During economic downturns, executives
often turn to human resources for
advice and solutions as companies focus on survival and resort to layoffs and
compensation/benefit reductions. Lessons
from previous recessions show that staff
reductions in particular must be strategic,
requiring HR and senior executives to consider the long-term business ramifications
before recommending cost-cutting moves.
But this recession is ushering in an additional challenge, as HR has also suffered layoffs,
necessitating an internal search for increased
efficiencies and ways to maintain employee
service levels with fewer resources.
“This is an opportune time for HR to get its
own house in order, because HR organizations are shrinking,” says Julie Egbert, SPHR,
senior consultant for the Technology and
Administration Solutions Practice at Watson
Wyatt Worldwide. “Nationwide, we are seeing the numbers of employees serviced by
each HR professional rise, so HR must find
ways to be more productive.”
Smart Business spoke with Egbert about
the multidimensional role of HR in helping
businesses survive the tough economy.
What is HR’s role in developing and executing strategic staff reductions?
HR should suggest reductions that won’t
impact the company’s long-term growth or
ability to rebound when the economy shifts.
During the last recession, companies eliminated entire segments of middle management, thinking those cuts would result in the
largest savings. But when the economy
turned, many companies had lost too much
institutional knowledge and hands-on expertise to capitalize on the improving conditions.
This time, instead of offering across-the-board early retirement options, packages are
being offered strategically and many companies are opting for pay freezes, salary reductions and decreased 401(k) matches to retain
vital employees. HR should also develop an
employee communications strategy that outlines the reasons for the cuts to bolster
morale and engagement, so productivity is
Finally, HR should work one-on-one with
high-potential resources to assure their retention and readiness for future leadership roles.
How is the downturn impacting HR?
HR isn’t exempt from the need to increase
efficiencies and reduce costs because, across
the board, HR organizations are shrinking as
well. Three years ago, the ratio of employees
serviced by each HR representative was 100-to-1, now we’re seeing ratios of 150-to-1 or
200-to-1 and some companies are even pushing toward ratios of 800-to-1 with outsourced
process models and employee self-service
systems. To achieve substantial productivity
increases, HR must review every program
and process to find efficiencies.
Where should HR look for opportunities to
- Review all compensation and benefits
plans. Make sure bonus and benefits expenditures are delivering their intended impact
and ROI. Eliminating underutilized benefit
plans can save hard and soft costs.
- Review existing contracts. Vendor pricing may have changed because of head count
reductions, especially for outsourced payroll
processing or retirement plan administration.
Vendor consolidation, elimination of under-utilized services or negotiating longer-term,
lower annual rates may restore some lost
- Review vendor service level agreements.
If it’s not possible to reduce prices, HR may
be able to negotiate for increased services,
which will reduce administrative burdens
and internal costs, and increase employee
- Review current outsourcing models. HR
may have outsourced portions of some functions, resulting in costly process redundancies, or outsourced entire functions that
could be handled in-house through existing
human resource management systems
(HRMS) technology. Only specific cost-benefit analyses will determine whether complete
functional outsourcing or another HR service
delivery model provides the best value.
Can HR technology yield savings?
Many companies have delayed upgrades,
so they’re seeking savings through better utilization of better technology or outsourcing.
- Consider hosted solutions. Moving to a
hosted HR technology solution could reduce
costs while providing increased functionality.
Volunteering to be a beta test site is another
way to save money and secure free upgrades
from the HR vendor, but that move carries
- Move to employee and manager self-service. Develop a self-service portal or out-source services to third-party suppliers with
online capabilities to maintain service and
employee morale while reducing costs.
- Fully utilize existing technology.
Eliminate unutilized or underutilized HR
technology to gain efficiencies without additional investment. For example, an untapped
talent management program can assist with
succession planning in light of layoffs and
position the company for success once the
economy rebounds by developing a bench of
JULIE EGBERT, SPHR, is a senior consultant for the Technology and Administration Solutions Practice at Watson Wyatt Worldwide.
Reach her at (415)733-4224 or [email protected].