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Who's Investing in HR

A new survey asks HR professionals about the real worth of human resources in Corporate America.

December 1, 1999
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Related Topics: HR Services and Administration, The HR Profession
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If you want to know what a company believes in you can always read the corporate mission statement posted on the lobby wall. On the other hand, if you want to know what a company truly values you should turn to the balance statement and see where the money is being spent because that, as they say, is really where the rubber meets the road.

In recent months, companies in just about every industry and location have been forced to increase their spending on the people side of the business, and HR has been instrumental in driving and supporting a higher level of investment in areas such as recruiting, retention, learning and performance.

But much of this investment has been reactive versus proactive—a knee-jerk response to the tight labor market and competitive pressures versus a carefully executed strategy. And organizations are only beginning to come to the painful realization that increasing costs in the HR area are anything but a temporary business condition.

As we move into the new millennium, corporate survival will have everything to do with "people issues," and companies will be faced with taking a stand on their long-term commitment to the human side of the business. Organizational talent, capabilities and performance will continue to be the primary competitive weapons a company can wield, and the decisions that are made around investments in this area will undoubtedly shape an organization s future and reputation as an employer for years to come. As always, there will be those who "get it,"—recognizing the need for and value of investing in HR programs and initiatives—and there will be those who don t.

Results of the survey "What s the Investment in HR?" support the fact that although progress is being made, when it comes to embracing the whole of HR, many organizations are still having difficulty "walking the talk". The survey was conducted recently by Workforce in partnership with McLean, Virginia-based Best Software, and drew responses from more than 150 HR professionals who spoke up about the real value placed on HR in Corporate America today.

In the year ahead, companies plan to invest more in HR.
Few would be surprised to learn that companies are in fact spending more to support the people side of the business.

Seventy-three percent of the respondents indicated they re spending more on wages, and report that salary increases exceed cost-of-living raises. Sixty-six percent are spending more on recruiting costs and the majority of respondents expect spending will increase in both of these categories during the next year. This is in keeping with national trends as the Bureau of Labor Statistics (BLS) expects unemployment will remain low for the near future which will likely place continued pressure on companies to increase wages.

One significant area companies are investing in is non-HR specific computer hardware and software (85 percent reported increased spending in these areas), demonstrating the value placed on staying competitive from a technology perspective.

However, although companies apparently recognize the importance of improving technology throughout the organization, HR s needs in the technology area have been neglected. More than half the respondents indicated that HR data (employee records, payroll information, etc.) other than personnel files (such as performance reviews or disciplinary memos) are currently maintained manually (on paper). Only 48 percent of the respondents reported having automated systems in these areas.

The survey results indicate that one reason companies are holding back from moving to an automated system is their concern about the time and expense involved in customizing and implementing new software and hardware. Some are waiting for the next generation of technology, and a small percentage feel they don t have enough employees to justify the expense.

However, this trend will likely be reversed, as 100 percent of the respondents reported having plans to either automate their HR systems or upgrade their current automated system. (Less than 2 percent indicated plans to move all data maintenance to an outside provider.) This is a clear sign that organizations are finally recognizing the need to provide necessary tools to HR, particularly in areas that will help support HR s move from transactional to strategic.

In the ideal world, HR shouldn't only be intimately involved in spending decisions—they should be driving these decisions. Unfortunately, the survey results suggest this isn't happening on a widespread basis.

Debbie Bishop, HR manager for Nike s apparel division in Beaverton, Oregon, views this an important shift that s vital to HR s long-term performance. "This increasing investment in HR technology and automated systems has been a key factor in helping HR move out of the administrative role and away from the ‘paper-pusher image of the past." Bishop says she s had the advantage of working for companies that make the "smart decision" to invest in technology and other HR programs, but feels a lot of that has to do with the leadership of the organization and the value they place on HR and people in general.

Bishop s point comes out in the survey results as well, which indicate companies that aren t investing in HR technology may undervalue the people-side of the business in general. The 52 percent who reported using manual or paper-based systems to support the HR function also reported some concerning attitudes about how employees are valued within their organizations. Thirty-one percent of these respondents indicated that select employees are valued but "most are seen as just a necessary expense." Forty-seven percent of this group reported that they don t have an HR budget for purchase of products and services to improve or sustain the HR function. Sixty-six percent reported that the management team only "rarely" or "occasionally" discusses HR programs, policies or expenditures, and 27 percent described HR in their organization as being "reactive" versus "proactive." It s probably not too surprising that 38 percent of this group reported turnover ratios in excess of 25 percent.

Michael Bergdahl, vice president of HR for American Eagle Outfitters in Pittsburgh, Pennsylvania, echoes Bishop s sentiments. "In our business, HR technology is critical. With 465 stores in 45 states across the country, we have to be able to orient, train and assimilate employees into the organization quickly and efficiently, and technology has been the key to making that happen."

Bergdahl says he s always on the front line pushing for new programs and initiatives that will help the business. "I m already working on my budget for 2001 and looking ahead to the resources we re going to need." Bergdahl says he s an active member of his organization s information technology transformation committee and is involved in the technology decisions that are made for the entire company.

HR technology will continue to be an important cog in the wheel of change for HR. HRIS systems, company intranets and employee self-service systems are allowing HR to provide the same functions and resources in a more timely, reliable manner and at reduced costs.

David Strum, Ph. D. and head of Aon Consulting s Loyalty Institute in Ann Arbor, Michigan, says he s seen a pattern in HR s strategic role and the use of technology. "When I attend various HR conferences around the country, I m still struck by how little the topics have changed. The progress in this field is still slow in coming. But when I do find HR professionals functioning as true business partners and strategic thinkers, I usually see these people making IT their servant. Technology has definitely played a role in moving them forward."

Who s making the spending decisions?
It s clear that going forward, organizations will be called on to spend more on HR-related programs and initiatives. And in the ideal world, HR should not only be intimately involved in these spending decisions—they should be driving these decisions and identifying resource requirements for the company.

Unfortunately, the survey results suggest this isn t happening on a widespread basis. Though 64 percent report having an established budget in place for purchasing products and services to improve or sustain the HR function, the remaining 36 percent report having no such budget in place, which once again points out how undervalued HR s role continues to be in some organizations.

And more than 40 percent of those respondents who reported having an established HR budget indicated they don t have authority to spend within the budget without further approval, and 36 percent report they "always" feel they are competing with other functions to get allocation of funds.

Nike s Bishop admits there are still some problems for HR in this area. "There s still some truth to the fact that HR isn t viewed as essential to the business, and it s unfortunate. You ll still see that when it comes to things like training, companies do tend to cut back in these areas first, which is just the opposite of what should be happening."

Though HR continues to fight many of the same ongoing battles, shifts are taking place that might explain some of the survey results, particularly when it comes to HR controlling the purse strings. Scott Cohen, director and principal consultant of Linkage Inc., an organizational consulting firm based in Lexington, Massachusetts, says that although his initial entry into a client company typically starts with human resources, he and his staff often end up working directly with line staff. The budgets for these expenses, he says, don t always fall under HR s umbrella, and some say they shouldn t.

Cohen believes that as HR s role evolves into that of an internal consultant, decisions around purchasing HR services and products will be one that they share, not own. He feels this is part of HR s evolution into a more strategic position. "In the past, HR was too focused on forms and process—they re just now learning how to integrate the consulting part of their function into the role. They now have to move from owners to facilitators."

Nike s Bishop agrees with Cohen s philosophy. "HR has to move away from taking so much ownership and move toward getting line managers to take responsibility for their share of HR activities—and that means sharing in the expenses and spending decisions."

Cohen agrees it s important for HR to have say in spending decisions and have some control over the budget, but says, in the past, HR has suffered from being too territorial. "When something is viewed as an ‘HR program, it s more difficult to gain support from others. On the other hand, when managers share that ownership [from a financial standpoint], the likelihood of success goes up for everyone, especially if the focus is on the bottom-line results of those programs."

HR programs aren t at the top of management s agenda.
Though the perception is that human resources issues are first and foremost on everyone s mind today, the survey suggests otherwise—particularly when it comes to the management team. Despite the fact that 69 percent of the respondents indicate HR holds a spot on the management team, 48 percent report that HR programs, policies or expenditures are only "occasionally" or "rarely" discussed by the management team, and 4 percent indicated these issues are "never" discussed.

Bergdahl finds these statistics alarming and says he and the management team discuss HR-related issues in every meeting. "The management team has to be focused on HR issues—the investment we make in the workforce is important to everyone in this organization. We care about our people, we know they re our core assets and we ll lose them if we don t pay attention," says Bergdahl. "You re going to find in the future that companies will be separated into two camps: They ll either be ‘go to companies [that attract talent] or ‘move away from companies [that lose talent]. Organizations that don t invest any time and resources in their workforce will quickly find themselves in the ‘move away from category.

Lynn Matsunami, director of HR at Internal & External Communication Inc., a Marina Del Ray, California-based new media company that develops computer-based technology and learning solutions, says human resources professionals who find themselves in these ‘move away from companies are fighting a losing battle. "Unless the top executives in the company believe its essential to have a focus on things that impact the workforce, it s not going to happen, regardless of how strategic the HR function tries to be."

Matsunami says she s part of a 10-person management team and that every meeting includes a discussion that touches on human resources issues. "I still have friends in the HR field who say their budgets are the first to be cut, but I ve been lucky to work for companies that recognize HR s value."

Lack of accountability is still an issue for HR.
The "What s the Investment in HR?" survey also captured information about measuring the results of HR s efforts and HR investments.

There s not a lot of good news here.

Though survey results indicate 65 percent of the respondents monitor the return on investment (ROI) for HR expenses, 85 percent indicated there s no formal reporting process of the ROI—even if it is measured—and 87 percent reported that the ROI results are not a factor in evaluating HR s job performance.

This suggests that although some measurement is taking place, reporting on this performance and ultimate accountability is still seriously lacking. According to Cohen, this area continues to be a big problem for HR. "HR still has a bad name when it comes to accountability—if they want to be viewed as a strategic business partner, they have to learn the measurement side and they have to learn it fast."

Walking the talk, it seems, is never as easy as it appears.

Workforce, December 1999, Vol. 78, No. 12, 66-71.

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