More power to HRO: BT re-signs a 10-year expanded HRO contract.

by Russ Banham

WHEN BT RE-SIGNED WITH ACCENTURE HR SERVICES FOR ANOTHER 10 YEARS ON ITS HRO CONTRACT AND EXPANDED THE SERVICES TO INCLUDE 44 ADDITIONAL COUNTRIES, THEY SENT A MESSAGE TO HR LEADERS EVERYWHERE THAT WAS LOUD AND CLEAR: HRO IS HERE TO STAY.

When telecom giant BT plc and outsourcing services firm Accenture inked a five-year comprehensive HR outsourcing pact in 2000, the venture marked the launch of a major HRO provider in Accenture HR Services, a 50-50 joint venture between the companies. Although the joint venture eventually dissolved, with Accenture taking full ownership of the firm, the relationship didnt. In February 2005, the partners announced the first major renewal of a comprehensive HRO engagementa ten-year contract through the year 2015.

The $575 million value of the landmark contract is just one of its notable features. While the scope of the original outsourcing agreement covered BTs 87,000 employees and 180,000 pensioners in the United Kingdom, the new contract expands the geographic reach of services that Accenture had been providing to an additional 10,000 employees in an additional 44 countries. As in the previous agreement, the services provided include customer contact, recruitment, pension administration, payroll and benefits administration, performance management administration, health and safety, and HR advisory and information services. But, where the re-signing is truly important is in its affirmation of HR business process outsourcing as a successful, long-term enterprise strategy.

This deal is a massive vote of confidence in the industry that HRO works, says Duncan Mears, senior client services director for BT at Accenture HR Services. We know many companies have tried and struggled with outsourcing, but we have made it work. And it only works when both parties to the contract want it to work. David Clinton, president of Accenture HR Services, concurs.

BT took a bold step some five years ago, Clinton says. The resigning of the agreement and its extension to 44 countries outside the United Kingdom not only vindicates that original decision but is also a clear demonstration of the value that full-scope HR outsourcing can deliver. It is a massive boost for the industry.

THE FOUNDATION 

BTs journey to HR outsourcing began in 1990. At the time, 14,500 BT HR professionals served the needs of 250,000 BT employees via 26 separate HR systems, 30 telephone help lines, and more than 26 physical HR sites aligned to the organizations 26 geographic districts. This system was costly, inefficient, and ill suited to the accelerating pace of change facing BTs business. The telecom sector was evolving quickly over the course of the decade, as new technologies were introduced and merged with legacy technologies to give rise to todays multifaceted telecom offerings, from standard phone service and networking to newer VoIP (Voice over Internet Protocol) systems.

In 1991, BT restructured from a 26- district geographic focus to customer-centric functional units. As part of the restructuring, HR transactional services were rationalized to nine key sites as the HR system portfolio consolidated. BT then undertook what was a novel concept in 1997seeking to outsource transactional HR functions to liberate HR and focus HR senior staff on operations and strategic issues. A shared-service strategy for the transactional pieces of HR was introduced to improve customer service, reduce costs, and increase productivity. The success of this endeavor persuaded HR to consider the development of a joint venture with a consulting firm to create an HR outsourcing organization.

In 2000, BT joined hands with Accenture in forming Accenture HR Services, which has since marketed and sold its services to numerous clients. Employees of both organizations worked closely together to build a full end-to-end HR solution covering the typical employee lifecycleemployee training, performance, reward, employee relations, safety, health, and exit. In creating the new organization, 1,100 BT employees gradually were transferred to the new providers payroll. BT was spreading its wings internationally at the time, employing workers in 26 countries, but it determined not to extend the scope of the outsourcing initiative geographically. The international business is in its infancy, so it would have been inappropriate, initially, to put Accenture in charge of standardizing practices in a part of our business that is undergoing such rapid change on the workforce front, a BT spokesperson said in 2003. That said, we do believe there are global opportunities in HRO.

BUILDING BLOCK 

These opportunities are now at hand, despite a few rough patches in the partners relationship during the course of their five year HRO agreement. There were some issues early on around service quality and consistency, Mears concedes. Consequently, two years ago we put in place a new approach to servicing BTs HR needs, creating a team of people in the client services group whose job it was to better understand and articulate BTs business direction and strategy. We learned where the noise was in the system around quality and consistency issues and worked hard to improve and refine our processes and procedures.

BT Employee Relations and HR Policy Director, Joe McDavid says the early difficulties in the joint venture were solved by  persuading people on both sides that we had a commercial relationship rather than some sort of artificial relationship, he explains. The service wasnt bad and the costs reduced a bit, but the venture just didnt deliver the benefits wed wanted. As a result, we decided to sell our half of the joint venture to Accenture. After that, the quality of the service we received and the quality of the relationship really started to improve.

As the initial five-year contract neared its expiration date, BT examined its options: Should it continue to work with Accenture HR Services or request competitive proposals from other HRO providers? We did a lot of internal work on producing a detailed 80-page statement of requirements to prepare for a possible ITT [invitation to tender] to other vendors, says McDavid. We spoke with all the players in this space and some of the newer ones with ambitions. We explained what we were looking for and talked about the savings and service levels we wanted on a global basis. We then commissioned an external study on benchmarking to line up the players. BT further requested and received feedback from its HR professionals regarding their relationship with Accenture HR Services. In the end, the provider came out very well in terms of quality and price, McDavid says.

BTs HR staff decided to spend the next three months in deep discussions with Accenture HR Services about the possibility of continuing and enlarging upon the outsourcing relationship. Ultimately, an ITT was never dispatched to vendors and the companies determined to give the client-provider relationship another go. We reserved the right to do an ITT over the course of our negotiations and Accenture knew that, McDavid notes. Against that backdrop we felt we could have proper, professional, and reasoned communications. Mears acknowledges that the threat of a tendering process kept Accenture HR Services fully focused on understanding and meeting BTs needs. On our side was the fact that our customer satisfaction surveys were exceptional, in the high 80s and 90s, and our KPIs [key performance indicators] were very strong and in excess actually of what we had hoped, he notes. Meanwhile, our SLAs [service level agreements] over the course of the five-year agreement with BT were green in all key areas. The benchmarking activity that BT undertook showed that in the majority of product areas, we were among the very best in terms of performance, quality, and service, with the lowest position in price.

We would not have been talking to them had they not been doing a good job initially, McDavid comments. Their service quality and the relationship we shared were strong, particularly in the last two years as things improved. Certainly, that made them a serious contender. These results gave BT the confidence to move forward, despite the few birthing pains early in the relationship. Consequently, what could have been a quickie divorce ended in a renewed commitment to build world-class HR outsourcing services, albeit no longer within the confines of a joint venture.

 The crux of it is that we began to listen, Mears says. We took the time to ensure that highly skilled people with strong and dedicated HR backgroundspeople who truly understood the telecom businesswould begin to articulate and transact with BT in a language of understanding their strategy. This team developed a set of new products and services that enabled BT to rapidly accelerate its HR agenda, implementing new products and performance management systems, including new pay benefit systems, new reward processes, learning programs, and reporting programs. BT realized Accenture is a company that can continue to drive this agenda and HR innovation for the next decade.

WORLD CLASS

The new 10-year contract essentially replicates the earlier contract, only this time on a worldwide platformserving BT Global Services, one of three major divisions within the telecom provider. The division provides information technology and networking services internationally to meet the needs of multi-site organizations with European operations. BT Global Services is likely to grow three-fold to four-fold over the next seven or eight years, says Mears. They sought a partner that would enable them to provide workforce management and performance services in 38 countries around the globe. BT further wanted a provider with an international footprint of capability similar to its own.

I would like to think this is pure design and not serendipity, but it turned out that we had a footprint in all the countries they were in, Mears says. McDavid says Accentures global capability remarkably mirrored our own global footprint. It was a useful coincidence. There were few players out there that really had a global service delivery model. But, what really locked the deal for us were the price and the relationship. The new contract will assist BTs goal of a single, global operating environment. Due to both organic and inorganic growth, BT has inherited a history of different HR processes, procedures, and practices across different cultures.

We want to tighten and standardize these practices, not just in HR but across the entire organization, says McDavid, which, in the end run, is better for our customers. We can provide a better service for them if we have a single operating environment around the globe. Part of that is making sure our employees are treated the same way.

LEVERAGING TECHNOLOGY

A looming challenge for both companies as they move forward when the contract takes effect in August 2005, is migrating from a U.K.- centric delivery model to one that covers an additional 44 countries. Technology is part of the solution. BT is implementing PeopleSoft 8.8 and using PeopleSoft applications to provide a single recruitment process, a single benefits process, one employee access process, and so on, Mears says. Weve overlaid these standard processes with in-country configurations customized to meet local requirements, which is probably a first. Weve been in consultations with the works councils in Europe to review these changes, and they are very happy so far to see what BT is doing. Although financial systems provider Oracle recently announced it would acquire rival PeopleSoft, McDavid says both BT and Accenture have received assurances from Oracle that they will continue to support the PeopleSoft product for the next ten years.

Moving to a global HR service delivery network is another daunting challenge for the partners, expected to be solved by process re-engineering. All the people working in Accenture HR Services will access the BT PeopleSoft system, which we will host, says Mears. Weve established major system centers in Chicago, Bangalore (India), Prague (Czech Republic), and Milton Keynes in the United Kingdom. We are re-engineering our processes to enable us to get to a lower cost of service for BT. While this transformation added significantly to our upfront costs, the 10-year expanse of the contract spreads the costs over a longer period of time, helping us achieve the price point BT wanted. McDavid concurs: Since the deal is longer and bigger, BT is able to reap economies of scale that were reflected in the price.

BT is expected to garner a 50 percent savings from the contract as compared with old cost bases. This savings will be realized through the use of more sophisticated technology, global delivery of services, process reengineering, and a better understanding of what the telecom giant needs to buy and not buy. Says McDavid, Were not in the public domain on the scale of savings but they are significant. As in the earlier five-year contract, some existing BT employees will become Accenture employees. We expect less than one hundred people will make the move over, although were still going through the due diligence and dont have an exact number yet, Mears comments. As for former BT employees now on Accentures payroll, he says they are going through a great deal of change in terms of their training as they migrate to new products. Theyve been exposed to a greater set of services and technology enabling them to cover the ground faster and have them work on multiple projects without constraints. Were running at a less than 10 percent attrition rate because of the huge amount of creative succession planning and rotation duties we have in place. We are always moving our resources around offering different products so that people are constantly energized. Also energized are the companies that have not considered HR outsourcing as a viable strategy heretofore.

Since the deal was announced, we have received dozens of calls from organizations interested in HR outsourcing, McDavid says. It has been good for us to do this deal, but it is also very good for the whole BPO marketplace. This re-signing sends a signal that HRO can work and that there are suppliers that can provide good service and build a good relationship. Mears agrees.

BT did this deal based on their trust in us and confidence that we would be a good partner for another 10 years, he says. As they change and evolve, they know we will be there as a partner to push their HR agenda where it needs to go.  [HROE]