First Aid for HR | Article

Outsourcing can relieve stressJohnson & Johnson is the largest and most diversified healthcare company in the world. It manufactures world-renowned health care products and provides related services to consumers and pharmaceutical markets, selling products in more than 175 countries. With more than 190 operating companies in 51 nations, the company has more than 99,000 employees worldwide. It’s a human resources migraine, to be sure!

When Johnson & Johnson (J&J) pulled out the first aid kit to remedy its HR function in 1993, it decided to insource the function but move it to a shared services model. J&J transferred Eileen Palumbo from another J&J operating company and promoted her to the position of Director of Shared Services Benefits. However, the more they explored that concept, the more they realized the company would need to hired extensive staff and replace its technology. They ended up outsourcing the operation and management of the internal shared services center to a consulting firm that helped them with some benchmarking and best practices for the shared services center that opened January 1995.

Brand Name Pills

As often happens, everything didn’t work as planned. For starters, J&J was not using the supplier’s system. Second, J&J had been developing a Lawson internal system that would be capable of integrating with HR, but it became apparent that the Lawson system would not meet J&J’s future HR needs without modifications of future releases. So in 1998, when the original contract was up for renewal, J&J looked for another supplier for its shared services center.

In searching for another supplier, J&J became very impressed with Hewitt Associates’ Total Benefits Administration System, the quality people on its staff and its commitment to invest in technology. Both J&J and Hewitt have longstanding reputations of excellence in service. Both know the value of a brand name. Palumbo says their “values and goals were in sync.” They pursued the relationship, signed the agreement and began working toward a July 1999 implementation. J&J has outsourced its health and welfare plans and its defined benefit program. Services include all day-to-day administration, Internet and IVR (integrated voice response) access to Hewitt’s reps.

Having already outsourced for the previous five years and received consulting advice on shared services center best practices, J&J went into the agreement with very clear ideas of what worked and didn’t work, and what it expected from its new supplier. “One of the reasons we chose Hewitt,” says Palumbo, “was their willingness to partner with us. We had indicated to them that we felt J&J would be a different business partner in terms of our involvement. They didn’t know what to expect from us, but they were very open to our ideas.” She adds that J&J is very sensitive toward what is in and out of scope.

Fit as a Fiddle

Their partnership approach rests on compromise, a high level of openness and frank discussions, and not letting things build up. “Where there are issues, we talk about them,” Palumbo says. “There is no defensiveness on anyone’s part, and we both do whatever it takes to get the job done and keep the employees’ needs in mind.” She also emphasizes the importance of clear goals and standards. They have onsite visits, a weekly status call and a quarterly steering committee meeting. The service level agreement has performance penalties tied to several key areas, but she says their “joint goal is for us not to collect one cent.”

They’ve had a few challenges to overcome. When the Lawson system was not ready by the targeted date, they had to kick in some contingency plans. There was not enough prep time for the first annual enrollment after the transition, but they worked together through that hectic period. She says there were also some learning curve issues for both of them, but they “strategized on action plans, and everything was a joint effort.”

Both companies brainstormed on approaches toward training when they found that some of the J&J employees were a little slow about moving toward technology. They came up with a “Center News” publication that goes out to all employees and retirees, which features tips on how best to use the center. The first employees to use the technology for handling benefit changes because of marriage, the birth of a baby, and pension estimate were featured in interview articles illustrating how great and easy-to-use the new technology is. J&J also talked with the Hewitt reps so they would be able to deal with employees who might be upset about the move to technology.

J&J’s original objective was to improve performance standards and provide best-in-class service for its employees. Hewitt brings its partner new ideas about how to move its business forward with technology. “We’re both being totally flexible,” says Palumbo. “So what’s in place today will be very different next year and very, very different five years from now.”

“Our contract is for 5 years, and we are off to a great start,” Palumbo says. “I think it’s a great relationship. We have a great foundation upon which we are building, and they are good people and have a great value system. They are good business partners.” They had a celebration reunion on their one-year anniversary and included “all the folks that had touched the deal since the beginning.” Given their satisfaction thus far, there will undoubtedly be more anniversary celebrations.

Lessons from the Outsourcing Primer:

  • Even in today’s Internet-driven world, some employees may be resistant to being forced to move to technology to handle their benefits needs. Buyers and suppliers need to brainstorm ways to approach this situation before the plan is implemented.
  • A partnership approach depends on compromise, open and frank discussions, and not letting things build up. Both parties must be willing to do what it takes to meet the Buyer’s employees’ (or customers’) needs.


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