New order

As it strives to earn its strategic label, HR is being
supplied with new analytical tools. But in order to assert itself in this
business intelligence role, the profession needs to learn to use the software
to its advantage. Keith Rodgers reports

It is not often that a rank outsider emerges to take control of a major
slice of the IT industry but software firm Siebel Systems has done just that.
Building from its roots in sales automation software, the company has come to
dominate the fast-growing customer relationship management field, forcing
software giants such as Oracle, SAP and Peoplesoft into a battle for second
place. Siebel spotted a growth opportunity, grabbed it and, through adroit
marketing, won a dominant position.

Siebel’s story is particularly relevant to human resources because this
year, for the first time, it has turned its attention to the field of human
capital management. Although its current offerings are relatively rudimentary,
especially when compared to the deep functionality offered by more established
enterprise software suppliers, its vision is clear – within three years it
believes HCM will be as big an application area as the customer relations
management sector it services.

While rivals and analysts alike have cast doubt on Siebel’s ability to play
catch-up in the HR sector without making acquisitions, its strategy underpins a
growing trend in both the IT industry and business at large.

Historically, software providers have tended to compartmentalise their
applications – building modules that focus on functional areas such as finance,
HR, manufacturing and logistics. While developers such as SAP – which dominated
these back-office areas in the 1990s – built enterprise-wide suites that
allowed easier integration between the modules, the functional mindset
reflected the management thinking of most companies. Organisations were
structured around largely self-contained departments, and software
implementations reflected that status quo.

Today, however, these boundaries are being blurred. Customer management, for
example, was typically seen as a "front-office" activity, spanning
sales, marketing and customer services. Now it is clear that finance plays a
key role (particularly in measuring customer profitability) as does supply
chain management – the processes that deliver the goods promised to customers
by sales and marketing.

Similarly, HR is being encouraged to move out of its process-oriented bunker
and get close to the heart of the enterprise, working at the cutting edge with
line managers. The software industry has responded by focusing on improving the
flow of data across organisational departments.

As a result, three significant trends have emerged in IT HR. First,
process-centric work, such as payroll and recruitment admin, is perceived as
routine in corporate eyes – even though many specialist applications are
becoming increasingly sophisticated and merit close attention. For most
organisations, the more that can be automated the better, since this, in
theory, frees up HR staff to do more strategic work.

Second, in order to be strategic, HR needs new analytical tools to support
its decision-making and align its goals with corporate objectives. And thirdly,
as the barriers between departments crumble, human capital-related decisions
are no longer the exclusive domain of HR, which means line managers require
their own HR-related analytics as well.

Much of the IT industry’s focus, in terms of software, is delivering this
kind of business intelligence, both in toolsets that users can deploy to build
specific applications, and in pre-packaged software products.

In the human resources field, the leading vendors are rolling out
sophisticated analytic applications ranging from cost measurement to predictive
modelling, most of them aimed at business users rather than technology
specialists.

In other departments, internally focused customer management applications
are also helping organisations measure HCM competency and performance in areas
such as sales, marketing and customer service.

It is still relatively early days – customer reference sites for the more
recent HR analytics applications are not easy to come by – but the business
benefits are already starting to be proven.

But to succeed with these tools, companies have to take an organisation-wide
perspective of their business intelligence strategy, which has important
ramifications for HR.

In a recent report, From Strategy to Action: Linking Analytic and
Operational Applications, industry analyst IDC warns that it is important to
establish an enterprise-wide foundation before tackling departmental analytic
needs. "The mistake organisations often make is to try to build an
enterprise system by appropriating funds for separate analytic applications –
first marketing, then supply chain optimisation, and so on.

"But this is a risky strategy. Starting with process-specific
applications, rather than the framework, companies run the risk of acquiring a
set of disconnected applications," the report says.

The logic of this argument is enforced when you consider the applications
available. IDC identifies a hierarchy of three different types of analytics
(see box) of which the second-tier – process or functional analytics – are the
most immediately relevant to HR. Here, enterprise vendors such as Peoplesoft,
Oracle, SAP, JD Edwards and Lawson, which provide the back-end HRMS engine for
HR processes, are building a range of tools and applications to provide further
intelligence to the HR function.

Their suites – typically named as variations around the "Workforce
Analytics" theme – allow for headcount planning, cost simulation and
forecasting, employee turnover analysis, recruitment effectiveness,
compensation planning and so forth, often reinforced with external benchmarking
data.

As well as the HRMS suppliers, traditional business intelligence specialists
are also playing for user mindshare in this space. SAS Institute, for example,
provides a range of applications, including an HR-specific scorecard.

Significantly, these suppliers are making big steps to extend HR analytics
beyond its traditional boundaries. SAS is working with Saratoga Institute to
roll out content roadmaps that put HR events into a wider business context,
bringing the HR manager closer in thinking to line managers.

Betty Silver, strategy manager for human capital solutions at SAS, points
out, for example, that involuntary turnover is generally measured from an HR
perspective in terms of the cost of hiring and training replacement staff.

For a business manager, however, losing a key individual may be far more
critical if it means a product cannot be delivered on time. The roadmaps
examine possible outcomes from different scenarios, and in some cases offer
remedies.

These applications are complemented by a range of other process analytics
that at first sight appear to be outside the remit of HR, but in fact relate to
enterprise-wide human capital management.

The biggest growth area for the analytics industry is CRM, and while many of
the applications coming onto the market focus on areas such as customer
profitability, a number are geared to managing individual and departmental
performance in areas such as sales, marketing and call centres.

Because performance measurement is the foundation for employee management,
HR can, and should be, playing a role in deploying them – particularly as many
of these applications will lead to fundamental shifts in the way employees are
managed and compensated. Sales staff, for example, have traditionally been
measured on the revenue they bring in, rather than the net profit that the
sales generate.

Switching compensation to a value-based model, which may actively discourage
employees from selling favoured lines, is a major issue that requires skilled
HR input. In practical terms, this means that many of the CRM analytics offered
by vendors such as Siebel, Peoplesoft, SAP and Oracle need to be considered as
part of an overall HCM analytics strategy.

While these process analytics offer the most immediate benefit, it is IDC’s
top tier – strategic analytics – that ultimately delivers most value at board
level, and which will potentially play a role in binding the HR function to the
heart of a company’s activities. Both Peoplesoft and SAP are preparing to
launch a range of planning tools in Q4 this year, which take these
enterprise-level analytics to their next stage. SAP will release an enterprise
management tool that looks not just at costing, but at skills deficiencies, and
then puts plans into effect to tackle them.

Capability planning

"People are now taking this more seriously," says Mark O’Dowd,
head of HR solutions at SAP UK. "It is not just about cost planning, it is
capability planning."

Peoplesoft, meanwhile, is preparing to unveil the third phase of its performance
management strategy. The first release focused on foundational information,
using an enterprise warehouse as a data collection point and including
ABM-style functionality. The second, introduced in January 2000, looked at
operational issues and decision support functionality in areas such as sales
and HR, and incorporated balanced scorecard methodologies.

According to Greg Wynne, director of product marketing for Peoplesoft’s
enterprise performance management division in the US, the next phase focuses on
predictive – or, more accurately, descriptive – modelling.

As well as customer behaviour modelling and workforce planning, the suite
will include a business planning module, with a spreadsheet-style interface
which allows numerous users to collaborate around a centralised application. It
means, for example, that business managers can enter headcount assumptions into
the model, and the knock-on effect will immediately be apparent to other
managers across the business.

This linking of analytics with process begins to answer industry analysts’
criticisms of many business intelligence applications – that they give users
valid perspectives on their strategic goals and local activities, but don’t
feed back into the operational side to make changes on the back of them.

As Stefan Rueter, director of business development in HCM at SAP’s German
headquarters, points out, "The pure display of information only solves
half the problem. It comes down to the ability not just to get information, but
to connect to business processes."

However, while these developments begin to address some of the shortcomings
of the HR analytics market, there is still some way to go.

What do you measure?

AMR Research analyst Monica Barron argues that most organisations have still
to break out of the mould of measuring cost and transaction. While it makes
sense to measure, for example, the cost of hiring replacement staff, what
companies are not doing is measuring the value of the human capital they have
hired.

"HR people love benchmarks and metrics – it is relatively scientific.
But when you start talking about how much value do I bring? Am I worth my
salary and benefits? You need to think of other metrics to make sure people are
contributing. Companies should be doing this on a constant basis," Barron
says. That process is difficult, since each organisation is unique.

Silver at SAS Institute believes it may not be possible to produce canned
applications that capture all this data generically.

Most likely, vendors like SAS will produce a range of pre-packaged
applications and metrics that give multi-dimensional analysis of the most
significant fundamentals for HR managers, while more sophisticated data-mining
techniques will be applied by high-end technical staff.

Ultimately, the success of all of these initiatives lies in HR’s hands and
its willingness to embrace analytics – not just across other functional
activities, but of its own performance.

Enterprise performance management is the glue that bonds different
functional processes into one cohesive strategy: given that people underpin
every aspect of corporate activity, there is a central role waiting for HR it
if chooses to grab it.

Software that helps managers to manage their department

More sophisticated software has handed non-IT managers the tools to
undertake their own analysis of how their department is running

The emergence of human resources analytics has been fuelled by a fundamental
shift in the business intelligence community. Historically, business
intelligence tools have been highly complex, designed to be used either by
skilled IT practitioners or, in the case of executive information systems,
aimed at senior managers.

While some of the more sophisticated analytical tools available still
require a large degree of IT or statistical proficiency, the emphasis is on
bringing business intelligence to the masses. Not only does this empower line
managers to undertake their own departmental analysis, it also allows companies
to spread understanding of – and responsibility for – performance throughout
the enterprise.

Industry analyst IDC breaks the analytical software market into three tiers:

Strategic analytic applications

These define corporate goals, using familiar methodologies such as the
balanced scorecard, and provide feedback both to senior and line-of-business
managers on whether the company is hitting its targets.

Process-specific applications

Designed to measure and plan specific activities, including HR activities
such as recruitment and training.

Foundational analytics

The core measurement techniques are used across the company and give
consistency to all analytical activities. They include activity-based
management and a methodology for allocating costs to establish the true
profitability of individual activities.

These applications feed from a common data store which extracts data from
relevant departments, cleans it and provides raw information for analysis. The
early days were dogged by high failure rates, usually because projects were too
complex.

Vendors and service companies have become more adept at managing these
implementations, and the number of success stories has risen fast. Enterprise
software suppliers now have well-established data warehousing strategies that
underpin their business intelligence strategies.