During the pandemic, the better business strategy turns out to balance workforce cost savings with targeted employee investments. The companies that employed that strategy performed better than companies that didn't take this approach, according to a new analysis of S&P 500 companies 2020 earnings call transcripts done by Gartner, Inc.
These companies’ revenue rebounded from Q3 2020, and they have outpaced industry peers that solely focused on cost reduction.
“Successful organizations did more than target reactive cost savings to improve performance metrics in the short term,” said Sedya Berger-Bocker, director analyst in the Gartner HR practice. “They also optimized costs and funded new investments. This balance between cost savings and bold talent investment opportunities is vital for protecting an organization’s continued growth capabilities.”
As organizations continue to emerge from the turbulence of 2020, HR leaders charged with managing cost and budget measures should focus on three key takeaways:
1. Timing Matters
Companies that not only cut costs in Q1 2020 but also made investments in talent across 2020, realized an average 8.2% increase in Q4 2020 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.
2. Talent Investments are Gaining Traction
Traditionally, talent investments are a key lever in protecting an organization’s continuing growth capabilities. Throughout 2020, 48% 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 talent investment measure mentioned in earnings calls, with almost five times higher mentions than before the pandemic.
- In addition, employee well-being was the next most realized measure, mentioned six times more frequently than it was before the pandemic.
“During times of disruption, organizations must not underestimate the adverse impacts that cost-saving decisions have on employee experience, engagement and overall productivity,” said Mathias Graf, senior director analyst in the Gartner HR practice. “As companies continue to work through the lingering effects of the pandemic, organizations must recognize supporting employee well-being is not just the right thing to do, but it’s also good for the overall business.”
According to Gartner's research, organizations that provide holistic well-being support can boost employee discretionary effort by 21% — twice as much as companies that provide only traditional (physical and financial) programs.
3. Invest in People
Looking ahead, HR leaders must identify talent investment opportunities centered around supporting employee engagement and well-being amid the new norm to protect the organization’s long-term growth capabilities. This means paying close attention to discretionary effort and/or intent to stay as they navigate post COVID-19economic recovery.
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 talent investments against those of successful peer companies and market leaders.
- Expand decision-making frameworks from solving short-term cost optimization challenges to enabling long-term employee experience. This includes applying a consistent framework of mitigations that involve both managers and employees.
- Recognize the quantitative impact of cost-cutting initiatives on critical workforce outcomes — such as employee performance, engagement and experience — by analyzing internal evaluations on the effects of cost-cutting measures that go beyond individual functions.