NEW YORK, April 20, 2005 Driven by the need to offload complex regulatory compliance and free up capital, fast-growth CEOs have turned to outsourcing of human resource functionsand achieved high satisfaction for both quality and savings.
On the Bandwagon
Almost all of the nations fastest-growing private companies, 83 percent, are outsourcing HR functions, and plan to continue doing so over at least the next two years.
Multiple reasons are cited for this widespread usage, foremost, compliance in an increasingly intricate regulatory environment, cost savings, and cash deployment:
- Compliance with complex federal and state regulations
82%
- To reduce and control operting costs
71%
- To eliminate the cost of acquiring, updating and maintaining systems in-house
71%
- To improve process efficiencies
70%
- To eliminate difficult-to-manage functions
67%
- To free internal resources for other purposes
65%
- To gain access to world class capabilities and technologies
63%
- Resources not available internally
59%
- To improve company focus
55%
- To reduce staff/ limit staff growth
44%
Other attractions: to improve customer service (IVR, Internet, call centers) 28 percent; consolidate redundant systems, 24 percent; align HR closer with strategic people-related aspects of the business, 20 percent; to make capital funds available, 11 percent; and to accelerate re-engineering benefits, eight percent.
Outsourcing of HR functions has grown dramatically, led by the need to not only keep up with new and frequent changes in state and federal regulations, but also to assist in compliance, said Duncan Harwood, a principal with PricewaterhouseCoopers Human Resource Services practice. Other key motivators include the need to reduce operating costs and to re-deploy cash.
Significant Savings, Flat Costs
As a direct result of outsourcing HR functions over the past two years, 61 percent of CEOs say their company has been saving moneyan average of 16.7 percent. Another 29 percent has been breaking even, and only seven percent cite higher costs. The remaining three percent dont know or did not report. Overall, this translates to an average 9.3 percent savings for users of HR outsourcing.
Moreover, 74 percent say their budget for HR outsourcing has held steady over the past two years; and another four percent say it has decreased. Only 18 percent cite an increase; four percent did not report.
Looking ahead, over the next two years, 62 percent foresee no appreciable change to their HR outsourcing budget; three percent see a decrease; and 33 percent expect to increase their budget by an average of 10.6 percent. Overall, this amounts to an expected increase of 2.7 percent. In addition to freeing themselves of many administrative burdens, most of these fast-growing companies have realized significant savings and cost controls from their HR outsourcing experience, said Harwood.
Most-Outsourced Functions
The two most-often outsourced HR functions are 401(k)/defined contribution plan administration (cited by 71 percent), and payroll processing and administration (64 percent). High usage was also found for healthcare and welfare plan administration (49 percent), background/criminal background checks (41 percent), COBRA administration (38 percent), and flexible spending account administration (32 percent).
Increasingly, the HR departments role is to equip the business with the right people to execute its strategy, and to manage change in the organization, said Harwood. A company considering outsource options must first determine what is core to the business, and can be efficiently and cost-effectively maintained internallyand what makes sense to turn over to someone else who has the subject matter expertise and the resources to deliver what is needed. Outsourcing the administrative aspects of HR unburdens senior people who need to be spending more time on issues that produce a greater return for the organization.
High CEO Satisfaction
Almost all CEOs involved in HR outsourcing, 81 percent, say their experience has met or exceeded expectations. Only 15 percent report a mixed experience. Expectations have not been met for two percent, and another two percent did not report.
- Quality: 94 percent of those surveyed are satisfied with quality, including 51 percent who are extremely or very satisfied; and 43 percent, somewhat satisfied. Only three percent are not very satisfied; and three percent did not report.
- Cost Savings: 87 percent are satisfied with their companys cost savingsincluding 36 percent who are very satisfied and 51 percent somewhat satisfied. Only nine percent are not satisfied, and four percent did not report.
On the important criteria of quality and cost savings, HR outsourcing measures up, says Harwood. Increasingly, the challenge faced by management is deciding what additional HR functions to outsource, and how.
PricewaterhouseCoopers Trendsetter Barometer is developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc.
PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services for public and private clients. More than 120,000 people in 139 countries connect their thinking, experience and solutions to build public trust and enhance value for clients and their stakeholders. PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
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