Outsourcing in Human Resource

Hochschule Bremen School of International Business – HBSIB University of Applied Sciences Herr Prof. Dr. Ulrich ROHR MBA in Global Management OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Master Thesis 31st July 2003 Ms. Mathilde RENAUX & Mr. Eloi MALTA-BEY First reader: Herr Prof. Dr. Karlheinz SCHWUCHOW – HBSIB – Bremen, Germany Second reader: Herr Prof. Dr. Werner VOIGT – UPAEP – Puebla, Mexico Directed by Mrs. Dominique CALMANT Director of Human Resources Services and Staffing IBM EMEA …the company without borders has its heart beating in the hands of its partners… OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY ACKNOWLEDGMENTS First of all, if only one person could be warmly thanked for this particularly enriching experience, it would definitely be Dominique Calmant, Director of Human Resources Services and Staffing IBM EMEA, for having supervised this master thesis, for the time she has spent with us, and for the confidence she placed in our work. We hope we have fully satisfied her high expectations, since that has clearly been our main goal throughout this project.

Similarly, we would like to express our grateful thanks to Eloise VerdeDelisle, Director of Employee Relations IBM France, whose discernment is quite unquestionably high, and who actively participated in making this partnership with IBM EMEA possible. We would also like to thank Alexandra Dudouet, Human Resources Operations Officer IBM France, for her support and her help in the whole process, as well as Mathilde Malta-Bey, for her precious literature research in the Lille III University Library, and Christopher Minnich, for his advice despite his heavy work as a student at the George Washington University Law School.

Finally we surely do not want to forget our professors, tutors, and correctors, who have been involved in the whole process of our education, from kindergarten to the MBA. Thanks to them. 2 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY GENERAL TABLE OF CONTENTS A CK N O W LE DG MEN TS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 G EN E RA L TAB L E OF CO N T ENT S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 F O RE WO RD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 IN TR OD UCT I ON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 P A R T I. S CO P E & DE FIN I TI ONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 CHAPTER 1. OUTSOURCING OVERVIEW ……………………………………………… 12 1 . 1 . Ou t sou r c in g Defi n i ti on A nd Ob j ec tive s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1 . 2 . Ou t sou r c in g Si t ua t io n s A nd A pp r oac he s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 4 1 . 3 . Ou t sou r c in g T ren d s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 9 CHAPTER 2. HUMAN RESOURCES DEPARTMENT OVERVIEW ………………………….. 25 2 . 1 .

H um an R e so u rce s De p a rtm en t Ro les . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5 2. 2 . S t ructure Of Hum a n R e source s Organiz a ti onal Ac tiv i ti e s . . . . . . . . 28 2 . 3 . H um an R e so u rce s I s s ue s O f T he Mul t i na ti o na l C om pa ny I n E u ro pe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 0 CHAPTER 3. HUMAN RESOURCES OUTSOURCING OVERVIEW ……………………….. 38 3 . 1 . H um an R e so u rce s O u t so u rc i ng De fi ni t io n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 8 3 . 2 . H um an R e so u rce s O u t so u rc i ng S pec if ic i tie s A nd T re nd s . . . . . . . . . 4 3 P A R T I I . S TR A TE GI C A P P R OA CH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 0 CHAPTER 4. HUMAN RESOURCES OUTSOURCING AND THE NEW COMPETITIVE ENVIRONMENT ………………………………………………………………………… 51 4 . 1 . On go in g C om pet i t io n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1 4 . 2 . B o rd erl e s s O r gan i za t io n s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3 4 . 3 . K now le d ge w o rke r s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3 4. 4 . N TIC (New T e c hn ol o gi e s of I nfo rma t io n an d C om mu n ic a ti on ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY CHAPTER 5. HUMAN RESOURCES OUTSOURCING AND THE NEW CHALLENGES …….. 66 5 . 1 . Two Fa s t – Mov ing T re nd s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6 5 . 2 . S co pe Exp a n si on s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 9 5 . 3 . Ex p ansi o n s Ex p la n a ti on s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 9 5 . 4 . I s s ue s Fo r T he Ou t s ou r ci n g Co mp a ny . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2 5 . 5 . H um an R e so u rce s N ew Ob j ec t ive s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3 CHAPTER 6. HUMAN RESOURCES OUTSOURCING STRATEGIC APPROACH ………….. 77 6 . 1 . Ou t sou r c in g Dec i s io n Th eo r y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7 6 . 2 . Wh a t S ho u ld Be O u t so u rc ed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3 6 . 3 . A dv an t a ge s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 5 6 . 4 . D r aw ba ck s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 6 P A R T I I I . I M P LE ME N TA TI ON . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 CHAPTER 7.

MANAGING THE HUMAN RESOURCES FUNCTIONS OUTSOURCING PROJECT ………………………………………………………………………………. 89 7 . 1 . P ro j ect Te am . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9 7 . 2 . P ro j ect D ef in it ion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 7 . 3 . I n te rna l I s s ue s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1 7 . 4 . Ex te r na l I s s ue s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3 7 . 5 . Fa ct o rs de te r mi ni n g t he s uc ce s s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 0 0 7 . 6 . P ro b lem s Li ke ly T o Oc cu r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 0 1 CHAPTER 8. LEGAL ASPECTS OF A HUMAN RESOURCES OUTSOURCING OPERATION ………………………………………………………………….. ……… 102 8 . 1 . Ou t sou r c in g L ega l A c to r s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 0 2 8 . 2 . Le g al F r a mewo rk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 0 3 8 . 3 . Ou t sou r c in g Con t r ac t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 1 8 . 4 . P ro b lem s Li ke ly T o Oc cu r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 0 CHAPTER 9. MANAGING OUTSOURCED HUMAN RESOURCES ACTIVITIES ………….. 121 4 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY 9 . 1 . E le men t s T o K e ep I n te r na l ly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 1 9 . 2 . R eq u i re d Sk il l s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 3 9 . 3 . Ot he r S ol u ti on s To K ee p Con t r ol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 4 9 . 4 . P ro b lem s Li ke ly T o Oc cu r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 5 P A R T IV. CAS E S TU DIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 8 C H A P T E R 10. H U M A N R E S O U R C E S O U T S O U R C I N G E X P E R I E N C E D C U S T O M E R S . . . . . . . 1 2 9 1 0 . 1 . Com p an ie s T h a t H av e O u t so u rc e d T h e i r T r a n s ac t io n al A c t iv i ti e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 9 1 0 . 2 . A Co m p a ny Th a t H a s O u t so u rc e d S o m e O f I t s H um an R e so u rce s P r oce s s e s: K e ll og g Fo od s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3 6 10. 3 . Companies That H ave Outsourced A ll Of Their H uman R e so u rce s Bu s i ne s s P ro ce s se s Ex ce pt M an a ge r i al On e s . . . . . . . . . . . . . . . 1 3 8 C H A P T E R 11. H U M A N R E S O U R C E S O U T S O U R C I N G E X P E R I E N C E D P R O V I D E R S . . . . . . . 1 4 2 11. 1 . HR O P rovi de rs S p ec ial ize d In Som e H um an R e so urce s F u nc t io n s O u t so u rc in g Se rv ic es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 4 2 1 1 . 2 . H R O P rov i de r s P ro po s i ng A n I n te g ra t ed So l uti o n I nc l udi n g T h e Wh ol e Ra n ge Of H um an Res o u rc e s P ro ce s se s . . . . . . . . . . . . . . . . . . . . . . . . 1 4 3 C H A P T E R 12. IBM (I N T E R N A T I O N A L B U S I N E S S M A C H I N E S ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 4 8 1 2 . 1 .

Comp a ny Ov e rv iew . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 4 8 1 2 . 2 . Ma j or O ut s ou r ci n g P r ovi de r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5 0 1 2 . 3 . Comp e ti t ive Hu m an Re so u rc e s O rg a n iz at io n . . . . . . . . . . . . . . . . . . . . . . . 1 5 2 1 2 . 4 . H uma n Re s ou rc e s S e rvi ce s P rov id er . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5 9 1 2 . 5 . Co nc l u si on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6 5 C ON C LU SIO N . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6 7 A FT ER WO RD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6 8 R EF EREN CES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6 9 T A B LE O F IL L U ST RAT IO N S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 8 1 D ETA I LED TAB L E OF CO N T ENT S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 8 2 5 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY D EC LA RA TIO N S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 9 5 6 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY FOREWORD When we chose the topic of our master thesis in December 2002, we could not imagine how fast our theoretical work would be severely challenged by the reality of facts, if indeed it was not already so challenged at the outset. At the time Dominique Calmant agreed to supervise our work, our shared idea was to explore the outsourcing concept, as far as Human Resources activities are concerned.

It quickly turned out that a conceptual approach alone was not enough as such a practice was already clearly in the pipelines of several multinational companies. Of course, concepts are always welcomed to provide a better understanding of a trend or a practice, but the empirical method is what finally differentiates between a strategy that is merely feasible and one that can actually produce an efficient competitive advantage. As the Vice President and Business Transformation Executive IBM Systems Group, Jamie Hewitt, summed up: “What looks good on paper doesn’t necessarily work in the real world. 1 It is always hard to deal with the outsourcing approach, as it suffers most of the time from an extremely bad reputation. Indeed, outsourcing an activity is always primarily understood as getting rid of the fellow employees of the concerned activity. We quickly found out that the outsourcing world is refreshingly far removed from that instinctively dark view of the practice. Outsourcing, in fact, starts from an ideal way of imagining the community: collective interdependence and individual recognition.

In other words, on an individual basis (the employee), outsourcing brings closer together identity and action: one identifies with what one does. Moreover, and on the other hand, the Human Resources field is all the more concerned by the unpleasant connotation of the outsourcing strategy, since it is precisely the people who feel victimized by this approach who 1 Reengineering the Corporation, Michael Hammer and James Champy, Harper Business 2001, p 201 7 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY constitute the essential “raw material” of Human Resources.

People are the kinds of resources that not only need to be managed to achieve their best results, but also need to be convinced that these results are optimized. As the modern organization is made of the “brains” of the people who compose it, if it outsources its Human Resources activities, it must surely realize more than ever that it may of course secure its success in this way, but in exchange for a relative loss of control of its identity. In other words, on a collective basis (the company), one identifies with both what one does for the others and what one has done by the others.

Finally, as a business strategy includes processes, an information technology system that supports them, an organization that uses them, and a culture that shares them, one can say that outsourcing Human Resources activities of a multinational company is all about assigning those activities to the people that understand them best and implement them most effectively, once and for all fulfilling the vision of the modern company that has its “brain” performing in the “brains” of its partners. 8 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY

INTRODUCTION Outsourcing Human Resources Activities of a Multinational Company in Europe. That is indeed exactly what this whole master thesis is about. Human Resources, because we found quite fascinating the fact that still too many managers have at the same time a hard time defining the real essence of the Human Resources department of their own company and nevertheless blindly support the fact that Human Resources management is absolutely necessary to their success. Outsourcing, because we have been rapidly convinced that it is one of the best way to understand and drive businesses of the future.

The outsourcing strategy stands somewhere between customer relationship management and strategic alliances, allowing it to take advantage of the market to a much greater extent than the market dictates to it. The Multinational Company in Europe finally, because it specifies to whom and where our thesis applies in particular; because a company set up throughout Europe is still on the one hand necessarily a multinational company, but is inevitably facing on the other hand the tangible and remarkable European integration process that impacts its business more and more as a whole.

In order to clarify and encompass as much as possible the meanderings of our topic, we thought four main parts would be necessary. We chose to start, in the first part, with taking stock of the situation, as far as the outsourcing phenomenon and the Human Resources department practices are concerned, to finally come to an overview of the Human Resources activities outsourcing industry. After extensively laying out the needed scope and definitions of our thesis, we step back a little, in order to understand the underlying stakes of a Human Resources outsourcing strategy.

We then begin with key points of the business environment that lead to such an approach, following with the 9 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY description of the new challenges faced by Human Resources departments, and finally ending with a clear vision of what is really meant by a Human Resources outsourcing strategy.

Next to fill in the theory with more pragmatic details, the third part present the different practical key issues resulting from the implementation of such a Human Resources outsourcing strategy; that is to say, we describe and analyze the different steps involved in putting into practice such a solution, highlighting the specificities of the European environment. Finally, the fourth and last part supports our analysis with several topical case studies, first of all describing Human Resources outsourcing strategies of some multinational companies around the world, and then sharing experiences of some of the first providers of such a service.

In the end, our focus is on the IBM Europe case, a case that we have been given the chance to follow quite closely since July 2001. 10 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY PART I. SCOPE & DEFINITIONS In this first part of the work, our aim is to encompass the substance of the thesis. It is important to define precisely what is understood by the terms we use.

Moreover, we would like to offer here a useful picture of the phenomenon taking stock of the situation, as far as the outsourcing and Human Resources department practices are concerned; in order, in the end, to provide an overview of the Human Resources outsourcing industry. This introductory section is designed to serve as an icebreaker and is intended to demonstrate that the outsourcing trend is not just a short-lived fashion sustained by trendy consulting firms, but an important consideration for Human Resources departments that has nothing at all to do with minor operations. 1 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY Chapter 1. Outsourcing Overview The term “outsourcing” is currently frequently used in the business world, but very few managers know in fact exactly what is hiding behind this concept. Most of them would reduce outsourcing to subcontracting, to core business recentering, to having externally done what could be internally done, or finally to resorting to a specialist. We will take some time here to figure out what exactly hides behind “outsourcing”, its definition and bjectives, its situations and approaches, and finally its trends. 1. 1. Outsourcing Definition And Objectives 1. 1. 1. Outsourcing definition Outsourcing is, in simple words, giving the responsibility and the management of an activity to an external supplier (manufacturing activities) or provider (service activities), instead of doing it internally. It is different from subcontracting, which implies an obligation of means, whereas outsourcing is based on an obligation of results. It must also not be confused with downsizing, which consists in increasing productivity, efficiency, and competitiveness by reducing the size of a company. In this case, a group of activities is totally abandoned, which cannot be amalgamated to an outsourcing strategy. To the contrary, an outsourcing strategy consists in a real transfer of activities from the clientoutsourcing company to the providing outsourcing company (also called provider or outsourcer). The downsizing strategy is a consequence of the redefinition of a company’s core business, whereas the outsourcing strategy follows from a strong will to refocus on its core business. It is nevertheless 1 “Organizational downsizing: a convergence and reorientation framework”, Marcia S. Freeman and

Kim S. Cameron, Organization Science, 4, 1993 12 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY interesting to notice that 23% of downsizing operations result from outsourcing operations. 1 Another confusing practice is reengineering, which consists in the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service, and speed. 2 Reengineering must certainly not be assimilated to outsourcing, even if it sometimes leads to it.

Even while all these related practices might be part of a whole outsourcing operation, they cannot be assimilated to outsourcing strategies. The complexity of the issues that arise in connection with outsourcing projects varies depending upon many different factors requiring numerous areas of expertise to be tapped into, such as tax, insurance, risk management, finance, project management, change management, information technology, and a perfect and essential knowledge of the environment involved. 1. 1. 2. Main objectives of an outsourcing strategy

The main objectives for a company when it outsources some of its activities are, on the one hand, to improve the quality of the (outsourced) activity thanks to a new expertise that was not internally available, and on the other hand to reduce at the same time (directly or indirectly) the costs of this activity. Therefore, if only the quality improves, at least the net result for the company has to improve as well; and if only the costs are reduced, the savings are direct, but one should watch out for possible future harmful consequences.

One would obviously try to combine quality improvement with cost reduction, but most of the time outsourcing requires balancing the pros and the cons of a certain level of quality for a certain level of cost, and ideally finding the optimum point. 1 American Management Association, 1997 Reengineering the Corporation, Michael Hammer and James Champy, Harper Business, 2001, p 35 2 13 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY Companies sometimes want to take advantage of this new outsourced activity o create the new business opportunity themselves, thus generating new revenue and services that will be sold to others and, if the venture is successful, maximizing both its outsourcing strategy and its investment. Finally, whatever the type of outsourcing approach or situation one has, three kinds of strategic intents usually drive the decision to outsource: 1 • Improving the outsourced activity’s operations; • Increasing the outsourced activity’s contribution to the global performance of the company; • Exploiting business advantages of the outsourced activity. . 2. Outsourcing Situations And Approaches 1. 2. 1. Different kinds of outsourcing operations A] Different outsourcing situations Two fundamental characteristics distinguish the different situations involving outsourcing: • The prior existence of the activity inside the company; • The proximity of the activity to the core business. By crossing these two criteria, one obtains a typology of the four main possible outsourcing situations: 1 Inspired from the article “Strategic intent for IT outsourcing”, Anthony DiRomualdo and Vijay

Gurbaxani, Sloan Management Review, Summer 1998, Volume 97, Number 4, pp 67-80 14 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY Illustration 1: The four types of outsourcing situations1 a) Traditional outsourcing This kind of outsourcing situation applies when a non-sensitive regular activity is concerned. The client-company outsources and has actually always outsourced this activity as it is permanently needed for the business, but is on the other hand far removed from the core business. ) Traditional outsourcing with disintegration In this situation, one deals as well with non-sensitive activities, but activities that were nonetheless formerly internally managed. “Disintegration” stands for the transfer of the concerned activities from the client-company to the provider-partner. Here arises the problem of initiating an outsourcing strategy or not. c) Strategic outsourcing with disintegration In contrast to the two first situations, this one consists in outsourcing activities close to the core business. In this case, the outsourcing strategy can 1

Strategies d’Externalisation, Jerome Barthelemy, Dunod, 2001, p 10 15 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY create a competitive position, but it can also freeze the company. d) Strategic outsourcing The last main outsourcing situation occurs when the regular activity is also close to the core business and when it is already outsourced, since a provider-partner is offering an expected quality of services. The question of how to renegotiate the partnership conditions is then asked. e) Outsourcing with assets leasing

We may also add this fifth situation, in which a company willing to outsource an activity but unwilling to transfer its assets to the provider simply leases these assets. In other words, in this case, assets remain the property of the outsourcing company, and there is no real need to transfer anything. This option usually occurs when assets are too specific, too expensive, or too strategic. It is nevertheless unlikely that a company would lease assets of an activity that was not inside the company before. Leasing is in fact the alternative to disintegration. B] Different outsourcing approaches

As an example, Leslie Willcocks distinguished recent approaches to IT outsourcing1: • Offshore outsourcing, consisting in outsourcing to a provider located in countries such as Ireland, Israel, Malaysia, Hungary, Mexico, Philippines, Egypt, or India; It is interesting to know that India recently warned the U. S. and other developed countries that if they limit the extent to which information technology is outsourced, it will damage their domestic industry as outsourcing is a huge international 1 “L’externalisation maitrisee des systemes d’information”, Leslie Willcocks, L’Art de l’entreprise globale,

Village Mondial, 1999 16 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY movement resulting from globalization. 1 Nevertheless, under the pressure of lobbying groups such as the MUNCI (Mouvement pour une Union Nationale des Consultants en Informatique) in France, the PCG (Professional Contractors Group) in the U. K. , or other such organizations in Germany and in the rest of the developed world, governments are considering proposals to curb growth of offshore outsourcing in order to, in the end, avoid the transfer of jobs outside their borders. • Value-added outsourcing, consisting in fixing the revenue of the provider according to the value it really creates; • Outsourcing with equity, consisting in giving the client-company the possibility to acquire shares of the providing company, according to certain conditions; • Diverse outsourcing operations, consisting in reducing one’s dependency on a unique provider by contracting with several of them; • Co-outsourcing, consisting in fixing the provider’s revenue to a percentage of the revenue the provider generates; • Subsidiary outsourcing, consisting in the creation of a spin-off.

C] Different uses of outsourcing a) Automotive outsourcing These constitute the first layer of activities addressed by outsourcing. Because they are characterized with repetitive tasks, it is very easy to determine the objectives that the provider should reach. These activities often and administrative/operative 1 “India warns U. S. over outsourcing”, Habib Beary, BBC News Online, 12th June 2003 “Protectionism hits the outsourcing industry”, Gillian Law, John Blau, Per Sayer and Marc Ferranti, Info 2 World, 15th April 2003 17 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY epresent a non-negligible part of a business function, but are not really the value-added generating vector. b) BPO (Business Process Outsourcing) i/ Selective BPO This solution consists in outsourcing only those parts of a department that are the most distant from the core business. 1 With this solution, companies can focus their financial resources on the most important parts of the targeted department; they can also keep their strategic components internal to the company, and according to practical experience so far, this solution seems to be the most successful. i/ Total BPO This solution consists in outsourcing all processes of a given function or department, thereby guaranteeing a fully integrated management of the different processes. c) Total outsourcing Finally, total outsourcing, which is still rare, consists in outsourcing the entire department, from the bottom line all the way to the management. The objectives given to the provider are crucial to the overall strategic results. In this case, the provider is considered more as a real partner than as a simple service seller. . 2. 2. Outsourcing advantages A lot of institutes and authors, specialized in outsourcing, list its numerous benefits. Among all these, we can distinguish four main advantages of outsourcing: 1 “The Value of Selective IT Outsourcing”, Mary C. Lacity, Leslie P. Willcocks and David F. Feeny, Sloan Management Review, Volume 37, Number 3, Spring 1996, pp 13-25 18 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY Cost reductions on the outsourced activities; • Improvement of the outsourced activities’ performance; • Refocus on core business activities; • Improvement of the company overall performance. 1. 2. 3. Outsourcing risks The same commentators assess numerous risks of such an operation, which have to be considered and balanced before taking the decision to outsource. The most important factors are: • Underperformance; • Dependency; • Losing know-how and skills; • Social risk, as such an operation is often felt as a betrayal of the employees.

In the end, according to the last report from The Conference Board1, nine out of ten companies surveyed said they would outsource again if given the choice, but many said they would do things differently. Notably, companies would do more to prepare employees for the change, particularly the greater responsibility placed on workers to manage their benefits. The report emphasizes the fact that outsourcing is becoming a critical competency for most large companies. “HR departments are not yet good at this”, says David Dell. 1. 3. Outsourcing Trends

While discussing his project of a “company without factories”, the French CEO of Alcatel, Serge Tchuruk, publicly announced what all the specialists had 1 HR Outsourcing Trends, Lisa Gelman and David Dell, The Conference Board, 2002 19 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY been claiming: globalization forces companies to refocus on their core business, and therefore systematizes outsourcing practices. 1 Outsourcing is a classic phenomenon since the 1950s as far as production activities are concerned.

It is no more unusual to see well-known brands labeling, with their own name products or services that were entirely made by external providers. The outsourcing trend is of course not completely new as applied to service activities2, but it is mainly used in that sphere to deal with peripheral activities such as restoration, gardening, cleaning, or care-taking. On the other hand, the outsourcing of activities that are critical to the good functioning of the company are relatively innovative and is no longer considered as a last resort for companies with financial difficulties.

In fact, in the hope of reducing costs, gaining efficiency, and improving the level of service, companies are taking a hard look at their business processes to assess which areas would best be performed by an outside provider. In parallel, these providers are restructuring or expanding their service to accommodate the growing demand for outsourcing services. 3 Finally, whereas the original aim of an outsourcing strategy was to reduce costs, companies are nowadays more interested in gaining direct value for shareholders.

This necessity encourages companies to transfer some of their business resources (equipment and employees) to an external provider in order to lighten their balance sheet and increase their profitability. In the end, it also allows companies to concentrate more of their financial and managerial resources on valuable activities, in other words on their core business resulting from their core competencies. One can already see that a successful outsourcing strategy consists in a profitable sharing of the different companies’ 1 “L’externalisation, un mouvement de fond”, Patrick J.

Miliotis, Les Echos, 29th August 2001 Intelligent Enterprise: A Knowledge and Service Based Paradigm for Industry, James Brian Quinn, Free 2 Press Publishing, July 1992 3 “Business Process: Consider Outsourcing”, Thomas Kiely, Harvard Business Review, May-June 1997, pp 11-12 20 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY core competencies, which gives in the end a maximum value-added to companies that are part of the network. 1. 3. 1. Global evolution of outsourcing

According to a study by Dun & Bradstreet and The Outsourcing Institute, the outsourcing phenomenon developed rapidly during the last few years. Moreover, according to forecasts, the European market will reach $52 billion in 2003 and will concern ever more different kinds of activities. In comparison, the European market reached $40. 2 billion in 1998, at a time when the American market reached more than $160 billion. Illustration 2: European outsourcing practices in 19981 Outsourcing is nowadays very well developed and accepted for activities such as office management, payroll, security, and office maintenance.

It is also increasingly implemented (but is not very developed yet) for logistics, IT, after-sales services, and other similar activities that are closer to the core competency. 1 “L’irresistible montee de l’externalisation”, Alain Perz, Les Echos, 21st October 1998 21 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY In the U. S. , a 1997 study1 dealing with outsourcing practices involving 619 companies showed that 94% of American companies outsource at least one activity.

Moreover, administrative services and Human Resources activities (see 3. 2. 2. ) are those that are the most commonly outsourced. Nevertheless, it is important to emphasize that, in the U. S. , pension fund management costs are included in HR budgets, which obviously implies huge amounts of money that are not directly linked to HR management processes, but rather to pension financing. 1. 3. 2. Factors favoring these booming outsourcing trends This increase would not have been so important without a certain number of external and internal factors. A] Internal factors

A company performance is nowadays measured by the value that it creates and delivers, and almost no longer by its revenue or by the increase of its market share. B] External factors a) Supply pressure Ever more qualified actors are appearing on the market and expanding little by little the global opportunities for companies to outsource. Whereas before they were limited to small contracts signed with different providers, they are now complex ones dealing with a whole function assigned to a single provider. b) Development of information technology Another main enabler for such an increase is the development of new American Management Association, 1997 22 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY technologies and particularly of information technologies, which allow a decrease in the costs of coordination between companies, and the costs of communication with providers (see 4. 4. ). Indeed, more and more complex operations can be processed thanks to the circulation of large amounts of information at a very low cost. Moreover, it is no longer necessary to use specific production assets. c) Benchmarking

By benchmarking, companies compare their performance (internal costs, productivity, technologies) to one or several “company-yardsticks” for each part of their organization. The “company-yardstick” is usually a model company in its area. If a company selects a “company-yardstick” that is its competitor, it will try to “play the same game”; and if a company selects a “company-yardstick” that is a specialized provider, it can consider a possible outsourcing of the concerned activity. d) Mimicry Finally, mimicry plays a very important role as far as outsourcing behaviors are concerned.

A good example of this occurred in 1989 when Kodak outsourced its IT department to IBM. Big competitors followed this example based on the assumption that such a big company must have conducted an in-depth analysis before taking such a decision. This risky tendency can also be seen within a single company when one department is outsourced and thereby others follow in turn. 1. 3. 3. Main BPO providers There are no real exemplars yet, but three distinct groups of competitors:1 1 “Building a Case for BPO-Part 2, For Buyers’ Eyes Only”, Damon Rosenhan, Everest Group, September 2002 23

OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY • Big 5 players or their spin-offs, which built upon their traditional consulting strengths to enter the BPO market: Accenture, Deloitte Consulting, OPI/PMG spin-off, Cap Gemini-Ernst & Young; • Venture capital funded niche players, which used capital infusions and technologies to specialize themselves in a single area for which they have strong value-added but limited delivery capacity: Exult, SourceNet, Equitant, Creditek; • Traditional Outsourcers, which took advantage of market pportunities to acquire BPO organizations and supplement their IT consulting expertise with business process consulting expertise: IBM (which acquired PwC Consulting), ACS, EDS, and CSC. 24 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY Chapter 2. Human Resources Department Overview After having polished the outsourcing phenomenon, we found it useful to make in parallel a point on the actual state-of-the-art Human Resources department organization in most multinational companies in Europe.

Indeed, according to Spencer, 60% of the costs generated by the HR department concern traditional administrative activities of the job while representing only 10% of the department value-added; conversely, 60% of the department value-added results from strategic activities that only represent 10% of the costs generated by the department. His solution: reengineering and outsourcing. 1 2. 1. Human Resources Department Roles The Human Resources department supports interactions between managers and employees. It insures overall consistency in decisions taking.

It determines the rules of the game in situations where employees and companies accept not to spend their whole professional path together but just a part of it. It makes sure, on the one hand, that the company acts in the interests of employees by giving them opportunities to advance their careers; and on the other hand, that employees bring as much value-added as possible during their stay in the company. It finally prevents one part from playing its own game to the detriment of the other. We can distinguish two different roles within the HR department: the organizational ones and the operational ones. 2. 1. . Organizational roles Organizational roles can be classified in the two following categories: • Human Resources management, including HR support to business 1 Human Resource Management, Dave Ulrich, Volume 36, Number 1, Spring 1997 25 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY and HR design & delivery; • Legal obligations including employee relations and well-being programs. All employee relations’ issues occurring in any company are nowadays mostly organized by country regulations, even if large companies try to homogenize them globally. 2. . 2. Operational roles Operational roles can be in turn divided into the two following categories: • People management, including company managers; • Personnel management, including industrial relations managers (HR local specialists). Even though it does not and cannot belong to the HR department, people management is absolutely essential to HR management as a whole. Personnel management is, on the other hand, the public face of the HR department, locally and operationally speaking, and if personnel management is as operational as people management is, it is nevertheless completely part of the HR department.

Both roles are in fact involved in the HR process as far as they are responsible for the day-to-day HR management. 2. 1. 3. Human Resources organization If a “shared services center” also called a “HR services center” is included in the HR organization, and according to the two organizational and operational role distinctions above, the HR organization could be drawn as following: 26 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY Illustration 3: HR Organization This organization model illustration underlines the distinction between the main HR actors.

HR roles could be, at a more detailed level, described as following: • HR services center: ~ ~ ~ ~ Administers corporation-wide programs; Creates HR efficiencies across the organization; Resolves customer administrative issues; Processes transactions, as needed. • HR functions experts: ~ ~ Exhibit functional expertise; Develop global HR programs and adapt them to business unit specifications; ~ Provide responses to specialized issues. • HR business partners: ~ ~ Define and meet the unique needs of the customer; Implement HR programs using knowledge specific to individual business units; 7 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY ~ Define HR strategy at the business unit level. • Corporate HR: ~ Guides the development and implementation of HR strategy; ~ ~ Ensures customer satisfaction of entire HR functions; Manages executive facilitation and coaching. • Industrial relations managers (HR local specialists): ~ Manage and administer local specific programs with input from corporate HR and from HR functions experts. Company managers: According to the managerial grid of Blake and Mouton, there are two important dimensions for managers1: ~ ~ Manufacturing interest dimension; People interest dimension. The people interest should conduct managers to observe good day-to-day HR management practices, and to consider employees’ desires without losing sight the business unit organization, needs, and economic imperatives. 2. 2. Structure Of Human Resources Organizational Activities 2. 2. 1. Key Human Resources functions To explain our idea, we enumerate the main organizational HR functions The managerial grid, Black and Mouton, 1964 28 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY as follows: • Payroll administration; • Employee services administration; • Talent management (recruitment and staffing); • Employee development; • HR support to business; • Compensation; • Benefits; • IT systems and HR data management tools; • Employee relations; • Industrial relations; • People management; • Well-being programs (health and safety); • HR policy and planning.

All these activities represent both the whole employee life cycle and the HR roles expressed through attracting, motivating, and retaining employees. 2. 2. 2. Activity types crossing HR functions 29 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY Illustration 4: Activities crossing HR functions Illustration 4 above demonstrates how each HR function is composed of different activities, from automotive ones to managerial ones.

This table provides a clear vision of all the different types of activities involved in the HR management of almost any medium or large-sized company in Europe (See 4. 2. for organizational vocabulary definitions). 2. 3. Human Resources Issues Of The Multinational Company In Europe 2. 3. 1. The European labor market and intercultural management issues 1 A] Figures The E. U. (European Union) contains today more than 370 million 1 “Y a-t-il un marche du travail europeen? ”, Maurice Thevenet, Les Echos, Summer 2002 30

OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY inhabitants from 15 different countries, all sharing the same labor market. In January 2004, 10 other countries will join the union, raising its total population to more than 450 million. For the moment, the E. U. countries sustain more than 150 million jobs. As you can see in the following illustration, unemployment is not homogeneously spread throughout Europe, but seems to reflect instead the remaining differences in terms of social policies among the E. U. members.

It is to hope or even more to expect that the European integration, and especially the social one, will guarantee fair competition inside the E. U. labor market. Illustration 5: Unemployment in the EU, % of workforce in December 2002 and December 2001, seasonally adjusted1 1 Industrial relations developments in Europe 2002, EIRO & E. U. Commission, p 29, http://www. eiro. eurofound. eu. int * September 2002, ** October 2002, *** November 2002 31 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY Illustration 6: Fixed-term work in E.

U. member States1 B] Trends While many differences still characterize the different European countries’ legal systems and cultures, multinational companies tend to adopt a homogenized approach as far as workforce management is concerned. It is interesting to note that national education authorities throughout Europe have been working hard these last ten years to harmonize the European diploma system in order to allow easier comparisons across European borders. Students, as well as employees, are now organized in Europe-wide unions in order to efficiently face Europe-wide issues.

Even while mobility inside Europe is not yet very significant (it stands currently at less than 1. 5%), multinational companies clearly use one single recruitment and career management strategy for the whole of Europe. As confirmed by 303 multinational companies in Europe, European integration is one of their most 1 Industrial relations developments in Europe 2002, EIRO & E. U. Commission, p 55, http://www. eiro. eurofound. eu. int * Population between 15 and 74, ** Population over 15, *** 2000 data 32 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY hallenging missions in terms of HR management. 1 Integration on a European scale means that multinational companies apply the same answer to the same problem wherever it arises in Europe. As an example, remuneration is also based on performance across Europe and 360° manager assessments are systematically implemented. Thus, optimists would attribute this result to European integration whereas others would simply cite the globalization process. Illustration 7: Average collectively agreed pay increases, 2001 and 2002 (in %)2

Despite these developments, legal social systems are still very different from one another and multinational companies are fully expected to apply the local law. For instance, in Germany, the labor laws encourage collective bargaining, thereby avoiding state intervention, whereas in France the state is a major actor in the social life inside companies, and whereas in England 1 Comment evoluent les strategies de remuneration en Europe, a Towers Perrin Study, January 1998 Industrial relations developments in Europe 2002, EIRO & E. U. Commission, p 34, 2 http://www. iro. eurofound. eu. int * Average of 18 countries, ** Average of 16 countries for 2001 and average of 15 countries for 2002, *** Average of 12 countries for 2001 and average of 11 countries for 2002 33 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY employer-employee bilateralism (excluding the state) is the rule. 1 Another example is the working time negotiations: while this debate is taking place almost everywhere in Europe, each country has a different way to cope with it, a different cultural approach.

Illustration 8: Average collectively agreed normal weekly hours, 20022 Some of the most complex problems faced by HR departments are intercultural issues. Despite significant efforts to educate and inform workers, stereotypes are still too stubborn. C] Challenges The European labor market is confronting four main challenges that HR departments must imperatively cope with: • Skills: this particular challenge, which is also faced by universities, 1 L’Europe des ressources humaines, D. Cazal and Jean-Marie Peretti, Editions Liaisons, 1992 Industrial relations developments in Europe 2002, EIRO & E.

U. Commission, p 36, 2 http://www. eiro. eurofound. eu. int * 2000 figure, ** 2001 figure, *** Average of 18 countries 34 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY refers to the development of system of reference for evaluating skills on a Europe-wide basis in order to gain time and efficiency in domains such as recruitment and career development; • Diversity: too much importance is given to national cultural differences, as they are very easy to notice.

More and more groups of workers will be clearly transnational, defending common interests resulting from a complex common association; the challenge is here to imagine innovative ways to manage this new type of diversity; • HR organization: more efficient in a more complex environment and more flexible in a more demanding environment; probably the key challenge, the one that leads to great success in the end if mastered; • Social capital: legal and geographical unity is not enough to guarantee a shared culture; in other words, multinational companies need to participate in the European social integration as European social actors, and as the key to their success. 2. 3. 2. An ever more organized social dialogue in Europe A] The European social integration process Since 1985, three stages can be distinguished as far as concerns the evolution of social dialogue across European industries. 1 First in 1985 when, at the initiative of the President of the European Commission, Jacques Delors, the social partners embarked upon a dialogue, the first step towards creating a “European bargaining area”. Then, the Social Policy Protocol and Agreement attached to the Maastricht Treaty (which came into force in 1993) and 1 Industrial relations developments in

Europe 2002, EIRO & E. U. Commission, http://www. eiro. eurofound. eu. int 35 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY subsequently incorporated into the Amsterdam Treaty gave rise to the second stage, in which the social partners reached and implemented agreements by means of Council Directives on the following issues: parental leave, part-time work, and fixed-term contracts. Finally, in December 2001, the social partners’ joint contribution to the Laeken European Council was a crucial step for the social dialogue, opening up a third stage of independent European-level dialogue.

European social partners intervene on various subjects such as employment, lifelong learning, stress at work, gender equality, restructuring, disability, young people, racism, ageing workforce, harassment, telework, undeclared work, industrial relations, social dialogue, E. U. enlargement, mobility, etc. with a clear objective to harmonize national laws. A European legal frame is also rapidly appearing in various fields such as: worker consultation and information, the ECS (European Cooperative Society), working time, protection of employees in the event of insolvency of their employers, temporary agency work, equal treatment for men and women, health and safety, etc. B] European Works Council 1 The setup of a European Works Council aims to improve the social dialogue between the employer and its employees throughout Europe.

Since 1994, a European Directive obliges multinational companies in Europe to inform and consult employee on certain management decisions. 600 companies have so far implemented their European Works Council. Companies concerned are at least set up in two or more European countries, with at least 150 employees in each of them, reaching an overall headcount of more than 1,000 employees Europe-wide. 1 Dialogue dans l’entreprise: consultation des travailleurs et comite d’entreprise europeen, Centre d’Information sur l’Europe, 23rd April 2003, http://www. info-europe. fr/europe. web/document. dir/QR000914. htm 36 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY

The European Works Council is dedicated to employee consultation and information as far as concerns Europe-wide issues such as employment, business health, restructuring, mergers and acquisitions, outsourcing, etc. 37 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY Chapter 3. Human Resources Outsourcing Overview Now that we have seen what is to be understood by outsourcing on the one hand, and the Human Resources department organization on the other hand, we may now enter this chapter trying to get a better overview of the Human Resources Outsourcing phenomenon itself. 3. 1. Human Resources Outsourcing Definition 3. 1. 1.

Defining outsourcing Outsourcing Human Resources activities is giving a provider the management of part or all HR functions we listed earlier (see 2. 2. 1. ). Human Resources activities 3. 1. 2. Human Resources outsourcing levels A] Self-Service (e-HR) This first step in HR outsourcing is increasingly developed in Europe. It consists in managing some HR processes directly on the Internet. Managers and employees can access tools and information at any time from any intranet access point. Self-Service strategy is mainly applied in Europe for the four following processes: 38 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY Illustration 9: The four processes that are mostly managed by Self-Service in Europe1

This use of new technologies indeed allows the HR department to spend less time on administrative tasks and more on value-added services, as it is represented in the illustration here below. Illustration 10: HR Self-Service: resource reallocation on higher added-value activities2 1 Le management des Ressources Humaines en Europe: les professionnels RH doivent developper de nouvelles competences face aux defis du e-business, PricewaterHouseCoopers, November 2000, p 5 2 Le management des Ressources Humaines en Europe: les professionnels RH doivent developper de nouvelles competences face aux defis du e-business, PricewaterHouseCoopers, November 2000, p 5 39

OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY As an example, U. S. BASF employees may already print their pay stubs directly from the HR intranet. The challenge is to enroll managers in the use of that tool. Most of the time, managers are instinctively resistant and skeptical. The only way one can succeed is to spend a lot of time bringing managers into the fold by demonstrating the value of the tool with transparent statistical results. 1 B] Transactional HR outsourcing, shared services centers, or HR services center a) Definition Shared services imply that services (transactional activities) are handed over to a provider.

The outsourcer will provide all standard transactional and administrative activities, giving advice to employees on HR processes, and the outsourcing company keeps all management responsibilities. This kind of outsourcing is principally composed among of an HR services center, which implies “a centralized office that handles routine administration and answers enquiries from managers and staff throughout an organization on Human Resources related matters. ”2 As shown earlier in the part dealing with HR organization, all transactional activities are given to this HR services center, supported by HR experts for each function and with all strategic activities done by HR business partners, as well as local and corporate Human Resources specialists in-house. 1

Converting the Managers Makes Self-Service HR Work, Beth Ellyn Rosenthal, April 2003, http://www. outsourcing. requests. com 2 “Dictionary”, Business The Ultimate Resource, Bloomsbury Publishing, 2002, p 1259 40 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY Illustration 11: Shared services model1 b) Objectives The goal is that employees and managers have access to HR information, through the shared services function, which is technologically equipped and has an immediate and accurate knowledge of local policies, procedures and employee history. Contrary to the totally HR department outsourcing (see 3. 1. 2.

D]), this strategy does not move control to corporate or to a central entity but rather creates a centrally managed organization that serves employees and businessbased HR professionals as clients. It allows an increase in quality, an improvement in service, and a reduction of processing cycle time as well as expenses. C] HR processes outsourcing 1 Transforming the Human Resource Function, Arthur H. Mazor and Meredith A. Paxton, Human Resource Effectiveness Practice, Buck Consultants, Inc. , 2002 41 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY Companies can decide to outsource some of their HR activities, which they do not consider as part of their competency scope, and for which they consider that it can be better and cheaper if a HR outsourcing provider manages them.

They outsource all administrative and most of their HR activities to outside firms, leaving very few other activities, such as strategy and salary decisions, in-house. In this case, the provider is totally responsible for the good running of these activities, and often integrates its client’s employees (see 7. 4. 3. C]). D] Totally HR department outsourcing Another particularly integrated outsourcing solution consists in giving the management of all the HR activities with no exception to a Human Resources outsourcing provider. The provider is responsible for keeping the HR activities in accordance to and in service of the overall activity and strategy of the company, and the company is no longer responsible for any HR decision. This kind of outsourcing is nowadays mainly used in the U. S. here can be even found the premises of co-employment. Co-employment simply consists in hiring people on the basis of a three parties contract: the employee, the business partner, and the Human Resources professional. Signing this contract, the employee accepts to be under the business authority of the business partner, and agrees to depend on the Human Resources provider (also called PEO (Professional Employer Organization) in the U. S. ) as far as social problems are concerned; and in the end, the three contractors assume distinct responsibilities. Co-employment is finally a good way for companies to outsource their social responsibilities to an accredited co-employment provider. In the U. S. PEO are on a lobbying campaign to obtain federal and state legislative recognition and to overcome existing laws that create barriers or additional costs for third-party administration of HR operations. State legislators have responded by appointing them as the front-line tax collector and pension-administrator with legal liability for non-compliance. In Europe, the E. U. Acquired Rights Directive and other local legislation 42 OUTSOURCING HUMAN RESOURCES ACTIVITIES OF A MULTINATIONAL COMPANY IN EUROPE Mathilde RENAUX & Eloi MALTA-BEY make effectively HR outsourcing a costly solution by leaving the outsourcing company with the ultimate burden of managing its workforce and taking financial responsibility for employee restructuring. It clearly prevents, for the moment, co-employment to develop in the Europe. Nevertheless, since June 2003, Bremen’s (Germany) job center PSA (Personal Service Agentur), for instance, offers co-employment contracts to local companies for a duration of nine months in order to facilitate the reinsertion of unemployed workers, as the workers are leased to the company during the nine months period. Of course, this is a social and short-term initiative, but it really looks like the start of co-employment habits in European countries. 2 Moreover, in the U. K. , Adecco, for instance, provides permanent employment contracts to workers that are in fact working for a third-party client-company.

Adecco has the main “Admin Con

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