HR leaders are preparing for another year of budget cuts and larger staff reductions in 2014, as they focus keenly on three HR strategy areas — improving partnerships with internal customers, finding ways to manage talent more effectively, and creating more value from workforce data — according to 2014 HR Key Issues research from The Hackett Group, Inc. (NASDAQ: HCKT).

“Pressure on HR to do more with less clearly remains high,” said The Hackett Group Global HR Transformation and Advisory Practice Leader Harry Osle. “At the same time, there’s a real struggle for HR to reinvent itself, and improve the efficiency and effectiveness of how it delivers services and information. HR leaders are searching for ways to realign resources and become a better partner to the business.”

The Hackett Group’s study found that despite anticipated revenue growth of nearly 7 percent, companies are expecting to see a small drop in HR operating budgets in 2014, with cuts of 1 percent. This growing gap will likely require companies to improve efficiency in their HR organisations. At the same time, companies are expecting to make larger staff reductions, cutting HR staff by 2.7 percent. With head count shrinking faster than budgets, The study finds that many companies will increase their spending on technology, helping generate higher productivity levels while also increasing pay for retained, higher skilled HR staff. HR is the only business services function in The Hackett Group’s 2014 Key Issues Study services seeing cuts to both budgets and staffing.

Enhancing HR/Business Partnership

Much of HR’s effort in 2014 will be devoted to the difficult task of enhancing HR/business partnership and improving HR’s participation in the formation of business strategy, the study found. Three areas were cited by many study participants as being either a top priority or a major focus of improvement initiatives for 2014: integration of planning processes and data between HR and operations; alignment and integration between company strategic planning and HR planning; and effectiveness of collaboration and business partnership. 

“In order for HR to strengthen its ability to partner with the business, HR leaders and staff must begin to think and speak in terms that the business cares about and understands. They need to build the political and intellectual capital to become a full member of the strategy-setting team, applying their knowledge of human capital to the business strategy,” said Mr. Osle.

Clear Focus on Talent Management

The Hackett Group’s HR Key Issues study also found companies poised to make significant changes in talent management programs in 2014, as they struggle to find better ways to enhance the value of human capital and improve productivity. As HR leaders try to do more in these areas, they’re also focused on finding new ways to measure the business value of talent management.

More than 80 percent of respondents said they were making comprehensive or moderate changes to employee performance management policies and practices in 2014, in part due to the fact that companies have not been getting sufficient return on effort in this area. Another 75 percent of respondents said they were planning similar levels of change in strategic workforce planning, making this the second largest area of focus. Recruiting and staffing and rewards programs were two other talent management areas identified as top priority for change in 2014.

Within training and development, The Hackett Group’s research also found a shift away from traditional activities, moving away from formal, classroom-based activities, in part due to lack of funding. However, coaching and mentoring programs will be in the spotlight in 2014, along with a renewed emphasis on leadership-development programs and expansion of these programs to middle managers, in part to support more formal succession planning.

As global economic conditions improve, The Hackett Group also expects to see the recruiting market become more competitive, with an increased emphasis on retention programs.

Getting More Value from Data

Recent research by The Hackett Group found that low-quality data is a significant inhibitor to strategic workforce planning processes. The Hackett Group believes that HR needs to make the most of the data it has, while also gathering more data in areas where it has not done so previously, such as employee competencies and external labor market trends.

The Hackett Group’s 2014 HR Key Issues Study found that technology priorities are currently heavily weighted towards making the most of existing investments. Companies are minimizing new technology purchases as they roll out Web-based and self-service offerings.

The study identifies three major initiatives around HR technology and information for 2014. Half the companies in the study are planning major initiatives around improving their ability to analyze and interpret HR performance management information. Over a third are planning major initiatives to improve the integration of planning processes and data between HR and operational areas. Many are also seeking to improve information and key performance indicators needed to manage the HR function.

HR leaders are also significantly changing the way they capture data about their organization’s performance, and share that information with other parts of the enterprise. Many companies in the study are hoping to move beyond basic cost and turnover rates over the next two to three years and dramatically expand their use of metrics such as: impact of employee engagement activities; workforce productivity; HR cost per process; the ROI of learning and development; and others. An increased focus on productivity measurement is also expected, which should enable HR to realign resources to improve efficiency and effectiveness.

The Hackett Group’s HR Key Issues research is based on a study conducted in late 2013. Study participants included executives from over 150 large companies in the US and abroad, most with annual revenue of $1 billion or greater. A complimentary copy of The Hackett Group’s research insight, “2014 HR Agenda: Recalibrating HR to Deliver Higher Value,” is available with registration at: