How to Balance Cost with Growth in a Shifting Talent Market
To maintain a competitive edge in today’s fast-paced and volatile world, HR leaders must harness the power of their people data.
Placing too much emphasis on near-term cost pressures could jeopardize an organization’s ability to develop and maintain its critical capabilities.
Companies should play defense by rationalizing their workforce, assessing the cost of their employee programs and managing organizational change.
Companies can use their people data and analytics to manage their talent — and benchmark their performance against their peers.
Persistent macroeconomic headwinds, coupled with an ongoing war for talent, continue to create a dynamic tension for many companies. On the one hand, leaders must focus on cost-control measures to preserve operating margins and make it through this period of economic uncertainty. On the other, they must also protect the vital capabilities required to deliver their business strategy. By placing too much emphasis on near-term cost pressures, leaders can jeopardize their organization’s foundation for growth. Conversely, by focusing too much on growth, leaders imperil the financial resources required for future investment.
So, how can leaders strike the right balance between maximizing their people spend while also positioning their organizations for sustained growth? There is no simple answer, but an effective approach involves using their people data and analytics to accomplish both priorities. Through people data, HR leaders can unlock unique insights to help navigate near-term uncertainties, while also maintaining course for the future.
Playing Defense: Using Data to Make Informed Decisions to Optimize Spend
Persistent inflation in certain parts of the world has led to tighter financial conditions, as central banks continue to hike interest rates in an effort to maintain stability. The resulting effects include higher operational costs and the need for businesses to conserve cash to preserve operating margins.Labor costs are the biggest operating cost for most organizations. Optimizing people spend is therefore a common business strategy to control this. As a result, companies are revisiting their total rewards programs. In certain cases, some organizations are reducing headcount or slowing down their hiring activity. Global results from our latest Salary Increase and Turnover Study indicate an uptick in companies decreasing their workforce size and a decline in companies planning to grow their workforce compared to 2022.
“While the near-term effects of these actions will help organizations manage cost, leaders must not lose sight of the longer-term implications of their decisions on productivity, engagement and retention, as well as their employee value proposition,” says Marc Pajarillo, a partner in Aon’s Talent Solutions practice. “When used effectively, an organization’s people data can be a critical tool in this balancing act.”
Before diving into major workforce cuts or changes that may have unintended consequences down the road, consider the following:
- Rationalize your workforce. People data and analytics can be a critical to assessing where firms stand. Companies should benchmark their compensation, health and benefit programs; review job architecture; and explore voluntary separation programs if a headcount reduction is necessary.
- Reduce the costs of employee programs. To mitigate people spend, look at how total rewards can be optimized to ensure delivered benefits and pay are highly valued. Total rewards that are not valued or properly communicated should be reevaluated from a cost, use and employee value proposition perspectives.
- Manage the journey. Firms should ensure changes are executed properly to avoid the risk of disengaged employees. Project management, proper design of new or revised programs, employee communication and change management are all areas that can’t be overlooked. Otherwise, people leaders risk eroding their employee value proposition and creating unintended consequences around employee attraction and retention.
Playing Offense: Future-Proofing Workforce Strategy
Talent scarcity continues to be a major concern for many organizations. In response, companies are increasingly focusing on talent mobility to “build from within,” with 48 percent focusing on improving talent progression and promotion processes to help increase the availability of talent. Other methods to address the talent gap include enhancements to organizations’ total rewards and professional development strategies, with 36 percent offering higher wages and 34 percent investing in reskilling and upskilling programs respectively.
Many employees can be reskilled or upskilled into new roles that their employer needs, but the firm has to first assess who those individuals are and what the future jobs of the organization will be.
Since the COVID-19 pandemic, wellbeing has also become an effective means to attract, retain and sustain workforces — in other words, it is now a critical part of a company’s workforce strategy.
According to Aon’s 2022-2023 Global Wellbeing Survey, there is a positive correlation between wellbeing and an organization’s financial performance. For every 4 percent increase in wellbeing performance, organizations experience a one percent increase in company profit, along with increases in employee satisfaction, customer satisfaction and a decrease in employee turnover.
As overall hiring has slowed, finding talent for in-demand roles remains a challenge. Unemployment in many countries remains low and employees with future-leading hard and soft skills remain in high demand. However, through the use of people data, HR leaders can play an active role in positioning the business for growth in several areas:
- Develop Your Talent Strategy. It’s important to understand the skills of the current workforce and learn more about what employees value to inform strategy going forward. This includes attracting, developing and retaining talent to support a firm’s overall business strategy. Modernize career frameworks and provide the basis for compensation and promotion decisions. Use assessments to make better talent acquisition and development decisions (this data can also help uncover skills among current employees that employers may not have known). And conduct annual pay equity audits to ensure pay is being determined fairly and transparently (see our article New-Hire Salaries are Rising – Along with Concerns About Pay Equity to dive deeper on this topic).
Case Study: Delivering Growth With Assessments and Job Architecture
Here’s an example where job architecture and talent assessments can be brought together for strategic growth. A leading multinational healthcare organization reviews its job architecture and determines it will need to create new a new team of around 20 individuals that will sit within the IT function. These roles will be responsible for evaluating and working with other teams to integrate artificial intelligence with its current health solutions. Having recently conducted talent assessments across its functional departments, this organization knows which employees have scored well with certain digital skills, which employees have expressed a desire to work on cutting-edge technology and which employees have expressed a desire to learn new skills and grow their career. Taking this collective data, the employer can target certain employees for upskilling job opportunities and vet them for a promotion to future roles. These roles will be filled quicker and likely at less cost and resources for the organization than hiring externally.
- Sustain Talent. While HR teams typically spend a great deal of time and effort thinking about retaining talent, sustaining the workforce is equally important. In the aftermath of the COVID-19 pandemic, understanding what people need in order to have a sustainable working life, prevent burnout and help them thrive in their job has become “table stakes.” Tools such as Aon’s Human Sustainability Index measure wellbeing, resilience and sustainability at the individual, team and organizational level. This data allows HR leaders to measure and track how the workforce (collectively and individually) is being sustained over time.
- Monitor and Benchmark Programs. Surveys and other tools are essential to benchmark compensation programs against peers. It’s also important to monitor and mitigate people risk associated with reputation, shareholders, financial stakeholders, and rising environmental, social and governance expectations.
Adapt to Current Conditions and Plan for the Future
Companies have the unique opportunity to reimagine the ways they manage their people-related costs, while also optimizing their workforce. The past three years has taught HR leaders that conditions can change quickly, and they must be proactive and adaptable to change. Current workforce challenges may be different than those experienced months prior. HR leaders should stay on top of trends by using their people data and analytics to manage spend and plan for the future. This will help them make quick decisions about the programs they should review and optimize. At the same time, HR leaders should ensure there are long-term investments in their current workforce. Skills should be evaluated, utilized and incorporated in workforce planning, all while making people feel supported in their career to prevent burnout.
For additional reading on this topic, see our article, How Data and Analytics Can Optimize HR Programs.
The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
The contents herein may not be reproduced, reused, reprinted or redistributed without the expressed written consent of Aon, unless otherwise authorized by Aon. To use information contained herein, please write to our team.
Employees who strongly agree that their organization cares about their overall wellbeing are nearly 70% less likely to actively search for a new job, and 71% less likely to report burnout.
Source: Aon’s 2022-2023 Global Wellbeing Survey
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