As Recession Drove Up HR Costs at Most Companies, World-Class HR Organizations Slashed Spending

While typical companies saw the recession drive up HR costs by over 11 percent from 2008 to 2010, world-class HR organizations have largely avoided the impact, and managed to reduce costs by more than 13 percent, according to new Book of Numbers research from The Hackett Group, Inc. (NASDAQ: HCKT).

The Hackett Group found that world-class companies now spend nearly 30 percent less per employee on HR, and operate with over 25 percent fewer employees. In addition to this dramatic cost reduction, they also achieve significantly higher effectiveness across many key areas. By focusing on standardization, automation, and process rationalization, world-class HR organizations are able to reduce transaction processing costs per employee by 41 percent..

Other recent HR research from The Hackett Group also quantified the bottom line benefit of the HR strategy of improving talent management performance. A new performance study found that talent management top performers see significantly higher EBITDA than typical companies, driving $550 million to the bottom line annually (for a typical $26 billion Global 1000 company).

Finally, the latest volume in The Hackett Group’s long-running Book of Numbers™ series, titled, “From Operational Excellence to Strategic Differentiation: Building the Capabilities of a World-Class HR Organization,” includes a comprehensive capability maturity model which examines more than 400 key capabilities in HR. The capability maturity model offers a self-rating system enabling companies to assess their own maturity.

“HR organizations have been sailing into stiff winds over the past few years. What we see in this year’s Book of Numbers research is very clearly how world-class HR organizations outperform their peers under stress. As the recession forced companies to make staffing cuts, world-class HR organizations were in a better position to make smarter downsizing decisions, and were able to move faster than typical companies, and control costs more effectively. At the same time, they have a better understanding of their companies, and can more effectively identify and develop HR capabilities and infrastructure that provide powerful support for the unique strategic needs of the business,” said The Hackett Group Global HR Transformation and Advisory Practice Leader Harry Osle.

According to The Hackett Group Senior Research Director, HR Advisory Tony DiRomualdo, the findings of the talent management performance study are also not surprising. “Despite the downturn, our new performance study shows that excellence in talent management translates directly into improved financial results, including EBITDA and other key bottom line metrics. Top performers in talent management successfully focus on being true ‘strategic enablers’ to the business, and overall, their efforts drive greater workforce engagement, and improved employee performance.”

World-Class HR Organizations Spend Less, but are More Effective

The Hackett Group’s Book of Numbers research showed a dramatic divergence between typical and world-class companies from 2008 to 2010. World-class companies now spend nearly 30 percent less than typical companies, including 25 percent lower labor costs. At the same time, world-class companies invest twice as much of their annual budget on strategic workforce planning and spend slightly more on technology than typical companies. World-class performers are those that achieve top-quartile performance across a range of both efficiency and effectiveness metrics in Hackett’s comprehensive finance benchmark.

World-class HR organizations also operate with 25 percent fewer staff than typical companies, including 31 percent fewer transactional employees. They are more effective at standardization, operating with less than half the job grades and health & welfare administration plans of typical companies.

World-class HR organizations are also significantly more effective than typical companies. They fill open positions more quickly and have 33 percent fewer voluntary terminations. They see much lower error rates in administrative transactions, and also provide business leaders with better access to information and more effective decision-support mechanisms.

Talent Management Maturity Drives Improved Bottom-Line Results

For its talent management maturity research, The Hackett Group looked at metrics in four key areas: strategic workforce planning, staffing services, workforce development services, and organizational effectiveness. Top performers were those that scored in the top quartile for both efficiency and effectiveness.

The Hackett Group’s research found that companies with top performing talent management organizations saw 15 percent higher EBITDA than typical companies. Talent management top performers also see improved net profit margin, greater return on equity, and significantly better return on assets. But they achieve these goals while actually spending a third less than typical companies on talent management, in large part by spending nearly 50 percent less on staffing services. Top performers achieve this by relying dramatically less on outside companies for recruiting and staffing, and focus more of their resources on internal talent processes. They also focus intensely on reengineering overall hiring process, and take a much more proactive approach to strategic workforce planning.

The 2011 HR Book of Numbers and the talent management top performers research insight described here are available only to members of The Hackett Group’s Advisory programs. A detailed abstract of the HR Book of Numbers, including sample metrics, excerpts from the HR Capability Maturity Model, and a complete index of metrics, tables and chart in the full book, is available free with registration at this link: http://bit.ly/g9AOxa.

About The Hackett Group, Inc.

The Hackett Group (NASDAQ: HCKT), a global strategic business advisory and operations improvement consulting firm, is a leader in best practice advisory, business benchmarking, and transformation consulting services including strategy and operations, working capital management, and globalization advice.

Utilizing best practices and implementation insights from more than 5,000 benchmarking engagements, executives use The Hackett Group's empirically-based approach to quickly define and implement initiatives to enable world-class performance. Through its REL group, The Hackett Group offers working capital solutions focused on delivering significant cash flow improvements. Through its Archstone Consulting group, The Hackett Group offers Strategy & Operations consulting services in the Consumer and Industrial Products, Pharmaceutical, Manufacturing and Financial Services industry sectors. Through its Hackett Technology Solutions group, The Hackett Group offers business application consulting services that help maximize returns on IT investments. The Hackett Group has completed benchmark studies with 2,700 major corporations and government agencies, including 97% of the Dow Jones Industrials, 73% of the Fortune 100, 73% of the DAX 30 and 50% of the FTSE 100.

More information on The Hackett Group is available: by phone at (770) 225-7300; by e-mail at info@thehackettgroup.com.

Book of Numbers is a trademark of The Hackett Group.

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