In 1925, women’s stockings were knitted flat, like a sheet. They were cut to fit the shape of a woman’s leg then sewn together, up the back, making the dark seam that men liked. But women hated seams, so hosiery manufacturers eventually learned how to make stockings without them. Even so, seamless hose were deemed unattractive because they didn’t fit tightly and sagged at the ankles. The invention of nylon in World War II led to the discovery of how to produce well-fitting, attractive, seamless hosiery.
Companies and their employees have long been accustomed to their separate interests being joined by a visible “seam,” known as the human resources department. Today’s global economy and technological advancements have forced companies to rethink goals and strategies. In that analysis, companies find that human resources management (HRM) is often a cumbersome administrative funcIndustry studies reveal that most customers who become dissatisfied select another provider, rather than return the functions in-house. Stephen Fordham, Senior Director of Employee Care at Convergys Corporation that complicates the real work of the organization. The expense of in-house HRM has escalated, due to litigation involving former and current employees, as well as medical and pension benefits; yet, the need for specialized HR expertise also continues to grow. The situation calls for “seamless” arrangements, accomplishing HR functions “invisibly,” through expert outsource providers. But, if the process of outsourcing produces an ill fit, it will be as undesirable as baggy hosiery.
Industry studies reveal that most customers who become dissatisfied select another provider, rather than return the functions in-house. Stephen Fordham, Senior Director of Employee Care at Convergys Corporation, says there are as many reasons for dissatisfaction as there are individuals involved. He says, “Generally speaking, though, in HR, I think you have to look at who are the key decision makers — HR vice presidents, benefit plan sponsors, plan fiduciaries. As a group, those men and women are risk averse; their primary goal is to avoid being put into ERISA jail.”
Fordham explains that the number one criteria for an HRM outsourcer is extremely high levels of service. He says, “A call that is not handled properly becomes a case within the service provider’s bureau; and, if that case is not handled properly, it becomes a claim for benefits under the plan; and, if not handled properly, it becomes a potential lawsuit.
So, in all cases, competent, state-of-the-art service from the outsource provider is the key.” Flexibility in the outsourcing relationship is a means of ensuring a high level of service and preventing dissatisfaction.
Hosiery, to be comfortable and longlasting, must be manufactured to stretch, yet not be baggy. To accommodate business changes, a supplier of HR services must be flexible and innovative, yet not jeopardize itself by overcommitting.
Convergys is a comprehensive provider of integrated customer management systems, including HRM, call center solutions, billing and database services. “We used to be the old stock and transfer division of AT&T,” explains Fordham, “with large mainframe capability, large data networks, large data and call management.” Convergys began to realize that being flexible in custom building whatever system a client wanted was not the correct business model. Fordham says that “flexibility taken to its illogical extremes becomes inflexible, because then that custom-built system has to be maintained for that individual.”
Convergys now licenses SAP business functionality that is standard and then wraps it with call center telephony solution. “By standardizing the offer platform and service delivery platform so that it is replicable from client to client, we have the ability to make specific changes and meet client requirements in a much more flexible way. You can change eligibility, a requirement or a plan to fit the mold, and the customer will save money and get it faster.”
When hosiery is snagged, the resulting “runner” destroys the usefulness of the stocking. If a vendor is not flexible, suggests Fordham, “it will die, because it’s only a matter of time before there’s a merger or acquisition or a plan change, like a move from a defined benefit plan to a cash balance plan.”
Flexibility is not something that can be built entirely into the contract, according to Fordham, because the parties don’t have the foresight to know what changes will occur. He recommends including the HR vice president or manager at the decision-making table with the dealmakers and eventual deal operators. He or she, in the end is the one who will have to entrust employee data to the outsourcing provider and yet will not lose ultimate fiduciary responsibility for the employees.
Fordham also points out that a provider must have a scalable HR information system that can be adapted quickly at the client’s request, to facilitate changes. “If you can’t move people from one business unit or plan to the other quickly,” he says, “HR can be an inhibitor to the success of the business.”
The Discriminating Choice
Hosiery comes in a variety of colors and styles, solely to please the whims of different individuals. If given options, outsourcing customers prefer to structure billing arrangements to fit their companies’ cultures. Some companies prefer monthly or annual flat fees for the provider’s services; others prefer costs on a per-transaction basis. Some like to pay fees up front; others want them amortized. “They’re all different,” Fordham says. “It depends on what business drivers are going on in that company. In my experience, there is no best way. But this is one piece of flexibility that the service provider can give to the customer. In other words, I know what margins I have to meet to stay in business, so I have the ability to structure pricing in any way that meets the client’s requirements.”
Hosiery comes in many lengths and sizes. Downsized employees, whose former responsibilities are eliminated, are often a focal point in outsourcing considerations. Fordham points out that not every provider can transfer those employees to its company; but a provider can demonstrate flexibility by completing the conversion in phases, as slowly as the client wants, giving the client time to attrition its employees into other positions or assist them in finding new career opportunities.
Fordham mentions that HRM outsourcing is growing, even with smaller customers. The service standardization actually gives flexibility and allows moving to shared agents. He explains that “by having a standard platform, instead of a team of 100 agents who handle one Fortune 10 company, you can have 100 agents serving five or six clients with 20,000 customers each. The desktop is the same; the employees input their Social Security numbers; and you can screen pop their record and their plan, so you can be flexible.”
Customers can select a sole outsourcing provider or choose to have centers of competence (outsourcing pensions to one provider, health/ welfare to another provider) and tie the centers together with a toll-free number that is transparent to employees (punch one for savings, two for pension, three for medical benefits, etc.). Centers of competence are more frequently selected than sole providers and, for that reason, Fordham says that “most service providers are now attempting to grow their services vertically and horizontally. So a leading mutual funds company who is efficient at 401k administration, for example, will branch into pension and health. They believe they can give customers additional flexibility by being a sole provider.”
Lessons From the Outsourcing Primer:
The provider must exercise flexibility (a) as a means of ensuring a high level of service, which is the number one requirement of an HR customer, and (b) to properly handle calls that could become potential lawsuits.
- By standardizing the offer platform and the service delivery platform, a provider can make specific client changes; and the customer will save money and get it faster.
- A provider must have a scalable HR information system that can be adapted quickly to move the client’s employees from one business unit or plan to another.
- A provider should be flexible in structuring the pricing to meet the client’s cultural requirements.
- A provider can demonstrate flexibility by structuring the process of transferring/downsizing employees in phases, as slowly as the client wants.