Feature. The phrase globally strategic payroll is filled with misconceptions, The Six Keys to Globally Strategic Payroll

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1 Feature The Six Keys to Globally Strategic Payroll The Journey of High-Performing Companies in Efficiency and Innovation By John M. Gibbons, Jeitosa Group International The phrase globally strategic payroll is filled with misconceptions, and has even sparked many animated discussions. There are some who would assert that, by nature, payroll is not a significantly strategic function of the business. Others point out that the complexity of country-level regulations and the immaturity of global payroll technologies prevent the function from ever being truly global. However, according to the early findings of the Global Benchmarking Study, ground-breaking research conducted by Jeitosa Group International with support by the ADP Research Institute, a different picture is coming into view: Not only are high-performing companies successfully employing global payroll strategies, but executives are also discovering that these practices are highly related to their enterprise-wide business growth and profitability. Global Business Environment In order to understand the emerging global role of payroll functions not to mention their relationship to their companies financial performance it is important to first be clear about the nature of the playing field on which global businesses play. According to Jeitosa s longitudinal research in globalization, there are two priorities that successful global companies share. First, global companies continue to mature in their efforts to discover and leverage greater efficiency by centralizing and standardizing best practices across the enterprise. As successful companies continue to grow globally, they are able to replicate these processes and practices, allowing them to enter new markets without having to develop entirely new operational models. Second, global companies are beginning to develop better organizational infrastructures to facilitate innovation across the enterprise. This is challenging considering geographical, cultural, and time zone barriers that need to be overcome in order to build the capacity to innovate on a large, global scale. As was mentioned above, the Global Benchmarking Study has revealed that companies that successfully move toward greater global efficiency and innovation in their payroll function are more profitable overall. This relationship will be further explored later in this article. Efficiency-Innovation Model (EIM) The Global Benchmarking Study was based on the Jeitosa Efficiency-Innovation Model (EIM). This model draws from the typology developed by professors Christopher Bartlett (Harvard Business School) and Sumantra Ghoshal (London Business School). The Bartlett/Ghoshal typology describes the challenges associated with developing strategies, designing organizational structures, and managing operations for organizations with activities that stretch across national borders. They distinguish among four different types of global organizational models (see Figure 1), representing an evolutionary progression as organizations mature in their globalization journey. Figure 1. Four Types of Global Organizational Models. The EIM, coupled with the Bartlett/Ghoshal typology, serves as a descriptive model and diagnostic methodology for assessing the payroll function of organizations that are progressing through these four stages of globalization. The EIM uses 10 scaled measures that, together, provide indices for an organization s global capabilities for efficien- 18 June/July 2013 Workforce Solutions Review

2 cy and innovation on their payroll processes. The measures focus on the following areas: Efficiency Measures Payroll delivery model From local, to regional, to global organizational designs for payroll service delivery; Payroll governance From local, to regional, to global HR, Finance, and Corporate Services models; Vendor consolidation From multiple vendors, to regional clusters of vendors, to a single global vendor; Process standardization From minimal standards, to regional standards, to global standardization of front-end and back-end payroll processes and roles; and, Integration From highly manual integration of payroll data at the local level to a single integrated system. Innovation Measures Key accountabilities From country-level ownership of the payroll function, to regional, to global process ownership; Metrics From none, to lagging performance metrics, to root-cause analyses, to leading and predictive analytics; Quality methods From none to control methods, to process optimization, to externally developed quality assurance methodologies, such as Lean and Six Sigma; Automation From manual, to basic automation, to workflow-enabled, to portal and mobile access designs; and, Mindset From clerical, to country, to regional, to process, to global strategic points of view among the payroll staff. Together, these two sets of measures are used to plot each organization s current payroll situation on the twodimensional EIM scale that graphically represents the organization s degree of global maturity (see Figure 2). The Bartlett/Ghoshal maturity typology is overlaid onto the EIM, allowing executives to not only visually see their degree of maturation, but also to identify the course that their organization can take as it continues to mature across these two dimensions and through the various stages of global maturity. When an organization has optimized both its efficiency and innovation measures and has moved through the stages of globalization maturity, they are said to have reached the magic circle, meaning that the organization now has the capacity to both leverage maximum efficiency and optimal innovation from across its global enterprise. Figure 2. Jeitosa s Efficiency-Innovation Model (EIM). Research Methodology In 2012, Jeitosa researchers began the process of collecting data from companies operating across the globe in the initial phase of the Global Benchmarking Study. These companies were selected by virtue of having at least 500 employees located in at least three different countries. Currently, close to 70 companies are participating in the study. These companies represent a wide variety of industries (see Figure 3) and, while the majority are headquartered in North America, their business footprints represent presence in over 150 countries across the globe (see Figure 4). Figure 3. Industry Sectors Represented. Figure 4. Headquarters Countries Represented. Workforce Solutions Review June/July

3 Once selected, each company participated in a onehour interview to assess their organization s capacity for efficiency and innovation. Their scores were then plotted using the Efficiency-Innovation model as seen in Figure 5. better financially. And, while a strategic approach to their global payroll functions may not have a causal link to overall company performance, there is a clear relationship between global payroll maturity and financial performance as seen by an observable shift upward and to the right in top-performer s distribution on the EIM (see Figure 6). The Six Keys to Strategic Global Payroll With the knowledge that there is a connection between a company s degree of strategic approaches to their global payroll function and higher financial performance, Jeitosa decided to go a step further and identify exactly what aspects of efficiency and innovation distinguish the highperforming companies from their low-performing peers. The outcome of this additional analysis was the emergence of six key practices that high-performing companies are significantly more likely to employ than low-performing companies. Below is a countdown of these key practices. Figure 5. Efficiency-Innovation Model (EIM) for Global Payroll. Next, each company s financial performance was evaluated to determine whether, in fact, maturity in efficiency and innovation was linked to overall enterprise performance. The performance measures that were used included: 1) the company s revenue/sales growth, 2) income/ profit growth, and 3) employee head count growth over the period of 2011 through The companies were ranked across these criteria, their ranking scores averaged, and then the entire group was divided into three groups: high performers (top 20%), middle performers (middle 40%), and low performers (bottom 20%). Figure 6. Efficiency-Innovation Model (EIM) for Top and Low Performers. Key #6 Employ a Global Payroll Delivery Model with Regional Shared Service Centers. Participating companies were asked about how they organized the delivery of payroll services across their global enterprises. They were given the options to choose from the following five models to identify which best described them: Global shared services model A single centrally run service center that services all locations; Global/regional hybrid A centrally guided payroll function, with regional (multiple countries) shared service centers located across the enterprise; Global/local hybrid A centrally guided payroll function with execution of payroll delivery conducted on a location-by-location basis; Regional/local hybrid A decentralized model with regional governance and local execution of payroll services; and, Local model A delivery structure that is entirely decentralized, with individual locations or countries operating almost autonomously from each other. High-performing companies were nine percent more likely to have deployed some form of global approach, while low-performing companies are four percent more likely to deliver payroll services entirely at the local level. High-performance companies understand that the efficiencies of scale not to mention the cost savings derived from globally standardizing work processes are key to their success. As a result, they ve applied these principles to their global payroll function as a key component of their overall global business strategies. While there are top-performing and low-performing companies in all quadrants, the pattern is clear: companies that have built capacity for efficiency and innovation across their global payroll organizations tend to perform 20 June/July 2013 Workforce Solutions Review

4 Key #5 Consolidate vendors, with an eye on the goal of having as few as possible, in order to simplify the vendor portfolio and streamline processing. Participants in the Global Payroll Benchmarking Study were asked to identify the number of payroll vendors that they use across their global organization. They were then placed in one of the five following categories: One global vendor; Two to four vendors globally; Several vendor clusters, usually focused on providing services to specific regions of the world; Vendors consolidated by country with each country retaining the autonomy to select vendors and manage vendor relationships; and, Multiple vendors per country generally developed as a result of acquisition and business unit autonomy. Top performers were eight percent more likely to have fewer vendors and are in the process of consolidating them even further, while low-performing companies are five percent more likely to have more vendors, often with little coordination of vendor relationships across the enterprise. It is important to note that very few of the participating companies had just one single global vendor. Only six percent of all companies in the study report having only one payroll vendor for their entire company, and those companies have a smaller global footprint (fewer number of countries) than others in the study. However, high-performing companies are more likely to embrace the notion that fewer payroll vendors provide more streamline vendor relationships, improve the likelihood that they will benefit from vendor discounts for larger clients, and provide the opportunity to reduce redundant services from multiple vendors. Key #4 Develop clear global and regional accountabilities for the payroll process, seeking optimization across countries. While the first two keys focused on leveraging efficiencies, Key #4 emphasizes building the capacity of the global payroll organization to capitalize on innovations that may be developed on the local or regional levels. Respondents were asked to identify whether they had clearly defined and communicated roles and accountabilities for the following levels in their payroll organizations: Global process specialists; Regional process specialists; Local process specialists; Regional payroll specialists; and, Local payroll specialists. Top performers were seven percent more likely to have clear global payroll accountabilities, while low-performing companies were seven percent more likely to have those accountabilities only clarified at the local level. While some observers might place this finding in the category of efficiency (and, admittedly, clarifying accountabilities and roles is an efficient method of managing talent), the greater value derived from having these roles and accountabilities clarified on the global level is that when innovations are generated on the local level, there is no clear line of sight across the organization to identify those new best practices and to leverage them in other parts of the organization. Key #3 Develop a global governance model, clearly defining global, regional, and local accountabilities for execution. This key resembles the previous one but focuses on where the ultimate ownership for delivery of payroll services resides, as opposed to the roles of individual contributors. Participants were asked to describe where the ultimate accountability for the delivery of payroll services resides in their organization. They were given the following options from which to select: level payroll function; level finance function; level HR function; Hybrid accountability A model of shared accountabilities at the global, regional, and local levels; and Local accountability Resides entirely at the local or country level with little regional or corporate oversight. Top performing companies were nine percent more likely to have some form of global-level governance model, while their low-performing peers were 12 percent more likely to be limited to local governance structures. Global governance models allow for centralized standardization for process quality standards, regulatory compliance, and greater level of strategic level alignment of the payroll function with other strategies of the business. As a result, successful companies use their global governance models to contain costs, leverage best practices, and deploy compliance expertise to avoid costly regulatory violations. Key #2 Create a global metrics framework, with root cause and predictive analytics, for managing the global payroll process. As the saying goes, what matters gets measured and what gets measured matters. Establishing a set of operational metrics is key to process quality control. Participants were asked to describe the metrics framework in place in their organizations on the following scale: Mature framework Utilizing predictive analytics and evidence-based methods of evaluating experimental best practices; Workforce Solutions Review June/July

5 Advanced framework Utilizing root cause analysis to identify the underlying flaws in the system that may be causing process problems and errors; Emerging framework Applying regularly reported metrics as a means of facilitating quality control; Basic framework Using lagging measures to allow the organization to compare current performance with past performance; and, None Either no metrics in place or dependence on vendor to provide required data. Top-performing companies were nine percent more likely to have a mature metrics framework, while lowperforming companies were 27 percent more likely to depend on only basic quality control measures or less. Top-performing companies are not only more sophisticated in the level of analytics that they use to maintain quality standards; they also use data in decision-making and to test their assumptions about experimental new best practices. This allows them to be guided by more tangible facts about their business than low performers, who are largely limited to reacting to unforeseen crises and depending on conventional wisdom. Key #1 Foster a global mindset across the organization with cross-cultural teamwork and rotational assignments. Of all 10 measures of efficiency and innovation, a global mindset distinguished high-performing companies from low-performers to the greatest degree. Participants in the study were asked to briefly assess and describe their global payroll team and categorize them using the following scale: Strategic/visionary mindset Payroll staff thinks about both short-term processes and longer-term strategies, envisions new practices in terms of the overall corporate strategy, and can identify ways that their ideas could be applied across the global organization. Process-oriented mindset Payroll staff focuses on having a clear understanding of the global payroll processes, can make recommendations about practices in other parts of the organization, and can anticipate problems. Regional mindset Payroll staff has a good understanding and expertise of payroll practices as they apply to the handful of countries that they may have been exposed to, or that their service center supports. Country mindset Payroll staff understands payroll processes of their countries and its members are often considered very solid, content experts on the regulatory mandates of the country in which they focus. Clerical/operational mindset Payroll staff is largely limited to focusing on the administrative tasks at hand and are not used to providing insights for process improvements or quality control. High-performing companies were eight percent more likely to describe their payroll team as having a global mindset, while low-performing companies were 38 percent more likely to have payroll teams that focus on local processes and administrative tasks. Again, while the researchers involved in this study are not claiming a causal relationship between a global mindset of the payroll staff and their respective companies profitability, it is compelling that low-performing companies are strikingly different from their high-performing peers in this characteristic. Intuitively, it makes sense. If a company has a global team that is sensitive to cross-cultural issues and understands the business context in which the team works, its members are more likely to be empowered to make recommendations for improvement. Additionally, they are more likely to integrate the goals of the enterprise into their thinking as they perform their daily routines. In conclusion, it is important to note that these keys reflect the practices of high-performing companies. There is not an assumption of causation the study is not claiming that a well-designed, well-executed, and well-staffed global payroll function is going to lead a company to financially out-perform their peers. However, the study does demonstrate that companies that are well-run do not overlook the value of the payroll function as an integrated, strategic component of the overall global vision of the enterprise. Finally, this study gives credibility to the notion that globally strategic payroll is not only an appropriate term; it signifies a distinguishing characteristic of the most successful companies in the world. About the Author John Gibbons is vice president of Research and Strategy for Jeitosa Group International. Previously, he was the Global Practice leader and senior researcher for The Conference Board and vice president for Research and Development at the Institute for Corporate Productivity. He has held various executive and senior HR positions with The Gap, MassMutual, Harvard Pilgrim Health Care and Nippon Express. Gibbons has been featured in The Wall Street Journal, The New York Times, Financial Times, NPR, Bloomberg News, HR Executive, and CEO and CFO magazines. He has worked directly with executives from more than 60 of the Fortune 100. He can be reached at john.gibbons@jeitosa.com. 22 June/July 2013 Workforce Solutions Review