Service First &

Human Resource Outsourcing Project

Fran Brooks

Department of Management Services

State of Florida

Create a smaller, more effective, more efficient government that

fully harnesses the power of technology

SERVICE FIRST

SERVICE FIRST Transfer of Career Service positions to Selected

Exempt Service Affected approximately 16,000 managerial,

supervisory, and confidential positions Personnel Rules

Repealed 44 chapters of the State’s Personnel Rules and replaced them with 10 chapters effective January 2002 (all previous rules statutorily repealed January 1, 2002)

SERVICE FIRST Broadbanding

Designed and implemented a broadband classification and compensation system

Education Vouchers Administered the Educational Voucher Program

through June 30, 2002 Savings Sharing Program

Developed program guidelines and forms

SERVICE FIRST Training

Professional Development Program Quarterly Management Development Forums

Performance Evaluation System Uniform system: Workgroup reviewing industry and

agencies’ best practices Workforce Transition and Assistance

Workforce Transition database Managing Change guidelines

HR OUTSOURCING

SERVICES PROJECT

OUTSOURCING VS. PRIVATIZATION

Outsourcing

Retain ownership of the functions

(focus on policy of “what” we do;

not process of “how” we do it)

PrivatizationRelinquish ownership of the functions

(getting out of the business)

WHERE ARE WE HEADED? E-solution to provide best in class suite of services for HR,

payroll, and benefits We are seeking to outsource transactions, and insource

transformations We have good people trapped in bad systems Conversion from a paper-based, multiple touch process to

a self-service, employee enabled electronic solution We expect to employ a highly innovative, entrepreneurial,

and efficient management program that challenges the status-quo and existing culture in formulating and implementing high-quality, timely, and cost-effective human resource and personnel services

WHY NOW?

The five stand-alone systems (non-integrated) are almost 20 years old Budgeting, cash management, accounting/ payroll,

personnel, and purchasing systems

Cooperative Personnel Employment Subsystem – COPES is the existing personnel system

Maintenance on existing system drives operating costs, outdated software, limitations on ability to meet our needs, unreliable, subject to breakdown, etc.

We are in a new millennium – time to change our 50 year old way of doing business

WHY NOW?

Technology investment avoidance is becoming a major reason to outsource.

Investment in state of the art should only be made in core business processes.

Supporting processes (such as personnel and payroll) can use (rent or lease) technology from companies that have core businesses in these support areas.

Industry has services available to meet our needs – we are not seeking to purchase new software or replace existing software Estimated $65 - $90 Million to replace COPES

WHY NOW?

1990’s – State commissioned a project to modernize or replace the non-integrated subsystems known as FFMIS (Florida Financial Management Information System) Decision was made to replace rather than update

1997-1999 – Pilot project to replace COPES and the payroll portion of FLAIR (Florida’s Accounting Information Resource) Pilot project progressed through scoping and planning phase,

but discontinued due to rising cost estimates and emerging technology

WHY NOW?

Mid-1999, State Legislature authorized two new initiatives and KPMG was hired to conduct a business case study on the Modernization of State Government Financial Management Business Practices Study assessed five options and recommended an Enterprise

Resource Planning solution at an estimated expense of $281 Million to integrate the five legacy systems. Other alternatives, including outsourcing, are currently also being considered.

Vendors have made the investment in the technology – we don’t need to – we are seeking to contract for services

Industry has formed successful partnerships with vendors, changed the role of their HR functions, and delivered better service to their customers, employees and managers.

BUSINESS PLAN – “AS IS” COSTS*(*As reported and verified by each agency)

Total Personnel Cost (1287.5 FTE’s) $ 55,565,821 Material & Supply Cost $ 666,103 Facilities & Maintenance $ 4,426,031 Equipment $ 263,680 Telephones $ 630,125 Postage $ 451,961 Security $ 47,530 Archiving/Data Storage $ 44,871 Printing $ 538,103 Training $ 382,265 Travel $ 475,341 Recruitment & Selection $ 907,097 Computer System Expense $ 7,159,995 Consulting & Contractual Services $ 154,138 Counseling $ 989,672 Other $ 647,653

TOTAL $ 73,350,385

 

 

Table -1 Estimated Potential Program Savings

FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009* Total

"As-Is" HR ProgramCurrent "As-Is" Program Costs (1287.5 FTE)

Current FTE Salaries & Benefits 55.6$ 57.0$ 58.4$ 59.9$ 61.4$ 62.9$ 64.5$ 21.5$ 441.1$ Current Expenses 17.8$ 17.8$ 17.8$ 17.8$ 17.8$ 17.8$ 17.8$ 5.9$ 130.5$ Total "As-Is" Program Costs 73.4$ 74.8$ 76.2$ 77.7$ 79.2$ 80.7$ 82.3$ 27.4$ 571.6$

COPES Replacement / Upgrade 80.0$ 80.0$ Total "As-Is" and COPES Costs Annual 153.4$ 74.8$ 76.2$ 77.7$ 79.2$ 80.7$ 82.3$ 27.4$ 651.6$

Cumulative 153.4$ 228.2$ 304.4$ 382.1$ 461.3$ 542.0$ 624.2$ 651.6$

HR Outsourcing Program Business PlanHR Services Potential Provider Contract 14.0$ 41.8$ 41.8$ 41.8$ 41.8$ 41.8$ 41.8$ 13.8$ 278.6$

Transition Workforce by Phase (922 FTE) 44.3$ 34.6$ 78.9$ Vacancies (200 FTE) (9.3)$ (9.3)$ Benefits (Group 1 - 112 FTE) (1.9)$ (1.9)$ General HR (Group 2 - 440.5 FTE) (20.8)$ (20.8)$ Recruitment & Selection (Group 3 - 169.5 FTE) (7.4)$ (7.4)$

Subtotal Transition Workforce Costs 33.1$ 6.4$ 39.5$

Residual FTE & Expenses (316 FTE) 20.7$ 21.2$ 21.7$ 22.2$ 22.7$ 23.2$ 23.7$ 7.9$ 163.3$

Subtotal State Workforce (1238 FTE) 53.8$ 27.6$ 21.7$ 22.2$ 22.7$ 23.2$ 23.7$ 7.9$ 202.8$ Credit for Abolished HR Positions (49.5 FTE) (2.1)$ (2.1)$ (2.1)$ (2.1)$ (2.1)$ (2.1)$ (2.1)$ (2.1)$ (16.8)$ Functional Expenses: Recruitment/Selection + Expenses 1.9$ 1.0$ 2.9$ Systems Expense: COPES and TimeDirect 5.5$ 5.5$ 11.0$

Final Adjusted Transition Workforce + Other (1287.5 FTE) 59.1$ 32.0$ 19.6$ 20.1$ 20.6$ 21.1$ 21.6$ 5.9$ 200.0$

Total HR Services Provider and State Workforce 73.1$ 73.8$ 61.4$ 61.9$ 62.4$ 62.9$ 63.4$ 19.7$ 478.6$

Potential Cost Savings Relative Annual 0.3$ 1.0$ 14.8$ 15.8$ 16.8$ 17.8$ 18.9$ 7.7$ 93.1$ to "As-Is" HR Program Cumulative 0.3$ 1.3$ 16.2$ 31.9$ 48.7$ 66.5$ 85.4$ 93.1$

Potential Cost Savings Relative to Annual 80.3$ 1.0$ 14.8$ 15.8$ 16.8$ 17.8$ 18.9$ 7.7$ 173.1$ "As-Is" and COPES Replacement Cumulative 80.3$ 81.3$ 96.2$ 111.9$ 128.7$ 146.5$ 165.4$ 173.1$

Potential Savings 173.1$ Program Years 7

Average Annual Savings 24.7$

Note 1: Current As-Is and Residual Estimates do not include HR Support Personnel - Payroll Accounting and Agency Specific Training (178 FTE).Note 2: Estimated Residual/Savings for Attorney Fees are not included due to variable causal factors.Note 3: FY2009 includes the pro-rated values for four months of operations to complete the contract period of performance (84 Months).Note 4: All Salaries and Benefits costs include 2.5% annual escalation.

HR Outsourcing InitiativeEstimated Potential Program Savings

(Dollars In Millions)

WHAT ARE THE BENEFITS?

Allow agencies to focus on core business and mission Better service for our employees and managers Reduce expenses - $73.4 million “As Is” costs Cost avoidance – estimated $65 - $90 million to replace COPES Redirect savings to accomplish other priorities -- $173 million Access to “state of art” technology – improve services for employees

and supervisors Leverage technology with HR administration best practices (case

management, cost accounting, analysis, data collection) Improve applicant services: one application - multiple vacancies Improve ability to communicate and provide information – links to

other sites, programs, resources Partnership with industry for enterprise solution – we shouldn’t

automate an inefficient process

WHAT ARE THE BENEFITS?

“Real time” answers to status, approvals, benefit eligibility; 24/7 access and action

Automation of routine transactions – uniform business rules, routing shortens time needed for approval

Redeployment of personnel to higher talent uses Redefinition of the HR Function itself Assist in making the transformation to an E-Culture, enable

employees to learn on their own and access their own information – self-reliance and ability to make better decisions

Managers will have time for “high touch”, coaching, mentoring, and performance evaluation, efficiency, and productivity

WHAT IS NOT BEING CONSIDEREDFOR OUTSOURCING?

Policy and Management Responsibilities Selection of candidates and specialized recruitment Labor Relations Grievances Disciplinary Actions Collective Bargaining Agreements Appraisal of employee performance Efficiency, Productivity and Incentive Sharing Programs Career Pathing and Performance Mentoring Program

WHAT IS NOT BEING CONSIDEREDFOR OUTSOURCING?

Policy and Management Responsibilities Policy and Procedure Development and Maintenance Agency Unique, Program Specific, and/or Specialized Training Federal Computerized Criminal Information Background

Checks and Investigations Processing fingerprints Human Resource Management – change management,

employee relations and communications Management of employee separations and reductions in force

WHAT IS BEING CONSIDEREDFOR OUTSOURCING?

Transactional Processes and Functions Applicant Management – Assist supervisors with recruitment,

screening, and selection processing Payroll Preparation *Payroll Production/Payroll Accounting (*not currently in scope,

but included in Invitation to Negotiate to obtain pricing for service)

Collection and accurate reporting of Time/Attendance/Leave Administration of Workers’ Compensation Program Administration of Benefits Enrollment, Flexible Spending

Accounts, and eligibility for participation Retirement Benefits Enrollment

WHAT IS BEING CONSIDEREDFOR OUTSOURCING?

Transactional Processes and Functions Employee Information, Files, and Records maintenance Administration of Employee Assistance Program (EAP) New Employee Orientation Training and Hire Packets Mandatory statewide training (New Employee Orientation,

Professional Development Program, Sexual Harassment, Diversity, American with Disabilities Act, etc.)

Generation of standardized reports and capability to query information

Collection of data to assist in administration of EEO/Affirmative Action Plans

Maintenance of organizational charts

WHO IS AFFECTED?

COPES Customers 29 Agencies 67 County Health Departments State Courts Justice Administration Commission

Bureau of State Payrolls Customers State University System Legislature Auditor General

INDUSTRY TRENDS

The amount of emphasis placed on various HR activities is shifting from a reactive and administrative focus to leadership and proactive business-related activities.

Outsourcing transactional functions and processes will streamline the administration and delivery of HR functions making more time for value-added activities (strategic direction, policy and compliance, program management, governance).

COMPANIES THAT HAVE IMPLEMENTED E-HR & SHARED SERVICES

Bank of America Dow Chemical Time Warner Eastman Chemical IBM AT&T Westinghouse Federal Express Hewlett Packard American Electric Power JC Penney Allstate Proctor and Gamble KPMG Microsoft

BP/Amoco Dell Motorola Armstrong World Industries Marriott International Sears McGraw-Hill AMP Incorporated Commonwealth Edison Mayo Clinic Whirlpool Corporation John Hancock Sun Microsystems General Electric

OUTSOURCING IN THE COMMERCIAL SECTOR

Gartner Group 28% of Outsourced Operations are in the

Transaction Processing Arena Transaction Processing Arena is the “Fastest

Growing” Segment of Outsourcing People Solutions, Inc.

80 percent of the cost of running an HR department is transactional

WHAT DO WE NEED TO GET THERE? Request for Information (December, 2000)– 14 vendors responded Unique Needs and Requirement of Agencies Inventory of FTE’s and Functions Assembled team of stakeholders to assemble and review information –

workload and transactions Determined “As Is” Costs for Business Plan Invitation to Negotiate (Released on March 22, 2001) Intent to Award (Announced on September 5, 2001) Business Plan (Completed on September 25, 2001) Contract signed August 19, 2002 Agency involvement – workgroups for policy, transition, residual

organizations, evaluation, implementation, etc. Timeline to implement: August, 2002 – January, 2004

CRITICAL INFRASTRUCTURE OF GOVERNMENT MAINTAINED

Retain selection of candidates and hiring decisions Retain “Government in Nature” responsibilities only – routine

transactions will be outsourced Management of workforce – free up resources to focus on core

mission of agency and unique needs Improved ability to measure and better manage business

functions such as payroll transaction costs, recruitment costs, cost per employee for service delivery, and time measurement for completion of personnel processes

Access to new management tools that do not exist today Capability to fully integrate with other IT solutions

CONTRACTUAL OVERSIGHT SAFEGUARDS –

ENSURE VENDOR PERFORMANCE Independent Third Party Contract Monitor – Quality Assurance

Surveillance Plan & Performance Measures Involvement and input from agencies and Legislature Penalties for poor performance and incentives for superior performance –

specific defaults and remedies to protect State and ensure continuity of services

In the event provider is terminated for cause, State recovers liquidated damages

Portability of information (SAP software) – provider responsible for all costs of transfer, attorney’s fees, and staff and time if needed

Compliance required for all State and Federal laws and regulations Contingency plan – fully operational within 24 hours

CONTRACTUAL OVERSIGHT SAFEGUARDS –

ENSURE VENDOR PERFORMANCE Gartner Group – “Five Major Failure Points of Strategic

Partnerships” – focus, fit, feasibility, function and financial Skilled Partnering Managers (Function) Robust Process and Partner Support Infrastructure (Fit and Feasibility) Clear Goals and Measures (Focus and Financial) Resource and Budget Authority (Focus and Financial) Executive Sponsorship (Fit) Solid Partner Planning and Results Assessment (Function and Financial) Capacity and Will to Innovate as Business and Partner Requirements

Evolve (Fit and Financial)

CONTRACTUAL OVERSIGHT SAFEGUARDS –

ENSURE VENDOR PERFORMANCE HR service is core business of provider Extensive research conducted on past performance and

financial data Convergys’ Clients of Similar Size and Scope of Services

GE – 320,000 employees/retirees Lucent Technologies – 170,000 employees/retirees Marriott – 150,000 employees AT&T – 190,000 employees/retirees Pfizer – 78,000 employees

CHANGE MANAGEMENT AND TRANSITION

Employees – commitment for priority consideration of qualified applicants with provider and placement in program areas (350+ employees for service center)

Residual workforce – policy, management, discipline and grievances Transition – gradual roll out by function, parallel testing Communication – project management, performance measures, and

change enablement Continuous training for employees and managers Leverage industry best practices to improve quality of service –

transform the state to an e-environment

WHAT WILL EACH AGENCY LOOK LIKE

Personnel to handle discipline, grievances, labor relations, and policy development

Contract administration -- Person to person interface with provider on behalf of the agency

Residual organization – Focus on Management and Policy

Retain “Government in Nature” responsibilities only – routine transactions will be outsourced

HR OUTSOURCING PROJECT Contract Signed – August 19, 2002 Transition Teams – Begin Agency

Meetings on August 26, 2002 Recruitment and Selection – May 1, 2003 General HR and Payroll Preparation –

June 1, 2003 Insurance and Benefits – January 1, 2004

EVOLUTION OF HR

Administrative Experts (Process Oriented) Compliance Benefits HR Information Systems Compensation

Employee Relations Experts (People Oriented) Labor Relations Environment, Health, Security, and Safety Diversity and EEO Employee Relations

EVOLUTION OF HR

Strategic Partners (Process Oriented) Strategic Planning Culture and Image HR as a Business Partner

Change Agents (People Oriented) Efficiency and Productivity Improvement Training and Development (Gaps in skills needed and

experience) Performance Measurement Organizational Design Workforce Utilization

For more information contact:

Fran Brooks, Project ManagerDepartment of Management ServicesState of Florida850/488-2187

MyFlorida.com website:http://www.myflorida.com/dms/hrm/hrout/HR_Outsourcing_Project.html