The following article was commissioned by ADP to aid industry advisors in assisting clients with the selection of service providers for outsourcing HR technology and benefits administration functions. The HR Technology Risk Factor by Rhonda P. Marcucci
Health care reform three little words that have changed how we think about our industry and continues as a topic of discussion for those of us working in HR technology and benefits administration. The 2011 MetLife Brokers and Consultant Study identified keeping up with legislative changes and understanding their impact as the top concern of brokers and consultants. Also changing is the use of technology. The technology associated with this industry is changing every day perhaps as fast as the coverages it was designed to manage. In spite of this, I m bewildered by the lack of reaction from many industry advisors. To those who think it is business as usual, let me give you a little advice: Wake up! Look around! You re at risk! If you re not prepared to change the way you view and do your job, you might as well prepare for a new one because you won t last long in today s industry environment. Let me share a few things you need to know. Your relationship with your clients is changing. Thanks to new technologies and health care reform, clients need you more now than before and will look to you more as a partner. A recent survey of business decision makers by Benefits Selling revealed that 33 percent view brokers as their trusted advisor and 30 percent use brokers to provide value through knowledge, which means that the majority view their broker as something more than a middleman offering insurance. The research also indicates that the decision-maker/broker relationship is changing in view of health care reform; with 48 percent of decision makers surveyed reporting the roll of the broker will become more important by 2014, and another 27 percent saying much more important. This should be good news for advisors as engaged clients generally equate with client retention. But there s more. Employers are increasingly looking to outsource their benefits enrollment and administration platform. According to the Towers Watson Annual Benefits Enrollment 2011 survey, nearly half of midsize companies insource their enrollment process but a whopping 78 percent of that group are planning to outsource. Companies that outsource report a higher level of satisfaction. The top reasons for dissatisfaction among companies that manage enrollment in-house are all technology related enrollment and self-service technology, followed closely by reporting technologies. These factors combined create an ideal business environment for advisors. Concern over rising health care costs (73 percent of business decision makers are very concerned says Benefits Selling), an industry that is increasingly reliant on technology to deliver services, and government compliance issues all contribute to a company s decision to outsource. Combine this with strong client-advisor relationship and it is clear that as companies look to outsource, they will look to you their trusted advisor as the expert to provide advice and, increasingly, to identify and select a technology platform and service provider. But are you ready? 2
My observation is that many of you are not. And worse, it s not even on your radar screen. The MetLife survey asked what keeps brokers and consultants up at night. Of eleven concerns cited, keeping up with technology in order to stay relevant to the client was nowhere to be found. And yet, client retention and differentiating firm from competitors were identified by more than half of the respondents. Understanding the new technologies (and their providers) can be a near-impossible task. As confusing as it can be for advisors, imagine how much more confusing it is to the client, which is why your clients look to you to guide them through the evaluation process. If you understand the questions that will provide you and your client the information needed to make the most informed decision when outsourcing, it s a win-win. Your client will have a system and service provider that supports all necessary functions while managing their compliance and other important areas of risk. That s good for their business. You have a happy client and that s good for your business. Let s imagine, just for a moment, the opposite. You ve facilitated the selection of a service provider based on a basic RFP and budget analysis. Yes, there were demos, but the bells and whistles got in the way of asking the hard questions the sometimes boring, technical, tedious and complex questions. Two months into the implementation the outcome does not look good. The client is unhappy with their platform; the service provider is unhappy as the account representative is spending half the day troubleshooting new problems; and you re not happy because you re at risk of losing your client all because you didn t ask the right questions in order to understand and manage the risk associated with bringing the wrong partner to the table. But it s not too late to become the advisor your client needs and wants and to bring a renewed outlook to your career. To understand the potential fit between your client and a service provider package and to better understand and manage the risk factors, you need to ask the right questions and to understand how to interpret the responses. To give you a better sense of what I mean, let me lay out six areas that together make up a framework developed following thousands of hours of consulting by the GruppoMarcucci team for evaluating a service provider and the associated risk in selecting that provider for you and your client. 1. Security: This is a huge risk in today s market for service providers. Any service provider will tell you that his or her platform has strong cyber security measures in place, but no doubt the developers of systems for the large multinational companies that make the news for being hacked would have said the same. Ask for detail about security in the RFP and then follow up with questions: What types of risk assessment tools are you using? What are the encryption levels? What is the authentication and access process? Do you have Technology E&O and Cyber Security insurance in place and what are its limits? 3
2. Technology/Infrastructure: This is one of the most critical areas of questioning to potential providers. This can also be one of the most difficult areas to understand so it s easy for providers to hide things or inflate their service in an area. Types of questions to ask include: What processes do you employ to make sure that you can support the heightened level of activity inherent during fourth quarter open enrollments? How big is your IT team? Can we speak to other clients regarding your integration standards with carriers? 3. Financial Attributes: Many companies in this space are privately held and not very well capitalized. To ensure adequate resources to allow for platform updates in response to regulatory changes and introduction of new technologies, you ll want to explore the company s financial position. At the very least, many clients will want to review a balance sheet. What is the source of your financial backing? What are your year-over-year growth projections and profitability? Is the company being targeted for possible acquisition? 4. Business Attributes: Understanding a service provider s business attributes covers a broad range of competencies, including business and leadership maturity, market reputation, market conduct, the breadth of services and business focus, operational excellence and more. There are a lot of moving parts in the benefits administration business operational controls are key to making sure those moving parts work together to achieve your client s objectives. You will want to review their standard contract for fairness to both parties. How do you ensure operational excellence? What are your top five competitive attributes? What does success look like from both your perspective as the provider, and the client s perspective? What is the size of your typical client? How do you monitor and comply with changes in government regulations? 5. Client-Specific Attributes: This area of questioning is also varied. It s gets to the heart of whether a service provider is a good fit with your client culturally, geographically, experientially, financially, and more. What tools are in place to facilitate communications between the client and service team? Have you previously worked with companies of the client s size and focus? What is your expectation of the client s role in the system rollout? (If not in the same time zone) How will your team accommodate the client s standard business hours? 4
6. Platform Attributes: Here s where you get to the nitty-gritty of the system and should ensure the client has the opportunity to take a hands-on test drive of platform features. Admittedly, it can be easy to get distracted by the bells and whistles of a platform but a good advisor will dig deep in a line of questioning to explore transparency, configuration versus customization capabilities, development methodology and more. While we are not from Missouri, we highly recommend a show me demonstration that allows you to see that the platform can support your client s requirements. Who owns the technology? (If not the service provider then you may be at the mercy of the folks who do.) How often is new functionality released? How does new functionality get prioritized? What is the recommended testing plan with client data before going live? These six areas provide a framework for asking the questions that will allow you to evaluate a service provider for a specific client and understand the associated level of risk. Within this framework, you should be able to understand not only the obvious elements of the service provider s offering, e.g., the platform s technology, standard services and associated cost, but also the more subtle and hidden areas of risk such as cultural fit, communication style, experience with client s similar to yours, etc. If you hadn t thought about some of these areas of risk previously that s understandable. It s a vast and fast-changing marketplace and it can be difficult for even the experts to be expert. By asking detailed questions and helping interpret the responses, however, you provide a valuable service to your client that will increase your consultative footprint while demonstrating why their relationship with you is necessary in this pivotal time in the industry. Using this framework to develop and pose detailed questions will help your clients make informed decisions on service providers and products that best suit their culture, benefit program and employees while mitigating overall risk and alleviating the administrative burden of benefit administration and government compliance. Further, it will allow them to focus on more strategic issues such as retaining top talent through the best health care offerings and managing the health of their employees. While no outsource decision is 100 percent risk-free, a decision made within this framework is a risk most are happy to take. 5
Advisors interested in accessing a complete set of questions that pertain to the service provider evaluation and risk framework described in this paper can download these questions at ADP s Partner Connect site at http://workscape.adpinfo.com/forms/ws_adpconnect. About the Author www.gruppomarcucci-usa.com Rhonda Marcucci is a 25-year veteran financial and operations executive with a record of success in identifying strategy and executing against it to achieve client goals. Her firm, GruppoMarcucci, is a nationally recognized HR and Benefits Administration technology outsourcing consulting practice which focuses on strategy and partnership work for entities wishing to understand, enter, or penetrate the benefits administration market. GruppoMarcucci provides solutions for all aspects of HR and benefits administration technology challenges, including providing sourcing advice and service provider capability audits. The GruppoMarcucci team is on call to respond to clients request to Help me Rhonda. About ADP Automatic Data Processing, Inc. (Nasdaq: ADP), with about $10 billion in revenues and approximately 570,000 clients, is one of the world s largest providers of business outsourcing solutions. Leveraging over 60 years of experience, ADP offers a wide range of human resource, payroll, tax and benefits administration solutions from a single source. ADP s easy-to-use solutions for employers provide superior value to companies of all types and sizes. ADP is also a leading provider of integrated computing solutions to auto, truck, motorcycle, marine, recreational vehicle, and heavy equipment dealers throughout the world. This paper was sponsored by ADP. Automatic Data Processing, Inc. adp.com The ADP logo and ADP are registered trademarks of ADP, Inc. In the business of your success is a service mark of ADP, Inc. 2011.