ISM Indirect Services Group Web Seminar Successful Procurement of

ISM Indirect/Services Group Web Seminar Successful Procurement of HR Services ― What You Need to Know! Page 1

Don Glade is the industry’s leading authority on determining the TCO of HR, benefits, and payroll service delivery. Hundreds of organizations have engaged with Don to use his proprietary financial analysis tool to understand the true costs associated with HR, benefits and payroll service delivery. His firm analyzes, quantifies, recommends and monitors solutions his clients have implemented to optimize their investments. Ultimately, clients reduce service delivery costs while increasing efficiency, mitigating risk and streamlining their regulatory compliance. Immediately Prior to founding Sourcing Analytics in 2003, he was director, global human resource solutions for Pricewaterhouse. Coopers where he established a human resource administrative consulting practice that assisted clients with all aspects of the delivery of HR, benefits, and payroll services to employees. A frequent public speaker, Don has addressed the Society for Human Resource Management, the International Society for Certified Employee Benefits Specialists and more and has published several articles and white papers on TCO in his field of expertise. He earned a B. A. in Economics and Political Science from Duke University. Page 2

Agenda n Procuring HR Services – The Differences n Service offerings in the HR Area n The procurement professional as facilitator n The role of cost dynamics in HR procurement n Building a business case Page 3

Web Goals What will we accomplish today? n Understand how HR procurement is different n Provide ‘food for thought’ for better effectiveness in the next HR procurement process Page 4

Procuring HR Services – The Differences What makes Procurement in HR so “special? ” Pay (Labor) Benefits The People! Page 5

Procuring HR Services – The Differences For many organizations, Labor is the number one expense n HR’s mission is to attract, RETAIN and ICENT employees n Any activity that touches the employee group makes HR apprehensive n “Touch” can be more important than technical expertise to an HR professional n Often-times, HR professionals don’t have expertise in the traditional business drivers such as cost analysis, ROI, and risk Page 6

Procuring HR Services – The Differences And the impact on the procurement professional is? n HR tends to get defensive towards “outsiders” getting involved in decision making around the delivery of HR services n Process bottlenecks in sourcing and selection become commonplace n Business case development is inadequate and often misses the mark with executive decision-makers n Ultimately, “do-nothing”, or status quo becomes the de facto course selected Page 7

Service offerings in the HR Area What are the services offered in the HR Area? Traditional Emerging n 401(k) n HR Administration n Pension n Talent Management n Benefits Administration n Recruitment n Payroll n Work Force Management n Time & Labor Management n Learning & Development n Compensation Page 8

The procurement professional as facilitator Procurement to the rescue!!! n Understanding the sensitivities of the HR department is a great start n Come in as a partner in the process, rather than an expert in procurement n Use the expertise of the HR professional rather than isolating that expertise n Be flexible to allow for variation from the traditional RFP approach n Provide ‘food for thought’ to for better effectiveness in the next HR procurement process Page 9

The procurement professional as facilitator Example I - Isolating the expertise: n A large organization was searching for a benefits administration outsource provider n The procurement department controlled every aspect of the traditional RFP process, isolating the service providers from the service buyers – all questions had to go through procurement Result: n The best providers bowed out of the process, the second tier providers were the only respondents n HR wasn’t able to find a suitable provider, and the process failed Page 10

The procurement professional as facilitator Example II - Flexibility: n A large organization was searching for an HR BPO provider n Recognizing the intricacies of the market and complexities of the services desired, the organization determined that a “reverse RFP” was the best approach n Procurement became the managers and facilitators of the project Result: n HR was able to more quickly and with less cost secure the services of a top-tier provider and successfully implement sooner than ever anticipated Page 11

The role of cost dynamics in HR procurement Procurement in the HR area is all about services n Although HR service providers “productize” their offerings, make no mistake, you are purchasing services n Whether it’s premise based technology, Saa. S, administrative outsourcing or anything else, HR is about servicing its clientele: the employee and management n Unlike purchasing raw goods, or “widgets”, in the HR area, services purchased impact the People-Process-Technology trinity n Pushing on costs in one area will impact the other n Understanding the dynamics of the cost shifting is critical! Page 12

The role of cost dynamics in HR procurement Page 13

The role of cost dynamics in HR procurement TCO is an approach for quantifying the end-toend costs of a process One Time Costs Ongoing Costs Initial system installation n Upgrades n Consultant fees n Labor for administration n Labor for system maintenance n Non-labor costs n TCO Page 14

Great Moments in Cost History 1626 – Dutch purchase Manhattan Island for $24 million 1803 – U. S. purchases Louisiana Territory for $15 million 1982 – Pentagon purchases hammer for $435 1997 – Windows 95 PC TCO calculated at $9, 784 Page 15

Building a business case Critical to the success in any procurement is driving the process across the goal line! n Financial acumen is not a typical trait of the HR professional n Procurement can be a great partner by involving the financial resources early in the process to assure the data necessary for ROI analysis later in the process n Procurement has the experience needed to translate the goals and analysis into a language the executive decision makers speak (Business Case!) n HR has the in-depth knowledge for building the case for change Page 16

Building a business case What is “The Case For Change” n The cost and ROI discussion has been illuminating, but it isn’t yet a business case. First and foremost comes establishing why any action is necessary. n Executive decision-makers need to know why “do nothing” is not an option. n There always competing requests for capital improvements, and most will be viewed as more critical to the future of the business. n HR hasn’t traditionally been able to demonstrate contribution to the bottom line performance from a revenue or cost perspective. Page 17

Building a business case The case for change includes how and why the chosen provider was selected n Typical reasons for selection, beyond cost, include: Culture, Vision, financial ability to meet the vision, leading edge or fast follower, proven track record n Avoid the “checklist” mentality that boils everything down to metrics and weightings. Remember, this is a “high touch” area n Procurement’s best role is to facilitate and provide the structure and guidance for HR to navigate the approval process Page 18

Building a business case The business case is much more than a simple numbers analysis: n The Case for Change - Why is the status quo not an acceptable option? n Presenting / Evaluating the Alternatives - What options were explored? n The Selected Alternative – What has the team determined as the best option? Page 19

Building a business case The business case is much more than a simple numbers analysis: n Making the Case for the Selection: – The Financial Case – The Non Financial Case n Implementation Plan n Corporate requirements such as: Capital Appropriations Request, Procurement requirements, etc. Page 20

ISM Indirect/Services Group Web Seminar Questions? ? Donald Glade President, Sourcing Analytics dglade@sourcinganalytics. com 770 -509 -4816 Page 21