How to successfully
transition to HR BPO
By:
Christine Briody
Gianni Giacomelli
Part
2/3
Design
the organization
Design
the organization
Quantifying the retained organization
Christine Briody,
Senior Director of Global Consulting, ADP
Page 01
Designing the retained organization from
a technology perspective
Gianni Giacomelli,
Head of Strategy and Marketing, SAP BPO
Page 13
Quantifying the retained
organization
Christine Briody’s
Biography
Christine Briody,
Senior Director of Global Consulting, ADP
Christine is Senior Director of Global Consulting and is responsible
for supporting the Sales effort in the global Employer Services
marketplace. Christine has a background in operational and service
management. She joined ADP in the UK in 1995 and headed up
the Managed Payroll Service department for UK and Ireland.
From there she moved into a European role working as a Strategic
Account Manager for key accounts within ADP. Christine is based in
the UK but travels extensively mainly across Europe.
She can be reached at:
[email protected]
Quantifying the retained
organization
Stepping up in HR transformation, and more
specifically HR outsourcing, raises fundamental
questions and implies to agree on the processes
and activities to keep in-house and the ones
to reengineer and outsource. More generally,
HR transformation is mainly about deciding
on the organization to implement to fit the new
business needs.
Designing and managing your retained team
correctly is a critical factor for the success of your
overall HR outsourcing business plan. In particular,
the ability to achieve significant staffing efficiencies
is typically the key to achieving the financial
objectives expected from the outsourcing
relationship. This is often the most difficult
and poorly planned aspect of the transition
to outsourcing HR.
The roles and responsibilities that your organization will need to retain during
and after transition of HR services will depend on a number of related factors:
•
•
•
•
•
•
Scope of services that you will be outsourcing
Day-to-day processes that will be left behind for your retained team
Complexity of Business Unit structure
Diversity of your current information systems and/or service suppliers
Expected timeline for the transition to your vendor
Number of manual tasks that will be automated by outsourcing
01
Quantifying the retained organization
Quantifying and designing the retained organization go hand in hand with
the project’s business case and require adopting a structured approach.
To assist you in designing the retained organization that will best fit your requirements,
we have developed a model that can also enable you to better predict your return on investment.
Please note that your ability to achieve the optimum retained organization will largely depend on
the success of your governance model.
1
How to design the retained organization
The retained organization roadmap
Define
the project
scope
Define
activities
to outsource
or retain
Define
positions /
headcount
The roadmap to design the retained organization
begins with the definition of the project’s scope
(service model, tasks to outsource, and project’s
footprint). Your internal staff and the service
supplier then follow up by assigning the tasks
that must be performed (based on your
negotiated statement of work).
02
Build job
descriptions /
competencies
Establish new
organization
structure
Continuous
improvement /
process
re-design
Next, roles and responsibilities that define retained
jobs, positions and headcount are completed by
adjusting your organizational structure and putting
into place a continuous improvement process.
2
Understand and define your project’s scope
This is the fundamental phase in the design
of your future organization. You must understand
your service supplier’s business model, determine
the extent of your footprint, and decide
on the functions to be outsourced.
In-depth understanding of your supplier’s service
model is the key to that phase of the project.
3
The service level you will opt for may vary from
one country to another or from one region
to another. For example, Processing Services may
be fine for countries where you are well acquainted
with local legislation, while Managed Services may
best suit countries where your knowledge of the
local environment is less well developed.
Which activities can be outsourced
In order to get a clear picture of the future
organization, it is usually good to start by focusing
on how the work gets done today.
A task/time audit (“1 to 31 Approach”) of your
current activities will help you understand where
outsourcing will generate the greatest benefits.
It is essential to map your HR organization with your
supplier’s responsibility matrix (also called service
definition or statement of work). The responsibility
matrix describes what needs to stay in your
organization and what comes under the
supplier’s responsibilities. This will also provide
you with a sharper focus on tasks that should
remain local and the ones that can be grouped
and performed at a regional or global level
(in shared services centers, for example).
In some organizations, collecting information
on activities and roles, processes, and job
descriptions may take more time than available
and even be very difficult to validate. For these
companies, their analyses will be based
on assumptions that may require adjustments
in the business case for the retained organization.
03
The illustration below provides an example of a detailed portion of the responsibility
matrix for payroll Managed Services.
The Payroll Managed Services Responsibility Matrix (extract)
The Responsibility Matrix
Where?
Who?
Processes
System and Application Services and Maintenance
Data Management
Payroll Time Data Inputs
Employee Self Service / Manager Self Service (if applicable)
Pre-Payroll Processing
SSC
LOCAL
Client
Service Supplier
2 • Create, maintain and distribute Payroll Schedule for each country
on a calendar year basis.
Service Supplier
3 • Load pay variation data.
Service Supplier
4 • Verify data loads.
Client
Service Supplier
LOCAL
1 • Conﬁrm timely funding of accounts for dispersal of employee payroll
through agreed upon bank.
Client
5 • Monitor work/non work time; monitor annual leave.
6 • Calculate termination payments.
7 • Validate and approve termination payment calculations.
Payroll Processing
Post-Payroll Processing
Leave Management
Termination Management
Off-Cycle Processes
End-of-Month Activities
Client Relationship Management
End–of-Year Activities
Other Payroll Activities
04
Type of Service Delivered:
Managed Services
Client
Service Supplier
Once you have established your current tasks,
you can get a better grasp on how the work will
change once you outsource. It is important
to recognize that some activities are destined
to remain within your retained organization.
These activities typically include core functions
such as HR strategy, process design, executive
recruitment, and aspects of compliance and
industry-specific functions related to the growth
of your business. Core retained functions might
also include oversight of certain HR and payroll
functions, such as data validation, payroll
authorization, and escalated issue management.
Sample activities/responsibilities of the client’s retained team
Area
Responsability
Area
. Request funding from tax and garnishment
. Validate garnishment order
. Set up Employee garnishment deduction information
into HRIS
. ACH return, step payments, and reversals
Banking
. Store garnishment order
. Check paid inquiries
. Files and Remit Escheated checks
. Balance deductions/payments monthly
. Monitor garnishment remittance services
. Collect change request requirements from business
units, with the exception of ad hoc reporting
. Answer employee and agency inquiries/interrogations
. Create/send answer and notice letters
. Interpret legs/regs; Ensure compliance with
garnishment legs and regs
. Reconcilement of bank statements
. On-line ACH transfers
. Audit deductions are taken according to order
Garnishments
Responsability
Change Requests
. Provide functional requirements to application
maintenance team
. Complete acceptance testing on developed change
requests
. Coordinate user acceptance testing with business units
. Conduct data validation
. Monitor Tax remittance services
. Interpret legs/regs; Ensure compliance with tax legs
and regs
Tier 3 Support
. Researche inquiry
Taxes, including
Stock Options
. Document and tracks inquiry
. Respond to agencies
. Resolve disputes
Training and
Communications
. Inform Payroll Operations of issues/changes as needed
. Reconcile return
. Processe Stock Options
Mergers &
Acquisitions
. Coordinate entry of payroll related data into HRMS
with processing team
. Provide instructions for resolution to processing team
and customer service team
. Create training programs and materials
. Create content for payroll related communications
. Deliver training to payroll services team
. Interpret BU policies impacting pay
BU expertise
. Creat M&A checklist
. Work with corporate, HRIS, BUs and acquired
companies on transition of payroll
. Provide Tier 3 case management support for taxes,
garnishments, banking, stock options
. Provide required procedural updates to the customer
service payroll specialist
. New hire reporting
. Worksite reporting
Other
. Special projects
. Create year end calendar
. Design corporate payroll policies
As part of the statement of work, your service
supplier will have to provide you with a detailed list
of the activities it expects to perform and those that
will continue to be part of your organization.
05
4
What skills/competencies are needed in the new organization
Outsourcing HR means changing the roles and tasks
of your retained HR staff. With most administrative
and transactional actions moved to your service
supplier, you are able to focus on supporting your
company’s core business.
A similar impact can be expected for the HR and
benefits partners, with certain administrative/transactional responsibilities eliminated and replaced
by the opportunity to deliver higher added-value
services to the Business Unit’s customers.
One common example of an impacted job
function is that of the payroll administrator.
For many organizations, the payroll administrator
plays a broad role, performing activities such as
answering employees’ questions, tracking checks
and deposits, reconciling payrolls, processing
changes in pay, and ensuring compliance with
tax filing and other regulatory bodies.
This shift in roles raises the issue of whether
to retain and re-train existing staff or to hire people
with more relevant skills. A critical step in this
decision process is to create new job descriptions
aligned with the tasks and roles to be assumed
by the retained team. Your service supplier’s
responsibility matrix and your internal vision for
your department should be the basis for these
descriptions.
Successful organizations take full advantage
of the outsourcing model to shift the majority
of these administrative activities to their provider,
while refocusing on more strategic management
actions such as design of compensation and
incentive plans. For many organizations, this often
means that the current administration team may
not have the required skill sets to transition into
the new roles.
06
Detailed job descriptions should include:
• Description of the job and activities to be performed
• Required skills and educational background
After the required roles have been defined and the
new job descriptions created, formal competency
assessments and interviews with the existing staff
can identify the right talent within the organization.
Example: Contract Manager job description
Area
Role:
responsible for managing the service level
Responsability
Reports to:
Governance Director
agreements, reporting on trending,
change control and process impact analysis.
Responsibilities:
Experience & Education:
. Manage all finance and contract-related
aspects of the outsourced services
. 8 - 10 years finance and/or accounting
. Track client assets used in delivery of services
. Significant experience with the management or
operations of outsourcing and third party contracts
. Establish and maintain mechanisms to quantify
and track business-value delivered
. Collaborate with Client Finance and Accounting
to develop, socialize and implement acceptable
allocation mechanisms
. CPA and Advanced degree preferred
. Demonstrated understanding of legal contracts
. Procurement of sourcing experience
. Administrative and project management experience
. Responsible for the communication, lock down,
and monitoring of value realization with business units
Attributes & Characteristics:
. Responsible for the verification, reconciliation,
and payment of all SP invoices; monitor SP
contract compliance
. A business/commercially-focused, results-oriented
manager with strong listening, financial management,
and communications skills
. Lead in negotiations of or adjustment to SP contract;
Manage the Benchmarking process
. Consultative and client-oriented
. Advise on savings calculations, business case
development; Review and assess project business cases
07
5
How to determine the retained headcount
An anticipated reduction in headcount is often
central to the business case for moving to an HR
outsourcing model. The trick is to determine what
the right reduction should be.
Many organizations rely on an activity-based
analysis to estimate the volume of work that will be
handled by the retained team. This activity analysis
attempts to estimate volumes or transactions that
still need to be handled, including the strategic and
management functions necessary to operate the
outsourced functions.
Your service supplier can typically provide much
of the information needed to estimate those
activities based on due diligence during the sales
process as well as a statement of work that defines
the activities that will be retained by your team.
This is generally a good guideline, but you may
want to back it up by other analyses done by
yourself and/or outside consultants.
In activity-based analyses, organizations generally
estimate how many transactions and/or activities
one person actually handles during a specific period
of time, compared with the number of transactions
that could be processed over that same period
of time. In fact, there are many factors that may
make this estimate unique to the client’s situation,
including:
• Transaction complexity
• Data input quality
• Degree to which policies are standardized and
harmonized
• Workforce diversity
• Vendor consolidation
• Position control in place
Direct comparisons of headcount before and after
implementation may not be viable due to changes
in how new jobs and functions are defined. In some
cases, total headcount may not seem to go down,
but the organization will see a marked improvement
in overall productivity and effectiveness.
In other instances, there is a significant reduction
in headcount, not just in the functions
outsourced, but also in the broader HR organization
due to strategic realignment.
Here is one example of what can happen when you combine outsourcing
efficiencies with retained organization design.
A company with 9,000 employees spread across
the U.S. has outsourced payroll administration
and HR information technology, including the HRIS,
a new applicant management system and time and
attendance. They also redesigned their processes
to take advantage of efficiencies gained from online
employee and manager self-service. They engaged
stakeholders early and focused not only on the
applications and the processes, but also
on role definition.
08
Excluding those employees who worked in payroll
or in the employee service center (operations now
outsourced), the HR team has been reduced from 88
to 62 people. «They no longer do tasks such
as applicant tracking or labor rules compliance
reporting. Their focus is on a different level of work,
which includes change management, workforce
planning and talent management”
the HR Director reports.
What is the typical impact on labor
There may be no such thing as a “typical” impact
on labor since the outcome is highly dependent
on the organization’s structure, previous degree
of centralization, functions (and scope) being
outsourced and (very important) the assertiveness
in redefining new roles and responsibilities.
However, some useful industry estimates can
serve as benchmarks for business planning
and execution purposes.
The Everest Research Institute, a leading supplier
of HRO research and analysis, estimates that the
average staff reduction for an outsourced HR
engagement is 54%. This impact is spread across
the various job types within a department, with
greatest impact coming at the admin support level
(75% reduction) and the least impact at the senior
manager/executive level (20%).
According to Everest, organizations in the top
quartile of labor savings have achieved a 76% overall
reduction in headcount, made possible by a 91%
reduction in administrative support roles.
Interestingly, these same top-quartile organizations
actually experienced an increase in senior manager/
executive roles (+7%). This is likely attributable
to a successful shift from an administrative
to a strategic, high-value focus for the organization.
Average HR staff reduction by job type (percentage)
75%
52%
50%
37%
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Top quartile staff reduction by job type (percentage)
91%
77%
74%
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With these points in mind, it is reasonable
to expect a 50% reduction in force in the functions
that are being outsourced. Why not 100%?
It is important to remember that, even though
you have outsourced an entire function, it is still
necessary to retain internal staff that will be
responsible for strategic planning, vendor
management, and support as well as other defined
retained team responsibilities. This is even truer for
international organizations that have to cope with
country-related specificities that must be taken into
account when the time has come to outsource.
Will those specific country-related processes be
covered in the HR outsourcing contract?
For example, travel expense management is not
a part of payroll in Switzerland. International
10
outsourcing deals can scope out that specific
process as part of the current payroll service,
forcing the client company to keep it in-house.
In China, payslips have to be printed on rice paper
and stamped by the administration at the end of
each fiscal year.
In Belgium, educational leave is included in payroll,
but this administrative task may have to continue to
be handled in-house even after the HRO contract
has been signed.
As a consequence, your service supplier should
provide you with a list of optional and/or scoped-out
tasks country by country in order for you to be able
to conduct a detailed check of your entities.
Wrap-up
• Quantifying and designing the retained organization go hand in hand
with the project’s business case and require adopting a structured approach.
• It is essential to map your HR organization with your supplier’s responsibility matrix.
• Successful organizations take full advantage of the outsourcing model to refocus
on more strategic management actions.
• A critical step is to create new job descriptions aligned with the tasks
and roles to be assumed by the retained team.
• It is reasonable to expect a 50% reduction in force in the functions
that are being outsourced.
• Even though your have outsourced an entire function,
it is still necessary to retain internal staff.
11
Designing the retained
organization from
a technology perspective
Gianni Giacomelli’s
Biography
Gianni Giacomelli,
Head of Strategy and Marketing, SAP BPO
Gianni Giacomelli is Head of Strategy in the BPO business
unit of SAP. He joined SAP in late 2004, and has more than
16 years of experience in organizational development,
transformation strategy and related services. He has served
in companies such as Boston Consulting Group, Danone and
Datamonitor, and in US-based consulting firm Everest prior
to joining SAP. He is a widely published thought leader in the
outsourcing/offshoring/G&A transformation space.
He holds a degree in Economics and Business from the University
of Florence, Italy and EME Business School of Strasbourg,
France, and a Masters in Organizational Behavior from London
Business School.
He can be reached at: [email protected]
Designing the retained organization
from a technology perspective
Business processes are delivered by combining
workflow, the right people, and the appropriate
technology. These three elements, designed to work
together, ensure effective service delivery.
Often when process transformation fails,
a pattern emerges: the experts and decision-makers
across these three domains have not been working
properly with each other.
In the case of outsourcing, which involves
managing the relationship with a service provider,
there is an even greater potential for dysfunction
if the right governance model is not put in place,
especially during contract negotiation
and implementation.
Essentially, it is necessary to ensure that
the required skills and objectives that are clearly
defined for all the parties involved are in place at
the beginning of the HR transformation journey.
Changing direction too late, for example when the
discussions hit the implementation phase at the
local level, will create new issues because it will lead
to deviation from holistic objectives.
13
Designing the retained organization from a technology perspective
Specifically, with regard to technology, three types of decisions need to be made:
• Whose technology is to be maintained or implemented in respectively the retained HR organization
and in the outsourced one? For example, retained-organization employees can now use
the technology that is proposed by the service provider (often software-as-a-service).
• Who is to drive and who is to own the configuration of that technology – client or provider?
• How to coordinate the retained processes seamlessly with those that are outsourced?
1
Whose technology is it?
Here, the decision is to choose who owns
the technology. Whoever owns the technology can
redeploy it – at least theoretically. A couple
of scenarios may occur:
1. When the provider owns the technology,
the contractual agreement sets out how that
technology can be used. This prevents dilution
in service quality or changes in process
workflows unless pre-agreed. It also means
that the possibility exists for the provider
to re-use the technology with other clients.
This can generate cost savings.
2. If the client owns the technology, it can
be redeployed by the client upon completion
of the provider’s mission. However,
the client is contractually obliged to ensure
the provider has access to the technology
required for service delivery.
14
Discussions about technology ownership
can have unexpected consequences.
Whoever owns the technology must recognize
that process requires certain parties to have access
to specific functionalities and/or data; otherwise,
service delivery will break down. Identifying points
where this can occur prevents surprises later.
For example, access to an employee’s master data,
identifying elements like personal and
organizational data related to a specific employee,
is necessary in many outsourced processes,
even though in some cases the master data
repository may stay within the client’s organization.
2
Who drives and who owns the configuration?
The second important decision is to determine
who drives and who owns the configuration of the
selected technology.
This is often the case for processes that impact
the client’s employees, a common
occurrence in HR.
From a legal perspective, configuration is
considered Intellectual Property (IP). But from
a business perspective, configuration is often
modified according to specific processes to be
handled by the software.
Nevertheless, if the client drives the configuration
too far, it might limit the provider’s opportunity to
template the process. This in turn would diminish
the client’s ability to enjoy the benefits of a
one-to-many service model. Although the client
can decide to avoid change management, there
is a risk that the provider will be unable to deliver
economies of scale, process optimization and more
cost-effective labor.
On the one hand, the party driving the
configuration has the possibility to personalize the
software to accommodate some business rules and
process flows. On the other, the party who owns
the Intellectual Property has the right to re-use the
developments beyond the specifications
in the BPO contract.
When the client drives the configuration, it is
possible to dictate to the provider, at least to some
degree, how the service will be run.
3
Another consequence of who drives
the configuration is that the clients’ retained
organization will be different. If the client is simply
asked to provide the boundaries of the process
(e.g. expectations of input-output), in-depth
expertise in the process steps that fall within
the provider’s scope will not be necessary.
How to integrate seamlessly what stays in and what goes out?
Regardless of the ownership of the technology
and its configuration, there is still a need for the
process to function seamlessly end-to-end.
In practical terms, the service provider needs
to act as the client’s extended enterprise.
A number of failures in reaching such results
stem from the inability of the parties to design an
appropriate technology integration architecture
that ensures data integrity and avoids latency.
In some cases, this outcome may be provoked
by the difficulty of building interfaces or by the fact
that data are not maintained properly on either side.
For example, if the client does not require certain
data fields to be constantly updated by their
employees (e.g. address, number of children, etc.)
or if those fields do not exist in the client’s retained
system, the employees’ personal data transmitted
to the provider might be incomplete or inaccurate.
It is important to note the difference between
interfacing and integrating.
Consequently, deciding where to draw the line
between the two organizations, i.e. what is retained
on the client’s side and how it integrates with the
provider’s side, is a critical act and requires intense
scrutiny from the business process and IT specialists
from both organizations.
15
Below is an example of the importance of deciding what is kept on each side:
Scale effects
Tier 0
Self-Services
Tier 1
Contact center
Tier 2
Generalist staff
Tier 3 Experts
Cost per unit
% Transactions
Volume
% Cost
IT-related
Service for a General and Administrative process
such as HR is typically delivered in tiers.
Tier 0 is usually self services, pulling real-time data
from applications and databases. Here, technology
enables strong economies of scale.
Tier 1 is the layer of call/contact center clerks who
rely on scripted processes to respond to queries.
16
Tiers 2 and 3 include more specialized staff who
require access to policy repositories as well as
reporting and other analytics. Here, economies
of scale are even lower and the cost of complex
operations is high.
The client and the provider need to decide who
takes which part of the technology for which layer.
Unintended consequences of poor decision making
can be the following:
e.g. insufficient integration of
contact center into back end,
limiting the effectiveness of call
center agents
% Transactions
e.g. insufficient integration of
portal into back end that leaves
queries unanswered
Scale effects
x 1,5
% Cost
x2
x3
IT-enabled/-supported
In case something does not work correctly, the HR
transactions cannot be handled by the lower tiers,
which in turn generates a heavier workload for these
tiers and finally results in higher total cost.
Technology should not be a constraint,
but to avoid surprises it is critical to bring the CIO’s
team into the loop upstream when deciding
retention of technology is decided.
Wrap-up
•
•
•
•
Deciding where to draw the line between what is retained
and how it integrates with the provider’s side, is a critical act.
Business processes are delivered by combining workflow, the right people,
and the appropriate technology. These three elements, designed to work together,
ensure effective service delivery.
With regard to technology three types of decisions need to be made:
whose technology is to be implemented, who is to drive and own the configuration,
how to coordinate the retained processes seamlessly with those that are outsourced.
All have implications on the sustainability of a BPO relation.
Technology should not be a constraint, but to avoid surprises it is critical
to bring the CIO’s team into the loop upstream when retention
of technology is decided.
17
Notes:
18
Notes:
19
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