Hewitt Finds HR Outsourcing Helps Firms Reduce Costs

June 17, 2009 (PLANSPONSOR.com) - While the current recession is putting additional pressure on human resources (HR) departments to lower program costs, companies don't expect that to mean changing their strategy towards outsourcing HR services, according to a new survey by Hewitt Associates.

Hewitt’s survey indicates that outsourcing HR services has actually helped companies reduce costs and become more efficient, according to a news release. Nearly two-thirds (62%) of survey respondents for whom cost savings is a primary outsourcing objective said they met expected cost reduction targets through their existing outsourcing program.

Hewitt’s survey of more than 100 mid- and large-sized companies found that the majority of organizations (55%) are experiencing more cost pressures on benefits programs compared with 12 months earlier, but 71% of organizations do not anticipate the current economic conditions to change their HR outsourcing strategy. Thirty-four percent of companies said they are more inclined to outsource than they were two years earlier, the news release said.

Ninety-four percent of companies in Hewitt’s survey outsource at least one HR function or program, with the majority of companies outsourcing traditional benefit programs: defined contribution (89%); defined benefit (72%); and health and welfare (61%). Other commonly outsourced HR functions include flexible spending accounts (94%); self-directed brokerage windows (78%); and dependent audit services (68%).

Absence management (17%) and dependent audit administration (9%) top the list of HR-related services that companies plan to outsource in the near future.

The survey found nearly two-thirds (65%) of companies believe that outsourcing can lead to lower costs, and “cost savings” topped the list of companies’ reasons for outsourcing HR (78%). Other top reasons companies choose to outsource their HR services include, access to outside HR expertise (78%), service quality (74%), and the ability to realign resources and focus on core business (72%).

Seventy percent of survey respondents said a key reason to outsource is the opportunity to alleviate regulatory/administrative burdens, compared with just 46% who said so in a similar Hewitt survey in 2006.

Overall, 82% of companies that are able to measure the success of their HR outsourcing initiatives believe they have realized the expected benefits, according to the Hewitt Associates survey. When asked to assess the success of outsourced HR services, at least 89% of respondents rated nearly all services as being effective or highly effective.

Almost all (98%) organizations that outsource their defined contribution administration rated their program as effective or highly effective; 88% rated their outsourced health and welfare services as effective or highly effective; and 100% rated their defined benefit programs as being effective or highly effective.

Hewitt's survey also revealed that 83% of companies that outsource one to two single HR processes are actively measuring the success of their outsourcing initiatives, up from 46% in 2006. In addition, nearly all companies measure the return on investment (ROI) of their outsourcing program using at least one of five standard measures: improved service quality; improved operational efficiencies; reduced operating costs; improved employee satisfaction; and HR staff realignment and/or reduction.

Twenty-two percent of participants use all of the top five measures, while 27% use at least four of the metrics to gauge their outsourcing success. At least 75% of companies indicated that they met or exceeded their set objectives for each of the measures used to gauge ROI.