The hottest new trend in HRO Training and Learning
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FINDING TRAINING OUTSOURCINGS IDENTITY
Outsource training? Are you insane?
Actually, no. Training outsourcing is a burgeoning market. Its watershed moment came in 1986 when General Physics inked its landmark training outsourcing relationship with General Motors. Regardless of its mega-deals, training outsourcing has taken the long road to its own identity. With the increase in training business process outsourcing (BPO) deals since 1998, training now has a distinctive place in BPO alongside other human resources (HR), finance and accounting (F&A), and information technology (IT) business process functions. Moreover, corporate trainings focus now extends beyond employee learning to customer education. This increase in trainings scope has resulted in a steep boost in demand for outsourced training services of several flavors.
The Numbers Behind the Story
The data on trainings value is starting to pour in. And here is the bottom line. The growth in training outsourcing is all based on two facts: Training boosts organizational productivity, and outside training providers increase an organizations ability to train more people faster and more cost-effectively than in-house staff.
According to a 2004 report by Accenture, high-performance organizations, representing approximately 10 percent of the organizations surveyed, exceeded their peers in productivity (as measured by sales per employee) by 27 percent more than their competitors, revenue growth by 40 percent, and net income growth by 50 percent.
The American Society for Training and Development (ASTD) reported that training spending in U.S. corporations was $826 per employee in 2002, an increase from $734 the year prior.
The Exceleration Group estimates that corporate training expenditures of all types, in-house and outsourced, was nearly $120 billion in 2004. Of this, 42 percent was targeted for employee learning, 52 percent for customer training, and 6 percent for training supply chain interests. The ASTD, in 2003, estimated that 28 percent of all training expenditures go to outside vendors. That indicates that the training outsourcing market exceeds $30 billion.
Like many BPO segments, the training market has seen the start of a significant wave of consolidations. In March 2004, the biggest of the mergers happened when Cincinnati-based Convergys picked up San Franciscobased DigitalThink for $2.40 per share, or $120 million, a 30 percent premium to DigitalThinks share price.
At the time, Thomas J. Starr, senior principal of learning services for Convergys Employee Care, said DigitalThinks capabilities would create synergies for the company by beefing up its capabilities in learning while improving its competitive position in HR outsourcing.
The Convergys acquisition also set the stage for back-to-back Thomson Learning deals in August 2004. In the first of the two deals, Thomson Learning added Capstar, a unit of Educational Testing Service. Capstar develops competency assessment, learning and measurement, and testing solutions for private and public sector markets. The second deal, two weeks later in August 2004, featured Thomson acquiring KnowledgeNet, an e-learning provider, which Thomson merged with its own NETg unit. The two buys, while positioning Thomson Learning as a market share leader, contrasted with Convergys stated goal for its training outsourcing acquisition: to position Convergys to better compete for large-scale HRO contracts. The differing M&A philosophies of Thomson and Convergys reflect the training outsourcing markets conflicts about its own identity. Is training outsourcing a market of its own, or does it comprise a subset of the HRO market?
Follow the Money:
Customers Come First
On Wall Street, the trend is your friend. In training outsourcing, the overwhelming trend is toward investing in customer training. In 2004, TrainingOutsourcing.com writer Paul Harris documented software provider Intuits eureka moment, which caused it to invest heavily in customer training.
Sales of the companys QuickBooks software were suddenly spurting, Harris wrote, and a new analysis revealed why: Professional accountants were referring the product to their corporate customers after taking an e-learning course that made them certified users.
We discovered that accountants who received their ProAdvisor Certification were referring QuickBooks to their small business customers at four times the rate of those who simply use the software, says Rich Walker, Intuits director of accountant and advisor relations. It is a causal relationship.
Launched two years ago, Intuits new customer training initiative is outtasked to Convergys Corporation, the business process outsourcing firm that recently acquired e-learning content provider DigitalThink. Convergys Learning Solutions helped create the courseware and now manages the training via its scalable Web-based platform, the L5 Learning Delivery System. It supplements Intuits classroom training program begun seven years ago with Dallas, Texas-based Real World Training. Intuit, as Harris showed, illustrates the fastest-growing trend in learningthe outsourcing of customer training initiatives.
How to make the fastest-growing area of HRO work for your company.
Training and development outsourcing is one of the HRO areas with the greatest potential. But first, those evaluating their T&D programs must educate themselves on how to make them an A-plus strategy.
Of all the human capital/HR activities that lend themselves to outsourcing, the area with the greatest potential is training and development (T&D). Pre-Internet and before IT demonstrated its potential, the HR professionals T&D initiatives were restricted by location, cost, and availability. They were also restricted by the organizations ultimate resourcethe caliber of the training professional (if, that is, the organization believed strongly enough in T&Ds importance that it budgeted for one).
The potential of T&D as an effective function was limited even further by complications that have existed since its inception. First, candidates frequently targeted for the T&D profession were career-changing teachers from the primary and secondary education ranks. The challenge with this is that not only do children learn differently from adults, but also training is a different skill set than educating.
Second, employees were often made trainers, not due to their ability or potential, but rather because of their temperament, personality, or the needs of the organization. Finally to complicate matters further, training professionals too frequently prefer the excitement of classroom presentations to the aspects of T&D design. This results in many training presentations being given by professionals who are only subject matter experts in how adults learn and not experts in T&D program design (and even subject-matter experts are not always guaranteed).
The whole question of T&D becomes quite strategic when approached in this context. There is a lot at stake for the organization in light of the competencies it is trying to develop for its employees. But dont let a fear of tackling a highly strategic issue prevent you from doing it. Because doing nothing different from the status quo, or even nothing at all, is also a strategic decisionwith its own set of dire consequences.
When the T&D function is considered in its entirety, think of the full range of activities, including administration, evaluation, Website design, and maintenance. In fact, as with all outsourcing considerations, early on in the process, you should consider breaking down each function into core competencies and commoditized (and labor-intensive) activities. The core elements are those that your organization does well and that provide a competitive advantage. Commoditized activities are those that sap energy and resources but are tangential and nonconsequential when done correctly.
Commitment to any T&D effort should be part of an overall organizational development strategy that should really be undertaken internally. To entrust others with this process is to deny key players inside the structure the chance to determine what would really be effective. In fact, as with all strategic planning, the process is as important as the result. Others may be called in to provide advice, but the decision should rest with those responsible for providing leadership for the organization.
Before we discuss where to begin, you need to consider your personal attitude toward T&D. See if you agree with this statement: You have many more resources accessible to you if you agree that you want the best available training for your organization, regardless of where you find it. This is a big step for those organizations that have traditionally prided themselves on homegrown training and believed it was the best available.
Consider a gap-analysis approach. Ask your executive team and C-level players what they feel the organization needs from training to maximize organizational effectiveness. Get granular and obtain all the details that you can, and avoid generalizations.
Then ask each of the key staff members you approach what they would like to see and expect from in-house training efforts. Even ask what they think of the new employee-orientation program as well as any other training programs currently provided internally. Your goal is two-fold. First, to determine the priority level these key executives assign to the training function. Second, to assess their level of sophistication for what they feel training should and should not be expected to do.
Before you begin the next phase of T&D assessment, one more step to take (assuming you have received positive indications from your activities above) is to continue your research by enlisting the support of anyone organizationally who could provide you with additional input. This includes reaching out to contacts locally and elsewhere who will share with you information about what they and their organizations are doing and what resources they are using.
Case Study: NBC Universal finds innovative ways to say Good Job!
An annual survey of NBC Universal (NBCU) employees showed that while employees felt that they made a difference, their contributions were not always recognized and spotlighted by their higher-ups. In response to the employee feedback, NBCU decided to create an improved employee recognition program. To help them in this project, they partnered with recognition provider IncentOne.
CREATION OF A BRAND
Prior to launching a new employee recognition program, the existing reward program was evaluated. NBCUs spot special award program was cash-based and awards were presented without fanfare. Although the program was well defined with good back-end controllership features, the front-end nominating process consisted of a paper nomination form that had to be routed throughout the company for appropriate approvals. NBCU decided to come up with a new program and a new brandOvation. The brand was chosen because this word describes the new culture of recognition NBCU desired to create and nurture. The goals of Ovation were to make the employee recognition process:
More memorableby encouraging merchandise and gift certificates, rather than just cash
More prevalentby encouraging smaller-sized awards, given more frequently and to more employees
More visibleby the creation of a branded program and by encouraging public presentation of awards
More personal and spontaneousby using Web-based technology to enable a wide variety of choices (merchandise, gift certificates, cash) to suit different employees and different occasions calling for recognition.
The Ovation program was designed to enhance NBCUs position as an employer of choice and improve overall employee satisfaction by developing a culture of recognition. A cross-functional team of NBCU managers, using GEs Six Sigma process, established the program guidelines based on voice of the customer input from operations managers. Recognition budgets were established at division levels and managed by HR managers in conjunction with operations managers. Ovation had managements full approval. The HR managers, charged with being the champions of the Ovation program, participated in various in-person and online training sessions in the weeks leading up to the launch. Several days prior to launch, the program was communicated to employees via e-mail announcements and feature articles on NBCUs intranet. Key to the success of Ovation is the broad choice of rewards that would appeal to a diverse audience. The program offers the award recipients choices with the Gift Certificate Award, which was specifically branded for NBCU. This award enables employees to select rewards from an extensive portfolio that includes gift certificates, merchandise, travel packages, personal services, airline miles, and phone cards. NBCU uses a comprehensive award management system that automates and integrates all program rewards, administration, and procedures. Eligible managers issue awards through an automated nomination and approval process that facilitates as many as four levels of authorization (for the very largest award levels). Once a nomination is approved, a personalized congratulatory letter; the Gift Certificate Award; as well as a framed Ovation Certificate of Appreciation, suitable for display to assure that the employees accomplishments are properly and publicly recognized, is sent to the nominating manager for presentation to the employee.
As part of the Six Sigma process that was used to develop the program, a variety of measures were set up to track progress. Key measures include the number of awards given each month, the average size of awards, the percentage of awards delivered as cash, and the average time it takes to go from nomination to final approval in their systems. Overall results include the following:
A culture of recognition strategy was well received and has been embraced at NBCU.
More employees are being recognized, more frequently, at no additional cost to the company. Return on investment has increased.
The entire rewards process is Web-based which results in quick turnaround with no manual residue.
Memorable merchandise awards, rather than nonmemorable cash awards, are encouraged.
Says Eileen Whelley, EVP of Human Resources at NBC Universal, I am thrilled with the enthusiasm with which managers and employees have embraced the Ovation program. Clearly, recognition of the accomplishments and outstanding work of our employees was something we needed to improve. This program has made an impact in this regard and is continuing at a fervent pace.
The changing scope of defined benefit outsourcing.
Once upon a time, the defined benefit (DB) pension plan system in the United States included a large number of plans fully cared for within the insurance marketplace. Insurance companies managed the investment of assets, provided draft or model plans, annuitized benefits upon retirement, and even took on mortality and investment risks post-retirement. Reporting and filing requirements, required communications to employees and retirees, and actuarial valuations were all included in the scope of the services.
However, several factors drove significant portions of the market away from these fully bundled approaches:
ERISA and subsequent regulations made design and operation of the plans more complicated and firmly ensconced the pension consultant as a plan sponsors trusted advisor.
The impact of asset growth and trust investment performance on plan and corporate bottom lines led many sponsors to pull away from insurance companies conservative investments, general funds, and investment and mortality charges. Companies also came to expect their own trusts to perform better than insurance company investment pools.
Declining purchase of defined contribution (DC) plans, growing scale of DB plans, and proliferation of lump-sum options in these plans eliminated the perceived need for insurance companies to assume the mortality risk (and to provide annuity products for DC plans).
The number of plans in the small and mid-sized market decreased dramatically, eliminating much of the insurance industrys market.
In the 15 to 20 years after the introduction of ERISA, most DB plan sponsors built their own infrastructures to support their growing plans. Internal staff typically used rudimentary programs to perform pension calculations for employees leaving or considering retirement. External actuaries provided plan design, compliance guidance, funding results, and certified annual government filings. Separate trustees and investment managers supported the growing trusts and ongoing benefits disbursements. This period was, perhaps, the high point of non-integrated administrative servicing. However, the DB plan was about to begin a migration back out of the halls of the plan sponsor and into integrated outsourced solutions.
Participant service technologycall centers, voice response, Web applications, and robust calculation engines and databaseschanged the pension system from one used to support former employees to an integral element in recruiting, retention, and retirement planning. Plan participants growing expectations of instant access to information, online transactions, and better support led to outsourcing.
Next came the financial reporting nightmares. In the late 1980s, DB plan sponsors became subject to separate financial accounting requirements. During the 1990s, plan assets generally performed well and plan sponsors enjoyed latitude with respect to financial assumptions. This allowed many plans to produce pension income for their sponsors and to continue to improve their funding levels. As long as these trends continued and participant service improved, the benefits department was often the hero. However, the heros welcome came to a dramatic end when the bad investment markets of 2001 to 2002 combined with low interest rates to produce higher reported liabilities on DB plan sponsors books.
Moving into 2005, we see a reversal of the disintermediation trend in the DB marketplace. Plan sponsors at all market levels are looking for providers to assume much of the plans management and devise strategies to minimize associated risks. But there are key differences between now and the days when insurance companies provided fully bundled services. For instance:
The number and type of providers have grown beyond the insurance companies. Other large financial players can offer the investment options and low investment costs that large employers may want along with continual monitoring of the investment mix versus investment policy.
Actuarial services, financial reporting support, audit support, government filings, and other plan management services are being reintegrated as added regulation and focus on financial reporting decreases plan sponsors discretion regarding assumptions and funding levels.
Outsourced administration has removed the plan sponsor from most interactions with plan participants. Communication requirements are integrated into the providers overall administrative solutions. Fully automated electronic solutions continue to replace costly paper and labor-intensive processes.
For many of the remaining (and declining number of) DB plan sponsors, outsourcing many of these interactions to as few providers as necessary is increasingly compelling. In the future, more plan sponsors will retain only the true basicsplan design decisions, plan funding responsibility, and vendor management.
Tips for Getting the Most Out of Your Next Contract Renegotiation
With many first-generation total benefits and HR outsourcing contracts up for renewal in the next 12 months, employers may be losing money if they arent taking advantage of the changes taking place in the market. Based on our experiences at Watson Wyatt, we have found that one way to improve efficiencies is to drive more employee benefits transactions to the Web. Another tool that employers now have in their favor (that they may not have had several years ago) is several years of data that allow them to renegotiate contract terms based on actual employee usage patterns and customer service trends.
Research shows that many of the companies who first signed HRO contracts five to seven years ago are likely to renew their deals. However, doing so without significant renegotiation could be a serious financial mistake. Many early-stage HRO adopters experienced higher than expected outsourcing costs because of certain elements in their original contracts. Locking in long terms, for example, prevented employers from negotiating lower rates after just a few years. Not including reasonable transition fees in the event the employers population size changed dramatically, also proved to be to employers detriment.
Nowadays, employers have more leverage and information than when they negotiated their first contracts, and they should capitalize on this opportunity to reduce costs and improve customer service. Companies are in a much stronger position due to the consolidation occurring among multiple outsourcing service providers and recent research on usage trends, companies have more leverage in renegotiating contracts.
This makes it a great time for organizations to negotiate their next outsourcing contracts. But lowering costs and improving service quality isnt automatic. Companies must be proactive in their contract renewals to get the most competitive deal.
NEGOTIATING KNOW HOW: FOUR FACTORS TO SUCCESS
SO HOW DO YOU GET THE MOST OUT OF YOUR NEXT CONTRACT NEGOTIATION? BEFORE YOU RE-SIGN ON THE DOTTED LINE, TRY THESE TIPS.
1) Focus on service needs.
With advances in technology and growing employee comfort with Web-based transactions, many of the service provisions necessary five years ago may no longer be needed. Because more workers use the Web to conduct benefits-related transactions, this means fewer employees are calling outsourcers customer service call centers than in the past, lowering the vendors staffing requirements and costs. Companies should capture these types of shifts and potential savings during contract renewal negotiations.
2) Use acquired data.
Original outsourcing contracts were negotiated without much information on usage levels and other factors. Now, after years of data collection, companies have real numbers at their fingertips to help them negotiate contracts that closely align with their needs. By looking at measures such as call volume, content, and call resolution rates over a period of time (12-24 months), companies can better predict future service center usage for leveraging in the negotiations.
3) Solicit stakeholder input.
Input from employees, benefits staff, and other key stakeholders can help companies get a better perspective of actual service quality and cost savings and translate this knowledge into action. If, for example, employees report frustration with long wait times during service-center calls, the new contract should modify existing performance guarantees to address the changing requirements.
4) Consider shorter contract lengths.
By negotiating shorter contracts or contracts that allow for midterm renegotiation, companies can obtain the flexibility they need to update their contract terms to reflect the changing environment. Locking into a long-term contract may not provide the best deal because of reductions in various service charges. Its important for companies to have the option to adjust their outsourcing strategies to use new technologies, incorporate new groups of workers added through mergers or acquisitions, and capture any benefits and savings associated with further consolidation within the outsourcing industry.We have seen a continued reduction in various service charges over the last six years. Because we expect this trend to continue, locking into a long-term contract may not provide the best deal.
Case Study: Pharmacy benefit management can be the perfect prescription for improved benefits services.
Like many health plans, Deseret Mutual has been facing increasing challenges presented by dramatic rises in the use and cost of specialty drugs. Several years ago, we realized the need for an improved system of managing specialty pharmacy benefits to better control costs and provide a higher level of clinical care support for members who use specialty medications. In choosing a pharmacy benefit manager (PBM) as our specialty drug provider, we found a partner whose experience and capabilities are helping us achieve that goal.
When we began developing our specialty pharmacy strategy, Medco Health Solutions offered consultative support that helped us understand the current state of Deseret Mutuals specialty pharmacy spending and utilization among our plan members. Historically, Medco managed all of Deseret Mutuals pharmacy benefits. When we asked them to look into specialty pharmacy benefits, they were able to provide an analysis of specialty pharmacy spending across our pharmacy and medical plans to give us an increased understanding of the specialty pharmacy challenge. We created a comprehensive plan to align coverage of specialty medications across Deseret Mutuals medical and pharmacy benefits and to provide new services through Medcos Special Care Pharmacy program.
The extraordinary expense of specialty drugs makes proper management essential to ensure that patients who need these treatments receive them, while having systems in place to prevent potential underuse, overuse, and waste of these medications. By selecting a PBM with vast experience in utilization management, Deseret Mutual was able to ensure that the same tools used to control utilization of traditional pharmaceutical products would also apply to managing specialty drugs. This includes prior authorization, step therapy, and product selection strategies. By working withour PBM, Deseret Mutual is better able to identify those members that will truly benefit from specialty therapies and those that may benefit from a more cost-effective therapy.
Deseret Mutual realized significant savings by requiring that select specialty drugs be dispensed through the PBMs specialty pharmacy. By doing so, we have been able to bring consistency to the pricing and utilization management of specialty drugs under the pharmacy benefit without compromising the services and quality of care available to members.
Controlling costs is a major concern, but equally important to Deseret Mutual is a specialty pharmacy that can provide the most comprehensive clinical care for our members. Medco offers the advantage of being able to look across a patients entire prescription drug profile and find out if traditional or specialty drugs are being used. This is particularly important for specialty patients, who are often also prescribed traditional medications for conditions associated with a disease that requires specialty treatment.
There are additional advantages to having all our pharmacy services provided under one roof. Through Medco, we are able to offer a coordinated approach to managing all of a members pharmacy needs. Having a single point of contact makes the system much more streamlined and less complicated for both physicians and patients. Physicians can order both specialty and traditional medications from the same source, and, at the same time, obtain comprehensive patient prescription information while qualifying the member for coverage under prior authorization. This coordinated system also improves patient careour PBMs specialty pharmacists and nurses work closely with Deseret Mutuals case managers to coordinate patient support services.
Administration for all out pharmacy benefits is also simplified by working with a single point of contact. When using stand-alone specialty pharmacies, plans must often manage multiple specialty pharmacies in order to provide members access to the wide array of specialty products in the market today. Many of these niche specialty pharmacies focus only on a limited number of conditions or products. However, our PBM gives us access to the services and drugs needed to provide our members with a comprehensive specialty drug benefit plancreating a much more efficient system that has helped us reduce administrative time and costs associated with specialty benefits.
Deseret Mutuals experience shows that by working with a PBM that offers specialty benefit management services, we can provide members using specialty medications with high-quality care in a cost effective manner.
Dont ignore the young talent around you, mentor the next HR generation.
One of the requirements you need to meet as you become an HR professional of the 21st Century, is to go out and see what is occurring outside the office walls. Heeding my own words, this past week I participated in the 17th Annual Benefits Management Forum and Expo in Nashville, Tennessee. The conference was arranged by Thomson Media, the publishers of Employee Benefit News. Let me share with you some observations in case you either did not attend or were there but had a different experience.
First, it was good to see that there were a lot of senior HR professionals representing major buyers and providers of outsourced services, both as presenters and as participants. Unfortunately, it did not appear that the seniors brought along their juniors, the detriments of which I will discuss later.
Second, so what was new? I was impressed to see an increasing level of specialization among the exhibitors. The provider industry is becoming more and more specific in terms of what they wish to offer and to what size employee population they wish to offer their expertise. One of the exhibitors was a CPA firm that specializes in HR areas, particularly retirement plans, and is, in fact, getting referrals from the Big Four. This is a dramatic change from the past, where HR has had to suffer second-class status as part of the annual organizational audit, with short-shrift treatment from lower-level public accountants who had little experience in the HR and health and welfare area. What is the big deal? It is not so different, was the cry from their seniors. They didnt add, It is also so boring, but you could see it in their demeanor. Now, finally, there are thriving firms who relish the business in this most recently higher profiled area.
Third, there continue to be top-tier benefit professionals in placedespite the mergers, acquisitions, and downsizing that has frequently decimated HR professionals as part of cost-reduction programs.
Fourth, there is more interest at the C Levelthat is CEO, CFO, CTO, CLO, and hopefully CHROfor the benefits aspects of HR, and internal HR professionals are stepping up to the plate. The result is that credibility is increasing because HR professionals are doing a better job of communicating the message upward and sideways.
Here, though, comes the alas (I bet you knew it was coming). A panel of four very distinguished senior benefits executives was moderated by conference mastermind David Albertson. One of the participants asked the panelists what senior-level professionals, themselves included, are doing to grow the next generation of benefits professionals. Other than a response of That is a very good question, the answer seems to be not much at all based on the weaknesses of the replies. Sure they include junior-level staff at meetings, but did they bring them along to this conference? Are they offering any opportunity for formal structured training? How about networking?
Talk about Killer Skillswhether your HR specialization is benefits or any other HR function, the key question you should always be asking is what are you doing to grow your staff? Not to detract from the panelists own drive and intelligence, but I am sure that each of them was fortunate enough to have been nurtured by someone as they were learning the profession, and they benefited from it.
It should not be by chance that a person gets to grow professionally or not. Make it part of the HR DNA, and hopefully, it will become an integral part of the organizational fabric elsewhere as well. Start today to plot a specific professional development program for each member of your HR team. Whether they grow internally or move over to the other side (buyer or providerI am sure in the future it will go both ways), there is no greater legacy that you can leave behind.
To make you feel uncomfortable, let me ask you to consider the alternativeWhat if you do nothing to help your team to grow professionally? If you dont do anything, you should not be able to sleep nightsyou will have too much to worry about and may even feel guilty as well.
Employee Incentive and Employee Recognition Outsourcing
Welcome viewers, we mean readers, to the all new HRO Dating Game. This episode will feature two of our most eligible bachelors, representing Employee Incentive and Recognition firms, and one lovely bachelorette looking for just the right Incentive mate for her HR department. To start off the game, lets ask each of the contestants to introduce themselves and tell us what theyre looking for in the perfect outsourcing partner.
Bachelor #1: CHESTER ELTON (VP Performance Recognition, OC Tanner)
Our companys mission is to strengthen other companies through recognition. We focus on the strategic, simple, and measured. Strategically, we help you think about what you want to accomplish with competition. Then we make it simple and train you how to use different programs and how to take measurements. Those measurements are like a snapshot of an organization that shows you where you are in employee engagement at that point in time. We take a snapshot when you start and after you have implemented a program. Then last, but most important, we communicate. We do that through the recognition experiencemaking sure every award you present is tied to your companys values.
Bachelor #2: JOHN MILLS (EVP Business Development, Rideau)
We help companies recognize, reward, and retain employees. If you were to consider recognition as four parts of a puzzle, at Rideau, we have all the parts. First, we manufacture our own products and put together tremendous rewards. Second, we have the internal communication (marketing, graphics, and others) to promote all types of recognition programsbasically, were a one-stop shop. Third, the administrative technology we have developed over the last ten years allows customers to manage programs seamlessly and efficiently using an online tool. And last, we have a dedication to Internet technology. We have 25 in-house programmers who manage 250-300 Web sites for our clients. So if you were to have a relationship with us, you would be involved with a company that can put it all together in a cohesive package.
Thank you contestants for your introductions. Now, lets move on to the question and answer part.
Bachelorette: Whats the best reason for employers to offer Employee Incentive and Employee Recognition Outsourcing?
Bachelor #1, OC Tanner: The best reason to outsource is that you are outsourcing to the experts. Its the old build-versus-buy debate. Why build something from scratch when you can buy it?
Bachelor #2, Rideau: I think it is because it allows the corporation that is providing recognition to focus on their core competencies. Todays HRO providers are outsourcing to a specialist, someone who knows what it is like to manage the process from A to Zallowing the corporation to concentrate on business internally.
Bachelorette: If I were an HRO sourcing consultant working with a Fortune 500 customer to prepare an HRO RFP, what is the one thing that would make me take time out of my busy day to go to lunch with you?
Bachelor #1, OC Tanner: The most compelling reason is that I would bring a practitioner who has used our system with me on that lunch and would tell you about the return on investment on our strategic recognition system, and youd be hearing it not from me but from someone who has actually used the system.
Bachelorette: Bachelors, many Enterpriselevel HRO companies have yet to include Employee Incentive Management and Employee Recognition in-scope in any of their HRO contracts. What are they missing?
Bachelor #1, OC Tanner: I think they are yet to come around to the impact that outsourcing recognition can have. And I think they need to be looking toward the recognition providers to give them direction when they make reference to employee motivation, and caring about the employees, and trust. I think it is simply a lack of focus on their partsthey really dont have a tremendous amount of expertise in this area, which can leave them twisting in the wind somewhat.
Bachelor #2, Rideau: I agree. The challenge is also that there are so many different domains in outsourcing, some get overlooked. Recognition is one of those areas that should be at the top rather than the bottom. But unfortunately, some companies dont see the big picture when it comes to recognition and how valuable it is to employees. A lot of providers also overlook the fact that, at the end of the day, recognition programs can generate dollars for the outsourcing industry.
Bachelorette: My friend, who likes big challenges, has been given two job offers: one at an employee recognition outsourcing firm and one at Martha Stewarts company. Which job should she take and why?
Bachelor #2, Rideau: I would suggest she take the job at the HRO firm, and chances are, based on current events, she would probably get a lot of HR and staff from Marthas business!
Bachelorette: When I asked my grandfather what employee recognition meant, he answered that, to him, it was two guys who picked out the gold watch for your retirement party. Can you tell me the two most important ways that employee recognition has advanced since my grandfathers era?
Bachelor #2, Rideau: The most obvious way it has advanced is in the way that people perceive it. In the past, it was a default gifteveryone got a gold watch and a handshake. But today, I think employees think recognition is more than a gold watchits the experience that comes with it. From our perspective in this industry, employees have been given a lot of lip service and employers have not grasped that it is the concept that is important. Another way it has changed is the advent of technology. It is now a global community. People can shop online and select gifts online, which has made it easier to implement programs and allow companies to spread them across the country.
Bachelorette: Bachelor #1, same question, and to add, how will employee recognition continue to advance over the next 5 to 10 years?
Bachelor #1, OC Tanner: I think John really nailed it when talking about the way recognition has changed. Nowadays, its more of an experience.There is more wrapped around it. Its not just the gold watch.There is a lot of recognition that is implied strategically throughout the year, whether it be an online e-card or picking up lunch for the crew. It is important to include performance recognition systems not when you are out the door but throughout an employees career your first-year anniversary, your fifth-year anniversary, your first promotionthese are all seminal moments in a persons career. Employee recognition is not just about retirement. Its about contribution, team building, the whole experience, and all these things should be celebrated. It has evolved from being a gold watch to being a lifestyle choicetrips, spas, entertainmentand its not just at the end of your career, but throughout your career. I think it will evolve in the future in that there will be very tangible ways to measure the impact that recognition has on employees. Finding and keeping good employees will be increasingly important to employers over the next few yearshow you measure the engagement and your return on that is going to be critical. And as you see more companies like Hewitt come into it, you will see more metrics.
Bachelor #2, Rideau: Id like to add that ompanies will realize that recognition programs cant be treated as an expense but are more of an investment in the company. Currently, they might ask why are we spending money on recognition? But as the industry evolves and we find out how much it costs to train and recruit, rather than lose employees, they will see it as a investment.
Bachelorette: If you were a matchmaker trying to match me with your rival Bachelors firm, tell me the one thing that would really sell me on the other Bachelor?
Bachelor #1, OC Tanner: This sounds odd, but I recently saw one of Rideaus presentations at a conference, and I have to say, they have a wonderful capability in making these remarkable medals. If you were looking for extraordinarily high-quality recognition pieces in the area of performance, there is nowhere better to go.
Bachelor #2, Rideau: I would say from an industry perspective, OC Tanner is a very solid and good competitor. They have defined this industry in the last year. They have been the largest in the business, they define recognition experience and stay with their beliefs, and they have helped grow this industry in North America.
Bachelorette: Bachelor #1, what is your favorite Employee Recognition success story and why?
Bachelor #1, OC Tanner: I think one of the great recognition success stories we have seen is Avis rental car. It was simply this a light went off in management. They asked their employees What are some of the issues you are having with your group? When one man said I have a problem with safety, they said, Do this: pick out your three best employees and recognize them with rewards and see what happens with the safety issue. In three months, what happened was the safety rate improved. And the employees and managers realized this was due to recognizing and rewarding behavior. They realized this isnt just something thats nice to do, its good business. It engages and values employees in a way a paycheck just cant relay. The organization got it, not just from a humanitarian standpoint but from a business standpoint.
Bachelorette: Bachelor #2, if we were out on a date and I introduced you to my friends, how would you describe what your company does?
Bachelor #2, Rideau: We are in the business of helping companies optimize people, performance, and profit.
Bachelorette: What one thing would you say to change the mind of a CEO who thinks that he could never outsource his in-house Employee Recognition Department, because he feels that his inhouse team is the only one who can serve his workforces unique culture?
Bachelor #1, OC Tanner: The important thing for him or her to understand when you outsource the system is that you outsource the maintenance. We work in partnership with the company to make sure the system is strategic and reflects their values while keeping their corporate identity. Its really all about how impactful it is. And sometimes, you cant see the forest for the trees. When youre doing it all in-house, you need an outside perspective. You need to leverage all that knowledge thats available and not stay inside a little box.
Bachelor #2, Rideau: I would remind the CEO that what he or she is letting go of are the parts of the program that are really not the companys core competency. What we are is an extension of their HR department. We are branded to our customerall our 800 numbers, all our Web sites. To an employee, it looks like they are dealing with their HR department, but they are really dealing with us.
Bachelorette: And last question in our HRO Dating Game is, of course, a relationship question. Bachelors, what is most important element in an HRO relationships?
Bachelor #2, Rideau: Shared communication and trust. With any good relationship, you start with communication. We aim to over communicate with our client. When we first put a program together, we put together a diagnostic and make recommendations, and from then on, we communicate.
Bachelor #1, OC Tanner: Its trust, absolutely. If you dont trust the vendor, I dont care how interesting the offerings are. When we make a promise, we follow through. You can trust what we say.
So there you have it HR bachelors and bachelorettes. Who did our bachelorette choose? Stay tuned for a future issue of HRO Today. And for those HR departments that are tired of wading through the HRO dating pool, if youre looking for a matchmaker to help you meet and mate the perfect HRO provider, contact HRO Today magazine at email@example.com to become the next contestant on the HRO Dating Game.
Passive enrollment may be automatic in many ways, but it still requires action.
The concept of passive enrollment appeals to many 401(k) plan sponsors. Surveys show an increasing number of sponsors adopting this approach also referred to as automatic or negative enrollment. Passive enrollment is essentially the opposite of conventional enrollment, where employees do not make any contributions to their company’s 401(k) plan until they submit specific instructions. Passive enrollment allows the employer to automatically enroll employees into its 401(k) at specified contribution and investment percentages immediately upon hire or upon meeting eligibility requirements. These specified (default) percentages remain in effect until the employee instructs otherwise. Passive enrollment has the potential to benefit both the employer and the employee. But there are communications requirements and pitfalls worth avoiding that plan sponsors should note before implementing.
With all employees contributing (at least upon their initial eligibility), the plan will likely produce more favorable nondiscrimination test results. Meanwhile, employees may come to appreciate that salary deferrals are an easy way to save for retirement, without having a significant effect on take-home pay.
However, there are potential downsides. Its automatic nature may confuse some employees as to their options for changing the default contribution and investment percentages. Others will question whether the plans default investment options take the proper amount of investment risk (perhaps too little for younger employees or too much for older ones). Furthermore, IRS Revenue Ruling 2000-8 requires that, upon hire, the plan administrator must advise all employees affected by passive enrollment of the following:
- the default salary deferral percentage automatically applicable to their pay (typically 3% or 4%);
- their ability to change the initial default contribution, and specifically how and when to do so; and
- their right and the timeframe to opt out of making contributions altogether (meaning a change to 0%).
The plan administrator must provide similar notifications annually to all employees who remain in a passive enrollment status i.e., those who never revised the defaults initially applied to their contributions.
The Revenue Ruling sets these requirements only for the contribution percentage aspect of these automatic contributions, not for their investment. But these notification requirements present an excellent opportunity for the plan sponsor to highlight the plans investment options. This is especially true since plans with a passive enrollment provision must provide at least one default investment fund usually either fixed income or low-risk equities until the employee specifies otherwise.
When exercising passive enrollment, the employer loses some of ERISA Section 404(c)s protection against participants legal action, because the Department of Labor views default investment elections as the employee not having exercised control over their account. Therefore, while reinforcing the long-term benefit of plan participation, salary deferrals, and (where applicable) the company match, the plan sponsor may want to include additional advice to employees about their passive enrollment process, such as:
- the default investment fund(s) that will apply to their contributions;
- the funds available in the plan and how to transfer from the default investment fund;
- procedures and timeframes for changing investments;
- the value of assessing their personal financial situation and risk tolerance, and how to do so; and
- how and where to obtain more information on the plans investment options.
In short, initial and ongoing employee communications about passive enrollment is far from a passive exercise for the plan sponsor and the plan administrator. However, passive enrollment can consistently yield higher participation levels if plan sponsors think carefully and innovatively about how to weave it into the plans overall design and administration.
PEO Case Studies: Here’s the story of several happy HRO families.
Picking the right HRO partner is a deciding factor in improving your company’s chance of success… or, seen the other way, lowering your risk of failure. What makes a successful pick? Where are the pitfalls? These case studies tell all.
Conventional wisdom says that small- and mid-sized businesses fail 90 percent of the time. In the introduction to the reality TV show The Restaurant, the 90 percent failure rate is thrown around as casually as a plate of deli meat. The actual number is quite different, quite dependent on your choice of partners, and especially sensitive to your pick of an appropriate HRO provider.
Statistics from Professor H.G. Parsa of Ohio State University, as quoted in USA Today May 6, 2004, found that the actual three-year failure rate for restaurants is 59 percent. For small- and mid-sized businesses overall, the number is 50 percent over five years according to David Birch, a small-business research expert. Yet for those small businesses who choose HRO services from professional employer organizations, or PEOs, the anecdotal evidence is that the failure rates are much lower, probably as low as 15 percent for companies with less than 500 employees and 5 percent for 500+ employee companies, according to HRO Today’s informal survey of PEO top management.
What are the factors that go into picking the right HRO provider for small- and mid-sized businesses? How are companies that go the HRO route different from their go-it-alone counterparts? What is the experience of those who have partnered with a PEO? What are the risks and rewards? For these answers and many more, HRO Today turned to some of the leading PEO providers and their clients for frank answers and very revealing lessons. Here are their stories.
Finding Precisely the Right Partner
For Precyse Solutions, a successful HR outsourcing was all about finding the right partner.
Finding the Right Partner at the Right Time
A time and a place for HRO: for this growing company, HRO was a question of when, not if.
Man Bites Dog: Small or Large Provider?
Regus knew that one day they were going to outsource HR. The question was, what type of company could best meet its needs?
A Shot of Employee Satisfaction
Jose Cuervo Internationals HRO satisfies its highly discerning customers & Cuervos employees.
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