According to the study, the most commonly outsourced HR process is payroll. About half of the respondents said they outsource the function entirely, while another 30 percent indicated they outsource payroll partially. In addition, close to half of the respondents said they outsource some of their benefits administration.
Interestingly, the majority of the respondents in the Gartner survey indicated they plan to increase the slice of their budgets dedicated to HR outsourcing in 2003. “By far, HR is the one business process at companies that has made the deepest penetration into the outsourcing market,” Scholl notes.
This raises the question: Why is that? “There are two things driving HR outsourcing,” asserts Tony Martin, senior vice president at Mellon HR Solutions, a Fort Lee, New Jersey-based BPO provider. “Technology and the move toward enterprise resource planning.”
Certainly, scut work that once was done manually by HR staffers is better handled electronically. And with the Internet, human resources tasks like payroll and benefits administration can be done remotely.
Industry watchers also point out that senior executives at many companies are taking an enterprisewide picture approach to managing their specific corporate functions. In the same vein, they want their human resource executives focusing on big picture items, not FICA deductions. Says Exult’s Madden: “Companies want senior HR management to be a business partner not worrying about running payroll or benefits.”
Gartner’s Scholl agrees. “Managers were becoming more and more involved in administrative tasks and couldn’t do their jobs,” she points out. “They’re not clerics by profession — they’re highly-educated experts in human relations.”
While a la carte HR outsourcing has its advantages, consultants say it doesn’t provide the wallop of soup-to-nuts HR outsourcing. (For example, shopping out all or most of the 22 HR functions undertaken by companies. See “What Does HR Actually Do?” at the end of this article.) “When you outsource most HR functions to a single vendor,” says Scholl, “there are tremendous synergies and cost savings.”
Take the case of an employee who moves to a new addresses. Under more typical HR setups, that employee must work with human resources to update benefits records. The worker then goes through the exact same process updating payroll records. But with a single, Web-based service center, Scholl says “you make the change once and the system updates all other records.”
Certainly, a prime appeal of end-to-end human resources outsourcing is financial: the opportunity to trim headcount. “The average company today doing HR on its own has a ratio of 1 HR employee to 100 employees,” says Hodges. “A company following an end-to-end HR outsourcing strategy, on the other hand, can improve the ratio to 1 in 300.”
Lockheed Martin, which unveiled an integrated HR outsourcing strategy this year, expects to reduce human resources headcount by 25 percent over the next three years. During that period, the company also expects to shave 25 percent in operating costs from its HR function, says Ed Taft, vice president of HR Services at the Bethesda, Maryland-based company.