Hackett: 2023 Brings Increasing Cost for HR But Greater Business Impact

September 28, 2023 at 10:00 AM EDT

Human resources (HR) operating costs increased significantly in 2023, with key contributors being wage inflation and high turnover rates, according to new Digital World Class^® HR research from The Hackett Group, Inc. (NASDAQ: HCKT). Our elite HR performers – Digital World Class – continue to spend significantly less than their peers, while operating with fewer HR staff and delivering far more resiliency, employee productivity, greater business value, and improved operational excellence, the research found. The Hackett Group^® concluded that increased spend on technology plays a key part in driving the superior performance.

Typical organizations saw HR operations costs increase by 6% in 2023, while Digital World Class HR organizations experienced a 7% cost increase. But Digital World Class organizations still spend 33% less than their peers – a $18 million advantage for the average $10 billion company. At the same time, they operate with 40% fewer full-time equivalent staff.

A public version of the research, “Resilience: The Digital World Class Human Resources Advantage,” is available free, with registration, at https://go.poweredbyhackett.com/qou. It contains nearly 40 metrics detailing the performance gap between Digital World Class human resources organizations and their peers – plus spotlights six key areas where Digital World Class companies excel and a proposed action plan to close the gap.

The research also concluded that there is a correlation between Digital World Class and improved overall enterprise performance. Data analysis performed by The Hackett Group revealed that companies with at least one business services function operating at Digital World Class levels see a five-year average performance premium over their industry medians – an 80% improvement in net margin; 24% higher earnings before interest, taxes, depreciation and amortization margin; 89% greater return on equity; and 44% higher total shareholder return.

The Hackett Group defines Digital World Class organizations as those that achieve top-quartile performance in business value (a composite of stakeholder experience, digital enablement and traditional effectiveness metrics) and operational excellence (a composite of efficiency and business process automation metrics) in The Hackett Group’s comprehensive human resources benchmark. The Hackett Group’s Digital World Class human resources research is based on an analysis of results from recent benchmarks, performance studies, and advisory and transformation engagements at hundreds of global companies.

The research measures the performance gap between Digital World Class and traditional HR organizations. Important benefits that Digital World Class organizations provide are:

Elevated stature, with 49% more likely to be viewed as a valued business partner
More focus on business enablement, including 29% fewer days to fill manager positions and 23% more positions filled internally
Greater use of technology, with 60% more fully using human capital management application functionality
Greater productivity, including 66% more employees supported per HR full-time equivalent staff person and 87% higher total placements/hires per recruiter and staffing full-time equivalent staff person
Greater reliability, with 4X fewer health and welfare transaction processing errors and 6X fewer time and attendance corrections required

According to The Hackett Group Senior Director Amanda Newfield, “Wage inflation and high turnover – an ongoing effect of the ‘Great Resignation,’ – drove up HR operating costs across the board this year. But the commitment to technology continues to pay off for Digital World Class HR organizations. By investing in their technology architecture and emerging technologies such as smart automation, advanced analytics, and collaborative tools, they are able to drive a more consultative approach, focus more on talent management and HR strategy, make better decisions and more effectively identify and solve business problems, all while spending a lot less and operating with far fewer staff.”

The Hackett Group Principal Franco Girimonte added: “The bottom line is that Digital World Class HR organizations are better at enabling their companies to succeed. They have streamlined the day-to-day transactional elements of their operations, and through systematic use of global business services and process automation have freed up an additional 12% of their teams’ efforts to focus on value-added activities. Now, they can more effectively focus on attracting, retaining, developing and engaging employees.”

About The Hackett Group

The Hackett Group, Inc. (NASDAQ: HCKT) is a leading benchmarking, research advisory and strategic consultancy firm that enables organizations to achieve Digital World Class^® performance.

Drawing upon our unparalleled intellectual property from more than 25,000 benchmark studies and our Hackett-Certified^® best practices repository from the world’s leading businesses – including 97% of the Dow Jones Industrials, 93% of the Fortune 100, 73% of the DAX 40 and 52% of the FTSE 100 – captured through our leading benchmarking platform Quantum Leap^® and our Digital Transformation Platform, we accelerate digital transformations, including enterprise cloud implementations.

For more information on The Hackett Group, visit: https://www.thehackettgroup.com/; email info@thehackettgroup.com; or call (770) 225-3600.

The Hackett Group, Hackett-Certified, quadrant logo, World Class Defined and Enabled, Quantum Leap, Digital World Class and Hackett Value Matrix are the registered marks of The Hackett Group.

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