White Paper - The Impact of Human Resource Business Process Outsourcing (HR BPO) on Midsize...

7/30/2019 White Paper - The Impact of Human Resource Business Process Outsourcing (HR BPO) on Midsize Companies[1]

1/15SOURCING ANALYTIC

White Paper - November 2012

The Impact of Human Resource Business Process Outsourcing(HR BPO) on Midsize Companies

Helping Companies Optimize TheirHR/Benefts/Payroll Service Partnerships



Contents

Executive Overview 3

About the Study 6

Key Findings & Analysis 8

Conclusions & Recommendations 15

2

SOURCING ANALYTIC



Midsize companies generally have lean HR departments with multi-discipline

professionals that span across HR, payroll, benets, time and labor manageme

(TLM), talent management, recruiting, etc. This creates signicant challenges

for the midsize company struggling to access scalable technology and

professionals as-needed.

The need for both bandwidth and domain expertise to meet various complianc

and human capital needs has driven demand for SaaS (Software as a Service)

technology as well as subject matter expertise through business process

outsourcing (BPO). In early 2012, Sourcing Analytics released the ndings of

a study commissioned by ADP, Inc. (ADP) titled The Hidden Benets of HR

BPO. That study focused on HR costs experienced by employers with over

1,000 employees.

Sourcing Analytics has been commissioned by ADP to assess if HR BPO

lowers administrative costs at midsize companies. This white paper explores

the costs associated with all aspects of HR, payroll, and benets delivery for

the midsize market, and the impact of outsourcing these functions in the BPO

model employed by ADP.

Workforce Now (WFN) Comprehensive Services is ADPs branded HR

BPO model for midsize businesses considered in this study. Unlike traditiona

outsourcing, this model combines expertise in technology, processes, and

people into a comprehensive SaaS Human Capital Management solution. It

features HR best practices and online self-service tools. Clients have access to

a team of product and service experts through a dedicated ADP Relationship

Manager. Additionally, clients and their employees access information throug

a common Web portal.

Sourcing Analytics analyzed the calculated costs at four ADP midsize clientsbefore and after their implementation of ADPs WFN BPO services. For the

purposes of this study, we dene midsize companies as those with 50 3,000

employees and included companies with a head count of 200 700 employee

Executive OverviewFounded to assist providers andtheir clients in supporting the HR

services relationship, SourcingAnalytics analyzes, quantifes,recommends, and monitors solutionsthat enable companies to optimizetheir HR/benefts/payroll services

partnerships.

For more inormation contact:

Donald GladeSourcing Analytics, Inc.

[email protected]

3



Key Findings

The study demonstrates that outsourcing to ADPs WFN BPO model lowers

the combined costs of HR, payroll, and benets administration. It also drives

change throughout the organization resulting in a reportedly stronger and mo

nimble organization. The broad-based impact of HR BPO will be explored

more deeply in this paper.

The key ndings of this study are as follows:

Outsourcing to ADPs WFN BPO model provides a 25% lower averageTotal Cost of Ownership (TCO) of HR, payroll, and benets administrati

than other delivery models included in this study. Specically, companies

surveyed experienced a:

o 34% lowerTCO than in-house processing with an enterprise

resource planning (ERP) technology platform

($2,089 Per Employee Per Year (PEPY) with ADP vs. $3,167 in

house PEPY)

o 23% loweraverage TCO than in-house processing with

a combination of outsourced payroll and limited or

no human resource information system (HRIS)

($1,784 PEPY with ADP vs. $2,332 combination PEPY)

o 9% lower*TCO than the PEO delivery model

($1,101 PEPY with ADP vs. $1,211 PEO PEPY)

ADP HR BPO clients enjoy more exibility with regard to services that

are provided by their HR department; organizations with broad and limit

HR scope alike experience more cost savings vs. other delivery models.

As organizations expand in size, they do not need to increase the size of

internal staff to accommodate expansion; ADP clients are able to focus o

strategic HR activities without requiring more head count as the overall

organization grows.

Organizations with limited or no technological support for HR, through

effective HRIS, can access such technology in a very cost-effective

manner through ADPs HR BPO, and also can reduce overall costs.

ADP HR BPO clients report that their organizations are stronger and mo

nimble as a result of outsourcing to ADP.

The study also suggests that organizations that are more experienced in

outsourcing functionality can more quickly optimize the HR BPO relationsh

and take better advantage of opportunities afforded through outsourcing.

Additionally, we see that the companies have an opportunity to increase the

employee-to-HR professional ratio.

*Does not factor in cost differential in buying group health benets, workers

compensation insurance or tax effects from a PEO relative to the open market

Executive Overview

4

Outsourcing to ADPs WorkorceNow (WFN) ComprehensiveServices BPO model lowers thecombined costs o HR, payroll, andbenefts administration.

ADPs WFN BPO model providesa 25% lower average TCO o HR,

payroll, and benefts administrationthan other delivery models.



Executive Overview

5

Mitigating risk and helping toensure compliance is widely seen as a

signifcant beneft o ADPs HR BPOto clients.

Benefts derived can be optimizedthrough active management o changewithin the client organization.

Midsize companies would be wellserved to consider ADPs HR BPO

solutions.

Conclusions and Recommendations

While evaluating the cost impact of HR BPO, TCO methodology can make

overall cost-savings opportunities more apparent. The impact of HR BPO go

beyond nancial, and midsize companies would be well served to consider

ADPs HR BPO for multiple reasons. Particularly:

While midsize companies engage ADPs HR BPO for many non-

nancial reasons, this study suggests that cost savings can

also be realized.

Midsize companies can access technology more effectively andefciently through ADP HR BPO than otherwise able.

Mitigating risk and helping to ensure compliance are widely seen as

signicant benets of ADPs HR BPO clients.

As with all administrative outsourcing, benets derived can be

optimized through active management of change within the client

organization. As experience in the HR BPO environment is gained,

benets increase.

This is the rst study of its kind to be conducted by Sourcing Analytics.

Unlike prior Total Cost of Ownership (TCO) studies, this one assesses the

combined TCO across HR, payroll, and benets. The unique elements of thismarket segment and the fact that HR professionals in midsize companies

wear many hats makes it difcult to identify how much effort falls into any

particular category. Additionally, outsourcing service providers do not alway

supply pricing based on the service component, and the same is true of syste

providers.



Purpose

Many TCO studies examine the costs of HR, payroll, and benetsadministration at large companies. Most recently, Sourcing Analytics released

the ndings of a study titled The Hidden Benets of HR BPO, the rst study thlooked at the impact of the HR BPO model on large employers.

The purpose of this white paper is to explore the impact of HR BPO on midsi

companies. Specically to:

Determine what cost savings (if any) ADP midsize clients are

experiencing from using the WFN HR BPO model.

Ascertain if clients that convert from varying HR delivery models

(PEO Professional Employer Organization; in-house HR delivery;

co-sourced HR delivery combination of in-house and outsourced

service) are experiencing cost savings.

Use this case-study approach as a pilot for additional studies.

Process

While ADP sponsored the study, it had no inuence on process, analysis, oroutcome. Sourcing Analytics independently collected, calculated, and analyze

data from four WFN HR BPO clients of ADP with 200 700 employees.Because a signicant component of current cost for the group is ADP fees,Sourcing Analytics collected billing information from ADP to reconcile the

clients understanding of fees and conrm data.

The companies selected for this study have all engaged ADP for outsourcing HR, benets administration, and time and labor management (TLM) for at lea18 months. Each client completed a survey, which collected the data needed t

calculate costs associated with all aspects of HR, payroll, and benets deliverin both the pre-ADP and current ADP environment. These costs included

administrative expenses as well as the costs of HR management, such as policprocedure, strategy, and delivery of services. This is a broader denition of cothan was used in prior Sourcing Analytics studies.

Note: Payroll BPO services are also offered within the WFN BPO suite ofservices as a newer service offering. None of the Payroll BPO client group haengaged for a long enough period of time to be included in this study. BPO

payroll will be addressed in future studies. All participants of this study useADP for traditional payroll services.

About the Study

6

Sourcing Analytics independentlycollected, calculated, and analyzeddata rom our WFN HR BPO clientso ADP with 200 700 employees.



Process continued...

The four companies participating in the study vary in size and each used a

different delivery model before outsourcing to ADP:

Sourcing Analytics conducted follow-up calls with participants to verify,clarify, and validate survey responses. Sourcing Analytics experience with

hundreds of prior studies and a data normalization process allowed for themaximum level of condence in data completeness and accuracy.

Data

For purposes of this study, specic TCO cost components include:

Initial system installation cost (amortized over three years)

Implementation of outsourced solution cost (amortized over three years

Cost of last signicant upgrade (amortized over three years)

Labor costs for administration (salaries and loads)

Labor costs for HR management, HR strategy, other HR functions

(salaries and loads)

Non-labor costs for administration (corporate overhead, facilities,

General & Administrative)

Non-labor costs for management, strategy, vendor management, otherHR functions

Labor costs for maintaining systems (salaries and loads for IT

professionals)

Non-labor costs for maintaining systems (overhead, facilities,

maintenance contracts, etc.)

Fees for any outsourcing contracts

About the Study

7

The our companies participating inthe study vary in size and each useda dierent delivery model beoreoutsourcing to ADP.

Company

Company A

Company B

Company C

Company D

Industry

Energy/Utilities

Healthcare

Manufacturing

Agriculture

Prior HR Delivery Model

All PR, HR, and benefts

delivery done in-house wit

an ERP system

Outsourced PR, no

HRIS, in-house benefts

administration

Outsourced PR, no

HRIS, in-house benefts

administration

Professional Employer

Organization (PEO)

Prior EE

Count

597

210

375

638

Curent EE

Count

620

210

535

644



Data continued...

The calculated costs are hard-dollar costs based upon actual dollars spent. TC

does not capture soft costs or costs related to risk or productivity loss. Cost

avoidance is also not considered part of TCO.

Embedded in this methodology is the commitment to collect all costs, regardle

of their administrative delivery model or task, scope, and denition of HR for

each organization. The same costing methodology can be used for in-house an

outsourced delivery models.

Service providers in the midsize market generally dont provide a breakdown

of fees by component. Because of this, the study calculates one cost across

all components (e.g., a separate cost for benets administration or HR

transactional processing is not calculated). Annualized costs were calculated

and are expressed as a cost per employee.

The data calculations and analysis lead to ve key ndings:

Lower per-employee cost Outsourcing to ADP in the WFN BPO

model provides a 25.27% lower average TCO of HR, payroll,

and benets administration than other delivery models.

($1,690 avg. PEPY with ADP vs. $2,261 prior avg. PEPY)

Greater exibility The companies studied enjoy more exibility

since mission-critical HR functions vary from company to company.

Moreover, the ADP model has the exibility to meet certain

customized needs.

Effective scalability As organizations expand in size, they do not

need to increase the size of internal staff to accommodate expansion.

Fixed costs are converted to variable, allowing clients to focus on

strategic HR activities. Access to technology Organizations with limited or no technologic

support for HR through effective HRIS can access such technology in

a very cost-effective manner while reducing overall costs.

Organizational strength ADP HR BPO clients report that their

organizations are stronger and more nimble as a result of outsourcing

to ADP.

About the Study

Key Findings & Analysis

8

The calculated costs are hard-dollarcosts based upon actual dollars spent.

The study provides fve key fndings.



Lower per-employee cost

All four companies in the study had lower combined HR, payroll, and benet

administration Total Costs of Ownership (TCO) per employee per year (PEPY

after implementing the WFN solution. As seen in the chart below, savings

ranged from $110 $1,079 PEPY.

Source: The Impact of Human Resource Business Process Outsourcing (HR

BPO) on Midsize Companies, 2012.

The companies in the study were of varying sizes and came from different

legacy environments. The largest savings was experienced by the company

that came from a 100% in-house environment with ERP as its technological

platform. This comes as no surprise. Numerous studies indicate that

outsourcing is signicantly more cost-effective than in-house processing. The

34% savings seen at Company A is consistent with the 30% 40% savings se

as the norm in numerous studies.

Company B and Company C both come from legacy environments that

included outsourcing of payroll to a non-ADP rm, no HRIS, and in-house

benets administration. The average combined annual savings for these two

companies is 23.49%. This suggests multi-platform approaches that migrate t

a single platform and eliminate seams can create more cost-efciencies.


9

All our companies in the study hadlower combined HR, payroll, andbenefts administration Total Costs oOwnership (TCO) per employee per

year (PEPY) ater implementing theWFN solution.

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500



On a percentage basis, average annual PEPY savings range from 9% 34%:



Company D was previously with a PEO. PEOs can be a very cost-effective

strategy for delivering HR. However, for this 600-employee company, a 9%

savings was seen as a result of transitioning to the WFN BPO environment.

ADP also offers its own PEO solution, which was not considered in this study

Our results are based on comparing ADPs WFN BPO to a non-ADP, third-par

PEO. No specic conclusions may be drawn regarding the effectiveness of

ADPs PEO vs. the WFN solution.

An examination of the study group suggests that organizations with prior

experience in outsourcing are more successful in shifting costs to the

outsourcing provider. Generally, this helps to optimize the outsourcing

experience.

As we look at ADP fees as a percent of TCO, we nd that the study participanwith the highest percentage (52%) is the one that came from a prior PEO

environment. The one with the lowest percentage (31%) came from the ERP

environment. It appears that the study participant from the ERP environment

has an opportunity to lower internal costs further including TCO. In fact, th

respondent for Company A specically pointed this out, stating: We can still

get more savings and value from this relationship. Due to internal barriers to

change, the product offerings are still greater than the benets gained to date,

but we will keep plugging away.


10



Source: The Impact of Human Resource Business Process Outsourcing (HRBPO) on Midsize Companies, 2012.

While this sample size is limited, participants were not selected based uponevident cost savings. Indeed, the greatest benets of HR BPO for midsizecompanies come from non-nancial sources. The experiences of these fourcompanies suggest that, regardless of current delivery models, midsizeorganizations can experience a nancial return from HR BPO that is similar t

that of large employer organizations.

Flexibility

HR means different things to different organizations. For instance, oneorganization may consider recruitment an HR function, while another mayconsider it a line business function. In some organizations succession planninis a core HR service, while other companies may not do any successionplanning. In some companies, HR oversees annual performance reviews. Inothers, performance reviews are not a part of a formal process. This is just thetip of the iceberg. The fact is, in the midsize market, the denition of HR scopvaries from company to company, probably more than it does in large employorganizations.

The degree of variance in PEPY between the four companies studied indicatevarying denitions of HR scope. Flexibility in any service solution is critical.Organizations cannot afford and dont desire to pay for services they donneed and wont use. The ADP delivery model provides this exibility. Forexample, WFN BPO gives clients access to a recruiting specialist to assist witoptional fee-based services in the areas of Job Postings, Candidate Sourcingand Full Service Recruitment. ADP also provides Background Screening onan as-needed basis for a fee. ADPs solution provides the exibility that alloweach company to utilize services that focus on the aspects of HR that it sees amission-critical.


11

Organizations cannot aord anddont desire to pay or services theydont need and wont use.

$0

$500

$1,000

$1,500

$2,000

$2,500



Scalability

Organizations that are growing quickly, or contracting, often nd it difcult toefciently and cost-effectively meet HR needs. Often, employers must commto more HR staff and xed costs, even as employee head count contracts. Or,they scramble to add HR staff as their workforce expands. Converting xedcosts to variable costs can be an important advantage for such companies.

The data in this study reveal that, as Company C grew by 42% from 375 to 53PEPY TCO actually fell over 10%. In fact, the company currently employs nomore HR department staff than they did when they had 375 employees. After

implementing ADP, the company decided to re-deploy staff into other HR taskor functions, including strategic services. As a result, today Company C has 7employees per HR full-time equivalent (FTE). Before implementing ADP, the

had 45 employees per HR FTE.



This is very similar to Company As experience, which went from 40 employe

per HR FTE to 77. Interestingly, Company A didnt experience the change in

company size that Company C did. Because Company A wasnt growing in th

same way, they chose to reduce HR head count as functions were taken on by

ADP. These different approaches yielded similar results.


12

Converting fxed costs to variablecosts can be an important advantage.

Companies have the opportunityto reduce the ratio o HR FTEs-to-

employee ratio.

Prior EEs per 1.0 HR FTE Current EEs per 1.0 HR FTE

0

10

20

30

4050

60

70

80

90

40

77

45

Company A Company C

74

Prior and Current Employees Per One HR Resource



Access to technology

Midsize companies are challenged when it comes to accessing technology

for HR applications. Particularly helpful applications include manager and

employee self-service, which can drive a company toward paperless HR

administration. Company A took this path and, as we saw in the prior sections

reduced a high TCO signicantly after implementing ADPs HR BPO.

Company A had limited employee self-service with their ERP, but now has

full employee and manager self-service along with ADP employee / manager

call center support which is a signicant contributor to cost reduction. The

deployment of technology combined with access to subject matter expertisethrough HR BPO has been more robust and cost-effective than in-house

deployment.

Manual processing often creates signicant risk for non-compliance with

Department of Labor, Internal Revenue Service, regulatory, and state and loca

tax requirements. It can increase risk for overpayments to employees for pay

and / or benets claims. Previously, Companies B and C did not have any

technology for HR or benets administration. As a result of implementing HR

BPO, Companies B and C have mitigated risk, accessed new technology, and

reduced costs all at the same time. In fact, the Company C survey responden

specically indicated that the company was able to better track and contain pa

time off (PTO) and signicantly reduce costs.

Organizational strength / Risk mitigation

In addition to collecting data to calculate costs, we asked study respondents

to provide qualitative comments. The respondents made it clear that HR BPO

has made their organizations stronger and more nimble. They also believe tha

they have reduced regulatory risk. Here are some of the comments we receive

regarding better access to reporting:

Because of the better reporting we now have, we can look at schedule

PTO, productivity in ways we previously couldnt. Managers now hav

direct access to reporting and better manage the business. We have much better access to reports and can pull reports on demand

that help us manage our business.

The reporting capabilities are really great. I love our portal! One

place to shop. I can get it all. With really high turnover we can manage

our business so much better.

On the portal, we now have all the manuals, etc.


13

Manual processing oten createssignifcant risk o non-compliance.

HR BPO can help reduce regulatoryrisk.



Organizational strength / Risk mitigation continued...

Compliance was also a major theme in the comments:

We have improved cost, process control, compliance, and enhanced

productivity.

Greatest value: Access to assistance for our payroll and benets

questions for our HR and payroll teams.

It is peace of mind knowing that ADP helps us ensure our legal

compliance.

Organizational effectiveness and change comments include:

Another value is to be able to outsource things such as COBRA

administration and have the systems to support the day-to-day processe

so I can focus on our bigger projects, such as compensation strategy an

succession planning.

The resisters in our department sing praises for less overtime, fewer

weekends, and more back-burner projects completed.

We are also able to spend time on projects that we wouldnt be able to

tackle if we were entrenched in the day-to-day.

Respondents made it clear that HR BPO has provided value well beyond anyanticipated or desired cost reduction even though cost savings were not the

primary reason for engaging ADP to begin with.

Most respondents said their primary reasons for moving to HR BPO include:

refocusing the HR organization on value-added activities, mitigating risk, and

improving their compliance prole. They were all curious about cost savings

and were anxious to participate in this study. Results make clear that cost can

and should be a part of ADPs HR BPO equation.

Application to the broader market

This is the rst study that looks at TCO across all aspects of HR, payroll, andbenets administration for midsize companies that outsource using the ADP

HR BPO model. While the study suggests savings from using BPO, you can

only draw conclusions regarding the ADP BPO model. No other BPO provide

clients were included in this study.

ADP is a recognized market leader in HR BPO with a one-to-many technolog

platform that creates a unique cost dynamic to benet clients. Signicantly,

ADPs midsize HR BPO business has a retention rate of approximately 90%.


14

HR BPO has provided value wellbeyond any anticipated or desired costreduction.


15/15

While midsize companies engage ADPs HR BPO for many non-nanci

reasons, this study suggests that companies can also expect cost saving

Midsize companies can access technology more effectively and

efciently through ADPs HR BPO than they would otherwise be able

Mitigating risk and improving a companys compliance prole is a

signicant benet of ADPs HR BPO for midsize companies.

As with all administrative outsourcing, companies can optimize the

benets of outsourcing by actively managing organizational change. A

experience is gained, benets increase.

Midsize companies considering HR delivery options should consider ADPsHR BPO to:

Lower cost

Help mitigate risk

Gain better access to technology

Improve the compliance environment

Midsize companies already using the HR BPO model can drive continuous

improvement through constantly evaluating the opportunities for internal

change.

ADP and Workforce Now are registered trademarks of ADP, Inc.

Conclusions & Recommendations

15

Midsize companies considering HRdelivery options should consider HR

BPO.

This publication has been preparedor general guidance on matters o

interest only, and does not constituteproessional advice. You should notact upon the inormation containedin this publication without obtainingspecifc proessional advice. SourcingAnalytics has exercised reasonableproessional care and diligence in thecollection, processing, and reporting othis inormation. However, data usedrom third-party sources has not beenindependently verifed or audited. No

representation or warranty (expressor implied) is given as to the accuracyor completeness o the inormationcontained in this publication, and, tothe extent permitted by law, SourcingAnalytics, its members, employeesand agents do not accept or assumeany liability, responsibility or duty o care or any consequences o relianceon inormation contained in thispublication.

COPYRIGHT NOTICE

Any Sourcing Analytics information that is to be used in advertising, press releases, o

promotional materials require prior written approval from Donald Glade, President of Sourcin

Analytics, Inc. A draft of the proposed document should accompany any such request. Sourcin

Analytics reserves the right to deny approval of external usage for any reason.

Copyright 2012 Sourcing Analytics

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