According to Gartner, 47 percent of HR managers are currently planning to increase their HR budgets in view of the economic pressure, supply bottlenecks and scarce talent.

In such a situation, a number of board members like to ask: “What’s in it for me?” In other words: What do these investments in HR bring to the company and its workforce? With questions like these, decision-makers continue to hit HR’s Achilles heel. There, people usually still prefer to talk in general terms about new work, recruiting, and personnel development rather than specifically about value proposition, cause-and-effect relationships, and evidence-based action.

Fortunately, both “poles” are among my interlocutors. So, I understand both points of view and can sometimes “build bridges”.

In the first part of my two-part blog post, I therefore deal with the following questions:

  • What are the current preferences of business leaders?
  • What balancing act is derived from this for HR?

What are the current preferences of business leaders?

Chief executives are not to be envied:

  • They are dealing with changing customer preferences, regulatory changes, skills shortages and technological innovations.
  • In addition, there is the transition to new energy sources and the review or adaptation of supply chains.

With regard to question 2, HR, I would like to highlight the following preferences:

  • Business leaders take action to boost revenue growth and – often in parallel – reduce costs.
  • According to a recent PwC survey, only 19 percent are imposing a hiring freeze and 16 percent are reducing headcount.
  • Even with deteriorating economic conditions, keeping employees happy, engaged and committed to the company will be key.

What balancing act is derived from this for HR?

You have probably already noticed the balancing act or known it from your own experience: Cost reduction on the one hand and revenue growth through investments on the other.

The following framework conditions must be taken into account: declining well-being in the workforce, changing expectations of employees, strong competition for talent, delays in digital transformation, and sometimes overwhelmed managers in hybrid working models.

Long-term studies by Gartner have shown that a combination of cost savings and investments leads to higher average revenue growth than pure cost savings. Which specific measures can be considered for a combination?

Cost savings in HR

The most common cost savings in HR include:

  • Improve processes by extending the use of HR technology (“rethink”),
  • Leverage new emerging HR technologies, such as ChatGPT (“rethink”),
  • Transform the HR operating model or run an HR transformation (“rethink”),
  • Reallocate capacities to high prioritized HR services (“replace”),
  • Transfer more tasks to external providers through offshoring or outsourcing (“replace”),
  • Reduce HR service delivery to the business (“reduce”).

A number of HR benchmarks can provide orientation here. I won’t go into that at this point. Do you have any questions? Feel free to formulate them in a short comment at the end of the blog post.

Investments in HR

Significantly more CHROs are currently investing in the topic of people analytics than about 12 months ago in order to justify investments and evaluate the benefits. Three subject areas are in the foreground: recruiting, personnel development, and engagement/retention. Interestingly, these are also the three most important fields of action derived from strategic workforce planning.

In this article, I go into current recruiting strategies; I will outline the other topics in the second part of my two-part blog post:

  1. Evidence-Based Recruiting (EBR): EBR relies on data-based insights and derived criteria, which can be used to predict the success of a hire (quality of hire). While there is no one-size-fits-all approach, EBR is far more effective than traditional gut feeling. For more in-depth information, I recommend the article by Kevin Wheeler.
  2. Valid Selection Process: Evidence also shows that work samples, cognitive ability tests, and structured interviews are among the most informative hiring factors. Factors such as age or years of education are among the worst predictors of job performance.
  3. Competency-based approach: Essential statements on this approach can be found in the article “Flexibility affects competency strategy”. As competencies and skills become more important, pure education diminishes as a measure of success! For a more in-depth look, I recommend the HBR article by Colleen Ammerman, Boris Groysberg and Ginni Rometty on the skills-first approach.
  4. Incorporating AI: The pros and cons of AI in recruiting have already been laid out. If you take these into account, AI can contribute significantly to the effectiveness of the recruiting process. I recommend the article by Elisabeth K. Kelan for more in-depth information.
  5. Role of the Employer Value Proposition (EVP): Numerous CHROs have already integrated EVP, recruiting and onboarding into an end-to-end process and differentiated according to personas. I believe a digitally mature brand that is highly visible and easy to understand on job portals is essential to attract talent.

Conclusion

Based on the preferences outlined in the blog post, numerous CEOs have decided to spend more time developing the company and its strategy and to make clear announcements to HR in order to meet future requirements.

A high proportion of the resources available in so-called competence centers are therefore currently focused on automation, training and the use of advanced technologies. About 60 percent of this share goes into redesigning the company for the future and about 40 percent into maintaining the current business.

Profound changes throughout the company can therefore be expected in the next few years. These are only possible if employees adapt and develop at all levels. In addition, the ability to collaborate across company boundaries is becoming increasingly important.

Is HR succeeding in the balancing act? With regard to recruiting, there are already numerous approaches that are encouraging. In essence, this balancing act succeeds through a procedure that is differentiated according to personas, but is largely standardized and highly automated. Selection processes based on the evidence obtained are often no longer recognizable – in terms of content and technology.