When Land O’Lakes wanted to step up service delivery in benefits, outsourcing helped the company ensure implementation was as smooth as butter.
Benefits outsourcing might not be a new trick for most HR organizations, but turning over all services related to health, defined benefits, and defined contributions to one vendor has recently gained greater momentum as the concept of total benefits outsourcing (TBO) strikes a chord with many HR managers. Entrusting a single provider to competently control so many aspects of employees’ lives can seem daunting at first, but for some buyers, such an engagement can only improve service levels and reduce costs as well.
Take the instance of Land O’Lakes, the Saint Paul, MN-based farmer co-op. You know the organization for its butter and other dairy products, but what you might not know is the company has been outsourcing all of its benefits including health, pension, and 401(k) administration to Hewitt Associates since 2004.
With some 11,000 active workers and retirees in the system, Land O’Lakes said since implementing such a comprehensive program, participants as well as HR professionals have seen vast improvements in service even if cost savings have been modest. Moreover, HR has been able to tend to more core activities—a goal of all outsourcing buyers.
According to Pam Grove, director of HR operations and benefits at the company, Land O’Lakes in 2003 decided to explore the TBO space as a way to improve service. At the time, the company handled benefits internally for about 10,000 lives, but it felt that benefits administration just wasn’t an activity that strategically contributed to the organization. It had already outsourced its 401(k) administration to Hewitt for about a decade, and to further add health and pension seemed to make sense.
“We realized we needed to look for better service. Doing benefits administration wasn’t a core competency—nor should it be,” Grove recalled.
Like many organizations considering TBO, cost, while important, wasn’t the primary driver behind Land O’Lakes’ decision to outsource all of the benefits processes. She said HR wanted to dedicate its time to more strategic activities, things that would impact the bottom line. With that in mind, Grove, who at the time was promoted to her current position and put in charge of weighing the question of buy versus build, spent several months examining the co-op’s needs and the market’s solutions. The choice soon became clear.
“We were really trying to change how HR was being viewed, and we didn’t want to be viewed as administrative services,” she added. “We wanted to be viewed as a top business partner involved in decision making. I don’t think we could have focused on that while doing the administrative part.”
Putting a Stretch on Internal resources
Indeed, the company had dedicated quite a bit of internal resources for both health benefits and retirement services. On the health side, the company staffed a call center with three employees, and four others worked on administration duties. For its pensions, about five employees worked in the department.
Bob Tomaschko, director of compensation, retirement, and HR systems, recalled pension administration became an especially complex service, and Land O’Lakes at times experienced difficulties keeping up with it because it couldn’t always retain the internal expertise needed. He added that early on in the vetting process, it appeared its provider could do a better job of delivering service than the company could on its own.
“From a cultural perspective, we don’t believe that it has to be the lowest cost, but we want to balance cost with quality of service,” he said. “Part of the attraction with Hewitt was that the service model it offered was vastly superior to what could have been done in house. On a cost-neutral basis, we could provide a vastly improved service through outsourcing.”
Grove said RFPs went out to a number of vendors, but in the end what solidified its choice were the tools that Hewitt could deliver to Land O’Lakes, things that not only made it easier for HR to manage the relationship but also provided functionality to employees that they never had before. For instance, on the pension side, workers were given access to planning tools that allowed them to model their retirement plans so they could better prepare for their future.
Since rolling out the TBO strategy—it took more than 18 months to roll out all of the services due to organizational complexity and Land O’Lakes’ decision to launch in stages—the company has reported that customer satisfaction is high and that enrollment through its online portal is now at 80 percent. Grove said while the installation of self-service kiosks at each of the company’s plants helped to drive up online access, she said broader usage of the Internet in the U.S. probably also helped to ease workers in the transition.
As they reflect on their TBO success, Grove and Tomaschko cautioned that a lot of planning and hard work went into making sure the implementation took place without any unpleasant surprises. Even before the contract was signed, Grove noted that Land O’Lakes made sure they went through a thorough discovery process, unearthing all potential difficulties upfront instead of learning about them later on.
“The biggest thing we did was we focused with them during the negotiations on the details. We went down into details of how they would handle specific situations,” Grove added. “It really is important to ask those detailed questions.”