The value of integration

ADP Employer Services is the world’s leading provider of payroll, HR and benefit administration solutions for companies of all sizes. HR Management recently caught up with Greg Secord, VP of Marketing and Business Development for the company’s National Account Services group, to discuss why a fully integrated HR system is essential for driving productivity gains.

HRM. Is multi-vendor, multi-platform HR delivery as cost-effective as many employers believe?
GS. I don’t think it is. Whether it’s a software solution or an outsourced solution, when you have multiple vendors you’re less likely to achieve the cost results you hoped for. We recently did a study in conjunction with PwC and determined that the average large company spends approximately US$104 per employee per year on managing the ‘seams’ between multiple platform service delivery systems. According to Saratoga, that represents about six percent of the typical HR department’s budget, which is a large amount to spend just on managing the integration effort between disparate systems.

A lot of the challenges center around moving the data from one system to another. The way companies typically deal with this is to buy a third system – for instance, a good example in the HR world is where a company buys a compensation management system that needs to interface into the payroll system, the HR system, etc. However, this requires custom programming, along with people to maintain and IT resources to run those custom programs, as well as a significant amount of time in terms of management – it’s a big productivity drain.

HRM. On average, how much inefficiency is caused by non-integration per employee per year? What are the consequences of this?
GS. I’ve already mentioned that it costs around six percent of the typical HR department’s budget, but the interesting thing is that inefficiency always seems to center around the same couple of areas – custom programming, system upgrades, etc. In addition, an area that really caught my eye from the PwC study is erroneous payments. Almost a third of the companies surveyed expected to make an erroneous payment – it could be something as simple as paying one employee an hour too much; on the other hand, it could be something as significant as extending healthcare benefits to an employee who is no longer with the firm, which could cost hundreds of thousands of dollars. The significant figure is that fully a third of companies believed it would happen at some point or another. This all adds to the cost of non-integration.

HRM. So what’s the answer to the integration challenge? What solutions are available that might address this issue?
GS. Companies are increasingly seeing a lot of benefits in single-source solutions – both in terms of HR BPO and what we call multi-service outsourcing. HR BPO is where you outsource the whole HR function to an external provider; multi-service outsourcing is a subset of that where you still use your own people for administration. This provides a great opportunity for companies to eliminate a lot of the costs at the seams, and also to increase both the effectiveness and the efficiency of their organization.

One of the things we discovered when we looked at the study results was that companies that had put in place and integrated a multi-service portal were the most effective and had the highest employee satisfaction. The benefits of a multi-service portal are numerous. Say, for instance, an employee wanted to notify their employer of a dependent – this might affect the benefits system, the HR system, and might also impact deductions for payroll. If that employee was able to go to a single site and perform that transaction in its entirety, it would remove a lot of strain on the client organization (therefore improving effectiveness) and also improve employee satisfaction levels because it is quick, simple and easy-to-use.

What was interesting was that companies that had multiple self-service systems (i.e. different systems for HR, benefits, etc.) were the least effective and had the lowest employee satisfaction. In fact, companies that had no self-service at all and did things the old-fashioned, paper-based way were happier than companies that had multiple systems rather than a single site for employees and managers to go to. Part of the reason for that was the back-end integration just wasn’t good enough to support the type of front-end users expected. There’s definitely a correlation between HR capabilities and effectiveness and employee satisfaction.

HRM. How do you anticipate this sector developing over the next 18 months? Are there any trends you are particularly excited by, or that concern you?
GS. I really think that the order of magnitude of some of these projects is of concern, which is why I feel the outsourcing alternative is so strong. If you try and do this with an all-encompassing software solution, you strain your resources and integration challenges remain. Using multi-service HR outsourcing, you get access to standardized processes (which makes the transfer of the important information and the elimination of the seams a lot smoother); and you get access to the resources of your outsourcing partner in terms of implementation.

We’re seeing a shift from companies outsourcing one or maybe two discreet functions, to companies outsourcing around five discreet functions right from the start. Senior finance and HR executives are recognizing that there are so many interdependencies in their organizations today that they need to go to a firm that can help them with many of them at the same time to get the results they’re looking for – picking them off one at a time is not necessarily the best solution.