Where CEOs choose to apply cost savings is important. According to the latest market study by Gartner, organisations that balanced workforce cost savings with targeted talent investments outpaced organisations that solely focused on cost reduction.
These progressive companies’ revenue rebounded from 3Q20, and they have outpaced industry peers that solely focused on cost reduction. “Successful organisations did more than target reactive cost savings to improve performance metrics in the short term,” said Seyda Berger-Böcker, director at Gartner
They also optimised costs and funded new investments. This balance between cost savings and bold talent investment opportunities is vital for protecting an organisation’s continued digital growth capabilities.
Digital Enterprise Talent Market Development
As organisations continue to emerge from the turbulence of 2020, human resource (HR) leaders charged with managing cost and budget measures should focus on three key takeaways:
Companies that not only cut costs in 1Q20, but also made investments in talent across 2020, realized an average 8.2 percent increase in 4Q20 revenue. For S&P 500 companies, this translates to a more than $500 million increase in revenue — signaling a solid foundation for sustained future recovery and revenue growth.
Traditionally, talent investments are a key lever in protecting an organisation’s continuing growth capabilities. Throughout 2020, 48 percent of S&P 500 companies funded at least one talent investment opportunity, placing particular emphasis on two areas: employee benefits and employee well-being.
Employee benefits were the most discussed digital talent investment measure mentioned in public company earnings calls, with almost five times higher mentions than before the COVID-19 pandemic.
In addition, employee well-being was the next most realised measure, mentioned six times more frequently than it was before the pandemic.
“During times of disruption, organisations must not underestimate the adverse impacts that cost-saving decisions have on employee experience, engagement and overall productivity,” said Matthias Graf, senior director at Gartner.
According to the Gartner assessment, organisations that provide holistic well-being support can boost employee discretionary effort by 21 percent — that’s twice as much as companies that provide only traditional (physical and financial) programs.
Looking ahead, HR leaders must identify talent investment opportunities centered around supporting employee engagement and well-being amid the new norm to protect the organisation’s long-term growth capabilities. This means paying close attention to the discretionary effort and/or intent to stay as they navigate post-COVID-19 economic recovery.
Outlook for Enterprise Talent Strategy Projects
To realize cost savings during times of economic uncertainty, HR leaders should examine which facets of employee well-being require greater focus by benchmarking workforce cost-saving measures and planned digital talent investments against those of successful peer companies and market leaders.
They should expand decision-making frameworks from solving short-term cost optimisation challenges to enabling long-term employee experience. This includes applying a consistent framework of mitigations that involve both managers and employees.
They should also recognise the quantitative impact of cost-cutting initiatives on critical workforce outcomes — such as employee performance, engagement, skills, and experience — by analysing internal evaluations on the effects of cost-cutting measures that go beyond individual functions.That said, I believe more CFOs will apply their cost savings toward targeted reinvestment in strategic business technology projects that fuel meaningful and substantive digital growth. That’s what the CEO and typical board of directors are now demanding, going forward.