Planning Benefits Strategically
Planning Benefits StrategicallyInternal and external forces will greatly impact organizational strategies and this is also the case with strategies for planning employee benefits. On page 484 of the textbook, review the list of internal forces that influence benefit strategy and select any 2 that you feel might have the greatest influence and explain why. Then, select 1 external force influencing benefits strategy with the greatest influence and also explain why.Internal and external forces to the organization influence the bottom-line impact of employee benefits. (See Figure 20.1.) Internal forces originate from changes in business practices and the human resources function that define attraction, motivation, retention, and engagement strategies. These forces include the following: Corporate restructuring. Mergers, acquisitions, divestitures, and corporate restructuring efforts can lead to profit centers that are more centralized or more decentralized. Under these circumstances, a successful benefits package must adapt constantly to evolving corporate configurations.Business reengineering and the quality movement. Process improvement initiatives such as reengineering and total quality are increasingly being applied to the HR function. As a result, benefits departments need to:Provide service to various customer groups and constituencies.Streamline work processes.Provide improved, cost-effective services to their customers. These objectives need to be accomplished even as benefits staff sizes are frozen or reduced. New corporate cultures. In the “good old days,” the corporation functioned largely as a parent. Employees felt a sense of entitlement because their career and benefits were perceived as the responsibility and domain of management. Today, organizations are replacing the traditional parental employer-employee relationships with partnerships. Career employment, where employees work 20–25 years with the same organization, is no longer the norm. In this new culture, employees assume greater personal responsibility for their benefits. They are, for example, paying a greater percentage of benefits costs (e.g., copayments and higher deductibles under health care plans). Additionally, employees increasingly are planning for their retirement and long-term financial security through personal savings and defined contribution plans. Today’s partnership requires employees to use employer-sponsored benefits programs effectively and to assume responsibility for the implications of their choices.Unions. Depending on industry and geographic region, the development, design, and redesign of benefits programs is influenced heavily by organized labor, which helps shape employee expectations. The most visible arena has been in “smokestack” industries, where active employee and retiree medical benefits have been the focal point of labor negotiations.Cost management. Despite an apparent stabilization of benefits costs, corporate executives remember the past decade of rapidly escalating and seemingly uncontrollable health benefits costs that prompted intense interest and scrutiny from corporate boardrooms, the media, and the federal and state governments. A well-planned strategy can improve overall benefits cost management as well as cost management on a per-plan basis.Total rewards philosophy. Total rewards can be defined as “all of the tools available to the employer that may be used to attract, motivate, and retain employees.” The concept of total rewards is an effective way to illustrate an organization’s total investment in human capital and to demonstrate the significant investment that organizations make in employee benefits plans. Employees might not always appreciate the costs involved in benefits, but organizations have no choice but to recognize what they are spending and to evaluate whether the investment is worthwhile. FIGURE 20.1 Forces that influence benefits strategy. In general terms, external forces—domestic and global—demand that corporations develop coherent strategies to ensure their competitiveness and profitability. While many external forces can be anticipated, their specific impact is not easily predicted. External forces include the following: Global economy and labor market. Country-specific government mandates and regional precedents or cultural norms can define benefits expectations. It is an ongoing challenge in today’s global environment, where new markets are constantly being created, to design and manage a benefits package that balances corporate business objectives with each country’s particular regulations and customs.U.S. political and legal environment. Government rules, regulations, and court decisions add complexity to the benefits environment. The constraints placed upon organizations by government can increase the difficulty of day-to-day benefits administration, and it complicates corporate policymaking and program design. For example, the U.S. federal government might decide to reduce its deficit by taxing benefits—a move that would have profound implications for employee benefits plans. Or state-specific legislation might promote health care reform in scattered regions throughout the country, creating difficulties for employers with operations that cross state boundaries. Unclear court decisions can promote legal challenges to longstanding corporate policies. When legal decisions and/or regulations contradict, complexity evolves quickly into confusion.The Information Revolution. The so-called Information Revolution is continually redefining business operations, success, and productivity. Sales in new micro-markets, customer satisfaction, and reduced cycle times are among the new performance measures being developed and refined. The Information Revolution is redefining corporate culture and employee expectations. Employees expect newer, better, and faster services, products, and information from the human resources function. THE STRATEGIC PLANNING PROCESS From a strategic standpoint, benefits should not be viewed as individual plans or programs but instead as integrated sets of plans to be managed as any other business function. They should be viewed as an integral component of a total rewards package and as part of an investment in human capital. In addition, benefits should be viewed not as a “fringe” cost but instead as a business tool to reinforce and support an organization’s goals. In this context, benefits programs cannot be defined in terms of narrowly defined, program-specific goals. Each benefits program—health, welfare, retirement, or work-life—should be evaluated in relation to other benefits programs as well as in relation to all other compensation and human resources initiatives. Strategic benefits planning is a process that facilitates those efforts. Strategic benefits planning combines a way of thinking that is specific to each organization with an ongoing process. Because of this, there needs to be an ongoing process of realignment between organization-sponsored benefits programs and the strategic business direction. Strategic benefits planning is not a one-time event but a continuous effort to provide corporations with a return on their investment in employees. The process includes an evaluation of existing benefits programs and concludes with a definition of the direction for future employer-sponsored programs and policies. In essence, strategic benefits planning addresses the following question: How can the organization’s benefits plans better support the business direction? Strategic benefits plans are not static documents developed in a vacuum. Instead, they are dynamic blueprints that reflect and balance an organization’s business mission and strategic business direction with the human resources mission. Successful strategic planning efforts consist of several defined characteristics. The following elements characterize organizations that are engaged in strategic benefits planning: Long-term perspectivee. While most strategic benefits planning is seen as an ongoing process tied to an overriding business strategic plan and culture, many organizations adopt concrete time frames (e.g., three to five years) within which an organization can identify, achieve, and sometimes evaluate clearly defined and measurable goals. Strategic benefits plans should not generate knee-jerk reactions.Consideration of scenarios that might reasonably affect the organizationn. Strategic plans should relate benefits to the business function(s). Because strategic benefits planning generally is not intended to be an academic exercise, the process should reflect the current business realities as well as situations that may affect the organization in an identified time frame. Specifically, the strategic planning process and plans need to reflect the corporate structure. For example, centralized and decentralized organizations likely will produce strategic plans that are significantly different. This is partially the result of different decision-making structures. For another example, organizations that expect a tremendous increase in domestic sales and domestic employees are likely to articulate a strategic benefits plan that is far different from the plan by an organization whose projected sales may be similar in volume but are the result of global expansion. Organizations in mature or declining industries, or organizations that expect to divest or close operations, likely will develop distinctly different plans from those in growth industries.Expansion of the traditional definition of benefits and benefits management. In addition to looking at benefits and benefits design as an integrated whole, strategic benefits planning provides a broader definition of benefits and benefits management. This occurs in at least four ways. (See Figure 20.2.) FIGURE 20.2 An expanded view of benefits. APPROACHES TO STRATEGIC BENEFITS PLANNING A simple conceptual model can help managers understand the strategic benefits planning process. This model is predicated upon an organization’s overarching human resources vision and philosophy that links benefits to business strategy. For example, a hypothetical organization called Management Group might have as its mission to be a national outsource vendor that provides the highest-quality customer-driven and computer-based training/development and services. Management Group’s human resources philosophy would include providing employees with the opportunity to earn a total rewards package that is in the top quartile. Management Group’s benefits philosophy would be to provide a competitive benefits package that is affordable to both the company and employees, and that contains innovative benefits. Following are the key elements of the conceptual model for the strategic benefits planning process: A philosophy articulates what an organization believes in and what it values. It incorporates the organization’s overall view and vision of how it must operate to achieve its business objectives.A mission answers three fundamental questions: who we are, why we are here, and what we are doing. A mission encompasses the goals of the overall benefits package and specific program benefits, and it provides insight into how benefits programs interrelate with each other and other human resources initiatives.Strategies are detailed statements that contain quantifiable objectives (e.g., time frames, financial goals, organizational intent). They provide a framework to align and/or refine benefits programs to support the organization’s mission.Tactics are the detailed methods that will be used to achieve desired change or changes. Tactics might include steps to design new programs or to redesign existing programs.Assessment incorporates a review of how the planning process worked. It covers factors such as whether goals and objectives were met. This simple model provides an overview of the strategic planning process. To implement the model, there are two possible approaches that represent two ends of a continuum: the “top-down” approach and the “backing-in” approach. Most organizations employ various aspects of the two approaches when organizing the benefits planning process and/or educating managers about the value of strategic benefits planning. Top-Down Approach The top-down approach to strategic benefits planning allows for a balancing of corporate business goals with organization-sponsored human resources and benefits programs. After longer-term, strategic goals are set for specific program groups (e.g., health, welfare, retirement) or administrative/management functions (e.g., outsourcing, financing), shorter-term, tactical objectives for specific plans are articulated. The approach is somewhat analogous to a plumbing system consisting of a series of valves that can be opened or closed while responding to changing business objectives. For example, suppose that an organization with a top-down strategic benefits plan begins a three-year initiative. During the first year, it evaluates all health and welfare plans. During the second year, it completes a strategic analysis of its retirement programs. The third year results in a transition to a credit-based full flex plan that integrates the organization’s compensation, benefits, and work-life elements into a total rewards package. A top-down strategic benefits plan is contextual. It is driven purely by business needs, which are identified and communicated by senior management. The business mission and strategic plan from which benefits philosophies are derived provide a structure for developing the overall benefits package along with specific programs. The top-down approach is especially useful when a full review of all programs is necessary. It forces a critical examination of the benefits package that is both programmatic and administrative. In other words, the top-down approach is especially useful when previously employed “quick fixes” prove to be too expensive or unwieldy to administer. The model also can be quite valuable in decentralized organizations where, at a minimum, it can facilitate benefits decisions that balance corporate requirements with the needs of diverse subsidiaries. In some environments, the model can force corporate leadership to make difficult or unpopular decisions.