Transformation, HR, Siemens

A one size fits all approach doesn’t always work

06 Dec 2004 | (Case Study)

When it comes to transforming your HR services, a practical, flexible approach should be adopted rather than trying to fit a straightjacket to the business, states Paul Knowles, General Manager for Siemens Business Services HRBPO. In this article, Paul looks at the journey organizations take when undertaking a radical transformation of their HR systems, processes and services and in particular the benefits achieved from realigning and restructuring these HR services. Paul also provides a case in point with his most recent experience at Siemens.

HR Business Process Outsourcing (BPO) – is this the latest fad?

I think we all know that Shared Services are now a proven approach to improving service levels and reducing costs. However, in my 25 years in the HR market, working predominantly for Siemens, I can count on one hand the number of times that I have seen so many leading indicators pointing in the same direction. These indicators are all showing signs that there will be explosive growth for the outsourcing of HR Services over the next few years.

For global organizations, the outsourcing of non-core functions has become not just a smart business move, but also a critical strategy for maintaining a competitive edge and increasing market share and shareholder value. But how many organizations actually realize the value that can be created by outsourcing what has been typically viewed as less mission critical functions?

I am staggered when I look at people costs and the fact that this is an area where investment is not made to deliver a competitive edge in the same way that organizations invest in enterprise wide systems and related technology. Recent research shows that people account for in excess of 40% of most organizations overall operating costs1. When we talk about people costs we don’t just mean PAYE but also all the costs associated with employment such as benefits, recruitment, and administration. For example, the cost of administrating HR on average is €1,500 per employee per annum. When you equate this to a global company the size of Siemens with 417,000 employees worldwide this represents a significant opportunity for cost savings if the organization were to align its HR systems and processes.

So as you can see, HR Shared Services and BPO can definitely deliver real bottom line benefits to organizations. But I am wary of talking about cost savings in isolation as ‘true’ HR transformation is not just about saving money. The value of the investment is also about increasing the value of the top line performance of individuals within the organization. Implementing an HR Shared Services strategy needs to be undertaken as part of the reshaping of the entire business. And it goes without saying HR transformation requires significant commitment. As I stated earlier HR is very rarely treated as the primary ROI for technology investment and outsourcing. Manufacturing, IT infrastructure or other areas of the business normally drive this.

Improving HR service quality while reducing the costs associated with service delivery

Traditionally, the majority of HR time and expense was devoted to routine, day-to-day administrative processes – for example, payroll, sickness and holiday. This is the transactional side of HR management - absolutely necessary but adding little in the way of value to the business. What usually happens is that organizations end up with very expensive specialists performing very tactical low value work. Add to this the fact that most HR processes are highly fragmented across local business units within an organization, and then multiply this across numerous countries and territories and you end up with very inefficient systems and processes undertaken by quite expensive resources.

In today’s highly competitive world, most HR departments are now being faced with a range of challenges – from tougher competition to increasingly complex legislation, from mergers and acquisitions to technology integration – and the HR department is finding that it must balance the traditional role described above with the emerging role of strategic advisor and contributor to both individual and business objectives. There is also pressure to increase shareholder value which is forcing HR to plan and manage its costs better, and a growing demand for more meaningful management information – often enterprise-wide; by group or business unit; to meet compliance requirements. This in itself is driving the need for common processes and approaches across functions or national/cultural boundaries.

The key to start balancing all of the pressures and challenges in today’s commercial business world is the transformation of their often fragmented and labor-intensive HR processes. By transforming the infrastructure, applications and standard processes which currently absorbs about 70% of their energy, HR departments will be able to demonstrate business value as well as concentrate on what really counts – more time for people.

HR transformation benefits not just those within the HR department but employees throughout the organization as well as customers and shareholders. The costs of reducing those cumbersome administration processes by outsourcing the repetition and routine, enables organizations to reinvest in other parts of the business. The value proposition for this type of change management program needs to be demonstrated to all the key stakeholders in the business to ensure their buy-in. From the Chief Executive Officer to the Chief Financial Officer and other departmental managers and employees – all should become partners in the common pursuit of excellence.

HR transformation can substantially improve your business performance and can take you from the historical practice of global HR delivery: -

• HR processes fragmented across business units and countries
• Expensive specialists perform low value work
• Lack of automation and technology standardisation
• Fragmented tactical outsourcing

To a new transformed structure delivering the following benefits:

• Policies standardized to allow automation
• HR specialists freed for higher value work
• Automated interfaces for standardized queries
• Common processes bundled together
• Standardization of applications and reporting

However, let’s face it outsourcing raises profound questions and perceived risks. Culturally organizations need to be won round to this approach – and it won’t happen overnight. Typically for most large global organizations you are looking at a commitment and investment in terms of time in excess of two years. With smaller mid-sized companies the HR transformation will probably take around 12 to 18 months. But it doesn’t always have to be such a giant leap of faith. During the HR transformation journey, different geographies or different business units can move at differing paces. Outsourcing on a global scale may not always work and organizations need to consider regional approaches and balance the overall HR transformation strategy against the needs of the individual business units. A one size fits all strategy doesn’t always work, flexibility is the key to global HR delivery.

Siemens – A Case In Point

To put this into context for the readers and to demonstrate how HR transformation works in practice, outlined below is my most recent experience. As one of the largest employers in Europe, Siemens has accumulated unique experiences and insights in this field. Building and managing what is probably Europe’s largest HR Shared Services operation (certainly one of the largest integration projects in Europe) we have proven capability and a thorough understanding of HR transformation.

Siemens is a business that has developed over 160 years, has 417,000 employees worldwide, spanning 190 countries. The diversity of Siemens products is enormous, ranging from light bulbs to nuclear power stations. With representation in many geographic locations, in recent years it has undergone quite a substantial change moving from a predominately German employee base to a truly global organization.

As you can imagine a company the size of Siemens has experience of most if not all of the typical business challenges faced by organizations regardless of their sector. Given its size, mix of IT infrastructure and as a manufacturer, mix of blue and white collar workers from scientist to managers to machine operators, Siemens operates in a complex HR environment. In addition, Siemens has expanded across the globe and it has had to learn how to manage an expanding workforce that has grown from its German heartland to employing today 70,000 people in the USA and over 45,000 in Asia Pacific.

In Germany alone the challenges and hence the opportunities were significant. Siemens had 180,000 employees, spread across 84 locations. Siemens set itself a target to reduce significantly the HR headcount supporting these employees and to reduce the number of HR departments in diverse locations from 84 to 6 regional Shared Service centers. As you can imagine with the size and complexity of the problem to achieve full HR Shared Services, it was critically important that we used a systematic and phased approach. As we stated earlier there is quite a heavy commitment needed and at Siemens we were fortunate in that we were starting with a common platform – the implementation of SAP R/3 HR – allowing us to provide an integrated IT platform for the HR organization. It was also critical to undertake a feasibility study to assess how far we could implement Shared Services across the organization, in effect a full HR Health Check. The HR Health Check provided a base for assessing ‘readiness for change. It also provided us with a methodology that allowed us to build a business case to justify the changes required as well as a systematic approach for assessing the cost-reduction potential.

To put this into context in a traditional HR function about 85% of the costs relate to people and around 15% relate to IT. By implementing a Shared Services program we were able to achieve a cost saving of 30 to 40% and we also changed the mix of shareable costs after transformation to 40% attributable to HR and people costs and 60% to IT.

Transforming HR – the key components

I think it is important to reinforce the key components that were achieved for Siemens through the HR transformation process:

• People and HR strategy – Siemens now has small teams developing HR plans and strategy; including key strategic interventions and assignments
• HR experts – HR specialists now work right across business groups in specialist areas such as compensation to reward and expatriate management
• HR business partners – that sit in the business as genuine business partners with strong business experience working ‘at the elbow’ of the line management
• HR transactions – this provides HR rules based processing with a Shared Service center and/or outsourcing.
• Interfaces and demarcation lines are very clear and embedded in the structure.



And in summary, I have outlined below the top tips if you like, the key lessons learnt, through our experience with Siemens which hopefully the readers will find helpful as they think about their own HR transformation plans.

The 10 critical success factors to Siemens HR Transformation

1. Top down executive commitment – you need buy in from all parts of the business but especially the Executive Board.

2. Overall strategy and vision for people management – you need to know exactly what you want to achieve.

3. Understanding the business, its organisational model and market value.

4. The need for a readiness assessment – baseline or health check

5. Attention to all the stakeholders – the ‘real’ customers if you like – make sure that you engage with managers and other employees both past and present.

6. Clear interface between HR business partner and the Shared Service Centre.

7. Consistency with the change management and communication plan.

8. Be prepared for a long-term commitment to the project – it won’t happen overnight.

9. Balance the benefits against the ability to implement – technology is not everything.

10. Don’t let the technology drive the project – after all one size doesn’t fit all!

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