Guest Editorial by
Niamh Byrne
Online Editor, Shared Services & Outsourcing Network (SSON)
PARTICIPANTS- Doug Kasambala, Finance Director, Transformation within Unilever Enterprise Support (UES)
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Gary Madden, Global Hr Services Manager, Cadbury
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Tim Palmer, Member of the Management Group at PA Consulting
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Roy Barden, Senior Director, Global Business Services Advisory Practice Leader, The Hackett Group
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Wayne Wang, CEO, CDP Group Ltd
SSON: I would like to start with Roy Barden from the Hackett Group; we
are coming out of a recession - how is HR delivering value for
organizations, and have you seen any trends within the last year or so?
Roy Barden: The recent performance study the Hackett
Group carried out around shared services and outsourcing suggests that
the appetite for outsourcing in HR particularly for transactional HR -
is increasing. We asked a number of people where they think they are,
and those that are using very little outsourcing today, and that was
42% of the group – (only 31% will not be using outsourcing in two years
time), whereas those that are heavily outsourced, i.e. they are doing
more than 75% more of their HR transactions through outsourcing - that
number goes up from 8% of the population to 22%. So, some pretty
dramatic increases.
I think the issue that the recession has forced - is the question
around the stable level of activity to base an outsourced contract? So
we are seeing that people are holding back their contracting until they
are clear what their head counts levels are, what services are going to
be required going forward, where they are going to extend
geographically; we expect that trend to accelerate where deals that
were planned in principle for the past 18 months start to be signed.
SSON: Doug, coming out of a recession how has this changed HR
outsourcing within Unilever and what areas have you been looking at
condensing?
Doug Kasambala: Very few can pretend to have anticipated
the scale and scope of the global recession and financial crisis.
However it has been our good fortune that our business case was agreed
before businesses got into the difficulties that we have seen globally.
Despite the recession we have continued on the journey and been even
more focused on realizing the intended benefits. This has allowed us to
cut our costs of serving the business, and by reducing the costs of
serving the business, we are able to use those resources either to
support areas of the business where we needed more investment or to
increase our profitability through reducing our in-direct costs.
Additionally, by outsourcing and under-going HR transformation we have
been able to build capabilities that would have taken us significantly
longer to build on our own. These capabilities enable us to respond to
market conditions in a far more agile and flexible way than we would
have in the past. So we are able to rapidly deploy interventions,
targeting specific strategic priorities in ways that we couldn’t even
have envisaged.
Finally, we have significantly more data and information upon which
leadership can base decision-making, something which we didn’t have
before we out-sourced and transformed.
SSON: Tim Palmer of PA Consulting, are you seeing any changes at all in HR transformation through BPO in the last year?
Tim Palmer: Well I think that if you go back to the fall
of the Lehmann brothers 18 months ago now, there was quite a lot of
activity in the market at the time for people looking to do outsourcing
for transformational HR work. That pretty much stopped on the day of
Lehmann’s falling, for new contracts. And although there were one or
two large contracts agreed last year - they were few and far between.
It is really a direct result of the recession and the uncertainty that
is caused by not knowing quite whether your business is going to be
twice the size or half the size in a year or two’s time. It makes it
quite difficult to contemplate large scale activity like outsourcing
contracts. I think that all of that has changed since Christmas and if
you now talk to someone in the industry they will say that the interest
levels and activity levels have ‘upped it’ enormously. And I think what
has happened is that people have postponed difficult decisions or
interesting strategic decisions during 2009, and are now going to do
those things. So I think we should expect to see more activity in 2010.
SSON: Gary within Cadbury, what HR changes have there been and how are you looking coming out of the recession?
Gary Madden: Well, for my own organization we weren’t
hit as badly as other organizations by the recession, because people
tend to buy chocolate when they are feeling a bit down! So it didn’t
directly impact us. Obviously like any other business when markets are
tough, you do downsize still, you try to look at the shareholder value.
So if anything, what it done to us was impact our business case,
because some assumptions we made in the business case were affected by
re-engineering other areas of the business as a result of trying to
squeeze margins and things like that. Our business case was made
invalid in some areas, because some of the assumptions around FTEs that
we made were absorbed through other business change.
SSON: Wayne what changes has BPO CDP seen when it comes to HR
transformation? And are they global or are they just affecting Asia?
Wayne Wang: Inevitably the macro slow-down has impacted
this part of the world and we have seen companies or our current
clients experience some of the pain in transitions. But as Tim
suggested, since Christmas, things have been picking up. But, I think
largely in this part of the world, ( currently the majority of our
business is coming out of Asia Pacific and China etc,) growth is still
the main theme. Thinking about the macro economics - GDP growth is
still 8% plus. So a lot of our global clients, although they may be
experiencing difficulties in some other areas, in this part of the
world they are still saying “we want to keep our growth.” So the HR
transformation outsourcing projects are centred on building the
capacity to support their business objectives here. So in conclusion,
to that extend it is actually pretty good, contrary to some other parts
of the world. But at the start of this year, I see now the economical
recovery is sort of on the horizon and a lot of companies are looking
to start to invest in growth.
SSON: When looking to outsource HR functions from an
organization - what functions are necessary to keep near shore and what
are you looking at outsourcing to locations like say CDP in Asia?
Gary: I think that the challenge here is the knowledge;
the knowledge of the legislative requirements comes from being serviced
and the knowledge of the business that you are serving. Generally the
tier one can be offshored, but what we’re finding is tier two has got
to stay in the country, because of the knowledge of whatever it may be
– for example, Mexican tax legislation or the maternity policy that
applies to this lady because she joined the company prior to 1987.
You cannot outsource everything that some of the outsourcing advisors,
would say. The reality is something different, but I’m not saying that
that can’t change but it’s not an overnight thing. It will take a
number of years. The challenge that I think some of the service
provider’s face particularly in markets whether it is somewhere in
China or somewhere like Manila is that when they build the skill set
up - when they have client specific knowledge and even country specific
legislative knowledge they tend to move to service providers because
they become more marketable. So it’s a big challenge and I would say
that generally all we can get offshore is really tier one support,
which is really basic data input and simple question and answering.
Doug: The other way to look at this issue would be by
specific processes. There are processes that don’t lend themselves as
easily to offshoring as others. A good example is recruitment for
factory or distribution sites. Because that kind of recruitment may be
seasonal and require very unique skills, for example, providers need to
know the local markets, the unique skills that are required and be very
familiar with local sources from which you can get the types of
resources that a company needs. It can therefore be challenging to do
this in some geographies using only off-shore resources. In such cases
it is important to ensure that as many of the appropriately skilled
resources as possible can transfer to the service provider to ensure
continuity in the quality of service.
I think that knowing the local market not from just a statutory, tax or
legal perspective, but even from the point of view of what is available
locally and having a real feel for the clients’ needs is essential for
some services. This makes them difficult to deliver wholly from
offshore.
Tim: In fact if I can just add to that, based upon the
experience of the industry in general. Recruitment is the process which
has caused the most problems when taken offshore, and I think that is
one of the reasons why there has been a move to use more specialist
recruitment providers, RPO companies rather than general outsourcers.
Because they have a network of people onshore who can also get to know
their client specific requirements.
And so you do need to look at this process by process, and within a
level of process, if you think about the level of activities in the way
that Gary said, things that are administrative and transactional. Tier
one activities can go offshore but things that require judgment and
knowledge need to be closer to the business.
Wayne: I would say that a lot of the transactional,
operational processes are easily outsourced. But I think that a lot of
more human-involved processes cannot be outsourced as easily, in the
way that transactional processes can be automated and offshored. In
this part of the world, HR Outsourcing is not really viewed as an
alternative for nearshore outsourcing. I think here we are providing a
sort of enabler for companies to capture the fast growth capabilities.
Looking at a typical international company, - at least one third or
maybe up to fifty percent of their market is currently in, say, China
or maybe in Asia-Pacific. The APAC region represents their fastest
growth region. So in a sense, I have witnessed quite a few large
outsourcing transformation projects going on in this region, those are
viewed as enablers to help grow their business or to at least help to
deliver the growth strategy as one of the initiatives.
SSON: Following the outsourced agreement and the heavy
investment of time and money - how easy is it to gain access to the
tools that have been acquired?
Roy: I think that the key thing is to look at the
totality of how the HR service is delivered and what part the
outsourcer plays in that, certainly our experience is that outsourcing
is a component of the overall model but it is not the whole story. And
it’s how those components are blended together, so it’s really
important that you’re clear which parts of the process are the
accountability of the outsourcer, and therefore what technologies they
employ. Are you actually going to the outsourcer because they have
access to technologies that either you don’t have or don’t want to
invest in, or skills that you don’t have? So as long as you see in
total and have a vision of what you are trying to build for HR
delivery. It is really plugging the outsourcer into the right elements
for that and being clear where the hand-offs are. Because, that tends
to be where outsourcing relationships tend to break down - it is either
where there is lack of clarity for hand-offs or in particular where
there is lack of clarity over measuring what success or good looks like
at those hand–offs. Then people have to sort through the contract to
sort out issues rather than doing it in a more cost effective way
through normal business-as-usual management.
Gary: I think that is quite a good summary. I would
say that an important element in any important outsourcing decision,
are the tools. And it is different for many companies. Some companies
already have the tools, so it’s easier to move, and others don’t.
Actually in many cases the bigger the company, the more multinational -
the more likely they are going to have disparate systems. Certainly in
our case we were looking for a provider that could give us a solution
because we didn’t have one - it can mean different things for different
companies. Certainly the technology is a key component of any deal.
Tim: I think when people look at outsourcing they
think that ‘if I am going to go to an outsource solution then I am
going to magically get world class tools, a world class service’.. But
if you’re going to do this on a scale of a multinational, it is very
difficult because you have got to move a very large organization from
one model to another. The key point is that if you want to get access
to better tools, outsourcing is a good way of doing it, because the
chances are that you will be able to share a good investment across a
number of organisations to get access to those tools, and use some best
practice thinking, but you need to go into it knowing what you are
going to get. Because two or three years into this, if you want to get
access to some new tools or you are expecting some innovation to come
through, it’s not for free, unless you have somehow built that into the
contract. This is not best practice tools for free, this is best
practice tools that you have thought about, talked about, agreed that
you are going to do with your service provider and that are programmed
into the work that you are going to take on.
Doug: One thing that has struck me through the
outsourcing journey was the fact that companies could be better
prepared before embarking on such journeys. Companies need to be a lot
clearer about the relative importance of different services and
capabilities. There will be services which are so important to you as
an organization that you need the very best tools and high-touch
service. There will be other services where you may be satisfied with
whatever tools the service provider brings along. Drawing that
distinction beforehand would allow you to target the right tools for
the right processes in a more effective way as Tim has suggested. So
you would know beforehand, for example, that your expatriation service
is extremely important and for that particular service you want
high-touch with the best service affordable, whilst on the other hand
perhaps for the learning administration service you might have less
exacting standards. These are just examples but that’s the kind of
thinking that needs to go on across all in-scope service areas before
you engage with service providers and before you make those tool
selections.
Wayne: I like what Doug was saying, I believe that
first of all it has to be a meaningful solution for the business NEED
and the strategic initiative that the company is focusing on. And then
the provider has to deliver a value, that is very important, so
altogether it all boils down to three key elements – people, process
and platform. And I want to emphasize that a HR transactional platform
has to be meaningful. And a tool is just a tool, and the service
provider has to deliver the value - that is a very important element.
SSON: How important was it for your organizations so win the hearts and minds of people before outsourcing HR functions?
Doug: I think it easy to underestimate how much it
will take to win the hearts and minds of people. We need to remember
many organizations will be moving from high touch, locally delivered
services, which they could manipulate as they felt fit, to more
standard and cost effective processes that are likely to be supported
by a higher degree of self service.
I spoke earlier about being clear about which parts of your service are
critical to you as an organization; this can help you with the change
management effort. I think identifying those critical service areas
jointly with the business leadership allows you to work with the
business to reduce costs in other less critical areas. Doing that
upfront is important and enables the use of your business leadership to
directly support your outsourcing and transformation journey.
Outsourcing is a business project and therefore all your business
leadership must be seen to support it. It is not for the third party to
deliver the change management
Gary: It is absolutely critical that the top line
management of the organization is visible. If this is better for our
business then we have to do it, and the point of change management is
that the HR folks know how to change the business, it is not the role
of the consultant. The third party can bring some tools, such as
stakeholder matrix that perhaps you need to think about or something
like that, but change management is definitely something for the
organization to drive alone.
Roy: One thing to really consider strongly is what
happens to the retained organization. The risk here is that you
concentrate on something that is moving and in some ways that is the
easy bit, because in theory you are going to a provider that knows what
they are doing, and therefore you are moving to a known process if you
do the job right around the contract. If you have repositioned the
roles that are left, and in particular if you haven’t recognized
elements of service delivery that used to be done locally are no longer
being done locally and that the consulting business partner role tends
to be prime. Are the people you have got left the right people with the
right skills to do that role, and the biggest issue that we see on
change and HR is the legacy HR service providers basically resisting
the change and continuing to provide a parallel shadow service which
means that the cost case is destroyed and of course you don’t get
process continuity because people are given a local option. And
certainly there have been instances where the only way that that is
broken is a profound reorganization of the business partnering power is
parallel with the outsourcing to make sure that people are doing the
right jobs for the right skills.
SSON: Thanks Roy, a question for you and Tim then, how much
time and money should be pushed into looking at the retained
organization, and ensuring that change happens as smoothly as possible.
Tim: I think the first thing to say is that it is not
the retained organization it is the organization. Some clients think
that you keep it once, then you have got it forever. Let me put this in
perspective, when you are going through a transformational outsourcing
contract everyone gets massively excited about the deal - they’re
looking at the money. They have got people, but they’re looking at the
spreadsheets, FTE’s and headcount in spreadsheets and they are not so
much thinking about the people and what they are going to do. Of course
as we have heard it is not about the deal, it is about the business
change that you are trying to effect, and the people that are in the
organization after the outsourcing are massively important because they
are the ones that are either going to adopt or not adopt the new ways
of working And if they don’t adopt it, and create this parallel
service or don’t work in an effective way with the service provider,
all the spreadsheets and costs that you promised yourselves before you
did the deal were a waste of time. You’re not actually doing the things
that you thought you would do.
There is just one technique, which I have heard from one of my clients
recently - it is so basic that you’d wonder why I was mentioning it, it
is getting the statement of work for the outsourcing contract out of
the cupboard every year and going to every country that is in scope,
looking the local HR function in the eye and saying which of these
items which are supposed to be done by the service provider are you
doing here today. How much FTE is it, and what are we doing over the
next year to take those people out, and then come back a year later and
do it again. That is hard work over a long period of time, but it is
one of the key areas to getting value out of the outsourcing.
To make another point - it’s about the difference between buying
services and then buying transformational services. The theme of this
session is about transformation through outsourcing. If you want to
have transformation, think about the type of transformation you want
and contract for that transformation. Don’t expect the transformation
to magically happen just because you are going to buy some new services
from someone else. And the measures, and the contracting structures,
and the way that you face up to a service provider, it’s different if
you’re expecting them to come up with the transformation rather than if
you have them deliver new services to you.
Roy: I mean all the evidence is that high performance
functions operate by having integrated processes, and we’re certainly
seeing the shared service internal model looking at how we can use some
of the things that we have talked about today – such as, Tier one
supporting employees on a cross functional basis, because it is looking
at a process like hire to retire the cuts across not just HR, but
potentially procurement and finance as well for example. So there is
definitely a trend to say that when you’re looking at provision, can
your outsource provider operate outside the functional boundary, are
they going to be a partner that you can operate with for the next five
to ten years in a world where the transactional work, that has been the
core of outsourcing is being eliminated through self service automation
and technology?
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