Multi-process HRSourcing

The Outsourcer Outsources

When corporate spin-offs occur, orphaned businesses are often left scrambling to fend for their own HR services. In PHH’s case, severing ties with former parent Cendant meant HR leaders needed to figure out how to run before it could walk because of a hard deadline. For the two SVPs at the mortgage and fleet management business, outsourcing became their savior.

by Andy Teng

Rita Ennis and Peter Au-Yang were casual acquaintances when their employer, PHH Corporation, was wholly owned by Cendant Corporation. Ennis, a senior VP of HR for the company’s fleet management business known as Arval, knew of Au-Yang, the senior VP of HR for the company’s mortgage unit, but their paths rarely crossed at Cendant. Thanks to corporate pandemonium, however, their lives were smashed together. And if not for the saving graces of HRO, the two say they may very well have lost their sanity.

Don’t get the wrong impression: neither Au-Yang nor Ennis believe that end-to-end HRO is a miracle solution for HR transformation. And if they had to do it all over again, they’d probably make some major changes to their outsourcing approach and implementation. Nevertheless, HRO emerged as the most viable solution at a critical time during the company’s spin-off from its parent, whose recent divestiture has banished the Cendant name into oblivion. And echoing the sentiments of many buyers these days, Ennis and Au-Yang say they are committed to embracing HRO, warts and all.

GOING ON GUT INSTINCTS
Within the pages of HRO Today, you’ll find sage advice from practitioners, providers, sourcing consultants, and anyone else with intimate knowledge of HRO. Take the opposite of what they would advise buyers, and you’ve got the PHH story. The company was given just three months’ notice to find an HRO vendor. Then it scrambled with provider Ceridian to roll out a bunch of essential HR services under similarly tight deadlines, starting with open enrollment last year. With neither the help of a sourcing advisor nor prior end-to-end outsourcing experience, Ennis and Au-Yang embarked on a nerve-racking, stomach-churning journey that is still ongoing today. Though not at steady state yet, the HRO implementation is instrumental in keeping PHH’s 7,500 employees paid and safeguarded with benefits.

“Time was terribly working against us. Both Peter and I are anally organized people, but we were not able to impose that sense of organization on that process. We had to go a lot by gut instincts,” said Ennis, who shares the HR leadership role with Au-Yang at PHH.

The tale of PHH’s outsourcing journey serves as no roadmap for the uninitiated. Au-Yang and Ennis weren’t given optimal conditions under which to carry out their mission, and at the time of their decision to outsource, the HRO market itself was—and continues to be—maturing. However, their situation is not unique because spin-offs are a regular occurrence in the corporate world today. These orphans, forced to figure out their own HR solutions, are finding outsourcing an expedient and less costly alternative than a build-out.

When corporate divestitures occur, strange things happen to good people, and real leaders emerge from these episodes bruised, wiser, and generally intact.

Ask Au-Yang and Ennis how they’ve fared through the journey, and they might describe their lives in those terms. As heads of their respective HR departments, they’ve also grown not only wiser but also closer, working hand-in-hand to reconstruct the services that used to be delivered by Cendant. As co-leaders of HR at PHH, the two needed to not only replace the services that Cendant offered, but also figure out each other’s role in sharing HR leadership. Both said they were fortunate their management styles are complementary rather than adversarial. Having grown so close, the pair is sometimes referred by staff as Peta, a morph of their first names.

But their relationship hasn’t always been so cozy; in fact, when the marching orders came down that PHH Arval would be spun off with the mortgage business, Au-Yang was caught off guard. “We would be spun off with whom?” he recalled saying. With little knowledge of each other’s business unit, Ennis and Au-Yang were sent scrambling to find a solution to a common problem. Outsourcing was immediately considered.

For some organizations, outsourcing is a real foreign concept. It requires not only the commitment of HR leaders but also buy-in at the C-level. This wasn’t necessary at PHH because the company itself was in the business of providing outsourced services.

On the mortgage side, PHH is one of the largest private-label mortgage outsourcing providers, selling its products through 3,500 bank branches and tallying $59 billion in originations. The company not only originates loans but also processes and services them. The Mount Laurel, New Jersey-based business unit provides mortgage services to financial institutions, real estate brokers, affinity groups, credit unions, corporations, and government agencies.

The Arval unit provides outsourced fleet management throughout the U.S. and Canada. Its services include accident services, expense reporting, fleet administration services (FAS) outsourcing, financing, maintenance, and others (think HRO services for cars instead of employees). The company claims to be North America’s second-largest provider of commercial fleet management services.

The two businesses were separate units of Cendant, the disgraced conglomerate that under former chief executive Walter Forbes paid $2.9 billion in settlements in one of the largest securities class action lawsuits ever. Just recently, Forbes was convicted of conspiracy and filing false reports with the Securities and Exchange Commission (SEC). Shareholders in 1998 lost $19 billion when it was discovered that Forbes had overstated earning.

The Forbes-related legal mess was the main reason for the spin-offs, which included not only PHH but also a number of other Cendant businesses including travel, relocation, hospitality, and real estate. It’s also why the Cendant name will now be brought up only in corporate trivia discussions since all of the units have adopted new identities. While getting out from under the Cendant stigma was a positive development for PHH’s two main businesses, it also meant they needed to quickly establish HR services of their own.

DEMONSTRATING OUTSOURCING AT WORK
Outsourcing wasn’t just an expedient solution to the problem, Au-Yang recalled. Besides facing a tremendously tight deadline that required PHH to establish its own HR services, he and Ennis said they needed to demonstrate the company’s commitment to outsourcing.

“We really did not have the luxury to think about it too, too long. We were told that December 31, 2005, would be absolutely the last day that Cendant would support us,” Au-Yang recalled. “The decision to outsource rather than build up and invest internally was driven by a certain comfort level that both of our companies (have with outsourcing)…. If we were to demonstrate to the marketplace our comfort level with outsourcing, then we thought we should seriously view that as our primary alternative.”

But even the outsourcer faced internal resistance, especially because employees were accustomed to Cendant’s robust HR services. Unfortunately for Ennis and Au-Yang, it was a luxury no longer available to PHH employees. Instead, everyone in the organization had to face up to the fact that the company was starting, while not from scratch, with much fewer resources. That meant both the existing payroll and benefits platform as well as expert knowledge would not have been available as of the beginning of this year. While top management was open to outsourcing HR services, some of the rank and file were less enthusiastic.

“It wasn’t a barrier from the philosophical standpoint with our senior executive levels,” Ennis said. “There still was, of course, a little bit of a barrier from employees. If you ask their opinion, their preferred way of getting service is to have a drop-in center right in their building.”

Employee resistance proved to be insignificant. A bigger challenge, though, was finding the right provider and rolling out the service. Although PHH is a solidly mid-market buyer—analysts peg this segment at 1,000- to 15,000-employee organizations—and looked to outsource a number of services, it opted not to use a sourcing advisor in its search. Advisors in many HRO deals to date have been instrumental in helping buyers pare down the field of qualified candidates as well as help manage buyer expectations. Although Au-Yang and Ennis said they received valuable advice from HR leaders at its parent company and from another Cendant spin-off, they concede that an outside advisor could have been helpful at times.

With little prior enterprise HRO experience—Cendant had always selectively outsourced some HR functions but never through an end-to-end contract—Ennis and Au-Yang said they relied on Ceridian for much of their HRO education. While they felt the vendor provided comprehensive insight into the process and the tactical knowledge they needed, they also echoed one pivotal complaint: the build- up of unrealistic expectations.

It’s a common discrepancy between buyers and providers, and each contributes to the divide. Ennis conceded that her own inexperience with end-to-end HRO led her to anticipate a less complicated and quicker rollout than what took place. At the same time, she lamented that Ceridian did not make it more clear to her and Au-Yang that reaching steady state was more difficult than originally thought.

“There were times we wished that we had some additional options, some piece of  arcane knowledge, some extra time,” she said.
Ennis and Au-Yang said this was especially applicable at the beginning of the process, when they were trying to understand how expansive the HRO scope needed to be. Because PHH was starting nearly from scratch, it not only lacked the infrastructure but also the in-house technical expertise. And as they moved along in the exploratory stages, they realized just how extensively one set of processes was entwined with another.

“I had a fairly narrow focus in the beginning, which was to get a competent payroll provider, get all the tie-in to the financial system such as tax filings, so on and so forth,” Au-Yang recalled. “As we started peeling back the onion, we said, ‘This process touches this other process. Who does this?’ Again, that corporate structure just wasn’t there. That’s when Rita and I had the epiphany of ‘It’s not just payroll, tax filings, or some of those core services, but where do our employee groups call, where do they touch, how will it link to timekeeping?’ ”

AN "AGGRESSIVE" ROLLOUT

Despite the complexity, the PHH leaders said Ceridian was committed to their timeframe, even though company officials said ideally this type of engagement typically takes a year to roll out. In addition, PHH required a lot of customization of service delivery, which further complicated the ramp-up. Ceridian officials said it was a challenging implementation indeed.

“It was a pretty aggressive timeframe. They were moving off the Cendant infrastructure. We had to completely replace their HR payroll system,” recalled Keith Strodtman, general manager of HRO for Ceridian, adding that the entire rollout needed to be completed within eight months.

Another difficulty was the fact that PHH brought together two disparate business units, each with a separate set of payroll-benefits processes. Even among spin-offs, this was a unique problem requiring additional customization.

What the savvy HRO buyer will say is that optimal HRO engagement is a blend of standardized and customized services—customized because each business has unique requirements and standardized to reduce rollout time as well as costs and complexity. Most enterprise deals signed so far have been heavily weighted on customization, but providers such as Ceridian say they are striving to put buyers on standardized platforms.

“One thing we have been developing and didn’t have the advantage with PHH is developing standards for all the processes, so you come in with a pre-populated template. That helps with the timeframe,” said Jodi-Hayes Roth, account executive at Ceridian. She added that as providers achieve greater standardization, implementation timeframes will continue to shrink.

Strodtman added that while providers and buyers need to work in tandem to achieve a more standardized and efficient implementation process, he also said providers are beginning to emerge as the driving force behind standardization, which will help buyers reach a steady state more quickly.

Reaching a steady state at PHH is taking some time, and Ennis said the company at times still struggles with service delivery issues. However, the rollout did meet their deadlines, with open enrollment taking place in October of 2005, followed by time and attendance going live in mid-December of last year, and the processing of the first payroll on January 13 of this year (Au-Yang pointed out it was Friday the 13th).

Nothing tests HRO provider-buyer relationships like a short implementation timeframe, and this engagement has had peaks and valleys. Ennis said open enrollment went so well initially that she expected the rest of the rollout would be equally painless. Also, Ceridian’s employee assistance program (EAP) proved to be a hit among employees. But when payroll was being implemented, things didn’t go as smoothly, and both sides engaged in extensive discussions to problem solve.

She added that open lines of communications are critical to any engagement, especially in PHH’s circumstance because they were so unfamiliar with HRO implementation.

Similarly, Strodtman said one of the clearest lessons learned by Ceridian is that clients increasingly are looking to providers for direction.

 “The biggest thing we have been learning is our clients are looking for us to be the voice of best practices and standards. We just continue to build on that feedback,” he said. “We use Six Sigma and have tried to get more aggressive by going out and getting voice-of-customer feedback.”

CHAMPIONING THE CASE
Even though it’s been nearly a year since payroll was first rolled out, both Au-Yang and Ennis said they continue to champion the HRO deal internally. Sure, some days employees still long for the days of the Cendant umbrella, but the pair said considering how little time they had to work with, outsourcing to Ceridian proved to be the best option.

“One of the things I’ve been challenged with in terms of communicating internally is to avoid comparing with what we have today with what we had under Cendant. That’s not the standard,” Ennis added. “The standard is the choices that we could have made after the spin-off. Rather than moan about what we don’t have, what I keep trying to do is to talk about what things would have been like if we had tried to build it internally or if we had selected a less capable partner.”

Au-Yang is not so hypothetical. For him, the question of whether embracing HRO was the right move can be answered by its impact on overall company performance.

“Right now, as mortgage companies are entering a down cycle, we need to provide the best available service and most critical resources to growing our business,” he said. “If we can maintain being an employer of choice and have an engaged and happy workforce, it [the company] tends to provide better service. We are depending on Ceridian’s expertise to keep our workforce well-served. That helps me and my HR team to ensure an engaged and happy workforce and keep them focused on servicing our clients.”

And that remains one of the main drivers behind HR outsourcing. Sure, cost savings often start the conversation about outsourcing, but HRO’s real value may lie beyond the bottom line—it’s about giving tools that aid all employees. Truly effective organizations understand the necessity of retaining top talent, and keeping them happy is a clear strategic imperative.

Tags: Multi-process HR, Sourcing

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