Is a Shared Services Model of Human Resources an Effective Way to Deliver HR Services - Term Paper Example

Is a Shared Services Model of Human Resources an Effective Way to Deliver HR Services Summary Recent years, "a shared services model" becomes a very popular concept in a management practice. Many organizations try to implement this model, but most of them do not take into account possible "cons" of this approach. The studies on this topic pay much attention to advantages of "a shared services model", but do not explain its disadvantages and the reasons of failure. Also, they do not take into account the role of external environment as a major limitation of "a shared services model", and diminish the role and impact of poor staff performance. The resistance to change is another disadvantages of "a shared services model". For many organizations, it takes much time and efforts to overcome resistance to change and than, start to implement "a shared services model". Another "con" of the approach is that some organizations do not need centralization of their activities. Very often employees are neglected during the development of "a shared services model", so they feel lack of motivation and lack of training which resulted in failure. "A shared services model" is not only a cost reduction method, but a new system of administration. Introduction In changing economic environment, "a shared services model" becomes one of the most widely spread business strategies. The main problem faced by the companies today is that, in some cases, implementation of '"a shared services model" fails. And instead of benefits and cost saving companies have to make additional spending to restore their strong position. The concept of shared services is not new. It was introduced by Ulrich in 1995, but recent years, this concept becomes "a buzz word" (Shared Services, 2005). The main mistake made by some companies is that "a shared services model" is treated as universal "panacea" for managing people and organisations as it is intimately involved with the environment in general. The issue of a "shared services model" is controversial, because it is impossible to develop a single problem solving approach for all types of organisations and management styles. In some cases, "a shared services model" shows a great potential for organisations to save costs and implement quality services. Unfortunately, there are many organisations unable to implement changes connected with and caused by a "shared services model" as well as unable to foresee limitations of this model for their performance. The preliminary research finds out that "a shared services model" has disadvantages and a negative impact on the successful implementation of quality services as organizational structure is often neglected in the operational change. So, the aim of the paper is to examine and analyze disadvantages of "a shared services model" and to determine the main factors of poor implementation of "a shared services model" which caused it to fail. It is important to note that this is not a completely new concept, because it embodies the principles of commercial partnerships. "Organizations in other industry sectors have been using shared service centers for a decade or more to achieve economies of scale and drive greater process consistency, especially in geographically or organizationally dispersed business units" (Harris, 2004). Literature Review In 1995, David Ulrich in his article "Shared services: from vogue to value" (published in Human Resource Planning) described the concept of a "shared services model". Nevertheless, a slogan "the user is the chooser" created by David Ulrich became the core of this model. In 1997, David Ulrich published a book "Human Resource Champion" giving theoretical background of the concept and practical advice for those who want to implement a "shared service model". The limitation of his study is that he does not pay much attention to possible limitations of this model. Another guru of "a shared service model", P. Reilly (2000), gives detailed overview of the concept in his work "HR shared services and the realignment of HR". He explains that administrative tasks tend to be those most commonly covered by shared services. They include management information, pensions administration, training support, recruitment administration, relocation services, etc. Reilly does not examine the role of "a shared service model" on different industries and possible outcomes (including negative as well) if the model fails. M. Armstrong defines a "shared services" as "the central provision of HR services which are available to a number of parties and are therefore the same for all those who take them up. The nature of the services is determined by both the provider and the user" (Armstrong 2001). Such researchers as P. Kurtz, D. Anthea, (1998), T. Dewey, (2001) give recommendations for successful implementation "shared services", but they do not give a substantial analysis of the role of employees in this process. Watson Wyatt defines "shared services" as the "standardization of common administrative functions and transactional processes within an organization," e.g. call centers, and intranets". It is supposed that: "implementing a shared services center (SSC) should be made on a case-by- case basis looking at the organizations needs, structure and culture and whether it can support shared services" (Shared Services, 2005). There is some information about "cons" of this model, but it does not include interpretation of the results. It is evident that in the literature there are different definitions proposed to describe the nature of "a shared service model". The major layer of literature Ulrich (1995), Forst (1996), Bergeron (2003) gives recommendations for successful implementations of "a shared services model", but fail to analyze negative consequences of this model. They pay particular attention to a range of accommodation to the customer's needs. Most authors propose a theoretical interpretation of the problems faced by the companies, but neither of them based their research on a real data collection. For this reason, there is the need for the research in this area to examine "cons" of "a shared services model" and factors which influence its failure. These decisions can have multiple influences and effects on companies performance. In recent years attention has shifted to a greater emphasis on management of "a shared service model" and its relationship with other systems. The "shared service model" becomes a central provision of HR services, coping with different demands both within the management system itself and between that and other systems. Such researchers as Siscovick (2004), Reilly, (2000) discuss the role of "a shared service model" in management and emphasize the need of successful relations, but they do not explain what specific changes (actions) should be made for successful implementation of "a shared service model". The combination of goal difficulty and the extent of the person's commitment to achieving the goal regulate the level of effort expended. If employees understand specific goals of "a shared service model" they perform better than employees with no set goal or only a vague goal such as 'do the best you can'. It is important to note that the current state of the research lacks practical investigation and stat collection as for negative outcomes of this model. The major layer of literature gives a general overview of the problems faced by companies during "a shared service model" implementation stage, and provides recommendations how to improve its profitability. The researchers do not analyze causes of the problems connected with "a shared service model" failure. Most of the studies are theoretical ones and do not provide examples from real life. As a result, the application of complex quantitative techniques can produce a limited focus. The rational for the opposing view The goal of "a shared service model" involves "the aggregated provision of services between multiple, largely autonomous entities. They generate benefits through using a single group to provide a service to multiple agencies or units, rather than requiring each agency to provide the service on its own " (Harris, 2004). "A shared service model" tasks should also be designed and performed as independent modules that can be relocated or rearranged to support new requirements. The opposing view has the right to exist because some organizations successfully implemented this model mainstreaming high standards of performance. They show that the effective operation of any "a shared service model" is dependent on the maintenance of all parts of the system. Nevertheless, they mark that company technology or personnel practice is designed partly as a maintenance activity, e.g. training and retraining to maintain the availability of appropriate skills, facilities to maintain human capacity, counseling to maintain interest and motivation (Ulrich, 1997; Harris, 2004; Bunderson, 2003). However, recent studies suggest that successfully "a shared service model" requires an organization to first develop a transformation system that can consistently deliver high-quality outputs at a low cost. With this foundation in place, the organization can then seek ways to increase the variety of its offerings while at the same time ensuring that quality and cost are not compromised (Reilly, 2000). According to Harris (2004) "Cost economies in shared services are particularly effective with routine, high-volume transactions in areas such as finance, accounting and HR. Greater cost benefits can be achieved with shared-service arrangements because a profit component does not have to be paid as an external commercial service provider". The evidence of "cons" view Recent years, many companies have begun to develop global markets and have established face-to-face sales teams either directly, using their own personnel, or indirectly, through contracted sales agents. Nevertheless, in many cases "a shared service model" was not effective and did not reach stipulated norms. Having looked at the way in which "a shared service model" has evolved, it is clear that there is a role assumed by people responsible for it at various stages of development, connected with business units, as part of defining and producing a project plan. The "cons" of the model is that organizations do not take into account external environment as an essential part of "a shared service model". That is why, from the standpoint of successful management, a need to minimize risks in "a shared service model" is urgent. As environment changes, it poses new problems for managers of organizations. Thus, with the emphasis on "a shared service model" came the realization that increasing operating efficiency could also enhance flexibility. "A shared service model" change includes changing knowledge and technology, new values, new markets, and changes in the global distribution of wealth (Dewey, 2001). "A shared service model" unsuccessful change is a main cause of organizational failure. New knowledge, for instance, can invalidate the existing knowledge of an entire industry. When environments become turbulent, complex, and resource constrained, the knowledge and skills that companies once possessed can become useless, and even a hindrance to change. "Many companies fail to define, redesign, and correct broken processes before outsourcing them, another fatal error" (Forst, 1999). "A shared service model" acquires new knowledge and technology, and employs these assets in production quickly. Fast-changing technologies, such as information technology, pose a particular threat to organizations, and reduce the advantages of a "shared service model". "A shared service model" implementations fail because of inappropriate staff selection and recruiting. Many organizations which do not have resources are unable to use this model. It is possible to say that a large part of "a shared service model" task is getting things done through understanding staff requirements. Many organizations view "a shared service model" as simply a cost-cutting opportunity. But there is no data collection to illustrate possible loss if the model fails. Faced with increasing pressure from its customers for quicker order fulfillment and for "a shared service model" demands, employees wonder whether it is really possible to meet all "a shared service model" requirements, while at the same time continuing to reduce costs. On the basis of recent experiences in several of its key businesses, including computers, printers, and medical products, successful "shared service models" have concluded that this is indeed possible. The problem is that technology does not drive relations, and the importance of dialogue becomes more urgent for a successful implementation of "a shared service model". "Risk of higher costs as a centralized department lobbies for more resources" is also existed (Shared services, 2005). On the other hand, there are some organizations which do not need centralization of activities provided by "a shared service model'. However, such advantages frequently are not realised fully, and do not lead to an actual improvement in service. Some researchers (for instance Harris, 2004) notes that: "Shared services differ from centralized services. In shared-service arrangements, the service delivery capacity is an entity over which the customers have a degree of ownership, which differs from centrally imposed or externally purchased arrangements for service provision". Nevertheless, there are a number of contrary arguments against shared-service arrangements, including the criticism that it creates a more mechanistic structure and may result in lengthening the scalar chain. There are also positive arguments in favour of decentralisation: it enables decisions to be made closer to the operational level of work; support services, such as administration, are more likely to be effective if provided as close as possible to the activities they are intended to serve; it provides opportunities for training in management; usually, it has an encouraging effect on the motivation and morale of staff. The advisability of decentralisation must be considered in terms of: the nature of the product or service provided; policy making; the day-to-day management of the organisation; and the need for standardisation of procedures, or conditions or terms of employment of staff. Decentralisation generally tends to be easier to implement in private sector organisations than in the public sector organisations where there is a greater demand for the accountability of their operations, regularity of procedures and uniformity of treatment. "In creating shared services, there is a risk that centralization will make the operation become aloof and out of touch with the real needs of employees" (Shared services, 2005). To offer different levels of shared services requires flexibility on the part of the shared services, commonly obtained through advanced technologies or particularly skilled workers. There are more than a dozen different types of flexibility that shared services will not pursue here-design, volume, routing through the production system, product mix, and many others (Bergeron, 2003). In many organizations personnel are not connected directly to the concept of shared services, an approach that stresses the importance of developing long-term partnerships with customers. Shared services has been embraced by many companies that apply the concept when selling in the market; it is equally relevant-and perhaps even more so-to any company hoping to achieve success in global marketing. In developing personal and relationship strategies on an international level, the representative is wise to take a step back and understand how shared services strategies will likely fit in the environment. Nevertheless, most companies are unable to react to environmental changes which causes their shared services model to fail. Recommendations It is important to note that, usually, change originates within the organization itself. Much of the change is part of a natural process of ageing. For example, as material resources such as buildings, equipment or machinery deteriorate or lose efficiency; or as human resources get older, or as skills and abilities become outdated. Operational change in "a shared service model' should be managed through careful planning; for example, employees training; choice of introducing new methods of work; effective manpower planning to prevent a large number of staff retiring at the same time; management succession planning; staff development. It means taking steps to assess and satisfy future people needs and to enhance and develop the inherent capacities of people - their contributions, potential and employability - by providing learning and continuous development opportunities. So, the concept of "a shared service model" should be regarded as a philosophy governing how employees should be treated in the interests of "a shared service model' (Siscovick,2004). Organisaiotns should take into account that the value of "a shared service model" lies not only in assessing the viability of a particular strategic proposal, but also in assessing the ability of the organization to adapt to it. If organization is unable to meet all the requirements of this model it will fail. The key to ensuring that the model produces the desired outcome-building quality partnerships with customers-is to have it implemented and followed on a consistent basis. This is impossible to achieve it if "a shared service model" is neglected in the management of change. Introduce high recognition practices which recognize that employees are valued stakeholders in the organization and help to overcome many limitations of "a shared service model". The other disadvantage is that many organizations are not flexible in responding to internal and external changes. Conclusion Too often "a shared service model" is seen as a necessary expense to achieve output targets. It is not seen as providing long-term benefits or improving organizational performance. A common view of "a shared service model'. is an activity undertaken by large corporate bodies who can afford it. On the other hand, customers are more pleased with a high-quality product or service they receive. Top quality should establish a reputation for the firm that is very difficult to obtain in any other manner, and it allows the firm to charge a premium price. Different ratios have more relevance at different stages of the firm's development than at others, so that while profitability may be appropriate for established firms, productivity and sales may be more useful for newly established companies and cash flows may be more significant when firms are in decline. During implementation stage many employees do not understand the goal of "a shared service model" and cannot achieve results expected by the company. This shows interdependence between cons of "a shared service model" and employees motivation and understanding of their tasks (Kurtz, Anthea, 1998). Disadvantages of "a shared service model" apparent when one part of the system, technology, is improved to the detriment of other parts of the system, and perhaps the organization as a whole. "A shared service model" should ensure that it would be maximally responsive to customer needs. Doing so requires a general understanding of consumer behavior; in addition, an organization must collect and analyze as much information as possible about its future needs. "A shared services model" can become a panacea for present day management, but it has limitations which prevent many companies to use it in full potential. Theoretical studies provide a lot of useful information as for advantages of this model, but most of them do not account "cons" and their consequences for organizations. Many organizations do not need centralization of their activities which reduces their service quality (Bunderson, 2003). Nevertheless, some of them see cost reduction as the main advantages of this model, which causes them to fail. The main disadvantage of "a shared service model" is that organizations are not ready to implement change connected with this model. Their staff is not qualifies and cannot meet the requirement of this approach. The result of this policy is lack of personal interest and creativity in decision-making process and problem-solving tasks which reduce the level of productivity and profitability by other employees. References 1. Armstrong, M. 2001. Human Resource Management. Kogan Page. Behavior. 8nd edn. Boston: Kent Publishing. 2. Bergeron, Bryan. (2003). Essentials of shared services. Hoboken : John Wiley & Sons. 3. Bunderson, J.S. (2003). "Team member functional background and involvement in management teams: Direct effects and the moderating role of power centralization". Academy of Management Journal, 46 (4), pp. 458-474 4. Dewey, T. (2001). "Managing Cultural Change in a Shared Service Centre environment Acumen Alliance. Available at: http://www.acumen.com.au/sharedservices/article_cc.htm 5. Forst, L.I. (1996). New Operating Unit Delivers Better Results. Supervision. December. 6. Forst, L.I. (1999). "You Get What You Ask For" The Journal of Business Strategy. March/June. 7. Harris, R.G. 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