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Farming out HR has yet to yield the promised savings. So why haven't CFOs hung up on outsourcers?

Complicating matters is the fact that, to date, most companies have contracted with multiple vendors, each specializing in one piece of the benefits package. Managing that network has eaten into potential savings, but that, too, is changing. Eleven percent of the companies surveyed in The Conference Board’s 2004 study indicated plans to consolidate HR outsourcing with a single provider—up from just 2 percent in 2002.

Almost All In

Among the companies taking that route is AT&T Corp. In May 2002, AT&T inked a seven-year agreement with Chicago-based Aon Corp., whose Aon Human Capital Services unit now oversees most of the telecom giant’s benefits, employment, and payroll services for its domestic employees. “We started with the belief that we would outsource everything,” says Christine Morena, AT&T’s vice president for HR. “Then we required ourselves to justify everything we kept internally.”

Ultimately, the company retained only two categories: HR policy and strategy. Everything else went to Aon.

The result was a virtually seamless transition. “If you asked anybody in the line organizations, most of them would not even know we had outsourced,” says Morena. AT&T has met, and in some cases exceeded, its cost-cutting projections. Equally important, in Morena’s view, is HR’s ability to respond quickly to AT&T’s changing needs. Aon and AT&T have a flexible contract that allows them to respond to shifts in demand, some of which were precipitated by a reduction in workforce. (AT&T has reduced head count by about 20 percent since early 2004.) Morena also claims that the deal has required no quality trade-offs: “Our service levels were either maintained or improved in every area.”

In early 2004, Goodyear Tire & Rubber Co. also turned most of its HR functions over to one provider. The Akron-based company signed a 10-year contract with Dallas-based outsourcer ACS Inc. Donald Harper, Goodyear’s vice president of HR for North American shared services, says the end-to-end agreement covers all of the company’s Akron corporate campus “back-office” transactional HR work, including payroll, benefit processing and claims payment, pension management, staffing, and most of the field classroom training and E-learning processes. He expects the deal to save Goodyear at least $45 million during the life of the agreement.

It’s a bit early to gauge whether the deal will hit that target; after all, Goodyear and ACS have barely marked their first anniversary together. But Harper cites one immediate—and significant—area of savings: using ACS’s technology eliminated the need for Goodyear to make a multi-million-dollar investment in upgrading its outdated HR system. Goodyear’s HR personnel are also among the early beneficiaries, says Harper. Some accepted new jobs with ACS, while others moved into strategic roles at Goodyear. “They do the higher-quality HR work rather than administrative back-office work,” he says of the remaining staffers. “Even my own job is a lot more fun these days.”

Anne Stuart is a freelance writer based in Boston.

Outsource This!
Most commonly outsourced HR functions
Payroll
Health and welfare benefits, including medical and dental insurance, claims processing, wellness plans, and flexible spending accounts
Long- and short-term disability insurance
COBRA administration
Employee-assistance programs
HR employee-service call centers
Information technology services
Retirement and savings plans
Most commonly kept in-house
Compensation management
Performance reviews and follow-up
Employee orientation
HR-related regulatory compliance
Anything involving classified or highly confidential information
Sources: Bureau of National Affairs Inc., The Segal Co., Towers Perin, Watson Wyatt Worldwide, and The Conference Board/Accenture HR Services

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