Tuesday, May 9, 2006

Relationship Management - Part I

Back in January, Double Dubs posted an article titled Vendor or Client - Who’s Fault Is It?

The question is not an academic one, as companies spend a combined fortune greater than the GDP of many countries in search of the seemingly elusive quality service they and their employees so richly deserve. What is really going on here?
The outsourcing industry seems to ride successive waves for any given service area:
  • Wave I – Move from in-house to outsourced administration primarily for cost reasons (head count reduction, lower total cost, fixed and determinable costs, cost avoidance from technology implementation or upgrade)
  • Wave II – Change service providers primarily for reasons of service. If cost can be reduced, great, but a cost neutral migration for better service is acceptable. (Wave II can experience multiple iterations)
  • Wave III – Determine that administration can be accomplished more cost effectively and with better quality in an in-house environment, and bring administration back in house.
  • Wave IV – Repeat I – III.
Now of course, companies will probably never bring certain functions back in-house: defined contribution recordkeeping is an obvious example. But it is surprising to me to see many companies in-source payroll, health & welfare administration, HRIS, and other HR functions after having outsourced them for years. Even more prevalent, however, is the segment of the market mired in Wave II. These are companies changing from one provider to another multiple times for quality issues.

When a company changes providers, only one thing is certain: the cost to both the client and the provider will be significant. It may or may not result in a lower annual cost that can justify the change costs. It may or may not be accomplished without service disruption or disruption to the business. Most importantly, changing providers will not guarantee enhanced service.If a company is currently with a Tier II provider, and can move to a Tier I provider, chances are better for enhanced service. Changing from one Tier II provider to another doesn’t portend well, however. But let’s face it, Tier I national providers in this space service scores of happy clients at any given point in time. The quoted retention rates sound, at times, unbelievable. At the same time, however, most don’t rate their providers as meeting or exceeding expectations on a consistent basis.

Most reputable providers have extremely active client satisfaction programs that help to identify a consistent percentage of clients as “at risk”. The clients identified as such change from quarter to quarter and from year to year, but are a constant background of “white noise” to the provider. These are the clients that warrant significant amount of attention, often at the expense of the “safe” clients: thus the constant movement from safe to at risk and back again.

And thus, validation of the old adage “The squeaky wheel gets the grease”.

But at what cost does that grease come for the provider? And what damage to the wheel does all that squeaking cause for the employer / client?

Notice that this article has not begun to answer the original question: “Vendor or Client - Who’s Fault Is It?” This is for good reason. The answer isn’t always apparent, and definitely never a 100% one or the other answer. The fact is, responsibility is always shared, and always for unique reasons.

Over the next few weeks we will explore some of the root causes of problem service that experience has taught us. We will welcome hearing the experience of you the reader through this exploration.

We will also discuss very real techniques and actions both providers and employers can employ in and effort to enhance quality of service, cost containment and ultimately risk management as part of an overall relationship management program. We will look at specific no-name case studies to help us understand the real world dynamics of relationship management.

Let the exploration begin!
About the authorDonald Glade is President and Founder of Sourcing Analytics, Inc., an independent consulting firm specializing in helping companies optimize their HR / benefits / payroll service partnerships through relationship management, financial analysis, and process improvement.

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