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Technological Transformations

Survey shows companies are finding new ways to enhance organizational excellence through workforce technologies and service-delivery approaches.

Wednesday, November 1, 2006
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Organizations continue to transform the nature of HR service delivery from administrative transactions to functions contributing to overall workforce productivity and organizational profitability. Workforce technologies fuel this transformation. In fact, the more technology adoption, the stronger the organizational performance as measured by operating income growth.

Early-adopter organizations that use HR applications to support record keeping, provide for employee and manager self-service and support strategic HR services -- such as talent acquisition, workforce development, workforce planning and reward management -- have been successful. These efforts cut administration costs, improve employee satisfaction and reduce employee turnover. Such workforce technologies create value, so it's critical that to reap these benefits, organizations follow the early-adopter strategy.

The CedarCrestone HCM Survey, conducted annually since 1997, provides information used to prioritize and justify workforce technologies and sourcing decisions. It covers the technology use, budgets and plans of more than 25 HR applications that enable organizations to administer HR record keeping, provide service delivery via employee and manager self-service applications, and deliver strategic HR services to attract, develop, compensate and measure workforce performance.

The survey also explores how organizations deploy these applications -- through in-house or outsourced solutions. Visit www.cedarcrestone.com/whitepapers for the free, full survey report. All figures appearing below were published in the 2006 CedarCrestone HCM Survey.

For this survey, CedarCrestone contacted organizations with at least 500 employees (see Figure 1), from a survey population including Human Resource Executive® readers with a special interest in HR technologies. Others contacted include International Association for Human Resource Information Management members, past survey respondents and a number of European, Asian and Australian associations. Several vendors also sent the survey to customers, which, combined, resulted in 15 percent of total respondents.

Respondents represent 324 organizations -- 84 percent from the United States and Canada, and the remainder from Europe, Australia, Asia/Pacific and other regions. The organizations, distributed across major industry sectors (see Figure 2), are evenly split between global (operating in one or more countries outside of their headquarters region) and non-global, employing close to 7 million people.

The typical respondent is a manager or executive (70 percent). For the most part, respondents are from HR (69 percent), with the remainder from IT (19 percent) or finance (12 percent). All have some responsibility for HR information technologies.

Most respondent organizations manage HR record keeping in-house, though 16 percent outsource their technology infrastructure and application management support.

Striving to Improve

Organizations today are implementing technologies or focusing on business-process improvements/innovations that often precede a technology implementation. We asked respondents: Where are you spending at least 25 percent of your time and where are you spending budget? Considering that respondents with the highest HR/employee ratios have service-center approaches, it follows that some of this BP improvement work is resulting in the move to a service center, which requires BP redesign to streamline processes.

The BP improvement work associated with employee and manager self-service initiatives and Sarbanes-Oxley efforts is critical (see Figure 3). Competition for talent and the associated talent-management solution also is expending time and budget, as is aligning employee performance organizational goals and the associated performance-management solutions.

New to the top 10 initiatives this year is establishing or refining the HR application strategy, with a particular focus on two areas: 1) The decision to outsource processes and/or the technology infrastructure that supports the HR processes, and 2) the steps needed to provide the organization with business intelligence through metrics and analytics to enhance employee and manager decision making.

Apart from the top 10, early adopters focused on creating a competency model and succession planning. Some also are integrating systems to do performance measurement and scorecards. At the bottom of the list, a few of the IT respondents from early-adopter organizations are involved with service-oriented architecture initiatives.

Respondents categorize themselves either as "responsible for HR IT" or as "business users." The latter group was asked two additional questions: How satisfied are you with the following aspects of HR service delivery? Most aspects were rated satisfactory, but analytics for decision making, employee development and recruiting services received the lowest scores (see Figure 4).

Business users were also asked, "What do you want from the group that provides HR technologies you are not getting today?" Most want better reporting and decision tools (analytics). Another need was more user-friendly Web services.

Based on its rich experience, CedarCrestone sees a human capital management application blueprint emerging (see Figure 6). Early adopters, typically in high-tech manufacturing and financial services, have improved organizational performance in successive waves of technology deployment. First, they implemented a core HR record-keeping system (mainly via an ERP vendor or outsourcing), then upgraded it to maintain best practices.

Next, they achieved service-delivery excellence with employee and manager self-service, often deployed under a portal framework. Next, they deployed a service center supported by call-center technologies, such as call tracking and case management. Some also deployed knowledge-management systems to give employees personalized benefit and policy information.

Strategic applications such as talent management, compensation management or workforce planning -- along with a data warehouse consolidating both HR and information from other sources such as financial systems and analytical capability -- were also added.

Varied Uses

Overall application usage varies by industry (see Figure 5), with high-tech and financial-services entities typically taking the lead. Financial services, a pioneering industry in e-commerce, online customer services and service center-based customer-service delivery approaches, turns these to good advantage in serving employees. High-tech firms, naturally, have always been early adopters. They have a strong "metrics" mentality and, thus, use sophisticated solutions to measure workforce performance.

Large employers typically lead the way, as in the retail sector. On the flip side, higher education and public-administration organizations continue to be latecomers, though they report they are moving aggressively to support their organizations with workforce technologies.

More than half the respondents report using talent-acquisition applications, e-learning and performance management. Within 12 to 36 months, many other strategic HCM applications will be used worldwide by 50 percent or more of the respondents. But the applications that support workforce planning, reporting and analytics are still the domain of the early adopters and very large organizations.

In Figure 7, nearly half of respondents indicate they have not outsourced processes, technology or people, and do not plan to do so in the short term. In the next 12 months, however, respondents indicate that some of the technology infrastructure and people aspects of HR service delivery will increasingly be partially or fully outsourced.

Outsourcing varies widely in respondent organizations, but is expected to increase, especially 401(k), pension and benefits services. Payroll, training and recruiting services are outsourced partially or fully in more than 20 percent of respondent organizations.

Spending for Solutions

The study found that expenditures per person at large organizations are about half the average, with small organizations typically spending twice as much or more than the average. However, medium-sized health-care-industry respondents have extraordinarily large expenditures, particularly for the organizations that have outsourced their HRMS record-keeping processes.

In its business case work, where we compare expenditures for in-house to outsourced solutions, CedarCrestone often sees annual expenditures for outsourced process solutions ranging from 10 percent to 15 percent higher than in-house solutions, but this is not the case for outsourced hosting solutions, where costs are lower when outsourcing. The survey results indicate that, at a minimum, there are on average almost 40 percent fewer IT staff needed to support HR systems in a hosted environment.

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Application and service-delivery approaches create significant value for organizations in terms of administrative cost reductions, operating income growth and other quantitative results.

For administrative transaction services, the number of employees served by each service-delivery approach, from manual to fully automated, indicates that the strongest streamlining and cost savings comes from a programmatic move to delivering services from a centralized service center, using both call-center technologies and self-service.

Medium-sized organizations do not appear to benefit from employee or manager self-service or a service center, as do the small or large organizations. Why? Apart from having disparate business units, each with separate business processes that must first be streamlined in order to take advantage of workforce technologies, many of the medium-sized organizations are in the manufacturing and health-care industries -- where employees may not have access to personal computers or kiosks. Also, many of them are in higher-education and public-administration sectors that are just beginning to adopt technology.

Contributing to Growth

An exciting finding in the 2006 survey is that HR applications can boost operating income growth. For publicly traded respondent organizations in 2005 and 2006, we collected operating income growth for both fiscal years 2004 and 2005. While the average growth of operating income was 11 percent, comparable to overall growth reported by Standard & Poor's, it is higher for those organizations with more HR applications.

Are HR applications deployed because organizations have money to spend (due to their income growth), or do applications positively impact growth? While other factors apply, statistical correlations and cross-lag analysis show that several applications affect growth and, in almost all cases, organizations with each of the applications tracked have higher growth than those that don't.

In the 2005 CedarCrestone HCM Survey, competency management, workforce planning, learning-management systems and an HR-oriented help desk were causally linked to operating-income growth. While organizations with these technologies do show higher growth than those without them, in 2006, there is another set of technologies causing operating-income growth beyond those reported last year.

* Manager self-service (supporting managers to conduct transfers, promotions and approvals): This enables managers to more closely manage their staff and its performance, while passing along administrative savings to most organizations, particularly when they streamline the related processes.

* Career planning: Organizations that support employees by encouraging career growth engender employee loyalty, which in turn translates to lower turnover with reduced employee-acquisition costs. It also likely translates to increased customer satisfaction, ultimately leading to improved revenue.

* Workforce measurement: Applications such as a data warehouse, operational reporting and workforce analytics provide measures of organizational and individual performance, so timely management actions can continuously reduce process costs or increase revenue.

* Talent acquisition: With baby boomers beginning their exodus, there will be a significant skilled worker gap by 2020. More importantly, organizations want to attract the best workers. Winning the "war for talent" is being met with practices and technologies that drive costs out of the process, also contributing to operating income.

* Performance management: Organizations are using performance-management practices and technologies to streamline goal planning, performance assessments and rewards, to drive improved results through linking employee-performance targets with organizational objectives.

Quantitative Results

Self-service, call-center technologies and core HR management systems are cutting costs and cycle time (see Figure 8). For example, while specific cost reductions or return on investment vary by application, organizations can expect to reduce administrative costs by a minimum of 25 percent when moving to self-service. Quantitative results for the strategic applications vary by application, with recruiting solutions showing process improvements, such as reduced time-to-hire of almost 40 percent, and others contributing to operating income growth.

Survey data indicate that organizations are achieving strong benefits from workforce technologies and streamlined service-delivery approaches. Adoption of strategic applications enables stronger operating-income growth than failure to employ such applications.

In the end, critical success factors include: matching HR technologies to organizational needs, building a business case that focuses as much on gaining stakeholder alignment as it does on ROI and change management that ensures organizational use of HR technologies.

Lexy Martin is the director of research and analytics for Alpharetta, Ga.-based CedarCrestone, a systems-integration consultant.

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