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HR Operating Costs Increased Significantly in 2023

Human resources operating costs increased significantly in 2023, with key contributors being wage inflation and high turnover rates, according to “Resilience: The Digital World Class Human Resources Advantage,” new research from The Hackett Group 

The organization’s elite HR performers—known as the Digital World Class—continue to spend significantly less than their peers, while operating with fewer HR staff and delivering far more resiliency, employee productivity, greater business value, and improved operational experience, the research found. The Hackett Group concluded that increased spending plays a key part in driving superior performance.  

Typical organizations saw HR operations costs increase by 6% in 2023, while Digital World Class HR organizations experienced a 7% cost increase. But Digital World Class organizations still spend 33% less than their peers—a $18 million advantage for the average $10 billion company. At the same time, they operate with 40% fewer full-time equivalent staff.  

The research also concluded that there is a correlation between Digital World Class and improved overall enterprise performance. Data analysis performed by The Hackett Group revealed that companies with at least one business services function operating at Digital World Class levels see a five-year average performance premium over their industry medians—an 80% improvement in net margin, 24% higher earnings before interest, taxes, depreciation, and amortization margin, 89% greater return on equity, and 44% higher total shareholder return.  

The Hackett Group defined Digital World Class organizations as those that achieve top-quartile performance in business value (a composite of stakeholder experience, digital enablement, and traditional effectiveness metrics) and operational excellence (a composite of efficiency and business process automation metrics) in the group’s human resources benchmark. The research is based on an analysis of results from recent benchmarks, performance studies, and advisory and transformation engagements at hundreds of global companies.  

The research measures the performance gap between Digital World Class and traditional HR organizations. Important benefits that Digital World Class organizations provide are below.  

  • Elevated stature, with 49% more likely to be viewed as a valued business partner 
  • More focus on business enablement, including 29% fewer days to fill manager positions and 23% more positions filled internally 
  • Greater use of technology, with 60% more fully using human capital management application functionality 
  • Greater productivity, including 66% more employees supported per HR full-time equivalent staff person and 87% higher total placements per recruiter and staffing full-time equivalent staff person 
  • Greater reliability, with four times fewer health and welfare transaction processing errors and six times fewer times and attendance corrections required 

“Wage inflation and high turnover—an ongoing effect of the ‘Great Resignation,’—drove up HR operating costs across the board this year,” said Amanda Newfield, senior director of The Hackett Group. “But the commitment to technology continues to pay off for Digital World Class HR organizations. By investing in their technology and architecture and emerging technologies such as smart automation, advanced analytics, and collaborative tools, they are able to drive a more consultative approach, focus more on talent management and HR strategy, make better decisions, and more effectively identify and solve business problems, all while spending a lot less and operating with far fewer staff.”  

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