Direct Line Group finds the cloud its safest bet to quickly establish a separate HR system before separating from its parent company.
When Direct Line Group, a U.K. headquartered insurance firm, was spun off from its parent company, Royal Bank of Scotland (RBS), last year it had a mere five months to completely overhaul a key internal IT system. Mark Martin, Direct Line Group's HR director, said that the viability of its HR system was a big factor in how seriously the market would see its October 2012 IPO on the London Stock Exchange.
"We needed to build a separate system, and very quickly," Martin told Information Week. "We had all our HR based on a group system that we would no longer be able to use."
Compounding his task: the new company was going to be a highly complex beast, with 16,000 staff working in different companies with a range of different tasks -- from people repairing motor vehicles to actuaries to call center operatives -- with a complex set of contracts, pension arrangements and operating terms and conditions that would also need to be rationalized as part of Direct Line's separation from RBS.
Well, he must have done something right, as the offering got underway according to plan, with share price on entry at 175p ($2.60) and up 7% on its first day. The sale raised £787 million ($1.2 billion), valuing the company at £2.6 billion ($3.9 billion). In February, Direct Line reported full 2012 figures showing a 9.3% increase in operating profit from its ongoing operations up to £461 million ($686 million).
The background to the offering ("flotation" in British terminology) is also, perhaps unsurprisingly, deeply tied to why exactly Martin and his team had been under so much pressure to build a system in time.
Troubled British financial services giant RBS was obliged under European Union regulations to divest itself of a number of its operating units, including Direct Line, as part of the price of being bailed out by the British state in the depths of the 2008 financial crash. In the October IPO, RBS sold 34.7% of the newly issued share capital, so it still owns about 65% of the group; it must cede control by the end of 2013 and have no involvement at all with it by the end of 2014.
Headquartered in Bromley, Kent, with operations in the U.K., Germany and Italy, Direct Line Group offers a number of well-known insurance and financial service brands including Direct Line, Green Flag, Churchill and Privilege, targeting both consumers and the commercial sector through names like NIG and Direct Line for Business operations.
Martin, along with the rest of the RBS structure, had been using an older PeopleSoft HR system via a shared service delivery mechanism. He looked at options like a new version of PeopleSoft via its new home at Oracle, but he decided a cloud-based approach would meet his deadlines plus satisfy a lot of pent-up business needs, too.
"I wanted a software-as-a-service solution for a number of reasons. First, I didn't have the time, really, to do anything else; the IPO was the priority and to make that date we had to get this [company-wide HR platform] up and running quickly. So, whatever we got just couldn't not work. The problem with getting in a package is that you don't know if it will work -- you have to build so much of your own code in to get it there," he said.
"Another problem -- and I speak as guy who likes IT -- is that we never build systems for the users, we build systems because, well, we like systems -- putting in functionality that we like, but 99% of the users will never use." Martin became convinced a proven cloud offering oriented to practical functionality would be his best option, which meant that SaaS was the safer bet in these circumstances.
He also looked at Success Factors, but Martin said he is perfectly happy with his choice: Workday's cloud-based HR system. "I like the object database element, as I think it's more like our brains work than a relational approach. I like its support for mobile and social. It's up to date and feels like what people use in their real lives technology-wise," he said. He also praised the way the system is updated three times a year at the back end without him having to buy any upgrades, plus what he called its high degree of configurable functions.
Martin implemented Workday in December 2011 and it went live on June 1, 2012, in time for the IPO. The first time he ran payroll successfully was the proof of concept.
He shared this wisdom with any other HR leader or CIO thinking of going down a similar path: "See SaaS as not development but configuration. You don't just switch it on, you have to see it as an ongoing project to get the real value out of it, and work with the supplier to do that."
SaaS As Innovation Driver?Software as a service is the clear No. 1 way enterprises consume cloud. InformationWeek's SaaS Innovation Survey reveals three tips to get the most from SaaS: Make it a popularity contest. Have an escape plan. And remember that identity is the new perimeter.
This inaugural episode of Business Matters explores the subject of leadership with former Air Force Brigadier General John Michel, the Chief Strategy & Innovation Officer and President of MV International.