HR uncertain about economic impact on talent and IT investments

While corporate layoffs and budget cutbacks plague today's news, many human resources leaders are hesitant to make drastic changes to their talent or information technology investments until they can get a better sense of where the economy is headed, according to a recent survey conducted by the International Association for Human Resources Information Management (IHRIM).

"Many respondents are cautiously optimistic that the economy will begin recovering early next year, says Lynne Mealy, IHRIM president and CEO.

Mealy presented survey findings during a November IHRIM-hosted webinar on "The Economy and its Impact on HR Technology Spending Plans," at which industry leaders and analysts discussed the current state of affairs.

Nearly 210 company HR leaders, primarily from North America, responded to the survey. Nearly half of the respondents (42.2 per cent) reported their HRIT budgets will remain the same in 2009 as in 2008. Another 20.6 per cent of participants said budgets will increase by an average of 23 per cent, while 37.3 per cent said their budgets will decrease by a median of 15 per cent.

"Companies in a good financial and cash position, should take this opportunity to extend their market share and make long-term investments," says panelist John Greer, senior vice president for HR and development at Smart Financial Credit Union and incoming chair of IHRIM. "Those without as much cash are waiting to see what happens. There is still a lot of uncertainty right now."

Across the board, budgets for software, hardware, outsourced services, staffing costs, and training and development are projected to remain the same as 2008. Thirty per cent of respondents plan to spend the most on software purchases in 2009, followed by outsourced services, staffing, and development (20 per cent each respectively). Conversely, 40 per cent of those surveyed plan to make the most budget cuts in the area of training and professional development.  

"I'm encouraged by the survey findings, but also a bit sceptical," says Lisa Rowan, program director, HR and talent management for IDC. "I am seeing a rush to spend down budgets before year-end. If consumer confidence remains low after the holidays, I believe budgets will be very tight next year." A quick poll of webinar participants revealed that 45 per cent expected to spend all of their 2008 budgets; 23 per cent did not.  
The survey also found that companies making software investments will spend the most on onboarding tools (28 per cent) and benefits management solutions (25 per cent), and less on core HR management systems (12 per cent).

Economic woes are short term
"The talent acquisition and recruiting technology markets are still strong," says John Hinojos, director of consulting services for HRchitect. "Many companies are investing in these solutions because they have a better opportunity today to recruit the best and the brightest. In economic downturns, companies should invest in talent management solutions to keep their key players. I also expect companies will rely more on consultants, who can quickly share their specialized expertise."

Greer agrees, and believes those companies that reduce their training and development budgets, or drastically reduce headcounts, will be making a big mistake.

"This (slumping economy) is a relatively short-term phenomenon that will last six to 18 months," he says. "If companies don't invest in their talent now, their employees will look for those that will. For people working in the technology field, their skills will quickly become out of date. Companies are likely to lose their competitive advantage if they cut development budgets. I am hopeful that companies do not make dramatic headcount reductions until they have a better feel of where economy is going."

IDC’s Rowan concurs, but still expects to see an increase in outsourcing after the first of the year.

"While budgets are being cut, the work still has to be done," she says. "However, I believe more discretionary IT projects will likely be postponed." According to the survey, more than one-third of companies (38 per cent) planned to postpone discretionary projects.

Additionally, the survey found more companies are not investing in new HR information management systems, but instead are purchasing solutions that address core needs.

"Companies are investing in technology that supports core business processes and are looking less at its bells and whistles," Hinojos says. "Price is becoming a bigger issue than before. Most HRIM solutions provide similar functionalities, but more companies are going with the least expensive option."

"I'm already seeing a lot of renegotiation of vendor contracts behind the scenes," Rowan says. "It's becoming a buyer's market."

Build a business case
Before any purchases are made, panelists felt HR leaders had to build a stronger business case to demonstrate how a technology will benefit the entire company as much as it does the HR department. Already, HRIT purchasing decisions are being pushed up higher within companies, according to 44.3 per cent of those surveyed.

When asked what organizations and HRIM professionals can due to weather the economy, panelists suggested working closely with vendors to create a compelling business case for technological investments, and ensure risk and compliance capabilities are adequate to keep up with changing regulations and legislation.

Greer also suggests that companies be realistic with implementation plans and timelines with staffing being cut.

"Continue getting educated on what is going on in industry and the new tools that can benefit your company more broadly," he says. "Eventually, the economy will turn around and you don't want to be behind anyone else."