In a globalised environment, how do organisations with small employee numbers and a wide geographical distribution make the case for HR technology investment or outsourcing? Rachel Anderson advises.
The demands of a multi-national environment mean organisations often have sophisticated local HR requirements but with a small number of employees in each location, which often means it is hard to justify significant investment in HR technology or delivery solutions.
In this type of environment, how can you make a financial business case for a major Enterprise Resource Planning (ERP) or outsourced solution where the implementation costs may not be significantly different whether there are 10,000 employees or 1,000? Lower cost, regionally focussed Tier 2 systems and outsourcing solutions have historically not offered the required geographical coverage or functional scope.
Fortunately the market has evolved in recent times and there are a number of software and outsourcing solutions emerging to meet this need. This article explains the options available to such companies, investigates their pros and cons and reveals the positive impact these new solutions can have on the business case for HR technology transformation and outsourcing.
The problem
Global solutions are often highly complex, requiring interfaces to local systems, accommodation of local processes, legislation and language. Implementation of technology and outsourcing models can be complex and costly and the need for local contacts and expertise also detracts from the business case.
Many organisations follow the model whereby a relatively small number of in-country operations hold the majority of the employee population, with the rest of the organisation made up a large number of small local offices with only a few staff at each location. Such structures are common in professional services, financial services and insurance services where the need for some local presence in a number of locations is business critical.
However, in this type of environment the law of diminishing returns usually determines that the financial business case for transforming HR will be made by the top few countries or sites, and moving the remainder of the countries or sites onto a single model can cost far more than the financial benefits this brings.
Nevertheless, the strategic benefits of having global HR delivered on a single solution are many:
- Reduced risk and cost due to having a single view of the workforce
- Optimum use and control of the talent pool
- Allowing HR globally to focus on driving the business forward rather than being tied up in low-value administration.
Despite this, organisations have historically shied away from implementing new technologies and organisation models for the ‘long tail’ countries (the high number of countries with a small number of employees) – avoiding cost, but also foregoing the benefits.
What’s changed?
Suppliers of technology and outsourcing services have recognised that this is a barrier to helping their clients gain full benefit from their services. An increasing number have brought to market creative solutions to this problem, either through partnering with specialist ‘point solution’ providers or by developing their own solutions to integrate key HR data from local technologies at low cost.
Many outsourcers, such as Logica and Excellerate HRO, will run outsourcing services on a mixture of their own software and their clients. This means that companies can implement a 2-tier solution, with a simpler system for smaller countries running alongside an ERP solution for larger ones, and still have a global view of data and the option to outsource.
What are the solutions?
For those who don’t want to go down the route of a global ERP, which may still be considered ‘overkill’ for small or dispersed operations, there are a range of options.
- Pre-configured, ‘low cost’ ERP solutions, such as Oracle’s SIMPLY solution, have all of the advantages of a global ERP, but the pre-configured modules allow low-cost delivery provided the organisation is prepared to accept the supplied processes. Such solutions do require discipline to implement and may not provide specialist functionality, for example around talent management. Whilst they are cheaper to implement than traditional approaches, they are still relatively expensive.
- Regional or local Tier 2 solutions, possibly integrated with an ERP, can be run in-house or as part of an outsourcing model. Middleware solutions make integrating with a global data warehouse a simpler proposition, allowing access to global management information These are simpler and quicker to implement, lower cost, and may provide more specialist functionality. Unfortunately coverage is rarely global, requiring the integration of several regional solutions.
- A number of outsourcers, such as Patersons, will provide a consolidated HRO Service, running on top of these regional Tier 2 solutions, and even have their own technology solutions for small and dispersed populations. Payroll and HR data changes can be accepted in a variety of formats or input into the providers’ own software and the provider will take responsibility for producing consolidated payroll and HR results – making a global view of HR data accessible to the smallest of countries. These solutions integrate with ERP solutions, allowing an organisation to take advantage of greater functionality in larger countries, while still maintaining global control in the smaller countries. Many of the major HR outsourcers have partnered with such companies, allowing organisations to have the best of both worlds – a full HR suite, including outsourced service delivery where appropriate, for the larger countries, coupled with a global view of HR data. Of course there is an additional a layer of coordination to be factored into the price.
- Many specialist ‘point solutions’ have developed over the last decade that serve the ‘value-added’ services that many organisations struggle to develop in a technology solution such as learning and development, performance management, resourcing and compensation (often grouped as ‘talent management’ solutions). Many of these solutions are offered as ‘pay-as-you-go’ web-based offerings under the banner of Software as a Service (SaaS), a term given to software configured and held centrally accessed by users on an ‘on-demand’ basis. This can alleviate the need for capital investment in a new solution and greatly simplify the task of implementing software locally. Many outsourcing providers will even administer transactions on a clients’ chosen SaaS technology. However, the opportunity for customisation may be limited with this model and delivering a full suite of HR technologies via SaaS can require a complex operating model with many interfaces and strong governance.
While the market has recognised and is responding to the need for solutions for small and dispersed organisations and while, as yet, there is no single solution, a combination of these options – for example SaaS for the more strategic aspects such as talent management and recruiting, coupled with a consolidation service for HR and payroll master data – means it is possible for smaller organisations to develop a global view of their human resources. However, the challenge for the market remains to develop a single, cost-effective solution for this population.
Rachel Anderson is head of outsourcing advisory services at Orion Partners, business advisors who specialise in supporting HR transformation. Rachel can be contacted at [email protected]
