The following article was nominated for our Editor's Choice Award 2001. We felt it was a story worth sharing with our readers as an example of excellence in outsourcing.
Asthma, HIV and migraines are some of the reasons Glaxo Wellcome, Inc. exists, for the leading research pharmaceutical firm focuses on discovering breakthrough medicines. In 1995 it discovered a breakthrough in how to achieve its goals regarding human resources functions within the company. It happened as result of the company going through a merger and coming out of it not prepared to handle the volume of HR activity. After going through a strategic alignment initiative in HR and trying to reorganize the department's functions, the company recognized that its resources were being spent on HR administrative tasks instead of strategic projects that would benefit the company.
At the same time, the company's management discovered that incoming calls from physicians, employees, or patients using the company's drugs were transferred an average of six times before getting to the person with whom they needed to speak. "That was completely unacceptable," says Laura Honeycutt, Manager of Benefits Administration at Glaxo, "so we spent a lot of money developing a "customer response center." The internal call center increased customer support services and also had a function built in for employees.
The next decision was whether to insource HR, using the new call center, or to outsource it. "After we figured out what kind of resources we would need to do it internally," Honeycutt says, "we saw that it would have taken away from all the other HR support that we wanted to offer through the call center. And it became apparent that if were spending so much money on designing and funding our benefits programs, they at least deserved state-of-the-art delivery. Is it there when the employee needs it? Is it easy to use? Otherwise you diminish the value of that." They decided to outsource the function to a supplier with core competency in HR - Hewitt Associates.
Prescription for Relief
They handled the implementation in phases, rolling out health and welfare administration first, in July 1998. "Then - boom. We had to get reved up pretty quickly for open enrollment in October," she recalls. In June of 1999 they moved the company's 401k record keeping to Hewitt from another vendor and, at the same time, transitioned from a monthly-valued environment to a daily-valued environment.
The third phase moved the defined benefit plan to Hewitt in June of 2000. October 2000 saw the last leg of implementation, as the term-vested participants from both former retirement plans (pre-merger) were taken over by Hewitt.
Honeycutt explains that, with the expertise of Hewitt, the rollout of the plans was not as big a challenge as some internal issues. She says that the company's senior management did not understand how much support is necessary to maintain an ongoing outsourced relationship. They also had some problems "taking people who had previously been working in the HR insourced function and training them about the differences between doing it vs. managing a vendor to do it. It's a different skill set, and they had to learn what their new roles were.
Honeycutt says that Hewitt was selected primarily because the company wanted an integrated delivery model of all three services, but they were unable to find another supplier that could supply a best-in-class model for all three services. Even so, Glaxo made a wise decision not to bundle all of the supplier's services into one contract. Each of the three services has a separate contract. She explains, "The risk is that if a problem for one service were to happen, that would mean we would have to move all three services at the same time to another vendor. That would be very difficult to do administratively."
Not long after they signed their agreement, Glaxo went through two divestitures. "We had very little notice. It happened quick and back-to-back," says Honeycutt. "Hewitt's ability to be able to assist and respond quickly to significant business changes became very apparent. They allowed us to support the business more so than we ever had before and to do things in a quick manner. And that was important to the success of being able to sell off those businesses."
Hewitt's service levels are now where Glaxo wants them, employees are satisfied, and technologically they have come a long way. Having achieved their goals thus far, Glaxo's new focus revolves around being able to deliver its new benefits delivery model in a more cost-effective manner. Through the quarterly reports, Glaxo realizes where its employees might need more education.
Honeycutt describes the real value of the relationship as "productivity. Whether it's a scientist doing research on a new drug or a sales rep talking to a doctor, you can really quantify how important it is to minimize the time that an employee spends jumping through hoops to take care of their benefits things." When it becomes easier for employees to handle their benefits needs, Glaxo profits by employees spending more time focused on work.
Lessons from the Outsourcing Primer:
- Buyers that are spending money on designing and funding employee benefits programs need to realize that state-of-the-art delivery is as important as the benefits themselves. Outsourcing to an HR supplier can ensure employees receive the value of their benefits.
- Sometimes the buyer's senior management does not understand how much support is necessary to maintain an ongoing outsourced relationship.
- If the buyer's HR employees are to remain, they need to be trained as to the differences between doing HR functions vs. managing a vendor to do them. It's a different skill set.