HR Budget Landscape
Instead of prioritizing cost-cutting and fighting inflation, research shows that in 2023, CEO priorities are shifting to focus on growth, with talent, the workforce and the acceleration of technology becoming key to driving growth in 2023 and beyond. Nearly half of HR leaders (47%) plan to increase their 2023 budgets. Recruiting and HR technology as the top two areas where HR leaders are planning to increase investments.
Nevertheless, 61% of HR professionals cited finding ways to reduce costs and improve efficiency as a priority. Nearly 48% viewed budget constraints as a major barrier to their organizations’ success. Research shows that the average HR functional spend is 0.74% of revenue, compared to other support functions such as finance (1.33%), IT (3.06%), marketing (5%) and sales (7.01%). HR accounts for 1.52% of organizational operating expenses on average. HR functions spend $2,524 per employee annually on average. The top spending areas are recruiting ($425 per employee), total rewards ($213 per employee), and learning and development ($188 per employee).
Here is how companies’ annual HR spend on average per employee breaks down across industries:
- Banking and financial services: $4,195.
- Energy and utilities: $3,237.
- Professional services: $2,778.
- Technology and telecom: $2,750.
- Consumer goods: $2,519.
- Health care providers, pharmaceuticals, life sciences and medical products: $2,245.
- Manufacturing: $2,022.
- Retail: $1,900.
Within the limited spending in HR departments, we have to consider how HR-specific technology is currently used to help achieve organizational goals. How do we best utilize current technology? How do we secure more funding for new technology solutions? And how do we ensure we are implementing and tracking the success of this investment?
Securing HR Technology Budgets
Securing a budget to implement HR technology can be extremely challenging, and the process can vary significantly depending on the technology landscape at your organization. Even if you want to implement only one new technology platform next year, it can require a great deal of preparation—and tactful execution—to accomplish. To learn how HR professionals and leaders successfully secure budgets for HR technologies, we interviewed Brian Jeffery, human resources manager at Epic Property Management; Cris Bonini, global head of learning and development at KPMG; Rob Lauber, former chief learning officer at McDonald’s; Larry McAlister, former HR executive at NetApp; and Donald Taylor, chair of Learning Technologies Conference. From those interviews, we created a framework for you to follow next time you are securing a budget to implement new HR technology.
This four-step framework will help you think through in detail how to best utilize the budget you already have and how to ensure new funding is used effectively. Let’s dive in.
1. Evaluate and Leverage Existing Resources
Step 1 of the framework is to deep-dive into your existing technology. Every HR department has some level of technology or resources to help them work more efficiently, and it is important to understand how each plays a part in achieving your HR goals. Review your current budget and make sure your current HR tech spending is optimized and you are getting the expected return on investment (ROI). Can you validate the utilization and impact of your current suite of technologies? What are your customers saying? And, now more than ever, where can AI help you become more efficient?
Here is what I recommend getting started with this process:
Audit and Assess
This will be a time-consuming but highly valuable exercise for HR teams to complete. Without it, it will be nearly impossible to build a strong case for maintaining or expanding your HR solution budget.
- Create a detailed inventory of all HR technologies in use.
- Analyze utilization statistics to see which tools are underused or most effective.
- Gather feedback from end-users on the effectiveness of each tool.
- Examine the overlap between tools to identify redundancies.
- Define how you are getting ROI on each of these technology investments.
Many organizations are looking for fiscal relief. Is there a way to consolidate your tools and reduce costs? Is contract renegotiation an option? Do you know when the current contracts end or when the renewal dates are for each one? Are there any opportunities to reallocate funds from less to more pressing strategically aligned areas?
- Review contracts for all current HR technologies to identify upcoming renewals or opportunities for renegotiation.
- Engage with vendors to discuss performance against contract terms and explore cost-saving options.
- Propose consolidating similar tools with different providers to achieve bulk pricing or multi-product discounts.
- Look across technology products to determine if there is any overlap where you can reduce spending on additional platforms.
Alignment with Future Goals
Take a close look at your current investments and ask if they align not just with your current yearly HR strategies but also future ones.
- Forecast the HR department’s needs by analyzing trends in the workforce and business growth plans.
- Re-evaluate the HR technology strategy in the context of the company’s five-year or 10-year plan.
2. Build Your Case
What we have covered in step-1 is a retrospective look at our HR technology budget. Now we are informed about any gaps in our tools and processes and can use this information to build a business case. This is also the start of evangelizing your case to stakeholders throughout the organization.
Now that you have a very detailed understanding of your current systems and processes you can figure out what are the right problem(s) to solve.
- Conduct a root-cause analysis to understand the depth and impact of the HR issues at hand. Be sure to mention how these gaps were identified through the process in Step 1.
- Document case studies or scenarios within the organization that illustrate the problem. Don’t mention potential solutions yet, as we want to provide as much context as possible before jumping into potential solutions.
- Use data to show how the problem affects key performance indicators (KPIs) like turnover rates, time-to-hire, etc.
In most cases a problem you have identified will resonate beyond just one department in your organization. Start discussing this with colleagues across the organization to figure out if they encounter any similar problems. Understanding the context of this problem throughout the organization will give you more insight and allow you to craft a more impactful argument.
- Organize cross-departmental meetings to explore the use of non-HR technologies that could benefit HR processes. This could include customer success teams, sales teams, or other teams in your organization.
- Create a cross-functional team to ensure the proposed HR technology aligns with other departmental tools and strategies. Be sure to include members of these teams as stakeholders moving forward.
- Develop a shared vision for how improved HR technology can benefit the broader organization.
It’s important to articulate the problem you are solving and describe the problem in ways that your stakeholders can resonate with. If the problem and request for HR solutions are from a business function leader, it’s important to get a clear understanding of the business problem and communicate the problem to everyone involved.
- Develop a communication plan that outlines how you will keep stakeholders informed about the proposal process.
- Identify and engage with key decision-makers and influencers within the organization.
- Prepare to address common objections by having data and case studies that support the need for new HR technology.
3. Engage, Search and Propose
Once you have gathered information, identified the problem(s) you want to solve, and started collaboration with internal stakeholders, it is time to set it in stone. From this point forward we switch to a solution-oriented approach. By the end of this step, you should be able to fully propose your plan, and exact resources needed to accomplish it.
Seek executive sponsorship from other leaders. You don’t always need to be the only budget owner driving effective people outcomes!
- Identify an executive who can champion the HR technology initiative within the senior leadership team.
- Work with the sponsor to refine the proposal and tailor the message to resonate with executive-level concerns.
- Schedule regular updates with the sponsor to keep them engaged and informed throughout the process.
Search for Solutions
This is a complex topic, and we will only scratch the surface of how to best find HR technology solutions. The important thing to remember is that you know your needs best. Vendors are always looking for an opportunity to sell you their solution and may stretch the truth if needed. Make sure you are ready to ask questions, and fully understand your specific use case for a technology solution.
- Network with peers and use industry resources to research and validate the need for new solutions. Call 8 to 10 people you know in the industry and see if they have similar issues, and how they are solving their problems.
- Consider researching on the internet and read industry reports from Gartner, Forrester, Josh Bersin, RedThread Research or others. Review sites like Capterra, Talent Tech Labs, WorkplaceTech Community, and SHRM websites may be helpful. Consider attending conferences like SHRM or HR Tech conference.
- DEMO. DEMO. DEMO! Try things hands on. This is essential to learn as much as you can about solutions you are evaluating. When buying, always ask references to see if they can show you the solutions in action.
- Bring your stakeholders along in your journey of evaluating HR solutions – after evaluating the solutions yourself, you can provide briefings or invite stakeholders to join meetings to evaluate solutions.
- Pricing is key information to gather during this step. Not only upfront costs, but also any maintenance, or support costs moving forward. Is it a SaaS platform with monthly fees? Annual contract? Does the contract auto-renew? These are all questions to ask early in the search process, so you have the information needed to make informed decisions.
Articulate how the investment will bring a positive impact to the organization. This could include factors such as reduced administrative work for the HR team, improved productivity, increased revenue, increased engagement, decreased overtime hours. Be sure to tailor this to metrics that leaders in the organization are currently prioritizing.
- Detail the direct and indirect costs of the new technology, including licensing, training, and support.
- Model various scenarios to show potential ROI under different assumptions.
- Highlight non-financial benefits such as improved employee morale, brand reputation, or other metrics leadership is prioritizing.
Proposals are an art of their own. If you have any colleagues in your organization that have written proposals in the past, be sure to loop them in during this process. Otherwise, be sure to continuously collaborate with other stakeholders on this document and get their feedback. This document will be the final document you send to leadership with your request.
- Draft a comprehensive proposal that includes an executive summary, detailed analysis, proposed solutions, and a clear call to action. Be sure to include call-backs to problems identified and why they cannot be solved through current technology or processes.
- Outline how you evaluated new solutions and the key features that will make them a good fit for your organization. Be sure to illustrate the benefits and ROI of the proposed HR technology as it relates to organizational objectives.
- Include a timeline with milestones for decision-making, implementation, and review periods. While this will most likely change, giving leaders an idea of the level of effort is important.
- Include a specific request for your budget. This should be informed by all of the prior steps in the process. Because of this, leadership should be able to clearly understand the task, why it is necessary, and how it will impact the organization moving forward.
4. Implement, Monitor and Optimize
The way to measure success will depend on the problem that the HR solution is addressing. For example, if the solution is to help front-line managers improve effectiveness, we can measure the retention rate and promotion rate and engagement metrics of the employees. If the solution is to improve the productivity of front-line workers, such as customer support staff, then it will be measuring time to close support tickets. If the solution is to enable salespeople to perform better, then it will be measuring their deal close rate and other sales metrics.
- Define specific, measurable, achievable, relevant, and time-bound (SMART) success metrics.
- Develop a dashboard or reporting system that can track these metrics in real-time.
- Set up baseline measurements before implementation to track progress.
Consistent reporting and monitoring are essential to show the value of a new solution. This is especially important within the first few months of the implementation. Be sure to create comprehensive reports of platform usage and speak to how this is impacting the goals of implementing a new technology solution.
- Establish a regular reporting schedule to update stakeholders on the implementation’s progress.
- Use a mix of quantitative data and qualitative feedback to provide a comprehensive view of the technology’s impact.
- Be prepared to adjust the reporting format and frequency to meet the needs of different stakeholders.
Real world feedback is essential to mitigate any issues as they arise. Getting feedback early and often will help maintain support and show that the team is diligently working to ensure a successful outcome.
- Implement a user-friendly feedback system for all levels of users to report issues, suggestions, and successes. This could be in the form of a digital survey that is easily accessible to the users.
- Schedule regular review meetings with the project team to discuss feedback and potential improvements.
- Prioritize feedback that aligns with the overall strategic goals of the HR technology investment.
Change Management and Implementation
Change management and technology implementation is a huge topic to cover so we are only going to give a high-level overview here.
- Design training programs tailored to different user groups to ensure a smooth transition to the new technology.
- Communicate the benefits and changes in workflow that the new technology will bring.
- Appoint change champions within the HR team to advocate for the new system and assist their colleagues.
- Break down the implementation into phases, each with specific deliverables and responsible parties.
- Develop contingency plans for potential roadblocks or delays in the implementation process.
- Clearly communicate the implementation plan to all stakeholders, ensuring expectations are managed.
Check out our WorkplaceTech Pulse series covering change management in detail.
Brian Jeffery, human resources manager at Epic Property Management, also a SHRM member, has had experience successfully getting budgets for HR tools. We interviewed him and asked him to share his experience.
What’s the problem you were trying to solve when you came across Amotions, an AI-powered upskilling and coaching tool?
Brian Jeffery: “In short, we need our people to be strong communicators within a variety of environments and contexts. In the property management industry and real estate sales profession, there is high potential for miscommunication and damaged professional relationships. The goal is to demonstrate to all stakeholders that we are reliable, fair, and consistent.”
How did you make the case of buying Amotions for the employee to your manager?
Brian Jeffery: “My manager is the owner of our company Andy – he has a strong background in IT. Andy also has an interest in AI and understands the industry is rapidly developing; Andy and I have similar interests in this regard. I also have a background in fields centered around human relations, which Andy is aware of, and he believes my knowledge base and skill set bring value to the company. I presented the Amotions application of the belief that this is a unique tool with potential to help our people learn and grow.”
How did you handle questions or objections from stakeholders on this, if any?
Brian Jeffery: “Andy did not express strong objections. I believe there is a foundation of trust between Andy and I upon which we have learned to work towards solutions that will meet EPIC Property Management’s business needs and improve our employee culture. In addition, the cost associated implementing Amotions is very reasonable in my opinion, and this minimizes any financial risk.”
What’s the problem you were trying to solve when you came across your HRIS?
Brian Jeffery: “We really were in need of an HRIS tool that is self-service (rather than third party) and is accessible to our employees. We needed it to be equipped with a timekeeping feature that is capable of tracking specific work tasks. A payroll feature was also very important. Finally, we needed to improve upon our employee engagement efforts.”
How did you make the case of buying your HRIS to your manager?
Brian Jeffery: “My manager Andy was aware of the need to replace tools that we were using for HR related tasks. I found one or two other products that were advertised as meeting most of our business needs. One of the other products Andy and I reviewed seemed promising and we were very interested in hearing a presentation. I made efforts to set up a conference call with a sales representative, and the representative did not follow through. I viewed this as a red flag and Andy agreed. We viewed an advertisement of the HRIS we selected on YouTube, and it grabbed our attention, as the presentation seemed very professionally made and the capabilities were clearly outlined. With Andy’s approval, I contacted the company and the sales representative followed up immediately; he scheduled a conference call that would take place within a couple of days. Andy and I were both impressed, and Andy decided that he wanted to move forward with that HRIS.”
Acquiring a budget for HR technology solutions is doable if you engage in a thoughtful and collaborative process. You can work with your technology providers to get case studies and information to support you in making the case, alongside collaborating with your colleagues and business partners and leaders. If you have any questions or suggestions, we would love to hear your thoughts. Please feel free to reach out to us or connect with us!
About the Authors
Pianpian Guthrie is the founder and CEO of Amotions, an AI coaching, upskilling, and knowledge management startup, with an AI coach that understands people’s situations and organizations’ content and knowledge and gives real-time advice to help front-line managers and employees improve performance. She got her master’s degrees in sociology from Yale University and social science from Hong Kong University of Science and Technology and worked as a product lead at tech companies such as GoDaddy, Ticketmaster, Priceline, Ticketnetwork, and Winnie before founding Amotions. She is originally from China and is based in Silicon Valley.
Chris Galy is the founder of TalentLucidity, an organizational and talent strategic consultancy. Chris’ global human resources leadership spans across numerous industries in companies like Intuit, Couchbase, Ten-X, Xilinx, and the United States Army. He is a graduate of the United States Military Academy at West Point and holds a master’s in human resources and organizational development from the University of San Francisco. Chris also resides in the SF Bay Area.
References and Further Reading
Thank you for joining us for this edition of the SHRMLabs WorkplaceTech Pulse! Thank you again to our writers this week. You can learn more about their companies by clicking the links below.