Good morning!
Today’s HR heads are balancing a lot. They’ve been asked to secure highly skilled talent, upskill and reskill employees, and upfit digital infrastructure with shrinking budgets.
How much money companies are willing to allocate to HR needs has declined over the past year. A recent report from management consulting firm Gartner finds that 25% of 2023 HR budgets decreased, compared to 12% in 2022. Twenty-eight percent of leaders say their budgets have remained stagnant year over year. Despite this drop in financial investment, expectations for HR heads are still high. A separate Garner survey of senior business executives found that CEOs prioritize the workforce and technology. That puts HR leaders in a tough predicament, where they’ll have to be strategic about how they, in turn, divvy up more modest budgets.
Seyda Berger-Böcker, a director at Gartner and one of the report’s authors, says HR heads should prioritize technology and recruiting because they’re the two biggest growth drivers in most organizations. To do so, CHROs will have to balance costs in three ways:
Reduce. Reduction doesn’t mean cutting headcount. Rather, it could be a reduction of processes, tools, or services. Employers should also consider what projects they can cancel or postpone for now. Reducing headcount should be a last resort.
Replace. Now is an optimum time to reconsider and renegotiate terms with external vendors. Reevaluate what tasks to bring in-house at a lower cost and what processes make more financial sense to outsource altogether.
Rethink. Take a step back and look at HR spend in its entirety. Perhaps you need an upfront investment in one area to reduce costs later or in another sphere. One example is redesigning your HR operating model or investing in new technology to automate processes that might have once consumed a large portion of your team’s time.
Tangentially, and to the detriment of employers, talent analytics is the top resource HR leaders most frequently underinvest in when cutting costs, Berger-Böcker says. Gartner’s latest benchmarking data finds only 2.5% of HR budgets are allocated toward talent analytics tools.
“Without an understanding of what data to focus on and the skills to understand and interpret the data, HR employees will not be able to effectively guide the decision-making of business stakeholders,” she says.
Amber Burton
amber.burton@fortune.com
@amberbburton
Reporter's Notebook
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Around the Table
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Watercooler
Everything you need to know from Fortune.
Managing mental health. More companies are saddling managers with caring for direct reports’ mental health as the line between work and home blurs. —Paige McGlauflin
Short on soft skills. The Big Four consulting firms are training Gen Z workers in soft skills like teamwork, presentations, and effective face-to-face communication after much of the cohort missed out on office interactions due to pandemic-era lockdowns. —Paolo Confino
RTO confusion. The primary flaw in today’s return-to-office debate is that it lumps together all employees without considering their nuanced situations and experiences. —Steve Mollman
Donating PTO. Some employers allow paid time off donations in which employees are encouraged to give up those days to coworkers who unexpectedly need more. But some say it's the company’s responsibility, not its staff’s, to support employees needing additional support. —Chloe Taylor
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