CIBC HR department halved as non-strategic roles outsourced

Starting this week the HR department at CIBC is almost half as big as it was last week.

In late March, the bank signed an outsourcing deal that will see business process management firm EDS take over all of its HR operations and technology services.

The senior members of the HR team at CIBC decided in December 1999 they wanted to improve how they were delivering their services to employees, said Hugh MacDonald, vice-president, HR division at CIBC.

“We were really passionate about wanting to reinvent HR service delivery.”

They knew they wanted to automate more of what they were doing as well as expand self-service, for example. Throughout last year, they explored all of their options, looking at doing it themselves and exploring different partnership possibilities. Ideas and possible solutions were taken to a steering committee of senior non-HR leaders at CIBC who considered the effect changes would have on the company and provided feedback.

“In the end the team came to the conclusion that we wanted to do something a little more dramatic and a little more fundamental,” said MacDonald.

The result: 200 CIBC HR employees and their work have been transferred to EDS.

To be sure, outsourcing in HR is not new.

For years, there have been companies offering outsourced HR services but in a piecemeal way. There were the payroll specialists, recruiting firms, benefits consultants and so on.

But this is different. A major company, certainly one of the biggest in Canada with more than 44,000 employees and a human resources complement of about 450, able to sign a deal with one provider that enables the bank to cut its HR department by almost half. Not long ago, such a move would have been unthinkable.

As a consultant with KPMG’s strategic HR practice, Chris Klus decided back in 1997 and 1998 that Canada wasn’t ready for multi-process HR outsourcing. He was part of a team that studied the practice in the United States. His team discussed the idea of HR multi-process outsourcing with a number of Canadian companies, but it was poorly received.

“We concluded we were about three years ahead of the market,” he said of KPMG’s outsourcing ideas. Aside from a lack of providers, many HR directors and vice-presidents continue to feel threatened by the notion of handing over so much of their department.

For many HR leaders it is a case of the more people they have reporting to them, the more powerful they feel, said Klus. While they may know they could outsource the transactional work, they choose instead to hold on to it and end up bringing in consultants to handle the strategic issues, he said.

In the minds of most executives outsourcing is almost always viewed as a way to make money. But if CIBC made this decision because they wanted their HR department to focus on making a more valuable contribution to the company, said Klus, “that is the right strategy; that is brilliant.”

The same but different

For those that ran HR operations at CIBC and began working for EDS this week, things will be different but very much the same too.

They will, for now at least, continue doing what they have been doing. Those that were managing occupational health and safety compliance for the bank will still be doing that and people who administered benefits will also continue to do so. In fact, they’ll remain at their CIBC offices until moving to a specially created HR outsourcing centre in northern Toronto later this year.

For the rest of the bank, it should be business as usual. But the HR department that remains can now concentrate on adding value to the organization. And that is the point.

The HR processes being outsourced have little to do with how the company makes money. If CIBC can find somebody to do it for them, more efficiently and at no extra cost, why wouldn’t they?

The logic, say proponents of outsourcing, is irresistible.

Companies want to focus on adding value to their core business. CIBC does not add value by managing payroll or pension plans or other HR administrative functions. EDS does because they are paid to do that. It is their core business, it is how they produce revenue and EDS is dedicated to doing it better and more efficiently.

“I think the Canadian marketplace is awakening to (process outsourcing),” said Mike Mansfield, executive vice-president of business process management at EDS.

From the market data and the feedback EDS has received, the market is clearly about to take off and they intend to use the CIBC deal as a launching point, to strategically and aggressively pursue the market, he added.

“I think this is just a natural evolution of the whole outsourcing of non-core business within the business and HR just happens to be next on the list,” said Mike Tustian also a vice-president with EDS business process management. Companies, more and more in the future will be focusing on their core business and outsourcing the rest, he said.

Aside from the demand-side reluctance to commit to such a model, one of the reasons outsourcing hasn’t taken off sooner is because there really wasn’t anybody that could do it, said Klus.

And while there are, and will continue to be skeptics, EDS, CIBC and other outsourcing experts suggest the deal is only the beginning of a major trend.

In fact, EDS made forays into the business process management market in the mid-’90s and has spent about two years reorganizing its practices so that it would be able to provide integrated solutions and become a major player in that trend.

“CIBC represents a significant win for EDS,” said Rebecca Scholl of the business technology research firm Gartner Inc. EDS needed a large national client to establish credibility throughout the country.

“The CIBC engagement indicates that EDS is now ready to actively compete and win deals in the business process outsourcing space.”

And a recent study from the United States seems to confirm this may be a rising trend.

According to Gartner Dataquest research, multi-process HR outsourcing, along the lines of what CIBC has done currently represents less than 12 per cent of the market. Four years from now it will account for better than 37 per cent.

Better service

at the same price

Technically the seven-year $227-million deal with EDS is a cost neutral one, said MacDonald who has lead the transition of HR operations to EDS and will lead the alliance management team of six or seven who will work closely with EDS and even have workstations at the new centre EDS is building.

The move is intended to pay dividends in other ways. Aside from EDS having the expertise and capability to deliver the service better than they could, it will also free the HR team from the minutiae of administration that so many HR departments have complained about for so long.

“When you do a deal like the one we did with EDS, it causes you to think a lot about HR support. And there is no question that moving transactions to EDS, frees the rest of the HR department to focus on more strategic work,” he said.

“It frees the HR practice from managing the myriad of details involved with transaction processing and allows us to focus on the things that are really important: policy, providing advice, providing council, and programs that move the business forward.”

Tustian of EDS also believes that companies that outsource the way CIBC has will realize real cost savings in the sense that the client will be receiving superior service. In effect, it boils down to economies of scale.

“If we had done this work internally, we would have spent many millions of dollars to re-engineer and introduce new systems,” said MacDonald.

EDS can deliver a higher level service at a lower cost per employee than other companies because they can leverage their infrastructure, technology and skill sets to deliver what can be fairly generic processes to many organizations.

Which is why the deal with CIBC is also great news for EDS and it was so important for them to bring over every one of the 200 CIBC employees.

EDS just picked up a large number of highly-trained, experienced HR operation professionals, who ultimately could be used to apply their skills to other EDS clients.

Any company could go out and hire the talent to provide the HR service at a very high level, said Tustian.

“The challenge is continually finding and retaining the talent to maintain that level of service.” By signing the deal, CIBC not only rids itself of that headache but also is being served by a company that is dedicated to driving down the costs and delivering the service more efficiently, by leveraging their resources to many more customers. As for the notion that some HR departments may be reluctant to see their numbers cut in half, MacDonald, said that was never a concern for his group — quite the opposite.

“I don’t think that in today’s world power is about the number of employees you have working for you,” he said. HR should get its power from how much it helps the business units meet their goals, he said.

“If you can do that you are a winner. If you can do that you have power. If you can do that you can influence the business. It is certainly not about how many people you have working with you.”

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