Introduction

Many Human Resources (“HR”) teams are currently looking at their workforce in search of cost reduction opportunities. As we step into 2024, the importance of understanding the optimal size of each function within a company, including HR, cannot be overstated.

In this handbook for HR professionals, we will explore the concept of a function, discuss methodologies for determining the right headcount for each function, and delve into why measuring functional efficiency is a key consideration for businesses in 2024.

What is a Function?

A function in the context of a business refers to aspecific area or department within an organization that performs a distinct set of tasks or activities. These functions can include, but are not limited to, finance, marketing, sales, operations, and, of course, human resources.

Each function requires a specific skill set, resources, and personnel to fulfill its responsibilities. The activities within functions can be performed by people, technology, or both. Both factors play a unique role in contributing to the overall success of the organization.

This mix of people and technology has been changing with the increased usage of software since the early 2000’s, and now Artificial Intelligence from 2023 onwards. Striking the right balance in terms of headcount and technology within each function is essential to ensure optimal performance and resource utilization.

The rest of this handbook will focus on people within functions (a.k.a. functional headcount), which is where most of the cost within a function is expended.

Five Steps to Determine the Number of People Needed in Each Function

Determining the appropriate headcount for each function involves a strategic approach that considers multiple factors. Here are key steps and considerations for assessing and optimizing the size of each function:

1. Functional Benchmarks

Start with functional benchmarks to gain insights into typical headcount for each function in comparable organizations. Benchmarking provides a reference point for understanding the staffing levels at the function level that are considered standard or optimal within a particular industry. These are the key external data points to size up each function at a total level. Spend time sourcing relevant and trusted benchmarks.

Looking for functional benchmarks specific to your company? Search here

2. Technology and Automation Integration

Evaluate the extent to which technology and automation can enhance the efficiency of each function. In 2024, technology plays a crucial role in streamlining processes and reducing the need for extensive manpower. This doesn’t have to be a detailed exercise, but at aminimum you need to understand and agree where technology is currently being used and where it will be used in the “to be” operating model.

3. Function-Specific Responsibilities and Workload

The next step is to define the sub-functions, then specific responsibilities and human workload associated with each function. Different functions may have varying levels of complexity, tasks, and demands. The challenge for HR teams is to convert these tasks into the number of people required to perform them. Usually, this step requires input from functional leaders and managers within those teams.

4. Workforce Skills and Expertise

Consider the skills and expertise required for each function. Some functions may demand specialized knowledge, while others may require a broader skill set. Matching the workforce skills to the function's requirements ensures that the team is equipped to handle its responsibilities effectively.

5. Strategic Business Objectives

The last step is to evaluate whether the size and mix for each function is suitable to achieve overall business objectives. Some key questions to ask include; Is there more opportunity to leverage technology? Where is the most suitable location to have functional headcount? Have we missed any required areas of competency?

Functions should not operate in isolation but contribute cohesively to the overall goals of the company. Ensure that the workforce within each function is tailored to support and drive these strategic initiatives. After performing these five steps you should have a good understanding of not just the number of people required in each function, but the skills required by these people and the parts of the function that will leverage technology.

Five Reasons Why Measuring Functional Efficiency is Important in 2024

1. Agility in a Dynamic Market

Businesses are characterized by constant change and evolving market dynamics. Measuring functional efficiency enables organizations to adapt quickly to market shifts by ensuring that each function is agile and responsive to changing requirements.

2. Cost Optimization

This has been a key driver for many HR teams in the last year. Efficient functions contribute to cost optimization. Balancing the number of people in each function with the workload and responsibilities prevents overstaffing, reducing unnecessary labor costs while maintaining operational effectiveness.

3. Enhanced Employee Productivity and Satisfaction

A well-optimized workforce contributes to higher levels of employee productivity and satisfaction. When functions are adequately staffed, employees can focus on their responsibilities without being overwhelmed, leading to increased job satisfaction and better overall performance.

4. Strategic Resource Allocation

Measuring functional efficiency allows organizations to strategically allocate resources where they are needed most. By identifying areas with excess capacity or those in need of additional support, companies can ensure that resources are allocated in alignment with priorities.

5. Competitive Advantage

In a competitive business environment, organizations that operate efficiently gain a competitive advantage. Efficient functions allow for faster decision-making, improved customer service, and a more agile response to market opportunities.

Looking to evaluate your functional headcount? Start with trusted benchmarks here

Conclusion

Understanding the optimal headcount for each function, including Human Resources, is a critical aspect of organizational success in 2024. By considering functional benchmarks, technology integration, workforce skills, and strategic business objectives, organizations can ensure that their functions are not only adequately staffed but also aligned with the broader goals of the company.

As you embark on the journey of optimizing your functions, remember that finding the right balance in headcount is a continuous process that requires adaptability and a keen understanding of both internal and external factors. This HR handbook is not just about HR; it's about redefining how each function contributes to the collective success of the organization.