Alison Maitland explains how Lloyds TSB has improved its HR function and saved £8m a year.
The idea of making human resources operations more business-like appeals to many companies. But attempts to do so are often cosmetic.
In the case of Lloyds TSB, however, radical changes in the way personnel services are run have generated tangible cost savings for the UK banking group of £8m a year.
The bank's chosen route has been to centralise the personnel function and deliver services such as training to businesses within the group on a commercial basis. Much of the operational work has been handed to a call centre, freeing senior HR staff to concentrate on strategic issues.
Cost savings were not the main motive, says Terry Newell, the bank's strategy and policy director. The merger between Lloyds and TSB in late 1995 created a group with 87,000 staff operating under very different HR structures and this had to change.
Terms and conditions of employment, from travel expenses to salaries, varied widely. Each business unit in Lloyds ran its own personnel operations, while human resources in TSB were more centralised.
PA Consulting was brought in to advise on how best to make the change - a contract that has won the consultancy this year's award for 'best human resources development' from the Management Consultancies Association.
It took a softly, softly approach. Initially only Bridget Skelton, head of PA's global human resources practice, and one member of her team, came in but, over the 18-month contract, the team built up to half a dozen consultants.
Ms Skelton says she was a challenging and sometimes uncomfortable voice on the committee steering through the change. But her team generally worked in the background, supporting bank staff in implementing the new HR model. 'It really was a partnership,' says Mr Newell.
The objectives were to cut costs while improving efficiency and to produce a system that could adapt to future mergers or acquisitions.
The changes were controversial, involving the removal of local HR teams from business units, redeployment of about 300 people and significant job changes for the rest.
In their place have come about 20 'HR business partners', one per business unit, whose job is to advise management on the human dimension of every activity. They contract for services from the centralised HR unit, which operates a pool of 150 HR staff who move from project to project.
Ms Skelton says senior managers had to be persuaded this was a more challenging, intellectual job than running a large group of personnel staff. Training was required. 'They needed a business brain.'
Other ingredients include the call centre in Bristol, which handles about 90 per cent of everyday HR queries. Initially, access was limited to HR and line managers but it is now available to all staff and handles about 2,000 calls a week.
Its advantages are speed, efficiency and consistency, says Mr Newell. 'Policy interpretation could be pretty diverse before.' The centre is saving around £150,000 a year.
Separately, a central unit of about 20 people works on strategic group issues, such as succession planning, and a consultancy team links human resources people with information technology specialists on projects such as preparing for Y2K.
As with any merger, cultural differences had to be overcome. 'Lloyds are far more gentlemanly, discussing things to death, but not so hot on decision-making,' says Ms Skelton. 'TSB have had to be quicker and sharper on decision-making. They don't consult the world before moving forward.' By creating something new together, much of the concern about which culture would dominate was removed.
A crucial step, following the secret negotiations on a new structure and approval from the board, was intensive communication of the planned changes to business units and to HR and training staff. It was important to do this face-to-face and then reinforce the message in writing, says Ms Skelton. People also needed an opportunity to talk to their managers about how they would be affected.
An early measure taken by the new HR operation was to harmonise terms and conditions of employment. Mr Newell says: 'That has had an enormous impact on the culture because everyone is talking in the same language. Without a central identity, we couldn't have achieved that harmonisation.'
The hardest thing was 're-educating' line managers who often preferred guidance on HR to be woolly rather than transparent, he says. 'One had to demonstrate they'd get more effective, efficient service from a remote central point.'
This demanded more forward planning, rather than relying on a service being provided locally with few questions asked. Each request for HR services is now scored for priority according to its importance, how many people it will require, how long it will take and how much it will cost. Where internal resources are insufficient to meet competing demands, business units may have to contract externally.
Outsourcing the HR function remains an option for the future. Already some executive training is outsourced. 'But experience from other organisations shows you've got to get it right before you outsource,' says Mr Newell.
The new structure is still being modified and is being rolled out to fringe businesses, such as insurance. Other parts of the group - information technology, finance and marketing - are seriously considering adopting the HR structure.
And what do the staff, or 'customers' as they are called, think? Mr Newell says the bank regularly surveys employees, using independent polling organisations. 'There's no doubt that there's a significant increase in satisfaction with HR as a function,' he says. 'Staff know where to go and they're more confident about the advice and instructions they get.'
