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Out of the Red, Into the Blue

March 1, 2000
Related Topics: HR Services and Administration, Financial Impact, Featured Article
It was beyond ugly. Big, bad blue-chip giant IBM was on top of a silicon world that was its oyster back in 1991, when it achieved a $6 billion profit on revenues of $69 billion.

Then, over the course of a mere two years, Corporate America undermined the giant’s foothold and migrated en masse from large mainframe computing--the IBM specialty--to tidier networked PCs. Big Blue took a colossal tumble. Its revenue losses swelled to $8 billion in 1993.

As the giant regained its footing, it shook off a lot of dust. Human resources was not exempt from the fallout. Its luxurious policy of maintaining a full staff at each of the company’s large sites--at a 1 to 61 ratio of HR staff to employees--had to go.

Given a mandate to slim down, human resources began to refigure itself in 1992 into centralized, functional units, providing HR support regionally. The cuts were stunning: At the end of 1992, IBM HR employees numbered 3,400. By the end of 1993, that number was about 2,000.

In 1994, HR execs expected ringing praise for their work to date; after all, their restructuring had saved IBM more than $115 million.What they got was a mandate to reduce costs by another 40 to 50 percent.

"We didn’t see it coming," says Bob Gonzales, vice president of HR operations. "It was, ‘You’ve done a great job, you did what we asked you to do, but it’s not good enough.’ We had to look at what we did in a very different way."

After a lot of painful navel-gazing, HR again found an answer--and this answer has produced amazing results.

In January 1995, the HR team consolidated all its service functions into a centralized Human Resources Service Center (HRSC), based in Raleigh, North Carolina. This technology-rich call center not only helps IBM employees receive information quickly and easily, but also frees HR consultants to be more strategic.

Today, the HRSC helps more than 700,000 "customers"--employees and their families--and handles more than 7 million transactions a year. It has saved IBM an astonishing $180 million since its inception.

All this sounds simple, but frankly, it could have gone horribly wrong. Fortunately, it didn’t, thanks to smart HR and the leveraging of the very thing that IBM does best--using technology to make life easier.

"If we hadn’t had that disaster, I don’t think we would have gotten here as quickly as we did. No way," says Gonzales. "When you’re in desperate shape, you seek desperate measures. But sometimes within those desperate measures is that breakthrough idea that’s going to put you light-years ahead."

HR finds a solution, but the decision isn’t popular.

Gonzales remembers that gut-wrenching meeting in 1994. As IBM restructured its business to serve a new marketplace, IBM leadership demanded that HR cut costs by another half. The shaky HR execs left and promptly split up into two task forces. One focused primarily on information technology. HR was, quite simply, still too fat. Its second restructuring would have to involve automation.

The other task force, led by Gonzales, was designed to perform what HR called a "clean sheet review." This review would help decide which HR processes could be automated, and which HR functions needed to stay in the hands of experts; it basically kept the human side in the equation. All processes were analyzed for their value to IBM as well as their usage. HR was scrutinized from the bottom up, top down.

"It was looking at all our practices and policies and deciding if it [would add] value to our business," explains Gonzales. "And then [asking], how can we do it better?"

Having already created a successful, cost-cutting benefits call center in 1991, HR decided the solution rested in applying that model to a national call center. Take the technology and let it help with the less value-added HR work. Ninety days later, the idea for the Human Resources Service Center was official.

Raleigh was selected as the location for the call center because of the area’s good quality of life and reasonably priced real estate. The move would incur some initial expenses but would reduce HR labor costs by 40 percent.

In May 1994, the directive was announced to the HR staff nationwide: The regional centers that had handled HR would be consolidated in Raleigh, with Gonzales heading up the center. By late summer, the move would begin.

However, the decision wasn’t good news for everyone. The consolidation meant that HR would cut its mid-level staff from 600 people to 300. The remaining professionals would be designated as Tier Ones, those who answered basic incoming calls to the center; Tier Twos, those who handled more strategic issues; or Tier Threes, the HR top execs.

The result: 225 benefits administrators were whittled down to 50 Tier Ones and 20 Tier Twos. Professionals in charge of evaluating employee suggestions were cut from 106 to 9.

It all meant identifying which pieces of people’s jobs were administrative functions and which were strategic. That meant a lot of frank conversations.

"You had to really work with them, because they couldn’t see initially how anybody but a compensation professional could help managers with compensation questions," Gonzales says. "But we were in survival mode. You accept change more readily, because what is the alternative?"

Still, he admits, it was a difficult transition. Employees with more strategic skills would be offered positions in Raleigh, but most administrators would be left behind. "Obviously, 300 people were going to no longer have jobs," says Gonzales. "We asked, well, is there a way we could not tell people, because if we tell them they’ll leave? But we knew we had to be brutally honest."

HR asked employees to stay, and promised that as the time came to move to Raleigh, they’d help them find new positions outside the company. Gonzales says IBM lost very few: "I was amazed."

Technology is key in the transition.

Part of the successful automation was putting more information in the hands of employees. An online system called HRAccess was key to helping employees help themselves, with less dependence on HR staff for day-to-day transactions.

All paper personnel files were transferred into electronic files, so that employees could use the HRAccess database to view and update their personnel files online, for example, or even apply for jobs online.

Managers in turn can now create a job posting and even file the paperwork required to hire an employee online. In 1998, HRAccess was used 7.7 million times; that’s 7.7 million fewer transactions for HR.

As of last year, an HR intranet also helps employees access quick information--like IBM’s personnel policies and contact lists. This has been particularly valuable in one major HR challenge: benefits enrollment.

Employees can explore their options, then sign up online. The 1999 enrollment saw more than 42 percent of the IBM population using the intranet to enroll. "The most painless enrollment process I’ve ever been through. Well done!" wrote one employee. "Navigation was a breeze, and it was very easy to use and get the job done. Take a bow. ... Congratulations!" wrote another.

This computer-based system is backed, of course, by the service center. It’s responsible for answering all HR questions--from compensation to employee leave to tuition reimbursement--for a customer base of 732,000, which includes all active, inactive, and former IBM employees, as well as their spouses and dependents.

An IBM employee using the HR Service Center accesses one of three tiers, depending on the complexity of his or her issue. But that issue will be addressed: "When you call in, we want that to be a one-stop shop," says Gonzales. "Even if we’re giving you information you don’t want to hear, we want to do it in a courteous, customer-oriented manner."

Dialing the 800-number with a question about benefits, the employee reaches a Tier One rep. This HR support specialist--steeped in customer-service training and monitored by "quality coaches"--is the first point of contact to answer questions and resolve problems.

These people handle all the predefined issues, using online HR information and guidebooks. Eighty-five percent of calls are settled on this first level. A telephone routing system ensures that almost all calls are picked up within 60 seconds. E-mails also are used often, with a response promised within 24 hours.

If the employee’s question is beyond the scope of the service specialist, the rep creates an online case file, and the issue heads up to Tier Two, a subject matter expert. These people are linked directly to the executives of each business unit and handle matters that require more interpretation, problem solving, or issue resolution. At Tier Three are the program leaders, the heart of HR business, who handle research, strategy, design, and external benchmarking of HR programs.

Gonzales says that despite initial concerns that the Service Center was going to be too chilly an operation, removing too much of the humanity from human resources, doubts have been quelled.

"A lot of people said this was going to be impersonal," he says. "But we were able to show that it did work, and [those people] are now some of our biggest advocates."

In 1998, in fact, customer service satisfaction with the Human Resources Service Center was 92 percent. And HR received the ultimate compliment: IBM’s chairman and CEO, Lou Gerstner, has recognized the HR department’s reengineering work as a success story to be replicated by other facets of IBM business--and the HRSC model is now being adopted worldwide.

"We’re happy about where we’ve been, where we’re going," Gonzales says. "When you think about where we’re going to be two years from now, it blows your mind."

Workforce, March 2000, Vol. 79, No. 3, pp. 50-52.

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