Case study: AA Group

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In 2004, the AA Group was sold to a private equity company by Centrica. AA is a complex business. It includes its well-known roadside patrol and rescue operations, the largest insurance brokerage in the UK, a publishing wing, a driving school, and financial services and traffic management operations. “Within six to nine months we had to disentangle a number of business functions from Centrica and set them up as stand-alone shared services for AA,” explains Martin Sawkins, HR Director. In particular, HR was located in Basingstoke. The operation included payroll as well as all the usual HR functions of a large organisation.

The two years since the sale have been ones of dramatic change with substantial ramifications for HR. Shortly afterwards, some of the businesses that were non-core to the new operation were sold off. The headquarters was restructured, and then in 2005 the roadside patrol was restructured, too. “The strategic aim was a common one: to become more efficient and effective,” Mr Sawkins explains. Since then, AA has acquired an insurance business as well.

A shared services business model facilitated and underpinned these changes. “Traditionally we had lots of HR modules that were decentralised and scattered across the various business streams,” Mr Sawkins says. “Centrica had pulled them together into one entity. Our goal was to disentangle that from Centrica, install it in one place, and then refine the model to drive more savings.” In this respect, he has been successful: “We have reduced the cost base of HR by another 28 percent since our separation from Centrica, making the operation very competitive.”

Other benefits of such a shared services model followed. For example, the HR department is able to upgrade systems easily since they only have to do it once. In the past, upgrading would have been a complex operation, installing new systems for each part of the group.

Shared services have also facilitated the construction of an intranet for employees. Via a web browser, all employees are now able to access consistent information on everything from sick leave to career development. Again, this would have been a far more complex and expensive service to fulfill without a shared services structure. “Moreover, the discipline of centralising has also meant that we have standardised HR practice across the group,” adds Mr Sawkins.

The variety of business streams within the AA means that HR manages over 100 different kinds of contract, that are personalised to employees, including about 150 different grades on pay scales, and several pension schemes. Though still a complex operation, this has been brought under much greater control within a shared services environment.

A further benefit comes when working on big projects. Mr Sawkins calls it flexible resourcing. In essence, he is able to shift resources within the HR department around to cope with short-term demand in particular areas. “For example, when we were restructuring the patrol force we had to deal with hundreds of contract changes, with each employee taking different options. I could allocate more people from within the shared service facility to help with this, whilst maintaining the same level of service throughout.”

Although HR is a shared service facility for the whole of the AA, the department is organised so that employees within it do have expertise in particular areas. Each person will pay particular attention to a particular business stream, partly so that they become increasingly familiar with it, and also because this is a far more satisfying way of working.

Outsourcing the HR function was considered. It was rejected because the benefits of its cost savings were thought to be outweighed by the detrimental side of outsourcing. “In fact, given the reduction in the cost base achieved since the de-merger from Centrica, even the appeal of cost savings that outsourcing offers is not that great,” adds Mr Sawkins.

What is more, the company was initially conscious of the complexity of the HR function and the need to maintain close control of it, something that it felt would be reduced with outsourcing. HR departments are very sensitive to offering the wrong advice to employees, for example, a risk that is compounded when a complex operation is run at a distance from the business.

Second, maintaining close control of HR was vital during the process of business change. It needed to be tightly integrated with decisions as they were made, again something that is more difficult when outsourcing. This had implications for morale, too. “We didn’t want employees to suffer that remote feeling that can come with remote operations,” Mr Sawkins explains.

Third, the organisation was somewhat suspicious of the way outsourced shared services can become more expensive over time. Targets are set to control costs that work well for the first couple of years. But then, especially if acquisitions are made, costs have to be renegotiated.

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