Abridged and adapted from the management report 'Next Generation HR Shared Services: How to take customer service, efficiency and savings to a new level’, James Creelman, Business Intelligence, 2008.
Over recent years shared service centers (through which support – mainly transactional and routine based – functions from many business units are collocated into one central location) have become a powerful, and proven, approach to reducing costs while simultaneously improving service performance.
Shared services can essentially be seen as 'internal outsourcing'. The argument is that the cost and service benefits that outsourcing can deliver can be achieved without losing control of processes (and therefore avoiding all the accompanying risk).
But research for the report: 'Next Generation HR Shared Services: How to take customer service, efficiency and savings to a new level' finds that for shared services to be fully effective (that is delivering real, quantifiable value to the enterprise) they should be standalone business units that are subjected to the same rigor of performance expectations and measurement as any other unit.
World-renowned shared services consultancy The Amherst Group guidelines on this subject highlight the key characteristics: “In a shared services company, a unique service provider-recipient relationship is established. The same ‘best practices’ used to gain competitive advantages with external customers are applied internally to create a harmonious partnership," they state. "Internal customers can specify what services they need and can expect the shared services business unit to take responsibility for meeting those requirements. Service providers can expect to have their performance evaluated objectively because measurable criteria have been established... In a true shared services environment, service providers are service-oriented, business-based, contributor-valued, and partner-integrated.”
Within shared services the tool most commonly used to measure performance is a Service Level Agreement (SLA).
City of Cape Town case example
Stan Wallace, previously head of shared services at the City of Cape Town council, South Africa, stresses the importance of SLAs as a way of instilling proper relationships between the customer and the service provider. “Before SLAs a business relationship between customer and services provider was not in place," he says. "There was a lot of frustration between the line function and service provider.”
Creating the SLA began when the consultancy Accenture was appointed to complete a gap analysis between the expectations of customers and the capacity of internal providers. This helped shared services and line managers to understand where the biggest gaps existed and plan improvements accordingly.
In negotiating the SLA, a performance baseline was set (the current offering) with an agreement that over the next few years the service offering and standard would evolve to being competitive with what can be acquired externally.
The SLA consists of:
- A main agreement that has been approved by the executive management team and mayor’s committee member for corporate services and prepared in consultation with all shared services and the customer operations
- An agreement containing the key components of the service offering
- An agreement containing performance ratings, in which reasons for poor performance are recorded and remedial action is defined
- A price structure/cost allocation agreement
- An annexure containing all relevant policies and procedures that may impact on the relationship between the parties concerned
- An annexure that may contain definitions and further explanations in clarifying aspects of the agreement.
Service levels and standards are defined in terms of one or more of the following criteria:
- Speed/response time
But it should be noted that at the City of Cape Town, the implementation of shared services was more than a simple consolidation of back office functions to secure efficiency and effectiveness gains. Rather it was a wholesale attempt at changing mindsets. “We established the shared services concept not necessarily because of the benefits that could be achieved from a headcount decrease or cost reduction," says Wallace. "Rather it was mainly to support a service improvement agenda and an attempt to find out what sort of support customers required. More than anything else it was a move toward customer empowerment and so giving customers are far greater say in, and more control over, the support services they receive.”
Surrey County Council case example
Surrey County Council, UK, also perceives shared services as a radical shift in how services are delivered. It has expended considerable time and effort in developing key performance indicators and standards as well as forging various mechanisms for capturing the voice of the various customer groups. Figure 1 shows a flavour of the customer-facing interventions deployed by the shared services organization.
A customer experience dashboard has also been developed that looks at performance dimensions such as queries resolution time (81.2 percent for same day resolution in the first eight months of 2007), customer satisfaction and complaints received.
Surrey County Council has branded phase three of shared services as ‘the customer is king’. In this phase the focus is on being truly customer-focused, with stretching customer-facing targets. Customer-facing performance will also be more visibly captured within staff performance objectives.
“We are a very customer-focused organization,” says Kate McGowan, previously acting head of shared service. “But while the professional teams of finance and HR might have previously thought of themselves as customer focused, it was a very personal service that they provided. We can provide a standard, transparent customer service built around technology, tiered points of contact and performance measurement.”
Surrey County Council also uses a Balanced Scorecard and measures performance against the four areas of customers, operations, employees and resources.
KeyBank case example
The scorecard within KeyBank's HR shared services centre measures financial performance, customer and quality of service (captured in service level agreements). People measures focus on conformity to KeyBank’s values of teamwork, respect, accountability, integrity and leadership, top tier performance and employee potential.
In addition, each centre employee has an individual scorecard that sets and measures progress to, service level improvements. As examples, each employee in the payroll and benefit administration teams is measured on timely problem resolution based on a service level agreement for each problem scenario; the Background Investigation team members have a five business day service level agreement for each applicant background investigation.
Survey mechanisms, such as an online tool that is deployed following an employee interaction with the service centre, are also used to better understand the experience of users, their satisfaction levels and opportunities for improvement.
Scotiabank case example
HR shared services at the Canadian financial services giant Scotiabank uses a Balanced Scorecard that measures performance against financial, operational, customer and people targets. One finance metric is cost avoidance. By the end of Q3 2007, CAN$8 million in costs had been avoided that year. A total of $54 million was avoided in the first three years of shared services implementation. An operational metric looks at capacity creation. “Part of the value of a shared services organization is around creating capacity to take on further work by, for example, eliminating work that we don’t need to do any more,” says Kathy Hall, vice-president, human resources shared services.
Supporting the customer perspective, the bank distributes a satisfaction survey twice a year to shared services users and looks at performance dimensions such as respect, timeliness and quality among other issues. In the most recent survey prior to the case study's publication the HR shared services organization achieved an overall score of 4.5 out of 5. There is also a metric of adherence to service level agreements, which is typically set between 95-97 percent.
For the people dimension of the scorecard there is a survey called ViewPoint that looks at satisfaction of employee against 20 questions. According to the most recent survey, the aggregate shared services score was 87 percent, with the HR centre achieving 91 percent.
StatoilHydro case example
Perhaps the most advance user of the Balanced Scorecard methodology amongst our case study organizations is StatoilHydro (in 2007 the organization was inducted into the Balanced Scorecard Collaborative Hall of Fame reserved for organizations that have demonstrated breakthrough performance results since implementing the balanced scorecard).
The scorecard has been a core management tool at StatoilHydro since the mid 1990s (EPM Review has published several other case studies and articles on the usage of the scorecard within the organization).
Within GBS – which the organization calls its multi-functional shared services organization (and throughout StatoilHydro) the balanced scorecard contains five perspectives.
- Market (essentially customers and users)
- Operational (essentially process)
- Health, Safety and Environment
- People and Organization
Each perspective has three dimensions:
- Strategic objectives (the strategy map)
- Strategic measures (or key performance indicators)
- Initiatives (or action programs)
Each functional shared services centre has a scorecard. The Balanced Scorecard for the HR shared services centre (as of Q3 2007) is shown in Figure 2.
HR Balanced Scorecard
The scorecard is devolved further to departmental and indeed individual employee levels. At the employee level the goals focus on both delivery (what is achieved) and behavior (how results were achieved), in line with StatoilHydro commitment to be a value-based organization that is highly ethical and environmentally focused.
Research for this report, and other works over the last few years have demonstrated unequivocally that shared services organizations are the most effective when they place customer-facing performance on an equal footing with the desire to reduce costs. A properly architected shared service centre will do both, as the case studies in this report demonstrate. The critical importance of performance measurement and of becoming customer-centric is well acknowledged by top-performing enterprises throughout the globe. Research finds that leading shared services organizations are following suit and are delivering performance dividends to the enterprise.
For more information on the report: 'Next Generation HR Shared Services: How to take customer service, efficiency and savings to a new level’ visit www.business-intelligence.co.uk .