Can the HR shared services model work globally?

　　Written by: Peter Horan, Philip Vernon

　　Date: 30 January 2003

　　Maximising the return on human capital investments is uppermost in the minds of executives today, and in many organisations it is the most critical success factor. However, recent surveys reveal that despite an ever increasing rise in the HR budget, the HR function still spends too much time on administrative and transactional activities rather than on HR strategy, which would make a more valued contribution to the business. Clearly, a transformation in HR is still required.

　　One way to dramatically improve the performance of the HR function, particularly for large, multibusiness, geographically dispersed organisations, is through shared services. Consolidating administrative and transactional activities within a dedicated administrative facility is not a new concept. But to date, shared services for HR has mostly been limited to the larger uniform countries, particularly the US and the UK . When done correctly, shared services can deliver significant cost savings and result in better, more efficient services, whilst freeing up resources for activities that enhance human capital. Although a regional approach can also introduce challenges, the HR function owes it to its business leadership to explore the potential benefits.

　　Why make the investment?

　　Making an investment in shared services hinges on being able to demonstrate that a consolidated service centre will provide better services to multiple customers at a reduced cost. This will only happen where service delivery is the core competency of shared services, resulting in better management, better service quality, lower costs, and, ultimately, higher levels of client satisfaction.

　　Shared services lays the groundwork for a more strategic deployment of HR resources and offers significant benefits to an organisation.

　　An emerging model for shared services contains the following:

　　· HR Centre of Expertise provides specialist design and consulting to all businesses, leveraging the concentration of expertise.

　　HR Centre of Scale provides transactional and administrative services by leveraging consistent processes, consolidation, and integrated technology.

　　The resources released by greater efficiencies through consolidation can then be deployed to increase the strategic support provided by HR to the local businesses. The decisions on which HR services should remain local are just as important and must be determined on a case-by-case basis.

　　In assessing the financial benefits that shared services will offer, key criteria to consider include:

　　· Size of workforce;

　　· Workforce distribution;

　　· Cost of labour; and

　　· Consistency in service requirements.

　　These criteria will demonstrate the strength of the business case as well as the primary challenges for shared services.

　　What services should be consolidated?

　　Highly administrative or transactional services that are consistent across the organisation are good candidates for consolidation, as are strategic services that do not vary across business units or geographies.

　　Determining those services that should not be consolidated is just as critical, because they include those strategic HR services that support the all-important competitive advantages of local businesses.

　　Our report uses charts, like the one below, to highlight services for inclusion in shared services based on Mercer's actual experience.

　　Benefits and challenges

　　Some of the benefits of a shared services approach include enhanced service quality and greater access to data, which makes it easier to measure performance and conduct other workforce analyses. Shared HR services also helps support a one-company culture. Of course, the most obvious and tangible benefit is a potential savings in annual labour costs of between 15% and 40%.

　　But these cost savings do not come without substantial challenges, even in a country like the US where the business case is so attractive. Apart from the more obvious challenges of gaining consistency of programmes and processes, other common barriers include the loss of control, the disruption to HR staff, and the need for different skill sets. The challenges of shared services must not be underestimated, and a well-planned change management programme is essential.