Let’s start with a review of how HR has evolved over the last 40 years, and you
can judge where your HR department is currently placed in this process.
The global trend among industrialised countries over the last 40 years is for HR
functions to evolve from personnel and employee administration managers, to a
department that has responsibility for functions that influence the performance
of a company. These responsibilities include key strategic tasks such as senior
management development, training policies throughout the company to ensure best
use of existing resources, implementing performance appraisal schemes that
benefit both the company and employees and implementing retention policies that
work.
It was 7 years ago that Dave Ulrich, professor at the University of Michigan,
wrote in the Harvard Business Review:
“This new agenda for HR is a radical departure from the status quo. In most
companies today HR is sanctioned mainly to play policy police and regulatory
watchdog….. the activities of HR appear to be – and often are – disconnected
from the real work of the organisation. The new agenda, however, would mean that
every one of HR’s activities would in some concrete way help the company better
serve its customers or otherwise increase shareholder value”
Ulrich (1998) Harvard Business Review January – February 1998 124 – 134
Has your HR department evolved from an administrative to a strategic function?
From my experience there are a great many companies in Thailand where the answer
to this question is ‘no’.
Why is this? Is it the reluctance to change, or that HR management lack the
training and/or vision, or perhaps there is a perception there is simply no need
to change?
I suggest that the need to change exists, as the best companies are
differentiated by their talent. Many Thai companies would like to entice highly
qualified staff, with extensive ‘training dollars’ invested in them, away from
the international companies. Without a professional, efficient and current HR
policy in place, why would an employee move from a company providing a clear
career path, with appropriate training enroute, to a company that is void of
such policies? An HR manager either focusing on, or bogged down by,
administrative functions, is not going to be very useful to a company attempting
to upgrade skill levels and retain the best personnel.
McKinsey highlighted the problem in their global survey in 1996.
“HR staff spends up to 85% of their time on supervising standard processes such
as leave, benefits and compensation administration, but only 15% on strategic
activities such as career planning. In best practice HR organisations, these
figures are almost reversed. Only 20% of time is spent on supervising standard
procedures, and the remainder is spent on the execution of more strategic
activities”
McKinsey: Analysis of HR time study 1996
The separation of administration services from the strategic challenges of HR
has a key benefit, in as much as it creates a model that enables HR Managers to
focus, and to make the best use of scarce HR management talent.
Strategic and administrative services require very different employee skills,
and very different styles of management. Administrative services require
supervisory management, whereas Strategic management requires individuals with
creative skills, who should be allowed to manage their own activities.
Separating these two groups is key to providing best practice in HR.
Once the CEO has made the decision to change the focus of the HR department to
become a strategic partner, the first consideration is what to do with the
administrative functions currently handled by the HR department. The majority of
companies in the industrialised world delegate the responsibility of the HR
administration to an Outsourcing Provider, which generally is easy and painless.
But what then? It cannot be assumed that an HR manager and staff can simply
change from ‘administration managers’ to ‘strategic managers’, requiring serious
management input in each and every area of the company.
The solution favoured by many CEO’s is to outsource the HR administrative
functions, but if this is the case, why do so few companies in Thailand follow
this route? From our experience, the principle reason is the reluctance of Thai
HR management to accept outsourcing as a tool that improves the efficiency of
the HR function, but instead believing that with a reduction in people and/or
responsibilities (albeit administrative responsibilities that make no direct
contribution to core functions), HR management are losing part of their ‘empire’
and therefore their status and value to the company. Trying to persuade such
individuals that hold a Thai centric view, believing that moving reams of
paperwork is productive, to change their perception of their responsibilities is
very difficult. Are CEO’s aware of the issues and trying to change attitudes?
Globalisation is forcing companies, in particular Thai companies, to become more
competitive and focus on their strengths while outsourcing non-core functions.
In a report by J.P. Morgan in March 2002, they stated:
“Technological change has multiplied the time and money involved in maintaining
an in-house solution. The increasing importance of accessing and effectively
utilising data has also forced companies to abandon inflexible in-house systems.
The desire to transform large infrastructure investments into variable costs
(for example, pay per transaction rather than invest in infrastructure) has been
another significant driver.
We believe outsourcing business processes can benefit the corporate customer in
a number of ways. We view outsourcing as better, faster, cheaper, and less risky
than performing similar tasks in-house. For example, from a general technology
perspective, outsourcing firms provide customers with access to highly skilled
professionals and best-of-breed processes for which costs can be spread over a
number of clients. Because outsourcing particular functions is the core business
of these firms, they are able to react to and implement technology or process
shifts faster than in-house efforts can. By supporting business processes for
multiple customers, outsourcers are able to pass on cost savings in people,
technology, and facilities, resulting in less cost burden for the end customers.
Moreover, outsourcing generally involves service-level agreements that stipulate
minimum performance guarantees and may include financial penalties if these
agreements are not met, which lessens the risk for the customer.”
A large majority of companies in the USA and an increasing number in Europe (in
particular the UK), outsource non-core HR functions. So why is it so slow to
become ‘best practice’ in Thailand?
In many global surveys, confidentiality and security of systems and information
is one major reason for outsourcing, yet in Thailand we hear from traditional
managers, both HR and general managers, that they fear for the security of
information if they outsource. This view is diametrically opposed to the view of
global companies, which is based on their experience of outsourcing. Another
simple example is the difficulty some companies and their employees have
embracing payslips on-line.
Outsourcing as a concept is not new to many businesses in Thailand; typical
functions that are outsourced would be security guards and canteens (food
courts). Business Process Outsourcing (BPO) is not so widely know, except for
logistics, accounting and payroll.
The current BPO market today is similar to the IT outsourcing market in the
90’s, as companies were then reluctant to allow third parties to get involved
with mission-critical systems. In today’s climate, BPO service providers are
widely accepted as both value-added and cost-effective business partners.
BPO outsourcing meets the requirements of many companies which are looking for
additional value-enhancing and/or cost-reducing solutions that include
technology, workflow methodologies and processes.
In developed industrialised countries, outsourcing the HR administration is
likely to lead to direct savings, but surveys have shown that the possibility of
achieving indirect benefits far outweighs the direct savings. In Thailand, with
its low labour rates, the benefits are clearly indirect and not direct.
A survey conducted by Gartner shows that the United States represents over half
of the worldwide BPO market, with Europe comprising one third, whilst
Asia/Pacific and Latin America represents less than 5%. Clearly, companies in
these regions have a lot of catching up to do.
Will companies in Thailand shift from performing HR administrative processes
in-house to outsourcing non-core activities? When one reviews the success of BPO
in the global economy, and the fact that in a knowledge-based economy human
capital is a company’s greatest asset, the answer is “yes,” if these companies
want to compete on an international level. What remains to be seen is whether HR
managers can see the wisdom in this paradigm shift and initiate the changes
internally or whether they will wait to have it thrust upon them by their CEOs.
Robert Brown is a Partner at
Baker Tilly (Thailand) Limited
and can be reached at: robert.brown@bakertillythailand.com
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