The Journey to World-Class

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1 The Journey to World-Class Achieving World-Class Performance Presented to: Presented by: The Hackett Group 13 July 2010

2 Contents Project Background Network Rail HR Baseline Executive Summary Process Level Results Appendix Page 2

3 Project Background Page 3

4 There were three separate inputs for the Network Rail HR benchmark Benchmark Questionnaire Executive Interviews Data provided by members of the Network Rail Human Resources staff, coordinated by Rick Clark over the course of 2 months FTE, cost and volume data captured at the process level Information collected across the Network Rail HR function Best practice questions also captured at the process level Validated internally by Network Rail HR staff and externally by Hackett consultants 3 face-to-face interviews with Peter Bennett, Sharon Crossman and David Murphy Management s perspective on overall functional efficiency and effectiveness The connection between HR and specific business objectives Opportunities for further improvement concerning HR Stakeholder Survey Web-based internal customer survey to 250 stakeholders of the Network Rail HR function, with 100 responses Page 4

5 Summary of baseline and benchmark assumptions Hackett end-to-end process methodology ensures external comparability Project Background & Comparisons Peer Group Median comparison against Network Rail s peer group of companies with a similar size and complexity World-Class determined based on first quartile performance in both efficiency and effectiveness based on a consistent value grid scoring methodology used for all participants in The Hackett Group s database Normalisation of benchmark data Peer & World-Class data is adjusted to Network Rail HR s employee count of 35,627 Data period FTE and cost data collected by Network Rail was based on 2010 budgeted amounts, with FTEs as of the 1 st April For volume-based data, 2009 figures were used Hackett Process Taxonomy Hackett process taxonomy is applied to ensure that FTEs and costs are captured in a consistent manner and following the same definitions for every benchmark, thereby ensuring an apples-to-apples comparison Hackett s functional taxonomy is divided into defined processes for which FTEs, fully-loaded labour costs and outsourcing costs are captured. Technology and other costs are also captured at the functional level Best practice questions were captured for each process to assess the return on the investment made by the organisation Page 5

6 Network Rail HR Baseline Page 6

7 Network Rail s baseline HR cost is 1,587 per employee with a total of FTEs HR FTEs = % 28% Total Cost = 56.5m 14% Employees = 35,627 48% Labour cost 27.2m Wages (full-time and part-time) Overtime and bonuses Taxes and fringe benefits Outsourcing cost Outside services Technology cost Hardware Software Voice & Data 11.7 m 15.9m 5.7 m Other cost Facilities & Overhead Travel Training Other (Supplies, subscriptions, etc.) Process Cost: 43.1m 34% Resource Allocation 3% 73% 4% 20% Staff Mix 45% Transactional Employee Life Cycle Planning and Strategy Management and Administration Manager Professional Clerical 21% Page 7

8 Network Rail HR s FTEs by process Network Rail HR s FTEs = Health & Welfare Admin Pension & Savings Admin Compensation Admin Payroll Time & Attendance EE Data Mgmt. & HR Reporting Compliance Mgmt. Recruiting & Staffing Exit Process Workforce Development - Transferable Skills Workforce Development - Non- Transferable Skills Page 8

9 Network Rail HR s FTEs by process Network Rail HR s FTEs = Union / Industrial Relations Organisation Design Employee Relations Total Rewards Planning Strategic Workforce Planning Function Mgmt. Page 9

10 Executive Summary Page 10

11 Network Rail HR has opportunities improve both efficiency and effectiveness Hackett Value Grid EFFECTIVENESS Formal, documented HR Strategic Plan Internal Hire/Placement Percent Strategic Workforce Process Cost as a % of Talent Management Process Cost High 1Q World-Class EFFICIENCY Cost per Employee HR FTEs per Employees Transactional time allocation Voluntary Terminations per 1000 Employee Involuntary Terminations per 1000 Employee Error Rates in transactions HR Managers and Professionals with Advanced Degrees Time spent collecting & compiling data vs. analysing data Effectiveness 1Q HR Manager span of control Transactional cost allocation Days to fill an open position Self-Service automation Technology cost per FTE HR applications used to capture resumes Paperless direct deposit Management reports automated New Hire activities automated Low Efficiency Driver is at or exceeds Median of World-Class Driver is between Median of Peer Group and World-Class Driver is below Peer Group Median or unknown/not measured High Network Rail Other Companies Note: The ranking of the drivers are a representation of gaps to world-class and are not a direct indicator of where to focus/ launch initiatives. Specific action plans should not be developed until after the benchmark results are assessed within the context of the functional and business strategies. Page 11

12 Human Resources Benchmark Findings Overall performance is broadly in line with peers Functional HR cost is 1,028* per Network Rail employee, compared to 854 for the peer and 1,073, while Network Rail has 366 FTEs* compared to 417 for peer and 369 for world-class The higher overall functional cost is partly driven by a higher Other cost Transactional processes appear relatively efficient, especially total rewards admin, T&A and data management Opportunity exists to increase the use of HRSS, with employee data management and total rewards admin activity still occurring outside of shared services Employee life cycle staffing and costs are in line with peer and world-class, with the exception of industrial relations However, the staff mix for the employee life cycle processes shows that Network Rail has significantly more clerical FTEs in these processes compared to peer and world-class While transferable skills training costs align to peer, technical training headcount and costs are higher There appears to be under-investment in the planning & strategy processes, with lower staffing levels in both total rewards and strategic workforce planning, while best practice utilisation lags world-class *excluding non-transferable skills training Page 12

13 Human Resources Benchmark Findings The use of technology varies between process and does not correlate to process performance Technology utilisation in processes like payroll and T&A does not appear to have impacted performance, with very low costs and error rates Access to data is limited in some HR process areas Information relating to error rates for some transactional processes which have been outsourced was not available, despite being a typical performance measure and SLA Network Rail were unable to provide metrics relating to and employee qualifications, while very low costs in data management suggest that HR/employee data is being managed and held outside of HR Stakeholder survey validates benchmark results Only 18% of stakeholders view HR as a business partner or collaborator, but 35% recognise the function as an HR expert Results suggest that there is a desire for HR to be less restrained by process and increase engagement and communication with internal customers *excluding non-transferable skills training Page 13

14 Looking at HR functional efficiency, total Network Rail HR costs are higher than the peer group HR Cost ( ) per Employee (excluding technical training) HR Cost ( ) per Employee (including technical training) 1,028 1,073 1, , Network Rail Peer Group World-Class Network Rail Peer Group Labour Cost Outsourcing Cost Technology Cost Other Cost Labour Cost Outsourcing Cost Technology Cost Other Cost Page 14

15 though from a process cost and FTE perspective, Network Rail is below both peer and world-class HR Process Cost per Employee (excluding non-transferable skills) HR Staffing (FTEs) (excluding non-transferable skills) Network Rail Peer Group World-Class Labour Cost Outsourcing Cost Network Rail Peer Group World-Class Transactional Employee Life Cycle Planning & Strategy Function Mgmt. Page 15

16 which is potentially reflected in stakeholder survey feedback Valued Business Partner Spends time with other business/functional heads. Interested in improving my business metrics rather than HR's agenda Network Rail HR Stakeholder Survey Collaborator Spends time working with line managers to implement strategic initiatives HR Expert Spends time providing insight and information to managers on HR issues Gatekeeper Spends time setting policy & ensuring process and policy compliance 25% 8% 10% Administrator Spends time processing employee transactions and responding to employee requests for information Network Rail Stakeholder Comments 24% 33% Continue to and increase time spent thinking strategically and supporting delivery of O&CS business objectives Proactive engagement on future organisational needs before year end to assist planning for future years Work closely with management teams to understand, support and offer idea's on improving people and the people process Offer more services to assist with capability development away from Engineering activities Get to know their customers and how they can work as a team and be helpful Combine training and HR support and do more to identify staff to future vacancies instead of waiting for application or manager recommendation Page 16

17 where stakeholders are looking for more engagement with HR Stakeholder Survey - Skill Set Importance & Effectiveness No Involvement Not Important Important Vital/Highly Important Interpersonal Communication Internal Customer/Business Flexibility Business/Organizational Acumen Organizational Strategy Strategic Thinking and Analysis Analytical/Problem Solving Importance Effectiveness Needs Major Improvements Falls Short of expectations Average, Gets the job done Strong Performance / Exceeds expectations Page 17

18 Human Resources Benchmark Recommendations Upgrade the skill sets and profile of human resource staff Though Network Rail HR has a similar headcount to world-class HR functions, around a third of Network Rail s staff are clerical employees compared to around 10% for world-class organisations Undertake a review of the required skills and capabilities of the HR function, especially the job profile of staff in HR specialist / business partnering roles and assess whether existing HR resources have the appropriate match of skills and abilities Identify training requirements to improve HR FTEs skills and capabilities, and look to migrate poor-performing resources or those who do not fit the new job profile out of the business Increase the leverage of HRSS as part of a defined service delivery model Look to consolidate total rewards admin activity into HRSS, and centralise employee data management and HR reporting; work with the business to identify local employee databases and take ownership of all employee data across the business Assess the business case for investing in online self-service functionality for employees and managers to assess their data to ensure that the centralised employee database remains the single source of truth Have HRSS be the main contact point for all transactional, data and reporting requests to support the reduction of clerical staff outside of shared services so HR staff in the business able to focus on complex employee and managerial enquires Review the current process of scope of HRSS to assess opportunities to expand process scope to take on more value-add transactional processes (e.g. elements of recruitment activity) Page 18

19 Human Resources Benchmark Recommendations Increase investment in strategic HR processes Network Rail is currently under-investing in total rewards planning and strategic workforce planning, which along with the higher proportion of clericals in the employee life cycle processes is likely contributing to the current perception of the function held by stakeholders Increase investment in strategic workforce planning to allow the team to focus on designing and developing competency models for jobs/job families as part of the skills and ability assessment for the staff in employee life cycle (see previous slide, bullet one), and ensure that the team have identified and assessed organisational resource needs and developed (and communicated) a strategy and plan to support Network Rail s business strategy Leverage the stakeholder survey results to engage senior internal customers to understand their talent / people requirements and how HR can support these needs; stakeholder survey output indicates that there is the desire for greater interaction with HR Review the capacity of the technical training team/centre to maximise utilisation Understand what drives the delta between the planned technical training and the actual training hours provided and whether excess capacity could be exploited as a revenue generator for Network Rail by offering technical training as a service for the rail infrastructure industry (e.g. suppliers/contractors to Network Rail) Improve the current tracking/review process to better measure the success of technical training (particularly the use of learned skills once the employee returns to work) Page 19

20 World-class HR organisations remove Generalist Filtering from their processes and use demand management to leverage multiple channels Page 20

21 Process Level Results Page 21

22 HR cost per employee 1,140 HR Cost ( ) per Employee (excluding non-transferable skills) 1, HR Cost ( ) per Employee (non-transferable skills only) Network Rail Peer Group World-Class Labor Cost Outsourcing Cost Technology Cost Other Cost Network Rail Labour Cost Outsourcing Cost Peer Group Page 22

23 Network Rail s staffing and resource allocation HR Staffing (FTEs) Per Network Rail s Employees HR Resource Allocation % 6% 5% 5% 4% 7% % 44% 49% % 46% 39% Network Rail Peer Group World-Class Network Rail Peer Group World-Class Transactional Employee Life Cycle Planning and Strategy Management and Administration Note: Excludes Workforce Development (Non-Transferable Skills) Page 23

24 Appendix Page 24

25 Network Rail s staffing and resource allocation HR Staffing (FTEs) Per Network Rail s Employees HR Resource Allocation % 6% 5% 5% 4% 7% % 44% 49% % 46% 39% Network Rail Peer Group World-Class Network Rail Peer Group World-Class Transactional Employee Life Cycle Planning and Strategy Management and Administration Note: Excludes Workforce Development (Non-Transferable Skills) Page 25

26 Network Rail's resource allocation and staff mix metrics HR Resource Allocation Network Rail Peer Group World-Class 5% 7% 4% 6% 6% 4% 34% 46% 40% Transactional Employee Life Cycle Planning and Strategy 54% 44% 50% Management and Administration Staff Mix Network Rail Peer Group World-Class 26% 28% 27% 31% 21% Managers 40% Professionals Clericals 34% 45% 48% Page 26

27 HR s involvement across key activities Perception of HR s Involvement Scale Proactive - Interaction is initiated by HR with frequent (monthly or more) involvement. Reactive - Interaction is initiated outside of HR with periodic (quarterly or more) involvement. No involvement 19% HR s Involvement Network Rail Proactive 13% Limited - Interaction is initiated either by HR or outside on an as needed basis. No Involvement - No interaction from HR. Reactive 31% Limited 37% Page 27

28 HR s perception Perception of HR s Role Scale HR s Role Network Rail. Valued Administrator - Spends time processing employee transactions and responding to employee requests for information Gatekeeper - Spends time setting policy & ensuring process and policy compliance Collaborator 10% Business Partner 8% Administrator 25% HR Expert - Spends time providing insight and information to managers on HR issues Collaborator - Spends time working with line managers to implement strategic initiatives Valued Business Partner - Spends time with other business/functional heads. Interested in improving my business metrics rather than HR's agenda HR Expert 33% Gatekeeper 24% Page 28

29 Importance & Effectiveness by Service Offering Importance & Effectiveness by Service Offering No Involvement Not Important Important Vital/Highly Important Payroll - Administration Data Management HR Reporting Health & Welfare Administration Payroll - Time & Attendance Pension & Savings Administration Compensation Administration Compliance Importance Not Applicable Not Effective Effective Highly Effective Effectiveness Page 29

30 Importance & Effectiveness by Service Offering Importance & Effectiveness by Service Offering No Involvement Not Important Important Vital/Highly Important Recruiting & Staffing Employee Relations Workforce Development Services Labour Relations Exit Management Organizational Design & Development Importance Not Applicable Not Effective Effective Highly Effective Effectiveness Page 30

31 HR Function Performance Levels HR Function Performance Levels 5% 4% 8% 6% 1% 3% 16% 35% 44% 37% 34% 34% 54% 65% 32% 47% 50% 43% 52% 54% 9% 15% 6% 9% 8% 11% 18% Leveraging Technology to improve HR Service Delivery Business Communications Organizational Alignment Business Orientation Customer Service Orientation Effectiveness of HR Policies and Procedures Staff Capabilities Strong Performance Average/ Gets Job Done Falls Short of Expectations Needs Major Improvement Page 31

32 Skill Set Importance & Effectiveness No Involvement Skill Set Importance & Effectiveness Not Important Important Vital/Highly Important Interpersonal Communication Motivation Flexibility Leadership Analytical/Problem Solving Planning and Project Management Importance Effectiveness Needs Major Improvements Falls Short of expectations Average, Gets the job done Strong Performance / Exceeds expectations Page 32

33 Skill Set Importance & Effectiveness No Involvement Skill Set Importance & Effectiveness Not Important Important Vital/Highly Important HR Functional Acumen Internal Customer/Business Business/Organizational Acumen Organizational Strategy Self Management Strategic Thinking and Analysis Importance Effectiveness Needs Major Improvements Falls Short of expectations Average, Gets the job done Strong Performance / Exceeds expectations Page 33

34 HR Process Overview Transactional Employee Life Cycle Planning and Strategy Management and Administration Total Rewards Administration Health & Welfare Administration Pension & Savings Administration Compensation Administration Staffing Services Recruiting and Staffing Exit Process Workforce Development Services Transferable Skills Non-transferable Skills Planning and Performance Management Business Analysis Function Management Payroll Services Payroll Administration Time & Attendance Data Management, Reporting & Compliance Employee Data Management and HR Reporting Compliance Management Organizational Effectiveness Services Organization Design and Development Employee Relations Union / Industrial Relations Page 34

35 Contact Information For information on this material, please contact: Max Thomiak Managing Director Thomas Kellaway Director Thierno Barry Consultant For other company information, please contact us under: The Hackett Group The Hackett Group: London Office Martin House 5 Martin Lane London EC4R 0DP Phone: The Hackett Group: Frankfurt Office Torhaus Westhafen Speicherstraße Frankfurt am Main Statement of Confidentiality and Usage Restrictions This document contains trade secrets and other information that is company sensitive, proprietary, and confidential, the disclosure of which would provide a competitive advantage to others. As a result, the reproduction, copying, or redistribution of this document or the contents contained herein, in whole or in part, for any purpose is strictly prohibited without the prior written consent of The Hackett Group. Copyright 2010 The Hackett Group, Top Decile Defined and Enabled. All rights reserved. Page 35

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