HR
departments are under siege
according
to Towers Perrin
HR departments are under siege, according to the most recent TP Track survey from Towers Perrin.
The survey results bring to light the increasingly tough position of the HR department, which is simultaneously charged with attracting and retaining the very best talent while cutting HR expenditures and reducing the overall staffing costs of the organization.
"In the current economic cycle, HR is often the first to feel the squeeze in financial and other resources," said Cary Sparrow, a Towers Perrin principal who specializes in the design and operation of the HR function and HR service delivery. "And it's easy to shift into a reactive mode and focus purely on cost cutting. But in fact, the strongest companies use tough times as an opportunity to identify a shorter list of key activities that truly create more value for the business, and focus on doing those things really well. An example would be working harder now to keep the company's best talent engaged, in order to forestall the talent flight that often occurs when the economy picks up again and people have more employment choices."
Talent Remains the Chief Concern
Talent is, in fact, a major theme for both organizations and their HR departments as more and more companies recognize the importance of people in achieving their goals and look to HR to help address this need. This came through clearly in the survey results, with nearly 75% of all respondents citing retention of high performers as their number one people-related issue -- even at a time of recession and general layoffs (see Exhibit 1).
"Often it's the nonmonetary aspects of the work environment, such as the quality of management, the possibility of career advancement and the challenging nature of the work that keep individuals engaged and focused," said David Rhodes, a Towers Perrin principal and senior consultant in HR strategy and management. "Unfortunately, these are precisely the areas that typically get short shrift in the kind of down business cycle we have now. Such times require additional discipline and dedication from both HR and senior leadership to commit to building the kind of culture that engages talent and makes top performers feel their contributions are recognized and valued."
A Careful Balancing Act
Even in organizations with the ability and desire to focus on strategic people-related issues, there is growing pressure to cut costs within the function and reduce people-related costs throughout the organization. More than three-quarters of the survey respondents reported that their HR budgets have either dropped or held steady since 2001, with only 22% reporting an increase in overall budget.
However, projections for next year appear somewhat brighter, with the percentage anticipating a drop in their budget declining from 46% to 34% and the percentage anticipating no change increasing from 32% to 41%.
In light of the self-stated concern about retaining talent, it is surprising that the biggest area of decrease in HR spending is staffing, with 38% of the respondents saying they have been spending less in this area since 2001 (see Exhibit 2). One hypothesis is that a number of respondents may have moved to an e-recruiting solution, with the implicit promise that such systems will enhance talent management capabilities at reduced costs.
Bolstering this view is the fact that the biggest area of increase in HR spending is technology. According to the survey, spending on HR information systems and services was up across the entire sample and was the only area where the number reporting an increase in spending (52%) surpassed those reporting no change in spending (33%) -- and far surpassed those reporting a drop in spending (15%) (see Exhibit 2).
"HR departments must spend on technology in order to keep up with upgrades and, more importantly, because it is the only way to achieve efficiency and improve cost management over time," said Sparrow. "In addition, the ability to deliver more and more HR services online and automate an increasing number of administrative activities is the best way to refocus the HR department's priorities and dispel the perception that HR professionals are purely administrators."
Still Searching for that "Seat at the Table"
The perception of HR as out of touch with the business still appears to be a major concern for the profession, according to the survey results. More than half of the HR executives surveyed (57%) agreed that their single biggest internal challenge is shifting the function's focus to help address critical business needs. They also recognize the role technology can play in helping them do that, since an almost equal number (52%) cited implementing HR technologies as the second greatest internal challenge (see Exhibit 3).
"HR has been trying to reinvent itself for more than a decade, but when the economy goes south, support for it quickly takes a back seat to more pressing financial concerns," noted Rhodes. "To the extent HR professionals can prove the value of their function in tangible ways -- and make investment decisions with a full understanding of the actual impact on the business -- it will become easier to reconcile the competing demands of strategic support and cost management.
"While measuring HR service delivery remains more art than science, it is increasingly hard-edged. This is largely due to the prevalence of technology in delivering HR services, which allows the HR function to quantify both its overall investments and the return on those investments. But it's also partly due to growing sophistication in understanding the impact of HR programs and services on employee attitudes and behavior, and adapting ROI tools from other functions to measure things like the link between employee engagement and customer retention. These developments should, over time, make a material difference in how HR is perceived and positions itself within an organization."
About the Survey
This
is the fifth installment in Towers Perrin's TP Track survey
program, which focuses on critical people and HR issues, and
examines their effect on business and financial performance.
Roughly 100 senior HR executives from North America responded
to the survey.
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