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80% of companies that outsource HR functions would do so again
April 16, 2004
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New York, N.Y. — More than three-fourths of executives at large North American and European companies that currently outsource one or more major human resources functions said they would do so again, according to a survey released today by The Conference Board and sponsored by Accenture.

‘HR Outsourcing: Benefits, Challenges and Trends’ is The Conference Board’s second study to track the benefits of human resources (HR) outsourcing and changes in the HR marketplace. Based on the results of a survey of executives at more than 120 companies in North America and Europe with annual revenues of at least US$1 billion, the new study found that outsourcing is now firmly embedded as part of HR service delivery.

Some 76 percent of respondents surveyed said their organizations currently outsource one or more major HR functions, and 80 percent of those said they would do so again. In addition, nearly three-fourths (71 percent) of the surveyed companies that currently outsource HR said that they will extend or renegotiate contracts with their current outsourcing providers and 29 percent said that they will put their existing outsourced services out for a new bid – but none said they plan to take services back in-house.

In addition, 91 percent of respondents reported either having achieved or partially achieved their HR outsourcing objectives. Only 9 percent of respondents said they are entirely against outsourcing some or all of their major human resources functions, compared with 23 percent in the previous year’s survey.

The survey revealed notable regional differences regarding the acceptance of HR outsourcing, with U.S. companies being the most accepting. For instance, 87 percent of executives at U.S. companies surveyed said they currently outsource major HR functions, compared with 71 percent in Canada and 57 percent in Europe. However, European firms lead in outsourcing non-HR functions, with 70 percent of European respondents indicating that they outsource a significant business process other than HR, compared with 65 percent in Canada and 52 percent in the United States.

“European companies are more likely to be confronted with challenges in standardizing HR processes across national borders due to differing in-country legislative requirements,” says David Dell, author of the study and former Research Director of Capabilities Management and HR Strategies at The Conference Board. “And there are still a relatively scarce number of vendors who can offer multinational capabilities. North American companies do not face this legislative challenge, and are more likely to be driven to HR outsourcing by a need to streamline costs, improve service quality, and reap the benefits of new technologies without major capital investments.”

“Many companies today view HR outsourcing as one of the most viable options to save money and improve services while also making a strategic contribution to the business,” says David Clinton, President of Accenture HR Services. “The most compelling indicator of outsourcing’s high approval rating is the fact that none of the survey respondents plans to bring that activity back in-house.”

HR programs that are most often fully outsourced are: 401(k) programs (selected by 53 percent of respondents); pensions/benefits (30 percent); stock options administration (30 percent); and health benefits (29 percent). Leading the list of partially outsourced services are health benefits (50 percent), training and development (48 percent) and payroll (40 percent). The study also found that while most companies fully outsource some HR programs, they often deliver their HR services via a blended solution, using both internal and external capabilities with multiple providers.

Among the study’s other findings:

  • More than three-fourths (77 percent) of companies do not plan to consolidate their HR services under one outsourcing provider in the near term, although nearly one-quarter (23 percent) of respondent companies have already done or are planning to do so within the next three years.
  • The three most common metrics that companies use to monitor the success of their outsourcing relationships are hard-dollar cost savings measurements, service-level-improvement metrics and employee-satisfaction surveys, used by 77 percent, 59 percent and 56 percent of respondents, respectively.
  • Nearly two-thirds (60 percent) of respondents indicated that they have either created, or are in the process of creating, a core competency for managing outsourcing providers within human resources.

“The initial growing pains of early HR outsourcing are clearly giving way to a more maturing industry,” says Clinton. “As companies apply lessons learned from early experiences, they are finding better ways of managing their outsourcing relationships, and measuring their success with greatly improved governance and metrics. As companies continue to come under pressure to do more with less, HR outsourcing is rapidly becoming the best way to reduce costs, improve service to employees, and maximize resource availability across their organization. The question today is less about whether or not to outsource than how to get better at it.”

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