HR organizations who successfully transition to a digital work environment spend 26 percent less on HR than their peers and operate with 32 percent less staff, according to benchmark-data analysis by The Hackett Group. At the same time, these HR departments operate at “dramatically higher levels of effectiveness,” the consulting firm said.
By investing in cloud-based HR applications and services, these organizations are able to better design and deliver services around customer experience, shift resources from low- to high-value activities, build and deploy sophisticated analytics capabilities and provide high-value tools, expertise and insights to business leaders.
In addition, Hackett found they spend 28 percent less on labor and 29 percent less on outsourcing per employee than typical companies. They’re more likely to selectively outsource areas such as compensation and benefits administration, employee relations and talent acquisition, and as a result employ 33 percent fewer transactional employees and 34 percent fewer staff dedicated to employee lifecycle activities. They also make better use of their staff to perform high-value talent management and strategic planning activities, the report said.
Outsourcing doesn’t seem to impact the quality of services: These organizations see lower transaction error rates and fill more job internally at all levels. That, Hackett said, demonstrates “their superior ability to develop and move people into new roles.” Turnover rates for first- and second-year hires are also significantly lower, which helps increase productivity while reducing turnover costs.
HR Efficiency & ROI
Hackett’s labeled these companies “world-class,” and emphasizes that running such efficient HR organizations results in real financial savings. A company with $10 billion in revenue, for example, could save as much as $14 million.
“Typical” HR organizations that successfully implement technology can also save money, Hackett said, cutting process costs by 24 percent.
Not surprisingly, Hackett found that most HR departments have already begin implementing technology. Its analysis found that the majority of completed projects have been in payroll/workforce management and total rewards administration, which are both based on transaction processing and were already heavy users of technology. About a third of the companies Hackett looked at have completed new technology initiatives in these areas, many times involving cloud-based systems.
Transformation pilot projects currently underway in HR most often focus on areas related to data and staffing services. These frequently aim to take advantage of new capabilities (including analytics) enabled by cloud-based software and service providers.
“We’ve reached an inflection point where world-class HR organizations are moving beyond exploration and adopting new technology and analytics tools to become leaner, smarter and more customer focused,” said Max Caldwell, principal and leader, of Hackett’s People & HR Transformation Practice. “It’s the next chapter in transforming HR to operate as a true strategic partner to the business.”
Hackett defines “world-class” HR organizations are those that achieve top-quartile performance in both efficiency and effectiveness across an array of weighted metrics. Further details are in a public version of the report, which you can download here.
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