SUPERMARKETS1 AND GROCERS

As introduction, a metaphor may be useful in describing the development of shared services. Imagine or remember the world before the supermarket. In each town or village there were a number of small shops, a butcher, baker, grocer for example.
It is easy to look back on the pre-supermarket era with a warm nostalgic glow. If well run, the local green grocer offered a friendly service and good local produce, and would know the suppliers and most of the customers personally. The shopkeeper would serve the customer from behind a counter, as they knew the produce best! Shopping was a pleasant social experience, and involved visiting a number of shops to get what was needed.
But, what appeared in the shop was subject to the vagaries of weather, season and local suppliers. Tomatoes were impossible to find in winter. The shop was only open for a few hours per day and perhaps even closed for lunch. If the customer didn’t like the shopkeeper, shopping could be a painful experience. The inefficiencies were passed on in the form of cost to the customer, and the bottom line — food was expensive.
Then, “in 1916, a paradigm shift in grocery store science occurred. Clarence Saunders invented the self-service grocery store. The first Piggly Wiggly opened on September 9, 1916 in Memphis, Tennessee.
The concept of the “self-serving store” was patented by Saunders in 1917.”2 Along came the supermarket and by offering convenience, vast choice, self-service with a basket, cheaper produce and consistency at the expense of the personal service, it put most of the grocers and butchers out of business.
Shared service has begun to do the same to HR. The “friendly” local HR person, who understands the local issues and knows most of the local people, is being replaced with a cheaper, consistent, impersonal call center and technology-based self-service. Local policies and quirks are replaced with standard policies and processes.
The HR supermarket is here, like it or not.

SHARED SERVICE AND OUTSOURCING
It is difficult to discuss shared service without mentioning outsourcing, but it is beyond the scope of this paper to delve into the pros and cons of outsourcing. The outsourcing community has initiated much of the drive to shared service, as HR outsourcing relies predominately on a shared service model.
Outsourcers are a major contributor to the development of shared service models. 3 If outsourcers are to succeed they require a profitable business model that delivers an agreed and measurable service level consistent with clear economies of scale and repetition. Shared service is a key component of this model.
The outsourcing debate has helped make the rational measurement of HR service and cost a part of modern HR.
Whether an HR outsourcer can save an organization money in the long-term and deliver better service is yet to be proven, but the process of building a business out of HR processes has brought about a more rigorous assessment of HR costs and service. Organizations that choose not to outsource can still learn much from the outsourcers. The “threat” of outsourcing has forced many complacent HR functions to improve.
The rapid growth of the BPO market is also a validation of the shared service model of HR delivery. Human Resources BPO is the fastest-growing segment of HR services spending. In 2001, U.S. spending totaled US$4.1 billion, and IDC projects that it will grow at a 29.8 percent compound annual growth rate (CAGR).4 According to Gartner, human resources (HR) is the most outsourced business process, with worldwide HR business process outsourcing (BPO) revenue on pace to reach US$46 billion in 2003, an 18 percent increase from 2002 revenue of US$39 billion.
By 2004, HR BPO is forecast to reach US$51 billion and represent 39 percent of all BPO revenue.5 Outsourcing doesn’t change what needs to be delivered (Employees still need to be paid, for instance.), merely how the delivery is financed. The advantages and disadvantages of shared service are similar, whether outsourced or not. Outsourcing is typically a form of shared service provided by a third party.

SHARED SERVICE AND CALLCENTERS
Shared service centers and call centers This article serves as an introduction to HR shared service. Without much hype or preordained vision, shared service plays a significant role in HR delivery today. This article aims to provide an overview of the key issues and points out some of the specific challenges of shared service, albeit from a mainly European perspective. It also suggests some areas for further debate. dominate the service landscape. Banks, insurance companies, utilities, phone providers, airlines, governments and retailers use them extensively in the sales and customer support process.6 The service delivery model has developed rapidly, fundamentally changing the nature of customer service. Despite challenges, the model is proven. The history of shared service can be traced back to the oil industry of the 1970s.7 Call centers and shared service, when staffed and run effectively, offer significant improvement over traditional service methods. Twenty-four hour service via the phone or e-mail is commonplace in industries that used to be office-hours bound.
Complaints and issues can be tracked, trends analyzed and processes improved. Service levels in society have improved, partly as a result of a move to service- focused models.8 In comparison with how long it took to get a phone or change an address with a bank 20 years ago, the progress today is remarkable. Many things that involved standing in queues and completing lots of forms are done with an e-mail, Web application or telephone call.
Call centers and shared service deserve some of the credit for this improvement.
Shared service can be taken too far though, and it is not the answer for every process. When badly designed or poorly staffed, it can fail dramatically.
An area that is in need of significant work is HR for service centers. Service centers create significant challenges for career planning, job satisfaction and compensation, and are often blighted by high employee turnover. The worse call centers are seen to be the modern equivalent of the Dickensian workhouse. More research is needed to solve the people challenges of service centers.
Service centers have limits, and it is simply wrong to suggest that all processes would benefit from a service center model.
Some processes only work with real-time face-to-face interaction. The challenge is to identify those few vitally important cases where such personal interaction is essential. This is as much a challenge for a bank looking to offer complex financial services as it is for the HR function.
In the UK, the banks have been accused of pushing the shared service call center model too far. In response, a hybrid model of service delivery is emerging, combining Web-based services, telephone call centers and personal service.
But shared service is now a significant trend. According to a recent study by Bywater, over 90 percent of the European 500 are considering some form of shared service, with HR the second most prevalent function (after Finance).9 Other studies provide similar statistics.
Many multinational companies have implemented HR shared service centers, some on a national basis, others on a regional basis and others on a global basis.
Examples of organizations deploying HR shared service include IBM,10 Siemens, Gillette, Cable and Wireless,11 SAP, Ford, HP, Leeds City Council, Centrica,12 Procter & Gamble13 Henkel, Vertex,14 BP, Shell, RBS, Nestle, Motorola, Ericsson, Compass, Eastern Health Services, Philips, Zurich Financial Services and Barclays.15 In the drive to reduce costs, a large bank has built its HR shared service center in India.16 Shared service has gained traction across all industries, and it could be argued that shared service is becoming the predominant model of HR service delivery in large organizations. It is also interesting to note that the majority of large consulting organizations that sell shared services have implemented them internally.17
In the UK, the government sector has embraced shared service, Leeds City Council, Staffordshire, Westminster and other London boroughs, Salford, Hertfordshire and a number of others as well as the health services are all moving to a shared service model. At a central government level, shared service is also having an impact. Examples of shared service best practice can be readily found in the UK public sector. The decision has partly been driven by the government’s 2005 edelivery initiative, but also by a need to cuts costs and improve service. Indeed, a number of years ago Ulrich noted, “The concept of shared service has suddenly and without much fanfare, become a model for the organization and delivery of staff operations, including human resources.” 18
Despite this significant move to shared service, there is limited academic research available on HR administration and shared service, at least that I have been able to uncover.19 Much of the HR research has been focused on how HR can become more strategic — human capital management, HR as business partners, etc. There is little on the more prosaic components of HR. Stripping costs out of administrative processes, while maintaining or improving service levels, has received relatively little attention. It seems that strategy is more fun.
However, in the UK, the Institute of Employment Studies has recently done some interesting research. This study is well worth reading, as it is well researched and bereft of any subliminal sales message.
20 However, given the impact that shared service has on the business, the HR function, and its cost implications, more empirical research on best practice would be welcome. Most of the research to date is vendor- and consultant-driven.21

SHARED SERVICE — A GLOBAL STORY
Most organizations are looking at methods of squeezing costs out of every business function. The drive to strip out costs from all parts of the business is relentless and ruthless. Online procurement and auctions have helped reduce cost from the purchasing cycle.22 Integrated supply chains have dramatically lowered cost of production. Production has been shifted to low-cost countries or has been sold off altogether.23
In the same way that organizations have shipped production to the most cost-effective country, services are also on the move. The recent explosion of offshore outsourcing deals for IT and customer support functions illustrate how far organizations are prepared to go to reduce costs.
This is not a new trend, but an extension of one that Marx identified over 150 years ago: “In place of the old wants, satisfied by the production of the country, we find new wants, requiring for their satisfaction the products of distant lands and climes. In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal interdependence of nations for material and intellectual production. The need of a constantly expanding market for its products chases the bourgeoisie over the entire surface of the globe. It must nestle everywhere, settle everywhere and establish connections everywhere.”24 To put this is a more modern context, Deloitte Consulting believes that in the next five years, two million jobs in West- ern financial institutions will be moved overseas. Given that Britain accounts for 10 percent of all outsourcing to Asian economies, this translates to 200,000 British jobs heading East. Deloitte forecasts that US$356 billion worth of financial services activity by turnover will be moved away from first-world economies in the next five years. The institutions that shift the work offshore will save US$138 billion. Adecco, the recruitment firm, has predicted the transfer of 100,000 jobs in call centers alone from Britain to India by 2008.25 Service centers are migrating it seems.
Traditional methods of HR delivery are under the same cost microscope, and it is unlikely that this migratory trend will pass HR by. Human Resources is not immune to the forces of globalization. Already a number of UK banks are moving HR administrative functions either offshore (India typically) or near-shore (Poland or Czech Republic for instance). Major BPO providers are establishing centers in India (Exult for example).26 Companies in India are training call center operators to understand and even mimic local accents.27 Human Resources greengrocers are in for a shock.

THE STRATEGIC ELEMENT OF HR
This article will not dwell at length on the “is HR strategic?” debate. There are a number of stirring visions of the HR function as the vanguard of change and strategic leadership.28 Human Resources’ potential to be strategic is not doubted here, yet despite this, in most organizations today, HR is still predominately perceived as a support function by the organization it attempts to serve.29 The day-to-day reality is to support employees and managers in coping with people related issues.30 A cynical test of HR’s perceived strategic value today is the number of HR directors who have become CEOs.
Several years ago Brockback31 commented in the Harvard Business Review that HR couldn’t be strategic unless it learns to do the basics right. Stewart’s32 seminal blow up HR article still asks some awkward questions of HR today. As Reilly noted more recently, “Whether it likes it or not, the HR function is frequently judged on the capacity to do the basics right. And this applies to senior managers as much as to shop floor workers.”33
Machin and Williamson note, “Most HR professionals would admit to feeling that sometimes they do not get the respect that they deserve. Indeed over the last few years, doubts about the contribution of HR, in its current form, to organizational performance have been increasing, to the point where some commentators are asking whether the function should be disregarded altogether.”34
Most administrative tasks don’t require a deep and meaningful personal relationship with an HR person. In the same way that most people are happy to order a new credit card without meeting the bank manager, much of HR’s routine work can be done with limited face-to-face contact.
If HR doesn’t assess shared service, Finance or IT may do it on HR’s behalf. This is especially so in organizations that have successfully deployed shared service and call centers in other business functions. If Customer Care and Finance operate under a shared service model, the pressure on HR to do the same may be considerable.
Yet the supermarket has not killed off all shops, on the contrary, it has encouraged the development of specialized, high value-added, high profit margin stores that focus on delivering goods and services that are complex, different, rare or hard to find. Customers do occasionally value personalized professional advice and specialized service, and are prepared to pay for it. The shared service supermarket is not the answer to all HR issues, but it can create an environment where the routine and the strategic can be given the correct amount of differentiation.
The HR function that is able to identify those unique and valuable services and offer them in a personalized and knowledgeable way, while at the same time ruthlessly reducing the cost of routine processes will have achieved the right mix of services in the corporate mall.
As Lenz noted, “The successful organizations managed to integrate the competitive features of customer focus and flexibility with the equally competitive features of economies of scale.”35

A LOT OFTHE JUSTIFICATION FOR
SHARED SERVICE IS ABOUT COST REDUCTION
Eighty percent of respondents to a survey conducted by Gartner cite cost savings as the biggest driver of HR outsourcing.36
At a recent conference, leading global organizations were clear that HR headcount reductions were a key driver behind the shared service model. They have reduced HR headcount by 30 percent and in some cases 50 percent.37 As one participant put it, “If manufacturing is cutting headcount yet delivering better product faster, we in HR need to do the same.”38
The Bywater study noted that 78 percent of organizations see cost reduction as the biggest driver for shared service introduction. 39 A Mercer study noted most of the business impact surveys suggest that the potential savings from shared services are between 15 and 40 percent of labor cost.40 This is perhaps indicative of the current state of the economy, and some organizations that have a myopic focus on cutting cost and fat may induce an unhealthy corporate anorexia. Shared service should be seen as more than just a quick route to strip off a bit of the HR function. If that is the only driver, then service is likely to suffer, and costs will climb back in the long run. Any obsession is normally unhealthy, and low HR staffing ratios should not be seen as the only measure of HR success. Research, both by HR academics and financiers, highlights the limitations of cost-based valuations.41 Recent corporate ethical incidents point to an unhealthy focus on the tangible measures in many organizations. Nevertheless, sometimes HR needs to speak the language of cost savings, even if there is a great intangible benefit, too. Human Resources has often failed to secure the capital investments it requires to be strategic, because of an inability to articulate benefits in the language of the purse-string holder, the accountant.
Shared service should be seen as part of a broader HR service model, not just as a cost cutting component. In the Bywater study, 64 percent of participants saw improving service standards as a major driver.
Can shared service offer better service than traditional HR methods? Yes, provided that shared service offering is part of a well-thought-out HR delivery model.

HR DELIVERYMODEL
Over the past decade a new model of HR delivery has developed. Many organizations now separate consultative HR services from administrative ones. Again, Ulrich deserves considerable credit for this to explore the model in detail, but it is worthwhile providing a brief overview.
Human Resources is split into three clear roles. Figure 1 illustrates how the differing foci and roles fit together.
Business Partner: A consultant to the line organization — able to provide strategic input to line managers, and align HR with business. This resource typically sits within the business. In a leading bank, these people are called account managers.
They are responsible for growing the relationship with the line as a partnership.
They sell the value of HR to the line! Specialist or Expert: HR is often complex and requires significant expertise (European labor law is an example). This expert typically designs policy and provides expert advice. The term specialist has a different meaning in U.S. organizations than it does in many European ones.
In the U.S., specialist is sometimes used to denote the bottom of the corporate hierarchy, an apparent euphemism for clerk.
In continental Europe, the term specialist is synonymous with expert, so to be labeled a specialist is something of an accolade.
By centralizing expertise, organizations enable greater specialization. The complexities of European labor law are such that it is impossible for a generalist to know all the rules. The specialist will be called on to resolve complex issues, develop policy and consult to the line on strategic issues. The management of this role creates the greatest challenge: how to motivate and develop HR experts is one of the biggest issues facing shared service adopters.43
Administrator: Provides transactional support and processes routine queries, handles administrative issues quickly and accurately, at the lowest possible cost, and typically sits in the service center. Some organizations use the customer relationship management term agent to describe this role. This role requires the greatest technology support.

WHY SHARED SERVICE — ISTHERE
MORETO ITTHAN JUST COST SAVINGS?
Besides the obvious cost saving benefits, what are the other benefits and drivers?
Reilly notes (in probably the most extensive study on shared service to date in the UK) that there are three key drivers for shared service: cost, quality and organization change.44 The cost driver has been discussed earlier, but the quality and organizational change elements are at least as significant.
There is a perception that shared service lowers the quality of HR service and reduces the options available. The feedback to date from successful shared service projects is the opposite. A report about Barclays Bank recently noted, “The SSC exceeded its target of a 44 percent reduction in head count by the end of 2002, which not only illustrates the cost savings involved, but is a whole year ahead of schedule. Line managers can get the input they need more easily than before. Staff feedback is good because they are dealing directly with HR rather than filling in forms. The working shifts and environment have also been changed so that the SSC can cover the company for more hours than before.”45
Employee and manager satisfaction is improved. Organizations such as Ford talk of significant improvement in employee satisfaction.46 Validating employee satisfaction requires an investment in measurement.
The use of software helps to track empirical factors such as time to handle query, quality of response and number of escalations. Several organiza- Figure 1. HR Service Delivery.
Source: Arinso International. TO BE HR Service Delivery
HR Operates in Three Business Lines
Conceptualisation of HR Intelligence into HR Strategies/Processes
Conversion of HR Strategies and Processes to content specific HR processes to support a specific busines
At a recent HR shared service conference, the overwhelming majority of companies applied benchmarking and had initiated a regular comparative analysis.47 Hackett, SBPOA, Saratoga, and IBM global services all provide excellent statistics for HR benchmarking.
Reilly and others note there is a clear improvement in HR service with successful shared service. Anecdotal evidence from conferences and consulting feedback reinforces this. Reilly notes the main quality improvement elements in some detail.
Human Resources has a desire to:
. Be more professional in the work it does,
. Achieve greater consistency and accuracy,
. Be more aware of best practice internally and externally,
. Use better processes to complete its work, and
. Deliver work on time and on budget.
This would deliver an incremental improvement in service, but Reilly goes on to note that the research uncovered a significant drive for HR to become more customer orientated. He summarized this as follows:
. Being consumer-, not producer-driven,
. Become more accessible (open more hours and ease the process of contact),
. Improve the supply of information,
. Offering better quality support in-line with customer needs, and
. Operating user-friendly services.48
He also stressed the desire for continuous improvement — to offer better services on a consistent basis. By introducing this model, senior HR people were looking to affect an attitude change, a move to customer service rather than policy enforcement.
Clearly, the desire and evidence point to shared service being more than just cost reduction exercise.

ORGANIZATION CHANGE
Recently, Alf Turner, HR services director from BOC, an early European Shared Service pioneer, commented, “Separation of strategy from service delivery and the creation of shared services are in that league of change as the switch from welfare to personnel in the 1930s, and from personnel to human resources in the 1980s.”49 HR has the opportunity to reinvent itself and shed the administrative baggage. Shared service doesn’t replace all HR functions with a browser and a telephone.
Part of the attraction of HR shared service is that it is supposed to free the HR professional from the distraction of administration.
A caveat, however, it also removes much of the excuse for not delivering strategic value. Without the burden of administrative drudgery, will the HR professional soar on the wings of newfound creativity and vision? Stripping out administrative and transaction work from the traditional HR function raises some fundamental questions about what is to be done do with the remaining parts of HR. It is easy to talk about strategy; the challenge is to deliver it.
If the HR function is not absolutely clear on the roles of the shared service center, the subject matter expert and the HR business partner, then HR will only generate confusion and mistrust in the line and with employees. Ken Meyer from Ericsson50 was emphatic in stressing the importance of clear role definition.
The role of the expert requires particular attention.
It is questionable whether an organization
could successfully deliver HR shared service without a clear plan for the delivery of the HR services that aren’t part of the shared service center. Shared service can’t be considered in isolation of an HR strategy. Yet a recent IBM survey found that all HR directors talked of strategy, yet over 60 percent did not have a written strategic plan.51 Figure 2 serves to illustrate the need for clarity and an exact division of activities.
Sluys53 suggests that every HR activity needs to be documented, and the division of work needs to be crystal clear.

MODELS OF SHARED SERVICE
There is no single model of HR shared service, and many HR projects today involve some elements of shared service (see Figure 3). The extent to which HR shared service is deployed is a function not only of HR’s willingness, but also of the organization’s culture and desire for change.

BUILDINGYOURMODEL
Shared service does not have to be an all or nothing choice. It can start small and grow. Equally, functions that are performed in-house today could be moved to shared service as a precursor to outsourcing.
Organizational culture determines the likely shared service makeup. A move to greater centralization than is the corporate norm will require significant political will.
Some organizations have used service centers to deliberately change organizational behavior, to shift mindset and realities to become a more global company, rather than an association of local firms.55
Global organizations are often trying to build a single way of working wherever possible. Shared service can help bring about this fundamental change in behavior, as it does break down many existing silos and policy islands. Shared service can expose local or divisional practices that run counter to the organization’s broader vision, and if not managed create significant problems.