Employee Engagement

Special Report on HR Outsourcing: Why You Should Care About Engagement in Your Outsourcer’s Workforce

By Ed Frauenheim

Apr. 1, 2010

Engagement on the job dipped last year at recruitment process outsourcing firm The RightThing.

The Findlay, Ohio-based company’s 550 workers weren’t immune from the overall malaise in the economy, says company president Jamie Minier. And The RightThing employees who recruit for customers take on the burdens of their clients, Minier says.

Those factors help explain why an engagement survey at the end of the third quarter found a drop compared with the previous year. The RightThing had plenty of company—workplace morale throughout the economy fell during the downturn, according to a number of studies.

But the drop in engagement didn’t hurt clients, The RightThing says. As proof, the firm points to its top ranking in last year’s study by HRO Today magazine of the leading RPO providers based on customer feedback.

Nonetheless, Minier and crew launched a set of initiatives this year to boost engagement. These include reducing the maximum number of job requisitions per recruiter from 50 to 35, having recruiters serve just one client and increasing job flexibility.

Engagement is the top priority this year because it is central to the outsourcing business, Minier says. “For a service business, our employees are everything,” she says.

The engagement level of a service provider’s employees matters more and more to the success of human resources outsourcing, experts say.

Turnover at an outsourcing firm hurts customer service because new workers assigned to an account have to get up to speed on a client’s specific needs. The questions asked of frontline workers in call centers have grown more complicated, as client employees are routed to the Web for simple matters such as checking paid-time-off balances.

And clients are pushing their outsourcing vendors to become more efficient even as they want innovative services. All of which puts a premium on an engaged outsourcing workforce—one that not only sticks around and works hard, but also generates good ideas.

Keeping engagement high in an outsourcing setting can be challenging. Among the difficulties is the sudden way workers can find themselves transferred from client to outsourcer and pressure on outsourcers to trim costs. But experts say HR outsourcing providers tend to be smart about engagement. And the shift to harder, higher-value work in itself may help keep outsourcing employees more motivated.

For some time, clients have asked about turnover at HR outsourcing providers. And they are starting to ask about investments and innovation that indirectly get at how engaged employees are, says Rohail Khan, executive managing director at Affiliated Computer Services. He can imagine clients asking even more about people management. “They absolutely should,” Khan says. “We’re an extension of that organization, so the engagement of our staff will directly impact our ability to serve our partners and clients effectively.”

HRO evolution
Human resources outsourcing refers to companies farming out HR tasks such as payroll processing, benefits administration and recruiting to vendors including IBM, Accenture and ADP. In the mid-2000s, a number of HRO deals were soup-to-nuts contracts that eventually soured, with vendors underestimating the complexity of the work. Given those cautionary tales and a sluggish economy, the number of multifunction HRO arrangements fell last year.

There were 47 such contracts signed in 2009, down from 110 in 2008 and 76 in 2007, according to research firm IDC. Still, organizations have been expressing interest in smaller-scale, discrete HR outsourcing projects. And experts say the economic downturn itself has increased demand for outsourcing generally, given the promise of cost savings. There are thousands of workers worldwide handling HRO duties, estimates consulting firm EquaTerra. Many if not most of them work out of call centers, where they handle calls from clients’ employees on matters ranging from benefits enrollment to 401(k) questions to surviving-spouse benefits. Other staff at outsourcing firms include information technology professionals, customer account managers and implementation specialists.

In early HRO deals, outsourcers absorbed workers from the HR departments of clients. That still occurs today but is less common, as providers have established their own workforces and automated much of the work done by HR employees with software applications.

Those tools, known as self-service applications, put many routine personnel tasks, such as time-off requests, in the hands of clients’ employees.

Tales about call center jobs being deadening work might have been true a decade ago in HRO, says Michael Sternklar, COO of Mercer’s benefits outsourcing business, but now the calls are more likely to be about a complex topic, such as an employee seeking help with retirement planning.

“It’s a lot more of a consulting center than a transaction center,” Sternklar says. “That’s one of the things that keeps the job interesting.”

Mercer has about 5,000 employees globally working on benefits outsourcing, with roughly 2,200 stationed in the United States.

Michael Driscoll is one of them. Driscoll, 25, is a participant services representative working out of Mercer’s call center in Norwood, Massachusetts. He says his morale hasn’t fallen over the past year or two, in large part because he has continued learning about new fields and had chances to take on more responsibility.

Driscoll began at Mercer in late 2007 as a temp worker, helping with the open-enrollment season. He was hired full time at Mercer around the beginning of 2008, and has received training in health and benefits matters, absence management, 401(k) benefits and pension plans. Over time, Driscoll has progressed to work for clients with more sophisticated benefits plans, and now can handle employee questions that span multiple subjects. He’s looking forward to a long career at the firm. “The training has been there, and the opportunities have been there,” he says.

A key ‘intangible’
Dedicated workers like Driscoll are important to outsourcing arrangements for a number of reasons. Fundamentally, fired-up employees give good service, says Troy Workman, vice president of service delivery in the Americas for HRO provider NorthgateArinso.

“Quality is a byproduct of engaged employees,” he says. “We’ve even found clients that want to get involved in our recruiting process.”

Given that call center employees represent the face of the service provider, their level of motivation is crucial, says Tracy Keogh, senior vice president of HR for Hewitt Associates. “Your frontline folks being engaged is extremely important,” she says. Hewitt has 23,000 employees worldwide, most of whom work for outsourcing clients.

Khan of ACS says potential clients are asking about the kind of “experience” the outsourcer can deliver for the clients’ employees. That ties back to engagement at the outsourcer, he argues. Consider the example of someone calling in after their spouse has died, Khan says. The degree to which the call center worker wants to help “comes across in the interaction.”

Then there’s the problem of turnover. When someone servicing an account quits, the amount of time required to bring a new person up to speed is roughly half the tenure of the person who left, says Mercer’s Sternklar. “A loss of someone takes, in some cases, years to replace,” he says.

Turnover may be an even bigger issue in recruitment outsourcing, because recruiters working on behalf of clients have to develop a good understanding of the quirks and culture of the company they’re serving. Asking about an RPO provider’s turnover rate is a longstanding practice, says The RightThing’s Minier. “What clients want is consistency of resources,” she says.

If anything, retaining and inspiring workers is growing in importance. Employee engagement is one of the “intangibles” that are a key part of an outsourcing arrangement’s success, says EquaTerra analyst Stan Lepeak. And such intangibles promise to play a more significant role in outsourcing deals as the contracts move from transactional tasks such as benefits enrollment to more sophisticated projects such as succession planning, recruiting strategy and help with downsizing decisions.

“More often going forward, it is high-touch work,” Lepeak says.

NorthgateArinso’s Workman says clients are asking for help with both strategic and operations matters. One example of engagement leading to better service was a suggestion last year by a payroll processing employee, Workman says. The employee proposed moving the payroll processing cutoff time from 2 p.m. Friday to Sunday to reduce the number of client adjustments necessary on Mondays.

But the quest for efficiency also speaks to a challenge when it comes to engaging employees at outsourcers. Companies these days are focused on cutting costs, according to a recent EquaTerra report. That’s understandable in a tough economy. But squeezing outsourcers on costs can translate into crimped budgets for things vital to engagement, such as training and decent pay.

Lepeak says clients can become penny-wise but pound-foolish. “If all you focus on is driving down cost, you will impact quality,” he says.

Another hurdle is the overall economic uncertainty and specific client troubles that take a toll on workers in outsourcing firms. A number of reports last year, including a survey by Workforce Management, documented a decrease in employee engagement amid widespread layoffs, pay cuts and benefit reductions. Layoffs at clients can be dispiriting for the outsourced workers assigned to help those employees, because they raise fears of job losses at NorthgateArinso, Workman says.

“It can be a difficult time for us and the client,” Workman says.

Belt-tightening at outsourcers themselves also poses a threat to engagement. In the past year or so, The RightThing slowed the aggressive hiring it had been doing. The number of job requisitions per recruiter climbed from about 40 to 50, and recruiters were asked to take on work for two clients. In retrospect, that wasn’t ideal for recruiters, Minier says. “They felt they were constantly juggling,” she says.

The act of swallowing up and “rebadging” employees from a client also puts morale at risk, says Tim Ringo, who heads IBM’s human capital management practice. In many cases, news of an outsourcing deal breaks suddenly, giving affected employees little warning, Ringo says.

“So engagement drops precipitously,” he says.

Maintaining morale
The solution to that decline is great talent management, Ringo says. New employees want clear information about their roles, their objectives and their career paths. Outsourcers tended to overlook the “onboarding” issue in the past but have gotten smart about it over the years, says Ringo.

“Most HR outsourcers are very, very effective at bringing people into their organizations,” he says.

IBM scored highest in an evaluation of comprehensive HR outsourcing providers conducted by IDC late last year. Report author Lisa Rowan says IBM stands out for a number of practices that typically boost engagement, including a well-developed rewards system, corporate social responsibility initiatives and flexible work policies. “A lot of folks can work remotely,” she says.

IBM isn’t the only HR outsourcer turning to flexible work to fuel engagement. Many, though not a majority, of SourceRight Solutions’ roughly 500 employees work from home, says Rebecca Callahan, president of SourceRight, a division of staffing firm Spherion. The work-at-home option is “huge” for engagement, Callahan says, given the unconventional hours sometimes needed to recruit busy professionals. “You may be having that discussion at 10 at night,” she says.

Frequent communication is another antidote to low engagement, outsourcing officials say. NorthgateArinso, for example, holds town hall meetings and sends out quarterly newsletters to better connect employees and give them ways to make suggestions.

Since Keogh arrived at Hewitt about three years ago, the firm has tried to improve career opportunities by beefing up training efforts and expanding the number of roles employees can play. It also opened several on-site clinics with full-time physicians. Visits to the clinics are free for employees. “That’s been a huge hit,” Keogh says.

Employee engagement for Hewitt overall has increased by 46 percent from three years ago, Keogh says.

Hewitt was the poster child for problems in the outsourcing industry a few years ago, with its HR business process outsourcing unit losing $353.5 million in the year ended September 2007. But Hewitt says it has figured out how to fix those troubled deals. The unit reported a profit of $6.5 million for the last three months of 2009.

Employees in the once-troubled unit have felt engaged as they’ve worked to solve its problems and turn it around, Keogh says. Engagement scores in the unit jumped 40 percent from the year ended September 2007 to the year ended September 2009, and it now “has the highest engagement in the company,” she says.

The RightThing is working hard to reverse its drop in engagement. Besides lowering requisition loads, limiting recruiters to one client and providing flexible hours, the firm has committed to giving employees two extra weeks of vacation this year.

It has also set up an “anonymous committee”—a group of employees not known to the senior leadership who can forward ideas and requests.

In another development that can hearten employees, The RightThing says it is hiring aggressively again. The firm plans to conduct another engagement survey in the coming weeks, and Minier is hopeful all the efforts to boost morale will pay off.

Workforce Management, March 2010, p. 23-27Subscribe Now!

Ed Frauenheim is a former Associate Editorial Director at Human Capital Media and currently works as Senior Director of Content at Great Place to Work. He is a co-author of A Great Place to Work For All.

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