Gas and electric company Cinergy makes an HRO power play
When Ohio-based electric and gas company Cinergy started expanding into new areas of opportunity, they knew it was going to take a lot of energy especially on the part of the department that was staffing the company. By teaming with an HRO provider for staffing and recruiting administration, Cinergys HR department found the power to push their Recruitment strategy to a whole new level.
When Bharat Kannan first called Cinergys Steve Allen, the companys general manager of organizational development and staffing strategies, in May 2004 to pitch the idea of outsourcing Cinergys employment recruitment and staffing services, Allens less-than-receptive response suggested a long-shot opportunity, at best. But, Kannan, an articulate, passionate proponent of human resources outsourcing, is a persistent fellow. Steve understood the value proposition, but did not seem overly interested, recalls Kannan, a senior sales consultant at Aon HR Outsourcing. He didnt think the strategy presented a good cultural or business alignment. But, he agreed to meet with me in Cincinnati to elaborate on my position.
Cincinnati, Ohio, is headquarters to Cinergy Corp., a public utility serving 1.5 million electric customers and 500,000 gas customers in Ohio, Indiana, and Kentucky. Nearly 7,700 employees work at Cinergy, a fast-growing Fortune 500 company that recently has spread its wings into 15 other states to market non-traditional utility services. The expansion had strained the companys recruitment and staffing functions, and Allen was open to other ideas. We were just keeping our heads above water in the current situation, he says.
In his meeting with Kannan, Allen explained that he was satisfied with the companys staffing and recruitment department, but felt the personnel were tied up in administrative tasks and detail-oriented responsibilities. We had a traditional model, but as we looked out over the horizon at our future strategic needs in terms of staffing and recruitment, we knew we needed more efficient processes that would not require adding more people, Allen explains. When Bharat started talking about the process improvements Aon could offer, a light went on.
Kannan, who ended up making five trips to Cincinnati, recalls the deal clincher as a single sentence. I told Steve that Aon wasnt interested in taking over the strategy associated with recruiting and staffing, just the operational and administrative transactions, he says. The strategythe institutional knowledgeis what you have and I dont, I said. Why should your people be pushing paper when there is a better way for HR to operate?
Six months after his initial telephone call to Allen, Kannan closed the sale. In November 2004, Cinergy signed a three-year agreement to outsource the vast majority of its hiring needs to Aon. Our ultimate goal with the outsourcing strategy can be summed up in two wordsbetter hires, says Allen. We wanted to broaden the quality of the pool of applicants for our staffing needs, and determined that an external centralized staffing function for sourcing and selection best meets this need.
Cinergy is not fixing a broken staffing and recruitment model, says Kannan. The truth is that Cinergy had a good staffing and recruitment department, he explains. What they didnt have was standardization, access to high-end technology, and the breadth and depth needed to access candidate pools. They were doing a good job, but they wanted to do an even better one, particularly with respect to diversity.
Cinergy is the second major power utility to engage in a business process outsourcing strategy in recent months. In May 2005, Texas utility TXU announced a 10-year, $3.5-billion outsourcing arrangement with provider CapGemini Energy covering HR, IT, finance and accounting, and other business processes. While the Cinergy-Aon agreement only covers a single aspect of HR, Cinergy is no stranger to outsourcing. The utilitys 401(k) benefits processing and all medical and dental claim processes are handled by outsourcing service providers.
Cinergys Chief Administration Officer Fred Newton points out that these partnerships all have one ultimate goal: We are focusing on people, processes, and systems. Our objective is to develop our people, improve our processes, and build our systems to meet the strategic needs of Cinergy.
Like many companies that turn to outsourcing experts to administer internal processes, Cinergy was challenged by the need to upgrade technology to continue to provide high-touch recruiting and staffing services to business unit managers. For us to buy the technology we needed was an extremely expensive proposition, Allen says. A service provider like Aon, on the other hand, which represents the needs of many clients, can purchase state-of-the-art technology and leverage the cost by deploying it on behalf of these clients.
Aon HR Outsourcing boasts several major client relationships, including Daimler- Chrysler, AT&T, Verizon, and hundreds of others. The firm uses a centralized recruitment model that employs HR shared-service centers to do the most administrative and repetitive transactions, like scheduling job candidates for interviews and posting positions to job boards, explains Kannan. Such tasks, when standardized under one roof and conducted by experts in that individual area, produce superior cost efficiencies. Our service centers support all our clients, leveraging technology enhancements as they come along. While it would be financially questionable for Cinergy or other clients to invest more than a million dollars for a state-of-theart document imaging system or applicant tracking software, were able to leverage the revenue coming in from all our clients to buy the technology they need but may be leery of buying on their own.
While Cinergy would be able to tap world-class recruitment and staffing technology, cost savings were not the main driver in the companys decision to outsource. ROI was definitely part of the criteria (for outsourcing), and we expect a 10 percent return on the strategy within the second year, explains Allen. But our decision was based more on the opportunity to improve quality as we looked strategically into future years at our staffing needs. Weve grown remarkably in recent years and continue to grow fast. We want to be sure that, as we grow, we hire only the best people. For example, we have a power and gas trading and marketing organization and want to improve the quality of the candidates we bring in. Aon gives us that ability.
Cinergy is no different than other clients when it comes to realizing that HR outsourcing is more than about cost savings, maintains Gary Budzinski, president of Aon HR Outsourcing. Companies that embrace the philosophy of benchmarking their future needs against current infrastructure will achieve greater long-term success in attracting and retaining top-quality talent, Budzinski says. What impressed me most with Cinergy was their internal handle on what could be culturally accepted from a change perspective with respect to outsourcing. Rather than take a cost-reduction focus, they allowed business process improvement and cultural acceptance sell the engagement. We continually strive to bring these sorts of forward-thinking clients into our family.
As Allen became more comfortable with the idea of outsourcing recruitment and staffing, he brought Aon in to make a presentation to the companys user council, which is comprised of business unit heads, each with ongoing recruitment and staffing needs. I wanted them to be comfortable with the idea as well, Allen explains. We took the council through the process, showing them how they would benefit by the ability to mine a greater breadth and depth of talent. This was important because we had grown from a tri-state utility into a company that, through various small acquisitions and growth initiatives, now provides services in 18 states. Our traditional staffing and recruiting methods were becoming out of date and the user council knew that.
I remember Steve brought up the fact that the [recruitment and staffing] department might be doing fine with 400 hires, but with the company growing at the rate it was, it would find it would be difficult to support more than 500 hires. This would likely require the hiring of more staff to administer this need, Kannan says. He asked, What would happen then to this staff if the company needed to ramp down the number of its hires? Would the staff no longer be busy? Kannan notes that Cinergy was also interested in being involved in more cuttingedge technology, for example digitizing candidate files in order to search a greater populace of diverse candidates.
Allen explained to the user council both the cost savings and quality aspects of outsourcing. Aon would leverage the best practices of each of its clients for the benefit of other clients. Meanwhile, Aons variable pricing model, which is based on costs per hire and is not a fixed fee, would ebb and flow with the companys growth. You hire 100 people in October, you pay one amount; you hire 50 people in September, you pay a lesser amount, Kannan explains. There are no minimum requirements.
The council soon became as comfortable as Allen with the promise of outsourcing, which offers the ability to find a diverse pool of candidates with the skills we need and the talents we require as we continue to grow and engage in related businesses, Allen asserts. People are the essence of this company and we want the best. Now, we had a more opportune methodology to find the best.
More effective human capital is the essential ingredient for companies in achieving competitive advantage, says Budzinski. We help companies achieve superior, tangible business results by enhancing the performance of their human resources.
Cinergy hasnt outsourced recruitment and staffing as much as the administrative and operational aspects of these processes. Cinergy continues to deal with issues like candidate competencies, behavior, and workforce makeupthe pure, strategic part of recruitment and staffing, explains Kannan. HR continues to go to the heads of commercial business units and ask questions like Where are you headed, human capital-wise, in the next 18 months? or What will your employment needs be post-acquisition? Are you considering more MBA types? Will you have more volume processing around recent college graduates? The difference is that we pick up from there. We do things like digitizing thousands of files going on Internet job boards, keeping in line with ongoing compliance issues and other legalities surrounding recruitment, scheduling interviews with job candidates, and so on.
The basic steps involved in recruitment remain much the same, whether a company outsources or retains traditional internal processes. A Cinergy business manager identifies a staffing need and creates a job requisition that must then be approved by hiring managers for financial purposes. Once approved, needed job skills are identified and individuals meeting these qualities are sought. What we do is conduct the search for these candidates, screen them using standardized behavioral interview techniques and then test them, based on guidelines established by the Edison Electric Institute for the energy industry, Kannan says. After the testing phase, we schedule the interviewsa time-intensive process known to cause much duress in HR organizations. We take the pain out of the process. We also handle the final step notification of job acceptance or decline.
While each of the steps typically is taken by a single person at a traditional executive search firm, the recruiting at Aon is broken into different segments. We have experts in testing focusing on that function, and experts in interviewing specializing in that, Kannan notes. Each of these people works with several clients and is rigorously trained in that clients program. This divisional labor strategy gives us great flexibility in bringing on new clients.
Cinergys relationship with Aon is still burgeoning. At present, Aon personnel are meeting with business managers throughout Cinergy to talk about future needs and how they can best service those needs. Both companies also are in the process of synching up their recruitment technology systems. Im very, very involved with our IT people right now, Allen laughs. The live date is February 15, 2005.
Cinergy is also in the process of establishing a governance system, whereby Aon executives and Cinergy HR staff meet on a quarterly basis with Cinergys user council to assess performance and address small problems before they erupt into major ones. We expect a few bumps in the road but nothing that cant be ironed out easily, says Allen, a complete HRO convert now.
Although a newly-established relationship, both parties have the energy and drive to make it a powerful oneand one that will do well by Cinergys employees. Allen sums up, Aon will just be able to do a lot better sourcing of job candidates than we did previously.