Countless Americans use the services of The ServiceMaster Company; it is the parent company for such well-known businesses as Terminix, TruGreen ChemLawn, TrueGreen LandCare, American Residential Services, Rescue Rooter, American Mechanical Services, ServiceMaster Clean, American home Shield, AmeriSpec, Merry Maids, and Furniture Medic. No other firms have exactly the same residential services model as ServiceMaster, but the company competes with a myriad of local-market, mom-and-pop operations. It’s a highly competitive market that allows almost no tolerance for cost increases — including the 15% yearly rise in the company’s healthcare benefits costs. So ServiceMaster decided in 2003 to change tactics for its employees’ health and welfare benefits administration.
“In today’s world of healthcare costs increases, it’s more challenging to offer affordable quality healthcare. We were trying to avoid and minimize the cost increase that is passed on to our employees yet offer employees plans that provide choice, affordable access, and strong basic coverage,” states Elizabeth Reeves, Senior Vice President of HR ServiceMaster. By consolidating the company’s medical insurance plans, ServiceMaster is better able to leverage its purchasing power and cost-negotiating position.
When Reeves joined the firm in fall 2002, she encountered “poorly trained people answering the phones. They really didn’t know the benefit plans and were not particularly well paid, so there was high turnover; this also impacted how well they were able to answer the questions.”
Many of ServiceMaster’s 46,000 employees are seasonal; the majority of them go to branch offices in the mornings, get their route assignments and then are on the road for the rest of the day. “They were calling first thing in the morning or late in the afternoon about their benefits, and they really needed somebody who could answer questions. But often they were getting voice mail or people not well trained in answering questions. It was a mess,” Reeves recalls.
Reeves had prior experience with using outsourcing provider Hewitt Associates (currently in a merger transaction with Exult, Inc.) at other companies in her career; so they selected Hewitt for the benefits redesign work. During that project, Hewitt encouraged the firm to begin thinking about outsourcing sometime in the future. Both options in a buy-vs.-build decision on HR technology were comparable, but outsourcing would enable the firm to achieve $30 million savings in projected total healthcare costs over the next three years while improving value to both employees and shareholders.
The business case made sense, and the “future” came four months later. In February 2003, ServiceMaster’s corporate benefits group issued a Request for Proposal for competitive bids to take over the health and welfare benefits administration process.
Home-run Services Provider
As Susan Flaherty, Vice President of Benefits (who also had prior experience in using Hewitt’s outsourced services in other firms) explains, Hewitt was awarded the contract because of its integrated solution and high-quality work. “The other bidders were piecing things together, subcontracting part of the work to other companies,” says Flaherty. Hewitt’s price was more. However, in return, Hewitt would be providing ServiceMaster’s employees with a higher level of service.
ServiceMaster also believed Hewitt would implement the outsourced solution “without a snag;” indeed, Hewitt was informed that measurement of success would depend heavily on a low noise level from employees. “Hewitt took that very seriously and understood how important that objective was to us,” states Flaherty. “And Beth and I knew from past experience that Hewitt folks are truthful and, when Hewitt commits to something, you can rely on their promises.”
Cultural fit was an important component of the provider selection criteria. Hewitt shares two of ServiceMaster’s corporate values — to develop people to their fullest extent and to pursue excellence. The firm also wanted a provider that would be agile and use quick decision-making processes. According to Reeves, most of ServiceMaster’s businesses were niche companies started by entrepreneurs and later acquired by ServiceMaster, and the quick-paced entrepreneurial environment is still considered key to success.
They also sought a provider with state-of-the-art HR technology. “Because most of our employees are out in the field, we didn’t have a very good infrastructure to support any of the things that we would be trying to set up,” Flaherty says. The outsourcing provider would also need to come up with cost-effective solutions for ServiceMaster’s nearly 70 percent turnover rate (because of the seasonal work in residential services), along with communications solutions for the firm’s employees who speak only Spanish and some who are illiterate.
“Thoughtful, creative solutions that are very good options” are a hallmark of what Hewitt has brought to the table so far, according to Reeves. “And they are very responsive any time we have a problem.”
Having an agile, collaborative service provider proved to be a good foundation for success from the outset. As Flaherty explains, “We didn’t get internal approval and final sign-off for the outsourcing initiative until two weeks past Hewitt’s drop-dead date. We knew we were at a point where it might be too late for a pain-free transition.” They went from idea to implementation in just five months, “going a hundred miles an hour.” Adding to the challenge of an already-compressed implementation schedule, ServiceMaster decided to go for a full, rather than partial, conversion.
“Even though this change caused additional costs and effort, we felt it was important,” explains Flaherty. “We were introducing a lot of change, and we needed it be a good experience; so we needed to make sure that we were making this as easy for our employees as possible.” They had no noise from employees as the outsourcing was implemented — except for “employees applauding things.” They doubt any other provider would have accomplished all the objectives in such a short period of time.
Reeves adds, “Outsourcing enabled us to provide a higher level of service to our employees. Although the costs of all the plans increased, our employees were more receptive, knowing the plans provided choice, affordable access, and a higher quality of service.”
Together, Hewitt and ServiceMaster hit a home run.
Lessons from the Outsourcing Journal:
- Often, both options in a buy-vs.-build decision on HR technology are comparable. But an outsourcing provider’s expertise will enable the buyer to achieve savings while improving value to both employees and shareholders.
- Even when a buyer has personal knowledge of the capabilities of a potential provider, a competitive bid process is important, as it will illuminate the value of the proposed solution.
- Inadequate timeframes are often the cause of relationship problems in the implementation/transition phases in outsourcing. Buyers need to ensure a provider has the capabilities and willingness to achieve objectives in sub-optimal conditions. Often, a financial incentive will motivate a provider to pull out all stops to achieve an implementation on time.
- Cultural fit is a critical component in provider selection criteria. At a minimum, both companies should share the same values and have similar decision-making processes, as these will later determine whether and how the parties behave in trying to achieve their joint objectives.