Purchasing technology and outsourcing services from a third-party provider has many advantages, key among them is that it allows you to focus on your core business and leave HR technology tasks (automation, compliance, reporting, engagement, etc.) to those with the expertise to do what they do best.
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Insights from Gallagher’s HR & Benefits Technology Consulting Practice

Purchasing technology and outsourcing services from a third-party provider has many advantages, key among them is that it allows you to focus on your core business and leave HR technology tasks (automation, compliance, reporting, engagement, etc.) to those with the expertise to do what they do best.

Outsourcing comes with risk, although a good outsourcer is likely better at determining how to avoid/minimize risk in their area of expertise. However, anytime an employer shifts responsibility to a  third-party service provider there is an inherent risk of things going awry or maybe just not as well as you hoped. To ensure the best possible outcomes, we help employers actively govern the relationship with their technology providers…if it makes sense to do so.

There are instances when the time and effort required to govern the relationship is simply not worth it. Perhaps you have no expectations for the software or there’s no service attached. Sometimes it’s just a utility tool and if it went away tomorrow there would be no serious repercussions.

So, the first tip in governing a relationship is:. 

  1. Determine if the relationship needs to be governed
    Ask yourself how important is the technology/service is to your daily operation, or more simply, what would it look like if it failed? Along this same line, what is your definition of success for the technology/service? Think about payroll. Success may be that employees are paid the correct amount and on time. Now, consider the pain associated with this not happening. Ouch! From the other end of the spectrum, if your internal chat platform went down for a few days, employees have other ways to communicate.

Not governing a relationship may result in an inconvenience, but like most technology-related decisions, it’s a tradeoff. You must decide where you’ll get the most return on your investment, especially if a quick phone call will result in the necessary fix. That said, most employers have at least one HR technology platform or tool that warrants putting time and effort into governing the service provider relationship. Here are nine more ways to effectively do so that will return value in terms of a positive working relationship that delivers the outcomes you want.

  1. Define your risk up front
    While defining success, also define the associated risk if something doesn’t work. What is the risk to my job if I’m in charge of benefits and the CEO’s husband is at the drugstore and can’t fill his prescription? Or what’s the risk if a recently added dependent doesn’t show in the system during a 3 am visit to the emergency room? The value in governing a relationship will vary depending on the associated risk. So too should the amount of effort you put into governing the relationship. Some relationships will warrant more effort than others.
  1. Define (up front and in writing) what success looks like (see #1) and keep referring to it
    Sometimes people forget why they bought a specific tool. They become unhappy with it because their expectation for what the tool will do has changed since the initial purchase, but the software didn’t. An example from my team: Two years ago, we bought a time-keeping system to keep time, which it does just fine. Now, we want it to support project management, which it doesn’t do well. We’re unhappy with the product but remind ourselves it is doing exactly what it is supposed to do. The onus is on us to find a different product. Has your definition of success changed? Share your definition with the provider to make sure they can deliver.
  1. Meet formally at least twice a year
    At both meetings, two things should happen:
    1. A good old fashion, eye-to-eye discussion on how things are going. There’s a lot of value to simply sharing how things are working on both sides.
    2. Discuss what’s changed (on both sides). This may be a material change such as growth. Is your payroll system now managing 500 employees versus the 250 when you bought the system? Or, perhaps it’s a change in need, e.g., you want to offer decision support for open enrollment; or a change in expectations, e.g., I need a faster customer service response time. Providers should use this time to discuss product innovations, new offerings and evolutions. (Not paying attention to software upgrades means missed opportunities to optimize the use of the software.).
  1. Set clear expectations regarding response times
    This should be done mutually with your provider and should be based on the severity of the problem, e.g., a “severity 1” problem should be addressed within two hours while a “severity 2” problem might be 24 hours. There may be general industry guidance available; ask your provider. Also agree on what should trigger service escalation. Most important is to look for a culture fit when it comes to response expectations. If the providers’ culture is “we’ll get to it when we do,” and yours is “get it done yesterday,” then more governance will be needed, or the provider may be a poor fit.
  1. Insist on a formal structure
    Who is supposed to be interfacing with whom, on both sides? When the interface doesn’t work, what’s the escalation process? Outline clearly the answers to both questions and reconfirm at each formal meeting.
  1. Know your part when there are issues
    Recognize that sometimes YOU will be the problem. Someone on your team didn’t participate in training, follow instructions or adhere to an agreed-upon process. Acknowledge your role in any given situation and ask the provider to do the same.
  1. Insist on root cause analysis
    For almost any issue there is a fix, but if no one is looking at why the issue arose, then it will likely resurface — sooner or later. When issues arise, insist on identifying the cause. Was it technical or non-technical? While it is tempting to accept a quick and easy fix and move on, it’s important to resolve the issue at the source to avoid reoccurrence and the frustration that goes along with multiple reoccurrences. (Service providers take note: this is part of your job).
  1. Recognize the complexity of what you’re trying to do
    You are most likely working with multiple providers whose products must work together. You have a contract with each one, but there is no contractual relationship between the various providers. This puts you in control central. Don’t assume the providers will engage and communicate with each other to address issues and efficiencies; this is part of your governance responsibility.
  1. Try marriage counseling before getting divorced
    In our experience, employers are too quick to make a change when things don’t go as desired. Keep in mind there is typically a lot of pain (and cost!) associated with changing platforms/providers. Enroll a third party to help with communication and resolution before you decide to change providers. Don’t wait until you have irreconcilable differences. Good governance will help avoid getting to this point.

The governance of HR technology and service outsourcing relationships is about realizing a mutually-defined set of goals which, when achieved, is a big win-win. However, don’t confuse governance with management. Governance is about authority — how decisions are made, who gets to make them and who’s accountable for the outcomes. These decisions should be considered in advance of entering a long-term alliance, although they may continue to be refined over time. Management is about the responsibility for delivering to meet the expectations outlined by the governance process and is part of the ongoing activity associated with sourcing, which doesn’t really kick in until after a provider has been selected. Both are important for successful outcomes but investing in good governance on the front end will make day-to-day management much easier and pay you back in time and productivity.

About the Author

Rhonda Marcucci, together with practice partner Ed Barry, co-leads a team of HR and benefits technology consultants who provide unbiased, well-researched and client-tailored HR and benefits administration technology consulting including sourcing advice and service provider capability audits. Her extensive and broad-based experience in finance, accounting, administration, strategic planning, information systems, sales and marketing, and operations is instrumental in helping clients identify a comprehensive strategy and execute against it.

Consulting and insurance brokerage services to be provided by Gallagher Benefit Services, Inc. and/or its affiliate Gallagher Benefit Services (Canada) Group Inc. Gallagher Benefit Services, Inc. is a licensed insurance agency that does business in California as “Gallagher Benefit Services of California Insurance Services” and in Massachusetts as “Gallagher Benefit Insurance Services.” Neither Arthur J. Gallagher & Co., nor its affiliates provide accounting, legal or tax advice.