When it comes to payroll, it is extremely rare to find a payroll operation that does not have at least one outsourced vendor relationship. Across the world, vendor partnerships need to be managed effectively if businesses want to maintain and improve payroll services.

Fortunately, Brent Gow, CPP, Managing Partner of BRGow & Associates LLC, and Jay Conforti, Director of HR Transformation for KPMG, are able to help payroll professionals obtain the information and insight they need. They presented the workshop “Managing Vendor Relationships” during the American Payroll Association’s (APA) 37th Annual Congress last May in Long Beach, California.

The two share a wealth of experience in negotiating, managing, and implementing vendor partnership agreements. Their presentation covered everything from relationship management and pre-implementation planning to critical performance indicators (CPIs), advisory boards, governance management, and support management beyond the “go live” date.

Gow pointed out at the start of the workshop that outsourcing is no longer just about saving money. Now, companies seek vendor partnerships to improve levels of employee engagement and to leverage additional services that will enhance the employee experience. Vendor partnerships have become two-way relationships founded on increased levels of accountability, visibility, and governance.

Gow discussed how brand power can be an essential leveraging tool in vendor negotiations. If your brand is strong, then this is something a vendor will be keen to monopolise on, and it can allow for additional discounts to be offered in return. The key to any successful partnership is adding value to both parties. Therefore, it is also essential that businesses build trust and mutual respect with a vendor and consider precisely what they want to achieve out of any vendor engagement before progressing into a partnership.

How to Manage the Relationship

Once a vendor has been selected, it is essential that to manage the relationship effectively, you establish an executive steering team to develop and enhance the strategic business direction of the partnership. This will also enable you to control the performance contract more effectively and resolve disputes quickly. As Conforti highlighted, if you get the infrastructure right from the outset, then reporting and accountability lines are much easier to manage. You can also utilise templates to track data and issues and to help you review management reports and performance metrics more accurately.

Pre-implementation planning is, therefore, essential. As part of this process, it is critical that you develop a business case that helps you to pick a vendor that fits your service model. If you fail to do this, then it can be an expensive mistake to resolve later if you discover that the technology you are being offered doesn’t entirely integrate or do everything you thought it would.

By creating a compelling business case, you can measure your return on investment (ROI) and understand the burn-rates that will get you to the point of achieving what you want from the relationship. This is also why the discovery phase is so essential, because it is at this point you can see if the implementation will work! Remember to flowchart all your processes too because, without this, it can be a timely and frustrating exercise to discover where blockages are in the implementation—especially in a global environment.

Once you are ready, it is then about establishing robust service level agreements (SLAs). Typically, these will be made of CPIs and key performance indicators (KPIs). CPIs are essential for appropriately servicing employees and maintaining company data, and you can use this opportunity to build in penalties if your vendor fails to achieve the CPIs you have set for them. Usually, these will relate to speed or time or a percentage of either of these metrics to complete a task such as statutory reporting accuracy, employee data management transactions times, employee data transaction accuracy, interface accuracy, or resolution time to respond, etc.

The SLA will also include a scope of work (SoW), which can define the period the SLA will cover and the services that will be performed. SLAs can be a powerful way to keep vendors on their toes because they will always want to give a rosy view of how the partnership is performing. With an SLA, you can measure performance and review it regularly. Both Gow and Conforti recommended utilising your own scorecards to do this. These, they said, should give you a better result than relying on scorecards produced by the vendor.

Remember, of course, that a partnership is a two-way relationship, and this means that the vendor will also have expectations of you as a client. Conforti suggested that some vendors are now walking away from the negotiation table if clients are only willing to take on one product. Vendors are often happy to provide discounts and make themselves accountable, but in return, they are more frequently insisting that businesses take on more than one service from their suite, so watch out for this.

Finally, both Gow and Conforti highlighted the importance of ensuring you have contract accountability through governance, which can help drive more tangible value creation within the contracts. These will often be reviewed by client advisory boards, and they will allow you to establish a governance framework that you and the vendor can both agree on.

Remember that the agreement is the foundation. The organisation will need to be redesigned to accommodate the partnership, and the work within the relationship needs to be defined and redefined if necessary. Always enable collaboration and never leave relationships to chance.

After the contract is signed, of course, is when the real fun begins!

Don’t miss all of the great workshops, like this one, that will be part of the education and networking during the 38th Annual Congress, 5-8 May 2020, in Orlando, Florida.

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Nick Day is Managing Director of Payroll, HR, and Marketing Recruitment for JGA Recruitment Group in the United Kingdom. He is the host of two podcasts, The Payroll Podcast and the HR L&D Podcast.