When Philadelphia, Pennsylvania-based Pep Boys reviewed its strategy for upper-level area directors in its retail chain in 2005, company executives realized that having one director manage two distinctly different operations for multiple stores might look efficient on paper. But from an operational perspective it left a lot to be desired.
One of the largest auto parts and vehicle maintenance retailers in the US, generating $2.3 billion in sales for 2005, Pep Boys began to understand that these 42 top-level directors, who each administered over a dozen of the 593 stores in 36 states and Puerto Rico, needed to specialize in one area or the other: either service or parts.
“It was too much responsibility for one person to oversee both,” says Liviu Dedes, Director of Training and Organizational Development for the 20,000 employee chain. This meant the retailer needed to literally double its regional managers, virtually overnight!
The company knew it was best to promote from within. But Pep Boys had no systematic way to locate the employees who might be good candidates for promotion into these new jobs. “No business can double its leadership overnight,” Dedes says, then adds the firm “didn’t even know who was on our bench.”
But thanks to an outsourced hosted system from Software-as-a-Service (SaaS) provider SuccessFactors that lets management efficiently evaluate current employees, this goal of duplicating these 42 area directors approaches completion at a savings of well over $300,000 in recruiting, hiring, and training expenses.
Head-to-Head, the Outsourcer Beats the Vendor
Some companies turn to software to help predict future employee departures and determine crucial knowledge. Succession planning or talent management software by itself can give organizations a good picture of who is working for them, how they are performing, and how long they’ll be around. But, in this case, Pep Boys preferred to have the services hosted remotely, thereby making universal access easier, which led it to SuccessFactors.
Dedes says that Pep Boys considered several options, both SaaS outsourcers and software sellers, in the evaluation process and chose SuccessFactors for ease of use, deep and flexible functionality with which the company can grow, a compensation evaluation feature, a quick implementation time which fit its aggressive schedule, and also the appealing price for the service and savings offered.
Gartner analyst Darryl Plummer outlines the advantage very simply. “Companies now realize that they don’t need to buy applications anymore, but solutions based on service.”
The hosted service Pep Boys uses involves a sophisticated matrix with ratings for performance and learning agility. It relies on numerous sources of information such as employee objectives, training history, succession planning, compensation, 360 reviews, employee surveys, and other reporting and analytical data. The system tracks information on all Pep Boys’ employees, not just the 4,000 who have been evaluated for their potential to be promoted to open positions.
For managers and executives, this information is presented in Web-friendly dashboard form, which is especially valuable for a geographically diverse company such as Pep Boys, where a qualified candidate with limited promotion potential in New York might be a perfect fit as an area director in Puerto Rico.
Outsourced Solution Generates Results and Pays for Itself
Within three months of deploying the application, Pep Boys placed eight internal associates into these new area director positions – people it probably wouldn’t have identified otherwise, according to Dedes.I In that one quarter, Pep Boys had already saved about $80,000, which was half the cost of SuccessFactors’ service for the first year, she adds.
A study that Pep Boys commissioned estimated that it costs an average of $20,000 to hire an external candidate. The study factors in everything from training costs to the length of time a position is unfilled, which compared to half that expense to promote from within. Plus, Dedes says, because the system is standardized, employees are rated more equitably: “Everyone’s measured against the same yardstick,” he says.
Other benefits include consistent performance evaluations and better understanding of merit-pay distribution. This produces a more equitable compensation formula and reduces overall spending. Another featured result finds managers completing performance evaluation more quickly on 95 percent of the eligible employee population because this hosted SaaS solution offers on-demand availability 24/7.
The service also benefits Pep Boys’ strategic promotion agenda. With retirement on the horizon for a growing number of managers, coupled with normal turnover and new management positions opening up, the succession-planning feature helps give Dedes and his group a leg up in identifying those who can step into those positions of greater responsibility.
“The risk of knowledge loss constantly exists because there are always unexpected departures,” he says. “But if you have a solid process to map out who is in your leadership pipeline, you’re better prepared to fill these openings and reward top-performing employees with more and better opportunities.”
Lessons From The Outsourcing Journal:
- Outsourced talent management and employee evaluation solutions can greatly reduce this cost and positively impact the bottom line. It typically costs twice as much. In Pep Boys’s case, it cost $20,000 to hire an external managerial candidate, compared to promoting from within ($10,000).
- Software solutions that identify leadership and management candidates can be accessed affordably in an outsourced Software-as-a-Service model.) Select a solution with a succession-planning feature to help mitigate the risk of knowledge loss through attrition.