Shared Services, HR, Costs

Shared Services can reduce HR process costs by up to 80% while uplifting service

Properly implemented shared services organizations (SSOs) can help HR organizations to reduce process costs by up to 80%, while generating similar improvements in internal customer satisfaction, productivity, and quality, according to 2006 Enterprise Book of Numbers^TM research from The Hackett Group, a strategic advisory firm.

Hackett found that world-class HR organizations go beyond simple centralization in their approach to SSOs, taking a customer-centric, business-oriented approach that focuses on standardization, simplification, and consolidation.

According to Hackett’s Book of Numbers research, world-class companies now spend $1,614 per employee on HR, 13% less than typical companies, which spend $1,864. World-class HR organizations also operate with 15% fewer staff, with 11.5 FTEs per 1000 employees versus 13.5 for typical companies.

“When it comes to reducing process costs, SSOs are clearly a time-proven technique that is at the top of our list of Hackett-Certified^TM Practices,” said Hackett HR Practice Leader Stephen Joyce. “The best HR SSOs view themselves as more than just back office support. They operate as businesses in their own right, positioning themselves as preferred suppliers to their internal customers. Through this approach, world-class HR SSOs generate exceptional benefits.”

According to Hackett Research Director Michel Janssen, “By moving strongly into HR shared services today, companies can reap real gains in the short term. In addition, they are positioning themselves well for the future, where globalization will be a major factor. Globalization is already a critical part of the business process sourcing landscape in other key back office areas, including IT and finance, which have more mature low-cost sourcing models than HR today. In the next few years, companies with world-class HR organizations are also likely to make greater use of offshore resources, either through captive shared service operations or outsourcers. The labor arbitrage opportunities are simply too great to ignore. Companies, particularly larger ones, that get shared services right today will be in the strongest position to take advantage of this new growth area moving forward.”

Hackett’s 2006 Enterprise Book of Numbers research found that over 60% of all companies with HR SSOs have been able to achieve cost reductions of 21-80%, while also showing similar improvements in internal client satisfaction, HR staff productivity, and overall quality. To generate these results, top-quartile HR SSOs often utilize service level agreements to define and monitor performance measures and targets. These world-class HR SSO performers also focus on training, providing staff with 40 hours per year, more than double that offered by typical companies. World-class HR SSOs also create hierarchically flat, role-based organizations with fewer managers and less than half the job grades of typical companies. Finally, world-class HR SSOs make more effective use of technology, with a single ERP/HRMS and a much less complex overall IT architecture.

More information on this research and The Hackett Group is available: by phone at 1-770-225-7300; by e-mail at info@thehackettgroup.com; or on the Web at www.thehackettgroup.com.