GLOBAL PAYROLL BENCHMARKING STUDY UPDATE By Karen Beaman, Jeitosa Group International Introduction Shared Services delivery models have continued to expand and mature in recent years as organizations look for more efficient and cost-effective models to manage their global operations. According to Deloitte s 2013 Global Shared Services Survey, the total number of Shared Service Centers increased 15 percent between 2011 and 2013, with the most significant increase seen in South America, specifically Brazil. The Deloitte study also found that close to 60 percent of these organizations have been operating in a Shared Services model for less than five years, underscoring the newness and evolving nature of the Global Shared Services model. In fact, we are now seeing the next evolution of Global Shared Services, called Global Business Services, moving into mainstream adoption. So how do we define this new model of Global Shared Services and how is it different from other traditional global shared services models? We propose the following definition: Global Business Services (GBS) is a global shared services model that covers multiple functions, geographies, and businesses, generally with multiple centers and diverse sourcing strategies, yet all coordinated, integrated and standardized globally. GBS is an internal organization, governed by corporate leadership, generally reporting to the Chief Operations Officer or Chief Executive Officer, that offers the management of common, back-office functions, such as human resources, accounting, procurement, legal, etc., on a fee-for-services rendered or on a corporate cost allocation basis, for multiple lines of business across the global enterprise. According to the Deloitte study, 25 percent of organizations have transitioned to an independently managed global shared services organization, mirroring the findings from Jeitosa s Global Benchmarking Study which shows 21 percent of participating organizations in a global shared services structure. This report focuses on how Global Business Services (GBS) organizations structure and manage their global payroll function. It addresses the question, what do these organizations do differently from other types of organizations in managing their global payrolls. We look at ten factors that GBS organizations do more of than their local, regional, or global HR or Finance-driven counterparts. The data presented are drawn from 75 Fortune 1000 multinational organizations participating in Jeitosa s Global Benchmarking Study. Details on the demographics of these participants, as well as detailed data tables, can be found in the appendix of this report. The following graphic shows a summary of the factors evaluated for this study and how they differ between Global Business Services organizations and other service delivery models. As is evident from this analysis, Global Business Services organizations show greater levels of globalization, consolidation and standardization as well as higher levels of formal quality methods and advanced metrics framework, than all other models. Additionally, we see that GBS organizations exhibit greater business performance, measured in terms of revenue growth and income growth, as opposed to other organizational models. This report reviews each of these factors in turn and discusses implications for organizations considering a move to a Global Business Services model. Jeitosa Group International July 2014 Page 1
#1 Global Governance Model In Jeitosa s Global Benchmarking Study, 60 percent (45 organizations) have some type of global governance model, and 16 percent (12 organizations) are in Global Business Services structure. As defined above, GBS organizations have tiered global service delivery, providing business services globally, regionally, and locally, and most importantly, they are globally governed via a direct reporting line into corporate headquarters, generally the Chief Operations Officer, the Chief Financial Officer, or perhaps the Chief Executive Officer. A strong, direct corporate reporting line allows GBS organizations to make tough, often unpopular, decisions that bring greater efficiencies to the organization. #2 Global Service Delivery Model The majority of organizations in the Global Benchmarking Study have some type of global service delivery model, 61 percent (46 organizations). In the current study, 20 percent (15 organizations) operate a purely local structure, while the majority (55 percent, 41 organizations) operate in a hybrid model of local, regional, and global services. Global Business Services organizations, in particular, are significantly more likely (30 percent more) to have a well-defined global service delivery model in place. The remainder of this report addresses the cross-section of organizations that operate with a global corporate governance model and with a global service delivery model and explains what these organizations do differently from all others. #3 Formal Quality Methods GBS organizations are more likely to have implemented more formal and structured quality methods to ensure standards are in place and followed (17% more likely). Rather than relying solely on vendor generated reports or standard audits and controls, GBS organizations are more likely either to have developed their own formal quality methods or to follow an external methodology, such as lean or Six Sigma, to support their efforts toward global standardization. #4 Global Standards GBS organizations are significantly more likely to have standardized their payroll processes globally (22% more likely). Standardized global payroll processes generally involve front-end data collection processes, such as time entry, validation, and approvals, as well as back-end payroll processes, such as reconciliation, auditing and reporting. Standardized processes bring greater efficiencies and provide more flexible staffing models allowing positions to be more easily consolidated and interchanged across countries. Jeitosa Group International July 2014 Page 2
#5 Primary Sourcing Strategy The majority of organizations leverage a hybrid sourcing strategy for global payroll, that is, some combination of local, in-house software, hosted/outsourced software, and/or full managed services payroll. GBS organizations appear to be somewhat more likely (12% more) to outsource and take advantage of managed payroll services than other organizations who may have a larger percentage of local, in-house solutions across their countries. #6 HR/ Integration GBS organizations tend to have a slightly higher level of integration between HR and systems (11% more likely). Close to half of organizations (49 percent) have already put key integrations in place for their major countries. Most organizations comment that there is little return on investment in taking HR/ integration to a broader group of countries. Clearly greater efficiencies and higher quality can be attained through more tightly integrated systems, however the technical challenges in achieving this across disparate systems and diverse platforms appear to be greater than the perceived benefits. #7 Advanced Metrics Framework An advanced metrics framework for the global payroll function is significantly more common with Global Business Services organizations (24% more likely). Because of their strong focus on efficiency and effectiveness, GBS organization are more likely to have developed global, executive-level dashboards with real-time insight into their payroll processing, country by country, ranging from the status of the payroll runs to quality metrics such as number of re-runs, off-cycle payments, penalties paid, etc. #8 HR/ Automation GBS organizations are significantly more likely to have automated more parts of the global payroll function (25% more likely); in particular, they exhibit higher levels of employee and manager selfservice, some with mobile, portal, and social access to activities such as viewing payslips online and changing direct deposit information. Clearly higher levels of automation reduce the amount of manual effort involved, bringing greater efficiencies in terms of time and quality across the organization. #9 Global Vendors GBS organizations are more likely to have consolidated their payroll vendors to as few as possible, ideally two to four globally (15% more likely). While the holy grail of having one single global payroll vendor for all countries is not yet on the horizon, fewer vendors allow organizations to leverage economies of scale in pricing and provides a more consistent platform for other critical activities, such as implementing standards, quality methods, and advanced metrics. #10 Global Mindset Global Business Services organizations are slightly more likely to exhibit a broader global mindset (7% more likely) than their counterparts working in more traditional and localized service delivery models. Individuals with a global mindset tend to take a more strategic, global, and process-oriented view when seeking solutions to day-to-day problems. A global mindset opens up opportunities for finding new and improved ways of doing business by leveraging best practices from all corners of the organization. Financial Growth One final area we consider for this report is the financial performance of the participating organizations in this study. The Global Benchmarking Study looks at revenue and income growth for each of the Jeitosa Group International July 2014 Page 3
organizations in the study in the current year over the previous year. Quite interesting, although perhaps not surprising, GBS organizations exhibited significantly higher revenue growth, 17 percent on average (55% more), as well as income growth, 23 percent on average (76% more). While we are always left with the question of which came first, the chicken or the egg, the correlations are too strong to ignore. Successful organizations follow successful strategies, and, as this study has shown, Global Business Services is clearly a successful business strategy that more organizations should look to adopt. Conclusion To conclude, the evidence is clear: Global Business Services organizations can bring greater value to the organization as measured in terms of efficiency, effectiveness, innovation, and financial growth. While one organization may not be able to implement every recommendation in this report, the road to effective global payroll is a journey. Begin with the end in mind and take whatever baby steps you can to move your organization along in the right direction to greater overall effectiveness. The rewards will be well worth the effort. Appendices The following sections provide more detailed information to support the discussions and findings presented in this report. Study Demographics Participants by Industry Participants by Employee Size Global Benchmarking Study Questions 1. Global Governance Model: What is your governance model for global payroll, e.g., centralized or decentralized leadership? HR, Finance, or Corporate services? 1 = Local, Governed by Country 2 = Hybrid, Local/Regional/Global 3 = Global, Governed by HR 4 = Global, Governed by Finance 5 = Global, Governed by Corporate 2. Service Delivery Model: What service delivery model do you follow for global payroll, e.g., shared services, in-country operations, hybrid approach? Jeitosa Group International July 2014 Page 4
1 = Local Country Operations 2 = Hybrid - Local and Regional 3 = Hybrid - Local and Global 4 = Hybrid - Regional and Global 5 = Global Shared Services 3. Formal Quality Methods: Are there any external tools or methodologies that help you drive common processes and consistency in payroll? 1 = None 2 = Reports / Technology Framework 3 = Control / Audit Framework 4 = Internal Process Framework 5 = External Methodology (6Sigma) 4. Global Standards: How common are your business processes across countries? How many/which processes, e.g., time collection, reconciliation, taxes, reporting. 1 = Minimal Standards 2 = Standardized within Country 3 = Standardized with Region 4 = Emerging Global Standards 5 = Full Global Standards 5. Primary Sourcing Strategy: What is your primary solution strategy for global payroll, e.g., inhouse software, outsourced, custom-development, opportunistic, no particular strategy? 1 = In-house Vendor Software 2 = Hybrid - In-house and Outsourced 3 = Hosted / ASP Outsourcing 4 = Managed Services Outsourcing 5 = Full BPO Outsourcing (COS) 6. HR/ Integration: How integrated are your different payroll and core HR systems of record? 1 = Significant Manual/Excel Uploads 2 = Standard Uploads/FTP Integration 3 = Key Integrations in Place 4 = Full Automated Integration (>80%) 5 = One Single System 7. Advanced Metrics Framework: Beyond what you get from your vendors, what types of metrics do you use to measure the effectiveness of your payroll organization, globally and locally? 1 = None, beyond vendor provided 2 = Basic Framework (Lagging) 3 = Emerging Framework (Controls) 4 = Advanced Framework (Root Cause) 5 = Mature Framework (Leading) 8. HR/ Automation: How automated are your payroll processes? What is done manually? What is workflow-enabled? Do you have portal, mobile, social access? 1 = Significant Manual Processes 2 = Automation with Some Workflow 3 = Automation with Full Workflow Jeitosa Group International July 2014 Page 5
4 = Full Workflow with Portal Access 5 = Full Workflow with Mobile Access 9. Global Vendors: Who are your primary payroll systems or vendors regionally and globally? Roughly, how many payroll systems do you have worldwide? 1 = Multiple Vendors per Country 2 = Vendors Consolidated by Country 3 = Several Vendor Clusters 4 = Two-Four Vendors Globally 5 = One Vendor Globally 10. Global Mindset: How would you describe your payroll staff? What do they do well, what do they not do well? Country-focused, regional or global mindset? 1 = Local Clerical Mindset 2 = Local Country Mindset 3 = Regional Mindset 4 = Global Process Mindset 5 = Global Strategic Mindset Global Business Services Detailed Data #1 Governance Model Description #2 Service Delivery Model #3 Formal Quality Methods #4 Global Standards #5 Primary Sourcing Strategy #6 HR Integration #7 Advanced Metrics #8 HR Automatio #9 Global Vendors #10 Global Mindset Revenue Income n Growth Growth 1 Local, Governed by Country 13 1.54 2.46 1.92 2.38 2.46 1.62 2.08 1.46 1.77 4.86 0.71 2 Hybrid, Local/Regional/Global 17 2.41 2.88 2.12 3.00 2.82 2.18 2.35 2.71 2.24 3.29 24.95 3 Global, Governed by HR 16 3.94 3.56 2.63 3.25 3.31 2.81 2.13 2.50 2.38 8.79 7.26 4 Global, Governed by Finance 13 4.08 3.00 3.46 2.69 2.54 2.46 2.31 2.92 2.69 15.55-19.27 5 and 1-2 Global, Governed by Corporate, Local SDM 4 1.50 4.00 3.75 2.75 4.00 3.25 2.50 3.50 3.00 10.85 10.50 5 and 3-5 Global, Governed by Corporate, Global SDM 12 4.17 3.67 3.33 3.25 3.25 3.08 3.00 2.92 2.50 16.93 23.13 Average of Others 63 2.90 3.06 2.59 2.86 2.89 2.35 2.24 2.49 2.32 7.68 5.58 GBS Diffference from Others -1.27-0.61-0.74-0.39-0.36-0.73-0.76-0.43-0.18-9.25-17.55 GBS% Difference from Others 12 30% 17% 22% 12% 11% 24% 25% 15% 7% 55% 76% p= 0.003 0.123 0.045 0.147 0.145 0.027 0.010 0.145 0.287 0.023 0.215 About Jeitosa Group International Jeitosa Group International (www.jeitosa.com) was founded in 2004 as a global advisory and systems deployment firm servicing organizations across the world in the areas of human resources, finance, and information technology. Jeitosa is a global organization with 50+ global business advisors covering 20+ countries focusing on the mission critical challenges and issues organizations face as they grow challenges and issues that are local, global, regional, and transnational. Our expertise centers around three global areas. In our Strategy practice we help global HR organizations create and achieve their vision by supporting effective strategic planning, business case development, shared services deployment, change management, and other strategic business services. Our Deployment practice supports organizations with the implementation of best-in-class global HR and solutions. Our Communities and Research practice promotes leading-edge research and fosters learning and networking opportunities for global HR organizations and professionals. Jeitosa Group International July 2014 Page 6