DESPITE improving economic conditions, more than three-quarters of HR departments are under pressure to reduce costs in 2004, but few know how to best measure savings
DESPITE improving economic conditions, more than three-quarters of HR departments are under pressure to reduce costs in 2004, but few know how to best measure savings, according to Hewitt Associates.
A survey of HR professionals at more than 100 major US companies found that 76 per cent are experiencing pressure to cut HR spending. In fact, 84 per cent of HR budgets in 2004 have been reduced or remain the same as 2003. This comes after 80 per cent of HR departments had budget cuts or freezes in 2003.
“Cost pressures on HR are coming primarily from corporate-wide initiatives, which are the result of ongoing company efforts to increase competitiveness,” said Dick Rison, global content leader for HR effectiveness at Hewitt Associates. “Specifically, HR is feeling the greatest pressure to reduce costs in its operating budget and headcount.”
In terms of other cost savings initiatives, the study shows that companies believe they have realised sustained HR savings by increasing the use of/implementing new technologies (61 per cent), redesigning specific HR processes (56 per cent) and developing/expanding benefits-related self-service initiatives (54 per cent).
Organisations also indicate that future savings in HR will come from a greater use of technology (72 per cent) and self-service (70 per cent), as well as process redesign (68 per cent).
Although many HR executives believe they are effective in their cost-savings initiatives, the study found that few actually measure cost-effectiveness and return on investment (ROI) throughout the entire HR function. For example, while 88 per cent of organisations measure health care costs per employee and 77 per cent monitor employee separation rates, only 13 per cent measure the ROI of HR outsourcing. In addition, less than a third (27 per cent) track the ROI for HR technology and only 30 per cent monitor the costs associated with employee turnover.
“We’re seeing the old adage of ‘what gets measured, gets done,’ play out in HR,” said Rison. “If HR continues to monitor costs almost exclusively, it will continue to be asked to cut costs, which may not be the best answer for the company at that particular time.
“However, in measuring ROI and the financial impact of various strategies and tactics, especially relating to technology, we believe HR executives will be better equipped to provide management with tangible solutions.”
