Establishing Shared Services as a Strategic Partner in

Business

General Manager Dennis Farrell on Absa’s new operating model

By: Dennis Farrell

(Issue Details: Volume 7, Issue 1, March 2005).

During the last decade, corporations have searched for ways to slice, dice and
chop costs from their operating budgets. One aspect that companies have been
examining closely is how to consolidate and streamline various support services in
order to gain efficiencies of scale and provide a higher level of service. Many
organizations have found that it’s possible to reduce administrative costs by
anywhere from 20% to 30% by identifying the most efficient way to deliver a
particular service and then creating a customer-oriented mind-set. Absa set itself
on this path when it took shared services up as part of a new operating model.

Sharing services is more than a method for cutting costs. The idea is to reduce
inefficiency and save money, but also improve customer service. The question is:
what is the most efficient way to get a task done, and how to understand the
value and costs associated with it?

Shared services are blowing apart the barriers that previously constrained
organizations. When done right, shared services allow an organization to
guarantee customers a specific service level, at a specific price, and find the least
expensive way to deliver the services. In other words, shared services allow an
organization to do the work where it should naturally be done.

Background

Absa People Management is in the process of building and embedding a new

operating model, focusing delivery on “e-” as the first choice, and the contact
center as the second choice, of delivery and information sourcing (tier 1 and 2).
This results in HR consulting being positioned at a more strategic level of business
consulting. (HR is the term used if referring to generic issues; PM refers to the
Absa context.) The new operating model facilitates the creation of a shared
services function.

Previously, customer awareness and satisfaction were alien concepts to internal

service providers. Recognizing that these issues were rooted in the delivery of
staff services, some major corporations have concluded that organizational
change was needed.

Global Models and Trends in Human Resources

In a rapidly changing business environment, HR has to cope with the following

trends:

o A radically different workforce.

o An ever-changing workforce.
o Globalization (mergers and acquisitions).
o Downsizing.
o Rapid technological advances.
o HR functions becoming time-consuming and labor-intensive due to the fact
that they are moving towards a consultancy framework. Employees are
recognized as the most important asset of a company.
o HR focus shifts towards being a change qgent and business partner (in
accordance with HR trends and best practice).

The significant growth in HR business process outsourcing (BPO) is indicated by

the following trends:

o An expanded technology services market (e-peopleserve, 2002).

o A compelling value proposition (e.g. predictability, flexibility; e-peopleserve,
2002).
o A natural evolution whereby companies feel more comfortable in outsourcing
complex services (e-peopleserve, 2002).
o Competitive landscape: HR outsourcing is attractive to providers (e-
peopleserve, 2002).
o Technology-enabled delivery (epeopleserve, 2002).
o Models of future corporate structures (with the movement towards a virtual
network) indicate an increasing use of outsourcing (compensation
technologies).
o Previously, outsourcing was mainly for cost-containment (e.g. cafeteria
services, IT network management and security). Today, outsourcing focuses
on competitive advantage; many important services are being outsourced
(e.g. auditing, personnel administration etc.).
o Enables companies to focus on their core capabilities (compensation
technologies).
o Basic technology and enhanced technology is complex and expensive (Human
resources, 2003).
o HR executives are looking for ways to attend to strategic business support
opportunities and remove themselves from daily operational tasks (Human
resources, 2003).
o Improved decision support and control – more reliable employee data and the
ability to access this information (Process excellence, proven results, 2002).

However, as opposed to outsourcing, some companies prefer an internal shared

people service, preferring a situation where both suppliers and customers are part
of the same organization. Staff are also given the opportunity to circulate
between shared services and internal customers (Reilly & Williams, 2003).

Shared services provide high-quality, low-cost financial and support services

through consolidation of "economy of scale" operations while continuously
improving the customer experience, and often meet the following criteria:

o An organizational unit with consolidated, dedicated resources.

o Focusing on the (internal) customer - this is not a corporate entity.
o Provides both transaction processing and selected knowledge-based services
to various organizational entities.
o Operates as a business – tend to charge market-rate fees for their products
and services and have a bottom line like any other business.
o Service center locations are typically located away from their customer's
headquarters.
o Technology is leveraged to improve communications with customers.
o Operating units may be given a choice of whether to use the services (usually
when scale has been achieved). Corporate governance, however, usually
determines that all services must be delivered by the internal Shared Services
organization.
o Use performance measures and service level agreements to ensure internal
customer satisfaction.
o Generally operate, organize and receive incentives to enhance overall
productivity and quality of service.

Reilly and Williams define three key dimensions that distinguish shared services
from other models:

o Primarily, the customer determines the nature of the services provided.

o There is a common provision of services.
o These services are available to a number of users.

At Absa, the shared services model was important for the following reasons:

o With increased devolution of people responsibilities to the line, and

administrative work being outsourced or automated, management are
beginning to question the value that the HR function can add.
o From a strategic HR perspective, the new operating model in Absa anticipated
the shift, positioning HR as a strategic business partner. At the same time an
internal shared services function was established so as not to leave the line
without support during the transitional and implementation phase of the new
operating model.

Methodology

The case study, a qualitative research methodology, was used to collect

information for the consulting report. Yin (1994) supports the use of a case study
as a research strategy. According to Stake (1995) the intent of qualitative
researchers is to promote a subjective research paradigm. Subjectivity should not
be seen as a failing that has to be eliminated, but as an essential element of
understanding. In this study, the author of this report simultaneously fulfilled two
roles: that of evaluator and that of interpreter.

o The Case Researcher as Evaluator: All evaluation studies are case studies.
o The Case Researcher as Interpreter: The researcher has recognized a
problem, puzzlement, and studies it, hoping to connect it better with known
things.

Stake says that qualitative inquiry is subjective and new puzzles are produced
more frequently than solutions to old ones are provided. The contributions to
disciplined sciences are thus slow and tendentious; results pay off little in the
advancement of social practice; ethical risks are substantial; and the cost in time
and money is very high. Given this information, the reader should be cautious
when drawing conclusions. Yin supports this in saying that, for teaching purposes,
a case study need not contain a complete or accurate rendition of actual events;
rather, its purpose is to establish a framework for discussion and debate in order
to learn.
An effort was made towards validation, by means of “triangulation,” which Stake
(1995) describes as:

o Data source triangulation – see if the phenomenon or case remains the same
at other times, in other spaces, or as persons interact differently.
o Investigator triangulation – have other researchers take a look at the same
scene or phenomena.
o Theory triangulation – by choosing coobservers, panelists, or reviewers from
alternative theoretical viewpoints.

To the extent they agree on its meaning, the interpretation is triangulated.

Although triangulation was applied at Absa, it should be done even more
extensively and in depth, in order to be able to draw accurate conclusions for the
future. In the study, the following process was followed:

o Data gathering – Interviews were conducted with Dennis Farrell, General

Manager, People Management Shared Services Absa; literature/document
reviews were done; several providers of HR outsourcing services presented
their cases to Absa management group; best practice trends were identified
and verified against the outcomes of the intervention.
o Organizing the data gathering - a team effort between the consultant and the
project sponsor.
o Access and Permission - the author of the report signed confidentially
agreements not to disclose sensitive information to other bank groups.
o Observation – in the next step, after the case study is published, more
knowledge will be gained in terms of how people experience shared services.

ABSA: Migration to a Shared Services/ Business Process Outsourcing

model

According to Reilly and Williams, a key issue that will determine what you put in
your shared services, is how much you retain within PM/HR and how much you
devolve to line or pass to employees under a self-service system. In Absa, the
following services were identified as being used by the whole Absa group (all the
business units): payroll, People Management contact center, employee wellness,
management services, PM systems and processes and Centers for PM. The
decision to include an item or not was determined by whether the work was
deemed straightforward (transactional and repetitive?) and whether cost was a
primary concern.

Reilly and Williams also state that at a more detailed level, there are questions to
answer on the number of staff to be employed; and whether the roles you create
in a shared services structure are specialist or generalist in nature. They conclude
(2003, p. 30) that if you introduce shared services the constraints experienced
will vary from organization to organization. Namely, the outcome of the design is
likely to be affected by the following intent:

o Are you going to eventually sell your services externally?

o Are you going to offer them to other parts of the business, e.g.
internationally?
o Are you going to create SLAs with your business partners?
o Are you going to count PM costs as part of a corporate overhead?
The Absa internal shared services function is a form of insourcing. The rationale
here is that knowledge of the organization and its processes are vital to provide a
good service. The shared services function is situated both at corporate HQ and at
the decentralized Centers for People Management (Johannesburg, Cape Town,
Durban, Pretoria and Bloemfontein) and is run as a cost centre. The shared
services function is thus positioned between the corporate organization and the
business units (Reilly and Williams).

Reilly and Williams also state that employee self-service or the broader concept of
e-PM refers to the electronic means by which staff can gain information, add data
to systems, and carry out transactions. In the most developed approaches, the
result is a fully integrated, organization-wide electronic network of PM-related
data, information services, databases, tools and applications, that are generally
accessible at any time by employees, managers and PM professionals. Corporate
intranets are the means by which this is done initially: the intranet is the
precursor to giving wider access to employee data. Line managers are given on-
line access to employee records. This is aligned with the B2E (Business to
Employee) portal and has as its foundation both ESS (Employee Self-Service) and
MDT (Manager's Desktop).

Ease of access to technology will be an important determinant of how far and fast
e-PM is launched, according to Reilly and Williams. In some organizations nearly
all employees have a desktop computer. Those that do not would be able to get
online through computer kiosks. Absa is conducting an intervention whereby all
employees will have access to technology. This intervention is referred to as LAN-
DP. Speed of progress within an organization will probably not be determined by
technological capability alone, but also by culture - how much is the organization
prepared to devolve responsibility to the line managers or employees?

Why consider e-PM options? Reilly and Williams list the following benefits:

o Cost savings - fewer people are needed to deal with queries or transactions as
they are managed online.
o Better quality information online as those with knowledge or expertise have
loaded the material.
o Improved management information based on better records.
o Higher levels of knowledge-sharing and collaborative working across
organizational boundaries.
o Greater proportions of the workforce are able to work remotely.
o More sophisticated and informed decision-making.
o Empowerment of staff so that they have more control over their lives;
providing them with easier access to information.

Reilly and Williams list the benefits to colocating a combination of different

services in one place:

o Having staff in one place allows techniques like buddying, which helps with
cover and coaching.
o Improved learning can be achieved.
o Escalating problems to a higher level of expertise is easier.

The new PM operating model was the key influence on the design decision. The
idea is to staff the internal shared services division with people who are
generalists, but to expect them to develop an expertise in one subject. This is one
method of balancing the generalism/specialism tension.

The Outsourcing Decision

The decision whether or not to outsource has to be taken. We had to settle not
only what to outsource, but also why and how to outsource a specific function.

The following should be taken into consideration when outsourcing:

o Determining the contract strategy - BEE (Black Economic Empowerment).

o How to manage the outsourcing process.
o Who is responsible for the tendering process - is there a tendering process?
o Who will assess the tendering process?
o Determining the contract length.
o Developing clear control procedures.
o How will the transition process be managed?
o How and who will manage the contract?

Appoint Staff

Once the overall design of the structure was in place and specific roles described,
staff members had to apply. Reilly and Williams highlight a number of factors to
be considered when appointing staff:

o How many posts could be filled internally with little prior training - in
other words: how many people could be placed in positions with their
current competencies?
o How many jobs could be filled with good internal candidates but
substantial training will be needed before they can be fully operational?
o How many jobs offer no choice but to appoint external staff?
o Personal computer literacy is vital.
o The employees were faced with the following options:

o Apply for your current post if it falls within the scope of the new
operating model.
o Apply for another job if you feel that you could acquire the necessary
competencies needed to perform the job.
o Apply for another job in Absa and be redeployed.
o Be retrenched.

The above statements applied to both the roles available in the new PM operating
model as well as for the intended shared services function. Absa PM wanted to
emphasize continuity in their service delivery as well as customer knowledge and
familiarity. Most employees were re-deployed and the retrenchments amounted to
only 16.2 percent in total. There is a risk in any new model that the service
quality is likely to decline before it improves. Keeping some form of continuity
helped smooth the process with the customers and to reassure staff that the
implementation process was still a work in progress. Line liked having a single
name to contact during the transition period and liked still being served by a
person that they knew.
Since the start of this transition, there has been movement in the teams so as to
allow greater flexibility of deployment and to avoid too much narrowness in
attitude developing. The greatest movement was experienced in the shared
services function where a number of new appointments were made.

Reilly and Williams emphasize that the main aim is to ensure that, at the end of
the process, you have the right people in the right places as far as possible. This
means that you should recognize the distinct skill sets for different roles – not
just a question of level, but of type of work. The main aim is to try and balance
the benefits of bringing fresh blood with new ideas and experience, with the need
for organizational continuity - the knowledge of the organization, how it works, its
culture and its people. Another angle to consider is creating flexibility in your
resourcing mix.

The shared services function achieved this by appointing a number of new staff
members as well as making use of the services of an external, independent
consultant who operates as part of the core team. Continuity is achieved by
having the original team members in key roles. The flexibility and innovative
solutions and views thus come from the new members in the team.

About the Author

Dennis Farrell
General Manager
People Management Shared Services
Absa
email: dennisf@absa.co.za

Dennis has 23 years of service with Absa, both business- and HR- (People
Management) related. Over the past 10 years, his focus has been on strategic HR
management and the positioning of People Management as a world class HR
organization. Dennis has now implemented an internal People Management
Shared Services function within Absa, which allows for flexibility to adapt to
change and be positioned to embrace external business opportunities.

Dennis sits on the Editorial Board of Shared Services News.

Copyright © 2008 SSON. All Rights Reserved.

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