Outsourcing Rates High on Costs, Low on Quality

October 19, 2005 (PLANSPONSOR.com) - A Towers Perrin study shows that 88% of companies feel they've succeeded in meeting short-term cost objectives from HR outsourcing, while only 40% report improvements in quality of service.

A news release on the study said the three key objectives for HR outsourcing chosen by the majority of companies were: reducing their overall service delivery costs (37%), freeing HR to focus on more strategic issues (23%), and improving service quality (14%). Ninety two percent of respondents reported long term cost management success. In addition to the low success in quality improvement, a majority of respondents also reported little or no success in improving productivity for HR, and in speeding the transformation of the function from tactical to strategic.

Top goals companies have for their vendors, according to the survey results, included: quickly meeting established service levels and expectations (34%), meeting the financial terms of the contract (22%), having an in-depth knowledge of the organization (14%), and having good overall experience in providing HRO services (14%). Forty percent said their vendor doesn’t share best practices from its work with other clients, and 46% said their vendor doesn’t use its knowledge or access to the company’s data to help the company improve.

The study also found that offshoring continues to be a proven solution to obtaining cost savings, and “near offshoring” is a growing trend. Fifty-eight percent of the respondents rely on some form of offshoring and about a third intend to move additional work offshore. Only 10% plan to return work to their home country.

India is the favored offshoring location, followed by Malaysia. Jamaica, Costa Rica, and Canada are the most popular near offshoring locations. A surprising finding of the study is that companies appear to have better success with vendors that are farther away. Seventy six percent of those operating far offshore felt their implementation went smoothly, versus 44% of those in near offshore locations, and 38% of those outsourcing in their home country.

The HR Outsourcing Effectiveness Study combined a broad set of survey questions with face-to-face interviews to secure responses from 80% of the 60 companies that outsourced five or more of their HR processes at the time of the study. Of the 47 organizations participating, 37 are Fortune 500 companies. For more information, go to http://www.towersperrin.com/hrservices .