Finding your place on the HR
shared services continuum
Finding your place on the HR
shared services continuum
Over the past several years, the shared services
concept has become an effective delivery model for
countless HR functions around the world. Models
of varying shapes and sizes are now commonplace
in the US and the UK and are becoming more
prevalent in Australia, Canada, the Netherlands and
Scandinavian countries. Signs of shared services
use are also on the rise in other Western European
countries – such as Germany, Switzerland and
Belgium – and, to varying degrees, within the developing economies of Eastern Europe, Latin America
and Asia.
challenges that organizations face when implementing shared services, especially across borders. While
the principles from that paper remain valid, the
evaluation, design and implementation of shared
services have evolved. Today, shared services have
matured to more consistently yield cost savings,
enhanced process efficiencies and increased productivity. And though still rare for large-scale global
implementations, some shared services have been
implemented in significantly different ways – ranging from consolidating or centralizing data through
streamlining processes to complete outsourcing.
Organizations are turning to shared services in a
drive for consistency, improved quality, consolidation,
technology enablement, labor cost savings and
business value. The move to shared services also
supports the increasingly popular concept that HR
can operate more effectively when it is organized
and managed according to its two primary responsibilities – transactional and strategic.
There remains great potential to leverage shared
services to deliver better value to the business. At
one extreme, shared services can serve as a delivery
model for all business units and geographies of an
organization. More typically, it is the model for the
business units in one country. But it is also possible
for individual components of the shared service
model to deliver material improvements in efficiency,
quality and customer focus.
In most instances, HR shared service arrangements
in developed countries support the business and
employees of that single country. However, an
increasing number of arrangements have been
established to deliver multicountry or regional
services. Though finance and IT are typically further
ahead than HR in the deployment of shared services,
many smaller and geographically dispersed
organizations are adopting multifunction shared
services (for example, finance, HR and purchasing)
to exploit greater economies of scale.
Despite this growth, some organizations have failed
to realize the promised cost and service benefits
of this approach. In such cases, HR processes have
not been simplified, the technology has not worked
or has not been implemented properly, and the HR
staff has not been able to adopt the skills necessary
to meet the new requirements of the organization.
Perhaps most important, the retained HR function
and HR business partners have failed to increase
HR’s value.
In 2002, Mercer published a global Point of View
(POV) paper on HR shared service centers in
multicountry regions. It explored the trend of using
shared services as a primary delivery model for the
HR function and addressed the opportunities and
The past five years have proven that, when planned
and implemented well, HR shared services can be an
effective and efficient delivery model. However, it is
critical to choose the right configuration and know
how far to push the model. Organizations have
learned that shared services are not “one size fits
all,” and that it is necessary to have a greater understanding of how to evaluate, design and implement
the elements of shared services to arrive at the best
model for each organization.
In this new POV paper, Mercer sets forth a series of
market-tested ideas and criteria to help organizations answer the critical HR service delivery questions
around shared services. Specifically, four key issues
are addressed:
■
Global drivers of HR change and their impact
on effective shared service models
■
A fresh perspective for assessing HR
delivery options
■
Brief stories of organizations that have made
different but right decisions
■
Regional variations in the development and
use of HR shared services
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Global drivers of HR change:
What’s new and why
Shared services defined
The evolution of shared services as a delivery
framework for HR has occurred simultaneously with
broader changes within the HR function – in some
cases, as a direct result of these broader changes in
HR. Below is a brief look at several of the more prevalent global drivers of HR change and their impact on
effective shared service models.
Shared services refers simply to the consolidation and sharing of services by different units or
locations within an organization. Shared service
approaches typically are driven by the desire to
achieve economies of scale, enhance consistency or
standardization across the organization, improve
quality, leverage technology investments, manage
labor costs within certain functions, and provide
greater value to the business.
Meeting diverse customer requirements: Balancing
integration and differentiation. Every HR customer
segment – from leadership to employees to retirees
– has unique requirements that can place different,
and sometimes contradictory, demands on the HR
function. Meeting these distinct and varying needs
(particularly across business segments) is critical
to success. The flexibility of shared service designs
enables the HR function to contribute to both the
bottom line and the unique needs of its customers
through a careful balance of standardization and
flexibility. Consistency and simplification of policies,
programs and operations will optimize the return
on the technology investment and will make HR
accessible to all customers. The HR function must
be very good at delivering differentiation when it is
essential to business success, but ruthless at driving
consistency when it is not essential. The challenge is
magnified when the customers of the shared services
facility are spread across multiple countries.
The HR function must be very good
at delivering differentiation when
it is essential to business success, but
ruthless at driving consistency when
it is not essential.
Refocusing: Taking on the strategic partner challenge.
HR functions and their leaders increasingly are being
asked to play the role of strategic business partner
– decreasing their involvement in HR’s traditional
administrative activities and increasing their
involvement in decisions and activities that have
a greater impact on business success. A primary benefit expected from shared services is that it will free
up valuable time and energy of senior HR professionals to focus on business strategic needs. However,
the reality is more complicated. Reshaping the HR
workforce into a centralized shared function and
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Services most likely to be shared among the various
units or locations of a company include finance,
purchasing, human resources and information
technology.
HR shared service operations can be configured in
a variety of ways, but generally handle HR administration/transactions and deliver day-to-day HR
services to HR’s customers, including employees
and managers. These services can include payroll,
benefits administration, salary administration,
training administration, employee relations and
other responsibilities of the HR function. HR shared
service centers often represent the first line of communication with employees regarding these various services and issues, as well as more advanced
advice and support.
a residual business-centric function can present a
serious challenge. New sets of skills and competencies must be defined, and talent must be upgraded
by training or by purchase in a manner that extends
well beyond traditional retraining programs. If the
reskilling is done correctly, it will deliver a win for
the organization and the individuals; if improperly
managed, particularly if the HR business partners
are not up to strength, it can undermine the benefits
of the shared service model. (See “Case in point:
When expectations don’t match reality.”)
Delivering globally: Opportunity and challenge.
Many mature multinationals are grappling with the
need to deliver on their global business strategies by
moving key operations to lower-labor-cost countries,
such as China, India or those in Eastern Europe. At
the same time, emerging multinational companies
are looking for ways to enter the attractive global
marketplace and compete effectively. As a consequence, the HR function must redefine its policies
and processes to be relevant and deliverable in
countries in which these companies have little
cultural or operational experience.
In this context, shared service models provide an
excellent opportunity to exploit a flexible multicountry infrastructure, but the context also adds
additional layers of complexity to an already
challenging environment.
HR shared services was originally seen as most
suitable for “e-enabled” sectors such as technology,
telecommunications and financial services. While it
has certainly been deployed in these sectors, other
industries are increasingly using this service model
in direct response to the global shift of business
operations and the impact on support services.
Offshoring and outsourcing: Site selection for shared
services. Offshoring and outsourcing have developed
simultaneously with the evolution of shared services.
The labor arbitrage available in offshoring by relocating activity from traditional locations to emerging
economies – particularly in Asia and Eastern Europe
– has proven irresistible. However, it has also introduced new challenges in terms of organizational
change and culture within the HR function. Offshoring, which has changed from just a cost-reduction
strategy to a strategic means of global staffing, can
exist within an internally sourced or outsourced
model. Total outsourcing – the transfer of day-to-day
responsibility for transactional tasks to a third party
on a fee-for-service basis – whether offshore or not,
has been seen as a natural evolution of the traditional sourcing strategy and as the ultimate fate for the
HR function (that is, “improve or go”).
There are benefits and risks to outsourcing (whether
offshore or locally). Some of the benefits include
a shifting of responsibilities to the most efficient
provider, cost reductions due to labor arbitrage,
scalability and ready access to advanced technologies,
and process improvements. But with outsourcing,
new risks appear, including the loss of service delivery
under day-to-day control, language and cultural
compatibility concerns, time zone issues, labor
supply and turnover, intellectual property protection
and lack of acceptance by internal staff.
HR technology: Reaping the benefits. Technology continues to play an increasingly critical role
in managing HR business processes and delivering
services. In recent years, HR technology has shifted
from a focus on software to solutions, from longterm licensing to software as a service, and from
stand-alone products to product suites. For example,
talent management suites are becoming more
popular. In particular, there is growing interest in
solutions related to recruitment, talent management,
learning and compensation management – areas
Case in point: When expectations
don’t match reality
For one US-based organization, outsourcing
administrative HR functions was the logical shared
services solution. With the move to outsourcing,
the organization was counting on the transition of
retained HR staff into HR business partners to work
with the company’s “local CEOs” in more than
1,000 locations on issues such as workforce planning, employee retention and employee relations.
While the model was sound, the execution wasn’t.
The implementation team underestimated the differences in the skills and competencies required in
the old roles versus what was needed in the new
roles. While some strategic-minded individuals
were successful, most were not.
Instead of relationship building and partnering,
many of the new HR partners remained focused
on administrative transactions – sometimes duplicating or undoing the work of their outsourcing
vendor. Trust and credibility quickly eroded, and
the local CEOs questioned the validity of the model
because not only were they not receiving strategic
HR guidance, but they were also confused as to the
value of human resources outsourcing (HRO), given
the high number of errors, duplication and complaints from employees.
The HR leadership responded to this situation by
partnering with the HRO vendor to develop and
implement a targeted change management and
communication campaign led by a dedicated team.
As a first step, the campaign focused on clarifying
the roles and responsibilities of the HR partners
and the HRO provider using specific examples. By
providing clear guidance on how employees should
work directly with the HRO provider, and specific
examples of what HR partners were not supposed
to do, the HRO relationship began to stabilize.
Once the immediate pain points were remedied,
the team focused next on delivering training to
the HR partners on how to become truly strategic
advisers to their business leaders. While the majority of the HR partners survived the journey, some
decided to leave the organization and others
found roles more suitable to their skill sets.
Today, the organization is working to identify
the next phase of services to be outsourced and is
ensuring that the significant change management
issues faced early on are being addressed as part of
the implementation process.
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now with significant opportunities to create virtual
centers with functional expertise that can deliver
consistent quality services to a global customer base.
Full-service and integrated solutions have been
primary enablers and critical success factors in
lowering HR operating costs, whether or not HR
uses a shared service model. In particular, better
functionality (such as self-service and multicountry
capability) and better integration (such as between
HR and payroll applications, whether ERP (enterprise
resource planning) or “best of breed”) have improved
the effectiveness of multicountry shared service
implementations.
On the other hand, poorly deployed technology has
been detrimental to many shared service centers.
In particular, a failure to establish high-quality data
undermines the ability to use the system and trust
it as a reliable system of record. Other deficiencies
have come from underutilizing employee and manager self-service and other functionalities, and failing
to simplify the underlying HR processes. These
challenges, however, usually relate more to implementation capability than to technology capability.
Technology will continue to provide growth opportunities for shared services and for multicountry
applications. For example, within the last 18 months
alone, clear opportunities have developed in multicountry payroll technology. Once seen as strictly
local, payroll can now be delivered regionally or
globally. Technological capabilities are keeping pace
with an evolving vision of a global HR service
delivery model.
The forces reshaping the HR function are having an
equally profound impact on the design and proliferation of shared service approaches. The increased
complexity in both the business and the HR environments that surround shared services decisions
presents both challenges and opportunities. The
value in exploiting these opportunities is the flexibility of the solution. Again, while best practices have
their place, a shared service strategy must be custom
built for each organization and its customers. The
remainder of this paper shares perspectives and
tools to guide the reader through effective decision
making around shared services.
A better model for assessing
shared services
When Mercer published its first POV paper on shared
services several years ago, the assessment framework for HR shared services primarily used factors
developed by determining the return on investment
(ROI) for specific financial criteria. These included
comparative labor costs, distribution of locations,
size of workforce and the consistency of operations,
and regulatory environments across differing locations. This framework (see Exhibit 1) is still accurate,
but ongoing work with shared services operations
suggests there’s more to consider.
Experience shows that using a purely financial perspective to determine whether to adopt a shared
services approach doesn’t give one the full picture.
For example, scale remains an unquestionable key
Exhibit 1
Original shared services assessment framework
US
Europe
Latin America
Asia
Australia
Labor cost
H
H
L
L
M
Decentralization
H
M
M
H
L
Population
H
H
M
H
L
Consistency
H
M
M
L
H
L: Low
4
M: Medium
H: High
Exhibit 2
Continuum of HR services design
Commonality of business need
Autonomy for each
business unit (BU)
or each location and
no explicit incentive
to be consistent
(conscious silos)
Some common
processes typically
enabled by
common investment
in technology
Centralized service
for select priority
functions (may be
one or more BUs
or locations)
Centralized and shared
day-to-day service run
as a separate unit
(typically most
services and many
BUs and locations)
Centralized shared
services provided
by BPO (typically
all services, BUs
and locations)
Localized
Common elements
of infrastructure
Center of
expertise
Shared services
Business process
outsourcing (BPO)
Type of HR service model
driver in any shared services business case (that is,
the economic opportunities on a multicountry basis
for a workforce of 30,000 typically will be greater
than for a workforce of 5,000). However, this is not
always the case. For example, one Mercer client
delivered shared services across eight countries to a
workforce of 6,000 employees with a positive payback – while others have been unsuccessful at creating a business case for a workforce twice that size.
Success extends beyond drivers of cost and estimated ROI. For example, services can be delivered
from some locations more efficiently than from
others, but it is too simplistic to suggest that organizations will simply maximize their ROI by offshoring
to Eastern Europe or Asia. Cost variations between
specific locations suggest that economic differences
must be understood and incorporated into the business case. The most appropriate HR service model
design is more about the fit with business strategy,
culture and operating environment than about cost
alone. Cost and the business case are the baseline on
which any potential model will be validated, but they
should not become the sole drivers.
The continuum of HR service options
Evolving to a “best fit” model requires expanding
the set of decision criteria – resembling a series of
choices rather than a single, critical decision point.
Service delivery options must be viewed more as
a continuum of designs than a series of separate
options to be analyzed. (See Exhibit 2.)
The degree of centralization or autonomy within the
organization generally points to a service model that
most closely fits the business need. In addition, the
correct target position on the continuum for a
particular organization should be influenced by its
unique business, cultural and operating environments.
The shared services point on the continuum is not
an appropriate target for all organizations. The service delivery continuum offers a range of different
targets. Ideally, an organization should identify its
current place on the continuum and then take steps
along the continuum to reach the optimum point
that meets both its business and its HR needs.
Many organizations move further along the continuum after first deciding whether and how to take
some control over the overall HR service design. Specifically, this involves defining the breadth of support
(how far the function moves beyond supporting an
individual business unit or location) and consistency
of delivery (how much the operating model can be
driven from a single perspective).
The second point on the continuum involves
assumptions around standardized technology and
processes. Often, the investment in integrating HR
technology propels the discussion about long-term
alternatives. In other cases, the desire to be global
drives a focus on standardization in technology and
processes. In order to secure the significant financial investment required for major HR platforms, an
organization-wide view is necessary to ensure that
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the appropriate benefits can be gained. This point
of the continuum is the stage at which technology
investment and day-to-day operations start coming
together; it is the starting point for all other variable
models – service centers, outsourcing or offshoring.
The next progression point on the continuum occurs
when specific people-management activities and
processes must be driven from a global perspective.
Specifically, it requires identifying the HR processes
that enable the people-management efforts that
most create competitive differentiation, such as
attracting, retaining and motivating key employees.
While these choices are organization specific, it is
rare to see systems that do not include talent management, employee engagement, learning and development, and senior-level rewards. Often, the drive to
put specific focus on delivering and implementing
these particular strategies moves the HR organization beyond common platforms and business-unit
focus toward a real focus on expertise and delivery.
This typically is through some form of centers of
expertise, whether physical or virtual. This can easily
occur without a supporting shared service model; it
relies on “in-country” local HR services and support.
The next point on the continuum is the development
of some form of shared service activity. The drivers
for moving to this point are primarily related to cost,
cultural change and maximization of the technology
input by delivering the standardization and benefits
from investments.
The final point on the continuum is outsourcing,
which itself is simply a method of implementation
and not a different delivery mechanism. It is therefore no surprise that many of the more effective
models of extensive HR outsourcing implemented
in the last few years have been in organizations that
already had developed a shared services framework
and had already delivered common investments in
both technology and processes.
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Determining the optimum place
on the continuum
In short, there are three critical decisions that organizations need to make regarding this continuum:
■
Whether to start
■
Where to start
■
Where to stop
Although these decisions are organization specific,
Exhibit 3 sets forth the primary drivers that most
influence the decision. The financial drivers suggest
whether or not to start; the service requirements
tell how far one could go. But it is the organizational
context and the cultural/people issues that tell how
far an organization should (and perhaps could) go.
Financial drivers
The factors of scale, labor cost and scoping are
critical drivers in determining the effectiveness
and size of the business case and the ongoing cost
opportunity. One interesting nuance to the ROI and
cost-reduction issue has evolved the past few years:
The development of shared services provides greater
financial transparency within HR. Some of the HR
cost has previously been spread across the business
units, not allocated to HR. The extra visibility that
arises in the first year of a shared service setup has
often led to the assumption that the cost of delivering HR is increasing. In reality, through shared
services, organizations usually identify previously
hidden costs that they did not know existed. This
nuance, however, needs to be managed.
HR service requirements
To progress on the continuum, there must be an
understanding of the priorities for HR and the global
HR agenda. If there is limited need for globally driven
activities to support the HR strategy and HR performance, then there is little need to move beyond the
left side or middle of this continuum.
Centers of expertise become relevant when there
are corporate activities that require focus, common
standards and a corporate-wide view (for example,
executive succession planning). These are activities
that, if done consistently, will improve the organization’s competitive advantage, controls and efficiency.
To move further toward shared services on the continuum, the key requirement is that services will be
provided predominately the same way to most populations, allowing only for business-critical variability.
Cultural and organizational fit
The cultural and organizational fit are by far the
most critical criteria. They are essential to understanding the governance and culture of an organization in the context of centrally corporate-driven activities before taking any view about the application
of shared services. Any positioning to the right on
this continuum infers that the “center” has, at a minimum, an influencing role within a corporate governance framework and an HR governance framework.
Indeed, it may have a directive role. However, it will
not work to try to move toward the right side of this
continuum when the corporate governance role is
simply advisory. Some form of clear influencing from
the “center” – which is acknowledged within the
center and the business – is vital to make centers of
expertise and shared services effective. Without this,
there will be friction between the move to the shared
services organization and the organizational culture
within which business leaders and local HR leaders
attempt to operate.
Creating a common infrastructure
Progress against any of the delivery models requires
careful evaluation of the degree to which the organization is willing to invest and operate within a
common framework. HR shared services will require
shared investment and will produce different rewards
for different business units in financial and service
terms. Shared services is about the sharing of infrastructure, the sharing of service culture, the sharing
of resources and expertise, and the sharing of costs.
The move to shared services will come with significant financial and ROI expectations, but these can’t
be viewed in isolation. An organization also must
consider cultural fit and service requirements as
well as the broader perspective of political context
and organizational focus and governance. When all
of these factors are included in the decision-making
process, the organization is more likely to make the
right decision for its unique situation and goals.
Exhibit 3
Criteria for determining organizational fit
Unplanned
evolution
Financial
drivers
Unplanned
evolution
typically results
from either:
■
Service
requirements
Organizational
context
Cultural
and people
implications
■
Reactive steps
taken in
response to
business needs
A loose
organizational
structure that
does not require
any structure
around HR issues
Business
unit or
location
focus
Common
process
Center of
expertise
Shared
services
center
Business
process
outsourcing
(BPO)
Supports
devolved
business units
responsible
for costs and
investments
Requires
major investment
in common
technology
to deliver
Requires
“best-of-breed”
functional tools
Offers significant
cost opportunities
through
effective
implementation
Delivers
significantly
improved financial
performance to
balance loss
of control
Enables
business
unit choice
Requires some
standardization
for this step
and further steps
Focuses on
priority activities
(currently
global talent
and mobility)
Assumes
consistent process
but varying ways
of managing
different customers
Requires
negotiation
of requirements
with outsourcing
provider
Supports
business
unit or local
geography
governance
structure
Enables
maximization
of shared
infrastructure
investment
Requires agreedupon “corporate”
priorities, policies
and processes
Assumes a
secure and
consistent service
delivery across
business units
HR is a difficult
place to start
if outsourcing
is not part of
organizational
model
Reinforces
devolved
local cultures
Demands
consistency
of behavior
within existing
structure
Assumes
corporate
standards and
corporate remit
Requires
significant
culture and
personnel changes
Can be seen as
outsourcing
of people
management if
outsourcing is
unfamiliar to
the culture
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Different decisions – all for the right reasons
The following three companies have significant operations in Europe. They illustrate how different organizations viewed the same factors, but decided to adopt
different solutions regarding HR service delivery. Each
also chose to stop at different points on the continuum.
These examples show how the different factors come
into play and how organizations assess them alongside their own unique business circumstances, thereby
leading to different stopping points on the continuum.
There is no “right” answer here – just a series of important choices and considerations to achieve the best fit.
Example #1: A US technology company
employing about 8,000 throughout Europe
While there is a strong US-led HR governance in this
business, the organization in Europe has evolved
quickly and has more than 1,000 different HR policies
and processes deployed. The prime driver to adopt a
shared service approach was to provide some standard
application of process and policy within an HR context.
This was because most of the leaders in a project-based
business managed international teams and demanded
more consistency from HR operations. Managing a
team with 20 different local HR country rules proved
problematic for the business and its managers.
As a technology company, it wanted to maximize the
deployment of technology and the Internet to fit its
own culture and to maximize line manager contact.
The economics made a shared service center questionable due to the number of different policies and
countries. As a result, the organization positioned itself
on the point of the continuum around standardized
policies and processes and common technology.
It took the standardization of policies and processes
to an advanced level, uniting and integrating policies
in complex areas. This provided common pan-European
standards regarding behavior and approach, with the
ability to adapt to fit local legislative requirements as
needed. For example, the company now has pan-European discipline and grievance policies, something many
HR people would say is not possible. The organization
stopped at this point on the continuum.
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Example #2: A large European heavy
manufacturer operating in a post-merger
environment
Example #3: US manufacturing company
employing 20,000 people across 12 countries
in Europe
A series of loosely integrated mergers left HR decentralized. The new business leaders and HR director
wanted to establish and clearly articulate the areas
of priority and common activity across HR in the key
areas that would enhance competition and integration.
Through a comprehensive review of HR and its alignment to business needs, some critical process activities
− primarily in the areas of learning, development and
talent management − were identified to require a
comprehensive global focus. Centers of expertise were
established on a virtual basis to support and lead these
core processes.
The third organization also is a manufacturer developed in Europe through acquisition. It had invested
significantly in a new HR system but had achieved
neither service nor cost benefits. As a result, the HR
functional leadership needed to achieve three things:
a real standardization process; a culture change within
the organization to move it from an entrenched preacquisition mindset into a clear global organization;
and a focus on key business drivers that would deliver
substantial cost reduction to meet business needs and
to secure the business case for the implementation of
technology. These factors required the organization
to move quickly through the continuum point to the
delivery of a multicountry shared service arrangement,
which it has now achieved. The outsourcing option is
now firmly on the implementation agenda.
The rest of HR remained local and site specific in terms
of day-to-day HR service delivery. Interestingly, one
business unit within this organization, by far the largest, completed its own review, which was not driven by
the “global alignment of competitive HR processes,” as
was the overall effort, but was primarily influenced by
the cost effectiveness and efficiency of HR. Through its
review, this unit determined the need for much more
common processes and technology. It has started the
design of a delivery model that will ultimately lead to
shared services for that business. Culturally, the business has determined that shared services across the
organization is not something applicable at this stage;
however, it may be applicable as the company evolves
and integrates the mergers.
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Conclusion
Regardless of where an organization positions itself
on the continuum, shared services is having a notable
impact on how HR functions address their operational
effectiveness. HR departments are redefining themselves with new skill sets that are more focused on
business objectives. In addition to providing traditional “cradle to grave” services to employees and
dynamically changing services to business, savvy HR
functions are also focusing on the opportunities that
have been exposed by the demand for shared services.
Following are a few findings that have become evident through Mercer’s consulting work in this area.
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■
Metrics. Like other functions core to business, HR
is increasingly being asked to provide in-depth
analysis of its performance. Having to answer
service, quality and cost questions on a pertransaction, per-head or per-business unit basis,
or some combination thereof, has increased the
demand for deep analytical and reporting skills
in HR professionals. This requires a significant
change because, historically, HR has not used
such “hard” metrics. Mercer’s 2006 Global HR
Transformation Study shows that HR customer
satisfaction remains the top measure of the effectiveness of the HR function, used by 68 percent
of the respondents. HR cost is another common
measure, used by 54 percent. An equal number
consider HR program effectiveness to be a measure of overall HR effectiveness.
■
Process. The first step in determining the beginning and end on the shared services continuum
begins with a look at HR processes. Leaders of
shared services organizations, whether internal or
outsourced, champion the need for standardization of HR processes. There is much truth to this,
as standardization of processes typically yields
efficiencies in both the cost of delivery and the
service quality, owing to the increased ease with
which such processes are administered. However,
the degree to which centralized processes are
standardized needs to be carefully weighed in
light of customer requirements. These requirements can be influenced by many factors, including past practice, culture, policy and technology
limitations. Striking the right balance between
process standardization and custom requirements
continues to provide significant challenges to HR
professionals who must find just the right point
on the continuum to meet customer requirements without eroding the benefits of centralized
administration that shared services provide.
■
■
Technology. Many HR departments must educate
their CIOs directly on the array of new technologies
that can enable a shared service model. These
new technologies include enterprise HR systems,
along with technologies that enable components
of a shared service model, such as a service
center (for example, customer relationship and
knowledge-management tools, telephony, agent
quality and performance monitoring). The chief
HR technology officer, an increasingly popular
position, will continue to play an instrumental
role in identifying and implementing the technology critical to the success of shared services.
Policy. New policy pressures resulting from shared
services continue to challenge HR leaders. Obstacles
include identifying and agreeing on policies;
determining whether policies should be implemented globally, locally or by business unit; and
deciding when variation or consistency is necessary and appropriate. This is especially true for
health and wellness, retirement, compensation
and employment policies.
■
Governance. Governance is critical yet widely
misunderstood, especially in organizations new
to shared services. For example, some new to
outsourcing view governance as adhering to the
legal services agreement. In some cases, heads
of HR spend more time talking with their contract attorneys than with their vendors. This is
where shared services and outsourcing have a
lot in common. In effective vendor management,
the contractual service provisions are obviously
important, but a successful governance model
must balance partnership and accountability.
The goal is to work closely with vendors but hold
them to their promises – just like the organization should do with the HR function. This applies
whether service provision is internal, external or
a combination of both. The management skills
required to lead a successful, broad shared services
governance model are not unique, but may be
new to many in HR.
HR shared services is a model that will continue to
evolve, and the ongoing demands of global organizational change will provide increasing opportunities
to develop and extend the model’s usage and the
differing environments in which it operates. There is
no single best-practice example; this is too complex
of an issue to have just one solution.
Successful deployment of a shared service model
requires careful, thorough planning based first and
foremost on understanding the organizational and
environmental context of the change and the
consequent success factors. Careful and realistic
appraisal of these factors will lead to an effective
choice of an HR service model that fits the specific
demands of each HR function and organization.
11
Regional
Regio
onal trends
trend
ds in shared
sharred services
Given the maturity of shared services in the US, it
is no surprise that some organizations are pushing the envelope regarding which HR services they
include as part of shared service models. HR activities
that initially had been left out of the due diligence
exercise of what to consider for centralization are
now receiving a second look. Examples of recent
trends are highlighted in Exhibit 4 and briefly
discussed below:
Each region and country throughout the world comes
with a unique level of readiness, sophistication and
infrastructure regarding HR shared services. Based
on Mercer’s global experience in designing and
implementing shared service models, below are
highlights of the more significant regional traits
and developments in key economies.
The Americas
In the US
The US has been a leader in the use of HR service
delivery models, and advances in technology
continue to produce more choices for establishing
efficient models.
Employee counseling. Progressive firms are expanding the processes of answering general inquiries
in the employee relations and counseling arena
– providing in-depth counseling on policy adherence,
interpretation and grievances over the phone. This
Exhibit 4
US trends in HR service delivery
US
Center of scale
Training
admin
Training
design
Comp
admin
Benefit admin
Labor
negotiation
T&A/Payroll admin
Payroll special payments
Succession
management
Labor relations
strategy
Transfer
processing
Inquiry
handling
Feasibility to centralize
Center of expertise
HRIS strategy
Staffing analysis
and reporting
Employee grievance
Comp
design
Career
program
design
Benefits
design
OD
consulting
Internal
staffing
HRIS data
analysis
Recruiting
Employee
counseling
HR
partners
HR
management
Organization diagnosis/
Change consulting
Training
delivery
Face-to-face delivery
Business partner
Impact on business strategy
The larger the circle, the greater the potential cost savings
12
counseling is not restricted to employees; HR partners and managers increasingly are becoming
customers of these expanding services.
Recruiting operations. Activities such as job posting,
sourcing and screening may now take place centrally
and even offshore in some cases. Once tied very
closely to recruiters conducting interviews, these
remote administrative recruiting activities are
increasingly being centralized.
HR business partner. While the role of HR partner
typically requires some local presence, regional
models of support are growing in popularity, and
some organizations are migrating the HR partner
role to their shared services organization. A few
firms have even outsourced some of this function to
their HR outsourcing provider. For such outsourced
strategic functions to be successful, a company
would need to have the right business model and
environment, a strong partnership with their HR
outsourcing vendor, and a proven governance
structure and process in place.
have steadily stabilized, the currency remains vulnerable to fluctuation. Although this risk is typically
embedded into vendor pricing models, it can present
a risk for service providers.
Asia
Due to Asia’s size and diversity, this paper will focus
on three key countries.
In China
China is a country whose profile is rich with stateowned enterprises (SOEs), large domestic conglomerates and key regional operations for many highly
recognized multinational companies (MNCs). Each
of these business structures – combined with varying
and rapidly changing governmental structures,
cultures and the desire/capability to adopt the
advances of the Western world – has implications
concerning whether a shared services approach
would not only succeed, but would also become a
viable alternative.
■
SOEs are domestic, have strong legacy cultures
and are often resistant to change. However, they
are under significant pressure to function like
the private sector and would benefit, at least in
theory, from the components of the shared services proposition, especially process efficiency,
customer orientation and automation. Although
there is a drive to change the status quo, current decision making within SOE environments
is often laborious – taking significant time and
steps to make progress. Much work is required to
update and ready data, technology and internal
talent required for shared services success, due
to the slower pace of change and hesitancy to
update processes.
■
In many of China’s foreign-owned MNCs, the key
decisions about HR infrastructure (such as shared
services) are often made in headquarters, probably in another region thousands of miles away.
Therefore, even if the local leadership wants
to implement large-scale change, it may not have
the mandate. Decisions about process consistency,
data cleanup and technology enablement, however,
can be made locally. These steps will help the HR
function to better support the business and may
eventually be a precursor to traditional shared
services. Other organizations face the opposite
challenge: The parent company may want to
establish a shared service center that includes its
Chinese operations, but the local leaders are not
in favor of this move. Either way, it’s important
for local and corporate leaders to be in agreement
regarding shared services, or the likelihood of
success diminishes.
In Latin America
While shared service models are not as prevalent in
Latin America as in many other parts of the world,
Latin American organizations increasingly are exploring them as key HR delivery models – particularly
in the Caribbean basin (for example, Costa Rica and
Jamaica), Brazil, Mexico and Argentina. With globalization of companies in this region on the rise,
consideration of regional shared service centers also
has risen.
However, the region still presents challenges to
organizations not based there. The socioeconomic,
taxation, cultural and bureaucratic environments
vary significantly. A blanket strategy for operating
in Latin America typically fails, and for this reason
multinationals often find it difficult to navigate
local concerns.
Latin America also is growing as a sought-after
destination for offshored HR outsourcing – including
Central America and the Caribbean basin. Despite
the region’s relatively underdeveloped technological
infrastructure, the growing Hispanic footprint in the
US is dramatically increasing the need for Spanishspeaking HR services.
Again, though, there are challenges. While English
has become a primary language of business, fluency
in American culture and the ability to deliver customer service in English to US customers is still
in its infancy in this region. In addition, although
the economies of many Latin American countries
13
■
The large domestic, privately held companies in
China (often referred to as conglomerates) may
present the best opportunities for shared services.
Their decision making is not constrained by owners
that are governments or foreign multinationals.
They are, by definition, younger, entrepreneurial
companies that are emerging with the opening
of markets in China. They exist in competitive
markets where the business value of a solution
is paramount, so they are both willing and flexible
enough to adopt best practices to secure a competitive edge. Additionally, their leadership often
consists of repatriates who have brought a blend
of Western “let’s do it” and Eastern understanding.
So while willing and able to take on business
process improvements such as shared services,
these organizations must cope with the varying
regulatory environments across the country.
In Japan
Despite barriers often associated with differences
in language, there is a definite trend within Japan
to establish shared service centers – particularly in
low-cost regions outside Tokyo. Companies there
can expect to save up to 10 percent to 20 percent
by setting up shared service centers in places like
Okinawa or Kyushu, with the added attraction of
local development grants.
And, while many Japanese companies claim to have
set up shared service centers, in fact they have really
centralized processes. They have not yet proceeded
to the next step of establishing common platforms
to deliver a shared service across the organization.
In India
The changing business environment in India is
placing new demands on the HR function. Top management would like HR to lead change by providing
new ideas and concepts that add value. The new
role involves managing a globally aligned workforce and winning the competition for talent. This
requirement has fueled the need to restructure the
HR function into centers of expertise and shared
services. The increasing need to transition from
“firefighting” to a more business-focused approach
has led to streamlining of HR processes at the
operational and tactical level.
One of the top priorities for organizations in India
remains generating increases in total productivity
through effective HR service management. The
main areas of HR shared services include payroll
processing, administration of employee benefits
14
and entitlements, employee data records and other
reports generation. Most technology-savvy organizations have invested heavily in technology and
processes, defining key performance measures for
critical areas that help build higher predictability on
quality of delivery.
India is significant for another reason in discussions
of shared services. Employers around the world are
looking to India as a key source for their outsourced
or offshored operations. According to some studies,
business process outsourcing in India (and associated offshoring of shared service centers) is projected
to grow by about 25 percent per year over the next
five years. However, a talent shortage, infrastructural
deficiencies, increasing salaries, and European and
American resistance to offshoring pose significant
challenges. At the same time, many of India’s largest
service providers are developing more sophisticated
approaches to outsourcing, mirroring the evolution
with shared services itself.
India’s offshoring industries are dealing with hurdles
ranging from power to cafeteria services, with many
large Indian cities – including Bangalore, New Delhi
and Mumbai – reaching a point of IT saturation.
India also confronts a potential shortage of skilled
workers in the next decade. An estimated 10 percent
to 25 percent of the country’s current college graduates are suitable for employment only in the offshore IT and BPO industries. India also lacks large
numbers of workers who are fluent in French,
German, Japanese or Spanish – often making China
and Eastern Europe more attractive offshoring
destinations.
Europe
Shared services in the European landscape continue
to evolve at a steady and encouraging pace, with the
UK most frequently deploying shared services.
Historically, European organizations (particularly
those in France, Germany and the Netherlands) have
found the multiregulatory environments and data
protection issues difficult challenges to surmount
in undertaking effective shared services initiatives.
Today, however, due in large part to advances in
global HR technology platforms, things once seemingly impossible are becoming possible, including
pan-European payroll and regionally acceptable
processes to accommodate data-protection
requirements.
HR function’s ability to create and “sell” the business
case through its strengthening strategic partnership
with business leadership.
Indeed, the major change in recent years is the
move of two activities from local delivery to shared
services: payroll and recruitment administration. In
both cases, the evolving capacity of technology has
been the main driver of the change. There are now
a few organizations delivering payroll for up to 15
European countries from one location. Technology
has enabled this, and the future suggests the possibilities in this area will only increase the potential
for shared service development and deployment.
(See Exhibit 5.)
The growing capability of infrastructure in Central
and Eastern Europe has driven the gradual increase
of shared services across the continent. This provides the opportunity to offshore centers for significant labor cost savings. The region is used by
large organizations as the home for shared services,
not just in HR but in other support processes such
as finance. This trend will continue as long as the
region provides effective capability, languages and
cost structure.
Despite these and other key advances, the pace of
change in Europe will continue to evolve at a slow
and deliberate pace – keeping in lockstep with the
Exhibit 5
European trends in HR service delivery
Europe
Center of scale
Center of expertise
Labor relations
strategy
Staffing analysis
and reporting
Training
admin
Transfer
processing
Recruitment
admin
Feasibility to centralize
Inquiry
handling
Comp
admin
Succession
management
Training
design
HRIS
strategy
Comp
design
Career
program
design
Benefits
design
T&A/Payroll admin
OD
consulting
Internal
staffing
HRIS data
analysis
Benefit
admin
Recruiting
Payroll special
payments
Employee
counseling
Labor
negotiation
Employee
grievance
Training
delivery
Organization diagnosis/
Change consulting
HR
management
Face-to-face delivery
Business partner
Impact on business strategy
The larger the circle, the greater the potential cost savings
15
About Mercer
Mercer is a leading global provider of consulting, outsourcing and investment services,
with more than 25,000 clients worldwide. Mercer consultants help clients design and
manage health, retirement and other benefits, and optimize human capital. The firm also
provides customized administration, technology and total benefit outsourcing solutions.
Mercer’s investment services include global leadership in investment consulting and
multimanager investment management.
Mercer’s global network of 17,000 employees, based in more than 40 countries, ensures
integrated, worldwide solutions. Our consultants work with clients to develop solutions
that address global and country-specific challenges and opportunities. Mercer is
experienced in assisting both major and growing, mid-size companies.
The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which
lists its stock (ticker symbol: MMC) on the New York, Chicago and London stock exchanges.
16
Argentina
Malaysia
Australia
Mexico
Austria
Netherlands
Belgium
New Zealand
Brazil
Norway
Canada
Philippines
Chile
Poland
China
Portugal
Colombia
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Czech Republic
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Spain
Finland
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France
Switzerland
For further information, please
contact your local Mercer office
or visit our website at:
Germany
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www.mercer.com
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