By Rachele Arnett
Jul. 29, 2009
As HR functions adapt to the current economic climate, there are three proactive approaches they can take to cut costs, improve performance and contribute to organizational recovery:
1. Benchmark to identify opportunities for cost savings in HR and take advantage of “quick wins.”
2. Serve as evangelists for their organizations.
3. Take proactive steps to help position their organizations for when the economy recovers.
APQC recommends that HR functions try a combination of all three approaches in order for an organization to regain control and stop feeling helpless.
Benchmark to identify potential HR cost savings
The same pressures that make recessions so challenging also make them ideal times to reassess and recharge. One of the most useful assessment exercises that HR organizations can undertake in the current climate is benchmarking. Ideally, benchmarking occurs on an annual basis and is embedded within the strategy-setting process, enabling organizations to determine their top priorities for change and improvement in the coming year. However, benchmarking is also an effective way to pinpoint potential cost savings in response to market pressures. If an HR organization has not yet participated in a benchmarking exercise, now is the perfect time.
When an organization compares its HR key performance indicators (cost, productivity, efficiency and cycle time) and practices internally across divisions and business units (internal benchmarking) and also externally both within and outside its industry, the results can expose “quick wins”—practices that that may be relatively inexpensive and easy to implement. In this manner, benchmarking can help HR prioritize opportunities and get the most out of limited resources. Of course, benchmarking can also reveal large-scale opportunities for potential cost savings, which may require a substantial initial investment in order to come to fruition.
Internal benchmarking provides comparative insights into internal business operations and is often a good starting point for distributed HR functions to understand internal performance and uncover internal HR “best practices” that can be replicated across the enterprise. The Open Standard Benchmarking Collaborative is another benchmarking resource that participants can access at no cost to obtain holistic process benchmarking reports for each key human resources process group across the human capital management life cycle. Participants in these benchmarking exercises then evaluate the results to flag improvement areas, set process improvement goals and identify action items.
After conducting a high-level analysis of its benchmarking database, APQC has identified the following three practices as most likely to correlate with lower overall HR process costs. Not all of these practices can be considered “quick wins,” but each can contribute to significant cost savings over the long run. Even if your organization is not in a position to implement all these practices immediately, we encourage you to keep them in mind as you contemplate future HR process improvement efforts.
Create a standard set of HR performance metrics that is aligned with organizational strategic objectives. According to Open Standard Benchmarking Collaborative research, organizations that maintain standard HR performance metrics that are aligned with strategic objectives achieve, at the median level, a 12 percent lower cost differential per $1,000 revenue and a 9 percent lower cost differential per employee than organizations that lack such strategically aligned performance metrics (Figure 1; click on graph to enlarge).
Reduce unwanted turnover. It should really be no surprise that, as turnover within an organization increases, the mean cost of HR increases as well (Figure 2; click graph to enlarge). Turnover directly affects most areas within HR.
Leverage automation for HR. The collaborative’s data also show that organizations leveraging automated human resource information systems achieve higher productivities and efficiencies, while incurring lower HR costs, than organizations relying on more manual technologies (Figure 3; click on graph to enlarge).
Serve as an evangelist
During a recession, HR can serve as the “voice of the company” to provide training and coaching to employees, helping them adapt to a work culture characterized by cost cutting and change. Change management is a critical activity during any type of organizational restructuring. HR can play an important role in keeping employees informed about the financial status of the company—past, current and future. Often, communicating with employees can go a long way toward alleviating fear.
A divisional vice president of HR at a Fortune 500 pharmaceutical company noted that a challenging economic time can position HR to be an evangelist of key messages to the organization. In the case of the pharmaceutical company, that message was “stewardship.” Despite a record year in 2008, the VP said, the organization needed to manage both its spending and employees’ fears of layoffs—without making them complacent:
“The good news is we are not cutting programs, but that is because we are showing that stewardship. We need to provide an objective, calm message, but with a little ‘scare,’ to emphasize to employees that they should not get too comfortable.”
HR can also serve as the catalyst and owner for change-management training. For example, one senior employee and organizational development specialist at a Fortune 100 petroleum company recently led a session for managers on cost-cutting and change management. A primary goal of the session was to teach participants how to shift their thinking from one of unlimited budgets to one characterized by cost constraints, at least in the short term.
If HR is in charge of the employee communication function, it can continue to publish positive, uplifting employee and organizational success stories to help transform the organizational psyche from one of fear and disenchantment to one of optimism and confidence. It can also partner with the internal communications group, if that is the function that manages employee communication. HR can work with internal communications to provide employees with a sense of security (balanced by realism) to facilitate open communication and to keep morale high.
Help position the organization for recovery
Finally, there are things that HR can do right now to help position the organization for recovery. Many of these are perennial, but take on particular relevance in today’s recessionary environment. During recent APQC “voice of customer” phone interviews, HR practitioners cited the following practices as important steps that HR can take to ensure that the organization is in the best possible position when the economy improves.
1. Monitor employee engagement and keep levels high. The Society for Human Resource Management has compiled historic data indicating that turnover typically spikes directly after a recession. This is likely due to disengaged employees simply biding their time until the economy is better and the opportunity to “jump ship” presents itself. The first step in keeping employees engaged and reducing unwanted turnover is to mine past employee satisfaction and engagement surveys and find out what it is that keeps employees engaged. Based on this feedback, organizations should selectively choose to implement (or continue to implement) initiatives that are feasible, given cost cutbacks. Employee engagement efforts do not have to be expensive in order to be successful. For example, a simple employee recognition program (one that is nonmonetary, but in which senior leadership provides the recognition) may be part of the equation. Another possibility might be implementing flexible work arrangements—surprisingly, only 35 percent of survey participants offer these. Such programs do not necessarily cost the organization money to implement, and they may significantly increase employee satisfaction. If possible, it is a good idea for organizations to continue to invest in employee training and development; such investments are a visible demonstration to employees that they are valued. In summary, in the words of the director of talent acquisition at a large insurance organization, “We need make sure we stay fresh around recruiting, employee engagement and retention” in these challenging times.
2. Develop strategies now to retain top performers. Amazingly, almost half the organizations represented in the Open Standard Benchmarking Collaborative database have no formal retention strategies in place for key talent. The director of HR at a large aerospace company explains the importance of employee retention in the current climate this way: “For us, [the issue] is ensuring that we retain our critical skills so that, when the environment gets better, we are not doing this massive hiring.” To ensure that talented new hires do not fall through the cracks, HR organizations should consider implementing low-cost mentoring programs that involve face time with senior leadership. Such programs are an effective way to keep new hires engaged and encourage them to stay with the organization for the foreseeable future. In addition, if HR organizations are not doing so already, we suggest that they start mining information gleaned from employee exit surveys and feeding that information back to those who can act on it. Although such efforts require only a minimal investment, they can be instrumental in reducing unwanted turnover over the long term.
3. “Keep your house in order,” but also consider providing value-added services. HR should continue to keep basic human resources processes rolling smoothly, even though activity levels may have dropped off. For example, continuing to cultivate sourcing relationships and the employment brand are crucial activities during a recession. Once the recession lifts, recruiting functions will need to get back in the game quickly to ensure that organizations have the talent they need to fuel growth strategies. In the interim, while recruiting and staffing activity is low at many organizations, the recruiting and staffing function may consider taking on additional, value-added activities to help position the organization for recovery. For example, the director of talent acquisition at a large conglomerate describes her plans: “I am looking at value-added services, like taking on a workforce planning function, onboarding and exit management to broaden my organization when things are slow. … I think my focus is cleaning up internally (getting our house in order, creating strong processes, having messaging), so that when things turn around, we are ready to go with it.”
In summary, even during a recession, when many macroeconomic factors may be out of HR’s control, HR functions are in charge of their own destinies. By benchmarking to identify potential cost savings and capitalize on “quick wins,” serving as the voice of the company to help employees cope with change and putting solid plans in place for the future, HR can help the organization weather the economic storm and come out ahead of the competition.
Study background, scope and methodology
HR benchmarking data for this article was sourced from APQC’s Open Standards Benchmarking Collaborative research and from qualitative “voice of the customer” interviews conducted in early 2009. IBM and Workforce Management have partnered with APQC over the years to collect data for the collaborative’s research. For more information on Open Standard Benchmarking Collaborative human capital benchmarking, visit www.apqc.org/hcm. Participants submit data online; APQC then validates the data with participants and each participant receives a complimentary, personalized benchmarking report. All data is kept confidential by APQC in accordance with its Benchmarking Code of Conduct.
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