The Folly of ‘No Decision’ in Global Payroll
Apr 26, 2017 | Topic: Optimization
Multinational organizations experience change on a continuous basis. And when it comes to both day-to-day employee changes—around starters, leavers, promotions, or salaries—and big-picture business moves related to company growth, expansion, or management shifts, the payroll function is always affected.
Given the ever-changing landscape of legal, regulatory, and statutory requirements around the world, change is essentially a built-in element of global payroll at large. Yet at the same time, payroll is one of the least adaptive areas of the enterprise.
Despite significant dissatisfaction with their organizational status quo, many multinational companies stay married to a failing approach to global payroll for years on end. It’s incredibly common for organizations to even re-sign with underperforming or error-prone payroll vendors at the end of their contractual terms without ever achieving significant resolution of their issues and concerns.
Even worse is the “no-decision” phenomenon, which sales-driven organizations in the global payroll space understand all too well: After weeks or months spent prospecting for a new payroll solutions provider, an organization will end the buying process without making a purchase decision—ultimately opting not to select one seller over another, but rather to stay in the existing circumstances that led it to pursue a new provider in the first place. Let’s take a look at this phenomenon a bit more in depth.
Organizational Inertia: A Problem in Global Payroll
To a certain degree, every organization has its own unique reasons for arriving at a no-decision outcome in their global payroll transformation project. Some are reluctant to abandon their entrenched organizational knowledge with existing solutions; some are skeptical that a new approach would be any better than their current one. Others point to the sunk costs they’ve plugged into an existing model, or the perceived risk that switching vendors will create unnecessary problems while delivering negligible benefits.
All of those lines of thinking, however, come back to the same issue—an organizational resistance to, or fear of, embracing transformational change. The phenomenon is far from exclusive to global payroll. In business, it’s sometimes referred to as inertia (or its sister concepts, “active inertia” and “organizational inertia”).
Essentially, inertia represents an organization’s tendency or desire to remain unchanged—to respond to outward changes by maintaining the current path, or accelerating activities that bring success for it in the past.
In the case of global payroll, however, the activities that succeeded for a multinational organization in the past often—and thus became the status quo—were rarely intended to succeed long-term.
The status quo for most multinational organizations is the “decentralized” global payroll landscape: a disjointed operation comprised of some in-house processing and some outsourcing—typically to a disparate selection of local payroll providers in international locations.
Organizations rarely arrive at that landscape on purpose. Rather, as the company expands to new locations, it engages new providers in a piecemeal manner to meet its needs as it goes. Since each provider manages payroll using its own processes and technology, there’s rarely any sense of standardization or holistic strategy backing a decentralized global payroll model.
Over time, such an approach becomes more than just disjointed. It becomes expensive and unmanageable. One consulting firm estimates that poorly designed payroll processes that lack the proper technology and management routines can cost a company between 0.5% and 1.5% of total payroll dollars each year. For a Fortune 500 company that processes between $1 billion and $2 billion in payroll annually, that can add up to $30 million per year, according to an Information Services Group online article.
Adding to the issue is the sheer challenge of managing and monitoring so many disconnected vendors. According to HRMorning.com, an estimated 25% of payroll leaders spend more than 50% of their time on day-to-day payroll activities—sucking up valuable resources that could be better spent elsewhere.
As an organization matures, so does the folly of an inert approach to payroll. As companies capitalize on opportunities in emerging markets and send employees abroad, they face new tax considerations and payroll needs that are rarely met in an efficient or auditable manner by country-specific payroll providers.
With new regulatory, tax, and statutory considerations come new (and significant) risk factors that senior stakeholders readily understand. In a recent survey of global business risks by Protiviti, executives perceived heightened regulatory changes and scrutiny as their second-highest risk factor for 2017.
Yet all too often, those very same executives maintain their payroll status quo regardless—often due simply to a fear of change.
Because business success today demands constant adaptation, that fear can ultimately lead to stagnation. If a global company isn’t constantly evolving, improving, expanding, and responding to challenges across every area of its operations, is it really thriving? Or is it allowing inertia to stunt its potential for future success?
Moving Toward an Embrace of Transformative Organizational Change
As an organization sinks deeper into its pre-existing strategies, processes, relationships, and resources, it needs to take bold new actions to effect any meaningful change. The appropriate response to inertia is what’s known as the “transforming commitment.” This is the organizational decision to invest in transformational change in a given area of its operations.
Ultimately, investing in transformational change is every company’s most important growth strategy and most valuable hedge against forces outside its control … and nowhere is that more true than payroll.
By investing in a transformation from a decentralized landscape to a holistic global payroll solution, an organization can set a firm foundation for a growth-focused global future. Deploying a holistic global payroll platform rather than relying on the outdated payroll processes and systems of a “decentralized” vendor landscape can help organizations reduce operating costs, increase efficiency and productivity, and cultivate better, more useful data and analytics. It can also reduce the amount of internal bandwidth dedicated to payroll, thus allowing an organization to allocate more resources to revenue-focused activities.
Across all departments, however, transformative commitments come with risk. That’s why management guru Donald Sull asks companies a pertinent question as they pursue organizational transformation: "Does your company have a good alternative to the status quo?"
In the case of payroll, the answer is a resounding yes. With the right SaaS-based global payroll solution, organizations can:
- Embrace technological change (and lower IT resource use) by managing payroll without infrastructure-heavy solutions and disjointed local partners
- Better meet internal employee preferences with more intuitive, easy-to-use tools and automated features
- Consolidate payroll into a shared services model to make enterprise globalization more cost-efficient and better integrated with other business functions
- Adapt to regulatory and statutory changes in a proactive way, using rules-based processes and notifications to stay updated
- Set a firm foundation for changes related to business expansion or contraction
By sticking their heads in the sand with “no-decision decision-making,” organizations ultimately allow shortsighted thinking to stagnate their progress. That’s why one important key to transformative change is perspective.
When approached from a mindset that prioritizes organizational improvement, opportunity, and ROI over risk, resistance, and upfront expense, investing in a global payroll solution can be one of the smartest strategic decisions any multinational company can make … but only if it makes the decision.
A version of this article was previously published by GPMI.