Jane Drasites, Director, Benefits Delivery for BP Amoco, swears that the first year in an outsourcing relationship is just like a marriage. Some marriages don’t work very well. When Amoco (prior to its merger with BP) signed an agreement in 1993 for Hewitt Associates to handle its HR functions, it was positive it had found the right mate. Unfortunately, they didn’t go for some counseling before they tied the knot, and the honeymoon didn’t last long.
Amoco had the right reasons to outsource, and it properly selected a supplier that would help to meet every objective. From an internal cost-benefit study, the company decided to stop administering benefits separately from each of its many locations. They also wanted to reduce costs and improve employee benefits. Amoco considered insourcing and permitted its payroll process staff to competitively bid on the RFP. But the process of evaluating suppliers’ responses to the RFP made it clear that technology would be a key to achieving their objectives, and it would be too expensive to provide that technology internally.
Hewitt was attractive because of its technology, expertise and the way the company “finds people who like to be on the phone and solve problems” and trains them well. Hewitt added another item to the dowry when it agreed to give Amoco a dedicated service center so that all of the CSR reps would be working solely on Amoco matters. Drasites adds that they really liked the supplier’s problem-solving methodology. Little did they know how much that would come into play during their first year together.
Removing the Rocks from the Marriage Bed
It was not long before they began having numerous problems. It started with simple things like issues that arose from defining terms differently. Before long, new projects were added to the scope, but Amoco felt the supplier was just doing the work and then “throwing a bill” in their direction. Amoco wanted a partnership relationship, but no groundwork had been laid for that. All they could do was pull out the contract. She recalls that their relationship was “very antagonistic” before they sought a remedy.
Midway through their first year together, they had some upper-level meetings and, from those, instituted two solutions. First, leadership teams from both companies established a process of how to handle out-of-scope projects and new work. Their new change control management process dictates how work enters the system, how it is priced and that it must be approved by BP Amoco prior to beginning. It also requires that BP Amoco be informed on a monthly basis as to the work that is being completed and how it will be charged in subsequent months.
The second solution was to call in a consultant to help them design a scorecard to measure progress. “We keep the monthly scorecard on display in Hewitt’s service center so that the CSR reps know that this is how we are managing our business and that we take it seriously,” Drasites says. She explains that the scorecard indicates issues that have been identified and how quickly they are responded to and resolved.
Their plan to go forward on a new and better foundation has worked very well. “Once we worked on the strategic measures together and could see what was important to each other, we decided to have that common mindset,” she says. “Then you start trusting. And when you start trusting someone, you decide to give that person the benefit of the doubt. You stop thinking that the organization is out to get you. And, since we have worked out our relationship, I really feel that we are looking out for each other’s best interests.”
Renewed Vows and a Happy Couple
Their original five-year agreement was recently extended for another three years, but Drasites says they are once again in a transition process. Their relationship is working well, but “operationally we are doing some things for the first time again because of the merger with BP. The merger added 35,000+ employees into the Hewitt fold, and they were with us side-by-side, moment-to-moment for the implementation. They even brought back people who were part of the original project for the Amoco implementation so they could ensure continuity.” At the same time as the merger, they moved to Hewitt’s new total administration platform. It was an enormous load all at once. Hewitt was also selected to be the integrator for all of the vendors of other HR functions that were already in place for BP before the merger.
Now that they are on the partnership track, BP Amoco benefits greatly from Hewitt’s consulting services. Drasites says Hewitt “has so much experience, and they really know what they are talking about when they talk ‘best practices.’ They have taken up the banner and are leading us now and giving us challenges as to where we need to be in the future with the Internet. They are also forging ahead with technology that will share databases.” Instead of BP Amoco having to inform a benefits provider of an employee’s eligibility, the provider will soon be able to look at Hewitt’s database and confirm eligibility on its own. “They are really pushing the edge,” she says, “and they are bringing great ideas on healthcare planning and management.”
It was crucial to get their relationship working well on a partnership basis, for the value of its potential is too high to lose. Drasites says that Amoco, before the merger, spent about $500 million a year on employee benefits. “Getting value out of a benefit is not just having it,” she explains. “It’s using it—understanding it and having access to it. Its value is contingent upon a smooth delivery system. It’s a fiduciary responsibility of the corporation to make sure we do this. In turn, it allows us to recruit and retain high-caliber employees.”
Lessons from the Outsourcing Primer:
- A supplier’s problem-solving methodology is an important capability.
- It is crucial for a buyer and supplier to institute change management control processes before they sign the contract.
- A scorecard approach can be helpful in demonstrating that progress in solving issues is occurring at the desired rate.