This Time, It’s Strategic

Technology has streamlined the human-resources department. Can it be pushed to do more?

Scott Leibs, CFO Magazine

February 22, 2005

It’s time to look under the human-resources hood again. After an extensive technology overhaul in HR, employees now routinely use a number of self-service applications to complete tasks like enrolling in benefits programs, managing vacation time, and making sure their personal information is up to date. With much of this “administrivia” now automated, companies hope they can turn their attention to developing a more flexible, competent workforce. That’s where the CFO comes in. These more sophisticated automation efforts will be complex and expensive. And they will require dynamic and integrated systems, which can be developed only through a close partnership between HR and IT.

That’s easier said than done. At first glance, IT and HR couldn’t be more dissimilar. One relies on an army of techies to harness the power of a vast array of computers, software, and related systems, while the other relies on a staff of highly communicative (in theory) “people persons” to guide employees through any number of job and personal issues. HR’s success hinges more on “high touch” than high tech.
But look more closely and it becomes apparent that they actually have a lot in common. The IT department believes that technology still has much to offer by way of strategic advantage, a promise HR is working to deliver as well. Both departments have fought for greater corporate legitimacy, and both view outsourcing as a threat and an opportunity.

Yet they crave more respect. Often perceived as cost centers, HR and IT departments believe they can contribute far more to the organization than simple efficiencies. Increasingly, HR departments can point to a range of IT initiatives as proof they are continuing to evolve toward a more strategic role, while IT can point to those same initiatives as proof that technology can go well beyond the transactional to the transformational.

When Premera Blue Cross, a regional health plan that serves more than a million people in Washington and Alaska, reorganized its HR team last year, IT considerations were front and center. The Montlake Terrace, Washington-based organization created a new HR technology department, uniting a disparate group of IT specialists who were previously dedicated to such specific HR functions as recruiting, compensation, and training. The goal, according to Barbara Magusin, senior vice president for HR at the $2.8 billion company, was to form “a creative think tank focused on how IT can serve human-capital management.”

Human-capital management (HCM) is a term much favored by forward-thinking HR executives (and even more so by the consultants and vendors that serve them) because it emphasizes the skills, experience, knowledge, and potential that employees possess. By recruiting the best people, training them, and retraining them as businesses adapt to new situations, companies can, the argument goes, gain a significant competitive edge over rivals that treat employees as a mostly undifferentiated pool of laborers to be added or shed as conditions warrant. The ultimate employee benefit, in a sense, is to value workers more highly and develop them accordingly.

Yet most HR departments are so steeped in their dual roles as administrators and employee advocates that it can be difficult for them to shift gears and begin to analyze how employee practices affect the bottom line. “You’re talking about a department that is often best-known for communicating details about the company picnic,” says one consultant. “To go from that to offering high-level strategic input that no one has expected from them before is not easy.”

But plenty are keen to try. At Premera, the HR staff is working to automate the hiring process, which had been completely manual and therefore prone to human error. “Paperwork gets lost,” says Magusin. “Forms get passed from one manager to another, and if they get buried under other things, they may not surface for days.”

The company invested in software from Webhire Inc. to speed the hiring of employees. An example of the emerging field of talent-management software, Webhire’s product automatically routes information from one manager to another, links to external recruiters, and enables a job opening to be posted on more than 2,000 career sites. It also screens initial applicants, provides sophisticated search capabilities across an applicant pool, and generates reports with key HR metrics, such as time to fill and cost per hire.

“By reducing the manual labor,” says Magusin, “recruiters have more time to meet with managers and discuss what skills are needed. We want to guide them away from that ‘I need someone quick!’ reaction and instead consult with them about things like whether the job has changed and the skill profile needs to be updated.” The goal is to bring in the best possible person, someone who will be productive immediately and inclined to stay with the company longer because his job matches his abilities.

First, the Easy Stuff

Most people agree, though, that before companies can begin to develop HCM systems like Premera’s, they must automate the more mundane aspects of HR, including payroll, benefits enrollment, and the collection of personal information for tax filing. This frees HR staffers from manual processing, allowing them to focus on such emerging facets of HCM as talent management, succession planning, and the search for metrics that capture exactly how HCM improves the bottom line.

Here again, technology enters the discussion, as a host of new products address everything from recruitment to E-learning (computer-based training that often replaces or augments classroom sessions) to systems that more closely tie compensation to performance. Some analysts, including Michael Eck of The Segal Co. in New York, say that even in the relatively mature realm of employee benefits, new kinds of software will emerge, including programs that guide workers through the complexities of consumer-driven health care.

Most of these products sit on top of the same centralized, core system that provided the first wave of automation (typically an ERP system). Because such systems contain reams of data about employees and corporate operations, they provide a valuable foundation for newer software that can track additional sources of information (training an employee has received, managerial evaluations, career development plans) or analyze links between employee data and corporate performance. For example, a company would be able to determine if an increase in the training budget at a specific division improved its performance.

At Premera, a greater use of IT has enabled the company to reduce its total HR head count, and Magusin expects that trend to continue. The staffers that remain are working more closely with business units, concentrating on such issues as training and development. “To be regarded as more strategic,” says Magusin, “we have to be able to present metrics that have a strong ROI, such as increased tenure and data on employee mobility within the workforce, which shows that we’re developing our people rather than having to go outside for new talent.”

Perfect Together

Because IT can do double duty — capturing and crunching the data that provides those metrics while also providing the technological foundation for E-learning and training systems — a strong partnership between HR and IT would seem sensible. Add the fact that several surveys show that CEOs rank human capital as a top priority (see “Uncertain Benefits: The 2005 CFO Human-Capital Survey”), and the marriage of HR and IT would seem almost mandatory. Yet to date, a number of factors have conspired to keep the relationship rocky. HR departments resent the fact that they are often treated as an afterthought, with decisions about which ERP system to buy, for example, often driven by finance or operations.

Similarly, according to Ed Jensen, a partner in Accenture’s Human Performance Practice, HR often believes it gets little support for any of its initiatives from IT. CIOs are sometimes irked by the tendency of HR departments to prefer software offered by smaller, best-of-breed companies rather than the ERP vendor to which the company has made a major commitment. And HR has not always been able to make a solid business case for its projects, says Jensen.

However, as HR departments retool themselves for an HCM world, they do seem to be getting it. At WellPoint Inc., an Indianapolis-based health-care provider, vice president of HR Chuck Moore says the company decided to leverage its existing investment in an ERP product in part because of the software’s inherent capabilities, but also to save money. “I worry about the cost of supporting too many products, so we try to keep the number of vendors we use to a minimum.”

At insurance provider Zurich North America, Ted Orszak, vice president of human resources, says the HR department has sometimes delayed offering certain capabilities as it waited for the company’s ERP vendor to catch up. Despite that handicap, he says Zurich’s HR department is sticking to a business model designed to make HR more strategic. Part of that effort requires an enhanced HR portal see “(Any Storm in a Portal?”) that “lets us help managers manage,” says Orszak.

Working with the finance department, Zurich’s HR staff has tried to discover what kinds of information managers need. Now a series of online reports that capture head count, turnover, and other employment-trend data will be offered in a self-service model, closely linked to budget information and other data provided by finance. Such projects also require IT involvement to help establish the report platform (once that is in place, additional reports can be rolled out directly by HR or finance). “We explained our strategy to them, which was something they weren’t used to hearing from HR,” says Orszak. “They were accustomed to us taking a fragmented approach, but now we can offer a road map.”

Stepping Up

Even as HR departments learn how to win the hearts and minds of IT, they are also forging tighter connections to finance. For example, Zurich’s HR department not only partnered with the company’s finance team to put metrics online, but it is also developing a purchasing system linked to the HR system to drive expense approvals.

For their part, CFOs seem to be of two minds about the value of HCM. When surveyed by CFO about what steps are needed to improve HCM, the top answer, cited by almost half of all respondents, was “increased use of technology.” But only one in four respondents plan to invest more in HR IT in the coming year.

Accenture’s Jensen says that when his firm surveyed a broad swath of C-level executives regarding workforce effectiveness and productivity, CFOs emerged as the most skeptical group. “CFOs recognize the value of human capital,” he explains, “but they struggle with how to best spend money on it in order to get effective results.”

Jason Averbook, CEO and co-founder of Danville, California-based Knowledge Infusion, an HCM consulting firm, suggests that if HR departments don’t make the case for their strategic value, they may cease to exist. At most companies, automation and outsourcing have reduced the administrative cost of HR to a fraction of 1 percent of revenue, leaving little room for gains. If HR can’t explain its strategy for optimizing the workforce, the cost of which can approach 60 to 70 percent of revenue, then a chief learning officer or chief performance officer may emerge from some other department within the company.

While it’s a rare head of HR (or even HCM) who has the word “chief” in his title, no one in a senior role is prepared to be left handling the administrivia while some other executive leads strategic workforce initiatives. Bolstered by their experience in automating the grunt work, HR executives vow to further leverage IT in more compelling ways. Perhaps they now realize that in order to optimize the performance of the rest of the workforce, they need to optimize their own.