Embracing outsourcing is never easy, but doing so in the middle of a major acquisition can really put HR through the wringer. Even so, Whirlpool is hoping that its transformative journey will help HR emerge sparking clean.
To undertake a multi-tower HRO outsourcing deal is no small task, but try taking it on for more than 80,000 employees. To make life even more difficult, roll it out while you’re in the midst of your largest global acquisition ever. Kind of like moving a refrigerator on your back, huh?
While moving refrigerators is what Whirlpool does best, what isn’t second-nature to the appliance maker is HR transformation. And it certainly didn’t help that the company decided to take on such an arduous task while swallowing up rival Maytag. To lift its transformative program off the ground, Whirlpool needed the extra hands that only HRO can lend, and last year it chose Convergys to be the muscle.
You might think that bringing in HRO during the company’s biggest buyout ever might seem, well, a bit suicidal, but Whirlpool HR leaders insist that adopting outsourcing during such a transitional period is an ideal time. And after undergoing the experience, they wouldn’t change the timing at all.
Before you conclude that company execs have been standing near an open bottle of laundry bleach for too long, hear out their logic. Because the now-12-year HRO deal with Cincinnati-based Convergys—which is providing everything from human capital services to HR administration to compensation and benefits rewards—puts the appliance giant on a common global HR platform and offers a myriad of service improvements over internal services, on-boarding the Maytag workforce as part of the rollout means they undergo a major change only once. Otherwise, if they were brought aboard first and then took part in the HRO rollout, it would have been more disruptive.
“You could imagine with everything going on, with our acquisition that it would be easy to conclude that the risks are too high to go though with an outsourcing project,” said David Binkley, senior vice president for global HR at Whirlpool Corporation. “We asked ourselves, ‘What are the risks, does the timing make sense, and can you do outsourcing during an integration?’ We said ‘Let’s put the right processes in place with the right people in place.’ I am convinced that we would not have been able to do the people integration without it. We had a very successful integration effort. Our effectiveness in the acquisition and ultimate integration was enhanced by the HRO work we were doing.”
To understand why Binkley thinks HRO is pivotal to Whirlpool’s HR transformation, you have to understand the company’s global nature. With a market presence in more than 170 countries (and you thought there weren’t even 170 worldwide), the appliance giant has a truly dispersed workforce. In fact, today employees are located throughout 40 countries.
With a corporate history of organic growth, joint ventures, and acquisitions, the company that was started in 1911 in Michigan accelerated its international reach in the 1980s and 1990s, growing its presence in Europe, Asia, and Latin America through acquisitions and partnerships.
These included key moves, such as setting up a joint venture in India and the Netherlands in the late 1980s, followed by aggressive efforts to gain market share in South American and Asia in the 1990s. In 1999, it established a global innovation program to ensure that product development was occurring throughout its operations worldwide. To do this, the company put strong R&D talent in numerous facilities, further reinforcing its international goals.
Along the way, the company solidified its presence in the marketplace with brands such as Whirlpool, KitchenAid, Brastemp, Bauknecht, and Consul as well as private labels such as Sears’ Kenmore. And with the Maytag purchase, it has well over 50 percent of the washing machine market, a fact that had given the U.S. Justice Depart pause before it gave its blessing to the merger in March.
However, Whirlpool’s aggressive international expansion goals, while great for reaching new and developing markets, also created disparate systems and processes. Any HR leader who has experienced a major acquisition can relate to the headaches involved, but try relating to a string of them during two decades. With its workforce dispersed across so many nations—some of which are home to only a handful of Whirlpool employees—HR leaders from all walks of life can probably understand why transformation was necessary.
So necessary, Binkley said, that without the HRO deal with Convergys—signed in July of last year—Whirlpool would be severely hobbled in its growth strategies. While the typical benefits of outsourcing can be found in Whirlpool’s deal—access to best practices, cost savings, technology upgrades, and other good stuff—the key driver was outsourcing’s ability to accommodate growth.
“We are a company that is growing. We have had strong year-over-year growth for many years,” Binkley stressed. “Just look at our organic growth and growth through acquisition. I am absolutely convinced that without investments in our platform, we couldn’t get it done. There’s no question in my mind that we would have been incredibly challenged if we hadn’t started these platform changes.”
Indeed, company officials contended, having a common global platform was at the top of their wish list in engaging HRO transformation. To hear Whirlpool’s top woman in charge of the outsourcing initiative tell it, the Benton, MI-based company was much more interested in gaining a unifying global platform for its 80,000 workers than what many other buyers say is at the top of their priority list: cost savings. Vice president of Total Rewards and HR Solutions Abbe Luersman, vice president, total rewards and HR solutions, and the executive sponsor and owner of the outsourcing program, said as far back as 2004, the company as part of its leadership agenda realized it needed to upgrade its HR platform to offer state-of-the-art functionality such as self-service.
Sure, the company could have made internal investments to reach its goals, but company leaders came to the same conclusion that many outsourcing buyers who went before them reached: HRO saves time and reduces risk.
“Many organizations will try to do this to cut costs. Clearly that was not our primary goal,” she said. ”Our focus was on driving a global platform and having the right global technology solution to support it. One of the things we recognized in HR was that in order to meet and exceed our strategic initiatives we recognized we needed to change our platform.”
While the company operated on an SAP ERP platform, HR was not heavily leveraging it. Instead, it relied on various systems that had been accumulated from one acquisition to another. Over the years, as Whirlpool amassed its businesses throughout all the major markets, the patchwork of HR systems grew more antiquated and less functional for its needs. It reached a breaking point when company leaders looked ahead and questioned whether they could continue operating the same systems. The answer was a resounding no.
The selection of platform is nearly as fundamental as selecting the outsourcing partner, and for Whirlpool it was no different. Because Convergys operates an SAP platform, it was particularly attractive to Whirlpool, which had invested in SAP ERP. For Convergys, having the SAP name behind it was clearly a key selling point to both Whirlpool and other big HRO client, DuPont, which signed its deal last fall.
Operating on a global SAP HR platform will enable Whirlpool to garner the critical information needed to keep its global workforce finely tuned, Luersman said. Managing employees in so many countries requires a Herculean effort, and a global platform will provide the horsepower needed to keep talent management moving forward.
“We have positioned our platform globally for the company’s strategy of growth. That is the largest benefit. It doesn’t minimize all those other things [that HRO brings],” Binkley said. “I’m going to have a better, faster, and smarter HR department. At the highest level, I have a platform very supportive of business growth.”
Of course, platform alone won’t win any contracts. For these headline-grabbing deals to occur, the provider needs to demonstrate a fit with the client on many levels: geographical, service capabilities, and cultural. For Whirlpool, Convergys’ global footprint served as a bridge for its global needs. And in some markets where the provider didn’t have a presence, Convergys was willing to invest.
CLASSIC HRO DECISION
Even before it reached the decision of which provider or platform, Whirlpool faced the classic dilemma any large buyer faces when embarking on a transformative journey: buy or build. For Binkley, a Michigan State grad with a degree in business and HR management, the answer was clear.
“The most important reason of why we did this, from my perspective, is we had to get a really clear picture of what businesses we wanted to be in and what processes are truly value-added that we want to retain inside,” he said, adding that in examining its internal employee service center, the company felt it couldn’t justify additional investments. He added that it became clear during fact finding that any capital improvements made today to the center would probably needed to be refreshed a few years later.
The next major decision facing Whirlpool was whether it should employ the “Big Bang” approach—rolling out HRO at all facilities at the same time—or phase it in by region, which the company eventually embraced.
Initially, Luersman said, the company felt the Big Bang approach would have been the most expedient, but then it realized that doing so would mean major disruptions throughout the organization. As a result, it’s taking the outsourcing journey one step at a time.
“Early in 2004, we were still down the track of the Big Bang approach,” she said. “We recognized we were better with a phased-in approach, especially if we were going to succeed with enabling a global platform.”
Convergys went live with the first phase of the rollout in July, with payroll, pensions, and benefits administration delivery in North America. This was followed by self-service a month later. In October, the rollout of services for Europe, Middle East, and Africa (EMEA) will take place, beginning with Germany, Poland, France, and Italy.
It might sound like a typical big, enterprise-wide HRO rollout, but most buyers rarely face the gut-wrenching decision Whirlpool had to make in the middle of implementation: Should the company delay the effort when it decided to make the Maytag acquisition? After all, this was no small purchase. Maytag adds a significant layer of complexity, if not uncertainty. After all, there was opposition to the $2.7 billion acquisition because of anti-monopoly concerns. And for a brief time, it was unclear whether Whirlpool would be the winning bidder because of competing bids from companies such as China’s Haier Group.
Luersman explained that the decision to keep the rollout on schedule makes sense because even though there was more to integrate as a result of the buyout—Maytag had 20,000 employees and about 12,000 retirees—the company could roll it out for the entire organization when it was all said and done.
“Most people would say ‘How can you do an HRO and an acquisition at the same time?’” she pointed out. “I would say it’s the best time to do it. We were able to complete the appropriate due diligence on Maytag and shape the ideal future state.”
True, but that still doesn’t take away the complexity. Consider this: Maytag—with annual sales of about $4.7 billion through household brands such as Maytag, Hoover, Jenn-Air, Amana, and others—had more than 70 benefits plans alone. Furthermore, it already provided employee self-service and was operating on the Cyborg platform, which had been acquired by Hewitt.
Furthermore, the acquisition would dramatically change the original scope of the Convergys contract, putting more stress on a provider already facing a complicated HRO implementation. Changing the scope so fundamentally meant the companies needed to reexamine the terms and make sure that Convergys could handle the added burden.
To Convergys’ credit, said Binkley and Luersman, it took on the expansion with few problems. This involved expanding the original terms, including stretching the deal from 10 to 12 years.
The provider was able to do this, in part because of its transform and transfer model, said John Gibson, senior vice president with the company’s Employee Care division. He noted that by first aligning Whirlpool’s HR operations before moving them to Convergys’ service centers, the transition is cleaner.
“I don’t view it (the acquisition) as a big wrench that was thrown in,” Gibson said. “At this point [March of this year], we had already done a lot of the transformation and integration.”
Binkley added that it was important to clean house before outsourcing. Although Whirlpool could have subscribed to the “my mess for less” theory of outsourcing, he said Convergys’ transform and transfer approach was much more effective.
“You need to get your processes in order and have people accountable for those processes. You are forced to do the hard work required to have effective processes in place,” he said. “We did that and we continue to do that.”
To ensure the outsourcing effort wouldn’t fail, the companies set up close communication channels. In addition to internal teams working on all the towers outsourced, regional hub groups were set up to oversee change management and governance. Teams from each region meet weekly, with the governance committee meeting once a month. To ensure executive leadership were kept informed, a steering committee includes Binkley as well as the company’s CFO, regional VPs of HR, the CIO, and rotating business leaders. Convergys also has corresponding teams in place to help to ensure the rollout is as least problematic as possible. Luersman said there was initial internal concern that governance was being made too complicated, but it became clear that the current network of working committees and leadership teams helps .
As part of that effort, Convergys is helping Whirlpool fine-tune its set of metrics so it can better gauge whether the provider is delivering as promised. Whirlpool had set up its own metrics but is changing them to reflect the transformation work.
While Whirlpool leaders say they are satisfied with the outsourcing work so far, they are also cognizant that only partial rollout has taken place. As the companies work towards full implementation, those same leaders say they must continue to adhere to the processes that they have so carefully set up. Only then will Whirlpool achieve its ultimate goal: rolling out a common global platform for all of its employees.
“The benefits of HR excellence will allow us to move the value chain up and focus on talent management,” Binkley added. “”There is no doubt in our minds that we will continue to upgrade the capabilities and other high-impact people processes.”
