HR outsourcing is the most important stage in the evolution of the HR department of any company. However, as in the case of the internal implementation of business processes, the outsourcing model is effective only under the condition of constant development and modernization. Often, the implementation of the same outsourcing model differs significantly from each other and customers have to choose the most optimal option.
The development of L’Oréal in Russia is an example of the evolution of HR outsourcing within a single organization. Irina Yashchenko, L’Oréal Compensation and Benefits Manager, answers questions from the HRM.ru portal.
To answer this question, you need to understand the specifics of L’Oréal. The fact is that our company is quite strongly focused on outsourcing – from our point of view, it is more profitable for us to abandon most of the non-core processes, instead of trying to build them on our own. L’Oréal’s core strength lies in the production of high-quality perfumes and cosmetics, and not in accurate HR or timely payroll. We are ready to outsource non-core processes to third-party contractors and pay for their services if they are truly professional and effective.
I would like to note that HR outsourcing is not the only example of this model that is used in the Russian office of L’Oréal. In particular, our company has long been using the IT outsourcing model for a number of corporate systems.
In many respects, a similar situation is observed in the field of HR management processes – in fact, we have never faced the question of switching to outsourcing, since we have always applied this model in Russia. Another thing is that the list of L’Oréal processes that are transferred to a third service provider is constantly growing, and the processes themselves are evolving.
For quite a long time, we have been using only payroll outsourcing. HR administration itself was implemented within the framework of internal systems, but these systems were of a global nature and did not include the specifics of Russian legislation. The situation changed dramatically in mid-2009, when we discussed the situation with our provider and decided to transfer additional HR paperwork processes to them. Here, however, we are no longer talking about classical outsourcing, but about providing access to the management system within the framework of the Software-as-a-Service (SaaS) model.
It is necessary to dwell on this point in a little more detail. Indeed, what is classic outsourcing? In fact, this is the transfer of processes to a professional service provider. But just like that, in some abstract environment, the provider will not be able to work, because you still have to supply it with some data, somehow control its activity and make sure that it does not make mistakes.
Of course, we would like to do this for each non-core process, but this is not always economically justified. So, in the case of payroll calculation, we can give the contractor the entire process, since it is formalized and understandable. Once a month we send information to the contractor and receive pay slips from him. However, in the case of other HR processes, classic outsourcing is not always so good – since we still have to do some of the work ourselves. In particular, if we need to create a card for a new employee, then it is easier to immediately add him/her to the system than to send information to the contractor with a request to perform this action for us.
The SaaS model that we use for human resource management is a kind of intermediate link and represents the outsourcing of the information system. The difference is that our employees work in the system provided by the contractor under the lease agreement, not the contractor’s employees. This provides the required flexibility, but we are still within the framework of our priority outsourcing model.
We completed the transition of HR function to SaaS in the second half of 2009, at the beginning of 2010 a project for transferring payroll accounting to a new payroll system was launched. The reason is that earlier our contractor, the UCMS Group company, calculated salaries in the Scala system, while HR administration was initially transferred to the new UCMS product – UCMS WorkForce system. Therefore, it is quite logical that soon we transferred the second part of our business processes related to payroll calculation to this system.
I will add that within the framework of this transition, the essence of the processes remained the same – the contractor still calculates our salaries, so for this part of the processes we use classic outsourcing. For the rest of the HR processes, on the other hand, we only use the SaaS model.
Of course, we could have done that, but does it make sense? I will give you a simple example – imagine that you are choosing a tariff plan for your phone. One company offers a standard plan – with regular monthly payments, let’s say, a thousand rubles, while the other says – first wait six months until we add the plan to the database, then immediately pay 50 thousand and use the phone as long as you like. At the same time, the functionality of the tariffs is absolutely the same, and you can call the same phone numbers.
Obviously, in this case, no one will pay 50 thousand – such a tariff will pay off only in four years, but by this time the situation may radically change, new technologies will appear and this communication standard may generally be irrelevant. And for revision, fine-tuning of the tariff you will certainly be charged an additional fee.
The situation with personnel management systems is absolutely similar. Why would we waste a lot of money on licenses, overload IT staff with unnecessary work and wait several months for the system to be implemented? And all this – without any guarantees of payback.
It’s much easier for us to come to a contractor who will give a login and password to an already configured and deployed system. And that’s exactly what SaaS offers to its customers. And, in fact, it’s quite surprising to me that this model still does not occupy a leading position in the Russian market.
Of course, in real life, everything is not so simple – so, as part of our cooperation with the UCMS Group, it took about two months to fully configure the system for the needs of L’Oréal. But if we were to buy an in-house system, then these terms would increase several times.
I will add that the SaaS model has another important advantage – since you do not pay for licenses right away, but spread the lease over time, the supplier is constantly motivated. It is beneficial for them to work efficiently, since otherwise the flow of rent payments will be cut off. In the case of the standard scheme, of course, there are also payments for technical support and revision, but they are not always a good motivator. It is always more profitable for the system supplier companies to sell licenses, because, by receiving such contracts, they do not incur any additional costs at all.
Perhaps the answer to this question is appropriate to start with a story about the scale of projects. Payroll projects within the framework of the outsourcing model and the transition to HR administration in the SaaS system cover the entire Russian representative office of L’Oréal – about 1000 employees in the Moscow office. In addition, not so long ago we built our own plant in the Kaluga region and are now actively recruiting personnel. We plan that the plant’s personnel (about 600 people by the end of 2011) will also be managed in the same systems.
I note that since the specifics of the work of the representative office and production are significantly different, we needed to make a number of improvements to the system functionality that fully cover the needs of the plant. In addition, the integration of the Kaluga subdivision into the general system allowed us to test the work in the conditions of geographically separated offices. It is safe to say that at present, we have a powerful HR-platform that has rich and flexible functionality and supports all major scenarios of personnel management in almost any large company.
The project itself for the transfer of HR management to the UCMS SaaS system was launched in the summer of 2009. By the end of the year, the first stage was completed and we were ready to start migrating the payroll system to UCMS. By March-April 2010, we completed this process too, launched the entire platform into commercial operation, which continues to operate till this day.
From our point of view, the transition process went quite smoothly and overall successfully. In many ways, the success of the project is due to the approach to setting goals – at the initial stage, we tried to minimize the specific requirements for the supplier and limit ourselves to the implementation of only general business processes. Later, we looked at what was obtained in the course of the project and put forward more special requirements, and these requirements often differed from our original vision. Thus, we avoided the most common problem of this kind of projects – when the customer wants to do something, and the supplier does not understand the goals and prerequisites of the customer’s requirements, and therefore cannot correctly implement them.
I would like to emphasize that such an attitude towards the supplier did not mean an easy life for him. Yes, we did not demand the solution of impossible tasks in a limited time, but if the real task was set and agreed upon, we put forward strict requirements for its solution. Thus, we ensured a smooth and natural development of the platform to its current level.
Of course, we had to overcome a number of small difficulties and problems, without which there can be no successful project. So, when switching from one payroll system to another, we had small discrepancies in the calculation results. Sometimes there were problems associated with conservatism of users, who did not always find it easy to move from one system to another. In general, these kinds of difficulties were quite working in nature and were successfully overcome during the project.
Speaking about the difficulties, it is important to note another fundamental point related to our interaction with the service provider. The fact is that we actually use a hybrid scheme – within the framework of the same installation of the system, our employees solve HR issues, while the outsourcer’s employees calculate the salary. At the same time, since the installation itself is unique, we have to pay special attention to the synchronization of work with the outsourcer, carefully monitor changes in the data and implement special interaction procedures. Of course, all this causes certain difficulties, but the advantages of this approach outweigh them – at the end we get a unified picture of everything that happens with our employees. And, in addition, the ability to access the system allows us to control the actions of the outsourcer and ensures maximum transparency of his work.
All processes of our interaction with the UCMS Group company can be conditionally divided into two parts. On the one hand, these are planned work – payroll calculation, support for the SaaS-platform for HR, on the other hand, these are some special requests related to possible system improvements and the implementation of additional services.
It is natural that scheduled work takes place on a daily basis. The main calculation takes place once a month and usually takes three working days from the moment the data is sent to the outsourcer. Unscheduled work, special requests and system modifications arise when they are needed.
In fact, this project is interesting not only for us, but also for our service provider. L’Oréal is one of the few companies in Russia that use almost all the capabilities of the UCMS WorkForce platform together with outsourcing services.
In practice, we send to the UCMS Group quite a lot of various requests related to the functionality of the SaaS system or the optimization of payroll processes. Often, they have to simultaneously solve several different tasks at once, and it should be noted that in general they cope with this. Among the small subprojects that have been completed very recently, I can note the separation of financial transactions into Kaluga and Moscow offices, the development of special forms for additional reports on salaries and HR, integration with the SAP ERP system and many other small tasks.
In addition, we are currently launching into commercial operation the capabilities of self-service, which are available to all employees of the company without exception. From our point of view, this kind of capabilities fit perfectly into the canvas of the existing platform and perfectly fit the spirit of SaaS systems. So, in the near future, the system will have a powerful functionality of individual self-service portals, which provide a convenient interface for interaction between employees and the HR department of the company. For example, in order to go on vacation, employees do not need to write applications – they will only have to leave an online application on their own portal, which will automatically go through all the necessary approvals and at the same time generate the corresponding documentary reporting. In addition to vacations, employees will be able to track the details of their employment contracts on the portal, independently order payment sheets and 2-NDFL certificates.
Our company has been successfully using HR outsourcing to improve the efficiency of the HR department for about 5 years. It was relatively easy for us to implement all the projects that we talked about above, since de facto outsourcing is the standard for managing non-core processes in our company. If some other organization has never applied this model, then the main stop factor, it seems to me, is rooted exclusively in psychological aspects.
At L’Oréal, we are confident that outsourcing of business processes for Russia is a chance to move forward more modern, faster and cheaper. We believe that this model cannot be alien to Russian enterprises, since it is based on fundamental principles of business process management. As you know, taxes on payroll have been significantly increased since 2011, therefore, those companies whose personnel and financial processes are optimized will benefit. The main thing here is to decide on this transition, to ignore doubts and remember that this model of optimization of business functions is successfully used by millions of companies around the world.
L’Oréal is a French company, the world leader for perfumery and cosmetics. The company’s turnover in 2009 amounted to 17.473 billion. Euro. L’Oréal’s history in Russia began in 1990. Currently, the Russian branch of the group is engaged in the promotion of leading international brands on the Russian market, including: L’Oréal Paris, Garnier, Vichy, La Roche-Posay, Giorgio Armani, Diesel and many others. L’Oréal is a French company, the world leader for perfumery and cosmetics. The company’s turnover in 2009 amounted to 17.473 billion. Euro. L’Oréal’s history in Russia began in 1990.