The Economy Has Picked Up, But Have HR Budgets?

It’s become a common rallying cry among human resources professionals: budgets are finally starting to come back — meaning HR services shelved during the recession are poised to return.

As it turns out, that may not be the case for every company. A study by human resources research and consulting firm The Hackett Group found that HR operating budgets are projected to decrease by about 0.8 percent from 2012 to 2013.

Furthermore, staffing levels among HR departments are also projected to decline by almost 2 percent in 2013, according to the study, which surveyed roughly 200 executives across functions, according to Harry Osle, the firm’s HR practice leader.

Osle said many executives he has spoken with across the C-suite have reported a “holding the line” mentality on functional budgets. Many are waiting to see how the economy shakes off the rust from the turbulent years following the financial crisis. High levels of economic volatility are also causing executives to hold back when it comes to investment, Osle said.

Meanwhile, the shifting business environment is likely contributing to the budget projections. As the economy trots along, Osle said most companies are unlikely to experience much of a top-line increase in terms of revenue. Therefore, executives are maximizing operational efficiencies with the hope that once-squeezed margins will loosen and increase profits.

What does this mean for HR?

In addition to the study’s budgetary finding, it projects HR’s functional borders will continue to come down, in turn promoting the adoption of cross-enterprise “process ownership” in areas such as payroll and self-service employee data maintenance like information technology.

“I think what’s going to happen is you’re going to have a much thinner HR organization that is much more focused around the human capital information side,” Osle said.

Things like compensation and benefits — areas largely imbued in the financial outlook of an organization — could very likely become part of a corporation’s finance function, Osle said.

The Hackett Group study also surveyed executives to identify the top issues for HR for the rest of 2013.

Nearly 80 percent of the executives cited improving talent management capabilities as the top HR issue. Adapting talent management strategy and process to conform to the changing business environment and improving the quality of HR data analysis in decision-making rounded out the top three.

Interestingly, coping with the complexities of the soon-to-be-implemented health care regulations ranked last among HR executives’ top priorities — just 16 percent reported it as a top HR issue, the study said.

Among HR executives’ priorities when it comes to organizational learning and development, formal leadership development programs topped the list, with 92 percent of executives surveyed citing it as the top priority.

Expanding succession planning and increasing the use of blended learning to complement classroom experience rounded out the top three learning and development priorities, according to the study.

Frank Kalman is an associate editor with Talent Management magazine. He can be reached at fkalman@talentmgt.com.