Hewitt: More Effective HR Units Emphasizing Consultation

June 7, 2005 (PLANSPONSOR.com) - Human resource departments with a more strategic approach are spending more time these days consulting with other business units about achieving corporate goals than in routine tasks such as administration and customer service.

That was a key conclusion of a new Hewitt Associates report which found that time spent at innovative HR departments on program administration and customer service is down from43% to 30%, and some HR units are further cutting this through multi-process outsourcing, according to the report. In addition, these companies are spending more time on strategy, program design, and consultation, Hewitt found.

HR departments pushing the innovation envelope the hardest are dedicating more skilled resources to organizational planning, talent management, succession and workforce planning, business process improvement, and facilitation and coaching, Hewitt asserted.

More traditional HR operations, meanwhile, continue to provide the traditional set of products and services, spending 50% of their time in staffing/recruiting, workforce relations/communication, and HRMS/workforce administration. In general, companies spend less time today on benefits, reflecting a high prevalence of outsourcing 401(k), pension, and health and welfare administration.

Among the conclusions Hewitt offered in the study were:

  • Taking a holistic look at HR costs, organizations are spending nearly $2,500 per employee. HR expenses are not declining, in part, because of additional costs associated with not adopting innovations.
  • A cornerstone of any HR transformation strategy needs to be developing a new mindset for how executives manage the people in HR. Any attempt to drive change in HR needs to include a close examination of the HR staff to ensure that the right people are in the right roles.
  • HR must fully understand how expenses and resources are allocated before making significant new investments or changes to HR delivery.
  • Companies cannot increase one portion of HR costs (e.g., technology spending) without reducing by a commensurate or greater amount the rest of the equation.

To meet the challenge of HR transformation, many HR organizations will need to make difficult decisions about how they spend limited resources on a range of HR priorities, Hewitt asserted. Overall, Hewitt claimed that companies still focus too heavily on administration and customer service, which comes at the expense of other activities that might bring a greater value to the company.

In general, Hewitt said, five factors making it difficult for HR departments to break of the traditional mold include:

  • unclear vision
  • poor change management
  • inefficient HR delivery
  • the right people doing the wrong work
  • suboptimal use of HR technology.

Finally Hewitt found that HR costs have grown an average of 6% a year for the last five years and are currently $2,436 per full-time employee, totaling more than $100 million a year in HR expenses for an average Fortune 500 company. Companies which outsource have HR costs that are 20% lower than those of other companies, Hewitt found.