Running shared services centers like a business is a challenge for some. Outsourcing is one solution.

by Andrew Kris

On a recent, unusually sunny Brussels day, I found myself facing a team of corporate HR executives from a Fortune 50 company. We have been struggling for three years now to make our HR shared services work, yet we still do not have whole-hearted buy-in from the businesses. Our HR costs are no lower than they were when we started. Where did we go wrong? they asked.

Make no mistake. This team had done well. They had segmented their customer base and recognized that they had different groups of customers with different needs, each of whom had to be convinced that HR delivery through shared services would make sense to them. They designed their products and services appropriately. They ensured that they had senior management support. They understood that, by stripping out operational tasks, business HR managers would have the time to concentrate on strategy and change management and had begun to retrain the key business-facing HR people. They had service level agreements and had communicated well ahead of implementation to get everyone on board.

So why was it that after three years this talented group of HR professionals was not able to deliver on the promise of a 30 to 40 percent cost reduction?

They are a robust group and remained polite when told that their case for HR shared services had missed the point. Evidently, it was based on lowering the cost of HR service delivery. Reducing HR costs is an internally-focused approach to HR shared services, good for HR, but no big deal in the greater scheme of things, I volunteered as I searched for the nearest exit.

Lets face it, in a corporation with approximately 25,000 employees and 125 HR people, reducing HR numbers by 30 percent is hardly likely to make much of an impact on the bottom line. Of course, 30 percent savings is worth having, especially if you have to defend the HR budget. But it is unlikely to move the company into prosperity. Considering the investment that firms have made in implementing new HR systems to make their shared services work, its no wonder that, overall, costs show no improvement.

In a recent survey, half the companies surveyed targeted savings of 20 percent or more from the move to shared services, but this level of savings was achieved by only a third. More than a quarter of the organizations surveyed achieved less than 10 percent savings.

The best HR shared services focus on improving the quality of service for their customers, for example making HR administration easier and more timely. They provide better management information and greater consistency across the organization as a whole.

Unfortunately, the quality service argument for HR shared services is way too touchy-feely for many battle-hardened, numbers-oriented business leaders. And yet, I have rarely seen any attempt made to quantify the financial benefits of quality. I know what it costs to employ an HR person. However, too few shared services make the effort to measure and quantify the benefit of improved employee satisfaction or the savings achieved in reducing the time taken to get answers to HR queries.

This lack of hard numbers and the evident discomfort of many HR people when presenting financials leaves HR shared services terribly exposed to the business wolves. As most organizations did not take the time to benchmark HR service delivery before shared services, its difficult to disprove claims by people knowing that service was better before. After all, HR people were next door and could respond immediately to any enquiry.

So here are the beginnings of a case for sending shared services over the wall to an outsourcer. Outsourcers live by the numbers. They run a real business with real invoices, not recharges or allocations. They deliver services that people need and value. They go out of business if they dont! The outsourcer has to deliver consistently, at a cost, quality, and timeliness that is competitive with alternatives to survive.

HR shared services leaders rarely come under these commercial pressures, but there is no doubt that they will very soon. Outsourcers are targeting under-performing HR shared services centers as the easiest prey to acquire in an otherwise tough market. So if you are running an HR shared services center, you have a choice: Get your center up to speed, run it as a business, get tangible measures, quantify them in terms of hard cash, and survive as a shared services center; or have an outsourcer do it for you, with the risk that this may prove even less comfortable than the first option.