For like most companies today no matter how clever they think they are HR costs remain a bit of a mystery. And this is partly why the drive for cost efficiency is catching up with HR. If a more automated HR can help companies get a better fix on the functions costs they can become a lot cleverer in how they manage it. Indeed, Ian Muir, HR director at C&W, believes that e-HR will enable the company to control its HR costs in a way it could not before.
This is especially important for a company like C&W which operates in a volatile market and which moves forward in part by making acquisitions. Therefore, if the company can establish an HR system that delivers a service that does not fluctuate in cost with increases and decreases in overall staff numbers then that provides a huge cost advantage. Indeed, having shaped the beginnings of an e-HR system under the management of Reddington, the companys programme director of e-HR transformation, C&W is also now considering outsourcing its transactional HR.
Muir explains what they would hope to gain from this. First, it should enable them to complete the transformation of HR to e-HR faster than they could do in-house. But also, says Muir: An equally important consideration is to change transition costs from fixed to variable and scalable. That way, we know our costs associated with any outsourced HR services would stay in proportion to the volume of activity and headcount we have in the business. Acquisitions and divestments therefore become easier as we reshape the business.
Malcolm Howard, director of Epeopleserve, a company that has staked its future on the HR outsourcing market, reckons HR is where the finance function was 10 years ago. Epeopleserves first clients were Accenture and BT both of which are its parent companies. This means that Epeopleserve now provides HR services to about 160,000 employees worldwide. It is critical, says Howard, that clients are prepared to move to as generic an HR system as possible.
The generic option is cheaper
The more generic the client is prepared to be the cheaper the service is, he says. The more bespoke they require the service to be the more expensive itll be. Thats just the way it is. Our challenge is to get our clients to recognise that generic HR processes are what they need and it isnt the processes in themselves that will make the difference to the character and culture of their organisation.
The UK has seen a growing roll call of big names such as BP and Nortel choosing to outsource all of their transactional HR to contractors like Epeopleserve. Indeed, BP was reported recently to have saved $100 million (71 million) in the past year by outsourcing its HR to Exult. The brave new world does seem to have dawned and many other companies of all sizes will be looking at their HR costs in the years to come and considering the outsourcing option. Howard stresses that the drive for this kind of change almost always comes from the board first. Typically, the CEO wants to know what the company is getting for its money from its HR function.
John Connolly, formerly the head of personnel at Blackburn with Darwen Council, is positive about the move of the councils HR function to outsourcing contractor Capita. The HR and payroll service was one of seven functions transferred in July and included not only Connolly himself but also the personnel strategy and policy team who joined Capita through a TUPE transfer. The main issues, says Connolly, were practical ones. People wanted to know what the change meant and if they still had jobs. You had to be open-minded and work closely with staff and trade unions. Initially this did mean a lot of hard work and a series of meetings in a very intensive period. The personnel service, Connolly believes, will be better and the partnership model between Capita and the council has made the change more palatable.
Howard, who was previously a partner in Andersen Consulting (now Accenture) with 15 years experience in business process outsourcing, says, From my experience in various HR roles, as much money is spent outside the HR organisation in the line as is spent in it. And most organisations find it difficult to quantify what they are spending and what value is being derived from it, and so well seldom start talking to the organisation through any other route than the CEO and the CFO.
Where there are high HR staff numbers the drive for change will be greatest. After just 18 months of HR transformation, C&W has reduced its HR department by about 40% (amounting to about 200 people) and there may be staff transfers should the company choose to outsource its HR. Muir says the firm has saved 5 million in the first year. The savings have been achieved through overall budget reductions, headcount reductions, automation of previously manual processes, elimination of duplication, getting line managers to be more self-sufficient and having employees become responsible for their personal data.
2 million saving
Reddington says that they had always envisaged this sort of saving, representing 20% of normal HR costs. But he believes they might be able to save even more and suggests that their e-learning and e-recruitment processes, once switched on, could save a further 2 million. Howard estimates that HR departments would tend to derive 50% of their cost savings in a process like this from headcount reductions. He says, The reason economics now work in HR outsourcing is because you can provide services in a way that takes administration overheads out of the equation; the other area is by very much more aggressive vendor management which deliver economies of scale.
But can HR directors expect a company like Epeopleserve to continue to deliver cost savings, once the initial savings have been secured, year on year? Howard believes, No one knows the answer to that because contracts havent existed for long enough to reach a view. His expectation, though, is that it should be possible provided the client is prepared to undergo streamlining to cut out unnecessary services and to get rid of a lot of tailored processes.
Downsizing in HR is certainly not unusual and, painful as it will continue to be for some HR administrators, it will be a fact of life in many organisations. Howard points out that a fast-growing company like Epeopleserve wants to take on many of its clients HR people and this gives them the opportunity of exciting responsibilities that they never have had before. Some HR staff, however, will fear the change and wont want to transfer from an administrative back-office role to a more operational and sales-focused one in an outsourcing company.
Indeed, Reddington acknowledges that some HR people were fearful when he began the HR transformation project at C&W. He considered it very important to win as many of them over before communicating the new system to the users. His own previous experience is in the world of communications when he helped to change C&Ws brand image. Subsequently, Reddington was put in charge of communications for the company when it had to tell its customers about a change in their telephone numbers system. This was one of the toughest PR jobs around and when he was doing the rounds on several television news programmes, he was noticed by the senior HR team, in particular group HR director Martin Hayton.
In 1998 Reddington was asked by Hayton to manage a highly ambitious new HR transformation project. In a nutshell the brief was to create the business case for putting large swathes of HR on a system and to create some quick wins. Reddington recalls: Martin Hayton asked me to take on the role of e-HR project director; the original brief was to shape e-enabled tools and services in HR with a view of providing a better quality service at lower cost.
In many cases, HR departments will try to do too much in one go. Sandra Campbell, who works in William Mercers HR operations consulting practice, says that many HR directors do tend to shoot for gold rather than go for some small piece. C&Ws more measured approach was clearly the better way. While Reddington started to build an HR system Hayton and Muir planned to develop a new crack squad of HR business partners who would, in the David Ulrich model, have the time, space and, most importantly, the skills to deliver greater value to the business. Undoubtedly Reddington was well trained for this side of things and thinks that his impartial stand inevitable from someone who was neither an HR or an IT manager was an advantage.
He says, For me right from the outset this was all going to be about articulating a vision for a new world, and making this new world real to the recipients of these new services, to guide the programme from that perspective rather than getting bogged down in the minutiae of whether we should be using SAP, PeopleSoft or Oracle.
At that time Reddington recalls there were no case studies to learn from. So he soaked up all the ideas and opinion at a three-day e-HR conference in Amsterdam. He was struck by the view that this process was not just about automating HR services, termed e-enabling, but also about transforming the capabilities and skills of the new, streamlined HR function. He then spent several months developing a convincing costs-benefits analysis which he had to take in front of a capital allocation board.
Winning over employees
Reddingtons 50-page document clearly worked as the board allocated about 1 million to e-enable some existing databases and provide some initial semblance of employee self-service. Being a communications expert he knew how important it was to win over the employees and managers who would have to cease telephoning HR when they needed help and would have to do much of it themselves on their computers. Reddington believed that we needed to get tangible evidence of e-HR in front of the user. Typically in C&W you might spend a year doing a project like this during which there is no tangible evidence of what is going on.
How easy was it to win over line managers to this new system? Reddington laughs: You have hit on a crucial point here because if you dont handle this properly it could simply be perceived as HR just dumping extra administrative burdens on an already busy manager. You have to be able to demonstrate to the managers how it will save them time, he adds, So there is no added burden on them.
Looking at one example an employee self-service system called HR Express Reddington recalls how they learnt to communicate better as they rolled it out in the US, UK and Japan. In the US, where HR Express was launched first, only 10% of the local workforce used the system in the first week. The response in the UK was better at 30% because, Reddington says, they had spent more time doing more ground work with end users and emphasising the advantages. Finally by the time they rolled it out to Japan they managed to get a 80% response rate. They got 1,900 hits in Japan where there are about 800 employees when they put payslip information on the system. Reddington says they had realised that it was not enough to send an email announcing the new system. Rather, it was necessary to organise a very comprehensive communications exercise so that everyone knew what to expect on the day of delivery.
The importance of communication is reiterated by other practitioners such as Pat Eastburn, project manager of HR and internal communications for the BBC. She is helping to transform HR at the corporation and aims to achieve a 22% cost savings. You can never do enough, says Eastburn when asked about communicating to managers and employees. She advocates involving as many managers as as possible in workshops, to get their views on how to make the system work, and to make them feel part of it. But she is aware that many people may claim to feel that they were not involved. With 24,000 employees, she asks, what do you call involvement?
Clearly, automated HR works best and costs less when employees turn fully to the web-enabled model rather than contacting a call centre for HR information. Reddington admits that at a company like C&W, where most employees will be computer-savvy and probably sit in front of a screen every day, it is easier to make this system work. Nonetheless, Reddington saw the need to change consumer behaviour and persuade them to use the e-enabled system.
Turning off alternative support
He says, The skill here is to make the self-service tool so easy to use that people naturally want to use them. The view taken in C&W is to encourage that behaviour to be adopted, deliver good tools, but also to progressively turn off the alternative support mechanisms, or make them a bit more difficult to access.
How easy is it to roll out this system globally? That, laughs Reddington, could be a case study in itself. He is clearly grateful to Hayton and other HR leaders for being so determined to create a cohesive, integrated global system. To make the system as generic and uniform as possible is the critical factor in achieving cost savings. Reddington says that the classic conundrum was where a local business division wanted a system specifically tailored to its perceived needs.
He explains: We went initially to the US and said, OK, you guys in the learning and development organisation, if you could design the optimum process in learning what would it look like? We then went to Japan, continental Europe and the UK and said Heres the skeleton of an e-enabled process, what elements do you like and what dont you like? Reddingtons team would then take into account any statutory requirements that might affect the local system and any strong business case to support a variance. Getting agreement on the local level, recalls Reddington, was fascinating. Because that was when you got the push back from people who would say, Well we think the way we do it now is a very good way of doing it, its been developed over time and everyone understands it. This is when the HR toughness was essential.
If you get any dithering or ambivalence at senior level, says Reddington, when you encounter that first pocket of resistance, people will wonder if they really want it to be global or if they can massage it a bit here or there. If they smell weakness and they push hard enough the whole exercise can quickly degenerate. Now 18 months on this clearly hasnt happened. Quick wins have been achieved and the company plans to switch on a globally-integrated HR system by the end of the year.
So where does Reddington go from here? He seems to have enjoyed his time as e-HR project director. Indeed, it would be no surprise if he is asked to spin off an eHR consultancy for C&W. Watch this space.