At one time, a primary reason that companies outsourced HR functions was to reduce expenses, but no longer. Recent surveys show that improving customer service quality has supplanted cost-cutting as a driver of outsourcing.

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In fact, improving service quality is the second most widely cited criterion for choosing outsourcing vendors, behind corporate brand equity, according to a November 2005 survey of top HR and other executives by the Yankee Group, an IT research firm in Boston. Further, results from last year's HR Outsourcing Effectiveness Study by Towers Perrin found that the top goal companies had for vendors--once selected--was to quickly meet established customer service levels and expectations.

HR often doesn't realize the customer service gains it seeks. In fact, 39 percent of respondents to the Towers Perrin study said outsourcing HR functions did not result in higher levels of service quality than could have been achieved internally.

What's more, poor quality of service was the most common reason for bringing outsourced functions back in-house, according to the 2005 HR Outsourcing Trends & Insights survey by Hewitt Associates, a Lincolnshire, Ill.-based global HR outsourcing and consulting firm.

Those survey findings represent a serious concern for companies that are considering outsourcing because customer service quality is vital to the success of any such initiative. When service lags, employees quickly get frustrated, lose faith in the vendor and become less productive as they spend time tracking down answers to their questions.

To avoid that kind of collapse, HR professionals must properly oversee the entire outsourcing process--from pre-selection preparation, to vendor selection, to managing the relationship with the outsourcing provider.

Set Your Goals

If you want an outsourcing provider to meet specific customer service goals, you first have to establish benchmarks and determine which goals are reasonable. That's a pre-planning strategy that outsourcing experts strongly suggest to companies planning to outsource HR. It's also the plan of attack followed by Whirlpool Corp. in Benton Harbor, Mich.

"We took the preceding six months and looked at our own [customer service] satisfaction levels, then compared them to industry and best of class," says Abbe Luersman, vice president of total rewards and HR solutions for the appliance manufacturer. Then the company established a service level for every process by selecting which ever standard was highest--Whirlpool's customer satisfaction performance or the industry benchmark.

In another move to be diligent about quality, the company also asked its outsourcing provider, Cincinnati-based Convergys Corp., to implement processes "in bite-sized pieces," Luersman says.

Evaluate The Provider's Staff

Once you have established service-level goals, evaluate any providers you are considering to be sure they can meet those goals. Some of the most important factors to weight are the skill, experience and tenure of the outsourcing providers' staff.

Robert Crow, senior consultant in HR advisory services for Watson Wyatt Worldwide in San Diego, says the biggest service problems your employees will see are often caused by a lack of expertise and knowledge on the part of an outsourcer's call center representatives.

As a result, "training really needs to be at the forefront" of the outsourcer's agenda, says Todd Mestad, employee benefits manager at adhesive manufacturer H. B. Fuller in St. Paul, Minn. Insist that training take place, and if you see problems after inking a deal, give the provider examples of where additional training is most needed, he adds.

Of course, the positive effects of training will be minimized if a provider's employees do not stick around long enough to use it. Short tenures can limit the effectiveness of call center representatives, so it is important to find out your outsourcer's call center turnover rate.

Don't be surprised if it is relatively high. For example, over the six years Mestad's company has been outsourcing its health and welfare and pension plan administration, employee turnover at its provider has been about 100 percent, he says.

To double-check that a specific outsourcing provider's staff possesses the customer service skills you need, pay them a visit before signing a contract, suggests Ed Wolyniec, leader of service delivery for the Americas at Mercer HR Services in New York. Visiting an outsourcer's call center can give a sense of the attention paid to clients and of the capabilities of call center representatives, he says.

Doing so can ensure that you get the top-level service you seek, which is a prime benefit of using an outsourcer.

Jeffrey Hamlin, system director of human resource services for CHRISTUS Health, a Catholic hospital system in Houston, says having seasoned call center employees is one of the reasons his company outsourced benefits plan administration and enrollment.

Because outsourcing companies are serving many clients, they have the scale of resources, technology and experience to provide call center employees with professionally developed scripts and condensed versions of plan documents. Those tools enable them to provide consistent messages, stay focused on the questions, and know what follow-up questions or issues to address without going too far, Hamlin says.

Culture and Communication

Finding the right cultural fit with vendors also can play a big role in ensuring that they will meet your customer satisfaction goals. Finding a good fit was an important consideration when Wilmington, Del.-based DuPont Co. selected Convergys as the global science company's outsourcing partner last October.

Convergys' "solutions, mentality and action orientation" seemed to be the right fit with DuPont's culture, says Ernie Lareau, HR director of portal and program management.

DuPont's selection also reflected its emphasis on customer service. "We were looking for people that demonstrated the ability to achieve our service-level metrics that we monitor and measure," says Lareau.

When evaluating fit, be sure you can communicate clearly with the outsourcer, and take the time to establish clear lines of dialogue.

The "key thing is vocabulary," Lareau says. Sometimes the parties working together can use even common words differently. "If you don't stop and ask questions for clarity, you can misunderstand," he says.

To establish good communication, you may need to invest the time to help vendors understand your company's systems, processes and culture.

For example, after Whirlpool signed a 10-year agreement with Convergys in July, the appliance manufacturer provided the outsourcer's team with between eight and 10 weeks of initial training on Whirlpool's benefits plans. While most of the services are still in the planning stage, the outsourcing company so far has handled health plan enrollment, initiating employee self-service with online and voice response technology.

That kind of effort aimed at building understanding and creating communication channels can be important because once the contract is in motion, you may need to provide more information to providers than you expect.

By letting outsourcers know of significant changes at your company--even when the changes are not related to the outsourcer's role--you can reduce employee frustration with outsourcing providers, says Wolyniec. For example, if an outsourcer is exclusively handling retirement savings plans but your company has altered its health benefits, provide the outsourcer a procedure to follow if an employee asks for help concerning the medical plan, he suggests. That procedure could be as simple as telling the employee a special mailbox has been established for health benefits questions.

Put It in Writing

Once you know where you stand with an outsourcing firm and what level of service you want it to provide, spell out your expectations in the contract.

The contract must contain the types of services being provided, the quality measurements and the management process--including the governance structure, meeting schedule and financial incentives, says Watson Wyatt's Crow.

"Everything outsourced should have some level of measurement," he says. "An active scorecard" around the company's strategic goals is crucial, he adds.

It is also important that the contract set boundaries and list expectations for both the client and vendor sides of the partnership for every aspect of the program. And, to build a successful relationship, it's vital that the contract establish an approach for resolving problems between the partners, the Towers Perrin study results indicate.

With DuPont and Convergys, problem resolution is "a tiered approach," Lareau explains. First, the DuPont and Convergys team members at the project site try to handle it. If that doesn't work, the issue is raised with two levels of management in each company. Any problem not resolved within the two companies is then brought to an outside mediator.

Lareau does not see ever reaching that third tier. "All our interactions are collaborative and solution-oriented," he says.

Communicate With Employees

While it is important to communicate expectations with an outsourcing provider--both during initial negotiations and in the contract--it is equally important to communicate with the employees who are affected by the outsourcing. The quality, timing and tone of that communication can set the stage for either employee satisfaction or disenchantment with the services.

"A big part of this is selling it--ultimately getting people using the tools and getting excited about them," says Mary Tinebra, head of U.S. market development at Mercer HR Services in New York.

Alisa Plazonja, a consultant with Hager Strategic, a Washington, D.C., firm that advises companies on outsourcing, says, "The form of communication depends upon the culture of your organization." But even within the same company, there may be different audiences that require different messages or methods of communication, she adds.

To make sure Whirlpool got its messaging right, it conducted employee focus groups on proposed changes and then sent messages to employees based on that feedback. Additionally, employees were allowed to try out open enrollment with the vendor before actually enrolling. The end result, Luersman says, was a 95 percent overall satisfaction rate among employees.

"As a company, you have to be willing to make that investment" in preplanning and communicating to employees, she says.

One issue to be aware of is that outsourced functions often require employees to have a level of comfort with technology that they may not possess. The technology sometimes trips up employees, says Duncan Harwood, a principal with PricewaterhouseCoopers HR Services in Dallas.

"We've built a delivery model for HR outsourcing that requires people to become expert users of the Internet," says Harwood. A web portal may be the employee's only access for benefits information, but the person may not be adept at online navigation. "Right now, what may be intuitive to you may not be to employee bases," he says.

Thus, you may need to simplify technological information or give employees a low-tech option, such as calling a customer service line that will walk them through a procedure.

In other instances, says Hager consultant Andri Sujono, employee dissatisfaction may stem from the formal process of working with the outsourcer rather than the familiar internal HR generalist. For example, internal staff might make exceptions for employees, but outsourcers can't make exceptions as readily because they are under contract to handle a program a certain way, Sujono says.

That's one reason that once processes are outsourced, "you have to be very disciplined as an organization" about not performing functions that the outsourcer is supposed to handle, she says.

Continuous Improvement

Once you and an outsourcing provider get into a rhythm of working together, you shouldn't let up. Now is not the time to idle.

"Manage, manage, manage," says Mestad. Six years of outsourcing health and welfare and pension plans have taught him that internal HR staff must always watch for slipping service levels.

Sometimes, Mestad says, it is necessary to remind the outsourcing company about the service levels agreed to in the contract. "Give the outsourcer an example of things they need to do better," he says, like shortening the time it takes to answer questions for plan participants. Financial penalties should be invoked for performance that doesn't meet contract specifications, Mestad says.

Plazonja says an emerging trend is to design contracts so that performance targets can be shifted every six months.

"Every time there is a business change, then processes and technology must change," Harwood explains. The outsourcing provider not only must be agile and innovative to accommodate business dynamics, but also should help the client understand its data needs.

Tinebra and Wolyniec suggest another service tool be implemented--an annual business plan for the outsourcing arrangement. "The environment within the client may change," Wolyniec says, and that may affect service needs and priorities. Reinforce the plan with check-in and project status meetings, he says.

The client must make clear to the outsourcer that when a service issue arises, the company should be informed quickly and updated frequently on the progress in resolving it, Tinebra adds.

The catch-22 in the outsourcing arrangement is that vendors sometimes don't want to innovate, according to the Towers Perrin study. "Different motivations collide," says David Rhodes, a principal specializing in HR function effectiveness at Towers Perrin HR Services in Stamford, Conn. When the outsourcer has stabilized processes and is meeting benchmarks, it does not want to risk making changes that could throw the functions off their targets, he says.

Rhodes suggests that HR stress to outsourcing providers that innovation is key to customer service satisfaction in the long term. "We as HR people, we as businesspeople, want it to improve," he says.

ROSEANNE WHITE GEISEL, A FREELANCE BUSINESS WRITER AND EDITOR IN ARLINGTON, VA., IS THE FORMER MANAGING EDITOR OF BUSINESS INSURANCE MAGAZINE.

RELATED ARTICLE: Plummeting Satisfaction

The percentage of clients that are somewhat or very satisfied with an outsourcer's customer service tends to drop as the outsourcing relationship progresses.</p> <pre> Satisfaction When the deal is signed 92% In the implementation phase 80% After the first year 56% After the second year 40% Note: Table made from line graph. </pre> <p>Source: The HR Outsourcing Effectiveness Study by Towers Perrin. The study respondents represent about 48 companies that account for close to 80 percent of the major HR outsourcing deals in place at the time the study was conducted. The report defines major outsourcing deals as "a minimum of six major HR processes outsourced to a single vendor." Of those respondents, 49 percent are from companies with 10,000 to 50,000 employees.

RELATED ARTICLE: Time vs. Satisfaction

When it comes to customer satisfaction levels, a honeymoon period seems to set in after the outsourcing deal is signed.

According to The HR Outsourcing Effectiveness Study by Towers Perrin, 92 percent of companies are somewhat or very satisfied with customer service when they ink an outsourcing deal. But satisfaction drops steadily after that, tumbling to 40 percent after the second year.

Sagging satisfaction may be at least partly attributable to companies themselves. Companies are satisfied with their outsourcing service "to the extent that they've managed their expectations," says David Rhodes, a principal specializing in HR function effectiveness at towers Perrin HR Services in Stamford, Conn.

For example, one cause of the customer satisfaction dip over time could be that HR leadership does not stay involved in the outsourcing arrangement. The study found that senior leadership at 90 percent of respondents' companies is somewhat or very involved before signing a contract, reaching a high of 98 percent at the time the deal is inked. That involvement drops to 77 percent during the implementation phase and 70 percent post-implementation.

It's possible that when senior executives fade out of the picture, outsourcers lose their service focus. On the other hand, outsourcing deals are often intended to free the time of top HR managers for strategic pursuits, and if their time is needed to shepherd such arrangements, a key outsourcing benefit may be lost.

RELATED ARTICLE: Creating Teamwork

To work effectively, a vendor-client relationship must be a collaboration of two parties working toward the goal of high-quality, cost-effective service, say those involved in outsourcing. Teamwork and frequent interaction and communication must be hallmarks of the relationship.

In fact, some Towers Perrin survey respondents say the vendor-client relationship is the sole determinant of successful outsourcing. (For more information on managing the vendor relationship, see "Seeking Full Partnership" in the July 2004 issue of HR Magazine.)

Strong partnerships are fundamental to service quality, says Jocelyn Purtell, HR outsourcing operations leader for North America for Hewitt Associates Inc., a Lincolnshire, Ill.-based consultant and outsourcing supplier. The client and vendor "must be in the boat together, rowing in the same direction," Purtell says.

Online Resources

For more information about customer satisfaction with outsourcing deals, see the online version of this article at www.shrm.org/hrmagazine/06March.

There you will find links to:

* An HR Magazine article on managing the vendor relationship.

* An SHRM HR Outsourcing Focus Area article on HR outsourcing trends.

* An SHRM HR Outsourcing Focus Area article on companies' frustration with outsourcing service quality.

* The HR Outsourcing Effectiveness Study by Towers Perrin.

* HR Transformation: A Global Vision, a study by the Shared Services and Business Process Outsourcing Association.