Sourcing Analytics

noreply@blogger.com (Donald Glade) — Wed, 04 Mar 2009 16:29:00 +0000

Employee Morale and Uncertainty

noreply@blogger.com (Donald Glade) — Tue, 20 Mar 2007 09:00:00 +0000

The other day I was visiting a client site and was struck by how recent financial difficulties experienced by the client had impacted the workforce. As part of my job, I had to interview personnel at different levels, and as a result was able to get some great insight into the morale level of the employee group.

While not the purpose of the visit, it certainly gave me food for thought for my weekly article here. The specifics of the corporate problems aren’t important for my discussion, but what is important is that the difficulties created a very specific environment of uncertainty for the employee group. They literally didn’t know from one day to another if they would be working for this company, another company, or not at all.

Now, I know something about this kind of uncertainty. Before the great PwC Human Capital diaspora, uncertainty was the watchword around the office. For those who don’t know, in the 2000 – 2002 timeframe, the human Capital practice at PwC was to be spun off for a new IPO called Unifi. That didn’t quite work out as planned, and eventually Unifi was purchased by Mellon Bank. The interim wasn’t pretty, however. The personnel who were part of the practice began dropping like flies.

What was once a great practice ended up splitting into multiple factions: part of the practice to the MCS practice later sold to IBM, part spun to Mellon Bank, part left inside of PwC, and many, many more leaving the firm to for other job opportunities.

During this change, employee morale couldn’t have been lower. Talk about engagement - we didn’t know what we were engaged in! Engagement teams were comprised of people who were ultimately going to different companies. Teammates became engaged in recruiting discussions on a regular basis.

There is no doubt that productivity declined at PwC during this time, just as it has at my client. The uncertainty becomes like a weight on people’s shoulders as they go to work every day.

In the cases I talk about here, there is little management can do to mitigate the negative impact of uncertainty. Any communication will have little impact, as resolution and closure to the causes of uncertainty is the only solution.

However, this is very instructive for us in situations of perceived uncertainty that actually have a lot of certainty. I think specifically of the situation of a company going through the process of large scale outsourcing. For employees going through this, some will lose jobs, others will change roles, and still others will change employers. This doesn’t have to be a time of uncertainty for them. Change management becomes critical. Clear and frequent communication and contact with employees throughout the process will keep them engaged, involved and ultimately more productive.

Where uncertainty pervades the workforce, morale will suffer. While some uncertainty is unavoidable, much can be avoided through communication and planning.

About the author – Donald 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.

More Changes at Hewitt

noreply@blogger.com (Donald Glade) — Thu, 01 Mar 2007 14:02:00 +0000

In case you missed it, HRO Today recently reported the following:
“A former president of national accounts at competitor ADP, Jay C. Rising, 50, has been named president of Hewitt’s HRO business. Additionally, former acting president Julie Gordon has been named president of client and market leadership, a newly created position.”

The announcement isn’t surprising as Russ Fradin, Hewitt Chairman, is reaching out to a long trusted associate of his at ADP. Jay joined ADP as Senior Vice President of Sales and Marketing while Fradin was at the Helm. Eventually, Fradin promoted Rising to President of ADP’s National Accounts Division.

Clearly, Fradin is looking to add known quantities to his organization:
“Jay is a proven leader with an impressive track record of building businesses and delivering client-focused results. He excels at sales and marketing, and brings a wealth of industry experience to Hewitt,” said Fradin. “I am confident that under his direction, we will advance the meaningful progress we’ve made in strengthening our HR outsourcing business.”
There is no doubt that Rising has the skills and experience to help Hewitt build the business. He was an integral part of ADP’s rapid growth and expansion into new business for 10 years. As noted previously, however, Hewitt’s well documented problems have not been growth based, but rather delivery and operations based.

Fradin notes in the release:
“We are making important changes that will enable Hewitt to realize its full potential for the future.”

For this to truly be the case, I would expect future announcements to be about some operational heavy-hitters joining Hewitt to help right the ship.
Time will tell the story.

About the author – Donald 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.

Equifax to buy top payroll-service firm

noreply@blogger.com (Donald Glade) — Tue, 20 Feb 2007 13:24:00 +0000

That was the headline that greeted me when I opened up my Atlanta Journal Constitution Business section last Thursday. Right there below the fold. Plain as day. My heart began to race a bit. Who could it be? Equifax is big, certainly. With a $5 billion market capitalization they could probably make a run at quite a few companies; but a “top firm?”

ADP is THE top firm, but with a $28 billion market cap that would be impossible, right? I mean, I’ve heard of leveraged buyouts, but this is ridiculous. Besides, the 80’s are over. Milliken went to jail, and Gordon Gecko is a fictional character.

No, it wasn’t ADP (“P’shah – as if” as my daughter would say). Well Ceridian might be the one. They are smaller than Equifax at a 4.7 billion market cap. It’s be like a merger of equals. Just like Price Waterhouse and C&L were back when they merged. Of course there was that C & L partner who told me “You’ve been acquired!” – but that’s a different story and he might be reading. Ceridian had also just announced, two days earlier the “Exploration Of Alternatives To Enhance Shareholder Value.” Could they move that fast? I doubt it. But no, it wasn’t Ceridian.
Isn’t it amazing how much the mind can go through between reading the headline and the lead in a story? And to think I had instant recall of all these market cap figures. Jason Corsello, eat your heart out!

So it wasn’t ADP or Ceridian. Who’s left? Paychex? No offense, but do people refer to Paychex as a “top firm?” I know, I know..I’m showing my ignorance of the small business market. Paychex is a major player. With market capitalization of close to 16 billion, Paychex is over 3 times the size of Ceridian. But it wasn’t Paychex either.

So who is this “top payroll-service firm” being acquired by Equifax? TALX. That’s right: TALX. Now I knew TALX provides some payroll services in the areas of employment and income verification, pay reporting, hiring and employment tax management. But top payroll services firm? I wish headline writers would read the stories fist.

But seriously, what does this mean? This Equifax press release states the acquisition is aligned with Equifax’s “long-term growth strategy of expanding into new markets and acquiring proprietary data sources.” So Equifax wants the data that TALX has access to. Data like employment history, income information, tax records and the like. Maybe this is a portend of consolidation activity to come in the “payroll services industry”. Maybe Equifax just likes the business model. Maybe Big Brother is alive and well.

I for one am going to keep an eye out to see where this goes.

Employee Morale and Stress

noreply@blogger.com (Donald Glade) — Tue, 13 Feb 2007 13:25:00 +0000

A lot has been written about the connection between low employee morale and stress. In fact, Melissa Bushman even claims it to be “The most common cause of low employee morale.”
On the face of it, this sounds reasonable. If I’m stressed at work, I’m probably not happy at work. Take a deeper dive on this statement, however, and different conclusions will be realized. We must start by defining stress. I believe stress to be the internal response to external stimuli. Because we are all different, individuals exposed to the same external stimuli will react differently. I’m sure everyone reading can think of someone in the office who seems to be constantly stressed while others always appear calm and at peace. So stress is a very individualized phenomenon. If this is true, then stress is a symptom, not a root cause of low employee morale.

What might stress be symptomatic of? This website gives a good overview of the events that cause stress in people’s lives. What becomes striking, is that most stress that people experience in their lives has little or nothing to do with what takes place in the workplace. Perhaps we need a list of workplace stressors. We could list items such as having a bad boss, a bully for a co-worker, bad air conditioning, lousy chairs or other elements of a bad working environment. All of these elements are very subjective. The fact remains that while brain surgeons hold someone’s life in their hands and it would seem to be one of the most stressful jobs there is; the surgeon’s hand is steady and seemingly stress free. Meanwhile, no one ever died from bad plumbing (presumably), yet there are stressed plumbers in our world.

So, are companies wasting time and money when they offer stress reduction programs? Does treating the symptom (stress) that is more than likely caused by either non-work related events or a worker’s individual propensity to experience stress from seemingly minor events actually have the ability to improve employee morale? Certainly, workplace stress reduction programs show the company cares about its employees. The programs may make the workplace more tolerable. And for an individual, some of the stress reduction programs could lower absenteeism. Just look at some of these ideas:

On-site Massage Therapy
Allowing dogs in the workplace
Weight reduction programs
Promote telecommuting
And don’t forget this life-affirming course in conscious living

The fact is, these approaches and more will make it more likely that your employees will want to come to work. They will feel appreciated and valued. But recognize it for what it is: the treatment of a symptom. Stress reduction programs will not help supervisors learn more effective management techniques; it won’t make them better bosses! These programs won’t solve the problem of the office bully, harassment that might be taking place or underlying racial or cultural tensions that may exist. They won’t improve the heating and air conditioning, provide better chairs, or reduce the amount of mold in your bldg.

Bottom line for me is that to effectively address low employee morale, you must absolutely understand the causes. Treating the symptoms might seem effective at first, but sooner or later you’ll be asking why aren’t those massage chairs working any more and why isn’t Fido wagging his tail?

About the author – Donald 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.

Employee Morale and the Company Car

noreply@blogger.com (Donald Glade) — Tue, 06 Feb 2007 13:29:00 +0000

Do a Google search on “employee morale” and you will get “about 1,020,000 hits”. Evidently, it’s a pretty hot topic! Actually, after I went through all the million plus hits, I found that there are actually 748,639 non-duplicative hits. Still quite a few, and definitely a hot topic.

I found out all kinds of things about employee morale by reading through all these hits. For instance, I found that to improve morale, “A job well done might be rewarded with a gift card or a cash bonus,” but it would be a mistake to give someone a company car. You see, that would be “missing the point….a transparent manipulation.” The employee doesn’t really “want an expensive gift. He/she wants to spend time together!”

I’m unclear as to whether they want to spend more time with the boss or the hottie in the next cubicle. But I guess that’s not important; just don’t give them a car.

I learned that “professional Coaches can establish methods by which employee and management morale will be permanently boosted and profitability assured”. That’s right: boosting employee morale can ASSURE profitability!!! That really does deserve multiple exclamation points in bold. I mean, didn’t anyone tell Ford? They lost billions this past quarter. What do you suppose is the biggest perk of working at a car company? Coincidence? I think not.

Wait, I guess that must also mean that the atmosphere at ExxonMobil must be positively euphoric! After the record profits they had, there can’t be any problem with employee morale. After all, I’m sure all the employees are equally sharing in the record profits. How gasoline figures into the company car picture is something I haven’t quite figured out yet, but I’m working on it.

I am learning so much, my head will explode!

This must be the secret that ExxonMobil discovered: “Boosting employee morale means that people will take more pride in their work, call in sick less often and be more productive.” ExxonMobil figured this one out. A recent study revealed that during the last quarter, not one employee missed any work time. No paid time off was taken: not sick or vacation! This assured the record profits seen.

There was a corresponding up tick in accrued liability for PTO at Exxon, but Exxon’s auditors are petitioning the AICPA, FASB and SEC to be allowed to take the accrued liability to zero, noting that “Our employees are so happy; they plan to never take any more time off and donate accrued PTO back to the company as their gift to the company.” And as a side note, Exxon began giving gift cards to senior execs in lieu of company cars. As a result, Harry & David had a record Christmas season.

So as promised last week, I am providing the secret to boosting employee morale: take away the company cars and give gift cards! Next thing you know, all your employees will show up for work (even on their days off), and profits will soar!

About the author – Donald 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.

Employee Morale and the Boss

noreply@blogger.com (Donald Glade) — Tue, 30 Jan 2007 13:31:00 +0000

The other day, I came across an interesting graph a client of mine had copied from a BusinessWeek article. I’ve been trying to find it online, to no avail. I found reference to it here, on another blog, NumericLife.

Everyone has a boss to deal with

When employees were polled to pick New Year’s resolution for their managers,
- 18% say ‘deal with workplace conflicts faster’.
- 14% say ‘be less of a micromanager’.
- 12% say ‘recognize work well done’.-
- 0% say ‘plan events for building office morale’.

Source: Businessweek, Jan 3rd, 2007.

I also found an online version of the survey here, at Badbossology.

At first it would seem just another funny piece of trivia: a source of amusement as we think of the HR professional rounding up people for the monthly group birthday cake.

But as HR professionals ourselves, we realize it goes deeper than that. This is a living lesson in what has come to be known as Employee Engagement. While I’m no big fan of morale building events, when people ask me what I miss most as a result of leaving a large consulting company environment to start a consulting firm of my own, I have to say that I miss most the sense of belonging that comes with being part of something bigger.

Clearly, it wasn’t enough to keep me engaged, just as it isn’t something indicated in these survey results as something people are looking for.

But foretold is forewarned: Employee morale and sense of belonging is a critical piece of employee engagement. Address morale issues quickly and effectively: just not with a “moral boosting event.”

Next week I’ll talk about what I believe to be some of the specific things you can do to impact morale for the better.

About the author – Donald 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.

Where are the HRO Successes?

noreply@blogger.com (Donald Glade) — Tue, 16 Jan 2007 13:39:00 +0000

Because much of my practice focuses on helping companies and HRO providers improve the outsourcing relationship for cost, quality and service levels, in my job I see many broken HRO relationships. It’s the nature of the business. So it comes as no surprise to see the article published online at Workforce.com yesterday: ACS, Delta Change Terms of $120 Million HRO Agreement.

In addition to eliminating recruiting, absence management and employee travel call center support, ACS will have to make two separate cash payment to Delta totaling $7.7 million “in settlement of certain disputes regarding Affiliated’s performance of the services.”
Invariably, many of the service related problems experienced by the top tier providers track back to problems with initial setup, implementation, governance structure, misalignment of expectations or ambiguity of responsibility in the retained organization. I’ve seen the problems and helped fix them.

Today, I’d like to put the call out to hear from practitioners out there who have seen it done right from the beginning. Either e-mail me your experience, or post it here.

We see so much advice provided on Blogs and in industry publications on how to implement correctly, it begs the questions “is it ever done just right”, and “out of all the advice given, is there one or a set common success factors observable in real life experience.”
I’d love to highlight true success in this space. The fact is it’s much easier to talk about the HRO failures being experienced. Yes, we learn from failure, but let’s learn from success also.
I hope to hear from you!

About the author – Donald 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.

How Did They Get Here - ExcellerateHRO

noreply@blogger.com (Donald Glade) — Tue, 12 Dec 2006 13:40:00 +0000

In March of 2006, a study by Forrester Research was released which ranked ExcellerateHRO as a “Leader” among HR BPO providers. Excuse me? I mean who were these guys? Anyone not paying close attention might have missed that ExcellerateHRO had only been in business for 1 year at that point. If you were busy with your head down at your desk maybe you didn’t know that ExcellerateHRO is the joint venture created in March 2005 by Towers Perrin and EDS. It is also the subject of this week’s How Did They Get Here series on the inimitable SystematicHR.

To understand where ExcellerateHRO came from, one must first understand the history of the two founding firms. Luckily for us, each company has a very complete corporate timeline which highlights major events and acquisitions. You can find Towers here, and EDS here. EDS brought to the equation significant BPO experience. Known as a systems integrator, they are also one of the leaders in IT outsourcing. A closer look at the timeline reveals that EDS has been a major player in the financial services industry as well. They have decades of experience in data management, communications and even ATM management dating back to 1978.

Also interesting is that EDS was scooping up management consulting experience at the same time as expanding IT capabilities. The 1995 acquisition of A. T. Kearney really put EDS on the management consulting map. (A.T. Kearney became independent again just this past year)
Perhaps most notable is that EDS, in case you have forgotten, was the company that brought us the “Cat Herders” commercial in the 2000 Super Bowl. “Herding cats” has since become part of the American business lexicon. At least I’d never heard it used before then. All in all, EDS has a very impressive history and track record.

In the meantime Towers Perrin was following the path that many HR consultancies were following. With its roots in actuarial services, Towers expanded into broad based HR consulting over time. In 1991, Towers officially recognized the administrative services area as a national practice with the formation of Towers Perrin Administrative Services (TPAS) division. It became, not surprisingly, the fastest growing Towers business: they caught the wave.

During the following 15 years, Towers entered into some very interesting alliances/partnerships. In September 2002, Towers was actually selected as the preferred provider of benefits administration by Exult. This meant that Exult would be “subcontracting” the benefits administration work for its clients to Towers. I guess that didn’t work out quite as planned after the Hewitt acquisition of Exult. Interesting “what if;” what if Towers had bought Exult instead, and had rolled it into ExcellerateHRO. Would the BPO experience of EDS made the Exult model profitable? We’ll never know.

Towers also entered into a partnership with American Century to provide pension administration services, while American Century p rovided 401(k) services. This agreement has survived through American Centuries evolution into JPMorgan Retirement Services which now has an agreement with ExcellerateHRO.

By the way, in my opinion, the moving force behind the JPMorgan business, Tom Kmak, provided the vision of the future while in Kansas City with American Century. It’s an interesting progression in and of itself. I met Tom about 13 years ago. It was clear to me back then that he would move on to the type of position he is in now.

So where does that leave us? ExcellerateHRO, in business now for 21 months, recognized as a leader in HR BPO, which doesn’t yet have a consistently agreed to definition. It’s CEO, Steve Bohannon, left in August of 2006: only 18 months after inception, but that is a topic for a future posting.

With recent wins at 7-11 and Bank of America, and with the financial heft of EDS supporting it, ExcellerateHRO is no doubt here to stay. The interesting journey, while rich in EDS and Towers history, is still just beginning for ExcellerateHRO.

About the author – Donald 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.

How did they get here – ADP

noreply@blogger.com (Donald Glade) — Tue, 05 Dec 2006 13:46:00 +0000

Next in our “How did they get here” series, I take a look at ADP, perhaps the most acquisitive organization in the payroll / HR / benefits space. As such, I certainly cannot begin to recount all of the activity that got ADP where it is in this space. I will however try to hit the highlights.

First, however, to give an idea of how ADP seems to buy up everything in sight, look at these acquisition figures. These are the totals spent each year on acquisitions:

1998 - $351 million

1999 - $107 million

2000 - $200 million

2001 - $ 75 million

2002 - $232 million

2003 - $270 million

2004 - $270 million

2005 - $422 million

Now granted, some of these acquisitions fall outside of the HR space (they have a line of service called Dealer Services, for example), but you get the idea. In fact, the 2002 Annual Report had this to say:

“You can expect us to increase our acquisition activity even further, as we look to supplement our internal growth with strategic acquisitions that extend our markets and add applications to our product sets.”

And look at this quote from the 2005 report:

“We will increase our emphasis on acquisitions, including a focus on transactions larger than our historical experience and entry into adjacent markets where we bring some important synergies.”

Did I read that right? Even LARGER acquisitions to come? Hmmmmmm.

Anway, here is a chronological listing of some of the acquisition highlights with a brief description of the importance as I see it. Taken together, we can definitely see that this is how ADP got to where it is today. (Note there is a gap between announce dates and close dates, so there can be some discrepancy in the years of each of the activities below)

1992 Acquires PeopleSoft 3.0 source code. This agreement provides ADP with a perpetual license to use internally, to modify and to sublicense to its clients and prospects Release 3.0 of PeopleSoft HRMS and PeopleTools on the Centura SQLBase (OS/2) and Oracle environments. Believe it or not, the purchase price for the rights was only $22 million. This became the base of what is now the Enterprise system, ADP’s platform for all things HRMS.

1994 ADP acquires the Application Group which provides ADP with an implementation arm with a deep understanding of PeopleSoft.

1995 ADP acquires Williams, Thatcher, Rand, a New York based boutique actuarial and benefits consulting and administration firm. This begins ADP’s dive into the benefits administration arena.

1996 ADP Acquires Health Benefits America (HBA), a Salt Lake City based benefits administration firm specializing in large company custom services.

1997 Acquires the payroll business of Royal Bank of Canada and Scotia Bank – an important step in becoming a global provider. Acquired Staff Management Services of Florida and renamed it TotalSource, establishing ADP as a player in the PEO space.

1998 Acquired Mercers administrative business in 401(k) and Benefits administration, expanding on the base created by WTR and HBA.

1999 Acquired Vincam, a Miami based PEO, vaulting ADP to the second largest PEO in the country. Acquired the administrative business of J&K/KVI, securing some very large benefits administration clients in the process.

2000 Acquired NetBoa, an Atlanta based COBRA administration company, expanding its benefits capabilities significantly.

2002 Acquired Avert, a pre-employment background verification firm. ADP is continuing its expansion of end to end services from hire to off boarding.

2003 Acquired ProBusiness which some say removed its only competition in the large employer payroll market. Ceridian would, of course, disagree with that statement. Acquires Scudder’s 401(k) business.

2006 Acquired Virtual Edge, further expanding its pre-employment services. Already, it has replaced the previous recruitment services its salespeople have in their sales bag. Acquired Employease, expanding web based capabilities in the middle market space.

The journey for ADP has been interesting to say the least. What you see here is just a portion of the activity. Feel free to add to the list. One thing is clear: it’s been a very different path from the one we saw last week when looking at Hewitt. It has certainly presented its own set of challenges as ADP has had to integrate substantially different cultures, services and systems platforms over the years. It hasn’t always been pretty, but ADP is in the estimation of many the true leader in the field right now.

About the author – Donald 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.

How Did They Get Here – Hewitt Associates

noreply@blogger.com (Donald Glade) — Tue, 28 Nov 2006 13:50:00 +0000

The other day I was trying to remember what happened to a company in the benefits administration space I used to deal with quite regularly. Of course, as been happening with increasing regularity, it had been acquired some years ago by another provider and has been all but lost except in the memories of those of us in the business who either worked with or for them.

The list of these long gone companies is extensive and made me think for a moment about doing a “where are they now” series. After noodling on it for a while, I realized a more interesting tactic would be to take a look at today’s companies and see how they got to where they are today.

So as part of a recurring series, I bring you “How Did They Get Here,” a look at the mergers and acquisitions that have formed the companies we see today. Along the way, you will hear names such as Kwasha-Lipton, Howard Johnson, Wellspring Resources and Williams Thatcher Rand.

By no means will I provide the definitive history of the organizations I will look at, but it might be kind of fun. There are enough of you out there who have a history with the companies that we will look at that I hope you will contribute to the conversation with recollections of the old companies’ cultures and services or even add to the list companies that I may have missed.

For the first “How Did They Get Here” company, I take a look at Hewitt Associates. I do this not because we have written a lot about them lately, but because as a company who grew mostly organically, I thought they would be the easiest for a first company. Many of the other current service providers will take a bit more time and research to write about.

For the longest time, Hewitt Associates was the company that kept their heads down and did nothing but grow organically. They made a reputation for themselves as being the best at what they do with no excuses. Growth came easy as they became the gold standard in benefits consulting and administration.

Hewitt was founded in 1940 as an actuarial and benefits consulting firm (ABC firm), and expanded from there into broader compensation and HR consulting and administration. I don’t know if it can still be looked at in this way (perhaps others have an opinion), but at one time Hewitt was part of what many termed the Big 4 ABC firms: Hewitt, Wyatt, Mercer, Towers Perrin. Is there still a “Big 4,” or has the move to broader HR services and the proliferation of administration-only firms rendered this an obsolete notion?

In any case, Hewitt was not known for making acquisitions, but rather steady organic growth and a strong non-diluted corporate culture. All this seemingly changed in June of 2002, when Hewitt became a publicly traded company. Before this, Hewitt’s forays into new lines of business was through expansion of service, not acquisition. Remember Sageo? This was a separately run internet health and welfare services business created by Hewitt in 2000 to capitalize on the tech bubble. In September of 2001, it was wrapped back into Hewitt, its clients transitioned to the TBA platform, its employees redeployed or terminated. (Anyone reading this today who worked for Sageo? I’d love to hear recollections.)

After going public in 2002, the acquisitions seemed to come as an annual event. In June, 2002, Hewitt acquired the UK Actuarial firm, Bacon and Woodrow. Also in 2002, Hewitt acquired National City’s Retirement Plan Services recordkeeping staff, systems and clients. The client base was about 500 clients with 130,000 participants. It wasn’t a major acquisition for Hewitt, but it was a portend of a much more significant acquisition one year later: Northern Trust Retirement Services.

Northern Trust was, by most accounts, a significant player in 401(k) recordkeeping and pension services. In fact, Northern was one of the first (if I recall, they used to market that they were THE first) to use voice response systems to collect 401(k) participant transactional requests.

Also in 2003, Hewitt began its foray into broader HR and payroll services through the acquisition of Cyborg. At the time, Hewitt’s press release billed it this way:

"Hewitt becomes the only organization able to offer total HR outsourcing services - HR, benefits and payroll - with complete HR consulting expertise to large (more than 10,000 employees) companies.”“

Of course, we end this story of Hewitt acquisition with the most recent and in retrospect, most notorious of all: the Exult acquisition. Exult has been the most difficult of all to digest and with it, Hewitt has ceased the annual acquisition ritual it began in 2002.

Only time will tell if Hewitt will renew is acquisitive path, or whether they in fact will become the acquired as has been speculated for many years.

About the author – Donald 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.

Hewitt’s Financial Results - What Do They Mean?

noreply@blogger.com (Donald Glade) — Tue, 14 Nov 2006 13:57:00 +0000

Hewitt’s very public financial difficulties continue today, days after announcing quarter-end September 30, 2006 financial results. It is not my intention to single out Hewitt by writing about them again. Rather, as the recognized leader in HRO, Hewitt can be viewed as the industry bellwether and can provide insight into the dynamics of the industry.

Taking a look at the results as reported by workforce.com, we see that Hewitt posted modest (0.9%) revenue gains year over year while net income was down 43%. Surprisingly, net income was only $23 million on $727 million in revenue. A deeper dive reveals that the outsourcing arm of the business (over half of the business) experienced declining revenue, income and profitability.

The workforce.com article goes on to report on Hewitt’s declining market share according to an EquaTerra study. Take a look at the article if you have the time.

As a bellwether, I would also look to see what else is being said about the market in general. Are we in fact seeing declining revenue, profitability and income industry wide? An interesting (un-attributed) article published the end of last month by HRO Today provides some interesting insight.

The article, citing a NelsonHall study, points out that the growth in the industry has definitely slowed and is not meeting analyst expectations. In fact:

“The value of BPO TCV (total contract value) awarded has declined by approximately 50 percent in North America from a peak of $15.4 billion in the 12-month period ending September 2004 to $7.5 billion for the 12- month period ending September 2006”

So while Hewitt’s revenues are down, clearly the industry is still growing: albeit at a slower pace than expected or previously enjoyed. By definition, Hewitt’s market share must be slipping. But what about profitability and the reasons growth is slowing? According to HRO, “Contracts are not awarded in 30 percent of instances where BPO is evaluated.”

There seems to be a disconnect in the general market between supply and demand. The market is demanding something that is seemingly in short supply: a proven ability to deliver high quality services with operational expertise at cost-reduced levels.

These quotes from the article are telling:

“Eighty percent of U.S. sourcing managers state that lack of process operations knowledge within the vendor has led to rejection of BPO.”

“Superior process capability is essential for BPO vendor success and needs to be more widely demonstrated than at present.”

“Vendors frequently fail to justify the levels of cost reduction promised during the bidding focus. Vendors are offering cost savings but two-thirds of sourcing managers have rejected BPO as a sourcing option because of a lack of belief in the vendor’s ability to deliver the cost savings promised”

So it would seem that while companies look for better process and cost reduction, vendors are falling short of the mark. “Lift and shift” can be one reason for this. It’s not unreasonable to ask how a vendor can do it better and cheaper if they use the same people, process and technology. We have consistently seen that the productivity gains are slow to come. The market seems to be noting this more than ever as the HROToday article title states: Many Potential Buyers Stay out of Market over Concerns about Delivery.

So as the market demands change in delivery, and change seems to be the key to provider stability, growth and profitability it comes as no surprise to see Russ Fradin make the following statement last week: “Our attention in the near term will be on accelerating the growth of the benefits outsourcing and consulting businesses, and redefining our approach to the HR BPO business.”

I would caution Mr. Fradin to take care not to put the cart before the horse. Redefining the approach to HR BPO will be critical to the future success of Hewitt and the market in general.

About the author – Donald 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.

Human Resources and the Mid-Term Election

noreply@blogger.com (Donald Glade) — Tue, 07 Nov 2006 14:01:00 +0000

Today is Election Day!!! After today, we will no longer be bombarded with political ads slinging mud right out of our TV sets. After today, most of the nightly news will go back to the typical and sensationalist news of the day. I really won’t miss the political mudslinging, but election season is always an exciting time in my mind. Regardless of political stripe, persuasion, or philosophy, it’s a great time to check the pulse of the nation and determine if we are on the right course or if, as a nation, we need a course correction. And today’s election should prove to be more spell binding and exciting than the typical mid-term election.

All the news is a twitter with election coverage, and every pundit is pontificating and speculating as to the future composition of the House and Senate. At the risk of alienating our significant non-American readership, here today we take a passing glance at the American Election.

SystematicHR (at least Donald Glade) will remain neutral and unbiased (I can’t speak for Double Dubs). I will, however, color the election in terms of Human Resources.

As I said earlier, regardless of your political leaning, we can all recognize differing approaches to HR issues between the Parties. Clearly, these issues will not sway most people’s votes given the reality and gravity of today’s larger issues, but let’s take a look at them here.

Some of the issues at play in the current election that could affect the HR professional’s job include:

Social Security reform – reduced benefits, later retirement, private accounts, increased taxes, SS wage base are all potentially in play.
Medicare prescription drug coverage – the last legislation passed has cost the government much more than anticipated; a Democratic controlled Congress would surely take this on.
Minimum wage legislation – with the Federal minimum wage not changed in nearly 10 years, the parties have been fighting over this issue for a while now. With individual states also having the right to set minimums above the federal level, six states (Arizona, Colorado, Missouri, Montana, Nevada and Ohio) also have state minimum wage increases on the ballot today.
Union regulation – legislation could be introduced making unionization easier to achieve
Ergonomics regulation – Only 60 days after taking office, President Bush signed a repeal of ergonomic regulations which were to become effective October 15, 2001, dooming office workers across the country to wrist and back pain. No, seriously, this was some pretty comprehensive OSHA stuff that the Democrats would love to get back. Check it out: “ergonomic legislation” gets 682 hits on The Google!
FMLA expansion – all sorts of tinkering with the FMLA has been discussed. Keep an eye out!
FLSA regulation – The Democrats were generally unhappy with the final regulations published by the DOL in 2004, and may bring it up if given a chance.
Health care reform – On EVERYONE’s list in some fashion whether it’s through universal health care, health care pooling, or Health Savings Accounts, we will definitely be hearing about it when Congress reconvenes; but can anyone get legislation passed in this contentious arena?

There are plenty of issues to which both parties can attach themselves. There are differing perspectives, proposals and outcomes depending upon which party will control Congress.

I have no illusion that HR issues will sway the electorate, but I encourage all of you to educate yourselves on the options and approaches of both of the parties, and write your representatives to let them know how you, the HR professional, feel about these issues. You’ll feel good about yourself while fulfilling your civic duty.

And remember: Vote Early, Vote Often!

Social Security Reform Revisited

noreply@blogger.com (Donald Glade) — Tue, 31 Oct 2006 14:08:00 +0000

This past week, President Bush resurrected the issue of Social Security Reform. As part of this political season, it seems he wants to flex some presidential muscle by attempting to re-establish his core initiatives which have stalled in congress over the past 6 years. Clearly, the war on terror has made a robust domestic agenda difficult.

On the topic of Social Security Reform, much has been written - particularly on privatization. I wrote something in a comment on SystematicHR back in April before becoming a regular contributor. The general SystematicHR readership has grown since then. For some, posting it here again will be a repeat, but many of the readers of this blog get only the daily subscription and do not visit the site to read the comments, so for them this will be new.

So in recognition of the resurrection of Social Security Reform I give you:

Social Security - Private Ownership, Government Control

In 2004, the California Public Employees’ Retirement System (“CalPERS”) sought to oust the Chairman of Safeway foods, who happened to battle against the large union group represented by the CalPERS president. Columnist Dan Walters stated “What’s happening with CalPERS….is part of a larger, nationwide effort by labor unions to gain leverage with corporations by wielding investment power of public pension fund.”

I was able to learn this from the website of the California State Senate Republican Caucus. It seems they are concerned about “activism” in the management of monies for a public trust fund. And apparently with good reason; the “responsible investing” money management style which CalPERS follows may actually cause earnings to drag, and cost the people of California more in the long run.

CalPERS has a long history of using its political clout to pressure corporations to abide by CalPERS criteria that have nothing to do with investment returns. Clearly, the threat of divestiture of any particular company’s stock and the resultant decline in the stock value is powerful leverage for CalPERS.

According to the California Republican Caucus, CalPERS uses this power to “promote social and political agendas such as affordable housing, international human rights, affordable healthcare, and environmental activism.” This is, evidently, counter to the California Republican Party platform.

So how, exactly does CalPERS have so much power? Through two primary means CalPERS is able to influence corporate policy. Without getting too complicated, CalPERS can either threaten to divest it’s investment in a company (sell all their stock and drive the price down as a result), or through the voting of the “proxies”, remove board members or the chairman him/herself.

CalPERS is able to do this because as of the end of 2004, The CalPERS trust fund was valued at almost $190 billion dollars. A staggering amount to be sure.

This brings me to the primary point of this article: Social Security. The current proposals to “save” Social Security allow for individual accounts which would be invested in a mix of stock and bond funds. Individuals investing in this manner would not have direct ownership in individual company stock, but rather a “pool” of investments. The money managers of these funds would decide in what companies to invest. The money manager would also be responsible for the voting of the company stock shares or “proxies.” This is pretty much how it currently works if you invest in a mutual fund either individually or through a company 401(k) plan.

Maybe you can see where this is headed.

As applies to the Social Security Trust fund, these funds would be managed not by private mutual fund companies, but by government employees: no doubt political appointees. Well certainly, the Social Security trust fund couldn’t exercise as much clout as CalPERS, could it? I mean, CalPERS has amassed billions over the years.

In a word, yes. The Social Security trust fund could exercise that much clout, and more. To put it into perspective, the additions to the trust fund in 2004 as a result of payroll taxes was $472 billion. That’s 2.5 times the entire CalPERS fund added to Social Security in only one year.

Different current proposals for SS reform provide for different rules. For example, one proposal would allow approximately 2/3 of total employee contributions to be invested in this way. The proposal is silent on the employer portion, but let’s assume that the employer portion will not be invested in stocks. A quick calculation reveals that conservatively, $158 billion a year would be invested in stock and bond funds. That’s nearly the equivalent of a CalPERS being created every year. Talk about the potential for political and social activism!

Oddly, there is precious little detail in the proposals being bandied about. The hook seems to be simply “It’s your money, shouldn’t you be in control of it?” It seems that with this mantra, detail isn’t really needed.

One thing is clear, however, regardless of the details, through the Social Security trust fund, the Federal Government would become the single biggest investor in the stock market on the planet. OK, well, technically I suppose you could say the government would not be the owners, rather the American people: the account holders. So let’s amend the above statement:

The Federal Government would be the single biggest controller of business on the planet.

Private Ownership, Government Control

Regardless of your political leanings, is this what you want; the potential, nay the probability, that the Social Security trust fund would be used for activism at the whim of the controlling party?

“Fascism should more properly be called corporatism, since it is the merger of state and corporate power.” Benito Mussolini is credited with that quote. And he should know.

About the author – Donald 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.

Hewitt’s Lessons Learned

noreply@blogger.com (Donald Glade) — Fri, 27 Oct 2006 13:12:00 +0000

From time to time companies exhibit moments of organizational maturity not often enough seen in the market. This week’s moment comes to us courtesy of Hewitt Associates’ Mike Wright, global HRO sales co-leader, during his presentation last month at the Conference Board’s 2006 Human Resource Outsourcing Conference in Chicago.

Thank you (again) to Jessica Marquez at Workforce.com for bringing this to our attention with her fine and timely reporting in a piece entitled Hewitt Shifts Course After Recent Missteps. I write about it today not merely as a follow up to my previous articles here and here, but rather because Mike Wright’s comments are shocking in their clarity and instructive anyone looking at the HRO business today.

The article and Wright’s comments actually provide material for me to do a multi-part series over the next two months, but come to think of it, much of what is said I’ve already written about. In any case, it’s refreshing to see a service provider to recognize these lessons that Hewitt has seemingly learned (that’s learnt for those of you across The Pond):

Clients need to be intimately involved in the conversion process
Aligning goals and expectations (managing expectations) is also crucial to success
Clients need to take a close at the staffing and delivery model in the Retained Organization to maximize economic benefit
The “lift and shift” model doesn’t work!
Full customization is a rat hole; think “one to many” or “flexibility in a box”
HRO should be more about a two-way dialogue and less about “Yes, we can do that”
Service providers could do well with a dose of humility every now and again

I’d like, now, to take a closer look at each of these lessons.

Client involvement

Wright acknowledges that in the past, Hewitt has had a tendency to try to plow through problems encountered in an insular way. After all, as the leader in outsourcing they could figure out the solutions, right? Now, Wright stresses the importance of involving the client in the process more, including having customers visit its service centers and offer ideas on how to address problems.

For many of us, this is not a revolutionary idea. In fact, as a standard, I recommend that clients retain legacy staff long enough into the “post-implementation shake out” to have staff at the vendor service center for at least a month after go-live just to walk the floor. They should be listening in on phone calls, recommending improvements to process, reviewing help text, performing culture training, etc. This is true client involvement that can help ensure a successful relationship from the beginning.

Aligning Goals and Expectations
As I’ve written before, managing expectations is critical to success. After all, at its root success is defined as a function of the attainment of expectations, isn’t it? It’s about more than just hitting the SLAs that have been agreed to. It’s about determining the SLAs in a collaborative way. It’s about determining roles and responsibilities. It’s about defining the future state and being nimble enough to make adjustments to it.

Unfortunately, I don’t think it’s about putting language in the contract mandating staff reductions at the client in the post implementation world as Mike Wright suggests. This draconian measure will do nothing to foster collaboration, review, trust and understanding. Perhaps more helpful would be to agree to independent post implementation review to assure that an end to end structure that is “set up for success” has been created.

No client wants or should be expected to agree to staff reductions before the new environment has been entered in to. In fact, many times it is the second or third year when the environment is stabilized and staff reductions are fully realized.

Post Implementation Staffing

To elaborate further on the prior point, one of the primary ways in which clients fail to attain the financial goals set out in outsourcing is to make the necessary changes to the internal environment after outsourcing has been implemented. Too many times staff and functions are retained which create redundancies in process, add cost and increase risk.This basic concept has been noted and highlighted in the cost findings of TCO studies I have conducted. Collaboration and clear definition of roles and responsibilities are the way to address this, not mandated staff reductions.

The “lift and shift” model doesn’t work!

From the Marquez article: “Probably the biggest lesson learned for Hewitt is that the “lift and shift” model, whereby it would just take over a buyer’s HR processes and attempt to do them cheaper, doesn’t work, Wright said.”

Ummmmmmm……I’m shocked! Really? Can this be so? You mean you can’t do it better / faster / cheaper on day one for 20% less than it costs me now? Say it ain’t so!! You mean you won’t bring me additional cost savings / scale / leverage / best practices in year two?

OK, I am showing my bias here. This has been my belief for years. Ever since I saw PwC try to implement lift and shift years ago for an unnamed Atlanta based client (some of my readers are cringing as they remember the fiasco, I’m sure). The approach is rife with inherent weaknesses and problems. Also, as we are seeing throughout the market, it also dooms the service providers to deep financial losses. So what is the answer:

One to Many Processing

For providers to make money, and clients to get the best service and best practice that is promised, it is my belief that the “one-to-many” model is an absolute must. Flexible, scalable, and leverage-able systems and process that isn’t reinvented with every client can allow for true improvement in process and does not make every system enhancement or upgrade a one-off fire drill for every client. How can a service provider claim economies of scale if every implementation is a one off, unique environment?

As I said a few weeks ago, for Hewitt to turn the corner (if they aren’t on the auction block), I believe the answer is flexibility in the Cyborg box. It is a risky venture, but one I believe can be the best answer to ADPs as yet un-challenged Enterprise-based outsourcing model.

HRO is not about “Yes, we can do that”

Of course, when we begin talking about a one-to-many model, over-customization is just not possible. Trade offs will be made, and the vendor will have to say no. The Culture of Accommodation can begin to be broken!

Service providers could do well with a dose of humility every now and again

Again, from the Marquez article: “I come to you pretty humbly this morning,” Wright told attendees, noting the troubles the company has had.

Anyone who knows Hewitt realizes that this could not have been easy for Mike. In fact, it would not have been easy for representatives of most service organizations. I can only imagine that the commitment to speak at the conference was made before the very public “challenges” Hewitt has recently faced.

Humbled is one way to think of it. In her subtitle, Marquez says “older and wiser.” I actually like that. But whatever you call it, if Mike’s comments and position are shared by others in the organization, we will see Hewitt attain the next level of what I like to call organizational maturity. If so, let the competition beware!

100% Claims Audits Revisited

noreply@blogger.com (Donald Glade) — Tue, 10 Oct 2006 13:17:00 +0000

Nearly one year ago, Double Dubs graciously asked me to be a regular contributor on this most amazing blog of his. I think all of us can agree that what he has built here is impressive. He has created a reference tool for HR professionals (both in and out of the technology space) to come research and learn. He provides links and footnotes for us to delve as deeply as we care to delve into his posting of the day.

When he asked me to contribute, he wanted me to comment on items such as vendor management and total cost of ownership (TCO). He wanted his readers to be able to learn about getting the most out of their vendor relationships. He wanted to explore the financial aspects of HR service delivery as well.

For me, the perfect opportunity to do this is provided in the area of health claims administration. I believe we are seeing an almost “perfect storm” scenario: out of control costs, questionable independence in placements, ineffective vendor management of claims processing, lack of accountability/auditability, risk management challenges, Sarbannes/Oxley, HIPAA etc.

The fact is, from a TCO and vendor management perspective, most companies don’t know what inaccurate claims are costing them, and ineffective vendor management is the rule rather than the exception. I assume you can tell by my last three postings that I am generally dissatisfied with business-as-usual claims audit from an effectiveness, independence, and general utility perspective. I have been impressed with the recognition by individuals in the market place of a driving need for claims audit services which provide real value to companies by helping to quantify and contain costs and provide the tools to better manage vendor relationships.

Last week’s post highlighted a company doing just that. This blog, I believe, should be a place people can come to learn about trends in the market, services being provided, technologies being developed, and yes, vendors providing the services. This is why last week’s post highlighted a specific company which is demonstrating “the intersection between HR Strategy and HR Technology.”

HR Best Practices is demonstrating that intersection, and my purpose in highlighting them last week was not, in the words of Romain, for “marketing/commercial intentions.” As they say, I’ve got no dog in that hunt. As for responses to posts by vendors, I would hate to think that this would become a place of edited or censored comments. I believe the source should be considered any time a comment is made. I also believe those in the vendor community can provide great value by commenting here themselves. It enables us to learn straight from the horse’s mouth, so to speak. Of course, we wouldn’t want the space to be filled with rumor and innuendo posted by anonymous screen names. That would result in a devolvement in all we hope to accomplish here.

All that being said, I did get a private e-mail response to last week’s post alerting me to another company providing seemingly similar, if not identical services to those highlighted last week. A representative of Independent Healthcare Initiatives contacted me, and after rescuing the e-mail from a seemingly overaggressive spam filter, I learned quite a bit that the readers here can probably benefit from.

I visited their website, and viewed the testimonial video. The IHI messaging is very similar to HR Best Practices. IHI also provides an ROI guarantee: actually waiving fees if they can’t demonstrate cost savings. I am looking forward to receiving a presentation over the web.
For me, this is what it’s all about: identifying a need in the marketplace and filing it! Here now are two companies who have done just that. They also stand by their services with ROI guarantees. For a company wanting to contain costs and better manage their vendors it certainly wouldn’t hurt to consider the 100% audit approach.

I’d love to develop a roster of companies providing these services. Again, as I requested last week, please drop me an e-mail or respond directly to this post to let us all know about what is going on in this space!

About the author – Donald 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.

A Technological Approach to Claims Audit

noreply@blogger.com (Donald Glade) — Tue, 03 Oct 2006 13:19:00 +0000

The last two weeks I wrote about the ineffectiveness of traditional claims audit and the inherent conflict of interest some companies face when they perform such audits. This week I’d like to introduce a company that brings a different approach to the industry: HR Best Practices.

HR Best Practices was founded by Howard Gerver five or six years ago. I first met Howie 3 years ago at the 2003 HRO World Conference. From the beginning, I could tell he was one of those people who just plain “get it”. Since then I’ve found out more about his company and approach to health care claims audit. I believe it’s unique. If anyone reading this knows of other companies taking a similar approach, I’d love to know about them.
Essentially, HR Best Practices employs proprietary financial management and reconciliation tools to perform 100% audit of claims for three primary purposes:

Cost Recovery
Cost Containment
Cost Avoidance

For Howie, claims audit is ROI driven. In fact, depending on the situation, I’ve seen HR Best Practices offer something I haven’t seen anywhere else in the industry: an ROI guarantee. The flexibility of the approach makes it applicable to all types of claims data. The audits can be geared towards areas such as point-in-time eligibility, dependent audit, coordination of benefits, subrogation, disease management, cost benchmarking, etc.

There are a couple of White Papers available on thier Website here and here which give some really good information and further insight on the approach and application of the technology.
As I look at it, I definitely believe it is the approach of the future, making the traditional claims audit obsolete. I assume there are other companies taking this approach, but haven’t run across them yet. As I said earlier, if there are others offering this comprehensive approach, let us know.

For now, it seems a no-brainer that this is the way to go to get a guaranteed return on investment and demonstrable cost recovery, containment and avoidance as a result.

Independent Consulting: Perception or Reality?

noreply@blogger.com (Donald Glade) — Tue, 26 Sep 2006 13:21:00 +0000

Last week, Barbara Martinez wrote a very in-depth article which appeared on the front page of the Wall Street Journal (September 18, 2006; Page A1). A subscription to WSJOnline is necessary to view the article, but I encourage you to read it if at all possible. In the article MS. Martinez writes about independence in the health care industry with regards to product placement and claims audit. More on that in a moment, in the meantime, allow me to digress.

Enron. The word means different things to different people. For people working in the audit and professional services industry, it has a very personal meaning. The Enron scandal affected hundred of thousands of lives: perhaps millions. Tens of thousands of Enron and Arthur Andersen employees lost their jobs directly as a result of the scandal, and the ripples continue to be felt today.

The limitations placed upon the provision of professional services firms provide to they also audit has left the consulting practices of the Big Four audit firms in tatters. For example, at PricewaterhouseCoopers, the firm had to choose between providing audit services or actuarial services. The choice was easy. PwC resigned as actuaries for up to 60% of their actuarial book of business.

The Enron case was the classic juxtaposition of perception versus reality. Just because a firm derives millions in revenue from consulting services, does it necessarily follow that the corporate audit will be completed with a wink and a nudge? Sarbanes-Oxley thinks so, evidently. Of course, David Duncan didn’t help the perception any when he shredded all those work papers, did he?

So how does this relate to the article written by MS. Martinez? The parallels are striking. By my read, there are two main points made in the article:

Consultants who are engaged to select heath insurance providers often have an inherent conflict of interest because of the compensation they receive from the providers
Consulting firms that receive significant fees from claims payers also have claims audit as a core service offering thereby creating a significant conflict of interest.

Now, just because there is a conflict of interest, does it follow that services provided are of any less quality? In a Kissingerian sense, it doesn’t matter. If Enron taught us anything, it’s that perception supersedes reality. MS. Martinez gives example after example of serious conflict which leads us to the conclusion that there is something seriously wrong in the industry. When search consultants receive 15 times their consulting fees in provider compensation from the health carrier, the perception will always be that the recommendations were at a minimum clouded by payments. At worst, the recommendations were directly bought and paid for by the carrier.

In her first example, MS. Martinez tells of the $517,000 a consultant received from UnitedHealth Group after they were selected as the health insurer for the Columbus Ohio School District. The consulting fees paid by the District? $35,000. For their $35,000, the School District expected (and contractually agreed to) fully independent consulting in the best interests of the District. The consultant did not disclose the “commission” arrangements, and his insurance license was ultimately suspended for three years by the Ohio Department of Insurance.

This type of situation is not new in the industry. We frequently saw it with 401(k) plan placement also. Brokers get paid through commission. It’s when there is less than full disclosure that the perception turns.

The perception turns big time when we see that the firms that are engaged to perform traditional claims audits are also receiving significant revenue from the firms they are auditing. MS. Martinez gives a striking example in which Mercer is engaged by Suffolk County, NY to audit claims paid by Express Scripts. After initially estimating that Express Scripts had over billed by $1.1 million, Mercer later adjusted that number to just $14,000. Mercer, by the way, also had consulting arrangements with Express Scripts which were evidently not disclosed. The kicker? Suffolk County fired Mercer after they found only $14k in over billings and brought in a different auditor that found and recovered $865,000 in over billings.
The perception in this case is that Mercer did not find the over billings because there was a financial disincentive to find any. Mercer would certainly put its relationship with ExpressScripts at risk if it had found the $865,000 themselves.

In this case the reality may be, however, that traditional claims audits (as discussed last week) are just unable to find the real problems lurking in claims data. Without 100% audit, are auditors really looking for a needle in a stack of hundreds of thousands of claims forms?
Perhaps it doesn’t matter. Whether it’s an inability to find the problems or unwillingness due to conflict of interest, this story does not bode well for Mercer or the other traditional firms who derive revenue from the companies they audit. Full disclosure should be the norm here. If you are a purchaser of these services, let the buyer beware! Ask for the disclosures, do the research and make informed decisions about who to trust.

And just one side note to Barbara Martinez: We enjoy your work as a “comic-book superhero, defending the downtrodden from the greedy.” We look forward to seeing more of your in depth reporting.

TCO: Measuring Risk

noreply@blogger.com (Donald Glade) — Tue, 19 Sep 2006 13:26:00 +0000

In a prior post I wrote about the Total Cost of Ownership (“TCO”) in the context of risk. Today I would like to write about techniques to measure the cost of risk, particularly in the case of administering benefit plans.

The shortfall of TCO modeling for administrative functions is that typically, quantifying the costs of poor administration is difficult to accomplish. Just as with investment returns “past performance is not an indicator of future returns,” if poor administration in the past resulted in additional costs, we don’t know that it will in the future.

We can, however, quantify those past costs from penalties, fines, lawsuit settlements etc., and include them in a TCO calculation. Unfortunately, when it comes to benefits administration, the potentially biggest cost of poor administration is typically never known. That’s the cost of overpayment of medical, dental or pharmacy claims.

Companies attempt to ascertain these “claims leakage” costs through a traditional claims audit conducted by a benefits consulting firm such as Mercer, Hewitt or Watson Wyatt. (Now, now, if you work for Towers, PwC, Deloitte or some other firm and do claims audit, don’t get upset. I just used those firms as examples. Fact is there are brokerages and other “independents” that do this work as well. More on them later and next week.)

A “traditional” claims audit will follow a common methodology:

Randomly select a number of claims that have been paid (say 200)
Manually review the claims for reasonableness including eligibility, reasonable and customary amounts paid, covered procedures, formulary – you get the idea
Note any exceptions within the selected group and calculate the amount of the overpayment
Note the availability of recovery of overpayment from the claims payer or recipient
Total the amount of overpayments in the select group and extrapolate a total overpayment amount cross all claims

So at the end of the project, you have been provided two or a series of numbers by your consultant which tells you how much was paid in error for the select group, and how much we can assume has been erroneously paid out across the entire claims pool.

To this, I respond with an unequivocal and resounding “SO WHAT?”

You may have just paid $100,000 to get this information. What can you do with it - pay another amount to check the next 100 claims? Try to recover the amount that was identified in the first select group? There really won’t be enough there to go after the claims administrator.

As a Senior VP of HR recently said to me while recounting the story of a traditional audit he engaged on of the large consulting firms for:

“It was ridiculous; I mean here I was on a conference call with these auditors getting all excited about finding a $5,000 over payment. They were asking if I was going to try to recover it. All I could think was that it was costing more to talk about it. I have over $100 million in annual benefits spend and they’re getting excited over $5,000? Bring me some real money!”

This is a valid comment. In a world where 1% - 2% of claims are paid to ineligible employees or dependents, the Senior VP above is probably experiencing up to $1 - $2 million in claims leakage from eligibility problems alone. Add stop loss errors, subrogation, coordination of benefits, etc., and this Senior VP might be leaking up to $5 million in claims overpayments.

For a company the size of his, self insured plans are the rule. In this case, then, up to $5 million per year is coming directly off the bottom line of the company. Assuming a 20% margin, the company would have to increase sales by $25 million to make up for this.

Of course, we started by talking about quantifying risk. Better administration might prevent some of this leakage. Problems in point-in-time eligibility can occur any where in the work stream from field HR through to claims payer. A root cause analysis is difficult to perform until all the data points are available, however. How can the points be identified when traditionally, only 200 claims out of many thousands are looked at? The answer, in a word, is technology. Appropriate given the name of this Blog known the world over. (SystematicHR, for those of you who have actually read this far and may have forgotten where you were).

Technology is truly a wonderful thing and today I am happy to tell you that technology has been brought to bear on this very problem (not by SOURCING ANALYTICS, but what a great idea). Start with a time variant data warehouse of claims, eligibility and enrollment, census and COBRA enrollment information, add a dash of creative data mining and compare programs and out comes the ability to perform 100% claims audit of any set of claims you’d like: medical, dental, pharmacy – whatever. From there, you can accurately and completely identify real claims leakage with a real hope of recovery from the claims payer.

But this is just the beginning. If you think outside of the box, you’ll quickly realize that the data collected allows you to identify much more information that can assist in cost containment and avoidance programs such as root cause identification and process improvement, disease management, wellness programs, or plan design changes to name a few.

Next week, space permitting, I’ll write about one company leading the way in this approach. But first, I’ll comment and highlight a Wall Street Journal article published today which take a close look at the traditional claims audit in the context of carrier selection and independence within the broker and consulting ranks. It’s a fascinating read, and directly on point with the topic of this post.

Russ Fradin: The New CEO at Hewitt Associates

noreply@blogger.com (Donald Glade) — Tue, 22 Aug 2006 13:29:00 +0000

Last week I promised to write about measuring risk related to group benefit plans and techniques on evidence based cost avoidance (when I put it that way, it sounds so boring!) I’m sorry, but some other news broke last week that I felt compelled to comment on. I’ll get back to measuring risk next week.

Last week, Hewitt Associates announced that it has appointed Russell P. Fradin as the company’s new chairman and chief executive officer, beginning September 5, 2006. The announcement came the week before a rather disastrous 3rd quarter earnings report in which the company posted a net loss of $202 million or $1.88 per share.

The announcement was seemingly timed to help mute the bad news that was coming. Indeed, the stock has taken a 10% hit since earnings were announced which offset the stock rise after the Fradin announcement.

But what can Russ Fradin do for Hewitt? According to the press release, he’s the right man for the job:

“Previously, Fradin spent more than seven years in various executive positions with Automatic Data Processing (ADP), including president of its global employer services group, where he doubled revenues to $4.5 billion, improved profit margins resulting in operating income of over $1.3 billion and pioneered the company’s entry into total human resources outsourcing for small businesses.”

First, I’d like to point out the very interesting parsing of words in the press release. Hewitt has a very sticky problem here. They have just announced the appointment of the top job in their company, but it is going to someone who used to run the competitor. Interesting thing is that Hewitt does not like to lend credibility to ADP as a competitor. Hewitt’s paradigm has always been that they are without peer.

So read the press release carefully. Hewitt has hired someone who knows the BPO business and HRO in particular. He knows how to grow profitability and revenue. And the kicker? He cut his teeth in the small business market.

This isn’t quite accurate. I first met Russ when ADP was in full acquisition mode. He was working on acquiring Mercer’s administrative capabilities in benefits. They were also going after J&H/KVI’s outsourced business. This came after the Health Benefits America and Williams, Thatcher Rand acquisitions.

It was the continuation of a very clear strategy of expanding market share, product offerings and revenue. Much of this expansion set the stage for, and was the beginning of, the move into HRO in the National Account (over 1,000 life) space. It would actually be interesting to calculate how much revenue growth during Fradin’s ADP tenure was organic and how much was acquisitive growth.

So despite the claim of Hewitt in the press release, it would seem that Fradin actually set the stage for ADP’s explosion into the large employer market through diversified acquisition. It didn’t come without cost, however, as ADP gave up its 40 year string of double digit earnings growth during Fradin’s reign. They also saw stagnant and/or declining share price. In the end, Fradin didn’t like the ADP succession plan that was developed, and moved on to Bisys.
Bisys was reeling from accounting issues, and during his time at Bisys, Fradin saw the stock price plummet over 35%. It is hard to pin that on Fradin, who was brought in to right a ship that had previous accounting irregularities.

What the recent history may tell us, however, is how Fradin might approach the daunting task which is Hewitt. On the most recent earnings conference call, the outgoing CEO acknowledged serious difficulty in delivery especially in recruiting and payroll. He and the CFO indicated that they had taken on too much too quickly. Perhaps Hewitt’s board thinks Fradin is a payroll guy who can get things moving.

They reality is, though, that Fradin is a strategy guy in the McKinsey mold. He won’t be able to right the operational ship. What he can do is come up with ways to either consolidate operations / service offerings or acquire market share while enhancing revenue and delivery capacity simultaneously.

My personal prediction is that Fradin will oversee the “prettying up” of the balance sheet and work to divest Hewitt of the outsourcing business itself. Consulting will remain behind, a shell of its former self. I give it 18 months. If it happens this way, it will be truly unfortunate. As a privately held company, Hewitt was the undisputed leader in its field. As a public entity it has lost its mission and what made it so good. Back in the day, you would never have heard that Hewitt took on too much too fast.

I hope I’m wrong. I hope that Hewitt can once more be at the top. As for Fradin, the rumored succession plan at ADP would have had him as the COO when Gary Butler takes the reigns, and CEO when Butler retires. I wonder if he’d rather be the COO at the currently growing and profitable ADP, or CEO at a listing ship.

About the author – Donald 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.

TCO in the Context of Risk

noreply@blogger.com (Donald Glade) — Tue, 15 Aug 2006 13:31:00 +0000

Many regular readers of SystematicHR know that I conducted a Total Cost of Ownership study to determine the cost of benefits administration. The results were released last December.

Double Dubs commented on it here, and it is how I originally came to find his great blog.
Generally, TCO is a means at getting at hidden costs. It is a way to determine the full and total cost of manufacturing, maintaining, administering, etc. a widget or function. Unfortunately, there is something TCO can’t do: measure and calculate risk or factor in quality.

The TCO studies I have conducted demonstrate that within the study groups, there is considerable variance in the bottom line cost for administration. In the case of the benefits administration and payroll studies I conducted, cost variance is consistently greater among the in-house administration group.

I would contend that the reason for this is that quality and service level is much more likely to differ widely among companies administering in-house. When a function is outsourced, the outsource provider will generally offer the same level of service and quality to all clients. Cost variance among the outsourced group comes as a result of the combination of the costs associated with the retained organization and the deal that a client cut with the outsourcer during contracting.

What does this mean, then, for a company that benchmarks costs against a peer group of companies who insource, and finds they are an outlier in that its costs are TOO LOW? Anecdotally, when I have seen this exact situation, I find that there comes a point in which cost containment and reduction clearly increases the risks associated with administration. We will more likely see fines or penalties related to non-compliance or, in the case of benefits administration, see errors in claims payments due to eligibility problems.

I wonder if the line managers that try to understate cost ever thought about how costs that are too low might be interpreted.

As companies evaluate their sourcing options for payroll, HR and benefits, this should be carefully considered. A financial business case that does not consider risk mitigation is not a complete business case. Some would counter that risk mitigation is a non-financial benefit of outsourcing. I believe it is integral to the financial case.

To begin, one can add up the total cost of error experienced over the past 3-5 years. How much in penalties has been paid for tax reporting errors, for example? In an in-house versus outsourced business case, how could assumptions be made that future in-house administration would experience greater quality so as to avoid future penalties?

Ultimately, companies will behave much as individuals do. Some will be willing to take on more risk than others. The risk of speeding is a speeding ticket and financial loss. Certainly, I wouldn’t expect continued speeding to cost me less in the future, but I will consider it when determining how fast I drive. The past experience of getting caught will impact the likelihood of speeding in the future. Get enough speeding tickets, and eventually I will outsource the driving (talk to David Letterman about that).

If I run afoul of the IRS often enough for a big enough price, eventually I will outsource payroll. Small business owners probably know that lesson better than anyone else. They also are probably more risk adverse as life savings are tied up in the business.

Next week I will write more specifically about measuring risk related to group benefit plans and techniques on evidence based cost avoidance.

About the author – Donald 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.

Relationship Management - Measuring Satisfaction

noreply@blogger.com (Donald Glade) — Tue, 08 Aug 2006 13:36:00 +0000

How do you know when an outsourcing initiative has been successful? At what point can you sit back, look at all that has been done and actually congratulate yourselves on a successful implementation, transition and effective and stable ongoing processing environment.

I think back to the system person I dealt with on a 401(k) conversion one time. This particular provider had gone through a major conversion to a new recordkeeping system and this system person was very proud. He claimed a perfect conversion. “Not a penny was lost. All financial data reconciled to the penny!”

Of course, I had been engaged to determine what went wrong. For while the financial data was in tact, the issues log was longer than the toilet paper lines in the former Soviet Union. Loans weren’t getting processed in a timely fashion, allocation percentage changes were getting lost, and deduction changes were taking much too long to post.

What was missing in this particular conversion was adequate training on the new systems. The people who had to actually process information didn’t have the tools and training to ensure continuity. The clients of this record keeper certainly wouldn’t agree with the system guy’s evaluation, and neither would the participants.

To me, this is where the rubber meets the road: satisfaction. All sorts of metrics can be tracked: speed to answer, case resolution time, system availability, and scores of others. For me, all of those metrics will take care of themselves and should actually take a back seat to satisfaction of the participant/employee and the employer.

Unfortunately, this can be a problematic measure when a new outsourcing relationship is begun. How fast can a new environment be expected to attain superior levels of satisfaction? One month? Three months? Six months?

Certainly, to expect a service provider to score great on satisfaction surveys on day one is unreasonable. It takes time for participants to get used to a new environment, and satisfaction surveys can reflect experiences they may have had in the old environment.
It is for these and other reasons that I am a firm believer in establishing a baseline for satisfaction at the employee level BEFORE the new environment is entered into. By establishing a baseline, improvement in satisfaction can be tracked over time. Success, at least in terms of the all important satisfaction, can be measured and evaluated.

A satisfaction score of 57% may sound dismal, but it takes on new meaning in the context of improvement from a 34% in the month before.

In terms of overall relationship management, this provides a meaningful basis for partnering with your outsourced provider. For service providers reading this, consider recommending this baseline, and conducting the survey as part of the implementation plan. Establishing a satisfaction baseline can protect all parties involved.

But this isn’t just about protecting yourselves. Ultimately, the participant employees benefit from this satisfaction-centric approach.

So if you are entering into a new environment, be it insourced, outsourced or other, please consider establishing a baseline for satisfaction in the old environment. You’ll be glad you did!

About the author – Donald 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.

TCO and the Line Manager

noreply@blogger.com (Donald Glade) — Tue, 01 Aug 2006 13:37:00 +0000

In the jobs I had before I started my own business, I always felt an important part of my responsibility was to develop the people who reported to me. In fact, I always went a step beyond and looked to develop one person to the point at which they could do my job.

Of course, this wasn’t complete altruism. In fact, it was rather selfish of me. You see, when I could find someone to do my job for me, that enabled me to go beyond my own job description and find newer, more interesting and ultimately more valuable and value added things to do. That was what enabled me to be more valuable to the organization, get promoted and make more money.

What does this have to do with TCO and the line manager? Over the past three years, I have helped a number of companies determine and benchmark their TCOs of payroll, HRIS and benefits. Many of those times I encountered line managers who worked hard to minimize or hide the cost their functions experienced. The thought was that if the costs were too high, outsourcing would look too attractive, and the function they oversaw would be outsourced. Interestingly enough, even after outsourcing, these managers would still have jobs.

It seems that too many times people believe the value of their jobs is directly related to how many direct reports they have. They spend their days building “fifedoms” instead of determining ways to add value to the organization and making themselves more marketable and valuable.

I look at outsourcing as the ultimate way to find someone to do my job, thereby allowing me to move on to bigger and better things. Which is better: supervising 20 people, or being responsible for a $1 million per year outsourcing contract? Which provides you with a better means of providing security for your family and marketability for yourself? How can you best continue to grow and learn?

Eventually, the fiefdoms crumble one way or another. Do yourself a favor and build years of experience instead of one year of experience repeated x times. It does no one any good to be the best buggy whip manufacturer in the world these days.

TCO: A Case Study

noreply@blogger.com (Donald Glade) — Fri, 28 Jul 2006 13:39:00 +0000

Some time ago, a fortune 500 company acquired another fortune 500 company. At the time, the acquiring company was a PeopleSoft shop for payroll and HRIS. The acquired company had been outsourcing payroll and accessed a hosted HRIS system for their HR needs. Both companies were roughly the same size and a decision needed to be made: how should the combined company process payroll and what should be the combined company’s HRIS?

Situations such as this arise fairly frequently. You would think the answer is easy. Everything else being equal, jus do what’s cheaper, right? Of course first off, everything isn’t always equal. Quality and risk concerns and all kinds of other non-financial factors need to be considered.

And what of the question of what is the more cost effective solution? Well in this particular case, the manager in the legacy PeopleSoft shop was asked to determine the comparative costs of bringing the entire company onto PeopleSoft or on the outsourced platform. The manager did an “economic evaluation” and concluded that outsourcing the combined company’s payroll and HRIS would cost the company an additional $2.2 million per year!

How accurate and credible was this evaluation? Was there an inherent conflict of interest with having the PeopleSoft IT manager conduct the study? Last week I stated: “The interesting thing about TCO, is that it provides the ability to baseline costs in a holistic manner. Any change to the environment can then be evaluated more accurately as the impacts of all departments and processes can be evaluated.”

TCO to the rescue!

In this case, the TCO model could be credibly used to:

Evaluate the assumptions made in the economic evaluation by comparing component costs to companies that had previously participated in a broad based TCO study
Could project future state staffing and delivery models in a consistent manner using TCO methodologies
Could identify previously overlooked costs in the initial evaluation

The results of the application of the TCO model to this case revealed that the more likely outcome was that converting the outsourced portion of the company to PeopleSoft wouldn’t save $2.2 million per year, but rather only $200,000. Adjusting for better benchmarked assumptions allowed for better estimates of future upgrade costs, revealed termination penalties in the current outsourcing contract, better estimated future state staffing models, and recognized more accurate outsourced pricing given a doubling of the company size.

Interestingly, the ROI analysis that the CFO applied changed the economics back towards inhouse processing because he dismissed the contract termination fees and the higher data conversion fees as capitalized merger expenses, seemingly not “real” cost. An interesting approach I thought, but not one I thought the shareholders would agree with, this is a clear example of how TCO and ROI don’t always match up. In the end, however, the economic situation was viewed as a basic wash.

The non-financial case became even more important, and critical to the non financial case was the concept of risk. It is important to note that in the time between when the initial economic evaluation was conducted and when my own analysis was presented to the CFO, the acquiring company had lost their payroll manager, the PeopleSoft It manager and 3 other key individuals to turnover. Positions had gone unfilled for months and were backfilled with more expensive contract labor. Additional costs were incurred for recruiting, and IT initiatives were put on hold. Risks became clear, and the impact on cost became more transparent. The impact did not go unnoticed by the SOX compliance auditors either.

The lessons from this story are many. Some that I would like to highlight are the following:

Utilizing TCO methodologies allows for a more accurate “all in” analysis of cost
Using credible benchmarking of costs can illuminate bad assumptions or outright obfuscations
Even with agreed upon costs, reasonable people can still disagree on the financial treatment of costs and the impact on ROI.
Although non-financial business case elements are typically full of “soft” costs, many times these soft costs become hard dollars.
Risk analysis and mitigation should always be a primary component of any evaluation of this sort.

For those who are curious as to how this case was resolved, The CFO left the company (I’m not sure why, maybe the share holders were also “reasonable” people who disagreed on the treatment of capital expenses), a new CFO took a look at the business case and ROI analysis, and the new combined company no longer uses PeopleSoft for payroll and HRIS.

Although no company names were used in the presentation of this case study, the names were changed to protect the innocent. Of course, if ever pressed, this was a fictional case study. How is it stated in all those novels we read? Ahem:

This case is a work of fiction. Names, characters, places, and incidents are either products of the author’s imagination or are used fictitiously. Any resemblance to actual events or locales or persons, living or dead, is entirely coincidental.

Ok, I feel better now.

An Introduction to TCO

noreply@blogger.com (Donald Glade) — Tue, 18 Jul 2006 13:42:00 +0000

Earlier this week, Elaine commented on my article from last week How Much Can Outsourcing Really Save. Elaine writes:

“Frankly, there are so many articles published stating different outcome of offshoring and outsourcing ventures. More often than not, people are confused on which side to believe in and which is telling the truth or lying.”

Elaine is, of course, correct in the sense that the savings that can be derived from outsourcing will be debated forever. Although, I would maintain that no one is actually lying. It all depends on how you count the beans.

It is for this reason that I believe that the Total Cost of Ownership (TCO) model is the most effective at determining the cost impact of changing any administrative environment. Today, I’d like to introduce the concepts around TCO.

TCO was first introduced as a concept 10 years ago by the Gartner Group. It was used to determine the cost of maintaining a computer workstation. The cost that was determined was surprisingly high. Later, Arthur Andersen was commissioned to do a study to disprove it, and the controversy hasn’t died down since. Elaine’s comment can attest to that.

In 2003, I conducted a study while at PricewaterhouseCoopers, and determined that the average cost for producing a paycheck is $16 for companies that administered payroll inhouse. Again, this was a surprisingly high number and has caused its own controversy in the market.

The reason TCO identifies higher than anticipated costs is because it is specifically designed to capture ALL costs of production or administration.What are these costs? They are the costs associated with the people (labor) doing the administration, the people implementing the systems and the people maintaining the systems. We also include the costs that are associated with the employees but are not part of the salary (non labor) such as tax and benefits load, physical infrastructure (rent, utilities, property tax), general and administrative (telephone, computer, office supplies).

Costs are further identified as either one time costs or as ongoing / recurring costs. This is important because one time costs such as implementation costs or cost for upgrades can cause cost spikes in certain years. The onetime costs, therefore, are depreciated over a certain period of time. Theses costs are amortized over three years in the studies I have conducted.

Individual companies sometimes depreciate capital expenses over 5 or seven years.The costs that are considered will typically cross multiple departments and budgets within an organization. If a TCO model isn’t used to identify costs, typically only certain department costs will be included and the cost is understated. This is why TCO produces dramatically higher cost than expected.

The calculated costs can be represented in any number of ways. It can be on a per widget manner such as $16 per paycheck. It can be presented as a total cost over the expected useful lifetime of a product such as $40,000 for a car after principal, interest, maintenance, etc over 10 years (less for an American car), it can be expressed as an annual run rate ($3 million per year), or even on a per employee basis. You name it; it can probably be expressed in a different way.

And the funny thing about numbers, depending on the expression, the numbers can seem either really big or really small. $16 per paycheck may not seem like much unless you start thinking about a company that produces 1 million paychecks per year.The interesting thing about TCO in any case, is that it provides the ability to baseline costs in a holistic manner. Any change to the environment can then be evaluated more accurately as the impacts of all departments and processes can be evaluated. This is how TCO relates to ROI. It is also where the controversy takes on a life of its own as reasonable people can disagree on what impact change can have on a system. For instance, will automating a particular process result in a head count reduction of 1 or 2 people? Is the redeployment of personnel real cost savings? How do TCO and ROI relate to build an actual business case for change?

And of course, how do figures lie and liars figure? Over the next few weeks I will be going more in depth on these questions and on TCO. I welcome input from the readers to help me focus the discussion on what will be most helpful to you.

About the author – Donald 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.