EXCLUSIVE INTERVIEW

Hewitt Associates’ Steve Unterberger Talks About BPO

Global competition, legal issues, technological advances, changes in manufacturing and tracking their constantly evolving target markets are more than enough challenges for many companies to deal with. Add to them internal requirements — human resources, accounting, information technology — and the headaches only expand.

For years, there have been service businesses that address some or all of these functions. Hewitt Associates, a global human resource outsourcing and consulting firm, specializes in working with large corporations, freeing up clients’ capital and knowledge bases so they can focus on their businesses.

Recently, the E-Commerce Times spoke with Steve Unterberger, HR Outsourcing Technology Leader at Hewitt Associates in Lincolnshire, Illinois, about the state of the business process outsourcing (BPO) market today and his predictions for 2005.

ECT: A good place to start could be for you to describe Hewitt and what you do.

Unterberger: At its simplest, we take certain functional areas — predominantly in the human resource area — and we take either whole processes or collections of processes and do them on a company’s behalf, where they might have done them internally. We do them typically at a lower cost and a higher service level, and with no capital investment required by that company. To be illustrative, we would take human resource processes like benefits administration, payroll, recruiting, learning administration, and for a reduced cost to what the company was spending internally, we would perform those functions on behalf of a company, we would outfit operations and technology that would provide for continuous services and improvements, and we would make whatever investments to keep those services fresh and vibrant ourselves, instead of the company having to do it. That, in a nutshell, is what we do.

ECT: How is demand changing over the last year or so?

Unterberger: You can divide this into two parts. For some of the processes — like in the benefits administration area — that’s a fairly accepted practice, it’s mature. It continues to grow, though perhaps more at arithmetic rate than an exponential rate. For the multiprocess — which is what people typically cast as BPO, and we call our particular version multiprocess HRO, human resource outsourcing — the last nine months have really been a floodstorm, if that’s a word, of clients putting their foot into the market, looking for services and, in many cases, contracting for those services. So we’ve seen not only more clients in the market for that, but we’ve also seen the emergence of lots of sourcing advisers and people helping clients sort through this and select their providers in a way that, in the last five years, we haven’t seen as active as it’s been in the past nine months.

ECT: And why is that, do you think?

Unterberger: I think there are a couple of things converging here. There are enough success stories for the really early adopter clients so those who typically sit on the sidelines have talked to those folks, have gotten success stories and are now ready to engage, not as bleeding edge but more of the mainstream and leading edge. The second thing is some of what I’ll call more of the traditionalist companies, big companies that wait on the sidelines, have come to the same conclusion but from a different lens. They say, “Look, company X, company Y or company Z is making money out of this. They’re gaining a reputation. They’re winning clients away from us,” so let’s enter the market. In a way, your competitors sell the way as well.

Lastly, the recent economic issues that we faced, across the world and here in the States, over the last two years that we’re finally coming out of, caused a lot of people to look inside and figure out where do they really need to focus, in terms of where they can cut costs or where they can focus their own attention, and they concluded some of these support functions, like HR and finance, had other alternatives than to maintain the status quo inside the company. Now we’re seeing the benefit of that inspection, even as the economy turns up. They’re saying, “If it was good for us when the economy was bad, it’ll still be good for us when the economy is good.”

ECT: Is there a particular size of organization that would turn to Hewitt Associates for BPO?

Unterberger: We focus, specialize, on large employer markets, which we define to be 15,000 to 20,000 employees and higher, all the way up to 150,000, 250,000 employees that these clients have. There are certainly people who do similar things to what we do in smaller markets, but what we find is that in the larger markets, that is typically where there has been, over time, more divergence and variance in these processes, a bit of a higher cost structure when you look at a per-unit basis, and a larger ability for us to affect cost improvement, quality improvement and save the company money in a dramatic way through our own technology investments. It’s kind of a nice intersection between the bigger companies: the more of an impact we can make and the better a fit it is with the type of services we do. I wouldn’t want to say that’s the only market it makes sense for, but it’s the one that makes the most sense for what we do.

ECT: Since you’re targeting larger companies, is it typically a long sales cycle?

Unterberger: Long is in the eye of the beholder. These are five-, six-, seven- or 10-year arrangements, so people, naturally, don’t want to go into them helter skelter. There are some important issues to come to agreement on in how we handle individual data, data protection and that kind of fun stuff. The typical sales cycle can vary from as short as three to four months to, perhaps, as long as nine to 12 months, the average being in the middle there. Part of that is the selling and part of that is the contracting. I wouldn’t say it’s the longest sales cycle: I think if you manufacture airplanes it might be a tad bit longer, but it’s not the pickup line at MacDonald’s either.

ECT: And what are some of the questions potential clients do or should ask?

Unterberger: Most clients want to hear a few things. Even if they don’t lead with the economics, they want to know that what you’re offering them is a committed economic picture. What I mean by that is, they have certainty as to what their costs are or what might affect their costs. They’re not going to get nickel-and-dimed or surprised. So when we say, “We will reduce your cost,” it’s an absolute, committed guarantee of a significant percentage below what their expense has been. They want validation from some prior clients that we can deliver real money, not just putting dollars into different buckets.

The second thing they want to know is, “Can this work in my culture?” Lots of companies, especially big ones, are right; they’re not like othercompanies in their industry or in their geography. There’s lots of [ways]they think of themselves as unique. As you can imagine, through our lens there are lots of things that might be common across companies. The balance between what we can do for our companies based on experience, but apply that to a fit and style and a pace and a culture that works for that company is a big question they have. As a result of that, to be successful — in our opinion — you’ve got to have an approach that manages these types of programs at the pace and priority that make sense to the client, not just a one-size-fits-all.

The third thing they want to know is that you have the content expertisethat doesn’t take them a step backward but, in fact, takes them a stepforward. You don’t just put new shirts on the same old people, but youactually bring something new to the table in terms of demonstratedexpertise. And, very closely related to that, you’ve done it before and you can cite volumes, results, cycle times, implementations and all that kind of fun stuff, to give them confidence that the risk profile here is not only manageable but more favorable, perhaps, than what they would do internally. Lastly, they ask about where you’re headed going forward in terms of ongoing enrichment, so they can sense it’s not just a decision they’re making based on today’s lens, but there’s something they can bank on in terms of ongoing investment and innovation.

ECT: You mentioned helping clients take a step forward: Is this in terms of technology? Productivity?

Unterberger: I wouldn’t lead with technology. The reason is, I’m one of these people who believe that technology is a vehicle to achieve an outcome, but it’s not an outcome in and of itself. A lot of people put more of a consumer experience in the hands of their employees and managers when employees are trying to do something on behalf of themselves. So, whether they’re trying to enroll in education or they’re trying to deal with a relocation to get a promotion, many companies get the feedback from their employees that it’s very frustrating to navigate their own internal maze of siloed delivery functions to get that stuff done. Having a delivery system that operates in more of a consumer choice, consumer behavior and integrating these services in a way that makes sense to the consumer of those services is a big asset of improvement and innovation that they’re looking at companies like us to provide.

Secondly, they’re looking at us to take noise out of the system. When you’re dealing with people-related processes, the good news and the bad news is everyone has an opinion on how that gets done. If a very noisyenvironment, where you might get noise from the highest executive in the company down to a union across to this plant, they’re looking to apply service and technology to take noise out of the system. To borrow from TV commercials: They’re looking to make their service the Maytag repairman. It’s just silent running across the operation.

Often you’ll hear those things cast as, “I want new technology.” The thought is new technology can help achieve those things: A consumer-like experience, silent running in operations. In fact, they can help, but they have to be applied in a way that drives out variation from how you handle the process, integrates this experience for a consumer, etcetera. That’s what they are looking at from us.

ECT: What is the biggest challenge? Is it dealing with people who are set in their ways?

Unterberger: This is one of those areas where you risk, perhaps, insulting some of the people who might buy your services. Less so today than in the early days, the very people who are being asked to look at this from within their company are the same people whose jobs are most threatened by it. I don’t mean by threatened that their jobs will necessarily go away, but what they do will be changed. Instead of having to look after all these administrative processes, they might have to look after something different and presumably more value-added to the company. It’s not very hard now for them to get used to the idea of giving a company like ours all this type of work to do on their behalf, however it’s very difficult for them to let go of that work, for them to let go of some of the things they thought they did really, really well and designed really, really well, but that have come to the end of their life and need to be changed if we’re going to make the next step function improvement going forward.

And here’s probably the most important one: The functions who hire us don’t necessarily have control of the other aspects of the end employees or business units, who themselves might have to change to realize the whole benefit of this, and so, to some degree, the HR or financial people who hire us are intermediaries between us and the end user of the services. It’s a very complicated chain of interaction to get the full benefit of these services deployed. It takes a while. It takes some persistence. It takes some good communication skills and good communication programs, and every company is a little bit different. You have to chart your course to be a carrot not a stick. You’ve got to make it attractive to the companies to use these things in the ways they see fit, not beat them over the head, force them and expect everyone’s going to fall in line.

ECT: Who, then, typically brings Hewitt Associates in? The CEO, CFO or is it someone further down the management line?

Unterberger: There are two buckets here. For the BPO stuff, it is almost always a combination of the top person in human resources or the function of human resources or finance and another executive like a CFO or COO or sometimes the CEO, who is interested and passionate about overall administrative improvement and outsourcing in general. We very rarely see just one sponsor. We never see it where the functional person is out of the loop, so they’re paired together in this. Usually, the head of the function — HR, 99 percent of the time, in our case — is driving the actual relationship and arrangement, and there’s another partnered sponsor to help that person work with the rest of the business in clarifying why this is important to that business’ overall objectives and removing any internal roadblocks that person might find.

ECT: What are some of the trends you expect in the next year or so?

Unterberger: I think that mostly what we’ll see is more fence-sitters getting into the market. The trend we have now — which I call surf’s up — will continue. The waves are going to ride pretty high for the next 12 to 18 months. I don’t think this is an abnormal spike. More and more people in the mainstream are getting into this.

I think that there will be some people that entered this area, from aprovider standpoint, that will be dropping out because they’re not getting the critical experience and mass to win the right level of arrangements. There’ll be some market consolidation in terms of fallout. I think you will not see in the next two or three years lots of examples of big, combo process BPO deals — mixing HR, finance and procurement. There was some suspicion that might happen, but I don’t think it will in the next two or three years, because each of those areas has a lot of content and domain expertise required, and not any one person has so much of it that clients think it’s a compelling thing to put all their eggs across multiple processes in one basket.

I do think there’ll be a focus on deepening the offerings in terms ofrichness and certain functional areas.

ECT: Has corporate use of the Internet and reliance on the Web altered how you provide BPO services?

Unterberger: How we think about that is you’d have multiple channels by which you can deliver service to, in our case, the end employees and managers of a company. If you rely on only one channel, you’ll be unsuccessful. If you have a multi-channel strategy, meaning you can reach out to people that are Web-friendly and virtual, you can talk to people who are older, less familiar or who lack access [to the Internet], and to the extent that through any of those access channels you can provide similar, if not identical, service experience, then you’ve got something pretty good. If you tightly hew your service delivery to only one channel, you’re severely limiting your market and, I think, being less successful.

The implication for people like us is we have to be good at those channels. We have to be good at shifting the dial from one to the other as our employer’s demographics might change, and stay in tune to that. I don’t think it has necessarily a huge impact on whether you decide to engage in an outsourcing contract or not. It has more of an impact on which supplier might you choose or not, depending on their ability to provide these multiple channels or not.

ECT: Which companies — either type of outsource service provider or name — do you typically compete with on BPO contracts?

Unterberger: I’ll give you categories. There are probably three types, generally, of companies offering these kinds of services. One is a company like ourselves, which grew up in a functional area — in our case, human resources — has a long history of outsourcing specific process centers, such as benefits, and now has moved into a full BPO offering, a referenceable client base and so on. We grew up along the content and domain access.

There are a group of companies — and you can probably guess who they might be — who came from a big systems integration background, and so have some expertise in execution and contents capabilities, and are looking to get out of the projects business and into this long-term, BPO contracts business. The third area are what I call the IT outsourcers, which were used to outsource long-term but who did it purely from a technology point, and who are looking to supplement their business with these content and domain axes. Those are the buckets the supplier market is made up of.

ECT: Do you typically run into one type more than another or is it a real smorgasbord?

Unterberger: You know, it’s a bit of a smorgasbord because it really reflects a couple of things. If there are sourcing advisers helping a client, those sourcing advisers’ job will be to help the client select two, three or four potential suppliers based on their view of the fit of the suppliers’ capability at that time with the client’s need. Another dimension is many of us have a pre-existing relationship with these clients, and clients feel comfortable doing their own limits on who they ask to do their stuff based on, sometimes, 10, 20 years of a working relationship.

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