Case Study - A Chip off the Rock: Outsourcing HR at Prudential

Insurance and investment company Prudential Financial Inc. is outsourcing a piece of the rock" to Exult Inc. The human resources outsourcer will take over Prudential's HR systems and administrative functions in a deal worth $700 million over ten years. The deal calls for Exult to handle all U. S. payroll, HR call-center management and information systems and support, employee data, staffing, and records management for Prudential's 47,000 employees. Exult also will be responsible for the company's accounts-payable transactions. Executives at Prudential, which includes Prudential Insurance Co. and other companies, declined to comment on the deal.

Exult chairman and CEO Jim Madden told investors on a conference call that Prudential, in Newark, New Jersey, decided to outsource its HR functions after noting Exults ten-year, $1.1 billion HR outsourcing contract with Bank of America in 2000 and its ability to support Prudential's People Soft human resources system. Although Prudential didn't say how much money it expects to save over the duration of the contract, Madden says the insurer anticipates being able to operate more efficiently and focus on strategic human resources functions, such as providing employee sell-service HR processes.

More companies are turning to self-service applications as a way to empower customers and employees and cut down on administrative costs. Cigna Corp., a $20 billion insurance company in Philadelphia, partnered with Yahoo Corp. to provide personalized portals designed to let Cigna's sixteen million customers better track claim status, benefit services, and other aspects of their health and retirement plans.
"It's no surprise that companies are outsourcing functions as a way to save money and focus on core business," says David Rhodes, a principal at management-consulting firm Towers Perrin. He says businesses are "buying expertise and the ability to work very effectively' when they decide to outsource.

Questions-

1. What are the pros and cons of outsourcing the HR function?

2. What do you think Prudential should worry about most?

3. How can Exult make certain chat Prudential is happy with its service?

Source: George Tischelle and Elisabeth Goodridge. "Prudential Financial Expects Savings by Outsourcing HR." Information Week (January 28, 2002): 873, 81.