When and Why an In-House HR Shared Services Solution Makes Sense
This Roundtable discussion took place in March 2010 and was published by SSON as part of its HR series.
• Edward Golitko, Senior Director, HR, EMC
• Robbi Wendel, IS Applications Manager, Nissan North America
• Jim Scully, President and Founder, Shared Services Institute
Moderator: Niamh Byrne, Online Editor, SSON
SSON: After years of HR outsourcing, some companies are bringing some HR services back in-house. Why do you think there has been this change? Jim, can I start by asking you?
Jim: The Shared Services Institute just finished a pretty comprehensive survey on HR shared services practice, and this is one of the areas that we looked at. It looks as though it is a counter balancing trend; there is quite a bit of activity in both directions – both sides of the field, to use an American football analogy. First of all, I don’t see companies moving these things in-house for costs alone. There is some unfulfilled expectation underlying it. Some of that comes from decisions made at very beginning of the decision to move to outsourcing when companies compared their current state versus a future outsourced state. Organizations that built a capability for in-house delivery are actually asking themselves that same question and getting a different answer now. Now that they’ve implemented Shared Services, they are comparing the outsourced environment to the now future state of in-house, and they are deciding that the right thing to do is to bring it back in.
Robbi: I concur with that statement. A lot of that has to do with the technology, ease, security and comfort that comes with that having that in-house – and the knowledge and the benefits of having the data in-house, too.
SSON: Perhaps you can give us an example of how that is working for you at Nissan
Robbi: Sure. We see that when our employees have that in-house touch, they just have a better comfort level – a comfort level that you don’t have when it is outsourced. There is a different rapport and I don’t know that surveys capture that very well.
SSON: At Nissan, are there examples where you have looked at outsourcing but you have decided to keep it in house?
Robbie: When we looked at Enwisen, we were trying to consolidate disparate HR operations and that’s why we wanted an in-house solution. We also needed to consolidate all our HR systems at the same time, so going to an outsourced model wouldn‘t have worked for us. The Shared Service model for Nissan meant not only a system for case management, but also for the knowledge center - consolidating policies and procedures and allowing employees for the first time to have that access and that ‘touch.’ Outsourcing wasn’t going to provide them with that opportunity.
Edward: I think there are a number of reasons [why companies are trending in-house]. Around three and a half years ago, it was like a mandate: ‘we must outsource a certain percentage of your operations’ – it appeared to be all the rage. Even if it didn’t make sense, you had to do it, because that is what everyone else was doing. But there are a number of reasons why we are looking to bring it back in-house:
• Presence in China and India and in lower-cost offshore locations. We have a payroll service center with ADP that we are running in India, so why do we want to be paying for the administration and everything else in another service center? Can’t we bring it in-house and use the same thing?
• Technology eases this transition. You can think about it conceptually and actually convey it to your management team. The cost of doing this internally is less expensive, and once you have the model you get the synergy between the different areas of finance and HR where you can back each other up.
• Ownership and control. When you outsource to someone else, you are giving control to them. We pride ourselves in running pretty good businesses, and having ownership and control.
• Consistent Training
• Efficiency. We use Wipro and Infosys in some of our other areas, and we are going through a whole HR change as we set up regional centers: one in Ireland, a mini one in the US for the Americas, and one in India.
In summary, we are finding that we can do Shared Services in-house technology consolidation in HR, and other areas such as finance are doing the same thing. It gets down to effectiveness, efficiency and cost. There’s a little bit of momentum now. If you look three years ago, I wouldn’t think it would be put together this well.
SSON: So can I direct this next question to you then, Edward. What elements do you think make sense for companies to do in-house?
Edward: In a very highly-specialized area where you don’t have the expertise – those you probably want to keep outsourced. Areas that we are looking at, like many companies, are the more mundane daily items that day-to-day consume the time of an HR specialist making $100,000 and that can be answered by either technology or by somebody in India just as well. All you have to do is train the right employees to do that.
Other things to push out are higher levels of information, like programming. What we find is that by the time we get it to India, and do the communications back and forth, you lose so much in efficiency and effectiveness in communication that it’s better to pay the higher price here, and get it right once, rather than with the lower cost model and try to do it three or four times. It’s almost as much an art as it is a science; you have to feel your way through the organization to make those determinations.
SSON: Jim, can I ask your thoughts on that? What elements do you think it makes sense for a company to keep in-house and those to outsource?
Jim: In the survey I mentioned earlier, we asked our respondents to tell us for each functional area within HR, if it is entirely insourced, mostly insourced, mostly outsourced or entirely outsourced. As you might guess, the mix is across the board. If you find a group of people that outsource it completely, you will find a group of people that will insource it completely. However, there seems to be three categories that these functions fall in, and I think it is pretty instructive for how these decisions are being made.
• One category – call it "our way" – includes HR functions that are close to the core value proposition of HR: to attract, retain, reward and motivate employees. These are the kinds of functions that companies are saying, ‘we’re going to do this our way – we’re not just going to take some other way of doing this, because it has got some serious implications about whether we deliver value.’ They want it inside so they have control over it. Or, if they do outsource it they want the vendor to do it their way. Areas that in the survey tended to fall into this category are staffing, recruiting, training, HRIS, and employee relations
• Category two – which I’ll call "their way" – is the opposite. It includes functions that are further away from the core value position of HR and are more driven by external standards or regulations. Things like, relocation, workers’ compensation, unemployment compensation, and COBRA administration were more outsourced in the survey. I call this the "their way" category because the way they are performed is defined more by factors and trends outside the company.
• The third category crosses all areas and I call it the "better way" category. This is where the solution, whatever it is today – insourced, co-sourcedor outsourced – is not really working to the company’s satisfaction and they’re looking for a better way of doing it. A good example of this would be the FMLA leave administration. Whereas a lot of it is in-house today, the survey shows a lot of interest in future outsourcing. This makes sense, since FLMA is very time-consuming and not working very well at many companies. So in summary, there is interest in both outsourcing and insourcing and our survey findings suggest that those decisions fall into the three categories I just mentioned.
Edward: We have done that with Qualified Domestic Relations Orders (QDROs) and FMLAs and areas that are very technical. You don’t want to be retaining a one- or two-person expertise that has a potentially high risk if you don’t do it right. It’s areas like those we have looked to outsource rather than try to keep them internal.
Jim: And if you try to outsource things that you really want to do your way, you have to realise that your vendor is going to have one arm tied behind their back in terms of being able to deliver value. It is difficult for an outsourcer to do things on a client-specific basis and really do it better and cheaper.
Robbi: I agree, because you are going to end up with a heavy touch contract and you’re going to be dissatisfied with the service. Anytime where there is a lot of face-to-face, or a lot of personal contact, and like Ed and Jim have said is highly custom, you are just not going to be happy with outsourcing.
Going back to the question of what would you outsource, I would say anything that is highly technical or highly customized is not ever going to be a good candidate for outsourcing. But sometimes the transactional bit works to that advantage. The size of the company is sometimes the determinant. It’s not a one size fits all, that’s the message out there. There’s not a clean-cut decision.
Jim: I would say that our data definitely agrees with the statement just made.
Edward: Geographically, we’ve looked at a number of applications that we have had, for instance with Infosys, and found we could do it for somewhere around fifty percent less of the costs than they can, because we have shared service center already working on the payroll, and these other operations now. When we first outsourced it, we were saving sixty percent of the costs compared to doing it in-house. Now we are saying that we can bring it back in-house and keep it offshore and reduce it even further than we did then. But per Robbi’s comment, you have to have the volume to do that, and we do have the volume at EMC.
SSON: What technology and trends are helping you insource?
Jim: One of the major things is software-as-a-service because if you think about it, the technology enabler has been a big part of value proposition for outsourcing. A great many of outsourcing decisions were made because there was a need to implement enabling technology, and companies looking at a buy vs. build proposition decided to take advantage of what the vendor could offer. SaaS is simply outsourcing that sliver of the whole delivery pie; it’s just taking the enabler piece and outsouring that. An in-house provider is taking advantage of the functional capabilities as well as the economies of scale that an outsourcer would provide, so that’s definitely one trend.
The other is that you just have to look at the sheer volume of shared services start-ups, particularly in the last three years. Organizations are building internal capabilities, and therefore insourcing becomes more feasible and attractive.
SSON: Robbi, what about you? How do you think the technology is enabling the insourcing of services rather than outsourcing them?
Robbi: In our case, we were very quickly able to bring our Shared Service Center up to speed, out of the gate, using both a knowledgebase and case management system: the Enwisen solution.
We were able to take our own HR representatives from different branches that had never worked together before, consolidate and train them, and consolidate the data. We went from zero to a hundred miles an hour in less than nine weeks. I don’t think we could have outsourced that quickly, but I think that with this technology model, we were able to do an insourcing model more quickly.
Our culture has been very heavy-touch: with our inventory, our plant – which is a non-union shop – with our representatives. Our technicians are used to very personal contact, and we didn’t want to change that, nor did we want them to feel as though we were losing that. With the new model, they weren’t losing anything – they were information, and they had that access to HR. So for us it was a very positive transition.
SSON: Edward, do you have any points to add to what Jim and Robbi have just said?
Edward: Yes, I think that we probably haven’t outsourced as much as maybe the others have. We wouldn’t have been able to in-source without technology. Now we’re turning it on globally, and so we are going after Ireland, UK, Germany, US, India, Australia, and Canada all at once, so we’re taking a big bite. The deployment of other countries is in order of their population, so you get to a place where ninety percent of our employees are on the same platform. You would have a horrendous time trying to co-ordinate all of that with the one outsourcer, so without the technology I wouldn’t even consider taking this project on because of the complexities.
SSON: Whether you are insourcing or outsourcing, or you have a co-sourced model, there are challenges involved – either technical or from a people management view. Would some of you be able to talk about some of those challenges and how you overcame them?
Jim: I’ll talk about some of the things that we are experiencing with other organizations. First, every outsourcing arrangement is to some extent a co-sourcing arrangement, because there is almost always a retained organization, even if it’s less than a full person. So it’s really a question of the degree to which you are co-sourcing.
The other point to make is that you never outsource accountability, and that is the Number One challenge that I see. Because you never out source accountability, organizations maintain whatever resources they need to ensure that, at the end of the day, the service they need is delivered. That can take the form of checking vendors’ work, doing work that you’re actually paying the vendor to do, and overseeing elements of the vendor’s work. Failing to get the value by doing what you are paying someone else to do is one thing that I see repeated.
The other thing that I see is the tendency to outsource tasks based on the nature of the work without thinking about the whole process. If a little piece of the process goes to the vendor, and the client retains the rest, based on the nature of the work, you can end up with a fragmented process with extra hand-offs, errors, rework, etc. The right type of work was outsourced but the process was messed up. Those are two of the bigger challenges that I see.
My suggestion would be to start with what is the best process: and that process is going to be the one with the least amount of waste activity. Then look for opportunities to outsource, preferably full processes rather than bits and pieces.
Finally, there’s the junk drawer analogy. Every house has a junk drawer where all the little things that don’t really have a place to go – the rubber bands, stray batteries, this and that. When you’re working with a vendor, they tend to have a very well-defined list of services that they provide, and if it’s not on that list, they don’t provide it. So what happens is that you start filling up your company’s junk drawer with all those services you can’t outsource, and you end up having to do a lot of work that you didn’t anticipate, because it’s not on the vendor’s list. So, again, it points to the problem of outsourcing discrete activities versus process responsibility.
Edward: It is about the process and you have to look at the whole process holistically rather than the fragmented applications. It’s one of the things I struggle with: ‘how is this going to look, how’s this is going to get done, how is the work going to flow, what’s the employees’ experience, how are you going to achieve the results, how does that cost compare with one that does exactly the same thing and will it get you the same results?’
I think that when you are doing things internally versus externally, this may or may not be debatable. If you are going to outsource versus insource, the outsourcer has a much higher degree of responsibility to provide a high degree of accuracy in what they provide to you, because they are selling a product and people are very demanding. Internally, sometimes, you don’t have to be a 100 percent. Sometimes trying to be a 100 percent is going to cost you more money than the benefit. And I have debated this with people. Do you do every job 100 percent or do you take that ten percent of energy and resource it somewhere else? I think that when it’s internal, you have a greater degree of flexibility on that.
The other thing that has been a struggle for us is when you get rejection from people who are resisting change: they don’t want to change, or they don’t want to give up what they do. There is always the contingent that is reluctant to come onboard.
Robbi: One thing that we struggle with, with outsourcing, is the turnover for the offshore team. Just about the time that you get someone with the knowledge and training on your processes and business structure and how you do business, then they leave – you don’t have the control over an outsourcer’s turnover. There is always that issue. And when you are working from an IS business standpoint, then your internal business issues are very difficult to always have to explain to resources. It’s a complication you have to factor in.
SSON: How is this HR model helping you to add value back to the business?
Jim: Many of the benefits that come out of Shared Services model are not the business benefits that were originally listed in the business case. They are the benefits that you really only get through an in-house solution. I’ll just give you a few examples. Say you build HRIS and project management capability in-house and an organization enters into a merger or acquisition. Part of your business case becomes the avoidance of contractor and consultant costs to manage that project. It can be hundreds of thousands of dollars in some situations. The ability to integrate mergers and acquisitions and enhance the value of those is not typically stated in the business case. Other examples include being the driver of administrative best practices or being a driver of enterprise-oriented information and services. Those are things that come with the project’s maturity. I was part of a Shared Services organization that, when I departed, was already ten years old, so I have this experience. These are things that you don’t see initially, but they do come to pass.
Edward: It is still a little premature for us.
Robbi: In the last few years, it has definitely been rewarding for us. We expanded initially from the US to Canada. And now we are looking to expand to Mexico, so it has definitely added value to our employees. We are expanding what we call our WIN HR portal, our employee portal. So anything that we can put at the finger tips of our employees is adding value to our employee. We are very excited to provide that value, too. And all the feedback that we have been given from the case management and the call centre in Shared Services is positive. So that’s further adding value to our employees, and therefore it is adding value to our company. It has been an overall positive experience.