Most Companies Taking a Selective Approach to HR Outsourcing
WASHINGTON, DC, May 31, 2005 -- Most companies are taking an incremental, selective approach towards the outsourcing of their human resources functions, according to a new survey by Watson Wyatt, a leading human capital consulting firm. While the majority of respondents say they expect to outsource more in the future, they also report they are disinclined toward consolidating their outsourcing activities with a single vendor, and that they are far less willing to outsource the more strategic components of their HR function.
According to survey results, nearly two-thirds (65 percent) of the 135 companies surveyed characterize their HR function as mostly or completely insourced. Twenty-nine percent say they have an approach that is equally mixed between insourcing and outsourcing, and only 7 percent say they are mostly outsourced.
Of those companies that outsource multiple HR functions, only 8 percent consolidate the administration of retirement plans, health and welfare benefits and other HR activities with a single vendor, and only an additional 5 percent plan to do so in the future. Overall, 54 percent of companies have no consolidation approach in place and do not plan to have one.
"Most companies have decided to take a selective approach to HR outsourcing as they look for an optimal mix of internal and external processes and technologies," said Michael Cornetto, senior HR delivery consultant at Watson Wyatt. "Despite much speculation otherwise, there is no headlong rush toward the total outsourcing of all HR services. Many companies that investigate full HR outsourcing alternatives choose to refine their existing delivery model rather than outsource everything."
According to the report, companies that mix internal and external resources are the most efficient in terms of costs and the number of full-time employees supported by each HR staffer.
Looking at specific HR activities, results show that a large majority of companies outsource transactional HR activities such as 401k administration (84 percent) and at least some aspects of their pension administration (71 percent). Health and welfare administration is the next most likely area to be outsourced, but only 44 percent of respondents reported doing so.
"Not surprisingly, companies are most likely to use external resources for their more transactional HR activities," said Cathy Tripp, practice leader for health & welfare benefits administration at Watson Wyatt. "When they outsource, about half of companies hand the full administration of the HR activity over to a third party and the other half opt for hosted web-based applications while keeping some related administration in house."
Moreover, survey results indicate that this same pattern is likely to continue over the next couple of years. One-third (36 percent) of companies expect to outsource more in the next two years, while 51 percent expect their sourcing approach to remain about the same. Six percent of respondents said they will cutback on their outsourcing activities.
In the pension administration area, for example, many companies already outsource using a hosted web-based model. "But we are seeing more interest in companies asking the outsourcer to handle additional administration, such as the preparation of benefit packages for new retirees," said Jim Shaddy, retirement practice leader for the central U.S. division at Watson Wyatt.
"Over the next few years we will likely see increases in the outsourcing of transactional administration, such as retirement and payroll activities, but the vast majority of companies are planning to keep the more strategic components of their HR activities in-house," said Tripp.
About Watson Wyatt
Watson Wyatt Worldwide is one of the world's leading human capital consulting firms, providing services in the areas of employee benefits, human capital strategies and related technology solutions. The firm is a global alliance between U.S.-based Watson Wyatt & Company, a publicly traded company (NYSE: WW), and U.K.-based Watson Wyatt LLP, a privately held, limited-liability partnership. Together the companies operate as Watson Wyatt Worldwide, with more than 5,800 associates in 89 offices in 32 countries. Corporate offices are in Washington, D.C., and Reigate, England.
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