When South Cambridge-shire District Council wanted to upgrade its payroll and HR facilities in 2003, it looked at several options for sharing services in a bid to cut costs and reduce the risks involved.
However, the council discovered that shared services initiatives also bring with them a mix of legal, organisational and technical challenges. The latter proved insurmountable, and today, all of the four authorities the council approached continue to run separate HR and payroll operations. In the words of Geoff Sissons, the councilÕs applications and information manager (ICT), the vision of shared services has proved to be a hallucination.
South Cambridgeshire’s experiences demonstrate just how difficult it is to turn the theoretical advantages of shared services into practical reality. Only a few weeks ago, the NHS discovered that plans for its own multi-million pound shared services scheme could be in breach of European Union regulations.
Broadly defined as a common infrastructure set up to manage processes more efficiently, shared services is all about bringing multiple business functions together so that organisations can enjoy economies of scale and pool data, processes and resources. In some cases, it involves just one business discipline – for example, building a central HR operation where staff were previously distributed among different lines of business. In other cases, firms such as Pricewaterhouse-Coopers have brought multiple functions, including HR, finance, IT and facilities management, under the same umbrella (see case study on page 26).
Whatever shared services structure an organisation chooses, it should never underestimate the scale of the transition. Resistance can come from every level of the organisation, from senior managers concerned about losing headcount to HR administrators worried they are going to be automated out of a job.
Not only that, but these initiatives usually require extensive process change, and there are significant IT infrastructure issues. Few companies have the resources to be able to replace their existing IT systems, so one of the biggest challenges is about connecting together data and processes running on multiple disparate systems.
Overcome these challenges, and the benefits of shared services operations can be significant. DSG International (DSGi) – owner of online and high street retailers such as Dixons, Currys, PC World and The Link Ð recently set up an HR shared services group for its stores and head offices.
The new group consists of a services centre, focused on providing administrative support to the business, and a number of centres of excellence, which research issues such as the com-panyÕs reward strategy, training and recruitment policies, what competitors are doing and so on.
According to Helen Andrews, director of central and HR shared services, the new set-up has allowed the company to move almost all of its administrative work away from regional managers into the central service, cutting overall HR headcount by 25%. It can now absorb more work without needing additional HR headcount, and better manage the increase in temporary labour over Christmas. The centre also handles all recruitment processes and training.
The new approach has also benefited DSGi from a strategic perspective. It can replicate best practices across the organisation, ensuring consistency in sensitive areas, such as handling grievances and employee relations.
Management reporting is also easier from one central system, covering a range of information from headcount to the cost of individual reward programmes. Plus, the new centre provides a single point of contact for employees on all HR and payroll matters, with controls in place to track calls through to resolution.
Despite this success, the scheme did not go down well at first. Many members of the team were initially sceptical about the reorganisation and concerned about the implications, according to Andrews. “There have been varying degrees of acceptance from the retail chains as to what we can do,” she says.
This was particularly true of the shared services centre, where some staff were reluctant to become call centre agents, answering staff queries all day.
The company responded by presenting the role as a first point of contact for 29,000 employees, pointing out that it involves other administrative work in addition to handling calls, and positioning it as an opportunity to learn more about HR and broaden their career opportunities. In some cases, employees were also offered the position on a three-month trial basis, to see if they liked it. In all, says Andrews, there was an 80% first-time fit between existing employees and the newly created HR roles.
But not every organisation overcomes these challenges, as the case of South Cam-bridgeshire District Council demonstrates.
In 2003, responding to electronic government initiatives, the council decided to replace its payroll application with a combined HR and payroll system. It delayed its purchase, however, when it learned that two other authorities in the area Ð Cambridge City Council and Fenland District Council Ð were also looking to upgrade their own systems, and instead started investigating the idea of sharing services.
One option was for South Cambridgeshire to work with Cambridge City Council on a bilateral basis, or alternatively, to include Fenland District Council in a three-way agreement. But right from the start there were contractual and organisational issues.
Unlike South Cambridgeshire, the city council runs its HR and payroll operations as separate entities, which would have made it difficult for the authorities to standardise on common processes. They would also have needed to set up a new body to buy their combined software licence, which would then be sublet to the individual councils – that added an extra degree of legal complexity. There were additional problems about data protection and technical compatibility.
The council also looked into teaming up with a fourth authority, Cambridgeshire County Council, but that idea fell flat, partly because the county was involved in rolling out a new enterprise software package.
Sissons did gain some benefits from exploring shared services, even if the project never took off. Since all three councils selected new systems from Northgate HR, they got a discount by combining their purchasing, and each authority now has the comfort of knowing that there are IT staff with relevant skills close at hand.
But many of the benefits Sissons had sought from shared services simply did not materialise. His checklist of unrealised goals includes reducing each party’s risk through shared services, standardising processes, enjoying ongoing cost savings, and combining forces to build a stronger supplier partnership.
Andrews offers some consolation, with some worthwhile advice. “Understand what the business drivers are. For us, it was cost and efficiency, but not all organisations have the same drivers,” she says.
As these two stories demonstrate, the success of shared services often has more to do with culture and timing than organisations embarking on the journey realise.
Tips for success in shared services
Helen Andrews, director of central and HR shared services at DSG International, offers the following advice:
Get sign-off from HR and the business executive teams about what to expect. You become more of a process-driven organisation, so people may have less of a relationship with the people they deal with on a day-to-day basis.
Bear in mind it is a journey – you cannot do everything at once.
Try bringing people in from different teams.
Change management is about communication, communication, communication. You are changing the way people work.
Case study: PwC
At professional services giant PricewaterhouseCoopers (PwC), the concept of shared services embraces a diverse range of support functions. The company’s procurement, finance, HR, technology, facilities management and real estate activities have all been brought together within one operations division, employing about 1,800 people.
Within that group, HR itself has been through extensive change. Before the shared services initiative, a central team was responsible for policy, while HR professionals were distributed across different lines of business. Today, the firm runs one employee service centre for the whole organisation, and has taken a number of HR employees out of general purpose roles to focus them on specific HR disciplines. It is now standardising its processes and practices in areas such as employee development.
According to Roger Reeves, the partner in charge of PwC’s infrastructure and procurement division, the shift led to a significant reduction in the number of people employed to deliver services, and a drop in associated costs.
Although they come under the same management structure, the different functional support teams still operate from separate buildings and tend to work alongside client-facing functions Ð a policy that keeps them closely connected to the business.
“It provokes a more consultative management style,” says Reeves. “The outcome is a very open and frank dialogue between specialist service providers and business customers.”
Reeves argues that bringing the different support functions together has also helped to raise the self-esteem of the people involved, who now refer to themselves as “the other professional service”. Another advantage of this approach is that PwC staff have greater freedom of movement in their careers – HR professionals can move into other divisions and vice versa.