10 Ways to Optimise HR Costs

20 June 2019
Contributor: Sharon George

Cost optimisation continues to be a critical concern for many HR leaders. The key is to find the right balance between cutting costs and maximising business value.

Your new high-potential development programme is about to launch, but then comes news that it is time — yet again — for HR to report its contribution to enterprise-wide cost-optimisation efforts. Some HR leaders will be tempted to scrap the programme to cut costs, but that is a knee-jerk reaction that prematurely and unwisely moves good, strategy-driven ideas to the back burner.

“Successful HR leaders focus on cost optimisation as an ongoing discipline, not as a one-off exercise,” says Gartner senior executive advisor Matthias Graf. “Cost optimisation strategies should look beyond cost-cutting and proactively promote options for immediate efficiency gains while not compromising on long-term impact on business performance..”

A more effective approach is for HR to focus cost optimisation strategies around three areas:

1. HR service delivery: Optimise the HR service delivery model, governance structure, processes and roles

2. HR spend: Rationalise spend for shared services, HR information system (HRIS) technology and outsourced vs. insourced services

3. Workforce costs: Optimise via smart total rewards models, workforce structure and layoff management

The first two areas focus on cost-saving efforts within the HR department, while the third is aimed at HR’s contribution to cost optimisation across the organisation.

These 10 recommended ideas around these three areas will help initiate cost optimisation efforts within the HR function and the enterprise.

Learn more: What Employees Think About Cost Optimisation

HR service delivery

1. Redesign global service delivery and account for local customisation needs. Global operations make it difficult for HR leaders to gain insight into key process activities and timelines, frameworks and tools, and external vendors. Too many processes across different regions can lead to duplication of efforts, higher costs and low-quality results. Successful organisations agree on global vs local degrees of standardisation for core HR processes and establish a clear decision-making process for resource allocation.

2. Build flexibility into HR structures to ensure targeted use of capacities. For large-scale changes, organisations have to build a level of flexibility into their functional structures, such as hybrid roles (e.g., HR business partners provided to other units for assignments) or pooling HR resources (e.g., to support increased regional demand). This enables HR functions to respond to ad hoc customer requests while also providing core services.

3. Redesign processes to balance service delivery efficiency and effectiveness. Successful HR teams benchmark their processes to identify wasted or duplicated efforts, split responsibilities among key HR and stakeholder roles and integrate customers into the process to improve quality and increase engagement.

4. Develop the “right” capabilities to optimise HR service delivery. One reason HR functions fail to reach cost optimisation targets is a lack of requisite skills. The new work environment requires new types of capabilities from businesses and employees. Specific training can improve employee performance, but a long-term strategy requires organisations to define cross-functional roles (i.e., behavioural traits, technical skills, relevant experience) that help the enterprise respond to complex business challenges.

HR spend

5. Re-examine cost optimisation effects from HR shared service delivery. In more mature organisations, the potential cost savings from shared services are hard to identify. In response, organisations should further standardise the shared service delivery to reveal hidden savings. For example, companies often provide multiple customised versions of the same process, hampering integration and increasing costs.

6. Review investments in HRIS technology to identify cost optimisation opportunities. Despite the large investment and complexity of HR technology implementation, few HR leaders take the time later to monitor its efficiency and effectiveness. However, smart organisations review their HRIS investments periodically, eliminate underutilised systems and direct resources elsewhere to improve cost savings.

7. Re-examine cost optimisation effects from outsourced services and external providers. Typically, organisations look at outsourcing and insourcing as a way to achieve cost targets, but they also need to assess service delivery risks to business-critical HR activities. One way to get the most from outsourced services is to mandate the monitoring of efficiency, which usually leads to additional standardisation and harmonisation efforts, both globally and locally. These integration efforts — which should be led in close partnership with outsourcing providers — potentially create immediate cost savings.

Workforce costs

8. Balance elements of the total rewards model for better cost optimisation. Complicated compensation and benefits structure within organisations undercut cost optimisation goals. Successful companies build rewards models with the flexibility to undertake cost optimisation initiatives while still tracking employee performance. These models should evaluate reward plans based on metrics and allocate resources based on the return on investment.

9. Structure the workforce to align short-term business needs with long-term value. Many organisations struggle with the realities of the new work environment; however, the best companies flexibly respond to market pressures in the short term and adapt their employees to new work realities in the long term. They do this by creating cross-functional teams, employing a mix of permanent and temporary workers, and maximising the effectiveness of both the current and future workforce in light of these changes.

10. Achieve cost optimisation effects through “smart” layoff planning and execution. Any workforce optimisation initiative may require HR teams to execute layoffs for service units or employees unable to achieve strategic business priorities. During this time, organisations should follow a systematic management approach to the layoff process, communicate consistently with the workforce and engage employees critical to business success.

This article has been updated from the original, published on 29 August 2018, to reflect new events, conditions or research.