The highest performing HR functions spend 26% less than their peers on HR and manage 32% fewer staff, according to benchmarking data from The Hackett Group.
The analysis firm found that “world-class” HR organisations – those that achieve top quartile performance for efficiency and effectiveness according to its benchmark – invested in cloud-based HR technology so they could operate more effectively; designed their services around customer experience, and shifted their resources towards high value activities.
These high-performing HR functions also built and deployed sophisticated analytics capabilities and provided useful tools and insights to their business leaders.
Its report, Forging a Digital Path to World-Class HR, found that world-class organisations spent 28% less on labour and 29% on outsourcing per employee than typical companies. They often used outsourcing selectively, for example, on areas such as talent acquisition.
Efficiency also means there are fewer mistakes, according to Hackett Group. Those in its top quartile had transaction error rates two to five times lower than other organisations, leading to major savings. In addition, they tended to be better at filling jobs internally, maintaining high productivity and reducing labour turnover costs.
With digital transformation driving much of this efficiency, Hackett Group also looked at organisations’ progress in digital transformation projects.
It reported that the majority of projects to have been completed so far were in payroll, workforce management and reward – areas that are “oriented towards transaction processing”. About a third of companies in its benchmark have completed digital transformation in these areas.
Further areas of focus include data management, data reporting and staffing services.
Max Caldwell, principal of Hackett Group’s people & HR transformation practice, said: “We’ve reached an inflection point where world-class HR organisations are moving beyond exploration and adopting new technology and analytics tools to become leaner, smarter and more customer focused.
“It’s the next chapter in transforming HR to operate as a true strategic partner to the business. Making the journey will require new skills in areas like data science, smart automation and user-driven design, and is predicated on organisational willingness to change. But it gives HR leaders a terrific opportunity to rethink and reinvent the HR function for the future.”
Tony DiRomualdo, senior research director, added: “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 organisational commitment to succeed.”
Hackett Group makes three key recommendations for organisations looking to use technology to improve efficiency and effectiveness:
- Improve the fundamentals – from optimising processes for automation to getting a handle on data;
- Develop advanced capabilities – target areas with high-value pay-offs to start off with and invest wisely in skills; and
- Support the enterprise strategy – digital transformation requires a huge culture change and shifts in behaviours.