Becoming a financially resilient HR organization

This blog is part of a blog series around how HR needs to start reimagining their future to thrive in the post COVID-19 world. Click on the button on the right to find the full overview of the blog series.

Businesses around the world continue to cope with the uncertainty around COVID-19 and its growing economic impact. How long will the crisis last? What (lasting) impact will it have on business and work? One certainty, however, is the economic damage that is already visible and far reaching. This provides the role for HR to co-lead their enterprises in becoming more robust and resilient to overcome the economic and financial ramifications of COVID-19.

In doing so, HR leaders are asked to play a challenging double role. On the one hand, they have their traditional role of supporting the business to review and adjust its work, workforce and workplace. On the other hand, they also need to reduce costs within the HR organization and prepare it to run leaner in the near future. This is no easy balance to strike.

To learn more about HR's role in helping the enterprise to reduce workforce costs, please visit our Human Capital Balance Sheet blog post here.

This blog focuses on the second and less familiar of these roles: While organizations often turn to HR to save costs through workforce management, during this time of crisis there is also untapped potential to save costs within the HR function itself. In past crises we have seen HR function cost reductions delayed so that HR could focus on supporting wider workforce transformations. However, given the impact of COVID-19 on businesses and the economy, we expect that HR will need to do both of these things in parallel, and soon.

Where to begin?

The best starting point for an HR cost reduction program is to clearly define what the specific objectives and strategic drivers are for the cost reduction, which will vary from company to company. While the exact mix of strategic drivers varies, you can see the four typical strategic drivers defined in figure 1 below. Before the arrival of COVID-19, the dominant strategic driver was Save to Transform, with savings directed toward investment in new digital technologies. In our new environment, conversations with our clients clearly indicate that Save to Turnaround and Save to Fund drivers are now top of mind for HR leaders.

Undoubtedly, simple target driven cost reduction objectives will be driving many of the upcoming cost reduction initiatives, yet there is a valid aspiration for organizations to also embrace the long term view. Where one HR team might be driven to save in order to turnaround their core business, another might have the opportunity to reduce costs to increase investment in transforming their employee experience technologies. These unique drivers will help guide key decisions including savings targets, the future state vision for the HR organization and the approach for implementation of cost reduction initiatives.

Figure 1: Typical strategic drivers of cost reductions

Where are savings typically found?

HR cost reduction programs frequently include a need to identify and pursue immediate savings. These can include initiatives like freezing recruitment, pausing projects and tightening discretionary spending. These are presented on the left hand side of figure 2 below. With the first COVID-19 crisis responses behind us, we know many organizations have already identified these straight-forward savings opportunities.

As initial crisis responses based on fast, tactical savings initiatives come to an end, the focus will increasingly shift to larger, strategic cost reduction options. These options present HR leaders with an opportunity to fundamentally rethink how their HR organizations (or parts of them) deliver value to the business and to set themselves up for future operational excellence.

There is significant opportunity for HR to create value, as the HR operating expenses typically represent less than 1% of the company’s total value. Even huge efficiency improvements have relatively little impact on stakeholder value and the bottom line. This means that HR must keep its focus on improving the performance in the (rest of the) business.

Deloitte’s HR cost reduction approach addresses both ends of the spectrum; delivering both quick-wins and more complex strategic transformations. Our approach gives clarity and insight on HR’s cost structures, provides actionable recommendations, and leverages digital accelerators to realize these quickly (for example, digital tooling to improve and accelerate recruitment processes).

Figure 2: Examples of quick-wins & structural cost saving opportunities

All the phases of an HR cost reduction program consist of multiple detailed activities, to ensure that nothing is left overseen, to safeguard that the implementation stays within the agreed timelines and to deliver on the expected results. A cost reduction can only be sustainable when clear targets are set per domain and everyone commits to them, and ownership per opportunity/initiative is clear to ensure execution.

What’s next?

COVID-19 has dramatically disrupted our work, our lives and our businesses. However, out of these challenging circumstances HR leaders have a unique opportunity to set their function and organization up for an effective response now and enhanced performance in future. This blog is an invitation to CHROs and their teams to seize the moment and play an important role in making their businesses robust and resilient enough to see off the COVID-19 challenge. Please feel free to reach out to the contacts below to learn more and to determine how HR cost reduction could benefit your organization.

Beyond HR cost management, we know each organization will need its own combination of solutions. This is why we have developed 6 point solutions (see button at the top of the page) for the questions we believe are keeping CHROs awake at night. These are tailored to drive HR’s recovery from the COVID-19 crisis and position it to thrive in our new reality.