I first started thinking about the power of plug-and-play platforms in my childhood, well before I joined the HR industry.
It all started with a sleek, all-inclusive console stereo system. With its built-in turntable, AM/FM radio, amplifier and speakers, I loved that stereo despite its all-in-one vertically integrated design.
But one day the amplifier broke, rendering the entire unit non-functional. As a result, the console was kicked to the curb.
Years later, my parents bought me a new stereo system with separate components. Even though the system included so-so speakers, I was thrilled. Although the sound quality was not up to my teenage standards, I eventually purchased an excellent set of speakers that enabled me to rapidly upgrade my stereo to meet my expectations.
This plug-and-play approach to my updated stereo allowed me to integrate high quality speakers into my existing system of separate but integrated components. Most importantly, this allowed me to replace the speakers while keeping my stereo and wallet intact.
The plug-and play-platform is a great example of the beauty of a horizontally integrated model with separate components designed to work seamlessly together. Applying this example to benefits packages, horizontally integrating separate vendors, enables organizations to quickly and efficiently plug-and-play benefits and services within their existing offering.
The importance of benefits in recruiting and retaining top talent is well documented. An Aflac “WorkForces Report” found “Workers who are extremely or very satisfied with their benefits program are six times more likely to stay with their employer compared to workers who are dissatisfied with their benefits program.” A 2016 “Workforce Mindset Study” found one of the top factors differentiating employers from the competition was providing “better than average benefits.” Finally, a 2016 MetLife study found 70 percent of employees say that benefits that can be customized to meet their needs would increase their loyalty to their employer.
Let’s examine the current approach to benefits in the HR industry. It is increasingly common for vendors to offer multiple benefits and services integrated vertically, similar to the old console stereo system. Vendors frequently package wellness, disability, life insurance, voluntary benefits and more. The problem with vertically integrated design is if only one of the packaged benefits or services needs to be replaced, it often becomes necessary to replace the entire integrated offering because it is owned and operated by a single vendor. This is a major problem when trying to offer an agile, competitive benefits package that meets the needs of today’s diverse, multi-generational workforce. It is much easier and more cost effective to replace one component of your benefits package in a separate but integrated “plug-and-play” platform.
Vertical Integration — the Old Benefits Delivery Model
What exactly is vertical integration and why is it inferior to the plug-and-play platform? It is a business model in which all stages of production and delivery are owned by one company. As industries mature and try their hand at integration, they are often drawn toward vertical integration as it seems easiest to control and most cost effective. In reality, vertical integration results in poor quality and service, a slower response to the ever-changing needs of an organization’s employees, and higher costs in the long run. Because of an inherent monetary conflict of interest, vertically integrated models are resistant to replacing one of their own benefit offerings with a competitor’s offering even though it may better meet your organization’s rapidly changing needs.
A company contracts with one provider for all benefit needs, similar to vertical integration. However, with horizontal integration all benefits are not owned by that particular vendor, but are managed by them. Instead, the integrated benefits provider selects separate best-fit vendors whose offerings match the organization’s identified human capital needs. The integrated benefits provider contracts directly with each vendor, using performance agreements, and then provides the client with one horizontally integrated benefit package. The outcome is one contract, covering separate vendors, with an integrated plug-and-play approach to benefits.
In today’s marketplace, utilizing a horizontally integrated plug-and-play benefits model is imperative. Meeting the needs of a workforce that employs five generations working side by side, balances on-site employees with a growing number of remote telecommuters and the increasing focus on mobile technology demands a benefits platform that is agile and responsive.
Historically, horizontally integrated plug-and-play systems have proven to be more nimble in responding to consumer needs and business trends while still providing high-quality, cost-efficient products and services. This plug-and-play model of horizontal integration results in:
- Superior quality.
- Rapid innovation.
- Rapid response to organizational and human capital needs.
The bottom line is that the power of competition among separate vendors drives quality, cost containment and innovation. To achieve this plug-and-play platform, horizontally integrating separate vendors is the clear choice in producing the best benefit offering for your people.
Gene Raymondi is the founder and CEO of eni. He is a national expert in the field of benefit engagement and integrated benefits, with over three decades of experience in HR. He is a panelist on SHRM’s Technology and HR Management Panel and is a SHRM chapter past president. Comment below or email email@example.com.