Considering outsourcing options
Progress in web technology has made outsourcing of many business functions more practicable, while competitive pressure is also leading companies to examine the benefits outsourcing has to offer. Martin Morris takes a look at what can be achieved and what has been achieved at Cadbury Schweppes.
The argument that firms should outsource administrative functions has become a persuasive one in recent years - not least because finding ways to cut costs and improve efficiency in an increasingly competitive business environment has become not only the prime objective but, with progress in web technology, a realisable one.
One of the functions increasingly being outsourced, for example, is management of the corporate payroll. For firms the obvious benefit is that tasks can be delegated to dedicated specialists; the firms can then pursue more general strategic objectives. They can also cut costs through streamlining processes and, if need be, reduce the number of employees in the HR department itself. How drastic such implementations are and how significant they should be - once 'problems' have been identified and the potential for cost savings examined - will of course be determined by the companies themselves.
Why is this all necessary, apart from the obvious? Well simply put, the proliferation of UK employment legislation and subsequent pressure to revise and formulate new HR policies and procedures has also made it more difficult and time-consuming for the said departments to achieve compliance. Hence, by outsourcing less critical functions organisations can reduce the risk of non-compliance as well.
Indeed, HR departments face an ever increasing amount of time spent on planning responses - the Employment Act 2002 having heralded new provisions governing maternity, paternity, adoption, parental leave and flexible working. And there's more to follow, namely major changes in discrimination law, with discrimination on the grounds of religion, belief and sexual orientation being outlawed, as well as new initiatives on age and statutory procedures on discipline and grievance. When these are brought in, the task won't become any easier.
The business environment meanwhile is becoming more competitive and that, by definition, will heap additional pressure on HR departments not only to demonstrate they have strategic focus, but that they can also contribute to the bottom line by cutting their own costs.
Outsourcing should never be seen as a quick fix, or an easy route to cutting costs, however. Indeed, like any IT venture, a successful outsourcing project needs a well-researched business case, specific goals and a firm return on the investment model before implementation should even be considered. Done well, it can compensate for scarce internal resources, as well as save time and money by allowing businesses to concentrate on core skills. Done poorly - for example when a company doesn't fully appreciate that it loses control of the outsourced activity - it can have the type of negative impact on employee morale that may prove highly counterproductive.
It is also worth pointing out that while firms may have a better understanding nowadays of the need to invest in IT systems to automate and reduce costs, many still miss the mark by failing to exploit fully their systems when it comes to HR functions generally and, more specifically, in the area of employee training and performance management and work appraisal.
Also a large percentage of corporate IT systems seen today have evolved over time, independently of each other - this resulting in a wide range of disparate and fragmented systems. Incumbent systems have become intensely complex and, as a result, the operational challenges have become overwhelming in many cases.
But as the following case study highlights, operational challenges can be overcome.
This company not unreasonably recognised that a global HR strategy is necessary in today's market place, to cater for a more mobile workforce. Having made that determination it elected to dispense with localised systems and processes in favour of a more standardised approach. The net consequence of this was to completely overhaul business processes and supporting information systems and to integrate diverse legacy systems into regional enterprise networks - all of this part of a more general process of standardisation.
Key issues quickly identified included the fact that some of the companies within the group operated their own independent personnel and payroll systems. Hence the key objective was to replace localised systems with an integrated service centre providing a range of HR facilities and improving employee administration.
The business was reliant on four legacy systems that had limited functionality, hence processes needed to be re-engineered to identical standards across all four business units. Also identified was the fact that the quality of management information generated from legacy systems was inadequate. Therefore more sophisticated reporting tools were required for analysis purposes - the business seeking to streamline its business processes and achieve cost savings through integrating administration of personnel records as well as payroll. To this end each employee was to have a unique identification number so that they could be identified regardless of location or group company.
Software vendor, SAP, was selected to replace ageing personnel and payroll systems, not least because its product was already installed in North America. In addition, an integrated SAP system was already in place for the financial and commercial operations at Cadbury Schweppes, so as to maximise information transmission between applications; SAP was the chosen system for HR and payroll.
Cadbury Schweppes sought a partner with experience of HR and payroll, and a track record of delivery on time and within budget. Pecaso Consulting matched the desired profile and worked closely with the firm to set up the business plans. As Peter Waring, Cadbury Schweppes' SAP HR Project Manager put it, "This early involvement by Pecaso in setting budgets, resources and timescales meant that there was joint ownership right from the start, and a keen sense of shared purpose has emerged throughout the project."
A 20-month project was kicked-off to implement SAP HR throughout the UK businesses on a common basis, and business processes were harmonised in parallel where appropriate. The result?
Implementation meant a fully integrated solution now exists - this providing not only a complete personnel and payroll service for all UK businesses but also better facilitation when it comes to the transmission and sharing of data. Other benefits have included improved productivity due to faster, smarter reporting, as well as the ability to make swift comparisons of data because processes for calculation have been standardised. Meanwhile, manual administration has been reduced, thereby cutting the time and cost associated with employee information administration.
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