Erin L. Rafferty, CPP
Achieving operational efficiency and producing a quality product in the PEO environment is critical to the overall success, profitability, and longevity of the PEO. No one sets out to achieve inefficiency or produce a work product that contains errors, but, unfortunately, it happens. Understanding the cost of inefficiency and the actions needed to increase the overall effectiveness of the operation are the first steps to becoming the proverbial well-oiled machine.
The Cost of Inefficiency
Inefficiency can start a vicious chain of events throughout an organization. An increase in errors naturally leads to client dissatisfaction. This in turn often results in invoice credits or concessions to the client, or worse, client termination. Client termination results in decreased overall profit (see Figure 1).
Low staff morale can have a much larger impact on an organization than many realize. Disjointed and inefficient processes, internal red tape, and cross-departmental battles often leave team members feeling frustrated. The result is low employee morale. The effect of low morale spreads and quickly turns into bad attitudes. Although not always intentional, employees with bad attitudes often provide poor service to clients. It may be as simple as not being as friendly and courteous as usual or not being as responsive as the client expects and deserves. This results in overall client dissatisfaction, which can lead to client terminations and a decrease in profit (see Figure 2).
Lower productivity ends up reducing the bottom line. In contrast, when employees are operating at their ideal capacity, clients are satisfied and profits increase (see Figure 3).
Improving Operational Efficiency and Quality Control
Breaking the cycle of inefficiency and working toward operational efficiency involves a three-pronged approach.
Step one is analyzing the current state of affairs across all business units and departments. Look at each department individually and determine how well it operates. Does it produce many errors? Does it receive many complaints? When errors occur within the department, how quickly does it bring issues to resolution? Does it perform a comprehensive root cause analysis as each error occurs? Does the team have metrics or data about volume of work product and errors? Is the team leveraging technology to solve problems rather than employing manual processes that are prone to error and consume too much time? During this assessment phase, review all written departmental processes and procedures to ensure nothing is missing or outdated.
After reviewing each department individually, analyze cross-departmental interaction to determine if the departments operate in silos or if they are working efficiently and effectively with the other business units. This analysis often reveals that departments operate effectively with workflow that is housed solely within their units, but challenges and errors arise with tasks and processes that cross more than one department.
After you perform and document the initial analysis, the second step is “stopping the bleeding.” Implement this by immediately putting some stopgaps in place until the final processes are published. At this point in the recovery process, it is best to tackle items that can be implemented quickly and immediately or items that are of critical concern. For example, immediately implement controls such as requiring root cause analysis each time an error occurs and a process to report the findings to the appropriate people within the organization. This will allow immediate insight into which problems are occurring and how frequently. If critical items were discovered during the analysis process, such as processes that are out of compliance or severely prone to error, address these items immediately.
Preventing errors and inefficiencies in the first place is what leads to true operational efficiency. This is the third step of the three-pronged approach, and can be achieved using proper controls, metrics, standard operating procedures, good judgment, error tracking, technology, and communication. It is also important to change the mindset within the organization to be proactive rather than reactive.
Metrics bring great value to an organization working toward increasing its overall operational efficiency and quality control. Having a few people within the organization formally trained in Six Sigma (//en.wikipedia.org/wiki/Six_Sigma) methodology and practices is highly recommended, and Six Sigma practices can be used successfully within the PEO environment. One thing to consider is having all team members gain a basic understanding of Six Sigma practices by receiving the yellow belt or reading company distributed books and articles. Even if Six Sigma is not the route chosen within the organization, basic metrics and data tracking must be captured and analyzed.
Metrics are a valuable tool to help reduce inefficiency and errors caused by busy staff members. For example, within the payroll department, capture data about how many clients and worksite employees are assigned to each processor and the number of clients assigned per pay cycle. Each payroll processor should have a wide variety of pay cycles. Too many weekly or semi-monthly clients for one processor could cause poor customer service and mistakes. Apply this workload-balancing concept throughout each operational unit. In benefits, in addition to analyzing the number of clients and eligible or enrolled employees, consider the number of plans each client offers. This variable could make one benefits specialist much busier than another, resulting in lack of timely response to clients and potential errors due to haste.
Using metrics to track the quantity of tasks and setting standard thresholds to determine when an additional staff member truly should be hired can be very valuable to the PEO. For example, team members whose primary job function is to process new hires should track the number received and the number processed each day. They could use a check sheet, or ideally, technology, to consolidate the requests. For repetitive tasks such as entering new hires, packaging payrolls, responding to unemployment claims, and preparing benefits enrollment kits, perform time studies to determine the amount of time needed to complete the task. Set production requirements using this data.
Once you are tracking metrics, be careful not to capture and track data that does not have an identified purpose. This can cause an unnecessary burden on team members. Before deciding what to track and report, determine what purpose each metric will serve. Once management team members set standard production levels, they can then analyze daily, weekly, and monthly production data to identify a decline in production or an increase in client requests. In addition to serving as a valuable tool for the management team, metrics are helpful to the team members. Once the team members become comfortable with the standard production requirement and they realize it is reasonable and attainable, they often want to view their output and workloads. They will also likely offer to take on more responsibilities if they see their production is less than others in the same role. Some team members will even strive to make sure they always have the largest client base or production output.
Standard Operating Procedures
Creating, updating, and following written standard operating procedures (SOPs) is very important to achieving overall operational efficiency. Without procedures, employees in similar positions may be following different processes, leading to inefficiency. Clients may notice that similar situations are not treated consistently. Proper controls should be built into processes to ensure compliance and reduce room for error. When SOPs are applied inconsistently throughout the organization, error rates are usually higher. Reworking (i.e., fixing mistakes) generally takes more time than being detail-oriented and ensuring tasks are completed accurately the first time. Properly documented processes help eliminate rework and result in a more efficient operation. Surprisingly, employees tend to like structure and direction; they appreciate when confusion and uncertainty is removed. New hires especially appreciate joining an organization that has up-to-date process documents. New employees working with no SOPs in place often feel overwhelmed and unsure where to begin.
Before beginning on the journey to create SOPs, consider what other information should be documented. Many companies maintain documented how-to information in a knowledge database. Once you decide what to document, set strict standards about the formats of the documents, determine where and how the documents will be stored, and identify the numbering scheme for each SOP and knowledge document. Finally, implement controls for who is authorized to publish new documents and the approval process needed to do so. SOPs can be managed within simple word processing documents and saved on the company’s network, but the ideal and operationally efficient solution involves an application specifically intended for this purpose.
While creating SOPs and knowledge database information, realize it is unreasonable to expect all procedures to be accurately documented quickly. Therefore, prioritize documentation and publish SOPs in order of priority based upon the impact to the organization if the process is not followed. Finally, once the processes are created, ensure they do not become outdated. Stale processes become unusable and quickly lead back to an inefficient operation.
Technology should be used throughout the organization to solve problems, create efficiency, and reduce manual errors. Customer relationship management (CRM) software can be used to track client requests to ensure timely completion. To achieve maximum efficiency, the CRM application should be highly integrated with the human resources information system (HRIS). CRM is also a great tool for capturing metrics. CRM software can be customized to require users to apply “error type” and “error source” codes within the ticket or case. Using technology in this manner greatly saves time and creates efficiency. Technology exists to help improve many aspects of the PEO operation, including electronic new hire and benefits onboarding, electronic expense reimbursement (which eliminates manual accounts payable functions), knowledge databases, telephone call handling, call recording and monitoring, and customized solutions within and outside of the HRIS system.
The lack of documented processes and knowledge documents usually results in an inefficient operation prone to error, client dissatisfaction, and high turnover ratios. Top performing operations realize this and focus heavily on sound hiring choices, employee retention, and morale.
Team members greatly affect the operation in other ways. Team members who work well together will focus on helping each other and enhancing the company’s image with the client rather than blaming each other when speaking with a client. A top performing operation will always reevaluate best practices and processes rather than accept the status quo just because “it has always been done that way.” Building a team that embraces these concepts rather than fighting them is critical to achieving greatness.
Obtaining new technology, writing operating procedures, and reporting monthly metrics will not increase the overall efficiency of the operation unless all new initiatives are well communicated. Properly documented training is essential within the organization during the initial rollout and as new employees come on board. Training sessions should be recorded and stored in the knowledge database as a reference for team members. As each new initiative is implemented, the impact to the client should be carefully considered and clients should receive communication and training when applicable.
In conclusion, to achieve true operational efficiency, a PEO should implement proper controls and use forward thinking when setting processes and solving problems. The operations team must never become complacent and instead should continue to evolve, reevaluate, and improve. Without continuing to evolve and reevaluate, an efficient operation can quickly become inefficient.
Erin L. Rafferty, CPP, is Director of Payroll Operations at G&A Partners, headquartered in Houston, Texas.
This article was featured in NAPEOs: PEO Insider Magazine //www.napeo.org/insider/currentissue/may14/feature.cfm