Companies Continue To Outsource Benefits, Other HR Programs Selectively

Selective Benefit Outsourcing

By Stephen Miller Jul 1, 2008

Larger U.S. employers continue to take a selective approach to outsourcing their benefits administration, recruiting, payroll, and other HR functions rather than relying exclusively on a single provider, according to research by consultancy Watson Wyatt.

“Over the last few years, we’ve continued to see tremendous growth in selective outsourcing,” says Richard Hubbard, director of Watson Wyatt’s U.S. technology and administration solutions practice. “The economic strains some companies are facing will only add to the reasons to choose selective outsourcing. Selective outsourcing provides employers a lot of flexibility and helps them keep their options open.”

Selective outsourcing is popular because "it can be tailored to meet an organization’s exact needs,” Hubbard says. For most organizations, this means outsourcing routine, transaction-oriented processes while refocusing the HR department on strategic planning. "Many companies report that selective outsourcing best meets their needs for access to leading-edge technologies, while improving employee experience and service levels," he adds.

"The key to successful outsourcing is finding the solutions that fit the organization’s needs and culture,” Hubbard notes.

Watson Wyatt's Changing Strategies in HR Technology and Outsourcing survey of 182 U.S. companies found that many expect to do more outsourcing in the future, in areas such as health and welfare programs.

HR Functions Outsourced Now or Likely to be Outsourced in Near Future

Administration of:

Currently Outsourced

Plan To Bbe Outsourced This Year or Next

Define contribution retirement plans



Health and welfare plans



Defined benefit retirement plans



Stock/equity compensation



Deferred compensation









Performance management



Source: Watson Wyatt

However, few companies (21 percent) automatically direct their HR function to outsource programs. The majority (63 percent) look to use their internal or enterprise resource planning (ERP) systems whenever possible to deliver HR services.

Among other key findings in Watson Wyatt's research:

  • One in five companies expects to change its HR delivery structure in the year ahead. This signals a significant shift in an area that companies have historically preferred to keep stable. While companies cite internal process improvement as the primary goal for their sourcing strategy, 31 percent report missing that goal.
  • Retirement plan administration is a key focus for many companies, with one in four planning to change defined benefit administration and delivery in the next two years.
  • Employee engagement and benefits communications are viewed as paramount, due to the growing complexity of benefit plans and the need for decision-support tools. Most companies are satisfied with HR delivery in the retirement and health and welfare areas but are not as satisfied with HR delivery in the talent management area. Many are looking to implement technology solutions for their talent management programs.
  • Many companies plan to use HR portals to communicate health care and total rewards information to employees. The majority of self-service transactions on the web are in the health and welfare area. Most transactions related to compensation/payroll decisions and retirement plans do not take place over the web.
  • Most companies have HR call centers and strongly prefer that U.S. employee inquiries be handled in the United States. Satisfaction with call centers is tied to the use of case management systems.

The technology research firm CedarCrestone also found growth in selective outsourcing. In its 2007/2008 HR Systems Survey, the firm found that selective outsourcing is preferred to total business process outsourcing in most HR categories. The firm forecasts that selective outsourcing will continue to grow in 2008, particularly as small and medium-sized organizations adopt the strategy.

Stephen Miller is manage/editor for SHRM Online.


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