· 4 min read · Features

HR budgets - Challenge of doing more with less

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While one survey shows HR job vacancies rising faster than in any other sector, another finds HRDs worried that budget cuts will limit their ability to invest in HR and talent. By David Woods.

It is no wonder HR professionals are being left bemused about whether an economic recovery is really here, when all they read is contradictory evidence from one day to the next. Last month there appeared to be some light at the end of the tunnel when Monster's Recruitment Index found HR job vacancies grew by 8% between November and December 2009 - a rise that is now a 10-month high. Not only this, but the number of HR job vacancies has grown faster than in any other sector.

The crash down to earth, however, came from another survey, by talent management company Taleo, which found that although HR directors see supporting and sustaining their business's leadership as their main focus for the rest of the year, they are worried their ability to meet these challenges will be compromised by ever dwindling budgets.

Focus on succession planning

According to the Taleo survey, the top three-ranked challenges for 2010 were succession planning, employee retention and providing leadership with better management information and reporting. But despite there being signs that the economic turmoil of the last year is improving, with 50% of respondents not anticipating any change in budget, more HRDs still expect their budgets to be reduced this year (32%) than to be increased (18%).

So what should HR directors do? Bite the bullet and get on with their jobs on reduced finances or invest more money into the HR function?

Tom Redman, professor of human resource management at Durham Business School, says: "There are more than 100 studies showing HR positively impacts the bottom line and improves performance. No recession will make this go away. But I can't help thinking that if CEOs genuinely believed this they would not cut HR spend." He adds: "The fact spend is being cut says something about management values - their core values are deeply embedded, they don't always appreciate HR and, in some cases, make irrational decisions."

Richard Crouch (pictured), HR director of Somerset County Council and lead officer for organisation development and leadership at the Public Sector People Managers Association, says: "I can't actually believe 50% of HR directors expect their budgets to stay the same. They clearly need to get their heads out of the sand. Over the next two years we are expecting cuts across the board of 30%. It is crazy to pump money into HR now. Employers should be supporting the front line."

But he adds: "I think my department is already reasonably well invested. We have some great policies in place and we are able to support the organisation without budget. We have been able to save £2 million just by axeing annual appraisals in favour of encouraging our managers to talk to staff on a regular basis. Not one member of staff has complained about this and we have been able to implement a new SAP system with the savings."

Donna Miller, HR director at Enterprise Rent-A-Car, says HR can do more with less; only then can they use this to justify more budget. She is reaping the rewards of her team's hard work with a reduced budget in 2009: "In 2009 we took the chance to reprioritise what we wanted to accomplish and we proved our worth. A potentially bad year turned into a great year for us because we partnered with our operations departments, upped the ante and proved our worth." She now tells HR magazine: "My budget for 2010 has been increased and we are investing in recruitment advertising and branding. If we can increase staff retention, the money always goes to the bottom line."

Chris Phillips, vice president at Taleo, suggests there is a need for HRDs to be more imaginative. "While I think organisations need to invest in HR, there are ways HR departments can be creative with their budgets. Employers in the retail sector are constantly recruiting - why would they waste money on recruitment drives, when they can save money recruiting online?"

Afam Ituma, lecturer in HR management at Brunel Business School, is positive about the future for the HR industry. "There is a need for an HR mind-shift," he says. "Some managers are still ignorant about the strategic role HR can play. There is a time lag in budget, but if HR can articulate a strategy in 2010 and show its value in quantifiable change in 2010, there is a greater chance it will see its budgets increase in 2011."

And Jane Sunley, managing director of Talent Toolbox, added: "Prior to owning my talent management business, I ran a recruitment consultancy. This gave me the 'inside track' on a wide variety of businesses. A key observation was that in the recession of the early '90s, leadership development was severely cut and years later we suffered dire consequences. We ran some research in 2001 which showed that up to three quarters of middle management had been 'let loose' on the workforce with little or no formal development.

"I believe employers have a duty to both managers and the people they lead to provide good leadership development and it is false economy not to do it. You wouldn't let an unqualified techie loose on your IT so why do it on the all important 'commodity'; your people.

"Businesses need to be in A1 condition as we come out of the recession and good leadership is vital - at all levels.
It's not all about expensive training courses though. I'm a huge fan of mentoring schemes. These can be set up for a relatively low investment -to train mentors and organise logistics- and can achieve fantastic results. Another low cost option would be for organistions to promote self study and make available a leadership library. People can learn from project work; shadowing; job swaps and personal challenges such as orgainising a charity or community project - so it's time to get creative. Otherwise in five years from now businesses will be counting the cost."