Current trends and recent experience: ► Challenges affecting HR today ► Anticipated benefits from HR service delivery model transformation ► HR transformation experience and lessons learned

1. 2012 Human Capital Conference
23–26 October
Service delivery model
t f ti
transformation

2. Disclaimer
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Page 2 Service delivery model transformation

3. Presenter
► Tom McCabe
► Ernst & Young LLP (UK)
► tmccabe@uk.ey.com
Page 3 Service delivery model transformation

4. Agenda
Current trends and recent experience:
p
► Challenges affecting HR today
► Anticipated benefits from HR service delivery model
transformation
► HR transformation experience and lessons learned
p
Page 4 Service delivery model transformation

5. Challenges affecting HR today
Business imperatives HR challenges
• Deliver services locally via a global model
Market reach: • Alignment with business expansion and contraction
• Source and sustain a global talent pool
• Increased complexity of HR regulatory environment
• Flexibility of HR operating model to support rapid deployment
Operational agility:
• Achieve and maintain consistency from transformational efforts
y
• Data and analytics to support business decisions
• Sustain return on investment (ROI) on transformation
Cost competitiveness: • Further demand for HR cost reductions
• Need for global standardization
• Demonstrate strategic and operational value delivered
• Prior HR transformation results not sustained
Stakeholder confidence:
• Customer confusion with HR access points
• Protect the brand – manage compliance to minimize risk
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6. Classical HR service delivery model
Key capability
Classical HR service delivery model
Shared services/outsourcing Business partnering Centers of Expertise (CoE) Policy and strategy
Corporate strategy and policies Centers of Expertise CoE deliver centralized
organization with deep capabilities
i ti ith d biliti
difficult to fund and staff within
Value business units; address business
added Shared services is the framework for:
needs for specialization,
framework for cost-effectively delivering common
leveraging a critical mass of these
and transaction-based services; addresses
transaction based
capabilities across the enterprise.
transaction support requirements, enabling the
HR business partners to focus on building a
Solutions
strategic partnership with their internal business consulting
customers. and advisory
Nature of
activity Life cycle and
people care
services
Transaction processing services
Local HR
(business partners)
Transactional
Low Complexity of interaction High
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7. Anticipated benefits of the model (1)
Opportunity
► Delivering economies of scale
► Delivering efficiencies through process improvement and standardization
Reduced costs: ► Reducing cost per head by moving to a low-cost location and eliminating duplication
► Reducing facilities costs by moving away from current location(s)
► Enabling the business to improve capital and expense management
► Centralized infrastructure that is flexible to changes in business need, structure and volumes
Greater flexibility: ► Ability to add new value-added business activities without proportional infrastructure costs
► Business unit/front office staff can focus on value-adding activities
Increasing
► Improved service levels enhancing customer retention
revenues: ► Improved tax positioning
► Specific service levels
► Improved operational risk management
► Focus on continuous improvement
Higher quality: ► Improved performance management
► Improved compliance with Sarbanes-Oxley (SOX) through standard processes
► Improved overall governance
► Greater emphasis on value-added activities
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8. Anticipated benefits of the model (2)
Opportunity
Standardized ► Reduction in variation can reduce complexity and the level of effort
processes: ► Increased opportunities to automate may result from common processes
Improved ► Merger and acquisitions demand leverage of synergies and a fast integration
responsiveness of the new companies
to competitive ► Ability to scale with anticipated growth from improvement in global economy and oil and
pressures: g
gas sector
Global ► Seamless and uniform global corporate services
operations: ► Increased flexibility for borderless operations
► Enhance the ROI of existing and new IT implementations
Leverage
► Realize cost savings and avoid additional expenditures through elimination of system
technology: redundancies
Reduce ► Shared processes and responsibilities decrease concerns with SOX compliance
compliance risks: ► Changing legal requirements are easier to implement in a shared environment
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9. HR transformation experience and
lessons learned

10. Challenges our clients are facing in HR
service delivery transformation
Issue Potential measures to address
Shared services: Regionalize
 Not achieving cost savings Consolidate with other back office
 Seen as reduced quality service Expand scope
Outsource, offshore
Support with technology to drive consistent processes
Centers of Expertise seen as “i
C t fE ti “ivory t
tower” and remote f
” d t from Understand
U d t d model and purpose t ensure fit f purpose
d l d to for
business Consider virtual CoEs to maximize talent while keeping close to
business
Business partners not respected: Upgrade skills with business focus, consulting skills
 Still undertake administrative work Equip with analytical tools to p
q p y provide business insight based on
g
 Do not understand business people information
 “Follow” business rather than lead and add value
Dissatisfaction with outsourcing provider(s) Insource or renegotiate
Outsource on point basis not wholesale
Lack of take-up/frustration with self-service Review user experience design
Consider whether Manager Self-Service (MSS) appropriate
HR still perceived as administrative function Outsource value-added roles
Use savings to invest in value-added roles rather than taking
the profit
Confusion or lack of acceptance of model Focus on clarification and communication of design
Inability to support HR transformation because HR has too Demonstrate and make case for value of transformation
much else to focus on
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11. Why does HR service delivery
underperform?
HR shared services have been seen as a key potential
driver behind the decrease in HR operating expense as
a percent of revenue over the last 10 years.
Typical service center “failure spiral”
Service delivery People and skills Strategy and service
p
implementation
Colocation of processes, no reengineering  Key person dependencies  Deliverymodel not optimized – mix
 Inadequate skills – some deep of transaction processing and
Continued process “bespoking” technical expertise may exist but expert activity
overall insufficient management  Strategicpriorities not defined –
Business unit process duplication capability (and not all deployed in model covers both “scale” and
right roles) “expertise” activities presenting
 Mi i
Minimal
lb i
business k
knowledge – littl
l d little challenge for further cost/scale
Loss of touch and trust with business staff movement to/from business improvements
Business areas
Service information
breakdown Information issues —
quality Processes and controls Systems and technology
“different versions of the
challenge
truth”
Process  “Processsilos” with significant  Complex and poorly integrated
Cost-efficiency
Cost efficiency complexity i each – weak li k
l i in h k linkages systems environment – d i i
i driving
breakdown
challenge Staff morale declines — across teams significant reconciliation activity
“staff sink”  Postmigration process  Weighted or planned investment
Control reengineering not completed not delivered – e.g., large scale
lost Difficult to  Weak process control and SAP/ ORACLE implementations not
respond to associated control environment carried out
major change
change, complex with weak assurance  Systems standards not adhered to
Organically evolved SOX issues new info process
HR functions, requests
skilled but cost Cost growth
inefficient organization and governance Location and site
 Governance not robust – seen as  Site not optimized for cost/ability –
remote from businesses and/or too unable to attract/retain appropriate
Over reliance on consultants and contractors close to Group staff
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12. Emerging models of shared services
Shared services center (SSC) second generation
Regional shared services Global shared services/regional hubs COEs and local/global outsourcing
Characteristics: Characteristics: Characteristics:
► Regional SSC are often set up ► Transaction-driven processes are ► Global outsource model leveraging low-
independently to leverage internal leading extremely labour intensive. To leverage cost labor
p act ces, standardize the eg o a
practices, sta da d e t e regional SSC further labor cost a b t age, ce ta
u t e abo arbitrage, certain ► Local in-territory outsourcing to selective
y g
across the globe, improve global processes are provided by a global areas where deep subject-matter
governance and to be prepared for future SSC, running 24-hour shifts. Global knowledge is needed locally but where
global process realignment; a global SSC centralization improves governance by critical mass is lacking, such as tax and
operation or network inaugurates reducing the number of sites and control regulatory compliance
additional value. standardization. Results:
Results: Results: ► Labor cost arbitrage
► Leverage of global leading practices in ► Labor cost arbitrage ► Variable cost base (depending on
the organization ► Global synergies contract structure with outsourcer)
► Improved global governance ► Reduced governance efforts ► Global synergies
► Global processing and additional value ► Lower cost for subject-matter resource
add and outsourced compliance risk to
subject-matter professionals
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13. Centers of Expertise (CoE) are more effective if
designed for the specific business context
Role definition:
CoEs are dedicated to providing strategic, people-related consultative services to executives and HR business
p g g , p p
partners. CoEs provide technical, specialized HR talent (e.g., benefits design, compensation design) to develop new
HR products and services tailored to meet the needs of the business, at both corporate and business unit levels. CoEs
own HR policies and provide Tier 3 support to resolve complex customer queries.
Typical characteristics: Common variations based on business context:
 Aligned horizontally, shared across business units and  Different organizations choose different content for their
grouped by function (e.g., reward, learning, employee CoEs, depending on business strategy
)
relations)
 Sometime C E li
S ti CoE-aligned i di id l sit i specific
d individuals it in ifi
 Key focus is on understanding the key needs of the business units and provide functionally specific support
organization and designing solutions (e.g., reward, learning, recruitment)
 Challenged to develop groupwide policies and  Often much delivery responsibility is kept within the CoE
products that can be deployed consistently
 “Virtual” CoEs are implemented
 Responsible for complex or high-profile service
 Some double hatting of roles can occur between CoEs
delivery (e.g., executive compensation)
 Responsible for working with SSC to operationalize
new policies
li i
 Work through HR business partners to develop
solutions to business issues and through corporate
HR to deliver solutions to groupwide issues
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14. Achieving excellence — assessing the maturity of CoE
► Organization
► How will the CoE be aligned with the overall HR function?
► What is the structure of CoE?
► People
► What are the critical skills for the CoE?
► Should we look for talent internally or externally?
► Process
► Which HR processes should CoE focus on?
► Do we need to change the HR communication flow for CoE?
► System
S
► Is the current technology platform suitable for CoE?
► What kind of HR IT tools does CoE need to develop?
► Location
► Should CoE be a virtual organization?
► In which location should CoE be formed?
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15. What do HR business partners need to be
able to add value?
► Selection:
► e.g., 50% not from HR
► “Easier to train business people in HR than vice versa”
► Training:
► Consulting and business (or HR) skills
► Insight into business unit issues
► Tools:
► Analytic data to
A l ti d t t support business d i i
tb i decision-making
ki
► Metrics on skills, performance, attrition, absenteeism, pipeline,
engagement, labor market, competitors, etc.
g g p
Page 15 Service delivery model transformation

16. Data analytics leading principles
Effective Information Delivery (
y (EID)
)
A clear opportunity around HR data analytics is effective information for each level of management –
strategic, operational, etc.
EID characteristics:
► At-a-glance metrics on performance
► Summarized retention data on a
multidimensional basis
► Drill down detailed labor cost and custom
Drill-down,
Executives/ reporting
managers
Customized knowledge ► Workforce forecasts: actual, plan, prior
► Interactive analysis to investigate and drill-
down on issues raised by reports
Power users/
► Ad-hoc analysis across full data set
analysts
► Alert pop-ups that repeat automatically
Interactive information
► Standardized and streamlined reports
available via self-service or web-based
delivery
Business
user ► Provides basic information with limited
analysis and ad-hoc functionality on
Standardized data selected datasets
Page 16 Service delivery model transformation

17. HR can and should drive measurable value
The key challenge is for HR to improve in all three dimensions while retaining the right balance for the organization.
Efficient transactions/administration (administrative
role): Sample value measures:
► Standardize and streamline HR processes for compensation, benefits, ► Increase revenue per full-time employee
payroll, hiring, terminations, time and attendance, etc. (FTE)
► Streamline data flows and touch points; improve data accuracy ► Improve employee satisfaction
► Eliminate redundancies of HR staff ► Reduce voluntary turnover
y
► Promote HR transactional automation as a leading practice ► Increase retention of key talent
► Increase customer satisfaction levels
Effective HR operations (operational role): ► Reduce time to proficiency
► Improve workforce performance
► Improve HR service delivery model through outsourcing, CoE and
p y g g
► Reduce HR operating costs per FTE
Shared Service
► Decrease manager time per HR
► Establish an effective HR control framework
transaction
► Identify and implement cost-savings initiatives
► Decrease cycle time per HR transaction
► Maintain effective vendor management protocols
► Reduce cost per hire
► Effective communications and change management for transactions
g g
► Decrease person t person i
D to inquiries
ii
► Effective risk and compliance procedures, employee relations, etc.
► Reduce HR headcount
Strategic business support (strategic role):
► Strengthen business decision-making throughout the organization
g g g g
through data analytics and timely/accurate reporting
► Be responsive to specific business unit needs (e.g., role and
competency design, recruitment and on-boarding, deployment
strategies, performance management, succession planning)
► Be seen as a valued partner to the business
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18. Questions
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