More strategic role continues to elude HR

Despite HR departmentsí recognition that outsourcing and shared services are key to their ability to evolve into a more strategic role within their organisations, companies are not fully realising the anticipated benefits ñ according to a new study by HROA Europe, SharedXpertise forums and outsourcing advisers TPI.

In the study, based on in-depth research among senior HR management across more than 40 major, international corporations, 80% of those participating said the transfer of process-driven HR activities to an outsourcing provider or centralised, in-house delivery centre can play a key role in improving HRís strategic focus. However, only 56% have achieved this benefit in practice.

Deborah Kops, Head, Program Planning and Development, SharedXpertise Forums comments:

ìThese findings reveal a story of missed goals and opportunities. The widespread failure to achieve a more strategic focus is particularly worrying given the assumption that moving up the value chain is a natural result of HR process transformation. Unfortunately, many companies still assume successful HR transformation is a simple matter of ëlifting and shiftingí certain processes out of the HR department, rather than fundamentally altering the way in which HR contributes to the business.î

In most other respects the study reveals HR outsourcing and shared services as delivering significant benefits, albeit not as much as anticipated. The average cost saving is 20%, whilst quality of service typically improves by some 28%. Productivity improvement averages 23%

Jeff Croyle, Head of TPIís HR practice in Europe, said:

ìIn many organisations the benefits of outsourcing and shared services have been significant and have transformed how HR operates internally. However, the impact of these changes has often scarcely been felt outside HR itself, and so has made little difference to the departmentís ability to add value to the business. Far more proactive change management is required if outsourcing and shared services are to achieve a genuinely more strategic role for HR.î

The report points to a number of underlying reasons for the failure to become more strategic:

Re-skilling of retained HR personnel largely ignored

Firstly, a lack of re-training is preventing HR personnel from making a step-change in the way they work. Over half (54 percent) of the survey respondents note insufficient competencies and skills among staff as a limiting factor, making it the most frequently cited barrier to success.

Jeff Croyle commented:

ìThe fact that different HR skills will be needed in the new operating environment is known to all at the start of the process. If HR is to be viewed as a trusted advisor consulting with their internal clients to re-tool the business workforce, they must be able to identify their own HR skill gaps and quickly address those deficiencies.î

Goals without goalposts

A further problem lies in a failure by the majority of organisations (57 percent) to set formal goals to measure the extent to which the retained HR staff focuses more on strategic business issues as a result of the change. The establishment of specific metrics to assess a change in focus correlates strongly with the HR departmentís success in adopting a more strategic role. 73% of those who put in place such metrics find outsourcing and shared services effective in driving strategic focus, compared with only 43 percent of those with no formal measure in place.

A lack of support

Another key factor cited by 42% of those surveyed is insufficient management support.

Deborah Kops commented:

ìSupport from the top of the organisation is acknowledged as a prerequisite of any successful change management programme. If the board fails to get behind HR from the outset, those involved will undoubtedly face an uphill struggle, particularly when the ability to make HR more strategic relies on enhancing its credibility within the organisation.î

Gaps in satisfaction

The report also reveals that only a minority of HR senior management perceive the wider organisation as being satisfied with how HR has been transformed. Just 42 percent believe employees in general are satisfied and fewer still (38 percent) believe managers are satisfied.

Jeff Croyle said:

ìThe low satisfaction with HR transformation among business managers is particularly worrying considering HRís need to work in close partnership with management across departments if they are to adopt a more strategic role.î

Other major findings of the survey include:

Transactional administration remains mainstay of HR outsourcing and shared services

Payroll continues to be the function most commonly outsourced or centralised, having been moved out of the HR department by 79 percent of the firms surveyed. The next most commonly transferred processes are pensions and retirement benefits (53 percent) followed by health and welfare (42 percent).

Wholesale HR outsourcing remains a rarity

Full-scale HR outsourcing does not appear to have taken off to the extent commentors have widely predicted. 58% of the organisations surveyed are still employing a combination of outsourcing and in-house centralisation of processes in a shared services centre.

Jeff Croyle commented:

ìThe commonly held belief that there is an evolution from shared services, through hybrid internal and external solutions, to full-scope outsourcing is not supported by our research. It is possible that in-house delivery may be the most effective current model for many international companies until the HR outsourcing firms further develop their solutions and their global operations.î

Partial outsourcing more likely to deliver suboptimal results

Organisations that employ a hybrid of outsourcing and shared services report the lowest achievement of both service quality and productivity improvement goals, perhaps because of the additional complexity of dealing with areas of cross-over.

A copy of the full report, HR Transformation Myth or Reality, can be obtained from the SharedXpertise website at www.sharedservicesbpo.com/Report_Mythorreality_web.pdf