The intersection between HR strategy and HR technology

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The Money Multiplier

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I’ve put a lot of faith and hope in businesses as the economy continues to trend downward.  I had initially thought that this time around we would be smarter.  Smarter than in 2001 when the bubble burst and HR technology spending almost completely stopped for 3 years.  In that time, there was virtually no growth in development as there were no sales to fund it.  But this time would be different.  We were smarter, and would continue to spend on our infrastructure, not allowing a pessimistic view of the future to delay our long term strategies or the enabling technologies that preceded strategic fulfillment.

I think I was wrong.

Perhaps my being wrong has nothing to do with our NOT being smarter.  Perhaps we had every intention to continue to prepare our HR infrastructure.  But that fact of the matter is that cash is tight.  Nobody is lending money, and few people are making enough money to spend freely.  With that, HR budgets are being reigned in and once again, HR technology spend is down.

The money multiplier is a simple macroeconomic theory.  For every actual dollar (unit of printed currency) in circulation, there is a multiple of that dollar that becomes a portion of GDP.  For example, if HR has 1 dollar to spend on software, a software vendor will in turn spend a portion of that dollar on R&D, which in turn may go to HR consultants, etc.  The idea I’m trying to put forth is that in a good or bad economy, the money multiplier fuels the HR industry.

The problem is that in a good economy, the HR industry has funding from corporate budgets.  In a bad economy, HR budgets are cut to the bare bones for continuing basic operations.  HR is not a self funding industry – we rely on the rest of the enterprise to provide is with the cash we need to fulfill our objectives.  Without cash from the enterprise, the entire industry goes into a lull.  Without the seed cash from the enterprise, the money multiplier stops working.

I’m not sure what happens next.  We know that the applications providers have been doing some massive layoffs.  We know that sales are slowing.  We know that consulting operations for both the vendors and traditional consultancies is slipping.  What we don’t know is how quickly the enterprise will start fulfilling our budget requests when cash starts to flow again.  I’m still hoping that even if we don’t continue spending right this minute, that ultimately we are smarter than last time.  Let’s get in front of budgets and make sure there isn’t a 3 year lag before HR spending comes back.  Let’s make the case now that our priorities are still enterprise priorities and can’t wait until 2012 to get started again.

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