HR Outsourcing A Hit

By CIO Update Staff

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According to a new study by The Conference Board and Accenture, 80% of companies that outsource HR functions would do so again and no companies surveyed said taking outsourced HR functions back in-house was an option.

HR Outsourcing: Benefits, Challenges and Trends is The Conference Board's second study to track the benefits of 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 $1 billion, the new study found that outsourcing is now firmly embedded as part of HR service delivery.

Some 76% of respondents surveyed said their organizations currently outsource one or more major HR functions, and 80% of those said they would do so again. In addition, nearly three-fourths (71%) of the surveyed companies that currently outsource HR said that they will extend or renegotiate contracts with their current outsourcing providers and 29% 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% of respondents 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 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% of executives at U.S. companies surveyed 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 U.S.

"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," said David Clinton, president of Accenture HR Services, an Accenture business that provides human resources services on an outsourced basis. "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% of respondents); pensions/benefits (30%); stock options administration (30%); and health benefits (29%). Leading the list of partially outsourced services are health benefits (50%), training and development (48%) and payroll (40%). 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.

The study is based on the results of a September 2003 survey of 122 companies with annual revenues exceeding $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.

This article was compiled and edited by CIO Update staff. Please direct any questions regarding its content to Allen Bernard, Managing Editor.