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1、If you understand that an information system can provide the foundation for technology that has a very visible, concrete financial return, then you really can see an ROI from an HRMS. By Marcia Barkley This is a period of remarkable change for the human resources function. Almost in the blink of an
2、eye, HR is being forced to shed its nearly 100-year charter as the caretaker of employees, and to become a strategic, value-enhancing business partner to the firm. With this dramatic change come some significant differences in the way HR plans and executes its initiatives, with a special emphasis on
3、 leveraging technology. Intuitively, HR has generally understood the value of technology, particularly in large organizations where volumes of information had to be built and maintained, if only for the narrow but critical purpose of getting paychecks, in the right amounts, to the right people at th
4、e right time. The terror of Y2K was a blessing in disguise, as it provided the perfect inducement for CEOs and CFOs to approve large investments in powerful new HR information systems. HR pros did not always know how they would actually use all the functionality of those powerful new systems, and ev
5、en the CEOs and CFOs could not demand a detailed justification. The need to prove an acceptable ROI went right out the window in the face of the possibility of massive, catastrophic data loss. Thats unfortunate, for many of the very same senior HR managers who have made such admirable efforts to bec
6、ome business partners with their non-HR counterparts are missing an enormous opportunity. An HRMS is exactly the tool they need to prove that HR can do much more than channel rsums, process benefits enrollment, and maintain a file room. It is not, in and of itself, the complete answer to the questio
7、n How do I prove HRs value to the organization? but it is an absolutely critical, indispensable part of the answer. To take things a step further, companies that wish to become or remain competitive cannot afford to not have a fully functional HRMS.There are at least three significant reasons why th
8、is is true. The first reason is perhaps the most basic. Just like any other part of the organization, the HR department has an obligation to control its costs. But to control costs, you must be able to measure them in the first place.Second - and this has more far-reaching implications - information
9、 about company performance is a critical competitive advantage; personnel information is too important to omit from the equation; and no organization today can effectively gather and analyze the breadth and quantity of data it needs for this purpose without a fully utilized HRMS. The return on inves
10、tment here is sometimes difficult to quantify, but is nonetheless quite real.The third reason for a strong HRMS is that it provides the foundation for a technical architecture that can provide a financially measurable return on investment in the form of greater productivity, and even reduced labor c
11、osts within the HR department. That technical architecture is more generally known as employee or manager self-service.Controlling costsMany companies have been measuring HR-related costs for quite some time. There are many such costs, but those that are tracked most frequently include the following
12、:Total cost of payrollAverage salary cost per employeeHR salaries as percentage of total payrollPayroll tax as percentage of total payrollCost per hire (usually related to advertising and recruiter fees/salaries)The data behind these calculations may come from a variety of sources: an HRMS, a payrol
13、l system, a general ledger system, etc.But other kinds of costs cannot be calculated unless you have the relatively broad data-tracking ability that is found in a fully utilized HRMS. One of these is the cost of a company managing itself. That sounds like a rather complicated equation, but it can be
14、 as simple as the total salaries paid to supervisors and above - stated either as a simple number or as a percentage of total salaries. Simple as the calculation might be, however, you first need to know how many supervisors and managers you have, and what they are paid. This and other measurements,
15、 including appropriate formulas, are explained in depth by Jac Fitz-enz in his book How to Measure Human Resources Management. Once you know the cost of management - or of anything else - you can begin to control it.HR data is essentialIncreasingly, human capital management is becoming recognized as
16、 a non-financial component of an organizations financial success: HR strategy - which should be focused on maximizing the overall quality of human capital throughout the organization - is as important as sales or production strategies. A recent book titled HYPERLINK t _blank The HR Scorecard: Linkin
17、g People, Strategy, and Performance discusses this at great and eloquent length. As noted by Dave Ulrich and others in The HR Scorecard, to build and maintain a stock of talented human capital, a HPWS (High-Performance Work System) does the following:Links its selection and promotion decisions to va
18、lidated competency modelsDevelops strategies that provide timely and effective support for the skills demanded by the firms strategy implementationEnacts compensation and performance management policies that attract, retain, and motivate high-performance employees Regardless of what it calls itself
19、or how it structures itself, the human resources function always comes back to these three basic functions: attract, retain, and motivate. To do any of these three things effectively in todays large organizations requires measurement and analysis. Measurement and analysis require data. Lots and lots
20、 of data. That requires an HRMS. Some examples:Attracting employees: Successful firms keep their salary structures up-to-date and their employees pay competitive. One sign that the company is not doing these things well is that the salaries of new employees are close to or even above the midpoint of
21、 their various salary ranges. How does HR keep track of this if they cant get regular, accurate reports about salaries in relation to salary ranges in a given time period? How can compensation analysts identify the magnitude of the problem if they cant track exceptions and adjustments? What they nee
22、d to be tracking isnt just the fact that exceptions and adjustments are occurring; they also have to be able to report which kinds of jobs are getting this kind of attention, in which division and geographic area, and the amount of money involved.That kind of tracking and analysis requires raw data,
23、 which requires an HRMS. Whats the ROI here? Over time, the company recoups its financial investment through time saved (and repetitive effort eliminated), when they stop losing potential new hires because the offered salary was insufficient, or because it took too long to get an exception approved
24、and the applicant got tired of waiting.Retaining employees: Another red flag familiar to compensation analysts is an increase in the number of requests for market adjustments to keep long-term employees competitive with new employees. Here again, data - accurate, complete, up-to-date, and available
25、for slicing and dicing from several different angles - is critical in order to spot the problem in the first place, and then to measure its scope and impact. An HRMS pays for itself by making that measurement and analysis possible. Can you measure that ROI? Yes: Track your terminations and the termi
26、nation reasons, then measure that against your cost to hire for those positions. Keep in mind that the cost to hire isnt really the full cost of replacement, because it doesnt take into account the productivity lost during the time it took to find and train the replacements for those terminated empl
27、oyees.There are many pay-related measurements that a company can track (as mentioned before, check out Jac Fitz-enzs book), such as the following:Average merit increase granted by job classification and job performanceFirm salary/competitor salary ratioIncentive compensation differential (low versus
28、 high performers)Percentage of employees whose pay is performance-contingentPercentage of total salary that is at risk or variableRange in merit increase granted by classificationNone of these measurements are complicated, but they do require data. None of these measurements, in and of themselves, w
29、ill fully answer questions about why employees are leaving or why employee commitment seems to be low or why productivity isnt as high as you think it should be. But all of these measurements, individually, can provide vital clues; together, they provide a pattern; and the pattern eventually provide
30、s answers.Motivating employees: Many companies do not take advantage of the full functionality of the systems they buy. Training administration and competency management are rarely high priorities and usually are postponed; in many cases, these functionalities never get used at all. This is extremel
31、y unfortunate, because anything related to tracking employee performance can become a tool for managing employee performance, and that in turn can become a means of improving employee performance. And of course, if you can improve employee performance, you can improve company performance - the compa
32、nys profitability.A very simple example of this would be tracking employee performance ratings by job classification, division, and supervisor. When these are matched against company performance measures - sales volume, manufacturing volume, etc. - trends appear: Division A had the best sales succes
33、s last quarter, and it also had the highest average performance evaluations last year. The next step would be to find out what Division A is doing to motivate its people: What training have they had? What kinds of compensation programs are in place? Do the employees compete with each other, or coope
34、rate? Then figure out how to replicate that in the other divisions. The ROI on having the data necessary to do this might be a little complicated to measure, but its certainly easy to understand.HRMS as foundation for the futureRecent years have seen an explosion of interest in applications and syst
35、ems that used to be considered strictly nice to have icing-on-the-cake kinds of things, especially where HR was concerned. Initially, employee self-service was something that only really large companies could afford, and manager self-service was often limited to viewing lists of employees, rather th
36、an providing any real service that would make the work of managing any easier. What with the costs and complications of implementation, and the fuzzy math that seemed to underlie the promises of return on investment, most companies couldnt be bothered with either employee or manager self-service sys
37、tems.Things have changed.Self-service systems for HR are coming into their own, whether they are front-end, third-party applications or fully integrated with a back-end ERP. More and more employees are coming to expect that it will be as easy to change their address or their payroll deductions, enro
38、ll in benefits, or update their health-care dependents as it is to buy a book online. More and more managers are discovering the convenience of electronic transactions such as salary increases and online performance appraisal. According to a HYPERLINK t _blank survey conducted by The Hunter Group (n
39、ow called Cedar) and published in , the number of companies implementing (or planning to implement) some sort of self-service technology has grown in each of the last three years.There are still costs and complications to implementation, but the math behind the ROI promises no longer has to be fuzzy
40、 - and in fact, is rarely allowed to be. According to the Hunter Group (Cedar) survey, about two-thirds of companies that explore the possibility of a self-service solution now require a business case that quantifies the anticipated return on investment. There are methodologies and tools available w
41、ith which to develop very sound estimates of real, hard-dollar savings that can be expected from a self-service application. HR can build a business case for investment in this technology that even a CFO will love.Beyond that, a strong case can be made for expected increases in productivity among bo
42、th employees and managers when self-service applications are available. Really useful HR self-service does not happen without the kind of data that is available from a fully functional HRMS. SummaryThere are many kinds of analyses that can be used to measure and demonstrate HRs value to the organization. Do they have any relationship to the performance of the organization itself? Many of them do. The following i
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