Technology   //   October 11, 2022

Amid economic turmoil, HR budgets are under threat

As the specter of a global financial crash looms, businesses are pruning budgets, and human resources departments are first in line for the chop, according to new research by HR software company Personio.

More than half (55%) of HR managers have either had their budgets slashed already, or expect them to be cut in the coming months, according to the report, which surveyed 500 HR professionals and 1,000 workers in the U.K. and Ireland. Fifty-two percent of the respondents said they’re used to their department’s budget being the first to get trimmed when businesses tighten their belts.

But this approach is wrongheaded and will have lasting ramifications, argued Ross Seychell, Personio’s chief people officer. “HR should be even more of a priority now, not less,” he said.

That’s because areas typically within the HR remit — like company culture and employee experience — are more important than ever, as organizations continue to battle to get people into the office and ensure the experience is worthwhile when they do. All at a time when talent retention is just as vital. “We’ve just come out of a period when many employers have thrown everything but the kitchen sink at their people to hang on to them,” said Seychell. “If they are not thoughtful before they rush to scale back efforts now, their teams will realize it was never really about making their business a great place to work.”

Instead, businesses should foster a sustainable, long-term strategy to look after their talent, one that works in both good times and more challenging periods, added Seychell.

Worryingly, Personio’s research found that 58% of HR teams believed their organizations make short-term people strategy decisions. Pete Cooper, the company’s director of people partners and analytics, said: “With 61% of HR managers believing that cutting budgets will negatively affect employees’ motivation and productivity, it’s never been more important for businesses and HR to look long-term.”

After all, a company is nothing without its people. “Continued investment in a positive employee experience will boost productivity and foster a strong company culture, all of which are required to build business resilience in the challenging times ahead,” he added.

Small businesses hit the hardest

Las Vegas-based Mike Bollinger, global vp of strategic initiatives at HR software firm Cornerstone, believed that the HR budget problem is especially challenging for small- to medium-sized enterprises. “Their size often means they can’t allocate entire departments to the task of HR management,” he said. “This can lead to ‘ad hoc’ HR managers, who take on the task of HR in addition to other responsibilities.”

A 2019 study by management services company ADP found that 70% of small businesses with five to 49 employees handled critical HR tasks in an informal, ad hoc way. Typically, a small business owner will assume the role of ad hoc HR manager or delegate duties – top of the list being payroll administration and compliance – to an employee to do so as a secondary function on top of their core job.

“During an economic downturn, there is a huge amount of pressure on these individuals as they deal with their own workloads plus the added stress of managing their company’s people,” said Bollinger.

One of the consequences of slashing HR budgets is that organizations will find it even harder to attract and retain talent, stressed William Jones, managing director of the U.K. and U.S. at COMATCH, an online marketplace for independent management consultants. “The competitive landscape has increasingly meant that businesses had to invest more time and resources to hire smartly, and if budgets are squeezed, this will become even more important,” he said.

"We've just come out of a period when many employers have thrown everything but the kitchen sink at their people to hang on to them. If they are not thoughtful before they rush to scale back efforts now, their teams will realize it was never really about making their business a great place to work." 
Ross Seychell, chief people officer, Personio.

He is braced for a more significant surge in freelancers being hired to fill short-term gaps – a trend that has gained momentum during the pandemic. “Hiring a permanent employee right now means selecting from a smaller pool in which there is fierce competition for candidates,” Jones said. That’s been made clear from the rise in project requests over the past year in the U.K., he added, which have risen by 24%, while the number of projects won by its independent consultants have jumped 108% compared to the previous year.

Tech solutions to improve onboarding and EX

Josh Bersin, global HR research analyst and CEO of The Josh Bersin Company, asserted that investing in technology solutions will help reduce HR costs over time. In particular, no-code and low-code – a process that allows people who don’t have software development skills to produce applications with the bare minimum of manual coding – employee experience software is a game-changer.

“Employees want personalized experiences that save them both time and effort while at work,” said Bersin. “Using low-code technology, HR leaders can edit and update HR-related systems to suit each individual, without the delay and cost of hiring developers.”

Creating those personalized experiences is crucial in 2022, he added. “We’re in an employee market, and if workplace experiences are unsatisfactory, employees will not hesitate to jump ship. So using EX platforms like Applaud that can quickly adapt and scale to meet every need is essential for any HR leader looking to improve their business’s EX.”

Applaud’s CTO and co-founder, Duncan Casemore, presented the business case. “Using HR platforms that offer no-code software enables HR teams to innovate faster, without the delay and high costs of IT and developer dependencies,” he said. “From building bespoke templates for movers and new starters to individual progression plans and well-being initiatives, no-code software streamlines HR responsibilities. As a result, it frees up time, money, and effort on more value-adding tasks, such as recruitment, retention, and overall business growth.” 

Similarly, Bollinger said investing in a human capital management system can help ease workloads. “For one, it offers cost savings,” he said. “And an HCM can free up HR teams’ time to focus on important elements of workforce management, such as onboarding.”

Bollinger pointed to Glassdoor research from 2015 that showed organizations with a strong onboarding process improve new hire retention by 82% and productivity by over 70%. “Getting onboarding right is key, especially in a tough economic climate,” he added.

People and culture

But for those businesses that don’t have the budget to splurge on tech at the moment, what should HR departments prioritize? Debbie Mitchell, HR transformation senior manager at U.K. HR consultancy LACE Partners, said it is best to return to fundamental principles. “Look to some of the simple things that can help build engagement, encourage colleagues to bring their best performance every day, and that ultimately contribute to organizational success,” she said.

If HR professionals concentrate efforts on building the confidence, capability, and commitment of people managers to engage their team members — “through simple, meaningful and authentic conversations, clear expectations and connection to purpose” – productivity gains are attainable without misdirecting limited or strained budgets, Mitchell added.

That connection to purpose is critical, stressed David Liddle, CEO of The TCM Group, a U.K. conflict management, culture change, and leadership development consultancy. “Few can disagree that purpose-led and people-centric organizations are the ones that will more successfully navigate the economic downturn,” he said. “HR managers must prioritize becoming purpose, people and values-led over anything else.”

If budget cuts restrict HR professionals, they should use it as a spur to build a more human organization that moves away from a traditional command-and-control leadership style, argued Liddle.

“HR professionals I work with tell me that they entered the profession to help people become the best versions of themselves,” he said. “Therefore, the thing that will make HR people feel ‘prepared’ to help their business remain resilient in a downturn is a shift away from power, hierarchy and control, and instead moving towards people and culture.”

Meanwhile, the current cost-of-living crisis means employees need the firm support of their employers, said Kate Herbert, head of people and culture at global advertising agency We Are Social. “Mental well-being is a priority and never more so than in difficult times,” she said. “We should consider what challenges our people will face next year and how we can support them in the right way.”

Herbert warned business leaders to think again about cutting HR budgets. “Employees have long memories and expect to work for employers that, even in difficult times, put their people first,” she said.