Midsize Firms Choose Technology Over Hiring

Executives attribute productivity increases to business process improvements and tech investments.

Technology spending trumps hiring for most executives at midsize companies as they seek to control labor costs while boosting productivity, Deloitte reported in its Mid-market Perspectives survey.

The survey, conducted by OnResearch in July and August, questioned 696 executives at midsize U.S. companies with annual revenues between $50 million and $1 billion.

Of those executives surveyed, 70% said productivity has increased since the recession began. But the two most-cited reasons for the increase in productivity were improved business processes and technology.

Thirty-eight percent of respondents said "strategic hiring in critical areas" offers a path to higher productivity. But 45% of executives responding said the need for their companies to become more productive is restraining new hiring.

Despite uncertainty regarding regulations, credit availability and the overall economic outlook, three out of four respondents said they are maintaining or boosting the level of long-term investments.

Productivity is crucial to hiring increases, with 58% of executives saying they would engage in strategic hiring in critical areas with appropriate productivity gains.

More than 40% of midsize companies say they're prepared to increase the size of their U.S. workforce over the next 12 months. Another 27% said they expect to reduce the size of their U.S. workforce.

Companies will begin reinvesting in their workforce when output increases, Chad Syverson, an economist at the University of Chicago, said in the Deloitte report.

"Higher productivity can increase employment but only if it enables the company to expand output," he said. "With the ability to produce more output with fewer resources, the company could cut prices and increase volume. It could improve the quality of its products and sell more. Or it could expand its product line and increase volume that way."

But rising productivity combined with flat output is a "recipe for fewer jobs," Syverson said.

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