Buyer’s Remorse = Divorce

I recently had a long talk with an HR director about her pending divorce…from her payroll provider. It was a bad marriage from the beginning, the product of a shotgun wedding. The company in question is a 5,000-employee outfit that was spun off from a bigger parent a few years back. When their first choice for payroll services fell through at the last minute, they defaulted to number two.
 
“That’s really important to know,” she told me, “because we ended up having a bad experience. On the one hand, I have nothing but gratitude to them for their willingness to take us on such a short timetable. And that kept us from all sorts of dire consequences.
But that doesn’t change our standards, and it was always a difficult relationship, because we were so demanding, and they were in such a time bind. And it only got worse after go-live.”
 
To paraphrase Tolstoy, happy marriages are all alike, but every unhappy marriage is unhappy in its own way. That said, how this company endured the dissolution—and how they arrived at the new outsourcing relationship they’re about to embark on—is a cautionary tale that should be heeded by practitioners and providers alike.
 
It began with a series of paycheck mistakes. “There were no fatal flaws or catastrophic failures,” said the HR director, “but it lowered the confidence of both employees and management.”
 
Her department had the worst of both worlds. It could prevent nothing but had to respond to everything. This led to redundancies, as HR was compelled to build a shared services team to perform some of the same activities as its provider—collecting data, auditing, resolving issues. “The provider,” she says, “was only doing the minimum, what it was told, and not actively solving what needed to be solved.”
 
A contributing problem: The service level agreements (SLAs) had been narrowly defined. They covered payroll accuracy in general, but errors under $50 per paycheck were not included—no matter if multiple errors totaled hundreds of dollars. They included how quickly the phone was answered, but not whether the answer resolved the issue. “And our advocacy to change them,” she said, “was just rebuffed.”
 
The times didn’t help, she added: “One incident that is dramatically illustrative of the issues, was when they sent COBRA notices to the wrong file of employees of the mortgage company. This happened while interest rates were rising, the real estate market was going belly up, and many mortgage companies were terminating employees in pretty obscene and irresponsible ways.”
 
The result? “Some of our employees suspected the worst—that the COBRA notice had simply gotten to them before their manager did. The line of panicked people was something.”
 
No single conflagration informed the company’s decision to yank off the wedding band: “It was death by a thousand duck bites.” She added that functionality during the marriage, and the courage to break it off, were vastly aided by her HRO relationship manager. “Many HRO providers will tell you they don’t want to work with you if you have a relationship manager,” she said, “but you have to have it.”
 
So the company has switched to a Software-as-a-Service (SaaS) model, and it will ramp up its shared services group from five to 10. But what about the C-Suite? Didn’t the company’s strategic thinkers offer resistance to such a profound change of direction?
 
“None,” she told me. “First of all, everybody in that C-Suite had had their pay screwed up, too. Second, the mess had contributed to a ‘material weakness’ in our SOX [Sarbanes-Oxley] valuation, so, if HR whining hadn’t gotten their attention, that got their attention. Plus, we had our case well put together. The comptroller, two different CFOs, and our CEO have been very supportive during the change. Our board heard it once and said, ‘Go for it.’ So it’s been nothing but support and confidence.”
 
The enduring lessons, she concluded, are that “you can’t outsource fiduciary responsibility” and that outsourcing in general cannot be a turnkey operation. “The analogy,” she said, “might be to the recent history of the health field, where many experts now say that we as consumers have been to passive and have not managed our costs and our providers. We might be able to use outsourced solutions, but we have to be the architects of linking together the tools and providing the governance and relationship management so that we can be confident of the final results.” 
 Dirk Olin, Editorial Director