Departmental budgets may be about to perform a spectacular nosedive, but at least one senior HR professional – Deb Clarke, joint HR director at Tower Hamlets Council and Primary Care Trust (PCT) – managed to deliver a significant spending reduction last year, well before the credit crunch took hold.
By bringing in a series of cost efficiencies around transactional processes, Clarke has already slashed her 2009 departmental budget by 5%, and she hopes that more savings will follow.
“By launching a dedicated talent website, for example, and by reducing our dependence on consultants and recruitment agencies, we have already achieved significant savings without sacrificing any aspect of service delivery,” she says. “We have every hope that the push for greater efficiency will now continue.”
When it comes to Tower Hamlets‘ hefty £1bn annual spend overall, together with another £500m for the PCT, every little helps. Elsewhere in the HR community though, it’s the drive to save jobs – partly by sacrificing less important spending priorities – that is currently furrowing brows.
“I’m afraid HR budgets will most certainly be cut this year,” says Donna Miller, European HR director at Enterprise Rent-A-Car.
“While employers are doing their absolute best to make redundancies a last resort, I have already heard of many companies implementing an hour’s decrease in staff contracts – either across the board or in a range of particular targeted roles – and I imagine it will get worse before it gets better.”
Focus
Rather more bullish is retailer John Lewis, which despite sharing the collective woes of the entire retail sector in 2008, will not be taking any pre-emptive action on budgets this year.
“Our HR budget for 2009 and beyond is focused on three strategic partner imperatives: development, high performance and fulfilment, and we are not looking to make any short–term reactive cuts in light of recent economic events,” says Vicky Denning, head of personnel and organisational development.
Although it would be tempting to cut back on 2009 training and development budgets, perhaps concentrating more on keeping people in work than on grooming them for the future, most HR directors believe the downturn will require significantly more investment in people, not less.
“We’re watching our spend very carefully, of course, and making sure we prioritise those things most useful to the business in 2009,” says Tim Payne, head of HR at professional services firmKPMG. “But while we’ll spend less in some areas, we will continue to invest in strategic priority items such as talent management and mobility.“
Recruitment spend
With graduates continuing to be “the life-blood of the firm,” he says spending in this area will be protected. In contrast, he adds, “experienced hire recruitment will be restricted to strategic hires only while the economy is depressed“.
KPMG’s focus on young blood is echoed by Miller. “The key priorities this year will be recruitment, development and retention. At Enterprise we promote strictly from within, so if we don’t keep our graduate pipeline open, we won’t have people ready to go when positions become available.
“I would say that developing and then hanging on to employees will also be critical this year, and will bring the area of rewards and benefits to the fore.”
Alex Rickard is HR director at private and corporate wealth consultancy Towry Law. She argues that in most industries “recruitment will fall this year, mostly as a bid to stave off the alternative, which is inevitably a full programme of restructuring“.
But there is another reason why recruitment budgets will dwindle.
“I think recruitment budgets are likely to fall, but a lot of this is down to the slow decline in press recruitment and agency costs as a whole,” says Clarke.
“The big ad in the Sunday Times has only limited shelf-life nowadays, and many HR professionals are becoming far more interested in understanding and exploiting the possibilities of online technology,” she adds.
Miller also sees a more overt shift in the balance of power between print and web-based recruitment in 2009. “This may well be the year that print advertising takes a big tumble,” she says. “Print has always been one of the things that employers just do, mostly because they have always done it, and this attitude will have to change.”
“Online advertising is trackable, gives you good understanding of your return on investment, and allows you to score some brownie points with finance.”
Whether or not recruitment budgets fall or are re-routed, it will be the job of all organisations to explain the implications of the numbers, says Rickard.
While she predicts that “all budgets in all industries will be cut or remain the same this year,” she believes that communication will supersede rewards and benefits to become a top issue for HR.
“Given that none of us have ever been through such turbulent times before, we need to put into context what we see happening in the world around us and understand how this affects day-to-day life. We need to be able to tell staff what all this means for them,” she says.
Tower Hamlets
With both the 2012 London Olympics and the woebegone Canary Wharf banking community firmly on its doorstep, the eyes of the world will be focused on developments in Tower Hamlets this year. What are they likely to see in terms of workforce planning?
“In this borough, we currently have both the highest average annual UK salary at about £72,000, and one of the highest numbers of families – some 250,000 – living on a total annual income of just £15,000,” says Clarke.“While training and development will continue to be an essential for us, all our work is underpinned by the desire to overcome the health, income and skills inequality of the people who live in this borough.”
Although Clarke maintains that staff at Tower Hamlets don’t have parties and therefore HR can’t ban them, the list of employers now scaling back on staff parties is growing. What other ‘nice-to-haves‘ will disappear?
“In addition to salaries, training and development is an easy line item to slash, as is anything not directly related to the bottom line,” says Miller.
“We saw many Christmas parties take a tumble last year, and other expenses, such as employee entertainment, meetings and travel budgets, are next on the chopping block.”
Finance department
No discussion of budgets would be complete without the mention of the finance department. With prudent budgeting likely to take centre stage in most organisations this year, the sometimes love/hate relationship between HR and finance directors is about to get a lot more personal.
For Payne, who stresses that HR “always needs to work with finance,” the most interesting metrics are those that span the two disciplines particularly, he says, something like profitperfull-time employee – a key focus for KPMG‘s attention this year.
At Towry Law, the relationship between HR and finance is a little less statistical.
“It has to be a partnership to make the best decisions for your company,” says Rickard. “While it’s easy to look at the numbers in isolation, the challenge is making the right commercial decisions with people at the forefront.”
But whether your finance department is cool or cuddly, getting closer to it is the only option.
“Many HR people’s downfall is that they don’t understand enough about the business to make them credible to other departments and especially to operations,” says Miller.“The more HR can understand the line items on the income and expense reports, the better they can partner with the business and come up with win-win solutions for everybody.”
Top tips on brilliant budgets
“The best way to manage HR budgets effectively is to have absolute clarity on what the priorities are, who has responsibility for each budget line, and who has overall accountability for sign-off.
“If you can create the right control environment, and couple this with a climate where people are as careful at spending their budget as they would be with their own money, you will have a good basis for success.”
Tim Payne, KPMG
“Make the most of technology and investigate more sophisticated online recruitment tools.
“Use methodology around continual process improvement (Six Sigma) to help squeeze the pips out of processes.
“Use fewer consultants and agencies and make your core HR function as self-reliant as possible.”
Deb Clarke, Tower Hamlets
“The finance team are the experts in budgeting. Work closely with them and use them for any training you may need.
“Be aware that each organisation has its own way of budgeting – it’s important you know how it works in your company.”
Alex Rickard, Towry Law
“This is a great time to re-evaluate everything that your HR team is doing, so be open to criticism and don’t get defensive.
“Be prepared to safeguard the programmes that you believe can make a measurable impact on the business and the bottom line.
“Start seeing time with finance as an opportunity, not a liability.
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“Now is the time to show your stuff and provide value to the business.”
Donna Miller, Enterprise
