Danka, the copier sales and service company, has an HR solution others may want to copy: It has no HR employees. It outsourced its entire HR process to Gevity, a supplier that specializes in workforce alignment, administrative relief, and business protection.
"It was a leap of faith," admits Meredith Johnson, Gevity Regional VP who is responsible for the Danka account. While outsourcing many functions of HR is now the norm, she notes it is unique for companies to outsource their HR strategy. "It was a bold move," she adds.
But Danka was ready for a bold move; business challenges forced it to take a new approach. In the late1990s copiers switched from analog to digital machines. A large proportion of Danka's installed base consisted of analog equipment. "Our competitors targeted these customers and the result was the loss of some of our installed base," recalls Keith Nelsen, Danka's Chief Administrative Officer and General Counsel.
"We also had a momentary gap in our product portfolio which led to a decline in revenues which continued for some period of time," he says. The only way the company could survive was to cut costs.
Danka was not new to outsourcing. Early on it outsourced its payroll and benefits, which were not part of HR, to ADP. Now it was ready to outsource even more. The HR department was a prime candidate. Nelsen says it "faced significant challenges" due to leadership changes and the impact on the department of substantial downsizing over a long period of time. And its HR technology was in need of an upgrade.
Finding Places to Cut Costs
Gevity began servicing Danka on August 1, 2005. The transition took one day, according to Nelsen.
Gevity's first task: cut costs and produce efficiencies.
The first place Gevity looked was the payroll department. Prior to outsourcing to Gevity, the payroll department was a separate entity that reported independent of the HR function. Payroll was immediately folded into the HR department. It was also clear that "the payroll department was overstaffed," Johnson recalls. Danka had two managers overseeing seven payroll people. Gevity eliminated three positions and consolidated the work under one manager. The HR department currently runs efficiently with 29 employees.
Johnson also eliminated a contract recruiter "who Danka was paying a great deal of money with no accountability."
The last place Johnson looked for cost savings concerned Danka's California employees. Danka was paying the employees' state disability premiums. "This was a pretty significant cost for a small number of people," says Johnson. Instead, the company decided to use that cash to benefit all Danka employees. "It was quite a re-alignment," she adds.
Outsourcing to Gevity cut HR costs by as much as 50 percent, according to Nelsen. Gevity charges Danka by the head, where ADP charged by the transaction. "We don't have a lot of add-on expenses," says Johnson. "We can plan on our HR expenses, and this is appealing to us," says Nelsen.
Danka found Gevity's affordable employer and manager self-service platform a big draw. Oracle powers the Gevity platform; Danka uses Oracle to run its financials and procurement. "It was appealing because we were already an Oracle shop," says Nelsen.
Gevity trained 250 Danka managers to use the self-service platform. Unlike other places where managers resisted the self-service initiative, Johnson says Danka managers have been receptive.
Nelsen says Danka HR employees who work for Gevity now enjoy better benefits. "We had been cost-challenged for so long, we had to cut benefits, like the match to our 401K plan," says the Danka executive. "When our employees hopped on the Gevity bus, they got better benefits," he says.
Finally, Nelsen says outsourcing allowed Danka to tap into Gevity's HR technology. Due to a starvation of capital, Danka's HR technology had grown hopelessly out-of-date. The new technology has improved many of the HR functions, he reports. For example, the technology "helped us rationalize our compensation," says Nelsen.
Governing the Relationship
In the beginning, Nelsen and Johnson met for 30 minutes every week. The two leaders decided to continue the meetings as a key component of their governance structure. Johnson and her team do the legwork and make recommendations to Nelsen, who makes all decisions. They two act like co-workers; Nelsen calls Johnson his "VP of HR."
Gevity's service level agreements (SLAs) contributed to the decision to choose this particular supplier. "They agreed to a strong package of SLAs at a good price," Nelsen says. He also liked the fact that they were located just half an hour away. (Both companies are in Florida.)
Gevity, which has over 8,000 clients servicing 136,000 employees, has over 200 human resource consultants in the field. It requires its employees to have a bachelor's degree in HR and certifications from the Society for Human Resources Management (SHRM). It likes to call its brand of outsourcing "insourcing."
The supplier formed the Gevity Institute in 2003. Its first research project, in partnership with Dr. Christopher Collins of Cornell University's Center for Advanced Human Resource Studies, was to determine if workforce alignment worked as well for smaller companies as it did for Fortune 500 behemoths. Its findings: the use of high performance employee management practices, including those available from HR outsourcing, are associated with 22 percent faster revenue growth, 23 percent better profit growth, and 67 percent lower employee turnover.
Lessons from the Outsourcing Journal:
- Many companies outsource discrete HR processes. But Danka outsourced its entire HR process to Gevity. This is possible when there are strong SLAs and a good working relationship between the two executives.
- When a company is in survival mode, outsourcing the entire process is one way to rationally cut costs while improving services.
- This relationship cut HR costs by as much as 50 percent. The supplier improved processes but also analyzed every aspect its HR spend to wring out unnecessary expense.