Today’s HR heads are balancing a lot. They’ve been asked to secure highly skilled talent, upskill and reskill employees, and upfit digital infrastructure with shrinking budgets.

How much money companies are willing to allocate to HR needs has declined over the past year. A recent report from management consulting firm Gartner finds that 25% of 2023 HR budgets decreased, compared to 12% in 2022. Twenty-eight percent of leaders say their budgets have remained stagnant year over year. Despite this drop in financial investment, expectations for HR heads are still high. A separate Garner survey of senior business executives found that CEOs prioritize the workforce and technology. That puts HR leaders in a tough predicament, where they’ll have to be strategic about how they, in turn, divvy up more modest budgets.

Seyda Berger-Böcker, a director at Gartner and one of the report’s authors, says HR heads should prioritize technology and recruiting because they’re the two biggest growth drivers in most organizations. To do so, CHROs will have to balance costs in three ways:

Reduce. Reduction doesn’t mean cutting headcount. Rather, it could be a reduction of processes, tools, or services. Employers should also consider what projects they can cancel or postpone for now. Reducing headcount should be a last resort.

Replace. Now is an optimum time to reconsider and renegotiate terms with external vendors. Reevaluate what tasks to bring in-house at a lower cost and what processes make more financial sense to outsource altogether.

Rethink. Take a step back and look at HR spend in its entirety. Perhaps you need an upfront investment in one area to reduce costs later or in another sphere. One example is redesigning your HR operating model or investing in new technology to automate processes that might have once consumed a large portion of your team’s time.

Tangentially, and to the detriment of employers, talent analytics is the top resource HR leaders most frequently underinvest in when cutting costs, Berger-Böcker says. Gartner’s latest benchmarking data finds only 2.5% of HR budgets are allocated toward talent analytics tools.

“Without an understanding of what data to focus on and the skills to understand and interpret the data, HR employees will not be able to effectively guide the decision-making of business stakeholders,” she says.

Amber Burton
amber.burton@fortune.com
@amberbburton

Reporter's Notebook

The most compelling data, quotes, and insights from the field.

The unemployment rate among Black Americans rose for the second consecutive month, jumping from 5.6% in May to 6% in June. 

“Black workers are often among the first to be fired as the economy begins to weaken, research shows, and the recent declines in employment could be a canary in the coal mine for the broader labor market.” Bloomberg

Around the Table

A round-up of the most important HR headlines, studies, podcasts, and long-reads.

- A rise in the number of baby boomers retiring is placing more financial pressure on younger generations still working. Washington Post

- Almost 20 states, cities, and counties will increase their minimum wages this summer, offering a financial boost for many low-wage workers. Economic Policy Institute 

- Employment among workers with disabilities hit a new high, growing by about 175,000 in June to 7.6 million. NBC News

- Employers are “love bombing” job candidates, showing outsized interest during the interview process. It leaves some candidates feeling manipulated. BBC

Watercooler

Everything you need to know from Fortune.

Managing mental health. More companies are saddling managers with caring for direct reports’ mental health as the line between work and home blurs. —Paige McGlauflin

Short on soft skills. The Big Four consulting firms are training Gen Z workers in soft skills like teamwork, presentations, and effective face-to-face communication after much of the cohort missed out on office interactions due to pandemic-era lockdowns. —Paolo Confino 

RTO confusion. The primary flaw in today’s return-to-office debate is that it lumps together all employees without considering their nuanced situations and experiences. —Steve Mollman

Donating PTO. Some employers allow paid time off donations in which employees are encouraged to give up those days to coworkers who unexpectedly need more. But some say it's the company’s responsibility, not its staff’s, to support employees needing additional support. —Chloe Taylor