When chemical giant DuPont set out to transform its HR model, calling in a service provider wasnât its only choice. But After weighing all the options, HR leaders realized outsourcing was their best, and that set in motion a $1.1 billion, 13-year deal that has the entire industry paying attention.
“The Miracle of Science” might be Wilmington, DE-based DuPont’s slogan, but it’s the strategic value of people these days garnering the attention of the global chemical giant. That’s because last November it entered into one of the largest multi-tower HR outsourcing deals ever, and the company’s decision to spend $1.1 billion over the next 13 years will surely become a remarkable chapter in the book on HRO.
Few corporate names reach more consumers around the world than DuPont, whose products include everything from Tyvek (used as protective wrap on homes and as gowns in the operating room) to paint and coatings (applied on cars, buildings, and many other goods) to well-known Corian and Teflon brands (found in most kitchens). Posting 2004 sales of $27.3 billion, the company operates in more than 70 countries and employs more than 60,000 employees. With a vast network of HR processes to manage its enormous workforce, it was no surprise that DuPont’s deal was so sizable.
Partnering with Cincinnati-based Convergys—which in 2005 also landed another whale-size account in Whirlpool—DuPont essentially threw everything except the proverbial kitchen sink at Convergys, contracting the provider to take over organization and employee development; workforce planning and deployment; compensation management; benefits administration; payroll; integrated health services; recruiting; employee and labor relations; HR process support administration; work environment support; performance management; employee data management; vendor management; and HR consultative services. DuPont said it expects the accord will help the company cut HR costs by 20 percent, with savings eventually reaching 30 percent after five years. (The company declined to say how many layoffs will result from the agreement.)
The deal will surely shake up the 200-year-old company, a well-recognized corporate name with a pro-worker image. While the Convergys deal is not the first time DuPont has dabbled with HRO—company officials say they have outsourced various functions for the past decade—this accord is by far the most sweeping in its history.
But to hear Jim Borel tell it, this is not a tale about outsourcing. A tall and striking figure, the senior vice president of HR said outsourcing is just one component of DuPont’s HR transformation. The goal, he emphasized, is to simplify, standardize, and automate HR processes so employees spend less effort on administrative and more on strategic functions. Moreover, the company wants to provide transparent data so management at any level can make better decisions.
“It’s not just about outsourcing. This is really about our HR transformation and putting in place what it takes for HR capabilities to help businesses win,” he said. “A piece of that is standardizing and simplifying processes, a piece of that is the automation, and a piece of that is the partnership with Convergys to really help us through that journey. It’s about helping DuPont’s businesses to win.”
REASONS TO OUTSOURCE
Winning is something DuPont has not been able to do recently. In January, the company again issued earnings warnings after failing to meet analyst expectations. This occurred after the company missed targets last year as well. Some of those analysts have publicly called for the company to more aggressively cut costs to help revitalize earnings, which have been ruffled in the past year by higher raw material costs and production disruptions as a result of the two major U.S. hurricanes.
A renewed focus on profits may be one reason why management is squarely behind the outsourcing push. Cutting costs at a time of weak earnings makes sense, but company officials say savings is only part of the reason. Besides, added Ernie Lareau, a director in DuPont’s HR department and one of the key architects behind the outsourcing deal, the company had alternatives other than outsourcing to achieve the savings. These options included transforming internally, establishing a provider business, or further expand a shared-services center in Spain. So, even though outsourcing holds the promise of savings, other choices did as well.
“The real issue for us was the value we were going to get from a partner, someone who was going to help us with the transformation requirements that we had, to take a fragmented set of processes from around the world and simplify and standardize them globally and implement them globally on SAP HCM (human capital management software),” he said. “Most people can give you competitive pricing. The real differentiator is who is going to be our transformation partner, and do they have the skills and capabilities to take us where we want to go.”
Indeed, enabling DuPont’s HR department to transform itself is no small task. Its 60,000 employees—speaking scores of different languages—pose a formidable challenge: how to standardize and simplify all those processes in more than 70 countries while remaining accommodating to their needs? Moreover, with a corporate history stretching 200 years, cultural shifts are akin to a sea change. It’s a problem management realized from the beginning.
So, to plan for the transformation, Borel, Lareau, and their team did what every good manager does to build a case for change: they collected lots of data in a highly disciplined manner. The campaign was applied with Six Sigma rigor and helped the team to listen to, analyze, and understand the needs of the employees. Gathering external benchmarks, examining best practices, and weighing all the options gave the HR leaders a clearer roadmap of the paths available for reaching the company’s lofty goal of simplification, standardization, and automation. It also helped executives better understand why transformation was necessary.
What the HR team found was an organization mired in transactional services. According to Lareau, the company operated in a very traditional model, with only about 10 percent of HR’s energy fixed on policy and strategy; most of the time, it dealt with administrative and transactional issues. What senior leaders wanted instead were clear HR processes that offered up critical data so that DuPont could better manage its human capital to meet business needs.
For instance, Lareau pointed out, if the company plans to expand its business in China by a predetermined amount, HR should know average revenues per sales employee for that market. Armed with this data, it can better target the ideal number of workers to hire to help the business reach its sales goals in the budgeted timeframe.
“Our view was how do we get to [a state] where our people are driving strategic and policy-setting activities and are strategically supporting the businesses. So how do we get our HR leaders with our business teams understanding what the business needs are, and then having access to the data information to provide strategic support in the business plan in the area of people or human capital management?” he noted. “So we were looking for our leadership to focus on policy and strategy planning supporting the businesses with a minimal effort on the administrative service-delivery aspect.”
TWO-YEAR ROLLOUT EFFORT
Most companies that have embarked on the HRO journey understand these are the same questions they’ve also posed in the past. For DuPont, however, the answer didn’t come as easily. Because of the massive scale of its transformation—the company said it will take two years to implement the outsourcing accord—there were many, many more considerations as it weighed its options. HR leaders took comfort in that its shared-services center in Spain emerged as a model to which it could emulate on a global scale. The center began operations some three years ago (planning on it started five years ago), and its success showed that DuPont was capable of achieving realignment on its own. Still, the burning question remained: did the company want to take on transformation on its own or with the help of a partner. Management went back to the basics.
“One of the considerations we said was ‘Would we consider doing this and becoming a provider?’ We quickly concluded that it was not core to DuPont and we would not go there,” Lareau recalled, adding that the company decided to “test the marketplace and find out if there are other people with skills and capabilities to provide these services and capabilities to DuPont that would allow us to focus our resources on higher-priority items within the corporation.”
Borel added that two key factors stood out in the decision to outsource: leveraging the knowledge of an experienced provider who has worked with multinationals and reducing the execution risks. “Having somebody who has been through that with a number companies is going to be a huge help,” he said.
Contrary to perception, DuPont’s decision to embrace outsourcing on such a grand scale did not signal a shift in culture. With some services already outsourced over the past decade, HR had experience with dealing with third parties. Doing so on such a massive scale only integrated those services under the auspices of Convergys. Furthermore, the decision to automate would give employees the same self-service tools, regardless of whether it was implemented internally or externally. Even in instances when employees needed the “high touch” of an HR specialist, a seamless transition to a service provider would ensure that workers get the same attention as they did under the old model.
So it became clear that the company was better off with outside help, but when you outsource to the scale of a DuPont, even vetting the candidates can be a lengthy process. After examining the key players in the market, the company sent out request for information (RFIs) to 16 top-tier providers in the fall of 2004. The field then narrowed to nine, with some partnering and others realizing they were out of their league. The company further narrowed its selection to four and asked those to submit request for proposals (RFPs). It didn’t announce it selection of Convergys until last November, about a year after it began the selection process.
Myriad factors were considered in the selection process, and much diligence was needed to ensure DuPont chose the right partner. DuPont also looked to the expertise of EquaTerra as its sourcing advisor. Borel said choosing the right partner was critical to a successful outsourcing effort because the biggest risk of outsourcing, he cautioned, is making the wrong choice in the partner and creating a bad-fitting structure. “This is a partnership in such a way that they are really an extension of us … and that’s going to be a key piece of service delivery,” he added.
Another dominant concern is how the partners will handle change management, perhaps the most critical component in the implementation. DuPont’s HR leaders say a lot of effort will go into making sure the organization is ready for change at each stage of the process. However, they also point out having an experienced provider help set the path instills confidence. Still, much of the burden falls on the client to ensure a seamless transition, Lareau said.
“We spent a tremendous amount of time of building out the governance processes. We’ve identified all the processes that take place. We’ve mapped them, and we’ve got individuals in place to be process owners and manage those various processes with Convergys and also with our [employees],” Lareau added.
ALL THINGS TO ALL PEOPLE
Although Borel and Lareau say Convergys stood out among the providers and that they are comfortable with their selection, they also point out that the outsourcing market is still playing catch-up to client needs, especially those of large multinationals. They contended that no major provider can currently deliver all services in all geographies, and servicing a company such as DuPont will stretch a provider’s capabilities.
Even Convergys did not have all the capabilities that DuPont needed for its transformation. In fact, the provider partnered with Deloitte Consulting—one of the original 16 suitors—to ensure a smooth transition. It will look to Deloitte for data porting expertise.
Convergys’ shortcomings, though, are not unique, Borel noted. “If a company went out and looked for a partner that had absolutely everything all around the world already in place and proven, I’m not sure that will ever fully exist,” he added.
So how do buyers reconcile a provider’s skills gap with their own needs? Convergys, Borel pointed out, assuaged his fears with a proven ability to adapt and grow. As a buyer, he wants assurances that the partner can anticipate his growing and emerging needs. Convergys’ track record of acquisitions, as well as its recent wins with large, DuPont-like companies, alleviated some of those concerns, he added.
Indeed Convergys has aggressively sought to fill gaps in its capabilities, said Karen Bowman, the president of the company’s Employee Care business. For instance, the company in 2004 acquired an Asian business to establish a presence in one of the fastest growing markets in the world. A year ago, it purchased a San Francisco-based talent management business to further bolster its offerings.
Bowman said Convergys’ experience is not unique and that across the board major providers are choosing distinct market segments in which to pursue and invest. They understand that large customers now expect providers to offer a broad spectrum of services, and more buyers will only look for vendors that can meet all of their needs.
“I think companies, like DuPont, are looking for a holistic, integrated provider who can itself provide the majority of the continuum of services being outsourced," she said..
Another reason why DuPont chose Convergys was for its strong SAP capabilities, Lareau said. DuPont had already made significant investments in SAP for its own ERP system, so the question of platform was settled by the time RFPs were issued.
Beyond assuring buyers that their contracted needs and metrics will be met, HRO vendors are increasingly being asked to provide value-added intangible which, while fuzzy to define, help solidify a partnership. In DuPont’s case, this is no different. Borel described these requirements as anything that “helps DuPont to win,” and other buyers may have a similarly nebulous definition. For instance, having a cultural alignment builds more trust on both sides, but how can this be expressed in a contract? Often times offering services and performance above contractual obligations defines the value-adds, but Lareau pointed out that Convergys’ data-rich, solution-oriented processes are a dead-on match for DuPont’s own approach. It was just one more merit for the Cincinnati company.
As they look ahead, Borel and Lareau say they are confident that the HR transformation project will be worth the effort. While risks accompany each step of the rollout over the next two years, the rewards will bring DuPont into a new era—a time when HR will become much more strategic than it is today and when business leaders turn to the department for input on business growth.
“We want to be able to do more and be better but were hamstrung because we didn’t have good data or we didn’t have integrated processes. We’re in the process of designing what that future state looks like,” Borel said. “We don’t have robust processes around strategic workforce planning like we wanted, so part of it is establishing that process. And part of that is making sure the business leaders start to understand the potential value that’s there that they haven’t even experienced before.”
And if DuPont can reach all of those goals over the next few year—under the watchful eyes of the industry—it will be able to get back on track toward winning and focusing on its core business of developing the miracles of science.
DISPELLING THE HYPE:
When DuPont HR Director Ernest Lareau, an expert in HR processes, began considering outsourcing options for transforming the department, he had a comprehensive understanding of the marketplace—or at least he thought he did. As the company moved closer to cinching a deal with provider Convergys, Lareau said he realized that DuPont was actually establishing itself as a leader—and not a follower—of HRO practices.
“I had been following the BPO market space for about five years in prior assignments, so I had a view of what was the state of the art in the industry,” Lareau recalled. “And what we found is we thought we were jumping into the middle of it but it turned out we were on the leading edge of it. So that was an interesting perspective.”
Lareau’s experience might have been eye-opening, but it also speaks volumes about the maturity of HRO—providers are playing catch-up to the demands of super-size clients. Even as the provider community touts their capabilities and services, some buyers are discovering, upon pulling back the surface layer, that market hype sometimes overshadows reality.
“I believe the industry has touted itself to be further along than what I assessed the reality of it, at least with the 16 providers we interacted with,” Lareau said.
Still, he noted, many providers are building the infrastructure necessary to canvass as much of their clients’ needs as possible. And with providers such as Convergys willing to shore up gaps, they are helping to put large clients at ease.
“When you take all the processes in a complex global environment in a legal entity structure that DuPont provides, it’s probably one of the larger, more complex challenges the industry is facing. But we think [Convergys] is up to the challenge.