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By CIOinsight  |  Posted 01-05-2005

Human Interest

OPPORTUNITY

Companies are finally wising up to the idea that their most valuable assets are their people.

Six years ago, Canada Post, Canada's national postal service and seventh largest employer, with 70,000 employees, was under fire. Increasing competition from private carrier companies, such as United Parcel Service Inc. and FedEx Corp., was eating into profits, and the company's proprietary systems were too slow to handle the rapid change in the industry. "We started to see our growth rates dry up," says Jamie Esler, a general manager in the human resources department at Canada Post.

To make matters worse, the HR department was burdened with legacy systems that didn't communicate with one another, and that were too difficult for line-of-business managers to use, which made scheduling and payroll, as well as other employee management, an unwieldy challenge. Executives knew they needed to take drastic measures to bring the organization into the new millennium. "When it came down to replacing those legacy systems with an integrated HR suite, we realized that there were enough inefficiencies in the existing systems that the new systems would pay for themselves," Esler says. So the company turned to SAP to overhaul its HR, and made a human capital management (HCM) system an integrated part of the package. Today, Canada Post's HR department digitally tracks employee skills, training priorities, workforce scheduling and a host of other employee-related issues. And by bringing some previously outsourced HR functions back in-house, the company is saving millions every year.

Canada Post's experience with human capital management software is fairly typical. Yet, while saving a lot of money is never a bad thing, realization of the full promise of HCM—that is, actually turning employee databases into strategic tools that build stronger teams and drive profitability—is still hard to come by. "We're at the very early stages with HCM," says Craig Symons, a principal analyst at Forrester Research Inc. "Really only a few innovative companies are getting their hands around it right now."

The market figures bear that out. According to Gartner Inc., the HCM market is only about $1 billion at the moment. The slow adoption is not all that surprising. The HR department has always been considered an administrative cost center, and the development of human resources management systems (HRMS) that automate many HR functions—and the fact that almost all of these services are now readily outsourced—has many executives wondering what strategic purpose their HR department now serves, and why they should spend anything to upgrade it.

Cutting costs, like in the case of Canada Post, is the easy way to sell HCM to upper management. No one is denying that HCM software can be a valuable cost-cutting tool—such as driving the costs out of e-learning programs and creating the ability to streamline HR operations such as payroll and provisioning.

The more difficult argument to make is that new HCM software applications can provide greater insight into employees' skills and leadership abilities, and thereby aid in the strategic planning and development of teams.

It has yet to widely prove itself as a truly strategic business tool, and any CIO should think twice before making this significant investment of both time and money.

Ask your HR Director:
  • What sorts of employee information do we currently track, and how do we use that data?

    Ask your CFO:
  • How much does employee churn cost us annually?

    Ask your Chief Strategist:
  • How could greater insight into our employees' skills create greater efficiencies in our business?

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    : Strategy">

    STRATEGY

    IT plays a supporting—yet critical—role in any HCM implementation.

    HCM covers some broad terrain, including workforce planning (forecasting growth or downsizing), acquisition (recruitment and procurement of part-time or temporary help), management (training, performance management and succession planning) and optimization (putting the right people in the right jobs at the right time)—all functions one would naturally assume fall under the purview of HR. But while an HCM strategy clearly needs an HR executive to champion it, its success will hinge largely upon the IT department's ability to create a solid partnership that delivers on business requirements. "The CIO needs to support the HR executive in terms of how technology contributes to his or her department," says Gartner research director Jim Holincheck. "HR often isn't aware of all the opportunities out there from a technology perspective."

    When a company does embark on an HCM implementation, it is imperative that the CIO first sit down with HR and have a candid discussion. "You want to know what skills your employees currently have, what the likely career progression is for them, training schedules, performance reviews and so on. This helps managers make intelligent decisions about employees and what they should be doing," says Forrester's Symons. The discussion should go beyond collecting employee data, and into applying analytics for business value. The goal is to have one repository that contains all employee information so that workforce analytics are possible. Creating a corporate portal that lets employees and their managers view their own data, such as their medical benefits, vacation time, e-learning opportunities and recent performance reviews should also be a priority, analysts say. This will cut down HR administrative costs and help justify the less tangible benefits of HCM.

    The Talent Management Lifecycle
    Getting and keeping good employees requires ongoing management, support and training. Here's how it's done:
    PLAN
    Step 1: The ability to plan for workforce changes, make the best use of the various sources of talent for the organization and instill a talent planning process to ensure continuity of process, culture and strategic direction.

    ACQUIRE
    Step 2: The ability to attract, recruit and select the best talent for the organization.

    DEVELOP
    Step 3: The use of both formal and informal training, development and communications systems to further enhance talent throughout the organization.

    DEPLOY
    Step 4: The ability to ensure that the right people, with the right skills and knowledge, are used on the right jobs at the right time.

    RETAIN
    Step 5: The ability to retain and actively engage top talent and the people who are crucial to the organization's success.

    EVALUATE
    Step 6: The use of different evaluation measures and techniques to improve and assess the impact of human capital within the enterprise.

    (Back to Step 1)

    Source: Principles of Human Capital Management, David c. Forman, 2005

    As usual, addressing the company's biggest areas of pain first is recommended. "If your organization is growing, for example, you might want to focus on talent management and recruiting," says Symons.

    That was the case at LandAmerica Financial Group Inc., a full-service real estate transaction provider based in Richmond, Va., with more than 12,000 employees. Since 2000, LandAmerica has grown revenues from $1.8 billion to $3.4 billion, acquiring a number of companies along the way. "As our organization grows, we really have to use our human capital assets to effectively deliver new products and services to our customers," says Carol Anderson, senior vice president and director of talent and learning resources.

    LandAmerica's HCM efforts began in 2003 with the launch of a rudimentary talent management program meant to assess the company's overall strengths and weaknesses. Because the executive team was already behind HR's efforts, Anderson used them as her first subjects. "We took a fairly high-level inventory of our leadership group, and we soon realized that we should look at some technology to help us look more granularly at that data," including how managers were achieving business goals and how well executives were aligned with the company's corporate values.

    To help the HR department figure out exactly what a formal HCM system should include, the IT department built a small proprietary HCM system using SQL before partnering with HCM software provider Softscape Inc. "Our managers could type text in, and it gave us a quick and dirty inventory of employee skills," she says. Today, Anderson is working to move performance and talent management online for all of the company's 12,000 employees by 2007, and plans to move into the next phase of the rollout this year, which will include assessments of the company's top 300 leaders, followed by all managers in 2006.

    Though her early experience with HCM has been the simple automation of basic HR tasks, Anderson hopes the effort will lead to better management of employee development and, ultimately, corporate growth. But, thus far, it remains the unfulfilled promise of HCM. "If we can get data that shows that in this particular region we have a pocket of folks who could use some additional training on, say, goal-setting, we can hone in on that and target our training so we can make our managers stronger," she says. "That will lead to improved business performance."

    Ask your line of business managers:
  • What level of information do we have on employee skills sets?

    Ask your employees:
  • Would easier access to your personal employee data help you do your jobs better?

    Ask your COO:
  • Would more detailed employee data help build stronger teams?

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    : Technology">

    TECHNOLOGY

    There are some success stories, but because there are no end-to-end systems, implementation can be treacherous.

    One company that has enjoyed some strategic success through its use of HCM software is WellPoint Inc., one of the nation's largest health-benefits companies, with over 38,000 employees, and $37 billion in revenues. HCM has been de rigeur in the WellPoint HR department since 1998, says staff vice president of human resources information systems Chuck Moore. Back then, the company was experiencing unhealthy employee turnover that cost roughly $60 million each year. "This is a real numbers-oriented company, and employee churn was an issue," he says.

    WellPoint partnered with PeopleSoft to install HCM software, all the while talking to employees to identify trouble spots—such as managers who might need additional training, or ensuring that important skills didn't walk out the door with departing employees. The data was added to a repository that could be aggregated and analyzed—and action was taken on the results. In addition to adding training courses, managers' bonuses were based partly on turnover reduction. The company also unveiled an annual employee survey of roughly 100 questions on everything from job satisfaction to their perceptions of HR. The results are presented to the executive team and managers, who in turn use the information to make procedural changes.

    For example, one survey revealed that employees felt they had limited job advancement potential because of a rule that required them to get permission from their managers to apply for another job inside the company. After changing the rule, internal promotions increased by roughly 15 percent, Moore says. And within three years, employee churn was reduced by half.

    Since 1998, WellPoint—which has grown from 7,000 employees in 1997 to 38,000 in 2004—has added several modules to its HCM system, including self-service benefits administration, an employee portal and succession planning software.

    Moore claims that the company's growth has been significantly aided by its HCM program. Since putting the system in place, he says, "our churn has gone down every year, our satisfaction has gone up every year, and every year we have exceeded the previous year's profitability. Those lines are all going in the same direction."

    The success that WellPoint has found in HCM came over a long period of time and required quite a bit of juggling. The succession planning module, for example, wasn't offered by PeopleSoft; Moore had to find a separate vendor to provide it. "I don't think there's any one vendor out there that can deliver end-to-end HCM. The large ERP companies have been traditional providers of HRMS systems and are adding HCM modules into their system, but they're not as mature as those from other players," says Symons of Forrester Research.

    Ask Your CTO:
  • Do we have any HCM modules already in place?

    Ask potential vendors:
  • How do you plan to extend your offerings in the future?

    Ask your IT staff:
  • How long will it take us to achieve a return on this investment?

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    : Value">

    VALUE

    HCM promises to deliver operational efficiencies, but the strategic benefits are still elusive.

    Unlike WellPoint, most companies cannot boast that their HCM rollouts have resulted in increased revenues. But well-run HCM systems can reap big cost-cutting rewards.

    The savings have been exceptionally clear at Canada Post. In addition to creating an employee portal that allows workers to manage a number of their own benefits, the company brought its payroll back in-house, eliminating the cost of outsourcing and reducing its existing payroll department by 20 percent. Creating a national online network that gives managers a uniform way to track overtime pay and absenteeism has shaved more than $9 million dollars a year since it was implemented in 2003.

    As HCM software matures, the strategic benefits may yet materialize. At the moment, however, enterprises will have to settle for simple cost savings. And there's nothing wrong with that.

    Ask your department heads:
  • Would the availability of deeper employee metrics improve staff morale?

    Ask your executive team:
  • What kind of information would help identify future leaders?

    Ask your COO:
  • How can we use employee data to create operational efficiencies?

    Click here to download a Fact Sheet for this article.