Though a company may perform a single function it doesn’t necessarily entitle the company to the best-in-class moniker, says Jim McAloon, outsourcing consultant at Hewitt, a human resources (HR) firm. Companies must earn the best-in-class title over time through outside parties like clients, prospects and outsourcing analysts who evaluate the vendor’s services and deem them top notch.
“Best-in-class should mean the proven ability to deliver the services that an organization uniquely needs from several different perspectives — a people, technology and processes perspective; and a commitment by the supplier to reinvest in the future,” McAloon says. “A best-in-class organization should be able to prove themselves best-in-class along all of those frames. And provide long term commitment for the partnering organization.”
Best-in-class outsourcers like Hewitt, which specialize in human resources (HR), have been able to survive and thrive in niche markets for that very reason, he says. Best-in-class providers have a proven ability to perform a function better than many other companies can. A great deal of knowledge is required to support the administration of many complex functions and best-in-class providers are uniquely focused on the function at hand. They make people, technology and process investments in their particular craft, which leads to performance improvements on a proactive basis. Single integrators tend to spread their resources over a broad range of functions, thinning the quality and overall attention they can give each individual area.
Managing The Vendor
The obvious disadvantage of using several best-in-class organizations, as opposed to a single integrator, is that the arrangement is harder to manage. But McAloon contends that it isn’t always the case. In some situations it is important from a management perspective to use a best-in-class provider.
Take for instance benefits outsourcing, which as a field of business is less than ten years old, so it is relatively immature, he says. Most of the organizations that Hewitt has worked with over the last ten years are outsourcing the benefits function for the first time or have never outsourced any function within their business.
“The first time organization that is new to outsourcing generally has a pretty old process built up in their organization and have developed methodologies on how things should be handled from a process perspective,” McAloon says. “The change management that needs to take place there is more difficult. So, it is crucial that a company works with a vendor that has experience and the proven ability to deliver the services.”
A single integrator cannot provide the individual attention that a company needs in some complex functions because they are too busy implementing or fixing a problem in another area, he continues. Also, a single integrator may be more trouble than they are worth because if they lack the experience necessary to perform such a complex function then a company will spend a lot of time managing the service levels.
“Because of the complexity of some functions the process efficiencies and project management can be delegated to the outsourcing partner (best-in-class provider) since the client is usually going through the outsourcing process for the first time and they don’t know what to expect,” he says. “We have been through it over 150 times with our clients and through the shared learnings of those 150 prior implementations we are able to help out clients through difficult and complex periods.”
Working With Other Vendors
There are definitely cases within the HR world where Hewitt works with other outsourcing providers. This is often the case when a client company chooses to pursue best-in-class providers. Critics of using best-in-class providers claim that it is often difficult to get the vendors to work well together because they don’t want to give away their secrets. McAloon says that this has not been the case in his experience.
HR providers often have to work with payroll vendors. In order for an HR supplier to be able to perform its role as a company’s benefits outsourcing partner it needs to be able to pass data back and forth between the payroll outsourcing partner on a regular basis. It is imperative for them to work well together. And they do, he says. Less frequently HR outsourcers work with other outsourcing partners like a mailroom vendor or an outsourced technology partner, but it does occur. And problems are few and far between, he adds.
Being a “Best-In-Class” Single Integrator
McAloon wants to make it clear that though Hewitt is considered a best-in-class provider in the HR arena, it is considered a single integrator in the niche market of benefits outsourcing. There are generally viewed to be three separate components within benefits outsourcing: contribution outsourcing, which are 401K or savings plans; combined benefits plans, which are traditional pension plans; and health and welfare plans, which are medical and other welfare benefits. Some companies offer one or two of the three, but there are companies like Hewitt that offer all of them.
He says that within benefits outsourcing it is a good idea to go with a single integrator, in other words a vendor that offers all three. The consistency a company would have with a single integrator offers significant advantages to both the employer and employees in this particular area.
“For the client it offers one vendor to manage and one vendor to have a leveraged financial relationship with,” he says. “And from the employee or planned participant perspective it offers the ability to get information from one source. They only have to make one phone call to get the information they need for the entire benefits package. So an employee is getting consistent information.”
Lessons From The Outsourcing Primer:
- Just because a vendor offers services in one area doesn’t make them a best-in-class provider.
- Best-in-class should mean the proven ability to deliver services from a people, technology, process and reinvestment perspective over the long haul.
- Single integrators may not have the prerequisite knowledge to perform complex functions like HR at a high level, because it is not their concentration.
- Best-in-class vendors often have to work together, and it is essential for them to have a good relationship with each other in order for the outsourcing arrangement to work.