World-class HR Organizations Spend Less, Deliver More

Hackett: Technology and outsourcing are not silver bullets


Hackett: Technology and outsourcing are not silver bullets

Atlanta, GA — June 25, 2004 — World-class human resources (HR) organizations spend 27 percent less per employee than their peers and operate with 35 percent fewer staff, according to 2004 research into world-class HR performance from The Hackett Group, a business advisory firm and an Answerthink company. At the same time, world-class companies deliver greater value through better alignment with corporate strategy and lower rates of voluntary and involuntary terminations.

Hackett's research findings also conclude that while technology and outsourcing are key factors in achieving world-class performance in HR, world-class companies succeed without spending more money in these areas. World-class companies actually spend nearly the same amount that median companies do on both technology and outsourcing.

Instead, Hackett found that world-class HR organizations achieve their improved efficiency and effectiveness through holistic efforts, including the use of technology to successfully minimize complexity, reduce upstream error rates and integrate end-to-end HR processes. World-class organizations also use outsourcing on a more selective basis, and more strategically, as a way to more efficiently scale discretionary services.

The Hackett Group's 2004 research into world-class performance is compiled in its Book of Numbers series, which provides senior executives fact-based performance metrics and insights based on Hackett's database of best practices and process metrics in HR, information technology (IT), finance, procurement and other areas.

To receive Hackett's world-class designation, an organization must score in the top 25 percent of Hackett's current database in both efficiency (cost and productivity) and effectiveness (quality and business value) output metrics in a given functional area. In this way, Hackett defines "world-class" with empirical data, isolating the characteristics shared by today's world-class organizations.

Gap Between Median, World-class Continues to Expand

World-class HR organizations spend $1,390/employee annually, 27 percent less than median companies, which spend $1,892/employee, according to Hackett. Both world-class and median companies dedicate more than half of their HR spending to labor costs, but lower spending on labor makes up the lion's share of the gap between world-class and median HR organizations. World-class companies spend 31 percent less than median companies on labor ($742/employee versus $1,075), and rely on 35 percent fewer HR staff per 1,000 employees.

HR costs per employee have increased for both world-class and median companies since 1996, Hackett found. But world-class companies have seen an increase of only 12 percent, compared to 21 percent for median companies. So the gap between world-class and median is clearly growing larger.

World-class organizations are also more effective than their median peers, according to Hackett's research. Senior HR executives at all world-class organizations tie business strategy to people strategy, compared to only 60 percent of median companies. World-class organizations are 87 percent more likely to have articulated an explicitly stated workforce strategy. World-class HR organizations also manage their workforces much more effectively, and as a result see 61 percent fewer voluntary terminations and 43 percent fewer involuntary terminations.

"The gap between world-class and median HR performance has always been there. But it's widened significantly over the years," said Hackett HR Practice Leader Stephen Joyce. "Companies that are median performers today have reason to be concerned. World-class organizations are spending less on HR, driving to significantly lower costs in both transactional and employee life cycle processes while providing higher strategic value to their companies. It's also easy to understand how basics like lower staff turnover rates can help make companies with world-class HR organizations more stable and more effective, and provide a real competitive advantage."

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