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Right Sourcing: The Role of HR in Creating Shareholder Value
 

Right Sourcing: The Role of HR in Creating Shareholder Value

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A brief overview of the 6 elements of right-sourcing readiness (considering not only cost, but culture, business strategy, etc.), how they link to shareholder value and what HR can do to make an ...

A brief overview of the 6 elements of right-sourcing readiness (considering not only cost, but culture, business strategy, etc.), how they link to shareholder value and what HR can do to make an organisation right-sourcing ready.
Includes case studies.

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    Right Sourcing: The Role of HR in Creating Shareholder Value Right Sourcing: The Role of HR in Creating Shareholder Value Presentation Transcript

    • Leverage Human Capital to Improve Business Performance Right-Sourcing The Role of HR in Driving Shareholder Value iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 1
 www.iproconhcm.co.uk
    • Leverage Human Capital The Sourcing Continuum to Improve Business Performance Outsourced Tasks Temporary
and
 Permanent
 Core
Team
 Staff
 Agency
Staff
 Outsourced Tasks iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 2 www.iproconhcm.co.uk
    • Leverage Human Capital Workshop Structure to Improve Business Performance iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 3 www.iproconhcm.co.uk
    • Leverage Human Capital Section One: to Improve Business Performance iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 4 www.iproconhcm.co.uk
    • Leverage Human Capital Creating Shareholder Value to Improve Business Performance   Right Sourcing creates shareholder value in terms of two categories - Value Creation and Value Preservation: Shareholder
Value
 Improved
Opera<ng
 Improved
Investment
in
 Enhance
Compe<<ve
 Margin
 Working
Capital
 Advantage
Period
 Economies
of
Scale
 Reduc<on
in
Capital
 Iden<fy
and
maintain
 Expenditure
 factors
which
 Exploit
Third
Party
 (Buildings,
IT
 generate
order
 Core
Competencies
 Infrastructure
etc.)
 winning
product
or
 Divest
Low
Margin
 service
facets
(Causal
 Ac<vi<es
 Opportunity
Cost
of
 analysis)
 Investment
Budget
 Increase
work‐force
 agility
 iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 5 www.iproconhcm.co.uk
    • Leverage Human Capital Section Two: to Improve Business Performance iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 6 www.iproconhcm.co.uk
    • Leverage Human Capital Traditional Views: to Improve Business Performance “Outsourcing is Great !!!”   Always, as much as possible! - Proven wrong by many negative examples   Decisions based on cost only! – Shareholder value map illustrates that there are many different levers   Everything that’s non-core has to go! - Different results in different projects show it can’t be that easy:   We’ll show that even for non-core activities further conditions must be met   Answering the question as to what’s core? Is more difficult than expected. It’s not the same for all players in one industry (how could you differentiate from competitors?) iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 7 www.iproconhcm.co.uk
    • Leverage Human Capital Section Three: to Improve Business Performance iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 8 www.iproconhcm.co.uk
    • Leverage Human Capital 1. What’s Core? to Improve Business Performance   NOT the same answer for every player in one industry   There are obvious things on the surface, but the primary source of competitive advantage maybe difficult to find   Causal Analysis is one proven tool to find these primary sources iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 9 www.iproconhcm.co.uk
    • Leverage Human Capital 1. The Role of HR to Improve Business Performance   HR should identify and understand the people elements of competitive advantage   They need to actively join into the discussion about core processes to add the people aspect, most notably in the fields of:   Knowledge   Internal relationships   Culture   They may also act as an facilitator for the whole process iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 10 www.iproconhcm.co.uk
    • Leverage Human Capital 2. Define and Assess Capabilities to Improve Business Performance Outsourcing everything that’s non-core doesn’t work: Understand the capabilities required for the task   Assess your own level and compare it with industry   Find a provider with a higher capability level   Consider the provider needs a considerable advantage in efficiency   to cover margin, marketing cost, and governance. For capability assessment you may use tools such as the CMMI in IT (Capability Maturity Model Integration). iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 11 www.iproconhcm.co.uk
    • Leverage Human Capital 2. HR Capability Framework to Improve Business Performance The iProCon HCCEM is one example for a Capability framework aiming at HR in particular. iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 12 www.iproconhcm.co.uk
    • Leverage Human Capital 2. Combine Coreness & Capabilities to Improve Business Performance   The real world is not limited to the diagonal line!   The other extremes require special OUT
 Strong



































Weak
 attention and my hide exceptional opportunities or risk.   Weak capabilities in a core field: Capability
   Make it non-core   Build capabilities   Leverage with sourcing strategy   Strong capabilities in a non core IN
 field:   Make it core High














































Low
   Divest “Coreness”
   Leverage with sourcing strategy iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 13 www.iproconhcm.co.uk
    • Leverage Human Capital 2. Staffing Framework Corporate IT to Improve Business Performance Outsourced Tasks Capability (0-5) Consultants Temporary
and
 Contractors Permanent Outsource Core (0-5) Comment Permanent
 Agency Temps Task Core
Team
 Staff
 Agency
Staff
 Outsourced Tasks Server mgt. 1 2 (X) X Project mgt. Build capability 5 3 X (X) (X) X Application Reduce capacity 4 5 X (X) (X) Development Watch for future SAP NetWeaver 3 3 X X (X) importance iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 14 www.iproconhcm.co.uk
    • Leverage Human Capital 2. The Role of HR to Improve Business Performance   Develop capability framework for the whole organisation together with subject matter experts   Assess internal and external capabilities   Manage the change from having Recruitment and procurement as isolated functions to an integrated view of managing the continuum based on coreness and capabilities. iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 15 www.iproconhcm.co.uk
    • Leverage Human Capital 3. Consider the external environment to Improve Business Performance   A purely internal view may lead to unfeasible decisions   Consider factors for today and for tomorrow:   Legislation (data privacy & security, when IT outside EU,…)   Society: anti-globalisation, reaction to layoffs,   Ecological: higher cost, if supply chain streched Tax
 Economic
Growth
 Educa<on
 R&D
 Legisla<on
 Interest
Rates
 Popula<on
Growth
Rate
 Infrastructure
 Employment
Law
 Infla<on
 Cultural
Aspects

 Rate
of
Change
 Environmental
Regula<ons
 Exchange
Rates
 Unioniza<on
 Poli<cal
Stability
 Age
Distribu<on
 iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 16 www.iproconhcm.co.uk
    • Leverage Human Capital 3. The Role of HR to Improve Business Performance   Employment legislation   Impact on employer branding   Talent Management – Understand the market’s long-term ability to sustain or build capabilities (knowledge of education system and demographics)   Competition in labour market   Options for workforce reduction   Industrial Relations iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 17 www.iproconhcm.co.uk
    • Leverage Human Capital 4. Understand and Align Culture to Improve Business Performance   Cutting off or outsourcing allegedly non-core activities can often have unintended impact on strategic assets, most notably –  Creating a situation going against the central values / organisational culture. –  Creating anxiety and insecurity (“who’s next?”) –  Destroying relationships with customers or other external stakeholders –  Destroying informal employee networks, important for the exchange of knowledge and for innovation   This doesn’t necessarily mean these activities can not be outsourced, but must be addressed in the change process, e.g. –  Clear communication about strategic goals –  Promoting cultural change (takes time!) –  Applying a staged approach OR creating a real sense of urgency –  Identifying important relationships and replacing or preserving them iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 18 www.iproconhcm.co.uk
    • Leverage Human Capital 4. Understanding Culture to Improve Business Performance iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 19 www.iproconhcm.co.uk
    • Leverage Human Capital 4. The Role of HR to Improve Business Performance   HR is the function in the organisation who understands its culture and acts as a strategic partner to align culture and business strategy   Cultural analysis   Building culture into every major change initiative   Designing change programs for cultural change   Incorporating the management of organisational culture into the people management processes (most notably recruiting, talent management, reward, performance management, metrics)   Usually requires an external view, but also deep involvement of the organisation iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 20 www.iproconhcm.co.uk
    • Leverage Human Capital 5. Manage Change to Improve Business Performance   Outsourcing is a transformation exercise which requires the normal change activities and capabilities. With the key challenges being:   Keeping the retained organisation motivated   Establishing a partnership with the provider   Accepting best practise …   Transforming the whole organisation to being ‘right-sourcing ready’ – i.e. making right-sourcing a source of competitive advantage iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 21 www.iproconhcm.co.uk
    • Leverage Human Capital 5. The Role of HR to Improve Business Performance   Act as Change agent   As set out by ‘Ulrich; as one of the 4 principle roles of HR (HR may need transformation to get there).   Outsourcing part of HR activities can serve two purposes: getting free capacity in HR to do this more strategic work AND proving that HR is able to manage change and takes the lead towards right-sourcing. iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 22 www.iproconhcm.co.uk
    • Leverage Human Capital 6. Manage the Relationship to Improve Business Performance This is as important a step as the other five. However, as you will have heard and read about them every time sourcing was addressed as a topic, we will not focus on these points today. iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 23 www.iproconhcm.co.uk
    • Leverage Human Capital Summary to Improve Business Performance Challenge Tools Role of HR 1.Outsource non-core CAT – Causal Analysis Tool Understand human capital elements of source of competitive advantage 2. Consider Capabilities Capability Framework Identify and build capability HCCEM 3. Consider environment PEST (plus others) Understand and manage the external environment factors 4. Understand culture Culture Web Understand and manage cultural transitions 5. Manage change “Multiple Tools” such as change Change Agent - Ulrich kaleidoscope and stakeholder management iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 24 www.iproconhcm.co.uk
    • Leverage Human Capital Section Four: to Improve Business Performance iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 25 www.iproconhcm.co.uk
    • Leverage Human Capital HRO vs. Shared Service to Improve Business Performance Manuf. (10,000 EEs) Bank (2,000 EEs) Telco (100,000 EEs)   Low cost HR   Historically “luxury” HR   HR shared service exists,   Strong traditions but not consolidated   Little standardisation   HR on site: personal across group   Flexibility in Payroll relationships, no   Non core at 1st sight considered core service standardisation   Call centres are core   HR-IS highly customised   Better part of HR could offering   Pressure on cost technically be outsourced   Group includes IT and HR-   Further cost cutting   20% savings via HRO IT provider required   But standardisation   Leverage capabilities to   Step considered too against basic build consolidated HR large as against caring assumption SSC culture   € saved no strong case   Move to national shared   National HR SSC on   Define HR strategic service standardised IT platform contribution   Outsource some elements   Special solution for small   “Developing top talent & of recruitment (no impact group companies leading change” on current Ees)   Outsource transactional HR and HR-IS iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 26 www.iproconhcm.co.uk
    • Leverage Human Capital 2-tiered HR Shared Service to Improve Business Performance High Process Variation  Initial design provided flexible and complex solution (process & IT)  Good fit for larger entities Flexible, but Flexibility trap: complex many small (>1000 EEs) High number of clients Low number of clients solution for clients, but no  Far too expensive for small large clients standardisation entities (5 – 100 EEs)  Most small entities struggled to get out of this service  even more expensive for the remaining clients Volume trap: standardised, Simple  Define portfolio for this package for small clients, segment and derive but no scale small clients capabilities to deliver economies  Offering a package for small clients at less than 50% of cost High Standardisation iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 27 www.iproconhcm.co.uk
    • Leverage Human Capital Bank HRO: Overcoming Resistance to Improve Business Performance Involvement of employees affected by HRO As-is analysis Task catalogue for RfP Transparency through detailed RfP Allow internal service to compete No provider checklists etc. accepted based on same requirements to allow for clear comparison Get rid of entrenched mindsets to accept best practise Reduce cost through scale Improve quality through proven tools efficiencies and processes iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 28 www.iproconhcm.co.uk
    • Leverage Human Capital to Improve Business Performance QUESTIONS iProCon Human Capital Management Limited 5 Wormwood Street, London, EC2M 1RQ 29 www.iproconhcm.co.uk