he constant pressure to add value and control costs combined with the growing desire to play a strategic business role has caused many HR leaders to at least consider outsourcing some part of their operations — if they haven’t done so already. Canadian HR Reporter spoke with HR leaders to find out how much the outsourcing option has changed their business to date and what impact it is likely to have in the future.
Senior vice-president of HR
A wholly owned subsidiary of Swiss-based Nestle S.A., Nestle Canada has annual sales of more than $1.6 billion and employs more than 3,500 people in 20 facilities across Canada.
FOR YEARS now Nestle Canada has been outsourcing some parts of its HR services to external providers. Ceridian has managed its payroll for about 10 years. More recently, Mercer took over pension administration and Manulife has handled benefits administration.
The business case for outsourcing is pretty clear, says Jon Household, senior vice-president of HR for the 3,300-employee strong organization.
“We are talking about stuff where the people who are doing it don’t need a knowledge of our business to be effective. They need to have a core competency in that specific functionality that they are responsible for, and therefore there is no value that a Nestle person can provide to that particular process,” he says. “And obviously the big driver is cost. Some of these larger outsource providers are able to provide the service cheaper than we can.”
That said, Nestle has no plans to make other significant outsourcing deals any time soon. The company is using external providers more often in areas like training and development, but there are no plans to outsource training en masse.
“If we are looking at developing a particular course in a particular area, we would look for a provider who had experience in that area, and we would partner with them to jointly build something that was specific to our company. That kind of thing we are doing perhaps more than we would have several years ago,” Household says.
Nestle recently partnered with an external organizational psychologist to develop a new leadership development program.
“We wanted to combine a particular tool which is called ‘smart skills’ — a way of getting into people’s thinking preferences that then determines how they are going to act on the job. We wanted to blend that into a leadership training course,” he says.
“We don’t have a psychologist on-site and we wanted to blend the expertise he could bring with what we could bring in terms of understanding our business and what it is that we were trying to get across to employees,” says Household.
Beyond less formal partnerships with external providers like this one, Nestle is in the early stages of exploring new shared service models for all its North American operations — taking an HR service delivered at several different sites and centralizing it in one location. The practice of shared services is often considered the important first step for a multi-location operation that wants to explore outsourcing. It enables the organization to get a more complete picture of the cost to deliver the service. But Nestle’s HR team is looking at it as a way to actually bring more HR service delivery back inside the organization, says Household.
There are five Nestle companies in North America doing a lot of HR tasks independently, he says.
“We are now beginning to work collectively as a group and looking at what is it that we can do to share service. Or what area can we share services in,” he says.
For starters, they will be looking at payroll. “My understanding is that it is cost-effective for a company to (outsource payroll) if they have less than 5,000 employees. But the moment they get over that level, it is more cost effective to in-source it, to do it themselves. And that central location, interestingly enough, could be in Canada because the costs of doing business in Canada are in many ways significantly less than in the U.S.”
Though Nestle Canada is not likely to make any major outsourcing deals anytime soon, Household says he is keeping an eye on how other early adopters of the outsourcing model fare. His HR team is continually being encouraged to look at options for controlling costs, but he remains skeptical about whether an aggressive outsourcing strategy is the best route, particularly in what is still a relatively young market.
“I think one of the challenges for all this is that there is consolidation going on in the market place,” he says. “We certainly find that as consolidation takes place the service level has a tendency to reduce and you have less choice. And I think that is the concern going forward.”
Besides, outsourcing may not be that different than other trends that have been popular in the profession in the past, he says.
“I think the interesting thing with HR is that there are various — I hate to use the term — flavours of the month that come along. Each has significant value associated with it, but it is never a panacea.”
In some cases, organizations have jumped enthusiastically onto the bandwagon, outsourced too much, been disappointed by the results and found they have no other option but to bring it back in-house, he says.
“People think we can save 10 per cent on this, let’s throw it at an outsource provider and then let’s forget about it. It doesn’t work like that,” he says.
“I think that sometimes organizations forget that there is still an interface or a coordination required with the outsource provider to make sure that the direction to them is clear and that expectations are clear and that metrics are clear. And if they aren’t, there tends to be a slipping of standards. And in those circumstances the company will say, ‘This is not what we thought it would be and we are going to bring it back in-house because we need to have control over it.’
“I think the key thing is making sure up front that the objectives, the metrics, the direction are crystal clear so that both parties know who is accountable for what. I think that is where it kind of falls down.”
Senior vice-president of HR
Founded in 1786, Molson is one of Canada’s oldest brand names. The company is headquartered in Montreal and employs about 3,000 people at five breweries spread across the country.
CANADIAN brewing giant Molson has just taken its first tentative steps into HR outsourcing. As of July 1, consulting firm Towers Perrin took over employee pension and benefits administration.
“We are kind of a babe in the woods here,” says Bernard Cormier, vice-president of HR. Cormier took over Molson’s HR group about two years ago. Soon after, they began to look at some of the HR processes and services to see how well they were doing. That led to the decision about nine months ago to explore the possibility of outsourcing the administration of pension and benefits for the company’s 3,000 Canadian-based employees. “We don’t have boundless resources in terms of HR head count, so we felt that this would free up our HR professionals so they could spend more time with their internal customers.”
Molson made the move after seeing other companies enjoy success going that route, he says. The providers that are out there have good systems and processes in place for this kind of work. In theory, Molson could have invested to improve its own systems, but it would have been difficult to get the money to make the necessary changes.
“We are limited in terms of capital,” he says. “If I went for capital internally to buy those systems, I probably wouldn’t be the first in line. There would be more pressing close-to-business needs.”
Though it is early, Cormier says he’s pleased with how the new arrangement is working out. “There have been some growing pains but nothing out of the ordinary,” he says. Based on the criteria set by Molson and through the monitoring of calls by Molson staff, things seem to be going well.
Towers keeps statistics on average call time and how many calls can be taken care of on the spot, versus how many have to be deferred, for example. From that, Molson can make better, more informed decisions about how staff are being served. If one specific issue keeps coming up, Molson may be able to address the problem by putting more information on the corporate intranet.
Eventually the changes will have an effect on HR head count, he admits. “Though I think you have to be careful when you implement this not to make it about head count. Initially there was some savings in terms of head count, but what we want to do is give it six months or so, make sure everything is working fine and then maybe move some more people around.”
Most of Molson’s employees work at five plants across the country and are supported by about 20 HR people (in total Molson has 44 HR staff). “Every brewery has a limited resource base in terms of HR head count and people are doing (benefits administration) part time. So all of a sudden that time is freed up for more time to support internal customers. I’m not saying benefits is not important, but I think our individuals will have more face time with their internal customers and this supports that.”
Freed up from some of the administrative work, HR staff will be able to better support their customers on change, says Cormier. Molson is in the middle of an initiative labelled “optimal work environment.” The initiative entails studying work being done in the breweries with an eye to standardizing job design and delivering training based on corporate goals and values.
While outsourcing may be on the minds of a lot of HR people lately, Cormier remains skeptical about how much outsourcing will change HR at Molson or the profession in general.
“I think some organizations have been quick out of the chute and I think you have to be careful because some activities are tactical in nature and you can push those out,” he says.
Organizations have to be careful not to “push out” activities and responsibilities that require an intimate knowledge and understanding of the business, he says.
“Don’t get me wrong. Based on where we are, there is potential for maybe a bit more outsourcing. But for things like leadership development, succession planning, dealing with unions, even the design of compensation, stock options, bonus plans, you just need internal expertise,” he says.
For now, Molson is content to take a wait-and-see approach, learning from its own first outsourcing arrangement and the experiences of others.
“Don’t portray us as leading edge,” he says. “To me, it is a learning process. You try a few elements that are more easily completed, you learn from that and you have success and then you can start looking at other items. But right now the focus for us is much more on employee benefits and pension administration. Make sure they are successful and then we can write chapter two.”
Headquartered in Saanitchton, B.C., manufacturing firm Power Measurement employs 300 people.
DESPITE being bare-bone-small, the three-person human resource team at Power Measurement has to grapple with more than just the usual array of personnel issues.
Based on the east coast of Vancouver Island, the 20-year-old company produces smart power meters that use computer technology that allows customers to monitor how much power they’re using and manage consumption. The company has offices in Nashville, Germany and Korea, and its clients include large-scale operations such as hospitals, the University of Chicago and NASA.
Given the firms global market, the HR team has to handle such issues as cross-border relocation and international recruiting. The company’s locale, though idyllic, poses a challenge when it tries to attract technical talent: they wouldn’t be able to find another job in the area if things don’t work out at Power Measurement.
To deal with these complex HR concerns, Todd Cook frees up his time by outsourcing many administrative tasks.
“It’s very important for our department to be seen as a partner and not as a silo. We tend to outsource the functional areas where there isn’t as much value-add, allowing us to focus our limited resources on adding strategic value to the organization.”
For more than 10 years, the company has used brokers in Canada and the U.S. for benefits. Payroll is shared: an in-house HR staff inputs the hours, validates the numbers and Ceridian handles the rest. About a year ago, Cook started contracting out recruiting to Spherion whenever production staff and temporary workers are needed. Relocation in the United States is contracted out to SIRVA.
“Relocation in the U.S. is a complex issue that touches on tax liabilities and such things. So for me to sit down and handle an employee moving from Detroit to California would be too time-consuming for the value-add. I could just as easily fax a form to a company and have them move him and his family, take care of him and give me updates. I then talk to him to see if he’s happy. And it’s a really slick system, it works really well.”
Through these relationships, Cook has a variety of experts he can turn to whenever complicated staffing issues come up.
Deciding whether to outsource a particular function isn’t a complicated process requiring all sorts of metrics for Cook. He simply asks one basic question: Does it add value for the HR department to be doing this?
“There is no way that any HR professional working in such a complex environment as this can pretend to know everything from liability to tax to immigration from Canada to the U.S. If we’re sitting at our desk trying to figure out immigration laws and going on the Internet to do research, does that add value? Or can we just pick up the phone and talk to a lawyer for half an hour and decide where to go from there?”
But entering these relationships and making sure they work means he has had to become a “vendor manager,” he says.
“You have to have new skills to be able to work with the different vendors in different parts of the world.” Selecting a vendor, in particular, can be a challenge, he readily concedes. “It gets very involved. I sometimes think, ‘Holy cow, I don’t have the time to invest in writing this policy.’”
But he makes the time, not just to write up the policy but to check a vendor’s references and to use his own network of HR contacts to find out which vendors others are using.
Once he sees a proposal, he looks at whether the services offered “fit our style and our culture. How do they operate? How do they communicate? We talk to them to see if they’re a good group to work with. And maybe that’s just a gut check, I guess.”
Cook considers himself lucky in that he hasn’t encountered any glitches that would force him back to the table to re-negotiate the terms.
But he is concerned that the more a company contracts out, the fewer opportunities its HR staff has to learn all of the intricacies around an issue.
“By fully outsourcing something, you miss out on the training and learning opportunities. If you change a payroll or benefits system and that’s all outsourced, you don’t know what it’s like to go through all that. And without knowing what it’s like to manage something and what’s all involved, and how time-consuming it is, how do you know what to outsource?”
His advice to a new generation of HR professionals who are less likely to deal with the transactional functions in-house:
“You still have to be a vendor manager, so you still have to understand what they’re doing. So take the opportunity to work with the vendor and go through the learning process.”
Vice-president of HR
Hudson’s Bay Company
Headquartered in Toronto, retail chain Hudson’s Bay Company employs 70,000.
WITH 70,000 employees spread out in 500 locations across Canada, Hudson’s Bay Company is the type of organization business service providers would love to have on their customer lists.
But the company has decided to keep most of its human resources administration in-house. Bob Kolida, vice-president of HR, says the company is best served when HR support is delivered by those who most understand the organization — its own employees.
Occasionally, the organization turns to outsiders for bulk recruiting, such as when 254 pharmacies were added to the company’s Zellers stores. Computer training is also contracted out. The employment assistance program is likewise handled by an outside organization. Part of pension administration is outsourced, but most of it stays in-house.
“If you think of the different business units we have at our organization, what we’ve focused on is developing a shared-service concept at HBC. So what we’ve done over the last five years is go over the organization and look at the common practices and common processes, standardize them and pull them together so we can operate them under one HR shared-service area.”
Kolida calls it an “in-sourcing” model, the goal of which is to allow the HR department to be “faster, better and cheaper.” He adds that benchmarking studies have convinced him the department is indeed working efficiently.
But cost and efficiency aren’t the only reasons the company isn’t turning to contractors.
“We’re big believers that, because we provide a service, it’s important that our people have an understanding of the customer, of the business and of the strategy of the organization.”
That goes for the entire Hudson’s Bay Company workforce, including HR administrators.
In training, for example, Kolida finds it helpful that the people delivering customer service training have all started out working in stores.
“That’s so they would have an understanding of the customer and the way our stores operate. And if we do go to an (outside provider) on particular elements, we have to ensure that the people (we go to) understand the customer and understand the business.”
That’s not to say that the company has decided against further outsourcing. But when considering such options, says Kolida, the rule he would use is to make sure “we’re not putting processes in place that directly affect your people or impact the customer.”
The size of the organization and the wide distribution of stores across Canada, he adds, would make it difficult to find a single business process “that can assist you coast to coast.”
“Everything we do has such an impact on people. We would have to do our due diligence to say: Is this more cost effective? Is this faster? Is this better? Will it provide more value to the organization, to the associates and to the shareholders at the end of the day?” says Kolida. That also goes for the services that have been in-sourced.
“Those are the more transactional tasks that can be done in a central location.”
Kolida is aware that the need for outsourcing has generally been tied to HR’s growing role in supporting strategic objectives. “We do need to free up more of our resources toward that. And the question is, how do you do that while still maintaining the core HR transactions that need to happen everyday?”
He adds that he’s looking to employee self-service tools to help the HR department find that balance.