New York (Aug. 11, 2004) -- National and state governments are joining their private sector counterparts in jumping on the outsourcing bandwagon, according to a report by the Conference Board.

According to the report, sponsored by Accenture HR Services, governments and government agencies in the United States are moving toward outsourcing key human resources and other functions, driven by three major factors: cost savings, reducing capital spending and transforming fixed costs into variable ones.

“Through technology tools and processes that most public-sector organizations could not afford to build internally, outsourcing can provide much improved and more convenient services for employees,” says Ton Heijmen, senior advisor to the Conference Board on outsourcing and offshoring. “This is a particular concern for public-sector organizations, which generally cannot compete with the private sector’s pay packages to attract and retain talent.” In addition to convenience and cost reduction, HR outsourcing can enable public-sector organizations to centralize processes throughout their organization, the report noted.

The Conference Board noted that some 10 to 15 states are considering HR outsourcing. The government trailblazers include the U.S. Transportation Security Administration, the State of Florida, Detroit Public Schools and the Texas Health and Human Services Commission. The Office of Personnel Management, the federal government’s HR agency, is also weighing the merits of outsourcing HR. In the U.S., the Conference Board said that the trend is likely to focus on the federal and state level, since scale is necessary to realize outsourcing’s full benefits and justify its costs.

The study identified three forces as fueling the HR outsourcing movement in U.S. government. First, IT systems are reaching the end of their life span. Legacy computer systems need to be replaced, to the tune of capital outlays of $80 million to $100 million. With growing deficits and a reluctance to increase taxes, financing technology upgrades is too costly for many states. Second, the economic downturn of the late 1990s created severe government-sector budget shortfalls, particularly in state governments. Also, more government employees want to run their organizations by management principles of efficiency, optimum customer service, and performance measurement that have been long embraced by the private sector, the Conference Board said.

The HR processes and services that outsourcers provide to government organizations include payroll and benefits processing; Web sites and call centers, vendor management, HR process redesign, service delivery strategy, staffing and recruitment, data issues, performance benchmarking, and designing and building IT infrastructure.

-- WebCPA staff

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