It’s tough enough coping with a sputtering economy and relentless pressure to do more with less. But factor in upheaval among major software-application providers, a more transient workforce and the need to constantly upgrade the skills and knowledge of workers, and it’s enough to make even the most seasoned executive’s head spin. The workplace of today bears little resemblance to its counterpart of a quarter century ago. In some instances, it barely even looks like the working world of 1999.
Companies on the leading edge have used Web portals to banish paper. They have instituted work-flow systems to eliminate the in-basket. They have embraced e-learning to deliver training and retain knowledge. And more organizations are now catching the wave. "We are in an era of enormous change. Human resources departments are feeling the pressure from all sides," says Jim Holincheck, a research director at Gartner Inc., a market research and consulting firm.
Navigating today’s business environment isn’t for the faint of heart. "It has been a mixed bag over the last couple of years," says Maria Schafer, a senior program director at META Group, a technology research and consulting firm. "The human resources department is attempting to go deeper into the work cycle and employee life cycle. The emphasis is on tools that help organizations manage competencies, deal with performance and boost learning. But putting all the pieces together remains a huge challenge."
The enterprise view
In recent years, the ERP and HRMS markets have been flipped upside down by mergers and a general lack of spending. First, business dried up after the rush to put systems in place to address Y2K issues. Then came September 11 and a sluggish economy. The top six vendors reported a combined 14 percent gain in revenues for the first half of 2004, but once enterprise giant SAP is subtracted from the equation, net revenues were down 1 percent.
Not surprisingly, the situation has left many vendors--and their customers--reeling. A spate of high-profile takeovers, including PeopleSoft’s purchase of JD Edwards and Oracle’s attempts to buy PeopleSoft, has generated a good deal of confusion and indecision in the marketplace. Only recently have companies begun to sort things out. "The disruption in the marketplace clearly factors into the decision-making process," Holincheck says. "People would prefer not to buy from a vendor that’s going to be purchased." He says there’s a growing awareness of the need to forge a solid contract. That way, "if an acquisition occurs, an organization has options" for dealing with any post-merger ambiguities.
The trend among ERP and HRMS vendors toward adding features has not subsided. Most large organizations long ago addressed basic administrative and self-service functions. Many medium and small businesses are now turning to these capabilities for the first time, and they are being courted by large vendors that are eager to find new business in an already saturated market. The larger businesses, meanwhile, are increasingly focused on strategic initiatives such as performance management, workforce analytics, succession planning, compensation management, recruiting, and training and development.
In fact, it seems that the mantra of the last few years--human resources must become more strategic--is beginning to take hold. At some firms, human resources executives are finally gaining respect as business decision-makers. Yet for every organization that manages to make the leap into strategic workforce management, too many others are left in the tactical trenches. Although there’s a greater awareness of strategic applications and the potential they provide, too many human resources professionals still cannot put together a strong business plan and engage in the kind of long-term planning that today’s enterprise requires, Schafer says.
Through it all, the classic ERP vs. best-of-breed debate rages on. Some experts, such as David A. Link, a vice president of HR transformation at The Cedar Group, a Baltimore consulting firm, believe that many companies refuse to dumb down processes to adapt to the basic level of functionality that an ERP vendor’s product provides. As a result, "enterprise software vendors now recognize that they must provide more robust functionality. They understand that they must extend applications throughout the enterprise and into supply chains." However, he also points out that best-of-breed vendors continue to find niches and fill them effectively. In fact, advances in the underlying IT infrastructure are making it simpler to mix and match applications and deliver results immediately.
Human resources applications evolve
Only a few years ago, many companies were deploying employee self-service, first-generation recruiting software and benefits administration systems over the Web. Now that these organizations have achieved significant administrative gains, they’re turning to more strategic functions. "There is a great deal more interest in point solutions to complement a core ERP system," says Robert Crow, a senior consultant at Watson Wyatt Worldwide in San Diego. These tools--including performance management, succession planning, recruiting, compensation management and analytics--are growing more sophisticated all the time.
Recruiting software that initially automated the résumé-collection process is now offering greater analytical capabilities. "Instead of just hiring faster and winding up with poor candidates, we’re using the technology to hire better," Link explains. Meanwhile, some organizations are now going so far as to outsource recruiting--a move that would have seemed radical only a few years ago, Schafer observes. "There is a greater openness and comfort level with different approaches."
Performance management and compensation planning are also garnering attention. A growing number of organizations are working to tie together these two functions. Over the past few years, Web-based performance-management systems have simplified the task of evaluating workers and transforming abstract corporate goals into definable actions and behaviors. Yet these applications have not solved the bigger problem of integrating compensation planning into the overall process. At the same time, stand-alone compensation-management systems have delivered only a portion of the tools required to develop a best-practice organization.
"Handling all the different
Another hot area is workforce analytics. Tools similar to those that have transformed finance, operations and customer-relationship management are now poised to revolutionize human resources. Already, software for workforce analytics is helping companies scrutinize compensation, recruiting, retention and performance so they can make more informed decisions about how to structure human resources programs, policies and pay. "Companies are recognizing that the softer side of the business can be measured and that it's a key factor in achieving success," says David Ulrich, a business professor at the University of Michigan in Ann Arbor.
Benefits administration is also receiving a good deal of attention. Holincheck says that while some companies are turning to outsourcing, all are looking to streamline processes. Basic Web functions are giving way to more sophisticated capabilities, including full enrollment, administration and account-management features. While many companies have already linked to outside service providers, including those offering 401(k)s and health benefits, highly automated systems, along with e-forms, are cutting down on paperwork, speeding transactions and improving overall service levels.
Finally, there’s a growing interest in human-capital management. A strong emphasis on retaining core talent and institutional knowledge is leading some companies to wade through an array of issues related to recruiting, retention, turnover, benefits policies, compensation trends and learning opportunities. Crow believes that the battle for talent will intensify, and as it does, the reliance on more sophisticated solutions will grow. "A lot of companies now recognize that it’s less costly to manage an existing workforce than incur the expenses related to high turnover--including hiring, training and the loss of knowledge and expertise," he says.
The challenge, according to Gartner’s Holincheck, is connecting all the various systems effectively. Although portals on the front end and better integration features on the back end are making the task easier, too many organizations buy systems piecemeal and wind up with applications that do not address the broader, more strategic needs of today’s enterprise. Consequently, "there is a growing interest and emphasis on buying suites," he says. What’s more, savvy organizations are turning to dedicated cross-functional teams to ensure that departments and operating divisions are making decisions that benefit the enterprise as a whole.
Outsourcing gains momentum
It’s difficult to pick up a newspaper or magazine without reading a story about outsourcing. It’s one of the hottest business trends, and it continues to pick up steam. The human resources field is no exception. In July, NelsonHall, a market research firm in Washington, D.C. that specializes in business-process outsourcing, reported that the market for multi-process human resources BPO will grow at 21 percent annually, reaching $7 billion by 2008. It also forecast that the total human resources outsourcing market will grow by 11 percent, to $33 billion worldwide in 2008.
"To date, the great majority of human resources outsourcing deals have been transaction-focused, single-process engagements, such as localized payroll services, pension and benefit administration, and recruitment. However, we are now seeing the emergence of the multi-process market," says John Willmott, founder of NelsonHall He notes that vendors are increasingly partnering with and acquiring other firms to broaden their service-delivery capabilities. Areas of focus include organizational and people development, employee-data management, workforce planning and deployment, and human-capital services.
Gartner Dataquest has found that the leading goals for adopting human resources business-process outsourcing include focusing on core business issues, improving service levels and reducing implementation costs. Holincheck says many companies believe that human resources outsourcing is relatively low risk compared to other activities, including sales and service functions. However, success is far from guaranteed. "The belief that outsourcing can cut costs attracts enterprises to HR BPO like moths to a flame," he says. Enterprises "can become enlightened, but can also get burned."
The complexity of today’s human resources systems is fueling the outsourcing trend, says Naomi Bloom, managing partner at Bloom & Wallace, a Fort Myers, Florida, consulting firm. "Handling all the different aspects--software, system integration and maintenance, call centers and more--requires tremendous resources. It’s more than a lot of companies can handle." An army of vendors, including Accenture, ADP, Ceridian, Convergys, EDS, Exult, Fidelity, Genesys, Hewitt, HRAmerica, IBM and TriNet, have entered the market. Bloom believes that in the future, many companies will access their ERP and HRMS through third-party providers. This could accelerate the trend toward consolidation.
The challenge for many companies is to determine whether it’s best to outsource the entire spectrum of human resources processes, a single subprocess or a piece of a process, Holincheck says. Regardless of the precise approach, the key is to think strategically, says META Group’s Schafer. "It might make sense to outsource recruiting, payroll or benefits. One of the things that a human resources department must do is engage in long-term analysis and planning." Total outsourcing of human resources is still far from reality, Schafer says. She has found that only about 40 large companies have taken the plunge.
Some experts, including Link, aren’t sure that outsourcing will "overhaul" the human resources function in its entirety. "It will add tremendous value and increase flexibility, but it is unlikely to become the predominant method for running an organization," he says. A more common scenario, for now, is the move toward the application service provider model. The potential and interest are growing quite rapidly, Crow says. "A lot of companies are looking at the ASP model because it delivers a lot of value to them from the technology perspective. They don’t have to deal with infrastructure issues, upgrades and more."
According to consulting firm IDC, the market for on-demand application services is projected to grow from $425 million in 2002 to $2.6 billion in 2007--a 44 percent annual growth rate. "Companies are growing more comfortable with the idea of using application service providers and other outsourcers," Crow says. "It’s an important piece of the marketplace."
Training and development make the grade
A knowledge-based economy demands organizations that are smart and flexible. It’s no longer possible to ensure success with a great brand name or a stellar product. In today’s fast-changing world, an organization’s knowledge and talent determine whether it speeds to success or sputters to failure. As a result, training and development are attracting more attention than ever before. "There is a much greater emphasis on relevant training. Organizations are now tying it to business goals," says Pat Galagan, vice president of content at the American Society of Training and Development.
Driving this trend is the realization that a direct link exists between training and organizational success. It’s more than a need to get employees working at a functional level. It’s all about building an environment that makes the most of the organization’s potential. Consequently, companies are not only focusing on specific skills and knowledge required to perform well on the job, but also providing leadership training that helps managers maximize employees’ contributions. Employees, on the other hand, are demanding greater availability of training. "It’s a question that job candidates are asking in interviews," Galagan says.
According to the ASTD’s 2003 State of the Industry Report, per-employee spending at the Fortune 500 companies belonging to its Benchmarking Forum rose from $734 in 2001 to $826 in 2002. Meanwhile, the number of training hours provided per employee at these organizations grew from 24 in 2001 to 28 in 2002. Finally, spending on training as a percentage of payroll grew from 1.9 percent to 2.2 percent during the same period. While human resources is heavily involved in training, other departments and even outside providers are increasingly a part of the picture. The leading strategic areas for training and development include technical knowledge, managerial and supervisory topics, IT, professional skills, safety and compliance, customer relations, product knowledge, and interpersonal and leadership skills.
Today, about half of the Fortune 500 operate corporate universities or plan to do so, and hundreds of other companies are following suit, according to Corporate University Xchange, a New York City research and consulting firm. In addition, many other organizations are establishing basic course work or relying on outside institutions--including Harvard, Stanford and Wharton--to pump up business knowledge. Executive education courses and executive MBA programs have become an important part of corporate learning.
Although e-learning has played a key role in training and development over the last five years, the line between online and classroom training is increasingly blurred. In some cases, organizations are combining the two to customize content to meet the specific needs of students. ASTD estimates that about 15 percent of all learning takes place electronically. For the firms that invest the largest amounts in training, however, the figure is closer to 30 percent. Sophisticated games, simulations and multimedia course work are part of the mix. Companies are increasingly connecting training to scorecards, return on investment and overall business results.
The road ahead
As memories of the dot-com debacle finally fade and the economy finds its footing, organizations will increasingly look to boost investment in technology and people. "Many companies are upgrading their ERP systems, boosting their strategic capabilities and investing in people," Watson Wyatt’s Crow says. "They have the basic capabilities in place, and now they are looking to take things to the next level with work flow and automation…In today’s knowledge-based economy, they’re looking to put their dollars to maximum work."
Global competition, digital communication and, if predictions are true, an ongoing shortage of talent will raise the stakes and push companies to their limits. "Human resources departments that perform strategically put themselves and their organizations at a huge advantage," Link says.