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Using Technology to Cut Costs

September 23, 2001
Related Topics: Human Resources Management Systems (HRMS/HRIS), Featured Article
Chris Gonser would never pass as a techno-geek. He's the director of benefitsand HR for the Ericsson Inc. telecommunications empire, a self-described big-picturefinancial guy and employee advocate. But in the past two years, he's helpedmastermind a progressive employee self-service system that has become a brightjewel in the company's ROI crown.

    The economy may be in a nosedive, but technology issoaring into new realms, changing the very nature of the way HR is conductedwhile allowing many organizations to significantly lower costs. It was in January2000 that Gonser and his colleagues at Ericsson's U.S. headquarters, near Dallasin Richardson, Texas, introduced an HR initiative that has revolutionized theway employee information is disseminated. With 90,000 employees throughout theworld -- 8,500 of them in the United States -- the global cellular-phone manufacturercan't afford to be slow-moving, and must be able to provide the latest in employeeservices to its educated, technologically savvy staff.

    The first phase of the three-part program was to rollout an entirely automated compensation system. It was followed last summer bythe debut of an online flexible benefit plan that the company calls e-flex.And in October, a complex pension-administration system premiered.

    Gonser estimates that Ericsson saved more than $1 millionin the first year, and that the HR technology -- which was built in-house andis administered by Watson Wyatt Worldwide -- already has added more than $1million in organizational value annually. These figures don't include the "millionsand millions" the company said it will save in difficult to quantify butinvaluable benefits such as attracting and recruiting top talent.

    Other large companies, which have turned to leadersin Internet data-analysis software such as Oracle, SAS, PeopleSoft, IBM, andMicrosoft, are making far heftier investments, but also report substantial costsavings. Sears, for example, made a $57 million investment in HR technologywith PeopleSoft in 1999 that has helped the corporation consolidate multiplesystems and outsourcing. The $41 billion retail firm, which has from 300,000to 320,000 people on its payroll at any given time, expects to make a full returnon its investment by the year 2004, a cost-savings of $16.5 million annually,says Greg Whitson, director of operations and HR at the company's service centerheadquarters in Atlanta.

    "We are very happy with the conversion process,"he says. "The ultimate test is the ability to do something sensitive correctly,like the payroll system. We did it without a blip."

    What makes Ericsson's program unique, Gonser notes,is that "very few companies are doing as much HR online, or are pushingESS as much as we do. Because of the explosiveness of the Internet, we are light-yearsahead of where we were in HR two years ago. With more ESS, HR has become muchmore integrated and strategic.

    "We've not only cut costs, we've become more efficient,faster, and more organized. Our services help with attracting and recruitingtalent. We are providing more information more accurately. It's been very, verysuccessful. People's appreciation has been overwhelming."

    ESS technology -- which integrates and analyzes datainto a single, individualized, accessible platform -- is becoming mandatoryfor all types of companies as a way of allowing employees to view and managetheir own records. The new model is shattering the HR tradition by providingexecutives, managers, and employees with a single point of access to vital personnelinformation ranging from compensation and medical planning to performance appraisals.And you don't have to be a consulting firm or software peddler to understandthe potential benefits: improving customer intelligence; increasing productivity,efficiency, and accuracy; increasing collaboration internally and externally;streamlining operations; serving existing customers better; getting into newmarkets; and, of course, reducing costs.

    If, for example, you can cut out several steps andauthorizations in the recruitment process, you can reduce expenses from as muchas, say, $100 a transaction down to pennies, says Steven Hitzeman, a seniorconsultant at Watson Wyatt Worldwide's Human Resources Technologies practice.He cites a list of companies that have created efficiencies that minimize costs:

  • As a result of an HR shared-servicesapproach for a large financial institution, benefits transaction costs dropped50 percent.

  • An energy company expanded ESS andreduced HR administration staffing by 40 percent.

  • A large airline implemented an e-HRstrategy that helped reduce the HR staff from 175 to 125 people, savingabout $2.6 million annually with a 25 percent efficiency gain.

    "Technology by itself doesn't save money,"Hitzeman says. "Technology is the enabling part, not the driver; a tool,not an end in itself. There are three pieces to the equation, and they all haveto be fully utilized or it doesn't work: People. Process. Technology. Technologyallows you to better apply the process more efficiently. But you do notwant to automate a bad process."

    Unless you plan carefully and know what it is you wantand need, and how to calculate the hard and soft costs and savings of technology,the ROI will be dubious at best. Hackett Benchmarking & Research, a partof Answerthink, Inc., reports that, despite a 40 percent increase in technologyspending since 1998, HR costs for the average company have actually risen16 percent, to almost $1,900 per employee. Part of the explanation is that manycompanies haven't taken advantage of the functionality provided by the softwareand haven't realized the anticipated processing efficiencies, says Pat Carson,consultant manager at Delphi Consultants in Dallas.

    Much to his astonishment, Carson says, most companiesdon't track the cost-savings of technology. He also believes that "a lotof people are doing ESS for the wrong reasons. They get the employees to maintaintheir own records for them. That's not right. All they're doing is pushing thecosts off onto the employee by making them do more work.

    "ESS is really changing," he adds. "It'snow more 'Workforce Management.' It's a valuable tool for managers. They canlearn instantly what people are working on." They can ascertain the skillsand work histories of employees down the hall or across the globe, and a hostof other customized information.

    "The trouble with ESS is, a lot of manufacturersand distributors, for example, aren't trained on computers, or they are smallcompanies that have very little infrastructure or even very well-defined departments,"Carson says. "And the ROI is very difficult to track."

    Though the cost-savings is most dramatic for the largestcorporations, many small companies report impressive ROIs. Idan Sims, founderof Sims & Associates, Inc., a public relations firm in New York with eightemployees, works with several global companies that have highly sophisticatedtechnology. But by recently investing in more powerful automation, he says,his own small company saved thousands of dollars in a matter of months.

    "It helps us get information into the news mediamuch faster and better, and we're killing fewer trees. It used to take two supportpeople to send out 60 or 70 press releases. Now the information is all integratedin one system. It's been a tremendous cost-savings of about $70,000 in onlyone year, and it's providing my clients with 'higher intellectual added value.'Getting the software is the best decision I ever made."

    Brian Lowenthal, benchmark director at Hackett Benchmarking& Research says it isn't at all unusual for companies to install a new HRsystem without a comprehensive ROI. Not surprisingly, he does find that verysuccessful companies have very careful HR strategies. "They decide whichprocess will add more value," he says.

    "If they work the plan, they improve their businessresults. The irony is that companies are investing more in technology but head-countis up. I think it's astonishing they aren't seeing more benefits. I can't proveit, but I think it's partly how they deploy the technology. Also, I think HRuses it for its own purposes and not for employee self-service. I think theyfear that self-service will lead to their losing their jobs. They perceive technologyas a stumbling block."

    Lowenthal stresses that HR professionals should understandthese three basic factors in maximizing the cost savings of technology:

  1. Know what the technology is capableof doing and how it will be used.

  2. Don't try to throw technology ontoa process you don't understand. You must redesign the process that the technologywill enable. "If you apply technology to a bad process, you will neverrealize the gain."

  3. Be clear about what peoplehave to do differently to utilize the process.

    For all of the pitfalls that can come when it is notcarefully deployed, technology is the very best way to save money and to enableyour organization to work faster and smarter, says Cynthia Driskill, presidentand CEO of CDG & Associates, a consulting firm in Addison, Texas, that specializesin implementation and maintenance of high-end HR information systems and ESS."Organizations no longer have a choice. Employees like the control. Thedecision to implement technology isn't necessarily ROI-driven. It's strategic.It's a move to improve employee satisfaction."

    As the workforce has become more mobile, Gonser says,employees want and "absolutely expect" to have ESS. "At Ericsson,we look at the workforce as 'free agents' or 'knowledge workers.' People todayare much more savvy about the meaning of their whole benefits package.

    "So we've pulled in everything -- benefits, SocialSecurity, 401(k), the value of their pensions, and a whole lot more -- and it'supdated once a month. We've leaped from 20 e-sessions (hits) a day in Januaryof 2000 to 200 a day now. Now the information is refreshed and employees canlook at a total compensation statement. They can model the future value of theirretirement. They can look at it anytime, anywhere.

    "In the beginning, our motivation was cost saving,service, and a system that could be used as a recruitment tool," Gonseradds. "Think of the money we saved just by not sending people all overthe country to explain the benefits package. Think of all the print savings"of not publishing booklets and bulletins. "A side benefit has been thatwe are much more consistent in our communications. And once it's set up, it'sset up. We are way out there. And the feedback we are getting has been veryuplifting."

    For many companies, it isn't necessary to throw outold technology and start from scratch. People like Stuart Morstead, a founderof Isani Inc., a technology consultancy firm based in Dallas and Houston, specializesin eHR. "I help companies whittle down 'transaction costs,' " he says."I ask what efficiencies could be achieved with automation." Eveneliminating one cost, such as $10 saved on FedEx with every new hire, can bea significant saving for a big company, he notes.

    But with an ailing economy, is this the time to investin technology? "Now is a terrific time," Morstead says. "By now,the technology is tried-and-true. It is not a leap of faith."

Technology's Impact on HR:

Workforce, September2001, pp. 46-51 -- Subscribe Now!

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