The Evidence is Mounting: HR Outsourcing is a Key Part of World Class HR Organizations

Linda Merritt, HRO Research Analyst, NelsonHall

For years the Hackett Group’s HR benchmarking analysis has shown the increasing use of HR outsourcing. Now its research of Global 1,000 companies over the past two years shows that effective use of outsourcing plays a key role in achieving world class HR organizations. According to advisory practice leader Harry Osle, “our research shows not only that it is possible, but also explains precisely how world-class HR organizations manage to do more with less and play a key role in helping their companies succeed.”Hackett HR benchmarking provides staffing and cost comparisons by HR process and then identifies best practices. Those companies in the top quartile in both efficiency and effectiveness metrics are considered world class.

World class HR costs less

The research finds that world class HR organizations:

• Spend 27% less on HR services per employee than typical companies
• Reduce HR labor costs by 29%
• Operate with 24% fewer HR staff per 1,000 employees
• Spend 50% less on outsourcing
• Dedicate 25% greater spend to technology.

World class HR focuses on operational excellence, talent management, and strong relationships

World class organizations use HR outsourcing more effectively; they outsource at similar levels to typical companies, but they retain fewer in-house staff associated with these processes, gaining greater cost benefits while avoiding work duplication and shadow staff.

HRO service providers have been encouraging clients for years to simplify and standardize processes and policies to gain the most from outsourcing, which matches what world class HR is doing:

• Using more self-service for payroll, training, total rewards administration, and staffing services
• Focusing on automation, standardization, and complexity reduction
• Reducing the number of job grades, health and welfare plans, and compensation plans.

Integrated talent management is another component of success. The HR leaders closely align talent management strategies with business objectives and increase strategic workforce planning capabilities including high-level consulting and analytics and modeling. They also develop internal talent, recruit externally faster, and measure rigorously.

HR executives at world-class organizations have a seat at the table, and are universally involved in business planning compared to less than half of typical companies. Leading HR staffs are much more engaged in managing and facilitating organizational change.

World class HR brings data

According to Hackett, an increased focus on measurement and analytics is another way that world-class HR organizations partner with the business more effectively. Only 20% of typical HR groups report metrics for HR-managed projects, while the leaders do this over three times more often and close to 80% report organizational metrics for change initiatives.

Leading full service HRO vendors have been building out their own talent management offerings and have added options for HR analytics, providing support for two more aspects of world class HR.

Certainly we expect HRO to support operational effectiveness and cost reduction.  Now, we know it can do more in the transformation of HR into world class business partners!

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The Fertile Ground of HRO Innovation

Kelly Services’ recent announcement of its new Office of Innovation was fascinating as the company has long been a leader and innovator in the staffing services field. Go global, check. Provide MSP, check. Add RPO, check. Add consulting, check. Launch mobile access applications, check. Supply chain management, check. Its success shows in the results, with 2011 revenues totaling $5.6 billion, a 12% increase over 2010.

To find out more, I had a lively discussion with Kelly Services’ Senior Vice President and Chief Innovation Officer Rolf Kleiner. Basically, Kelly Services has already done so much that it is focusing on new solutions and capabilities to remain ahead of the competition and keep up with its many Fortune 500 clients.

According to Kleiner, the company has always done well with the “little I” incremental innovations that improve and enhance its current services and capabilities. Kelly Services is also looking for new “big I” innovations, those that can move the needle on results and set precedents within the company and in the marketplace. It was felt that by adding more visibility and vetting larger scale opportunities, the Office of Innovation will be able to identify, develop, and bring new innovations to market faster.

Kleiner plans to set up a “pull” process for ideas that includes many stakeholder groups including employees, clients, suppliers, and other industry experts. He likened the process to farming. It will take working with the communities of interest on an on-going collaborative basis to develop a harvest of ideas.

There were several items I found especially interesting. One is using this effort as an opportunity for talent management. Some proof of concept and development projects will be managed by the Office of Innovation and will provide highly visible opportunities for those assigned. When projects are managed outside of the normal lines of business, integration and communications will be maintained which brings reality to planning and brings market needs and innovation participation deep into the infrastructure and culture of Kelly Services.

Also, there is a very crisp vision for the strategic initiative and clear criteria for the kind of innovation opportunities that are being sought. There is solid alignment with the goals of the company, scale for sizing market opportunities, and an openness to solutions that could include internal developments, partnerships, supplier networks, etc.

Finally, the selection of Kleiner as head of the Office of Innovation is a strong indication of Kelly Services’ seriousness with this endeavor. He reports directly to the CEO and his previous assignment was as Senior Vice President and General Manager for the KellyOCG group, which provides consulting and outsourcing services. The pulse of the market, the voice of the customer, and the operational beat of the business are all fresh and fertile ground for Kleiner’s new challenge.

Our NelsonHall HRO team always advises clients to look for service providers that can meet today’s needs as well as offer partnership for meeting the needs of tomorrow. How is your HRO vendor focusing on the future?

Linda Merritt, Research Analyst, HRO, NelsonHall

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