Operating a shared HR and benefits function can have real business gains, says Sonia Speedy
Structuring an organisation so that HR and benefits functions operate on a shared service centre model can result in greater efficiencies and help to hammer down costs. But while shared corporate services can be advantageous for organisations, the structure will not necessarily suit all employers.
Shared service centres can allow employers to be more strategic, may provide greater efficiencies, and perhaps create economies of scale and other cost benefits. They also enable a more consistent message to be conveyed to staff, making operational change easier to achieve, while the overall service for employees can become more efficient, professional and consistent.
According to research conducted by Hewitt Associates entitled Next generation shared services, 84% of organisations that use HR shared service centres plan to extend their scope in the near future. Three-quarters of employers have already done so since their shared service centres were established, both in terms of the activities performed and the internal clients served.
Phil Ainsley, head of employee share plans at Equiniti, believes the trend for organisations to move towards a shared service model for HR and benefits provision reflects their recognition of HR’s need to focus on cost and quality issues, as well as helping to promote organisational change. “I think particularly bigger old-world organisations, are very fragmented and are geographically dispersed. [They] have got little HR functions spread out all across the country and it’s not the most efficient way of doing things.”
The trend can particularly be seen among larger employers that have a geographic spread, whether this is within the UK, or further afield. “A lot of times now you’ve got global companies that are looking to set up shared services that span the globe, not just the UK,” Ainsley adds.
In some cases, the move towards shared services is a by-product of the large amount of acquisition and consolidation activity taking place in some industries, as organisations look to drive savings from the business, says Paul Brown, senior consultant in Watson Wyatt’s flexible benefits team.
Once employers have decided to implement a shared service centre for their organisation’s HR and benefits, there are a number of approaches they can take. “Some people will have a centralised shared service area and do all of the administration themselves. Others will [outsource] some, or all, of their [administration],” says Ainsley.
Anthony Bruce, director in PricewaterhouseCoopers’ human resources division, adds that the generic reasons why an employer may choose to set up shared services for HR processes also apply to benefits provision. “The reason people take the administrative and transactional activity out of the business unit teams and put them into a common shared service centre is to allow those teams to focus on advising the business around the more strategic matters that they may face. So with benefits, [they] may [be left, for example, to address] ‘how do we incentivise performance in a new business unit that we’re setting up?’, not ‘how do we execute on that change to an individual’s pension arrangements?'” he explains.
Shared services can also help to reduce compliance risks in comparison to models where each business unit administers their own benefits. George Ozenne, a principal at consulting firm Mercer, says: “There is the potential for each business unit to do things differently. It can be inefficient that way [as] you lose a little bit of control and you’re prone to compliance risk.”
A shared approach, however, can lead to better tracking of benefits issues, which enables a company to be more proactive in how it deals with any problems that arise. “In a true shared services environment where you have the appropriate technology, if the employee calls in, it’s tracked,” Ozenne says.
Bruce also views this as an advantage for organisations. “An employee may be calling a number of times because they don’t understand the benefits package. If you’ve got different people in the business taking those calls, they’re probably not writing down why people are calling,” he says.
Cost savings
Tracking queries centrally can also help employers to manage third-party benefits suppliers, in order to ensure that the organisation is receiving the level of service that is expected.
The issue of how much employers can expect to save by operating shared HR and benefits functions, however, is the matter of some debate. Brown, for example, does not believe that the initial savings from doing so can always be sustained long term.
“What I have seen with [organisations which] have moved to that sort of process is a lot of the cost savings have come from taking away headcount. Then maybe a year or two after implementation, some of that headcount has been replaced at a local level, because it’s been seen as making too many compromises and leaving a lack of customer service,” he explains.
Alternatively, some employers may not see the cost benefits of implementing a shared services approach straightaway. For example, the government, which moved a number of its corporate functions, including HR, to this model, failed to produce the predicted £1.4bn savings a year, according to the National Audit Office’s report Improving corporate functions using shared services, published in November last year. This showed that, as of March 2007, there were no accurate figures for savings from shared services across the whole of central government. Although departments had reported £315m of efficiencies overall in the administration of finance and HR functions, these came from other transformation programmes as well as shared services.
Mercer’s Ozenne says: “Not all employers necessarily see hard-dollar savings when they create a service centre in year one, because there is an investment in creating that service centre if they want it done properly.”
However, organisations need to commit to making the necessary investment in terms of technology, resources and time if the project is to be a success. This can be a significant expense.
Rachel Stone, people management partner at Smith and Williamson, says that while centralised services can work well for large organisations, this is not necessarily always the case with smaller businesses. “The danger is I think people see shared service centres – particularly in big corporates – and they see that those are sometimes very successful. They say ‘great, that’s an easy model, let’s just appoint an international HR manager’.”
But this can mean managers are then left overstretched in trying to provide centralised services across different legal, regulatory and tax jurisdictions, she says.
Employing the shared services model for benefits can also mean running the risk of depersonalising the organisation to staff. Ainsley says: “You still need people out in the regions. You still need face-to-face communications. You still need the champions for the policy that the firm is trying to put in place.”
Stone adds: “There are just times for us all, particularly when people are anxious, when they want a face-to-face discussion.”
A move to concentrated centres of excellence where individuals take on more specialised roles may also have a negative impact on staff working within that centre, if they are not managed carefully. “For the company, in theory, that works well. But for the employee it’s not necessarily so because sometimes – particularly for more junior people – to specialise in one particular area is not what they want to do,” says Brown.
He also warns that the specialisation this entails can create a structure that may be too inflexible to meet the differing needs of an organisation’s various operations.
So, employers which are keen to embrace the shared services model must ensure that both adequate time and resources are invested and the model will actually fit with the business itself if they are to achieve the efficiencies, cost benefits, and employee buy-in needed for its success.
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Benefits’ shared services: pros and cons
Pros
• Increased efficiencies
• Cost savings
• Can provide a more efficient, professional and consistent service to employees
• Reduced compliance risk
• Allows some employees to focus on more strategic issues within the organisation
• Better tracking of benefit issues which enables employers to be more proactive
Cons†
• Can be expensive to implement successfully
• Risk of depersonalising the company to staff
• Risk of compromising the service to employees if it is not implemented effectively
• Can prove inflexible for the specific needs of differing business units
• Cross-border issues, such as differing tax and regulatory regimes, can pose challenges
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Case study
Lloyds TSB focuses on expertise
Lloyds TSB, which employs 63,000 staff across its three main business divisions: UK retail banking, wholesale banking and the branch network, has made use of a shared services model to varying degrees around its benefits provision for more than five years.
The high street bank currently uses this approach for services such as administering its flexible benefits scheme, share registration, and pension scheme administration.
Tim Fevyer, head of reward, says: “By taking those processes and putting them in one place, we have got a focus of expertise with the associated scale of economies that go with that. It enables us to focus on those things that could really make a difference to the business.” He adds that it also enables the organisation to make best use of the knowledge available to it: “It also gives us an opportunity to buy in expertise and what you’re able to do is create better sharing of knowledge, best fit and best practice.”