Yale University embraced shared services out of necessity.
The Ivy League school of 5,500 students in New Haven, Connecticut, has moved most administrative human resources tasks to a newly created unit, known as Yale Shared Services. Paring costs is critical at Yale, whose endowment was hit hard during the U.S. recession. Yale launched its shared services center in 2010 by consolidating similar HR functions of three different departments: information technology, the provost office, and science and engineering.
The 75-employee division has expanded its scope to manage common business transactions for many of Yale’s academic and other departments. Tasks handled by Yale Shared Services include payroll, accounts payable, vendor compliance, expense and financial management, and credit card reconciliation. “Our goal is to keep administrative costs for departments as low as possible so they can redirect resources to the university’s mission: teaching and research,” said Ronn Kolbash, the assistant vice president of Yale Shared Services.
Yale is a recent example of how organizations are migrating to a shared-services approach, enabling low-value tactical tasks to be separated from higher-value strategic functions. Mounting global business pressures are prompting more organizations to explore the idea. More than 1 in 3 respondents (36 percent) plan to adopt shared services for at least part of their HR function by the end of 2014, according to a survey of 1,025 global organizations by Towers Watson & Co.
Yale’s shared-services unit includes all employees from the consolidated departments. Still, Kolbash acknowledges there was some “pushback” initially from employees, some of whom imagined the worst.
“We realized pretty early on that moving to a shared-services model requires strong change management,” Kolbash said. “Once people realized they were still going to have a job after the move, it made the transition a lot easier.”
HR’s Share of Responsibility
Kevin Martin, chief research and marketing officer at the Seattle-based Institute for Corporate Productivity Inc., or i4cp, talked to Workforce about how a shared-services model could enable human resources to provide strategic business advice.
Workforce: I4cp’s 2012 HR Trends notes how ‘HR professionals need to think and act as performance advisors to the business.’ How does a shared-services strategy help HR to fulfill this consultative role?
Kevin Martin: Effective HR business partners couple financial and business acumen with a burning curiosity to uncover and address the obstacles that threaten to impede organizational performance. This enables them to develop and enable the line-of-business leaders to be more effective managers of talent, which has a direct impact on market performance. Shifting administrative and tactical tasks enables HR business partners to focus on more impactful initiatives, such as providing insights on talent gaps for critical roles as well as attrition risk among high-potential candidates.
WF: Explain the distinction between outsourcing, self-service and shared services. How are they similar? How can organizations understand the difference?
Martin: These are all means to deliver HR services as well as deliver benefits to the business. Organizations should assess which model best fits their business strategy, culture and operating model. Outsourcing and shared services certainly can coexist as part of an HR service delivery strategy, but one is typically not an enabler of the other.
On the other hand, employee and manager self-service is increasingly a component of a shared-services model, in which both parties have direct access to information, data or programs without being required to first go through an intermediary. For example, a company may use shared services for benefits administration to consolidate and standardize processes, deliver cost savings, and create greater consistency in how benefits policies and programs are administered. This would free up HR to apply its time to other activities.
WF: What about the best metrics to use with respect to these shared-services functions? Should they be focused on cost primarily? Customer service scores (with internal surveys to measure it)? Both?
Martin: Both. Cost management, cost containment is key, but the savings can be wiped out if employees are disengaged due to a poor experience with service delivery. That can have a much larger negative impact than any potential savings. Some metrics to consider include: adherence to service-level agreements; the percentage of employees satisfied with HR service delivery; the number of HR transactions handled; time to resolution for HR service inquiries; cost effectiveness of HR service delivery; and cost avoidance.
Yale isn’t out of the woods yet. In November, school administrators announced that an unspecified number of administrative jobs are likely to be eliminated sometime after 2015 in an effort to cope with a $39 million budget deficit, according to a report published in the Yale Daily News. That’s on top of about 250 jobs slashed in the immediate aftermath of the recession.
Misfires Hinder Adoption
Developing a shared service for the purpose of saving money alone results in lots of disruption, stress and lack of local control, said Josh Bersin, president and CEO of Bersin by Deloitte, an Oakland, California-based consulting company.
“You have to be careful to rationalize the transactional things first — and make sure that your shared-services team has a strong culture of customer support and service, not just low-cost transaction processing,” Bersin said.
Yale isn’t alone among U.S. universities adopting a framework for shared services. The University of Michigan last year announced an ambitious plan to deliver a select number of finance and human-services activities through an on-campus shared-services center.
“The aim is modernize university business processes, reorganize delivery structures and use technology to improve service to students, faculty and staff through the shared-services model,” Rowan Miranda, the associate vice president for finance and formerly the program’s architect, told Workforce last October.
But Michigan’s program, originally slated to launch in 2014, remains in flux. In December, following a firestorm of protest from faculty, Miranda was replaced. The university also had to alter its projected annual savings from $17 million to between $5 million and $6 million. University of Michigan officials did not respond to requests for follow-up interviews.
The fallout at Michigan illustrates what can happen when the process isn’t carefully managed.
Organizations will encounter resistance if they don’t solicit input from the people most affected by the upheaval, said Kevin Oakes, CEO at the Institute for Corporate Productivity Inc., or i4cp, which is based in Seattle.
'Our research shows that getting middle managers involved in the development and design — and most important, the execution — of HR initiatives is going to be critical to organizations striving for high performance.'
—Kevin Oakes, CEO at the Institute for Corporate Productivity Inc.
It’s an issue HR executives need to begin tackling now, since two-thirds of organizations expect to centralize administrative functions in dedicated shared-services units within five years, according to i4cp’s 2012 Future of HR survey, based on responses of 454 business and senior HR leaders.
“Our research shows that getting middle managers involved in the development and design — and most important, the execution — of HR initiatives is going to be critical to organizations striving for high performance,” Oakes said.
Tactical Now, Strategic Later?
In its study, Towers Watson said most organizations making the move (74 percent) are aiming to improve operational efficiency. Fifty-three percent want quality improvements, 37 percent eye cost savings and 34 percent are changing business strategy. Similarly, 29 percent say the change is impelled by global corporate initiatives.
The study also found that organizations are spending money on technology in their quest to restructure how HR delivers services. More than half (53 percent) said investments in HR technology in 2013 would at least match 2012 levels. More than one-quarter (27 percent) expect to “increase or significantly increase” their HR tech spending.
One in five organizations said they will have up to 20 percent more money to spend on HR technologies. About 8 percent are expecting an even fatter budget.
“HR technology spending tends to be a bellwether of an organization that is going through some form of transformation,” said Mike DiClaudio, the global leader of Towers Watson’s HR service-delivery practice.
At the same time, DiClaudio said outsourcing contracts are coming up for renewal, prompting organizations to look into “disruptive technologies” such as software-as-a-service, or SaaS, platforms for talent management, compensation planning and other HR services.
“From a systems perspective, organizations almost uniformly are looking at software as a service for some function. SaaS is the new operating model for HR technologies,” DiClaudio said.
Although the shared-services concept is hardly new — call centers are a common example of shared services that have been around for decades — the advent of “big data” is fueling increased interest.
High-performing companies realize the importance of distributing talent management roles to functional HR teams within individual business units, said Bersin, who relates a recent conversation he had with an executive of a multinational corporation. As it geared up for recruiting 35,000 new employees, senior executives realized the organization lacked consistent processes and insight into how many existing employees were promotable to the new jobs.
“The real key is to set up an HR shared-services model that is global yet flexible. It has to work for employees in the U.S. as well as employees in Outer Mongolia,” Bersin said.
For now, so-called “early adopters” are content to play defense, moving tedious administration to dedicated service centers in hopes of reaping long-term cost savings or to standardize their HR processes. Kolbash at Yale said his shared-services team is getting set to reveal the full results of its first customer-satisfaction survey and will use it to make adjustments accordingly. “The early results of our survey [indicate] that transparency and partnership are paramount in creating a foundation of trust,” Kolbash said.
Meantime, more departments at Yale are inquiring about the services. Although using shared services is not mandated, all university departments and schools have fully offloaded accounts payable, payroll and vendor compliance to Kolbash’s unit. It also manages expenses for 40 percent of the school and financial management for 55 percent. “If a department can move work to us and free up resources for its mission, then, by every measure, our shared services will be a success,” he said.