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.
Have you ever seen a swan trying to take off and fly? As one of nature's heaviest birds, lifting itself into the air is no small feat. It must rise from water, with its feet paddling as fast as possible while its wings flap as fast as they can. It keeps running, skimming the water, until its wings have lifted it high into the air. When CNA Insurance, a business-to-business property and casualty insurer, paddled fast but still encountered a weight that kept it from soaring toward its goals, it hired the wings of Hewitt Associates as its human resources outsourcer in 1998 and really took off.
Drew Brown, Director, Human Resources Initiatives for CNA, says the insurance company had a goal to shift its human resources function from being administration to being consultative. It also wanted to reduce costs and improve customer service. CNA wanted the latest in technology so that it could make significant plan design changes and offer greater choices to its 44,000 employees and retirees. But it didn't want to buy the technology or administer and maintain it in-house. Outsourcing was the solution CNA chose.
Birds of a Feather ...
In nature, many birds mate only long enough to build a nest and feed their young. Some look for a new mate every year. But swans are different - they mate for life. Brown says CNA selected Hewitt because "they really know their business. They are proactive, and they assure you that they can do it with their hands tied behind their backs."
CNA moved its defined benefit pension plan from another vendor to Hewitt in July 1999. Close on its heels were the defined contribution savings plan and the health and welfare plans. Hewitt is also CNA's actuary. In a phrase, Brown describes their relationship as "one team, two locations."
She says that is the result of their mutual respect for each other. "They didn't come in with the attitude of 'you're the idiots who broke this and we are here to solve it.' We solve problems together." Brown explains another factor that makes their relationship succeed: "We learned how to fight. We both make concessions and both admit when we're wrong. Just fix it quickly and figure out how to make sure it doesn't happen again."
They genuinely like each other too. Their proximity has allowed them to get to know each other socially. Brown says "That's important when you are in as many meetings as we are." They also celebrate their successes together - including golf shirts and cups, plus a rooftop party with a band, food and cocktails. CNA sends cakes and flowers on their anniversary.
One reason they have so many successes to celebrate is that they set up a unique buddy system project team when they began implementing the agreement. Each team had a point person from both companies. That's where they began to see what each side brought to the table and how to work through issues together. The buddy system teams were to "turn over every rock and look for worms" so they could design the very best plan for going forward.
Teams included the HR staff whose jobs were going to be eliminated. Brown devised a strategy that would encourage them to share knowledge. "We did big fat bonuses and severances that were based on performance," she explains. "We had them as active members on the business requirement teams, and they were buddies over certain processes with the Hewitt folks. We talked to them about taking advantage of the opportunity to observe Hewitt over 18 months and learn from the best and brightest." The end result was that "some of them did such a stand-up job transitioning their work responsibly and professionally that we offered them different positions back here at CNA."
Also on the teams were CNA staff from every department in the company. "From day one, we created an environment where they would be rewarded for taking initiative and bringing to the forefront anything that they knew was currently broken. We also rewarded them for letting go of the past. We didn't want to do it the way we've always done it. By the same token, if Hewitt brought to the table a "best practice" that was not necessarily CNA practice, we would also push on them about the business drivers behind the best practice."
No Slowing Down
Even with all their preparation, one thing went wrong when they went live. Terribly wrong. Hewitt knew call volumes would be higher than normal when they went live; and it was December 1999 so they knew employees would be checking their balances before Y2k happened. They had estimated 500 calls a day, but they averaged 1500-3000 calls a day. The underestimate of call volume became an even more enormous problem on February 1 when they went live with the pension and payroll transition. Because of a mistake made by a third-party payroll vendor, they could not pay their retirees as scheduled on Feb 1. "Within two days we had 12,000 phone calls," Brown recalls. "And people were on the phone for 45 minutes. Then when they couldn't get a rep on the phone, the next call they'd make would be to the chairman of CNA or to the chairman of Hewitt. They were calling up and saying, 'where's my money?' All hell broke loose."
She says Hewitt "immediately snapped to and pulled people from all sorts of other teams. Their CEO called our CEO to let us know how important the relationship was and they were doing everything they could to fix it. The gestures that they made were good. They paid for everything, drafted communications to send to all employees and wrote apology letters to retirees." Within less than three weeks, call volumes were completely normal, and Hewitt has beaten service levels and standards ever since.
She credits Hewitt with bringing innovative, value-added ideas and taking the initiative on continuous improvement. They are strategizing now to put more of CNA's retirement process online and are talking about a new eBusiness solution. "We are in this together," Brown states. "We both have skin in the game, and we both want each other to win, and we know that we can't do it separately."
Lessons from the Outsourcing Primer:
- Buyers may want to consider an incentive to get its employees whose jobs will be eliminated to really share their knowledge with the supplier.
- Buyer and supplier's staffs must have mutual respect for each other and learn to solve problems together. Both sides need to make concessions and both need to admit when they're wrong.