For Companies That Outsource HR, 8 of 10 Don’t Look Back

SEATTLE, WA (May 6, 2008) – The outsourcing of HR continues, but it is not the runaway train many predicted when the practice emerged about a decade ago, suggests a recent study by the Institute for Corporate Productivity (i4cp).

Most respondents (72%) say their organizations have elected to keep compensation functions in-house, and 58% say their firms do not plan to outsource their payroll function. Likewise, 57% report that their companies do not plan to outsource employee contact centers, and 54% say their organizations do not outsource for recruiting. In addition, 46% of participants say training and development is kept within their organizations.

Why hasn't outsourcing become even more common? "Outsourcing transactional processes frees up internal staff, but many firms feel that outsourcing relinquishes too much control," notes David Wentworth, manager of i4cp's HR Outsourcing Knowledge Center.

Seventy percent of the 231 respondents report that their organizations either fully or partially outsource the administration of 401(k) plans, followed by flexible spending account administration (69%), COBRA administration (59%), and the administration of defined benefit plans (58%).

The chief reason given for outsourcing decisions was financial, with 60% of respondents reporting their companies outsourced to reduce costs. Another widely cited reason was the desire to "focus on HR strategy" (53%) and the desire to improve service quality (46%). The least-cited reason for outsourcing was to achieve a better ROI, with a quarter of respondents reporting that as a motive.

"It's a win-win where it makes sense," notes Wentworth. "Costs are reduced, service is improved and HR gets more opportunities to strategize rather than just serve as an administrator."

Regarding their satisfaction with outsourcing, 85% of respondents said they are either somewhat or very satisfied with outsourcing of retiree administration. The area where respondents say they are least satisfied is the outsourcing of employee contact centers, with 25% reporting being either very or somewhat dissatisfied.

The study also showed that, as a whole, once a function has been outsourced, it is likely to remain outsourced. According to the study, less than 2 in 10 companies have brought an outsourced function back into the organization. Of those companies that did bring an outsourced function or functions back in-house, the biggest reason was poor quality, cited by 69% of respondents whose firms had brought a previously outsourced function back in-house.

The HR Outsourcing "Taking the Pulse" Survey was conducted by i4cp, in conjunction with, in March 2008.

About i4cp, inc.

i4cp is the world's largest private network of corporations focused on improving workforce productivity. Our vendor-free community facilitates innovation by giving our members – among the largest and most respected organizations in the world – access to:
  1. Peers to spark new ideas and prevent "reinventing the wheel"
  2. Research to enable members to understand current practices and next practices
  3. Tools to put ideas and research into action
  4. Technology to enable members to easily access tailored information and execute workforce strategies.

With more than 40 years of experience and the industry's largest team of human capital analysts, i4cp is the definitive destination for organizations seeking innovative ways to improve workforce productivity.
Erik Samdahl
Erik is the head of marketing at i4cp, and has nearly 20 years in the market research and human capital research industry.