16th Annual Outsourcing Excellence Awards—Best BPO: International Paper and Aon Hewitt
“Instead of communicating by change requests and contract management, we can sit down and talk. That is what makes us successful.” Scott Lacy, Manager of HR Operations, International Paper
It was the 1990s and the paper and packaging industry was dramatically evolving. To keep pace, International Paper (IP) found itself in a cycle of acquisition and divestiture, all of which took a toll on the company’s HR operations. By the late 1990s, IP had seven different payroll systems, an aging HR information system and an HR-to-employee ratio of 1:90. The HR cost per employee per year had escalated to $1,600.
“We knew we had to centralize, standardize and streamline our HR processes, implement and leverage the SAP HR module, and move HR transactions and administration out of the field HR organization. This move would also enable HR to shift from administrative and transactional activities to become Human Resources business partners,” explained Scott Lacy, manager of HR Operations for International Paper.
After getting its internal HR house in order, International Paper outsourced the centralized HR process operations to Exult (which was later acquired by Aon Hewitt) for payroll, benefits and workforce administration. At the time, it was one of the first HR BPO engagements in the industry.
Navigating a Few Initial Hurdles
Like any outsourcing relationship—particularly a pioneering one—IP and Aon Hewitt had a few ups and downs along the way.
For example, although the transition of IP’s employee service center in Memphis, Tennessee to Aon Hewitt’s operations center in The Woodlands, Texas was well-planned, critical knowledge transfer and transition execution did not occur.
“We discovered that the basic Aon Hewitt model, at the time, wasn’t flexible enough to meet some of IP’s unique requirements. Once we made this discovery, our companies worked to identify how we could, together, correct the problems and support the initial IP vision,” Lacy explained. “By working as partners rather than adversaries, we were able to overcome this initial hurdle, strengthen our relationship and, ultimately, realize all the benefits we hoped to achieve with the transition.”
This success didn’t come without a concerted effort by both parties involved. Aon Hewitt employees visited IP mills to better understand the company’s business and the people it served, and established a full-time resource on-site at IP’s office in Memphis. Aon Hewitt representatives met with International Paper’s HR leaders to get insights on the company’s objectives and initiatives and to get to know them better as well. Most importantly, there was quite a bit of listening, “give and take,” and collaboration.
“In my experience, reticence to collaborate and jointly resolve issues and to commit to developing a partnership can severely hamper progress and foster an adversarial relationship. I have a background in labor relations and, honestly, a problematic HR BPO relationship can make labor negotiations look like recess,” Lacy said. “But what we have with Aon Hewitt works because there’s a willingness, on both sides, to work toward generating alternatives, thinking outside of the box, and finding solutions that work for both parties.”
Taking the Partnership to the Next Level
Throughout the course of the contract, both International Paper’s and Aon Hewitt’s businesses have fundamentally changed. So, managing the relationship by the original contract alone just wasn’t feasible anymore.
“International Paper has changed dramatically over the past five-to-ten years. We needed the flexibility to address developments that were not envisioned when we signed that initial contract,” Lacy said. “Both IP and Aon Hewitt had a genuine desire to shift paradigms and evolve the partnership instead of managing by change requests and contractual parameters alone.”
But how?
“We defined a set of guiding principles and behaviors and a structure that we both could formally commit to and then utilized this to form the basis for the partnership,” Lacy said. “We created a Partnership Steering Committee that meets several time a year to review progress and to make sure we’re upholding these original principles or sets of behaviors.”
The behaviors included things like “treating each other with dignity,” “actively participating in the partnership,” and a commitment to judge the engagement’s success by a candid assessment of the companies’ collective efforts. The overriding mantra became “The Simplicity of One.”
“We wanted to elevate our work beyond issues management to an environment of real collaboration and partnership” Lacy said. “The easiest thing to do in BPO is manage according to the contract. In a real-world BPO relationship, both partners’ interests must be considered. There’s more of a commitment because each party has to sign up; each party has to participate.’
It also means that, when there’s a problem, it’s no longer “us” against “them.” It’s “how can we collaborate to resolve this?”
Aon Hewitt now has a Solutions Team in place to resolve some escalated issues by not only focusing on the individual incident but also identify and remediate process gaps, and identify any impacts to other domains and upstream/downstream processes.
“If there’s a payroll escalation, a payroll-only resolution may be easily accomplished in SAP. But, because SAP is integrated and impacts a number of with HR processes, it’s important to take the time to assess how the change being made to solve the payroll issue could negatively impact other areas, such as benefits, for example.” Lacy said. “Now, if an escalation occurs, our Solutions Team looks at the entire solution so we can solve the problem without making a change that causes an issue in another area.”
Reaping the Rewards
This collaborative partnership has delivered some very impressive results—proving that “the Simplicity of One” is also “the Power of One.”
“At one point, we were down to an average of four escalations per day. Now, you may think that this is pretty good for a company with 50,000 employees. Then, we got down to 2 escalations per day. That’s as good as it gets, right?” Lacy said. “Now, we have approximately one escalation every 20 days—that’s .05 percent—and that’s pretty impressive. It’s a win-win for both of our companies. Neither of us is wasting resources unnecessarily chasing down an issue because we have significantly and jointly improved our processes.
Remember that original HR to employee ratio of 1:90? My, how things have changed.
IP’s HR cost per employee today is in the top world-class decile category, which gives the company a clear competitive advantage. However, Lacy is quick to point out that the company would never sacrifice employee experience for the sake of cost reduction.
“Although we’re careful not to increase costs, or spend money unnecessarily, our driver for HR BPO was never strictly cost reduction,” Lacy said. “We wanted to deliver an improved participant experience—and we have. One great measure of our success is the absence of noise in the system. In other words, what we’re doing is working. Our employees are for the most part are satisfied with the service delivery.”
Today, Aon Hewitt issues approximately 850,000 IP paychecks per year, takes approximately 70,000 employee calls per year and supports more than 850 HR members across International paper. Recently, IP also engaged the company to administer IP’s defined benefits plans, making the IP/Aon Hewitt relationship one of the largest HR BPO engagements of its kind.
“In my seven years in this field, and my prior 20 years experience in labor relations, I can truly say that it is indeed rare to find a partnership with this level of trust and commitment,” Lacy said. “I can give you so many examples of what we’ve achieved, but the most meaningful to me, personally, is the fact that our managers and employees typically can’t distinguish between who in our area of work is an IP employee and who is an Aon Hewitt employee. That, to me, is the epitome of partnership.”
About the Author: Ben Trowbridge is an accomplished Outsourcing Consultant with extensive experience in outsourcing and managed services. As a former EY Partner and CEO of Alsbridge, he built successful practices in Transformational Outsourcing, BPO, IT Outsourcing, and Cybersecurity Managed Services. Throughout his career, Ben has advised a broad range of clients on outsourcing and global business services strategy and transactions. As the current CEO of the Outsourcing Center, he provides valuable insights and guidance to buyers and managed services executives. Contact him at ben.trowbridge@outsourcingcenter.com.