Change is Coming

Although the organizations most likely to use shared services have traditionally been large, Fortune 500 companies, that's beginning to change, experts say. Here's what HR needs to know in order to keep up.

Monday, October 1, 2012
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Judging from a recent survey, many HR departments will be undergoing some major structural changes fairly soon.

Towers Watson's 15th annual HR Service Delivery Survey finds that 44 percent of the 600 global companies polled plan to change their HR structure this year or in 2013 -- a big jump from the 26 percent who said this in last year's survey.

A big portion of those who plan to make changes (64 percent) say their goal is to "realize further efficiencies," while 54 percent are looking to "capture synergies among processes and investments," 51 percent are focused on "improv[ing] quality" and 46 percent wish to reduce costs.

More than two-thirds (70 percent) of these respondents said shared services (or consolidating most HR functions into one service center) would be the primary initiative.

"Over the last two or three years, HR has been under pressure not only to deliver value but contribute to reducing costs," says James Millar, senior consultant at Towers Watson's HR service delivery practice in Philadelphia. "Increasingly, they're focusing on administrative costs, identifying the routine tasks that don't really deliver any competitive advantage."

According to the survey, spending on HR technology will remain steady, with more than half of respondents (53 percent) indicating their spending in this area will remain the same as last year's, while 31 percent said they plan to increase or significantly increase their investment and 16 percent anticipating a reduced HR technology budget.

The survey found that just over a quarter of respondents (26 percent) plan to outsource some or additional HR functions.

"Multi-process outsourcing, or business-process outsourcing, just isn't that common," says Millar. "Our view is that organizations will increasingly turn to 'spot outsourcing,' or outsourcing specific elements of HR."


However, many companies actually use shared services as a "stepping stone" to HR BPO, says Colin Brennan, senior vice president for product management at Aon Hewitt's HR BPO practice in Lincolnshire, Ill.

"A lot of our clients skip shared services and use BPO as an accelerator to get to shared services," says Brennan. "Other clients have gone through the process of moving to shared services, then realizing they have this big, centralized group that's really expensive. So in the end, they finally move to BPO to cut costs and learn the best practices of other companies."

Although the organizations most likely to use shared services have traditionally been large, Fortune 500 companies, that is beginning to change, says Kevin Pennington, a director in the advisory practice at PwC, which provides shared-services support to clients.

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"We're seeing a lot of growth in the mid-sized market," he says. Additionally, shared-services clients have begun asking for more-sophisticated levels of service than in the past, he adds.

"We're seeing clients turning to shared-service centers to help them identify areas where they could see talent or skills shortages in the future, which is a step up from the more transactional services these centers have traditionally provided," says Pennington.

Nearly all the respondents to Towers Watson's survey who said their organizations have moved to shared services said doing so had met or exceeded their expectations in terms of reducing costs and improving service levels, says Millar.

However, holdouts remain, he says. In fact, some of the resistance to shared services often comes from within HR departments.

"The concept of shared services means you're taking some of the administration away from field HR and centralizing it," says Millar. "But HR generalists love delivering services to their line managers and are quite reluctant to give that up. They also don't like giving up the control they had over the delivery of services."

One strategy that's proven effective for winning their support, says Millar, is to focus on "incremental change" -- gradually introducing shared services into the organization while helping the generalists transition into more strategic roles, he says.

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