Companies are discovering that outsourced HR services can position them – and their employees – to weather change more successfully. Here’s how Tenneco and several of its spin-off companies benefited from their outsourcing strategy.

As the outsourcing of business processes becomes mainstream, the reasons companies decide to outsource remain fairly predictable—to reduce operating costs, improve company focus, and gain access to world-class capabilities, to name a few. But in a mercurial business climate rife with mergers, divestitures, and new business launches, another reason is emerging: The outsourcing of noncore functions can help a company stay nimble to better manage business change.

"Outsourcing helps organizations in transition," says Frank Casale, founder and president of the Outsourcing Institute. "For example, if a company is transforming from a vertically integrated company to more of a virtual organization, outsourcing becomes a highly cost-effective and time-efficient means to affect those changes." Casale, who has described outsourcing as "changeware," says this is particularly true in human resources.

"Typically, during any kind of transition, there’s a spike in the demand for things like HR services," Casale says. "Those resources are not normally in such high demand. The need goes up and the uniqueness of the need goes up. In an outsourced scenario, you’re better able to handle that spike."

In 1995, Tenneco was a diversified conglomerate in the midst of a long process of strategic divestitures and acquisitions. With 150 locations and approximately half of the employee populations served by locally administered hourly plans, the company had a complex, and continuously evolving, administrative challenge. After deciding to consolidate payroll administration across its various companies, Tenneco looked for other opportunities to employ a centralized approach, and identified benefits administration as one such area. Then the company considered whether "insourcing" or outsourcing would be the better approach.

"We looked at building it internally, with the constraint that we wanted an elevated service level and we wanted it within a two-year time frame," says Rex Abercrombie, then director of HR services at Tenneco. "We identified some very large amounts—in excess of $23 million—as an up-front investment in infrastructure to build a ‘call center.’"

In the end, the decision to outsource full benefits administration through Hewitt for all of Tenneco’s benefits plans was a strategic one, Abercrombie says. "We felt the employees would be better served in getting more consistent answers to their benefits inquiries. As benefits laws continue to get more complex, we felt Hewitt had better capability of keeping up with that, as well as the technology and infrastructure to run a call center." In 1997 Hewitt took over administration for the hourly populations, enabling the conglomerate to "get its arms around" the hourly workforce and begin managing organization-wide plan design changes reflective of the benefits strategies.

Beginning with its spin-off of Case Corporation in 1994, Tenneco has experienced dramatic changes within its organizational structure. In December 1996, Tenneco spun off Newport News Shipbuilding and Tenneco Energy. By the end of 1999, Tenneco had spun off Packaging Corporation of America (PCA) into a joint venture and had separated its remaining businesses, Tenneco Packaging (now known as Pactiv Corporation) and Tenneco Automotive.

"As they went through the changes involved in divesting and merging, having the outsourcing structure in place allowed them to operate without missing a beat," says Maryann Laketek, managing consultant with Hewitt. "For example, when PCA spun off, they continued to receive the same kind of service from us as a stand-alone company as they did when they were a part of Tenneco. That gave management a lot of flexibility. They weren’t forced to find a new solution, and it was to their advantage to work with the same partners. We were able to adapt and move forward with them."

Abercrombie, who is now executive director of compensation and benefits for Illinois-based Tenneco Automotive, (the only company that still bears the Tenneco name), agrees. "Our resources were stretched, as we had to replicate some of the functions at each new company and take on new responsibilities since we no longer had a corporate parent. There were some unique complexities involved in our spin-off, and Hewitt was able to make the transition because of their expertise. These events happened in the space of a few months, and we simply didn’t have the internal resources to do it all."

With Tenneco Automotive developing a new identity as an independent company, the outsourcing of benefits administration is a key factor as the company makes another change: becoming an employer of choice. "We are interested in becoming an employer of choice to pursue the scarce talent that’s out there. We know how important it is to meet and exceed the needs of employees," says Abercrombie. To that end, the company is mapping out a benefits strategy that will expand employees’ capabilities to select medical plans, project pension benefits, and identify their long-term savings needs. "I won’t say having all that will make us an employer of choice," Abercrombie says. "But to be in the game, we’re going to have to do at least that."

The Hewitt infrastructure that will enable Tenneco Automotive employees to access online medical directories, retirement income projections, and 401(k) investment decisions is beyond what Tenneco Automotive is willing to create and maintain internally, Abercrombie explains. "Even if you could justify doing this internally, you would be devoting your resources to less strategic activities. Having that state-of-the-art benefits delivery system will quickly become an employee expectation as we continue our efforts to recruit and retain talent," he says. "If we are lacking in this area, employees will see us as falling behind on the technology that can deliver in response to their needs."

www.tenneco-automotive.com

For Houston, Texas-based El Paso Energy, which increased in size with the 1996 merger of El Paso Natural Gas and Tenneco Energy, an early decision to outsource meant that human resources was well positioned to support the company’s growth strategy. Retiree medical liability for all of Tenneco’s divested companies, including 10,000 participants total, was part of the merger package. At the time,
El Paso Natural Gas was considering outsourcing its benefits administration, and the merger acted as a catalyst. "One thing was certain: We didn’t want to bring 10,000 retirees in-house," says Carol Fortuna, manager of benefits and HR programs for El Paso Energy. "That would have meant adding significantly to staff."

The decision El Paso made was to outsource most of its noncore activities. "Repositioning transactional activities—enrollment, changing elections, moving money between funds—to someone who is very good at it frees our staff to focus on strategic things," Fortuna says. Today, those strategic activities support the company’s growth-by-acquisition strategy, which can bring several thousand new employees and retirees on board each year. "We spend most of our time on acquisition activities now," Fortuna says. "It’s been nonstop mergers and acquisitions. If we were occupied with administration, we would never survive."

Today Hewitt Associates provides benefits delivery for all El Paso’s plans including 6,000 active employees, the 10,000 divested Tenneco retirees, and 4,000 El Paso retirees, as well as benefits communication and other services. By the end of the year, acquisition activity will increase the plan totals to 18,000 actives and 18,000 retirees. "Two important goals we set were responsiveness and quality in handling employee benefits issues," Fortuna says. In a recent customer-service survey ranking all of El Paso’s benefits business partners, Hewitt ranked first. "The survey confirms that our benefits center does a top-notch job for us."

www.epenergy.com