HRO Today webinar topic to discuss the HR/Payroll business case - fundamentals and trends.

1. © 2014 Information Services Group, Inc. All Rights Reserved.
Proprietary and Confidential. No part of this document may be reproduced in any form or by any electronic or mechanical means,
including information storage and retrieval devices or systems, without prior written permission from Information Services Group, Inc.
HRO Today WebEx
Julie Fernandez, Director ISG
08 August 2014
Building the Business Case for HR
Transformation

2. © 2014 Information Services Group, Inc. All Rights Reserved 2
Introduction and Session Topic
Julie Fernandez
Director, Americas
With more than 20 years’ experience in outsourcing and
the HR services industry, Julie has led clients through
some of ISG’s most complex global assessments and
transactions. Julie leads global clients in their evaluation
of HR technology and services, designing sourcing
alternatives in both shared service and outsourced
models, and articulating the business case value to
support executive decisions and funding.
Julie is responsible for all of ISG’s HR/Payroll intellectual
property and for staying current with the HR and Payroll
market and service provider capabilities around the
world.
Building the Business Case for HR Transformation
In today’s funding environment, most HR
organizations are given no value for the “soft savings”
that exist beyond headcount and capital
expenditures. IT, Finance and other corporate
disciplines have successfully funded their business
cases with savings from cost avoidance, improved
manager/staff ratios, partial FTE reductions, and
increased productivity. But HR continues to struggle
to articulate fact-based cost savings and return on
investment (ROI) through improvements in processes
and technology.
This workshop addresses the ongoing challenge to the
HR transformation marketplace to produce a set of
fact based savings that HR can with reasonable
confidence base a decision on. What business value
metrics can the HR sourcing industry point to for
successful savings considered in “making the business
case”? We will review tools and techniques that can
guide Senior HR decision makers as they assess HR
transformation options and the means to quantify
expected business benefits and/or cost savings to
achieve them
Topic:
Phone: +1 248 425 6733
Email: julie.fernandez@isg-one.com
Twitter: @ISG Julie

3. © 2014 Information Services Group, Inc. All Rights Reserved 3
What We Will Cover
1. HR Transformation
2. HR Business Case Components
3. Approach and Resources
4. Business Case Trends

4. © 2014 Information Services Group, Inc. All Rights Reserved 4
HR Transformation of Roles
HR Transformation is Rooted in Organization Change
HR Service Delivery
Guiding Principles
Shift transactional work to low
cost channels where
appropriate
Streamline, harmonize and
automate programs, policies,
processes and technology
where ever possible
Consolidate services across
Regions and Business Units,
where appropriate
Ensure the right work is done
by the right resources
A strong business case is
required to support the
realignment of HR staff
(people cost), to add
enabling technology, and to
engage the services of a
variety of HR suppliers
Design
Architect
Develop
Evaluate
Institutional
Strategy
HR Transformation is about business change and is more than just the
consolidation of transactional work or implementation of new HR technology

5. © 2014 Information Services Group, Inc. All Rights Reserved 5
HR Business Case Components
► Your current HR cost baseline (or “base case”) is a static point-in-time view of current HR
cost and consists of the following major cost components:
Direct HR Staff - fully loaded cost associated with in-house HR resources
HR Operations & Technology – facilities, equipment, phones, and infrastructure for HR
Third Party Expense – HR suppliers (e.g., payroll, benefits, recruiting, training services)
Indirect Staff – FTE cost of support from IT, local HR, and others not part of HR budget
► The HR business case will identify changes to this cost over a projected number of years
and is usually considered in two parts:
Implementation – one time cost that is typically incurred as an up front investment
Ongoing – changes to each of the base case categories above as resources are shifted
to support a new model
► Notice that the traditional business case described above is focused on HR cost that
resides mostly within the Operations Budget of HR or a related SG&A function
► Business Value in today’s discussion will refer to a wide range of savings and efficiencies
that are not specifically tied to these traditional business case savings, but still represent
a tangible value to the company

6. © 2014 Information Services Group, Inc. All Rights Reserved 6
Business Case: HR Operations Savings
Historically, HR has been required to present a business case that is entirely
founded upon HR Operations Savings
Examples of HR Operations SavingsExamples of HR Operations Savings
► Direct Staff Cost Reductions
Redundancy of HR staff
Labor arbitrage
Economies of scale or automation
► Technology Cost Reductions
Replaced technology
Global consolidation of multiple
applications
► Third-Party Spend Reductions
Replaced suppliers
Global supplier consolidation
Lower cost supplier identified
Description and Common PracticeDescription and Common Practice
► Traditional business case approach expects
savings will come from reductions in
current HR Operations budget:
Consolidation of internal roles
Elimination of internal roles and
technologies
Consolidation or replacement of third
party systems or suppliers
Reduction in systems maintenance and
upgrades
► Many companies recognize a reduction in
allocated cost (e.g., IT support, facilities) for
resources that can be redeployed or
reduced over time

7. © 2014 Information Services Group, Inc. All Rights Reserved 7
Business Case: HR Cost Avoidance
Many organizations will recognize the value of HR investment anticipated in the
coming years, but may only allow those identified as part of budget planning
Examples of Cost AvoidanceExamples of Cost Avoidance
► Future Technology Upgrades
Functional and technical enhancements
HR / Payroll Systems
Talent Systems
► Interface development and maintenance
Multi-country payroll connectors to a
global HCM
► Future Capital Expenditures
Knowledgebase
Contact center tools
Data Warehouse / Reporting
Real estate, seat costs, etc.
Description and Common PracticeDescription and Common Practice
► HR is commonly underinvested, making it
costly to achieve best practice service
delivery.
► Cost avoidance for internal shared services
support comparable to that available from
an HRO provider is a material component:
Portal for Self Service
Workflow Automation
Contact Centers
► Without including this cost in your business
case, it is extremely difficult to justify the
significant transition costs associated with a
successful HR transformation

8. © 2014 Information Services Group, Inc. All Rights Reserved 8
Business Case: Value Creation
A final, and often broad, category of business case savings is Value Creation, which
is often considered “soft savings” or discounted as less reliable or verifiable.
Examples of Value CreationExamples of Value Creation
► Increased productivity of HR generalists
► Reduced employee turnover resulting from
talent management programs
► Payroll leakage on vacation time
administration
► Reduced time to hire and agency spend
based on new applicant tracking technology
► Talent management improvements due to
clear identification of skills tracked in new
talent management tool
► Improved decision making due to data
accuracy
Description and Common PracticeDescription and Common Practice
► Strict financial analysis frequently discounts
or ignores business value estimates for HR
► While difficult to quantify, business value
represents tangible savings to the company:
Leakage of gross payroll or benefits
dollars
Impact to key staffing or performance
ratios
Increased productivity or strategic
emphasis
Reduced risk of financial or compliance
penalties

9. © 2014 Information Services Group, Inc. All Rights Reserved 9
HR Business Case Results
Value CreationHR Cost AvoidanceHR Operations
Savings (Cost)
Headcount reductions (full person)
Current system or provider replaced
Add or reduce outsourced suppliers
Avoid interface development & maint.
Eliminate need for planned HR system
upgrades and replacements
Discontinue support for obsolete HR
systems
Partial FTE – value freed for other
tasks
Improved productivity
Payroll Leakage
Decision-making analytics
Compliance penalties and financial risk
A business case focused solely on HR Operations cost will often strive for a cost-
neutral outcome over a 3-5 year horizon (domestic) or 5-7 year (global)

10. © 2014 Information Services Group, Inc. All Rights Reserved 10
Socializing the Business Value of HR
► Most organizations today are given no credit for the Business Value that exists beyond
headcount and capital expenditures associated with the annual HR Operations budget
► HR Transformation often requires significant investment in technology and change
management
► Other SG&A functions commonly justify such investments with efficiency gains and other
non-budget savings
► Business Value is known to result in real dollar savings, but the corresponding savings
and calculations are not yet institutionalized
Business Value Metrics vary greatly by the context of your current HR practices and
data available
There is no “one size fits all” calculation or savings
Construct your business case with and without business value metrics, as they may be
discounted
► HR as an industry must better measure and document Business Value savings to further
the acceptance and recognition among Finance and C-Suite sponsors
Challenge: Building a better business case to fund HR Transformation

11. © 2014 Information Services Group, Inc. All Rights Reserved 11
Approaching the HR Business Case
► Collect HR data early, including granular HR Direct Staff details and detailed
allocation of time by process for all HR Generalists
► Develop a global business case with regional detail to support decision-making
Approvals and funding decisions typically require break down by region
Financial results will vary greatly by region
o Resource-rich areas like the U.S. and Western Europe provide greatest cost
and savings
o Small countries and emerging populations require the most investment
► Focus on initiatives with certain characteristics that are likely to be “accepted” by
your organization as part of the business case:
Ability to establish credible foundation for metrics
Ability to identify the savings within budgeted or actual cost in the
organization
Ability to communicate value of reduced compliance risks
Ability to establish value for enhanced quality of service

12. © 2014 Information Services Group, Inc. All Rights Reserved 12
Resources for Estimating Business Value
► An HRO Today research committee of industry-wide participants has produced a
Business Value Metrics Checklist for HR practitioners seeking to quantify
additional savings for their technology or transformation business case:
Reflects a compilation of the most widely recognized Business Value drivers
today
Describes the best practice or savings opportunity
Includes Calculation Guidance, where available
► Institutional savings ranges are not readily available in the marketplace as a basis
for estimating the business value for your particular HR Transformation
► HR research reports and case studies are the most common means to articulate
business value – generally successful when an organization articulates many and
focuses to make a few key values “stick”
► Deeper experience and case studies provided by third parties is often an
invaluable in estimating Business Value expected from HR Transformation
Business Value is tangible and intuitive, but most HR buyers will fail to quantify it
in a way that will pass harsh financial scrutiny

13. © 2014 Information Services Group, Inc. All Rights Reserved 13
Sample: Business Value Estimates
HR Service BVE Category BVE Calculation Reference Description
Talent
Management
Employee
Retention
5-10% reduction
in annual
employee
turnover
'Exp Reduction =
Current Employee
Turnover expense *
5%
Case Study
– Company
XYZ
improved Employee/Manager experience by
making it easier to get accurate information,
process transactions, and resolve issues.
Employees have greater access to training &
career development support.
Talent
Management
Time to Complete
Transfer/Promotion
70% reduction in
time to
completion
Exp Reduction =
Current Time to
Completion * 70%
Industry
Study: Cedar
Crestone
Adoption of new HCM technologies allows for
a reduction in average time to complete a
personnel action.
Sample Business Value Checklist Items
Sample Business Case Estimates
Business Value
Recruiting
Hiring manager productivity
Assume 1 hiring manager per location with an average salary of $45K/$18K spends an
additional 4 hours per month on recruiting administration that will go away.
$1.9M
Recruiting
Cost per Hire – Reduction in agency fees
Assume 20% of COMPANY XYZ's 1,857 external hires go through RPO. Assume commission
of 20% on average salary $45K/$18K for a total $2.3M agency commissions. Estimate 5%
savings.
$117K
Total Recruiting $2.0M
HR Area Opportunity

14. © 2014 Information Services Group, Inc. All Rights Reserved 14
To broaden leverage of shared staff, companies are more likely to consider a bundle
of functions including HR as a fit for a GBS model -- Shared Services or outsourced
Trend: Broad Global Business Services (GBS) Scope
Finance General Ledger
Accounts Payable
Fixed Assets
Accounts Receivable
Travel & Entertainment
Credit & Collections
Tax Compliance
Cash Management
Billing / Invoicing
Human
Resources
Workforce Administration and
Forms Processing
Payroll Processing
Benefits Administration
Compensation Administration
Learning Administration
Training and Education
Recruiting
Relocation Services
Information
Services
Standards
Technology Development
Data Management
Applications Development
Application Maintenance
Telecommunications
Hardware and
Software Acquisition
Legal Litigation Support
and Co-ordination
Environment, Health and
Safety Consulting / Auditing
Regulatory Compliance
Corporate Affairs Communication Services Media Relations Manage Required Filings and
Payments Globally
Supply Chain Indirect Sourcing
Direct Sourcing
Order Management
Spend Analysis
Supplier eProcurement setup
Contact Centres Customer Service
Customer Orders
Technical Service for Call Center Contact Center Back Office
Processing
Sales and
Marketing
In-Store Display Management
Content & Catalog Management
Direct to Customer Fulfillment
Copy Preparation
Web Development
Sales Order Management
Other Postal Services
Data Entry
Reprographics
Document Management
Facilities Management
Corporate Real Estate

15. © 2014 Information Services Group, Inc. All Rights Reserved 15
Trend: Using HR Staffing Ratios
► Without a firm understanding of cost, HR often
seeks out broad HR Staffing Ratios to estimate the
size and cost of future state organization
► Industry staffing ratios describe the size of HR
without any means to ensure like-for-like scope,
degree of retained vs. outsourced activity
Nuances by industry, by company size are not
readily available
Variations exist by region, but ratios are
commonly based on North America experience
Companies operating in a decentralized model
must consider the geographic span of HR
necessary to serve employees
Exercise caution in the use of HR Staffing Ratios to size the future organization or
estimate business case savings associated with a smaller HR
Sample: HR Staffing Ratio
Employees Served Per HR Employee
Best-in-
Class
► Instead, a total cost benchmark can help anticipate cost
without bias and normalize for many attributes of scope,
size, geography, and complexity.
Sample: Total Cost Benchmark
Payroll Cost for COMPANY XYZ

16. © 2014 Information Services Group, Inc. All Rights Reserved 16
Trend: SaaS Marketing
Cost savings calculated on productivity
and staffing ratio assumptions, which
tends to underestimate future state HR
staff resources
HR Operations savings is a negligible
part of these estimates and are often
questioned as funding requests are
escalated
Projections showing 3:1 ratio of non-
people related savings to people-
related savings is an appealing message
► As part of the sales pitch for HR SaaS technology, we find more information
being passed to HR buyers as a ready-made business case
► HR buyers are inclined to try to shortcut a detailed cost analysis by triangulating
estimates and ratios with HR advisory and research sources
► Caution: HR often underestimates the business case rigor that will be required
to fund a significant investment in HR Transformation

17. www.isg-one.com
Julie Fernandez
Director, Americas
Phone: +1 248 425 6733
Email: julie.fernandez@isg-one.com
Twitter: @ISGJulie