Michael Sternklar is an HRO pioneer, engineering one of the industry’s first deals. The Executive Vice President of Client Services and Sales is a member of the six-person Leadership Team for Fidelity’s HR Services, part of Fidelity Employer Services Company. Read about the importance of the color gray, his passion for race horses, and HRO predictions for the next five years,
Q: Fidelity is known for its retirement business. How important is HRO to Fidelity?
A: This division, which specializes in HRO and multi-product benefits outsourcing, is one of Fidelity’s fast-growing businesses. More importantly, it offers services that support the business strategies of our clients. We are not a sideline business for Fidelity, but an extension of the value that Fidelity delivers to both employers and employees.
Q: Where did you grow up?
A: I was born and raised in New York; I’ve lived within 25 minutes of Times Square for 42 of my 46 years. I am a dyed-in-the-wool Yankees fan.
Q: Where did you go to school?
A: I received a degree in business administration from the State University of New York in Albany.
Q: Tell me about your first job.
A: I realized I had to make money at something, so I joined Kwasha Lipton, an HR and benefits consulting firm that competed with companies like Hewitt Associates, Mercer, and Towers Perrin. I was a 22-year-old with a passion for business strategy.
Q: Was that your first taste of HRO?
A: Our job was to help our clients’ HR organizations think through the financial and organizational issues of running an HR organization. A few of our clients asked us to take over some of their HR administrative functions. In the early 1990s, the company made a strategic decision to focus on these outsourced functions as an additional core business.
Q: How did that business grow?
A: HRO began to grow because buyers viewed 401(k) and pension administration as an annoyance. They had employees doing these activities in a back office in an inefficient manner.
We were extremely successful. Things changed in 1996 when Sears wanted to hire us but their CFO said, “We have stores bigger than you.” We realized we couldn’t remain independent. To remain competitive, we sold the business to Coopers & Lybrand. This was in the early stages of HRO.
Q: What did you do for the new firm?
A: I ran the benefits and HR outsourcing business for the new combined entity. We did one of the first HRO deals with BASF.
Q: What made the market accept HRO? Was there a perfect storm of events?
A: Things changed in 1997 when buyers began outsourcing their HR infrastructure–call centers and the tech infrastructure. Buyers realized they were spending as much as 80 percent of their time maintaining this behemoth infrastructure. They found this focus distracting to their mission and core business.
At the same time companies were starting to get leaner. They saw HR as a cost center. And companies were reluctant to invest in HR technology. HR executives needed 10 times the investment they were getting.
Also, HR professionals had to find a way to become strategic. They wanted a seat at the table. They wanted to become more valuable, especially in the eyes of the CFO.
Suppliers became intoxicated with the possibilities of how fast and large HRO could grow?all while Wall Street saw the potential and outsourcing became mainstreamed in our global economy.
All these events came together.
Q: What kind of buyers were early adapters?
A: Two kinds of companies:
- Progressive organizations with forward-thinking, secure HR people
- Companies who needed a quick fix to lower their costs
Q: How has the business evolved?
A: The industry now has clearer, more well-defined business models. Today we have more clarity even though everyone still has their own model.
Q: Where are we today?
A: Today we are having different conversations than we did 24 months ago. Today, it’s more pull than push. Today, companies are calling us. They say, “We are certain we want to outsource, but we don’t know exactly how we want to outsource.” Two years ago companies called us and asked, “What’s HR outsourcing? Why should I even think of having someone do this for me?”
Q: Where is the business going?
A: Five years from now I predict there will be less variation in business models, HRO will center on two or three models, standardization will be embraced, and there will be more supplier consolidation. This is a complex business and it’s hard to master all capabilities to do a good job long term.
Q: What should buyers do to contribute to their HRO success?
A: Be clear about why you want to outsource. Be reasonable about your goals. You can’t have it all. You can’t lower costs 30 percent and customize your solution. And don’t underestimate the level of change required. Don’t gloss over the fact that everyone will be doing things differently when the supplier takes over. It’s not, “Yeah, yeah, yeah, I’ll send out an email and everyone will be on board….” Don’t forget: HR touches everyone.
Q: How should buyers select a supplier?
A: Every supplier will save you money. Saving money is just the start. Do you want to reduce risk? Provide better service? Avoid capital investments? Make sure you look for a good cultural fit and longevity in the business. These and other reasons will help you select your provider.
Q: How has offshoring changed HRO?
A: We look at offshoring differently today than we did two years ago. We run a business that needs talent. We figure out where to find the best talent to run that business. Since our business is global, we look for talent globally.
Q: What’s the best business advice you’ve received?
A: Fifteen years ago, I went into my longtime boss’s office for my annual review. I had done well. He said, “Most people think things are either black or white. But they are really in between. You will be successful if you understand the gray. If you ignore this, you’ll never be better than you are today.”
Q: Do you have a hobby?
A: I own thoroughbred horses and race them. Many mornings I go to the barn and watch them train. It’s calming. And there’s nothing more exciting than standing in the winner’s circle.
My family currently owns four horses. We call our stable “Clear Star stable.” That’s what Sternklar means in German.
Q: What kind of books do you read?
A: I love history. I love reading about Abraham Lincoln and just finished Team of Rivals: The Political Genius of Abraham Lincoln, by Doris Kearns Goodwin. I think the Civil War was the most important time in American history. Lincoln was a really interesting character. After the election, he brought all his rivals together and invited them to join his Cabinet. What a great idea!