World-class HR organizations continue to outperform their peers, delivering a greater focus on strategic workforce planning and other high-value activities while operating at 23 percent lower cost per employee than typical companies and functioning with 32 percent fewer staff, according to new research from The Hackett Group, Inc.
A well-designed service delivery model (SDM) focusing on operational excellence is one key to how world-class HR organizations achieve greater agility and better understanding of business needs, The Hackett Group's research found.
They also turn to HR metrics and analytics to provide better data on the company's human capital and more effectively quantify the value HR brings to the enterprise. By contrast, half of all typical HR organizations do not even measure the result of change initiatives or produce any type of functional scorecard.
"World-class HR organizations show an unrelenting commitment to operational excellence," said The Hackett Group's Global HR Transformation and Advisory Practice Leader Harry Osle. "Their cost advantage continues to grow, in part because they understand that the keys to this are process optimization and the strategic use of shared services."
Achieving Operational Excellence
In their quest to achieve higher levels of efficiency and effectiveness, world-class HR organizations excel in several areas, The Hackett Group's research found. They achieve higher levels of self-service and dramatically higher levels of automation across a wide array of administrative and transactional activities, in part by spending 8 percent more on technology than typical companies.
They are highly committed to complexity reduction, operating with far fewer job grades, health and welfare administration plans, and compensation plans.
World-class HR organizations are also significantly flatter, with a very different staff mix than their peers: 22 percent fewer managers, 23 percent fewer clerical staff, and 26 percent more professionals.
World-class organizations utilize HR outsourcing more effectively than typical companies as well. While both use outsourcing at the same level, world-class take more care to reconfigure internal staff and retain significantly fewer employees in-house.
Typical companies appear to make few staffing changes internally after outsourcing, preventing them from reaping the full cost and productivity benefits of the outsourcing arrangement.
More Strategic Talent Management
The proven ability to manage talent sets world-class HR organizations apart from their peers, the research found. At the heart of this is a comprehensive approach to strategic workforce planning (SWP).
World-class HR organizations use three principal enablers to improve strategic workforce planning effectiveness. Senior business leaders are 2x more likely to be involved in SWP, which helps ensure that insights derived from SWP process are factored into business decision making.
World-class HR organizations are also much more likely to employ professionals to analyze workforce data, enabling them to identify supply and demand trends, assess risks, and uncover opportunities.
They are also 2.4x more likely to rely on common platforms and toolsets for SWP, providing direct access to data and reports to specialists, HR business partners, and even managers.
World-class HR organizations also produce demonstrably better results from their SWP efforts, with smaller talent gaps and higher retention rates. They place 61 percent more staff per FTE internally, reducing the cost of hiring. Internal hires are also likely to be productive in their new roles more quickly.
World-class HR organizations are 82 percent better at developing managers so they can move into leadership roles. They achieve this through a combination of improved succession planning, better retention plans, and enhanced organizational and leadership development.
Another critical benefit of their talent management efforts is greater retention of managers and professionals. Retention rates for managers at companies with world-class HR organizations are 86 percent better after one year and 70 percent better after two years. Retention rates are similarly better for professionals.
Tighter Business Alignment
World-class HR organizations also show a dramatically greater ability to work with the business and deal with the human capital aspects of planning and executing business strategy, the research found. They demonstrate an understanding of how human capital enables financial performance, and are more likely to be routinely involved in executive-level deliberations about tying business strategy to people and HR strategy.
They are also much more frequently engaged by management to partner on strategic business opportunities. This is supported by their advanced skill sets, which enable them to do high-level consulting.
Finally, one of the largest capability gaps between world-class and typical HR organizations is in measurement and analytics. World-class HR organizations have a better handle than typical companies on what is most important to measure (not just what is possible to measure).
They also publish scorecards of standard performance metrics 53 percent more often than typical companies, which do this less than half the time. They are 179 percent more likely to publish scorecards on a quarterly basis, which only 24 percent of typical companies do.
They also measure the business impact of HR projects over 80 percent more often than typical companies, and spend significantly more time analyzing data than typical companies, and about half as much time collecting that data.