HR outsourcing is a crucial stage in the evolution of any company's HR function. However, as with in-house delivery of business processes, the outsourcing model is only effective if it is constantly developed and modernised. Often, the implementation of one and the same outsourcing model differs substantially, and clients have to choose the most suitable option.
The company's development in Russia is an example of the evolution of HR outsourcing within a single organisation. The compensation and benefits manager answers HRM.ru's questions.
To answer that question you need to understand the company's specifics. The thing is that our company is strongly oriented towards outsourcing: in our view, it is more beneficial for us to give up most non-core processes instead of trying to build them ourselves. The company's main strength lies in producing high-quality perfumery and cosmetics, and not at all in precise HR record keeping or timely payroll. We are ready to give non-core processes to external contractors and to pay for their services if they are genuinely professional and effective.
I would note that HR outsourcing is not the only example of this model used in the Russian representative office. In particular, our company has long used the IT outsourcing model for a number of corporate systems.
A largely similar situation applies to HR management processes: in fact, the question of moving to outsourcing has never arisen for us, because we have always used this model in Russia. The difference is that the list of company processes handed to a third-party provider is constantly growing, and the processes themselves evolve.
For quite a long time we only used payroll outsourcing. HR management and record keeping proper were delivered within internal systems, but those systems were global in nature and did not take account of the specifics of Russian legislation. The situation changed radically in mid-2009, when we discussed the matter with our provider and decided to hand over additional record-keeping processes. Here, though, we are no longer talking about classic outsourcing but about providing access to a management system under the Software-as-a-Service (SaaS) model.
This point needs a little more detail. What, really, is classic outsourcing? In effect, it is handing processes to a professional service provider. But the provider cannot simply work in some abstract environment, because you will still have to supply it with some data, somehow control its activity and make sure it does not make mistakes.
Of course, we would like to do that for every non-core process, but it is not always economically justified. For example, in the case of payroll we can give the contractor the whole process, because it is formalised and clear. Once a month we send the contractor information and receive payslips from it. But in the case of other HR processes, classic outsourcing is not always so good, because we will still have to do part of the work ourselves. In particular, if we need to create a record for a new employee, it is easier to add them to the system straight away than to send information to the contractor asking them to do it for us.
The SaaS model we use for HR management is a kind of intermediate link and amounts to outsourcing of the information system. The difference is that the system provided by the contractor under a lease agreement is used by our employees, not the contractor's. That ensures the required flexibility, while we remain within the outsourcing model that is a priority for us.
We completed the move of HR to SaaS in the second half of 2009, and at the beginning of 2010 a project was launched to move payroll to a new calculation system. The reason is that our provider at the time, UCMS Group, calculated salaries in the Scala system, while HR management had initially been moved to a new UCMS product, the UCMS WorkForce system. So it was quite logical that we soon moved the second part of our payroll-related business processes to that system as well.
I would add that within this transition the essence of the processes stayed the same: the contractor still calculates our salaries, that is, for this part of the processes we use classic outsourcing. For the remaining HR management processes, by contrast, we use only the SaaS model.
Of course we could have done that, but would there be any point? I will give a simple example: imagine you are choosing a mobile phone tariff. One company offers a standard plan with ordinary monthly payments of, say, a thousand roubles, while another says: first wait six months while we enter the plan into the database, then pay 50 thousand at once and use the phone for as long as you like. Yet the functionality of the tariffs is absolutely identical, and you can call the same phone numbers.
Obviously, in that case no one would pay 50 thousand: such a tariff would only pay for itself after four years, but by then the situation could have changed radically, new technologies could have appeared and this communications standard could have become irrelevant altogether. And you would certainly be charged extra for refining and fine-tuning the tariff.
With HR management systems the situation is exactly the same. Why should we spend a pile of money on licences, load the IT staff with extra work and wait several months for the system to be implemented? And all of that with no guarantee of payback.
It is far easier for us to go to a contractor who gives us a login and password to an already configured and deployed system. And that is exactly what SaaS offers clients. And I am genuinely surprised that this model still does not occupy a leading position on the Russian market.
Of course, in real life things are not so simple: within our cooperation with UCMS Group it took about two months to fully configure the system for the company's needs. But if we had bought the system in-house, those timelines would have increased several times over.
I would add that the SaaS model has another important advantage: since you do not pay for licences up front but spread the lease over time, the provider is constantly motivated. It is in their interest to work well, because otherwise the flow of lease payments would stop. With the standard scheme there are of course also payments for technical support and refinement, but they are far from always a good motivator. It is always more profitable for system vendors to sell licences, because in getting such contracts they bear no additional costs at all.
Perhaps the answer to that question should start with the scale of the projects. The payroll outsourcing projects and the move to HR record keeping in the SaaS system cover the entire Russian representative office: around 1,000 employees in the Moscow office. On top of that, not long ago we built our own plant in the Kaluga region and are now actively recruiting. We plan that HR management for the plant (around 600 people by the end of 2011) will also be carried out in the same systems.
I would note that since the specifics of the representative office and of production differ substantially, we needed to make a number of refinements to the system's functionality that fully cover the plant's needs. In addition, integrating the Kaluga division into the common system allowed us to test operation with geographically separated offices. It is fair to say that today we have a powerful HR platform with rich and flexible functionality that supports all the main HR management scenarios in virtually any large company.
The project to move HR management and record keeping to the UCMS SaaS system started in summer 2009. By the end of the year the first stage was complete, and we were ready to start migrating the payroll system to UCMS. By March-April 2010 we had completed that process too and put the whole platform into commercial operation, which continues to this day.
From our point of view, the transition went fairly smoothly and was broadly successful. Much of the project's success was due to the approach to setting requirements: at the initial stage we sought to minimise specific requirements on the provider and limit ourselves to implementing only common business processes. Later we looked at what emerged during the project and set more specific requirements, and those requirements often differed from our initial vision. That way we avoided the most common problem of such projects, where the client wants something but the provider does not understand the goals and rationale behind the client's requirements and therefore cannot implement them properly.
I would emphasise separately that this attitude to the provider did not mean an easy life for them. Yes, we did not demand that impossible tasks be solved in a limited time, but if a real task was set and agreed, we imposed strict requirements on its solution. That way we ensured the smooth and natural development of the platform to its current level.
Of course, we had to overcome a number of minor difficulties and problems, without which no successful project can happen. For example, when moving from one payroll system to another we had small discrepancies in the calculation results. Sometimes there were problems related to user conservatism, as it was not always easy for people to move from one system to another. On the whole, such difficulties were entirely workaday in nature and were successfully overcome during the project.
Speaking of difficulties, it is important to note another fundamental point related to our interaction with the provider. The thing is that we effectively use a hybrid scheme: within one and the same system installation our employees handle HR matters while the outsourcer's employees calculate salaries. And since the installation itself is single, we have to pay particular attention to synchronising work with the outsourcer, carefully monitor data changes and introduce special interaction procedures. Of course, all of that creates certain difficulties, but the advantages of this approach outweigh them: at the end we get a unified picture of everything that happens with our employees. And in addition, the ability to access the system lets us control the outsourcer's actions and ensures maximum transparency of their work.
All the processes of our interaction with UCMS Group can be divided roughly into two parts. On the one hand there is planned work: payroll and support of the SaaS HR management platform. On the other, there are special requests related to possible refinements of the system and the delivery of additional services.
Naturally, planned work happens on a daily basis. The main calculation takes place once a month and usually takes three working days from the moment the data is sent to the outsourcer. Unplanned work, special requests and system modifications arise when the need for them appears.
In fact, this project is interesting not only for us but also for our provider. Our company is one of the few in Russia that use virtually all the capabilities of the UCMS WorkForce platform together with outsourcing services.
In practice we send UCMS Group quite a lot of various requests related to the SaaS system's functionality or to optimising payroll processes. Often several different tasks have to be handled at once, and I should note that on the whole they cope with that. Among the smaller sub-projects completed most recently I can mention the separation of financial postings between the Kaluga and Moscow offices, the development of special additional payroll and HR report forms, integration with the SAP ERP system and many other small tasks.
In addition, we are currently putting into commercial operation employee self-service capabilities that are available to absolutely every employee of the company. From our point of view, such capabilities fit perfectly into the framework of the existing platform and ideally match the spirit of SaaS systems. So in the very near future the system will gain powerful functionality for individual self-service portals that provide a convenient interface for interaction between employees and the company's HR function. For example, to go on vacation employees will not need to write applications: it will be enough to leave an online request on their own portal, which will automatically go through all the necessary approvals and generate the corresponding documentary reporting at the same time. Besides vacations, employees will be able to track the details of their employment contracts on the portal and order payslips and 2-PIT certificates themselves.
Our company has been successfully using HR outsourcing to improve the efficiency of the HR function for about 5 years. It was relatively easy for us to deliver all the projects we discussed above, because de facto outsourcing is the standard for managing non-core processes in our company. If some other organisation has never used this model, then the main obstacle, it seems to me, lies exclusively in psychological aspects.
At our company we are confident that business process outsourcing for Russia is a chance to move forward in a more modern, faster and cheaper way. We believe this model cannot be alien to Russian enterprises, because it is based on fundamental principles of business process management. As you know, payroll taxes have been rising substantially since 2011, so the winners will be those companies whose HR and financial processes are optimised. The main thing here is to take the plunge, ignore doubts and remember that this model of optimising business functions is successfully used by millions of companies around the world.
A French company, the global leader in perfumery and cosmetics. The company's turnover in 2009 was EUR 17.473 billion. Its history in Russia began in 1990. Today the group's Russian branch promotes leading international brands on the Russian market.
