2014 08 hro today web ex (building the business case for hr transformation) final

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HRO Today WebEx

Julie Fernandez, Director ISG

08 August 2014

Building the Business Case for HR Transformation

© 2014 Information Services Group, Inc. All Rights Reserved 2

Introduction and Session Topic

Julie FernandezDirector, Americas

With more than 20 years’ experience in outsourcing and

the HR services industry, Julie has led clients through

some of ISG’s most complex global assessments and

transactions. Julie leads global clients in their evaluation

of HR technology and services, designing sourcing

alternatives in both shared service and outsourced

models, and articulating the business case value to

support executive decisions and funding.

Julie is responsible for all of ISG’s HR/Payroll intellectual

property and for staying current with the HR and Payroll

market and service provider capabilities around the

world.

Building the Business Case for HR Transformation

In today’s funding environment, most HR

organizations are given no value for the “soft savings”

that exist beyond headcount and capital

expenditures. IT, Finance and other corporate

disciplines have successfully funded their business

cases with savings from cost avoidance, improved

manager/staff ratios, partial FTE reductions, and

increased productivity. But HR continues to struggle

to articulate fact-based cost savings and return on

investment (ROI) through improvements in processes

and technology.

This workshop addresses the ongoing challenge to the

HR transformation marketplace to produce a set of

fact based savings that HR can with reasonable

confidence base a decision on. What business value

metrics can the HR sourcing industry point to for

successful savings considered in “making the business

case”? We will review tools and techniques that can

guide Senior HR decision makers as they assess HR

transformation options and the means to quantify

expected business benefits and/or cost savings to

achieve them

Topic:

Phone: +1 248 425 6733

Email: [email protected]

Twitter: @ISG Julie


What We Will Cover

1. HR Transformation

2. HR Business Case Components

3. Approach and Resources

4. Business Case Trends


HR Transformation of Roles

HR Transformation is Rooted in Organization Change

HR Service Delivery Guiding Principles

� Shift transactional work to low

cost channels where

appropriate

� Streamline, harmonize and

automate programs, policies,

processes and technology

where ever possible

� Consolidate services across

Regions and Business Units,

where appropriate

� Ensure the right work is done

by the right resources

A strong business case is

required to support the

realignment of HR staff

(people cost), to add

enabling technology, and to

engage the services of a

variety of HR suppliers

Design

Architect

Develop

Evaluate

Institutional

Strategy

HR Transformation is about business change and is more than just the

consolidation of transactional work or implementation of new HR technology


HR Business Case Components

► Your current HR cost baseline (or “base case”) is a static point-in-time view of current HR cost and consists of the following major cost components:

� Direct HR Staff - fully loaded cost associated with in-house HR resources

� HR Operations & Technology – facilities, equipment, phones, and infrastructure for HR

� Third Party Expense – HR suppliers (e.g., payroll, benefits, recruiting, training services)

� Indirect Staff – FTE cost of support from IT, local HR, and others not part of HR budget

► The HR business case will identify changes to this cost over a projected number of years and is usually considered in two parts:

� Implementation – one time cost that is typically incurred as an up front investment

� Ongoing – changes to each of the base case categories above as resources are shifted to support a new model

► Notice that the traditional business case described above is focused on HR cost that resides mostly within the Operations Budget of HR or a related SG&A function

► Business Value in today’s discussion will refer to a wide range of savings and efficiencies that are not specifically tied to these traditional business case savings, but still represent a tangible value to the company


Business Case: HR Operations Savings

Historically, HR has been required to present a business case that is entirely

founded upon HR Operations Savings

Examples of HR Operations SavingsExamples of HR Operations Savings

► Direct Staff Cost Reductions

� Redundancy of HR staff

� Labor arbitrage

� Economies of scale or automation

► Technology Cost Reductions

� Replaced technology

� Global consolidation of multiple

applications

► Third-Party Spend Reductions

� Replaced suppliers

� Global supplier consolidation

� Lower cost supplier identified

Description and Common PracticeDescription and Common Practice

► Traditional business case approach expects

savings will come from reductions in

current HR Operations budget:

� Consolidation of internal roles

� Elimination of internal roles and

technologies

� Consolidation or replacement of third

party systems or suppliers

� Reduction in systems maintenance and

upgrades

► Many companies recognize a reduction in

allocated cost (e.g., IT support, facilities) for

resources that can be redeployed or

reduced over time


Business Case: HR Cost Avoidance

Many organizations will recognize the value of HR investment anticipated in the

coming years, but may only allow those identified as part of budget planning

Examples of Cost AvoidanceExamples of Cost Avoidance

► Future Technology Upgrades

� Functional and technical enhancements

� HR / Payroll Systems

� Talent Systems

► Interface development and maintenance

� Multi-country payroll connectors to a

global HCM

► Future Capital Expenditures

� Knowledgebase

� Contact center tools

� Data Warehouse / Reporting

� Real estate, seat costs, etc.


► HR is commonly underinvested, making it

costly to achieve best practice service

delivery.

► Cost avoidance for internal shared services

support comparable to that available from

an HRO provider is a material component:

� Portal for Self Service

� Workflow Automation

� Contact Centers

► Without including this cost in your business

case, it is extremely difficult to justify the

significant transition costs associated with a

successful HR transformation


Business Case: Value Creation

A final, and often broad, category of business case savings is Value Creation, which

is often considered “soft savings” or discounted as less reliable or verifiable.

Examples of Value CreationExamples of Value Creation

► Increased productivity of HR generalists

► Reduced employee turnover resulting from

talent management programs

► Payroll leakage on vacation time

administration

► Reduced time to hire and agency spend

based on new applicant tracking technology

► Talent management improvements due to

clear identification of skills tracked in new

talent management tool

► Improved decision making due to data

accuracy


► Strict financial analysis frequently discounts

or ignores business value estimates for HR

► While difficult to quantify, business value

represents tangible savings to the company:

� Leakage of gross payroll or benefits

dollars

� Impact to key staffing or performance

ratios

� Increased productivity or strategic

emphasis

� Reduced risk of financial or compliance

penalties


HR Business Case Results

Value CreationHR Cost AvoidanceHR Operations

Savings (Cost)

� Headcount reductions (full person)

� Current system or provider replaced

� Add or reduce outsourced suppliers

� Avoid interface development & maint.

� Eliminate need for planned HR system

upgrades and replacements

� Discontinue support for obsolete HR

systems

� Partial FTE – value freed for other

tasks

� Improved productivity

� Payroll Leakage

� Decision-making analytics

� Compliance penalties and financial risk

A business case focused solely on HR Operations cost will often strive for a cost-

neutral outcome over a 3-5 year horizon (domestic) or 5-7 year (global)


Socializing the Business Value of HR

► Most organizations today are given no credit for the Business Value that exists beyond headcount and capital expenditures associated with the annual HR Operations budget

► HR Transformation often requires significant investment in technology and change

management

► Other SG&A functions commonly justify such investments with efficiency gains and other

non-budget savings

► Business Value is known to result in real dollar savings, but the corresponding savings

and calculations are not yet institutionalized

� Business Value Metrics vary greatly by the context of your current HR practices and

data available

� There is no “one size fits all” calculation or savings

� Construct your business case with and without business value metrics, as they may be

discounted

► HR as an industry must better measure and document Business Value savings to further

the acceptance and recognition among Finance and C-Suite sponsors

Challenge: Building a better business case to fund HR Transformation


Approaching the HR Business Case

► Collect HR data early, including granular HR Direct Staff details and detailed

allocation of time by process for all HR Generalists

► Develop a global business case with regional detail to support decision-making

� Approvals and funding decisions typically require break down by region

� Financial results will vary greatly by region

o Resource-rich areas like the U.S. and Western Europe provide greatest cost

and savings

o Small countries and emerging populations require the most investment

► Focus on initiatives with certain characteristics that are likely to be “accepted” by

your organization as part of the business case:

� Ability to establish credible foundation for metrics

� Ability to identify the savings within budgeted or actual cost in the

organization

� Ability to communicate value of reduced compliance risks

� Ability to establish value for enhanced quality of service


Resources for Estimating Business Value

► An HRO Today research committee of industry-wide participants has produced a

Business Value Metrics Checklist for HR practitioners seeking to quantify

additional savings for their technology or transformation business case:

� Reflects a compilation of the most widely recognized Business Value drivers

today

� Describes the best practice or savings opportunity

� Includes Calculation Guidance, where available

► Institutional savings ranges are not readily available in the marketplace as a basis

for estimating the business value for your particular HR Transformation

► HR research reports and case studies are the most common means to articulate

business value – generally successful when an organization articulates many and

focuses to make a few key values “stick”

► Deeper experience and case studies provided by third parties is often an

invaluable in estimating Business Value expected from HR Transformation

Business Value is tangible and intuitive, but most HR buyers will fail to quantify it

in a way that will pass harsh financial scrutiny


Sample: Business Value Estimates

HR Service BVE Category BVE Calculation Reference Description

Talent Management

Employee

Retention

5-10% reduction

in annual

employee

turnover

'Exp Reduction =

Current Employee

Turnover expense *

5%

Case Study

– Company

XYZ

improved Employee/Manager experience by

making it easier to get accurate information,

process transactions, and resolve issues.

Employees have greater access to training &

career development support.

Talent Management

Time to Complete Transfer/Promotion

70% reduction in

time to

completion

Exp Reduction =

Current Time to

Completion * 70%

Industry

Study: Cedar

Crestone

Adoption of new HCM technologies allows for

a reduction in average time to complete a

personnel action.

Sample Business Value Checklist Items

Sample Business Case Estimates

Business Value

RecruitingHiring manager productivityAssume 1 hiring manager per location with an average salary of $45K/$18K spends an

additional 4 hours per month on recruiting administration that will go away.

$1.9M

Recruiting

Cost per Hire – Reduction in agency feesAssume 20% of COMPANY XYZ's 1,857 external hires go through RPO. Assume commission

of 20% on average salary $45K/$18K for a total $2.3M agency commissions. Estimate 5%

savings.

$117K

Total Recruiting $2.0M

HR Area Opportunity


To broaden leverage of shared staff, companies are more likely to consider a bundle

of functions including HR as a fit for a GBS model -- Shared Services or outsourced

Trend: Broad Global Business Services (GBS) Scope

Finance � General Ledger

� Accounts Payable

� Fixed Assets

� Accounts Receivable

� Travel & Entertainment

� Credit & Collections

� Tax Compliance

� Cash Management

� Billing / Invoicing

Human

Resources

� Workforce Administration and

Forms Processing

� Payroll Processing

� Benefits Administration

� Compensation Administration

� Learning Administration

� Training and Education

� Recruiting

� Relocation Services

Information

Services

� Standards

� Technology Development

� Data Management

� Applications Development

� Application Maintenance

� Telecommunications

� Hardware and

Software Acquisition

Legal � Litigation Support

and Co-ordination

� Environment, Health and

Safety Consulting / Auditing

� Regulatory Compliance

Corporate Affairs � Communication Services � Media Relations � Manage Required Filings and

Payments Globally

Supply Chain � Indirect Sourcing

� Direct Sourcing

� Order Management

� Spend Analysis

� Supplier eProcurement setup

Contact Centres � Customer Service

� Customer Orders

� Technical Service for Call Center � Contact Center Back Office

Processing

Sales and

Marketing

� In-Store Display Management

� Content & Catalog Management

� Direct to Customer Fulfillment

� Copy Preparation

� Web Development

� Sales Order Management

Other � Postal Services

� Data Entry

� Reprographics

� Document Management

� Facilities Management

� Corporate Real Estate


Trend: Using HR Staffing Ratios

► Without a firm understanding of cost, HR often seeks out broad HR Staffing Ratios to estimate the size and cost of future state organization

► Industry staffing ratios describe the size of HR without any means to ensure like-for-like scope, degree of retained vs. outsourced activity

� Nuances by industry, by company size are not readily available

� Variations exist by region, but ratios are commonly based on North America experience

� Companies operating in a decentralized model must consider the geographic span of HR necessary to serve employees

Exercise caution in the use of HR Staffing Ratios to size the future organization or

estimate business case savings associated with a smaller HR

Sample: HR Staffing Ratio

Employees Served Per HR Employee

Best-in-

Class

► Instead, a total cost benchmark can help anticipate cost

without bias and normalize for many attributes of scope,

size, geography, and complexity.

Sample: Total Cost Benchmark

Payroll Cost for COMPANY XYZ


Trend: SaaS Marketing

� Cost savings calculated on productivity

and staffing ratio assumptions, which

tends to underestimate future state HR

staff resources

� HR Operations savings is a negligible

part of these estimates and are often

questioned as funding requests are

escalated

� Projections showing 3:1 ratio of non-

people related savings to people-

related savings is an appealing message

► As part of the sales pitch for HR SaaS technology, we find more information being passed to HR buyers as a ready-made business case

► HR buyers are inclined to try to shortcut a detailed cost analysis by triangulating estimates and ratios with HR advisory and research sources

► Caution: HR often underestimates the business case rigor that will be required to fund a significant investment in HR Transformation

www.isg-one.com

Julie FernandezDirector, Americas

Phone: +1 248 425 6733

Email: [email protected]

Twitter: @ISGJulie

2014 08 hro today web ex (building the business case for hr transformation) final

Recruiting & HR

hr services industry

hr business case components3

hr organizations

hr transformation marketplace

hr transformation options

evaluation of hr technology

business case value

information services