Considering the pressure in early 2002 from then-CEO David Komansky and his successor-in-waiting, Stanley O'Neal, now CEO, to cut costs throughout Merrill, the actions of the HR group took more than a bit of courage.
In 2001, the market was in a free fall and ethical questions were swirling around financial services companies, Merrill included. The company would eventually have to pay fines of $200 million to settle accusations of dubious analyst recommendations and another $80 million to resolve allegations that Merrill executives played a role in securities fraud at Enron Corp.
Meanwhile, Merrill's 2001 revenue fell 16 percent, to $38.8 billion from $44.9 billion the year before, and another 37 percent in 2002, to $28.3 billion. Net income in 2001 nose-dived more than fourfold, to $573 million from $3.8 billion. And while earnings rebounded to $2.5 billion in 2002, that's still more than 50 percent below the results of two years earlier.
In this sticky environment, the possibility of not delivering expense cuts that management demanded while pursuing a strategy that went against the grain of what many other companies were doing, was the corporate equivalent of playing chicken. "Failure was not an option," Kassel freely admits.
At first, though, outsourcing was an option. In early 2002, when the HR team began to consider reorganization to meet financial goals, Merrill's initial inclination was to do as other companies did. So the firm invited three major outsourcersExult, Mellon Financial Corp. and IBMto present their bona fides on the project.
But after watching the presentations, it became clear to Merrill's executives that outsourcing wasn't for them. There was something disturbing about giving the task of resolving personnel matters to people who didn't work for the company, particularly in the aftermath of Sept. 11.
And when it came time to review the thousands of steps required to link Merrill's 100-plus separate client-server systems containing HR data and applicationsmany of them rogue systems built randomly over the yearsinto an outsourcer's network, Merrill's HR executives could not pinpoint any sure savings. At the same time, even without any guaranteed returns, Merrill would still have to pay the outsourcer millions of dollars to make the diverse connections fit.
"There was no synergy in Merrill's systems," says Ruddle. "Merrill's operations had grown so complicated that no one was in a position to predict scalability from outsourcing."
That sealed the decision to set up the call center in-house. Some questions needed to be answered quickly. Location, for one. Merrill decided on a campus the company had just built in an isolated corner of tiny Hopewell, N.J., where real estate costs were relatively low.
By the fall of 2002, the hard part was just beginning. First, there were staffing issues. Together with Deloitte, Merrill decided to place about 60 people in the Hopewell call center to begin serving almost all of the firm's U.S.based employees. Plans were also developed to bring similar call centers online in the U.K. and Tokyosince completedas well as a site in Singapore this spring. Ultimately, Merrill intends to keep the call centers live all day and all night, providing services to all of its 50,000 employees worldwide.
For greater efficiency, Merrill officials broke down the Hopewell team into three groups: Tier 1 consisted of the first-line advisers who answer questions, usually about benefits, payroll and general HR policy. Tier 2 responds to more complicated concerns, such as individual queries about tax withholdings or immigration matters. Tier 3 tackles the more ticklish problems, such as performance issues and disputes between employees.
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