High-flying partnership offers future model

first_img Comments are closed. Xchanging’s sophisticated partnership deal with BAE Systems has enabled theaerospace and electronics giant’s UK HR operation to concentrate on itsstrategic role while transferring professional and administration services to aseparate entity. Nic Paton reportsOne of the more innovative of a spate of HR outsourcing deals is the ongoingpartnership between defence, aerospace and electronics giant BAE Systems andXchanging a “pure play” outsourcing provider characterised by its 100percent BPO focus. BAE System’s outsourcing journey began back in November 1999, when the thenBritish Aerospace merged with Marconi Electronic Systems, the defence arm ofthe former GEC, to form the current company. That merger created a company with some 120,000 employees worldwide, withabout 70,000 in the UK dotted around 70 sites. Inevitably, the City, with itsfocus on improving shareholder value, wanted to see substantial cost savingsand synergy benefits arising from the merger. A target of £275m was set,equating to approximately 15 per cent savings across the company. Suddenly, the group’s merged HR department found itself struggling to copenot only with the complexities of combining its own function, but managing asubstantial cost-saving and headcount reduction programme. Compounding this wasthe fact that there were very few common HR processes in place across theorganisation. “There was a lot of duplication. There was a ratio of about one HRmember of staff to 70 employees, whereas the benchmark was around one to200-plus,” says Alan Bailey, head of business development at Xchanging. Problems included different departments not talking to each other enough andinsufficient investment in enabling technology. “It was focused onfragmented and reactive administration support. There was also a plethora ofdifferent HR systems that were not integrated,” he adds. In starting to try to tackle the HR issues thrown up by the merger, BAESystems drew up a model of shared services that would act as a commonfunctional template, explains BAE Systems HR director Tony McCarthy. Around 70per cent of the 700-strong HR team would have worked on providing sharedservices, 5 per cent in expert strategic roles and 25 per cent in client facingroles. However, resistance from the local HR teams to this pooling of resourcesmeant it quickly became clear that the 15 per cent cost saving was not going tobe met through this route. It would also have meant the need for heavyinvestment in HR – including a major investment in IT. This was not attractiveto the company which was interested in investing elsewhere. An alternative was therefore needed. BAE Systems had already outsourced itsIT services and so it was not a huge leap to look at the idea of outsourcingsome of its HR capability. The difficulty was that with morale among staff lowbecause of the changes being pushed through by the integration process,management was reluctant to simply hive off its HR function. A moresophisticated partnership approach was needed. “We basically felt there was a lot of growth in this market and if wecould get a partnership with an organisation that was prepared to share thebenefits of HR provision then there would be a business benefit too,” saysMcCarthy. It was at this point that Xchanging came into the picture. Talks beganshortly after the time of the merger, with the two sides mapping out apartnership agreement during 2000, and finally going live from May 2001. In a deal worth £250m over 10 years, some 500 HR staff were transferred intwo batches to a separate enterprise partnership called Togethr HR Services.Although Togethr is a subsidiary of Xchanging, BAE Systems has a 50 per centstake. Xchanging offers BAE Systems a range of services, including compensation andbenefits, development, recruitment and graduate recruitment, pensionsadministration, international assignments and all the HR data administration. BAE Systems has retained ownership of HR policy and strategy and maintainsthe HR business partner role for its main business units. Issues still dealtwith in-house include matters such as group policies on pay and relationshipswith trade unions. Unusually for an outsourcing agreement, and further evidence of theinnovative nature of this deal, Xchanging agreed to invest $20m in creating abrand new e-HR capability IT system for BAE Systems. Innovations have includedtechnology that allows employees to access their personnel records from theirdesktop. “We have thrust IT into the hands of all our employees,” saysMcCarthy. He cites the company’s senior management development programme as agood example of this policy in action. The programme includes a personaldevelopment plan, a peer recognition system and 360-degree appraisal – all ofwhich have been linked into the office IT system. “It forces all our 600senior line managers from North America, Australia and Europe to use thesystem.” Through the partnership, BAE Systems is guaranteed ‘substantial’ costreductions for the first five years across the different HR functions, meaningmanagement can factor actual reductions into their business plans, adds Bailey.However, neither side was prepared to reveal the exact extent of savings made. Beyond the benefits to the bottom line, the partnership initiative has ledto streamlining of the HR process and freed the in-house team to think morestrategically without having to worry about the day-to-day function. In such a big organisation, it was also vital to have a partner that couldunderstand the complexities and different demands of the business, saysMcCarthy. “We needed an HR organisation that could be very quick on itsfeet. One that could react and push for changes in our different organisationsbut without massive bureaucracy,” he explains. Looking to the future, Togethr is currently purely a UK operation. ButMcCarthy says: “We are now looking to offer this approach to BAESystems inAustralia and North America.” Other elements, as yet unspecified, could also be bolted onto thepartnership. “It could be that within 12 months we will review theposition and see whether there are other things that we may wish totransfer,” says McCarthy. And the fact Togethr is a partnership, rather than a simple outsourcingcontract, means the arrangement is extremely flexible. For instance, a further50/50 partnership with Xchanging on HR procurement was signed in October. The £800m deal, one of the biggest outsourcing agreements ever signed in theUK is evidence, if more were needed, of BAE System’s commitment to the conceptof outsourcing, and its belief that taking such a route can benefit thebusiness in more ways than just reducing bureaucracy or saving money. The deal will see a raft of issues related to procurement bundled togetherunder one roof rather than the responsibility for buying in HR services beingsplit between the various business units. The 10-year contract will see Pro-cur managing the entire supply chain forBAE System’s UK subsidiaries in HR-related services such as car fleet hire,non-technical contract labour, recruitment, training programmes, hiring ofconsultants and healthcare. It was very important to BAE Systems to ensure aseamless delivery of services across the entire supply chain. For McCarthy, the key to effective outsourcing is much more than simplyensuring functions are taken off an organisation’s hands and cost savings made,vital though these two benefits are. By thinking beyond a straightforwardoutsourcing deal, BAE Systems has successfully created an innovativepartnership that can expand and grow with the organisation, and add value tothe business. “You have to make sure that it lines up with your strategicimperatives,” he says. How outsourcing has helped BAE systems cut costs and invest– Worldwide, BAE Systems employs some120,000 people. In the UK, there are 70,000 employees, 50,000 of whom workwithin the wholly owned company and 20,000 within joint ventures. It has 70sites around the country– The HR department is made up of 700 staff, about 500 of whomwere transferred to the Togethr partnership under the outsourcing agreementwith Xchanging– The key main benefit to BAE Systems has been the guaranteedcost savings for the first five years of the contract– On top of this, BAE Systems has been free to focus onstrategy and business partnership, leaving Togethr handling the day-to-day HRfunction, including data administration, compensation and benefits, pensionsadministration, development and recruitment– Other benefits include a $20m investment by Xchanging on anew e-HR capability IT system and the potential for expansion, particularly tothe US and Australian and operations– Further developments include a recently signed 10-yearpartnership on HR procurement, one of the largest ever signed in the UK High-flying partnership offers future modelOn 5 Feb 2002 in Personnel Today Related posts:No related photos. 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