Moving Towards Shared Services
Increasing numbers of multinational organizations are moving to SS models to deliver their human resource (HR) function. Adoption of an HR shared services model migrates HR to a more strategic role at the corporate level and a more cost-effective role at the operational level. This transformation has been labeled ‘The 3 Pillars of HR’ and consists of Business Partners (HRBP), Centers of Excellence (CoE) and Shared Service Centers (SSC). However, shifting to SS is a long and laborious task: it is not a one-size–fits-all model and there are many challenges. In China there are three key scenarios of Shared Service Centers:
- A China subsidiary of a global MNC, rolling out SSC as a later phase of a global deployment
- A China subsidiary of a global MNC, rolling out SSC independent of corporate initiative in China or Asia Pacific
- China-headquartered organization deploying SSC
Why Shared Services?
Shared services can bring significant value to the firm. During an economic slowdown companies can streamline their administrative process to keep costs down and leverage economies of scale. However, it comes with significant risks. For example, lack of operational flexibility and increased system complexity are common faults – not to mention large implementation costs and concerns over SSC employee morale. There must be a strong business case for implementing shared services.
SS operations must be aligned with the stand-alone business model, the company structure and its service needs. The company must ensure thorough due diligence is done beforehand. Many companies will observe already established SSC before launching their own. This is a valuable exercise for seeking out lessons learned and best practices.
What goes into Shared Service Centers?
There is a trend towards combining HR with IT and Finance functions into a hybrid center. For HR activities this can include payroll, on boarding, RPO, translation and other personnel data management systems. The Center of Excellence (CoE), in comparison, houses strategic policies and governance. One current trend for firms is the gradual shift in responsibilities from CoE to SS. As previously mentioned, the activities assigned to SS vary from company to company.
Choosing a location
The geographical reach of the shared service center – China, APAC or Global – often determines its location. As most multinationals with China based SSCs are serving only Greater China, locations are often based on cost and operational conditions. According to the Shared Services and Outsourcing Network, the preferred locations for setting up a new shared service center or shared service relocation are: Shanghai (58%), Suzhou (17%), Chengdu (17%) and Wuhan (17%).
Important considerations include labor costs and talent pools including access to the language skills necessary to serve the center’s clients. For example, a center serving a North East Asian market may need Japanese or Korean language skills. To avoid competition some companies may opt for less favorable locations.
Implementing shared services and change management
The average project timeline for Shared Services is 3-5 years, although some companies choose a multi-stage implementation process to stagger the impact. Change management and getting buy-in from senior management is fundamental to the success of the project. Employees will need educating on new systems, policies and procedures which often meets with disinterest or resistance. Innovative ways to train and compel staff to align with SS will help (see Yum! case study).
For shared services to be successfully implemented, companies need to adopt strict standardized administrative procedures. Due to local deviations and for compliance reasons, China is often the exception in many globally standardized HR procedures. In the previously cited scenario ‘A Global MNC, rolling our SSC as a later phase of global deployment’, a hybrid model would likely be adopted. For those pioneering SS in China, local regulatory differences have a smaller impact on the standardization of process.
Many shared service centers behave as an independent business. For example, the business environment is based around customers or clients, setting KPIs and competing on efficiency. Many models of financing exist – Shared Service centers can be financed by charging per client, per monthly use of resources or outsourcing their services to other companies via temporary contracts. Pricing structures vary significantly and although typically set up to be revenue neutral some SSCs can replicate a revenue generating business model.
People management challenges in SS
The top challenge cited for MNCs with shared service centers in China is talent management, retention and attrition. Shared services work is repetitive, focused on the efficient completion of homogenous administrative tasks with limited career enhancement or salary increases. Companies must work hard to maintain staff morale and alleviate high turnover. Job design, compensation, leadership and incentives must be considered with care and creating a fun work environment for staff is important. The ability to recruit, train and make people effective very quickly is a core competence for centers to grow their teams.
Top tips for implementing Shared Services
- Change management and communications are not emphasized enough – be ready, the change is disruptive and prolonged
- Regionalization of Shared Service Centers (SSCs) is the current trend and the proven best practice; but language differences are overemphasized in the decision making process
- Prepare for cost overruns, time delays, and mistakes in early months of operation – but leadership invested in the outcome
- The extent to which the process design and standardization is carried out, will define the success of SS implementation
- Multinational organizations worldwide are moving towards Shared Services (SS)
- Shared Services is not a ‘one-size-fits-all’ strategy
- Top cited locations for Shared Services in China are Shanghai, Chengdu, Suzhou & Wuhan
Further information and resources
- Shared Services & Outsourcing Network: A Snapshot of China’s Shared Services and Outsourcing Market, SSON China, 2015
- Peter Reilly and Tony Williams, How To Get Best Value From HR: The Shared Services Option (Gower Publishing Ltd., Aldershot, 2003)
- Heckett Group, World Class HR Organisations, 2013
- Bersin By Deloitte, Impact 2014 The Business of Talent, 2014
- AmCham Shanghai HR Committee: Shared Services session I, II and III, 2015
To learn more about the AmCham Shanghai HR Committee, visit their website at: AmCham Shanghai HR Committee Homepage