The Future of Benefits Administration and Outsourcing of Self-Funding?
How do you know what the future of Benefits administration and Outsourcing of Self Funding will be? Can any of us in our industry predict what is going to happen in the next five to ten years? We would like to try by exploring the past and also by making some future common-sense predictions.
NEW PREDICTIONS- I could make some easy predictions like Benefits Administration/Outsourcing will need to focus on Return on Investment (ROI). I could predict that more and more services will be done using the Internet. There have already been many articles on these subjects and I can recommend several to you. Gazing into my Crystal Ball I see some trends, which might be worth considering.
1- Mainframe back-end systems will become the “workhorse” of Self-Funding in the next 5 years.
I believe that technology and systems come and go in cycles. Kind of like fashion. And if it was good once, it means it could be good again. Maybe better. In October 2001 Mary Kohler, President of Tesseract Software and I agreed that: "What goes around, comes around."
Since 2000 many employers have implemented Web-based systems. However, many applications in Self-Funding that are data intensive need more speed. Another example is Payroll. In fact, Payroll is a business function that is still faster and more cost effective using a mainframe back-end. So if you are using a Web front end for Payroll; then usually you will have more speed with a mainframe backend. In fact, many payroll systems are moving back to larger servers (i.e.-mainframes) to get it done and done efficiently.
15 years ago a lot of time and attention at IBM was focused on Personal Computers and mini computers.
Today, the majority of IBM's revenues again come from mainframes. More and more IT people are recommending IBM and mainframes for heavy processing. Again. And the cost of these mainframe servers is falling dramatically.
So why are Benefits and Self Funding professionals still reluctant to come full circle and look at mainframes, again?
2- For the next five years, using only online Internet technology might not be the best solution for your company.
In fact, state-of-the-art technology has become a constantly moving target, and just when you think you have the latest and greatest, it’s devastating to realize you don't have it at all. Obsolescence is a fact of life, and it will usually occur right after you have implemented a new system.
Vince Ceriello, national speaker, author, and President of VRC Consulting and I have noted: “A lot of Benefits Administration vendors have developed very complex and exciting applications. They appear to do everything but “slice bread”. The problem is that you might not need to have your bread sliced. Remember to segregate the functions and features offered and then focus on needs vs. wants.”
Example: many of the new Web-enabled Self Funding solutions require a high-speed connection well beyond what conventional modems provide and the very latest versions of Microsoft Explorer or Netscape Navigator to work properly. But recent studies show that fewer than 14% of employees have T1, ISDN, DSL, or cable modems available to them outside of their work place. But over 30% have the latest version of Explorer or Netscape.
That leaves a majority, or about 56%, that does not have even the basic capacity to access Self Funding applications over the Internet. The latest technology can’t be the “best” technology if the majority can’t use it.
Even though it is popular to focus on the Internet as the main system for outsourcing, customer service, and Human Resources- should it be? I think that the Internet should not be the main focus until the following is available:
a - Wireless Internet connections at low cost
b - Universal connections to the Internet at DSL speeds or better
c - Cheaper and easier access to employees while traveling, commuting or from home
In fact the Internet might even be replaced by some new and cheaper technology in the near future.
3- Careful Selection of an Outsourcer will be based on value- not just price
Dave Ulrich, national expert in HR, has stated that Employee Benefits/HR creates value in three areas:
a For employees- which should create more committed employees, longevity, less turnover, more loyalty
b For customers- which should create more revenue and repeat sales
c For investors- which should create more market value
If the outsourcing of HR functions and the Self Funding decisions you are making are not creating this value in all three areas; you need to refocus and reload. Why? Because the experts agree that price is not the only issue in outsourcing and Self Funding decisions.
Watson Wyatt reported that the primary reasons that companies outsource are:
· 36 percent want to maintain or improve service to employees
· 29 percent want to reduce workload to existing staff
· 14 percent want to reduce costs
· 12 percent want to free up resources in order to focus on other company business
So in 1994 only 14% of employers were focusing on price as their reason to outsource. In fact, recent surveys show that costs, workload, and resources actually increased internally at the company after outsourcing. Also a 2003 survey on “Reasons for Outsourcing” shows new reasons and new functions to outsource:
Alan Eilles, Vice President of BP Downstream, has listed some items to consider in selecting an Outsourcer. None of these reasons listed is price:
i- Good cultural fit
ii- Shared values such as respect for the individual, diversity, etc..
iii- Ability to team with other suppliers
iv- Alignment of business strategies
v- World class processes, expertise, advanced technology and innovation
vi- Commitment to collaboration and continuous improvement
vii- Clear expectations and accountability of both parties
viii-Clear but flexible contract with a view to mutual benefit of both parties with the right incentives to drive the right motivation
ix- Performance and cost transparency (i.e., metrics monitored and clearly visible to all business units)
x- Relationship management
So focus on value and you will not be disappointed in your Outsourcer and in your Self Funding system.
4- Speed will be “risky” in making decisions about Self Funding of Benefits and Outsourcing.
In the movie Top Gun, Maverick and Goose are trying to win the Top Gun Tournament for being the best fighter pilots. The competition is almost over, and the pressure is really mounting. When faced with hopelessness and overwhelming odds, Maverick exclaims, "I feel the need... the need for speed." They exchange "high fives" and all seems well with the world. “Seems” is the operative word here, as nothing in the movies is ever as it “seems.” You know the story. They end up crashing their plane.
The lesson here, of course, is that often when the pressure is on, instead of pulling back and rethinking our strategy, we feel instead the need for even more speed. Benefits professionals should remember that speed could be a dangerous thing.
Benefits professionals need to pull back, slow down a little bit and plan. Yet the need for speed keeps many professionals from really planning for the next few years. And I believe that includes evaluating all your options, not just the new, greatest technology and the newest Outsourcing option.
We can learn from the hardware and software industry that making a decision quickly might not be the right thing to do:
“Remember in the 1970-80s no one was ever fired for recommending IBM. But that changed. In the 1990s, it became Microsoft and PeopleSoft that replaced IBM. Everyone was talking about PCs and software. In the early 1990s, no one was ever fired for recommending Microsoft or PeopleSoft.
But recommending Microsoft or PeopleSoft in the 2000’s is no longer a "sure thing." Now it could be Oracle (who just acquired PeopleSoft) or Linux, and it changes literally everyday. Don't let the “need for speed” keep you from taking the time to consider all the possibilities and keep you from making the right recommendation in the 2000s.”
With regards to outsourcing and Benefits systems- it might be less risky to wait and not change to the “latest and greatest” software or Outsourcing provider. Do your homework. Check the financial backing of the providers you are going to work with, and most of all- take your time. The “need for speed” could be risky indeed.
5- the fastest growth area and greatest value for Self-Funding/Benefits Administration will be in Employee Self Service
I believe that the goal of most employers is to increase value. Employers would love to hear that their employees feel that the employer:
a. repects them
b. provides them with more autonomy
c. gives them better information
d. offers them more “real” incentives to work smarter
e. is willing to share more of a financial stake and costsavings with them
Could that even be possible? It is if you continue to focus on Employee Self Service. Surveys show that employees value and want more information via Self Service. Employees of all ages want information quickly and accurately via Self Service.
Mercer Human Resources Consulting in 2003 surveyed many medium and large sized firms and found that more than two-thirds of those employees who responded want even more varied information via the Internet. Interestingly- the web sites least preferred as a source of information were those sponsored solely by the employers or by health plans. Linking many website together and allowing in-depth self-service were requested most by employees.
Employees want the information to make better decision about all areas of HR that affect them; especially in benefits costs and decisions. One answer to the looming health care crisis is to give employees better information via Employee Self -Service.
Soon employees will be making the majority of all decisions about health care. Eastbridge Consulting did a study in September 2003 and concluded:” Employee-consumers will still receive the majority of their benefits through their employer, but "the majority of decisionmaking will shift from employer to employee, [including] allocating the dollars contributed by their employer as well as their own contributions, selecting the types and amounts of products and manufacturers." In addition, "the old concepts of 'group,' 'individual' and 'voluntary' [insurance products]" will no longer have meaning by 2020, Eastbridge believes. Rather, products will be seen "as one business and sold by the same intermediaries and on single platforms."
6- Self Funding decisions in the next five to ten years will focus on the Law of Sunk Costs
Many vendors who sell Benefits Administration systems for Self Funding and outsourcing services seem to work on the theory that if they build something, it will answer the question and everyone will make a decision to buy it. What they fail to realize that often they are creating an answer where there isn’t a question.
How can you be sure that the decision you are making today will still work tomorrow? You can’t.
With Benefits administration, the pressure is on to be faster, newer, more efficient, and on the "cutting edge." But at what cost? The best thing you can do is to manage by the Law of Sunk Costs. Lets use the example of a payroll system.
Let’s suppose in the last few years you bought a new and exciting payroll system that is the envy of the Benefits community. By now, the payroll system is bug free, has been running for a couple of years, doing what you want and doing payroll processing in three hours. Let’s suppose you have invested more than $1 million dollars in software, hardware and implementation costs alone. In addition, you personally have invested years of blood, sweat and tears into making this payroll system perform for your company. Then let’s suppose that someone approaches you with a system that does payroll in 30 minutes - and it’s an old technology. Should you explore switching payroll systems?
Remember, you’ve just spent years of work and $1 million dollars for this new and exciting payroll system that everyone in the HR community covets. But just how much is it really worth?
Nothing.
It is worth nothing.
All that time and effort is what we call a “sunk cost.” It is irrelevant to the situation at hand. The real issue is whether reducing payroll time from three hours to 30 minutes is worth it.
You have to look at the economics of the situation as it stands right now. The law of “sunk costs” says that it doesn't matter what you have spent in time, resources and even capital/money in the past. You must base all future decisions on their potential return on investment (ROI). You need to ask yourself from this point forward what are the benefits and costs.
Starting today, which option would be more profitable and risk-free for your company? For years, we have been advising our clients that the best business management decisions for evaluating Self Funding options are obviously those that bring the highest rate of ROI to the organization. If management can use a TPA or buy a new machine costing $100,000 that saves the company $100,000 in cost of production, there is not a manager alive that would object to having that equipment. Why? Because it generates a 100 percent return on invested capital.
SUMMARY
So where do we go from here?
I suggest that we should all be aware of these future predictions and trends. But don’t keep so focused on the future that you miss what happened in the past. Remember that: “what goes around comes around”.
In 2002 I proposed that Benefits Administration/HR professionals must: “Think not only Outside the Box, but Think Outside the Industry.” However, I admit that there is evidence that a return to old-fashioned values and methods has some merit.
There is even a new bestseller from Kirk Cheyfitz that seems to be support that position. Its entitled: ”Thinking Inside the Box: The 12 Timeless Rules for Managing a Successful Business”.
So, it might not hurt to consider and even return to the core values and basic management principles that have worked in the past. We should all learn from the example of what happened at Enron, Arthur Anderson, et al.
After all; who could argue with Cheyfitz’s very first of his 12 Timeless Rules: ”Don’t do anything stupid”?
Sound advice to live by.
About the Author- Rob J. Thurston, President of the Human Resources Consulting Group, has been a national speaker and noted author on HR consulting and systems development since 1981. He has implemented and designed some of the largest selling employee benefits software systems nationwide while part of an international brokerage firm, a national administration firm and while as a consultant. Currently, he is working on the development of several advanced technology systems for both HR and for employee benefits. He has available at no cost or obligation a comprehensive listing of software and consulting firms providing advanced technology systems for benefits enrollment, communication and administration. Please request this list by calling Mr. Thurston at (801) 765-4417, email hrconsultinggroup@msn.com, website www.hrconsultinggroup.com or writing: HRCG, Inc., 1202 E. Dover, Suite 201, Provo, UT 84604.
