Fortune 500 companies that move a number of their HR processes offshore can save $15.6 million annually, according to a recent report by Atlanta-based consulting firm the Hackett Group.
"116 Million Reasons Why the World Is Flat," a report based on Hackett’s analysis of HR and other processes at a number of Fortune 500 companies, also finds that a Fortune 500 company can cut its HR staff by 44 percent through offshoring various HR processes.
These findings should serve as a wake-up call to HR executives, says Michel Janssen, managing director at Hackett. HR executives need to get in front of the trend before their CFOs start the process ahead of them, he says.
Those HR processes that offer the largest return-on-investment opportunities for employers include typical high-volume activities like data management, reporting and compliance, total rewards administration and payroll administration.
"This is where there are opportunities for labor arbitrage because these processes are people-intensive," says Rick Bertheaud, a client executive at EquaTerra, a Houston-based sourcing advisor.
Despite the opportunity for cost savings, organizations have been slower to migrate HR processes offshore than they have been with outsourcing other activities like information technology and procurement, Janssen says.
"We do expect a large number of HR functions to move offshore, but it’s just going to be slower than other functions because of the additional complexities," Janssen says. HR tends to be more involved with employees than IT or procurement, so offshoring these activities can be more complex.
Hackett anticipates that more companies will start moving their HR processes offshore along with other activities, like IT or finance and accounting, says Steve Joyce, HR practice leader at Hackett.
"HR by itself can’t justify moving offshore, so I think you will see it trailing and being combined with other areas," he says. "This is an opportunity and you have to invest in it."
Executives need to evaluate their organizations and see how they can rationalize processes before deciding whether to offshore them. And while companies shouldn’t just jump into offshoring, they do need to start doing such analysis sooner or later, Janssen says.
"Chief financial officers are adopting offshoring as a corporate-wide initiative," Janssen says. "They may be starting out with other areas, but HR executives should use this time to prepare for it."