Pressing for returns

Blowing the budget on HR IT systems in time of recession may not sound like
good business sense, but suppliers armed with ever-more sophisticated tools are
making the case for investing now to get ahead in the human capital game. By
Keith Rodgers

Everyone knew that the economic data coming out of the US this month was
going to be bad, but the scale of the problem took many seasoned watchers by
surprise.

According to figures released by the Labor Department at the start of
November, 415,000 jobs were lost in the US in October – a fall that pushed
unemployment rates in the world’s largest economy up by one half of a
percentage point. Combined with data showing that 24 million jobs will be lost
globally in 2002, the picture could hardly look bleaker.

For some specialists in the human resources IT industry, it was yet another
blow – now, one would assume, is not a good time to be touting recruitment
software applications.

The marketing arm of the IT sector, however, has always proven to be
resilient, and even in the face of global slowdown, vendors are busy punting
out statistics that demonstrate how investment in HR software can lead to fast
returns. For example, Job Partners, an online recruitment service provider,
argues that getting the employee acquisition process right is as valid in a
recession as it is in boom years. Because some skills remain hard to find and
good quality candidates are more reluctant to gamble on a job change,
streamlining your recruitment processes is as important as ever if you are
looking to improve your human capital asset base and cut operational costs. And
while it might not be the kind of investment that first springs to the mind of
a finance director looking to improve the bottom line, there’s merit in the
argument. HR IT investment still makes a lot of sense in the current climate –
it just needs a solid business case.

For years, HR has been the poor cousin in the IT market. Viewed historically
as a transaction-based activity – in much the same way that the HR function
itself has long been viewed primarily as an administrative centre – investment
was largely driven by somewhat prosaic needs.

More recently, however, as the HR function has begun to carve out a
strategic role for itself, the IT industry has set its mind to systems that
improve effectiveness, particularly in terms of employee measurement, retention
and the leveraging of human capital. These strategic systems, catering for
activities such as performance management and competency assessment, focus on
delivering both hard and soft benefits. In the boom years, when organisations
were prepared to gamble in the hope of gaining a competitive edge, these
systems were beginning to find their way on to boardroom agendas.

Now, as IT budgets and headcounts are slashed, boardroom focus is elsewhere
and the criteria for investment have changed. Whether it is a system upgrade or
procurement of a niche product, approval rests on delivering rapid, tangible
return – and preferably, one that shrinks the cost base. "Companies are
really zeroing in on the cost-reduction side right now," says Stacey
Lawson, vice-president and general manager of employee relationship management
at Siebel, which recently entered the HR market. "Intuitively they believe
there are lots of benefits, but in all areas people are looking more directly
at the cost-saving side of ROI. That’s life these days in enterprise
software."

Ironically, while the IT industry continues to offer ever-more sophisticated
systems, many organisations still lag behind at a basic transactional level.
Any administrative process that involves either manual labour or duplication of
activities between HR and employees is ripe for automation, from timekeeping
records to updates of personal information and delivery of pay advice.

All of the major HR systems from leading suppliers such as PeopleSoft,
Oracle, SAP and Lawson provide the engines and application modules to handle
these kinds of processes, while a raft of specialist software providers offer
an alternative in the shape of "point" solutions. In each case, the
ROI argument is relatively simple. If you can cut costs – not just in terms of
HR administration, but also from the line of business – and improve
effectiveness, particularly the quality of management data, you’ll probably
have a business case that the board will listen to.

At a transactional level, however, some of the more significant efficiency
gains promised by vendors go beyond basic automation and involve a degree of
corporate reorganisation and a new approach to data management. In particular,
the advent of Internet-based systems from the leading HR suppliers has prompted
many organisations to look at rolling out employee portals, the front-end
systems that form the platform for Web self-service.

By allowing end-users to input their own HR-related data and check
information through their browsers, organisations can automate a range of
functions, from enrolment in healthcare schemes to online distribution of
payslips. Re-keying of data – a resource-hungry and error-prone operation – is
made redundant as users enter their own information directly into systems in a
timeframe that suits their working patterns. In addition, as end-users become
comfortable with the methodology, the portal provides a means to distribute
both HR-related and corporate information across an organisation. On the
surface, this combination of hard cost-savings and soft benefits makes for a
convincing business case.

Even at a pure process level, however, early adopters of employee portals
warn that implementation throws forward a number of challenges. For one thing,
portal deployment is dependent on the development of a suitable IT infrastructure,
and for users of older technology, that may require an upgrade to a more
flexible system architecture (see box). This kind of investment clearly impacts
the ROI equation.

At a cultural level, meanwhile, HR departments have to be aware of a variety
of issues when they adopt this kind of technology. Information dissemination,
for example, has to be carefully controlled – because data is being
"pushed" to the user rather than requested, reactions can be negative
if employees receive irrelevant material or simply feel they are being swamped.

In addition, take-up of many of the add-on services that organisations are
tempted to offer employees – such as personal holiday offers from corporate
travel agents – can be low, particularly in European countries where Internet
users are less familiar with online retailing. Above all, the HR department has
to be ready to handle change – self-service demands that HR administrators
relinquish control over many of their activities, raising the spectre of major
role changes or redundancy. Each of these cultural issues could have a
significant impact on the real – as opposed to projected – investment story.

But while these transactional and process-based investments focus on
tangible cost-savings, the argument for implementing HR technology is much more
fundamental, based around potential productivity gains and the more strategic
issues surrounding effective human capital management. As Roger Moore, services
director at RCMS, argues, "ERM is more than any single product or system.
It should link together existing disparate employee-related systems including
administrative, business intelligence, knowledge management and reporting
systems, as well as systems to manage staff performance, analyse skills
levels/shortages, and improve staff efficiency, training, loyalty and
collaborative working."

Clearly at this level, the investment argument becomes far more complex for
HR, but it rests primarily on the assumption that in most companies, human
capital and retained knowledge is not being effectively leveraged. At one
level, that requires companies to build an effective enterprise-wide
data-sharing structure, allowing knowledge to be freely disseminated between
individuals and departments. In itself, with all the data collation and
security concerns it entails, this is a significant challenge, and one that
goes beyond the traditional remit of HR.

In terms of performance management, meanwhile, the stakes are raised higher
still. Human capital analytical software touches every part of an organisation
– to be able to understand how well individuals, departments and the
organisation as a whole are performing, and then use that information to manage
change, HR needs to work closely with line managers across the company. If, for
example, an account manager’s performance is measured on the basis of client
satisfaction, the HR-related data needs to be combined with external customer
research.

Many of the leading HR management systems vendors have developed business
intelligence applications that can demonstrably help this process, measuring
the effectiveness of employees and departments in their day-to-day activities
while giving senior managers a strategic insight into the strengths and
weaknesses of the total human capital base. While some of these applications
are based around relatively mature management tools, such as the balanced
scorecard, many of the newer applications coming on to the market are more
aligned to traditional financial processes such as budgeting.

Software vendors point out that while the ultimate goals of effective
performance measurement require a far-reaching reassessment of company
practices, there are a significant number of short-term gains to be made. For
example, the framework for skills and knowledge analysis is typically built
around some kind of competency assessment programme. Although the initial
process of assessing and recording skills can be laborious, it can produce
tangible short-term results even in the throes of recession.

Eudie Thompson, CEO of specialist software developer Zynap, argues that
companies that develop competency profiles of their employees – including their
pre-hire CV, details of training courses and instructor assessment, appraisals,
projects undertaken, and even extra-curricular activities – may discover they
can leverage the skills they possess in-house rather than recruit. The
functionality to perform this kind of competency management is contained in a
raft of systems, from HRMS applications to Learning Management Systems and in
Zynap’s case, an artificial intelligence based system currently under
development.

Ultimately, whether companies choose to invest in HR IT at this level
depends on whether they buy into the whole concept of effective human capital
management.

If HR is still perceived primarily as an administrative function, investment
approval is likely to be limited to transaction-based improvements. If HR can
make a case for a strategic role, investment in more sophisticated tools
becomes far easier to justify.

Paving the way for a partnership approach

The concept of
"collaboration" has primarily been driven in the IT industry by
issues well outside the domain of HR, covering "back-office"
supply-chain issues such as manufacturing and logistics, and more recently
"front-office" business strategies such as customer relationship
management. Moving towards collaborative working practices does, however, have
a significant impact on an organisation’s underlying IT infrastructure, which
in turn affects HR’s ability to fulfil its own role.

The core principle of collaborative commerce is to streamline
the way organisations work together in order to match customer demand more
closely with vendors’ ability to supply. At the back-end of the equation,
companies are developing ways to exchange data more freely, improving
visibility down the supply chain so that every organisation involved in the
development and delivery of products or services is aware of what its partners
are capable of delivering. More advanced forms of collaboration are being
pursued in sectors such as the automotive industry to allow for collaborative
product design.

At the front-end of the equation, meanwhile, companies are
attempting to use customer relationship management as a means to get a more
in-depth understanding of real demand and purchasing patterns, which can be fed
into their forecasting processes. Ideally, the business relationship with the
customer should evolve into a partnership, where customers see the benefit of
sharing data with their suppliers because it ultimately improves the quality of
service.

Underpinning this collaborative model is a new, more flexible
IT architecture that allows for easy integration between different systems. In
particular, systems that are designed specifically for the Internet offer far
greater flexibility for collaboration at an organisational level, both
internally and externally, and also give individual users more flexibility in
the way they work. The previous generation of IT architecture was built around
the concept of client/server computing, where the bulk of application
processing was carried out centrally, but the "client" system – such
as a PC – ran some code. Pure Internet architectures, by contrast, turn the
"client" primarily into a pure access device that allows users to log
into the system easily through various different types of equipment, including
remote PCs.

This flexibility has a number of technical benefits for the IT
department, but it also underpins the development of collaborative HR-related
initiatives such as employee portals. HR vendor PeopleSoft, which rebuilt its
entire enterprise application suite around an Internet architecture, has now
turned the issue into a central plank of its marketing strategy, and the likes
of Oracle and others have joined the fray.

Although the choice of enterprise-wide architecture is unlikely
to be driven by HR, the implications for the department mean that HR management
should have a say in decisions affecting its own technology capability.

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