HR Outsourcing Not an Overall Panacea

April 7, 2004 ( - Although HR business process outsourcing (BPO) is saving companies money, it hasn't been the be-all panacea some users might have expected, according to a new study.

A Towers Perrin survey of companies that have adopted broad-scale HR outsourcing in the last four years found that more than three-quarters – who collectively represent 90% of all current major HR BPO arrangements – said they had met short-term cost-saving goals, with 37% citing “complete success” on this important outcome.Long-term cost cuts are beginning to emerge as well, although 56% of the group said it was too soon to tell how by how much and just 37% overall cited some success on this front.

But, on the remainder of their BPO objectives, respondents were far less upbeat about their results in areas such as

  • transformation of the HR function
  • improvements in service quality
  • employee and manager behavior change.

Yet, while six in 10 said the ability to eliminate transactional work helped them refocus on more strategic activities, just 11% cited hitting a home run in terms of results. Only 35% cited improvements in service quality beyond what they felt they could have achieved on their own. Of the 57% who said they were changing manager and employee behavior – and moving toward increased self-service – a scant 15% cited full success.

Companies’ experiences with HR BPO differ s ignificantly depending on the timing of the deal. The earliest adopters did seek transformation of their function, passing both well- and poorly designed processes to vendors so they could focus solely on strategic work. The survey data show this shift did not occur, however. Because of the extent of behavior change required from employees, managers and the HR function itself, companies found they couldn’t merely pass along staff and disorganized processes and achieve the expected benefits.

That early experience led the next group of outsourcers to refocus on the basics of meeting their financial objectives and getting the implementation arrangements right. Compared with the earlier adopters (those signing before 2002), the so-called “realists” (signing between 2002 and 2003) were more successful in achieving objectives:

  • 83% of the realists achieved the overall benefits they wanted, compared with just 54% of the early adopters
  • 71% of the realists were satisfied with their vendor services overall, versus 42% of the early adopters
  • 53% of the realists had a successful implementation, compared with just 39% of the early adopters.

Respondents had mixed views on one of the most controversial aspects of outsourcing today: moving operations offshore. For the most part, the group didn’t have enough experience to assess either the value of offshoring or the validity of potential concerns about it.

The HR Business Process Outsourcing Research Survey was conducted in early 2004 and included a survey questionnaire with face-to-face interviews to elicit responses from 32 of the 35 companies currently outsourcing five or more of their HR processes.