ey human capital conference 2012: service delivery model transformation

2012 Human Capital Conference23–26 October

Service delivery model t f titransformation

Disclaimer

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► The views expressed by panelists in this session are not necessarily those of Ernst & Young LLP

Service delivery model transformation

those of Ernst & Young LLP.

Presenter

► Tom McCabe► Ernst & Young LLP (UK)► [email protected]


Agenda

Current trends and recent experience:p► Challenges affecting HR today► Anticipated benefits from HR service delivery model► Anticipated benefits from HR service delivery model

transformation► HR transformation experience and lessons learnedp


Challenges affecting HR today

Business imperatives HR challenges

Market reach:• Deliver services locally via a global model• Alignment with business expansion and contraction• Source and sustain a global talent pool

Operational agility:

• Increased complexity of HR regulatory environment• Flexibility of HR operating model to support rapid deployment• Achieve and maintain consistency from transformational effortsy• Data and analytics to support business decisions

Cost competitiveness:• Sustain return on investment (ROI) on transformation• Further demand for HR cost reductionsCost competitiveness: Further demand for HR cost reductions• Need for global standardization

• Demonstrate strategic and operational value delivered• Prior HR transformation results not sustained

Stakeholder confidence:• Prior HR transformation results not sustained• Customer confusion with HR access points• Protect the brand – manage compliance to minimize risk


Classical HR service delivery model

Policy and strategyClassical HR service delivery model

Centers of Expertise (CoE) CoE deliver centralized

i ti ith d biliti

Key capabilityShared services/outsourcingCorporate strategy and policies Centers of Expertise

Business partnering

Valueadded Shared services is the framework for:

framework for cost-effectively delivering common and transaction-based services; addresses

organization with deep capabilities difficult to fund and staff within business units; address business needs for specialization, leveraging a critical mass of these

Solutionsconsulting

and advisory

and transaction based services; addresses transaction support requirements, enabling the HR business partners to focus on building a strategic partnership with their internal business customers.

capabilities across the enterprise.

Nature of activity Life cycle and

people careservices

Transaction processing servicesTransaction processing services

Transactional

Local HR(business partners)


Complexity of interactionLow High

Anticipated benefits of the model (1)

Opportunity

Reduced costs:

► Delivering economies of scale ► Delivering efficiencies through process improvement and standardization► Reducing cost per head by moving to a low-cost location and eliminating duplication► Reducing facilities costs by moving away from current location(s)► Enabling the business to improve capital and expense management

Greater flexibility:► Centralized infrastructure that is flexible to changes in business need, structure and volumes► Ability to add new value-added business activities without proportional infrastructure costs

Increasing revenues:

► Business unit/front office staff can focus on value-adding activities► Improved service levels enhancing customer retention► Improved tax positioning

► Specific service levels► Improved operational risk management► Focus on continuous improvement

Higher quality: ► Improved performance management► Improved compliance with Sarbanes-Oxley (SOX) through standard processes► Improved overall governance► Greater emphasis on value-added activities


Anticipated benefits of the model (2)

Opportunity

Standardized processes:

► Reduction in variation can reduce complexity and the level of effort► Increased opportunities to automate may result from common processes

Improved responsiveness to competitive pressures:

► Merger and acquisitions demand leverage of synergies and a fast integration of the new companies

► Ability to scale with anticipated growth from improvement in global economy and oil and gas sectorpressures: g

Global operations:

► Seamless and uniform global corporate services► Increased flexibility for borderless operations

Leverage technology:

► Enhance the ROI of existing and new IT implementations► Realize cost savings and avoid additional expenditures through elimination of system

redundancies

Reduce compliance risks:

► Shared processes and responsibilities decrease concerns with SOX compliance ► Changing legal requirements are easier to implement in a shared environment


HR transformation experience and lessons learnedlessons learned

Challenges our clients are facing in HR service delivery transformationservice delivery transformationIssue Potential measures to addressShared services: RegionalizeShared services: Not achieving cost savings Seen as reduced quality service

RegionalizeConsolidate with other back officeExpand scopeOutsource, offshoreSupport with technology to drive consistent processes

C t f E ti “i t ” d t f U d t d d l d t fit fCenters of Expertise seen as “ivory tower” and remote from business

Understand model and purpose to ensure fit for purposeConsider virtual CoEs to maximize talent while keeping close to

business

Business partners not respected: Still undertake administrative work

Upgrade skills with business focus, consulting skillsEquip with analytical tools to provide business insight based on

Do not understand business “Follow” business rather than lead and add value

q p y p gpeople information

Dissatisfaction with outsourcing provider(s) Insource or renegotiateOutsource on point basis not wholesale

Lack of take-up/frustration with self-service Review user experience designConsider whether Manager Self-Service (MSS) appropriate

HR still perceived as administrative function Outsource value-added rolesUse savings to invest in value-added roles rather than taking

the profitthe profit

Confusion or lack of acceptance of model Focus on clarification and communication of design

Inability to support HR transformation because HR has too much else to focus on

Demonstrate and make case for value of transformation


Why does HR service delivery underperform?underperform?

HR shared services have been seen as a key potential driver behind the decrease in HR operating expense asdriver behind the decrease in HR operating expense as

a percent of revenue over the last 10 years.Typical service center “failure spiral”

Service delivery implementation

People and skills Strategy and servicep

Colocation of processes, no reengineering

Continued process “bespoking”

Business unit process duplication

Key person dependencies

Inadequate skills – some deep technical expertise may exist but overall insufficient management capability (and not all deployed in right roles)

Mi i l b i k l d littl

Delivery model not optimized – mix of transaction processing and expert activity

Strategic priorities not defined –model covers both “scale” and “expertise” activities presenting challenge for further cost/scale

Cost efficiency

Servicequality

challenge

Loss of touch and trust with business

Information issues —“different versions of the

truth”Process

Business informationbreakdown

Minimal business knowledge – little staff movement to/from business areas

challenge for further cost/scale improvements

Processes and controls Systems and technology

“Process silos” with significant l i i h k li k

Complex and poorly integrated i d i iCost-efficiency

challenge Staff morale declines —“staff sink”

breakdown

Difficult to respond to

major change

Control lost

complexity in each – weak linkages across teams

Post migration process reengineering not completed

Weak process control and associated control environment complex with weak assurance

systems environment – driving significant reconciliation activity

Weighted or planned investment not delivered – e.g., large scale SAP/ ORACLE implementations not carried out

Systems standards not adhered toOrganically evolved HR functions,

skilled but cost inefficient

major change, new info requests

Over reliance on consultants and contractors

SOX issues

Cost growth

complex with weak assurance process

Systems standards not adhered to

organization and governance Location and site

Governance not robust – seen as remote from businesses and/or too close to Group

Site not optimized for cost/ability –unable to attract/retain appropriate staff


Over reliance on consultants and contractors close to Group staff

Emerging models of shared services

Shared services center (SSC) second generation

Regional shared services Global shared services/regional hubs COEs and local/global outsourcing

Characteristics:► Regional SSC are often set up

independently to leverage internal leading practices, standardize the regional SSC

Characteristics:► Transaction-driven processes are

extremely labour intensive. To leverage further labor cost arbitrage, certain

Characteristics:► Global outsource model leveraging low-

cost labor► Local in-territory outsourcing to selective p act ces, sta da d e t e eg o a SSC

across the globe, improve global governance and to be prepared for future global process realignment; a global SSC operation or network inaugurates additional value.

Results:

u t e abo cost a b t age, ce taprocesses are provided by a global SSC, running 24-hour shifts. Global centralization improves governance by reducing the number of sites and control standardization.

Results:

y gareas where deep subject-matter knowledge is needed locally but where critical mass is lacking, such as tax and regulatory compliance

Results:► Labor cost arbitrageResults:

► Leverage of global leading practices in the organization

► Improved global governance► Global processing and additional value

add

Results:► Labor cost arbitrage► Global synergies► Reduced governance efforts

► Labor cost arbitrage► Variable cost base (depending on

contract structure with outsourcer)► Global synergies► Lower cost for subject-matter resource

and outsourced compliance risk to


subject-matter professionals

Centers of Expertise (CoE) are more effective if designed for the specific business context

CoEs are dedicated to providing strategic, people-related consultative services to executives and HR business

Role definition:

p g g , p ppartners. CoEs provide technical, specialized HR talent (e.g., benefits design, compensation design) to develop newHR products and services tailored to meet the needs of the business, at both corporate and business unit levels. CoEsown HR policies and provide Tier 3 support to resolve complex customer queries.

Typical characteristics: Common variations based on business context:

Aligned horizontally, shared across business units and grouped by function (e.g., reward, learning, employee relations)

Typical characteristics:

Different organizations choose different content for their CoEs, depending on business strategy

S ti C E li d i di id l it i ifi

Common variations based on business context:

)

Key focus is on understanding the key needs of the organization and designing solutions

Challenged to develop groupwide policies and products that can be deployed consistently

Sometime CoE-aligned individuals sit in specific business units and provide functionally specific support (e.g., reward, learning, recruitment)

Often much delivery responsibility is kept within the CoEproducts that can be deployed consistently

Responsible for complex or high-profile service delivery (e.g., executive compensation)

Responsible for working with SSC to operationalizeli i

“Virtual” CoEs are implemented

Some double hatting of roles can occur between CoEs

new policies

Work through HR business partners to develop solutions to business issues and through corporate HR to deliver solutions to groupwide issues


Achieving excellence — assessing the maturity of CoE

► Organization► How will the CoE be aligned with the overall HR function?► What is the structure of CoE?

► People► People► What are the critical skills for the CoE?► Should we look for talent internally or externally?

► Process► Process► Which HR processes should CoE focus on?► Do we need to change the HR communication flow for CoE?S► System► Is the current technology platform suitable for CoE?► What kind of HR IT tools does CoE need to develop?

► Location► Should CoE be a virtual organization?► In which location should CoE be formed?


► In which location should CoE be formed?

What do HR business partners need to be able to add value?able to add value?

► Selection: ► e.g., 50% not from HR► “Easier to train business people in HR than vice versa”

► Training:► Consulting and business (or HR) skills► Insight into business unit issues

► Tools:A l ti d t t t b i d i i ki► Analytic data to support business decision-making

► Metrics on skills, performance, attrition, absenteeism, pipeline, engagement, labor market, competitors, etc. g g p


Data analytics leading principlesEffective Information Delivery (EID)y ( )

A clear opportunity around HR data analytics is effective information for each level of management –strategic, operational, etc.

EID characteristics: ► At-a-glance metrics on performance

► Summarized retention data on a multidimensional basis

► Drill down detailed labor cost and custom► Drill-down, detailed labor cost and custom reporting

► Workforce forecasts: actual, plan, prior

Executives/managers

Customized knowledge

► Interactive analysis to investigate and drill-down on issues raised by reports

► Ad-hoc analysis across full data set

► Alert pop-ups that repeat automatically

Power users/analysts

► Alert pop-ups that repeat automatically

► Standardized and streamlined reports available via self-service or web-based

Interactive information

delivery

► Provides basic information with limited analysis and ad-hoc functionality on selected datasets

Business user

Standardized data

Service delivery model transformationPage 16

HR can and should drive measurable value

Efficient transactions/administration (administrative role):

The key challenge is for HR to improve in all three dimensions while retaining the right balance for the organization.

Sample value measures:role):

► Standardize and streamline HR processes for compensation, benefits, payroll, hiring, terminations, time and attendance, etc.

► Streamline data flows and touch points; improve data accuracy► Eliminate redundancies of HR staff

Sample value measures:► Increase revenue per full-time employee

(FTE)► Improve employee satisfaction► Reduce voluntary turnover

► Promote HR transactional automation as a leading practice

Effective HR operations (operational role):

► Improve HR service delivery model through outsourcing, CoE and

y► Increase retention of key talent► Increase customer satisfaction levels► Reduce time to proficiency► Improve workforce performance ► Reduce HR operating costs per FTEp y g g

Shared Service► Establish an effective HR control framework► Identify and implement cost-savings initiatives► Maintain effective vendor management protocols► Effective communications and change management for transactions

► Reduce HR operating costs per FTE► Decrease manager time per HR

transaction ► Decrease cycle time per HR transaction► Reduce cost per hire

D t i i ig g

► Effective risk and compliance procedures, employee relations, etc.

Strategic business support (strategic role):

► Strengthen business decision-making throughout the organization

► Decrease person to person inquiries► Reduce HR headcount

g g g gthrough data analytics and timely/accurate reporting

► Be responsive to specific business unit needs (e.g., role and competency design, recruitment and on-boarding, deployment strategies, performance management, succession planning)

► Be seen as a valued partner to the business


Questions


ey human capital conference 2012: service delivery model transformation

Business

hr business

young llp

ernst amp

business units

critical mass

added roles

anticipated

regional ssc