August 21, 2014
The human resources functions that are "world class" spend less per employee each year than the average company, according to The Hackett Group.
Hackett says that the human resources divisions of companies it defines as "world class"--the top 25 percent of companies among the thousands Hackett studies--spend $1,390 per employee annually, 27 percent less than median companies. They also have 11 human resources professionals on staff for every 1,000 employees, compared to 16 at other companies, and their labor costs are 31 percent less. Their spending for outsourcing and technology also is about 8 percent less than median companies.
These top-performing companies pick and choose what they outsource. They've been spending 55 percent less than median companies, for example, on outsourcing staffing and development, largely because hiring has not been a hot spot in recent years, says Hackett HR Program Manager Patty Miller. That usage might rise as hiring need rises, she says. On the other hand, world-class companies spend 25 percent more than median companies on outsourcing total rewards--a category that includes health and welfare, pension and saving and compensation administration.
Miller says the research shows that technology and outsourcing--often touted as silver bullets for human resources cost containment--are not really the answer. Process simplification, however, might be. The world-class companies have 69 percent fewer health and welfare plans per 1,000 employees served and 46 percent fewer compensation plans. This allows companies to hire fewer human resources employees and run processes more efficiently. "There's this misconception that to cut costs in HR you eliminate staff and replace them with technology and outsourcing support," Miller says. "But the numbers simply don't bear this out."
World-class companies also have 61 percent fewer voluntary terminations.