Video"People are our most important asset." How many times have you heard that? More important, how many times, upon hearing it, have you nodded politely and then changed the subject to something more, ah, important?
Human resources receives far more lip service than respect, but it may be about to get its due. Web-based technologies, the sour economy, and other factors are making HR the subject of some truly substantive executive discussions — and expenditures. To date, much of the activity has centered on automating administrative duties, mostly such mundane activities as handling pay, benefits, and retirement plans. These systems have dramatically reduced HR costs — for some processes by as much as 80 percent. They also offer solid ROIs that can keep even the sternest CFO smiling.
But a new generation of HR automation, sometimes going under the umbrella of E-HR, wants to transform HR from a lowly cost center to a strategic, mission-critical part of the business. "It's time to treat your human capital as an asset class," says Paul Schaut, president and CEO of Performaworks, in Burlington, Massachusetts, one of this new breed of HR-software vendors. "Executives of large organizations talk about people as their most important assets. It's time to live up to that statement."
While much of the current activity in HR automation is driven by a wish to cut costs, some financial executives say there's more to it than that. "We look at ROI, but sometimes it may make sense to simply break even for the intangible, soft benefits," says Renée Hornbaker, CFO and a vice president of Irving, Texas-based Flowserve, a $2 billion producer of industrial pumps, valves, and seals that is constructing an advanced E-HR system.
If that sounds more like a nice-to-have than a need-to-have, consider several trends that will make HR the subject of more executive scrutiny. Demographic changes loom large: the oldest of the baby boomers will begin to retire en masse in just 8 years, leading to a decided graying of the workforce. Over the next 17 years, the number of U.S. workers age 55 or older will grow by about 80 percent, to more than 33 million, says the Bureau of Labor Statistics. And the ailing stock market could keep older people working longer; a recent Gallup poll found that nearly half of all working adults plan to delay retirement because of declines in the value of their 401(k) and other stock-related retirement plans.
A Changing Workforce
Also factor in fundamental changes to the ways people work and, as a result, the ways in which companies administer HR. Among these shifts are the emergence of far-flung "virtual" teams; the growing number of people who work from home; the increased use of consultants, contractors, part-timers, temps, and other nonsalaried workers; all those wireless road warriors taking up the best seats in your local airport lounge; and the emergence of what Diane Morello, a vice president and research director at Gartner, calls deployees — people who work in multiple roles on multiple projects with multiple teams. In fact, Morello reports, more than 90 percent of attendees at a recent Gartner event say they spend more than half their time on collaborative work. "However," she says, "evaluation and compensation programs are woefully behind in reflecting the changing work patterns."
The bottom line: human-capital management (HCM) is one facet of E-HR that demands senior-level attention now.
In with the New
HCM has certainly caught the attention of IT companies. Vendors are rushing in, both the traditional enterprise players — including PeopleSoft, SAP, Oracle, and IBM — and the so-called best-of-breed vendors that offer applications for specific HR functions. This latter group includes Authoria, Employease, Performaworks, Recruitsoft, Workscape, and many other small and midsize companies, most of which got their start by targeting specific HR needs, everything from performance management to recruitment to training to compensation. Some, including Softscape, in Wayland, Massachusetts, are taking the next step and offering "strategic HR suites" — systems that take data on employee-performance goals and link it to systems for compensation as an automated way to link performance with pay raises. "There's a lot going on, and a lot of different approaches to getting the work done," says Ron Hanscome, a senior program director at Meta Group.
All that has led to a growing market, an anomaly in the otherwise dismal IT scene. According to market-analysis firm International Data Corp. (IDC), the total North American market for HR-management and payroll applications software grew by 5.1 percent last year, to $1.92 billion. Those sales will continue to grow at least through 2006, IDC forecasts, when they'll hit $2.34 billion. While that's not a huge market — by comparison, IDC predicts the 2007 worldwide market for IT services will be nearly $500 billion — the positive growth rate remains a rare thing of beauty.
Neither automation nor outsourcing is new, of course; payroll processing represents most companies' exposure to both, meaning that HR is something of an IT pioneer. What makes E-HR a potentially huge leap forward is the way in which the Web allows companies to offer self-service HR applications. By overlaying a Web interface on legacy applications, companies can automate a huge number of very manually intensive processes, thus paving the way for a change in the very nature of HR.
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