How to successfully transition to HR BPO. By: Christine Briody Gianni Giacomelli Part 2/3 Design the organization

Transcription

1 How to successfully transition to HR BPO By: Christine Briody Gianni Giacomelli Part 2/3 Design the organization

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3 Design the organization Quantifying the retained organization Christine Briody, Senior Director of Global Consulting, ADP Page 01 Designing the retained organization from a technology perspective Gianni Giacomelli, Head of Strategy and Marketing, SAP BPO Page 13

4 Quantifying the retained organization

5 Christine Briody s Biography Christine Briody, Senior Director of Global Consulting, ADP Christine is Senior Director of Global Consulting and is responsible for supporting the Sales effort in the global Employer Services marketplace. Christine has a background in operational and service management. She joined ADP in the UK in 1995 and headed up the Managed Payroll Service department for UK and Ireland. From there she moved into a European role working as a Strategic Account Manager for key accounts within ADP. Christine is based in the UK but travels extensively mainly across Europe. She can be reached at: contact@globalhrstudio.com Quantifying the retained organization Stepping up in HR transformation, and more specifically HR outsourcing, raises fundamental questions and implies to agree on the processes and activities to keep in-house and the ones to reengineer and outsource. More generally, HR transformation is mainly about deciding on the organization to implement to fit the new business needs. Designing and managing your retained team correctly is a critical factor for the success of your overall HR outsourcing business plan. In particular, the ability to achieve significant staffing efficiencies is typically the key to achieving the financial objectives expected from the outsourcing relationship. This is often the most difficult and poorly planned aspect of the transition to outsourcing HR. The roles and responsibilities that your organization will need to retain during and after transition of HR services will depend on a number of related factors: Scope of services that you will be outsourcing Day-to-day processes that will be left behind for your retained team Complexity of Business Unit structure Diversity of your current information systems and/or service suppliers Expected timeline for the transition to your vendor Number of manual tasks that will be automated by outsourcing 01

6 Quantifying the retained organization Quantifying and designing the retained organization go hand in hand with the project s business case and require adopting a structured approach. To assist you in designing the retained organization that will best fit your requirements, we have developed a model that can also enable you to better predict your return on investment. Please note that your ability to achieve the optimum retained organization will largely depend on the success of your governance model. 1 How to design the retained organization The retained organization roadmap Define the project scope Define activities to outsource or retain Define positions / headcount Build job descriptions / competencies Establish new organization structure Continuous improvement / process re-design The roadmap to design the retained organization begins with the definition of the project s scope (service model, tasks to outsource, and project s footprint). Your internal staff and the service supplier then follow up by assigning the tasks that must be performed (based on your negotiated statement of work). Next, roles and responsibilities that define retained jobs, positions and headcount are completed by adjusting your organizational structure and putting into place a continuous improvement process. 02

7 2 Understand and define your project s scope This is the fundamental phase in the design of your future organization. You must understand your service supplier s business model, determine the extent of your footprint, and decide on the functions to be outsourced. In-depth understanding of your supplier s service model is the key to that phase of the project. The service level you will opt for may vary from one country to another or from one region to another. For example, Processing Services may be fine for countries where you are well acquainted with local legislation, while Managed Services may best suit countries where your knowledge of the local environment is less well developed. 3 Which activities can be outsourced In order to get a clear picture of the future organization, it is usually good to start by focusing on how the work gets done today. A task/time audit ( 1 to 31 Approach ) of your current activities will help you understand where outsourcing will generate the greatest benefits. It is essential to map your HR organization with your supplier s responsibility matrix (also called service definition or statement of work). The responsibility matrix describes what needs to stay in your organization and what comes under the supplier s responsibilities. This will also provide you with a sharper focus on tasks that should remain local and the ones that can be grouped and performed at a regional or global level (in shared services centers, for example). In some organizations, collecting information on activities and roles, processes, and job descriptions may take more time than available and even be very difficult to validate. For these companies, their analyses will be based on assumptions that may require adjustments in the business case for the retained organization. 03

8 The illustration below provides an example of a detailed portion of the responsibility matrix for payroll Managed Services. The Payroll Managed Services Responsibility Matrix (extract) Where? Who? The Responsibility Matrix Processes Type of Service Delivered: Managed Services Client Service Supplier System and Application Services and Maintenance Data Management Payroll Time Data Inputs Employee Self Service / Manager Self Service (if applicable) Pre-Payroll Processing SSC Client 1 Confirm timely funding of accounts for dispersal of employee payroll through agreed upon bank. Service Supplier 2 Create, maintain and distribute Payroll Schedule for each country on a calendar year basis. Service Supplier 3 Load pay variation data. Service Supplier 4 Verify data loads. LOCAL Client 5 Monitor work/non work time; monitor annual leave. Service Supplier 6 Calculate termination payments. LOCAL Client 7 Validate and approve termination payment calculations. Payroll Processing Post-Payroll Processing Leave Management Termination Management Off-Cycle Processes End-of-Month Activities Client Relationship Management End of-year Activities Other Payroll Activities 04

9 Once you have established your current tasks, you can get a better grasp on how the work will change once you outsource. It is important to recognize that some activities are destined to remain within your retained organization. These activities typically include core functions such as HR strategy, process design, executive recruitment, and aspects of compliance and industry-specific functions related to the growth of your business. Core retained functions might also include oversight of certain HR and payroll functions, such as data validation, payroll authorization, and escalated issue management. Sample activities/responsibilities of the client s retained team Area Responsability Area Responsability Garnishments. Validate garnishment order. Set up Employee garnishment deduction information into HRIS. Store garnishment order. Audit deductions are taken according to order. Balance deductions/payments monthly. Monitor garnishment remittance services. Answer employee and agency inquiries/interrogations. Create/send answer and notice letters. Interpret legs/regs; Ensure compliance with garnishment legs and regs Banking Change Requests. Request funding from tax and garnishment. ACH return, step payments, and reversals. Reconcilement of bank statements. Check paid inquiries. On-line ACH transfers. Files and Remit Escheated checks. Collect change request requirements from business units, with the exception of ad hoc reporting. Provide functional requirements to application maintenance team. Complete acceptance testing on developed change requests. Coordinate user acceptance testing with business units Taxes, including Stock Options. Conduct data validation. Monitor Tax remittance services. Interpret legs/regs; Ensure compliance with tax legs and regs. Researche inquiry. Document and tracks inquiry. Respond to agencies. Resolve disputes. Inform Payroll Operations of issues/changes as needed. Reconcile return. Processe Stock Options Tier 3 Support Training and Communications BU expertise. Provide Tier 3 case management support for taxes, garnishments, banking, stock options. Provide instructions for resolution to processing team and customer service team. Create training programs and materials. Create content for payroll related communications. Deliver training to payroll services team. Interpret BU policies impacting pay. Provide required procedural updates to the customer service payroll specialist Mergers & Acquisitions. Creat M&A checklist. Work with corporate, HRIS, BUs and acquired companies on transition of payroll. Coordinate entry of payroll related data into HRMS with processing team Other. New hire reporting. Worksite reporting. Special projects. Create year end calendar. Design corporate payroll policies As part of the statement of work, your service supplier will have to provide you with a detailed list of the activities it expects to perform and those that will continue to be part of your organization. 05

10 4 What skills/competencies are needed in the new organization Outsourcing HR means changing the roles and tasks of your retained HR staff. With most administrative and transactional actions moved to your service supplier, you are able to focus on supporting your company s core business. One common example of an impacted job function is that of the payroll administrator. For many organizations, the payroll administrator plays a broad role, performing activities such as answering employees questions, tracking checks and deposits, reconciling payrolls, processing changes in pay, and ensuring compliance with tax filing and other regulatory bodies. Successful organizations take full advantage of the outsourcing model to shift the majority of these administrative activities to their provider, while refocusing on more strategic management actions such as design of compensation and incentive plans. For many organizations, this often means that the current administration team may not have the required skill sets to transition into the new roles. A similar impact can be expected for the HR and benefits partners, with certain administrative/transactional responsibilities eliminated and replaced by the opportunity to deliver higher added-value services to the Business Unit s customers. This shift in roles raises the issue of whether to retain and re-train existing staff or to hire people with more relevant skills. A critical step in this decision process is to create new job descriptions aligned with the tasks and roles to be assumed by the retained team. Your service supplier s responsibility matrix and your internal vision for your department should be the basis for these descriptions. Detailed job descriptions should include: Description of the job and activities to be performed Required skills and educational background After the required roles have been defined and the new job descriptions created, formal competency assessments and interviews with the existing staff can identify the right talent within the organization. 06

11 Example: Contract Manager job description Area Responsability Role: responsible for managing the service level Reports to: Governance Director agreements, reporting on trending, change control and process impact analysis. Responsibilities:. Manage all finance and contract-related aspects of the outsourced services. Track client assets used in delivery of services. Establish and maintain mechanisms to quantify and track business-value delivered. Collaborate with Client Finance and Accounting to develop, socialize and implement acceptable allocation mechanisms. Responsible for the communication, lock down, and monitoring of value realization with business units. Responsible for the verification, reconciliation, and payment of all SP invoices; monitor SP contract compliance. Lead in negotiations of or adjustment to SP contract; Manage the Benchmarking process. Advise on savings calculations, business case development; Review and assess project business cases Experience & Education: years finance and/or accounting. CPA and Advanced degree preferred. Significant experience with the management or operations of outsourcing and third party contracts. Demonstrated understanding of legal contracts. Procurement of sourcing experience. Administrative and project management experience Attributes & Characteristics:. A business/commercially-focused, results-oriented manager with strong listening, financial management, and communications skills. Consultative and client-oriented 07

12 5 How to determine the retained headcount An anticipated reduction in headcount is often central to the business case for moving to an HR outsourcing model. The trick is to determine what the right reduction should be. Many organizations rely on an activity-based analysis to estimate the volume of work that will be handled by the retained team. This activity analysis attempts to estimate volumes or transactions that still need to be handled, including the strategic and management functions necessary to operate the outsourced functions. Your service supplier can typically provide much of the information needed to estimate those activities based on due diligence during the sales process as well as a statement of work that defines the activities that will be retained by your team. This is generally a good guideline, but you may want to back it up by other analyses done by yourself and/or outside consultants. In activity-based analyses, organizations generally estimate how many transactions and/or activities one person actually handles during a specific period of time, compared with the number of transactions that could be processed over that same period of time. In fact, there are many factors that may make this estimate unique to the client s situation, including: Transaction complexity Data input quality Degree to which policies are standardized and harmonized Workforce diversity Vendor consolidation Position control in place Direct comparisons of headcount before and after implementation may not be viable due to changes in how new jobs and functions are defined. In some cases, total headcount may not seem to go down, but the organization will see a marked improvement in overall productivity and effectiveness. In other instances, there is a significant reduction in headcount, not just in the functions outsourced, but also in the broader HR organization due to strategic realignment. Here is one example of what can happen when you combine outsourcing efficiencies with retained organization design. A company with 9,000 employees spread across the U.S. has outsourced payroll administration and HR information technology, including the HRIS, a new applicant management system and time and attendance. They also redesigned their processes to take advantage of efficiencies gained from online employee and manager self-service. They engaged stakeholders early and focused not only on the applications and the processes, but also on role definition. Excluding those employees who worked in payroll or in the employee service center (operations now outsourced), the HR team has been reduced from 88 to 62 people. «They no longer do tasks such as applicant tracking or labor rules compliance reporting. Their focus is on a different level of work, which includes change management, workforce planning and talent management the HR Director reports. 08

13 6 What is the typical impact on labor There may be no such thing as a typical impact on labor since the outcome is highly dependent on the organization s structure, previous degree of centralization, functions (and scope) being outsourced and (very important) the assertiveness in redefining new roles and responsibilities. However, some useful industry estimates can serve as benchmarks for business planning and execution purposes. The Everest Research Institute, a leading supplier of HRO research and analysis, estimates that the average staff reduction for an outsourced HR engagement is 54%. This impact is spread across the various job types within a department, with greatest impact coming at the admin support level (75% reduction) and the least impact at the senior manager/executive level (20%). According to Everest, organizations in the top quartile of labor savings have achieved a 76% overall reduction in headcount, made possible by a 91% reduction in administrative support roles. Interestingly, these same top-quartile organizations actually experienced an increase in senior manager/ executive roles (+7%). This is likely attributable to a successful shift from an administrative to a strategic, high-value focus for the organization. Average HR staff reduction by job type (percentage) 75% Admin support 52% 50% SME General for future consideration/follow-up 37% 20% Manager Sr. Manager/executive 09

14 Top quartile staff reduction by job type (percentage) 91% 77% 74% 39% Admin support SME General for future consideration/follow-up Manager -7% Sr. Manager/executive With these points in mind, it is reasonable to expect a 50% reduction in force in the functions that are being outsourced. Why not 100%? It is important to remember that, even though you have outsourced an entire function, it is still necessary to retain internal staff that will be responsible for strategic planning, vendor management, and support as well as other defined retained team responsibilities. This is even truer for international organizations that have to cope with country-related specificities that must be taken into account when the time has come to outsource. Will those specific country-related processes be covered in the HR outsourcing contract? For example, travel expense management is not a part of payroll in Switzerland. International outsourcing deals can scope out that specific process as part of the current payroll service, forcing the client company to keep it in-house. In China, payslips have to be printed on rice paper and stamped by the administration at the end of each fiscal year. In Belgium, educational leave is included in payroll, but this administrative task may have to continue to be handled in-house even after the HRO contract has been signed. As a consequence, your service supplier should provide you with a list of optional and/or scoped-out tasks country by country in order for you to be able to conduct a detailed check of your entities. 10 Wrap-up Quantifying and designing the retained organization go hand in hand with the project s business case and require adopting a structured approach. It is essential to map your HR organization with your supplier s responsibility matrix. Successful organizations take full advantage of the outsourcing model to refocus on more strategic management actions. A critical step is to create new job descriptions aligned with the tasks and roles to be assumed by the retained team. It is reasonable to expect a 50% reduction in force in the functions that are being outsourced. Even though your have outsourced an entire function, it is still necessary to retain internal staff.

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16 Designing the retained organization from a technology perspective

17 Gianni Giacomelli s Biography Gianni Giacomelli, Head of Strategy and Marketing, SAP BPO Gianni Giacomelli is Head of Strategy in the BPO business unit of SAP. He joined SAP in late 2004, and has more than 16 years of experience in organizational development, transformation strategy and related services. He has served in companies such as Boston Consulting Group, Danone and Datamonitor, and in US-based consulting firm Everest prior to joining SAP. He is a widely published thought leader in the outsourcing/offshoring/g&a transformation space. He holds a degree in Economics and Business from the University of Florence, Italy and EME Business School of Strasbourg, France, and a Masters in Organizational Behavior from London Business School. He can be reached at: contact@globalhrstudio.com Designing the retained organization from a technology perspective Business processes are delivered by combining workflow, the right people, and the appropriate technology. These three elements, designed to work together, ensure effective service delivery. Often when process transformation fails, a pattern emerges: the experts and decision-makers across these three domains have not been working properly with each other. In the case of outsourcing, which involves managing the relationship with a service provider, there is an even greater potential for dysfunction if the right governance model is not put in place, especially during contract negotiation and implementation. Essentially, it is necessary to ensure that the required skills and objectives that are clearly defined for all the parties involved are in place at the beginning of the HR transformation journey. Changing direction too late, for example when the discussions hit the implementation phase at the local level, will create new issues because it will lead to deviation from holistic objectives. 13

18 Designing the retained organization from a technology perspective Specifically, with regard to technology, three types of decisions need to be made: Whose technology is to be maintained or implemented in respectively the retained HR organization and in the outsourced one? For example, retained-organization employees can now use the technology that is proposed by the service provider (often software-as-a-service). Who is to drive and who is to own the configuration of that technology client or provider? How to coordinate the retained processes seamlessly with those that are outsourced? 1 Whose technology is it? Here, the decision is to choose who owns the technology. Whoever owns the technology can redeploy it at least theoretically. A couple of scenarios may occur: 1. When the provider owns the technology, the contractual agreement sets out how that technology can be used. This prevents dilution in service quality or changes in process workflows unless pre-agreed. It also means that the possibility exists for the provider to re-use the technology with other clients. This can generate cost savings. Discussions about technology ownership can have unexpected consequences. Whoever owns the technology must recognize that process requires certain parties to have access to specific functionalities and/or data; otherwise, service delivery will break down. Identifying points where this can occur prevents surprises later. For example, access to an employee s master data, identifying elements like personal and organizational data related to a specific employee, is necessary in many outsourced processes, even though in some cases the master data repository may stay within the client s organization. 2. If the client owns the technology, it can be redeployed by the client upon completion of the provider s mission. However, the client is contractually obliged to ensure the provider has access to the technology required for service delivery. 14

19 2 Who drives and who owns the configuration? The second important decision is to determine who drives and who owns the configuration of the selected technology. From a legal perspective, configuration is considered Intellectual Property (IP). But from a business perspective, configuration is often modified according to specific processes to be handled by the software. On the one hand, the party driving the configuration has the possibility to personalize the software to accommodate some business rules and process flows. On the other, the party who owns the Intellectual Property has the right to re-use the developments beyond the specifications in the BPO contract. When the client drives the configuration, it is possible to dictate to the provider, at least to some degree, how the service will be run. This is often the case for processes that impact the client s employees, a common occurrence in HR. Nevertheless, if the client drives the configuration too far, it might limit the provider s opportunity to template the process. This in turn would diminish the client s ability to enjoy the benefits of a one-to-many service model. Although the client can decide to avoid change management, there is a risk that the provider will be unable to deliver economies of scale, process optimization and more cost-effective labor. Another consequence of who drives the configuration is that the clients retained organization will be different. If the client is simply asked to provide the boundaries of the process (e.g. expectations of input-output), in-depth expertise in the process steps that fall within the provider s scope will not be necessary. 3 How to integrate seamlessly what stays in and what goes out? Regardless of the ownership of the technology and its configuration, there is still a need for the process to function seamlessly end-to-end. In practical terms, the service provider needs to act as the client s extended enterprise. A number of failures in reaching such results stem from the inability of the parties to design an appropriate technology integration architecture that ensures data integrity and avoids latency. In some cases, this outcome may be provoked by the difficulty of building interfaces or by the fact that data are not maintained properly on either side. For example, if the client does not require certain data fields to be constantly updated by their employees (e.g. address, number of children, etc.) or if those fields do not exist in the client s retained system, the employees personal data transmitted to the provider might be incomplete or inaccurate. It is important to note the difference between interfacing and integrating. Consequently, deciding where to draw the line between the two organizations, i.e. what is retained on the client s side and how it integrates with the provider s side, is a critical act and requires intense scrutiny from the business process and IT specialists from both organizations. 15

20 Below is an example of the importance of deciding what is kept on each side: % Transactions Tier 0 Self-Services Tier 1 Contact center Tier 2 Generalist staff Tier 3 Experts Scale effects % Cost Cost per unit Volume IT-related Service for a General and Administrative process such as HR is typically delivered in tiers. Tier 0 is usually self services, pulling real-time data from applications and databases. Here, technology enables strong economies of scale. Tier 1 is the layer of call/contact center clerks who rely on scripted processes to respond to queries. Tiers 2 and 3 include more specialized staff who require access to policy repositories as well as reporting and other analytics. Here, economies of scale are even lower and the cost of complex operations is high. The client and the provider need to decide who takes which part of the technology for which layer. Unintended consequences of poor decision making can be the following: 16

21 % Transactions e.g. insufficient integration of portal into back end that leaves queries unanswered e.g. insufficient integration of contact center into back end, limiting the effectiveness of call center agents Scale effects % Cost x 1,5 x 2 x 3 IT-enabled/-supported In case something does not work correctly, the HR transactions cannot be handled by the lower tiers, which in turn generates a heavier workload for these tiers and finally results in higher total cost. Technology should not be a constraint, but to avoid surprises it is critical to bring the CIO s team into the loop upstream when deciding retention of technology is decided. Wrap-up Deciding where to draw the line between what is retained and how it integrates with the provider s side, is a critical act. Business processes are delivered by combining workflow, the right people, and the appropriate technology. These three elements, designed to work together, ensure effective service delivery. With regard to technology three types of decisions need to be made: whose technology is to be implemented, who is to drive and own the configuration, how to coordinate the retained processes seamlessly with those that are outsourced. All have implications on the sustainability of a BPO relation. Technology should not be a constraint, but to avoid surprises it is critical to bring the CIO s team into the loop upstream when retention of technology is decided. 17

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