Effective in-house HR helps top firms keep costs down

The best-performing companies now spend 25% less on HR than other, less successful organisations.

The 2005 Enterprise Book of Numbers study, from consultancy The Hackett Group, reveals that what it defines as 'world-class' companies spend 820 on HR per worker, compared with the global average of 1,093. And they rely on 16% fewer HR workers, with 11.88 per 1,000 staff, compared with a global average of 14.11 per 1,000.

The study, based on 3,300 benchmarking exercises at almost 2,000 companies around the world, including 35% of the FTSE 100, also reveals that, in most cases, HR outsourcing leads to higher costs.

According to the report, the correlation between greater spending on outsourcing and increased total HR cost is, in part, driven by common mistakes – such as neglecting to streamline processes beforehand and retaining existing staff who were previously responsible for the outsourced function.

But world-class HR organisations – those in the top 25% in terms of efficiency and effectiveness – actually dedicate nearly half of their overall transactional process costs to outsourcing, 26% more than the average. As a result, these organisations are able to spend 19% less per employee in this area.

"These findings appear to contradict each other. But on closer inspection, they don't," said senior business adviser at The Hackett Group, Patty Miller. "Companies often outsource for the wrong reasons in an attempt to lower costs and fix processes they know are broken. This is almost always a mistake," she said.

The study also highlights differences in the efficiency of recruitment and retention, with the best-performing organisations able to hire up to 31% faster than other companies, with 66% fewer staff leaving.