Drivers of Customer Turnover

Drivers of customer turnover are really a cornucopia of things. There are so many different moving parts in the HR services industry that any one of them in a combination and at the same time can cause turnover. Also it causes HR service providers to have the urge to expand. If you look at ADP, they just buy more product and expand more product, that will cover more bases and will bring up retention. That’s a double-edged sword though. If you are a smaller provider adding more product is great, it has a distraction or opportunity cost to it and it gives you more opportunities to screw up. You could really cause your own loss by going past what your organization can handle. Still, at the end of the day, you have to be able to deliver the low value- added tasks better, faster, and cheaper.

Let’s look at an example here in the PEO industry. What causes the complexities? If you look within the PEO space, the insurance decision drives around 70 percent of the decisions. It’s either health care insurance or workers comp when it’s appropriate. That’s the buying decision. It’s the economic decision for even looking at the product to begin with or looking at switching providers that you are currently with.

The negative, or flipside, of that is it creates more shopping opportunities. You’ve got a health renewal, you’ve got a comp renewal, and you’ve got taxes changing on an annual basis. Many different times of year that customer is getting an opportunity or reason to think about shopping. That creates its own distraction that you have to make sure that you have to manage along the way while being high value-add.

How do people in the industry reduce turnover? There are some events happening today that clarify where that’s going to go in the future. If you look at the behavior of ADP for example, they have bought and bought and broadened out product and now, not only them but Paychex as well, are starting to sell insurance. So they are infringing on a territory there. Also, big banks now own insurance brokerages or own payroll bureaus and broaden their product out and now those two are starting to bump together.

So the lines are really blurred as far as who the providers in the space are. Add to that, of course, the cloud, which is a bit overused, but it’s out there. Now you have a capability to offer all those services to any amount of customers, from 8 lives to 800 lives, and one of the biggest changes coming forward is that the sales and distribution of those products is where it’s all at. The people who are selling those products today could very easily be at the cloud. They could have a private label product, whether it’s payroll, benefits administration, insurance products, or insurance brokerage for example, and it’s very easy for them to enter the space and be providers who could provide that. I like to call it “entry without infrastructure”. I can get a distribution company into the business tomorrow of HR services in a private label setting without them even lifting a finger. That will be a huge impact to the market in the future.

Grow revenues in price competitive markets

Growing revenues in this market is probably harder than it’s ever been. You’ve got several factors working against you. You’ve got an industry that is over-commoditized and over-heating right now. On top of that you’ve got an economy that is still not in recovery. You’ve got merger and acquisition activity going on that is making vendors larger and they are driving prices down because of their size. You have ADP and Paychex who are now selling insurance products. So even within the broader industry, the lines are being merged between who is a broker, who is a payroll provider, who is a PEO, who is an HRO, so there is client confusion at the same time.

A small business has to have exquisite focus on what their market position is and how they are going to win. They have to be bolder about it. They have to be persistent about it. If you have chosen to be customer intimate or you have chosen to be someone who is going to have product innovation, you have to drive all activities towards those and really drive the value back to your customers to grow revenue, because all the other factors are working against you. The economy, commoditization in the industry and merger and acquisition getting bigger are all problems, so that exquisite focus on spending every dollar available on high value work that drives revenue is critical to your success.

What Makes CogNet Different?

CogNet is different in many ways. First off it is a global company. We do business around the world, but we are U.S.-owned and operated. Second, we have personal experience in the industry, both the PEO and the broader HR space, so we are very familiar with the key issues that are facing most of the people that are looking to solve problems in this space. Third, we have a culture and proof of flexibility. We have an appreciation of doing things the clients’ way and the reasons they need to do them in that way. This attitude is unique in small business because that entrepreneurial spirit, what they have done to create differentiation for themselves, often requires that you think of things a little differently in the small business space. We have a keen appreciation of that. Fourth, we have no contract minimums and no contract terms. We earn your business each and every day, and if we are not earning it, you should, and can, walk away. That is very unique.

In today’s space there are very few options that are new that are innovative and can really move the needle. I believe that CogNet, in the small business space, can really do that. We will help you move that needle.

The Three Market Positions – You Must Choose One

Market position is important because it’s the perception that you want the buying community to have about your company. In this industry you absolutely have to choose, because the focus is so important. There are only three choices when choosing market position: low cost provider, customer intimate, or product innovation. Let me say a little bit about each of those.

The low cost provider is a very enviable position and not something to be thought less of. Wal-Mart is a good example for the low cost provider.

Customer intimate means that a customer sees something unique in you that they are willing to pay extra for and that’s the critical point. Don’t mix up customer intimate with customer service, because everybody has to have good customer service. To be customer intimate you are providing something unique that that customer is willing to pay for. Again, good example is Nordstrom’s as customer intimate. You will pay a little more for that blouse because what they are going to allow you to do is return it with no questions asked.

Product innovation means that you are relentless about constantly changing product and a good example of that one is Apple. People want to be part of that innovative product community, but they are not the low cost provider and they are not customer intimate because they don’t provide something unique to each customer, and they are certainly not the low cost provider.

There are conditions that favor each one of those. Being the low cost provider means that you are that because customers all look pretty much alike, they use the products the same way and there is intense price competition against those like services. If those are the conditions that you are playing in, then you would strive to be a low cost provider.

In customer intimacy, clients don’t use the product the same way. That can be nuanced. It doesn’t have to be huge differences, but they use it differently. Because they use it differently, you have to know the client a little better and because the client knows they are different they are willing to pay for it. Those are the conditions that if they came up that you would say, my product position is customer intimacy.

Product innovation comes up where there is a group of customers who are willing to be early adapters, who view themselves as a like group – whether it be tech geeks or whether it be fast car drivers or whether it be rich people – who view themselves as a cohesive group that likes this product. It is not mass market.

Those are the conditions that favor the three market positions and it’s critical that you know which one you are, because you have to drive all your activities towards being the best at the one you picked and being good enough at the other two.

Keeping an Eye on Low-Value Work

The distinction between low-value work and high-value work is important. Low-value work is necessary work that has to be done. High-value work is work that gives your client a competitive advantage.

Low-value work is ticket-to-play, you must not do it wrong. Some examples of low-value work are getting payrolls out correctly the first time, making sure everything is in line when you are doing benefits administration, and that the deductions coming out of payroll are correct. That is work that clients expect and it’s in your back office. They don’t really care that it gets done better, they just want it done right. There’s a “Don’t get it wrong” mentality with low-value work, but doing it better isn’t going to get you anything either. For low-value work, good enough is good enough.

High-value work, on the other hand, is work that gives your customer a competitive advantage. They define that value and you get paid for that value – that’s work that you should be spending time on making sure you are meeting the clients’ expectations. Some examples of high-value work are giving them recommendations on what their benefit should be or presenting options of how to retain and attract the best possible workforce. If competitive advantage is a lower cost for them because they can spend the money, you can use that as high-value as well.

So high-value work gives your client an advantage and low-value work is a ticket to play. You’ve got to make sure that you are spending your money on the things that give high-value to your clients while still making sure you are providing that lower value work in the most efficient, cost effective way you can.

Role model companies have a relentless push toward these two things. They do everything they can to make sure that low-value work is being done at the quality that’s required, which means not overdoing it, but rather doing it at the lowest cost possible while still being done right. Then, they spend every dollar they can making sure the high-value work is being done to standards that meet or exceed clients’ expectations. That translates to into revenue retention and growth, no doubt about it. A company must understand the difference or die.

CogNet and Governance

CogNet’s governance begins right upfront when we are sitting down and talking about the contract and putting the Statement of Work together. We agree upon what the process looks like, what the units are going through it, what is the cost of that and how many hours will take you to that work. This way there are no surprises later on when we sit down once a quarter and have our governance meetings. Our simple axiom is that if you can’t measure it, you can’t fix it and you can’t improve it.

So it’s got to be measured. It’s right there in the contract. From there, once a quarter for every process that we have for you, we are going to sit down and look at those metrics.

Are we doing about the same amount of work that we thought we were going to be doing?
What is the cost on a per unit basis and otherwise of doing that work?
How productive are we? Are we just as productive as you were before, or less or more?

The bottom line is deciding whether or not we’re delivering what we said we would deliver to you as far as processing transactions and savings and having that conversation consistently so that nobody is ever surprised. It’s equally good to know whether we are exceeding those expectations, which we are always striving to do, or to know that we are not.

You can’t do process improvement if you haven’t documented and you don’t have numbers. So we can sit down and look at it and say, “Okay, great. What needs to happen here to make sure that we can deliver what we promised?”

The constant, consistent search for perfection

Process documentation needs to include a few basic elements to be a useful management tool.

A great approach has the person who is responsible and accountable, the person who has the authority, be documented first and foremost. It’s not just having a nice flowchart with objects and arrows. You’ve got to know who is responsible for that, who can change it, and who is accountable to deliver on it.

Next, you have to define the deliverables. What is this process’s output? What do you want to come out of it? What is the time cycle of that process? How long is it going to take? How long should it take? What are you going to do to measure that? You have measurements. You’ve got to put metrics around every process and know your expectations for error rates, turnaround time cycles, number of units going through, cost, and many other different specific measurements.

Last but not least, there needs to be a way to address improvement. If you don’t have that process map and those numbers to look at on a monthly basis or weekly basis, you can’t take a good hard look at it and improve it. Whether you remove steps, change steps, add tools or try to make the process more efficient, you need to work toward improvement.

What do you get out of good process documentation? Enterprise risk management is overlooked in process. A good process is part of that, the key to building a sustainable operating and business model is to look at it holistically. You have to say to yourself, “I am managing the risk of the entire organization. What happens if I don’t do well at this basic task or if I am unable to sell more business?” You have to look at it in the totality what you are trying to do to your company.

It’s often overlooked, and in the HR services industry we find many people who just simply don’t have it, won’t invest in it or haven’t put a culture in place to say that process documentation is important or use it as a tool for all of our conversations about how to improve the business. It has to be a constant, consistent search for perfection. You have to make it part of the culture to pull out the process docs, look at them, talk about them, and look at the measurements. It has to be ingrained in the company.

Spend dollars on what is “more right” for your customers

Spending dollars on what’s “more right” for your business and your clients is a concept that you really have to get your head around. We often get impassioned about something and, as a result, really want to spend money to improve it. The problem is, if a client isn’t willing to pay more for whatever it is you’re willing to spend that money on, then you really have to question whether there’s a better use for that money. Is there profit there?

For example, while I was sitting right there in the seat you’re probably sitting in, we needed to spend more money to ensure uptime during open enrollment and it was going to cost hundreds of thousands of dollars. If I had listened to my internal management team, we absolutely would have spent that money because it was a critical time for us and for our clients. A client will leave if they’re unhappy.

What happened is, I sent our field folks out to talk to the clients. We wanted to talk about contingency planning with them if this should occur even though we’re not expecting it. What we came back with was that our clients were happy with having a phone-in enrollment or a on-site enrollment should they come into a crunch time where we knew there was going to be possible responsiveness issues on the server. We looked at the costs of what that was going to be compared with the costs of upgrading our servers and it turned out we saved hundreds of thousands of dollars that way – all because we asked the right questions:
Do we need to be “more right”?
Do we need to be “more better”?

That is not good English, but it is a helpful concept for this idea.

You always want to link everything you’re going to spend to either additional revenues, retention of revenue or reduction of costs to serve, and you want to put a likelihood of the occurrence to that and then ping it against data and facts as often as possible. If you can’t do that, don’t improve it.

At Cognet, when we engage with the client and look at processes, etc., we always link the work we are doing to one of these things:
Are we helping improve revenue? It may be a new product or service.
Are we helping with retention? It may be a quality issue.
Are we just helping with the cost to serve? – Are we lowering it so you can spend dollars somewhere else.

And if we can’t link it to that thing, we don’t do the work. That’s how important it is to us; that’s how important it should be to you.

How does CogNet help HR services deliver client value?

Cognet delivers value in many ways. I think one of the biggest ways we do it is that my partners and I have personally walked in your shoes. For the last 20 years I have been an executive in the PEO space and the broader HR space in general. So I think our understanding – a keen understanding – of what you go through in a day helps tremendously. How we run the business, what we offer and how flexible we are to your needs are all qualities driven by that understanding.

In terms of Cognet specifically, we have a highly educated workforce that is very process driven. More importantly we do things the client’s way. That flexibility means not questioning you or making you fit into what we think the way you should be and that definitely is a plus for small business owners.

An example of that is we had a client who wanted us to do a data entry job where we were populating disparate systems, something many of you are probably familiar with. But what we noticed while we were doing that is that we were populating disparate systems off of different forms and the data was different on those forms. So we went into analyzing it for a little bit and then came up with a solution of how we could scrub the data before we actually input it. That actually solved the problem. It wasn’t a data entry problem at all. The problem was that the data going in was wrong. So even though at the end of the day on that one it was less work to Cognet on that particular function, we solved the root cause. We earned business from that client on many other processes and it was win-win for everybody.

Our value is that we understand the space, we are very flexible to what you need to do. In all cases we do it cheaper and in many cases we can do it better. So let us help you with that.

Truth: Manual Processes Destroy the Bottom Line

If you run a business, you likely have low-value, menial tasks that have to be completed. And they have to be done right. But if you’re already operating at 99 percent now, and that’s good enough for your customers, you’re going to be at 99 percent tomorrow no matter how hard you work at it.

But how do you get your key talent focused on big picture items like vision and strategy when they’re rolling out the payroll? Here’s why you must come up with another way:

Distraction. Your whole business is distracted. Everyone is caught up in completing low-value tasks, and no one’s eye is on the ball.

Cost. You’re paying premium prices for regular gas. The overhead you spend paying your employees for the four hours it takes to locate the missing budget line item, is simply too high.

Competition. This is the big one. While you’re operating at 99 percent efficiency internally, your competition is brainstorming the next big thing that your clients are going to want and will leave you for.

Taking those low-value tasks to an outsourcer is a no-brainer. Why? It not only frees up your star talent to focus on retaining and acquiring new customers, it offers contracted deliverables, set turnaround times and even error rates. These are standards you might already have in place internally, but because you’re dealing with employees and not a vendor, are largely unenforceable.

In this competitive marketplace, you can’t afford to focus on manual processes. Talk to Cognet and get focused on the future. Contact us at 1-888-800-3719 or sales@cognethro.com.