Payroll transformation is a range of fundamental changes to the payroll processes, tools, and people within the payroll operations of an organization to deliver payroll in a different way. For example, it may entail moving from a distributed model where payroll is managed by each operating unit within the organization to a more centralized approach delivering payroll from a regional or global shared service center or moving from in-house delivery to an outsourced model across the international payroll footprint.
Transformation programmes are fraught affairs. They rarely deliver on the business case. The most quoted statistic relating to transformation programmes is that 70% of them fail. McKinsey & Company have been analyzing transformation programmes for a long time, and the persistently high failure rate is staggering. This article examines why transformations fail, according to McKinsey & Co., and applies the payroll context to provide some pointers on how to make your global payroll transformation succeed.
What Makes Transformations So Hard
There are several reasons why global payroll transformation is so hard. They include the following:
1)Failure to Launch
This boils down to the following key issues: there is no alignment on the approach the organization should take to global payroll and you get stuck in analysis. This means the decision to proceed will not be supported by the top, managers in the scope of the transformation are not accountable to supporting the initiative so key influencers are divided, and there is employee resistance to the proposed change. These factors make it all too easy to defer decision-making for what is a cost/risk initiative.
2) Failure to Scale
If you have gotten past the decision stage and have had your global payroll programme approved, the next test is to generate momentum. During this scaling phase, programmes often rely on change agents to evangelize the change, but it is not being adopted into the day-to-day payroll operations. Everyday behaviors are not changing toward supporting the new model, and the line falls back on old habits, processes, and tools. When you meet this sort of resistance, word spreads across the organization. Then those territories that have not yet adopted are hedging their bets that they will not have to change and start to resist on the basis that the initiative will be scrapped and the change initiative is quietly shelved.
3) Failure to Sustain
Organizations are cluttered with multiple other initiatives and generally, there is limited leadership bandwidth to give each real, continuous support. The longer your global payroll transformation programme takes, the less focus it will enjoy, and the senior leadership team’s interest and support will wane. Organizations are suffering from “initiative fatigue,” and only those initiatives that show clear results quickly will garner enough continued support to survive and thrive.
What Can You Do?
There are a number of things you can do to tackle the above key blockers to making your global payroll transformation a success. Understanding the organization’s decision-making process is key to getting going. To deploy countermeasures to cross that hurdle, you must inject momentum and above all look for speed, as focus will diminish. Here are some of the countermeasures you can do:
1) Get Your Programme Approved
The first thing to do is to make your business case compelling to demonstrate a clear return on investment. A well-put-together business case will go a long way to winning over the senior leadership. The business case will factor in options and have a well-thought-out recommendation. Remember the risk of paralysis by analysis, so narrow the field to avoid being sent away to evaluate more options. Check on whether there are others in the organization who are running with similar change projects in payroll, either at a local or regional level, that may compete with your initiative to clear the field. If you do not have a clear field, then try to link the success of other initiatives to yours. There is no surer way of stalling a global payroll transformation than to find that a significant territory in your scope is just going through vendor change or that the HR team is pushing out a new HRIS. It gives decision-makers an excuse to stall your programme until those other initiatives have been done. The HRIS rollout will get bogged down without the support of payroll operations.Socialize your intent with leaders across the extended payroll organization to ensure that they understand and back your initiative and that they see real benefits of the initiative for themselves and their operations. This may be tricky in a situation where you are moving from local payroll to shared services resulting in headcount reductions locally. In these cases, socialize the initiative up a level beyond those about to lose their roles or influence due to the programme. The reason to do this is that when it comes to decision time, you are able to rely verifiably on the support of influencers the decision-makers will look to.
2) Answers for the ‘Why Now’ Question
- There will always be the question of “Why now?” that will need to be answered. While this will be in the business case, the answers need to have clear resonance for senior leadership. Do you have a compelling answer or set of answers to this question so that the transformation story you are telling has meaning for everyone? The answers can be a mix of risk factors. For example:
- We have concrete information security risks: “We had a major breach in country X, four near-misses in country Y, and if they happened in an EU country under GDPR (General Data Protection Regulation), the potential penalties are up to €20 million or 4% of annual global turnover.” These are big, scary numbers that will get the decision-makers’ attention.
- “We are blocking the realization of the finance/HR shared services business case, which has been approved but requires the global payroll component to be commenced by date X and be completed by date Y.” This will recruit allies to your cause.
- “We have had significant compliance penalties imposed in country X of $Y because we do not have the governance around global mobility expertise in place, and as we expand, this will increase. We believe that this risk is building as our workforce grows and travels more frequently.” No one wants the scrutiny associated with this.
- “We have a clear risk in country X and Y that our in-house software is no longer reliable, which has resulted in delayed payments to N,000 employees twice in the past six months. This is having a detrimental impact on industrial relations and/or employee engagement.”
- Paint the picture of the “do-nothing” scenario with evidence so that you and influencers around you know that this is not an option.
- The answers that you have for “Why now?” need to make the decision-makers feel sufficiently uncomfortable about the position so that they have to act. The best decisions ultimately are derived from the even fewer decisions that get made and are followed through on.
3) The Next Question: ‘How Do You Know You Can Do It?’
Having the correct model, tools, and preparation in place is key to success. You also need to have a solid basis upon which to execute your global payroll transformation. You need to have a credible plan that integrates people, processes, and tools to both deliver the transformation and drive it from an initiative to part of the fabric of the business.
The decision-makers know the 70% failure statistic, and you have made them uncomfortable about the status quo by pointing out the risks and failures in your current payroll operations. The preparation is key to convince them that your global payroll transformation will fall into the 30% success bracket. This preparation will need to include activities to reduce the two largest reasons for failure: management behavior not supporting the initiative and employee resistance to change. Make sure you do not overlook the human component in your preparation.
You have now had the decision approved. The next thing to do is to generate momentum and successes in the programme. Your planning should weave in early wins that help you to generate momentum locally. Look at your plan as a source of news flowing out to the organization. For example:
- We have delivered 15,000 payslips through our shared service centre using our new model in the past two months since migration
- We have seven out of 12 countries working to our global model according to plan
- We have served 1,595 employee queries in less than one hour in the past five weeks
Programme Outcomes Rather Than Programme Activities
Programme infrastructure is necessary to track, monitor, and control. The industry of the programme office and project activities can often distract from the thing that senior leadership is focused on most: seeing tangible outcomes. You need to be relentless in demanding outcomes. Ultimately, the outcome is about transforming your payroll infrastructure. The outcome is better payroll experiences for staff, reduction in errors and risks, increase in productivity, and additional services you can bring and that the business values.
As you generate momentum and bring more payrolls under the scope of the transformation programme, ensure that your communication is engaging the beneficiaries of the programme as well as the unwilling. You should simultaneously pull up the ladders behind as you go so as not to give local teams the opportunities to revert to old ways and habits. The key here is that when a crunch happens, the local payroll teams and management teams know where to go to get support and ensure that support will be available. They will look for opportunities to test the service you are delivering. As part of your business case, there should be additional services that the local management team will benefit from: data insights, costs, compliance, and global mobility advice. Articulate what they can expect over and above what they are getting today.
Balancing Global, Local Objectives
A key aspect in a global transformation is to recognize that as human beings we are very change- averse. In the context of the change, you must also acknowledge that your objectives and benefits of moving towards a global model for payroll may not be the same as the objectives of your local teams. Where these conflicts arise, you will need to manage them carefully and heed warning signals. How can you achieve your global objectives—e.g., better governance, more efficiency, stronger compliance, improved data transparency—while imposing minimal undue impact on local teams?
“No-Change Change”—Maximize Global Impact, Minimize Local Disruption
Is there a “no-change change” model (i.e., a model that supports the objectives of the global change programme but minimizes the change at the local level)? Part of the challenge with global payroll is that it is an amalgamation of things that are “hyper local”: tax, social security, reward and benefits structure, and compliance obligations. Your global transformation approach needs to recognize this “hyper local” environment. The objective may be different and competing, as in the following:
- Process standardization vs. local variation
- Global mobility vs. local compliance
- Global insights vs. local reporting needs
- Global costs vs. local cost
While some will be aligned, as in the following:
- Information security
- Accuracy and timeliness
- More automation instead of manual work
Introducing Open Payroll Platforms—Bridging Global, Local Objectives
New open-platform models that have been emerging over the past couple of years are ideally suited to support and bridge these global and local priorities. This is achieved by layering transparency over the top of local operations. What this means is that the global objectives can be achieved by connecting the existing payroll landscape to these open platforms, without causing undue disruption and pushback from the local teams by forcing the replacement of the local payroll solutions. And this change can be done very quickly.
Keep what works (i.e., your local payroll solutions) and optimize on top (i.e., connect them in a central, open platform). It is truly a “no-change change.” The key benefit to the global team is speed and transparency. Traditional global aggregator models spend too much time ripping out local payroll platforms and services and replacing them with those of the traditional aggregator. This has the effect of generating hostility locally as well as bogging down your transformation from a schedule perspective. If you can avoid this rip and replace of the local solutions, you will speed up your programme and hit the sustain state while avoiding the local teams becoming alienated. The open global payroll model reduces local resistance, accelerates rollout speed, and decreases cost and risk of transformation while giving you global controls and standardization.