Gas and electric company Cinergy makes an HRO power play
When Ohio-based electric and gas company Cinergy started expanding into new areas of opportunity, they knew it was going to take a lot of energy especially on the part of the department that was staffing the company. By teaming with an HRO provider for staffing and recruiting administration, Cinergys HR department found the power to push their Recruitment strategy to a whole new level.
When Bharat Kannan first called Cinergys Steve Allen, the companys general manager of organizational development and staffing strategies, in May 2004 to pitch the idea of outsourcing Cinergys employment recruitment and staffing services, Allens less-than-receptive response suggested a long-shot opportunity, at best. But, Kannan, an articulate, passionate proponent of human resources outsourcing, is a persistent fellow. Steve understood the value proposition, but did not seem overly interested, recalls Kannan, a senior sales consultant at Aon HR Outsourcing. He didnt think the strategy presented a good cultural or business alignment. But, he agreed to meet with me in Cincinnati to elaborate on my position.
Cincinnati, Ohio, is headquarters to Cinergy Corp., a public utility serving 1.5 million electric customers and 500,000 gas customers in Ohio, Indiana, and Kentucky. Nearly 7,700 employees work at Cinergy, a fast-growing Fortune 500 company that recently has spread its wings into 15 other states to market non-traditional utility services. The expansion had strained the companys recruitment and staffing functions, and Allen was open to other ideas. We were just keeping our heads above water in the current situation, he says.
In his meeting with Kannan, Allen explained that he was satisfied with the companys staffing and recruitment department, but felt the personnel were tied up in administrative tasks and detail-oriented responsibilities. We had a traditional model, but as we looked out over the horizon at our future strategic needs in terms of staffing and recruitment, we knew we needed more efficient processes that would not require adding more people, Allen explains. When Bharat started talking about the process improvements Aon could offer, a light went on.
Kannan, who ended up making five trips to Cincinnati, recalls the deal clincher as a single sentence. I told Steve that Aon wasnt interested in taking over the strategy associated with recruiting and staffing, just the operational and administrative transactions, he says. The strategythe institutional knowledgeis what you have and I dont, I said. Why should your people be pushing paper when there is a better way for HR to operate?
Six months after his initial telephone call to Allen, Kannan closed the sale. In November 2004, Cinergy signed a three-year agreement to outsource the vast majority of its hiring needs to Aon. Our ultimate goal with the outsourcing strategy can be summed up in two wordsbetter hires, says Allen. We wanted to broaden the quality of the pool of applicants for our staffing needs, and determined that an external centralized staffing function for sourcing and selection best meets this need.
Cinergy is not fixing a broken staffing and recruitment model, says Kannan. The truth is that Cinergy had a good staffing and recruitment department, he explains. What they didnt have was standardization, access to high-end technology, and the breadth and depth needed to access candidate pools. They were doing a good job, but they wanted to do an even better one, particularly with respect to diversity.
Cinergy is the second major power utility to engage in a business process outsourcing strategy in recent months. In May 2005, Texas utility TXU announced a 10-year, $3.5-billion outsourcing arrangement with provider CapGemini Energy covering HR, IT, finance and accounting, and other business processes. While the Cinergy-Aon agreement only covers a single aspect of HR, Cinergy is no stranger to outsourcing. The utilitys 401(k) benefits processing and all medical and dental claim processes are handled by outsourcing service providers.
Cinergys Chief Administration Officer Fred Newton points out that these partnerships all have one ultimate goal: We are focusing on people, processes, and systems. Our objective is to develop our people, improve our processes, and build our systems to meet the strategic needs of Cinergy.
Like many companies that turn to outsourcing experts to administer internal processes, Cinergy was challenged by the need to upgrade technology to continue to provide high-touch recruiting and staffing services to business unit managers. For us to buy the technology we needed was an extremely expensive proposition, Allen says. A service provider like Aon, on the other hand, which represents the needs of many clients, can purchase state-of-the-art technology and leverage the cost by deploying it on behalf of these clients.
Aon HR Outsourcing boasts several major client relationships, including Daimler- Chrysler, AT&T, Verizon, and hundreds of others. The firm uses a centralized recruitment model that employs HR shared-service centers to do the most administrative and repetitive transactions, like scheduling job candidates for interviews and posting positions to job boards, explains Kannan. Such tasks, when standardized under one roof and conducted by experts in that individual area, produce superior cost efficiencies. Our service centers support all our clients, leveraging technology enhancements as they come along. While it would be financially questionable for Cinergy or other clients to invest more than a million dollars for a state-of-theart document imaging system or applicant tracking software, were able to leverage the revenue coming in from all our clients to buy the technology they need but may be leery of buying on their own.
While Cinergy would be able to tap world-class recruitment and staffing technology, cost savings were not the main driver in the companys decision to outsource. ROI was definitely part of the criteria (for outsourcing), and we expect a 10 percent return on the strategy within the second year, explains Allen. But our decision was based more on the opportunity to improve quality as we looked strategically into future years at our staffing needs. Weve grown remarkably in recent years and continue to grow fast. We want to be sure that, as we grow, we hire only the best people. For example, we have a power and gas trading and marketing organization and want to improve the quality of the candidates we bring in. Aon gives us that ability.
Cinergy is no different than other clients when it comes to realizing that HR outsourcing is more than about cost savings, maintains Gary Budzinski, president of Aon HR Outsourcing. Companies that embrace the philosophy of benchmarking their future needs against current infrastructure will achieve greater long-term success in attracting and retaining top-quality talent, Budzinski says. What impressed me most with Cinergy was their internal handle on what could be culturally accepted from a change perspective with respect to outsourcing. Rather than take a cost-reduction focus, they allowed business process improvement and cultural acceptance sell the engagement. We continually strive to bring these sorts of forward-thinking clients into our family.
As Allen became more comfortable with the idea of outsourcing recruitment and staffing, he brought Aon in to make a presentation to the companys user council, which is comprised of business unit heads, each with ongoing recruitment and staffing needs. I wanted them to be comfortable with the idea as well, Allen explains. We took the council through the process, showing them how they would benefit by the ability to mine a greater breadth and depth of talent. This was important because we had grown from a tri-state utility into a company that, through various small acquisitions and growth initiatives, now provides services in 18 states. Our traditional staffing and recruiting methods were becoming out of date and the user council knew that.
I remember Steve brought up the fact that the [recruitment and staffing] department might be doing fine with 400 hires, but with the company growing at the rate it was, it would find it would be difficult to support more than 500 hires. This would likely require the hiring of more staff to administer this need, Kannan says. He asked, What would happen then to this staff if the company needed to ramp down the number of its hires? Would the staff no longer be busy? Kannan notes that Cinergy was also interested in being involved in more cuttingedge technology, for example digitizing candidate files in order to search a greater populace of diverse candidates.
Allen explained to the user council both the cost savings and quality aspects of outsourcing. Aon would leverage the best practices of each of its clients for the benefit of other clients. Meanwhile, Aons variable pricing model, which is based on costs per hire and is not a fixed fee, would ebb and flow with the companys growth. You hire 100 people in October, you pay one amount; you hire 50 people in September, you pay a lesser amount, Kannan explains. There are no minimum requirements.
The council soon became as comfortable as Allen with the promise of outsourcing, which offers the ability to find a diverse pool of candidates with the skills we need and the talents we require as we continue to grow and engage in related businesses, Allen asserts. People are the essence of this company and we want the best. Now, we had a more opportune methodology to find the best.
More effective human capital is the essential ingredient for companies in achieving competitive advantage, says Budzinski. We help companies achieve superior, tangible business results by enhancing the performance of their human resources.
Cinergy hasnt outsourced recruitment and staffing as much as the administrative and operational aspects of these processes. Cinergy continues to deal with issues like candidate competencies, behavior, and workforce makeupthe pure, strategic part of recruitment and staffing, explains Kannan. HR continues to go to the heads of commercial business units and ask questions like Where are you headed, human capital-wise, in the next 18 months? or What will your employment needs be post-acquisition? Are you considering more MBA types? Will you have more volume processing around recent college graduates? The difference is that we pick up from there. We do things like digitizing thousands of files going on Internet job boards, keeping in line with ongoing compliance issues and other legalities surrounding recruitment, scheduling interviews with job candidates, and so on.
The basic steps involved in recruitment remain much the same, whether a company outsources or retains traditional internal processes. A Cinergy business manager identifies a staffing need and creates a job requisition that must then be approved by hiring managers for financial purposes. Once approved, needed job skills are identified and individuals meeting these qualities are sought. What we do is conduct the search for these candidates, screen them using standardized behavioral interview techniques and then test them, based on guidelines established by the Edison Electric Institute for the energy industry, Kannan says. After the testing phase, we schedule the interviewsa time-intensive process known to cause much duress in HR organizations. We take the pain out of the process. We also handle the final step notification of job acceptance or decline.
While each of the steps typically is taken by a single person at a traditional executive search firm, the recruiting at Aon is broken into different segments. We have experts in testing focusing on that function, and experts in interviewing specializing in that, Kannan notes. Each of these people works with several clients and is rigorously trained in that clients program. This divisional labor strategy gives us great flexibility in bringing on new clients.
Cinergys relationship with Aon is still burgeoning. At present, Aon personnel are meeting with business managers throughout Cinergy to talk about future needs and how they can best service those needs. Both companies also are in the process of synching up their recruitment technology systems. Im very, very involved with our IT people right now, Allen laughs. The live date is February 15, 2005.
Cinergy is also in the process of establishing a governance system, whereby Aon executives and Cinergy HR staff meet on a quarterly basis with Cinergys user council to assess performance and address small problems before they erupt into major ones. We expect a few bumps in the road but nothing that cant be ironed out easily, says Allen, a complete HRO convert now.
Although a newly-established relationship, both parties have the energy and drive to make it a powerful oneand one that will do well by Cinergys employees. Allen sums up, Aon will just be able to do a lot better sourcing of job candidates than we did previously.
Big Brother is watching–HRO users and providers beware.
As it turns out, Big Brother is watchingHRO users and providers beware.
Federal privacy law is expanding with the Security Rule under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and the privacy and civil liberties procedures established under the Intelligence Reform and Terrorism Prevention Act of 2004 (IRATPA) one for electronic health information, the other for virtually all personal information that could be discovered in homeland security and anti-terrorism investigations. For HRO customers, employees, and service providers, each law will impose new obligations and safeguards.
HIPAA SECURITY RULE
The HIPAA Security Rule reinforces the Transactions Rule and the Privacy Rule, which focus on the privacy of protected health information. The HIPAA Security Rule takes effect on April 21, 2005, for all covered entities except small health plans. In the private sector, all private health plans, healthcare providers, and healthcare clearinghouses must assure their customers that the integrity, confidentiality, and availability of electronic health information that they collect, maintain, use, or transmit will be protected. The goal is to ensure the integrity and confidentiality of the information and to protect against any reasonably anticipated threat or hazards to security or integrity of the information and unauthorized use or disclosure of the information. The HIPAA Security Rule will be an additional compliance requirement for HRO deals. There is no specific federal security standard, but only one that adopts reasonable and appropriate precautions. The enterprise customer cannot simply dump the HIPAA compliance obligation upon the service provider. As a best practice, HRO customers and their providers should review the design and implementation of the processes involved in compliance, and establish periodic reviews to deal with changes that might be needed. The costs of such periodic changes should be discussed as well.
PRIVACY AND CIVIL LIBERTIES
Under IRATPA, executive departments and agencies must appoint a bevy of new privacy and civil liberties officers to protect against abuses of constitutional and statutory rights. Within the National Intelligence Department, a Civil Liberties Protection Officer, reporting directly to the Director of National Intelligence, will be appointed to meet constitutional, technological, and statutory mandates. To protect constitutional freedoms, this officer will be responsible for compliance, review, and assessment of complaints and other information indicating possible abuses of civil liberties and privacy in the administration of national intelligence programs. As a counterbalance to the increasing centralization of powers in the war on terrorism, a Privacy and Civil Liberties Oversight Board will be established within the Executive Office of the President as part of an enhanced system of checks and balances to protect the precious liberties that are vital to our way of life. In addition, Congress recommended each executive department or federal agency with law enforcement or anti-terrorism functions designate a privacy and civil liberties officer.
PRIVATE SECURITY OFFICERS
In the private sector, enterprises that either hire their own private security officers or rely upon service providers to do so will now be subject to new regulation. A private security officer is an individual other than an employee of a Federal, State, or local government, whose primary duty is to perform security services, full or part time, for consideration, whether armed or unarmed and in uniform or plain clothes. IRATPA authorizes prospective employers, after getting written consent from the prospective employee, to submit fingerprints for an authorized criminal history record information check for prospective private security officers. The employer must disclose the results to the prospective employee.
CRIMINAL HISTORY CHECKS
The new law opens the door to new regulation of access to criminal records in support of lawful employment beyond private security officers. The IRATPA law calls on the Attorney General to recommend to Congress any legislative improvements for the conduct of criminal history record checks for non-criminal justice purposes. As part of this process, commercially available databases will be reviewed as possible supplements to government records. Privacy rights will need further consideration, based on principles of employee consent, access to the records used if employment was denied, the disposition of fingerprint submissions after records are searched, an appeal mechanism, and penalties for misuse of the information. Employerswhether or not they outsource any HR administrative functionshould review and update their employee handbooks and the rules applicable to third parties having access to HR information.
The newly-established Reference Standards Board is organized as a central source for the outsourcing industry.
Executive references can often be a decisive factor in major outsourcing contract awards that can run into the tens and hundreds of millions, or even billions of dollars. Yet few service providers have a process for providing complete, accurate, and relevant client references on a timely basis. Recognizing this market need, Eva Schmatz has co-founded the Reference Standards Board. As President of Summus, a preeminent market research firm, Eva Schmatz is well known for the pioneering market research work she has done to guide companies in corporate branding, marketing/sales strategies, and new business development. Eva has directed several hundred market research studies for Global 1000 companies and interviewed thousands of C-level executives. She is the best one-on-one interviewer in the business.
JV: Why are references so important in the sales process?
ES: References are critically important. Companies and executives have found it more and more difficult over the years to be able to clearly specify and then source solutions to their problems. They have indicated their need for more independent, objective, and unbiased client reference information. They want a more reliable and credible basis for selecting the best-value service providers to manage their complex outsourcing programs. This is true in the world of IT and the world of outsourcing and true in the world of strategy. The ability to measure and assess an organizations delivery in areas that have a much bigger component of variability becomes a challenge. The reference becomes more and more important because high-value results are only going to be delivered if you have the right people working with you. The reference helps you ensure that you have people that can not only deliver what you ask them to deliver, but also tell you what it is that you are not thinking about. The key is the ability to do all of this in a way that supports your organization and its culture.
JV: What is the mission of the Reference Standards Board?
ES: Our mission is to establish and maintain high standards for the way that executive references are used in the sales proposal process. We provide independent and objective reports, with our established strict standards for the interview process and criteria for selecting client reference givers. In the end, our goal is to give corporate buyers much more useful information, enabling them to select the right firms to meet their needs and requirements.
JV: Why do you see the Reference Standards Board as an industry solution?
EV: Buyers who review references will have efficiencies and a higher level of confidence if they have the ability to look at them in a standardized form. We believe that the methodology used by the Reference Standards Board (RSB) will set the bar and expectations on how references should be handled in all stages of the reference gathering process. What we hear from executives in all industries is that if you can create a process that is repeatable and learnable, it will be more effective, more efficient, and more broadly used. And to ensure that we are representing the full spectrum of industry needs, we are creating an Advisory Board consisting of leading buyers, providers, and consultants.
JV: The name of the organization is the Reference Standards Board, but what kind of standards are you establishing?
ES: We are establishing standards in a number of areas that we have observed to have too much variability in delivery and performance. One area of standards is simply the structure of the reference. We are establishing a clear and structured way of delivering information and a standardized way of supporting it. A second area of standards is the ability to identify correctly the type of people that provide references. The reference giver should be of a sufficient level within the organizationable to speak to issues and claims that are being made about the success of the engagement. We have a series of standards that we use as a screening device for every reference that we certify. In addition, we have standards that we apply within our own organization on how we conduct interviews as it relates to our larger research practice. All of these standards are fundamental to us and make a given reference more textually helpful and interesting to the ultimate leader.
JV: How does the reference validation process work?
ES: The validation process has a series of steps. Initially, the service provider will articulate their key successes achieved for a given engagement. Thats very important because every engagement has certain objectives, and the nature of these successes is going to vary engagement by engagement. We want to give them the right to say on a given engagement this is what we achieved for a client. Then we go to those reference givers and talk with them to determine their degree of involvement in a certain engagement. We want to ascertain from them whether they have the in-depth information and hands-on experience to allow them to answer these questions confidently. So we check that kind of information first. Then, in advance of the interview, we let them know the nature of the key successes that the service provider claims regarding the engagement. Now why would we do that? We want them to be fully prepared and have every opportunity to feel that theyve really given their most accurate and thoughtful response. Our objective is simply to find out from them whether the service provider has accurately reflected the success of the engagements and how they would comment on the claims that the service provider has made. Once we have gathered the reference from them in the individual interview, we will provide them with a transcript of their reference for review and comment. Why do we do that? We want to give the reference giver 100 percent confidence that we have accurately reflected not only what they say, but also how they say it. We want them to be willing to go on record with this reference, so we show them the transcript of their reference. They have the opportunity to indicate that they fully concur with their statements. The service provider may then see the reference but may not in any way alter the reference.
JV: Whats unique about your methodology for validating references?
ES: Our methodology is an individual in-depth interviewing approach that is very friendly to its respondents. It allows respondents to dig deep and articulate not only the objective reasons for their decisions, but the more subjective influences that prompt those decisions and color their ultimate evaluation. Client reference reports reflect the actual thinking and language of the reference giver, with his/her own verbatim quotes and responses to specific questions. These reports are both substantive and informative.
JV: Does the reference interviewing process require a special type of researcher with a unique background or mix of experiences?
ES: Essential to our success is not the mix of background of our researchers but their ability to listen well and understand the information. This means people who can be on the receiving end of information without feeling the need to participate in it at some level. In order to become successful in business, we are usually required to develop a habit of forming our own opinions, indicating them, and verbalizing them. We start to express outwardly and neglect our ability to reflect inwardly and listen to the ideas of others. But when you are doing a diagnostic report, you need to have people who have that interesting combination of being able to put themselves aside and listen. At the same time, they need to understand enough about the business to know when they hear something interesting or unusual, and exactly when to respond or pursue an issue. That just happens to be a rare combination and we are fortunate to have built an exceptional team over the years.
JV: So what has been the reaction of the outsourcing industry to the formation of the Reference Standards Board?
ES: We announced the formation of the RSB at the most recent Sourcing Interests Group Conference. We were overwhelmed by the positive response from the industry and have followed up by seeking the counsel of, and endorsement of, so many industry leaders. During the first quarter of 2005, we will begin pilot tests for market leaders, work with our advisory board, and expand our service in
JV: How can you and your co-founders be reached?
ES: The Reference Standards Board is located at
Combining multiple business functions into a single BPO agreement.
We are frequently asked by our clients a series of questions around the efficacy of bundling more than one business function such as HR, F&A, IT, or procurementwith another business function into a single and larger BPO agreement. The questions range from: What are the benefits to bundling? and How much additional cost savings are possible by bundling? to Are there BPO providers who can deliver on two or more business functions? and Is it more risky than outsourcing a single business function?
If you are wrestling with these same questions, there are a set of factors and additional questions to address that will help determine whether bundling the business functions for BPO is a sensible strategy for your organization.
First, the market has proven that when two or more business functions are bundledfor example, HR and IT or F&A and HRan additional 10 to 15 percent in savings can be achieved over a single business-function BPO agreement. Therefore, if maximizing cost savings is critical to your organizations requirements, as opposed to other BPO objectives such as adding capability or increasing flexibility, a bundled BPO relationship can make sense.
Second, consider collaboration. Do your functional leaders work well as a team? Have your HR leader and CFO collaborated previously on large-scale initiatives? Do they usually see eye to eye? Does the CIO respect the head of HR or the SVP of Procurement and vice versa? If the business function leaders are merely factions, it can be very difficult to harmonize a BPO initiative across these fiefdoms.
Third, what about BPO objectives? Are your CEO and executive management team in agreement? Will they act as a team when various functional leaders try to break from the pack? Often the selected BPO provider on a bundled deal is not the unanimous choice among the functional leaders, increasing the possibility of opt out actions. Will your CEO and executive management ensure this does not happen and enforce compliance?
Fourth, do you have the organizational capacity and capability to manage a BPO initiative across multiple business functions? The amount of resources, energy, and choreography necessary to accomplish this task is enormous. Think of managing three M&A deals at once it is difficult to conceive if an organization is not used to cutting across functional towers and driving harmonized organizational change.
Fifth, is there a compelling business reason to, Do it once and get it over with? If there is a new CEO in place, often that individual has a honeymoon period during which change and cost reduction is expected. Another example is a company in the midst of massive restructuringit often makes sense to bundle the functions together in a BPO agreement. It is also a good reason to do a bundled BPO deal when there is going to be a massive restructuring in the coming 12 to 24 months.
Sixth, will your company be comfortable with the fact that there are only a handful of BPO providers who can deliver on a bundled BPO agreement? Even then, at least one of your functional leaders will be unhappy with the final choice of providers. Many procurement organizations, and even legal departments, have major problems when RFPs arent going out to at least 6 to10 vendors. Working with only two or three providers makes them nervous and feeling like they lack control.
Seventh, do you already have a multi-functional shared-service center in place? If you do, the benefits of the existing interdependencies and integration are very valuable and it is usually unwise to unbundle these services into separate BPO agreements.
Finally, do you feel you that you have to learn the outsourcing process over time instead of all at once? Many clients feel more comfortable initially outsourcing one business function, getting it into production, and letting it run for a year or more before they tackle the next business function. Right or wrong, many clients feel this is less risky and increases their probability of BPO success over time. However, if your company is comfortable with the big bang approach, then bundled BPO works just fine.
Ultimately, determining whether outsourcing a single business function is more effective than bundling is not a simple decision; it depends on a multitude of factors. Make sure you understand your companys organizational capacity, culture, and decision-making processes before you select one BPO route versus anotherit will save you time, energy, and your sanity!
Part 1 in a 3-part series on developing acceptable HRO standards.
Establishing operating standards for business processes is the foundation for a successful HR outsourcing industry. In HRO, buyers and suppliers are now coming to grips with the need to develop standard operating practices in their relationships. As HRO suppliers acquire their fourth or fifth client, they begin to think about how to scale operations and where to make investments to drive operating leverage.
This first of three articles about HRO standards addresses the historic parallel between industries before outsourcing, and why outsourcing, by its nature, tends to lead to the establishment of a set of acceptable operating standards for outsourced business models.
Out of necessity, HR developed as a support function within many companies. There was no compelling reason to drive operating standards across firms since they were based primarily on the internal needs and cultures of each company. But the environment is changing due to the availability of new business models and corresponding new options from a still-emerging supplier community.
There has been significant precedent from more mature outsourcing industry segments on this issue. In the early days of IT outsourcing, the world was full of custom-built tools and processes. As outsourcing took off, economic reality forced buyers to make decisions about which security system, which scheduling system, and which database system to utilize, along with restrictions surrounding what versions they would support. There is every indication the HRO industry will follow a similar path during the next two to four years.
Since the ERP system is often a focusing agent for process standardization, the buyers lack of appropriate technology to facilitate HRO is often the starting point in the design deliberationsdetermining where it is, relative to its needs. Accepting that processes are truly not all that different and recognizing that economics can help drive decisions about where to invest money are factors that drive standards. In the IT example above, a supplier would sell you anything you wanted, but it also would demand significant additional dollars for utilizing non-standard systems or processes. When executives are presented with hard-dollar alternatives, tough decisions emerge to identify what really needs to be unique.
Ultimately, this produces an environment that can lead to a set of standards between buyers and HRO suppliers that produces the following objectives:
Reduced costs (through optimal standardization)
Movement to acceptable practices that reduce both legal and regulatory risk
Reduced risk of collateral change, once the relationship passes the introductory phase
Leverage of future technology investments across a broader spectrum of the buyers industry
Improved service, both 24×7 and enhanced global delivery
Acceptance of a need for standards, coupled with an understanding of the buyers culture produces, by definition, a series of self-fulfilling acceptable practices, which establish an environment for HRO to flourish.
So what HR functional areas would benefit from better operating standards? As documented in the chart, we asked the top HRO executives at each of the leading suppliers the same question, and they were virtually unanimous in suggesting that regulatory and compliance were key opportunity areas. Another area, which they suggested would continue to be more company specific, was compensation, something many firms believe is a key differentiator and critical element in producing the right business results.
But like any journey, knowing where you are and where you want to be are two pieces of the puzzle. The roadmap to the desired destination is found with a discussion about different types of standards, which will be addressed in the next installment.
Our annual list of the biggest enterprise HRO deals of the year.
2004 was a roller-coaster year for BPO. But as HRO Todays annual list of the top enterprise level HRO deals of the year shows, HRO is still coming out on top.
Shed some HR worries by keeping these HRO New Years resolutions.
New Years resolutions are easy to come by at this time of year. One of mine, just in case you are interested, is not to make any resolutions for 2005. Having broken so many so easily and so readily over the years, I have come to the conclusion that New Years resolutions are a great deal easier to make for other people. In doing so, at least I have the satisfaction of relieving myself of any obligation to actually do something different and better myself, at least until my colleagues or my wife remind me of some despicable aspect of character. It also leaves me deliciously free to criticize everyone else! So, like it or not, here are some HRO things that I would like you to resolve to do better in 2005.
IF YOU ARE AN HR SERVICE PROVIDER:
Listen more to your clientsNo, not the things they are telling you, but to everything they are not saying. This means shutting up for a moment about how you will do things better, cheaper, faster, and make the world a better place for all mankind. Listen and understand why exactly it makes senseor does not make sense at allfor this organization to outsource an activity and act accordingly.
Meet your commitments2004 was littered with missed project deadlines and under-performing service delivery. Dont over promise despite the obvious temptations. Dont give your organization or the rest of the HRO industry a bad nameits too early for that. Say what you will do and do what you say.
Take more time to understand the dynamics influencing decisionsSo many deals lost their way in 2004 and wasted millions of euros because providers simply did not understand the drivers, or more accurately the politics, that are motivating the HRO decision. Who are the real decision makers? This may be even more difficult for U.S.-based providers to understand, as they are more at ease with North American corporate dynamics that are, not unsurprisingly, different in the European corporate world.
IF YOU ARE A BUYER OR POTENTIAL BUYER OF HRO SERVICES:
Select your advisors more carefullyYou should use advisors early on to help articulate your case and say some of those things that may be difficult for people in the organization to say themselves. You will find plenty of experts, but not necessarily in HRO. Every consultant who can spell HR is latching on to HRO as todays moneymaker for advisory services. So do your due diligence. Ask for specific references in HRO work. Understanding HR processes is not enough.
Be honest, especially with yourselfIs your organization really ready to go HRO? Or is your project nothing more than a fact-finding mission that will take long enough so the heat on HR effectiveness cools down? Please do not waste your time or the providers or advisors creating plans for projects that you know just wont fly. Dont waste your life attempting to do the impossible. If in doubt, get another job!
Get out there and learnThere are plenty of conferences and networking opportunities in
For my part, I am determined to make sure that in these columns I keep you motivated to pursue HRO initiatives in
Are the customers the final winners in the Oracle-PeopleSoft battle?
Oracle and PeopleSoft have laid down their swords, but will customers be ready to take the next step to outsource?
A colleague of mine made a trenchant comment about the recently resolved Oracle/PeopleSoft standoff: Sticking with one provider today is like ruling a European nation in 1914 with a collection of Victorian-era alliances sitting on your desk.
Now that the war is over and Oracle has strengthened its position in the HR application software market, perhaps a new analogy is apt. Assuming full responsibility for managing your companys transition from one HR application package to another could be just as daunting a task as rebuilding a war-torn country without allies.
CUSTOMER RETENTION 101: THE CUSTOMER IS ALWAYS RIGHT
For the HR outsourcing industry, the end of the Oracle/PeopleSoft battle provides an even larger opportunity to win and impress customers. For many companies, the question is no longer whether to stick with the status quo or pursue outsourcing. Change is now a given. From here, companies must decide the best way to manage and harness that change.
The Oracle/PeopleSoft war has made great copy in the business press with ever-changing proposals on the table, controversy over PeopleSoft profitability, a dethroned CEO, numerous legal battles and, in the end, yet another enormous victory for Oracle CEO Larry Ellison. While the business story has been fascinating, the anxiety of HR software customers has been real and growing.
Think for a moment of a PeopleSoft customer managing a massive installation. Oracle promises to fully update PeopleSoft for 10 yearsthe bat of an eyelash for global corporations. Furthermore, this company, which may have just recently installed or updated PeopleSoft, must decide when and if to migrate to the new Oracle/PeopleSoft product expected to reach the market in 30 to 36 months.
Customers grew increasingly uneasy about Oracles promises during the 19-month battle. According to a November survey by Boston-based AMR Research Inc., 63 percent of 150 PeopleSoft customers said they would cancel their software-support contacts if Oracle bought PeopleSoft and stopped enhancing the programs.
HOW CAN HRO BENEFIT FROM THE MERGER?
Without question, the combined Oracle/PeopleSoft offers customers great potential. But again, why should any enterprise make the risky decision of when and how to change trains? By making the move to an HR outsourcing provider, enterprises get a once-in-a-lifetime opportunity to outsource risk.
Theres even better news for HR outsourcing providers, because enterprises that have long used SAP installations may now want to take a second look at Oracle and HR outsourcers are an ideal opportunity to make this transition possible.
Since the battle for PeopleSoft began, the HR industry has changed dramatically. New HR outsourcing providers have emerged, major companies have merged, the customer base has grown dramatically, and the center of gravity has shifted from the software providers to the companies that can make these installations manageable and affordable.
Oracle emerges the winner in a very different world than when the battle began. Now they must work to make HR outsourcing a central part of their strategy. No doubt the customers will be there for Oraclethe question is whether customers looking for solutions, not software, will even know or care which application manages their HR service one or two generations from now.
Dont let vendor fatigue leave you too tired to recognize your providers accomplishments.
Many clients have a preferred BPO provider. These clients appreciate the existing relationship, the value delivered over time, and the trust that has been built over a number of years. When new BPO requirements emerge, these clients like to steer business towards the incumbenta BPO provider with a proven track record. What often occurs, however, is that the clients preferred BPO provider doesnt actually win the work. Why does this happen?
The existing BPO provider describes a BPO opportunity that the client feels is worth exploring. The BPO provider submits a high-level proposal for a discovery process or assessment with a high-level business case as the final deliverable. The business case allows the client to determine whether to move forward with a BPO agreement or not. This discovery process is often provided for free, or at significant discounts to the BPO providers usual fee structure. This makes it extremely attractive to the client, with little perceived risk on their part.
The free (or near free) assessment is performed, and as both parties suspected, there is a very compelling business caseusually on the order of 30 percent (or more) annual run rate savings. Both the client and BPO provider get excited and go into detailed due diligence. As the due diligence unfolds, hidden costs are revealed (technology costs are usually higher than anticipated) and other issues are detected. Almost all of the findings during due diligence eat into the business case. The further due diligence progresses, the less certain the projected cost savings appear. There is a still a decent business case, but it is not nearly of the magnitude described in the assessment.
Since formal requirements were not documented and due diligence continues to find warts, it is no surprise that two or three months progress and the agreement that the client is asked to sign shows less than 20 percent savings (not the original 30 percent) and contains all kinds of caveats to protect the BPO provider. This is a classic case in which the BPO provider is perceived to hold all the cards and the client feels unsophisticated in comparison and becomes increasingly reluctant to sign on the dotted line. Trust begins to erode. The client often revolts Youre asking me to sign an agreement that barely resembles the business case in your assessment and puts the requirements out to bid in a competitive RFP. This is the first major symptom of vendor fatigue.
As RFP responses come back, many of them look attractive, and the newcomers have a honeymoon period with the client. The BPO providers account team gets increased pressure by its management to close the business, which leads them to exert more pressure on the client to forget about the other BPO providersprecisely what the client does not want to hear. The competing BPO providers are willing to spend more time with the client and spend additional dollars in the pursuit while the incumbent (which has already invested a significant sum) is not. Thus the client becomes even more frustrated with its preferred provider. This is the second symptom of vendor fatiguethe client feels as if its preferred provider is taking them for granted and not trying hard enough compared to other BPO competitors.
The incumbent BPO provider then tries to match (or beat) the competing bids, but the client says You fooled me once, youre not going to fool me twice, and selects one of the newcomers. This is a fatal case of vendor fatigue. The incumbent has spent 12 months trying to get a deal, but the client got tired of them and would not sign.
How do you avoid a case of vendor fatigue? First, if you want to award additional business to your existing BPO provider, dont let them do free studies that only deliver happy words based upon limited information. Second, remember that as the incumbent BPO provider, spending millions of dollars for the free study and due diligence does not always win business. Third, the client should be sure that service levels, volumetrics, and a robust financial business case are formal and complete before they allow their BPO provider to perform due diligence this will limit nasty surprises and give both the client and incumbent a much higher probability of signing a good BPO agreement. Finally, recognize the symptoms of vendor fatigue and intervene before the malady becomes fatal.
The critical drivers behind global HRO.
In continuation of Everest Groups series on global HRO, here is another installment delving deeper into why global HRO is a proven business solution and how the market is progressing. But you cant discuss globalization of HRO without asking first whether the technical capability and experience of a supplier can, in fact, deliver the business value that is driving organizations to turn to HRO as a solution, and second, whether the current market illustrates a growing trend with a pattern of success in truly global HRO.
© 2009 - 2021 Copyright SharedXpertise Media, LLC.
All SharedXpertise Media logos and marks as well as all other proprietary materials depicted herein are the property of SharedXpertise Media. All rights reserved.
SharedXpertise Media, LLC, 123 South Broad Street, Philadelphia, PA 19123