One evening in 1991, Walton E. Burdick, IBM senior vice-president for personnel, was sitting around with a group of fellow managers at the company's Armonk (N.Y.) headquarters, when the discussion turned to a pressing issue: how to cut Big Blue's annual $1 billion-plus benefits costs for its 158,000 domestic employees. With health-care costs soaring, the problem had become a familiar one to companies. But out of that session IBM came up with a radical solution: It decided to spin off its huge human resources operation into a separate company called Workforce Solutions, which is now saving IBM millions of dollars annually. Says Burdick: "In retrospect, what we did seems so simple."

Many corporations are finding they can cut overhead and deliver better services to employees by getting out of the benefits business--and handing it over to consultants instead. IBM did them one better. While other businesses let outsiders take over key human resource areas such as 401(k) retirement plans, IBM in 1992 set up Workforce Solutions to handle everything. And if all goes well, it will soon be a profit center in its own right.

SINK OR SWIM. In setting up Workforce Solutions, IBM is forcing its former benefits staff to be more entrepreneurial. The new outfit still provides all human resources support to IBM's 13 business units, but Workforce Solutions can tailor its services to the units' differing needs. Workforce has eight specialty areas--ranging from occupational health and safety to career development. They allow an IBM unit to choose, say, additional support for overseas assignments or to put emphasis on building a diverse work force. Customizing benefits is a radical departure from the one-size-fits-all mentality that long prevailed at IBM. "What IBM is doing makes a whole lot of sense," says Lance Tane, a partner at benefits consultants Kwasha Lipton. "Too often, line operations have been hostage to their internal benefits department."

The changeover to Workforce Solutions is saving IBM about $45 million annually, in the form of reduced staffing, consolidation of offices, and new technology such as automated telephones. But rethinking the way it delivers benefits has also fostered changes in IBM's medical plan. The company's coverage is still among the most generous of large corporations. But IBM is increasingly using managed care and imposing an annual $40-a-head deductible for the dental plan. All told, such changes cut $155 million from IBM's health-care tab in 1992 and shaved the company's per capita costs from about $4,200 to $3,900.

IBM employees haven't noticed any big changes, which is what IBM intended. "I would say service is a little better," says a worker, adding that she now gets more communications about benefits.

IBM is helping to keep Workforce Solutions competitive. It gave the spin-off a lock on IBM's business--but only through this year. After that, IBM units can choose whatever benefits company they want. "Our focus is that everybody at Workforce has to get those customers back," says Workforce President William J. Colucci.

GTE Corp.'s J. Randall MacDonald, vice-president for employee relations, wonders how Workforce Solutions will distinguish itself from other benefits consultants. But Workforce is already trying to forge an identity, picking up accounts outside Big Blue. Last year, for example, Workforce signed up the National Geographic Society. IBM's reputation for excellence and generosity in the benefits area is what appealed to Donna Hasslinger, vice-president for member services at National Geographic. The organization wanted to cut by 50% the number of staff providing subscription and circulation services to society members. It turned to Workforce Solutions--no stranger to downsizing--to help devise a voluntary layoff plan. "They had a lot of hands-on experience, and it showed," says Hasslinger.

Workforce Solutions' early success is focusing attention on the whole idea of marketing internal operations to outsiders. "Frankly, we're very interested in IBM's approach," says Mary Jordan, American Airlines Inc.'s vice-president for personnel. "There are many things we do in the benefits area where we may be a low-cost provider."

If more companies begin selling their human resource services, there could be revolutionary changes in corporate benefits departments. Long seen as drains on the bottom line, benefits departments could become profit centers. IBM, which hasn't had much to crow about of late, may just be on to something.

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