delivery today. This article aims to provide an overview of thekey issues and points out some of the specific challenges of shared service, albeit from a mainly Europeanperspective. It also suggests some areas for further debate.

IHRIM Journal • September/October 2003 23

FEATURE

dominate the service landscape. Banks,insurance companies, utilities, phoneproviders, airlines, governments and re-tailers use them extensively in the salesand customer support process.6 The ser-vice delivery model has developed rapidly,fundamentally changing the nature of cus-tomer service. Despite challenges, themodel is proven. The history of shared ser-vice can be traced back to the oil industryof the 1970s.7

Call centers and shared service, whenstaffed and run effectively, offer significantimprovement over traditional servicemethods. Twenty-four hour service via thephone or e-mail is commonplace in indus-tries that used to be office-hours bound.Complaints and issues can be tracked,trends analyzed and processes improved.

Service levels in society have im-proved, partly as a result of a move to ser-vice-focused models.8 In comparison withhow long it took to get a phone or changean address with a bank 20 years ago, theprogress today is remarkable. Many thingsthat involved standing in queues andcompleting lots of forms are done with ane-mail, Web application or telephone call.Call centers and shared service deservesome of the credit for this improvement.Shared service can be taken too farthough, and it is not the answer for everyprocess. When badly designed or poorlystaffed, it can fail dramatically.

An area that is in need of significantwork is HR for service centers. Service cen-ters create significant challenges for careerplanning, job satisfaction and compensa-tion, and are often blighted by high em-ployee turnover. The worse call centers areseen to be the modern equivalent of theDickensian workhouse. More research isneeded to solve the people challenges ofservice centers.

Service centers have limits, and it issimply wrong to suggest that all processeswould benefit from a service center model.Some processes only work with real-timeface-to-face interaction. The challenge isto identify those few vitally importantcases where such personal interaction isessential. This is as much a challenge for abank looking to offer complex financialservices as it is for the HR function.

In the UK, the banks have been ac-cused of pushing the shared service callcenter model too far. In response, a hybridmodel of service delivery is emerging,

combining Web-based services, telephonecall centers and personal service.

But shared service is now a significanttrend. According to a recent study by By-water, over 90 percent of the European 500are considering some form of shared ser-vice, with HR the second most prevalentfunction (after Finance).9 Other studiesprovide similar statistics.

Many multinational companies haveimplemented HR shared service centers,some on a national basis, others on a re-gional basis and others on a global basis.Examples of organizations deploying HRshared service include IBM,10 Siemens,Gillette, Cable and Wireless,11 SAP, Ford,HP, Leeds City Council, Centrica,12 Procter& Gamble13 Henkel, Vertex,14 BP, Shell,RBS, Nestle, Motorola, Ericsson, Com-pass, Eastern Health Services, Philips,Zurich Financial Services and Barclays.15

In the drive to reduce costs, a large bankhas built its HR shared service center inIndia.16 Shared service has gained tractionacross all industries, and it could be ar-gued that shared service is becoming thepredominant model of HR service deliveryin large organizations. It is also interestingto note that the majority of large consult-ing organizations that sell shared serviceshave implemented them internally.17

In the UK, the government sector hasembraced shared service, Leeds CityCouncil, Staffordshire, Westminster andother London boroughs, Salford, Hert-fordshire and a number of others as wellas the health services are all moving to ashared service model. At a central govern-ment level, shared service is also havingan impact. Examples of shared servicebest practice can be readily found in theUK public sector. The decision has partlybeen driven by the government’s 2005 e-delivery initiative, but also by a need tocuts costs and improve service. Indeed, anumber of years ago Ulrich noted, “Theconcept of shared service has suddenlyand without much fanfare, become amodel for the organization and delivery ofstaff operations, including human re-sources.”18

Despite this significant move to sharedservice, there is limited academic researchavailable on HR administration andshared service, at least that I have beenable to uncover.19 Much of the HR re-search has been focused on how HR canbecome more strategic — human capital

management, HR as business partners,etc. There is little on the more prosaiccomponents of HR. Stripping costs out ofadministrative processes, while maintain-ing or improving service levels, has re-ceived relatively little attention. It seemsthat strategy is more fun.

However, in the UK, the Institute ofEmployment Studies has recently donesome interesting research. This study iswell worth reading, as it is well researchedand bereft of any subliminal sales mes-sage.20 However, given the impact thatshared service has on the business, theHR function, and its cost implications,more empirical research on best practicewould be welcome. Most of the researchto date is vendor- and consultant-driven.21

SHARED SERVICE — A GLOBAL STORYMost organizations are looking at

methods of squeezing costs out of everybusiness function. The drive to strip outcosts from all parts of the business is re-lentless and ruthless. Online procurementand auctions have helped reduce costfrom the purchasing cycle.22 Integratedsupply chains have dramatically loweredcost of production. Production has beenshifted to low-cost countries or has beensold off altogether.23

In the same way that organizationshave shipped production to the mostcost-effective country, services are also onthe move. The recent explosion of offshoreoutsourcing deals for IT and customersupport functions illustrate how far orga-nizations are prepared to go to reducecosts.

This is not a new trend, but an exten-sion of one that Marx identified over 150years ago: “In place of the old wants, satis-fied by the production of the country, wefind new wants, requiring for their satisfac-tion the products of distant lands andclimes. In place of the old local and na-tional seclusion and self-sufficiency, wehave intercourse in every direction, univer-sal interdependence of nations for materialand intellectual production. The need of a con-stantly expanding market for its productschases the bourgeoisie over the entire sur-face of the globe. It must nestle every-where, settle everywhere and establishconnections everywhere.”24

To put this is a more modern context,Deloitte Consulting believes that in thenext five years, two million jobs in West-

ern financial institutions will be movedoverseas. Given that Britain accounts for10 percent of all outsourcing to Asianeconomies, this translates to 200,000British jobs heading East. Deloitte fore-casts that US$356 billion worth of finan-cial services activity by turnover will bemoved away from first-world economies inthe next five years. The institutions thatshift the work offshore will save US$138billion. Adecco, the recruitment firm, haspredicted the transfer of 100,000 jobs incall centers alone from Britain to India by2008.25 Service centers are migrating itseems.

Traditional methods of HR delivery areunder the same cost microscope, and it isunlikely that this migratory trend will passHR by. Human Resources is not immuneto the forces of globalization. Already anumber of UK banks are moving HR ad-ministrative functions either offshore (In-dia typically) or near-shore (Poland orCzech Republic for instance). Major BPOproviders are establishing centers in India(Exult for example).26 Companies in Indiaare training call center operators to under-stand and even mimic local accents.27 Hu-man Resources greengrocers are in for ashock.

THE STRATEGIC ELEMENT OF HRThis article will not dwell at length on

the “is HR strategic?” debate. There are anumber of stirring visions of the HR func-tion as the vanguard of change and strate-gic leadership.28 Human Resources’ po-tential to be strategic is not doubted here,yet despite this, in most organizations to-day, HR is still predominately perceived asa support function by the organization itattempts to serve.29 The day-to-day realityis to support employees and managers incoping with people related issues.30 A cyn-ical test of HR’s perceived strategic valuetoday is the number of HR directors whohave become CEOs.

Several years ago Brockback31 com-mented in the Harvard Business Review thatHR couldn’t be strategic unless it learns todo the basics right. Stewart’s32 seminalblow up HR article still asks some awk-ward questions of HR today. As Reillynoted more recently, “Whether it likes it ornot, the HR function is frequently judgedon the capacity to do the basics right. Andthis applies to senior managers as muchas to shop floor workers.”33

Machin and Williamson note, “MostHR professionals would admit to feelingthat sometimes they do not get the re-spect that they deserve. Indeed over thelast few years, doubts about the contribu-tion of HR, in its current form, to organiza-tional performance have been increasing,to the point where some commentatorsare asking whether the function should bedisregarded altogether.”34

Most administrative tasks don’t requirea deep and meaningful personal relation-ship with an HR person. In the same waythat most people are happy to order a newcredit card without meeting the bank man-ager, much of HR’s routine work can bedone with limited face-to-face contact.

If HR doesn’t assess shared service, Fi-nance or IT may do it on HR’s behalf. Thisis especially so in organizations that havesuccessfully deployed shared service andcall centers in other business functions. IfCustomer Care and Finance operate undera shared service model, the pressure onHR to do the same may be considerable.

Yet the supermarket has not killed offall shops, on the contrary, it has encour-aged the development of specialized, highvalue-added, high profit margin storesthat focus on delivering goods and ser-vices that are complex, different, rare orhard to find. Customers do occasionallyvalue personalized professional adviceand specialized service, and are preparedto pay for it. The shared service supermar-ket is not the answer to all HR issues, butit can create an environment where theroutine and the strategic can be given thecorrect amount of differentiation.

The HR function that is able to identifythose unique and valuable services andoffer them in a personalized and knowl-edgeable way, while at the same time ruth-lessly reducing the cost of routineprocesses will have achieved the right mixof services in the corporate mall.

As Lenz noted, “The successful organi-zations managed to integrate the compet-itive features of customer focus and flexi-bility with the equally competitive featuresof economies of scale.”35

A LOT OFTHE JUSTIFICATION FORSHARED SERVICE IS ABOUT COST RE-DUCTION

Eighty percent of respondents to a sur-vey conducted by Gartner cite cost savingsas the biggest driver of HR outsourcing.36

At a recent conference, leading global or-ganizations were clear that HR headcountreductions were a key driver behind theshared service model. They have reducedHR headcount by 30 percent and in somecases 50 percent.37 As one participant putit, “If manufacturing is cutting headcountyet delivering better product faster, we inHR need to do the same.”38

The Bywater study noted that 78 per-cent of organizations see cost reduction asthe biggest driver for shared service intro-duction.39 A Mercer study noted most ofthe business impact surveys suggest thatthe potential savings from shared servicesare between 15 and 40 percent of laborcost.40 This is perhaps indicative of thecurrent state of the economy, and someorganizations that have a myopic focus oncutting cost and fat may induce an un-healthy corporate anorexia. Shared serviceshould be seen as more than just a quickroute to strip off a bit of the HR function. Ifthat is the only driver, then service is likelyto suffer, and costs will climb back in thelong run. Any obsession is normally un-healthy, and low HR staffing ratios shouldnot be seen as the only measure of HRsuccess. Research, both by HR academicsand financiers, highlights the limitationsof cost-based valuations.41 Recent corpo-rate ethical incidents point to an un-healthy focus on the tangible measures inmany organizations. Nevertheless, some-times HR needs to speak the language ofcost savings, even if there is a great intan-gible benefit, too. Human Resources hasoften failed to secure the capital invest-ments it requires to be strategic, becauseof an inability to articulate benefits in thelanguage of the purse-string holder, theaccountant.

Shared service should be seen as partof a broader HR service model, not just asa cost cutting component. In the Bywaterstudy, 64 percent of participants saw im-proving service standards as a major dri-ver. Can shared service offer better servicethan traditional HR methods? Yes, pro-vided that shared service offering is part ofa well-thought-out HR delivery model.

HR DELIVERY MODELOver the past decade a new model of

HR delivery has developed. Many organi-zations now separate consultative HR ser-vices from administrative ones. Again, Ul-rich deserves considerable credit for this


FEATURE

model.42 It is beyond the scope of this arti-cle to explore the model in detail, but it isworthwhile providing a brief overview.

Human Resources is split into threeclear roles. Figure 1 illustrates how the dif-fering foci and roles fit together.

Business Partner: A consultant to theline organization — able to provide strate-gic input to line managers, and align HRwith business. This resource typically sitswithin the business. In a leading bank,these people are called account man-agers. They are responsible for growingthe relationship with the line as a partner-ship. They sell the value of HR to the line!

Specialist or Expert: HR is often com-plex and requires significant expertise(European labor law is an example). Thisexpert typically designs policy and pro-vides expert advice. The term specialisthas a different meaning in U.S. organiza-tions than it does in many European ones.In the U.S., specialist is sometimes usedto denote the bottom of the corporate hi-erarchy, an apparent euphemism for clerk.In continental Europe, the term specialistis synonymous with expert, so to be la-beled a specialist is something of an acco-lade. By centralizing expertise, organiza-tions enable greater specialization. The

complexities of European labor law aresuch that it is impossible for a generalistto know all the rules. The specialist will becalled on to resolve complex issues, de-velop policy and consult to the line onstrategic issues. The management of thisrole creates the greatest challenge: how tomotivate and develop HR experts is one ofthe biggest issues facing shared serviceadopters.43

Administrator: Provides transactionalsupport and processes routine queries,handles administrative issues quickly andaccurately, at the lowest possible cost, andtypically sits in the service center. Someorganizations use the customer relation-ship management term agent to describethis role. This role requires the greatesttechnology support.

WHY SHARED SERVICE — ISTHEREMORETO ITTHAN JUST COST SAV-INGS?

Besides the obvious cost saving bene-fits, what are the other benefits and dri-vers? Reilly notes (in probably the mostextensive study on shared service to datein the UK) that there are three key driversfor shared service: cost, quality and orga-nization change.44 The cost driver has

been discussed earlier, but the quality andorganizational change elements are atleast as significant.

There is a perception that shared ser-vice lowers the quality of HR service andreduces the options available. The feed-back to date from successful shared ser-vice projects is the opposite. A reportabout Barclays Bank recently noted, “TheSSC exceeded its target of a 44 percent re-duction in head count by the end of 2002,which not only illustrates the cost savingsinvolved, but is a whole year ahead ofschedule. Line managers can get the inputthey need more easily than before. Stafffeedback is good because they are dealingdirectly with HR rather than filling informs. The working shifts and environ-ment have also been changed so that theSSC can cover the company for morehours than before.”45

Employee and manager satisfaction isimproved. Organizations such as Ford talkof significant improvement in employeesatisfaction.46 Validating employee satis-faction requires an investment in mea-surement. The use of software helps totrack empirical factors such as time tohandle query, quality of response andnumber of escalations. Several organiza-


FEATURE

Figure 1. HR Service Delivery.

Source: Arinso International.

TO BE HR Service DeliveryHR Operates in Three Business Lines

Conceptualisation of HR Intelligence into HR Strategies/Processes

Conversion of HR Strategiesand Processes to content specific HR processes to supporta specific busines evironment

Execution at lowest costagainst agreed service level

HR Expert

HR BusinessPartner

HRAdministrator

HR Specialist

HR Generalist

HR Administrator

Tech-nology

Out-sourcing

Service Centre

Administrativefocus

Operationalfocus

Strategicfocus

tions made more subjective surveys ofemployee satisfaction before and after im-plementation. At a recent HR shared ser-vice conference, the overwhelming major-ity of companies applied benchmarkingand had initiated a regular comparativeanalysis.47 Hackett, SBPOA, Saratoga, andIBM global services all provide excellentstatistics for HR benchmarking.

Reilly and others note there is a clearimprovement in HR service with success-ful shared service. Anecdotal evidencefrom conferences and consulting feedbackreinforces this. Reilly notes the main qual-ity improvement elements in some detail.Human Resources has a desire to:

• Be more professional in the work it does,• Achieve greater consistency and accuracy,• Be more aware of best practice internally

and externally,• Use better processes to complete its work, and• Deliver work on time and on budget.This would deliver an incremental im-

provement in service, but Reilly goes on tonote that the research uncovered a signifi-

cant drive for HR to become more cus-tomer orientated. He summarized this asfollows:

• Being consumer-, not producer-driven,• Become more accessible (open more

hours and ease the process of contact),• Improve the supply of information, • Offering better quality support in-line

with customer needs, and• Operating user-friendly services.48

He also stressed the desire for continu-ous improvement — to offer better ser-vices on a consistent basis. By introducingthis model, senior HR people were lookingto affect an attitude change, a move tocustomer service rather than policy en-forcement. Clearly, the desire and evi-dence point to shared service being morethan just cost reduction exercise.

ORGANIZATION CHANGERecently, Alf Turner, HR services direc-

tor from BOC, an early European SharedService pioneer, commented, “Separationof strategy from service delivery and the

creation of shared services are in thatleague of change as the switch from wel-fare to personnel in the 1930s, and frompersonnel to human resources in the1980s.”49 HR has the opportunity to rein-vent itself and shed the administrativebaggage. Shared service doesn’t replaceall HR functions with a browser and a tele-phone. Part of the attraction of HR sharedservice is that it is supposed to free the HRprofessional from the distraction of ad-ministration. A caveat, however, it also re-moves much of the excuse for not deliver-ing strategic value. Without the burden ofadministrative drudgery, will the HR pro-fessional soar on the wings of newfoundcreativity and vision? Stripping out admin-istrative and transaction work from thetraditional HR function raises some fun-damental questions about what is to bedone do with the remaining parts of HR. Itis easy to talk about strategy; the chal-lenge is to deliver it.

Do HR managers and officers under-stand this change and are they ready for


FEATURE

Figure 2. Delivering the Service.

Source: Arinso International52

Delivering the Service

Managing the Service

HR Administrator

HR Expert

HR Business Partner

IT Support

Basic Value Strategic

Scheduling & Timekeeping

Payroll

Benefits & Compensation

Labor & Employee Relations

Recruitment

Competence, Management & Leadership

Training & Development

Performance Management

Edit Management

Vendor Management

Organizational Management

Workforce Planning & Modelling

HR Strategy

Top Management Compensation

HR Reporting

Organization Administratino

Personnel Administration

En

ab

ler

Technology Support ServicesIT Operations Network Management Applications Management Applications Integration

Employee Communications

Expatriators & RelocationTransferred Co-Workers

it? Have they thought through implica-tions of this new division of labor inenough detail? If the HR function is notabsolutely clear on the roles of the sharedservice center, the subject matter expertand the HR business partner, then HR willonly generate confusion and mistrust inthe line and with employees. Ken Meyerfrom Ericsson50 was emphatic in stressingthe importance of clear role definition.The role of the expert requires particularattention.

It is questionable whether an organiza-tion could successfully deliver HR sharedservice without a clear plan for the deliv-ery of the HR services that aren’t part ofthe shared service center. Shared service

can’t be considered in isolation of an HRstrategy. Yet a recent IBM survey foundthat all HR directors talked of strategy, yetover 60 percent did not have a writtenstrategic plan.51 Figure 2 serves to illus-trate the need for clarity and an exact divi-sion of activities.

Sluys53 suggests that every HR activityneeds to be documented, and the divisionof work needs to be crystal clear.

MODELS OF SHARED SERVICEThere is no single model of HR shared

service, and many HR projects today in-volve some elements of shared service(see Figure 3). The extent to which HRshared service is deployed is a function

not only of HR’s willingness, but also ofthe organization’s culture and desire forchange.

BUILDING YOUR MODELShared service does not have to be an

all or nothing choice. It can start small andgrow. Equally, functions that are per-formed in-house today could be moved toshared service as a precursor to outsourc-ing. Organizational culture determines thelikely shared service makeup. A move togreater centralization than is the corpo-rate norm will require significant politicalwill.

Some organizations have used servicecenters to deliberately change organiza-tional behavior, to shift mindset and reali-ties to become a more global company,rather than an association of local firms.55

Global organizations are often trying tobuild a single way of working whereverpossible. Shared service can help bringabout this fundamental change in behav-ior, as it does break down many existingsilos and policy islands. Shared servicecan expose local or divisional practicesthat run counter to the organization’sbroader vision, and if not managed createsignificant problems.

TECHNOLOGY AND SHARED SERVICE:AUTOMATING INTERACTION

Technology plays an enabling role andit is difficult to conceive of shared servicewithout a significant technology compo-nent. Traditional HR interaction involves alot of synchronous communication, eitheron the phone or face-to-face. This is themost expensive form of support. A goal ofshared service should be to replace ex-pensive support methods with cheaperones, without reducing the quality of ser-vice. If an employee can get the exact an-swer to a question about holiday entitle-ment with a few clicks of a mouse, thisoffers a cheaper, yet faster service thancalling or e-mailing the local HR person.

MULTI-CHANNEL ACCESSEmployees should be able to interact

with the HR function through the mostconvenient method, be it the telephone, ameeting, the Web or even SMS. The an-swer should be consistent, even thoughthe delivery method differs. This calls for aclear integration strategy where the tech-


FEATURE

Scope Limited Large

Risk Low High

Reward Lower Higher

Functional One process HR – complete Back-office(payroll or process, Finance, HR andbenefits) recruitment, procurement

admin, payroll,reward

Economic Cost center Profit center Spin offmodel

System Status quo National Single coremodel (many systems) sytsems Global system

Location Virtual Centralized Green fieldmodel

Delivery Support line HR Support Supportmodel employees employees,

managers andsuppliers

Coverage Single company Single group Multi group

Provision Internal Mixed BPO

Figure 3. Models of Shared Service.

nologies and people need to talk to each other(see Figure 6).

TRANSACTION ENGINEIn the first instance, shared service is about

administrative efficiency. This requires astrong transaction engine that automatesmuch of the administrative burden. The trans-action engine should be able to handle com-plex company rules and be easily configured toadd or take off new divisions and even wholebusinesses. The application should handle le-gal and administrative requirements out of thebox. In a European context, much of HR ad-ministration involves legal compliance.56 Thetransaction applications should help, ratherthan hinder compliance. Issues of perfor-mance, scale and stability are fundamental.Without a sound transaction solution, sharedservice will simply expose system weaknessesto the whole organization.


FEATURE

Figure 4. Organisations with Multiple Business and HR Functions.

Source: Mercer54

Maximum consistency• standardized across

business units• integrated/same

platform• consistent processes• shared staff• single outsourcing

contract (for Business Process Outsourcing

Someconsistency• standardization

encouraged across business units

• integrated/same platform

• consistent processes• duplicate and

fragmented staff• separate cotracts, or

single contract with multiple serivce level agreements

No consistency• autonomous business

units• separate platforms• inconsistent

processes• duplicate and

fragmented staff• multiple different

ervice level agreements

• complex vendor management

Ability to leverage the sharing of resourcesLow High

Ab

ilit

y t

o l

evera

ge o

uts

ou

rcin

gLo

wH

igh

Service Centre(Inclusive

TechnologyCentre)

InternetIntrament

e-mail forms

Case Workers

Expertise Centres

% of HR Tasks100% 66% 28% 5% 1%Inquiries

• Employees• Management• HR Professionals

Self ServiceTier 0

E-HR PortalIVR

Kiosks

Tier 1

ServiceAgents

Tier 2

SubjectMatterExperts

Contact CentreTier 3

Policy ExpertsProcess Content Owners

Effective & Efficient HR Service Deliverythrough Shared Services Centre . . .

“Resource” optmisation through use of self-service and cell centre support tools

Figure 5.

Source: Arinso International

INTERACTIONTOOLSService centers that provide customer

support focus on creating a solutionwhere every call or access is monitored,problems escalated and service levelsmeasured. They also analyze patterns andfrequencies to identify areas of potentialor emerging concern. These tools can beapplied to HR shared service, too. Tele-phony systems can pass caller informa-tion to HR systems, enabling the HRagents to recognize the employee beforethey even pick up the phone. Even basiccall center management software can helppredict staffing requirements and monitorservice levels. Scripting tools allow first-level support to offer a more consistentservice at a lower skill level. Most organi-zations have invested in these technolo-gies for customer service and leveragethem for HR.

POLICY MANAGEMENTTOOLSMany HR queries relate to policy. Pro-

viding clear policies and guidelines helpsboth the employees and the HR agents. It

creates clarity and consistency, and re-duces the number of queries and escala-tions. Don’t underestimate the challengesof maintaining a policy solution. There area number of specialist HR policy manage-ment tools, but it is well worth consider-ing how to integrate HR policy manage-ment into the corporate document, policymanagement and portal platform.

EMPLOYEE AND MANAGERSELF-SERVICE

Providing simple-to-use Web access toHR data reduces the cost of providing HRservice. The hard benefits of self-serviceare relatively well documented, so I won’tdwell on them here.57 It is important toposition employee self-service (ESS) andmanager self-service (MSS) as part of theshared service strategy, but they are notthe only channel. Sluys notes that at onemajor customer, ESS was the predomi-nant channel for HR administrative en-quiries, but that the telephone was thepredominant channel for payroll en-quiries.58

BILLING AND COSTINGIf the shared service model involves

charging back the cost of services — aprofit center model — an organizationneeds to be able to bill for services and ac-curately measure service delivery. An orga-nization may wish to leverage existing in-vestment in enterprise resource planning(ERP) systems for this. Implementing aseparate costing and billing applicationjust for the HR shared service center isprobably an expensive route.

TECHNOLOGY ISTHE EASY PARTAs a technology vendor it is tempting

to talk about the central role technologyplays in shared service, but technology isthe easy part. Human resources systemshave been around for many years, and areproven. Call center and case managementtools are also well established. Employeeself-service has existed in many organiza-tions for over five years.59 Assuming asound technical infrastructure and an HRsystem that can cope with the legal andadministrative challenges, technology


FEATURE

Figure 6. Multi-Channel Access.

Source: SAP

should be relatively straightforward. In today’s economy, assess the finan-

cial viability of the vendor carefully andalign the HR shared service with IT sharedservice to avoid building an HR island. Thegreatest technology challenge is inter-faces. The more processes that run in oneapplication, the less your cost of interfac-ing will be. For every “best of breed” application, beware of the mon-grel interface!

EUROPE AND SHARED SERVICE60

According to Aust et al., “In the UnitedStates the shared service center (SSC) isan established business model with 16 ofthe top 20 Fortune 500 companies adopt-ing the practice. In Europe it is estimatedthat 50 percent of multinationals are ei-ther already using SSCs or planning to doso.61 Shared service has been a great suc-cess in the U.S. The homogeneous lan-guage and legal system allow significanteconomies of scale. Downsizing and re-dundancy are far cheaper and socially ac-ceptable than in Europe. Multinationalsshould not underestimate the complexityand differences between European coun-tries. There is often a business case forshared service on a pan-European basis,so it is vital to avoid dropping in an Amer-ican business case and expecting it towork. United States assumptions need tobe tested against local labor laws and or-ganizational realities.

WORKS COUNCILS AND EMPLOYEEREPRESENTATION

Typically, and this varies from countryto country, employees have a muchstronger say in reorganizations and dis-posals than in the U.S.: in Germany this isknown as Mitbestimmung (deciding to-gether). In the space of this article it is notpossible to provide an explanation of Eu-ropean labor regulations and the indus-trial relations framework. But the keypoints to be aware of are:

1. The union movement, althoughsomewhat weaker than in the past, is stillstrong, especially in traditional industriesin continental Europe.

2. Supervisory boards in Germany con-sist of 50 percent employee representa-tives. (The supervisory board is the high-est level of corporate governance andapproves major decisions made by the ex-ecutive board.) Many other continental

countries have similar models.3. Much stronger state involvement in

corporate redundancy actions.62

The works councils need to be involvedearly, and any headcount reductions willneed careful justification andnegotiation.63 I’ll rely on a rather lengthyquote from the European Foundation forthe Improvement of Living and WorkingConditions to illustrate the issues of a sig-nificant organizational change:

BETRIEBSÂNDERUNG, or substantial al-teration to the establishment, is a64...

concept that relates to an instance of codetermi-nation within the works constitution (Works Con-stitution Act && 111 ff.). It covers major decisionson the closure, reduction of operations or relocationof the establishment or of important parts of it,amalgamation with other establishments, funda-mental changes in the establishment’s organiza-tion, objectives or equipment, and the introductionof radically different work methods and productionprocesses. Rationalization programmes and the in-troduction of new technologies are examples fallingunder this heading. The assumption is, for the caseslisted, that the changes may result in serious disad-vantages for the workforce or for large sections of it.Consequently, in establishments regularly employ-ing more than 20 employees eligible to take part inworks council elections, the works council must begiven prompt and full information on any suchproposed changes. In practice, substantial alter-ations to the establishment constitute the main areaof use of the participation, information and co-de-termination rights of the works council in economicmatters, and entitle the works council to a recon-cilement of interests and a “social plan. “

In France for instance, “Companieswith a workforce of 50 employees or moreare required to develop a redundancy pro-gramme (plan social) when they intend tomake redundant more than nine employ-ees within a 30-day period. A redundancyprogram is a series of measures designedto avoid redundancies or curtail theirnumber and to facilitate the redeploymentof those made redundant.”65

The UK labor market is considerablymore flexible than the German or Frenchmarkets, but there is still a significantlystronger set of worker rights than in theU.S. Any ROI study will need to take intoaccount the cost of redundancy programsand other labor law-related matters. Themore early negotiations and discussionsthat begin with works councils and otherrepresentative bodies, the better.

It sounds obvious but Europe is not

one country, but a number of countries.Most administration law differs greatlyfrom country to country. Although Euro-pean Directives have gradually begun toharmonize legislation, there are consider-able country level variations. (Data protec-tion is an example of this, where there is aDirective, but differing national interpreta-tions thereof.)

There is little correlation betweencountry size and administrative complex-ity. A relatively small country, Belgium hasan equivalent compliance burden toFrance, for instance. The centralizationbenefit needs to be assessed carefullyagainst the cost of redundancy and thepolitical fallout.

The Mercer report goes on to note,“Whilst the various national cultures, lan-guages, and legal frameworks across Eu-rope mean that set-up issues are morecomplex than in the U.S., the businesscase is nevertheless very strong. Manycompanies continue to duplicate HR ac-tivities across Europe and overlook oppor-tunities to standardize policy and practice.Specifically, the high salaries and work-forces employed by multinationals in Eu-rope enable economies of scale that de-liver substantial ROI, and the consistencythat is being introduced by the EU regula-tions means that centres of expertise arean effective option for ensuring consis-tency and quality of service across Eu-rope.”66

It is in the interest of global HR direc-tors to better understand the complex na-ture of HR in Europe. At the risk of over-simplification, there are a number keyareas to grasp:

1. The burden of legal compliance istypically greater than in the U.S.

2. Employee representation is morepowerful.

3. Governments are much more likelyto intervene.

4. The cost of redundancy is signifi-cantly higher.

5. What works in one European countrywill not necessarily work in another.

A significant number of senior HR pro-fessionals in Germany have trained aslawyers, such is the complexity of legisla-tion and its impact on HR processes.However, successes at PWC, Gillette, IBM,Du Pont, Ericsson and others prove thatshared services work in Europe. It is morecomplex, not impossible.


FEATURE

THE DISADVANTAGES AND RISKS OFSHARED SERVICE

Shared service is here to stay and isproven at many organizations. Neverthe-less, it is important to understand therisks and disadvantages of shared service.Reilly notes a number of disadvantages ofshared service.67

1. Neglecting the importance of theknowledge and experience of those whoperformed administrative roles in the pastand the loss of personal relationshipsbased on knowledge and culture,

2. The risk of deskilling some adminis-trative jobs to the point of tedium.

3. Asking too much of the business fac-ing HR managers in concentrating onstrategy and change management,

4. Potential difficulties for career devel-opment because of overspecialization,

5. Boundary management issues —where does policy end and implementa-tion begin,

6. Communication difficulties,7. Absence of accountability, since HR

managers in the business have no controlof the quality of service delivered by theshared service center,

8. Lack of local knowledge, especiallyin heavily centralized shared service,

9. Loss of face-to-face contact, and10. Large-scale capital investment.It is interesting to note that technology

is not seen as an inhibiting factor and that,like most large-scale projects, change andpeople management issues dominate.The management of change is the singlegreatest risk.

According to Machin and Williamson,“While HR professionals see themselvesas guardians of change management andare happy to oversee the implementationof such programs within the organization,they may be unwilling to embrace changethemselves.”68 Factors to be considered tominimize loss of knowledge and overspe-cialization include job rotation and regulartraining. The challenges that organiza-tions face in deploying shared service ap-ply equally to HR.

CONCLUSIONSThe HR supermarket is here and it isn’t

going away. Human Resources functionsthat act in denial are likely to go the way ofthe green grocer who didn’t adapt to thesupermarket. Successful HR departmentsmust balance low cost, high accuracy ad-

ministrative delivery with high-end value-added service. Whether they own the su-permarket, or bring it in from elsewhere,they will need to deliver administrationconvenience at rock bottom prices. Onlythen will the funding and the respect existto build strategic, valued services. Organi-zations need to decide what parts of HRare “supermarket” materials and what arenot. As with the supermarket, the con-sumer will play a decisive role.

REFERENCEShttp://www.sharedxpertise.orgwww.ies.org.ukwww.hrotoday.comwww.partnersforchange.co.ukwww.bywater.co.ukwww.arinso.comhttp://www.accenture.com/xd/xd.asp?it

=enweb&xd=services\finance\fpm_sspov.xml

http://www.conference-board.-org/pub-lications/reports.cfm

ENDNOTES1 “History of Supermarkets in the UK,”

see http://www.bbc.co.uk/food/ food-junkies/chrono_supermarket.shtml

2 http://geography.about.com/li-brary/weekly/aa112398.htm

3 Arinso, Exult, Accenture, Axon,IBM, Partners for Change, and others arethe best source of information on sharedservice models.

4 “HR BPO: Making Sense of theMarket Opportunity and the ChangingCompetition,”

Analyst: Marc Pramuk, IDC5 Cited at http://www.sharedxper-

tise.org/modules.php?op=modload&name=News&file=index&catid=&topic=22

6 Four percent of the U.S. workforceis employed in call centers (www.callcen-terops.com)

According to Datamonitor there are 1.2million agent positions in EMEA. Cited atht tp : / /www.ca l l cente rmagaz ine . -com/shared/article/showArticle.jhtml?arti-cleId=10000028

7 Realizing the Potential of SharedServices, Bywater Consulting, 2001

8 There is a contraposition that ser-vice levels in society have deteriorated —interminable decision trees, long holds —“Your business is important to us, etc.,”with no follow through, and so forth. Thispoints to a poor execution of service deliv-

ery, rather than a problem with the modelitself.

9 Bywater study IBID.10 The IBM global center in

Portsmouth UK is a great showcase for in-novative use of HR technology.

11 http://www.partnersforchange.-co.uk/partners.html Early indications sug-gest that C and W are on track to achievethe business case target to reduce morethan 30 percent of all HR costs.

12 http://www.axon.co.uk/axonglobal/files/casestudies/centrica%20121201.pdf

13 D. Prior, N. Rayner, Gartner Re-search Note Case Studies, CS-15-347325February 2002 How Procter & GambleRuns Its Global Business on SAP

14 http://www.xayce.com/News/-ver-tex_hrplus.htm?Page=55

15 http://www.paconsulting.com/-news/media_about/200302062.asp

16 “Partners for Change SuccessStory.” Standard Chartered Bankwww.partnersforchange.co.uk

17 Accenture and PWC Global (nowpart of IBM) for example

18 Dave Ulrich University of Michigan“The New Frontier Revolutionizing Trans-actional Service Delivery” http://www.cor-porateleadershipcouncil.com/CLC/1,1283,0-0-Public_Abstract-22427,FF.asp

19 The author would be pleased to bedisproved on this point

20 Reilly, Shared Service and the Realign-ment of HR, Institute for Employment Stud-ies, UK, 2000

21 Most of the major consulting firmsoffer excellent primers to shared service.See for instance http://www.accenture.-com/xd/xd.asp?it=enWeb&xd=services\fi-nance\fpm_sspov.xml&c=akris&n=povs&t=aff.

22 UK local government researchpoints to reductions in the price of goodsand services could be as much as 8 per-cent officers’ time and transaction costscould be cut by up to 70 percent. Com-bined savings, in some cases, could resultin a reduction as large as 15 percent.http: / /www.lgolpathf inder.gov.uk/en/1/matters.html.

23 The sports shoe industry is an ob-vious example of this. No Logo by NaomiKlein provides a well-written view of theimpacts of global capitalism.

24 Marx, Communist Manifesto25 Cited in the British Sunday Times, 8

July 2003.


FEATURE


FEATURE

26 www.exult.net27 Sunday Times IBID28 Ulrich etc.29 See for example Stewart, Tom, “Tak-

ing on the Last Bureaucracy,” Fortune Janu-ary 15 1996

30 Stewart, IBID31 Cited in Galford R, Why Doesn’t

This HR Department Get Any Respect?,HBR, March 1998

32 Stewart Tom, “Taking on the lastBureaucracy,” Fortune January 15 1996

33 Reilly, Paul, HR shared service andthe realignment of HR, IRS study 2000

34 Machin and Williamson, ChangingTechnologies, Partners for Change May 2001

35 Cited in Reilly IBID36 http://www.abqtrib.com/shns/

story.cfm?pk=OLIAN-03-14-03&cat=FF37 At the SSBPOA conference in May,

at least eight multinational spoke of HRheadcount reductions of at least 35 per-cent.

38 SBPOA event39 Bywater study, page six (this is an

excellent study, see www.bywater.com)40 Mercer Consulting, “HR Shared

Service Centres in Multicountry Regions,”2002

41 See Ulrich, The Bottom Line Isn’t, 2003,Flamholtz, “A model for Human Re-

source Valuation,” The Accounting Review,April 1971

Grojar J.E and Johannson U, HumanResource Costing and Accounting. Jointindustrial society Stockholm 1996

Grojar J.E and Johannson U, HumanResource Costing and Accounting. In Hu-man Resource Management in NorthernEurope, Blackwell, 2000

42 See Ulrich, Dave, HR Champions,1998

43 Proceedings of the SBPOA confer-ence May 2003

44 Reilly, “Shared Service and the re-alignment of HR,” Institute for Employ-ment Studies Page 13

45 http://www.paconsulting.com/news/media_about/200302062.asp

46 IBM global Services presentation,June 2003

47 SPBOA Brussels Conference May2003

48 Reilly IBID49 Cited in Reilly IBID50 Ericsson head of HR shared service

SBPOA event51 IBM global Services presentation

June 200352 SBPOA conference, Brussels, May

200353 Arinso CEO SBPOA conference,

Brussels, May 200354 Mercer, HR Shared Service in Mul-

ticountry regions, 200255 Mayer from Ericsson spoke of this56 Working time regulations create

much of the complexity in holiday andovertime management. Benefits have fargreater state of involvement than U.S.ones. Data protection legislation limitsthe nature and purpose of data collection.These regulations vary greatly by country,and are a major component of HR cost.

57 See Cedar study and Deloitte-SAPstudy. (Much of the ESS research is vendoror consultant driven.)

58 SBPOA Conference59 SAP reckons it has sold over 9.5 mil-

lion ESS licenses.60 The Mercer reports makes interest-

ing reading. 61 “The future for shared services.”

Geraldine Aust Roy Barden Des QuinnMark Williamson, Partners for Change

62 October 2002, the French govern-ment appointed Claude Viet to the newposition of impact of company restructur-ing and its effect on employees.http://www.eiro.eurofound.eu.int/2002/11/InBrief/FR0211103N.html

63 http : / /www.e i ro .eurofound.eu.int/2003/06/InBrief/FR0306101N.htmlAn example of a works council dispute

64 http://www.eurofound.ie/emire/G E R M A N Y / S U B S TA N T I A L A LT E R -ATIONTOTHEESTABLISHMENT-DE.htmlMakes a useful introduction to workscouncils and other European concepts

65 http://www.eiro.eurofound.eu.int/2003/04/Feature/FR0304105F.html (hy-perlinks from the Web site)

66 Mercer IBID67 Reilly IBID68 Machin et al IBID

Thomas Otter has worked in the field of HRinformation systems for the last decade, mainlywith SAP. He has advised companies fromaround the world on HR systems strategy andpractice. He is a regular speaker at SAP eventsand on the HR conference circuit, and is a seniormember of the SAP HR EMEA team. Mr. Otterholds a bachelor’s in industrial relations and Pol-itics, a post graduate diploma in HR manage-ment, and a master’s in information technologylaw. He is currently working on a doctorate, ex-ploring the relationship between enterprise soft-ware and law. He resides in Ladenburg, a me-dieval German town, with his wife and twoyoung daughters and can be reached [email protected].

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