Jim Scully’s 3 Step Approach to Measuring the Value of an HR Shared Services Center
Despite the growing popularity of the HR Shared Services Center (HR SSC), how to accurately measure its performance remains a hot discussion topic. While there may not be a universal set of metrics or benchmarks to measure the success, it is possible to measure the performance and calculate the ROI of your HR SSC. As current president and founder of the Shared Services Institute, Jim Scully frequently speaks and writes about this topic, as well as helps his clients put processes in place for measuring the success of their HR SSCs. His expertise comes from a diverse history of leadership in the world of HR, launching one of the world’s first HR shared services operations and serving as a senior HR processes consultant to many global organizations.
I recently had the opportunity to sit down with Jim and chat with him about his approach to HR SSC performance measurement, the shortcomings of conventional benchmarking and his step-by-step method of defining and measuring HR shared services value in a way that is both meaningful and straightforward.
Kirby Orosco: What are the best metrics to track to measure the value of your HR SSC?
Jim Scully: I get this question all the time, and I wish there was a list of metrics and benchmarks that every organization could look at and say, “okay, if I’ve met or exceeded X,Y,Z then my HR SSC is performing at the levels it should be.” Unfortunately, it’s not that simple, which is why it’s still such a hot topic for discussion. Because organizations vary so drastically in scale and infrastructure, I don’t believe there is a universal set of metrics or benchmarks that can be applied to every HR SSC to measure its performance. The good news is there are ways to measure your HR shared servicespeformance. However, I believe the only real measure of performance is your own progress and improvement.
KO: What is the basis for your structure of measuring HR metrics?
JS: I use a three prong theoretical basis: TLS, which consists of the Six Sigma, LEAN, and theory of constraints. Six sigma and LEAN are similar, not the same, but they do compliment each other. A key part of the theory of constraints is that you need to measure as a whole; you need to understand the outcome of a system in order to measure the whole. All of these methods focus on improvement rather than hitting a target. Another common theme between them all is that cost, service and quality will all be improved. You will not have to sacrifice one for the other. Real performance improvement requires improving the system, not just the employees. You can measure shared services while staying consistent to these theories.
KO: There is an ongoing debate in the business world whether the Lean or Six Sigma is the better system to implement when it comes to streamlining business processes and eliminating waste. While LEAN practitioners believe that waste comes from unnecessary steps in the production process that do not add value to the finished product, Six Sigma proponents assert that waste results from variation within the process. However, many do not know about the theory of constraints.
JS: Theory of constraints entails measuring a system as a whole. If we are one and can measure the performance of a multifaceted system, we need to measure all parts of the system- not just one. Improving one doesn’t necessarily mean improving the output.
A quote I like that describes theory of constraints is from Theodore Roosevelt: “Customers don’t buy quarter inch drill bits, they buy quarter inch holes.” You must express and measure the services you provide in the terms which you customers, or is this case, your employees are receiving.
KO: Many believe that you can’t have an improving system that is fast, good and cheap. Whether it’s price or quality usually most are accustomed to sacrificing one to improve the entire system, explain why you can get all three.
JS: This is seen through data analysis results, we have found that the most efficient operations also have the best customer service ratings. Cost, service and quality are mutually reinforcing, you don’t have to sacrifice one to obtain the others.
KO: Many talk about continuous improvement versus target: SLA. What are the ways in which we use measurements as targets?
JS: Even if they are negotiated with customers or in the case of an HR SSC, with the head of HR or other departments, targets are arbitrary; they do not compare the system to a previous performance of that system. Often we create a target, not based on the true system’s performance, rather, a particular statistic, that will be reached by fudging the data or cutting corners. We need to look as performance as a trend. It’s about how did we do? Are we improving or not? Targets can lead to mediocrity; a satisfied goal will often not result in overachieving. Targets also de-emphasize partnership, which is essential in HR.
KO: What are the first few steps towards developing a Value Based Measurement system?
JS: The first step is to Translate service activities into customer value statements (CVS). The challenge is to ask-what is the customer (or the organization and employee) getting? A value statement must accurately depict what the service is, how valuable it is to the customer or employee and it contains no verbs.
Step two: take each CVS and create an inventory to measure the degree to which each of those CVSs are being achieved.
Step Three: We have to evaluate these things. You want to have the minimum number of important metrics to satisfy customers’ interests. I use a three V model.
KO: What is the three V model?
JS: The first V: Is your data viable? The data must be trustworthy.
The second V: Is your data valid? Is this a true indicator of performance or is in measuring an externality of some kind?
The last V: Is your data vital? Is it what is really important to my employee and organization?
KO: What are some differences between outcome-based and activity-based measurement?
JS: Outcome-based measurement gives you a more direct reflection of the customer’s value while measuring the whole system. However, an outcome based system does not give you the ability to measure on specific levels, such as measuring the performance of one team or department. Outcome- based measurements are useful for measuring customer or employee satisfaction. An activity-based measurement system may not measure customer or employee satisfaction as accurately as its counterpart, however, its measurements are useful for measuring the performance of individual levels in an organization.
KO: How would an HR practitioner start measuring their HR SSC performance?
JS: The first thing they would need is data. They must have the right tools in place to collect and analyze the data. They also need to understand what they’re doing in terms of the employee and organization value outcome; this process may need to be external or internal.
KO: How can you measure the expectations and turn around time if you don’t have SLA’s in place?
JS: Measurement and SLA’s are not mutually exclusive. The way you should measure is through a philosophy of continuous improvement. If you have an established history, you can establish objectives; however, measuring improvement is a continuous process.
KO: What are the differences in measurements with a global shared services team and a continental team?
JS: The purpose of metrics is to improve the process. You must refer to that definition and ask yourself: What is the best metric to use for that particular operation to improve? The actual measurement and standards need to be wherever you draw the boundaries of that process, they can vary country to country. *
To learn more on measuring the performance of your HR shared services system, watch Dovetail Software’s free on-demand webinar, in which Dwane Lay, Dovetail’s Head of HR Process Design, and Jim Scully have an in-depth discussion on shortcomings of convention HR benchmarks, methods for measurement and answer audience questions.
*This content was originally shared in the November 1, 2012 webinar Measuring the Value of an HR Shared Services Center.