Increased competition and growing demands for flexibility don’t stop at the personnel department. Business process outsourcing (BPO) to specialized service providers can make an important contribution to competitiveness. For human resources (HR), such outsourcing can include all standard processes, such as payroll and travel accounting, archiving documents, and related administrative tasks. Outsourcing not only produces cost advantages, but also creates room for strategic tasks.
Celanese AG, a chemical company headquartered in Kronberg, Germany, is a BPO leader. Worldwide, Celanese employs about 9,500 workers and operates production facilities and research centers in North America, Europe, and the Pacific region. Formerly a subsidiary of Hoechst AG, Celanese was split off in 1997. Since then, the publicly traded company has outsourced its payroll accounting in successive stages. “Because our HR department was reorganized with strategic, operating, and pragmatic tasks, its level of routine administrative tasks should be decreased dramatically,” says Rüdiger Dingeldey, an HR employee in the area of compensation and benefits at Celanese, of the background for this decision. The strategic tasks include finding the best employees for the company, retaining them with interesting work and attractive compensation, and training them for the right positions in the company. Operative and pragmatic tasks, however, include standard processes, such as payroll accounting.
Strategic tasks instead of administrative routine
Celanese assigned operation of its SAP HR applications for personnel administration, organizational management, payroll accounting, and travel accounting to Triaton, an HP subsidiary and service provider. “Our HR experts provide input for payroll accounting for our 3,000 employees in Germany, says Dingeldey of the division of labor. “The payroll specialist at Triaton enters the data in the system and computes the results.” Based upon this information, the service provider then creates and prints the required accounting documents and certificates.
With this approach, the company’s administrative costs for payroll were lowered. Additional cost savings resulted from a restructuring of business processes that Celanese undertook before it began to outsource. Collaboration with the service provider minimizes the effort needed to operate HR systems and makes the related costs more transparent. A study by the Meta Group indicates that companies can save up to 14% of their costs through outsourcing. Martin Rüther, director of BPO at Triaton GmbH, sees even greater potentials. “When a company is really ready for outsourcing, it can save between 10 to 25%, depending upon the size of the company and the systems in use,” he says.
But when is a company truly ready to outsource its HR processes? “As is true of IT outsourcing in general, some standardization must occur before outsourcing HR processes,” says outsourcing expert Rüther. “In principle, the more that the systems agree on the customer and the service provider’s side, the better the win-win situation.”
More service for the money
An additional advantage is that the BPO effort for payroll accounting is related to the number of employees in a company. With few employees, costs sink automatically. But if the company performs payroll on its own, it must deal with fixed costs, regardless of the number of employees.
BPO is worth it, says Dingeldey. In his option, the primary benefit is that the HR department requires fewer employees. “We’ve used the capacities we were able to free up with BPO to set up strategic tasks in the department,” he says.” Now we can perform true HR tasks, such as personnel assistance, personnel development, personnel controlling, and management coaching better than we could when our department was still the payroll office.”
He also finds the basic idea of storing data only once and centrally and linking administrative process to the data logical and sensible. “That’s how you get more service out of the system – for the same amount of money,” he says.
Clear rules for collaboration
Even when a company outsources specific HR tasks, it is still responsible for its employees. “Employees are quite relaxed, as long as their wage statement is correct,” says Lothar Mischnick, director of business process services at Triaton. “But as soon as major errors appear, the company has problems.” The foundation for partnership and collaboration between a company and its outsourcing service provider is built upon competence, reliability, and trust.
The foundation is significant because once a company moves in the direction of BPO, it is difficult to move back. In such a case, whether the company decides to perform the business processes itself or find another service provider, it must recognize that it has given up certain competencies and that it will lose specific knowledge. Dingeldey recognizes this reality, but also says, “We don’t need this specialized knowledge at Celanese any more.”
Because BPO always means a division of labor, it demands clear interfaces and clear rules to determine, for example, who is the correct party for employees and managers to approach in the event of problems. It’s also essential for both partners to create a relationship of trust between themselves. Celanese has done so very well since it began working with Triaton in 1997, as Dingeldey confirms. He also finds that the competence of his contacts at Triaton has contributed to the level of trust, and that they reflect continuity and reliability because they have been associated with the company for so long. “They know the details of labor contracts in the chemicals industry and our commercial development. We feel better off with them,” he says.