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Making Dollars and Sense Out of Employee Self Service

In the murky netherworld of technology costs and benefits, many organizations don't bother to fully study the financial impact of ESS. That's a mistake. Make an effort to assess your ROI before moving forward.

July 1, 1998
Related Topics: HR Services and Administration, Finance/Taxes, Service
Elaine Davis knows a good thing when she sees one. Three years ago, after Glaxo Holdings merged with Boroughs Wellcome, employees at the new company found themselves swimming in organizational charts and company directories. "Trying to find an employee and figure out who he or she reported to was impossible," explains the director of human resource services. That prompted human resources to use a Web interface and a company intranet to post current information so that employees could find it on their own.

At the time, Glaxo Wellcome found itself venturing into uncharted territory. It used a development tool kit and its own information technology (IT) staff to create the firm's first generation of self-service offerings. Although the company carefully designed an implementation strategy, it never conducted a cost-benefit study, it didn't run a return-on-investment (ROI) analysis, and it certainly didn't determine how much staff time the project would require. "We just knew we needed to find a way to get people to communicate. We recognized that it offered a significant value for everyone, including human resources," says Davis.

Over the months that followed, as HR added a series of employee self-service (ESS) capabilities, the value of the technology became abundantly evident. Nevertheless, Davis and her staff aren't a whole lot closer to understanding the underlying costs associated with the entire self-service program. They know they're reducing paperwork, they recognize that they're re-deploying staff to function more strategically, but getting a handle on the financials is as elusive as ever. "Today, this is simply the way to conduct business. There are no alternatives," she explains.

It's difficult to measure the cost and value of ESS.
In today's rocket-paced world, Davis has plenty of company. At a time when most organizations scrutinize costs the way a forensic expert surveys the scene of the crime, ESS technology remains one of the final unexplored frontiers. It's not so much that senior executives wouldn't like to know how an implementation will play out, it's that the costs and benefits are difficult to measure and even more challenging to understand. "Self-service is not a technology, it's not a tool, it's a behavior," states Jerry McLaughlin, CEO of Enwisen Inc., a Novato, California company that sells employee information systems software.

For Windows-based client/server solutions or Web-based software, $100 or more per employee is fairly typical. Factor in maintenance, upgrades and training, and the figure easily can jump by another 30 percent to 40 percent. And all this is assuming the hardware is in place.

When The Hunter Group, a global information management-consulting firm based in Baltimore, Maryland, examined the topic, it found that the majority of companies -- particularly those in the high-tech arena -- didn't conduct rigorous cost justification before implementing self-service. Most organizations justified the technology as a way to serve a growing population of workers with no increase in HR staff, reduce the cost and cycle time for processing transactions, improve access to data, and raise the overall level of satisfaction with human resources. A few felt that self-service was inexorably intertwined with their image as a progressive company -- regardless of the cost.

Of course, all this isn't to say that companies should avoid looking at costs as well as capabilities. "Return on investment is an issue that can't be ignored," says Alexia Martin, a management consultant who conducted the survey of 25 companies for The Hunter Group last September. Yet understanding the cause and effect of today's ESS technology is a mind-bending task. And one that must transcend the sphere of IT professionals. "In order to build a successful HR department, it's necessary to use self-service technology to maximum advantage. It's the future," states Eric Gelman, director of marketing for PDS, an HRMS vendor headquartered in Bluebell, Pennsylvania.

Take a look at the big picture.
Merely looking at the price tag for a self-service system can certainly cause a case of sticker shock. When Martin examined what companies are paying to implement systems -- either Windows-based client/server solutions or Web-based software -- it became clear that $100 or more per employee is fairly typical. Some companies spend as much as $300 per employee to install the required software and integrate everything into a total solution. Factor in maintenance, upgrades and training, and the figure easily can jump by another 30 percent to 40 percent.

And all this is assuming the hardware already is in place. The equipment needed to build a network -- servers, routers, PCs, kiosks and more -- can add another $100 to $200 per employee. At one 20,000-employee company that Martin studied, the cost of implementing a system initially ran $890,000, and the total cost over five years exceeded $6.5 million. And that didn't include maintenance and upgrades to the core HRMS. "Every module you install and customize adds significantly to the cost," Martin explains. In fact, customizing a module to fit the exact needs of the company -- a necessity for most organizations -- can tally 60 percent of the software's total cost.

Some vendors, such as Lawson Software, offer highly integrated Web-based ESS applications built into the core HRMS. Others, such as PeopleSoft, ESSENSE Systems, SAP, ADP, Oracle, J.D. Edwards, Lotus Development and PDS, are rapidly adding powerful functionality. And still others, such as Edify, NetDynamics, TALX and Seeker Software, are serving up components that can run on top of other HRMS systems. To be sure, there are plenty of different approaches to take -- all designed to let managers and employees control their own data, including employee records, banking information, benefits, travel expenses, timesheets, electronic pay stubs, salary verifications and more.

Finding the right mix of hardware and software often has more to do with a company's unique needs than cost. An organization with a large base of professional employees sitting at desks might turn to a Web-based self-service solution, while an organization with employees primarily on the factory floor might require kiosks and an interactive voice response (IVR) system. Yet, beyond that, it often comes down to how systems mesh with existing work patterns, and what software can deliver the biggest returns. It's also a question of whether an enterprise has the expertise and resources to handle a project internally. Turning to an outside designer and integrator can ratchet up costs still more.

Make ROI a priority.
Early on, Glaxo Wellcome realized that it would have to build its own self-service components on top of a PeopleSoft system running an Oracle database. "When we began in 1995, there were no commercially available self-service software programs. It came down to doing it ourselves or not doing it at all," says Davis. And because the pharmaceutical giant already developed the systems to build its own ESS modules as needed, it continues to do so using software from NetDynamics. The system allows workers to update employee records, emergency contacts, educational information and a Web-based company directory. It also features the schedule for shuttle buses, information about discount programs and health screenings, and even the menu for the company's employee cafeteria.

And that's paying handsome dividends. Although Glaxo Wellcome hasn't conducted a formal analysis of costs and benefits, Davis estimates that self-service programs running on the corporate intranet have cut some transaction costs by 50 percent or more. Processes that used to take two or three days now are completed in a few hours. Across the entire department, about 10 percent of HR's work now is transactional in nature, compared to 60 percent to 70 percent only two years ago.

At Pacific Bell in San Ramon, California, ESS will soon become the way that nearly all employee transactions take place. Today, employees can obtain employment verification via faxback by using the company's intranet or an IVR system. The existing legacy system, which is more than two decades old, also allows employees to update W-4 data and make changes in their withholdings. Newly installed SAP software, which will be fully operational by 1999, will let employees handle myriad functions online using a Web browser: expense reporting; direct deposit updates; pay stub viewing; annual bonus information; employee records updates; emergency contacts; and attendance and time records, including overtime. Employees who don't have access to a PC will be able to use many of the same features through an IVR system powered by Edify software. "The goal is to empower employees and cut costs," says Burke Fong, a manager of human resources and a senior systems analyst for the 45,000-employee firm.

In fact, when Pacific Bell pulls the plug on nearly 60 legacy systems it now uses to handle HRMS and ESS, it will slash well over a million dollars a year in expenses. By reducing hardware, consolidating software into a single system and reducing support staff, the telephone service provider projects that it will recoup the total cost of the investment within three years. And it will eliminate a Year 2000 problem, while providing employees with far better service. The Web site will be available more than 20 hours a day, seven days a week -- almost double the number of hours employees have access presently. "We looked at costs and ROI from the beginning," says Fong.

And that's a solid, if uncommon, strategy. Experts say a well-designed ESS solution typically can pay for itself within a year or two. In most cases, the return is approximately $35 to $50 per employee per year at a large company and as much as $100 per employee annually at a small firm. "It reduces costs on many levels," says Gelman. For example, at a large United States oil company with 9,000 employees, Web-based self-service -- handling only benefits statements and electronic pay stubs -- slashed $368,000 in the first year alone. Approximately $108,000 of the savings came from eliminating paperwork and postage; $260,000 was cut by a reduced need for staff to handle the transactions over the phone and in person.

Achieving results with ESS is about dollars and sense.
When it comes to employee self-service, not all costs can be quantified in dollars and cents, and returns aren't only a measure of money saved. As Davis puts it: "There are tremendous opportunity costs associated with a self-service program." In many cases, improving the quality of service HR provides can go a long way toward raising satisfaction with the entire organization. It can also help human resources become more strategic -- either in the way it handles transactions or by having the time and tools to analyze data and provide top management with a better understanding of staffing needs.

Yet, tossing together a system simply to join the self-service bandwagon can create an endless series of headaches. Without a highly integrated solution that offers scalability and flexibility, all the technology in the world can't make employee self-service succeed. Enwisen's McLaughlin believes a company that rushes into self-service risks failure. "Ultimately, it costs the same to build an outstanding system as one that's poorly conceived and badly designed," he says. "More than anything else, an employee self-service solution has to be intuitive, useful and convenient. It has to provide advantages for those using it in order to benefit the organization."

At a time when cutting costs and eliminating unnecessary work has become a corporate religion, self-service is finally serving the organizations that truly understand its value.

Workforce, July 1998, Vol. 77, No. 7, pp. 67-69.

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