Executive Brief Driving Globally Strategic Payroll The Paradoxical Journey to Effi ciency and Innovation HR. Payroll. Benefits.
Executive Overview Managing a global organization presents a wealth of opportunities the possibilities of a nearly unlimited customer base, the economies of scale achieved by tapping worldwide production efficiencies the list goes on. But with the potential of a global marketplace comes enormous complexity. Country to country, there are different rules, different laws, different expectations. One thing however, is true no matter where your business takes you. People need to get paid. Designing and implementing a truly global payroll system is a tall order for even the most accomplished multinational organizations. Jeitosa Group International, in collaboration with the ADP, developed the Global Benchmarking Study (GBS) to research the varying environments of global payroll among multinational organizations. With the goal to uncover specific drivers that affect an organization s ability to effectively manage the processes and costs of operating in multiple countries, the multi-year study selected organizations with more than 5,000 employees globally and at least 500 employees located in at least three different countries. All organizations provided their individual data on the grounds of confidentiality and anonymity, with an understanding that results are reported in aggregate only. The research yielded key findings that demonstrate the journey towards greater levels of efficiency, innovation, and effectiveness with respect to their global payroll function. Broadly, there are four benefits that can be derived from an integrated global payroll strategy: Cost Containment Increased Efficiency Reduced Compliance Risk Talent and Employee Engagement This report will highlight the nine practices of high-performing organizations despite the ambiguity of the global economy. We will provide some concrete, step-by-step recommendations to help global organizations in their journeys toward both greater efficiency and enhanced innovation. Driving Globally Strategic Payroll 2
Key Global Payroll Findings 1. Effi ciency is Important, But so is Innovation The Global Benchmarking Study found that the field of global payroll is still maturing in its ability to manage the paradox of efficiency and innovation. are slightly more efficient (3%) in their global payroll operation and are significantly better at leveraging innovative practices (19%) in global payroll. During a global recession, many organizations initial response is to cut back on costs and seek more efficient ways to conduct operations. With the most recent global recession, organizations have clearly been maturing in their efforts to find greater efficiencies in global payroll, although making considerably less progress towards greater innovation. Throughout the Global Benchmarking Study we see that high-performing organizations understand the need to balance efficiency gains in order to enable greater innovation advancements. 2. Global Shared Service Models Deliver Results In the Global Benchmarking Study, organizations were asked how they manage the delivery of payroll services across their global enterprise. They were given the option to choose from the following five models that best described their global payroll service delivery model: Global Shared Services Model a single, centralized service center that services all locations in the organization Global/Regional Hybrid Model a centrally guided payroll function with regional (multiple countries) service centers located strategically across the globe Local/Global Hybrid Model a centrally guided payroll function with the execution of payroll delivery conducted at the location or country level Regional/Local Hybrid Model a decentralized model with regional oversight of the payroll function and local or country execution of payroll activities Local Country Model an entirely decentralized model with individual locations or country payroll departments operating independently from one another The results show that high-performing organizations are more likely to be early adopters of a global, centralized payroll service delivery model and have implemented that model within the last three years. The remaining organizations in the study indicate that they have had their global payroll delivery models in place for five years or more. This is an indication that financially successful organizations are early adopters of the new global service delivery models for payroll, while other organizations are more likely to keep their longstanding, localized models in place. A reasonable conclusion to be drawn from this finding is that top-performing organizations are better able to convert plans into action than their counterparts who are not as competitive in the marketplace. are more likely (20%) than other organizations to adopt a more globally-managed payroll delivery model and more likely (53%) than low performing ones to have implemented a new service delivery model within the last three years. Driving Globally Strategic Payroll 3
3. Global Visibility and Accountability Is Key Not surprisingly, organizations with more globally-focused payroll delivery models also have reporting structures that are aligned to support these models. High-performing organizations are far more likely to have a global payroll team that has both visibility to and accountability for the functioning of payroll at the country level across the entire enterprise. are more likely (10%) to establish global lines of authority for payroll, as opposed to maintaining autonomous in-country functions. 4. A Balanced Approach to Global Payroll Sourcing Strategy Highly successful organizations are rarely taking a single ideological approach to their global payroll sourcing strategy they tend to pursue a hybrid strategy to best meet the needs of the business. In this study, participants were asked to describe their primary global payroll sourcing approach and their responses were scored according to the following scale: In-house Vendor Software proprietary vendor software, licensed by the client and run in-house on the client s own servers Hybrid In-House and Outsourced Services a combination of both in-house run software and outsourced services through a third-party provider Hosted/ASP Outsourcing proprietary vendor software hosted by the vendor or by a third-party provider who provides basic processing services Managed Services Outsourcing outsourcing software with additional levels of service provided Full BPO Outsourcing The findings from this study clearly show that high-performing organizations are far more likely to pursue a hybrid strategy, balancing both in-house software and outsourced solutions as appropriate. are more likely (13%) to leverage a hybrid sourcing strategy balancing in-house functions with outsourcing as opposed to embracing one single approach. 5. Global BPO Doesn t Have to Mean Reduction in Force When pursuing an outsourcing strategy, financially successful organizations report significantly less headcount reduction and less need for staff role realignment in their local country payroll staff. Only 7% of high-performing organizations report that outsourcing resulted in some headcount reductions and none whatsoever report major headcount reductions as a consequence of outsourcing. In contrast, over half (53%) of low-performing organizations report headcount reductions as a result of outsourcing, with a third (33%) describing their headcount reductions as major. Only 7% of high-performing organizations report that outsourcing resulted in some headcount reductions and non whatsoever report major headcount reductions. Driving Globally Strategic Payroll 4
6. Fewer Vendors Drives Greater Effi ciency A major challenge to finding greater efficiency in delivering payroll services across a global enterprise is the dependency on local vendors to handle the diverse local laws and regulations that govern country payroll practices. Until recently, there were few providers available in the market that could provide payroll services across a large number of countries. are significantly more likely (42%) to be currently planning or in the process of reducing their number of payroll vendors to as few as possible across the globe. The vendor landscape within the organizations participating in this study was evaluated according to the following options: Multiple payroll vendors in each country Payroll vendors consolidated at the country level Several clusters of payroll vendors across the global operation Two to four payroll vendors that service the entire global operation One global payroll vendor for the entire enterprise While consolidating vendors is a solid method of pursuing greater efficiency, the Global Benchmarking Study finds that this process is still in its infancy., however, report that they are either planning to or currently in the process of consolidating payroll vendors, as opposed to low-performing organizations who report that they have no plans for consolidation. 7. Global HCM Key Platform for Employee Self-Service The Global Benchmarking Study found a very low level of self-service within global payroll. In fact, high-performing organizations are even less likely than the average organization to utilize employee and manage self-service from their payroll vendor. Through comprehensive discussions with participating organizations, it appears that most take advantage of the self-service functionality provided by their global HCM system. Most organizations have put in place key integrations between their HR and payroll systems (53%), so leveraging self-service from the HCM system provides a single and consistent interface for system users, lowering the learning curve and increasing adoption. are less likely (11%) to utilize self-service options offered by their payroll vendor, rather opting for an integrated approach within their HR system. 8. Metrics Matter Establishing a set of operational metrics is vital to processing quality control. However, some organizations are much better at using techniques such as root cause analyses and predictive analytics to help guide future decisions. Top-performing organizations in the Global Benchmarking Study are 23% more likely than low-performers to have a mature metrics framework, utilizing evidence-based methods for analytical decision support. Low-performing organizations report greater use of basic metrics and lagging indicators or, in many cases, no metrics frameworks in place at all. are more likely (23%) to employ advanced metrics to manage quality and make informed decisions about their global payroll operation. Driving Globally Strategic Payroll 5
9. Building a Global Mindset pursue innovation and efficiency by moving toward regional and global shared services centers. These organizations place greater emphasis on international, cross-cultural, and global payroll teams who are not solely focused on the clerical and operational tasks involved in supporting a single country. As discussed previously, high-performing organizations show fewer headcount reductions with outsourcing, indicating that their payroll staff is more likely involved in higher level strategic and process-oriented activities. are more likely (36%) to build a more global mindset across their payroll staff as compared to their lower performing counterparts. While most organizations in the study describe their payroll team members as having a local country mindset, financially successful organizations are significantly more likely (35%) to describe their teams as having a regional or global process-oriented mindset as compared to their less successful counterparts. Conclusion The notion of globally strategic payroll is indeed a paradox. Once largely considered a purely administrative function, global economic forces and technological advances have propelled payroll into becoming a genuinely strategic function within the organization. The constant charter to do more with less has led leading payroll executives to seek strategies to drive both efficiency and innovation in their payroll organizations. Creating global service delivery models with clear accountabilities at all levels of the organization, coupled with consolidation of vendors and the building of a global, mindset among the payroll staff, are clear pathways that high-performing organizations have chosen to achieve greater levels of efficiency, while controlling costs, reducing compliance risk and winning the never-ending war for global talent. 5 Recommendations to Drive Global Efficiency and Innovation Understand your organization s corporate strategy and business model and seek to implement practices that support its goals and strategies. Systematically involve your HR professionals from local and regional business units in strategic business planning efforts. Organize the HR function on a more global basis and standardize HR operations to improve processing, reduce costs, and drive business performance. Seek to be as global as possible, as local as necessary by evaluating which processes can bring the greatest benefit to your organization by being global and which ones make the most sense to keep local. Take a systematic and process-driven approach and evaluate HR functions processby-process to determine the highest priority processes for global integration and workflow-enablement. Driving Globally Strategic Payroll 6
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