How to Balance HR Cost Savings and Talent Investments in 2023 | Gartner

HR Effectiveness

This new Gartner article offers various insights for HR leaders seeking to balance cost optimization and targeted talent investments. The article highlights three common approaches that HR leaders use for this process. 1) Reduce. This approach involves decreasing the number of processes, tools, or services, reducing service levels, canceling or postponing projects, and implementing headcount reductions. 2) Replace. For this approach, HR leaders seek less expensive or more efficient alternatives to current spending (e.g., renegotiating terms with external vendors, moving transactional tasks to shared services teams, outsourcing, etc.). 3) Rethink. Rethinking spending is a more complex process that often requires thorough evaluation and upfront investments (e.g., redesigning the HR operating model, standardizing and centralizing processes, and implementing technology solutions). According to a survey of HR leaders, most of them are employing “rethinking” and “replacing” strategies in 2023 to achieve greater efficiency (see Figure 3). These strategies are primarily executed through technology adoption, operating model revamping, and task delegation to shared services or outsourcing. Regarding HR efficiency benchmarks, the average HR function typically spends $2,524 per employee annually. Additionally, the average HR function employs 1 HR full-time employee (FTE) per 57 FTE employees in the organization. And among different HR activities, staffing and recruiting receive the most significant allocations, with a median spend of $425 per employee (refer to Figure 4 for a breakdown of HR spend by activity area). While benchmarks have limitations due to factors such as industry and HR function maturity, HR leaders can use these insights to identify opportunities for cost reduction and increased efficiency while preserving critical talent investments.