British Aerospace (BAE Systems) surveyed its human resources (HR) processes following its merger with Marconi Electronic Systems and saw a gigantic challenge. Its HR division was using 21 different systems for its now 100,000-strong workforce. But there was little coordination of services or standardization of the data to manage this division, nor an efficient way to communicate with employees.
“Overnight, we’d become a company of twice our original size with many different HR departments and processes, so we needed to integrate those services, become more efficient and lower our costs,” says Chris Dixon, HR director of shared services at BAE.
The challenge identified, executives of BAE looked for an outsourcer to assist them. After reviewing several prospective vendors, they chose London-based Xchanging to overhaul this vital business process.
Business process outsourcing (BPO) has been around for as many years as IT outsourcing. Initially, payroll was the number one business process to be passed on to a service provider. But the market has matured with buyers adding a much greater number of non-core, back-office and support tasks to the BPO portfolio.
HR has changed from disseminating personnel and employee information to becoming a strategic function in a firm. Today, HR tasks include more than payroll. Today the HR department handles insurance and pension administration, top management development and ongoing employee training — not to mention the systems that operate these functions and communicate with a firm’s workers.
Founded in 1998, the London-based firm is has a 200-strong client list and a revenue stream worth £2.4 billion. Xchanging’s BPO activities cover a variety of non-strategic back-office functions. “Their focus on strategic transformational BPO pretty much sets them apart from the ‘pure play’ outsourcers who focus on one specific back-office process,” says Robert Brown, a senior analyst for the London office of Gartner, Inc.
In a partnership with Authoria, Inc., a leader in personalized, Web-based communication, Xchanging developed its peopleportal, a fully integrated, on-demand e-HR service delivery solution.
Service Provider and Buyer Create a New Company
BAE and Xchanging developed an HR outsourcing joint venture named “Togethr HR” to sell HR services back to BAE. Today 45,000 of BAE’s 100,000 employees use Togethr HR.
BAE and Xchanging each own half of the new company and have jointly invested $20 million over the five-year life of the deal to build a single system. “Most benefits will come in year two and three,” says Dixon. “By that time, we will have done a lot of process rearranging and have a lot of common processes throughout the UK.” So far, BAE has transferred over half of its 700 HR staff members to the new company’s service center.
Cost savings and greater efficiency were BAE’s primary motives. But handling HR services through a joint venture offers a number of other advantages too, says BAE’s Dixon. “It gave us the opportunity to create a new company that provides outsourcing services. But it also means we have greater opportunity to influence how the venture develops and gives development opportunities to HR staff.”
The Xchanging peopleportal solution provides employees at numerous BAE sites across the UK access to personal HR data and policy information and a comprehensive collection of Web-based information covering a vast range of UK-specific benefits subjects like Pension Scheme, All Employee Share Ownership Plan (AESOP) and Permanent Health Insurance (PHI). These solutions enable BAE to provide personalized and consistent answers to employees’ questions about their benefits, 24/7.
Mike Margetts, Xchanging director of implementation, points out that 99 percent of BAE’s employees don’t work in the HR department; so they were unfamiliar with the HR process. “Peopleportal demystifies the task of managing your own HR services,” he says. For that reason, much of Xchanging’s focus went into the support process around the portal. “The end product is now a process that’s easier for BAE’s employees to interact with,” he says. Additionally, peopleportal also provides BAE’s senior management team with an integrated online performance management capability.
Ongoing Conversion to the Five-year Model
This enterprise has additional potential, once Togethr HR can serve as a reseller of HR services, according to Brown from Gartner. “There are a lot of mid-market companies that could find real value in the back-office services developed by a joint venture company. Since the cost of managing outsourced services is declining, it’s only a short step to selling the same services to mid-market firms so long as they’re digestible and cost effective.”
Lessons from the Outsourcing Journal:
- Outsourcing is an effective catalyst for standardization, streamlining and integrating business processes in a merger or acquisition.
- Joint ventures allow a buyer to have a say in the development of the solution capabilities and the opportunity to share in any profits when the new solution is sold.
- Moving an HR process to an online, self-service format necessitates support for the majority of users who may be unfamiliar with the process.