July 23, 2002
Companies Increasingly Outsourcing HR, Study Shows
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Fortune 1000 companies are increasingly outsourcing their human resources functions, according to findings of a new study released late last week by Accenture, in conjunction with The Conference Board, a Conference Board press release reports.
The study revealed that the outsourcing trend is driven by ongoing pressure for companies to reduce costs, improve service to employees, and maximize resource availability across their organizations, according to David Clinton, managing partner of Accenture HR Services.
Conducted by The Conference Board, the study was based on responses from 165 executives at companies in the United States, the United Kingdom and continental Europe.
"Outsourcing is now a fact of life in well-managed human resources organizations, and we do not see companies pulling back," said David Dell, a research director with The Conference Board, in the Conference Board Press Release.
According to Dr. Lisa Gelman, who led the research effort, "Companies expect a variety of benefits depending on what they are outsourcing, and for the most part they are getting very good results."
While U.S. companies are twice as likely as their counterparts in the United Kingdom and continental Europe to outsource major portions of their human resources functions, most companies surveyed intend to increase the number of functions they outsource.
The study revealed that the three human resources areas most often outsourced are 401(k) programs (80 percent), health benefits management (70 percent) and pension benefits (69 percent). Employee communications (11 percent) is the area least often outsourced.
"Companies have clearly demonstrated that they are under increasing pressure to generate revenues, and outsourcing support functions such as human resources can help them do so," said David Clinton. "When tied closely to business goals and properly executed, outsourcing has been shown to help companies gain access to additional expertise, cut costs, improve efficiency, and achieve their growth and profitability goals."
Other key survey findings are as follows:
- About half of the survey participants reported that they have fully achieved their outsourcing objectives; another 42 percent say their objectives were partly realized.
- Two-thirds of U.S. companies surveyed fully or partially outsource five or more functions, making them heavy outsourcers compared with their counterparts in the United Kingdom and continental Europe.
- Ninety percent of the companies surveyed said they would still outsource today, despite any challenges they may have faced up to this point in their outsourcing initiatives. Seventy-eight percent are moving to a shared-services model for their human resources departments, sometimes a precursor to outsourcing entire functions.
- Less than 1 percent of previously outsourced functions have been brought back in-house, and virtually none of the companies surveyed plans to take outsourced functions in-house.
- Twelve percent of companies surveyed outsource the bulk of their human resources functions to a single provider, and another 9 percent are in the process of or are considering outsourcing the bulk of their human resources business processes to a single provider.
- Survey participants' top reasons for outsourcing were cost savings, higher service quality, access to expertise and technology, and the ability of staff to focus on core activities.
The researchers also noted the following:
- Cultural compatibility is seen as extremely important when selecting a human resources outsourcing provider.
- Change management implementation and quality of team and staff are major determinants of outsourcing success.
- Outsourcing has enabled human resources executives to focus on strategy and be a more integral part of decision making and planning.
- A growing need for skilled resources to maintain high-quality human resources service and reduce costs has generated increased interest in human resources outsourcing.