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Kaiser's HR Services Get a Shot in the Arm

September 1, 1996
Related Topics: HR Services and Administration, Featured Article
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For many years, Oakland, California-based Kaiser Permanente dominated the health-care maintenance services market. As one of the oldest, private, nonprofit HMOs in the United States, we had little impetus to change. The organization—founded in 1945—was highly profitable. When an occasional problem arose, we usually were able to solve it by adding resources. With the arrival of the '90s, however, a dramatic upheaval in the health-care services industry occurred. Suddenly, there was a variety of new players and new competitive forces. These, in turn, created significant pressures on pricing. We suddenly were forced to take a hard look at all of our inefficiencies.

Similar to our local NFL favorite, the San Francisco Forty Niners, we were a proud, successful organization that had dominated our competition in the previous decade. Now, we faced a new financial challenge—a sort of business salary cap. Like the Forty Niners, we no longer could justify operational inefficiencies simply because we were winning. Just as the Forty Niners no longer could pay whatever was necessary to get a player it needed, we could no longer throw resources at a problem to fix it. And similar to the management of a football team, we knew there would have to be major organizational changes and substantial cost cutting. No matter how well justified these changes, some members of the team weren't going to like it.

Explore shared services.
While unsettling, we also recognized we had a unique opportunity to enhance our image and become a better organization. Although we faced sweeping organizational changes, we knew we weren't structured to achieve our strategic goals: increase market penetration; become more cost competitive and improve patient satisfaction. Changes at Kaiser were well under way in 1994 and were based on external competitive issues. Referred to as The Program, corporate headquarters already had implemented interregional services, created a consolidated service center and call centers.

In spring 1995, Kaiser's Human Resources Council (comprised of the senior functional HR staff and the HR business partners from the various operating units) and I enlisted The Amherst Group Limited, a Greenwich, Connecticut-based consulting firm that has assisted companies such as Johnson & Johnson, Dow Chemical and Monsanto. Amherst helped assess the magnitude of the issues we faced in achieving HR's strategic goals. One of the first things we discussed was the concept of shared internal services.

Shared services essentially leverages the quality of services delivered to all defined internal customers while streamlining costs. This can take on various forms depending on the corporation, its unique circumstances and demographics. For the Northern California Region at Kaiser, it entailed setting up an internal search firm, outsourcing curriculum design, setting up service centers for delivering expertise and having HR generalists report to line heads at the operating units. A shared service practice is multifaceted and has become a new vision for internal support services. At Kaiser, we looked at the entire HR function because we wanted to reinvent HR. We also realized we needed more information to determine which services needed the most attention. Consequently, we collected data on the total costs of HR (staff and non-staff), service quality and customer satisfaction on all HR services.

The first step was to launch a data-gathering effort called a base case development. HR executives who want to measure internal customer satisfaction might do well to consider the method Kaiser used. A detailed base case assembles all the necessary information to determine how the required services can best be delivered. It's a guidance system for internal service excellence that helps HR or other operational-unit executives give customers what they really need, rather than what service providers presume they need. In our case, Amherst assessed both the cost and resources being consumed by our HR services. It also solicited the customers' perspective about what was working and was not working. This was a comprehensive analysis, including both internal HR department costs and costs for other departments within the organization for human resources services. It encompassed both the staff time and the non-staff costs associated with providing HR services.

The time frame to complete the data-collection process was eight weeks. In addition to Amherst, the project required a team of 15 Kaiser HR staff members who dedicated 50% of their time during the data-collection process. These 15 people were the core project resources for the overall base case development. In addition, one to two individuals in each operating unit were responsible for the actual collection of data from their own business unit.

"We needed to create an environment that could offer creative solutions to cutting costs and enhance internal services."

Kaiser project team members also conducted focus groups to collect customer satisfaction data from employees who receive or use HR services. And Amherst conducted 22 in-person interviews with key executives who not only receive HR services but also are, essentially, the payers for services provided in their business units.

Included in the survey were 814 employees: 484 HR employees and 330 non-HR employees doing HR work. The 330 non-HR employees were those who spent 5% or more of their time providing HR functions. For example, the IS department had staff who provided IS-specific training. In the line organization, the nursing department had its own trainers on staff. In some non-HR departments, employees helped recruit by identifying a slate of qualified candidates.

Survey reveals low customer satisfaction.
Our field personnel probably knew that a lot of HR-related work was being conducted outside of the HR department. But there was little overall organizational awareness of this situation. No one was surprised by the results of the survey, but many of us were surprised at our pervasive inefficiency. The numbers were startling. HR was spending approximately $42 million annually (including salaries) to service the needs of some 30,000 employees in our Northern California region. Despite this expenditure, when employees were asked whether they agreed or strongly agreed with the statement that HR was meeting their needs, 31% responded positively, 31% responded negatively and 38% remained neutral.

The results were a real eye-opener for HR—particularly the low 31% satisfaction rating. We knew we had room for internal customer-satisfaction improvement, but we certainly didn't anticipate the extent of our internal customers' dissatisfaction.

The 31% who were satisfied praised HR's:

  • General responsiveness to their needs
  • Timely resolutions
  • Customer orientation
  • Professional knowledge and expertise.

The 31% who were dissatisfied criticized HR's:

  • Inconsistent and uncoordinated services
  • Poor communication when policies and services were changed
  • Inflexibility in viewing things differently.

The base case data made us question what we were getting for our money and which HR expenditures were justified. It also prompted us to look for ways to take better care of our internal customers who serviced Kaiser's external customers. Clearly, we needed to create an environment that could offer creative solutions to cutting costs and enhance internal services.

Our HR employees predictably responded to the data with mixed feelings. Some were excited and eager to move forward with the data collection, even though they weren't certain about how the outcome would impact them personally. Others were concerned about the impact the findings would have on them and the organization. Still another group was skeptical and nervous for reasons including—but not limited to—their own personal security. Some believed they needed to be on the front line, providing services to internal customers, and that they simply needed more resources and technology to satisfy customer needs.

For example, one of the things we looked at is a toll-free call center for employees to ask basic questions about issues such as benefits changes. We have some individuals who may not be right for a call-center position. Some employee users don't mind whether they receive information in person or by phone, as long as they receive accurate information. So certain questions about benefit changes can be handled over the phone by computer, whereas another person might prefer to have more personal contact while exploring employee retirement benefits. HR needs to place the right people in the right jobs.

We also learned our organization was the most bureaucratic of any client for which Amherst had collected similar data. In our case, HR willingly pitched in whenever necessary. Although the spirit was admirable, everyone ended up having their fingers in too many pies. This situation also caused many of the customer-satisfaction problems, particularly in terms of turn-around time and work quality. Without clear responsibility, important issues can fall through the cracks. If individuals don't devote a lot of their time to an activity, they won't develop as experts in their tasks.

Kaiser mixes and matches design teams.
Now, four design teams have been created—each with HR representatives and managers from different operating units working together. They're moving forward in four areas: training and education plans, compensation and benefits, workers' compensation, and recruitment and selection. The anticipated annual savings in HR shared services, based on benchmarking sources—the Employment Management Association (EMA), the American Society for Training & Development (ASTD), the Saratoga Institute and The Amherst Group Limited—are $1.2 million in recruitment, $1.1 million in compensation and benefits, and $2.3 million in training.

Hopefully, our shared services will provide a way to have both the cost and service advantage of doing things in a more coordinated fashion and the input or control advantage of having it decentralized. These goals will be measured by determining how the shared services group reports to the organization. Ideally, shared services shouldn't report directly through a centralized source but rather to a customer board so there's a direct means for internal customers to let their preferences or needs be known to the service unit. Kaiser currently is considering such a reporting model.

My advice to other HR executives hoping to deliver effective support services to internal customers is to reflect on how your HR organization was created over time. Is it the product of a series of patchwork programs and throwing resources at problems as they occurred? By looking at it now and determining where you need to go in the future, you'll probably identify fragmentation in terms of how resources are being used to carry out systemwide HR needs. Once you define service inefficiencies and implement solutions to correct them, you'll raise HR's internal value, producing results at competitive costs.

Personnel Journal, September 1996, Vol. 75, No. 9, pp. 87-90.

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