HR Gets Strategic

Once focused on cost cutting, today's human resources systems are all about gauging, growing and managing the corporate talent pool.

"Our people are our most valuable asset."

How many times have you heard that company slogan? But take a close look at how your human resources department is using technology to manage its labor force, and you may realise-as many companies have-that this old saw could use some sharpening.

In recent years, HR departments have focused their technology efforts on driving down costs by automating or outsourcing nonstrategic, transaction-oriented processes such as benefits enrollment and payroll. As a result, many employees can now do a number of things online that used to require the intervention of HR staff, such as viewing pay stubs, changing personal information or enrolling for benefits.

These types of systems have certainly helped to cut costs, in some cases to the tune of 20% to 40%, according to Ed Jensen, a partner in the human performance practice at Accenture. But increasingly, HR is being urged not only to reduce the cost of hiring, retaining and compensating employees but also to optimize the corporate talent pool. After all, if your workforce is your biggest expense, shouldn't you shape it to best support the strategic goals of the business?

"More and more, HR is being called upon to be a strategic partner," says Joe Tonn, manager of HR management systems at Oregon Health & Science University (OHSU) in Portland. "We have to come to the table laden with data, with plans of where we're heading and where the organisation should be heading."

OHSU is working on a Web-based recruitment system based on Oracle's IRecruit and HRIMS offerings. So far, the system has helped the organisation reduce the time it takes to fill a job vacancy from seven weeks to just over four. But more important, it will enable OHSU to move toward performing skills-gap analyses and succession planning.

For instance, Tonn is asking managers to list the top five or 10 competencies required to succeed in a variety of positions. The lists will be used to create a skill-matching system to refine the pool of candidates considered for these positions. Centralising this information in HRIMS will also help OHSU track skills it has in-house and those it will need down the road, given normal attrition and turnover rates.

OHSU also plans to monitor the training courses its employees complete and document the new skills in the centralised repository. The school will also begin tracking its successful hires against the recruitment sources they came from, helping to determine where to put its advertising dollars.

A New Look

This new way of thinking-sometimes lumped into the general category of "human capital management"-requires HR to quit looking in the mirror and start looking at how it can boost the bottom line. "HR's own budget is 0.5% to 1% of the company's overall expense, whereas people are 70%," says Jason Averbook, CEO at Knowledge Infusion, a consulting firm in Danville, Calif. "They've been trying to decrease the cost of their own 1% expense rather than optimising the 70% cost."

Managing human capital entails not only new ways of applying technology but also new metrics. As Averbook points out, if you spend US$1 million on a training system, it's more important to show a 20% increase in sales or customer satisfaction than a reduction in transaction costs.

In the recruiting arena, instead of looking at how long it takes to fill the position, companies should track the effectiveness of the hire, Jensen says. "The question becomes 'time to proficiency' instead of 'time to fill,'" he explains.

How do you achieve this transformation? Vendors in the human capital management market would love to help you answer that question. They range from traditional ERP suppliers, such as PeopleSoft, Oracle and SAP, to smaller vendors that focus on online recruiting, competency management, performance management, employee development or succession planning.

While no one vendor can yet deliver a true end-to-end human capital management suite, companies are still better off building a system around a centralised database rather than stringing together products, says Craig Symons, an analyst at Forrester Research in Cambridge, Mass. That way, you can use business intelligence and analytic tools to mine the data you collect.

"Human capital management spans the entire employee life cycle and requires a holistic perspective, and very few organizations have that vision today," Symons says.

If you have multiple HR systems, experts recommend whittling them down to one. "You don't want to have 67 recruiting systems or 45 payroll systems. You want one gold standard where you're storing data," Averbook says.

A good second step is to align the skills you need with the skills you have and then start filling in the gaps, Averbook says. "Until you know what your employees do and don't know, it's impossible to tie your training dollars to investment," he explains.

Another classic application of human capital management is mapping performance management and employee education to business objectives. For example, Roche Diagnostics, a research firm in Indianapolis, recently defined three competency categories across all of its divisions, as well as behavior competencies tied to those categories.

In a process that's separate from the performance review, managers and employees assess one another's performance in those categories. This information is fed into Roche's SAP-based HR system and tracked to determine the most appropriate training and development activities for each employee. The data can also be used for organizational development.

"We can sort the data at the department level so managers can see prevailing strengths and weaknesses to see if they need to do a group development activity or look for that capability in their next hire," says Patty Ayers, head of human resources at Roche.

This type of visibility into employee strengths and weaknesses can help companies pinpoint and develop potential leaders and even encourage those leaders to stick around.

"With this visibility, companies can proactively give top performers the types of roles and training to keep their career progressing forward," Jensen says. "Those are the kinds of things that are critical to retention."

Another advancement is targeted training in real time. "The future of learning is to embed it into your day-to-day business instead of having it be a separate event," Averbook says. For instance, at Nextel Communications, a PeopleSoft-based system helps route a customer's call to an agent who has taken an online training course on that customer's phone model. If the agent who first answered the call hadn't taken the course yet, the system would have e-mailed him a link to get started.

Ah-ha Moments

Sometimes, human capital management projects take on lives of their own. At Medica, a large health maintenance organisation in Minneapolis, it started with an overhaul of the company's cumbersome, spreadsheet-based performance review and goal-setting process. To automate this process, Medica chose a module from Softscape in Wayland, Mass.

But the ah-ha moment came when the HR department was implementing the system at the same time management was developing its strategic plan. "We said, 'Oh, we should tie these together,'" says Gloria Hoffman, human resources information systems payroll manager and HR business manager.

Now, job profiles flow into the performance management system, as do individual goals based on Medica's five strategic initiatives. "Everybody can see how their performance is linked to the overall Medica strategy," Hoffman says. Furthermore, by storing job profiles in a centralised repository, Medica can now identify and track skills needed for each job, which aids in succession planning.

Looking forward, Medica plans to integrate a module to identify competency gaps and tie them to development tools that can help employees grow, Hoffman says. This information can also be used to improve Medica's hiring process, she points out. If the company finds that people in a particular job tend to lack a needed skill, it can update the job profile to hire candidates who possess that skill.

Changing your HR system from transactional to strategic can take three to five years, but the important thing is to get started, Symons says, adding, "As we move from an industrial to a knowledge economy, it's not what you manufacture but what your people know that gives you competitive advantage."

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