What is HR shared services, and why are organisations such as IBM, BT, Shell International and the Royal Bank of Scotland attracted to the concept? Is it a pain-free solution to some of HR’s perennial problems, or are there dangers lurking for those organisations that blindly follow fashion and adopt it?

The Institute for Employment Studies (IES) has recently completed research on what the phrase “shared services” means to different organisations. It found the model hard to define. Two distinctive features are that it offers a common service provision, and that its customers specify the level and nature of the service. Advocates of shared services claim that common provision is different from traditional centralisation, because, as Dave Ulrich puts it, “the user is the chooser”. Content varies considerably from one organisation to another. Normally, administrative tasks – for example, relocation services, recruitment administration and training support – are included, but not always; some are outsourced or provided locally. Frequently a shared-services centre supplies information and advice on HR policy and practice to operational managers via a call centre and/or intranet. Pooled consultancy or project support may also be offered.

Most organisations that have opted for shared services have kept a small and distinct corporate HR group to focus on high-level strategy, governance and policy. The shared-services unit may be linked to this, or it may be part of a separate “professional” services division.

A third group of customer-facing HR staff, variously described as business partners/advisers or relationship/account managers, report either to individual business-unit managers or to the corporate HR group.

They support their operational clients on strategic development, organisational design and change management, calling on the shared-services centre to deliver other services.

The IES studied 15 organisations and found three main reasons for introducing shared services:
Cutting costs – by reducing headcounts through economies of scale; saving on accommodation charges; streamlining and simplifying services; and exploiting common buying power.
Improving quality – by being more consistent, timely and accurate through better processes; being more aware of best practice; being more sensitive to customer needs; and monitoring delivery.
Responding to (and leading) organisational change – by being part of a business-wide move to “professional” or functional services; achieving greater structural flexibility to align with business changes; improving organisational learning across boundaries; and repositioning HR as more strategic and less encumbered by administrative tasks.

Technology was sometimes a driver of change, as when a new computer system was being installed, but more often it was an enabler. Yet some elements of shared services were possible only as a result of technical innovations.

Despite all the advantages, there were a number of possible problems.

First, in creating shared services, a number of different customers have to be convinced of their merits. Some organisations admitted to paying insufficient attention to bringing operational managers on board. And senior management must not seize the financial benefits without appreciating the implicit change in HR’s role – it is all too easy to forget to see employees as customers.

Second, many organisations have found that it is HR professionals who are most resistant to change. They may fear losing their empires as work is transferred to the shared-services centre. They may not feel that they have the skills to focus on strategy and change management. They may not like the idea of working in a centre. They may miss the direct contact with their customers. And they may find that the variety of their work disappears as they focus on specific activities.

A third obstacle lies in dealing with technology. IT scares some HR people, but if call centres, work-flow management systems and intranets are to be used, there will need to be a proper investment in technological infrastructure.

A fourth danger is senior managers’ being too gung-ho about the benefits of the changes. Critics of shared services had a field day in one organisation that experienced problems when staffing levels were reduced before the new technology was fully operational.

Fifth, overreliance on technology can lead to a depersonalised service. This may be unwelcome to many HR staff who joined the function because they liked dealing with employees face to face.

When establishing shared-services centres it is easy to undervalue the knowledge and experience of administrators and the work that they do. One respondent described how administrative staff felt as if they were now “underdogs”. Another told me that the work lacked kudos.

Some HR managers and consultants talk of “getting rid” of the transactional activities. Refocusing resources on the “highest-value areas” may be a noble aim, but neglecting important administrative tasks can cause problems – senior managers do not take kindly to hearing that employees have not been paid on time.

One organisation that put cost-efficiency before continuity located its shared-services centre away from its incumbent administrators. This meant that new staff had to be recruited. They lacked organisational knowledge and awareness, and they delivered a poor service. The organisation is now considering outsourcing.

There are also deeper issues. Many organisations see shared services as a means of making HR more strategic and better attuned to business needs. But do personnel staff have the skills and the know-how to make this happen? Some organisations associate the satisfaction of employees’ needs with a welfare role. As such, it is devolved to operational managers or outsourced to a counselling agency. But it is HR’s knowledge of people that makes its contribution distinctive. If HR practitioners lose contact with employees, it becomes harder to “take the temperature” of the organisation.

And what of the relationship with operational managers? When HR is fulfilling its governance function, the operational manager is expected to accept that he or she is being told what is in the organisation’s best interests. In other situations it merely advises on good practice. HR’s priorities may be long term and corporate; the operational manager’s focus may be immediate and local. Which takes precedence?

Deciding who does what can also be difficult. Many new HR structures are heavily segmented, with clear rules. Yet this can create real problems about boundaries. One organisation that separated policy formulation from implementation found it hard to distinguish where one ended and the other one began. Fortunately, in that case, good personal relationships prevented a serious territorial dispute.

Communication can be harder, especially if there is geographical, as well as organisational, separation. One shared-services centre manager said that her team relied on being kept well informed of events on the ground. She gave the example of a maternity case in which an employee had a miscarriage. Clearly there is a need for careful knowledge management, otherwise information becomes segmented.

Two key skills issues may result from the advent of shared services. Some administrative jobs become so deskilled that they become tedious, making it hard to attract, retain and motivate staff. Automating or rotating these tasks may reduce boredom. The destruction of traditional career paths may also necessitate job rotation. Personnel assistants can no longer easily develop through the ranks to management positions. New ways need to be found to develop talent.

There is also a tension between achieving cost savings through greater efficiency and improving quality through meeting customer needs. Creating pools of consultants boosts efficiency, but, by providing generic advice that may not apply to the specific organisation, they can compromise customer satisfaction. One firm in our study realigned its consultants to business units – at the price of some cost savings – in response to customer complaints.

Another organisation now specifies which services are mandatory – for example, the payroll and records system – and which are optional – for example, the advice line. This division recognises where the efficiency gains must be secured and where customer choice must be enshrined.

Some issues, such as securing customer and functional support, relate to the transition period and can be tackled by proper planning. Others, such as behaving as a “joined-up” organisation and valuing the administrative contribution, are short-term headaches that develop into long-term problems if they are not resolved.

Of course, the advent of shared services leads to a more profound question: is HR really a customer-driven service? Centralising can bring many benefits, but the challenge for the profession is to agree a role with its many customers that adds value to the business. Shared services offers some options, but does not provide all the answers.

Further information
The research is about to be published as IES Report 368, HR Shared Services and the Realignment of HR. Copies can be obtained from Grantham Book Services on 01476 541080 (e-mail: orders@gbs.tbs-ltd.co.uk).

Centre of attention
What is it like for HR professionals who find themselves working in a shared-services centre? Who are they, what are their career prospects and how are they managed? Jane Pickard investigates

About 65 people wearing headsets sit at screens, taking phone calls and giving advice. The view of leafy Hampshire through the huge window that runs the length of the room may be better than the outlook that most people get from their office, but, when you first walk in, you can’t help wondering if this environment represents the nadir for the HR profession.

This is AskHR, IBM’s service centre covering Europe, the Middle East and Africa (EMEA). Its core function is to handle queries. Situated on the outskirts of Portsmouth, it looks and sounds like an average call centre, but all is not quite as it seems. This is an international and highly qualified workforce. Eleven languages are being spoken and each group of desks flies flags showing which nations are being served.

Most staff are involved in projects and are developing areas of specialism that take them away from the telephones for at least 20 per cent of their time. They are divided into basic-grade “generalists” on around £13,000 a year, who spend most of their time on the telephone and handle 85 per cent of the calls, and “specialists”, who are paid up to £30,000 and who spend only about 30 per cent of their time taking calls.

Many people will start their careers as generalists and move on to a specialist job before leaving the service centre altogether for more strategic work in the businesses. In the year since the centre became fully operational, two specialists have already left on promotions. Martin James, the centre manager, admits he was tempted to try to hang on to them, but he knows that good promotion stories help him to recruit talent. He expects some generalists to stay because they want that type of work.

Other people are there for the work experience before moving on to further study. Cecilie Kubberod, a Norwegian student, is spending a year at IBM before doing an MA in international relations and economics. She has three different areas of responsibility, centred on Scandinavia. “I’m on the phones to Norway, Sweden and Denmark,” she explains. “Second, I give advice on international assignments and, third, I co-ordinate internal recruitment. It’s not like a call centre, because you don’t give standardised answers. And they give you small projects to manage yourself.”

Natalia Sainz is one of the specialists, She spends most of her time developing her knowledge of what is going on in the organisation, finding out what HR customers need and managing projects. Sainz, who was brought up in Paris and Madrid, has an MBA from the European School of Management, which is based in four countries. She is only 27, but she has enough experience to propose her own ideas and project-manage them.

At her instigation, the centre produced a video and other publicity materials to tackle one of its early weaknesses: the failure to market itself adequately to customers. There had been complaints from surprised line managers, who had picked up the telephone to contact their local HR office in, say, Israel or South Africa, and found themselves talking to a Swede or a Spaniard in the UK.

Communication is one thing that James would improve if he were starting again. “We announced the changes, but failed to keep up the momentum of publicity,” he says.

The switch from a traditional corporate function, whether based at head office or working with business units, amounts to a radical re-engineering of HR. It may, as in IBM’s case, involve restructuring and redundancies. When the centre was established in 1998, only three people moved in from existing HR jobs scattered around Europe, while 12 British staff stayed where they were. Consequently, around 65 of the 80 people in the centre are new recruits. They were paid for by around 80 HR job cuts in the countries covered, including early retirement, redeployment and a few redundancies.

The company’s decision to move HR administration throughout the EMEA region into a single centre was made largely to cut costs. By July last year, 90,000 customers in 15 countries were being served by AskHR. As others come on stream, staff numbers in the centre will rise to 120.

IBM also wanted to separate strategic issues from day-to-day tasks. “In the past, you were talking to someone one minute about the future of the business,” James says. “And the next you would be answering questions about form-filling and ‘Can I have a blue car?’ and you got completely bogged down with this stuff.”

The final reason was organisational. HR was a country-based function supporting an international business divided into customer-facing units. The change split those left behind in national teams into strategic HR partners serving business teams, and specialists reporting to a process owner, such as head of recruitment. Both structures span the EMEA region.

But the move has been difficult both for the existing HR staff and for the people who work with them. James says the change needs “a firm executive boot. It’s difficult to do and needs strong leadership from the top, because some people in HR are almost religious about the notion that the only way to deliver HR services is face to face.”

Ray Leighton, “e-HR executive” for EMEA, adds: “It’s a bit like turkeys voting for Christmas. Some people will lose out, some will gain.”

James “sells” these new jobs, which some people might perceive as low-status posts, by stressing their importance to the business.

One company that has made a huge effort to publicise and explain its establishment of a service centre – and to manage the expectations of HR staff and their customers – is JP Morgan. The London office of the US investment bank has been providing work shadowing and training in its new HR client centre since it was set up 18 months ago.

Alongside a marketing drive, customers were invited to meet people in the centre. The term “client centre” was chosen deliberately to emphasise the professional nature of the job, although the term “call centre” is used for the section that fields telephone inquiries. Most HR staff, including Rita Carrig, the centre’s manager, have done a stint on the telephones to find out what is involved.

“Throughout last year we had – and continue to have – visits and half-day work-experience sessions in the client centre. We have been able to educate people about the work we are doing,” she says.

The aim is to keep people in the call centre for only nine to 12 months at a time. “It was definitely a fear that people thought they would get stuck in the call centre,” Carrig says.

And there is a conscious move to provide a career path from the basic provision of information over the telephone, into a more specialist role (still in the client centre) and then to become what are called “generalists” – HR professionals working within business units on strategic issues such as organisation development and employee relations. One woman has already taken that route.

Perhaps because JP Morgan does not expect to keep people on the phones for long, it is upfront about naming it a call centre. But most managers of HR service centres are highly defensive about the term. In the case of
PowerGen, it would be quite misleading. In fact, so remote is PowerGen’s concept from the IBM model that some HR professionals deny that it is a service centre at all.

PowerGen’s HR reorganisation arose from the company’s strategy, after the privatisation of electricity in 1989, of turning every part of the business into a profit centre. Part of the corporate personnel function was devolved to power stations. Then, in 1992, the HR operational side remaining at head office was split from the strategic group and turned into a separate enterprise, chiefly serving the existing business units. It also took over the payroll for the whole organisation.

The centre provides HR services, mostly under annual contracts, for about 40 business units, each covering from six to 600 people. But Mike Peachey, who manages the centre, is scathing about delivering HR over the telephone. He believes that, in PowerGen’s culture, face-to-face interactions are the key.

This is partly driven by the knowledge that, if his centre does not provide value for money, the customers, who are the managers of the 40 business units, can go elsewhere. Part of the added value of his service is the personal touch. Emphasis on customer service is so strong that the first thing Peachey did after setting up the centre was to put all staff, including himself, through a TMI Putting People First programme.

The other key differences between PowerGen and IBM are size and geography. Most of Peachey’s customers are based in the same Coventry head office as his centre, with the most of the rest in London. Because the building is modern and open-plan, constructed around an atrium, they can even see their customers from their desks.

“We know these people. We bump into them at the coffee machine or in the atrium,” says Annette Capper, who heads the six-person recruitment and selection team in the centre. “Because they are our customers and we offer a service, it’s very important for them to put a face to a name. Also, you can discuss things much more than you can on e-mail. Hopefully, they have more confidence in the service we provide as a result.”

Capper started work in the industry as a secretary and moved into the centre when it was formed. She has now become an expert in applying psychometrics.

Peachey says that the service centre offers a “practical, operational, service job”. It’s also a good “sheep dip”, he adds. Many graduate trainees are given a spell here before moving to other HR roles.

Like Peachey, Tony Barron, manager of BG Transco’s HR service centre, has a more traditional view of customer service than that held by IBM or JP Morgan. “We are not a call centre,” he says. “We haven’t got people sitting with headsets on. We are staffed with ‘traditional’ HR professionals. People can talk to us on the telephone or they can visit.”

BG Transco’s service centre was due to be fully operational from June, with offices in Solihull and Hinckley in the Midlands, where many staff are located. The company, which installs and maintains gas pipelines, has 14,000 employees scattered over the UK, mostly based in 16 administrative centres, where most of the 100-strong HR function was located in the past.

Now, the administrative aspects are handled by about 25 people in the service centres, leaving a small number of HR operational people (“consultants”) in the business to deal with employee relations, recruitment and other issues. There is also a team of HR strategists at head office. There have been redeployments, but no redundancies.

The move was made partly to cut costs and partly because the company wanted to “stop the professional people getting involved in administrative work”. That doesn’t mean, in Barron’s opinion, that people will meet career dead-ends in the centres. “We encourage them to do CIPD qualifications and try to get them on secondments to the operational side,” he says.

Barron sees the centre as “the nursery for our future HR consultants, although some people may want to start their careers here and stay here”.

It is clear that more people pursuing HR careers in large organisations are going to find themselves starting off in a service centre – or even a call centre – where they may not be close to the customer. But none of the centre managers who spoke to People Management saw this as a bad thing. Service centre staff gain breadth of knowledge and, using computerised tracking systems, they are able to obtain statistics on service problems that can be fed through to policy designers. And they will talk to the “grass roots” of the business even if they never meet them.

“If you structure it right, you get the strategic people much closer to the grass roots than in the past, because they have more intelligence,” James says. “The old management-by-walking-about might sound good, but often it meant sitting in a meeting and getting a feel for employee opinion by listening to the person who blabbed the loudest.”
Only time will tell whether re-engineering in HR will succeed where, in so many other business processes, it has failed to deliver.

Further information
For more details on IBM’s service centre, contact Ray Leighton on 01962 816019 (e-mail: ray_leighton@uk.ibm.com).