When HR Complexity Goes Down, So Do Admin Costs

It’s not going to come as a surprise to most IT execs, but according to Book of Numbers research from The Hackett Group, enterprises can reduce the cost of HR by reducing the complexity of key HR processes, programs and technology.

Hackett's new Book of Numbers research volume, “Optimizing a Return on Business Complexity: Performance Metrics and Practices of World-Class Companies,” focuses on ways to reduce complexity in HR, finance, IT, procurement and other areas.

World-class HR organizations spend 27 percent less per employee on HR than other organizations, operate with 35 percent fewer HR staff, experience fewer voluntary terminations and are able to fill positions faster, Hackett says.

Hackett's research found leading HR executives do a much better job of identifying areas where reducing complexity will have the greatest business impact. For example, world-class HR organizations are 87 percent more likely to have deployed a common HR application and to have reduced benefits administration complexity with fewer health, savings and compensation plans, enabling them to trim costs.

HR costs materially increase with each additional HR application, Hackett says. Companies that do not standardize their use of common applications spend more on HR per employee than companies that make high use of common applications.

“It's pretty obvious to most HR executives that complexity increases costs,” says Stephen Joyce, Hackett HR practice leader. “World-class HR executives are simply more effective at targeting areas where complexity reduction…is a significant factor in how they cut costs, operate with significantly fewer staff, yet provide more strategic benefit to their companies.”

According to Hackett, 71 percent of all world-class HR organizations have globally deployed common HR applications, while only 38 percent of other companies make the same claim.

World-class orgs find the app with the closest fit to their requirements, then map their business processes to the selected app, Hackett says. Solid business cases are required to justify all customizations.

In comparison, typical companies begin by developing their unique requirements and then build, or purchase and customize an app to meet their internal requirements.