Maximising human capital: in conversation with ARINSO's Rudy Vandenberghe

Many analysts say the revolution in technology will cause a revolution in the way companies handle their human resources needs. Among those experts is Rudy Vandenberghe, co-founder of ARINSO International and widely regarded as one of the most influential executives in the HR outsourcing industry. Rudy explains how most businesses are still not taking advantage of existing technologies to increase their HR performance.

Sharedxpertise.org: First, tell us about the evolution of ARINSO International.

Rudy Vandenberghe: Since its inception, ARINSO has always focused on HR technology. We started in Belgium, but we quickly saw that the number of large companies was limited. So we moved into the Netherlands and quickly expanded into Europe and the US. Typically the Big Five consulting firms were not so interested in HR, because of all the local complications about payroll and labour legislation, so we made that our speciality. We expanded fast geographically and set the strategy to become a global HR Technology provider serving global accounts. And most of the time we expanded our services to meet their needs ? we helped Shell in the Netherlands and subsequently Shell in France, using our existing client base to expand internationally.

However, just implementing technology was not enough, because we saw that strategic consultancy and outsourcing needed to be part of our offering. So we adjusted our focus as well as our organisation. As a result we were able to win a number of deals like Celanese in the US, where we run the full HR operation for 6,600 people. Today, 75% of our business still lies in Europe, but we have a strong presence in the US and in Latin America.

We mainly work for tier one clients, those with a significant number of employees. If you look at the top 1,000 companies in the world, there is a fair chance that in a number of countries they are working with us or are about to do so. Increasingly, clients are asking us to work out regional or global HR solutions. Although we are still a relatively small company ? close to 1,200 employees - I know our customers appreciate our focus and our proven ability to execute ? on time and within budget. Our IPO on the Euronext Brussels exchange (March 2000) has also helped us to gain visibility and credibility. Even in these difficult times for the IT Services industry, we continue to grow our business ? and according to financial analysts we have an outstanding solvency and liquidity ratios, with above average margins. We very much plan to keep up this track record.

Sharedxpertise.org: What is your own role within ARINSO?

Rudy Vandenberghe: I am currently setting up a Business Process Outsourcing (BPO) team to deliver outsourcing services while at the same time expanding our offering in strategic consultancy. We believe that in Europe it will be impossible to start HR outsourcing projects without having completed an HR transformation effort. At present in Europe there are few HR service centres with regional coverage that can be shared by several clients. Therefore, we created a distributed European service centre concept, based on our experience in implementing over 500 HR Management Systems. Ultimately, we will be able to leverage these centres while consulting on strategic issues. Eventually we may propose to our clients to outsource all of their HR services.

Sharedxpertise.org: Is there a trend now among big European companies to outsource HR?

Rudy Vandenberghe: Yes - one Gartner report maintains that this year the trend will be slow to develop, but in 2003 and 2004 it will accelerate, slowing again in 2005. And this is confirmed by my first-hand impression in the field. HR executives know about Exult?s experience, taking over BP?s HR administration in the US and UK ? but the outsourcing market in those countries is more advanced than in continental Europe. People are still not going for outsourcing in Europe, due to complexity caused by the variety of labour laws and regulations. This situation can only be overcome through an HR transformation project in which the potential outsourcer can provide pre-financing and facilitate the transformation process. And this is exactly where we see a growing role for ARINSO.

Sharedxpertise.org: Can you tell us more what you mean by HR transformation?

Rudy Vandenberghe: Fully-fledged service centres in Europe, serving a number of countries with HR payroll, time management, career management etc., are so rare that sometimes clients don?t really understand what a service centre really does. How does it work, what are the benefits for employees, managers and HR professionals? We have set up ?proof of concept? service centres for a few clients to demonstrate what can be done. This means that we can show the benefits and create buy-in from the business management and the HR leadership, without actually building the centre in full. This makes it easier to decide to go forward with business transformation. Moving forward like this can also help to build the final service centre faster, when you already have 25% of the people needed in place ? with a proven technology platform.

Sharedxpertise.org: Does an HR transformation process have to start with the corporate headquarters, or can an individual business unit take the initiative and become an example for the rest of the group? How does it work?

Rudy Vandenberghe: You can only get started if there is a positive business case. So normally we start with a preliminary study, an assessment of the current situation, and then together with the client we propose a new HR operation including the design of a service centre, with HR business partners and a centre of expertise. This way, the customer gets a good idea of what can be achieved and what the operating costs of such an infrastructure will be. Then, we move on to designing a business case for transformation. Outsourcing may be a part of this, since most customers want to keep ownership of their centres, but they don?t like dealing with technology issues, which can be quite complex for an HR service centre.

More specifically, to prepare this preliminary plan you need to know the scope ? what business units to include, which countries, the type of technology, which people are in the organisation. This is essential preparation. We are currently in this phase with a number of very large clients.

Sharedxpertise.org: Is it usually on a multi-country basis?

Rudy Vandenberghe: Yes. Considering the level of technology needed for a service centre ? call centre support, tracking and tracing of services ? you need critical mass of at least 30 to 40 people before you really start to be effective. So unless you have a big operation in one country which fulfils the business case by itself, the average scale of a country-specific service centre is just not enough. However, we see more and more European or global companies opting for regional service centres.

Sharedxpertise.org: How do you measure the performance of the HR function?

Rudy Vandenberghe: A common tool is the Saratoga benchmark. However, people in HR functions are always tempted ? and are under pressure ? to go for simple cost-cutting measures.

Our view is that HR can be thought of as three main lines of business.

1. The first business line includes administrative tasks: this should run like a factory, you should produce as cheaply as possible for a given quality, at a given service level. Automation is key here.

2. The second is around the HR business partners, you could define them as the HR managers: you should run this like a consultancy practice, with just enough capacity. If the company is going through a big business change you probably will need more business partners compared to a company in a stable situation.

3. The third business line relates to an expertise centre where you have all the experts; this unit should operate like a research and development facility with a budget, and on a regular basis the experts should report to the business leadership about HR-oriented strategic programmes that support the business, outlining the policy programmes needed, and their costs, asking for management approval and buy-in.

These three HR business lines have totally different dynamics, and more and more customers are starting to understand that. And if the keyword in a particular company is cost-cutting, then you should cut costs in your service centre and produce for a given service level as cheaply as possible. You should not overspend on your business partners, just do what is needed. However, your third level , the centre of expertise, should be considered a sound investment ? if a company cuts away all the R&D, within a couple of years they will be astonished at the low business performance, due to the absence of the right programmes to recruit quality people, to promote the right people, and to have the correct career paths in place.

Sharedxpertise.org: What about e-HR ? is it becoming widespread?

Rudy Vandenberghe: We see more and more self-service solutions being used in companies for delivering HR information and HR transactions. Now, the problem with self-service today is that it changes significantly the role of the HR professionals, and requires a different attitude from managers and employees. In the past managers and employees had to apply to HR to get information or to perform a transaction. If you allow employees and managers to access the information and perform transactions directly, then the role of the HR professional changes substantially. That?s why ARINSO has started to promote HR business transformation projects, to anticipate that changing role. However, a significant benefit of self-service is a direct reduction in the cost of delivering HR services.

A second, important aspect is call centre support. Since all remaining transactions which can?t be handled through self-service involve some human intervention, if you properly use call centre functionality, you are able to optimise those resources and the tracking and tracing of your service. Our message to customers is: e-HR is a combination of self-service, Web-enabled access, and the e-business functionalities which you can find in call centres. If you succeed with this combination, and you couple it with an HR transformation project to facilitate the change management for HR professionals, then you really become a best-in-class HR operator.

Sharedxpertise.org: Which HR processes are the most suitable for self-service?

Rudy Vandenberghe: In HR you have two types of processes.

1. Processes such as career management, competence development, and training add a lot of HR value, because they allow your company to get the right person in the right position with the right salary and optimal career progress. These high-added-value processes in most cases are not always the most service-intensive. Self-service is very suited for those processes, but you need a very high quality HR solution and you need to have senior HR people who take care of the contents of those processes.

2.The second type of processes are the more administrative ones, such as time management, leave and attendance, payroll, benefits. These are very service-intensive, but are intrinsically of low value. They simply have to run correctly. At ARINSO we think that these processes are also well suited for self-service. But they are more complex, because they are by nature different for each country ? i.e. payroll in Germany is completely different from Italy or France.

So whilst self-service can bring a lot of value in the first list of processes, it can be used effectively also for administrative processes, automating them to a high degree.

Sharedxpertise.org: Are there standard off-the-shelf packages that can be used in different companies, or do they have to be custom-designed for each?

Rudy Vandenberghe: I think the time that IT service companies used to meet with their customers and design a solution from scratch and engineer it fully is history. Using the car metaphor, a customer simply tells you: ?I want a four-wheel drive pickup truck, and I want to drive x kilometres per year?. In the same way, our customers ask us to come up with a proposal, and we prepare the proposal and ask: ?Does it fit your purpose? Okay, then this is what you will get.? Customers don?t want to design the car anymore, they just want to choose it and discuss the options. They don?t want to pay cash up front, so they go for a lease arrangement, and you have to be able to provide that, and also charge for long-term maintenance costs. Some customers would even want to have a car with a chauffeur, a full mobility solution ? so they will ask: ?That?s where I want to go, and you drive me there? In this way, you have all the options available.

Another important aspect: for those customers who want to have a leased car and just pay monthly instalments, ARINSO can provide up-front financing and take the risk of building the car, building the service centre and maintaining it. This can be an attractive proposition for clients, because it limits the cash exposure, it permits them to drive the car without having to build and maintain it. We take the risk to manage the project and keep it within the planned budget, because it?s our budget - so who would not be interested in that?

Sharedxpertise.org: ARINSO is a partner with all the leading ERP suppliers, like SAP, PeopleSoft and Oracle. How do you choose which to recommend in a given case? Are they very different in their capabilities?

Rudy Vandenberghe: Yes. PeopleSoft and Oracle are solutions originally coming from the US, whereas SAP is a German company. So if you look at the origin of those solutions, you begin to see where their strengths may lie. If you look at PeopleSoft, it?s fancy, it?s nice, slick ? but if you want to run it for instance in Greece, how well is it adapted for the country processes in Greece, and to do time and attendance and payroll? SAP is a German-originated solution, it?s very well localised, with payrolls for 35 or 36 countries; it?s like a traditional German product, it?s very stable, it migrates very reliably, but is sometimes a bit robust.

At ARINSO we believe that a solution should be appropriate for what each customer wants to do, and also for the customer?s business ? is it a fast-moving business, or is it a more stable manufacturing-oriented business? Of course, ultimately it?s always the customer?s choice: we will advise him that if he wants to use a small car and drive a long distance, perhaps it will not be very comfortable. But that?s where we stop.

Sharedxpertise.org: But presumably most of the companies you deal with already have an ERP system, so you work with what they have.

Rudy Vandenberghe: Yes, and we sometimes complement that. For instance, we have one account which is using PeopleSoft, but they have some difficulties in having all those interfaces with payroll providers, whereas you could have only one interface and use that payroll for many countries. That way you have the benefit of what they have today in PeopleSoft, combined with, say, an SAP solution which is very strong on country processes, so you can combine the strength of the two. I don?t really believe that a single ERP application today is suited to cover all needs. In most client situations you find a core ERP backbone, coupled with a limited number of best-of-breed add-ons. And that?s what I think is most appropriate for our clients.

Sharedxpertise.org: Does ARINSO itself have to design some of these pieces, to make sure they are compliant with local regulations in different countries?

Rudy Vandenberghe: Most of the time that?s already done, so we do not have to worry by programming or tailoring the programming to the local situation. Most of the time there is some customising involved, it?s just filling up the contents in the processes so that your HR system is integrated with your finance system for the salary cost posting, and if you have an existing e-recruitment solution, to ensure that it is fully integrated with your ERP backbone. This is a type of integration work that we do.

Sharedxpertise.org: Is this integration work a major part of your business, or is it just a preliminary to providing an outsourcing or shared service centre, to lay the foundations for a relationship with the company?

Rudy Vandenberghe: The major part of our work today is still integration consulting, building service centres for clients and their self-service and e-HR solution. And through our strategic transformation capabilities we are building more BPO work. But in the end we are driven by what our clients need and decide to implement. I think the difference with other BPO vendors is that typically a BPO vendor in the US does not need to have transformation capacity ? it simply hires another party to help with the transformation and when the design and building is done, then the BPO partner simply runs it. But this model doesn?t work in Europe, because the complexity of the transformation is such that you have to integrate your transformation and your operating capacity in one company. That?s one of the key strengths of ARINSO - that we are able to say openly to customers: ?If and when you decide to outsource, we are ready. We can help you with the transformation, we can help you with the maintenance, and if you want we can even help you with operating your service centre, for which there are different options. We are very flexible, it?s not a binary situation, to outsource or not to outsource.?

Sharedxpertise.org: Do you operate differently in America than in Europe?

Rudy Vandenberghe: Yes, in the US we do a full BPO operation, whereas in Europe today most our work is pre-BPO, in which we manage the technology in an HR service centre. We maintain and keep the technology up and running. We maintain the ERP environment, the self-service, we do the backups, we run the infrastructure, we maintain and run the payroll. But the contact agents and the subject matter experts in the service centre, or the case managers, are still client staff, and the complete service centre is managed by the client.

Sharedxpertise.org: And your own outsourcing centres, you have one in Europe and one in the States?

Rudy Vandenberghe: We have one in the States and we are building now one in Europe to allow some customers to make use of ARINSO?s service centre infrastructure, because the complexity of building and maintaining a full-fledged service centre with voice response and Web call-back is rather daunting.

Sharedxpertise.org: How many clients can you serve with the same outsourcing centre?

Rudy Vandenberghe: I would say there is no limit. If you have a big customer in Sweden who has 20,000 employees, then you calculate the number of Swedish-speaking service agents and Swedish HR subject matter experts on payroll, benefits, pensions, and so on. You can easily end up with 20-30 people. Clearly, finding so many Swedish-speaking people for our call centre in Brussels who understand local issues in Sweden can be a problem. Therefore we go for a technology platform which enables a distributed HR service centre. That way you can easily open an office somewhere, lay down the infrastructure - everything is over IP (Internet Protocol), data and voice - so it?s just a matter of connecting that location with a high bandwidth, and then people can be immediately operational after training.

Overall, distributed service centres for HR in Europe make great sense, due to the relatively small call centre component and the high portion of local subject matter expertise you need, compared to a finance service centre which you can easily relocate offshore.

Sharedxpertise.org: Is it possible to handle competitors in the same centre?

Rudy Vandenberghe: It?s a matter of having an appropriate code of conduct, in the service centre and in the company. Of course, if you combine service for two of your clients in one service centre using the same agents for both company?s employees, this can become an issue. So you would probably avoid the situations where agents serve both clients. This will decrease your efficiency because you will need more staff, but, on the other hand, if that provides more security, then you better go that way.

Sharedxpertise.org: So how many outsourcing clients do you expect to be servicing in Europe?

Rudy Vandenberghe: We do not currently have a full service centre operating in Europe, as we do in the more advanced US market. However, we think that certainly next year or the year after, as we move more and more clients through HR business transformation and win acceptance for a business case that calls for partial outsourcing, that will happen. I still think that in Europe it will be difficult to find a client who is ready to outsource everything, the whole HR department, because of the fact that organisations need to go through a huge transformation process. It is more likely that in Europe some customers will outsource a process, such as European payroll, to one service provider, or outsource the technology maintenance for Europe to another service provider, or do a combination and then outsource the contact centre for three or four countries. Therefore I think that in Europe we will see more selective solutions and selective offerings, instead of one big outsourcing deal like BP or Bank of America, who are committing the whole of their HR services to an external party.

Sharedxpertise.org: Do you plan to develop your activities outside the US and Europe? For example, at Sharedxpertise.org we see a lot of interest in these topics from Australia and New Zealand.

Rudy Vandenberghe: Having talked with a wide range of interested parties including clients and partners my feeling is that the US and UK are very much ahead on outsourcing - in the UK even the public sector is driving outsourcing. Continental Europe is still moving slow, due to the reasons I explained previously. In the Nordic countries, strangely enough, we see that interest in outsourcing is emerging. We have opened offices in Sweden, we see that prospective clients are talking about outsourcing, they are very open-minded. But some other countries, like Germany and France, are very difficult, and it will still take some time before they see the benefits of this practice.

To come to your question, Australia is probably the driving force which will boost outsourcing in Asia-Pacific. ARINSO does not have a presence in Australia yet, but we will be watching that area very closely.

About ARINSO
ARINSO International is a leading HR technology consulting firm, with headquarters in Brussels and operations around the globe. Founded in 1994, it now has close to 1,200 staff in 19 countries, with sales of ?111 million in 2001 (up 36%), an EBIT margin of 14.1% and net profits of ?6.5 million. The company is quoted on the Euronext Brussels exchange.

ARINSO focuses on the full range of HR needs and provides consulting and services to some of the world?s leading multinationals in the areas of HR strategy, ERP and e-HR integration, and HR operations (including shared services and outsourcing).

Rudy Vandenberghe can be contacted via email at rudy.vandenberghe@arinso.com