Many personnel managers who have spent their heart and soul developing human resources programs or services for their company's internal clients have heard those questions from their peers.
These questions often spark further thought... "They're asking for our advice... We're spending all this time answering questions anyway... Why don't we package what we know and sell it?" Questions such as these are exactly what have led firms (whose primary business isn't HR or consulting) such as The Walt Disney Co., Xerox, Deere & Co., IBM, AMR Corp. and Pacific Bell, to sell their HR expertise to companies outside their own.
In the process, they're not simply making money; they're also learning from their customers — just as consultants do. And, they're also gaining such rewards as greater professional recognition, both from their own companies and from others.
Although many HR departments aren't in the same position that these companies are — in terms of financial backing, marketing support and top management support — you can still learn valuable lessons from their experience of marketing their programs for an external audience, questioning their best practices, adopting an entrepreneurial mindset and capitalizing on their assets.
Benchmarking requests spark HR spinoffs.
Sometimes, HR managers are so busy solving their own personnel problems, when they're done they have some of the best human resources knowledge and expertise around. People from other companies hear about it — and want in on their secrets.
In fact, for most organizations that decide to sell HR outside, questions are usually fired at them so consistently and insistently over the years, that in good faith as corporate big brothers and sisters, they can't ignore their peers' requests. And, as every obligation also presents an opportunity, these HR professionals have begun to look at the work they're doing in new ways.
The personnel professionals at The Walt Disney Co. are among them. "In the early '80s, we were handling informal benchmarking requests, where we might have a training director or a company president come in and spend an hour or two talking about how we do our training here at the Disney University," explains Steve Heise, manager of business programs for Walt Disney World Co.'s Disney University Seminars in Lake Buena Vista, Florida. Disney University is the training arm for the Walt Disney Co., and is located at four of its sites including Walt Disney World, Disneyland, Tokyo Disneyland and Disneyland Paris. Only Disney's Florida site, however, offers instruction to people outside the Disney organization.
"We used to handle those [requests] informally," Heise adds. But demand for benchmarking started to get out of control after Disney was the focus of a PBS special based on Tom Peters' book "In Search of Excellence."
In 1986, Disney University in Florida — which is part of Disney's combined HR and community relations departments — packaged and started selling what it had been giving away informally before. The goal was partially to help offset the costs of answering questions informally. The first seminar HR managers developed was called "The Disney Approach to People Management," a three-and-a-half day seminar. They subsequently have added "The Disney Approach to Quality Service," "The Disney Approach to Creative Leadership" and "The Disney Approach to Orientation."
Disney has seen the demand for these programs grow dramatically. Although the company declines to discuss exact attendance figures, last year alone, hundreds of individuals from more than 40 different industries and 30 different countries attended Disney University's training seminars.
"At the same time, we were looking at adding onto our convention space," says Heise, which they subsequently did. They also had to regroup their operations to accommodate the increased demand. "Once we combined that demand factor with the space to be able to handle groups coming on property, we had to budget staff to handle those requests because it far exceeded what we could do on an informal basis."
And looking to continually capitalize on its assets, another human resources group within the Disney University, responsible for "cast activity," has spun off a team-building activity as a business. Pluto's Pursuit is a recreational activity for convention groups that want a fun, team-building activity that isn't related to [traditional] learning," says Gwen Burch, a business programs facilitator for Disney University. "That's a spinoff from a scavenger hunt that we were already offering our cast members [employees]."
"So we took that idea, transferred it to Pleasure Island, our nighttime entertainment complex, and adapted it to convention audiences." Pluto's Pursuit has been in existence for more than two years.
Xerox Corp.'s Xerox Human Resource Solutions also traces its beginnings to benchmarking requests. "When we looked back over our records for the past nine years, we saw that we were participating in 100-300 benchmarking engagements per year," says Regina Charles, business manager of Xerox Human Resource Solutions in Rochester, New York. "You look at the time investment and the labor investment and you have to ask yourself, 'Are we adding value for the shareholders of Xerox?' Since we had customers calling on us anyway, why not make these products market ready and introduce them to the HR directors and vice presidents in other organizations?"
Those questions prompted the firm to turn HR into a business. Xerox HR Solutions has turned the HR practices and expertise that it has developed over the past 25 years — much of which has earned quality and diversity awards — into a business. Its HR services now include consulting in such areas as employee empowerment, employee satisfaction, performance management, labor management, motivation, reward and recognition, work-force diversity and sexual harassment. And capitalizing on Xerox's core competency, document processing, it also sells document-management services and can recommend technical solutions to support HRMS technologies.
Benchmarking requests also gave Moline, Illinois-based Deere & Co. a push to sell its HMO services outside. In 1985, Deere, a leading farm-equipment manufacturer, developed Heritage National Healthplan, its own health-care maintenance organization in an effort to contain the escalating costs of health-care services. The health-care cost containment effort originated within Deere's HR department. Shortly thereafter, Deere started hearing a clamor from other companies to let them in on its HMO.
Although Deere's personnel department had focused its efforts on reducing costs while providing a high level of care for its own membership, it never occurred to the company's HR department that it could be a profitable business until other companies started asking for their help with similar problems. "Our situation occurred quite by accident," explains Claudia Greenleaf, manager of health-care communications for John Deere Health Care Inc. "[Selling HMO services outside] really evolved from other employers coming to us, recognizing what we had been able to do for Deere & Co., and asking, 'Could you do that for our company?'"
Since 1985, Deere has expanded its health-care operation (which is now a wholly-owned subsidiary and separate from the internal HR department) to include another HMO called the John Deere Family Healthplan. The company also administers three health centers for this HMO constituency, and will have seven by January 1996. Today, Deere's HMOs provide health services to more than 700 other client companies and to more than 300,000 members (of which 70,000 are Deere employees or retirees and their families). Deere figures that implementing an HMO has caused its own population's health-care costs to rise only 11% a year since 1985, instead of the 13% it had anticipated.
And, as the number of Deere's HMO clients has increased, so have the profits. According to an article in Business Week, John Deere Family Healthplan's profits grew 43% to $11.2 million from 1993 to 1994, and revenues climbed 19% to $388.6 million during the same period. And the health-care unit doesn't rely on any corporate subsidies. (See the end of this article for more information on Deere's HMO.) But becoming a profit center isn't easy.
Going from a cost center to a profit center.
"There has been increasing evidence that HR departments now are being forced to be profit centers," says Carol G. Brown, project manager for the American Society for Training and Development (ASTD) in Alexandria, Virginia. With increasing mandates from top management that HR departments make money (or at least not be as large of a financial drain as they traditionally have been), selling HR outside has become an attractive way to get into the black.
"I think for the overall survival of the organization, it's a positive thing," adds Brown, who interacts with many training managers all over the United States each year. "However, I think it's a shock to a lot of people's systems when it first comes online. Let's face it, if all of a sudden somebody outside says '[You've] got to be a [profit] center,' it's going to be a shock." Brown explains that she sees mostly larger companies with deep pockets usually sell training services outside because they tend to have the most resources.
Financial accountability was exactly the challenge that AMR Corp.'s Chairman, President and CEO Robert L. Crandall gave to the entire AMR organization in February 1993. His transition plan was a call to action to return AMR — parent company of American Airlines — to profitability. After a decade of profitability in the '80s, AMR lost money in 1990 through 1993 because of an increase in low-cost competitors, changes in pricing strategies and rising operating costs.
Crucial to Crandall's plan was strengthening AMR's non-airline businesses, including HR services. The plan sparked the company to create AMR Training and Consulting (AMRTC), a wholly owned subsidiary. AMRTC trains AMR's employees at its training and conference center at the company's headquarters in Fort Worth, Texas, and also sells training and consulting services to outside customers. Almost all AMR subsidiaries now have specific units dedicated to selling their services, which are licensed through AMRTC.
Although AMR had sold training to other companies on an ad hoc basis for 60 years, it wasn't until Crandall's transition plan was presented that the company decided to sell services outside as a focused effort.
"I was here during the growth period of the airlines, and we constantly were getting phone calls from external organizations to help them out, but we could only do it on an ad hoc basis. When we came to the transition plan point, we knew that we already had a customer base, all we had to do was let them know that we would be available to them. So we went after the marketplace," says Marge McKenna, AMRTC's vice president of training operations.
Until that time, AMR's training organization had focused mainly on training its front-line employees within the company's customer-service division.
These services include human resources consulting and training services for flight attendants and pilots as well as courses in passenger handling, foreign languages and customer service.
Although AMRTC isn't part of the organization's internal HR department, AMRTC still relies heavily on internal HR experts to help provide services to external customers. The only type of training housed in the firm's HR department is management education and training.
Now, each day, 1,000-1,500 employees — both from AMR and other companies — participate in training activities at AMRTC's conference center. About 60% of those trainees are AMR's own employees, and their training fees are charged back to the departments from which they came through an internal billing system. The other 40% of the trainees AMRTC serves are from other companies located all over the world. "We've been able to make it into a profit center plus provide a place where our own employees can come and learn," explains Jody Cheville, AMRTC's vice president of sales.
Armonk, New York-based IBM had been faced with a similar senior-management mandate to look at HR costs in the early '90s. "IBM formed Employment Solutions and also WFS Workforce Solutions in 1992 as essentially cost-recovery centers for HR products and services to IBM's lines of business," explains Ken Lay, vice president of systems solutions, human resources services for Integrated Systems Solutions Corp. (ISSC). ISSC is the wholly owned subsidiary of IBM responsible for marketing HR products for WFS Workforce Solutions.
The first step they took with their internal HR operations, however, was to implement an internal billing system. "We began to identify what the costs of our products and services were and charged the various IBM divisions for the services that we were providing to them," Lay further explains. "That exercise allowed us for the first time to really understand our costs. When we did that, we realized we were very close to being able to extend that service externally. It was the internal efforts that led us to a structure that enabled the external efforts."
In the few years that IBM has been selling personnel services outside, which include such areas as HR reengineering, benefits and retirement, training, leadership development and international assignment services, the corporate mindset about the company's internal personnel department has changed for the better. "We've gained a newly found respect because we're no longer looked upon as just an overhead staff organization with minimal value added," says Lay. HR is now looked upon as more of a business partner who can have direct impact on the company's bottom line.
Pacific Bell, based in San Ramon, California, also has found that selling HR services such as telephone skills, management skills and career services to outside companies has changed how the human resources department is viewed within the organization. "I believe that it does put a different light on us. We're now a revenue-generating entity as opposed to the traditional cost center where you're just a drain on the company," says Harlan Chiu, a sales manager for Pacific Bell Training Services. "Now we significantly contribute to the bottom line."
While selling HR services and expertise makes money for personnel departments and their companies, it may never be the cure-all for HR's financial woes. For example, for as much money as Disney makes on selling training — charging customers $2,295 per participant for its seminars and $1,480 for its orientation workshop — the revenues may never completely float HR's boat. "We'd certainly love to grow this business to where we're large enough to support the internal HR function," says Disney's Heise. "It's not there yet, but it's nice to know that at least we're covering some of the costs."
Lessons from the trenches: What HR departments have learned from selling outside.
Companies learn a lot from being in the external HR marketplace. Perhaps the biggest lesson is flexibility. "The best advice I'd [give] is listen to your audience and respond to their needs," says Heise. "We continually ask people what they're looking for and have set up programs to be able to handle that demand." Disney surveys its clients after each seminar and workshop to determine how the seminars met their expectations.
And, although companies which sell their expertise externally never want to give away company secrets, they say you need to be open and straightforward with clients. Talk about what has worked in the past and, more importantly, what hasn't. "A real key to adding to the credibility of our program is we let folks know our feelings," explains Disney's Burch. "If we were constantly pro-Disney and all Disney smiles, our audience would be lost very quickly. When we [really share] how we have been able to take something that wasn't working and turn it into something that does work, they really appreciate the candor."
It's those real-life examples that make the relationship between vendor and client work, and represent the most important element of what companies that sell HR services have to offer. "Xerox has been a living laboratory for [our] solutions and best practices," says Xerox's Charles. "We've invested millions of dollars in these solutions, so they're very real." But the external marketing side must work hand-in-hand with the internal organization, at least in the beginning, to gain the knowledge it needs for its outside clients.
At Xerox, learning has been a two-way street. "Because our HR organization understands Xerox's desire to satisfy our customers and to increase our market share and return on assets, they are a supplier to my business," says Charles. In turn, just as teachers always learn from their students, Xerox HR Solutions shares with the internal HR department what it learns from the solutions it creates for clients.
AMRTC's McKenna says that it does the same thing. "We learn from our customers, and any new ideas and concepts we have can provide some new ideas and concepts to our airline group and vice versa," she says. "It keeps us creative." And, just as a bee gathers pollen from many flowers, these HR consultants can also gather insight from their clients and can pass on the learning to other clients, without giving away company secrets.
Companies that sell HR outside also have learned that marketing is a key factor in successfully selling HR services externally. Although many of them start in their internal HR departments, most eventually move the spin-offs into a separate area with its own marketing unit.
For example, Xerox Solutions began offering all of its services in early 1994 and was housed under the firm's internal personnel department for 11 months, until it was moved under the direction of the external sales and marketing operation in December '94 to get ready for its upcoming '95 activity.
Why did they move it? "To align with the other externally focused marketing and sales programs," explains Charles. "Most HR organizations realize that once you engage in this process, you need investment funding. There are so many processes that are tailored for the external world that you really can't pull from the human resources organization to reinvent those processes." Obviously, you can't allow your own organization's personnel needs to suffer because you are trying to sell personnel services outside.
But you can pull people from your HR organization to staff an externally marketed personnel-services subsidiary. In fact, Charles was manager of HR programs for Xerox's internal operations before her move to HR Solutions. "We moved some of the best talent from the [internal] human resources organization into HR Solutions," says Charles. She says it has been staffed with people who are consultant types with strategic personnel management experience and HR reengineering and work-force productivity expertise.
Although people who come from personnel backgrounds know the HR jargon, they usually have to learn new skills once they start selling human resources knowledge externally. Charles says she has had to learn how to prioritize sales support and marketing activities, how to barter with the internal HR organization to get the product development and consulting expertise they need, how to sell to external customers, how to close sales and how to establish rapport and credibility.
She also has had to learn how not to immediately jump into the role of educator. "There's a tendency to continue the education process, because when you were doing it for free, there was no issue about time," says Charles. "But once you move into a revenue-generating position, you have to be conscious of the time you're spending, and need to [decide] whether or not you can identify the customer's need so you can align solutions from your business to [fit] that need."
Experts say that you need to learn marketing skills and learn how to be a consultant. While most organizations invest in training themselves for these new roles, they say there's never a better teacher than simply jumping into the role to see how it fits. "The best training comes from conversations with customers," says Charles.
Before you ever start a new business to sell HR outside, however, you must carefully do your homework to see if it's viable. IBM's Lay warns: "Just because you think you have the best mousetrap doesn't mean the world will beat a path to your door." Before IBM management started formally offering HR services to outside clients, they did lots of market research through consulting companies. That research comprised focus groups, formal surveys and extensive benchmarking activities. "It really enabled us to find out what was on the minds of other large HR organizations," says Lay.
"We found out that there was this multibillion dollar market and that technology would be a key driver in changing HR operations. So we took a look at what the various segments of the market were, what products and services we offered to IBM internally, what vice presidents of HR were talking about in the external arena, and then we decided what products and services we would bring to the market," adds Lay.
If you sell it, they may come.
Why are clients flocking to these companies for HR services when there are so many other personnel consultants from which to choose? The answer goes back to that living laboratory concept. Although these companies may not be in the same industry as their clients, their personnel tactics are universal.
For example, although Medford, Massachusetts-based Ciba Corning is in the medical diagnostics industry, it turned to Disney for help with its orientation program. Why? "They're innovative," says Linda Glennon, staffing specialist for Ciba Corning. She attended Disney's orientation seminar last May to pick up some new ideas for her 3,000-employee firm's orientation program. "[Disney] hires volumes of people. So when we were looking for some creative ideas to restructure our orientation, we decided that Disney might be a good place to start looking." She adds that it turned out to be the most engaging, relevant seminar she had ever attended.
Immediately after taking the course, Glennon says that she added an evaluation tool so their new hires could give feedback about the orientation program, just as Disney does after every seminar. Ciba management also is adding a history module to its orientation program, much like the "Traditions" segment of Disney's people management seminar that discusses the history of The Walt Disney Co.
As more companies are outsourcing certain HR tasks, there's an even bigger market from which to gather clients. "HR is far more complex than it was 20 years ago," says Nancy Sorenson, managing principal for Human Resource Management Systems, Inc., an HR consulting firm in Glenview, Illinois. She says that as personnel professionals are becoming generalists because of HR downsizing, they need to know a little about a lot of personnel management areas, so they have less expertise in specific areas. "The outsourcing of HR is becoming increasingly popular for supplemental help," adds Sorenson.
For example, although AMR has a tremendous market in large corporate clients such as Sprint, Epic Healthcare and Price Waterhouse, it also has uncovered a need by smaller — especially startup — airlines that don't have high volumes of training. "There's a tremendous amount of overhead in doing [training] on a small basis," says McKenna. "It makes more sense [for smaller companies] to send units to another company that already has [invested in] those resources."
"We couldn't have done it ourselves," says Keoni Wagner, a spokesperson for Hawaiian Airlines in Honolulu, Hawaii. So far, American has trained about 300 of Hawaiian's flight attendants and 150 of their pilots. "We just don't have the internal resources to do that. So we needed the help of a larger operator," says Wagner.
Small companies recognize that training may not be one of their business's core competencies, and understandably decide not to invest any more than necessary. On the flip side, companies like AMR have capitalized on what they do best — must do best in order to stay viable. While AMR managers say they may sell other expertise in the future, it will depend on discovering what innovative solutions it finds under its wings that have helped it meet its business needs. "Right now, we're focusing on [selling based on] our core competencies," says McKenna. "That's not to say as the business evolves and grows and we get called upon for more areas of training, we wouldn't consider adding other lines of business." They've learned it's best not to grow a spinoff too fast. But it's clear that those little voices are a consistent whisper.
You may never hear little voices telling you to sell your HR expertise outside. But if you do, it may be wise not to ignore them. They may have advice worth listening to.
Personnel Journal, May 1995, Vol. 74, No. 5, pp. 84-92.