FORECASTS FOR 2009

Happy New Year! Well, maybe, sort of. At least, we hope it'll be happy. But, a lot of people seem to have skipped right over that intoxicating, sweet period of hope-filled resolutions and sunk directly into some kind of gloomy hangover from 2008.

Preliminary data from our start-of-year 2009 Forecast Survey, which includes over 460 respondents, shows that there's not a lot of optimism out there right now. In fact, a mere 9% said it was very likely or a virtual certainty that the global economy will improve in 2009, and less than a quarter thought it very likely their own organizations would thrive in 2009.

Cost-Cutting Will Be Key, Especially for HR

The study asked about the areas that will present major challenges for respondents' organizations. At the top was cost-cutting, cited by two-thirds of respondents as being a challenge to a high or very high degree. No wonder folks seem so dismal. It's seldom fun or easy to cut costs, at least not the deep cuts that could be needed if 2009 is as bad as some forecast.

In this environment, HR will come under intense scrutiny since personnel costs represent more than 35% of annual operating expenses (Hamerman et al., 2008). Cost-cutting is particularly tough on the HR crowd. For them, it doesn't just mean making do with older equipment or putting off a new initiative. It usually means making or implementing tough choices about real people in the areas of compensation, benefits, hiring or even layoffs. It can be painful stuff, and HR pros aren't always the most popular colleagues in times like these.

Take the subject of pay raises and bonuses, for example. For employees, the good news is that most companies still plan on increasing salaries; the bad news is that fewer will do so in 2009 than in 2008 ("Slower," 2008), and those increases will be lower than predicted a few months ago. A recent Hewitt Associates survey of 411 large firms found that two-fifths of them are revising their salary budgets as a result of the economic doldrums. At those organizations, salary increases are expected to be just 3.1%, the lowest increases since after 9/11 (Hewitt Associates, 2008). And many companies are simply freezing compensation levels entirely -- with some sources stating that freezes will occur at 18% to 25% of all firms (Berchelmann, 2008).

Then there are benefit costs. Another recent i4cp study found that 65% of all respondents and three-quarters of the largest companies (those with over 10,000 workers) have shifted some of the costs of healthcare benefits to employees over the past five years. It's likely that this trend will only gather speed in the coming year. A new Mercer survey finds that 59% of employers plan on increasing deductibles, co-payments, co-insurance or out-of-pocket spending limits in 2009. On the brighter side for employers, such steps will help keep their health benefit cost increases down to 5.7% in 2009, the lowest increase in over a decade ("Health," 2008).

There will also be more hiring freezes in 2009. A recent survey from HRfocus found that 41% of companies said their organizations were responding to the economic crisis by instituting hiring freezes. The most painful cost-cutting, however, comes in the form of reductions in force. The i4cp 2009 Forecast Survey found that 83% of respondents said restructuring and layoffs will be a challenge for their companies to some degree in the coming year, with 29% saying it will be a major challenge to a high or very high degree. Along with these trends will be an emphasis on outplacement services.

The Priorities Will Be Making Profits and Keeping Customers Satisfied

These kinds of workforce-related cost-cutting measures often come at a price, especially in terms of employee engagement. The Forecast Survey shows that raising worker engagement will be a major challenge to a high or very high extent for over half of companies, as will boosting the productivity of the existing workforce. But priorities are priorities, and there are a couple of areas that will be even more important in 2009. Specifically, making profits and keeping customers happy will be the top challenges in 2009, along with cost-cutting. The question is whether squeezing out costs will have a detrimental impact on customers, many of whom are facing their own personal cost-cutting pressures.

Green Won't Go Away, and More Regulation Is Certain

Somewhat surprisingly, this bottom-line mentality doesn't mean that social responsibility and, especially, sustainability are dead in the water. In fact, fully 56% of i4cp respondents said it was very likely or a virtual certainty that "there will be more 'Green' initiatives" in 2009. Maybe some of this is a reflection of the priorities that an Obama administration will bring to the White House this year, but the strength of these responses seems to be part of a larger trend in business. A recent CareerBuilder.com survey found that more employers plan to add "green jobs" in 2009 than they did in 2008 ("Slower," 2008).

The only thing that i4cp respondents were more certain of was regulation. After the economic meltdown of 2008, which has widely been blamed on a lack of oversight in the financial markets, most respondents see the handwriting on the wall. Nearly two-thirds said it was very likely or a virtual certainty that there will be more regulation in 2009.

Other Predictions for 2009

It is, of course, the season for forecasts, and here are two controversial ones that come from other sources:

The HR power base will decline: In The World in 2009, columnist Lucy Kellaway (2008) predicts that "the biggest loser in the struggle for power will be the human resources director." She argues that "talent" will be on the outs, whereas "staff" and "headcount" will make a comeback as most people are treated like commodities.

But not everyone agrees with that assessment. In fact, Forrester predicts that -- as HR focuses on talent as a strategic resource, becomes less technophobic, and masters analytical data -- there will be "an ascendancy of the HR function as a more prominent player in strategic business growth" (Hamerman et al., 2008).

Macho-management will be back: Some experts believe that empowerment will take a hit while "management by fiat," in the words of Kellaway, will make a comeback. Stephen Taylor of the Manchester Metropolitan Business School notes that "the balance of power will shift this year as employees find themselves less able to switch employment when unhappy with the way they are being treated..." ("HR Predictions," 2008).

i4cp Recommendation

The very definition of productivity is "doing more with less." This will be crucial in the coming year, so companies should focus like a laser on this concept. Cost-cutting that significantly hinders productivity should be avoided when at all possible. We recommend that companies look at every cost-cutting decision through the prism of productivity. When costs can be reduced even while production per capita increases over the long haul, then organizations will know they have a winning proposition.

Documents used in the preparation of this TrendWatcher include the following:

  • Berchelmann, K. Compensation trends, circa 2009: What the heck's happening here...? Triangle Performance, LLC. Retrieved December 30, 2008.
  • Hamerman, P. D., Thomas, Z., Leaver, S., & Donnelly, M. (2008, November 21). Trends 2009: Human resource management. Forrester.Health costs: Better prospects for employers than for employees. (2008). SHRM's 2009 HR Trend Book, Supplement to HRMagazine, pp. 21-22.
  • Hewitt Associates. (2008, November). Hewitt survey reveals many Americans will see lower-than-expected salary increases and bonuses in 2009. (2008, November 8). Investment Weekly News, p. 410.
  • HR predictions 2009: Exclusive insight into the year ahead. (2008, December). TrainingZone.
  • Kellaway, L. (2008). The World in 2009, p. 139.
  • Slower, more cautious hiring expected in new year, CareerBuilder's annual job forecast reveals. (2008, December). PRNewswire.