HR Outsourcing Becoming Commonplace

More than three-fourths (80%) of executives at large North American and European companies that outsource at least one major human resources function said they would do so again, according to the study, HR Outsourcing: Benefits, Challenges and Trends.

Almost three-fourths (71%) of the companies that currently outsource HR said that they will extend or renegotiate contracts with their current providers and nearly a third (29%) said that they would rebid their existing outsourcing pacts. None said they would take the services back in house, the study found.

Not only that, 91% of reported either having achieved or partially achieved their HR outsourcing objectives. Only 9% of respondents said they are entirely against outsourcing some or all of their major human resources functions, compared with 23% in last year’s survey.

The survey uncovered that executives in different areas of the world view HR outsourcing differently, with U.S. companies being the most accepting. For instance, 87% of U.S. executives said they currently outsource major HR functions, compared with 71% in Canada and 57% in Europe. However, European firms lead in outsourcing non-HR functions, with 70% of European respondents indicating that they outsource a significant business process other than HR, compared with 65% in Canada and 52% in the United States.

HR programs that are most often fully outsourced are:

• 401(k) programs, 53%
• pensions/benefits, 30%
• stock options administration, 30%
• health benefits, 29%.

Leading the list of partially outsourced services are:

• health benefits, 50%
• training and development, 48%
• payroll, 40%.

Among the study’s other findings:

• More than three-fourths (77%) of companies do not plan to consolidate their HR services under one outsourcing provider in the near term, although nearly one-quarter (23%) of firms 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 are hard-dollar cost savings measurements, service-level-improvement metrics and employee-satisfaction surveys, used by 77%, 59% and 56% of respondents, respectively.
• Nearly two-thirds (60%) 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.

This study is based on the results of a September 2003 survey of 122 companies with annual revenues of more than U.S. $1 billion. Three-quarters (76%) of respondents were from North America, with the remainder from Europe. Two-thirds (66%) of the 66% of respondents who indicated that they work in human resources are vice presidents or above, and 24% are directors.