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 maintained.
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 increase efficiency?
- 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 future leaders.
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@example.com.