by Stephanie Owen – Principal Consultant, Strategy2Life
A large bank with multiple lines of business established a shared service function some years ago. The operating model was designed so that the central shared services function provided human resources (HR) services to the various business units, such as recruitment, training and international mobility management. The HR function within each business unit would mainly consist of HR managers or “business partners” who work closely with business managers day-to-day, and brokered business requirements and oversaw service delivery by the shared services function. The operating model was designed to reduce cost by standardising service, and it succeeded in this objective – up to a point.
Cracks began appearing in the operating model when it became obvious that the HR business partners/managers within the wholesale banking business unit were spending more and more time tweaking the services provided by the shared services function. Coveted corporate banking talent became lost to competitors who completed recruitment processes more quickly and who were more flexible with remuneration packaging. Productivity was lost to the need to manage around international mobility arrangements that catered for once-in-a-career relocations and repatriations, not the relatively frequent, multi-country moves that were becoming commonplace in the wholesale bank. Within the shared services function itself, workload increased as exception processing and expedited requests rose, and the harder work did not seem to translate to higher customer satisfaction. Blame among different parts of HR threatened working relationships and morale.
This scenario is, alas, not uncommon among organisations that change their operating models. Often, it is because the operating model was designed in isolation from customers’ needs, and to optimise one outcome (typically cost) at the expense of others.
A key solution to this problem is to start with your customers’ needs when designing an operating model. This principle applies similarly whether we are talking about core operations (that is, serving paying customers) or support function operations (that is, serving internal customers). For now, I will continue to use the example of support function operations that serve internal customers.
When designing an operating model, we need to start with the desired results, or performance objectives. There are five main performance objectives to consider in operations (for example, from the textbook by Slack, Chambers and Johnston: Operations Management):
- Quality – getting it right
- Speed – doing things fast
- Dependability – meeting expectations
- Flexibility – ability to adapt activities to meet varying requirements
- Cost – ability to deliver services cheaply
In the case of the bank with multiple business units, the shared service operating model design sought to optimise the cost objective and, to some extent, quality and dependability. It did not consider speed as highly important and, for the sake of standardisation, sought to discourage flexibility. These performance objectives were designed into the operating model, and can be mapped graphically, as below (5=very important, 1=not important):
The largest group of internal customers, the retail banking business unit, has a high number of relatively homogenous and lower-paid employees (mainly customer service, bank tellers). It has an HR service needs graph resembling the following (5=very important, 1=not important):
Although there is rarely perfect alignment in any organisation, the shared service operating model was meeting the retail bank’s business needs, by and large. However, the wholesale bank business unit, with its smaller, highly-paid heterogeneous workforce, higher profit margins, and tougher competition for talent, was found to have an HR service needs graph resembling the following:
When graphically represented in this way, it becomes obvious that the shared service operating model design is not an optimal match for the HR service needs of the wholesale banking business. Most importantly, the graph takes emotion out of the discussion. The wholesale bank’s HR service needs have arisen out of the nature of its business and its strategy, not because its people are somehow being unreasonably demanding. A constructive discussion about genuine business needs for each customer segment of the support function (eg, business units or in some cases, departments within it) would enable the operating model to be redesigned to align with the most critical needs of the entire business, not one business unit at the expense of others. It may be that some parts of the operating model needs to be adapted to meet specific business unit requirements. If this is the case, it is surely more cost effective for the shared services function to design a “process option B” than to address differences on a case-by-case basis. At the same time, the business unit requiring “process option B” needs to carry its fair share of operating costs, with the knowledge that an operating model that meets its needs more closely would reduce costs that are otherwise hidden, such as supplementary work (“tweaking”), visible and invisible rework, and going outside the system.
As mentioned previously, I have chosen to focus on support function operating model design, but the principle of starting with customers’ needs applies just as much, if not more, to designing the core operating model for a whole business. In this instance, you would not only start with the needs of your customer segments, but it is also critical to compare your operating model with your competitors’, so that your operating model can support the overall value proposition of the business and to sustain its competitive advantage.
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