Author: Site Staff

Hewitt Associates’ woes continued Friday, November 10, when the HR services company reported disappointing financial results and more trouble in its outsourcing operations.

The Lincolnshire, Illinois-based firm posted revenue for the quarter ended September 30 of $727.6 million, up 0.9 percent from the same quarter a year ago. Hewitt’s net income for the quarter was $23 million, down 43 percent from a year ago. At Hewitt’s outsourcing unit–which accounts for more than half of the firm’s business–revenue, income and profitability all fell during the quarter.

Jim Wilson, equity analyst at investment firm JMP Securities, said Hewitt fell short of Wall Street analysts’ expectations for the quarter. But the company, which acquired HR outsourcer Exult in 2004, may not be any worse off than competitors in the HRO arena such as IBM and Accenture, Wilson says. The field is still just a few years old and marked by extremely complex arrangements, he says.

“It’s not clear who, if anybody, has found a way to make money on these deals yet,” he says.

Hewitt is among the leaders in comprehensive HR outsourcing, which involves a company farming out tasks such as benefits enrollment and compensation. The firm ranked first this year on Workforce Management’s list of the top end-to-end HR outsourcing providers, with more than 30 such clients.

A study published last month by research and consulting firm EquaTerra found signs of growing demand for outsourcing services overall, which can include information technology tasks and finance and accounting duties. But the report also said outsourcing service providers face challenges including increased competition and a tight supply of skilled workers.

Hewitt, according to EquaTerra’s report, appears to be slipping in the outsourcing market. More than 35 percent of EquaTerra advisors saw Hewitt as losing market share during the third quarter of 2006, while slightly more than 10 percent considered Hewitt to be gaining market share during the period.

For the year ended September 30, Hewitt’s outsourcing revenue fell 3 percent to $1.98 billion and it registered a loss of $77.9 million, compared with income of $177 million in the prior year.

Hewitt recently appointed a new CEO, Russell Fradin. On Friday, Fradin said the year ended September 30 was “challenging” on many fronts, and he pledged to work on fixing the HRO unit. “Despite solid performance in benefits outsourcing and consulting, we significantly under-delivered on our financial objectives for the year, reflecting deterioration in the expected profitability of some of our HR BPO [business process outsourcing] contracts,” Fradin said in a statement. “Looking ahead, we’re refocusing on the areas that will drive greater value and more consistent, predictable results. Our attention in the near term will be on accelerating the growth of the benefits outsourcing and consulting businesses, and redefining our approach to the HR BPO business.”

Also Friday, Hewitt said it had “higher performance-based compensation” compared with a year ago. Analyst Wilson finds that puzzling given the poor financial performance. “It doesn’t make a lot of sense,” he says.

Hewitt could not immediately be reached for comment.

—Ed Frauenheim

A hastily convened meeting in Washington, D.C., later this month could be the first of several nationwide to focus on steps employers can take to use their purchasing power to lower health care costs.

The November 17 meeting is sponsored by the Business Roundtable, along with the U.S. Chamber of Commerce, the HR Policy Association and other business groups. Plans for it were launched in October, when Health and Human Services Secretary Michael Leavitt agreed to speak about practical steps employers could take in their contracts with health insurance companies. The goal is for employers who pay for health insurance to use common methods that focus on making the cost and quality of medical care more transparent.

Numerous public- and private-sector employers, including the Centers for Medicare and Medicaid Services, have been working on reforming the way employers purchase health care. Medical services are paid based on negotiated prices, which, unlike other markets, does not take into account the quality of what is provided. The effort, called value-based purchasing, begins by evaluating the quality of medical care against a standardized set of measurements and then makes the results available to employers and consumers. The last phase would be to develop a system where compensation is based on performance.

“It is one of the biggest changes in health care I’ve seen in the last decade: standard measures and transparency,” says Karen Linscott, COO of the Leap­frog Group, an employer-sponsored organization that has developed quality standards for hospitals.

Leapfrog is organizing the event, which will include presentations by employers with experience negotiating contracts that foster such goals. Invited speakers include executives from Boeing and IBM; Leslie Norwalk, acting director of the Centers for Medicare and Medicaid Services; Allan Hubbard, assistant to the president for economic policy and director of the National Economic Council; and Carolyn Clancy, director of the Agency for Healthcare Research and Quality.

Federal officials crystallized their commitment to those goals in President Bush’s executive order on health care transparency in August. But not enough is happening in the private sector, Leavitt said during an October 12 speech in Chicago. He told employers he had traveled to communities where quality standardization was unfolding.

“We still have a long way to go,” Leavitt said. “We’re far from developing a scalable capacity.”

During the November meeting, employers will learn how to make sure contracts require insurance companies to rate medical providers according to universal standards of care, then make that information available so doctors will be paid based on performance.

“We are urging employers to use their purchasing power, just as the federal government is using its purchasing power to transform quality,” says Maria Ghazal, director of public policy for the Business Roundtable. “That is absolutely the goal.”

Though the timing of the meeting may be difficult, since many employers are in the middle of open benefits enrollment, Leavitt says the reforms are urgent as the clock ticks on the Bush administration.

“I have 828 days and I’m feeling an urgency on this,” Leavitt said October 12. “Every day, this is my focus.”

The initial meeting, at Washington’s Ronald Reagan Building, is expected to be replicated in other cities.

—Jeremy Smerd

Dear Keeping Everyone Happy:

Building a customer-service-oriented culture can be a huge challenge for an organization of any size or complexity. However, it can be done and done well. Just look at Southwest Airlines, Ritz-Carlton Hotels, Nordstrom and Whole Foods Market as some examples of companies renowned for providing world-class service.

 

There are four steps to building a customer-service-oriented culture:

 

Gain commitment from the top
Creating a companywide service culture begins with senior management. The importance of serving customers must be communicated and reinforced constantly throughout the organization.

 

Most of us at one time or another have heard a CEO proclaim, “We are a customer-focused company.” But when you look behind the curtain, you still see long lines, extended wait times, poorly trained staff, inadequate responses and dissatisfied customers.

 

Develop a comprehensive plan
As with any project of this magnitude, you must have a comprehensive plan to succeed. Goals must be set, tasks identified, responsibilities assigned, timelines established and resources allocated.

 

Some companies develop their customer service plans internally using an in-house project manager. Still others hire consultants. Regardless of the option you choose, the planning team should involve employees at all levels.

 

Soliciting employee opinions helps identify and resolve potential issues before they become major roadblocks to cultural change. Many companies conduct employee-satisfaction surveys to benchmark the current culture, and also to establish a baseline for measuring employee satisfaction in the future. Satisfied employees deliver satisfied customers, so measuring customer satisfaction should be an integral part of your plan.

 

Implement the plan
Implementation usually involves a series of meetings between various levels of management and staff. Although the media may vary based on the audience, the message should include the what, when, why and how of building a customer-focused culture. At these meetings, provide examples of good and bad service, communicate performance goals and identify measurement tools.

 

It is critical to frequently reinforce the goals and successes of your program. This can be accomplished with refresher sessions and reports of progress publicized via companywide meetings, newsletters, staff e-mails, other internal news media and external media outlets.

 

Measure success
Many world-class service providers link employee and customer satisfaction scores to staff performance at all levels. The scores affect salaries, bonuses and job security.Building a customer-service-oriented culture is challenging. Taking steps like those outlined above should give you more satisfied employees–and more loyal customers.

 

SOURCE: Roger H. Nunley, managing director, Customer Care Institute, Atlanta, December 30, 2005.

 

LEARN MORE: Another article discusses the role employee training plays in boosting customer service.

 

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

Dear Penny-pinching:

Employee turnover is an important tool to use in measuring a company’s success. But let’s be honest: There are different costs associated with “good turnover,” in which underachievers are separated, and “bad turnover,” in which quality performers leave for other opportunities. Therefore the data alone does not tell a whole story. Radical as it may seem, some turnover can be good–even desirable, in some instances.

 

But let’s start with the basics. There are certain quantifiable costs involved in filling a vacancy, whether it’s caused by good or bad turnover. These costs are composed of employment advertising fees (print or online), recruiter fees (contingency or executive search,) assessment tools and background checks, travel and relocation costs, HR staff time, and new employee orientation and training. Additionally, turnover will have a qualitative impact on productivity, with work being reassigned and new hires needing time to learn their new jobs.

 

Now let’s take the analysis one step further and distinguish the differences between good and bad turnover. When a valued employee leaves, not only do you incur obvious costs, but the company also loses that employee’s internal corporate knowledge and experience, external client contacts and sources–and it faces the possibility that the employee will use his or her skills to work for a competitor. Alternatively, when a marginal employee leaves, a company has the opportunity either to incur a savings by not filling the job or to recruit an employee that adds more value than the one who has left.

 

The obvious question from human resources’ perspective is how to avoid bad turnover, rather than how to avoid turnover in general. In order to fight bad turnover, every manager in your company should be trained in employee relations, conflict resolution and the implementation of equitable corporate policies and procedures. An employee-retention program that is geared toward maintaining a positive corporate culture and employee well-being always attracts job applicants. However, discouraging bad turnover requires properly trained managers working with human resource strategists to recognize telltale signs of frustration among employees, especially in areas within their direct control. In the end, it is frontline supervisors who are accountable for employee satisfaction within individual departments. Success means giving those managers the proper tools.

 

SOURCE: Alice Winkler, E-Consortia , New York City, December 23, 2005.

 

LEARN MORE: Please read The Turnover Myth.

 

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

Plans by the new Democratic-controlled Congress to negotiate Medicare drug prices directly with manufacturers could lower the cost of the federal health insurance program for seniors and make it easier for employers to discontinue retiree health benefits.

Experts agree that by using its huge purchasing power to negotiate lower prices for prescriptions, the federal government could lower the cost of Medicare Part D, the prescription drug benefit for retirees. It would lower overall premiums for supplemental insurance, which is more expensive for individuals than insurance purchased by employers.

Should this occur, it could “make Part D even more attractive from a retiree’s perspective and result in a further acceleration of the trend among employers to drop retiree medical, at least for post-Medicare retirees,” Eric Grossman, a health benefits consultant with Mercer Health and Benefits, writes in an e-mail.

Reining in the cost of health benefits for retirees is a major issue for employers because retirees spend more per capita on health care than younger workers do. That spending will increase significantly as baby boomers retire.

Employers struggling with health care costs have been slashing retiree health benefits. Last week, Ford Motor Co. announced it would end retiree health benefits and opt instead to give retirees and their spouses $1,800 each to put toward health care. Earlier this year Chrysler made similar plans for retiree health benefits beginning in 2007.

The percentage of Medicare-eligible retirees who had employer-based supplemental health insurance dropped to 36 percent in 2004 from 66 percent in 1988, according to the Kaiser Family Foundation. Employers could opt to pay for Medicare premiums or a portion of out-of-pocket expenses, if the cost of doing so saves them money.

Beyond retirees, any new legislation allowing for the federal government to negotiate drug prices directly with manufacturers could affect employers in their efforts to pay less for prescription drugs. For employers struggling to tamp down increased pharmaceutical costs for their working population, a savings in Medicare Part D could give employers greater leverage when negotiating how much they will pay for pharmacy benefits, says Edward Kaplan, a pharmaceutical benefits consultant at the Segal Co.

Under the Medicare plan as passed under the Medicare Modernization Act of 2003, insurance companies and pharmacy benefit managers negotiate drug prices with manufacturers and fold that cost into their premium prices. Though Democrats have not unveiled details of the plan for how the government would negotiate prices, Kaplan believes it could include an open bidding process aimed at getting a manufacturer’s generic drug on the government formulary. The competition for business would likely drive down price, even though the final price would be fixed.

“If they do something like that, I think employers very quickly will want to leverage what is published,” he says.

Kaplan says lower prices could be used as a new benchmark for employers as they negotiate what they will pay for drugs.

But drug manufacturers could raise prices in other ways, possibly shifting the cost onto private employers either directly or indirectly, says Paul Fronstin, director of health research at the Employee Benefits Research Institute.

“You could argue drug companies would raise prices to pay for active employees and there will be a cost shift,” he says. “They are going to rob Peter to pay Paul.”

If pharmacy benefit managers play a smaller role in procuring discounts on drugs covered by Medicare Part D, they would likely make up the squeeze on their profit margin by increasing the fees they charge to adjudicate drug claims. An upside to this possibility, Segal says, is that administrative fees are more transparent.

The plan, which is scheduled to be taken up within the first 100 hours of the new Congress in January, will be among the first tests of the Democratic-controlled House. Lawmakers can expect heavy opposition from the pharmaceutical industry. With President Bush’s veto power, Fronstin says, “this thing is not a slam-dunk.”

—Jeremy Smerd

A recently released study gives new insight into how company recruiters perceive various methods for finding talent. And as other studies have shown, it comes down to who you know. Or, more precisely, who employees know.

Seventy-five percent of survey participants said employee referral programs are effective or very effective tools, according to the survey conducted by ERE Media, an online forum and source of information for recruiters, and consulting firm Classified Intelligence. The survey, released in September, includes feedback from 343 respondents across a wide range of industries and company sizes.

Currently, less than one-third of hires actually come from employee referrals. However, more than 50 percent of respondents say they will increase spending on referral programs to further tap into the benefits the programs offer as recruitment tools.

Classified Intelligence founding principal Peter Zollman says employee referral programs are highly regarded because, relative to other recruitment methods, they are fairly inexpensive. Furthermore, the quality of candidates they yield tends to be high, he explains.

While referral programs appear to be a favored recruitment tool, print ads are at the other end of the spectrum. Almost 60 percent of the survey’s participants rated print ineffective or very ineffective.

The reviews on career fairs weren’t quite as scathing. Some respondents believe they do not provide good value, while others consider career fairs a good tool for branding. The latter group also says career fairs are handy when it comes to filling large numbers of job vacancies in a short period of time.

Job boards received overall positive marks, ranking second among recruitment tools. About 50 percent of study participants say they are effective or very effective tools for recruitment.

Information from the report suggests that reliance on electronic recruitment tools is here to stay. Ninety-eight percent of the study’s participants say they use job boards. Some participants say more than half of their hires were found through job sites. Ninety percent of the study’s participants say they have developed corporate career sites.

Although the feedback about job boards was generally positive, there’s room for improvement within the industry, the survey reveals. Niche sites and job boards are regarded favorably, but the jury is still out on the recruiting effectiveness of social networking sites. This category includes both business-oriented networking sites like LinkedIn and purely social sites such as MySpace. More than 40 percent of respondents say they use social networking sites to recruit employees, yet the majority of that group spend less than $25,000 annually on this recruitment method.

The survey’s respondents gave diversity sites poor marks. Zollman says it’s the only category in the study that received no votes for being “very effective” as a recruitment tool. Zollman believes diversity sites are in a tough position. “Candidates that bring diversity to the table don’t want to label themselves as minorities,” he says. “They just want to be considered another regular candidate.”

—Gina Ruiz

The case of former U.S. Rep. Mark Foley and his salacious electronic messages to teenage congressional pages has grabbed headlines and, depending on the outcome of tomorrow’s election, might even have shifted the balance of power in Washington.

But Capitol Hill is not the only place in America where problems occur when teenage workers mingle with adults who take advantage of age and power to sexually harass them. Lots of employers are in similar situations—and they often are no more adept at dealing with them than Congress has been, workplace experts say.

Generation Y’s ability to find information on the Internet means that they often know more about how they should be treated at work than their supervisors do, says Michael Cohen, an attorney in the employment services group at WolfBlock in Philadelphia.

“To think that they don’t understand or appreciate their rights is a colossal mistake,” says Cohen. Some 3 million young people ages 15 to 17 are in the labor force during the school year, says Cohen, citing Bureau of Labor Statistics figures from 2004, the last year data for that age group was available. The number rises to 4 million in the summer, according to the BLS data.

The Equal Employment Opportunity Commission is reaching out to that age group through its Youth at Work initiative, which has sponsored more than 1,600 employment rights events over the past two years involving 112,000 students, education professionals and employers.

The EEOC touts its success in litigating claims involving teens. In September 2005, Carmike Cinemas agreed to pay $765,000 to settle a sexual harassment charge involving young male employees and a male supervisor in Raleigh, North Carolina. In December 2004, Burger King paid $400,000 to seven female employees who were sexually harassed by a male manager in St. Louis.

Companies incur these kinds of costs when they fail to take seriously harassment training for youth and their supervisors, says Lynn Lieber, an employment lawyer and founder and CEO of Workplace Answers.

It’s especially important to reach teenagers, who are often in their first jobs and hesitant to make waves that might jeopardize future employment prospects, she says. They may know that a manager is wrong when he gropes them, but they are hesitant to defend themselves.

“It’s extremely difficult to get them to report,” Lieber says.

Making them more confident in fighting back requires communicating with them better. “Organizations need to speak to them in a language they understand,” Lieber says. Companies also should monitor interactions between supervisors and employees and respond to complaints.

A former congressional page says that the weakness of the Capitol Hill program is not the training it gives to the high school-age students who work in Congress.

The pages were told in no uncertain terms what kind of behavior would get them sent home, says Moira Whelan, who is now director of strategy and outreach at the National Security Network.

And there was no doubt that the directors of the school, dorm and work sections of the page program would protect a student’s identity if he or she reported harassment, Whelan says.

The question was what would happen next.

“There was no clear line of authority,” she says. “There was no designated advisor who could take whatever it was you had forward. It becomes no one’s job when it’s everyone’s job.”

—Mark Schoeff Jr.

Low-wage employees are more likely to be engaged and productive when they have access to the same types of benefits and opportunities available to high-wage workers, according to newly released research from the Families and Work Institute.

Creating a base of entry-level and hourly employees that is more productive and effective could boil down to one critical concept: access. According to newly released reports from the Families and Work Institute, low-wage employees are more likely to be engaged and productive when they have access to the kinds of benefits and professional opportunities that their high-wage counterparts enjoy.

The research defines low-wage employees as individuals earning about $9.70 per hour, with total annual income below 200 percent of the federal poverty threshold, or $39,612 for a family of four in 2005. The findings were drawn from the National Study of the Changing Workforce, which was conducted by the Families and Work Institute in 2002 and 2003.

The study sampled 3,504 workers in the U.S. At the time when the survey was taken, 12 million to 13 million employees were considered low-wage earners.

Creating a more egalitarian workplace would entail a multi-pronged approach by employers, says Ellen Galinsky, president and co-founder of the Families and Work Institute in New York City. Companies would have to pay close attention to narrowing the wide disparities in access to training, health insurance, paid vacation and other fringe benefits that elude many low-wage workers but are abundant among high-wage workers.

The imbalances are quite pronounced, Galinsky says. For instance, only 42 percent of low-wage workers receive personal insurance from their companies. By contrast, 94 percent of employees in high-earning brackets are offered personal insurance. Paid time off for personal illnesses extends to only 39 percent of low-wage workers, while 90 percent of employees in the high-earning segment have this benefit.

Even initiatives like training and development, which are directly correlated with productivity and employee effectiveness, are scarce among low-wage workers. The research reveals that 81 percent of high-wage earners have access to training or educational programs. Only 45 percent of low-wage workers had access to training or educational benefits.

Bridging the differences in benefits might take effort and dedication, but it wouldn’t necessarily break the bank for employers. According to Galinsky, many of the initiatives that can foster balance in the workplace require little investment and could produce a big payoff for companies.

Low-wage workers who receive more job autonomy and flexibility, for example, are less susceptible to negative spillover from home to work, which could reduce stress on the job and bolster productivity.

—Gina Ruiz

Event: HRO World Europe Annual Conference
Date: November 6-8, the Conrad Hotel, Brussels, Belgium

What: HRO World Europe brings together more than 350 executives from more than 20 countries to exchange their views and discuss the challenges they see facing their organizations’ HR outsourcing strategies. The conference is less of a trade show than its U.S. sister event, HRO World. With just a small exhibit hall, this show gives buyers and prospective buyers more opportunity to network and learn from each other.

Show info: For more information, go to www.hroaeurope.com/file/3439/hro-world-europe-2006—future-proof-hr-transformation.html.

Day 3: Wednesday, November 8

Data-driven: Like many European organizations, RBS (formerly Royal Bank of Scotland) decided to do a shared services center instead of an HRO deal. One of the main advantages of this approach is that the bank can keep all of its data in-house–a real concern for the financial services organization, Brian McLaren, director, HR shared services, said during his presentation.

However, what good is having the data in-house if HR managers don’t know how to read it? “HR people in general are not good with data,” McLaren says.

To address this issue, RBS is creating a People Metrics Advisory Group, whose job will be to present the data to HR in a readable format. Being a bank, RBS has many credit and data analysts in-house, and McLaren says he hopes to use some of this talent to staff the new group, which he hopes to make fully operational next year.

Biggest fear: Albert Martens, director of HR services at Ikea, was very upfront about his biggest fear regarding entering an HRO agreement: becoming too dependent on the vendor. That’s why the Swedish retailer decided to only outsource payroll and HR administration to ADP, while keeping things like performance management and recruiting in-house, he told attendees.

Recruiting is just too important a function for Ikea to outsource it. The company gets a million applications a year and expects to grow 33 percent in the next five years.

“Our people are our company,” he says.

Election time: The midterm elections in the U.S. were a hot topic Wednesday morning as the results continued to trickle in. In five states, there were huge debates between candidates who were self-proclaimed protectionists versus those supporting globalization, and four of the five protectionists seemed to have won their elections by early Wednesday morning.

Speaking at a panel discussion featuring analysts, Helen Neale, a business process outsourcing analyst in the London office of NelsonHall, said that while there might be a slight downturn in HRO contracts like there was during the U.S presidential elections, she didn’t anticipate a long-term effect.

After all, most companies realize that if you offshore jobs now, the organization will become more competitive and will hopefully be able to create jobs later, said Mike Friend, an analyst at IDC.

Only time will tell, however.
–Jessica Marquez

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Conference Notes: Day 2, Tuesday, November 7, 2006–And the Conference Begins

Word of the day: Transformation was the catchphrase of the day as the conference kicked off. As Jay Whitehead, publisher of HRO Europe and HRO Today, put it “The O-word has become a bad word.” By the “O-word,” Whitehead means outsourcing, and speakers throughout the day instead referred to the “HR transformation.”

For example, in the keynote session, “How Cultural Resources Support Business Transformation,” Geert Hofstede, a professor or organizational anthropology and international management at Maastricht University in the Netherlands, spoke about how country culture and corporate culture can affect a company’s “HR transformation.”

In the next session, “How Unilever is Transforming HR,” Reg Bull, senior vice president, global HR transformation, talked about how his company’s HRO deal with Accenture is helping it to transform into a more efficient operation. For Bull, outsourcing is one means that Unilever is applying to transform its business.

But whatever companies are calling it, Bull says not to underestimate the pain that organizations may feel from the process.

“There will never be a safe time to do outsourcing,” he says.

Time for sales pitches: If Tuesday morning’s panel discussion of vendors, “How to Best Evaluate the Different Transformation Options,” was meant to be informative to buyers, it failed. In fact, a number of attendees were disappointed that many of the panelists decided to use the time to pitch their products.

In his introduction, Whitehead, who moderated the panel of ADP, SAP, Oracle, Hewitt, IBM and Accenture, made it seem that it was going to be an interesting back and forth between competitors.

But for the most part, the panelists did not step up to the plate, choosing instead to discuss the uniqueness of their products yet shying away from bashing one another. In fact, when Whitehead asked each of the panelists which competitor they liked going face to face with, none would provide a name.

The most brazen self-promotion on the panel came from Stephen Randall, an HRO executive in the London office of Hewitt Associates. Despite the company’s troubles, he said: “For Hewitt, HR is all we do, so why would you do anything else?”

The one breath of fresh air on the panel was Mary Sue Rogers, human capital management global leader at IBM. She talked about how companies need to not just think about cost savings when doing HRO, but also think about increasing revenue per employee. As the labor market tightens up because of the aging workforce and it becomes harder to get good employees, she said, companies need to make sure they are getting the most that they can from their current workforce.

“Being able to get rid of payroll processes is easy,” she said. ‘Getting more revenue from employees is hard.”

Hitting your numbers: In a few of the presentations Tuesday, HRO buyers spoke about the challenges of figuring out and attaining the right ratio of HR managers to employees.

For Unilever, which signed a seven-year HRO contract with Accenture in April, its goal is to get from 3,200 HR managers down to 900, meaning there would be one HR manager for every 213 employees. “Today we estimate that is competitive, but when we implement it the market might have moved and we may have to re-evaluate it,” Bull said in his presentation.

Claus Fey, senior HR executive at Bayer AG, which implemented a partial outsourcing model, is shooting for a ratio of 120-150 employees for each HR manager. But like Bull, Fey said he isn’t sure this number will change.

“We will keep reviewing it,” he said.

Fey and Bull also agreed on the challenges associated with getting line managers within the business to accept the change.

“Line managers felt that what we were doing was taking their local HR people away from them,” Fey said. “It shows the importance of having change management processes in place.”

At Unilever, Bull and his team made sure to interview line managers about what they wanted to see happen, but at the end of the day the decision to outsource was made by management and the board.

“You should not confuse asking people’s opinions with being democratic,” he said.
–Jessica Marquez

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Day 1—November 6, pre-conference workshops

Where do I begin: Not surprisingly, most of the organizations attending Monday morning’s pre-conference workshop, “Assessing and Evaluating Transformation Options,” by David Parry, a Deloitte consultant, were still in early discussions about whether to outsource their HR processes.

In introducing themselves to the group, many executives talked about their desire to understand all of the variables that need to be considered when making decisions to outsource or not.

For example, HR executives at Electrolux Home Products, a Belgian manufacturer of appliances with 57,000 employees globally, say they want to get a better understanding of how to avoid risk when engaging in an HRO agreement.

Similarly, an executive from Deutsche Bank says he wants to understand how implementing an HR transformation is different from implementing a transformation in other business areas.

But Nadia Lambrechts, an HR systems manager at UCB, a Brussels-based bio- pharmaceuticals company with more than 8,300 employees worldwide, says she is just trying to figure out where to begin. Right now the company runs most of its processes in-house, and Lambechts says she is just trying to figure out which metrics she and her team need to analyze when coming up with a business case.

“Everyone here says they are new to the process, but we are even in an earlier stage than all of them,” she says.

Cost questions: At first, Parry’s presentation may have caused prospective buyers to ask why there were even thinking about outsourcing their HR processes. If cost reduction was the sole reason, then that’s not good enough, Parry told attendees.

“Unfortunately, HRO has become synonymous with cost cutting,” he says.

But HR costs generally only make up 1 percent to 1.5 percent of an organization’s entire cost structure, Parry says. For example, one of Deloitte’s clients, a company with more than 100,000 employees, had HR costs of 140 million euros ($178 million). That might seem like a lot, he said, but it was nothing compared to the company’s total IT outsourcing costs of 500 million euros ($636 million) and its real estate restructuring, which cost 1 billion euros ($1.27 billion).

“So when you look at those numbers, HR is not a big savings component,” he says.

When you consider the time and work that go into these deals, the cost savings argument may not be enough for a convincing business case for HRO, Parry says.

Claire Daly, HR project manager at Intel Europe, agreed with Parry, and asked him how should she go about convincing upper management that HRO may make sense even if the return on investment is going to be negative for a few years.

Parry advised attendees to be prepared to provide their executive teams with other quantitative data to support the business case for HRO. These include:

• Cost avoidance. For example, companies are avoiding the costs that they would have incurred on technology upgrades and implementations.
• Service-level improvement—how much can service improve through HRO?
• Increased sales of organization by freeing up employees’ time that they may have spent dealing with HR issues.
• Increased availability of employees.
• Reduction in recruiting costs.

Parry also suggested a number of measurable non-quantitative metrics that HR executives can reference when creating a business case. These include:

• Employee morale.
• Improved service quality.
• More stabile workforce.

Parry’s overall advice to prospective buyers of HRO is to understand that this is a never-ending process.

“There is no point three to four years from now where you can say we are done,” he says. “In reality, HR transformation starts after we [the consultants] have left.”

Buyers’ lament: Chatting between sessions, a few HR executives lamented the fact that the HRO market today is completely dominated by the sellers. Since so many of the large HRO providers are busy absorbing the deals they already have, they are becoming more selective about whom they bring on as clients, says Intel Europe’s Daly.

“It’s completely a sellers’ market,” agreed Sunita Malhotra, HR director for Europe at Electrolux Home Products.

Today, prospective HRO buyers actually have to woo the provider of their choice, Deloitte’s Parry says.

“A lot of organizations tend to procure in an adversarial fashion,” he says. “Instead, they need to be open to vendors and see it as a partnership.”

When it comes down to it, there are only three or four providers that can do global HRO deals, and those companies are either about to or already have signed large contracts. And it’s a huge amount of work for vendors to take on one of these deals, Parry says.

“So buyers need to demonstrate to vendors that theirs is a business that they want,” he says.
–Jessica Marquez

 

Under fire for not saying enough about future product plans, HR software giant Oracle said plenty at its recent conference in San Francisco.

During its OpenWorld show late last month, Oracle provided details about the next versions of its Oracle E-Business Suite and PeopleSoft Enterprise products. The company also emphasized its Applications Unlimited program, a pledge made earlier this year to keep advancing various product lines.

But it said little about what to expect in Fusion, Oracle’s project to blend the best of various applications in a new product line.

Albert Pang, an analyst at research firm IDC, gives Oracle credit for clarifying its vision at the show. “It’s a major improvement over what it did last year,” Pang says.

But, Pang adds, Oracle has downplayed what features will go into the Fusion application.

“There’s still anxiety among the Oracle customers about what the Fusion strategy is going to look like,” he says.

In a statement, Oracle said it “communicates product road maps to its customers through a variety of channels.” Among those steps, the company said, is a set of 1,000 events around the world this year focused on applications.

Oracle and archrival SAP, both of which make software for a range of business tasks including human resources, are each seeking to dominate the growing HR software world. Meanwhile, a host of smaller players focused on “talent management” applications, such as recruiting and performance management, are growing quickly.

Oracle has expanded in recent years, in part through its acquisition of PeopleSoft in 2005. Its San Francisco show was its biggest ever, with more than 41,000 attendees and 1,400 sessions.

Among the improvements to E-Business Suite Release 12, Oracle said in a statement, are new capabilities planned in the Oracle Compensation Workbench tool that “show all forms of compensation for employees in a single place regardless of the employee’s geographic location.”

Among the changes in PeopleSoft Enterprise 9 is the ability to print electronic pay slips using the common PDF format. Currently, employees using PeopleSoft print those slips from Web pages that might not match up well to printers. Applause broke out in a session when an Oracle official described the check-printing change.

A document on Oracle’s Web site says Oracle will release Oracle E-Business Suite 12 and PeopleSoft Enterprise 9 this year. But during the conference, Oracle said E-Business Suite 12 is scheduled to be available within 12 months and declined to give details about the timing of the human capital management component of PeopleSoft Enterprise 9.

Attendees also didn’t hear many specifics about Fusion.

During one session, Oracle officials were asked about the road map to Fusion. Gretchen Alarcon, Oracle’s vice president of human capital management product strategy, responded that it was “too early” to spell out what will be included in Fusion HR applications. She said Oracle had concluded its “gap analysis” of the differences between its product lines and was in the midst of defining what the product should be able to do.

Oracle has said it plans to release initial Fusion HR applications next year and a full suite of products in 2008.

—Ed Frauenheim