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The Hackett Group Research Alert: World-Class HR Organizations Spend 27 Percent Less, Operate With 24 Percent Fewer Staff

World-class HR organizations operate at 27 percent lower cost per employee than typical companies and also utilize 24 percent fewer staff, while still achieving higher effectiveness, according to new Book of Numbers research from The Hackett Group, Inc. (NASDAQ: HCKT).

The Hackett Group's research detailed three important elements of HR strategy that drive operational excellence at world-class HR organizations: an emphasis on enhancing HR’s operational excellence and helping the company achieve its strategic goals; a systematic, integrated approach to talent management; and an ability to create strong, strategic working relationships with the business.

"HR organizations today face significant challenges," explained The Hackett Group Global HR Transformation and Advisory Practice Leader Harry Osle. "While company revenues have risen by nearly 20 percent over the past three years, HR budgets and staffing have actually declined slightly. This has created a tremendous productivity gap that must be overcome. 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."

The Hackett Group's research findings are based on the latest HR metrics from detailed benchmarks executed at Global 1000 companies over the past two years. Hackett defines world-class as companies that achieve top-quartile performance across a weighted array of efficiency and effectiveness metrics.

The Hackett Group's research found that world-class HR organizations excel at cost reduction, spending 27 percent less on HR services per employee than typical companies. They reduce labor costs, which represent more than half of total HR costs, by 29 percent, and also spend 50 percent less on outsourcing. At the same time they dedicate 25 percent greater spend to technology. Finally, world-class HR organizations operate with 24 percent fewer HR staff per 1,000 employees, including 31 percent fewer transactional staff and 20 percent fewer employee life cycle staff.

Operational Excellence

To achieve greater levels of operational excellence, world-class HR organizations focus in four key areas. They make dramatically greater use of self-service for payroll, training, and total rewards administration and staffing services. Automation and standardization in these areas leads to higher-quality decision-making, which drives lower costs. In addition, they focus heavily on complexity reduction, utilizing nearly 70 percent fewer job grades, almost 40 percent fewer health and welfare plans, and over 40 percent fewer compensation plans. They have significantly flatter organizations, with more than 20 percent fewer managers that have greater spans of control, to streamline management, reduce costs, and speed up decision-making.

World-class organizations use HR outsourcing more effectively. While they outsource administrative activities at similar levels to typical companies, they retain significantly fewer in-house staff associated with these processes, reaping greater cost benefits from the outsourcing arrangement. Typical companies appear to make few internal changes after outsourcing, inhibiting cost and productivity advantages.

Integrated Talent Management

A second key to world-class HR performance is an increased focus on the development and performance of employees. World-class HR organizations dedicate a greater percentage of their total process costs to internal talent management, with a particular emphasis on strategic workforce planning, where they spend 15 percent more than typical companies and also allocate more staff. Their strategic workforce planning staff and skills mix are very different, suggesting more high-level consulting capabilities as well as more staff skilled in analytics and modeling.

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