Not many outsourcing engagements go as smoothly as the one for NXP Semiconductors, especially when they include end-to-end HR and RPO services. With mission clarity from the outset, sage advice from a sourcing consultant, and a deadline-conscious provider, the mid-market buyer was able to assemble all the elements conducive to outsourcing success.
The outsourcing road to HR transformation is littered with casualties, and veterans of this business will caution you that the more complex the engagement, the higher the body count. Scores of HR executives who were early adopters share tales of ulcer-inducing implementations, sleepless nights worrying about payroll accuracy, and general disappointment about their commitment. So it’s no surprise that some first-generation deals resulted in buyers scaling back scope, returning services in-house, or parsing them to a separate, best-of-breed provider.
This fact was not lost on Randy McMills, senior vice president and regional executive for the U.S., Canada, and Mexico for NXP Semiconductors, a spin-off business of Dutch conglomerate Philips. When he and his HR leadership team were told in the spring of 2006 that they would be cut off from the shared services Philips had provided—everything from payroll to recruitment—they were clear about not wanting to invest in internal service delivery. At the same time, McMills recalled, the idea of sourcing everything from one provider seemed unnerving.
“I didn’t like having all our services with just one provider,” said McMills, who oversees NXP’s operations, including HR.
Yet, more than a year since going live with its outsourcing strategy, the San Jose, CA-based semiconductor maker is basking in its HRO and RPO relationship with a single provider—Minneapolis-based Ceridian, which has taken over payroll, time and attendance, benefits administration, HRMS, self-service, and recruitment duties. Since the initial engagement, their relationship has expanded cross-border, as well, to include HR services in the U.K. and Ireland. The experience has so impressed McMills that he is helping to spread the gospel about HRO to his counterparts within NXP, as well as anyone else who will listen.
The deal is proving to be an unusual, end-to-end triumph. With 1,700 workers in the U.S. (five in Canada), the organization is clearly a mid-market buyer. But as part of the larger NXP group, its workforce accounts for a small percentage of the company’s total of 37,000 employees. Under an autonomous structure, the North American unit is responsible for its own HR services, as are the other units around the world.
What sets NXP apart in today’s HRO mid-market isn’t that it was able to implement its end-to-end deal in a mind-bending four months, or that it has chosen the same provider to deliver both HRO and recruitment services. And the fact that it chose outsourcing over building internal capabilities is hardly groundbreaking. To hear McMills and his HR leadership team recount their journey, it can only be summed up as an unequivocal success, despite a few minor hiccups here and there. Buoyed by documented cost savings, improved service quality, and expanded manager and employee self-service, its outsourcing deal has become an all-around hit at NXP, and that’s news you don’t hear every day in this market.
“We’ve only had a little over a year of experience [since go-live], but what I’m pleased about is that we’re getting the same level of involvement and attention from Ceridian as early on,” said McMills.
To hear the NXP HR leadership speak about the engagement, you can’t help but detect an inflection of astonishment at the fact that implementation unfolded so seamlessly. Facing a four-month deadline, McMills said HR was under tremendous pressure to ensure that, by January 2007, employees would receive accurate paychecks, have access to data online, and count on a provider to support the company’s recruitment needs. So when the services were delivered on time with few of the headaches they had braced for, the HR leaders were pleasantly surprised.
“The biggest concern we had going into it was whether we could make it in four months,” recalled Jim Askin, the director of compensation and the project lead who oversaw the HR services engagement. (RPO was later awarded to Ceridian under a separate contract.)
Having grown accustomed to the world-class shared services of Philips, NXP was like any other spin-off when it came time to wean itself from its parent: nervous, in need of guidance, and unsure of its future. Over the years, HRO Today has documented the outsourcing journey of numerous spin-offs—some successful, some disappointing, and all of them challenging and unique. The common denominator, of course, is that they were all able to rise on their own, with a lot of help from the service provider.
A Volatile Market
As part of Philips, the semi-conductor business was subject to the volatility of the high-tech industry. In the U.S., NXP has seen its fortunes diminish over the past 10 years, as facilities closed and headcount was reduced from 3,500 to 1,700. Because of the volatility, Philips made the decision that semiconductors were not a core business (its three main lines include medical, lighting, and consumer electronics), although it produced many semiconductors used in its core lines.
As the spin-off unfolded in 2006, the global NXP entity decided to autonomously operate its business by region. With the U.S. one of its smaller markets—only 10 percent of sales are made here—the unit was given free rein in terms of how it wanted to provide HR services. Even as other units retained in-house capabilities, McMills and Askin decided HRO would give them the flexibility and prompt service delivery they needed.
“To build up headcount for us at the time didn’t make sense,” Askin said.
He pointed out that an outsourced solution could accommodate either a retrenching or a robust future for the business. Even as it discarded some operations, NXP made two acquisitions to complement its core offerings, and Askin said when it came time to choose a provider, the company made it perfectly clear to its suitors that it had ambitious plans for the future.
Like any HRO buyer, NXP needed its vendor to be flexible, meet a rigorous deadline, and offer all the benefits that an outsourced solution should: reduce costs, make HR more transparent, and empower its retained staff to be more strategic in their functions. But choosing the appropriate provider was no small task, considering all of these requirements. Furthermore, differentiating a commercial pitch from substantive promises required the usual due-diligence steps, a time-consuming process.
NXP turned to consultant Watson Wyatt to help source and implement the outsourcing deal. Although many mid-market HRO buyers typically try to go it alone, McMills and Askin said they felt, given the time constraints and the complexity of NXP’s needs, leveraging the experience of a consultant was necessary. In retrospect, they said it helped the company meet its deadline.
“When we went through the RFP, we engaged a consultant, and that saved us valuable time,” McMills said. “I don’t think we could have gone through it with the same confidence [without Watson Wyatt].”
As part of its vetting process, NXP first considered eight vendors before reducing the group to three finalists. In considering each, the company weighed their capabilities, technology, costs, and, most importantly, quality of customer services. Askin recalled that Ceridian excelled in the last requirement, which put the company over the top in the selection process.
“In negotiations, we said, ‘We need your A team,’ and they really delivered,” Askin added.
Even as Askin was finalizing the company’s selection of an HRO vendor, his counterpart in recruitment, Gil Moncivais, HR director of staffing, was putting out requests for proposals for its RPO services, which had also been handled by Philips’ shared services before the spin-off. Moncivais said that he originally envisioned outsourcing only administrative functions and retaining in-house recruiters. But just as the company had sought a scalable HRO solution, he later came to feel that an end-to-end RPO model would better serve NXP’s needs. Considering the company had retrenched during the past few years, he said he was concerned with having to lay off recruiters should hiring drop sharply. So the decision was made to outsource the entire spectrum of recruitment services—ranging from candidate sourcing to offer letters.
When outsourcing buyers consider RPO service providers these days, Ceridian typically is not at the top of the list. In fact, its recruitment services are located in Canada, unlike most of the larger standalone service providers, which are U.S.-based and offer on-site support. Although NXP also put out RFPs to other RPO vendors—including one of the largest in the industry—Moncivais said he was impressed by Ceridian’s partnership approach and that it offered financial rebates for missed service level agreement goals.
“Ceridian was the only vendor to put in financial incentives for performance,” Moncivais recalled. “That was very unique. None of the other vendors really did that in an upfront way.”
Indeed, financial incentives and rebates based on performance were a cornerstone of both the HRO and RPO deals offered by Ceridian, and cynics might dismiss such a move as simply buying the deal, but to the NXP team, it meant something entirely different.
“They were willing to put some skin in the game,” said Moncivais, who added that the fact Ceridian had first won the HRO business had little impact on the RPO contract.
Given a short implementation window, HRO providers often stumble through the process and wipe out any optimistic outlook their clients may initially have. McMills, however, attributes NXP’s success to a seasoned internal team (although none had ever been involved in outsourcing end-to-end HR and recruitment services), the guidance of Watson Wyatt, and the work of its service provider. A pivotal effort was to establish clear, common goals and service level agreements from the start.
For instance, on the payroll and HR services side, Ceridian offered NXP a series of rebates if it met nine milestones. These were to encourage the buyer to meet implementation deadlines that would then allow Ceridian to meet its own go-live date. Calling the rebates “substantial and aggressive,” McMills pointed out that his group was able to achieve all the milestones, which he said pleasantly surprised Ceridian.
“They (Ceridian) said ‘If more companies would be as responsive as you were, we would have fewer disruptions,” said McMills, who added that go-live was complicated by the fact that it was around the time of open enrollment.
NXP was offered other financial bonuses, as well. According to Askin, the company pays 18 percent less for HR services than it paid to Philips shared services.
While rebates and cost savings sweetened the deal, a more important benefit of the contract came later. By rolling out full-function manager self-service as part of the contract, NXP is enabling its managers to access data instantaneously, make decisions more quickly, and help the organization become more nimble. Under the Philips shared-services model, McMills said HR often was an extra step in the decision-making process; today, managers execute HR transactions, and internal HR staffers simply provide governance.
Under its recruitment outsourcing contract, incentives were based on several key measures of success, including time to hire/fill, customer satisfaction, and requisitions filled by external agencies. With 271 hires made last year for NXP, Ceridian was obligated to fill 95 percent of positions within 58 days. Similarly, customer satisfaction needed to hit 85 percent. Moncivais said Ceridian slightly missed the KPIs, but he was nevertheless happy with overall performance.
“They’ve given us new ways to find and source candidates. They are pretty innovative from a sourcing perspective,”he added.
Turning to Standards
It’s a common industry truism that successful HRO engagements are built on partnership, and NXP’s case was no exception to that rule. While Ceridian has more than two dozen end-to-end HRO customers, the NXP engagement nevertheless presented new challenges and opportunities to the provider. Keith Strodtman, general manager of Ceridian’s outsourcing business, outlined these as the abbreviated timeframe to go-live, that his company did not have a semiconductor client in its portfolio previously, and that it was using new standards to implement services put Ceridian in unfamiliar territory. However, he credited the adoption of the new standards with a more seamless implementation and said it would be used with future clients.
“The standards sped up implementation. We walked in with a template that was nearly completed and then configured it from there. It helped with the decision-making for the client,” he added. “For us, it’s a more consistent look and feel to deliver the services more reliably.”
Efforts to standardize HRO service delivery have been ongoing in the industry for more than a year, and providers are recognizing the efficiencies that standardized processes offer to new implementations. Even as organizations such as the HRO Association build on these standards, others such as Ceridian are already putting their own set to work. Strodtman explained that Ceridian’s new standards better define processes for services such as payroll, benefit administration, HR, and others.
“The market in general is getting smarter about that kind of standardization. They know it will improve reliability, costs, and the services they receive,” he said.
Standardization and process optimization through Ceridian were key improvements over the process established at Philips shared services, the NXP team noted. For instance, Askin pointed out that before the spin-off, HR worked with many legacy items. Just in reporting, it had 300 custom reports. Today, the company uses just 37 reports, and that number may grow to no more than 60 in the future. “It was a chance to clean house,” he added.
Indeed, HRO is meant to help any organization, especially start-ups and spin-offs, to start fresh, hampered by none of the legacy systems or processes that mired established HR departments. In shifting to Ceridian’s HR platform, Askin pointed out that NXP was able to rationalize and build a cleaner process as it left its PeopleSoft platform behind. While he lamented that some aspects of the provider’s system are less than robust—for instance, he pointed out that a number of transaction points could be automated—he praises Ceridian for being receptive to his and other clients’ input. In fact, Askin is a member of Ceridian’s customer advisory board and regularly weighs in on process improvements.
Askin said he sees the real value of outsourcing now: being able to deliver strategic value to the organization. When he first briefed the HR department of NXP’s intention to outsource, there were skeptics and concerns. To win them over, he framed the dialogue in a new light.
“One of the things we really did in drawing the picture for our HR community is to say ‘Realize what your role is going to be.’ We talked about being an HR business partner for years, and here is our opportunity to do that. You’re not spending your time on managing data. You’re able to spend your time on working with your business manager,’” he noted.
|An Executive’s Three
Key Success Factors
| Although he is the chief executive for NXP’s North American region, Randy McMills was also hands-on in overseeing the implementation of its HRO deal. Having witnessed the process for outsourcing HR services, he offered up the C-level view of three keys for ensuring success.
• Align yourself with what you want to be known for and what you want to do. McMills advised that you decide early which core services you must have internally and what can be outsourced. Not only did payroll, benefits, and HR administration not fall into its core competencies, but NXP also realized recruitment could be better handled externally. “Focus on the needs that focus on your business,” he added.
• Empower employees so they have “skin in the game.” McMills said employee engagement is critical, and holding regular meetings to hear what the rank-and-file HR, as well as other employees have to say, is absolutely necessary. In rolling out manager self-service, the company was able to win buy-in quickly by engaging them early in the process.
• Have a clear end game. The team members that are responsible for implementation must all understand their goals. He likened it to a group of firefighters who arrive at a burning house. They are clear on what to do—they don’t need to be told to connect the hose and turn on the water. Similarly, HR and other stakeholders should be clear about how to proceed.