SSCs – a two-speed world?
Shared Service Centers are one of the fastest growing sectors in Poland. At the end of 2016 there were over 900 centers with more than 200 000 employees. Business is booming and you can read all about the benefits of this boom in the press. But there is another side to this success story. Today I will look at the HR challenges at SSCs.
“Decomposition of the value chain”
The origins of Shared Service Centers are simple – cost cutting and cost optimization in the pursuit of better effectiveness. In short: money. Consultants call it the “decomposition of the value chain”, outsourcing anything which isn’t directly tied to the business and can be done cheaper elsewhere to maximise profits for shareholders. Every major corporation in the world has adapted this business model and is centralizing it’s HR, IT and accounting operations in SSCs in the pursuit of better cost effectiveness.
In Poland, the first SSCs were established by international corporations in the first decade of the 21st century. In 2008, Shared Service Centers in Poland employed over 50,000 people, in 2012 it was 100,000, and according to a report by the ABSL, last year employment exceeded 212,000.
New challenges for HR
SSCs are evolving into highly specialized institutions with cutting edge/state of the art IT systems. Despite that, however, they are still, as Phillip Brown from Cardiff University put it, “a factory of white collar employees working on knowledge assembly lines”.
You can’t have your cake and eat it. The price of cost cutting is the emergence of a two-speed world – the mother company and its SSCs.
Shared Service Centers often struggle with low levels of motivation, satisfaction and commitment, limited career paths and, my favourite topic, communication and cross-cultural management issues.
When establishing SSCs, companies focused on the availability of human capital and their cost. As a result, cities with good infrastructure and universities attractive to young people were an obvious choice for the location. As time went by the increased demand for skilled labour has affected the employee cost. If the number of SSCs increases from 10 to 100 within a few years, the employee begins to dictate terms. Today, recruitment and employee turnover are the most visible and important challenges for the HR department.
The average staff turnover is 15% and in many companies is much higher. This means continual basic training and onboarding costs and therefore higher FTE costs.
SSC culture and a painful change of rituals
The transformation associated with establishing a shared service center and changes to the organization of work create initial resistance. People lose jobs when processes are outsourced to another country – some can up-skill or re-skill but most will have to find another employer.
Those moving to a newly opened SSC often experience an identity crisis – are they still part of the mother company with its strong corporate culture or are they now an external contractor?
The problem here can be the monotonous nature of work on the process assembly line. The reaction to absurd situations is often very slow. I remember, for example, that when we opened our SSC, for a few months we kept getting emails from the system starting with Dear Ms/Mr (in Polish Droga Pani / Panie.) We couldn’t change this because the template had been approved and the system for escalating the problem was still in its early days.
Outsourcing some processes creates frustration and requires a change of habits by the management. Managers are often used to VIP treatment and have a hard time adapting to a situation when they have to do something in the system themselves, the newly-hired SSC employee doesn’t know who they are and therefore doesn’t initiate the special treatment protocol which Director X is entitled to.
SSC is a melting pot of different communication styles – direct and indirect: different ways of saying “NO” and managing conflict, from tackling it head on to openly avoiding conflict. If we also add the linear, structured management style preferred by Germanic cultures to the more flexible approach from the Mediterranean countries to the mix, you can see the potential for problems and misunderstandings.
Well managed multi-cultural teams can be very effective, although badly managed teams end up being less effective than culturally homogenous ones. A lot of energy is wasted and little output generated.
Cross-cultural training courses are still the exception, not the rule. We assume that if someone can speak the company language (in most cases English) then he/she is also able to communicate. Unfortunately these two skills are not the same.
Cross-cultural awareness and communication should be a mandatory part of the onboarding process and the basic training for both new employees and team leaders.
Summary – instead of a magic wand
The scale of recruitment, high turnover and difficulties attracting the right candidates lead to a situation where HR often focus on “delivering here and now” and a never-ending onboarding process becomes the norm. What gets lost along the way are strategic objectives such as building a long-term corporate culture and strengthening key managerial skills.
HR doesn’t have a magic wand to solve all the problems with SSC identity, organizational culture and internal communication. Processes are important but so are the soft skills of team leaders and managers. An innovative approach to motivation, building and strengthening corporate culture and, in particular, cross-cultural competencies are key to success. A lot of older tools used to foster commitment in the mother company don’t work in a SSC reality.
SSCs are here to stay – they’ve become part of our business landscape. Creating meaningful work, something more than a white collar assembly line, is one of the most pressing challenges for HR today.