Stake in the Ground
OneDigital and Zenefits announced last week that they are forging a new, unprecedented partnership that will give clients access to leading technology and advisory services.
We chatted with OneDigital chief growth officer Mike Sullivan about what this strategy entails, what it means for each company’s future, and what it was like to meet with the somewhat infamous organization.
Editor’s note: Check back for our conversation with Zenefits, coming your way soon.
Our outsourced business is a substantial business, and it just got substantially larger. So purely from a business standpoint, this is a major influx of revenue and a major bump to profitability for our company, because there are a lot of cases that we’re going to begin managing—more than 7,000 cases—so it’s a big engagement. That’s first and foremost.
I think that the second thing really is…we’ve just come to the realization that we don’t deploy technology at scale, and we needed to figure out how to do that more broadly because we think it’s what our clients need. This is a big step in the direction of alignment around going to market and deploying technology in a much more integrated way but doing it with a partner that has technology resources and an overall scale.
But I think it’s going to be interesting how other brokers ultimately deploy this technology, because it is heavy lifting when it comes to trying to roll out technology to a broad swath of your clients. For example, we’ve spent weeks down in their Arizona operation. We took an operations team into their operation center and looked at it and said, “What work do they do, and what work do we do?”
What’s been very interesting is that we’ve both been trying to be a broker for like 25, 75, 150 life groups, but the work that’s being done is very different. It’s not like a straight outsource deal where we’re saying, “Oh well, you don’t need those people because we do that.” It’s a different type of work that’s being done. We’re opening up an office that’s in the same office building as their operation center down there. There are Zenefits people that are going to become OneDigital employees, and we’re going to integrate teams so that we can do this more efficiently. We’re having to re-create positions, job titles, that kind of thing, to deliver on this. Whoever ultimately decides they’re going to play offense with Zenefits’ technology is going to have to operationalize that. What I feel good about is I think we’re going to be a great combined solution, a differentiated solution for small and midsize employers. Whoever else can accomplish that, have at it.
Honestly, it’s what we did 17 years ago when we started the company. We developed a call center and we said, “Hey, out of Atlanta, let’s try to manage business for the whole country.” You don’t know product portfolios…everything is so geographically driven, state-based regulatory driven, and the nuance of networks and products and compliance and everything to do with what brokers in markets know day in and day out because they’re immersed in that particular geography. You try to do that out of a call center in Arizona—or quite frankly what we tried to do out of a call center 17 years ago in Atlanta—and you pretend. You do it as best you can, but you don’t know what you don’t know.
What we have learned is there’s sort of a pivot point. Under 20 lives you can pretty much do remotely. Over 20 lives, you have to be face to face with clients. It seems to be the way things break out, and so we built an entire organization over and under that pivot point.
I think their view is, downstream, they’re going to be much more of a middle-market solution.
The other key piece of it is how to very profitably manage small business. To get this right and to deploy technology into tens of thousands of groups, you have to do work more efficiently than is done today. We’ve been chopping away at that for 15 years. If you look at OneDigital today—and the number of groups where we deploy technology—we have benefits admin technology somewhere in about 5% of our overall groups. Maybe it’s 10%, but it’s probably not more than 10%. How are we going to take that to 50, 70, 80% of our groups? How are we going to manage 100 million millennials coming into the workforce by 2020? We better figure out how to do technology. I think brokers that don’t think they’re going to have to be responsible for that or don’t think that this is coming in a more meaningful way, it really is.
This isn’t about benefits administration. This is about software that runs an entire business. There’s an entire ecosystem. If we can find our way on this path that they’re going down and they can leverage the advisory business that we’re building out, which is substantial, if I was a client, [I’d be] saying, “Wow, I have a team of technology folks and benefits folks and HR professionals explain to me how I can manage people more efficiently as an employer? I’ve not really had someone come in and do that.” And trust me, there’s a bunch of solutions in the marketplace that come out and try.
Payroll companies go out and say, here’s a one-stop shop and we do it all. Technology companies are saying the same, but when you look at what really works, they do their core business really well and the other piece of it they don’t do very well. And that’s across the entire industry. The more we looked at that and the more we struggled with it, we just came to the realization that there’s a better way to do this for clients, but you have to be all in. Which means you have to change the way work gets done, you have to change the map of the business, and that’s what this partnership is about. It’s about changing the map of the business going forward so the clients get a different overall solution.
This is an entry point to basically say the future is going to look different. We want to be part of that future, and we need to do more for our clients long term. And this partnership is an acknowledgement of we don’t think we’re going to do it on our own, but we need someone on the other side who is not just advanced today but has the financial backing from their investors to build and be around for the long term.