HR eyes the big leagues

Until recently, the human resources (HR) software world consisted largely of automating mundane administrative duties like payroll, leave and benefits. Now a new generation of HR software wants to transform HR from a lowly cost centre to a strategic, mission-critical part of the business.

Calling itself the likes of e-HR and human capital management (HCM), it wants companies to start believing their old line about people being their most important asset -- and acting accordingly.

"It`s time to treat your human capital as an asset class," says Brian Fenton, MD of consulting firm Aspiration. "Executives of large organisations like to talk about people as their most important asset. It`s time to live up to that statement."

Quite apart from any other considerations, the bottom line is that employees are expensive creatures. According to the US-based Saratoga Institute, people costs - including compensation, benefits and HR itself - make up nearly half of the average company`s total operating expenses.

Employees are also notoriously difficult to manage efficiently. In a 2004 study, PeopleSoft claimed that a company with annual sales of $10 billion was probably wasting $231 million a year on HR processes, from excessive recruiting fees to overpaid benefits. There aren`t many South African companies in this league, but the point is well taken.

The message is clear: HR has a direct effect on the company`s bottom line. This is the key reason why HR software has traditionally been driven by a desire to cut costs. And make no mistake, these systems worked, slashing HR costs by as much as 80% for some processes, driving the costs out of e-learning programmes and creating the ability to streamline HR operations such as payroll and provisioning.

But the ways people work - and companies administer HR - are changing. Software companies are recognising this evolution of HR, and are furiously peddling solutions that go beyond mere record or payroll processing.

HR software 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 optimisation (putting the right people in the right jobs at the right time).

Executives of large organisations like to talk about people as their most important asset. It`s time to live up to that statement.

Brian Fenton, MD, Aspiration

The argument that the bigger vendors are trying to make is that new HR applications can provide greater insight into employees` skills and leadership abilities, and thereby help with the strategic planning and development of teams.

Some companies claim to be able to take data on employee performance goals and link it to systems for compensation as an automated way to link performance with pay rises. They want to help the HR director do things like set performance metrics, and align HR programmes with organisational goals.

"In the past few years, we`ve seen a real evolution from HR as an administrative, back-office responsibility to a role that can affect enterprise performance," says Paul Weber, sales manager at enterprise software giant Oracle.

The prevalence of project-based work groups and external consultants is creating a demand for a new breed of HR systems that can keep up, says Allan Zoutendyk, a consultant at SAP. He adds that such software provides a way to "measure, manage and optimise employee performance" and make sure employees are aligned with business objectives.

Another element driving the evolution is the fact that HR managers want to become more strategic. They are looking to adapt some of the technologies already pervasive in areas like customer relationship management to do things like predicting - and preventing - staff turnover, says Jorg Salomo, a strategist at SAS Institute.

However, analysts and HR managers say the full promise of HCM - that is, turning employee databases into strategic tools that build stronger teams and drive profitability - is some way off.

At the moment we look at ROI, but sometimes it may make sense to simply break even for the intangible, soft benefits.

Peter Brown, HR project manager, Nampak

"We`re still in the early stages with human capital management," says Forrester Research in a recent report. "Really only a few innovative companies are getting their hands around it right now."

Gartner estimates the global market for HR software to be in the region of $1 billion at the moment, which pales in comparison to other elements of enterprise software.

Cutting costs, as in the case of packaging giant Nampak or SA Breweries, remains the easy way to sell HR solutions to upper management. What makes them so compelling is the way in which the Web allows companies to offer self-service HR applications. By overlaying a Web interface on legacy applications, companies can automate a huge number of manually intensive processes.

"Having done the business case for an HR implementation, what management wanted to know was simple: tell us how many HR heads we are going to take out," says Peter Brown, an HR project manager at Nampak. "We ended up telling them how much line management time will be saved through self-service - and that was the deal clincher for top management."

A recent white paper from Cedar eWorkplace Research Group shows that self-service applications reduce HR costs by anywhere from 44% to 80%. American car manufacturer General Motors has saved millions of dollars since launching a Web-based employee portal in 2000. SA Breweries estimates that it will save R75 million over the next 10 years by centralising and automating its HR function.

Apart from allowing basic employee self-service, many companies are now looking to centralise data on staff skills for managers, and increase the speed and reliability of the recruitment process.

"Once the systems are in place, you can educate managers and employees as to the possibilities of human capital management," says Brendon Gass, business development manager at Absalom Systems. "There`s invariably a positive reception, both from the employees who can now manage their own data directly, and from managers who can retrieve information from their computers instead of calling on HR."

While companies that roll-out HCM software can now do with fewer HR workers, cutting staff overheads is not the primary driver. "Our clients want better systems to handle the administrative part of the job, releasing time for HR managers to focus on strategic issues," says Rob Bothma, manager at Business Connexion`s Q Data Dynamique subsidiary.

What constitutes strategic HR? "It can be training and development, developing company culture, constructing reward systems, refining the measurement of performance and so on," says Dayne Falkenberg, MD of CUDA Technologies. "But the key element we are seeing in the marketplace is talent management: recruiting, building and retaining the right people."

One area of opportunity just waiting to be exploited in SA is e-learning, which is still in its baby shoes in spite of relatively high acceptance levels by local companies. Financial institutions have a huge amount of training to deliver around the new regulatory regimes, for example.

Also on the horizon for many companies is e-recruitment, which has enjoyed a relatively high profile through Web sites like CareerJunction, but has yet to filter down to company level. Here, says BCX`s Bothma, an online CV would serve almost as a potential employee`s first assessment, and allow managers to make recruitment decisions on the desktops, as it were.

Needless to say, while local companies are generally receptive to the best practices embedded in the software packages supplied by most big vendors, there is also a clear need for modules that address specifically South African challenges like skills development, black empowerment and HIV management.

"In the `90s the need in HR was for tools that could handle basic data," says SAP`s Zoutendyk. "Now clients are pushing us in software development, and are asking for things that we have to drive developers fairly hard to come up with. For us to compete, we must have localisation around areas like employment equity and the national qualifications framework."

Sometimes, though, decision-makers don`t understand the importance of local relevance in HR, says Nampak`s Brown. "Smaller players tend to recognise that far better. There are some ERP vendors - no names, no pack drill - who see localisation only going as far as tax tables."

This is creating a clear market opportunity for smaller niche developers that compete successfully with the big vendors in small areas of speciality like succession planning. In many cases, says Absalom`s Gass, SA is leading the rest of the world in creating software for people development.

The smaller players also have a ready market with smaller companies, which are often reluctant to make the kinds of investments needed to procure a big vendor solution.

"I don`t think there`s any one vendor out there that can deliver end-to-end HCM," says the HR manager of a JSE-listed manufacturing company. "The large ERP companies are continually adding HCM modules into their systems, but they`re not as mature - or as rich in functionality - as those from some of the smaller players."

Despite the successes and predictions of growth, however, adopting HR software is not without its headaches. For one, getting these systems installed and working can be complicated, time-consuming and expensive. What`s more, any new HR software system has to work with current hardware and software, and despite claims of easy integration, this is not always the case.

There`s also a disturbing gap between what executives expect from HR systems and what they actually receive. According to a recent survey by UK-based management consultants Towers Perrin, more than 95% of executives believed HR systems would improve the quality and timeliness of service to employees, but only 70% reported actually receiving this benefit. Another key benefit, the ability to improve overall organisational efficiency, was expected by more than 95% of those surveyed, but reported by only 67%. (For more figures, see sidebar.)

Ironically, though, one of the most powerful - and unexpected - benefits of HR systems is the way they can restore the human touch to bigger companies. Employees are finding they can do anything online, like access their pension details and assess their own skills inventories.

"Employees can not only conduct personal business, but also access information about their workplace, get tools and information about business processes, and use it for education, too," says Aspiration`s Fenton. "It makes for a far more effective organisation."

Still, a broad approach to HR does not make a definitive ROI analysis any easier. "Initially, when you`re looking at individual productivity, it`s very, very difficult to put a business case to it," says Oracle`s Weber.

"We can tell you which applications will save money, but there`s a bit of a leap of faith. A far easier calculation is often to measure the cost of not deploying an automated solution. After a couple of years of experience, it`s easier to determine exactly what a system is saving you."

It is a good idea to address the company`s biggest areas of pain first. "If your organisation is growing, for example, you might want to focus on talent management and recruiting," says Zoutendyk.

The ultimate 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, says BCX`s Bothma.

This will cut down HR administrative costs and help justify the less tangible benefits of a software solution. "At the moment we look at ROI, but sometimes it may make sense to simply break even for the intangible, soft benefits," says Nampak`s Brown.

So, what`s the verdict? As HR software matures, the strategic benefits may well materialise. At the moment, however, most companies - especially the SME market - will have to settle for simple cost savings. And there`s nothing wrong with that.