World-class HR Organizations Spend Less, Deliver More

Hackett: Technology and outsourcing are not silver bullets


Holistic Approach Key to World-class Success

Hackett found that, overall, there is no single silver bullet to achieving world-class performance, and a holistic approach is needed. Hackett's research findings conclude that to reduce overall costs, and particularly labor costs, HR organizations need to implement best practices and process improvements to better leverage their technology and outsourcing investments. In fact, world-class HR organizations spend almost exactly the same amount per employee as median companies on technology, and 10 percent less per employee on outsourcing. But world-class organizations use technology and outsourcing more effectively than median companies to enable improvements in other areas.

Several factors contribute to the success of world-class HR organizations at improving their efficiency and effectiveness, Hackett found. World-class HR organizations reduce their complexity in many areas. For example, they utilize 69 percent fewer health and welfare plans and 46 percent fewer compensation plans than median companies. They also significantly cut upstream error rates in key processes such as health and welfare administration, compensation administration, and employee data management. These reduced error rates generate significant downstream benefits. For example, world-class organizations spend 42 percent less than median organizations on payroll administration.

World-class HR organizations also focus on process integration, streamlining their operations and using technology more effectively. For example, all world-class organizations integrate compensation administration with payroll, and then payroll with general accounting. Median companies are significantly less likely to integrate these areas.

While world-class organizations spend less than median companies on outsourcing, it represents a larger percentage of their overall spend. World-class organizations also use outsourcing much more strategically, as a way to execute with greater flexibility and scale discretionary services while avoiding internal disruptions. For example, Hackett found that world-class companies spend 55 percent less than median companies outsourcing staffing and workforce development, while they spend 25 percent more than median companies outsourcing total rewards administration.

"There's this misconception that to cut costs in HR you eliminate staff and replace them with technology and outsourcing support. But the numbers simply don't bear this out. The path to world-class performance is more complex," said Hackett HR Program Manager Patty Miller. "It's not how much you spend, but how you utilize technology and outsourcing that matters. Virtually across the board, world-class companies use technology as an enabler and facilitator, taking care to embed best practices into systems and design them to integrate and streamline business processes. This takes time and energy, but it pays off long-term. In outsourcing, world-class companies take a similarly thoughtful approach. They target very carefully, identifying individual processes or sub-processes where cost savings and efficiencies can be generated."

The Hackett Group conducts best practices research and process benchmarking, helping clients achieve world-class performance through continuous improvement initiatives. Hackett offers analysis backed by research at more than 2,400 client organizations, including 93 percent of the Dow Jones Industrials.

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