World-class HR organisations now spend 26 percent less and have fewer staff members, while driving efficiency.
World-class HR organisations now spend 26 percent less than peers on HR and operate with 32 percent fewer staff while driving dramatically higher levels of effectiveness, according to the latest analysis of benchmark data from The Hackett Group.
Digital transformation is one key strategy that world-class HR organisations deploy to raise the performance bar, investing in cloud-based HR applications and services that are enabling them to more effectively: 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.
World-class HR organisations now spend 28 percent less on labour and 29 percent less on outsourcing per employee than typical companies, the research found. They make more effective use of outsourcing, often selectively outsourcing areas such as compensation and benefits administration, employee relations and talent acquisition. While they spend less on technology, they actually commit a larger percentage of their overall HR spend in this area.
While world-class HR organisations have fewer staff in every staffing category, the majority of the gap is accounted for by 33 percent fewer transactional employees and 34 percent fewer staff dedicated to employee lifecycle activities. Furthermore, the research found that they make better use of their staff to perform higher-value talent management and strategic planning activities.
World-class HR organisations also operate and deliver services much more effectively than peers, the research found. They see transaction error rates that are two to five times lower. The high number of transactions for some processes and the cost to correct errors translates into a total cost difference between the two groups that can reach into the millions of dollars. World-class HR organisations fill jobs internally much more often at all levels of the organization, demonstrating their superior ability to develop and move people into new roles. Finally, turnover rates for first- and second-year hires are significantly lower, which helps sustain high workforce productivity while reducing turnover costs.
For a typical company with $10 billion in revenue, attaining world-class performance in HR represents as much as $14 million in potential savings annually. The Hackett Group’s research also quantifies the potential for typical HR organisations to use digital transformation to substantially narrow the cost gap seen by world-class HR. Proper implementation of digital technologies can enable typical HR organisations to cut process costs by 24 percent, enabling them to virtually match cost levels at world-class HR organisations. They can use digital transformation to reduce their process costs by an additional 21 percent.
Most HR organisations have already started the process of digital transformation, according to The Hackett Group’s research. An analysis of digital transformation progress in eight key HR areas found that to date, the majority of projects that have been completed are in payroll/workforce management and total rewards administration, areas which are oriented towards transaction processing and already heavily technology enabled. About a third of all companies in the research have completed digital transformation initiatives in these areas. In many cases, these projects involve cloud-based systems.
Digital transformation pilot projects currently underway in HR most often focus on areas such as data management/reporting/compliance and staffing services. These frequently aim to take advantage of new capabilities (including analytics) enabled by cloud-based software and service providers.
“In HR, as in other areas, digital transformation is a multi-year effort that requires a clear strategy, well-defined targets and a detailed roadmap of initiatives,” said Franco Girimonte, associate principal, The Hackett Group. “Building the digital capabilities of the HR organisation requires fresh strategies and approaches in four key areas: smart technology to automate and continuously improve processes; AI-powered insights to drive decisions; new skills like the ability to analyse and interpret data for key messages and storylines to advise business decision-makers; and changes in organisation roles and structures to fully leverage HR brain power.”
According to Tony DiRomualdo, senior research director, The Hackett Group, “Smart automation will take over transactional work, and even augment HR knowledge work with self-learning systems that can help identify the characteristics of recruits most likely to be successful in the roles they’re hired for, or the best mix of compensation and benefits to drive engagement. But, like many other digital transformation areas, it requires new skills, a clear strategy, a change in culture, and organizational commitment to succeed.”
World-class HR organisations are those that achieve top-quartile performance in both efficiency and effectiveness across an array of weighted metrics in The Hackett Group’s comprehensive HR benchmark.
