Lessons from HR outsourcing pioneers

Two years later, CIBC happy with results
By David Brown
|Canadian HR Reporter|Last Updated: 02/18/2004

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s a vice-president of human resources at CIBC, Bob Hakeem helped develop the business case to outsource half of the bank’s HR operation to EDS two years ago.

The deal cut CIBC’s roughly 450-person HR department in half as EDS took over most of the bank’s human resources administration.

Last October, Hakeem left CIBC to join EDS so he could be in the HR outsourcing business full time. Why? “I think this is the wave of the future,” he says. “I’ll bet a lot of money on it.”

Businesses have been outsourcing pieces of their HR operation for years, but only in partial measures: a payroll system here, a benefits system there. It’s only in the past few years that companies looking to focus on delivering strategic HR support, took it a step further and outsourced most, and in some cases all, of their HR business processes.

The CIBC deal with EDS was one of the first large, multi-process HR outsourcing arrangements in Canada. And even after BMO signed a deal with Exult in April (see CHRR, June 2 or click on the "Related Articles" link below), there are still only a handful of organizations in the world that have gone this route.

That’s because, at the moment, only large companies can realistically consider such a large step. As the business grows and technology improves, HR business process outsourcing (BPO) will be an option for organizations of all sizes, likely using an application service provider model, says Hakeem, who is now vice-president of HR business process services for EDS.

“It’s all about volume,” he says. As providers like EDS grow, the economies of scale improve. Eventually they will reach a critical mass where HR services can be delivered to more customers using the same infrastructure and workforce, bringing the price down. Eventually the per-unit value will make it appealing enough for the smaller customers to outsource too, though it is hard to say when that will be.

“It all depends on how fast this marketplace grows,” he says. “But if you look at the indicators, at least in terms of interest, I don’t think it will be long until there is enough critical mass.”

When CIBC first looked at multi-process outsourcing, there weren’t many examples to look at, says Hugh MacDonald, the bank’s vice-president strategic alliance management, HR division. “But we did our research. We talked with consultants and academics. You want to make sure that HR business process outsourcing is not just a fad, that it is a breakthrough strategy. We came to the conclusion that it wasn’t just a fad. It was something that represented a new direction and therefore we jumped in early.”

While EDS and CIBC say they are very happy with how things have progressed in the past two years, both also say they have learned a lot in that time.

There were two main lessons, says Hakeem. The first is the importance of a clear guiding governance framework that specifies how unexpected problems will be handled.

There was “a whole series of layers” of review practices, oversight meetings and lists of people who would deal with issues as they arose, he says. But no matter how much the two sides tried to create a comprehensive scope document that outlines who has responsibility for what, unexpected developments inevitably arose.

Those procedures that allow you to deal with those things not contemplated could have been improved and made clearer, he says. It should have been possible to get a resolution more quickly than they did, he says.

“Although we really thought through the governance structures on both sides, we found we really had to tighten them over time,” he says. “One of the things that we learned when we were going through the transition was that instead of having monthly executive meetings, we had weekly meetings.” It’s a practice that continues to this day. Every Wednesday morning the key executives from each side conduct a conference call to make sure everything is on track. If any problems have come up, the key decision-makers can take care of it then and there.

The other important lesson was closely related to the first. The two sides in an outsourcing arrangement need to develop a solid collaborative relationship, he says. That way when problems do arise, both sides can work together to solve it rather than running to the contract every time and risk making the relationship adversarial, he says. “The contract is really a guideline and you only go to the contract when you need to.”

MacDonald also says they could have more thoroughly planned how to deal with surprises. For example, a few months into the deal, a payroll clerk at EDS called the CIBC legal department to ask how to garnish the paycheque of a CIBC employee. But was that now a question for the CIBC or the EDS legal department? It involved a CIBC employee, but the CIBC lawyer didn’t have legal privilege to talk with the payroll clerk. The Upper Canada Law Society was called in to give its opinion and a new insurance was bought to reflect the new arrangement, says MacDonald.

One of the other problems in the early days of the arrangement was a lack of senior-level HR expertise at EDS.

“We moved over a fair number of staff and middle managers, but not any of our senior people,” says MacDonald. EDS wanted its senior people to lead the group but in some cases they lacked enough background in HR.

“They were probably good managers of staff, but if they are not an HR expert, if they are not a payroll expert or a benefits expert, they are not as well-equipped to deal with surprises,” he says.

“I think for a while there were a few gaps,” he says, but adds he is pleased with the senior-level HR expertise EDS has brought in since those early days.

MacDonald insists, though, that problems they’ve faced are minor and that the deal has met all of their expectations. CIBC’s HR back office is being run on the latest technology and is much more efficient than it was when they had it in-house. This allows the HR team still at CIBC to concentrate on value-added activities.

Running HR on the most advanced technology was one of the most important reasons for striking the deal with EDS, says MacDonald.

CIBC had built up a lot of HR processes and HR systems, and the bank got to a point where it needed to harmonize all of those systems. That meant a new generation of technology. It didn’t make sense to spend money on building a new HRIS infrastructure, he says. “At the end of the day, our core competency is being a financial institution, not being the best HRIS system provider on the planet.”

The cost of putting in a new global HR system is probably in the neighbourhood of $40 million, says MacDonald. The CIBC deal was for $227 million over seven years.

The deal was essentially revenue neutral, says MacDonald. “That doesn’t mean we didn’t save money. We saved in the sense that we didn’t have to make investments that otherwise would have had to be made.”

CIBC is now moving toward what it calls HR direct access, which will be powered by PeopleSoft 8.3. There is the performance and compensation system, CPOL (compensation planning online) which links all of the total compensation processes for managers around the globe. There is also an employee portal. After employees verify their identity, they have access to all the organization’s HR systems and processes. Employees and managers also have access to hundreds of Web sites and tools for employees, such as pension planning calculators.

Two years later, CIBC is pleased enough with the results that it continues to outsource more activities and processes, and not only to EDS.

“There were things we did not send to EDS, and mostly that was because we wanted to keep the deal fairly simple,” says MacDonald.

“We decided not to send over training administration partly because we didn’t have our strategy finalized, and also because we wanted to keep it until we were sure what kind of system we wanted to for knowledge management,” he says. Once the strategy was nailed down, CIBC outsourced it to IBM.

And today, CIBC also has a much better idea of how efficiently HR processes are being managed, says MacDonald.

“When CIBC ran its own back office, we didn’t have metrics for everything. But as a result of our new relationship (with EDS) we have metrics for all of our key things.” The numbers are reported monthly to CIBC.

For instance, the core of the any outsourcing deal is the HR call centre, says MacDonald. “When CIBC ran it, we answered about 80 per cent of our calls in 20 seconds. Within about seven or eight months of EDS taking over, they were answering about 95 per cent within 20 seconds and the call abandonment rate dropped to below three per cent,” he says.

“I know that our error rate in payroll is less than one-tenth of one per cent. I know that the downtime last week could be managed in minutes.”

There is also a “mystery shopper” program in place to ensure call centre employees are meeting the appropriate service levels.

“A good HR department helps the business achieve its goals,” says MacDonald. Being cost effective and efficient enables the rest of the HR team to focus on initiatives that save the firm money.

When HR professionals are working with business leaders, they don’t want to be talking about HR administration. They shouldn’t have to be worried about a tax table being updated or that people are being paid properly. “That should be so far in the background and so routine that it is just not on the agenda,” he says.

What they want to be talking about is what HR strategies, what projects and what initiatives are required to help the business achieve its goals.

“Who wants to talk to a business leader about how well payroll is running. Nobody should be talking about it,” which is why his team is committed to ensuring the rest of HR team never has to, he says.

“My job is to make HR administration as boring as possible,” he says.

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