HR outsourcing on the rise

More than three-quarters of executives at large North American and European companies that currently outsource one or more major human resources functions said they would do so again, according to a survey from The Conference Board and sponsored by Accenture.

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

Some 76% of respondents said their organizations currently outsource one or more major HR functions, and 80% of those said they would do so again. Moreover, 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 they will put their existing outsourced services out for a new bid. But none said they plan to take services back in-house.

Only 9% of respondents said they are entirely against outsourcing some or all of their major HR functions, compared with 23% in the previous year's survey.

The survey revealed notable regional differences regarding the acceptance of HR outsourcing, with US companies being the most accepting. For example, 87% of executives at US 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 US.

"European companies are more likely to be confronted with challenges in standardizing HR processes across national borders due to differing in-country legislative requirements," says David Dell, author of the study and former research director of Capabilities Management and HR Strategies at The Conference Board. "And there is still a relatively scarce number of vendors who can offer multinational capabilities. North American companies do not face this legislative challenge, and are more likely to be driven to HR outsourcing by a need to streamline costs, improve service quality, and reap the benefits of new technologies without major capital investments."

HR programs that are most often fully outsourced are:

• 401(k) programs (53%)
• pensions/benefits (30%)
• stock options administration (30%)
• health benefits (29%).

Leading the list of partially outsourced services are:

• health benefits (50%)
• training and development (48%)
• payroll (40%).

"The initial growing pains of early HR outsourcing are clearly giving way to a more maturing industry," said David Clinton, president of Accenture HR Services. "As companies apply lessons learned from early experiences, they are finding better ways of managing their outsourcing relationships, and measuring their success with greatly improved governance and metrics. As companies continue to come under pressure to do more with less, HR outsourcing is rapidly becoming the best way to reduce costs, improve service to employees, and maximize resource availability across their organization. The question today is less about whether or not to outsource than how to get better at it."

For more information, go to www.conference-board.org and www.accenture.com.