Hackett: Outsourcing Increases HR Costs at Typical Companies, While World-Class Use it to Cut Transaction Processing CostsThe Ha
November 10 2005 - 9:30AM
Business Wire
World-Class HR Now Spend 25 Percent Less Than Typical Companies;
World-Class Also More Effective - Responsive and Aligned to
Business Goals In most cases, HR outsourcing leads to higher costs
at typical companies, despite the fact that world-class HR
organizations rely on selective outsourcing to reduce costs in
highly repetitive transaction-oriented areas, according to
newly-released 2005 Enterprise Book of Numbers(C) research from The
Hackett Group, a business process advisory firm (NASDAQ:ANSR).
Hackett's newest Book of Numbers research volume, shows a
correlation between greater spending on outsourcing and increased
total HR cost per employee at typical companies. This is driven, in
part, by common mistakes made by these companies during the
process, such as neglecting to streamline processes beforehand and
retaining existing internal staff responsible for the outsourced
function. In contrast, world-class companies are able to use
outsourcing effectively as part of their business process sourcing
mix, to cut transactional costs and enable increased internal focus
on strategic activities. Overall, Hackett found that world-class
companies now spend 25 percent less than their peers on HR and rely
on 16 percent fewer HR staff. World-class HR organizations are also
achieving results superior to typical companies in both quality and
the effectiveness of their operations, with lower levels of
complexity and more streamlined processes that allow them to fill
open positions faster, see lower voluntary termination rates, and
demonstrate greater alignment with their company's business goals.
The Hackett Group is a world leader in best practice research,
benchmarking, and advisory services that empower executives to
achieve world-class enterprise performance. Hackett offers analysis
and insight backed by metrics derived from 3,300 benchmark studies
over 13 years at nearly 2,000 of the world's leading companies,
including 96 percent of the Dow Jones Industrials. Hackett's
research showed that at typical companies, a correlation exists
between increased outsourcing as a percentage of total spending and
increased overall HR costs per employee. But world-class HR
organizations actually outsource more than typical companies in low
value-added transactional areas, using outsourcing to drive down
costs. World-class HR organizations dedicate nearly half of their
overall transactional process costs to outsourcing, 26 percent more
than typical companies. As a result they are able to spend 19
percent less per employee in this area. "These findings appear to
contradict each other. But on closer inspection, they don't," said
Hackett Senior Business Advisor Patty Miller. "Typical companies
often outsource for the wrong reasons, in an attempt to lower costs
and fix processes they know are broken. This is almost always a
mistake. In addition they frequently haven't standardized and
simplified their operations, and the resulting complexity drives
increased outsourcing costs. Finally, they often retain redundant
internal labor after outsourcing, rather than using it as an
opportunity to refocus their internal staff." According to Hackett
HR Practice Leader Stephen Joyce, "By contrast, world-class HR
organizations take a very different approach toward outsourcing.
They understand that effective business process sourcing is about
aligning their service delivery models with business processes and
responsibilities. They carefully evaluate individual business
processes and make decisions relating to outsourcing and other
options based on factors like relative cost, strategic value, and
non-performance risk. For low-value transactional areas, they
implement best practices and streamline activities, use
self-service technology to reduce or eliminate them where possible,
then selectively outsource, making sure to hold the outsourcers
accountable for their performance. Finally, they focus internal
resources on higher-value areas, such as total rewards planning,
strategic workforce planning, and workforce development, enabling
them to provide greater strategic value to their company."
World-Class Spend Less, Yet Achieve Higher Effectiveness Hackett's
Book of Numbers research found that a significant cost gap exists
between world-class and typical companies, with world-class
companies now spending 25 percent less than their peers ($1,422
versus $1,895/company employee). World-class companies also now
operate with 16 percent fewer staff (11.88 versus 14.11 HR
staff/1,000 employees). World-class HR organizations also achieve
superior results across a range of other measures. They reduce
complexity, relying on significantly fewer health and welfare
plans, savings plans, and compensation plans than typical
companies. World-class HR organizations also fill open positions
for managers, professionals, and clerical staff up to 31 percent
faster than typical companies, and see 66 percent fewer voluntary
terminations. This lower turnover rate has benefits on two levels.
It shrinks the direct cost of administering the employee life cycle
processes, including hiring, orientation training, enrollment
programs and termination processes, and also reduces the time and
resources necessary to recruit and train new hires. Finally,
Hackett's research showed that world-class companies are also much
more closely aligned with their companies' business goals, and are
67 percent more likely to have an explicit workforce strategy in
place. More information on The Hackett Group and its new Book of
Numbers research volume, entitled "2005 Performance Metrics and
Practices of World-Class Companies: Executive Insights in Finance,
Information Technology, Human Resources and Procurement," is
available: by phone at 770-225-7300; by e-mail at
info@thehackettgroup.com; or on the Web at
http://www.thehackettgroup.com. About The Hackett Group The Hackett
Group, http://www.thehackettgroup.com, a business process advisory
firm and an Answerthink company, is a world leader in best practice
research, benchmarking and advisory services that empower
executives to achieve world-class enterprise performance. Only The
Hackett Group empirically defines world-class performance in sales,
general and administrative (SG&A) and supply chain activities
with analysis gained through 3,300 benchmark studies over 13 years
at nearly 2,000 of the world's leading companies. The foundation of
Hackett's benchmarks, transformation services, and membership-based
advisory programs is our proprietary database of
Hackett-Certified(SM) Practices, approaches which are proven to
correlate with superior performance metrics. This unparalleled
knowledge repository enables Hackett business advisors to provide
data, advice, and strategic insight with a level of integrity and
authority available nowhere else. As of this writing, Hackett
clients comprise 96 percent of the Dow Jones Industrials, 77
percent of the Fortune 100 and 92 percent of the Dow Jones Global
Titans Index. Hackett-Certified and Book of Numbers are service
marks of The Hackett Group. This press release contains "forward
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve known and unknown risks,
uncertainties and other factors that may cause Answerthink's actual
results, performance or achievements to be materially different
from the results, performance or achievements expressed or implied
by the forward looking statements. Factors that impact such forward
looking statements include, among others, the ability of the
products, services, or practices mentioned in this release to
deliver the desired effect, our ability to effectively integrate
acquisitions into our operations, our ability to attract additional
business, our ability to effectively market and sell our recently
launched transformation advisory product offerings and other new
services, the timing of projects and the potential for contract
cancellations by our customers, changes in expectations regarding
the information technology industry, our ability to attract and
retain skilled employees, possible changes in collections of
accounts receivable, risks of competition, price and margin trends,
changes in general economic conditions and interest rates as well
as other risks detailed in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2004 filed with the
Securities and Exchange Commission. We undertake no obligation to
update or revise publicly any forward-looking statements, whether
as a result of new information, future events or otherwise.
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