Posted tagged ‘health and welfare outsourcing’

Getting HRO Deals Done Today – Start Yesterday

October 13, 2009

This week ACS announced a five year deal with Ford Motor Company to provide Total Benefits Outsourcing (TBO). While financial details were not released, it is a major contract that will provide all three benefits administration services – defined benefit, defined contribution and health and welfare – to more than 400,000 U.S. Ford employees and retirees.

What allows a major deal to get done in this still tough economic environment, especially in the automotive sector? If a deal can get done there, a deal can get done anywhere.

Ford is the only U.S.-based auto company that has not sought special government financial assistance. Alan Mulally, Ford’s CEO since the fall of 2006, has driven a focus on Ford’s cars and trucks. Bill Ford Jr., Chairman and family representative, selected the industry outsider from Boeing because he saw the need for the same type of business and cultural turn-around Mulally led at Boeing. Under Mulally, Ford has sold off non-core brands like Land Rover and Jaguar, and invested in not just needed model refreshes to core brands like Ford and Lincoln, but in new technologies and means of manufacturing to lower the cost of production and support faster responses to changes in the global marketplace.

Continuing focus on the core and cost pressures has brought new, open-minded thinking to what can be outsourced, breaking the mental barriers on what must be internally managed. That opened the door for Ford to outsource TBO for the first time.  Throughout the competitive vendor selection process, Ford had several clear objectives including a partner with a record of quality and progressive thought-driven innovation and investment, and one who would offer an “evergreening” of technology. Of course cost was also an issue, and Ford considered both long-term cost avoidance – what it would need to invest to continue to offer current state services in-house – and short-term cost savings – reductions in current spend.

TBO was already a big part of ACS’ Human Capital Management (HCM) Solutions services’ revenues. It is also a major growth focus under Rohail Khan, ACS’ Executive Managing Director Total Benefits Outsourcing. ACS has committed to investing $50 million through 2011 in upgrades to and expansions of its HCM offerings, technology and global customer service center network. According to Rohail, more than $20 million has already been invested in technology and capabilities that strengthen TBO. He considers the underlying technology design, which enables faster and lower cost changes and enhancements, as a key to strategic advantage and a means to protect profitability.

Having already made investments, enhancements and upgrades, ACS was test drive ready. Ford kicked the tires and selected ACS as the competitor who best demonstrated a match for its objectives.

However, to leverage its fast start off the line, ACS will need to address concerns about the Xerox acquisition. When the HCM unit becomes part of “ACS, a Xerox Company,” will it be considered a non-core unit like Jaguar at Ford, or will it be a strategic business line that is invested in and vitalized?

NelsonHall’s October BPO Index continues to show that buyers have revised strategies and budgets, as have providers. The Index further indicates buyers are on the path to getting deals done in 2010; they are identifying BPO opportunities (25 percent), expect to issue RFPs (48 percent) and make awards (37 percent). 

Competing for major deals starts way before the RFP arrives. Which services will be offered within a bundle and will be strong enough to stand alone against best-of-breed providers, and what investments will add both to competitive advantage and sustainable internal margins? Those best positioned to take advantage of the economic recovery and new growth opportunities will have already vetted strategic plans, made the investments, and now have shiny new cost competitive and compelling services offerings ready to roll off the lot.

The question is not just what you are doing today, but what did you do yesterday?

Linda Merritt, Research Director, HRO, NelsonHall

Standardized Health and Benefits Admin Outsourcing Services Proliferating for the Mid-Market

June 22, 2009

As my colleague Gary stated in his May 27 blog, standardization is key in making mid-market HRO affordable, efficient and sustainable for both buyers and providers. And given the skyrocketing costs associated with healthcare and delivering health and benefits administration services to employees, it should come as no surprise that Mercer on June 11 introduced an expanded health and benefits administration outsourcing platform to offer a standardized solution for clients with 5,000 to 10,000 employees.

With this new service offering, Mercer joins the ranks of HRO vendors – including Hewitt and ExcellerateHRO (which, as of last week, is now exclusively owned by HP following its purchase of Towers Perrin’s shares in the company) – which have developed and are providing standardized health and welfare offerings to the mid-market. What’s the value proposition of such standardization for mid-market buyers?

Our January 2009 Mid-Market HR Outsourcing Market Analysis found that the top drivers for outsourcing benefits administration services are: 1) Better technology than clients have the capital to invest in themselves; 2) Improved employee experience; 3) Standardized and streamlined processes; and 4) Reduced expenses. And indeed, the standardized health and welfare offerings from today’s HRO providers are helping mid-market companies meet each of these needs. Let’s look quickly at each one.

Better Technology – due to economies of scale, providers have been able to cost-effectively develop or invest in technological platforms which enable rapid implementation – and thus quicker payback – of automated functions and robust self-service capabilities for their clients’ managers and employees.

Improved Employee Experience – whether it’s changing a deductible amount, applying for a Leave of Absence, enrolling in a benefits program or adding or removing a spouse or dependent to an insurance policy, employees feel more in control when they can manage health and benefits-related activities themselves via self-service. And they can do so 24/7, rather than during regular working hours.

Standardized and Streamlined Processes – enterprise-wide consistency regarding activities such as how to enroll in a benefits program, how to determine the impact of healthcare policy changes, who to call for questions and where to go for online portal-based FAQs is advantageous for employees and their companies alike in terms of satisfaction, bandwidth and cost savings.

Reduced Expenses – our above-mentioned Mid-Market Analysis found that mid-market health and benefits administration outsourcing buyers are reducing their costs by an average of 26 percent.

We estimate more than half of the health and welfare outsourcing market is comprised of mid-market organizations. Further, we anticipate growth in overall benefits administration in the mid-market will be 10 percent through 2013, which signals a continuing trend for mid-market organizations to address technology, service delivery and cost issues through outsourcing.  But questions do remain. Which companies will jump on the bandwagon, and which won’t? Will health and welfare outsourcing for the mid-market live up to its promises? This is certainly a space to keep an eye on.

Until next time, happy sourcing!

Helen Neale, Research Director, Human Resources Outsourcing, NelsonHall

The Demise of the ING/Empyrean Deal: What’s Next for ING and the H&W Marketplace?

June 19, 2009

A recently posted Note from the CEO on the Empyrean Benefit Solutions website reads, “Empyrean spent three months evaluating and proposing on an acquisition of ING’s health and welfare outsourcing business. At the end of the process, we did not reach a mutually advantageous agreement with ING.”

The fact is that while there may have been other contributing factors, ING’s lack of a solid health and welfare (H&W) technology platform and the jumping ship or tendering for work of at least five of ING’s 11 H&W clients are what ultimately caused the deal to fail.

So what does this mean for ING and the H&W administration marketplace in the U.S.?

It is clearly damaging for ING. Its client base has shrunk and is likely to continue contracting. The resulting instability of its business is undoubtedly unsettling for its employees, and this will likely cause significant morale problems and staff exits, even if layoffs aren’t forced. The company could try and find another buyer, such as defined contribution administrators looking to grow their H&W businesses (for example Fidelity), or other H&W providers, e.g., Workscape, Hewitt and Watson Wyatt, hoping to increase share. Its only other option is to resign itself to losing its whole book of business to other providers.

We believe the latter will happen. It’s far more likely that other providers will look to pick up ING clients without the cash outlay to buy the business, especially in its unstable and dwindling state. But that said…

A cautionary note to H&W providers: be wary of taking on ING clients too quickly with first conducting appropriate due diligence on the contracts. ING has clearly had challenges servicing its clients, and that may not all stem from issues in its own operations. It’s worth paying close attention to the contracts it was bound to honor to ensure there are no hidden pitfalls such as unrealistic cost saving expectations or inappropriate governance structures.

And a word of warning to buyers: if you’re considering outsourcing to the H&W arms of a traditional defined contribution administrator, make certain the provider has made a long-term commitment to the H&W space, perhaps evidenced through investment in real-time decision support tools, self-serve enhancements and analytics technologies. A lack of robust commitment to fully servicing H&W clients may place you in a similar position in which your provider exits the business and you must unexpectedly transition to another supplier.

Until next time,

Helen Neale, Research Director, Human Resources Outsourcing, NelsonHall