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Extranets Linking Employees With Your Vendors

November 1, 1997
Related Topics: Intranets/Extranets, Featured Article
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Two years ago, Compaq Computer Corp.'s human resources department recognized a trend it didn't particularly like. Beginning in the early 1990s, participation in the company's 401(k) plan had steadily eroded, particularly among younger employees and those earning less money. Workshops, seminars, newsletters and fliers simply weren't getting the job done.

Rather than plow more dollars into interactive voice-response technology and bury workers under an avalanche of literature, the Houston-based company—the world's largest PC manufacturer with $18.1 billion in 1996 sales—opted to go interactive. Using 30 computerized kiosks to display information directly from 401(k) provider The Vanguard Group, employees could suddenly check their balances, view investment options and study how various contribution levels could affect their paychecks—and retirement savings.

The extranet system, which uses Compaq's intranet to display information, actually obtains real-time data from Valley Forge, Pennsylvania-based Vanguard via a secure Internet connection. Quite simply, Compaq and Vanguard maintain a computer link that allows data to flow back and forth. In this case, the extranet almost immediately boosted participation from 78 percent to 82 percent of eligible employees. As Ron Eller, Compaq's vice president of compensation, benefits and HR systems puts it: "It's a very powerful motivator. It's providing interactive capabilities that have never before been available to employees."

Welcome to the latest wrinkle in the ongoing evolution of Internet technology. In the beginning, companies created Web sites for the outside world—to advertise their products, post job openings and more. Then, about two years ago, a handful of companies began using intranets to create powerful internal networks that allow the exchange of data, including information traditionally contained in employee handbooks, paper-based directories and newsletters. As of a September 1996 study conducted by San Francisco-based market research company Hambrecht & Quist, 90 percent of Fortune 200 corporations surveyed were deploying intranets. And now, some companies are realizing that productivity gains and cost savings don't have to stop there. "Exchanging data and conducting commerce between companies is a natural extension of the technology," says Barry Hall, a principal in the San Francisco office of management consultant firm Coopers and Lybrand LLP.

Already, there's no shortage of extranet applications in the human resources arena. Companies are allowing employees to select doctors and dentists directly from an HMO. They're providing dependent care and referral services online. They're equipping employees with access to government regulations. And, as in the case of Compaq, they're allowing employees to directly manage their retirement accounts. In almost every instance, extranets are cutting out mindless administrative tasks and allowing those actually involved in a transaction to do business directly. "It cuts out the middleman," says Hall.

An extranet also doesn't require a great deal of money and resources to launch. "Once a company has an intranet in place, the cost of adding extranet capabilities is minimal, but the benefits can be substantial," observes Wayne J. Randolph, an HR consultant with management consultant firm KPMG Peat Marwick in New York City. In fact, he points out that many insurance providers, HMOs, referral services and others are willing to design a private Web site and offer a near-turnkey solution simply because it slashes costs and works on their end too. "They can cut their basic support costs—telephone calls, brochures, directories, statements and other materials—enormously by making it all available electronically," he says.

A Web well-traveled.
The idea of linking business and handling transactions electronically is nothing new. For more than two decades, companies have been able to exchange data—though the complexities of such systems precluded all but the most technologically sophisticated firms from using them. The Internet and Web technology changed all of that. By putting a browser on every PC, establishing a TCP/IP network and creating software standards, it suddenly was possible to view and exchange data across geographic distances and across operating systems. No longer did it matter whether a person was using a Macintosh or a PC or a UNIX-based system.

Early on, companies such as Schaumburg, Illinois-based Motorola Corp. and Mountain View, California-based Sun Microsystems realized they could use a TCP/IP network to run a private Web site, or intranet. Using security firewalls and passwords, it was possible to limit access to authorized individuals and conduct business internally. That capability has provided enormous benefits for many departments, including human resources. In fact, much of the recent reengineering and cost savings rippling through the corporate world can be directly attributed to more efficient use of technology, particularly intranets.

Yet no organization is an island unto itself. Interconnecting networks and conducting electronic commerce with vendors and clients holds particular allure. Why have an HMO print a booklet listing doctors and dentists when the same information can be made available online? As quickly as the ink dries on the paper, the booklet is obsolete. In most cases, there's no easy way to scan through all the listings to quickly locate, for example, a pediatrician in the local community. And once an individual has spotted a health-care provider, there are usually forms to fill out and stamps to lick. Alas, using traditional methods, there's an endless pile of paperwork sloshing back and forth between the HMO and the HR department-along with endless record updates. "It's a process that takes a lot of time and effort for everyone involved," says Randolph.

Extranets change all of that. The same process when executed online creates efficiencies that would have seemed inconceivable just a couple of years ago. At Oracle Corp. in Redwood City, California, employees can log onto the company's intranet from a PC or kiosk, click a hyperlink to insurer Aetna Inc. of Hartford, Connecticut, and search for a physician or dentist. After making a selection, databases at both Aetna and Oracle instantly are updated. Nobody touches any paper or submits any forms, and there's no delay or confusion if an employee makes a change. What's more, the extranet provides up-to-date information about various plans and offers in-depth information about benefits.

Open enrollment and benefits sign-ups were natural reasons to link a company's intranet with a vendor's intranet.

When Oracle developed its intranet in 1995, the emphasis was clearly on HR automation. The company needed to conduct open enrollment for more than 8,500 employees in only three weeks and couldn't afford to become buried under an avalanche of paper and phone calls. By creating online forms with hyperlinks to guide employees through the selection process, the software giant has succeeded in cutting costs, creating a more strategic HR department and providing better service to employees.

Open enrollment and benefits sign-ups were natural reasons to link a company's intranet with a vendor's intranet. Such extranets represent an opportunity to link to all sorts of outside organizations and vendors. And, almost without exception, the capabilities of the online world far exceed traditional methods, such as paper and interactive voice response (IVR). "It can't always replace the telephone and IVR, but it can almost always complement and enhance it," observes Mark Willaman, director of sales and marketing for Dependent Care Corp. (DCC), a Westport, Connecticut, firm that provides referrals and dependent-care counseling to hundreds of major companies.

Earlier this year, DCC began offering its services through a secure, password-protected Web site. After an HR department provides a hyperlink to DCC's server, all employees can click into a multitude of services, including lists of approved day-care facilities, summer camps, elder-care programs, work/family counseling and more. It's possible to scan reference materials or search for an adoption agency, a prenatal support group or a dance program for a small child, for example. It's simple to search by zip code, city, state and other criteria to obtain a list online. It's also a breeze to obtain detailed information from a DCC counselor, who can send out a package with contact information, fees, licensing and hours of operation.

TRW Space and Electronics Group is one of the companies that has embraced DCC's extranet capacity. Its 10,000 employees can go online and almost instantly find information that's pertinent to them. "The information is current; it's easy to access and provides a higher level of service for employees," explains Mary Lackides, manager of health services for the Redondo Beach, California, aerospace giant. She notes that it's saving the company administrative costs and helping drive improvements in HR. Already, 50 percent of the workforce is using DCC's extranet, eliminating a steady stream of phone calls for both HR and DCC.

In fact, because an extranet can slash costs and eliminate transactions for the vendor—an HMO, 401(k) administrator or other service—many of these firms are willing to do all the necessary Web authoring and back-end programming to make such a project a success. Says Randolph: "For most HR departments, the cost of creating an extranet is minimal. The basic maintenance costs involved aren't significant when compared to the payoff. Once you've spent the money and time to build an intranet—along with the necessary security—it's relatively simple to link to an outside company."

Extranets take self-service to a higher plane.
For workers who venture online, the bottom line is finding the exact information they need without any muss or fuss. As Randolph puts it: "Employees don't care whether they're accessing the Internet, an intranet or an extranet. If the overall system is well-designed, they'll use it because it makes their lives easier and provides value. You can do things online that aren't possible with paper or a telephone."

Compaq has learned over the last couple of years just how true that statement is. Today, employees can view charts and graphs showing how their 401(k) savings will build over 10 years or 20 years. They can check out their fund allocations and the past performance of funds, learn about investment options and view their mutual fund portfolio in real time. Compaq currently is adding the capability to conduct online transactions—including reallocating funds. In the past, it has used an IVR system to achieve the same results. "An extranet puts data ownership where it belongs," says Eller. "The employees make their own decisions and the database owner handles all the transactions." In the end, Compaq is finding that employees are more likely to save for, and are more knowledgeable about, their retirement. In fact, the extranet is helping push participation and payroll deductions to record levels.

Although extranets currently are in their infancy, KPMG's Randolph believes they fit into most companies' technology plans for the coming two to four years. But it's necessary to walk before you can run. "Without a solid intranet, you can't have a usable extranet," he says. "Right now, the biggest benefits to HR come from placing employee handbooks and directories online, and eliminating paperwork within the company. But as organizations become more sophisticated, they quickly recognize what lies beyond with extranets." Coopers and Lybrand's Hall, who has seen organizations immediately cut as much as $70,000 or more simply by eliminating the need to print booklets of health-care providers and other resources, believes the adoption curve will soon shoot upward. "An extranet benefits everyone. You have immediate cost savings and you provide value to the employee," he says.

Indeed, organizations are beginning to find a wealth of new uses for extranets. A few executive search firms and employment agencies are allowing clients to tap into their private Web sites to search for prospects; companies that specialize in tracking government regulations and legal precedents are putting that data online; and a handful of organizations are posting best practices data. One of them is VHA Inc. of Irving, Texas—a firm that manages 1,400 health-care organizations throughout the United States. It allows hospitals and doctors to share best practices data by tapping into a central repository of information. In the past, institutions faxed information to each another, and there was no guarantee that the right person would see it, or even know it existed before it became completely obsolete. "It has changed the way information is shared," says Mike Cummins, vice president of management information services at VHA.

Many, including Randolph, believe all this is just the beginning. As enterprises become more sophisticated in the use of technology and HR departments become better at knowing how to use it, dozens of new uses for extranets are likely to appear. And as security concerns evaporate with more sophisticated firewalls and encryption schemes, companies are becoming more comfortable with the idea of sharing data online. Says Randolph: "It's a classic case of, 'If you build it, they will come.' When there's a technological infrastructure, the content follows." And when it comes to extranets, there's really very little to cost-justify—as long as a company has an effective intranet already in place. And if a company doesn't have an intranet, it might be the perfect time to set one up.

Workforce, November 1997, Vol. 76, No. 11, pp. 28-34.

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