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HR costs rise as data suggests tech can cut HR staff

New research shows that high-performing HR departments leverage tech and have 40% fewer HR staff. But one expert advised caution when adopting 'shiny, new' capabilities.

HR operating costs have increased 6% this year, primarily due to wage hikes responding to inflation, according to research from consultancy The Hackett Group. Notably, well-managed organizations spending more on tech tend to operate with fewer HR staff members. Historically, HR budgets have seen an average rise of 3% to 4% annually.

While vendors might argue that AI will augment rather than replace HR staff, The Hackett Group's findings indicate that HR organizations operating in the top quartile of performance can reduce headcount with technology investments. The research is based on multiple studies, with more than half of the participating companies having at least 10,000 employees.

This has been a notable month for HR vendors and their generative AI plans. Workday, Ceridian and SuccessFactors held user conferences where the technology took center stage in keynotes and product news. While they promise these tools will increase productivity, the vendors also emphasize augmentation and assistance rather than automation.

In The Hackett Group's study, the best-managed companies allocate 13% of their overall HR spending to technology, compared with 8% set aside by others in the benchmark, said Anthony DiRomualdo, senior director of research at the Miami-based consultancy. The top-performing companies tend to invest in modernizing IT architecture and emerging tech, as well as in advanced analytics and collaboration tools. It's not just the technology investment that matters -- the top-performing companies are better managed, he said.

The top firms operate with about 40% fewer HR staff members than their peers. Generative AI has "really enhanced the potential" for automating some tasks, like job descriptions, DiRomualdo said.

But DiRomualdo is also skeptical about some of the vendor generative AI claims. He said HR vendors are "hyping this up as the greatest thing because it's now a feature of their products or will shortly be in" their software.

SuccessFactors is scheduled to release some generative AI features next month, said Josh Gosliner, vice president of product growth strategy at SAP SuccessFactors, in a conference presentation this week. A job description generator within its recruiting module will arrive in November. Also, next month an interview question generator will be available in Microsoft Teams. The system will recommend questions based on the candidate's profile and job description. He added that SAP will release in the first half of next year a system that can generate employee goals in its performance module. 

Tim Gregory, a SuccessFactors customer and managing director of HR innovation and workforce technology at Delta Airlines, said his team is evaluating what large language models (LLMs) can do well. LLMs underpin generative AI.

Delta wants skills descriptions personalized to the airline's style, Gregory said during a press roundtable at the conference. He said the goal is for an LLM to "speak like a Delta subject-matter expert and really help our new employees understand the skills necessary to excel."

The advice, though, from Kori Brandt, director of global HRIS and HR data security at Beam Suntory, a global maker of spirits with some 6,500 employees, was to move slowly on "shiny, new technologies," such as generative AI before rolling out to employees. 

If your company "is not ready to use them, they're not going to be successful," Brandt said during a presentation at SuccessConnect.

Patrick Thibodeau covers HCM and ERP technologies for TechTarget Editorial. He's worked for more than two decades as an enterprise IT reporter.

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