The implementation of a “shared services” environment across Halliburton Company stimulated the consolidation of non-core business functions, enabling the organization to save money, improve service, and concentrate on its primary business objectives. Benefits administration is a case in point. Two separate benefits administration groups with more than 70 employees were located in Texas and Oklahoma. Between them, they handled the entire organization’s benefits administration, including health insurance, life insurance, retirement, profit-sharing, and 401-k plans.
The first decision was whether to consolidate these groups or outsource. Based on the continuing number of changes in tax and retirement program laws and the increased work load expected in loan administration, when implemented, the case for outsourcing gained momentum. Since the internal organization had developed a “home-grown” computer administration system, outsourcing also presented the chance to get up-to-date systems and avoid future programming updates to accommodate changes. It also eliminated the need for ongoing staff training and development.
Andersen Consulting provided an analysis and recommendation to outsource entire process and administration. As a provider, the consultants suggested Hewitt Associates, which was already providing enrollment and other program services. Halliburton assembled a management team from various disciplines to implement the outsourcing agreement.
The primary objectives were to improve the level of employee satisfaction with the benefits administration process, provide a broader array of service and functionality to the programs, consolidate the operation under a single computerized management system, and keep costs at a minimum. In addition, best practices would be sought in each area of operation. Notes William Bedman, the legal representative on the Halliburton team, “Our objective was to benefit our employees and our company at the same time, and we believe this approach gives us more leverage for better service than we could ever realize with an internal organization.”
The selection of Hewitt was fairly straightforward because of their existing relationship with Halliburton and their status as the industry’s foremost provider of total benefits administration services. Hewitt is the provider of choice for more than 100 of the Fortune 500 organizations.
The first challenge was to define the requirements for five separate categories of program administration. Working with managers from each area of benefit operations, Kendell Sherrer, Halliburton’s director of benefits, identified what was most important from a service standpoint in each category. The top five requirements and monitoring tools then were matched up with Hewitt’s list of best practices. In some cases, Halliburton’s existing practices were preferred.
Sherrer focused on developing an agreement that would provide a balance of incentives and penalties that would deliver best in practice overall service and employee satisfaction. In addition to the typical service level metrics for call-wait times, abandon rates, and problem resolution times, he concentrated on service improvements. Problem resolution was divided into two tiers, based on severity, with 70 percent to be resolved on the first call. For the remainder, specific time frames are spelled out for resolution and status reporting. These metrics represented an order-of-magnitude improvement over the existing practices, when an employee might wait four or five days without hearing about the status of problem resolution.The metrics for more serious problems include an incentive for Hewitt to minimize claim adjudication. Other metrics focus on accuracy of services.
In all, there are more than 30 service level parameters in five categories. The more creative ones relate to Hewitt’s requirement to provide ideas and recommendations for service improvements based on their operating experiences on a quarterly basis. There are financial incentives for improving satisfaction and reducing costs. Hewitt will survey employees at least annually, and may conduct up to two additional surveys at Halliburton’s option.
Sherrer developed a corrective action matrix with four levels of severity. For the most serious action types, Hewitt may have no more than two occurrences in twelve months, or the contract can be terminated without penalty. There can be no more than four incidents in twelve months of the next most severe action, with resolution required in 15 days.
The entire process is tracked on a performance matrix. About 80 percent of the reports are available from existing standard reports from Hewitt or other internal systems, such as telephone administration reports. A clear balance exists between incentives and penalties, with about $400,000 at risk for sub-standard service and the same amount available as incentive for service improvements.
Hewitt views the arrangement with enthusiasm. As service providers, they have seen their clients evolve from organizations eager for “rescue” from benefits administration problems to organizations that demand clear and convincing evidence of benefits from such outsourcing arrangements. By putting some of their revenues at risk and by sharing the rewards of cost reduction and creative service improvements, Hewitt is certain that their experience with Halliburton will provide them with clear and convincing evidence that will be useful with other potential outsourcing clients. Their experience with Halliburton will help them evolve their services and identify the value-added services they are able to deliver to prospective clients.
Halliburton anticipates reducing their benefits administration staff by more than 75 percent, improving employee satisfaction, and providing significantly expanded services in addition to dramatic improvements in service. In the coming years, both companies expect their relationship to grow stronger as each realizes the benefits of the “win-win” scenario.
Lessons from the Outsourcing Primer:
- Carefully define your service level requirements.
- Seek out best practices from your supplier.
- Create a win-win relationship with incentives and penalties.
- Ensure adequate and accurate service level monitoring tools are available.
- Review performance and revise service levels at least annually.