Small and midsized businesses often have the same human resources challenges that much larger companies have. They grow by acquisition and have to standardize their human resources (HR) when they get a new family member. They have to change how they approach HR when they become global enterprises.
Outsourcing often provides the answer. But it wasn’t until the last few years that outsourcing service providers had specific solutions for the midmarket. “Today the midmarket has many options to choose from. Many of the offerings are robust. The market has become competitive. But this wasn’t true five years back,” says Rajesh Ranjan, Research Director, Everest Group.
Sonoco, a 112-year-old packaging company, has experienced the change in midmarket HRO offerings over the last decade. (If you know the Pringles composite can and Sonoco’s thousands of other name-brand consumer and industrial packaging, you know Sonoco.)
“We’ve become a global company providing consumer and industrial packaging and related services in more than 35 countries with more than 9,000 employees in 150 U.S. locations,” says Steve Heisler, Director, Employee Benefits. The company, which is based in Hartsville, South Carolina, decided to outsource its benefit systems and administration in 1998.
Why this midsized company outsourced
There were many reasons. First, it had “a lot of legacy and home-grown HR and IT systems,” recalls Heisler. “We wanted to eliminate the systems issues and use a centralized platform instead.”
Next, Sonoco felt it needed a national call center “that had someone with expertise on the other end of the phone.” Until it outsourced, plant administrative employees were spending significant time answering pension and welfare plan questions. “Pension rules are strict and change regularly. Benefit plans are extremely detailed and complicated,” says Heisler. The company worried it didn’t have the in-house expertise to answer all the employee questions.
Finally, Sonoco had acquired many companies over the years that had legacy defined benefits pension plans in place. Its master pension plan was set up 75 years ago. All of this added to the complexity of Sonoco’s benefits administration challenges.
“We needed a service provider that could handle a firm that had grown by acquisition and had the complexity of a much larger company,” says Heisler. That is often the case, adds Rob Hyde, Pension Implementation Manager at Hewitt.
Service provider selection
Sonoco put together an internal, cross-functional team to evaluate the request for proposal (RFP) responses, but not just from a benefits perspective. The selection team included people from IT and supply management to weigh in on the service providers. “This was important because then everyone was a part of the decision process,” he says.
Sonoco selected Hewitt Associates to administer its defined benefit and welfare plans. The company found over time that “outsourcing wasn’t as beneficial as we had hoped,” says Heisler. Sonoco didn’t have the number of employees to make outsourcing fees cost effective. Hewitt’s costs were much higher then, he recalls.
In 2008, Sonoco went back to the market looking specifically for a midmarket HR solution. Following an extensive analysis of several outsourcing firms, it selected its 401(k) service provider to handle all its outsourced benefit functions and moved the Hewitt work to the 401(k) provider.
Better HR options for midsized businesses are available today
Within a year Sonoco determined it was not realizing its expected benefits. “We didn’t receive the timeliness, accuracy, and quality they promised us,” he reports. “And it was becoming clear the service provider was not committed to the health and welfare segment of the business.” Sonoco opted out of the pension and health and welfare segments of the relationship when an international company purchased the service provider. Sonoco began discussions about alternative solutions with Hewitt in April 2009.
Hewitt’s product offering had changed dramatically since Sonoco first worked with Hewitt 11 years earlier, according to Heisler. Now it had a platform specifically for Sonoco’s businesses, so it was “significantly more cost effective.” Heisler says this time Hewitt had made it clear midmarket companies had become a core competency. “Now we offer small and midsized companies the same solution as any large employer at a price they want,” adds Matthew Hedrick, Hewitt’s Account Executive for Sonoco.
Sonoco converted its pension administration in late 2009 and its health and welfare plans on January 1, 2010. The new system “proved to be much easier to operate,” reports the Sonoco HR executive. Instead of running on a mainframe platform, the 2009 offering was file-server based and operated using simpler plug-and-play options.
“Service providers realized their big-market solutions don’t work as well for midsized firms. So they invested in new platforms, realizing that technology is important. They also acquired companies that had midmarket expertise,” explains Ranjan from Everest. Hewitt, for example, acquired RealLife HR in August 2007. RealLife specialized in delivering health and welfare benefits administration services to companies with fewer than 15,000 employees and/or retirees.
“The middle market represents a large and attractive growth opportunity for us,” Hewitt CEO Russ Fradin said at the time of the acquisition. “By joining forces with RealLife HR, Hewitt will be able to more effectively serve midsized companies in a way that is consistent with the human resources expertise and solutions we’re recognized for in the large market.”
Benefits of outsourcing
Sonoco no longer has to worry about ensuring its administrative practices are in compliance at its 150 U.S. locations. “Every legislative change can affect benefit systems. We don’t want to build the expertise to manage it,” Heisler says.
He feels the same about healthcare reform in America. Sonoco already has special healthcare administration responsibilities because it has several hundred employees in Massachusetts. The state has a mandatory healthcare coverage requirement. Companies doing business in Massachusetts must demonstrate they provide healthcare to their employees. Hewitt now handles this process automatically for Sonoco.
Hewitt’s platform also includes a pension calculator that projects detailed current and future retirement benefits for employees. “When we went live, one of my team members said it felt like Christmas,” says Heisler.
Hewitt operates Sonoco’s external benefits Web site, which also includes a self-service option. Its staff also provides retirement counseling to Sonoco employees.
Ranjan adds, “In this economy, many midsized firms are struggling to deal with rising benefits expenses. They want to find the best way to reduce costs while at the same time do the right thing for their employees. Today the service providers have the process, people, and technology to do that.”