Surprise, Surprise (not): Cost Reduction Reigns as Top HRO Driver in 2010

Although reduced service delivery costs are not always the key reason companies outsource to third parties, it comes as no surprise (and really, why should it?), that the overriding issue which continues to concern HR departments in 2010 is the ongoing need for HR service cost reduction.

NelsonHall’s just published research report, “HR Issues and Outsourcing Intentions,” found that 78 percent of the 120 buy-side HR executives interviewed – with a nice cross-section of participants from the banking, consumer products, healthcare, high-tech, insurance, media, pharmaceuticals, retail, telecommunications and utilities industries – ranked the corporate requirement for reductions in HR administration costs as their number one issue. Other issues and challenges 2010 HR departments are facing include providing support for organizational restructuring and retraining, of course while reducing HR costs, and standardizing HR processes and providing improved HR information in an environment in which there is little management support for internal investment in HR technology.

This need for cost reduction with minimum investment is having a major impact on the manner in which organizations are approaching HRO. A full 60 percent of our buyer interviewees stated cost decreases (“maintenance of our current services and systems, with only minor changes/additions”) was their main HRO need and expectation over the next 12 to 18 months.

Overall, organizations are seeking average cost reductions of approximately eight percent from their HR services during 2010. However, they will be seeking significantly higher cost reductions from their outsourced HR services. Consequently, they will negotiate with their providers for further cost reductions within existing HRO contracts, and engage in additional HRO deals that focus on both process standardization and cost reduction.

As a result, we’ve seen an increasing number of announcements of new standardized service offerings, particularly in the small and medium enterprise (SME) market. For example, earlier this week Sweden-based Aditro, an outsourcing provider of payroll and HR services to Nordic countries, announced a packaged payroll service for SMEs that includes a standardized payroll service with pre-defined service levels, enabling clients to receive the benefits of outsourcing, but at a lower price.

In an upcoming blog we’ll speak in detail about uptake of SaaS-based vendor hosted applications, another topic we covered in detail in our “HR Issues and Outsourcing Intentions” research report. But, given the extensive nature of the report, (it’s more than 176 pages!), there are many other areas we can also try to cover in future blogs. Interested in hearing more about the key issues HR departments are facing relative to HR service delivery, and initiatives planned in response to these issues? Level of satisfaction with current HR service delivery? Expectations from HRO, including benefits sought and attitudes toward use of hosted HR platforms and offshore service delivery? Let us know!

Gary Bragar, Senior HR Outsourcing Analyst, NelsonHall

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Explore posts in the same categories: hr outsourcing, hr outsourcing research, hro, HRO contracts, HRO providers, hro research, nelsonhall, SaaS

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