Fidelity Wins Deal to Manage

¶ … Fidelity wins deal to manage employee services for IBM, written by Laura Johannes and David Armstrong, discusses the benefits IBM and Fidelity Investments will receive from each other as the result of an outsourcing deal. The outsourcing deal involves a Fidelity Investments contract in which Fidelity will administer human-resources programs for IBM. Under the deal, Fidelity's Employer Services Co. unit will take over key human-resources functions for 260,000 IBM employees and retirees (Johannes & Armstrong, 2002). Fidelity will hire 450 of IBM's 1,200 U.S. human-resources employees, however IBM will continue to provide other functions in house, including payroll. The three important benefits that IBM will receive from outsourcing their human resource functions to Fidelity are handling IBM's health-plan administration, career services and pension administration. This paper will discuss how this outsourcing deal will benefit IBM overall, in particular with relation to health plan, career services, and pension administration.

These three outsourced functions will benefit IBM in several different ways. First, Fidelity is a huge player in the business, with 11,000 contracts covering 1.2 million U.S. workers at companies including Shell Oil Co. This indicates that Fidelity is very well experienced in the employee benefits area, and is further equipped to handle benefits administration for a large number of employees. Fidelity will also have the technology available, including the most updated processes for such human resources functions. Overall, IBM will save money and improve services for its' employees through outsourcing its human-resources business. Most importantly, the deal will help IBM focus on its "core competencies," says Towney Kennard, IBM's vice president of strategic alliances (Johannes & Armstrong, 2002). The research indicates that this is a factor that is usually cited when a company the stature of IBM decides to outsource a previously insourced function.

IBM will benefit from outsourcing its health plan administration to Fidelity because health plans are developing products that appeal to consumers as well as employers. According to recent research, consumers will be able to build their own benefit plans with options like provider panels, premiums, copays, coinsurance and drug formularies (Margolis, 2003). Since health plans will use automation and e-business to generate more revenue with less effort, IBM automatically stands to benefit from an experienced company such as Fidelity. Through Fidelity, new members will be able enroll online, replacing paperwork and manual processing. Premium bills will be sent to employer groups for electronic review and reconciliation, versus manual corrections that span several billing cycles and result in perpetually inaccurate balances (Margolis, 2003).

Research indicates that health plans increasingly will turn to outsourcing partners that can offer advantages of scale in administrative areas. These administrative areas include claims processing, member enrollment and billing functions that are important to a company with as many employees as IBM. Whether a health plan's evolution is gradual or rapid, technology will play a critical role (Margolis, 2003). Technology will result in high levels of automation and better, more accessible information. Outsourcing health plan administration to Fidelity will create more automation and efficiency for IBM in this area. IBM will not need to maintain a focus on improving its' technology in this area, and can focus its' technological improvements in other areas not handled by an outsourcing company. Since Fidelity will be maintaining the health plan administration, Fidelity can streamline its technology and health plan administration, keeping abreast of the latest trends.

IBM also stands to benefit in outsourcing its career services area to Fidelity. Every organization has limits on the resources available to it, and outsourcing career services will permit IBM to redirect its resources toward activities which serve the customer. IBM will be able to redirect the people that previously worked in the career services area to different value adding activities. For example, employees whose energies are currently focused internally can now be focused externally on the customer. IBM's company focus can be improved through Fidelity's handling of its' career services. Fidelity is much more experienced in the career services area, and IBM will stand to benefit in this area by having operational functions assumed by an outside expert. Furthermore, more quality employees can be employed or promoted through Fidelity's expertise in career services.

IBM will also be able to invest funds previously spent on career services in other necessary or lacking areas. Tremendous risks are associated with the investments an organization makes. Markets, competition, government regulations, financial conditions and technologies all change extremely quickly. Keeping up with these changes, especially those in which the next generation requires a significant investment, is very risky. The use of Fidelity for such operations will spread the risk born by IBM on its own. Through an outsourced career services, IBM will be able to hire better employees through a company that has expert experience in this area. Overall, an outsourced career services program will result in improved employee hire and retention plan, thus resulting in an improved company.