Mercer Finds HR Undergoing Remodeling

August 1, 2003 ( - Half of the Human Resource departments across the country are strapping their seat belts a little bit tighter because their department is in for a transformation.

While 25% of those companies recently polled have already completed their transformation, the remaining respondents are either in the middle of a transition currently (17%), or are planning to start one within the next year (8%), according to a recent study by Mercer Human Resource Consulting.

Much of the change has come as a result of the implementation of a human capital strategy within corporate America. Of the survey respondents 55% reported having a human capital strategy and, of those, 88% indicated that the human capital strategy was linked to their company’s business strategy. Mercer sees this as a sign that business leaders are viewing human capital primarily as a source of value, rather than a business expense and seek to understand the return they receive for their investments in human capital.

Additionally, those companies that have a human capital strategy also appear to have a human resources strategy. Overall, more than three-quarters of the surveyed group (79%) indicated they have an HR strategy, and 88% of those said it is linked to their company’s business strategy.

With a strategy in place, the study found that the HR functions in organizations spend more time on strategic activities and less time on administration, use technology more effectively, are viewed as a strategic business partner by the organization’s leadership, have greater control over budgets and allocation of resources and are more effective at using metrics to manage HR operations and to influence business decisions throughout the organization.

To get to this point, HR departments are being gutted and reshaped to fit the proper mold. Canvassing the 25% that have already completed the change, the study found the transformation efforts included:

  • 54% – assessing the needs of HR customers
  • 46% – creating a new HR organizational structure
  • 46% – auditing the current HR information system
  • 42% – designing a new HR service delivery strategy.

The results differed slightly with those planning an HR transformation in the upcoming 12 months. This group was focused on two primary activities: redesigning HR work processes (59%) and talent development strategy for HR staff (58%).

Transforming From Within

Even though changes in business strategy spurred some of HR’s recent change, other factors in the dynamic business world led to change from within. Specifically, with HR professionals are now finding themselves in a position to increasingly quantify the effect of HR programs and policies.

To answer the bugle call, Mercer found HR departments have begun to utilize a wide array of HR and human capital metrics to track everything from employee skill levels to training program effectiveness and then linking that information back to corporate business results.

Specifically, Mercer tracked 12 fundamental HR Metrics. Overall, the most widely used was an employee attitudes metric (78%), followed by turnover (57%). Following those two the rest of the group showed a wide range of participation:

  • satisfaction with HR services (56%)
  • outsourcing costs (52%)
  • service center operations (49%)
  • HR transactions processed (43%
  • staffing process/outcomes (41%)
  • training utilization (40%)
  • HR consulting services utilization (39%)
  • training program effectiveness (38%)
  • promotions (32%)
  • employee skill levels (24%).

Outsourcing Increases

With over half of the companies interviewed using an outsourcing cost metric to track cost, it is little wonder the increased number of options for outsourcing HR services have had a tremendous impact on the HR function as a whole. Mercer found the companies sampled outsource an average of three HR activities and nearly all outsource at least one HR activity.

Most common among these was:

  • 60% – defined contribution administration
  • 46% – health and welfare benefit administration
  • 40% – relocation
  • 36% – defined benefit administration
  • 33% – technical training
  • 29% – nontechnical training
  • 25% – payroll
  • 23% – management development

Conversely, the HR activities least likely to be outsourced include compensation administration (4%), HRIS (12%), recruitment and assessment (13%), and executive compensation (17%).

When it came to satisfaction with these services though, technical and nontechnical training was the cat’s meow, garnering a 98% favorable rating. This was followed by high marks for management development (94%), compensation administration (92%), and executive compensation (92%). Ratings were lowest for HRIS (65%) and recruitment and assessment (74%).

Defined contribution administration costs were rated as favorable by 92% of the respondents, compared to 89% for nontechnical training and 88% for technical training. HRIS and recruitment and assessment also had the lowest ratings for satisfaction with cost – 78% and 71%, respectively.

The full study report, Transforming HR for Business Results: A Study of US Organizations, can be downloaded at no cost from Mercer’s Web site at .