Outsourcing HR tasks is a critical step in the evolution of the HR department at any company. But as with in-house business processes, outsourcing works best only when it is regularly optimized and revised. Implementations of the same outsourcing model can give radically different results, with clients left to choose the best version.
The growth of L’Oreal in Russia is an example of HR outsourcing evolving over time at a company. Irina Yaschenko, Compensation and Benefits Manager at L’Oreal, answered questions from HRM.ru.
Tell us about the history of HR outsourcing at the Russian office of L’Oreal. Why did they choose the model they did?
You have to know a little about L’Oreal to understand why. Our company is rather strongly oriented in favor of outsourcing: we see it as better to outsource non-core business processes than to try to reinvent the wheel yourself. The core strength of L’Oreal is in manufacturing high-quality perfumes and cosmetics, and definitely not in maintaining HR records or making payroll calculations. We are prepared to outsource non-core business processes to outside contractors and are ready to pay for their services, if they are truly professional and effective.
HR is not the only area that has been outsourced at the Russian office of L’Oreal. Another example is IT outsourcing, which our company has used for many years for a number of corporate systems.
A similar situation is also seen with HR – we never had to ask the question of whether to move to outsourcing, since we had always used it in Russia! But the specific processes that L’Oreal has handed off to external providers are becoming more diverse and numerous, and the processes themselves are evolving as well.
Which processes has L’Oreal outsourced?
For a long time we outsourced payroll only. HR administration and documentation were kept in-house, in global systems that were not sensitive to the nuances of Russian legislation. The situation changed dramatically in mid-2009, when we discussed the situation with our provider and decided to outsource additional tasks to them. But this was SaaS (Software as a Service) access to a management system, not classic outsourcing.
What did this mean? What is classic outsourcing? Essentially, this means handing off processes to a professional services provider. But a provider can’t work with nothing to go on, in a manner of speaking, so you still have to provide certain data, monitor what they are doing, and make sure they do not make mistakes.
Of course, we would like to do that for every non-core business process, but this is not always financially feasible. In the case of payroll, we can give the entire process to the contractor because the process is clear and formalized. Once a month we send information and receive payroll stubs back. But classic outsourcing is not always so good for a number of other HR processes, since we are still forced to do a part of the work ourselves. Take the example of creating a new personnel file – it’s easier to add one to the system yourself than to send the information to the contractor and ask them to do it for you.
The SaaS model, which we use for HR administration, is something of an intermediate option. We have outsourced our IT systems to them, but the difference is that the employees using the rented system are ours, not theirs. That preserves flexibility even as we stay within an outsourcing model that we prefer.
The transition to SaaS was completed in the second half of 2009. In early 2010, we launched the project for transitioning payroll to the new system. The reason is that our contractor, the UCMS Group, previously calculated payroll in Scala even as HR administration was being moved to the company’s new system, UCMS WorkForce. So it’s easy to imagine why we soon moved the second half of our business processes – related to payroll – over to that system.
The essential nature of the processes did not change during the transition: salaries are still being calculated by the contractor, meaning that for this part of the process we are using the classic outsourcing model. But for the remaining processes, for HR, we use only the SaaS model.
We could have, of course, but what would have been the point? Here is a simplified example: imagine you’re selecting a plan for your cell phone. One company is offering a standard rate with monthly payments of 1,000 rubles, say, and another one is saying to first wait for six months while we put your plan in our database, pay us 50,000 rubles up front and then you can talk on the phone as much as you like. The features of the plans are identical and in any case you’re calling the same phone numbers.
Obviously nobody is going to choose the option of paying 50,000 rubles – it might pay off in four years’ time, but by then the situation might be radically different, with new technologies and maybe even a whole new communications standard. And revising or adjusting your rate plan will be sure to incur even more costs.
The situation with HR is absolutely like this. Why should we pay good money for licenses, load up our IT staff with work, and wait several months while the system gets deployed? And there are no guarantees that there will be a financial payoff.
It is easier for us, by an order of magnitude, to work with a provider, who gives us a username and password for accessing a system that is already configured and running. That is what customers get from SaaS. And I am rather surprised that this model is still not the dominant one on the Russian market.
Of course, nothing in real life is ever that simple. Working with the UCMS Group, we needed about two months to fully configure the system to L’Oreal’s needs. But if we had bought an in-house system, it would have taken several more months than that.
I’ll add that the SaaS model has another big benefit: since with SaaS you are not paying for a license all up front, but are paying a subscription fee for a certain length of time, the provider is always motivated to do a good job. The provider wants to get things done right or else the customer can easily end the contract and go elsewhere. With the traditional pre-pay scheme, of course, there are also payments for tech support and customization, but these are not always effective guarantees. Vendors are always happy to sell licenses since once the contract is signed, they do not have any additional expenses at all.
Tell us about your project for transitioning to a new payroll system and moving other processes to the SaaS model. What difficulties did you encounter?
Let me start off by talking about the scale of these projects. The projects for payroll outsourcing and moving to SaaS-based HR administration cover the entire Russian office of L’Oreal, which has about 1,000 employees in its Moscow location. In addition, we recently built a new factory in Kaluga Region and are actively hiring there. We plan that HR administration at the factory (about 600 people by the end of 2011) will be implemented using the very same systems.
Since the office and the factory have difficult working environments, needless to say, we needed to make a number of adjustments to the system’s functionality in order to meet all of the factory’s needs. Integrating our Kaluga site into the system also allowed us to test how we can all access the system and work together remotely. Today we have a powerful HR platform that has a rich, flexible feature set and supports all of the main HR situations that can be found at almost any large company.
The project for moving HR administration and documentation to the UCMS SaaS system was started in summer 2009. We finished the first stage by year’s end, at which point we were ready to migrate the payroll system to UCMS WorkForce. By March–April 2010, we had finished that part of the process too. We began using the system as our regular production system and continue to do so today.
The transition went smoothly and was a success for us overall. In large part, the success of the project was thanks to the process of goal-setting: at the initial stage, we tried to minimize the specific requirements imposed on the provider and limit ourselves to implementing just general business processes. Then we looked at how the project is coming along and began to present more specific requirements, ones which were often different from our initial vision. This enabled us to avoid the most common problem in these projects, which is when the customer wants to do something but the outsourcer doesn’t understand the customer’s reasons or motivations for it, leaving them unable to meet the challenge.
I’ll add though that this attitude towards our provider was not us “going easy” on them. While we didn’t demand they solve impossible tasks on limited timeframes, when we had a realistic task that was necessary and agreed upon, our expectations and requirements were tough. This made the platform grow smoothly and organically to the level it has today.
Of course, we needed to overcome a number of small difficulties and problems that are the birthing pains of any successful project. When transitioning from one payroll system to another, we had small discrepancies in the calculation totals. Sometimes there were problems with users, who were reluctant to move to a new system from the one to which they were accustomed. But these project problems were resolved in the course of work and not related to anything systemic.
On the topic of difficulties, there is another key consideration in how we interact with our outsourcer. What happens in effect is that we have a hybrid system, with our employees and theirs using a single installation – ours are performing HR work and theirs are calculating payroll. Since they are working on the same installation, we have to pay attention to synchronizing our work with that of our outsourcer, carefully monitor changes in data, and take special steps to not interfere with each other. All of this can add a bit of difficulty, but the benefits far outweigh it: the result is a single, unified picture of everything that is happening with our employees. And in addition, the ability to access the system lets us monitor what the outsourcer is doing and keep their work as transparent as possible.
How do you work with your outsourcer right now?
All of our work with the UCMS Group can be categorized into two parts. On the one hand there is scheduled work – payroll and maintaining the SaaS platform for HR administration. On the other hand there are special requests related to system customization and additional services. Scheduled works are performed every day. Main payroll is generated once monthly and usually takes three working days from when UCMS receives the information from us. Special requests and system modifications are performed as necessary.
What is happening with your hybrid platform now?
This project is actually interesting both to us and to our service provider. L’Oreal is one of the few companies in Russia to use practically all of the features of the UCMS WorkForce platform in tandem with outsourcing services.
In practice, we send the UCMS Group a rather large number of different requests related to SaaS features or tweaking payroll processes. Often it is necessary to solve several different tasks at the same time, overall with good results. Some of the many small projects include, for example, doing the financial entries for the Kaluga and Moscow offices, developing special additional report forms for salaries and personnel, and integrating with SAP ERP.
In UCMS WorkForce, we have also launched individual “self-service” portals for all company employees. We think this is a great fit for the existing platform and is great example of the SaaS approach to doing things. Soon the portal will have powerful functionality in the individual self-service portals, with a convenient interface for interacting with HR. Instead of writing out a vacation request, employees can simply fill out an online form on the portal, with the necessary approvals handled automatically. The related documentation is generated automatically as well. In addition to vacations, employees can use the portal to view their employment agreements and request payroll sheets and income statements (2-NDFL forms).
What would be your advice to companies considering outsourcing of HR?
Our company has been successfully using HR outsourcing to make our department more effective for the last five years. It was relatively easy for us to implement all the projects we talked about earlier because, de facto, outsourcing is the standard way for handling non-core business processes at our company. If another organization has never tried out this model, the main limiting factor I think will be just the psychological aspects.
At L’Oreal, we are confident that outsourcing of business processes for Russia is a way to move forward in a more modern, rapid, and affordable way. This model cannot be “foreign” for Russian companies if it is based on fundamental principles for business process management. As you know, employment taxes are increasing substantially starting in 2011, so the winners will be companies with fine-tuned HR and financial processes. The main thing is to focus on making that transition, setting aside doubts, and remembering that this method of business process optimization is one that is successfully used by millions of companies worldwide.