Our company has come of age – entering the Russian market exactly 19 years ago at the end of 1995! We would like to share with you some of our most significant projects for outsourcing of accounting and HR administration.
The first customers to come to us were Western companies opening offices in Russia. With insufficient knowledge of local processes and reluctant to hire staff for non-core business functions, these companies preferred to outsource. This was the choice made by Yota, for example, for whom we have done HR administration for the last 4 years. Most of our major customers today are the local branches of Western companies: L’Oreal, English First, Michelin, IKEA, Ehrmann, AstraZeneca, Software AG and others.
IKEA: a provider to grow with
The world’s most famous Swedish furniture manufacturer is an excellent example of a Western company that has used outsourcing as a tool to expand its international business quickly and successfully. Even as it was preparing to enter the Russian market in 2000, the company had already selected a provider to perform payroll services for the next three years. But when this time was up and the company’s Russian presence became larger, IKEA decided to switch outsourcers. And that’s when our companies began to work together.
There were several requirements that IKEA had for its new provider. First, the provider must be able to meet IKEA’s growing needs: in other words, have the ability to grow together with the customer’s business. Secondly, the partner must be reliable and trustworthy in order to minimize the risk of errors and attendant financial and reputational losses. Thirdly, the service must offer value for money. “Our experience with our current outsourcer shows that the cost of these services is not high enough to make us think about taking these functions in-house. If we were to decide now to do payroll ourselves, we would have to hire new employees, monitor them, and pay them. Having gone with outsourcing, it’s hard to imagine doing it any other way,” says Elena Miklyayeva, HR Manager at the IKEA Group.
Preparation for outsourcing falls into two areas: reaching agreements on the legal and financial terms for partnership and coordination of the technical portion of businesses processes, and working out the most efficient scheme for cooperation and data exchange. At IKEA, this took several months. But not everything could be hammered out at this stage – it would be a mistake to think that cooperation guidelines are a set-it-and-forget-it document that will meet the needs of a growing business even if left unchanged. In practice, new requirements for the outsourcer’s work are constantly appearing. “A lot truly has changed over our years of partnership. The number of employees to perform payroll for has increased several times over, and our company’s organizational chart has become much more complex. In addition, IKEA’s HR policy is unique in that employees often transfer from one corporate division to another, which demands flexibility and quick decision-making on the part of our outsourcer,” Miklyayeva adds.
Currently our company performs payroll for the employees for seven of the company’s subsidiaries (which are incorporated as separate legal entities) in different regions, with a total head count of approximately 5,000 employees. So it is necessary to perform preliminary consolidation of data for all seven subsidiaries.
Each manager sends us data once per month. Information about absences, vacations, sick leave, and redundancies is sent to IKEA’s internal HR system and exported in encrypted form to our system. As Miklyayeva notes, “We selected the data exchange format ourselves, and our partners worked around that to meet our needs.”
Then our company sends IKEA all of the necessary reports in the proper format, along with payroll sheets for each employee. We also perform time-sensitive requests for IKEA HR, such as providing salary calculations for employees on their last day of employment. All of the processes for working with the customer have been documented and specified in a supplemental agreement. Before each payroll period, we plan all operations in advance and tell the customer at what time they can expect to receive reports from us – with precision to the hour.
The company’s outsourcing contract guarantees that shared information will be kept confidential. The contract also establishes fines payable in the event of a data leak. Miklyayeva thinks that providers are not willing to risk data leaks because of the financial and reputational losses they would incur. That’s why serious outsourcers have deployed various secure systems, operate according to ISO 9001:2000, and actively educate their employees. She is also delighted with the financial side of the project: “Right now our average payroll expenses are 225 rubles per employee per month. Simple math shows that the total amount we spend would probably not even be enough just to pay specialists to handle those kinds of calculations in-house.”
Perfetti Van Melle: a low-cost, high-performance HR department
Any story about our projects on the Russian market would be incomplete without mentioning the projects that leverage our know-how in HR outsourcing – SaaS (Software-as-a-Service) is a dynamic model that is being used more and more around the world for HR tasks. What SaaS changes is that instead of having to buy an HR system, a company can simply pay a subscription fee to access it. The system itself is located on the provider’s servers, and the provider is responsible for administering, managing, and maintaining the system.
One of the main stumbling blocks in outsourcing of HR administration is the difficulty of integrating diverse information systems: the customer’s payroll and HR systems need to integrate with those of the outsourcer. And even successful integrations can include a number of restrictions. UCMS WorkForce, our SaaS solution, is unique to the Russian market and allows avoiding these obstacles entirely. It is actively used by our customers and combined with our outsourcing services. To learn more about how, keep reading.
One of the first such projects at UCMS was implementing SaaS+outsourcing for payroll and HR administration at the Russian office of Perfetti Van Melle. Perfetti Van Melle is a major manufacturer of confectionary products, including such brands as Fruittella, Meller, Alpenliebe, Mentos, and Chupa Chups. At the time, the company had approximately 2,000 employees.
To find a service provider, the company held a tender based on the breadth of HR functions offered and TCO/ROI (total cost of ownership/return on investment). It was also important that the provider be able to perform special calculations not found at all companies. For example, Perfetti Van Melle has a special system for calculating bonuses, paying by the shift, and paying for overtime in accordance with the company’s policy. It was also necessary that the provider be able to generate accounting entries for export in the format used by the company’s existing financial system.
Payroll and HR administration were outsourced to us and are currently performed through our UCMS WorkForce system. We use UCMS WorkForce to perform payroll for all Perfetti van Melle companies in Russia. The customer’s HR specialists use the system as well. In accordance with the service level agreement, the UCMS Group is responsible for everything related to the safety and reliability of the system, which is housed at our company’s own data center.
“The SaaS model has enabled us to run a flexible, adaptable, and most importantly, low-cost HR department. This model offers tangible benefits when it comes to the total cost of ownership and return on investment, without compromising on functionality. This has allowed us to become more advanced in HR administration and payroll without having to hire more employees or invest more money and resources in HRM systems,” praises Valeria Volkova, HR Director at Perfetti Van Melle’s Russian office. “Now we don’t need to worry about updating the system to keep up with Russian legislation and changes in bookkeeping and taxes. Our partners make these adjustments themselves as soon as changes occur.”
L’Oreal: SaaS+outsourcing beats HRM
The Russian office of L’Oreal is convinced that SaaS+outsourcing is superior, and not just because the company has always been inclined to outsource non-core business processes. But until 2009, only payroll was outsourced; other accounting and HR administration tasks were not. The Russian office used global systems that were not sensitive to the nuances of Russian legislation.
“In mid-2009, we decided to outsource administration to our provider, the UCMS Group. This was not classical outsourcing though – this was access to the company’s SaaS management system. For other HR processes, classical outsourcing is not always as effective as it is for payroll, since we still end up having to do a part of the work ourselves. If you are setting up a new personnel file, it’s easier to add one in the system right away yourself than it is to send the information to your partner and ask them to do it for you,” explains Irina Yaschenko, Compensation and Benefits Manager at L’Oreal.
The company’s transition to SaaS for HR administration was competed in the second half of 2009. By year’s end, migration had begun of the payroll system to UCMS as well (previously, the office had used Scala for payroll). In spring 2010, the entire platform came online. As with the Perfetti Van Melle project, payroll is performed by UCMS and other HR management tasks are performed via SaaS.
“We saw how smooth and successful the transition was overall. Much of the project’s success was thanks to goal-setting: during the initial stage, we tried to minimize our specific demands of the provider and tried to stick with just general business processes. Later, we looked at the results as the project was going along and only then began to impose more unique requirements, ones often different from our initial vision. This let us avoid the most frequent problem in such projects: when the customer wants to do something and the provider does not understand the reasons and basis for these requirements, inevitably falling short as a result,” Yaschenko reflects.
This is not to say that the transition to a new payroll system did not entail slight discrepancies or problems related to the reluctance of users accustomed to an older system. But these problems were eminently resolvable and could be solved on an ad-hoc basis. Since HR employees both from L’Oreal and UCMS are working with information at the same time on a single installation, special attention is paid to synchronizing work, carefully monitoring changes, and making sure to not get in each other’s way, as it were. But this approach has payoffs for the customer too: it allows keeping on an eye on the outsourcer’s work and keeping everything transparent to the customer. Approximately two months were needed to fully customize the system to the needs of L’Oreal, but as the company’s specialists note, buying their own HRM system and customizing it would have taken several times longer.
The SaaS model proved more attractive than buying a dedicated HRM system, since it is not necessary to make capital investments, buy licenses, and keep IT staff busy with system installation and upkeep. In addition, buying HRM software is no guarantee that it will pay for itself. “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 get it right. The provider wants to get the job 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 well,” Yaschenko explains.
Today the company does payroll for all of the employees at the Russian office of L’Oreal – which has about 1,000 employees at its Moscow office – and provides access to the UCMS WorkForce system for HR administration. After L’Oreal built a factory in Kaluga Region, it was necessary to add a few features to best account for the factory’s needs, since the office and the factory have different work processes.
Current collaboration with L’Oreal can be split 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. Key reporting is generated once monthly and usually takes three working days from when UCMS receives the information from the customer. Special requests are performed as necessary.
“We send the UCMS Group a rather large number of different requests related to SaaS features or tweaking the payroll processes. Often it is necessary to solve several different tasks at the same time. These 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,” Yaschenko relates. “In UCMS WorkForce, we have also launched individual ‘self-service’ portals for all company employees, 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. In addition to vacations, employees can use the portal to view their employment agreements and request payroll sheets and proof of salary forms (2-NDFL).