HIGH- ENERGY HIRING · The utility’s 401(k) benefits processing and all medical and dental claim processes are handled by outsourcing service providers. Cinergy’s Chief Administration

JANUARY/FEBRUARY 2005 • www.HROToday.com

Gas and electric company Cinergymakes an HRO power play

HIGH-ENERGYHIRING

TOP 22ENTERPRISEHRO DEALSHRO Today’s annual list of the biggest enterprisedeals of the year. Find out whichglobal companiesare signing up for full-scale HRO.

TRAININGOUTSOURCINGA special section devoted to the hottest trend in HRO. Including:• Finding Training Outsourcing’s Identity• Top 20 Training Process Outsourcers• The Events that Shaped an Industry• Training Outsourcing on the rise

Gas and electric company Cinergymakes an HRO power play

HIGH-ENERGYHIRING

TOP 22ENTERPRISEHRO DEALSHRO Today’s annual list of the biggest enterprisedeals of the year. Find out which global companiesare signing up for full-scale HRO.

TRAININGOUTSOURCINGA special section devoted to the hottest trend in HRO. Including:• Finding Training Outsourcing’s Identity• Top 20 Training Process Outsourcers• The Events that Shaped an Industry• Training Outsourcing on the Rise

HROT_Reprint_Jan-Feb_CoverStory.qxd 1/28/05 4:16 PM Page 1

R E P R I N T E D W I T H P E R M I S S I O N F R O M H R O T O D A Y J A N U A R Y / F E B R U A R Y 2 0 0 5 I S S U E

When Bharat Kannan first called Cinergy’s SteveAllen, the company’s general manager of organiza-tional development and staffing strategies, in May2004 to pitch the idea of outsourcing Cinergy’semployment recruitment and staffing services,Allen’s less-than-receptive response suggested along-shot opportunity, at best. But, Kannan, anarticulate, passionate proponent of humanresources outsourcing, is a persistent fellow. “Steveunderstood the value proposition, but did not seemoverly interested,” recalls Kannan, a senior salesconsultant at Aon HR Outsourcing. “He didn’tthink the strategy presented a good cultural or busi-ness alignment. But, he agreed to meet with me inCincinnati to elaborate on my position.”

Cincinnati, Ohio is headquarters to Cinergy Corp.,a public utility serving 1.5 million electric customersand 500,000 gas customers in Ohio, Indiana, andKentucky. Nearly 7,700 employees work at Cinergy, afast-growing Fortune 500 company that recently hasspread its wings into 15 other states to market non-traditional utility services. The expansion hadstrained the company’s recruitment and staffing func-

tions, and Allen was open to other ideas. “We werejust keeping our heads above water in the current sit-uation,” he says.

In his meeting with Kannan, Allen explained thathe was satisfied with the company’s staffing andrecruitment department, but felt the personnel weretied up in administrative tasks and detail-orientedresponsibilities. “We had a traditional model, but aswe looked out over the horizon at our future strategicneeds in terms of staffing and recruitment, we knewwe needed more efficient processes that would notrequire adding more people,” Allen explains. “WhenBharat started talking about the process improve-ments Aon could offer, a light went on.”

Kannan, who ended up making five trips toCincinnati, recalls the deal clincher as a singlesen-tence. “I told Steve that Aon wasn’t interested intaking over the strategy associated with recruitingand staffing, just the operational and administrativetransactions,” he says. “‘The strategy—the institu-tional knowledge—is what you have and I don’t,’ Isaid. ‘Why should your people be pushing paper whenthere is a better way for HR to operate?’”

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WHEN OHIO-BASED ELECTRIC AND GAS COMPANY CINERGY STARTED EXPANDINGINTO NEW AREAS OF OPPORTUNITY, THEY KNEW IT WAS GOING TO TAKE A LOT OFENERGY… ESPECIALLY ON THE PART OF THE DEPARTMENT THAT WAS STAFFING THECOMPANY. BY TEAMING WITH AN HRO PROVIDER FOR STAFFING AND RECRUITINGADMINISTRATION, CINERGY’S HR DEPARTMENT FOUND THE POWER TO PUSH THEIRRECRUITMENT STRATEGY TO A WHOLE NEW LEVEL. BY RUSS BANHAM

High-Energy HiringHigh-Energy Hiring



Bharat Kannan of Aon and Steve Allen of Cinergy, two of the forces helping to power this HRO deal.Bharat Kannan of Aon and Steve Allen of Cinergy, two of the forces helping to power this HRO deal.


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Six months after his initial telephone callto Allen, Kannan closed the sale. InNovember 2004, Cinergy signed a three-yearagreement to outsource the vast majority ofits hiring needs to Aon. “Our ultimate goalwith the outsourcing strategy can besummed up in two words—‘better hires,’”says Allen. “We wanted to broaden the qual-ity of the pool of applicants for our staffingneeds, and determined that an external cen-tralized staffing function for sourcing andselection best meets this need.”

Cinergy is not fixing a broken staffingand recruitment model, says Kannan. “Thetruth is that Cinergy had a good staffingand recruitment department,” he explains.“What they didn’t have was standardiza-tion, access to high-end technology, andthe breadth and depth needed to accesscandidate pools. They were doing a good

job, but they wanted to do an even betterone, particularly with respect to diversity.”

FULLY STAFFED

Cinergy is the second major power utilityto engage a business process outsourcingstrategy in recent months. In May 2005,Texas utility TXU announced a 10-year,$3.5 billion outsourcing arrangement withprovider CapGemini Energy covering HR,IT, finance and accounting, and other busi-ness processes. While the Cinergy-Aonagreement only covers a single aspect ofHR, Cinergy is no stranger to outsourcing.The utility’s 401(k) benefits processing andall medical and dental claim processes arehandled by outsourcing service providers.

Cinergy’s Chief Administration OfficerFred Newton points out that these partner-ships all have one ultimate goal: “We are

focusing on people, processes, and systems.Our objective is to develop our people,improve our processes, and build our systemsto meet the strategic needs of Cinergy.”

Like many companies that turn to out-sourcing experts to administer internalprocesses, Cinergy was challenged by theneed to upgrade technology to continue toprovide high-touch recruiting and staffingservices to business unit managers. “For usto buy the technology we needed was anextremely expensive proposition,” Allensays. “A service provider like Aon, on theother hand, which represents the needs ofmany clients, can purchase state-of-the-arttechnology and leverage the cost bydeploying it on behalf of these clients.”

Aon HR Outsourcing boasts several majorclient relationships, including Daimler-Chrysler, AT&T, Verizon, and hundreds of

A meeting of the HRO minds: Steve Allen, general manager organizational development, Cinergy; Fred Newton, chief administration officer, Cinergy; Bharat Kannan, senior sales consultant, Aon; and Paul Allan, senior vice president, Aon



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others. The firm uses a centralized recruit-ment model that employs HR shared-servicecenters “to do the most administrative andrepetitive transactions, like scheduling jobcandidates for interviews and posting posi-tions to job boards,” explains Kannan. “Suchtasks, when standardized under one roof andconducted by experts in that individual area,produce superior cost efficiencies. Our serv-ice centers support all our clients, leveragingtechnology enhancements as they comealong. While it would be financially ques-tionable for Cinergy or other clients to investmore than a million dollars for a state-of-the-art document imaging system or applicanttracking software, we’re able to leverage therevenue coming in from all our clients to buythe technology they need but may be leery ofbuying on their own.”

While Cinergy would be able to tapworld-class recruitment and staffing tech-nology, cost savings were not the main driv-er in the company’s decision to outsource.“ROI was definitely part of the criteria (foroutsourcing), and we expect a 10 percent

return on the strategy within the secondyear,” explains Allen. “But our decision wasbased more on the opportunity to improvequality as we looked strategically into futureyears at our staffing needs. We’ve grownremarkably in recent years and continue togrow fast. We want to be sure that, as wegrow, we hire only the best people. Forexample, we have a power and gas tradingand marketing organization and want toimprove the quality of the candidates webring in. Aon gives us that ability.”

Cinergy is not different than other clientswhen it comes to realizing that HR out-sourcing is more than about cost savings,maintains Gary Budzinski, president of AonHR Outsourcing. “Companies that embracethe philosophy of benchmarking their futureneeds against current infrastructure willachieve greater long-term success in attract-ing and retaining top-quality talent,”Budzinski says. “What impressed me mostwith Cinergy was their internal handle onwhat could be culturally accepted from achange perspective with respect to outsourc-

ing. Rather than take a cost-reduction focus,they allowed business process improvementand cultural acceptance sell the engagement.We continually strive to bring these sorts offorward-thinking clients into our family.”

As Allen became more comfortable withthe idea of outsourcing recruitment andstaffing, he brought Aon in to make a pres-entation to the company’s user council,which is comprised of business unit heads,each with ongoing recruitment and staffingneeds. “I wanted them to be comfortablewith the idea as well,” Allen explains. “Wetook the council through the process, show-ing them how they would benefit by the abil-ity to mine a greater breadth and depth oftalent. This was important because we hadgrown from a tri-state utility into a companythat, through various small acquisitions andgrowth initiatives, now provides services in18 states. Our traditional staffing andrecruiting methods were becoming out ofdate and the user council knew that.”

“I remember Steve brought up the factthat the [recruitment and staffing] depart-

ment might be doing finewith 400 hires, but with thecompany growing at the rateit was, it would find it wouldbe difficult to support morethan 500 hires. This wouldlikely require the hiring ofmore staff to administer thisneed,” Kannan says. “Heasked, ‘What would happenthen to this staff if the compa-ny needed to ramp down thenumber of its hires? Wouldthe staff no longer be busy?’Kannan notes that Cinergywas also interested in beinginvolved in more cutting-edge technology, for exampledigitizing candidate files inorder to search a greater pop-ulace of diverse candidates.

Allen explained to the usercouncil both the cost savingsand quality aspects of out-sourcing. Aon would leveragethe best practices of each ofits clients for the benefit ofother clients. Meanwhile,

One-on-one HRO: Fred Newton of Cinergy and Bharat Kannan of Aon



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Aon’s variable pricing model, which isbased on costs per hire and is not a fixedfee, would ebb and flow with the compa-ny’s growth. “You hire 100 people inOctober, you pay one amount; you hire 50people in September, you pay a lesseramount,” Kannan explains. “There are nominimum requirements.”

The council soon became as comfortableas Allen with the promise of outsourcing,which offers “the ability to find a diverse poolof candidates with the skills we need and thetalents we require as we continue to grow andengage in related businesses,” Allen asserts.“People are the essence of this company andwe want the best. Now, we had a more oppor-tune methodology to find the best.”

“More effective human capital is theessential ingredient for companies in achiev-ing competitive advantage,” says Budzinski.“We help companies achieve superior, tangi-ble business results by enhancing the performance of their human resources.”

HIR ING PRACT ICES

Cinergy hasn’t outsourced recruitment andstaffing as much as the administrative andoperational aspects of these processes.“Cinergy continues to deal with issues likecandidate competencies, behavior, andworkforce makeup—the pure, strategicpart of recruitment and staffing,” explainsKannan. “HR continues to go to the headsof commercial business units and ask ques-tions like ‘Where are you headed, humancapital-wise, in the next 18 months?’ or‘What will your employment needs bepost-acquisition? Are you consideringmore MBA types? Will you have more vol-ume processing around recent college grad-uates?’ The difference is that we pick upfrom there. We do things like digitizingthousands of files going on Internet jobboards, keeping in line with ongoing com-pliance issues and other legalities surround-ing recruitment, scheduling interviewswith job candidates, and so on.”

The basic steps involved in recruitmentremain much the same, whether a compa-ny outsources or retains traditional internalprocesses. A Cinergy business manageridentifies a staffing need and creates a jobrequisition that must then be approved by

hiring managers for financial purposes.Once approved, needed job skills are iden-tified and individuals meeting these quali-ties are sought. “What we do is conduct thesearch for these candidates, screen themusing standardized behavioral interviewtechniques and then test them, based onguidelines established by the EdisonElectric Institute for the energy industry,”Kannan says. “After the testing phase, weschedule the interviews—a time-intensiveprocess known to cause much duress in HRorganizations. We take the pain out of theprocess. We also handle the final step—notification of job acceptance or decline.”

While each of the steps typically is takenby a single person at a traditional executivesearch firm, the recruiting at Aon is brokeninto different segments. “We have expertsin testing focusing on that function, andexperts in interviewing specializing inthat,” Kannan notes. “Each of these peopleworks with several clients and is rigorouslytrained in that client’s program. This divi-sional labor strategy gives us great flexibili-ty in bringing on new clients.”

Cinergy’s relationship with Aon is stillburgeoning. At present, Aon personnel aremeeting with business managers through-out Cinergy to talk about future needs andhow they can best service those needs.Both companies also are in the process ofsynching up their recruitment technologysystems. “I’m very, very involved with ourIT people right now,” Allen laughs. The“live date” is February 15, 2005.

Cinergy is also in the process of estab-lishing a governance system, wherebyAon executives and Cinergy HR staffmeet on a quarterly basis with Cinergy’suser council to assess performance andaddress small problems before they eruptinto major ones. “We expect a few bumpsin the road but nothing that can’t beironed out easily,” says Allen, a completeHRO convert now.

Although a newly-established relation-ship, both parties have the energy anddrive to make it a powerful one—and onethat will do well by Cinergy’s employees.Allen sums up, “Aon will just be able todo a lot better sourcing of job candidatesthan we did previously.” HRO

WANT ADSWhile the HR outsourcing strategy allowedCinergy to reduce headcount in internalstaffing and recruitment, the former staffdid not go without jobs within Cinergy forlong, thanks to the company’s “no layoff”commitment.

The seven-employee staff in Cinergy’srecruitment and staffing department will bereduced to two once the outsourcing agree-ment goes live on February 15. Interestingly,the five employees excised from the depart-ment—all of them acutely cognizant of otherjob postings within Cinergy, given theirstaffing and recruitment expertise—foundtheir next jobs within the company on theirown. “The irony is that these employees typi-cally are charged with recruiting candidatesfor jobs and now needed to find jobs forthemselves,” says Jim O’Connor, Cinergy general manager of employee relations.

Cinergy’s “no layoff” approach is thatemployees are not fired in cases where a newtechnology or new business process curtailsthe ongoing need for their services. “We havea commitment to bring our people back intothe organization,” explains O’Connor, whoseresponsibilities extend to overseeing Cinergy’semployee redeployment pool. “We don’tpromise to get them the jobs of their dreams,but we do try to get them a job that meetstheir abilities and will set them up for success.Were I to lose my job as a result of downsiz-ing, it would not make sense to put me inengineering, in which I have no expertise.Obviously, I would fail. But, I can rest assuredthat I would find employment somewhereelse in the company.”

The five recruitment and staffing employ-ees were well aware their positions would bephased out as part of the outsourcing agree-ment with Aon. Corporate policy requires thatthey contact the redeployment pool oncethey are notified of termination to request aninterview designed to assess their skills.O’Connor and his staff, including the pool’smanager Nicha Flick, then scour Cinergy’semployment availability to match candidateswith jobs best fitting their abilities. “Whatwas different in this case is that the fiveemployees already knew what jobs wereavailable and which opportunities best fittheir talents,” says Allen. “All of them nowhave other jobs within the organization.”



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HIGH- ENERGY HIRING · The utility’s 401(k) benefits processing and all medical and dental claim processes are handled by outsourcing service providers. Cinergy’s Chief Administration