Single vendor: unfeasible, undesirable?

It’s long been acknowledged that finding a single vendor for a global payroll project is often unfeasible, sometimes undesirable. But what’s often underestimated is the strategic and tactical value of using single-country, regional and multiple multi-country vendors

The benefits of using a single global payroll vendor - ranging from better vendor management to compliance visibility to efficiency improvements - are like beacons of light to many starting out in global payroll; they are in one sense simply the opposite of the dark place multinationals find themselves in as they take a first look at their existing payroll landscape.

If you’re struggling to get visibility into which of your existing vendors are providing what services, how much they charge and how good they are – then the shiny promise of a single platform and consolidated invoice is instantly attractive. If you can only make assumptions about whether your company is meeting its statutory compliance obligations in all its countries today, for example, there’s a lot to be said for turning to a vendor that promises to guarantee compliance locally and evidence it centrally. And if you’re looking to improve efficiency by standardizing on best practices or shifting some work from local countries into centralized service centers, that change project can be underpinned by a single vendor using common input formats, output reports and a single point of contact.

Add to this a vendor’s potential ability to support your global expansion plans (and the opposite, global retrenchment), and provide up-to-date, meaningful management information and key performance indicators that you could never hope to access with a hotch potch of delivery models, systems and processes – add all of this and you can see why the single vendor approach is attractive.

However, while there are plenty of examples of organizations successfully standardizing on a single platform, there are many challenges in doing so. To begin with, if your preference is to work with a vendor that provides its services on a single technology platform, there are limitations to the global coverage provided – even SAP, widely chosen as a global payroll platform by outsourcers, provides just under 50 country versions of its own (and in addition, it’s rich and highly functional system will likely prove too expensive for many smaller country operations.)

Other models have their own limitations. The leading global payroll aggregators – which offer an alternative outsourcing approach by pulling together platforms and services from multiple in-country partners, often combined with their own platforms in specific countries – now typically offer extensive global country coverage, yet still may not be able to meet all of your needs. For one thing, you cannot assume that every aggregator’s partners will be able to scale up to cater for all of your largest employee populations. In addition, any reasonably-sized multinational is likely to have specialist requirements in some of its countries that an aggregator may struggle to provide through its standard suite of services, such as complex time and attendance needs or complicated requirements for expats and globally mobile employees. And the aggregator model itself may not suit everybody because you don’t have the option to keep your incumbent in-country partners – the whole value proposition is based on the fact that their partners been pre-selected, vetted and integrated into the aggregator’s network.

In the early days of multi-country payroll, many multinationals only stumbled across these issues as they embarked on their global payroll projects. Today, however, there is enough evidence about the challenges of global payroll for organizations to build a vendor strategy upfront that addresses these kinds of issues, and aligns vendor capability to their needs. At Webster Buchanan Research, we encourage our multinational consulting clients to start by analyzing their fundamental design principles around a range of critical issues, from scalability, through resilience to managing individual country complexities.

For example, if your country populations range from single figures to the high hundreds or thousands, you might consider sourcing vendors on the basis of which “tiers” of populations they best serve, or by regions, both of which may lead to a multi-vendor strategy. From a resilience standpoint, before putting all your eggs in one basket with a single vendor, you’ll need to consider what would happen if the relationship sours or the quality of service deteriorates in certain territories – as opposed to setting out from the outset with multiple global vendors, which potentially gives you an option to switch individual countries to an already-proven alternative supplier.

Likewise, however sold a multinational is on the idea of a global vendor, most larger global payroll footprints include single country exceptions, and these will ideally be factored in from the outset. There are many good tactical reasons to do so. You might want to keep an incumbent vendor in a large population country where you have made a significant investment in a payroll system that works perfectly well – or you may be restricted from taking data out of a country, or need a local representative who speaks the local language and has an existing relationship with the statutory authorities. Sometimes the drivers have less to do with good principles than sheer practicalities, particularly in the initial stages of a project. For example, you may have a country that’s highly-reliant on a local vendor providing add-on services which can’t easily be sourced elsewhere – or a country may have high internal payroll complexity, poor documentation and a hefty reliance on local expertise, which makes it too hard shift, at least in the short-term. In some cases, dependent on the structure and culture of the multinational, the central payroll team simply may not have the organizational clout to force through change in all regions and opt instead to enable the local country to make their own choices.

At the other extreme, organizations may consider a strategy of not switching out existing local vendors and platforms unless there are serious performance problems, and instead implement technology platforms, governance and risk control regimes that give some of the benefits of multi-country payroll without the need to “rip and replace”. To return to those beacons of light that might have attracted a company to multi-country payroll in the first place, implementing a new technology platform into which you can plug your existing ICPs gives you central visibility of information and processes and the potential to start standardizing, at least as far as the common global process steps that every payroll follows.

Open, vendor-neutral technology platforms from independent technology and services providers now support these kinds of global payroll strategies. You won’t enjoy the benefits of a single contract versus multiple local contracts if you don’t switch out vendors, but you can at least bring the contracts under one governance regime, start to monitor Service Level Agreements and deliverables, and as they come up for renewal start to standardize some of the terms. And while staying with existing vendors may not give you that additional reassurance about compliance, a global governance regime that establishes roles and responsibilities for compliance and provides local teams with reporting responsibilities is a good start, especially when twinned with a light risk control framework in partnership with internal audit. That said, it’s important to keep in mind that this approach still brings its own change management challenges, and there are important technology differentiators between vendors’ approaches.

As with everything in global payroll, the path many companies ultimately start down may be a hybrid approach; part replacement with one or more new preferred provider; part retention of incumbents; and part adoption of new technology platforms and governance regimes. The more you keep an open mind as you make these kinds of strategic decisions, the more you may be able to deliver on your vision.

This article originally appeared in Global Payroll, the official magazine of the Global Payroll Management Institute

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