Co-creating Successful HR Outsourcing | Article

successful hrFacing the many difficult challenges encountered by Morgan Stanley and its Human Resources (HR) service provider, PwC Unifi Network, many service providers would have crumbled under the weight or, at least, emerged badly scarred.

“Both of our firms had a tremendous amount of pressure on them. The year-long transition phase was intense, but worth it,” recalls Michael Torre, executive director in charge of benefits and HR systems at Morgan Stanley.

Their five-year contract, signed in October 1999, covers services for all of the company’s benefits programs (health and welfare, defined contribution and defined benefit). Torre says that when he presents periodic reports about the outsourcing relationship to Morgan Stanley’s management team, he always tries to come up with examples of added value from the relationship – more than just the dollars-and-cents view.

And he definitely has examples to relate.

From Macro Perspective to Nitty-Gritty

The outsourcing strategy evolved as a result of Morgan Stanley’s merger with Dean Witter Discover Company. Torre described the process of going through a merger as the ability to develop and change various front-end systems without negatively impacting the respective core legacy application systems. “It gets very complicated trying to pull things together,” he says.

The macro view of the objectives for the outsourcing relationship centered on drivers such as integrating all benefits programs into one package; moving all the combined firm’s HR systems onto one platform; reengineering processes for more efficiency and cost-effectiveness; shifting much of the benefits services to a Web-enabled, self-service format; and enabling the Morgan Stanley HR employees to focus their attention on substantive benefits plan matters, rather than on administrative tasks.

Basically, they wanted to create a single employee experience for the 60,000 employees and several thousand retirees.

But when planning activity shifted in transition to the nitty-gritty matters, both sides had to scramble and learned they would not be successful without working in tandem.

Morgan Stanley’s four prior “populations” (Morgan Stanley, Dean Witter, Novus/Discover Financial Services and Van Kampen) were supported by three different payroll systems, two different HR systems, and a variety of prior vendors. Unifi had to develop customized interfaces to and from each of those systems and also had to convert all of the benefits data from the disparate formats used by the prior vendors.

Logistics also were a challenge. The transition for each business unit had to be staged on different dates to work in conjunction with the various legacy vendors. The rollout communications had to use different approaches for the four unique cultures. And Unifi’s service center representatives had to be trained on all the various legacy plans.

As if these challenges from a merged firm were not enough, Morgan Stanley added to the challenges. During transition, it changed its accounting process, affecting the way costs were allocated. Then, in the middle of the transition phase, it changed all its mutual fund offerings in the 401k plan. The company then had to go through a formal Request for Proposal process to choose a new trustee rather than continue with three separate pre-merger trustees.

Torre recalls his biggest fear during the conversion was the potential inability to successfully connect to the various business units’ internal Web sites and then being unable to link all of them to the Unifi site.

The Rest of the Story

With all of these challenges, trying to accomplish their objectives within the planned timeline was doable only with teamwork. “We set up a very effective governing body of senior management between Morgan Stanley and Unifi and met every two weeks to discuss issues,” recalls Torre. “We made sure that everyone understood all challenges were joint problems. Our success depends on everyone talking though the issues.” The strategy worked so well executives from both sides still continue to meet every two weeks.

Morgan Stanley participated in the initial training of the service center representatives, providing insight into the four cultures. In fact, Morgan Stanley employees were in the service center to lend technical expertise when the center’s phones went “live.” When they later recognized the need for further training to clear up some confusion among the Morgan Stanley employees, they jointly designed a new training program for the call center.

Torre says they deal with problems together. When they learned, for example, that some Morgan Stanley employees were using the call center because they were reluctant to use the self-service Web format for their 401k transactions, they worked with Unifi to write a script for what the representatives should say to those employees.

Unifi assisted Morgan Stanley in the formal Request for Proposal process to choose a new trustee. It also provided input on strategy and understanding how to handle the challenge of linking the Web sites.

Unifi and Morgan Stanley’s agreement uses financial incentives to align their mutual interests. There are incentives at contract-renewal time if Unifi achieves a lower per-unit cost charged to Morgan Stanley while still maintaining high-quality services.

Unifi comments that the approach to their partnership was established through the example of senior team members from both firms, who fostered a cooperative environment and worked together to establish procedures and approaches that keep operational costs low but still provide a fair price to the service provider.

Both companies are “extremely turned on by the relationship,” says Torre. “We really do get along well. We have established an honest communication that allows us to jointly manage the relationship. Unifi is an extension of Morgan Stanley, so we need to understand their business and their drivers, just as they need to understand ours. Working together, we can both decide what is best for all parties.”

Lessons from the Outsourcing Journal:

  • Even though a company outsources its business function, the buyer should continue to work jointly with the service provider to understand what motivates it and to proactively ensure their mutual objectives are met.
  • The tone and approach of the relationship will permeate through the buyer’s entire organization when it is established from the top down.
  • Never underestimate the amount of work involved in conversion or implementation during the transition phase or the number of challenges that can occur. It requires a teamwork approach to successfully meet the planned timelines.


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