Analysts, industrialists and academicians are of the opinion that a strategic mix of shared services and outsourcing is the new model that is driving HR teams in global organisations to achieve and sustain excellence. However, what is yet to be understood is whether outsourcing is really the pathway towards
attaining competitive advantage. Today, transformation of HR operations has shifted the focus from a traditionally reactive and administrative function to one that is tightly connected to the business. The effect of this strategy is significant in making it possible for businesses to respond to market and human capital changes more rapidly.

When AT&T enters into a seven-year outsourcing contract with Aon Consulting for combining the talents of its human resources and payroll organisations with Aon’s core competencies in employee benefits, compensation, employment and other services – what is their prime motive? Most certainly, the obvious answer would reflect the basic principle kkore on its core competencies.” Initially, outsourcing was done mainly to bring down costs, however, a changing feature of outsourcing today is that it no longer involves only low-key operations. Increasingly, services that are being outsourced are those that require highly skilled and qualified personnel who are able to provide the service quality standards required and this has led to a increase in the outsourcing of human resource services.

Today, human resource professionals are expected to deliver more advanced and differentiated human capital skill sets, create and maintain high performing workgroups, offer technology platforms with increased functionality and direct access to information as well as partner with business leaders to align people strategies with business goals in order to achieve corporate initiatives. Dave Ulrich, a leading scholar in human resources, recently wrote that the competitive forces that managers face today and will continue to confront us in the future demand organisational excellence. The efforts to achieve such excellence – through a focus on learning, quality, teamwork and re-engineering – are driven by the way organisations get things done and how they treat their people. Those are fundamental human resource issues. To state it plainly: achieving organisational excellence must be the work of HR. The
question for senior managers, then, is not ‘should we do away with HR?’ but ‘what should we do with HR?’ The answer perhaps is to create an entirely new role and agenda for the field that focuses not on
traditional human resource activities such as staffing and compensation, but on outcomes. HR should not be defined by what it does but by what it delivers – results that enrich the organisation’s value to customers, investors and employees.

In order to achieve its strategic business objectives such as initiate top-line revenue growth and shareholder value, management of human capital has become critical. The current rate of economic, competitive, and political change demands cost flexibility in all functions of business. The mandate for the HR function is to work better, faster and cheaper. However, this changing role of HR is perhaps not well understood by all.

A research done by Mellon Human Resource shows that it is only through a focused approach to ‘HR shared services’ that companies can accomplish the imperatives demanded of the human resource leader. Today’s organisation’s can no longer maintain the status quo in HR service delivery. HR no more identifies with its traditional reactive and administrative nature and there has been a clear shift in its focus to HR being very tightly connected to the business. The effect of this transformation is significant in making it possible for business to respond to market and human resource changes more rapidly.

Our new model for organisations today is an offshoot of the obvious understanding that the traditional model of HR does not align with the evolving demand to achieve organisational excellence. A common theme has emerged towards decreasing the size of the HR function while moving transactional activities “out” and, therefore, deploying fewer human assets to perform these activities by outsourcing, leveraging technology and creating common approaches, processes and practices. This role of HR shared service, therefore, affords more time to organisations that can be utilised for strategic issues.

Changing Role of HR
This changing role of human resource is the answer to attaining a competitive advantage in the present market scenario, and this is reflected in the fact that more and more companies today are resorting to outsourcing of its HR services in order to keep pace with the competition and afford effective management of its human resource as a prime asset of the organisation. HLL (Hindustan Lever Limited) is perhaps one of the greatest examples of HR evolution. Being one of India’s oldest organisations with its traditional culture, Hindustan Lever has gone on to launch Hindustan Lever Network (HLN), a unique
network marketing opportunity that aims to be the most preferred business opportunity by partnering its consultants and providing them with a business and self-development opportunity that is truly rewarding.

As a result of this diversion, Hindustan Lever Network has identified the need to be excellent in every aspect. Since it’s core competency lies in business and products, HLN has started resorting to outsourcing of all other functions to devote more time to its strategic issues, reduce fixed cost and also initiate diversion of non-creative and non-business activities to outside agencies. It is this desire for excellence that it has led Hindustan Lever Network to acknowledge the growing importance of sharing human resource services. In this context, Hindustan Lever Network has approached Planman Consulting Group to outsource its entire training activities.

The Planman-HLN association which has been formed to outsource HLN’s entire training activities to Planman Consulting is one of HLN’s initiatives to make time to concentrate on its core functions. To illustrate further the contention behind this association, HLN does not have expertise or related research in training and development while Planman-IIPM not only has the necessary expertise and reosurces, but at the same time induces cost reduction for HLN as compared to the investments HLN would otherwise bear if they were to do this in-house.

Quite simply, adoption of this “new” model improves the ratio of human assets Over the years, a variety of models have been designed, considered and even implemented in an effort to achieve this transformation towards HR outsourcing. Perhaps most recognisable to HR executives is the seemingly constant swing between centralised and decentralised models. In the past, organisations believed they could benefit from economies of scales with ful­ly centralised HR services. On the other hand, however, the gain in flexibility to meet unique business-unit requirements related to decentralised service delivery car­ries higher cost and duplication of effort.

Many organisations that have experi­enced this swing between centralised and decentralised operations are familiar with the results. One particular note is the belief of employees that the company lacks a com­mon culture or brand. Instead, the heavily decentralised organisations find that busi­ness units create duplicate and contradic­tory HR practices, policies, processes and procedures. These differences across the company are not business requisites, rather the result of history, individual preferences and experiences. Shifting the focus of HR enables the organisation to direct attention on customers’ needs that include creating a company brand identity through leveraging economies of scale.

To realise the benefits of both models, companies are shifting to the shared serv­ice approach that enables streamlining of processes across multiple units or locations while maintaining customer focus.

This approach to HR-shared services be­comes the critical lever empowering human resource leaders to support their businesses in a way as to advance the enterprise’s stra­tegic objectives. The HR-shared services model has been employed by many lead­ing companies to increase quality, improve service, and reduce processing cycle times as well as expense. For example, various human resource shared services models are found at IBM, Royal Bank of Scot­land, Lockheed Martin, Warner Lambert, Hewlett-Packard, Sears and Boeing.

The range of activities from transaction­al to HR expertise to business partners is vast. In our experiences to date, the major­ity of field-based HR staff have focused on the transactional activities, leaving little or no time available for partnering with the business or bringing depth of expertise around strategic human capital issues like employee development. Shifting transac­tional activities to technology and shared service organisations enables the organi­sation to take advantage of economies of scale and, therefore, affords the field-based human resource staff more time to truly focus on those activities at the business partner end of the spectrum.

Today, HR managers in the business units are increasingly called upon as stra­tegic business partners. But what do we mean by a strategic partner? The future HR business unit manager’s role encompasses six key areas of partnership (leadership development, strategic business partner, employee relations, talent management, HR functional specialists and change manage­ment consultant).

To accomplish these new roles, most HR departments require fundamental change and growth of competencies. The Society for Human Resource Management (SHRM) Foundation completed an effort comprising many years of data collection with major global companies that included General Electric, Westinghouse, , AT&T, PepsiCo, Mobil, Oracle, ICI America, LL Bean, etc. The research culminated in a de­tailed HR competency framework reported in 2000. The framework, which is divided into three domains – core, role specific and level-specific competencies – provides a powerful foundation towards achieving the necessary capabilities to achieve HR and organisational excellence.

The roadmap to human resource trans­formation is made up of many critical ac­tivities that serve to help organisations understand the current state, envision the future, build the model, validate the vi­sion, and implement the new HR service delivery approach.

The advent of technological advances has made it possible for a shared services function to have immediate and accurate knowledge of local policies, procedures, employee history and special arrangements,

thus enabling a centralised function to pro­vide customised service rather than “one-size-fits-all” service.

Also, employees and managers are able to readily access and manage information without HR intervention. The use of direct access (sometimes referred to as self-serv-ice) is a key factor in the redistribution of activities performed by HR. Transactional activities are performed under a tiered service delivery model in which technol­ogy provides the first level of support to HR’s customers. A customer-focused service centre provides the next level of support and relatively few issues escalate to human resource specialists.

Our experience demonstrates that lead­ing HR organisations are restructuring op­erations and leveraging benchmark data to set aggressive and achievable targets to reduce cost – but more importantly create long-term value. Successful transformations rely upon a combination of benchmark tar­gets and better practices rather than any single measure.

Consulting firms such as Mellon Hu­man Resource and Financial Services, An-swerThink’s Hackett Group and others have core capabilities in assisting organisations to identify the current HR operating cost baseline by analysing budgeted and hid­den costs to deliver HR services. Executives must recognise the value of benchmark data in enabling solid decision-making that is tightly connected to the baseline data and benchmark comparisons. Targets for service improvement, cost reduction and efficiency in advancing HR’s role must be closely tied to the baseline data.

In fact, most of our clients today are heavily focused on targeting cost reduction while actually improving the quality of hu­man resource service. Growing competition has changed the focus towards a more cus-tomer-oriented approach of doing business where excellence in customer satisfaction is the key to retaining one’s market share. Under such a scenario, it is evident that a lot of time needs to be invested in instilling a more customer focused approach.

The growing importance of people serv­ice in business today has made it imperative for organisations to resort to HR-shared service which promises a specialist’s deliv­erance of every human resource function. Business today has realised the essence of the people factor in organisations as being closely related to its strategic business objectives. The new model which Mellon Re­search proposes in this paper will perhaps prove to be a guideline for companies today to withstand the implications of facing the changing role of HR in business.

Although most organisations have recognised the need to make this change and, therefore, accept the new practice of HR-shared services, there is still a question regarding which human resource activity to outsource. The new model proposed here­in clearly defines the correlation of each function and its effectiveness as a result of outsourcing. Excellence in implemen­tation of this new concept is the key to ensure effectiveness of this change. It is not just about cutting cost but a pathway to leverage excellence in efficiency by way of HR-shared services.

The article is co-authored by Casey F. Tho­mas, Arthur Mazor of Mellon Human Resources and Investor Solutions, Boston & Rajlakshmi Saikia, Indian Institute of Plan­ning & Management, New Delhi, India.

Reference
Thomas F. Casey and Arthur Mazor; Trans­forming The Human Resource Function Through Shared Services; Human Re­sources and Investor Solutions, Boston News release, May 29, 2002, AT&T Signs Outsourcing Agreement with Aon Corp.