HR/BENEFITS OUTSOURCING STRATEGIES. Karen Roberts, SVP Aon Consulting

Transcription

1 HR/BENEFITS OUTSOURCING STRATEGIES Karen Roberts, SVP Aon Consulting

2 Sourcing Solutions Developing and implementing appropriate human resource delivery strategies will require significant process, technology, and staffing changes to transform HR from a traditional, administrative-intensive environment to a more strategic value-added function.

3 Sourcing Solutions Traditional HR Departments Spend Most of Their Time and Resources on Low-Value Activities Cost Value Ten percent of costs and effort is devoted to strategic planning: compensation, executive development and predicting future HR resources and requirements. Thirty percent of costs and efforts is devoted to HR services delivery: recruitment, training, counseling, succession planning, performance management, selection assessment, equal opportunity etc. Sixty percent of human resource costs, activities and people are devoted to administration: record keeping, compliance, and bureaucratic paper shuffling. Quick Hit HR process improvement initiatives typically target the bottom of the pyramid where the combination of high costs and low value-added activities exist, allowing HR to gradually focus on higher levels of the pyramid 10% STRATEGY 60% 30% 60% SERVICE DELIVERY Development Manage Train Staff Compensate Design ADMINISTRATION 30% 10%

4 Sourcing Solutions A variety of business drivers are forcing organizations to rethink how they are organizing and managing their human capital: External Environment Increased Shareholder Demands Emphasis on Growth and Innovation Acquisitions and Expansion Organization Process Technology Movement toward shared services Horizontal replacing vertical organization structures Strategic competency only focus Team based, empowered environments Self-Service Delivery Outcome vs. Activity Orientation Matrix Management Issues Value-added vs. Transaction Orientation Interactive Voice Response Internet/Intranet Imaging WAN Connectivity

5 Technology Transforming HR Delivery Internet Impact Significantly reduced per transaction costs Increased employee access Application Service Providers (hosting) Portals Knowledge-management

6 Sourcing Models Insourcing Model Database Co-Sourcing Plug & Play IVR Web Employee Customerdecided Entry Tools Applications IVR Database Web Knowledge Management Support Manager Employee Customerdecided Entry Tools Knowledge Management Support Applications Knowledge Management Support Applications Database Manager Web Outsourcing Model IVR

7 Why the Benefits Outsourcing Trend? (1995) Focus on Core Competencies Downsizing/Right-sizing Pressures Availability of New Technologies Growing HR/Benefits Technical Complexities Impact of Mergers & Acquisitions Associated Fiduciary Risks and Liabilities Employee Service Demands Best Value for Dollars Spent

8 HRO Demand Catalysts 2005 Lack of resources and focus for process improvement Shareholders and stock price pressures Lack of capital for ERP investments Change: M&A, divestitures, contraction, growth Focus on value added, business partner activities The denominator (# of employees) keeps getting smaller Regulatory pressures EquaTerra

9 The Business Case Model Establish baseline: The As - Is Develop long-term performance improvement targets Identify non-financial benefits Understand improvement opportunities and financial impact to the bottom line Identify risks and potential impacts of doing nothing and of doing something

10 Sourcing Framework Sourcing criteria help determine whether functions should be outsourced or kept in-house. These criteria are applied to a future vision of the organization that is consistent with the needs of the business. Future Vision of The Business Outsource If: Function Function non-core non-core and/or and/or low low risk risk to to the the business business Significant Significant cost cost advantages advantages from from outsourcing outsourcing Limited/no Limited/no opportunity opportunity for for learning learning transfer transfer Skill Skill competencies competencies not not available available inhouse inhouse Cost Cost of of monitoring/ monitoring/ administering administering outsourcing outsourcing partner partner is is low low Comparable Comparable or or better better service service levels levels from from outsourcing outsourcing Benefits Administration Maintain In-House If: Critical to the business No cost advantages from outsourcing Potential competitive advantages through knowledge transfer Skill capabilities exist in-house High cost of monitoring/administering outsourcing partner Service levels are better in-house

11 The Sourcing Criteria Can Be Sequenced In A Decision Tree To Structure The Decision Process. Is the function unique or provide a competitive advantage in the marketplace? Yes No In-House Is there potential for learning transfer? Yes No In-House Is there significant cost advantage from outsourcing? No Yes Are technical skills available in-house? Will service levels be comparable or better? No Yes No Yes Outsource In-House In-House Are monitoring & administrative costs prohibitive? Yes In-House No Outsource

12 The Outsourcing Solution

13 After Outsourcing Employer Will Continue to Provide. Ongoing vendor management Escalation processing HRIS & Payroll interface with outsourcing vendor General communications Strategic plan design initiatives, rate negotiations with carriers/vendors, and annual contribution strategy, etc.

14 Outsourcing Pros and Cons

15 Pros to HR Outsourcing World-class technology Reduce associated fiduciary risks and liabilities Maximize internal resources Improve HR and company focus (Focus on core competencies ) Control costs and manage expenses Improve customer service and consistency of delivery Expand benefits delivery options and hours Impact of mergers and acquisitions Best practices for transaction processing Build competencies in vendor management, not transactional administration Improve HR credibility and image

16 Cons to HR Outsourcing Loss of total control of the administrative processes, especially at sites Relinquishing employee support to someone else (paternalistic culture) Lead time to implement Hard Dollar Costs may be higher than expected Vendor delivery of services is rarely as seamless, smooth, and trouble-free as promised Might be a small fish in a big pond of outsourcing providers

17 The Insourcing Solution

18 By reengineering the HR processes, the business objectives of the organization may be achievable without outsourcing. Reengineering can be initiated to improve the business performance of the function Improve unit costs Improve level of service/quality Improve flexibility Upgrade technologies or capabilities Reengineering and process improvement can take many forms Process redesign Institution of service resources and service level tracking Technical infrastructure improvement

19 Insourcing Alternatives Process redesign Service center implementation Case management/work flow ERP Administration systems Web tools and Employee Self-Service (ESS) Maintain status quo

20 Insourcing Pros and Cons

21 Pros to Benefits Insourcing Can capitalize on existing initiatives, i.e., shared services, ERP, etc. Platform for seamless administration with ERP for enrollment, life event change, and eligibility review ERP implementation reduces the amount of duplicate data entry and interfaces Improve HR credibility, image and customer service Can phase in improvements over time

22 Cons to Benefits Insourcing Will not be able to achieve an integrated solution without a large capital expense Service center, case management require intensive management, efficient processes Internal projects often lose momentum and/or get sidetracked Will require significant internal technology support Ongoing need to maintain multiple interfaces with providers Shelf life of solutions might be shorter than desired Will still be in the business of benefits administration; focus won t change

23 Debunking Conventional HR Outsourcing Wisdom You can t outsource a mess, you have to fix it first Internal process transformation is less risky than HRO Selection HRO creates more value, and is less risky, than comprehensive HRO Sarbanes-Oxley compliance prevents us from outsourcing HR (or even F&A) Our outsourcing project can be kept secret from our employees HRO is only for large, global 500 companies We can manage this HRO relationship with a handful of people HRO governance and relationship management is all about managing your HR outsourcer

24 Regardless of the journey you take..

25 A Successful Outcome Means Fiduciary obligations are fulfilled Consensus built among all stakeholders Clear road maps drawn for all parties Quality services at reasonable costs over the long-term Tightly negotiated contracts with meaningful, measurable performance guarantees and fees at risk More strategic HR organization that is a better business partner

26 Contact the Speaker Karen Roberts Senior Vice President Aon Consulting and Human Resources Outsourcing