HR spending drops

Pressure to cut costs makes it difficult for HR to play strategic role
By David Brown
|Canadian HR Reporter|Last Updated: 10/10/2002

Feeling the pressure to do more with less? You’re not alone.

“I am in a bit of a struggle right now with our budget folks who want to cut spending on training by about a third,” said Brenda Hebert, a Manitoba-based civilian manager of HR with 1 Cdn. Air Div. of the Canadian Armed Forces.

The training budget for the 2,300 civilian employees is normally about $700,000 and the finance group is looking at cutting it by about $200,000, said Hebert.

HR departments across North America have been faced with similar predicaments in the last couple of years, according to a new survey of 100 HR executives.

Forty-six per cent of respondents to the study by Towers Perrin had their 2002 budgets cut from last year and another 32 per cent have the same operational budget as 2001. Just 22 per cent reported their budgets increased in 2002.

The good news is there are signs pressures to cut costs will abate slightly in 2003. When asked what it looks like for next year, 34 per cent said they expect to be working with a smaller budget, 41 expect no change and 25 per cent said they will likely be spending more in 2003.

“It is, in fact, a difficult time for the HR function and profession,” states the report

Cost and value: A delicate balancing act for HR

. “Management is demanding more, but providing less in the way of financial and other resources. Cost pressures are forcing many HR departments into a more reactive stance as they struggle to meet the core needs of the business.”

In part, the cuts were recommended at 1 Cdn. Air Div. because HR couldn’t produce the records and documents that explained exactly what training was completed and why, said Hebert.

“They are looking for hard data about who went on training and what are the benefits,” she said. They want hard information about what competencies employees have and what competencies they should have in order to do their jobs effectively. Simply put, with locations and information scattered across the country, HR wasn’t able to produce those kinds of reports, said Hebert, though she is optimistic the decision to cut the budget will be reversed.

“I think I’m gonna win,” she said. When faced with the possibility of training budget cuts, Hebert collected data on spending, both internally and at other departments and in other industries to compare the per employee spending on training. She was able to prove that spending after the proposed cuts would put 1 Cdn. Air Div. well below most organizations and she is confident that will be enough for the budget-makers to revise the decision.

Respondents to the Towers Perrin survey were also asked where they were spending their HR budgets in 2002. By a sizeable margin, increases were most commonly allotted to HR technology.

More than 50 per cent of respondents said they were spending more on technology this year. “What we don’t know is how much of this increase in spending is necessitated by mandated system upgrades versus more strategic and proactive investments to bring HR service delivery to the next level,” states the report.

Meanwhile money was most often taken from the staffing budget.

Almost three-quarters of respondents said retaining high performers was the number one HR challenge, but nearly 40 per cent said they were spending less on staffing in 2002. Many organizations cut expenditures on advertising and for staffing agencies. The authors of the study suggest the move to e-cruiting may explain the considerable drop in spending. “The implicit promise of these systems is enhanced talent management capability at reduced cost,” states the report.

The study also shed light on the ways in which pressures to contain costs are making it more difficult for HR professionals to prove they can add value and play a strategic business role.

Most respondents (57 per cent) said they have not made gains in their push to play a strategic rather than a tactical role. “While the reasons are varied and complex, one key factor, in our view, has been the recession and the need to push cost-cutting above all our goals,” states the report.

HR is stuck in the difficult dilemma of having to spend more money on technology in part to become more efficient but in doing so, they are often spending less on other investments that would help the profession prove its value. For example, few respondents anticipate increased spending on activities such as performance management and HR measurement.

Steve Anderson, vice-president of HR with Kitchener, Ont.-based insurance claim administrators Crawford Adjusters was one of the lucky minority to see his budget increase in 2002, however that doesn’t mean they aren’t still trying to save money. In this case, HR is also saving money by making money.

The budget for HR went up by about three per cent this year but so far the department is running about six per cent under budget, said Anderson.

Travel expenses have been cut slightly while spending on training remained unchanged — in fact, one reason the department is doing so well is that they have turned part of their training group into a revenue producer rather than a cost centre, said Anderson.

Crawford has a sizeable amount of in-house expertise that many smaller operations are willing to pay to tap into it. Three of Crawford’s T&D experts, occasionally drawing on other Crawford subject experts from across the organization, provide training for external clients on aspects of the claims administrator business. Crawford also provides the training at a more competitive rate than other training organizations making their service particularly appealing, said Anderson.

Rather than draining money from the organization, said Anderson, HR is now producing revenue which gets put right back into the HR budget.

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