Lower Outsourcing Costs Equals Greater Efficiency

November 10, 2005 (PLANSPONSOR.com) - Research from The Hackett Group finds that world-class companies spend 25% less on HR than typical companies and rely on 16% less staff, yet see superior results in quality and effectiveness of their operations.

In its news release, Hackett said world-class organizations spend $1,422 per employee on outsourcing versus $1,895 per employee for typical companies, and operate with around 12 HR staff per thousand employees versus 14 per thousand for typical companies.

Hackett said it found that, in most cases, HR outsourcing leads to higher costs at typical companies. The correlation between higher outsourcing spending and greater HR cost per employee is due in part to firms neglecting to streamline processes beforehand and retaining existing internal staff responsible for the outsourced function, Hackett found.

Hackett HR Practice Leader Stephen Joyce said in the release, “By contrast,world-class HR organizations…implement best practices and streamline activities, use self-service technology to reduce or eliminate them where possible, then selectively outsource, making sure to hold the outsourcers accountable for their performance. Finally, they focus internal resources on higher-value areas, such as total rewards planning, strategic workforce planning, and workforce development, enabling them to provide greater strategic value to their company.” According to the release, world-class HR organizations dedicate nearly half of their overall transactional process costs to outsourcing and, as a result, they are able to spend 19% less per employee in this area.

The research also found that the companies spending less on HR reduce complexity, relying on significantly fewer health and welfare plans, savings plans, and compensation plans than typical companies. World-class HR organizations also fill open positions for managers , professionals, and clerical staff up to 31% faster than typical companies, and see 66% fewer voluntary terminations. World-class companies are also much more closely aligned with their companies’ business goals, and are 67% more likely to have an explicit workforce strategy in place, according to the news release.

“World-Class” in Hackett’s empirically based methodology means companies ranking in the top 25% in Efficiency and Effectiveness metrics, according to the company’s Web site, www.thehackettgroup.com.