Is your business investing enough in HR?

Did your organization reduce your HR budget in 2014? If so, you are bucking the trend, as a recent report has confirmed that spending on human resources increased significantly across US-based organizations last year.

In this three-part series, I’ll profile the findings of a recent study from Bersin by Deloitte as a way of examining HR budgets. By assessing the role HR plays in the midst of growing pressures for organizations, it may be time to revisit your HR budget or identify ways to make your department even more productive.

What are the trends in HR spending? 

In the U.S., the average organization grew its HR budget to $2,936 per employee in 2014 – an increase of 4 per cent over 2013 results, according to Bersin by Deloitte’s HR Factbook 2015: Benchmarks and Trends for U.S. Organizations.

Why boost HR spend? Research from CEB Global revealed that the average enterprise needs to improve the performance of its workforce by 27 percent to achieve its goals. At the same time, HR departments may require additional resources to develop a high-performance workforce: CEB also noted that 50 percent of HR managers aren’t confident in their current programs and recruiters have 33 percent more applications to sift through, even though the overall quality of the candidate pool hasn’t risen.

In Australia, enterprises facing tighter margins and an aging workforce are also looking for ways to optimize their talent base. In this vein, The Chapman Consulting Group noted that Australian organizations are under greater pressure to show greater ROI for their investment in employees. That means they require better talent management strategies and tools to help them train more effectively, in addition to attracting and retaining the staff who make the most impact on their bottom line.

So will greater investment help? There’s some evidence to that effect. Bersin’s report showed that HR spending correlated to HR maturity, with those organizations that had “business-integrated” HR teams spending nearly twice as much as those driven by compliance ($4,434/employee vs. $2,112/employee). Meanwhile, level 2 (“fundamental”) and level 3 (“strategic”) organizations averaged $2,572/employee and $3,809/employee, respectively.

These results offer some indication as to the significant return on investment organizations can achieve when increasing spending on HR – namely, improved employee engagement, reduced turnover and better customer service.

Why your organization should invest more in HR

As for specific results, Bersin’s report showed that organizations in the fourth level of HR spending achieved voluntary turnover three percentage points lower than those in level one in 2014 (11 percent vs. 8 percent).

“These organizations typically invest more in HR programs and services, and the investment pays off in better talent outcomes,” said Karen O’Leanard, Bersin by Deloitte’s vice president of benchmarking and analytics research.

Although this particular study examined U.S.-based organizations, they offer an important lesson to organizations the world over – including those in Australia – about the value of intelligent HR spending.

Pursuing intelligent HR investment

Simply dedicating money towards the HR department is obviously not the answer to any employee engagement or retention issue. CEB observed, for instance, that of the $145 billion put toward training programs, under 50 percent of those investments result in ‘tangible’ returns. For all HR activities, careful strategic planning and alignment of talent management initiatives with organizational goals is essential to achieving long-term results.

However, organizations that invest in their employees through HR spending are able to allocate more resources in terms of opportunities for development, mentorship and assessment – and with the right strategy and tools, this support can really make a difference. For example, HR departments with the financial resources to invest in advanced talent management, talent analytics and performance management software can benefit through greater productivity and improved strategic decision making.

Of course, securing investment for your HR initiatives requires executive buy-in. In the next two parts of this series, I’ll take a closer look at the specific HR needs of particular sectors in more detail, and then focus on how you can secure the funding you require for your programs.