Author: Fay Hansen

The Infosys Leadership Institute in Mysore, India, pumps out executive talent for Infosys Technologies, the global IT solutions provider with fiscal 2008 revenue of $4.18 billion and year-over-year growth of 35 percent. Infosys employs 91,187 people and has offers out for an additional 18,000.

The HR function is responsible for the institute’s curriculum and an on-site staff of 80. HR is also responsible for all leadership development programs, including designing the curriculum and monitoring the results.

“Our underlying philosophy is that leadership cannot be taught, but it can be learned,” says Girish Vaidya, Infosys, head of the institute. “Leaders must first master themselves, but we all have blind spots.”

Infosys splits its leaders into three tiers. Tier 1 leaders are the top 50 people in the organization, including the heads of the business units, who have an average of 20 years of experience. Board members mentor these 50 leaders. Tier 2 consists of 180 leaders with an average of 15 years of experience. They are mentored by Tier 1. Tier 3 represents 550 people who average 10 years of experience and are mentored by Tier 2.

Employees from all three tiers apply for formal leadership training. “Applicants are evaluated on the basis of their achievements within a nine-dimension model and selected on that basis,” Vaidya says. All of the leaders selected move through an anonymous 360-degree feedback analysis, which becomes the basis for constructing a personal development plan.

They also attend sessions with senior leaders, who discuss their own learning within the company. Some are sent out for educational programs at the top universities in India or Ivy League universities in the United States.

Every quarter, HR reports to the board on the number of personal development plans in progress and the status of the leadership development programs. Infosys also conducts an annual survey of the participants from all three tiers. HR reviews the list of participants and determines whether anyone should be dropped from the program for performance reasons.

To gauge the results of the leadership development program, HR uses a leadership index based on the nine dimensions and rates each participant on a 1 to 5 scale, with 5 as the highest rating. The rating hinges not only on each leader’s actions but also on the leader’s efforts to share learning with others in the business unit or function.

“When leaders share what they have learned, you get alignment with others in the unit,” Vaidya notes. “The rating is two-sided: It reflects what you have learned and achieved and how well you have communicated it to others. For example, strategy development is important, but getting buy-in from the rest of the organization is also important.”

” ‘Leadership’ is an overused term,” he says. “You must begin with a clear definition of what a leader is in the context of your company. You have to define the competencies required, and that will define the path you need to take.”

At Infosys, however, accountability for leadership development rests with the individual. “The organization can provide access to all the tools that are needed, but in the end, the individual must take on the responsibility,” Vaidya says.

A year has passed since the $55 million settlement in the FedEx racial discrimination case that rocked the recruiting world.

The class-action lawsuit reminded recruiters that objective testing and neutral selection policies do not remove the risk of a discrimination charge if there is evidence of disparate impact—which occurs when a neutral policy or practice produces discriminatory results—on a protected group.

FedEx agreed to abandon the basic skills test that generated discriminatory patterns, but many employers still use similar tests and remain exposed to claims of disparate impact from minority group and female applicants, applicants age 40 or older and applicants with disabilities.

Employers should use the utmost caution when selecting a basic skills test.

“It had better be right,” says Chris Arbery, a partner specializing in employment law at Hunton & Williams in Atlanta. “Knowing the risks that are out there, employers should take test selection very seriously.”

The Equal Employment Opportunity Commission has increased its scrutiny of neutral practices that generate discriminatory results. In these disparate impact cases, the intent of the employer is irrelevant if a protected group can prove that a test or job requirement that is not justified leads to a disproportionate number of rejected applicants.

The employer must be able to demonstrate that the test or requirement is job-related and consistent with business necessity and that there is no effective alternative that would have a lesser impact on the protected group.

The EEOC’s Uniform Guidelines for Employment Selection Procedures establish the parameters for a screening process that avoids disparate impact, but employers and their recruiters must also understand workplace changes that may trigger disparate impact and the broad approach that many courts take regarding discrimination claims.

“Employers and recruiters must know the legal context and the general prohibitions,” Arbery says. “Understanding the legal context helps the employer avoid taking shortcuts and making assumptions.”

Outdated tests and job requirements and blanket diploma requirements open the door to legal challenges by unsuccessful candidates.

Changes in required skills
The key is to tailor the test to the job, but with ongoing automation and offshoring, the actual work performed in any job may change and those changes may not be reflected in the requirements posted for job candidates.

“New technology creates significant changes in job requirements,” Arbery notes. “As technology evolves, some skills may be required for a job that was not required before, and some skills that were required may no longer be necessary.”

To obtain the specific information needed to update the requirements for each job, human resources staffers can meet with the employees who do the job and the supervisor for the position.

“A better approach is to also obtain professional assistance from firms that specialize in testing and selection methods,” Arbery advises. “They stay up to date on legal requirements. This approach may be more costly in the short run, but it is less expensive in the long run.”

“The real goal is to use the right test to get results,” says Gregory Mersol, a partner in the employment and labor practice at Baker Hostetler in Cleveland. “The test must relate to the job. And although some employers have argued that reading skills are required for menial jobs because workers must understand safety precautions, unsuccessful candidates may argue that symbols and pictures are a valid alternative to written instructions.”

Mersol also reminds employers to use reputable testing vendors.

“There are many good firms out there,” he says. “Find out how much support they will provide if a test is challenged. Defending a test is expensive and the testing company should provide assistance from competent personnel.”

A different problem arises when the selection process for one job inadvertently eliminates candidates for another job without any grounding in business necessity.

“Look down the road, particularly when you have one pool that feeds into another,” Mersol says. “You may be testing in a way that has consequences in the future.”

For example, if the pool for supervisors comes from the pool for laborers, and laborers face a 100-pound lifting requirement, the employer may be eliminating women from the supervisors’ pool even though the lifting requirement does not apply to the supervisor’s job.

“Also, in service jobs, employees may need certain technical skills for one group of jobs, but the supervisors may not need those same skills,” Mersol notes. Programming skills requirements may be necessary for an entry-level position, but may not be necessary at the supervisory level. The impact of the requirements for one job may filter through to other jobs where the business necessity defense would not hold.

Mersol advises employers to review their tests at least every three years, and more often if there is new automation, a change in the product mix, a change in the customer base or a corporate restructuring, which may mean some job duties have been added or taken away. A requirement for a job may include typing so many words a minute, but the job or the technology might change so that fast typing is no longer a key skill.

If a test or requirement is a business necessity but results in disparate impact, the employer must demonstrate that there is no viable alternative for screening applicants.

“To explore alternatives, bring into the discussion a slice of the existing employees, their direct supervisors and HR and diversity personnel,” Mersol says. In many cases, employers can identify a different way to test for the required skills.

Diversity personnel may also be able to identify potential problems for unique groups, Mersol says. In addition, employers should ensure that tests are administered under consistent controlled conditions and the administrative procedures are correct.

“We’re going to see continued pressure on employers to lighten job requirements and testing,” Mersol says. Many employers evaluate their job requirements and testing procedures when they conduct their annual review of their affirmative action plan, but this may not be sufficient if positions change or adverse impact is discovered between reviews.

Diploma trap
Employers should also review their educational degree requirements.

“The high school diploma requirement is the granddaddy of all testing and selection issues,” Mersol notes.

The requirement is difficult to justify for any menial job. He notes that many cases arise from testing and degree requirements in areas where minorities may attend substandard schools.

Arbery suggests that employers periodically revisit high school diploma requirements. Many jobs do not require a high school diploma, but some employers prefer candidates with diplomas and use a blanket requirement. The presumption is that a graduate has general language and math skills, but those skills may not be necessary for the job. Any blanket requirement for a high school diploma is open to a challenge.

The annual reports employers must provide for the EEOC and, if they are federal contractors, the Office of Federal Contract Compliance Programs must include a snapshot of the workforce.

“Employers are doing a better job than they did 10 years ago, in part because it is so easy now to capture the data,” Arbery notes. “But no employer is immune to a legal challenge once this workforce information becomes available.”

The downside of reporting is that other people have access to the information, including lawyers who are looking for adverse impact.

“Make sure that the report is accurate and be aware that others have access to it,” Arbery advises.

According to Arbery, professional test validation is essential. Employers must also consider alternative tests or methods and monitor statistics on testing results to ensure that any disparate impact claim would not be successful. He advises employers to stay abreast of developments in testing and to tap expert consultants and counsel.

According to the EEOC’s guidelines, evidence of disparate impact appears when members of a protected group are selected at a rate of less than four-fifths of another group. Some employers still rely on the four-fifths rule to measure their own potential liability. However, Mersol advises employers to take a closer look at the rule.

“The OFCCP loves it, but it is analytically bankrupt and the courts will scrutinize its applicability,” Mersol warns. “The reality is that better tools are available.”

Courts are rejecting the rule as an appropriate measure of disparate impact particularly because it may not be a good measure for smaller groups. Courts want a more focused analysis, often based on multiple regression analysis.

One reason for heightened employer attention to objective testing is arising from cases where candidates are challenging the absence of a uniform method in selection and promotion. In the massive gender discrimination case now under way against Wal-Mart, the plaintiffs are challenging the absence of a uniform selection method across Wal-Mart’s 3,400 stores nationwide. In 2007, the 9th Circuit Court of Appeals in California allowed the case to move forward as a class action.

Particularly in sectors affected by ongoing labor shortages, eliminating unnecessary tests and skills and diploma requirements not only reduces legal exposure but also enlarges the potential pool of candidates.

“At the end of the day, most employers want a selection method that really works, not just one that avoids liability,” Arbery notes. “The key is to have both.”

Now in its second century of manufacturing legendary motorcycles, Harley-Davidson Inc. pulled in $5.7 billion a year in 2007 from sales in 60 global markets and a workforce of 9,700. But it also found itself facing the same labor shortages in critical fields, such as materials and marketing, that now plague all manufacturers.

    “It was taking more effort to fill our pipelines,” says Lisa Coury, director of talent management.

    Current openings at the company include engineers, material planners and supply chain analysts. Production workers, represented by two unions, make up two-thirds of the Harley workforce. Although U.S. sales slowed in 2007, international sales increased 13.7 percent, and the company’s plants must keep pace with growing global demand for the unique brand.

    Harold Scott, Harley’s vice president of human resources, noted changes in market conditions, the company’s heavy retirement rate and the growing complexity of managing a multi-generational workforce, and tapped Coury to create a workforce planning capability within the human resources function in 2007. “We needed to develop work­force planning as a set of defined processes,” Coury says.

    Coury began by conducting substantial research, benchmarking and discussing workforce planning with organizations that already had planning processes in place.

    “We knew from talking to other organizations that we needed to walk before we could run,” she says. “So we started small, using pilot groups and feedback from those groups to enhance our methodology and pro­cesses. It’s a journey. The key is to work with business leaders who understand the value of workforce planning.” The first pilot group was the materials group, which was experiencing high levels of employee movement.

    Coury uses key quarterly metrics segmented by business unit to spur interest in workforce planning. A 40-page deep-dive report on the salaried workforce includes measures in 30 different areas and the potential business impact of developments in those areas. The report shows trends over a three-year period. “These key metrics whet the appetites of the executives and create the initial pull for workforce planning,” Coury says. “Then we work with these executives to begin the process.”

    The workforce planning process involves a number of key members in each business group. “We begin with one-on-one meetings with leadership to obtain qualitative workforce information, and then we marry this to our detailed quantitative analysis to project hiring needs over a three-year horizon,” Coury says. “Then we develop an action plan for the steps we need to take within an agreed-upon time frame.”

    The planning process at Harley-Davidson now incorporates three areas: forecasting, workforce segmentation and strategic skills identification. To help build the process, Coury brought over an analyst from HR planning. “You need someone with strong analytical skills,” she says.

    “It’s one thing to collect a lot of data and create a workforce planning process, but the point is to achieve results,” Coury says. “The objective is to increase HR’s ability to service the business. That means turning data into information that can help the business leaders make more informed decisions. We pursue workforce planning for the value and the power it brings to the organization.”

Workforce Management, April 21, 2008, p. 18 — Subscribe Now!

When the financial services industry tumbled into crisis in June 2007, Capital One chairman and CEO Richard Fairbank issued a mandate to strip $700 million out of the company’s operating costs by 2009. Given total operating expenses of $6.6 billion for 2007, the mandate posed a significant challenge. The cost reduction plan includes consolidating and stream­lining functions, reducing layers of management and eliminating approximately 2,000 jobs.

    The mandate did not set off a mad scramble in workforce planning, however. Instead, the planning staff simply added new defined variables to their simulations and modified their projections for the company’s talent needs.

    “The key to workforce planning is to start with the long-term vision of the organization and its future business goals, and work back from there,” says Matthew Schuyler, chief human resources officer for Capital One and its 27,000 employees. “We anticipate the strategic needs of the business and make sure that we have the workforce required to meet those needs. The $700 million mandate gives us goals and boundaries that we didn’t have before. We made the adjustments.”

    Capital One and other leading companies are now developing a set of best practices for workforce planning that reach into the future for each business unit and evolve with corporate strategic planning. In an increasingly unstable global business environment, the value of a long-term vision is clear, but effective workforce planning requires dedicated resources, heavy analytics and, perhaps most important, the full engagement of business unit leaders and line managers.

    Few human resources executives share Schuyler’s ability to harness the value and power of workforce planning, however. At most companies, human resources is lagging other business functions in its ability to plan.

“The beauty of workforce planning is that it allows the flexibility to be right on target. We don’t have to wait for the next budget cycle to get it right.” —Matthew Schuyler, Capitol One

    “We bring this up with executive groups,” says Jamie Hale, practice leader for workforce planning at Watson Wyatt Worldwide. “We ask why there is rigor in analyses in other functions but not in workforce planning. Companies make huge capital expenditures without available staffing,” Hale says.

    Most companies do their planning for staffing going out a few months, she notes, but not workforce planning with analyses and forecasts for talent demand and supply as the organization moves forward with its business strategy.

    Fifty-nine percent of HR executives report that their organizations are not adequately staffed for the future, but only 46 percent have any kind of workforce planning framework in place, according to a 2007 survey by Aruspex. In a 2007 survey by Infohrm, only 14 percent of firms reported that they are largely prepared for the potential loss of skills, corporate knowledge and leadership that is likely to occur over the next five years.

    Forty-three percent report that they have some kind of formal workforce planning process in place, but only 20 percent report that their pro­cess is to a large extent integrated into the firm’s strategic business plan. The Infohrm survey also found that companies with workforce planning in place still struggle with forecasting skills availability.

    All this will have to change. CEOs, CFOs and COOs are increasingly demanding that human resources push past short-term projections and provide detailed forecasts for workforce needs and the associated costs over a two- to three-year horizon.

    “The fact is that CEOs now recognize sustainable talent supply as crucial to the success of the organization,” says Cathy Farley, global leader of Accenture’s talent and organizational performance practice. “It takes the workforce planning agenda to a whole new level.” Both Hale and Farley report that they have seen a significant surge in the C-suite’s demand for workforce planning over the past year  

Working backward
    The workforce planning simulations at Capital One stem from a process executed by a metrics and analytics group of 20 people, plus hundreds of executives, managers and analysts pulled from all the business lines and corporate functions. Leaders and analysts from the business lines work in blended teams with human resources generalists and members of the metrics group to build models for each line and the entire workforce. The models flow to Schuyler, who reports directly to the CEO.

    Schuyler, who holds an MBA from University of Michi­gan, was a partner at PricewaterhouseCoopers and then Cisco’s vice president for human resources before he joined Capital One in 2002. He now sits on Capital One’s executive committee.

    “You have to garner your long-term vision of the organization from your seat at the table and from the time you spend with business leaders and immersed in places where you can get data,” Schuyler says. “You have to probe the business leaders and know what their endgame looks like.”

    Workforce planning is in place with customized metrics for business units within Capital One and for corporate staff groups, including IT, finance and legal. “Workforce planning should be similar to and integrated with strategy planning and budget planning,” Schuyler says.

    Planning varies by business line depending on the line’s stage in its lifecycle. Some lines are stable, while others are restructuring or moving through rapid growth. “We triage depending on business needs,” Schuyler reports. “Planning differs based on the unit’s goals for the year.”

    Part of Schuyler’s job is to ensure that senior business line leaders are engaged in the process. “Their door is open,” he notes. “Your ticket through the door is to show business leaders the bundles of money they can save if their workforce is the right size with the right mix and the right skills. Once you’re inside, you have to act on the promise.”

    The potential cost savings come from minimizing the inherent costs associated with the size of the workforce, plus savings from lower recruiting and severance costs and avoiding the costs of a disengaged workforce. “The cost of disengagement is difficult to quantify, but business leaders intuitively understand the cost,” Schuyler says. “There is a toll paid when a workforce is disempowered, disengaged and not sufficiently busy.”

    Schuyler breaks out costs this way: the cost to bring people in, the cost to move people around the organization and the cost to move people out. “If HR can talk about workforce planning and cost savings in sensible business terms and in the pragmatic language of business, it will be music to business leaders’ ears,” he says.

    Workforce planning at Capital One forecasts not only the headcount required to meet future business needs but the staffing mix—the ratio of internal to external resources—and the skills mix, including any changes in that mix that is required as the business moves forward. Schuyler also looks at any changes in spans of control, which determine the number of organizational layers, optimal methods for staffing managerial positions and the related costs. The planners also document both rational and emotional employee engagement, which affect current and future productivity and recruiting, training and turnover costs.

    The responsibility for workforce planning at Capital One resides in human resources, but the hard work takes place inside the business units, where the blended teams operate. This grounding in the business units keeps workforce planning focused on corporate goals.

    “Workforce planning really gets traction when it is linked to the line managers who understand business needs and can project their business growth and productivity changes,” Hale notes.

    The time frames for workforce planning at Capital One vary by unit and function. The legal function, for example, is very stable and can easily plan out two to four years. The credit card division, however, is rapidly evolving, so its forecasts stretch out two to four years but are reviewed every quarter. “It’s really an evergreen process,” Schuyler notes.

“You have to probe the business leaders and know what their endgame looks like.” —Matthew Schuyler

    The demand for some jobs follows the business cycle. Collections and recoveries work at Capital One was stable and predictable several years ago, for example. “But because of the current economic conditions, this work is now more important, and we had to ramp up very quickly,” Schuyler explains.

    Schuyler believes that simulations are part of best practices in workforce planning because they allow the company to modulate its plans, but simulations may not be practical if too many unknowns remain. “Push simulations as far as you can,” he recommends. “But you may have to blend them with static data models. Practically speaking, you don’t know all of the variables, so you have to fall back on static data.”

Managing demand, supply
    Schuyler refuses to choose between overshooting and undershooting staffing. “The beauty of workforce planning is that it allows the flexibility to be right on target,” he says. “We don’t have to wait for the next budget cycle to get it right.”

    That flexibility derives from a more sophisticated approach to planning that looks at a range of possible scenarios about business conditions and then calculates the labor needed to match them. Capital One’s workforce planning models allow business leaders to anticipate the talent requirements for each business option and the human resources and labor cost consequences of the choices they make.

    Capital One’s analyses of labor demand and supply do not adopt an explicit supply chain lexicon to describe various scenarios, but the overall approach and the calculations of costs and business impact are similar to supply chain management techniques honed over the past decade. Experts generally agree that in the supply chain arena, these techniques typically reduce costs by 10 percent to 15 percent.

    The supply chain approach is gaining traction in workforce planning practices, with good results. “The supply chain concept makes the point come to life about the activity between HR and the business,” Farley says. “The greatest need is to understand demand and source against that demand.”

    In managing the workforce inventory, Farley notes that the risk of overshooting is greater than the risk of undershooting. “Too much of a product or an aging product is a greater risk because the carrying costs are high and there are more opportunities to buy, borrow or rent than ever before,” she says. “The best way to deal with excess inventory is through tougher performance management.”

    Applying supply chain concepts also allows workforce planning to make modifications that reflect changes in the talent pool. “The new generation of talent that is coming up now will cycle through jobs much more quickly than the boomers,” Farley notes. “HR must be prepared for this. Just shuffling people around the organization is very expensive.”

    Hale also believes that the supply chain approach has validity. “If you can align procurement with business volume over time, you can align people to business volume as well,” she notes. “When you are dealing with people, there is less predictability, but with a level of rigor in the analytics, predictability improves.” She notes, however, that analytics are missing at most companies. “HR could leverage people in the organization with supply chain management skills, but there’s not much of that going on,” she says.

    Especially for companies that are just beginning to implement a workforce planning process, the best approach is to focus first on the critical roles in the organization and then expand out to cover more positions in greater detail.

    “You don’t want to drown in data, but you do need to break the data down on a critical-jobs basis,” Hale says. “Look at how the business breaks itself down so you can align staffing with business volume.”

    Many companies can benefit from lifting techniques from procurement and finance to improve workforce planning processes.

    “There’s a huge appreciation for workforce planning as a discipline that needs to be established, but it is an emerging discipline,” Farley says. “The tools, processes and systems are not well developed.” Although workforce planning now resides within human resources at most companies, Farley notes that it may be moved out to other functions or outsourced if human resources does not step up to the plate with meaningful forecasts and simulations tied to future performance among the business units.

    At Capital One, the workforce planning process reaches down through the entire executive structure for each business unit—five or six levels of leadership plus groups of managers. Business leaders see the talent management costs and consequences of the business options at hand. Each option carries its own implications for internal and external staffing levels, recruiting, training, promotions, engagement, attrition and total compensation costs over time.

    More important, workforce planning allows business leaders and line managers to see how different approaches to talent management can actually expand their business options and boost performance. “If workforce planning is done right, human resources can help business leaders think about what their endgame can be,” Schuyler says.

Workforce Management, April 21, 2008, p. 1, 14-19 — Subscribe Now!

F rom its perch at the very top of Fortune’s “Best Companies to Work For” rankings, Google dispatches a select group of employees to predict the company’s demand for skills and the future availability of talent to meet that demand. Google’s workforce planning process covers all 16,805 employees worldwide. The finance function owns workforce planning at Google, but the inputs come from Prasad Setty, director of people analytics, and a group of analysts pulled together to support the business units and functions that require workforce data.

    “Workforce planning is one product that our group supplies,” Setty says. “Our charter is to make sure that every people decision made at Google is made on the basis of data, not emotions. We also help the organization think broadly about talent management.”

    The members of the people analytics group include industrial engineers, organizational psychologists and traditional MBAs. “We look for a specific analytics background, not a human resources background, because the human resources element can be more easily supplied through training,” Setty says.

    The analytics group provides the finance function with specific data. Finance builds the models, submits them to human resources and business leaders for review, and then disseminates the models out to the wide range of people who need them. “You have to reach across difficult silos,” Setty says. “But forming relationships with business leaders is one of the easiest parts of my job. They recognize the importance of workforce planning and they are looking for sophisticated numbers.”

    On the basis of the people analytics Setty’s group provides and discussions with business leaders, the finance function generates forecasts for one year ahead on a roll­ing basis, and revisits its projections monthly. “For a very fast-growing, dynamic organization like Google, it’s not possible to go out further than one year,” Setty notes.

    Setty’s group also likes to innovate and experiment with analytics. One experiment now under way is part of an attempt to establish data-driven recruiting. Google asked all employees to complete a 400-question survey to document elements in their past and then looked for correlations with their performance at Google.

    “We want to identify the variables that can predict high performance,” Setty says. “We have isolated variables that are predictive—some that we might have expected and others that are surprising. We are now testing these variables by using them in recruiting and then tracking the performance of the new hires. We are trying to find the right recipe for the workforce.”

    With more than 1 million job applications pouring into Google every year, the potential value of that recipe is enormous. The predictive variables—the essential ingredients for a high-performing Googler— are now part of the company’s cache of closely held secrets.

    Setty believes that workforce planning should be an ongoing process conducted with the same frequency and rigor as financial planning. “Especially in organizations like Google with substantial people-based assets, human resources and finance need to partner and look at the same numbers in the same language. New technology allows us to create real transparency around the numbers.”

    Most important, every organization needs internal consistency in the data used for planning. “The global business environment is full of uncertainties,” Setty says. “You can’t predict the future. But you can make sure that your numbers are internally consistent.”

Workforce Management, April 21, 2008, p. 19 — Subscribe Now!

Broad business trends in India are shaping the growth of Southeast Asia as a magnet for multinational corporations.

    Western multinationals are selling off their “captives,” or wholly owned back-office operations, in India to Indian firms, and these firms are offshoring pieces of their growing workload to locations in Southeast Asia.

    The call center industry in India employs more than 300,000 agents, with 130,000 of these based in captive operations. Companies are now finding they can’t scale their captives to gain advantage. Also, many companies now want to move from the fixed cost of a captive to the variable cost of outsourcing. According to a 2007 Forrester study, 40 percent to 60 percent of current captives will initiate exit strategies during the next three years.

    In 2007, Intelenet Global Services, a global BPO provider based in Mumbai, acquired Travelport ISO, a captive business of Travelport Group, with 1,100 employees across two locations in India.

    “With the Travelport acquisition, we expanded our travel vertical,” says Manuel D’Souza, chief HR officer at Intelenet. “Companies launched captives to maintain control over intellectual property and cut costs. But third-party providers like Intelenet have grown in experience over the years and suffered through the hardships and now know how to achieve the best costs and fastest times.”

    Intelenet has morphed from a regional BPO firm with 25 employees in 2000 to a major global BPO player with more than 25,000 employees in 25 facilities. In 2007, Intelenet opened a new site in the Philippines with 300 employees. “The Philippines was a quick fix for us,” D’Souza says.

    “In the Philippines, recruitment is easy. Clients want proposals that offer standout choices, and the Philippines has strong availability of labor and strong English-language skills,” he says. “The Philippines stands close to India in the quality of candidates and the scalability of labor. In India, we have to do training for culture alignment and accent adjustment, and in the Philippines we have to do slightly less. There are no extra costs or time involved.”

    India-based Wipro Technologies also opened a new BPO center in the Philippines in January, adding 9,000 workers near Manila to its global BPO workforce of 20,000.

    In addition to substantial investments in the Philippines, Indian multinationals are now the third largest group of investors in Vietnam.

    Indian acquisitions and investments in Southeast Asia are part of a broader cross-border M&A binge now under way among Indian multinationals. In 2007, Indian cross-border M&As hit $33 billion, up 85 percent from 2006.

    Intelenet is part of the trend. In addition to buying the Travelport captive in 2007, Intelenet acquired a U.S.-based BPO firm with facilities in the United States, Guatemala and Panama and a delivery center with 700 seats in Mauritius. The acquisition immediately added Spanish and French to Intelenet’s language portfolio and expanded its reach to two new continents.

    Despite wage inflation averaging 15 percent across India, labor costs are a secondary factor in Intelenet’s expansion abroad.

    “Costs are not a primary concern in India,” D’Souza says. “We contain our wage cost increases through our employer-of-choice status.”

    Instead, the primary reason is developing global solutions with onshore and near-shore capabilities for clients worldwide.

    “We are constantly looking at other locations for building our global footprint and our language capabilities,” D’Souza says. “Customers want to spread risk.”

Workforce Management, April 21, 2008, p. 23 — Subscribe Now!

In the first six years that 401(k)s were available, 7.5 million employees enrolled and total plan assets reached $92 billion, according to the Employee Benefit Research Institute. After six years of consumer-driven health plans, only 3.8 million employees are enrolled, and health savings accounts hold only $4 billion. It should be noted, however, that it took 401(k)s 10 years to surpass defined-benefit plans in number of participants, and 20 years to enroll a majority of workers.

    Even now, with 401(k)s hitting the 30-year mark, participation and savings remain woefully inadequate. Only 77 percent of employees with access to a 401(k) participate, the median account balance is only $66,650, and asset allocation is often bizarre. There’s little reason to think that the same employees who can’t manage 401(k)s are prepared to run a cost-benefit analysis for their health care spending.

    “Transformation takes time,” says Jay Savan, principal at Towers Perrin. “For 30 years, we engrained people in managed care. The consumer-driven arena has existed for only six or seven years, but people are aggravated because they don’t see results. Given the newness of the plans, the indicators are actually pretty good.”

    Savan notes that HSAs are really savings vehicles that are even more tax-advantaged than 401(k)s. “Account-based health plans have value to employees because they enable retirement,” he says.

    The savings are slim, however. According to America’s Health Insurance Plans, 88 percent of the HSA accounts in 2006 had average annual balances of less than $2,500; only 4 percent had balances of more than $5,000.

“People are aggravated because they don’t see results. Given the newness of the plans, the indicators are actually pretty good.” —Jay Savan, principal, Towers Perrin

    Empirical research demonstrates that a company match is necessary to drive 401(k) participation; early evidence from consumer-driven health plans also points to a need for employer seeding. But more than a third of the large employers offering HSAs do not contribute to the accounts, and among those who do, the average contribution is only $626, according to Mercer.

    The tax savings from health savings accounts are not likely to cover the average deductible. For a single taxpayer earning $40,000 a year in 2007 and using the standard deduction or itemized deductions of 18 percent before HSA contributions, the tax savings from a maximum account contribution of $2,850 would be $428, according to the Treasury Department.

    Despite these limitations, the consumer-driven health plan industry, including many financial institutions, continues to push the plans. Two-thirds of the financial institutions responding to a January 2008 Wolters Kluwer Financial Services survey already offer HSAs, and one-third of those that don’t are planning to offer them in the next quarter. The Financial Research Corp. forecasts that health savings account assets will reach $15 billion by 2010, a pittance compared with the more than $2 trillion in 401(k) accounts, but a potential new market for the banking sector.

    Despite the comparisons to 401(k)s, employers are unlikely to shift all health costs to employees or to cut coverage to catastrophic care only, according to Blaine Bos, a partner at Mercer.

    “To move costs totally onto employees, you would have to reform the entire health insurance industry,” he says. “We could go to a place where employers offer catastrophic coverage only, but there’s not a lot of appetite for that when benefits are an important part of the compensation package and most employers are concerned about recruitment and retention.”

Workforce Management, April 7, 2008, p. 26 — Subscribe Now!

Few industries match telecommunications for cutthroat sales competition, but the industry has traditionally lagged others in designing highly leveraged sales compensation programs to boost revenues. Embarq Corp., a $6 billion telecommunications company formed in 2005 as a spinoff from the Sprint/Nextel merger, broke from the industry pattern two years ago with a sales pay plan that puts 30 percent of total cash compensation at risk.

    The purpose of the program is to drive sales along specific product lines. “If agents are hitting their targets, that should translate directly into revenue goals,” says Kim Povirk, Embarq’s general manager for consumer market sales and service. But when Embarq recently looked at pushing the variable portion even higher, the perpetual question arose: When is too much pay at risk?

    “Sales organizations are grappling with this question,” says Michael Herman, a principal with Deloitte Consulting and national leader, sales force effectiveness. “They want to make sure that they motivate effectively and strike the right balance. Many companies are now taking a step back and looking at who should receive variable pay and how much pay should be at risk.”

    In the most recent Deloitte survey of sales organizations, companies continued to report excessive levels of complexity in sales plan design, cost misalignment and missed quotas. “The critical question is, who are the key people who have influence over the sale?” Herman says. “Who has a direct line of sight and should have pay at risk?”

70/30 split
   Embarq found the answers to these questions in a relatively simple sales pay plan that is now driving revenues. Based in Overland Park, Kansas, and operating in 18 states with 19,000 employees, Embarq began trading as a separate company in May 2006 and has emerged as one of the best-performing organizations in the sector. At Embarq’s 12 call centers, 1,300 sales reps and 120 supervisors now work under the 70/30 pay split along with an additional 400 employees in 51 retail stores.

    Embarq’s 70/30 split evolved from a completely unleveraged plan to a 95/5 split, then an 85/15 split and, finally, the 70/30 plan in 2005. The high level of variable pay requires absolute accuracy in record keeping, so Embarq moved into a software-based compensation administration program with the leveraged plan initiative.

    Monthly base pay for agents averages $1,762. Under the incentive plan, an agent performing at 100 percent receives an additional $755 a month in variable pay. Two-thirds of the agents are currently hitting above 100 percent of target.

    The 30 percent that is at risk is based on two components. The first, representing 40 percent of the variable portion, is based on achieving overall revenue targets; 60 percent is at risk for targets relating to four critical products.

    The targets for the four products are weighted, based on the company’s strategic goals. High-speed Internet service accounts for 25 percent of the 60 percent at-risk component. Packages account for 15 percent, and wireless and satellite television each are set at 10 percent. Every agent receives specific targets for each of the four products.

    A sales agent performing at 100 percent of target receives a monthly incentive payout of $302 for revenue growth, $188.75 for the high-speed Internet payout, $113.25 for packages, $75.50 for satellite TV and $75.50 for wireless activations.

    “Agents routinely hit 200 percent to 300 percent of their target,” Povirk says. “At 300 percent of target, agents are more than doubling their base pay.” Payouts are capped at $10,000 per month. Revenue results reflect the emphasis placed on Internet service sales, which jumped 27 percent for the year ending in the third quarter of 2007.

    The leveraged part is paid out monthly, but sales and the incremental increases in variable pay show up on agents’ statements within 24 hours. “We work very close to real time,” Povirk says. Agents see every sale for every product and the associated payout on their statement by their next shift.

    Embarq did not incorporate a merit increase under the original 70/30 plan. When the company determined that some form of pay increase was necessary, it conducted a study to determine whether it could raise the level of pay at risk. The study and professional consultation determined that higher levels were not desirable. Embarq then instituted merit increases as an alternative to increased incentives.

    Under the merit pay plan, agents are evaluated with a scorecard that includes four to six metrics and determines annual merit increases of 1 percent to 3 percent on the base pay portion of total compensation. Rankings are determined by the scorecard results, with no forced distribution.

    Embarq also launched a noncash rewards program for specific marketing incentives, using items such as iPods for agents who hit targets for special products. In addition, the company added a customer service bonus. With 30 percent of pay focused on sales, Embarq was concerned that agents might lose sight of the service component of their job, so the company now pays a $200 per month bonus for agents who meet specific service goals.

The right level of risk
   Embarq’s concerns about setting appropriate levels of risk for sales agents and maintaining customer service are symptomatic of larger shifts in the nature of sales work. “Sales organizations are changing because of the changing customer environment,” Herman says. “The customer experience is now the differentiating factor.”

    Consequently, many companies have replaced the single sales position with a constellation of sales jobs that includes pre-sales positions, salespeople, account managers and customer advocacy representatives. “This creates very complex organizations and has a very high cost impact,” Herman says. “Companies need this complexity to face off against the market, but they can’t handle it administratively and it often comes at a high cost that customers won’t pay.”

    With complexity and costs moving well beyond what many companies can manage, some organizations are now pushing for greater simplicity in their sales compensation plans. This push begins with re-evaluating which positions should be included in variable pay plans.

    Setting the appropriate level of pay at risk hinges on the extent to which the salesperson can influence the transaction. In some cases, the sale may require substantial skill and effort. In others, the brand name may drive the business to the agents.

    Herman notes that setting the level of pay at risk also depends on company-specific factors. Pay philosophy plays a role. “Some companies want to provide significant upside to high performers; others are reluctant to push variable pay beyond a certain level,” he says.

    In other cases, organizations are trying to not just simplify their plans but also to exert more control and ownership over the client. “The more pay is at risk, the more the sale representatives are going to try to hold on to their clients and protect their clients as their own,” Herman notes. Reducing the risk level can reinforce the company’s direct relationship to the customer.

    Smaller firms may need to reduce their fixed costs by increasing the variable portion of pay. Companies that are trying to build rather than simply hold market share may also need higher levels of pay at risk.

    The level of pay at risk also reflects industry conditions. In industries where margins are not significant, large variable payouts are not viable. In addition, industries with long down cycles may need to limit the variable portion and pay higher straight salaries to employees to help them maintain a more consistent cash flow. In every case, Herman cautions, companies need to be aware of compensation levels at both traditional and nontraditional competitor companies.

    Herman notes that levels of variable pay should also reflect the firm’s ability to measure the relevant factors in evaluating performance. If employees believe that the factors used to determine variable pay are not relevant or measurable, the plan will not be effective.

Altitude markers
   Companies can watch for specific signals that the portion of pay at risk is too high. Herman warns that an uptick in turnover may be a marker. In addition, if there is no natural bell curve in performance ratings, the company may need to re-evaluate the levels of pay at risk.

    If commission costs are too high relative to sales revenues or if there is an adverse reading in this metric, the company may need to take a second look at the levels of variable pay. “At the end of the day, any plan must have strong governance surrounding it that monitors the plan and the data so changes can be made close to real time and before the plan is off kilter with the original intentions,” Herman says.

    Excessive levels of pay at risk often undermine strong customer service. Herman reports that many companies are changing their sales models to incorporate account managers who are responsible for the overall well-being of accounts and product sales managers who focus on closing the sale.

    Adding a bonus plan for sales representatives who maintain high standards for customer satisfaction can be effective if solid performance measures are in place. “Customer service is based on a really subjective set of measures,” Herman says. “If you can capture customer service, a bonus tied to goals is a great way to handle it.”

    The general guidelines apply for setting levels of risk, regardless of the level of base pay. “It takes a higher level of skill to sell yachts than to sell wireless activations,” Herman says. “Finding the right level of risk can drive revenue-generating behaviors across different skill sets.”

The real innovations in HR today are coming from companies caught in the most difficult industries, where adversity is the mother of invention.

Peter Perez is working under a time-sensitive mandate to reinvent corporate culture, jump-start employee engagement, create a new communications program, overhaul the performance management system, collapse 50 pay plans into one and meet insane goals for internal promotions. He needs to do all this while he manages 26,500 workers—half of whom are unionized—spread over 100 plants in an industry that is under attack from all sides.

Perez is executive vice president of human resources at ConAgra Foods Inc., where a revolution is under way.

“With all the chaos in the corporate world and all the chaos here, my biggest focus has to be to stay on top of the business and not get lost in the HR agenda,” he says. “I have to stay focused on driving results this quarter, this year.”

By almost any measure, he has succeeded. Employee engagement, retention and internal promotion metrics show remarkable results, and ConAgra’s financial performance is stellar despite two costly product recalls, soaring grain and fuel prices and exposure to the long list of corporate challenges that have rocked profitability for U.S. companies during the past year.

Omaha, Nebraska-based ConAgra reported $12 billion in revenue for fiscal 2007. More than half came from the company’s consumer foods segment, which includes such brands as Banquet, Chef Boyardee, Egg Beaters, Healthy Choice, Hunt’s, Libby’s and La Choy. The ConAgra workforce is an awkward mix of 20,000 hourly production workers—mostly unskilled operatives—and 6,500 salaried, professional and managerial employees located in the major hubs.

ConAgra is the fifth-largest company in the U.S. food manufacturing industry, which pumps out a half-trillion dollars a year in products and employs 1.4 million workers. Producers are reeling from food safety problems, consumer lawsuits, constant regulatory changes, trade restrictions, shifting workforce demographics, high workplace injury rates, labor strife, animal rights protests and increasingly demanding buyers.

“With all the chaos in the corporate world and al the chaos here, my biggest focus has to be to stay in top of the business and not get lost in the HR agenda. I have to stay focused on driving results this quarter, this year.” —Peter Perez, executive VP of human resources, ConAgraFoods Inc.

This dark constellation of business pressures forms the backdrop for the industry’s workforce management executives who, like Perez, must squarely address basic plant operations and cost issues with one hand and unleash performance management and employee engagement innovations with the other. Three-fourths of the industry’s workforce consists of relatively unskilled production workers from diverse racial and ethnic backgrounds, some unionized and some not.

The business press may love Google and Yahoo for their innovative stock plans and perks like concierge services, but the fact remains that HR executives in the food industries manage more workers than all the high-tech industries combined, and they work with a much fuller range of HR issues than their counterparts in the relatively soft world of ISPs, portals and programming. Up and down the industrial food chain, from the meat and poultry producers to the food manufacturers to the retail food stores, best practices are emerging from tough places.

New operating principles
ConAgra has seen its share of the challenges that make workforce management and innovation particularly difficult. Just a few months after Perez joined the company in 2003, a production line worker shot and killed six co-workers at a ConAgra plant. As the company moved into restructuring, thousands of employees lost their jobs. Labor relations have been rocky, and salmonella poisoning outbreaks have sliced millions from the bottom line. Ongoing plant closings and safety issues continue to generate workplace tensions.

In 2005, ConAgra was staring at a stagnant top line, weak margins and unacceptable return on invested capital from an unwieldy portfolio of 50 operating companies with no coherent discipline. The board brought in a new CEO with a mandate to reinvent the company. Today, Perez is one of only two top corporate leaders who predate the 2005 shake-up. He holds an MBA from Northwestern University’s Kellogg School of Management, and like ConAgra’s new CEO, CFO and the executive vice president for research, he pulled a stint at Pepsi earlier in his career.

The mandate for change required a fundamental upending of the company. “We needed to switch from an 80 percent commodities and 20 percent branded foods split to the opposite,” Perez says. “And we had to move from being a big holding company of 50 independent operating units to one entity that could leverage scale.”

In fiscal 2006, the company implemented a restructuring plan with completion set for the end of fiscal 2008. The goals include stripping out $100 million in annual costs. “We are integrating all the units in one big bang,” Perez says. “This requires massive innovation to drive higher margin growth. It is an unbelievably huge undertaking.”

The mandate generated what the company refers to as six “must do’s.” The first five focus on optimizing the portfolio, innovating for sustainable growth, improving the cost structure and margins and meeting customer expectations. But the sixth is a clear directive for the HR function: “Nourish our people to build an inclusive and winning culture.”

The new culture is built on three operating principles: simplicity, collaboration and accountability. “These are not just bookmarks that look nice,” Perez says. “They are driving principles.” The three new operating principles now determine HR strategy.

Simplicity required divesting acquisitions that were never fully integrated, including ConAgra’s troublesome meats, seafood and cheese processing units. This set off massive headcount reductions. The simplicity imperative also arose from customer demands. “Customers like Wal-Mart want one face,” Perez says. Wal-Mart, now universally acknowledged as one of the most demanding buyers in the world, represented 13 percent of ConAgra’s net sales in fiscal 2007.

The collaboration principle calls for alignment toward the same objectives throughout the company with a decisive focus on higher-margin brands. “The collaboration element is the most important and the toughest to implement,” Perez says. “We had to force the independent operating companies to get on the same page with everything from procurement to pay plans. We have labeled this internally as the ‘one ConAgra approach.’ ”

In addition, the company moved to enterprise-wide standards for all functions, including HR. The shift to one coherent organization with unified functions underscored the need for a new culture. “We had to move from many cultures, with very low employee engagement and communication, and low development of our people, to one culture,” Perez says. “And we needed all units working together toward the hierarchy of brands instead of each unit working only for its own products.”

“There was so much improvement in the engagement measures over the past year that our consultants asked us to double-check the numbers.” —Peter Perez

The new approach also meant moving from 50 separate incentive plans based on each operating unit’s results to one plan with payouts determined by ConAgra’s companywide performance. “Now everyone lives or dies by one plan,” Perez says. In addition, all salaried employees have the new operating principles built into their performance goals. ConAgra instituted a much more aggressive pay-for-performance plan to reinforce the change, with rewards based on cost savings and top-line growth objectives.

“We also initiated a massive marketing and communications program to change the hearts and minds of more than 20,000 people,” Perez says. Ongoing employee communications now range from frequent town hall meetings to a new onboarding program. In 2007, ConAgra launched its first “People Annual Report,” which documents progress toward key goals. The report includes metrics for employee engagement, internal and external hires, retention and diversity.

Driving engagement
The accountability principle holds employees responsible for two behaviors: pushing for decisions and speaking up about problems, with a clear focus on attacking costs and boosting plant efficiency. Its success relies heavily on production employees identifying better production methods.

The framework for the accountability principle is the new ConAgra Performance System, based on Toyota’s hugely successful production management process. The ConAgra Performance System is designed to increase operational efficiencies and employee engagement. The new system is now being introduced across all ConAgra plants. “It speeds up the lines and takes out downtime,” Perez notes.

“This is a dramatically different approach for us. Before the change, there was no engagement or communication. CPS is critical. It provides an opportunity for two-way communications.” ConAgra is also issuing a monthly report that plant managers give to hourly workers to keep them fully abreast of conditions in the industry and the company.

Buy-in from production workers is essential, and the payoff for them centers on improvements in working conditions and job security. According to Perez, the response to the performance system has been overwhelmingly positive. “Production workers watched for years while we did stupid things,” he says. “They were tremendously frustrated. If you are on a plant floor and the plant does not work well, your job is more painful.” ConAgra also focused on building support across shifts to end the problem of one shift dumping work and unresolved issues onto the next.

In fiscal 2007, the ConAgra Performance System initiative boosted engagement and accountability and raised plant equipment effectiveness by 4.4 percent, generating $30 million in savings. “The bottom line for production workers is that the better their plant runs, the more secure their jobs will be and the more they can make decisions and drive results,” Perez says.

In a number of plants, ConAgra uses a gainsharing plan—pay incentives for boosting performance and reducing costs—and it is now introducing it across additional plants to make gainsharing universal. “Gainsharing allows us to tie the individual’s performance to the company’s performance,” Perez notes.

ConAgra also adopted GE’s groundbreaking Work-Out system, which involves every employee in efforts to raise productivity and eliminate waste, as a new “Road­map” program for the salaried workforce, with a decisive focus on process improvements and cost reductions.

Perez is also managing new mandates for organizational development and talent management. “Culture is big, but talent and organization structure are huge,” he says. “Turnover was high and we constantly had to go outside for hires. It was a horrible situation. You can’t sustain a company on that basis.”

To reverse this trend, ConAgra now focuses explicitly on bringing in top talent that can be promoted. The company also built an organizational development program from scratch to boost promotion from within. “It is completely essential that employees know that they can build their careers at ConAgra,” Perez says.

The company is now at 60 percent internal promotions. The three-year interim goal for internal promotions is 70 percent, and the company is ultimately looking for 85 percent to 90 percent.

Senior leadership reviews human capital metrics quarterly, including the ratio of internal to external hires, diversity hires and promotions, and retention. ConAgra uses a five-point performance management scale. If an employee with a rating in the top three leaves, ConAgra counts the quit as “regret” turnover. The goal for regret turnover is no more than 5 percent.

The top management team also looks carefully at survey results for employee engagement, which measure the company’s status as a preferred employer and whether employees are willing to recommend it as a place to work. Baselines established at the beginning of the process measure improvements. “There was so much improvement in the engagement measures over the past year that our consultants asked us to double-check the numbers,” Perez reports.

In the middle of all this change, Perez must still devote considerable time to plant safety, where the company has made dramatic improvements. Food safety and quality issues also spill over into workforce management. “We have to keep workers focused on this,” Perez says.

He also invests time in labor relations. “We have to maintain good relations with the unions and keep our nonunion shops nonunion. Also, all across the lower end of the organization, there is a lot of pressure around retention, and we have to deal with this.” Five thousand of the company’s 13,000 unionized workers are covered under contracts that expire in fiscal 2008.

May 2007 marked the end of the company’s first full year as the new ConAgra Foods, fully focused on higher margins and cost improvements. Fiscal 2007 total shareholder returns hit 16.3 percent, up from a dismal -10.7 percent in 2006. The company increased its projected annual earnings growth to 8 percent to 10 percent for fiscal years 2008-2010.

The percentage of employees reporting that they are proud to work at ConAgra rose 14 percentage points in one year to 79 percent, well above the 75 percent benchmark for high-performing companies. The percentage expressing confidence in the company’s leadership rose 40 points to 73 percent, substantially greater than the 62 percent high-performing benchmark.

“For me, it’s been a huge challenge to stay on top of our HR initiatives while maintaining all the traditional HR functions, including labor relations, HRIS and benefits,” Perez says. Still, the heavy lifting has not detracted from successful innovation. As the U.S. economy heads south and more companies slip into hard times, ConAgra’s experience may prove instructive.

Workforce Management, February 18, 2008, p. 1, 18-25 — Subscribe Now!

SuperValu Inc. is the third-largest food retailer in the country, with $44 billion in annual revenues and 200,000 workers in 2,500 grocery stores and 35 product distribution centers, all managed from headquarters in Eden Prairie, Minnesota. Fifteen thousand employees work at the distribution centers, pulling products off of racks that reach 30 feet high and loading them onto pallets.

    “We know that one of the primary drivers of improved productivity is financial accountability for results,” says Jim Koskan, corporate direc- tor of risk control. “Every profit center is responsible for the cost of employee injuries, and we review these numbers monthly.” In an industry with razor-thin margins, excessive injury costs can have a substantial impact on financial results.

    The retail food industry is the largest employer in the entire retail sector, and the most dangerous. The supermarket injury incidence rate of 6.5 per 100 equi- valent full-time employees for 2006 is a full 2 points higher than the rate for all private industry. But with comprehensive safety programs in place, SuperValu has achieved injury rate reductions ranging from the high single digits to the low teens every year for the past five years, and now has rates that are consistently below the industry average.

    The company has also slashed the cost of the injuries. Ten years ago, SuperValu installed on-site clinics in its distribution centers and then outsourced the project to Medcor Inc., which provides both on-site clinics and on-call 24/7 triage services to a wide range of companies.

    “When we saw the results of the on-call services, we decided that it made sense for all locations that couldn’t support a full on-site clinic,” Koskan says. SuperValu is now completing the on-call rollout to all 2,500 retail stores.

    “With the on-call tool, we can track how many calls result in referrals to physicians and how many lead to treatment at the facility, which we call ‘saves,’ ” Koskan says. The percentage of injuries now treated on site ranges from 20 percent at some facilities up to 60 percent at others.

    Across all 30,000 work sites that now use Medcor’s on-call service, 50 percent of injuries are treated on site, according to the company. Cost savings come from the reduction in the number of physician visits, which translates directly into reduced workers’ compensation claims.

    Injured workers speak directly with a registered nurse, who uses proprietary software and clinical protocols to determine if the injury can and should be treated on site. All calls are logged and recorded. Medcor adds clients as additional insureds on its malpractice policies. “Many clients hire us because they are interested in risk shifting,” says Curtis Smith, Medcor’s vice president.

    On-site clinics also produce significant savings. The smallest staffed on-site clinic costs $200,000 on average, including the cost of space and supplies, and should reduce claims by 50 percent to 75 percent, according to Smith. “The point is not to build the most comprehensive clinic, but to build a lean clinic that can deliver the best value,” he says. “To find the sweet spot, you have to know the costs and determine what is the least amount of program that will achieve results.”

    Substantial savings occur downstream as claims decline. “But the most sophisticated buyers look beyond claims reduction to recruiting, retention, productivity and a net decrease in all heath care costs,” Smith notes. “Across all industries, any site with more than 1,000 employees will see cost savings from an on-site clinic. In low-injury environments such as white-collar sites, the savings come from greater wellness and prevention efforts, such as on-site strep tests and flu shots and monitoring preventive testing.”

Workforce Management, February 18, 2008, p. 23 — Subscribe Now!