Survey: HR Outsourcing Growing and Customers are Satisfied

April 18, 2005 ( - Human resources outsourcing is continuing to grow, with 94% of respondents to a recent poll claiming that they outsourced at least one HR function or activity.

According to a Hewitt Associates poll on HR outsourcing, the most commonly outsourced functions currently are outplacement services (91%), employee assistance programs (89%), defined contribution or 401(k) (83%), COBRA administration (77%), and defined benefit pension (68%).

The continuing prevalence of outsourcing is due to a number of factors, according to the study. These includeaccess to outside HR expertise, service quality, ability to focus on core business, cost savings, opportunity for better data, and relief from administrative burdens. When selecting a provider, employers were most likely to look at demonstrated HR process expertise (95%), prior experience/track record (93%), service level agreements in contracts (83%), cost savings guarantees in contracts (65%), and leading-edge technology (65%).

By 2008, the survey predicts, the largest planned outsourcing pushes will be seen in:leave management, learning and development, payroll, recruiting, health and welfare, and global mobility.

Concerns and Comments

Outsourcing doesn’t come without some concerns, however. When asked to suggest concerns association with such practices, respondents noted their top three arelosing control of key processes, employee reactions to an external service provider, and difficulty in building a business case.

However, even with concerns, employers in the survey who outsourced some business functions were happy, with 89% stating they were satisfied with the arrangement. Additionally, 85% achieved hoped-for benefits, and 20% even realized some unexpected benefits. When considering cost saving objectives, 45% said they had achieved them; 45% said that cost saving was not an objective in their decision to outsource.

Transition and Reversal

When companies transition into outsourcing, 81% say that it goes smoothly. To help prepare for the move, 70% defined new HR roles and responsibilities, while some restructured HR (62%), developed and communicated a new HR strategy (55%), and provided training for employees in new roles (43%). Companies prepared employees for the change by creating communication campaigns (88%) and providing training for managers and employees (56%), according to the survey.

Only 23% of companies have brought an outsourced function back in-house; of that, 62% did it because of poor service, while 28% did it because expected cost savings were not seen. Overall, this would seem to reinforce the survey’s findings that customers are generally satisfied with their outsourcing service.

The survey took responses from 129 companies with nearly 2 million employees.