In recent years, procurement teams have moved from a simple purchasing role to a strategic business partner. Yet best-in-class procurement departments are still known primarily for their ability to secure the best prices for the highest quality parts and supplies. Now, HR departments are wondering whether employee benefits (EB) needs can be supported by those traditional, commodity-based negotiating skills.
More and more, procurement teams are coming to the table to assess historically HR-zone decisions, especially among larger organizations with 1,000 or more employees. With healthcare costs out of control and a lack of clarity on the EB side, business leaders hope that a more disciplined approach to negotiating pricing and implementation will provide much-needed support to HR staff.
The catch is that the main driver of EB considerations shouldn’t be only pricing. Automatically defaulting to lowest cost choice can actually create problems rather than resolving them. In fact, the U.S. Department of Labor has repeatedly stated that the lowest cost option may, in some circumstances, actually violate a plan’s ERISA-born fiduciary duties. The DOL has repeatedly warned that “lowest cost” can never compliantly represent the plan sponsor’s sole, solitary consideration. So selecting a benefits consultant who can deliver a quality benefits program that provides long-term strategic value may not be procurement’s ideal.
For the HR employee who is suddenly required to work with procurement when it comes to these sensitive topics, what’s the best way to respond? Resist, or lean in? Without a doubt, the best long-term solution is to lean in and find a way to make it work.
Context is Everything
The starting point may, in fact, be the most difficult part of trying something new. Procurement may be adept at sourcing and procuring widgets, but a buying team may not understand how to translate that into engaging appropriate EB services. The transition will go more smoothly if HR can outline its optimal selection criteria ahead of time, flagging key nuances that a buying team seldom otherwise considers.
One of these key nuances includes the importance of partnership engagement and setting relationship expectations, including service guarantees. Although cost is still critically important, additional objectives might include the following:
- Expertise and experience of the client relationship lead (and her/his team) – and confirmation that the team presented in the proposal is the one ultimately performing the work.
- Account team’s knowledge of your particular industry, including your organization’s specific data, pain points, KPIs and related detail.
- Access and availability of specialty advisors that will provide targeted support and solutions (Compliance, Communications, Medical/Pharmacy, Wellness, etc.); and that would be typically omitted from stripped down, ‘cheaper’, competing bids;
- Quality and strategic depth of the candidate’s plan guidance;
- Client management protocols for executing with precision and discipline;
- Innovative analytics to better understand and deliver EB to a multi-generational workforce;
- Tools and skills to flag particular EB needs based on your organization’s diverse, multi-generational makeup;
- Availability of meaningful service fee guarantees; and,
- In the shadow of COVID-19, the ability to develop and deliver a best-in-class virtual open enrollment experience for employees.
A Team Approach
The main goal is to partner with procurement. While this requires advance internal planning between HR and procurement teams, it also allows each team’s particular strengths to shine and offers an opportunity for each team member to pinpoint where he/she can add maximum value before, during and after the selection process to maximize joint impact. For example, after the new advisor is selected, procurement can be invaluable in managing the contract requirements that must be met from both a cost and service perspective.
Earlier in the process, a blended phased-in approach often works well during the RFP process. For example, one organization’s HR specialists lead the front end of the broker RFP process, including establishing expectations on deliverables and the relationship itself. But procurement was an integral player during the second phase, and ultimately became responsible for shaping the financial side of the contract as well as managing details about internal compliance, including confidentiality agreements.
HR teams continue to be stretched beyond reason, with competing priorities pulling them in different directions, and an extra set of hands should never be brushed aside. HR teams have long used their brokers/consultants in this way, and procurement teams should be considered similarly. With procurement available as a partner and sharing the burden, clearly defined shared objectives become more achievable. Moreover, while procurement’s perspective will always drive focus to the pricing side, HR can provide the critically necessary balance by highlighting the importance of selecting the right advisory partner to satisfy broader value considerations. Only when each side is appropriately taken into account will you have the best opportunity for an optimized HR/employee experience.
The right partners always differentiate themselves by offering quality benefits programs at a competitive price point. One side should never get in the way of the other. But selecting the wrong advisor at the best price could prove to be the worst decision for your business.
With each side plays to its individual strength and leverages their knowledge base, a collaboration between HR and procurement can deliver the powerful outcome you seek.