The Conference Board 2006 Human Resources Outsourcing Conference

Event: The Conference Board 2006 Human Resources Outsourcing Conference: Deal or No Deal; Rationale, Risks, and Rewards for Enhanced HR Capabilities
September 19-20, the Drake Hotel, Chicago

What: A gathering of minds from both the provider and buyer sides of the business, the Conference Board’s HRO conference addresses the challenges that both camps are facing as this market evolves. With more than 100 attendees, the conference focuses on how buyers can work with their providers to make sure their HRO process goes smoothly and that they reach their stated goals.

Conference info: For more information about Conference Board events, click on www.conference-board.org.

Day 2: Wednesday, September 20

There is much unknown: As much as both HRO providers and buyers have learned during the past few years, speakers throughout the conference emphasized that many questions remain to be answered. In his presentation, Anthony Hesketh, associate professor at Lancaster University Management School in the U.K., brought up many of these questions. For example, one area that remains unclear is what the future skills of HR will be, and what future HR careers will look like after more organizations enter HRO deals, he said.

"We know the skills are changing," Hesketh said. But organizations need to anticipate a shortfall in these skills, which will revolve more around vendor management, he said. And the overall trend toward outsourcing may cause a drop in people who want to be HR managers in the first place, Hesketh said. Other questions that remain unanswered include:

• Why the market is growing and future developments.

• The extent to which and outcomes of HR process commoditization.

• How employees will interact with future HR platforms and services.

• How service providers might be differentiated in terms of their performance.

• What transformation or added value through HRO equate to.

Lessons learned: Mike Wright, global HRO sales co-leader at Hewitt Associates, shared with attendees the lessons the organization has learned as a result of an extensive review of its HRO business last summer. The review stemmed from struggles the Lincolnshire, Illinois-based company had contended with over the past several months in implementing deals. On August 14, the Lincolnshire, Illinois-based company posted a net loss of $202.2 million, or $1.88 per share, for the third quarter ended June 30, compared with net income of $44 million, or 31 cents per share, in the third quarter last year.

"I come to you pretty humbly this morning," Wright told attendees, noting the troubles the company has had.

Wright emphasized the importance of constant communication between providers and their clients. "In the past when we have had problems our tendency was to put up barriers, put our heads down and figure out what’s going on," he said. Now Hewitt is working to include clients more in the process. This includes having clients visit its service centers and offer ideas on how to address problems.

Aligning goals and expectations is another crucial step for HRO deals to be successful, he said. Both parties need to live up to their side of the bargain, Wright said. For Hewitt, that means meeting the set goals in the service level agreements. But often, Hewitt has found that a year after it has signed a deal with a buyer and taken over the HR processes, the buyer’s employees who were handling those processes are still with the company.

"And then the buyer asks us why we haven’t met certain cost reductions," he said.

"I’m not trying to pass the buck. Hewitt has to meet its expectations, but this has been an issue," he told Workforce Management after his presentation. To address this issue, Hewitt is now adding language in its contracts to make sure buyers eliminate the positions that are made redundant because of outsourcing.

Probably the biggest lesson learned for Hewitt is that the "lift and shift" model--whereby it would just take over a buyer’s HR processes and attempt to do it cheaper--doesn’t work, Wright said. As a result, Hewitt is working to transition clients to a more standardized solution. For clients that are resistant to this type of change, Hewitt tries to get them to think about, "What is the value added by customizing these processes?" Wright said. It doesn’t necessarily make sense to customize things like payroll and benefits administration, for example, he said.

For those clients and prospects who still want the lift and shift model, Wright says that there may be other providers who will do that, "but it’s not us."
—JM

Day 1: Tuesday, September 19

Candid thoughts: The first day of the conference started with Kim Haines, senior vice president of global human resources services delivery at Bank of America, speaking frankly about why her company switched HRO providers from Exult (now Hewitt Associates) to Fidelity.

In 1997, Bank of America signed a 10-year, $1.1 billion deal with Exult and bought a stake in the company. In 2004, however, the bank acquired Fleet, which already had an HRO contract with Fidelity Investments.

"The simplest thing would have been to apply [the Exult model]," Haines said in her presentation. "We could have written off the termination costs as part of the merger and acquisition."

But Bank of America wasn’t satisfied with Exult’s "lift and shift" model, Haines said.

Among the problems that Bank of America experienced with Exult’s HRO approach was that it was not user friendly, she said. Often employees had to go through five or six log-ins to get the information they needed, and everything was running on three or four systems despite being fed through one integrator, she said.

So Bank of America drafted a 500-page document outlining specific needs in its request for proposal to Fidelity. And so far, the company is pleased with the switch, she said.

"An outsourcer who provides what you currently have doesn’t provide much value," she said. "You need one with a multi-client solution."

Most controversial remark: The winner for the speaker who gave the most controversial remarks is a tie between Barry Siegel, president of Recruitment Enhancement Services, and Jason Berkowitz, vice president and co-founder of Hyrian, both recruitment process outsourcers. Speaking on a panel about the evolution of recruitment process outsourcing, Barry first raised eyebrows when he said that employers’ concerns about hires not fitting into their culture is overstated.

"Cultures are not so different," he said. "There are probably eight different categories of cultures."

But Berkowitz’s response to an attendee’s question later during the panel discussion caused a stir. The attendee, an HRO buyer, asked why recruitment process outsourcers always talk about metrics and short-term issues when they respond to a request for proposal.

"You never talk about the long-term impact to our organizations," she said. Berkowitz’s response was to turn the tables. "Maybe you aren’t asking the right questions," he suggested.

That’s not the right approach, said one attendee after the session.

"As a vendor, you want to do the due diligence on the company and come to the RFP with an understanding of who the organization is and what their goals are," the attendee said. "You don’t just want to show up with a bunch of metrics."

In his presentation, Mark Azzarello, director of human resources operations at International Paper, cited the exchange between Berkowitz and the attendee, saying that in general it is important for providers to take a good look at themselves. "These are issues that all buyers are having," he said.

Best question of the day: Amy Greenholz, project director of global human resources for Arrow Electronics in Melville, New York, asked panelists at one of the day’s final sessions how she should go about hiring HR staff now to do transactional work when the company hopes to eventually outsource the administrative function.

The debate is that management wants to hire strategically focused HR people now, but Greenholz doesn’t see how the company could retain them if all they will be doing is basic administrative tasks for the next couple of years. "Hire what you need now," Jason Corsello, an analyst at Yankee Group, told her. Then try to create a learning curve and development track for them, he said.
—Jessica Marquez