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Employee Involvement Makes TQM Work

Although many organizations have embraced the philosophy of TQM, not all have been successful in achieving their goals. A study conducted by New York City-based Ernst & Young, in conjunction with the Milwaukee-based American Quality Foundation, found that many companies are floundering in their attempts to implement TQM practices. A key finding from this study is that many TQM programs fail, and others don’t reach their potential because employees aren’t involved. Without employee involvement, even the best quality program is bound to fail.


Associated Company Inc., a Wichita, Kansas-based supplier of machine parts to aviation companies, knows the importance of employee involvement firsthand. In November 1987, the company implemented Work Smarter, a quality program aimed at reducing the company’s expensive quality costs caused by high scrap and rework rates and high external failure costs (failures that customers experience).


The first step that Associated took toward quality improvement involved setting the product-failure rate at 0.5%. Top management chose this rate over a zero-defect rate for two reasons:


  1. The perfect rate would be unattainable and probably would be demotivating.
  2. The cost of achieving zero defects might be greater than the benefits.

In addition to making the quality goal attainable, Associated crafted a plan that would be understandable and meaningful to all of its employees. The plan, which followed the teachings of quality gurus W. Edwards Deming and J.M. Juran, encouraged employees to be innovative and to take risks. Most importantly, employees knew that they had the opportunity to fail.


Group meetings help Associated communicate TQM to employees.
To facilitate implementation and more-specific goal setting, the company divided its approximately 100 employees into eight groups. In the initial implementation, the quality manager met with each of the eight groups. The quality manager described the magnitude of the quality program, indicated the improvements that were necessary and achievable and explained the actions required. He tried to sell the program to the employees and their first-level managers.


The initial approach failed. The employees were skeptical. They had seen programs come and go, and were not convinced of the need or the possible benefits. The first-level managers didn’t oppose the program, but they didn’t actively support it.


To focus attention on the waste in manufacturing, the quality manager started placing orange tags on defective parts and broken equipment. One such message stated, “This casting costs $1,378. Can you afford to throw it away?” Another orange ticket read, “This machine costs $6,000 to repair. Can you afford to break it?” The orange tickets helped make the cost of quality meaningful to each employee.


The quality manager then started another cycle of meetings. Now, workers paid much more attention to the cost of quality. Small projects that had high probabilities for success were selected and implemented successfully. Goals were set, and as the groups met these goals, they were rewarded. ACI stressed group rewards to encourage teamwork. Some of the rewards included dinners at local restaurants, movie tickets and $50 savings bonds.


With the iteration of meetings and the successful completion of several small projects, the momentum built quickly. Top management continued to expand the rewards program to include a wider variety of rewards for goals that employees attained. As a result, employees gradually accepted more authority and responsibility for quality, and became more involved in all aspects of the business.


TQM improves scrap and rework rates and decreases turn-over.
As a result of Work Smarter, Associated’s scrap and rework rates declined quickly and bottomed out at a 0.25% rate. In addition, the company’s annual turnover decreased from a high of 200% to 25% after the introduction of the program. A more stable work force that was involved in decision making and quality improvements, along with simple but powerful HR management practices, produced major gains for the company. These practices allowed the company to:


  • Redirect its employees to become more quality-conscious
  • Set goals that were specific and challenging, yet attainable, which led to increased motivation
  • Link rewards to accomplished goals, which reinforced desired behaviors and made it more likely that employees would sustain their efforts.

In addition, continuous feedback about the groups’ progress in relation to their goals made it possible for midcourse corrections and ensured that groups stayed on course toward long-term goals. Finally, by encouraging employee involvement through suggestions and specific work changes, Associated treated its people as human resources to be valued instead of mere labor costs to be minimized.


Personnel Journal, October 1993, Vol. 72, No.10, p. 108.


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Global Business Strategies Need HR’s Input

No matter what the corporate culture, for it to be advantageous to the company, the culture must be an outgrowth of a well-conceived global plan. “From a human resources point of view, it’s critical that the company have a clearly articulated business strategy that spells out why it wants to become more international, what it’s trying to achieve, and how it plans to harness senior-level commitment,” says Dale E. Smith, an independent HR consultant located in Wilmington, North Carolina, who specializes in helping organizations develop global strategic plans.


First, you must have a clear mission and vision statement. Then, you need to understand the global environment or the specific region in which you’re attempting to do business-its history, economies, political situations and cultures. Smith suggests that you accomplish this complex task by interviewing key managers and customers, trying to distinguish if it is indeed best for the company to become international. Identify specific product lines and specific countries in which the business will begin to venture out.


“Define what globalization means and how you’re going to approach it,” he says.


Next, HR professionals must identify the key human resources concerns that will support those strategies. Interview managers and customers, analyze data on the work force, relate external changes in the areas of the world into which you’re planning to move specifically to the business plan.


For example, if the business strategy is growth, the company needs sufficient management talent to support international growth. If there are enough managers for this, the next question is, do they have a global perspective? Do they have the competencies required to perform on a global basis?


The same goes for compensation and recognition. The first question asks whether the compensation and recognition system supports the business strategy. Does the bonus system, for example, recognize the appropriate elements for increasing international market share? If so, then HR professionals move to the next level and ask how different reward-and-recognition programs abroad will send the message to employees that the company wants to grow its market share.


Based on a thorough analysis of the business strategy, which is confirmed with management, HR can then develop specific action plans. These plans form the foundation for all other HR supports, including communication strategies, compensation and professional development.


In Organizational Dynamics, David Lei, John Slocum Jr. and Robert Slater suggest that the best way for a company to instill its corporate culture is to ensure that its values are simple and clear, driven from the top, and consistent over time. A carefully defined strategic plan will facilitate these objectives.


Personnel Journal, October 1993, Vol. 72, No.10, pp. 84.


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How To Determine Potential for High Maternity Costs

On average, between 2% and 4% of a work force will experience pregnancy in a year, based on group demographics. Of those, approximately 15% to 17% will be high risk. The March of Dimes states that the national preterm birthrate is between 6% and 8%, costing, on average, $20,000 to $40,000 in medical care.


The following formula uses the example of a large employer to estimate the potential for high-risk pregnancies in its work force and the related costs of these pregnancies. Insert your figures in this four-step formula to determine your company’s risk for high maternity costs. This isn’t a scientifically based formula; it is meant to be a guide for estimating risks.


Number of employees in the work force (50,000)


  1. (50,000) x 2% = (1,000 pregnancies)
  2. (1,000 pregnancies) x 6% = (60 preterm deliveries)
  3. (60 preterm deliveries) x $20,000 = ($1.2 million in preterm health costs for the infants’ hospital care). This figure doesn’t include the mothers’ care, physician fees or lost productivity, absenteeism and after-care costs.

Studies indicate that work-site prenatal programs that include all the necessary components potentially can decrease these costs by 20% to 50%. For example, among the 20,000 participants in Baby Benefits, the prenatal work-site program developed by Richmond, Virginia-based Health Management Corp., the preterm birthrate is less than 2%, compared with the average of 6% to 8%. The potential savings in the previous example using a prenatal program is $240,000 to $600,000.


Personnel Journal, October 1993, Vol. 72, No.10, p. 45.


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How Small Employers Can Impact the Cost and Delivery of Health Care

In seeking to control health-benefits costs, large, self-insured companies can use their economic might to demand price discounts from providers. But what about small employers that buy insurance? Is there any way for them to influence the cost and quality of the care that they purchase?


“Yes,” says George Morrow, principal and health-practice leader with William M. Mercer Inc. in Minneapolis. “Self-funded companies have gotten all the ink, but in fact it’s the small employer who will have the greatest long-term impact on the delivery of health care. Why? Because most people in this country are employed by small companies. By far the greatest percentage of health costs is picked up and paid for by small employers.”


Smaller companies can impact the cost and delivery of care in their communities the same way that large employers do: by uniting and using their combined purchasing power to get the attention of the insurance and provider communities. The only difference is that it takes many more small companies to make a statement.


In Cleveland, the Council of Smaller Enterprises (COSE) has more than 11,000 individual business members. These members buy health insurance for 70,000 workers and more than 105,000 dependents.


On behalf of its members, COSE has been able to buy coverage from a number of carriers—Blue Cross & Blue Shield of Ohio being the largest—at prices 25% to 50% lower than members can individually. This is because the group’s large size allows insurers to predict utilization patterns reasonably well, i.e., the number of births, appendectomies and so on. The current annualized premium is worth nearly $200 million, making COSE the largest single customer of Blue Cross in Ohio, explains John Hexter of Hexter and Assoc. Inc. in Cleveland. “It wasn’t this way when we started, however. It took 20 years to get this many small businesses together.”


By joining forces to collectively buy health insurance, the small employers in Cleveland have become a model for health-insurance purchasing cooperatives, or HIPCs. Federal lawmakers are pushing HIPCs as a way to enhance the accessibility and affordability of health insurance for small employers. As found in Cleveland, HIPCs offer members competitive premium pricing and the flexibility to choose from a variety of carriers.


HIPCs can help address the small-employer’s concerns about the cost of care, but what about quality issues and the importance of structural reform? Small employers can have an impact there too, Morrow says, by joining with larger employer-based health-care coalitions. “Initially, you’ll see small employers focused on cost, because that has defined their relationship to the delivery system. But small employers also are more prepared to pursue radical reform and to create more competition in the health-care marketplace. That’s because they’re so preoccupied with competition,” says Morrow.


In Cleveland, COSE members have addressed the issue of health-care competition and quality by uniting with the Health Action Council of Northeast Ohio, a coalition of large and mid-sized employers concerned about health-benefits issues.


“By joining with some of the larger purchasers,” Hexter says, “we were able to bring along our 105,000 covered lives—added this to their pool of 250,000 covered lives, and we created an organization that now has some tremendous clout in the medical community. Our common interests allow our organization to work beautifully.”


Because of the group’s efforts, providers in Cleveland now are compiling data on patient satisfaction and clinical outcomes on high-cost treatment. This will allow both direct buyers of care and managed-care organizations to direct patients to the most cost-effective and efficient providers.


Although COSE has been building its membership steadily since 1973, other small employers can learn from the examples that it provides: that it’s much harder to influence health costs individually than it is to do it collectively in a health-care coalition.


“This isn’t hard,” Hexter says. “Just put an ad in the newspaper asking if other companies are having trouble with their health-care costs and guess how fast you’ll get responses. It’s the hottest topic in the small-business market. It doesn’t take too many 100-employee companies before some of the benefits managers in big businesses in the community will see the value of your participation.”


Personnel Journal, September 1993, Vol. 72, No.9, p. 110.


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Resources Can Relieve ADA Fears

If you had an open position for someone who had sales and customer-service skills, you’d want to interview Mark Eiduson. Your first impression of Eiduson on the telephone would be that of a confident, sincere, friendly person who handles himself professionally. When you met him, you’d be impressed with his good eye contact, his readiness to laugh and his commitment to customer service. Eiduson is an attractive, apparently healthy man in his 30s who seems to have his life and his priorities in order.


He’d have a lot to offer an employer, including an excellent attitude. He’d tell you, “I have sales skills that I can use to sell photocopiers or cars or whatever you need to sell, but I want to do more than that. There’s so much happening in our culture now, so much disorientation and aimlessness, that I want what I do to make a positive contribution. I don’t just want to get mine and get out.”


As you talked further with Eiduson, you’d learn something else about him—he’s a person with a disability. He lives with chronic fatigue syndrome, a condition that he manages successfully with medication, a good diet, adequate rest and knowledge of his own warning signals.


Hidden disabilities such as Eiduson’s are quite common within the work force. Many analysts say that employers will hire and find more people like Eiduson among their existing employees as the decade progresses. Janna Calkins, a reasonable-accommodations consultant in Ventura County, California, says that there are three reasons to believe that during the ’90s, employers will be dealing with more persons with disabilities than ever. The reasons are:


  • The Americans with Disabilities Act (ADA), which went into effect on July 26, 1992, for employers of 25 people or more, mandates equal opportunities in the workplace for people with disabilities
  • The working population is aging, and this aging will cause increased numbers of employees with disabilities
  • Medical technology is improving the chances that an injured person will be able to return to work after rehabilitation.

Myths hinder ADA compliance.
Although the ADA just went into effect recently, for some employers, compliance with its standards fits into their existing business practices. These employers state that they haven’t needed to make changes in their hiring practices or shift gears to be more alert to applicants who may have disabilities. For example, Samsonite Corp. in Denver has employed deaf workers for years. When Larry Winslow, vice president for HR, joined the company a year ago, he found that many Samsonite employees had learned sign language in order to communicate with deaf co-workers. He became accustomed to people signing during meetings—or to deaf applicants during interviews.


What jobs do the deaf employees do at Samsonite? Whatever jobs they’re qualified to fill. What accommodations has the company made? In the production area, there are lights in addition to the standard beepers on the forklifts to alert employees to the forklift’s motion. When asked what other accommodations the company has made for the deaf employees, Winslow looks puzzled, asking what else would be necessary? He explains that Samsonite does a good job of retaining employees—including the employees with disabilities—and that the company is glad to provide this simple assistance so that deaf employees “can remain viable, productive members of the organization.” He adds that hiring people with disabilities at Samsonite is “positive, supportive of all activities of the organization. It has become a way of life, not something that needs mandating or legislating.”


Unfortunately, not all employers share Samsonite’s attitude toward the hiring of workers with disabilities. The high visibility of disability issues has led some companies to hire attorneys to help them avoid compliance. Calkins suggests, however, that the changes created by compliance with the ADA won’t be as drastic as these people think—or fear—they will be. She points out that employers already accommodate special needs, such as those of parents who must leave early to pick up a child at school or employees who must have regular appointments with doctors.


Most employers also already employ workers with disabilities. High blood pressure, diabetes, heart disease and musculoskeletal difficulties, such as arthritis, all are disabilities. The ADA protects employees with those and more-visible disabilities from workplace discrimination. It covers all aspects of employment, including hiring, compensating, training, promoting and firing.


“Hidden disabilities are common within the work force. Employers will uncover more disabilities among their employees as the decade progresses.”


Cheryl Russell, director of development for United Cerebral Palsy Association in Orange County, California, says that employers who react to the ADA by avoiding compliance are responding from “fear about additional costs, fear about loss of productivity, and fear about what other people will think.” She sees the fear about what other people will think as “90% of the problem.” Russell stresses that most of these fears can be alleviated by talking to people who work with people with disabilities.


Samsonite’s Winslow also says that employers who resist compliance may be reacting from “fear of the unknown, fear that it will be used against me, fear that it will threaten the way I operate.” According to his own experience, those fears have no basis.


Russell says that a low collective consciousness about disabilities causes much of the fear in people and promotes the phenomenon of employers hiring lawyers to plot avoidance of the ADA. To squelch that fear, she routinely invites employers to visit work-activity programs. In one such program, people with cerebral palsy sort clothes hangers for Seattle-based Nordstrom. Based entirely on sound business principles—an employee must meet performance standards to stay in the program—the hanger-sorting job provides meaningful work and income to employees who have cerebral palsy. The United Cerebral Palsy Association interviews and manages these employees, who work off-site. The program provides Nordstrom with a means of incorporating persons with disabilities into the work force and to get necessary work done.


Understanding conquers fears.
Calkins says that many employers don’t know that the majority of disabilities are musculoskeletal injuries, specifically repetitive-motion and back injuries. Unpublished data from the California State Department of Rehabilitation indicate that 47% of the disabled population have musculoskeletal injuries, 15.75% have unspecified, endocrine, skin-or learning-disorder conditions, 9% have circulatory conditions, such as heart disease, 9% have respiratory or digestive disorders, 5% have head injuries, and only 3.25% have visual, hearing or speech impairments. She suggests that the fear that most people experience comes from an apprehension of those people with a mental condition—approximately 11% of the population of people with disabilities.


Many employers have come to positive terms—even with people who are mentally impaired—by making the required accommodations without considering them accommodations. If an employee has difficulty concentrating, for example, logic dictates management to:


  1. Provide a less-crowded work area for the person.
  2. Allow him or her to work for one supervisor rather than five.
  3. Take distracting posters off the wall near the employee.

Most workers with mental conditions control those conditions with medication. If they don’t take the medication and consequently begin exhibiting unusual behavior, they’re asked to leave the workplace until the behavior is under control.


Reasonable accommodation can often be simple to implement. One employer cites the example of a schizophrenic/catatonic busboy who works in a fast-food restaurant. He occasionally freezes if his internal voices demand too much of his attention. Co-workers know that they simply need to tug on his sleeve to bring him back to reality—hardly a complex reasonable accommodation.


An employee with a disability often doesn’t need costly accommodations, despite employers’ fears that employees with disabilities may want or need expensive special equipment to help them fulfill essential job functions. Many people with disabilities needing special equipment actually prefer to own that equipment so that they can retain it if they change jobs. Sometimes when an employee acquires a disability, the employer develops a purchase agreement so that the equipment is available immediately. Then the employee buys it from the employer over time. Prices for many such products are decreasing, as the disabilities that they serve become more common.


Incorporate the employee with a disability into the workplace.
Once the fear is eliminated, companies must take a proactive approach in hiring people with disabilities. Samsonite and Nordstrom provide two examples of how it can be done. National Medical Enterprises (NME), located in Santa Monica, California, provides another. NME has instituted the Overcoming Challenges Employment Initiative, a program that focuses on the employment of qualified people with disabilities.


Cherrie Handy Pomerantz, program specialist with NME, interviews people with disabilities. Various rehabilitation agencies or service providers refer the candidates to NME. Currently, people with disabilities represent 3.2% of NME’s 50,000-employee work force.


Handy Pomerantz believes that a candidate with a disability should take the same tests as any other candidate, with a reasonable accommodation if necessary. “As you develop more special ways to test, you widen the gulf between regular employees and persons with disabilities,” she says. “Special becomes a negative word implying special treatment.” The accommodation of a person with a disability is reasonable treatment, Handy Pomerantz insists, not special treatment. “A working mom who’s a single parent will also need some accommodation,” she points out.


Handy Pomerantz does use special interview techniques when interviewing people with disabilities. She asks such standard questions as:


  • What do you most enjoy doing in your job?
  • What do you least like to do?
  • What do you respect in a supervisor?
  • What are your strengths?
  • What are your goals?
  • In what areas do you feel that you need to improve?
  • How do you handle conflict at work?

However, it’s the way in which she listens that gives her information on the skills of people with disabilities. The program specialist gives the applicants every opportunity to talk about the disability in the context of successful coping strategies. She listens with the special skills of a person who knows disability from the inside. Handy Pomerantz is blind.


Occasionally, in an interview, the program specialist must ask such specific disability-related questions as, “What kind of accommodation would be helpful to you?” The person usually replies that he or she has had the disability under control for years.


Eiduson and Handy Pomerantz both say that they believe that applicants with disabilities should be candid with employers. For one thing, the employer who doesn’t know about an employee’s disability isn’t responsible for reasonable accommodation. Another reason for candor concerns medications. For example, when screening for drug abuse, such medication as that prescribed for epilepsy can trigger a positive drug-test result.


In addition to interviewing applicants with disabilities, Handy Pomerantz also serves as a consultant on reasonable accommodation to NME’s family of hospitals. For example, when an employee at a medical site developed macular degeneration—a deteriorating condition of the central portion of the retina—Handy Pomerantz found local support services. The employee now has a large-print computer screen with voice backup in the form of a speech synthesizer. After a couple of surgeries, the employee now works with great success, fulfilling all essential job functions. “We can demonstrate it,” Handy Pomerantz insists. “People who have all types of disabilities can work.”


Mitch Pomerantz knows this to be true as well. He has served as reasonable-accommodations officer in the Los Angeles City Personnel Department for years, hiring people with disabilities and developing accommodations for them. He agrees with Handy Pomerantz that learning what a person with a disability can do doesn’t require technology, just creativity on the part of the interviewer. He calls this behavioral interviewing. Its goal is to learn how someone would behave when faced with a particular challenge. “Suppose you’re interviewing a person with a visual disability for a job that requires providing information to the public,” Pomerantz explains. “Ask the person to describe ways to do the job successfully if someone came into the office when the computer was down and he or she didn’t have someone nearby who could answer the question right away. You’ll learn how creative the person is.”


Pomerantz disagrees with the technical-assistance section of the Americans with Disabilities Act that tells employers to rely on the person with the disability as the best source on equipment or software accommodations. “Not all persons with disabilities keep up with the latest developments in technology. It does a disservice to people with disabilities to make them the experts,” says Pomerantz.


Resources abound for accommodating people with disabilities.
Pomerantz suggests that employers look up other resources to learn what’s available for people with disabilities. One source is technology conferences for information on new products and prices.


The world of technological solutions to issues raised by employee disabilities is fascinating—and employees with disabilities aren’t the only ones who benefit from them. Pomerantz used one of the first talking calculators 15 years ago, an accommodation of his own blindness. Co-workers constantly were borrowing it, he reports, because it’s easier to use.


There are many software packages that help define essential job functions or translate selections of pictures into words in the form of memos and entire reports. The new software can solve many problems associated with hiring people with disabilities. Is all your job training narrated on videotape, making it difficult for you to hire someone with a hearing disability? There are several sources of open or closed captioning for existing videotapes. Is an armless person applying for a position as a computer programmer? Both Apple Computer and IBM have free product catalogs of readily available adaptive devices. Are you having difficulty determining the essential job functions of all the positions in your company? Two computer software packages, CrossWalk™ from Cascade Rehabilitation Counselling in Vancouver, Washington, and DescriptionsWrite Now! from the California Chamber of Commerce in Sacramento, help determine essential job functions and build job descriptions for thousands of job titles.


An important resource, the President’s Committee on the Employment of People with Disabilities, offers a compliance-and-referral hotline. Each state has local committees related to the President’s Committee, all offering different services. Callers to California’s Committee on the Employment of Disabled Persons, for example, can reach ABLEDATA, a data bank on reasonable accommodation, equipment for people with disabilities and background information on various disabling conditions. Various personnel-management associations also maintain referral services, such as the Association of Human Resources Professionals and the International Personnel Management Association, its public-sector counterpart.


In addition, each disability is represented by a diagnosis-specific information-and-advocacy organization, such as the Hypoglycemia Association or the Multiple Sclerosis Society. These organizations provide state-of-the-art knowledge of the condition they represent and its impact on work responsibilities.


Information regarding specific accommodations can be obtained from the national Job Accommodation Network, which operates out of the University of West Virginia. The Job Accommodation Network draws upon a data base of thousands of jobs that people with disabilities perform, and the accommodations that those disabilities require. An employer whose senior keypunch operator has just lost a hand, for example, can learn from the network what kinds of accommodations exist for one-handed keypunch operators in workplaces around the country.


Taking on an employee who has special needs doesn’t have to be an unsupported enterprise. An employer can find assistance everywhere. For example, the state Department of Rehabilitation provides job coaching at no charge to employers or employees. The job coach will work one-on-one with the employee, teaching the task and helping him or her interact with the supervisor, gradually easing off as the employee becomes comfortable with the task and the environment. Job coaches also help modify work practices if necessary, like helping a visually impaired employee label files in large print or in Braille.


During the 1990s, employers will have more workplace experience with people with disabilities than ever before. Dealing with the issue has become a necessary HR skill. One way to prepare an HR staff to handle disability issues is through a seminar called Windmills. This seminar helps broach the topic and enables people to face their fears about hiring people with disabilities. Used extensively for more than 10 years by Fortune 500 companies and small businesses alike, the curriculum is available from California’s Committee on the Employment of Disabled Persons.


In addition to offering resources for employers, this committee sponsors two major public-information conferences each year in April and October. Catherine Baird, executive director of the California committee, explains that disabilities in the work force aren’t “something for which we can look for a cure. This is our population, our employment pool.” She explains that although employers often feel overregulated and view the ADA as one more burdensome expectation, “We need to show them what’s in this for them.”


Realizing the benefits of hiring people with disabilities requires HR employees to keep current on issues regarding disabilities in the workplace. Pomerantz suggests developing a regular contact with someone at your state Department of Rehabilitation, or subscribing to the quarterly magazine published by the President’s Committee on Employment of People with Disabilities.


Companies benefit when they employ people with disabilities.
What are the benefits to the company of hiring a person with a disability? Handy Pomerantz points out that “everybody talks about the feel-good element,” but she says that this attitude isn’t respectful of people with disabilities. Essentially it means, “Aren’t we wonderful? We hired this person with a disability.”


The real benefit of hiring people with disabilities comes from their high loyalty, which reduces turnover costs and has a positive impact on everyone’s morale. Winslow offers proof of this fact. Samsonite, which employs a number of workers who have disabilities, hasn’t had employee-retention problems anywhere near the level of many other firms that Winslow has seen.


Eiduson points out that many people mistakenly believe that people with disabilities cause high turnover. He says, “The incorrect assumption here is that nondisabled workers are trouble-free. Has that been your experience? Probably not.”


He adds that by leasing employees through an agency such as United Cerebral Palsy Association, “Employers don’t have to pay health benefits or workers’ compensation costs. In addition, if you do decide to hire a worker with a cognitive disability, you may be eligible to receive tax credits for doing so.” There are more tax breaks and more governmental support than most employers realize.


Are workers with disabilities more expensive to employ than nondisabled employees? Lynn Franzoi, vice president of benefits at Beverly Hills-based Fox, Inc., points out that a small percentage of any group’s employees incur 70% to 80% of the benefits costs, and they tend not to be people with disabilities. Franzoi postulates an employee, for example, “who smokes a lot, drinks a lot, is seriously overweight, eats a diet high in fats and doesn’t exercise. The quadruple bypass [this person may require] will cost approximately $60,000, not counting the follow-up care.” By contrast, employing a person in a wheelchair requires minimal expenses. “After you’ve installed the ramp and made the work space accessible, there are rarely other ongoing expenses.”


Franzoi stresses that cancer and premature-birth costs far exceed costs related to any disability, “even AIDS. An employee whose disability is AIDS, to use an example that employers often cite, will cost the same as the quadruple bypass—approximately $60,000—if the case is well-managed. The birth and stabilization of a premature baby can easily cost $250,000 to $1 million. A bone-marrow transplant for cancer, performed at UCLA where they manage the costs well, runs $135,000 to $200,000.” She lists the major costs to a company’s benefits plan as “the smoker, the abuser of alcohol or drugs, the woman who gives birth to a premature baby, the person with cancer.”


Despite all these facts, Pomerantz points out that, at present, a person with a disability must interview ten times more often than a nondisabled person to land a job. To change this, HR people must start by changing their own attitudes. United Cerebral Palsy Association’s Russell lives by the motto: STOP—see the other possibilities. They’re out there.


Learning to assess the contribution that employees with disabilities can make to your company can give you a competitive edge in drawing on this under-utilized labor pool in an increasingly competitive market. And there’s far more help available to you in achieving this goal than you may have realized.


Personnel Journal, September 1993, Vol. 72, No.9, pp. 131-142.


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The Side Effects of the Family and Medical Leave Act

Numerous studies have indicated that most large companies already had family and medical leave acts in place before they were required by law. A survey of 1,000 employers conducted by Lincolnshire, Illinois-based Hewitt Associates, which was released in March 1993, found that as many as 63% of the surveyed companies already had family-leave policies and 56% had medical-leave policies. However, very few had policies that contained all of the same provisions as the federal Family and Medical Leave Act (FMLA). According to Carol Sladek, a work-and-family specialist with Hewitt Associates, most companies had to “make at least some adjustments to their leave programs to comply with the new law.” For example, a majority of companies had to alter their policies to include the provision that requires them to continue payments of medical benefits for employees on leave.


In the time between June 4, when the Department of Labor released the act’s regulations, and the act’s effective date, human resources managers across the nation scrambled to whip their current policies into shape. Compliance wasn’t the only goal of many of the managers, however. Having to look into compliance with the law afforded human resources professionals the opportunity to review their family-friendly policies as a whole. “People aren’t just interested in the regulations,” says Paul Cholak, a consultant for Alexander & Alexander and a board member of the Boston HR group. “They are looking at [the FMLA] in a much broader sense. It’s raising the consciousness of people about work-and-family issues.”


Gerald Uslander, an attorney in the Washington, D.C., office of William M. Mercer, has made the same observations. Many employers, forced to comply with the law, are making it work for them. “Let’s make the employees feel that they’re getting something from us,” says Uslander regarding employers’ attitudes.


In fact, studies have shown that having family and medical leave policies is advantageous for businesses. In its survey of companies that had leave before the enactment of the FMLA, Hewitt found that the majority of companies experienced a boost in morale and goodwill among employees, and decreases in turnover. Approximately 40% of the companies also experienced decreases in recruiting and retraining costs.


Ted Pippin, director of HR for Providence Hospital in Washington, D.C., has seen these benefits firsthand. His company has had family and medical leave policies “on the books” for two years as a result of a Washington, D.C., statute. (Because the hospital is a Catholic institution, however, Pippin says that it has always provided people with needed leave.) “People get time to spend with their families when they are in need,” says Pippin. As a result, Pippin says that the employees see that the company cares for them because it holds their job open and helps them financially by paying for their benefits while they are out. The goodwill created from the gesture has helped the hospital retain good employees.


Personnel Journal, September 1993, Vol. 72, No. 9, p. 51.


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Advice for Coordinating Federal, State and Local Leave Laws

The Family and Medical Leave Act (FMLA) requires covered employers to grant full-time employees a maximum of 12 weeks of unpaid, job-protected leave during a 12-month period for the following reasons:


  • To care for a newborn child, a newly adopted child or a child placed with an employee for foster care
  • To care for a child, parent or spouse who has a serious health condition
  • For an employee’s own serious health condition.

The act, which went into effect on August 5, 1993, applies to any employer engaged in commerce who employs 50 or more employees. Special rules apply to employers who have collective-bargaining agreements.


Before the FMLA, 34 states and some local governments enacted family-and medical-leave legislation. The state and local laws often are applicable to the same employers who are subject to the FMLA. The U.S. Department of Labor’s (DOL) interim final FMLA regulations, issued June 3, 1993, make clear that an employer must comply not only with the FMLA, but also with state and local laws regarding family and medical leave, as well as state and local laws that prohibit discrimination in employment.


Because employer rights and obligations provided by state and local laws vary significantly from each other and from the rights and obligations of the FMLA, they subject employers to a complexity of rules that often appear inconsistent. Although the DOL’s regulations address the interplay between FMLA and state and local statutes to some degree, they don’t provide a definitive resolution for coordinating leave policies. Nor do the DOL’s regulations fully explain the impact on leave decisions of federal, state and local laws that prohibit discrimination in employment on the basis of race, religion, color, national origin, gender, age or disability.


The issues that arise in coordinating FMLA compliance with that of local and state laws stem from the clause in the act that states: “[n]othing in this Act…shall be construed to modify or affect any Federal or State law prohibiting discrimination on the basis of race, religion, color, national origin, sex, age, or disability…”; and “[n]othing in this Act…shall be construed to supersede any provision of any State or local law that provides greater family or medical leave rights than the rights established under this Act or any amendment made by this Act.”


To make matters worse, no single agency empowered to interpret or enforce a particular statute can give an employer conclusive guidance in complying with other statutes. Federal, state and local laws that impact leave policies are enforced by multiple agencies. For example, the U.S. Department of Labor enforces FMLA. The Equal Employment Opportunity Commission (EEOC) enforces and interprets the Americans with Disabilities Act.


What should employers do?
To comply with the multitude of federal, state and local legislation employers should:


  1. Identify all sources of legislation that govern its leave decisions.

  2. Identify the differences between all applicable family-leave statutes. Key areas of contrast between the FMLA and state and local laws to be reviewed are:
  • Their effective dates
  • The purpose for which leave must be granted
  • The length of leave that an employer must provide when a state statute provides for a longer duration than the FMLA
  • Salary-and benefit-continuation requirements
  • Job-restoration rights
  • Medical verification.

Once the differences between the FMLA and an applicable state or local law are identified, an employer must then determine whether the state law provides a more favorable leave benefit for the employees than the benefit found in the FMLA. If so, an employer must blend the state requirements with those of the FMLA and comply with whichever grants the more favorable leave benefits to employees.


Some suggestions for blending the leave requirements are:


  1. Reasons for leave.
    The regulations make clear that an employee eligible for leave under only one law (FMLA or state) is entitled to benefits in accordance with that particular statute. Different rules may apply if a state or local statute permits leave for reasons permitted but not covered by the FMLA. For example, if a state law provides leave to care for a seriously ill grandparent or a spouse equivalent, neither of which are covered by the FMLA, an employee who takes leave for this purpose remains entitled to all leave permitted by the FMLA. However, if leave covered by the FMLA is used first for a purpose for which state law also provides, and state leave has been exhausted, the employer isn’t required by the FMLA to provide additional leave to care for the grandparent or spouse equivalent.

  2. Duration of leave.
    The FMLA entitles employees to as many as 12 weeks of leave during any 12-month period. Leave may be taken intermittently or on a reduced-leave schedule. Leave to care for a newborn or newly adopted child may be taken if the employer and employee agree to the arrangement. Employees may take medical leave intermittently or on a reduced-leave schedule when medically necessary without permission from the employer. The regulations provide that if an employee qualifies for leave under the FMLA, as well as leave under state law, the leave used counts against the employee’s entitlement under both laws.

The following examples from the regulations illustrate the interaction between the FMLA and state and local laws in regard to the duration of leave:


  • If a state statute provides 16 weeks of leave entitlement during a two-year period, an employee would be entitled to take 16 weeks one year under state law and 12 weeks the next year under the FMLA. However, health-benefits maintenance under the FMLA is applicable only to the first 12 weeks of entitlement each year. If the employee took 12 weeks the first year, the employee would be entitled to a maximum of 12 weeks the second ear, but not for 16 weeks

  • An employee wouldn’t be entitled to 28 weeks in one year

  • If a state law provides six weeks of half-pay for maternity leave, the employee on leave would be entitled to an additional six weeks of unpaid FMLA leave (or accrued paid leave).

  1. Notice of leave.
    The FMLA and state statutes require employees to give their employers varying periods of notice. Under the FMLA regulations, a “shorter notice period under State law must be allowed by the employer unless an employer has already provided, or the employee is requesting, more leave than required under State law.”

  2. Medical certification.
    Under the FMLA, an employer may require that an employee provide certification of his or her serious health condition, or that of a family member, in a “timely manner.”

Medical certification may include:


  • The date on which the serious health condition began and its probable duration
  • Appropriate medical facts
  • A statement that the employee is needed to care for the spouse, parent, or child or that the employee is unable to perform his or her job functions
  • The dates and duration of treatment to be given in the case of intermittent leave.

The FMLA’s regulations state that, “[i]f state law provides for only one medical certification, no additional certification may be required by the employer unless the employer has already provided, or the employee is requesting, more leave than required under State law.”


  1. Benefit and salary continuation.
    The FMLA entitles employees on leave to receive the same health-benefit coverage as when working. In addition, leave may not result in the loss of any previously accrued seniority or employment benefits. Employers aren’t required to continue the accrual of benefits during the leave.

    2. The FMLA regulations likewise make clear that FMLA rights may not be reduced by an employment-benefit program, plan or collective-bargaining agreement (CBA). For example, the FMLA supersedes provisions of a CBA that provide for reinstatement to a position that isn’t equivalent.


    Family leave is unpaid under the FMLA. However, the national act provides that the employee may elect, or an employer may require, the employee to substitute any of the employee’s paid vacation leave, personal leave or paid family leave for any part of the 12-week period of leave.


  2. Job-restoration rights.
    Under the FMLA, an employee who completes a leave must be returned either to the same position as before, or to a position equivalent in pay, benefits and other terms and conditions of employment. The act provides a limited exemption from the restoration requirement for certain highly paid employees.

  3. The effective date of the FMLA for companies with collective bargaining agreements.
    For companies that had CBAs in effect on August 5, 1993, the FMLA becomes effective for the company on February 5, 1994, or the date that the CBA terminates, whichever date is earlier.

Take federal and state discrimination laws into account.
Employer obligations neither begin nor end with family-leave-legislation compliance. Adding to the complexity are additional federal, state and local laws regarding discrimination-among them the Americans with Disabilities Act (ADA) and the Pregnancy Discrimination Act (PDA).


The PDA requires that employers provide leave to employees who are temporarily and medically disabled, because of pregnancy, childbirth or related conditions, in a like manner to that provided to employees who are disabled for other nonwork-related conditions or injuries. ADA prohibits both public-and private-sector employers from discrimination against persons with disabilities. It also requires that employers reasonably accommodate employees and applicants with disabilities, so long as such accommodation doesn’t result in undue hardship to the employer. Accommodation includes job restructuring, and permitting part-time or modified work schedules.


An employer may be confronted with a family-leave request by an individual considered disabled under the ADA or a comparable state statute. The regulations make clear that the employer must afford an employee his or her rights provided by the FMLA, and reasonable accommodation as required by the ADA.


The following examples contained in the FMLA’s regulations illustrate potential areas of employer concern:


  1. A reasonable accommodation under the ADA may be accomplished by “providing the employee with a part-time job with no health benefits.” The FMLA permits an employee to work a reduced-leave schedule during his or her 12 weeks of leave, and requires the employer to maintain health benefits during this period at its cost. At the end of the leave entitlement, the employer would then be required to reinstate the employee to the same job or to an equivalent position.

    However, if the employee were unable to perform the equivalent position because of a disability, and the employee ex-hausted family-leave entitlements, the ADA “may permit or require the employer to make a reasonable accommodation at that time by placing the employee in a part-time job, with only those benefits provided to part-time employees.”

  2. Although family-leave statutes may entitle an employee to take leave, the regulations make clear that an employer may not, in lieu of family leave, “require an employee to take a job with a reasonable accommodation. However, the ADA may require that an employer offer an employee the opportunity to take such a position.”

  3. If an employer requires a health-provider’s certification that an employee is fit to return to work as permitted by the FMLA, then the employer “must comply with the ADA requirement that a fitness-for-duty physical be job-related.”

This analysis requires careful comparison of the multitude of provisions found in the FMLA and state and local laws. Potential back-pay liability, attorneys’ fees and costs associated with management time being diverted to respond to administrative charges and litigation, may result if an employer fails to consider or incorrectly discharges all sources of its family-and medical-leave obligations.


Personnel Journal, September 1993, Vol. 72, No. 9, pp. 52-53.


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Why HR Is Turning to Outsourcing

Outsourcing-having an outside vendor provide a service that you usually perform inhouse-isn’t exactly a new idea. For years, companies have contracted with outside firms to perform such functions as mail room, payroll, security, data processing and a myriad of other services.


Now, HR professionals are beginning to see-with increasing popularity-the benefits of having outside companies perform some of the functions for which they traditionally have been responsible. These include recruitment, benefits communication, benefits plan design, retirement services and HR recordkeeping services.


Even within HR, outsourcing isn’t all that new. For many years, certain HR functions have been outsourced by many companies, including temporary placement (temp agencies now even set up shop on-site), employee assistance programs, 401(k) plans, relocation, medical-claims processing, transaction processing and awards and incentives programs.


As companies demand that management constantly streamline the way the business operates, however, management is taking a closer look at how blending the services performed both inside and outside the organization can help contribute to the bottom line. In these evaluations, outsourcing has become one option on a larger menu of strategies. Some organizations are using it to re-engineer and streamline their HR departments and other functions to be more responsive to customer needs, both internally and externally.


Although outsourcing a function to a third-party vendor isn’t always the right solution, say some business analysts, HR professionals are finding that, in the right situations, they can improve efficiency, save money, help focus energy and resources or improve the quality of services through contracting with a vendor.


There are several reasons why outsourcing recently has increased in popularity. Such factors as corporate restructurings, downsizings and the sagging economy have contributed to many outsourcing decisions.


Bruce Pittneger, managing director of general management consulting for New York City-based Towers Perrin, offered this observation at a recent conference: “Restructuring will produce a Swiss-cheese organization: one that has a solid overall form, but is missing pieces.” Pittneger suggests that a company’s missing pieces increasingly will be found outside the organization as strategic business units buy services formerly provided by staff functions.


As the economy contracts, outsourcing will grow, explains The Trends Journal in a recent article. Faced with the high cost of payrolls and payroll taxes, health-care costs and other expenses associated with full-time workers, businesses increasingly will look to get work done through outside sources, the journal forecasts.


In the temporary-services area alone, outsourcing has become a way that companies can expand and contract their work forces without having the burden of keeping people on the permanent payroll. According to a survey titled The Olsten Forum on Human Resource Issues and Trends, sponsored by Westbury, New York-based The Olsten Corp., 18% (of those companies surveyed) currently outsource their entire flexible staffing departments to a third party.


“Outsourcing is a natural outgrowth of the temporary-services concept of balanced staffing, whereby a flexible ring of temps is added to a basic core of permanent employees on an as-needed basis,” says Edward Grant, CEO of Career Horizons, Inc., which is the parent company of Woodbury, New York-based TempForce, Inc. “Outsourcing is proving to be an effective cost saver in helping companies climb out of this recession.”


Is outsourcing just a fad? Or is it more than that? According to the 1993 Trend Forecast by The Trends Journal, outsourcing is tenth on a list of trends that are “in” this year, suggesting that next year it possibly could be “out.”


Outsourcing also is number ten on Rochester, Wisconsin-based Runzheimer International’s list of current industry trends. Although contracting with outside vendors isn’t a new phenomenon in relocation, the management consulting firm’s report notes that the practice now embraces the comprehensive administration of ongoing relocation programs in two areas:


  • Supplementing corporate relocation staff with outside, contractual personnel
  • Replacing in-house staff or departments with outside service providers.

Within the relocation area alone, more than 75% of companies offering relocation programs use a relocation firm for at least part of their corporate mobility needs, according to reports by Valhalla, New York-based Prudential Relocation Management.


It’s also pervading other business functions. According to recent research by New York City-based Coopers & Lybrand, which provides outsourcing services to clients in addition to consulting, 80% of Fortune 500 companies are expected to outsource some information technology processes by 1995.


Other experts suggest that outsourcing is more than a fad or a trend. Richard Dole, vice chairman for Coopers & Lybrand’s process-management area in Houston, says that outsourcing is a shift in the traditional business paradigm. “People are refocusing their core businesses and their core strategies,” says Dole. In the process, they’re asking themselves: What is my core business? How much time should I be spending on administrative tasks? Could I get more value from outsourcing to an outside vendor who probably could do it better and cheaper? Will outsourcing leave me more time for higher-level strategic planning?


Make sure that you have a good reason to outsource.
Experts suggest that any company considering outsourcing should first be clear about their short-and long-term goals. A study of “Employee Benefits Outsourcing,” completed by Towers Perrin in 1992, highlights reasons that companies choose to outsource:


  1. Increased focus on core business: Companies want to spend their discretionary management time and energy on the business of their business.
  2. Cost and quality: Companies assume that a consultant can do it better and more cheaply than it can do internally.
  3. Access to improved technology: Companies with less-sophisticated automation capabilities have greater tendencies to outsource than companies with better technology and automation capabilities.

What’s another reason that HR is turning to outsourcing? HR department workloads are increasing, with literally no end in sight. According to the Olsten survey, more than eight out of 10 (83%) of the respondents stated that their workloads have increased over the past year, and a third report the increase as “substantial.”


Often, the increase in work has little to do with strategic planning. In a recent issue of HRM News, Reuben A. Larson, 3M Co.’s director of HR planning and systems, advises redesigning so that HR spends little or no time on advocacy or administrative duties. According to Larson, line management should take on the advocacy role, and all HR tasks should be examined for possible elimination, automation, restructuring or outsourcing.


“Why did I outsource? To improve quality, but it had cost objectives as well. I wanted to spend the dollars we spend in the right places.”


Some naysayers warn against outsourcing, saying that it often promises more than it delivers. Outsourcing such functions as the mail room or payroll may work well, says one industry expert. But, he says, outsourcing core functions, especially within HR, could get companies into more problems than they’ve bargained for. They must consider what the legal, tax, legislative and procedural ramifications might be before making the decision to outsource.


Some view these as reasons not to outsource. Others see them as good reasons to make the switch to outsourcing services. With the growing complexity of legal and other issues faced by HR departments, especially those having reduced staffs, paying for and relying on an outside company to provide this kind of up-to-the-minute information can be the difference between being on top of the growing body of regulations and simply trying to hold onto its constantly wagging tail.


Companies need to be very sure about what they’re outsourcing and why, say the experts. Don’t just outsource because it’s popular or seems easier to do so. Some companies, for example, may outsource their temporary-services area simply to get out of being responsible for many of the regulations and legalities associated with hiring workers onto their payrolls.


This strategy may prove ineffective. Recently, in another type of situation, an employer with a self-insured medical plan recently lost its case against the third-party administrator whom it had hired to handle claims under the plan (Kyle Railway v. Pacific Administrative Services, 9th Circuit 1993). Kyle Railway asserted that the administrator had:


  • Paid claims not covered by the plan
  • Double-paid some claims submitted to the plan
  • Failed to pay some claims on a timely basis as required by the plan.

The company lost its case. Ultimately, the organization was responsible for the inequities created by the vendor.


The government may even mandate that companies “insource” before they outsource. An arbitrator recently ruled that the U.S. Postal Service must offer some off-site mail-sorting positions to its own employees before contracting out jobs to private firms.


Others in HR see the benefit of outsourcing some activities, but aren’t convinced that everything should be given to an outside vendor. Although San Francisco-based Levi Strauss & Co. outsources its medical-claims processing and participant record keeping, it outsources few other HR activities on an ongoing basis.


The reasoning? “Nobody’s shown me an outside group that could provide these services like we do,” says Reese Smith, director of employee benefits. Because Levi Strauss has a strong service orientation, he’s wary of looking for outside vendors to provide benefits services to employees. Still in the questioning mode, Smith says that he’s currently considering the pros and cons of outsourcing other areas.


Smith isn’t alone. Many in HR are wondering what outsourcing can do for them. Others have moved beyond curiosity, actually outsourcing various functions. Here’s what some are doing and why.


Outsourcing can save time and help focus energy and resources.
According to a study recently released by Lincolnshire, Illinois-based Hewitt Associates titled Employer Experience in Outsourcing, time is the main reason that employers want to outsource (see chart). More than a third (37%) of those surveyed said that the time they’d save was their foremost consideration in making the decision to outsource benefit activity. Most said that an activity currently performed in-house was too time-consuming or that turnaround time was inadequate.


As the details and recordkeeping of HR have steadily increased over the years, many personnel professionals are interested in having those burdens lifted so that they once again can focus on their “core competencies.”


For example, about two years ago, Dayton, Ohio-based NCR Corp. made a decision to outsource portions of its pension administration-an area long considered too company-specific and too complicated to be handled effectively by an outside vendor.


“With approximately 13,000 retirees, 12,000 terminated vesteds, and 26,000 active employees in the U.S., we at corporate found our days virtually consumed by the need to service participants,” says Douglas M. Bartlett, Director of Employee Benefits, U.S., in a Hewitt report. “We’ve always maintained a high level of service, but with a limited corporate staff and increasingly complex administrative requirements, our resources were strained. We needed to find a way to administer our retirement plans and satisfy participant needs, without doing more internally.”


The solution for NCR was to mix inside and outside resources. Although it still maintains a corporate benefits staff and handles administration through local benefit organizations (LBOs) in various NCR locations across the U.S., the company added another feature. The NCR Service Center, which is now staffed by outside pension consultants, handles most of the day-to-day pension-related activities.


“Originally, the Service Center was intended to support our local benefit representatives only,” Judith E. Hamer, pension manager, explains in the Hewitt report. “As the relationships developed between the LBOs and the Service Center, it became more natural for the Service Center people to begin to deal directly with participant or third parties as a more efficient means of resolving situations.”


In the report, Bartlett adds: “We at corporate are in no way out of the process. But our time is spent differently today. We still get involved from the managerial perspective to resolve the material or unusual situation, but most of our time is devoted to the larger benefit and HR issues confronting an organization the size of NCR. We are able to focus on our primary mission, which is planning the future benefits of the corporation.”


Blending resources, such as in NCR’s solution, often are called strategic alliances. Outsourcing vendors can provide companies with the edge on business they need so that they can “do what they’re best at” rather than spending time, money and resources on processes that don’t contribute to the bottom line.


Companies also can outsource strategic functions, such as benefits planning, since outside vendors often can stay more up-to-date with current practices in those areas because it’s their primary business. Few companies can afford to hire full-time experts in every area of HR. Large outsourcing vendors can.


“Our resources were strained. We needed to find a way to administer our retirement plans and satisfy participant needs, without doing more internally.”


New York City-based Bankers Trust Co. outsources benefits administration, according to What’s Ahead in Personnel. For nearly two years, the nine people who used to handle these tasks have been employees not of Bankers Trust, but of Towers Perrin Forster & Crosby (TPF&C).


TPF&C is responsible for hiring, firing and supervision. Although Bankers intends to save money, that wasn’t the major reason for the change, according to Ellen Reynolds, VP of HR for Bankers Trust. The arrangement will cost more, but it will free her and other managers from day-to-day involvement in the personnel and administrative issues related to benefits.


Outsourcing can cut costs.
More often, as companies downsize, rightsize or simply economize, they need to watch their budgets to find areas to trim costs. The ever-present dictum is to do more with less. In some cases, HR now is being asked to make money.


“The whole idea of outsourcing done right is creating new career paths that are on the revenue side of the equation instead of on the cost side of the equation,” says Dole of Coopers & Lybrand. “What we almost become is a vehicle to transform a lot of the workplace from a cost-oriented mentality to a value-added mentality.”


Along these lines, Armonk, New York-based IBM outsourced its own HR staff functions by creating Workforce Solutions in 1992. Workforce Solutions sells HR services both internally to IBM and externally to other organizations. According to a May 10, 1993, article in Business Week, IBM claims that it’s now saving $45 million per year by spinning off its entire employee-benefits department into a separate company. It expects to become a profit center by 1994.


Another organization also found it helpful to completely outsource its HR function, including the strategic areas. The New York City-based advertising firm DDB Needham Worldwide has outsourced its entire HR function to People Management Inc. since January 1992.


What’s unique is that the New York City-based HR company is a spin-off of DDB Needham. “It spun us off, but it retains no ownership,” says Jud Saviskas, president of People Management, Inc. Saviskas formerly was DDB Needham’s HR director. When DDB Needham was going through a streamlining and downsizing process in 1991, Saviskas suggested that the company allow him and several members of the HR staff to become a completely autonomous company. The firm’s senior management agreed.


Now, in addition to its largest client, People Management Inc. has more than 10 other clients. The company does everything from employee relations to risk management.


According to Jerry Germain, CFO of DDB Needham Worldwide, the switch-over has been virtually wrinkle-free. “It has been extremely effective,” Germain says. “There has been a cost advantage, and frankly, that was a portion of the rationale for doing it in the first place.”


Carl Anderson, president of Doremus & Co., a small, New York City-based advertising agency, says that HR services cost less to outsource than to maintain an HR staff in-house. His firm buys its HR services from People Management. “Economics was one of the issues for making this decision,” says Anderson. He also now has access to expertise that he didn’t have in his former two-person HR staff. Anderson says that it saves his corporation time because it can identify HR problems sooner. He can do something about issues before they’re problems.


Relatively few companies outsource their entire HR functions. Others outsource bits and pieces, and still get cost savings. For example, a large telecommunications company saved $8 million, cut 48 jobs and increased employee involvement in its 401(k) plan by outsourcing its 401(k) plan to an outside vendor.


Using telephone-based interactive voice-response systems is another way to save money by cutting down on benefits staff time. One bank that uses a phone-based interactive voice-response system (maintained by an outside vendor) reduces its employee benefits staff and provides employees with better services.


On the recruitment side, Diedre Moire Corp., Inc., based in East Brunswick, New Jersey, lowers clients’ hiring costs in the following way. Where fees typically range from 25% to 35% of secured candidates’ salaries, outsourcing the recruitment function brings those costs down to 15% or lower.


There may be an initial cost outlay in terms of feasibility studies and start-up costs. However, costs over the long term often can be less than what an organization currently spends (adjusted for inflation).


Outsourcing improves efficiency.
Management is always looking for ways to improve systems and enhance the way in which business processes run. In the case of HR, an entire restructuring often may result.


At Dallas-based Frito-Lay, HR has been working on outsourcing as part of a general reengineering effort. In the process, it outsourced the work for several functions and “insourced” one other. According to Carl Nielson, manager of HRIS, some previous HR systems were old, cumbersome and complicated. “There were a lot of ways things could be improved at perhaps lower cost,” he says. “We focused it from there.”


HR currently has some work outsourced including accident reporting, preemployment test scoring and service and safety awards administration and is in the process of outsourcing the relocation function. It also insourced its benefits services department to the associate services (payroll) department. These changes, according to Nielson, have helped HR improve its efficiency and concentrate more on the mission of HR.


“We’re in a pilot environment for many of these efforts,” says Nielson. “As we learn more about each project and mature the processes, I have no doubt we will enjoy significant returns on our investment, but it is still early.”


Outsourcing improves quality.
According to the survey by Towers Perrin, HR department personnel who were surveyed indicate that their number-one criterion in choosing an outsourcing vendor is quality of service.


Quality of service was the primary reason that Lillian Gorman, vice president of HR at Los Angeles-based First Interstate Bancorp, says she outsourced her entire benefits function in early 1992.


In 1991, First Interstate went through a corporate restructuring. With 996 offices in 13 Western states, the company decided to centralize many of the functions that previously were duplicated. “We were wanting to turn into a company that had a common culture and common products and common policies,” says Gorman. “That had not really been very prevalent prior to this restructuring.”


HR was the first staff function to look inward to see how it could do things better and more cheaply. As a result, the HR team created an employee-services center in Phoenix, for all administrative tasks. The center employs 75 people, ranging from employee-relations specialists to employment representatives.


“There still has to be a corporate person involved in everything. If you don’t outsource, somebody’s going to do it for you.”
Kathryn Devos,
Schering-Plough Corp.


The team also created a central design function, or what it calls an R&D center for HR, in Los Angeles. This group originally consisted of 40 HR professionals.


“We didn’t outsource the administration side because we figured that as a bank, we have a lot of operating units and we already know how to do operating and processing fairly well,” Gorman explains. As she looked at the activities of the remaining R&D staff, it was clear that they also were spending the bulk of their time on administrative tasks. Gorman redesigned and again downsized the staff by about 40%, and sent most of the administrative tasks to the Phoenix group.


According to Gorman, when she looked at how little her team actually was doing in the area of benefits-plan design and what they were capable of doing, she discovered why they were not realizing their potential. “Because [benefits-plan design is] so technical and so fast-changing, and so determined by legislative and regulatory changes, it’s very difficult for inside resources to keep up with it,” says Gorman. Because she could afford to have only one expert in retirement or medical, for example, the team was spending a lot of time on compliance issues and little on proactive-planning issues.


“That was a very reactive way of taking care of a very large portfolio of money,” says Gorman. “So we stepped back at a high management level and took a look at whether the whole package was up-to-date, was cost-effectively designed, was in employees’ best interests and was delivering to what our culture would want-all of those strategic issues you have to ask about the whole package.”


Thinking that there must be a better way, she approached Towers Perrin, which had been taking care of the company’s 401(k) plan services. “We asked them if they’d consider outsourcing their brainware,” says Gorman. In early 1992, the vendor agreed to be the company’s benefits strategists on a retainer, rather than on a consulting, basis.


Gorman downsized her inside benefits staff further from eight people to one and outsourced the benefits function to Towers Perrin. “Why did I do it? To improve quality, primarily,” says Gorman. “But it had cost objectives as well. I wanted to make sure that we were spending the dollars we spend in the right places.”


Outsourcing also makes sense for Kathryn Devos, manager of employee services for Madison, New Jersey-based Schering-Plough Corp. She says that she outsources primarily to get better-quality service for employees.


She outsources three areas-relocation, awards and incentives and the EAP program. “I will outsource everything I can,” says Devos. For example, she outsourced relocation to an outside company that now comes on-site. One of the points on which she sold the idea to upper management was that employees were dealing with 17 different people during a relocation. “I couldn’t see the sense of it,” she says. Now employees have one point of contact.


“As things become more efficient, we have to be more efficient,” says Devos. “One of the best ways to do this, and one of the least expensive ways to do this, is to outsource.”


Although on the surface outsourcing may appear to put HR people out of a job, according to Devos, it really doesn’t. “There still has to be a corporate person involved in everything,” she says, and warns: “If you don’t do it, somebody’s going to do it for you.”


Personnel Journal, September 1993, Vol. 72, No.9, pp. 92-101.


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Interactive Satellite Learning Improves Training Programs

Video conferencing and satellite classrooms are nothing new. For the last decade, many of the U.S.’s largest companies have used these capabilities to keep employees informed on corporate events and to teach them new skills. However, satellite learning now is going interactive, and the capabilities are downright staggering.


A few years ago, when General Motors of Canada wanted to create an incentive program to help its salespeople become more knowledgeable, it turned to NTN Communications, a Carlsbad, California-based company that specializes in interactive education and entertainment. NTN, working with 950 dealerships throughout Canada, created an interactive game show that could quiz 6,000 employees simultaneously on everything from a vehicle’s horsepower to what types of brakes it has. Before anyone went home, the company was able to announce full results and the names of those employees who had qualified for the finals. The winning team ultimately claimed a $50,000 first prize.


The teams assembled at dozens of sites throughout Canada, all equipped with large monitors and TV screens, and watched a host fire off questions. Using a keypad, participants made their selections, and all the data were stored in a computer at each location. When the 90-minute program ended, final results were sent via modem to the company’s headquarters in Carlsbad. There, another computer tallied the results. Almost instantly, the host was able to announce the winners over the satellite network.


According to Jerry Petrie, senior vice president of marketing for NTN, there are several advantages to such training. It’s entertaining and fun. There also are incentives to learn. In polls that NTN has conducted, more than 98% of all participants prefer the interactive game shows to conventional learning. To be sure, the shows, which are complete with logos, graphics, text and video segments, can do virtually all the same things as traditional television. Other companies that have used the technology include Goodyear and Porsche.


Game shows aren’t the only way in which companies are using this emerging medium. NTN also has devised interactive learning that allows audience members to vote on the outcome that they want to take. By filming different segments ahead of time, the audience and the host can cover the territory that they find most interesting spontaneously. At IBM, its Skill Dynamics subsidiary now is offering highly sophisticated corporate classrooms that allow all the flexibility and spontaneity of a traditional classroom over a satellite-based network.


Each IBM site (there are now 44 nationwide) uses a 25-inch monitor. Each desk is equipped with a student-response unit that allows interconnection with other classrooms and the instructor. The student-response unit has a voice-activated microphone, question and question-cancel buttons, and keypads that allow students to answer questions from the instructor. Dozens of corporations are using this service, including AT&T, DuPont, Ford, General Electric, Mobil Oil, Sears and Wal-Mart. It also will be used for training volunteers and staff at the 1996 Summer Olympic Games in Atlanta.


“A lot of training is beginning to take place with satellite instruction,” says Raymond G. Fox, president of the Society for Applied Learning Technology, located in Warrenton, Virginia. “It’s a significant medium that allows companies to create an extended network and save a lot of money. The technology we see now is just the beginning.”


Personnel Journal, September 1993, Vol. 72, No.9, p. 86.


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The Times Teaches Interns Basic Work Behavior

To help prepare interns for future employment in any corporation, the Los Angeles Times offers classroom training as part of its Youth Jobs Training Program. For half a day, one day a week, the interns attend workshops in small groups to discuss real-life issues.


When developing the classes, the staff at the Times dealt with the big issues-such as diversity and career planning-head-on. The classes on these topics were successful. However, to the surprise of the Times‘ training staff, there were smaller issues that were just as important.


Bill Bradley, senior HR development consultant to the Times, says that one of the most valuable classes offered in 1992 was the first session on work ethics. Bradley says that when they planned it, the trainers had wanted the interns to leave the first class understanding basic work expectations and feeling comfortable about joining the Times for the summer. Once they held the session, the trainers realized that the basic work expectations that they needed to teach were more basic than they anticipated.


Because this was most of the interns’ first time in the work force, they had no idea what their supervisors expected of them. The Times had to start from the beginning. Bradley says that in the first training session, the Times taught the interns three important work-related lessons.


  1. Come to work on time.
    Many of the interns needed to use public transportation to get to work. Some even needed to make transfers. This added a considerable amount of commute time, and many of the interns were arriving late on a regular basis. The trainers explained the importance of being punctual and helped the interns understand the public-transportation schedules.

  2. Use appropriate language.
    The interns weren’t used to being in a professional atmosphere, and many of them used the vulgar slang of the streets. “As we kiddingly said, we encouraged them not to use any word that started with F or S. They got that message,” Bradley says.

  3. Dress appropriately for a work environment.
    Some of the interns came to work on the first day in T-shirts that had obscene messages. The trainers told the students to look at how others in their departments dressed. They encouraged them to dress in a similar manner. The results were positive. “We had kids who started work in vulgar T-shirts, who by the end of the seventh or eighth week were coming to work in white shirts and ties,” Bradley says. “The tie might have been 20 years out-of-date, but, by golly, it was a tie.”

Knowing what to expect from the interns has helped the Times prepare for the program’s future participants. Bradley says that the trainers have fine-tuned some of the classes and now are paying more attention to smaller issues. “They are the most simple things in the world,” he says, “yet we need to teach them.”


Personnel Journal, September 1993, Vol. 72, No.9, p. 123.