In this article, explore the incredible journey of a manufacturer’s growth through strategic HRO (Human Resources Outsourcing) implementation and its remarkable results.
ABB Inc., a power and automation technology manufacturer, grew by acquisitions. ABB allowed each acquired company to maintain its corporate culture; each unit had its own general HR processes, which included things like payroll and benefits.
ABB executives wanted to create a single culture with centralized processes and policies “to create cost efficiency and drive better service,” says Michael Scarpa, Vice President, Benefits, Payroll & HRIS for ABB Inc., the U.S. subsidiary of a Zurich, Switzerland company. That included creating “a standard way of treating our employees.”
The manufacturer’s first step: centralizing its 401(k) plan. It decided the best way to do that was to outsource.
Today, 13 years later, ABB has outsourced a very significant portion of its transactional HR services to its original supplier: Fidelity HR Services. The process was gradual; the manufacturer added processes piece by piece as it grew ever more comfortable with HRO (Human Resources Outsourcing). “I don’t think another supplier has the commitment they do to get things done,” explains Scarpa of the ever-increasing scope of this relationship. This is the story of one manufacturer’s HRO (Human Resources Outsourcing) growth.
Selecting the supplier
Scarpa says ABB, which in one of its businesses manufactures and installs robots for process automation in the automotive industry and the post office, always looks for two key characteristics when selecting a potential partner. First, it wants to ensure its partner “is metrics driven and focused on its functional expertise.” And it wants a supplier that has “a good track record of robust communications.”
The manufacturer, which also designs and builds substations and transformer boxes for power distribution, had no intention of handing off its health and welfare administration to an outsourcing provider and saying, “You do it. We’ll see you once a year.” Instead, ABB wanted an organization “willing to partner with us.”
ABB’s team is “well versed” in Six Sigma process variation reduction. “We’re constantly looking to raise the bar and provide better service at a lower cost to our employees. We had to find a partner that really believes in that and wants to do that for us,” Scarpa says. Fidelity got the job.
Two and a half years later, ABB decided to outsource the entire administration of its defined benefits pension program. The manufacturer decided to give the job to Fidelity. “We started showing success, so they wanted to fold the rest of defined benefits into the engagement so their employees could have a more integrated experience,” says Arthur Mazor, senior vice president, Offering Management for Fidelity.
Scarpa says the manufacturer’s HR services strategy is to partner long term “with a best-in-class supplier that can consistently deliver great service and quality to meet the diverse needs of our business. “
In 1999 ABB expanded the scope further: it outsourced its complete health and welfare program administration for its employees and retirees. Again Fidelity got the job. “They were looking at ways to leverage the infrastructure and technology that existed,” explains Mazor.
The supplier also won the work in 2004 when ABB outsourced its payroll and HRIS system administration to Fidelity. This included a workplace portal and call center — “the whole HR experience,” says Mazor.
Last year Fidelity began providing health savings accounts to further extend the relationship.
Helping ABB when it was close to bankruptcy
Outsourcing many of its HR transactional services to Fidelity helped the manufacturer weather a tough period. In 2003 the company was “close to bankruptcy,” according to Scarpa. “That put a lot of strain on our processes.” The HR department was focused “more than ever on cost efficiency and service to the employees who weren’t jumping ship.”
Scarpa says Fidelity helped the manufacturer “manage through that challenging time. Its executives were understanding and supportive, which helped us get through it.” For example, ABB’s head office mandated certain cost reductions in HR. He had to go to Fidelity and “honestly tell them we’re struggling and need to see lower fees.”
He says Fidelity “understood what we were going through and where we needed to be.” The supplier supported its buyer by offering “very competitive market pricing, which gave us the relief we needed.”
In addition, ABB had to make changes to its retiree medical program as it struggled for survival. Scarpa says “Fidelity was right there with us, helping us communicate these changes to our retirees.” The supplier fielded the phone calls from retirees who were not that happy with the new changes to the program. “Fidelity partnered with us and helped us get this work done,” says Scarpa.
Why this relationship works
After the bankruptcy scare, Fidelity continued to go the extra mile, according to Scarpa. The head office in Zurich often sends him “urgent requests” for data. Fidelity executives never tell him, “No, we can’t do that. It’s always: Let’s understand the need and figure out what we can do.” He says Fidelity is always ready “to help us out in a pinch.”
Scarpa says “Fidelity is always pushing the envelope for better service. They are creative thinkers.” In addition, “We have open and honest communication. We’re not afraid to share our dirty laundry.” Both parties believe surprises are a bad thing. “We foster a robust professional business relationship,” he adds.
Scarpa enjoys the give-and-take. If he needs to get things done, Fidelity is there to help him. But this is a two-way street. When Fidelity has a big project, it asks ABB if it wouldn’t mind giving up some of its resources for a short period. “If our processes are stable, we agree,” says Scarpa.
When the two parties have a difference of opinion, Scarpa says they “work it out by always finding middle ground.” The ABB executive says Fidelity “truly listens to our needs.” In return, ABB “is very honest with Fidelity. If there’s a hill to die on, Fidelity knows it’s something we have to have. We don’t cry wolf just for the sake of getting stuff done. They know it’s one of those moments for us and we’re not over-dramatizing something.”
If ABB articulates a particular need, Scarpa is impressed Fidelity often responds “with its ABB hat on.” For example, Fidelity employees might say, “We can do this. But it may add risk to the process. We don’t want to put the employees at risk.” The two parties then assess the risk to determine if it’s manageable.
Scarpa says “a large percentage” of Fidelity employees working on the ABB account “feel as much an ABB employee as they do a Fidelity employee.” He says he can tell they are “emotionally invested in this relationship; they don’t want to let us down.”
Fidelity also uses a scorecard as part of its stretch performance program. Mazor says most relationships focus on SLAs. “Those are good for contracts; they help people understand what is important,” he says. The scorecard, on the other hand, assigns points to different targets that focus on ABB’s strategic goals. The scorecard also creates shared responsibility. “SLAs are about sticks. This creates carrots,” Mazor says.
The teams can set and reset the scorecard as corporate priorities change. To date, Fidelity has performed in the 90-plus range, which is above the contract’s SLAs.
Business benefits
ABB is able to “stay on top of technology” on a yearly basis, thanks to outsourcing. This technological advantage “allows us to be super innovative in our HR services,” he reports. He says that “is a tremendous plus” because the technology allows the employees to “be more efficient in interacting with our HR tools. This allows them to “spend time on designing new products and services that will deliver enhanced value and productivity to our ABB customers.” He says innovative HR processes translate into better operations for the manufacturer.
Scarpa says outsourcing allows ABB’s 100 HR people to be more strategic and forward thinking. They now care less about transactional work and don’t have to deal with certain cumbersome HR transactional practices. “Our ability to offload commodity-type work lets us work on much more important things like compensation management and people development programs,” he continues.
Then there are the cost savings, which are in the 20 to 30 percent range. In addition, ABB doesn’t have to invest in HRIS technology.
Finally, having an integrated HR system gives employees “one place to phone and one Web site to visit if there’s a problem,” points out Mazor. The integration has also improved the quality by reducing the error rate, he adds.
Relationship challenges
One of the biggest challenges to the ongoing relationship which is common in this outsourced industry is personnel changes at Fidelity, according to Scarpa. “It’s important that we have people on our team who understand who ABB is,” says the executive. “Change means we lose a bit of our historical or process knowledge.” Over time ABB and Fidelity have been able to work through personnel changes effectively, Scarpa adds.
In addition, the explosion of the HRO (Human Resources Outsourcing) market in the last 13 years “has put pressure on Fidelity as it tries to stay on top of the technology boom,” says Scarpa.
More growth in the future
The next big piece is adding talent management. “We’re now seeing how we can create a robust, integrated system,” says Scarpa.
Lessons from the Outsourcing Journal on HRO (Human Resources Outsourcing):
- Using the same supplier to add HR services over time allows the buyer to take advantage of infrastructure, technology, and personnel already in place. It also saves time and money because a full-blown RFP is not necessary as long as the buyer benchmarks market pricing through various means.
- A scorecard helps stretch performance by assigning weight to tasks that are important. If designed effectively, they can create carrots as opposed to sticks and can generate performance above those mandated in the SLAs.