The purpose of this study is to analyze related business and human resource initiatives and requirements for HR outsourcing services. This study utilized direct personal interviewing across a significant number of companies in a variety of industries and geographies to factually identify and establish HR organizational challenges for 2007 and establish the following:

· HR issues and challenges faced by user organizations overall and by the HR service function.
· Satisfaction with the current provision of HR services.
· HR initiatives planned by organizations overall and within each of the following areas: talent management, payroll services, benefits administration, recruiting & resourcing, and training and learning services.
· Attitudes toward the use of HR analytics and HR analytics initiatives.
· Current and planned usage of external HR services overall and by HR service type.

This article provides an extract of the larger study and summarizes the results at an executive level, identifies both the major challenges being faced by HR organizations during 2007 and their planned approach to addressing these challenges, and includes a specific talent management sample initiative. While the significantly detailed information included in the 150 exhibits comprising the complete report cannot be duplicated here, a number of pertinent exhibits are included to establish the primary evidence utilized to identify the associated content.

Interviewed Organization Profile

Figure 1:

Industry Sector	Number of Businesses Interviewed
Financial Services Total	40
Banking	20
Insurance	20
Healthcare Total	30
Health Insurers	5
Healthcare Providers	10
Pharmaceuticals	15
High Tech	30
Retail	31
Telecom	10
Utility	9
Total	150

The profile of organizations interviewed by geography is:

· Europe – 75 companies

• including 50 in continental Europe and 25 in the UK

· US – 75 companies

The scope of the processes covered within HR services is:

· Payroll
· Benefits Administration
· Recruiting & resourcing
· On-boarding
· Compensation management
· Performance management
· Workforce training and development
· Succession planning
· Absence management
· Occupational health
· Organizational development
· HR analytics and business intelligence
· Integrated talent management

The High Level Business Issues Identified

As businesses strive to reduce costs and increase revenues per client in an increasingly competitive global environment, the challenges associated with new product development and market expansion are increasingly apparent especially in light of the emerging markets associated with the BRIC (Brazil, Russia, India and China) economies.

The overall business issues identified by businesses participating in this study are:

• Increasing costs and cost pressure.
• Need for new product development and new market entry.
• Strong competition.
• Need to improve customer service and retention.
• Need to ensure/improve compliance with internal processes and external regulations.

The major business initiatives planned in 2007 to address these issues identified above include:

• Process Improvement and optimization
• New market/channel initiatives
• Cost reduction
• New product intro and current product enhancement
• Improving customer retention and cross-selling

These business issues are not always directly reflected in the HR issues and initiatives pursued by the organization. Overall, only forty-eight per cent of organizations estimate that they strongly link their HR initiatives in support of key business issues and initiatives suggesting a continuing need for coordination of business and HR initiatives.

The Human Resources Talent Management Imperative

Regardless of this missing linkage with business issues, there are strong similarities in the need to demonstrate process improvement and cost reduction within HR operations and the need to improve talent management across the organization in order to achieve success in the key business initiatives of new product and market initiatives and improving customer retention and cross-selling.

Organizations in both developed and developing economies are facing increased competition for high performers, with low birth rates in developed economies and high growth rates in the developing economies creating skills shortages. Accordingly, the major issue faced by organizations is the need to optimize the use of their HR assets through improved and integrated talent management initiatives.

The five major themes in the HR issues currently faced by organizations are the need to:

• Improve talent management.
• Address high staff turnover and absenteeism.
• Reduce HR service cost.
• Improve HR operations.
• Improve HR services supplier management.

Accordingly, the principle HR initiatives planned for 2007 are related to improvements in talent management. Overall, the major HR initiatives planned by organizations for 2007 are:

• Talent management focused initiatives; including changing remuneration schemes to reduce staff turnover, new training initiatives, improved programs for the identification of and reward for good performance, and employee turnover reduction initiatives.
• HR process improvement; including the streamlining of HR processes and rebalancing the location of HR service delivery. Rebalancing the location of HR service delivery involves both the development of common processes and the centralization of HR. There is also an additional, increasingly important process improvement component which is associated with the introduction of local HR staff to assist in removing the barriers between HR and employees.
• Improvements to various aspects of recruitment processes.
• Improvements to absence management procedures.
• Cost reduction initiatives including reducing the numbers of HR personnel and rationalizing benefits costs.
• Sourcing initiatives to rebalance HR services between internal and external service delivery.

The following exhibit shows the significant proportion of organizations that face these significant and inter-related HR issues:

Figure 2

HR Issue	Proportion%
Need to improve identification of high performers and succession management	72
Corporate requirements for ongoing reductions in cost of HR administration	70
Managing large numbers of external HR service providers	68
Need for improved talent management capability	62
High turnover of staff	59
High ratio of HR employees to staff	59
Need to improve absence management	57
Need to improve recruiting effectiveness	54
Low consistency of HR processes across the organization	53

Over half of responding organizations are significantly affected by each of these issues. Grouping these issues into 3 major categories results in the following categories:

· Talent Management including improved recruiting effectiveness, succession management, and employee absence and turnover management.
· Cost reduction including reducing the ratio of HR staff to employees.
· Process Improvement including both the achievement of greater process consistency and improved vendor management.

Detailed Example:

Organizations are Increasing Local Autonomy in Support of Talent Management Initiatives

Organizations are addressing their talent management challenges through a number of approaches. One approach being utilized is to improve the effect of talent management through the integration of current and new talent management programs to achieve a leveraged and significant effect.

The following exhibit shows, by industry sector, the proportion of organizations that are highly satisfied with their current integrated talent management capability.

Satisfaction with Integrated Talent Management Capability

Figure 3

Industry Sector	Proportion with High Satisfaction
Utilities	67
Retail	65
Insurance	35
Telecom	30
High-Tech	27
Banking	25
Healthcare Insurance	20
Pharmaceuticals	20
Healthcare Provider	0

The majority of organizations across industry sectors currently have a major focus on improving their approach to talent management. The major initiatives planned for 2007 are:

· Improving workforce development and retention.
· Improving access to employee performance information.
· Improving training.
· Changes to remuneration including bonuses and benefits.
· Changes to HR structure.

Key initiatives planned in 2007 for improving workforce development and retention includes increasing the frequency of employee performance reviews, and improving employee profiling to assist with career development. Some organizations are also launching initiatives to reduce the workload imbalance and overload of high performers.

Although organizations are increasingly standardizing HR processes and endeavoring to reduce HR costs, organizations typically perceive that local HR personnel are important to supporting talent management initiatives. In particular, organizations are typically giving departmental managers greater involvement in recruiting, absence management and staff retention processes with local HR representatives receiving greater responsibility for supporting the training and career development of individual personnel.