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More Companies Turning to HR Outsourcing to Improve Service Quality
5 November 2009:
STAMFORD, CT., November 5, 2009 — In a time of increased scrutiny on budgets and heightened focus on efficiency, human resource (HR) departments continue turning to strategic outsourcing arrangements to maximize cost-saving opportunities and reduce the burden of noncritical activities. According to the latest in a series of regular studies on HR outsourcing (HRO) from Towers Perrin, cost reduction was the top goal driving HRO for almost three-quarters (73%) of the companies polled in 2009.
More surprising, however, is the emergence of improving service quality (in the form of employees’ experience interacting with HR) as a strong driver of companies’ decisions to outsource. In 2009, 50% of those polled said improving HR service quality was a top goal of their HRO efforts — a jump from 33% in the 2008 study. Curtailing time-intensive administrative tasks that added minimal value also remained a top reason for outsourcing, with 73% of respondents listing “eliminating the distraction of administrative and transactional work” as a top priority for their HRO strategy.
“Respondents’ sharply increased emphasis on HRO as a means to improve overall service delivery and the experience employees have when they interact with HR reflect organizations’ renewed focus and attention on employee satisfaction and engagement,” said Meg Paschall, a Towers Perrin Principal who specializes in HR function effectiveness. “With the prospect of economic recovery on the horizon, HR professionals are looking to identify and maximize every opportunity that supports employee retention and productivity in 2009 and beyond.”
Is HRO Delivering on Its Promise?
This year’s survey shows that companies are increasingly seeing positive results from HRO — in terms of many of their top goals — but also that opportunities for improvement remain.
In terms of success on the cost management front, two-thirds of respondents said their HRO arrangements have achieved their desired overall cost savings. Reductions in overall HR department head count contributed to this positive cost outcome. In 2009, 93% of respondents reported a decrease in overall HR head count since implementing outsourcing. Almost four in 10 reported head count decreases from 25% to 49% of HR staff, and nearly a quarter reported HR head count decreases of 50% or more.
“The cost savings companies are realizing through their HRO efforts are a powerful reminder that internal functions can contribute significantly to a company’s cost management efforts,” Paschall continued.
Still, the survey shows that challenges remain. Of the nearly three-quarters of respondents who want to eliminate the distraction of administrative and transactional work through HRO, only 50% believe they have successfully achieved this goal. And just 55% of those polled have successfully implemented HR service quality improvements as a result of their HRO.
HR executives and staffers themselves acknowledged they share some of the responsibility for failing to maximize the efficiencies from outsourcing. In fact, 57% believe that their fellow HR staffers need to change their roles and skill sets to a very great or great extent in order to leverage the full value of the outsourced HR model. Three new skill sets emerged as particularly critical for HR staff in an outsourced organization:
- vendor management and contract governance
- project management
- change management.
“This year’s study — the fifth we’ve conducted in the last six years — is stronger proof than ever of the opportunities and results HR departments can realize through strategic outsourcing arrangements and solid implementation,” said Robert Zampetti, a Towers Perrin Principal specializing in HR function effectiveness.
Importance of HRO Arrangement Attributes: A Retrospective View
This year’s survey also took a retrospective look at HRO arrangements, asking companies to rank the attributes they considered most important before and after an HRO implementation. Stark contrasts readily appear, indicating precisely where companies have learned valuable lessons about putting their time, focus and energies.
Respondents indicated that their most important attributes sought for each vendor prior to their HRO implementation included:
- the vendor’s technological capabilities (58%)
- contract terms and conditions (50%)
- prior experience providing HRO services (43%)
- the HRO arrangement’s per-employee costs (43%)
- the implementation costs of the program (38%).
Yet after the HRO arrangement went into effect, previously unconsidered or less important attributes took greater prominence, and the weight given to pre-HRO attributes fell off significantly. Specifically, respondents report the attributes of the HRO vendor that they consider most important after experiencing their HRO implementation include:
quality of staff/expertise (65%, up from only 23% pre-implementation)
the HRO arrangement’s per-employee costs (53%, rising from 43% pre-implementation)
the vendor’s flexibility to meet the company’s specific needs (48%, up from just 30% pre-implementation).
The importance of a vendor’s “prior experience providing HRO services” was listed as one of their arrangement’s most important attributes by only 13% of respondents post-implementation. HRO “implementation costs” were listed as a critical attribute in HRO by just 20% of those polled following the activation of the arrangement.
“As the saying goes, ‘if companies knew then what they know now’ about HRO arrangements, they would have altered their course and their selection criteria — and likely realized success earlier,” said Zampetti. “While companies clearly sought to vet outsourcing vendors against the most rigorous and thoughtful criteria, our research affirms that there are some critical factors that weren’t considered or were undervalued or underrepresented.”
Significantly, the “financial stability of the HRO service provider” was the only attribute to maintain its importance before and after implementation, according to this study.
Methodology
The 2009 HRO Effectiveness Survey was fielded in spring 2009 among members of the HRO Buyers Group -- an invitation-only group of organizations involved in large-scale HRO relationships. Forty percent of the companies surveyed for this year’s research had activated their HRO arrangement anytime from four to seven years prior, and 8% had been in their deal eight or more years.
By the numbers:
- 43 companies with large-scale HR outsourcing arrangements responded to the HRO survey.
- 83% had fully implemented their HRO deal.
- 77% provide outsourced services to more than 10,000 employees.
- 23% provide outsourced services to more than 100,000 employees.
- 74% outsource a minimum of 13 HR processes.
Given the average number of employees covered in our data, the number of processes outsourced and the amount of time respondents have been engaged in their respective outsourcing deals, this year’s respondents represent one of the most experienced groups Towers Perrin has ever surveyed for this annual research. Their combined responses provide a valuable source of guidance and insight for companies at any stage of an HRO deal.
About Towers Perrin
Towers Perrin is a global professional services firm that helps organizations improve performance through effective people, risk and financial management. The firm provides innovative solutions in the areas of human capital strategy, program design and management, and in the areas of risk and capital management, insurance and reinsurance intermediary services, and actuarial consulting. Towers Perrin has offices and alliance partners in the United States, Canada, Europe, Asia, Latin America, South Africa, Australia, New Zealand and the Middle East. More information about Towers Perrin is available at www.towersperrin.com.
