Most Companies Happy with HR Outsourcing

Fully 85 percent of respondents to a new study said they achieved hoped-for benefits, but 23 percent reported bringing an outsourced function back ...
Stephen TaubApril 20, 2005

Most large companies have embraced human-resources outsourcing, according to a survey by Hewitt Associates of 129 large businesses representing nearly two million employees.

Hewitt, which provides outsourcing and consulting services, found that 94 percent of respondents outsource at least one HR function, either partially or fully, 89 percent are satisfied with their outsourcing arrangement, and 85 percent said they achieved hoped-for benefits.

The most commonly outsourced HR functions deal with outplacement services (91 percent), employee assistance programs (89 percent), defined-contribution or 401(k) plans (83 percent), COBRA administration (77 percent), and defined-benefit or pension plans (68 percent).

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During the next three years, respondents plan to expand their outsourcing into the following areas (listed in order): leave management, learning and development, payroll, recruiting, health and welfare, and global mobility.

Why do companies outsource their HR functions? The same reasons companies outsource in general, for the most part. Respondents’ number one reason for outsourcing human resources was to access outside HR expertise, followed by service quality, ability to focus on their core business, cost savings, opportunity for better data, and relief from administrative burdens.

Respondents’ biggest outsourcing challenges: losing control of key processes, employee reactions to an external service provider, and difficulty in building a business case.

Of course, not all outsourcing deals work out. In fact, 23 percent of respondents reported bringing an outsourced function back in-house. Of those that did, 62 percent cited poor service as the reason; 38 percent did so because they did not achieve anticipated cost savings.

Those figures dovetail with the numbers in a new survey from Deloitte Consulting of 25 large companies. Deloitte’s survey, which dealt with outsourcing in general, found that 70 percent of respondents had “significant negative experiences with outsourcing projects”; 62 percent encountered greater management overhead than they had originally estimated; 44 percent did not achieve hoped-for cost savings; and about 25 percent brought an outsourced function back in-house because it could be handled there more successfully or less expensively.