Special Report HR Technology Forecast

October 26, 2007
HCM software: Does not meet expectations ... yet

    There's an almost eerie, science fiction ring to the phrase "human capital management software."

    It conjures up technology that will take ordinary employees, turn them into business assets like factory equipment or real estate and then improve their output to bolster the corporate bottom line.

    For several years now, analysts, vendors and managers of HR systems have regularly used this bit of business jargon to refer to applications that supposedly serve as strategic weapons for organizations.

    But putting aside the Brave New World comparisons, has human capital management technology lived up to its promise?

    Not quite, experts in the field concede. Much of the time, companies purchasing HCM software find themselves with what amounts to tactical tools that do little more than automate tasks such as annual performance reviews. Or they discover that the applications fail to fit modern business realities, suffer from clunky user interfaces or contain features that create more confusion than clarity.

    Still, vendors and organizations are edging closer to a time when human capital management software actually delivers the goods. Companies have grown wiser about the way they use the tools. Systems for mining the information in human resources software have improved. And applications have become more closely integrated. As a result, the technology can help firms do such things as decide which hiring sources lead to the best-performing candidates, spot top employees at risk of leaving and swiftly change corporate course to adapt to market conditions.

    HCM software, in other words, is on the verge of taking its place alongside other critical business software systems, such as financial planning and customer relationship management applications.

    "There was some functionality that was slower to market than those of us in the field had hoped," says Cynthia Guzman, president of consulting firm Epiphany IT Solutions. "But it's come a long way."

What is HCM?
    Human capital management software is an umbrella term for a wide range of applications designed to help with human resources tasks. These include core HR systems, which refer to applications for tracking basic employee data such as name, contact information, job title, manager and salary. Core HR software products often are called human resource management systems or human resource information systems. Software tools for running payroll and benefits administration also are considered part of the HCM realm.

    Then there are the applications typically classified as "talent management" software. These products help with high-impact tasks such as recruiting, performance management, compensation management and learning management. Another branch of the HCM family is "workforce management," generally meaning tools for scheduling and tracking time and attendance.

    The definition of human capital management gets a bit gray at the edges. It's unclear whether the term covers the emerging area of technology for collaboration and informal learning, which includes blogs, wikis and social networking applications. But the titans of the HCM software world, Oracle and SAP, along with smaller players such as SuccessFactors, SumTotal Systems and Workday, are embracing a more interactive approach to applications commonly known as Web 2.0. And some vendors, such as Taleo and SuccessFactors, explicitly tout social networking or Web 2.0 features in their latest HR software products.

    The phrase human capital management seems to date to the 1990s. About five years ago, PeopleSoft was the first major vendor to seize upon it, says Jason Averbook, chief executive of consulting firm Knowledge Infusion and a former PeopleSoft executive. The idea, he says, was to convey that HR applications had developed capabilities beyond the core HR duties of logging transactions and were moving into strategic areas such as recruiting and goal-setting. HCM also captured the way employees were coming to be viewed as "assets" that generate revenue and profit rather than mere "resources" or expenses to be minimized.

    Even so, Averbook thinks the term "was probably a mistake," because it led to overly high expectations of the software products. "HCM is a business strategy. It's not necessarily a system," Averbook says. But customers often are "counting on the HCM system to do everything."

Wide dissatisfaction
    HR software is now the fastest-growing area of business software. The market for HCM applications is forecast to expand 11 percent annually between 2006 and 2011, to $10.6 billion, according to analysis firm AMR Research. The surge stems from factors such as increased interest in pinpointing and rewarding key employees as well as fears of possible talent shortages in the coming years.

    Companies may be turning to HCM software to address such issues, but the products haven't always worked ideally. Much of the talk about talent management tools in recent years has been overheated, says Jim Kizielewicz, vice president of corporate strategy at HR software firm Kronos. In many cases, the software simply takes annual review or compensation activities and puts them online, he says. "There's a lot of hype out there in the market."

    Even as spending on talent management increases, so does dissatisfaction with the products, according to a survey this year from Knowledge Infusion and the International Association for Human Resource Information Management (IHRIM) professional group. According to the study, which included IHRIM members and Knowledge Infusion's customer base, 40 percent of respondents indicated they are not satisfied with their talent management software, up from 30 percent in 2006.

    HR software systems have struggled to accommodate the global nature of today's companies, as well as the trend toward "matrixed" organizations, where employees may have more than one supervisor. Usability also has been a sore point. Vendors frequently fall short of making their software as easy to run as such applications as Google's search engine or Yahoo Mail.

    David Metzger, director of management development at consumer electronics maker Canon USA, wishes the latest generation of HR applications had more intuitive user interfaces. These tools are designed not just for HR professionals but all employees, says Metzger, whose firm is in the midst of putting in performance management and learning management software.

    "Let's face it: If it's not easy to use for the employees, then they're not going to use it," he says.

    Then there are well-intentioned HCM product features that cause headaches or remain effectively mothballed.

    Position management is one example, says Rob Eidson, HR technology specialist with Deloitte Consulting and an IHRIM director. In theory, being able to create and monitor open positions in a company is smart, Eidson says. But position management tools add data-entry work, which often falls through the cracks, with neither line managers nor HR administrative staff keeping the data current, he says. "All of a sudden you're not looking at real, meaningful information," Eidson says.

    An HR software feature known as field-level security often is touted during vendors' sales pitches, but is rarely touched in practice, says Mary Carr Sarracino, senior vice president of consulting firm JAT. Vendors including this capability intend to let organizations decide what amount of data access to give each employee through an individual security profile, Carr Sarracino says. But the complexity typically is overwhelming and unnecessary, she says. "It's almost rocket science to put those profiles together," she says.

    So companies usually end up creating just a few generic security settings, such as letting individuals view their own data and allowing managers to update the information of their direct reports. The upshot is most vendors have gone through all the trouble of combining database security with application security and reporting access for naught, Carr Sarracino says. It "seems such a waste," she says. "It's not used."

Basic challenges
    The extent to which vendors are to blame for HCM software shortcomings is up for debate. Knowledge Infusion's Averbook says it's not fair to criticize some of the earlier HCM tools for failing to anticipate how heavily organizations would rely on the Internet, with virtually every employee using the Web to work and collaborate. Software products from several years ago were "tools for the HR and payroll departments," Averbook says. "Today, what firms want is tools for the workplace."

    HR users bear some responsibility too, the experts say.

    Eidson says that too often, HR leaders try to avoid the nitty-gritty work of setting sound HR processes to arrive at basic data such as headcount. Valid fundamental data is needed to do higher-level analysis. "HR leaders tend to not want to deal with it," Eid son says.

    A distaste for administrative duties helps explain the rise of HR outsourcing deals, which can include asking a service provider to take over HR software management. But for customers retaining control of at least some systems, vendors are trying to ease effective use of their software.

    Oracle, for example, has a "configuration workbench" tool to help firms decide whether to implement features such as position control. Customers are asked how frequently their jobs and titles shift, says Gretchen Alarcon, Oracle vice president for human capital management product strategy. If the customer reports a high level of organizational change, Oracle may recommend against turning on the position control feature.

    Even with vendor assistance, many organizations still find it challenging to get the technology foundations of HCM in place. They may have multiple, disparate systems as well as uneven methods for calculating baseline data such as headcount and turnover. But some firms have solved those problems and are moving on to do more sophisticated things with their HR software and information.

    Attendance at sessions on workforce analytics at annual IHRIM conferences has skyrocketed in recent years, says Joanne Bintliff-Ritchie, chief strategist at HR software and services firm DoubleStar. "As recently as last year, it wasn't even on the radar screen," says Bintliff-Ritchie, who adds there were about a half-dozen sessions on the subject of data analysis at this year's conference in Houston. "Each of those sessions was standing room only," she says.

    DoubleStar focuses on helping companies ferret out insights from their HR applications and information. Bintliff-Ritchie says DoubleStar can link HR data with results from other business applications to help firms explore matters such as whether employee engagement correlates with customer retention and increased training leads to better product quality.

    Much of the work takes the form of talking with clients rather than installing technology, Bintliff-Ritchie says. Software is important for mining data, she says, but so is the willingness of organizations to spend time reflecting on their business strategy and figuring out which workforce metrics are key to that plan. "The biggest block to companies managing their human capital effectively is they don't know which talent management practices that they have in place really drive business outcomes," she says.

Analytics, integration
    Many vendors are promising to help firms make such connections through analytic products. Dashboards and scorecards with graphs of key metrics are designed to help business leaders draw conclusions from their HR data. One of the factors behind the increasing interest in analytics is an evolution of technology standards. "Service-oriented architecture" is an emerging approach to software that allows applications to share information more easily.

    At the same time, HCM software vendors are working to make their tools more than just electronic equivalents of paper processes. SuccessFactors' goal-management software is designed to allow managers to quickly push out new, cascading goals that link the work of all employees to more central aims. SuccessFactors' software also tracks the status of goals, sends out alerts if progress is lagging and offers coaching tips for specific skills, such as making presentations.

    As a result, the software goes well beyond merely recording annual appraisals, says David Cain, director of small and midsize business marketing at SuccessFactors. "We're not automating the completion of a document," he says, "SuccessFactors facilitates more effective, ongoing interaction between managers and their employees."

    SuccessFactors and other vendors also have been striving to offer highly integrated software covering a variety of HR tasks. Well-connected software to cover performance, learning and compensation management makes it easier to go from completing an annual review to assigning coursework to authorizing a bonus.

    Software company Lawson is in the midst of building a new set of HR applications based on the same set of "competencies," which are definitions of skills and abilities. Lawson says the integrated suite will be an improvement over the way companies sometimes bolt together performance and succession management pro ducts based on different competencies. The lack of common definitions, Lawson says, makes it harder for organizations to assess their workforces and plan for the future.

    On top of benefiting from improved analytic tools and better integration, today's HCM applications often take advantage of a new method of software delivery. The software-as-a-service approach allows companies to rent applications over the Internet and pay monthly fees based on usage. This method allows firms to cut upfront costs and reduce the maintenance hassles of traditional software deals, where vendors charge for a "perpetual" license and the code runs on clients' computers.

    HR software is in the midst of a shift similar to one playing out in the broader HR field. Just as the HR profession is seeking to take on more strategic roles, applications are moving from back-office administrative tools to applications used by nearly all employees and for key tasks. In both cases, progress has been slow but substantial.

    Today, HR applications are "very much HCM for the HR department," says David Ludlow, vice president for human capital management strategy at SAP. But, he adds, "Organizations are really starting to see their HR data has a lot of value beyond the HR department."

    As a result, human capital management is coming into its own. It may not have been an appropriate description five years ago, Averbook says, but now, "it's definitely the right phrase."

Click here to download this feature.

Workforce Management, October 8, 2007, p. 39-47 -- Subscribe Now!