HR budgets to decline in 2018 as challenges increase, research suggests

6 Mar 2018 By Marianne Calnan

Practitioners must 'develop talent and use resources efficiently', say experts, with staffing down 1 per cent

HR departments’ budgets are expected to decline by 0.7 per cent this year, leaving organisations to develop their capabilities and confront risks in 2018 with reduced HR staffing levels, new strategic research shows.

The Hackett Group’s 2018 key issues study revealed that just shy of half (49 per cent) of HR professionals believe they can reduce their HR operating cost without impairing effectiveness, despite the pace of budgetary decline increasing from 0.2 per cent last year. Staffing is expected to fall by 1 per cent.

For the CHRO Agenda: Enabling Digital Transformation Takes Center Stage report, in late 2017 the intellectual property-based strategic consultancy surveyed 160 HR leaders at large companies with annual revenue of £721m on their strategic priorities and initiatives for 2018. 

Gail Khan, head of HR at Young & Co Brewery, told People Management that HR’s declining budgets have led to “challenging the way we spend allocated budget to ensure we get the best value possible from any investment”.

Around 62 per cent of HR respondents said they wanted to adapt their organisation’s talent management strategy and processes to support the changing needs of businesses. 

Meanwhile, 51 per cent of overall respondents said they endeavour to leverage technology to improve the efficiency and effectiveness of their HR services and boost talent management capabilities this year. 

More than 82 per cent expected digital transformation to fundamentally change their organisation’s operating model, compared to 79 per cent in 2017. And 88 per cent expected it to result in a step-change in performance improvement.

In addition, nine in 10 HR executives said that digital transformation – including social media collaboration and mobile computing – will play a key role in fundamentally changing how HR services are delivered over the next three to five years.  

However, few organisations were prepared for this transformation. Just 40 per cent were confident that they had the resources to execute their digital transformation strategy, and 46 per cent indicated that their company had the necessary resources and skills for such technology.

On the other hand, 56 per cent felt their HR function had developed – and was executing – a digital transformation strategy.

Technology’s continued role in HR and business more widely was seen as an opportunity to reduce costs in the long term and boost productivity. 

Tracey Hudson, South Warwickshire director of The HR Dept, told People Management she believed digital transformation meant companies could constantly create new ideas to help improve what they do and how they do it.

Hudson said: “The more we automate systems, the more cost savings can be made. From an HR perspective… we want to make sure we keep [employees’] skills and knowledge in our business, which means we need to make businesses the best places to work.”

The research found gaps in resources and skills at HR organisations, and shortfalls in HR’s ability to support enterprise goals. 

To help boost productivity levels among HR teams, Khan said developing internal talent played a key role: “Developing staff allows us to use the resources we have more efficiently by engaging existing workforces. Initiatives that support greater employee engagement and good work-life balance can also lead to productivity and efficiency improvements.”

Overall, the top projected risk identified by 75 per cent of respondents for the coming year was cyber and information security, followed by access to critical talent (74 per cent) and intensified competition (69 per cent). 

Regulatory risk featured as a risk for 43 per cent, disruptive innovation for 52 per cent, and IP theft and industrial espionage for 38 per cent. These risks were significantly higher than the previous year.

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