Heinrich has called for features ranging from a 360-degree feedback process to online pay stubs, ultimately prodding SAP software in several new directions.
"We are in ongoing discussions with the development team," he says. "This is one of our strengths."
One of his own strengths is a background in the trenches of software development. He has been at the Walldorf, Germany-based company for 19 years, and for a time led the creation of SAP’s human capital management applications.
Last year, SAP’s headcount jumped 11 percent, to more than 35,000 employees spread across more than 50 countries. Its increasingly large size makes it hard to preserve both an innovative culture and a reputation as a cutting-edge employer.
But Heinrich and his colleagues are faring well. SAP was ranked as the best employer in Germany among companies with more than 5,000 employees last year and again this year by business magazine Capital. Its revenue rose 13 percent last year to $10.1 billion, while net income jumped 14 percent to $1.8 billion.
Heinrich serves on SAP’s executive board, roughly the equivalent of a U.S. firm’s executive team. For 2004, his salary was about $500,000 and his total compensation was about $2.6 million. (These figures are based on average exchange rates between the euro and the dollar in 2004, when Heinrich received a monthly salary, and 2005, when he received a profit-sharing payment.)
He recently spoke to Workforce Management staff writer Ed Frauenheim about his talent management strategy, the ways he shapes software development and the importance of preserving the company’s image as a great place to work.
Workforce Management: What’s the most strategic thing you do as head of employee relations at SAP?
Claus Heinrich: There are basically two things. One is really talent management. We develop employees and help them deploy their talents the best way they can. It also has to do a lot with employer branding, to be the employer of choice.
Over the last year, we have implemented a very good technology tool--we use, obviously, our own SAP tools--to have a performance feedback discussion. This is a really important part. We look regularly into developing our colleagues and employees.
WM: How important is that to asoftware company--this idea of talent management?
Heinrich: Everybody says, "Employees are our most important asset." But if you look at the valuation of a software company and compare it with the valuation of an automotive company, you will see that there are a lot of assets that are physical assets at the automotive firm. Like plants, like facilities, like production lines and so on. But if you look at a software company, we have some physical assets--we have some computer servers, we have facilities, we even have some company cars--but the major asset really is our employees.
WM: Have you been measuring certain things to show that you’re managing talent well? How well have you been meeting your strategic goal of talent management?
Heinrich: First of all, we can talk about quality. A senior manager can really see that we have better talent. What we are currently doing is a 360-degree evaluation, so we can have at least some indication about quality of talent, about the management bench strength.
WM: So you’re trying to measure qualitative aspects of workers through the 360-degree evaluation--in other words, traits such as responsibility, communication skills and leadership?
Heinrich: Absolutely this is our goal, but it’s not an easy process. And we are well aware that the information we get out of the 360-degree feedback process is not always the full truth. There are always additional elements that have to be taken into consideration in evaluating performance.
The other thing for me besides the talent management is the alignment of the organization, which HR should also look for. What do we mean by this? That we are completely aligned in terms of our mission, about what do we want to achieve this year, what is our road map to 2010. This involves better goal-setting through the whole organization.
If you have a traditional approach, the CEO hears from the board what are our targets, our goals. He tells the strategy to the next level of managers. And it cascades down. How much of the information that arrives at the lower level of the organization is exactly the same? Not very much.
So we have invested a lot of money in new technology, like portal technology, so that we have our strategic business plan available for everybody. Everybody in the organization knows what it is he’s doing, why is he doing it, how his work contributes to the overall success of the company.
WM: Is this a product that you sell?
Heinrich: Yes. It’s called SAP Portal.
WM: Is there any way of measuring how well that is working?
Heinrich: Yes. We do a survey every half-year. We ask our colleagues, our employees, to say how well they understand the company’s goals, how well they are aligned with the goals. We can measure these.
WM: How are you doing on those measurements?
Heinrich: We are much better aligned. We had originally maybe 60 to 70 percent yes to "We are overall aligned." Now it is much better--75 to 80 percent and even more.
WM: When was the earlier 60 to 70 percent?
Heinrich: Maybe a year ago or one and a half years ago. The problem was we did not measure this earlier.
Back in 2000, SAP had a large debate. In our employee survey, one of the major action topics was that people did not feel informed about the company policy. From that we started a huge endeavor. We created SAP TV, which is our own internal television station. We have SAP Radio. We have monthly updates from the executive board. We have now the corporate portal. So every employee goes to the portal every day to see the newest news, even the share price. It’s one single source for information, so we have a clear, direct channel to our employees.
"If you look at a software company, we have some physical assets--
we have some computer servers, we have facilities, we even have some company cars--but the major asset really is our employees."
Heinrich: Attrition is really low. It depends, obviously, on the region. In all regions, we are much lower than the competition.
WM: Can you give me the overall company attrition rate?
Heinrich: It is 7 or 8 percent or so. In Europe we have attrition of about 2 percent.
WM: How does being a company that makes workforce management software affect how you manage your workforce?
Heinrich: We can leverage the new software earlier, and we have maybe more influence on our colleagues that develop software. To give you an example, we said, "OK, we want to introduce ‘ME squared’ "--which we call management excellence. It’s a 360-degree feedback process. We said, "Yes, we’d like you to make this in the product."
The same is true for our talent portal. The talent portal means every manager has all the information about their employees at their fingertips, can see all their development plans, succession plans, can input development plans, look for milestones in their development plans, the results of the talent-review meeting and so on. This is all in the portal, so everybody can access it.
WM: Have you suggested things to the development team because you’ve seen certain issues raised as the leader of the HR operation?
Heinrich: To give you an example: feedback. What is the use of an annual feedback process in which an employee and manager put goals down on a piece of paper that is never or rarely seen again? We said bye-bye to that. We now leverage our portal. Everybody has access to it. So in preparation for performance reviews, our employees go into the portal and make a click and get the talent review. There they input how they rank their achievements for the last year.
WM: This was a suggestion you made to the development team?
Heinrich: We made it two or three years ago. Now we have it up and running.
WM: So you’ve gone from a paper-based system to a database Web portal.
Heinrich: Yes. We are in ongoing discussions with the development team. This is one of our strengths.
WM: Which parts of your software are weak? Going back to that last example, you saw that that was something that was a weak link or something missing, is that right?
Heinrich: Everything could be improved over time. I wouldn’t even say it was weak, but it was the old-fashioned way. Most of the process was paper.
Another example: I was running HR, and I looked over my costs. I said, "Why the hell do I have to pay so much money for the German post and the American post to send pay slips to the employees every month?" Then I said, "Why can’t we take this to the portal?" Most of the time, for the developers, the pay slips are every month the same. Except maybe for the end of the year, when they get their bonuses and their other benefits.
WM: They have direct-deposit bank accounts?
Heinrich: Yes. So we said, why shouldn’t we do it? And we did it.
WM: So you’re not mailing out those slips unless people get an actual check?
Heinrich: Yes. Most people have been happy. A few have been a little reluctant.
We really drive down the cost of HR by using superior technology. Let me give you another example. We have a lot of internal personnel changes in our organization--I think this is true of every organization. And internal changes are normally handled by a process that is pretty complex, where the receiving manager has to do something, where tons of HR people have to do something, there’s vendor interaction and so on. It costs a lot of money. We said, why don’t we make it simple again: Web-based, one screen of action so the receiving manager inputs the internal change and then all the necessary things--for example, the change of the salary, the change in compensation--are done automatically by the system. This is what we are doing internally, and this is what will be part of the next version of our human capital management software system.
WM: Have you turned to competitor products for any of your workforce management tasks? For example, I gather that recruiting software has been more developed by some of the recruiting software outfits, like Taleo or Peopleclick or Recruitmax.
Heinrich: We have currently everything we need in our e-Recruiting product.
WM: So you’re eating your own dog food again, as it were.
Heinrich: Another way to describe this is we drink our own champagne.
WM: What is the biggest issue that keeps you awake at night as a workforce management challenge?
Heinrich: That we lose our reputation as being an employer of choice. If I would ask my oldest son--he’s now almost 22--"Would SAP be a choice for you?" And he would say, "No," this would kill me. Similarly, if he said, "They are too bureaucratic" and so on.
We have to work on this. We have to do things with passion. We have to have fun at work, because only if you have fun at work can you bring in the results. This is exactly what keeps me awake at night. Not that we are too slow in delivering this or that product, but that overall we can’t say in our branding that SAP is something very special.
WM: What are you doing specifically to prevent the bureaucracy?
Heinrich: There are two things. One is a process, which is available through the portal, where we are open to employee suggestions for how to make the processes leaner and easier.
The other thing--and we get this direction from the top, from the executive board--is we are going through our processes, process by process, and looking for how they’ve gotten complex over time, and reducing the complexity.
WM: What processes are you referring to? Are you talking about various business tasks, such as benefits administration, software development and procurement?
Heinrich: I am talking about all the processes required for the smooth running of our organization, including those you mentioned.
WM: Do you have any success with those two programs, the bottom-up suggestions and the process review?
Heinrich: We have done a lot of things where we’ve used employee suggestions. For example, the software development process is much leaner now, much better. We improved our development tools.
The other thing is the internal change approach. We said, "Why should we have eight touch points instead of only two or three?" This is an ongoing journey.
WM: What’s the least successful thing you’ve done to attract talent, and what’s the most successful thing?
Heinrich: What I think is the most successful is when people are speaking with others and say, "Look here, SAP is the place to work." What I don’t think is really good is to do too much advertising and present ourselves in the newspaper and so on as the employer of choice.
The most successful thing is when we get testimonials that we are the employer of choice. For example, we were named one last year and this year in Germany; we had this in four different Latin American countries.
The proof points for me are if you get the awards.
Workforce Management, March 13, 2006, p. 32-36 -- Subscribe Now!