Second HR Outsourcing Venture is a Charm for SMB, Producing 85 Percent Savings | Article

horse shoeOutsourcing can be a dubious prospect for a company that’s tried it before with little success. But when that firm is employee-owned, management knows the second attempt better work.

Van Meter Industrial of Cedar Rapids, Iowa operates manufacturing and processing facilities in 19 locations statewide. Its 400+ employees/partners develop products for several industries including computer, datacom, and electrical. It has been profitable for several years, according to Den Henrickson, Senior System Administrator at Van Meter.

The company’s first attempt at human resources outsourcing (HRO) “didn’t go very well,” reports Henrickson. The reason: “This was an HR initiative, and IT needed to be more intimately involved.” This caused the enterprise to get off on the wrong foot because the initiative never attained the hoped-for objectives, he explains. At an employee-owned company, timely and fair evaluation of its employees’ work is crucial, so the failure was a problem.

“Management knew it had to try outsourcing again because it’s a reality in business today. But at an employee-owned company, when you talk about outsourcing, you need to choose your words carefully and deliver the goods fast,” says the manager.

A certain amount of trepidation is to be expected with outsourcing in an employee-owned business, says Lisa Rowan, Program Manager, HR and Talent Management at IDC. “Finding a gateway process that has a good chance to succeed is certainly the best way to introduce outsourcing into such an environment.”

The incumbent employee performance management (EPM) system was a child of the 1960s. This 30+-year-old process yielded lots of paper, miles traveled along Iowa’s highways by supervisors who performed the evaluations, and very slow results. This highly inefficient process was the perfect outsourcing target.

In 2003 Henrickson found Halogen Software of Toronto along with several other software-based HRO providers. Halogen provides a variety of employee performance management solutions to its customers, either singularly or bundled together, depending on client need. It didn’t take long for Van Meter to settle on one of Halogen’s boutique offerings because “they addressed my singular need only. Everyone else tried to sell me an entire solution,” says Henrickson

IDC’s Rowan adds that investing in a suite-based solution is not a large driver in the small-to-medium business (SMB) area right now. “They’re currently not widely choosing one-stop shopping but opting to outsource specific tasks that address particular pain points,” she explains.

Don’t Fool Me Twice

Unlike Van Meter’s first attempt at HRO, this time Halogen’s EPM, HR and IT were on the same page from the start. According to Hendrickson, the two partners found a way to work well for something they both wanted. “We were able to quickly do our mock-ups and clearly share what we wanted and didn’t want from the outset,” he recalls.

The outsourced process had to be easy to use and administrate and require minimal IT support. Automated documentation had to be fully functional in order to eliminate the paper and most travel. It also had to stand alone, since Van Meter had no interest in a full-blown human resource information system (HRIS).

Halogen was also able to act quickly, outlining its eAppraisal service. In early 2004, with the next Van Meter EPM scheduled for the summer, the two executed an outsourcing contract and service level agreement (SLA) in late April.

“This appeared the simplest program for us. We didn’t want to have an overly complicated package,” says Henrickson. “We believed our people would resist if we overloaded our people with a complicated system.”

Van Meter’s goal was to lower the EPM process costs by 15 percent. This would hopefully come from reduced travel. There were also time savings; the HR department only had to perform a small amount of oversight and wouldn’t have to sift through an avalanche of documentation and handwritten notes.

Up and Running, Producing and Saving…Fast

A training package for eAppraisal was the first task. Cautious because of its previous experience implementing corporate-wide systems, Van Meter knew that training would be an important element for a successful rollout. This was especially important for the IT staff, which would field internal staff questions about eAppraisal.

A Halogen training consultant visited Van Meter for a week to train HR and internal IT helpdesk staff in late June. Then IT and HR personnel conducted the internal staff training–one hour for employees and two hours for managers–minimal by Van Meter standards. Halogen also hosted the service.

Less than 30 days after the training phase, Van Meter launched its first appraisal process. The two-week turnaround was extraordinary because Henrickson’s team had originally budgeted six months to roll out the new system enterprise-wide, with all 400 employees using the system in 19 offices.

The evaluation results were also more uniform. But just as important, most reviews were completed in a timely manner; before, most took 30 days or longer to complete.

Originally, Van Meter intended to host the system onsite. But after a cost analysis that included the estimated number of IT-person hours for system updates and maintenance, the cost of the server, and the backup required, the company decided to allow Halogen to host it. Van Meter accesses the system via Halogen’s ASP server. This further added to the simplicity of the product implementation and use. “All they really need is a good connection,” adds Halogen’s Vice President of Client Services Marc Brule.

The Perfect Outsourcing Gateway

Managers and employees could update and maintain notes electronically in a single location once the company implemented eAppraisal. This proved useful during the actual appraisal and enabled managers to abandon paper processes. This in turn dramatically reduced the need for travel between locations.

For Van Meter, eAppraisal’s best feature is the simplicity of the end-user interface for both day-to-day journal entries and the annual evaluations. “We didn’t want to scare our employees and managers with a bulky, complicated system,” says Henrickson. “We succeeded.”

Van Meter significantly exceeded the anticipated 15 percent cost savings, realizing an overall savings of 85 percent. “For example,” explains Henrickson, “if we formerly spent $100 per review, we now spend $15.” Van Meter reached this figure by calculating time saved for completing, reviewing, and following up on appraisal completion as well as the reduction in time allotted for travel. The evaluation also factored possible need for correcting errors in the system, hosting costs, and additional time for IT staff to support the eAppraisal.

And where is that savings going? “Back into the company,” says Henrickson. “Remember, we’re employee-owned, so this has been a really big hit.”

And what happens the next time the outsourcing word is invoked at Van Meter?

“This has been such a positive experience that outsourcing didn’t hurt us and will probably help the next time we bring the idea up,” says Henrickson.

Lessons from the Outsourcing Journal:

  • When outsourcing anything within an employee-owned SMB, find a gateway process that offers prospects for dramatic success without the elimination of jobs.
  • Boutique software-based HRO solutions are penetrating the SMB market more deeply because few buyers are interested in outsourcing the entire enterprise.
  • To realize success, outsourced HR solutions must be cooperatively championed by both HR and IT departments within the buying organization.

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