Emerging Choices, Enduring Changes

Emerging Choices, Enduring Changes Creating Service Delivery Success in an Era of New Opportunity 2012 HR Service Delivery and Technology Survey Executive Summary Report

The world of service delivery and technology is perhaps the most ever-changing in the industry of human resources. Our goals and timelines are most often measured in weeks and days; our margin for error is nonexistent.

Emerging Choices, Enduring Changes Creating Service Delivery Success in an Era of New Opportunity Table of Contents About the Survey 2 Key Finding #1: The Structure Push and Pull 3 Key Finding #2: Shared Services Is Here to Stay 5 Key Finding #3: Keeping Pace With the Talent Imperative 6 Key Finding #4: Spending the Same or More (on More of the Same) 8 Form Follows Function: HR Structure and Shared Services 10 HRMS: Changes and Choices 13 Talent Management: A Mission-Critical Element 17 Our Take 21 Conclusion 23 Featured Figures Figure 2. Structure and process Reasons for changing current HR structure 3 Figure 4. Structure and process Use of HR shared services 5 Figure 5. Top HR service delivery issues Top three frequency 7 Figure 6. HR technology spending in 2012 vs. 2011 8 2012 HR Service Delivery and Technology Survey Executive Summary Report 1

Thanks to significant global and organizational change and a continued emphasis on talent management HR service delivery professionals daily work has tangible and immediate implications for the workforce and the organizations it serves. This dynamism bodes well for the HR service delivery function because it provides a wealth of opportunities to bring our organizations greater flexibility and agility, but it can also create rigorous process challenges. That s why we re heartened by this year s survey results, which reveal that HR has big plans to make structural changes, continue investing in technology and align the function with business goals. Change is carrying the HR service delivery profession into the future, and organizations are expressing optimism about the plans they re undertaking. Challenges from failing to establish good processes, to pitfalls around implementation and governance will arise along the way. The key to making the right choices is to discern what the most strategic needs are and match them with right service delivery solutions. This is the most substantial and global version of our survey to date. We are pleased to highlight the HR service delivery and technology plans, goals and progress that more than 600 organizations around the world shared with us along with Towers Watson s perspectives and prescriptions for HR service delivery success. About the Survey Our 15th HR Service Delivery Survey explores the landscape of HR service delivery and technology trends, tools and tactics across North America, Europe and the Middle East, and Asia Pacific region. More than half (52%) of the 628 companies that participated were large and midsize organizations with more than 5,000 employees. Financial services is the most heavily represented industry, with just under one in five (18%) participants, followed by manufacturing (14%), high technology (13%), retail (12%) and a number of other diverse industries (Figure 1). Figure 1. Industry and employee population Industry 0% 5% 10% 15% 20% 25% Financial services (including insurance) 18 Manufacturing 14 High technology 13 Retail 12 Professional and business services 8 Utilities and energy 7 Health care 6 Chemical, oil and gas 5 0% 5% 10% 15% 20% 25% Food and beverage 3 Pharmaceuticals 3 Public sector and nonprofit 3 Transportation services 2 Media and communications 2 Property and construction 2 Other 2 Employee population 18% 48% 34% 18% Large More than 20,000 34% Medium 5,000 to 20,000 48% Small Fewer than 5,000 2 towerswatson.com

Key Finding #1 The Structure Push and Pull As new options emerge for effectively and efficiently delivering HR services, organizations are including HR structure changes in the scope of possible adjustments. After experiencing several years of relative stability in the HR function, change is coming. A growing number of all organizations (44%) dramatically more than last year s 26% indicate they will change their HR structure in 2012 or 2013. Our experience suggests that this is due to both push and pull initiatives. Technological advances are providing the push. To meet continuing pressures to be more efficient and effective, organizations are taking advantage of much that the constantly changing technology and delivery landscape has to offer. Advances such as software-as-a-service (SaaS) are simply impossible to ignore. Conversely, those maintaining the same HR structure as five or even three years ago risk missing various opportunities to realize new efficiencies. Among organizations planning HR structure changes for the year ahead, improving operations is a major theme. A significant majority (64%) want to realize further efficiencies, while others are looking to capture synergies across processes and investments (54%), improve quality (51%) and reduce costs (46%) (Figure 2). As you will read in the pages that follow, many companies plan to achieve these goals by turning to shared services to develop more disciplined functions that deliver core expertise to the business. Figure 2. Structure and process Reasons for changing current HR structure Do you anticipate changing your current HR structure in 2012 or 2013? 56% Reasons for changing current HR structure 0% 20% 40% 60% 80% 100% Realization of further efficiency potentials Realization of synergies Quality improvements Cost savings Globalization initiative 28 44% Change of business strategy 27 44% Yes 56% No changes anticipated n = 612 46 51 54 64 Business reorganization 26 Other 8 2012 HR Service Delivery and Technology Survey Executive Summary Report 3

We believe that this represents an evolving organizational perspective on HR one that we ve seen moving toward a more disciplined function that develops and delivers core expertise in needed areas specific to the business. HR is also growing into, and being led to, a more savvy approach. Business units are operating as more autonomous profit-and-loss centers and demanding specialized and dedicated expertise in the form of centers of excellence (COEs) and business partners to support their increasingly aggressive business initiatives. Structural Changes A single HR function for the entire organization remains the predominant model, especially in single-country organizations (72%), as opposed to global ones (23%) with HR functions covered by function and geography with corporate oversight (28%). And while it depends on the size and scope (global or domestic) of the organization, most companies making changes will move to (or back to) a shared services environment (39%) or bring additional services into an existing shared services organization (31%). Just over a quarter (26%) will outsource some or additional functions, particularly domains that are more siloed than the typical full HRO of days past (Figure 3). Figure 3. Structure and process Anticipated changes to HR structure in 2012 or 2013 0% 10% 20% 30% 40% 50% Move to a shared services environment with HR COEs and HR business partners 39 Bring additional services into our shared services environment 31 Outsource (some/more) functions 26 Move to a single HR organization for the entire organization 10 Decentralize HR, allowing HR to be run by business unit or geography 6 Combine our HR shared services with other corporate functions 6 Bring (some/more) outsourced functions back in-house 4 Move away from a shared services environment 0 Other 17 Base: Those anticipating making a change (n = 271) The most common responses in the Other category include changes within existing framework (14), new structure yet to be determined (11) and increased centralization or regionalization (seven). 4 towerswatson.com

Key Finding #2 Shared Services Is Here to Stay Shared services is emerging as the most valued (and most prevalent) practice for delivering HR services to the business, though single-process outsourcing remains a stabilizing force. Organizations have come to realize that developing capabilities and resources in-house for many core services is an accurate and effective HR service delivery solution. Shared services allows companies to maintain greater quality control, and create and adapt to new processes more quickly. The model also enables companies to allocate resources according to functional need and business cycle, but can be both a blessing and a curse, since the process often suffers at the hand of speed. Rather than expecting generalists to cover the waterfront of business needs, organizations are again gravitating toward the shared services model, in which business partners draw support from skilled resources in COEs and service centers. Among large organizations, over two-thirds (70%) operate in-house service centers, while 54% of midsize organizations do so (Figure 4). A full 70% of organizations making changes to their HR structure are focused on shared services as a primary initiative and not one organization indicated a move away from such an environment for 2012 or 2013. A key part of this model working is an outstanding user experience where self-service is complete and easy to use; portals have easy-to-find, searchable answers to questions; and case management tools keep track of issues. Outsourcing: In or Out? Organizations adopting outsourcing spiked to 26% from 17% last year. We believe that this spike can be attributed to niche and single-function outsourcing, which can be highly effective for specific processes that require highly specialized, sustained expertise. Among the activities effectively outsourced can be pension, payroll, health and savings plan administration, relocation administration and other highly transactional activities. Our position is that these activities often can be best left to specialized outsourcers, leaving the organization to focus on core processes, realize related organizational efficiencies and maintain a level of effective governance along the way especially for functions that focus on their key talent management initiatives. Figure 4. Structure and process Use of HR shared services Does your organization use an HR shared services (HRSS)/contact center to deliver HR services? 0% 20% 40% 60% 80% 100% Yes, we have an internal onshore service center(s) Yes, we have an internal offshore service center(s) 10 8 2 3 Yes, we use an external onshore provider(s) 16 5 5 4 Yes, we use an external offshore provider(s) 10 1 0 0 Other 4 3 0 3 No 17 29 40 43 46 57 60 Large More than 20,000 employees (n = 109) Medium 5,000 to 20,000 employees (n = 232) Small 2,500 to 4,999 employees (n = 83) Very small Fewer than 2,500 employees (n = 200) 75 2012 HR Service Delivery and Technology Survey Executive Summary Report 5

Key Finding #3 Keeping Pace With the Talent Imperative Talent and performance management remains the primary HR service delivery issue although the full story is more complex than in previous studies. In years past, we ve been highly encouraged by the importance of talent management to survey respondents. For six years running, HR leaders and professionals have reported this as the key HR service delivery issue for the year ahead (Figure 5), a finding we ve understood to reflect how critical the attraction, retention and engagement of talent is to the organization s future success clearly a positive finding. Better yet, it suggests a strong alignment of the HR function with business goals Because of a confluence of issues including demographic shifts around the world, a shortage of critical-skill employees and changing business priorities savvy organizations will focus on talent management for some time. This includes an enduring emphasis on developing and implementing the strategies that create a meaningful career experience for employees. This enduring emphasis on talent throughout the organization has led to a corresponding long-term focus on the strategies that companies can use to create a meaningful career experience for their employees, and the supporting technology tools that help deliver this experience, from online performance management systems to portals that help manage employees careers. This phenomenon has created something of a heyday for HR service delivery and technology, which has benefited from this focus in terms of technology advances and investments made. It has given HR service delivery professionals the long-term opportunity to contribute at a strategic level and offered the proverbial seat at the table in terms of helping to tackle the enduring talent management issues that the organization needs to solve. As a discipline, talent management is here to stay for the foreseeable future. Demographic shifts around the world, the availability of critical-skill employees and changing business priorities have all converged to guarantee that savvy organizations will indeed focus on talent management for some time ahead. 6 towerswatson.com

However, only a few talent management technologies have become comprehensive, user-friendly and intuitive enough to unite the many pieces of talent management for employees and line managers. The result is that HR has a plethora of choices for talent management systems in a crowded marketplace of solutions, nearly all of which are still transactional and siloed in their focus and experience. It s as if HR is still experiencing the noise in the system in both the delivery and technological senses of the word that will turn into music once the challenges are ironed out. (See Talent Management on page 17 to explore these and related concepts further.) A triumvirate of priorities vie for second place behind talent management, including streamlining business processes, gaining more involvement in strategic business issues and recruiting (22% of respondents indicate it will be a priority for the year ahead). These issues hint that the pendulum may swing further in the business process direction next year, as change continues and HR organizations and technologies keep evolving. HR has a plethora of choices for talent management systems in a crowded marketplace of solutions, nearly all of which are still transactional and siloed in their focus and experience. Figure 5. Top HR service delivery issues Top three frequency 0% 10% 20% 30% 40% 50% 0% 10% 20% 30% 40% 50% Talent/Performance systems 24 9 7 40% Streamline business processes 5 8 9 22% Recruiting/Staffing services/systems 7 8 7 22% More involvement in strategic business-driven issues 9 6 7 22% Training 4 9 6 19% Implement a new HRMS 11 4 4 19% Improve line managers people management capabilities 4 5 5 14% Compensation services/systems 4 6 4 14% Cost reduction related to HR administration 5 4 4 13% Upgrade HRMS to a new version/system 5 4 3 12% Payroll/Time management services/systems 4 5 2 11% Define/Deploy human capital metrics and dashboards 1 3 6 10% Introduce standard workforce planning process and tools 2 3 5 10% Systems integration 3 4 3 10% Accuracy of data 2 3 4 9% Deploy manager self-service functionality 1 3 4 8% HR website/usability 1 3 4 8% Utilize additional HRMS modules 2 3 2 7% Deploy employee self-service functionality 1 1 4 6% Consolidate multiple HR systems globally 1 2 3 6% Benefit services/systems 1 2 2 5% Create a global data warehouse 1 2 1 4% Enable mobile access to HR self-service applications 1 1% Other 2 2 2 6% First Second Third n = 606 2012 HR Service Delivery and Technology Survey Executive Summary Report 7

Key Finding #4 Spending the Same or More (on More of the Same) HR technology spending remains steady and strong, and investments are directed mostly toward growth and new functionality. We ve been heartened to see a consistent level of increased HR technology spending over the past several years (Figure 6), albeit with a reduced rise during the recession. Beyond the core costs of owning and operating technology, it seems that not only is technology still seen as needed to play, but also that organizations understand the investment required to remain current, expand capabilities and continue to improve operations. Over half of organizations (53%) report that their spending will stay the same as this year s; another three in 10 (31%) will increase or significantly increase this investment, and only 16% expect a reduced HR technology budget for the year ahead. Among organizations that expect to spend more in 2013 than in the previous year, over one-third (38%) plan to deploy additional functionality from existing vendors; another 36% are looking to upgrade or re-implement their existing HRMS, and 34% plan to expand their existing self-service offerings (Figure 7). These are healthy activities to undertake with increased funding and indicate an optimistic, growth-oriented outlook. Figure 6. HR technology spending in 2012 vs. 2011 60% 50% 53 40% 30% 20% 21 10% 0% 6 Much lower (> 20% reduction) 10 Lower (< 20% reduction) About the same Higher (< 20% increase) 10 Much higher (> 20% increase) n = 599 8 towerswatson.com

Figure 7. HR technology spending Factors accounting for increased spending in 2012 0% 10% 20% 30% 40% 50% We will be deploying new modules/functionality from existing vendors 38 We will be upgrading/re-implementing our existing HRMS We will be expanding our self-service offerings 34 36 We will be replacing older systems 33 We will be implementing new vendors to automate processes for the first time 29 We will be deploying new HR analytics/workforce planning capabilities 25 We will be expanding existing functionality into new regions and/or business units 22 We will be deploying or redeploying an HR portal 21 We will be deploying or redeploying a data warehouse 12 We will be implementing new call center support technology 9 We will be implementing mobile access 7 We will be moving to an internally deployed cloud-based architecture 4 We will be bringing services and/or technology formerly outsourced back in-house 3 We will be moving to an IT outsourcing approach 2 Other 4 Base: Those expecting increased HR technology spending (n = 189) 2012 HR Service Delivery and Technology Survey Executive Summary Report 9

Form Follows Function: HR Structure and Shared Services When companies show a desire to make shifts in HR structure, it usually indicates that significant, rapid change is occurring. But why is this motivation now 15% higher than in years past? The impetus for this change is, more often than not, driven by a broad desire for greater efficiencies (Figure 8) and a willingness to be expansive in finding them. Companies right now are more likely to be focused on realizing the synergies from alreadyimplemented process changes or investments than they are on overtly saving money through cost reductions. Organizations have largely committed to a path and are comfortable exploring delivery models that help them gain greater returns from their decisions, and this puts HR structure next on the agenda. Surprisingly, few global organizations cite globalization as an impetus for structural change. Perhaps this is because the largest have already factored regional delivery into structural decisions. (Of course, how successfully they are delivering on change may be another story.) While regional differences can affect how organizations evaluate structure changes, a significant number in all regions cited efficiency. Additionally, more than half of U.S. and Canadian organizations and only a third of Asia Pacific and European companies named cost as a factor. As mentioned, shared services is reemerging as a solution after a decade in which many organizations experimented with largescale outsourcing and focused their investments on other aspects of their delivery models. Figure 8. Reasons for changing current HR structure Middle East/ Africa (n = 9) United States (n = 133) Location of headquarters Asia Pacific (n = 66) Canada (n = 15) Europe (n = 45) Business reorganization 33% 13% 36% 44% 19% Change of business strategy 44% 7% 18% 44% 23% Cost savings 33% 53% 38% 33% 55% Realization of synergies 53% 47% 51% 33% 58% Realization of further efficiency potentials 53% 47% 56% 56% 75% Quality improvements 36% 60% 44% 56% 59% Globalization initiative 24% 27% 22% 33% 31% Other 6% 20% 4% 11% 8% 10 towerswatson.com

The most prevalent structure for HR globally is a single function for the entire organization (Figure 9), while relatively consistent alternate approaches are also used. In most regions, the second most common model is a matrixed, corporate-overseen HR function that varies considerably by the type of business unit and, especially, the company s geographic footprint. Moving to shared services, and adding functions to existing shared services functions, are the most common structural change actions being taken across all regions (Figure 10). There are many reasons for these changes. Done well, shared services achieves the following: Improves the HR organization s controls Allows HR to manage the ebbs and flows of its business cycle more effectively Enables HR to improve quality by providing more standardized and consistent processes and resources Figure 9. Current overall structure of entire HR function Middle East/ Africa (n = 24) United States (n = 268) Asia Pacific Canada Europe Location of headquarters (n = 196) (n = 37) (n = 91) Single HR function for entire organization 44% 78% 43% 79% 49% Separate HR function by business unit with corporate oversight 14% 3% 16% 0% 16% Separate HR function by geography with corporate oversight 15% 5% 18% 8% 12% Separate HR function by a combination of geography and business unit with corporate 20% 11% 18% 13% 20% oversight Individual HR functions (whether by business unit and/or geography) with no meaningful corporate 4% 0% 4% 0% 2% oversight Other 3% 3% 1% 0% 1% Figure 10. Changes to the HR structure in 2012 or 2013 Middle East/ Africa (n = 9) United States (n = 133) Location of headquarters Asia Pacific (n = 68) Canada (n = 15) Europe (n = 46) Move to a single HR organization for the entire organization 15% 13% 15% 22% 5% Decentralize HR, allowing HR to be run by business unit or geography 15% 0% 2% 11% 4% Move to a shared services environment with HR COEs and HR business partners 49% 53% 30% 44% 35% Bring additional services into our shared services environment 21% 20% 17% 11% 43% Combine our HR shared services with other corporate functions (e.g., Finance) 6% 7% 4% 11% 6% Move away from a shared services environment 0% 0% 0% 0% 0% Outsource (some/more) functions 24% 20% 17% 22% 32% Bring (some/more) outsourced functions back in-house 1% 0% 4% 0% 7% Other 9% 27% 26% 22% 16% Moving to shared services, and adding functions to existing shared services functions, are the most common structural-change actions being taken across all regions. 2012 HR Service Delivery and Technology Survey Executive Summary Report 11

One caveat: The model carries some risks. Organizations need to design and implement shared services carefully and deliberately. It s not a panacea for reducing head count or disguising failure to execute; rather, it requires transparency and good governance. Moreover, organizations that focus wholly on the structure merely putting the right pieces in the right places overlook a significant element of the shared service advantage: the process. Process Is Paramount Throughout our history of conducting this survey, we ve observed that process (re)design can make or break the success of any HR service delivery or technology decision. A proper approach to process design involves creating a workflow that enables individuals and departments throughout the organization to carry out the HR responsibilities for which they re accountable, and maximize the value and usefulness of the technology that underpins them. This means empowering line managers to conduct HR activities directly and without the constant need to be checked upon (of which HR is frequently guilty). It also includes holding individuals inside and outside HR responsible for upholding the same processes and standards. Organizations approach governance and resources for shared services in various ways (Figure 11). Mixed ownership and double-hatting are common approaches used across different regions. Although virtual COEs and exporting HR operations are not prevalent in any region, they are more common in the U.S. and Canada, where two to three times more organizations include these features in their delivery model. Throughout our history of conducting this survey, we ve observed that process (re)design can make or break the success of any HR service delivery or technology decision. Figure 11. Features of current or soon-to-be-implemented delivery model Mixed Ownership Some HR resources sit in business cost centers (e.g., business partners), but all resources are centrally coordinated Double-Hatting Some HR resources take on multiple roles (e.g., one person shares COE and business partner roles) Virtual COEs Quasi-formal organization of HR resources exists outside the strictly formal organization units in which they reside Shared Resource Pool(s) Rather than dedicating resources (e.g., specialists) to a specific center of expertise or HR department, they are assigned on a project-by-project basis Exporting HR Operations HRIT operations and/or call center resources report to a function other than HR or in a matrix between another function and HR Communities of Interest Cross-functional teams dedicated to specific areas of focus are created for the purpose of career building and also to leverage talent to deliver on various projects Asia Pacific (n = 155) Canada (n = 26) Europe (n = 66) Middle East/ Africa (n = 16) 50% 50% 55% 56% 56% 43% 50% 45% 44% 41% 4% 12% 5% 6% 12% 21% 23% 15% 19% 16% 6% 12% 5% 6% 13% 19% 15% 14% 6% 23% United States (n = 198) 12 towerswatson.com

HRMS: Changes and Choices Adoption More organizations (18%) intend to implement a new HR management system (HRMS) than we ve seen in the past (10%), which could indicate a number of things. Select economies are improving; more organizations want to enhance their HR administration and reporting capabilities, and many organizations have been waiting to determine which way the HRMS marketplace will settle out. We also see significant regional variation this year (Figure 12). Regional Variation Among the small number of Middle East survey participants, 42% plan to implement a new HRMS system. This suggests they are committed to establishing or enhancing HR administration and reporting capabilities. In other regions, a high ratio (1:5 to 1:3) of organizations intend to implement a new HRMS system. Regional differences also extend to vendor choice. While a fair number of organizations in each region use Oracle/PeopleSoft and SAP, twice as many U.S.-based organizations use Oracle (Legacy PeopleSoft). As expected, SAP is deployed almost twice as often in EMEA, and ADP products are more prevalent in the U.S. and Canada, although they have some presence in Europe. Workday s prevalence is relatively low for existing HRMS implementations; however, it is represented in all regions except the Middle East. One-third (33%) of European companies and 40% of Asia Pacific companies indicated that they use other HRMS products, compared to only 10% of U.S. companies but there is no single system that stood out for those organizations, as these appear to be regional solutions. HRMS Application Highlights The following are highlights for key HRMS applications, including Oracle, SAP, Workday and HR portals. Oracle (PeopleSoft) and SAP: Legacy Versus New Generation PeopleSoft Forty percent of organizations running PeopleSoft are using version 9.1 with another 42% running version 9.0 or 8.9. While 87% of companies using PeopleSoft as their primary HRMS use a single instance of that application throughout their Figure 12. Is your organization currently implementing or planning to implement a new primary HRMS? Asia Pacific (n = 193) Canada (n = 37) Europe (n = 91) organization, 9% run multiple instances of the same version in different locations and/or for different business units, with the remaining 4% using different versions throughout their organization. Many legacy Oracle platform users are acting with abundant caution something we ve seen before. Despite its new Fusion offering, most existing Oracle customers (28%) are taking a wait and see approach, and slightly fewer (26%) plan to make no change, and continue to operate as they did before Oracle s acquisition of PeopleSoft. One in five (20%) are proceeding cautiously until they more fully understand how the legacy products are being merged into Fusion (Figure 13). Middle East/ Africa (n = 24) Yes 34% 32% 24% 42% 22% No 66% 68% 76% 58% 78% United States (n = 273) Figure 13. HRMS profile Oracle (legacy PeopleSoft) Given the prospect of Fusion and Applications Unlimited, what are your plans for the future? 0% 10% 20% 30% 40% 50% No change, same as before Oracle s acquisition of PeopleSoft 26 Proceed cautiously until we understand better how Oracle is merging the PeopleSoft product into Fusion 20 Move aggressively to be as current as possible on PeopleSoft, but no plans for Fusion at this time 16 Move to another ERP system solution (e.g., SAP, Lawson) 5 Move to an outsourced HRMS 2 Moving to Fusion now 1 Plan to be on the upgrade path to Fusion 1 Move to a third-party support provider (i.e., no further Oracle-developed upgrades) 1 Moving to Fusion within the year 1 Not sure yet n = 134 28 2012 HR Service Delivery and Technology Survey Executive Summary Report 13

SAP* One-third (33%) of organizations running mysap 2005 use enhancement pack 5 or later, while smaller numbers run past versions (28% on enhancement pack 4 and 16% on enhancement pack 3). While 73% of organizations using SAP as their primary HRMS use a single instance of it, 18% deploy multiple instances of the same version in different locations and/or different business units, and 9% use different versions of SAP throughout their organization. SAP experiences a challenge similar to Oracle: A surprising percentage of organizations running SAP have not fully developed upgrade plans, though for slightly different reasons: 40% of organizations running SAP s enhancement pack 4 or earlier do not know what an enhancement pack is or don t have plans for it. Well over half (62%) either have not heard of enhancement packs, or do not fully understand the strategy or how it impacts their organization. We believe the work ahead for SAP will entail a greater education and communication effort directed to its existing base, as well as to organizations evaluating new technologies (Figure 14). Figure 14. HRMS profile SAP Release of SAP R/3 currently in production 0% 10% 20% 30% 40% 50% 60% mysap ERP 2005 (ECC6) with enhancement pack 5 or later 33 71 mysap ERP 2005 (ECC6) with enhancement pack 4 28 mysap ERP 2005 (ECC6) with enhancement pack 3 or earlier 16 mysap ERP 2004 (ECC5) 9 4.7/Enterprise or earlier n = 97 14 Plans to upgrade (for those on mysap ERP 2005 [ECC6] with enhancement pack 4 or earlier) 0% 10% 20% 30% 40% 50% 60% Upgrade to mysap ERP 2004 (ECC5) in 2012 9 Defer upgrade to mysap ERP 2004 (ECC5) until 2013 2 Upgrade to mysap ERP 2005 (ECC6) in 2012 17 Defer upgrade to mysap ERP 2005 (ECC6) until 2013 5 Upgrade plans not yet defined 59 Evaluate other vendor options 8 n = 59 Almost three-quarters (73%) of organizations using SAP as their primary HRMS use a single instance of that application throughout their organization. In contrast, 18% have multiple instances of the same version of SAP in different locations and/or for different business units, while another 9% use different versions of SAP throughout their organization. 14 towerswatson.com *The 2012 HR Service Delivery Survey was fielded prior to SAP s acquisition of SuccessFactors.

Workday: A Next-Generation Model Most organizations chose Workday because of its user interface (58%), lower ongoing costs (53%) and global capabilities (42%) (Figure 15). Among the modules that organizations have implemented most often or plan to deploy by the end of 2013 are compensation, benefits and performance management for succession planning (46% additional by the end of 2013 versus 7% implemented now), onboarding (44% additional versus 6% now) and performance management (40% additional versus 33% now). In an ever-changing HRMS space, Workday clients have rapidly adjusted to its SaaS model: Two-thirds of Workday respondents say they deploy significantly more self-service with Workday than with their prior HRMS platform. Two-thirds find the obligatory update (upgrade) process easy or manageable. 58% say they are comfortable applying these updates on their own. Workday s success appears to reflect the continued rise of SaaS as a relatively user-friendly, cost-effective and efficient alternative to legacy systems. Figure 15. HRMS profile Workday What were your top three reasons for selecting Workday? 0% 20% 40% 60% 80% 100% User interface (e.g., ease of use for HR, employees and managers) 58 Lower ongoing costs (e.g., hardware, IT support, system maintenance, staff) 53 Global capabilities No need to upgrade; we are always on current version 32 Best fit our functional requirements 26 Quicker to implement 26 Lower up-front costs 16 Predictable ongoing costs 11 Easier to manage on an ongoing basis 11 Other 5 42 n = 19 2012 HR Service Delivery and Technology Survey Executive Summary Report 15

Figure 16. HRMS profile HR portal What HR portal technology are you currently using? 0% 10% 20% 30% 40% 50% Microsoft SharePoint SAP portal Oracle (legacy PeopleSoft portal) 10 ADP Oracle (legacy Oracle portal) 4 Infor (legacy Enwisen) 3 IBM WebSphere 3 Custom-developed portal Other 5 13 16 Approximately one-third of the other portals mentioned are provided through the company s HRMS/HRO vendor. n = 355 Where is your primary HR portal hosted? 31 36 The HR Portal: The All in One HR has embraced the portal concept to deliver comprehensive employee and manager information in a customized manner for virtually all employees from one source. A substantial 60% of organizations offer an HR portal to both HR and employees. Moreover, 20% are working to develop one and only a smaller number (fewer than one in five) have no portal plans at all. The portal s strong adoption level suggests that HR firmly believes portals can help retain and engage employees in many ways ranging from sharing the value of their total rewards packages to providing real-time career management opportunities. Two portal technology approaches stand head and shoulders above the rest: 36% of organizations have developed their own custom portal. 31% use Microsoft s SharePoint technology which offers ease of use and customizability a solution that will likely grow over the coming years (Figure 16). HR and communication functions maintain responsibility for the portal s content almost exclusively (84%), which most often consists of knowledge-based information, internal HR team sites, and new employee onboarding information and functionality. 20% 80% Installed product, residing in our organization s data centers 20% Hosted by a third-party vendor n = 358 80% Does your HR portal provide a personalized experience? 40% 60% Yes 40% No n = 370 60% 16 towerswatson.com

Talent Management: A Mission-Critical Element One of our most consistent research findings, for the past six years, has been that talent and performance management remains the top HR service delivery issue. This has held true in both boom years and during the past recession regardless of the size or location of the organization. We believe this is due to continued demographic shifts that are changing the composition of the workforce and impacting employers ability to attract, retain and engage top employee talent and ultimately propel their businesses forward. Talent and performance management systems have a pyramidal structure. The core talent management elements comprise the base, while the more advanced, cross-domain functions make up the middle and then narrow toward the pyramid s peak. The challenge that HR service delivery professionals face is to integrate the sophisticated showplace functions many organizations desire with the elements already intertwined with their strategy and technology approach. A best practice is to integrate strategies, programs and systems with the ultimate goal of organizations seeking to achieve optimum effectiveness. That s why new technology buyers often seek solutions that demand a truly comprehensive, fully aligned approach to design, online coaching and guidance that supported by change management efforts will move the needle of organizational transformation for employees and line managers. But there s a catch: The objective of creating a smooth-running HR service delivery machine is not readily achievable through the technology vendors in today s marketplace. As Figure 17 shows, a majority of organizations use their HRMS or a custom solution for compensation, including base pay, variable/bonus pay and total rewards statements. Organizations also typically use these methods (albeit to a lesser extent) for onboarding, performance management, learning management, recruiting and job leveling. In nearly all cases, HRMS is the far more predominant (and effective) solution over custom-built approaches. Figure 17. Talent management Current delivery system Primary delivery system currently used for talent management 0% 20% 40% 60% 80% 100% Compensation Base pay (n = 562) 44 18 2 8 28 Compensation Variable pay/bonus (n = 547) 35 22 2 9 32 Total rewards statements (n = 414) 28 17 3 18 34 Compensation Sales/Incentive (n = 448) 26 23 4 8 39 Onboarding/Joiner administration (n = 534) 26 12 3 12 47 Performance management (goal setting, assessment) (n = 570) 25 22 4 18 31 Learning management and training (n = 550) 25 19 9 21 26 Recruiting/Staffing Internal (n = 574) 21 14 6 27 32 Compensation Global grading/job leveling (n = 466) 21 14 3 14 48 Workforce planning/analytics (n = 477) 19 17 4 5 55 Competency models (n = 438) 16 19 3 11 51 Recruiting/Staffing External (n = 557) 16 11 6 36 31 Career development/planning (n = 494) 15 17 3 13 52 Compensation Plan design and analysis (n = 517) 12 17 4 9 58 Succession planning (n = 493) 9 17 3 12 59 Compensation Market analysis/survey management (n = 515) 7 14 6 27 46 Current HRMS system Custom/ In-housedeveloped tool Best-of-breed technology (on-premise) Best-of-breed technology (SaaS/Hosted by vendor) Manual/ Paper-based 2012 HR Service Delivery and Technology Survey Executive Summary Report 17

Figure 18. Talent management Effectiveness of technology Effectiveness of technology in helping meet talent management objectives 0% 20% 40% 60% 80% 100% Compensation Base pay (n = 381) Total rewards statements (n = 258) 26 50 16 7 1 Performance management (goal setting, assessment) (n = 374) 25 52 14 8 1 Onboarding/Joiner administration (n = 258) Compensation Market analysis/survey management (n = 253) 23 53 15 8 1 Recruiting/Staffing External (n = 368) 22 53 10 13 2 Recruiting/Staffing Internal (n = 369) Compensation Variable pay/bonus (n = 346) Compensation Plan design and analysis (n = 197) 19 48 21 9 3 Compensation Global grading/job leveling (n = 221) 19 52 19 8 2 Compensation Sales/Incentive (n = 251) Learning management and training (n = 384) 17 52 16 13 2 Succession planning (n = 193) 12 51 26 9 2 Competency models (n = 202) 26 52 15 6 1 23 45 18 12 2 21 51 12 13 3 21 54 15 7 3 18 51 21 8 2 11 54 25 7 3 Career development/planning (n = 224) 11 50 25 11 3 Workforce planning/analytics (n = 198) 10 41 27 18 4 An alarmingly high percentage of organizations still use manual or paper-based systems. This is to be expected in newer and more qualitative areas of emphasis like succession planning and career planning, but excellent technologies are available to aid in the aforementioned areas. Moreover, when it comes to areas like compensation that are highly transactional and require a high degree of accuracy and timeliness, such outdated approaches are a cause for concern. Talent Management Technology Effectiveness: The Bottom Line Organizations talent management strategies and their HR service delivery approaches along with the tools they use to support employees and managers alike are now even more personalized, executed in real time and easy to use. But whether these methods are effective is another matter. While 78% of organizations rate their base compensation management solutions as very or somewhat effective, more than one in five are neutral or dissatisfied with their delivery method. Performance management and external recruiting show effectiveness ratings of 77% and 75%, respectively, but the situation slides downhill from there. Effectiveness levels drop to unacceptably low ratings of just over half for more complex processes such as workforce analytics and planning, as well as career management and planning. Figure 18 reveals effectiveness percentages for various processes in more detail. Very effective Somewhat effective Neither effective nor ineffective Somewhat ineffective Not at all effective 18 towerswatson.com

Further analysis reveals that, for a number of processes, best-of-breed applications deliver the highest effectiveness results. These systems are wholly designed and dedicated to administer specific processes, and are often bundled together as specific modules within a purpose-built software suite. Specifically, best-of-breed solutions are most highly effective for performance management, onboarding and compensation administration (Figure 19). Not surprisingly, manual and paperbased systems exhibited the least effective results for all processes. Figure 19. Talent management Average effectiveness of technology Average effectiveness of talent management technology currently in place Current HRMS Custom/In-housedeveloped tool Best-of-breed technology Recruiting/Staffing External 3.46 3.43 3.99 2.80 Recruiting/Staffing Internal 3.49 3.42 4.02 2.94 Onboarding/Joiner administration 3.56 3.63 4.16 2.52 Compensation Market analysis/survey management 3.55 3.62 4.08 2.88 Compensation Plan design and analysis 3.46 3.60 4.08 2.98 Compensation Global grading/job leveling 3.69 3.65 4.04 2.70 Compensation Base pay 4.01 3.74 4.10 2.97 Compensation Variable pay/bonus 3.80 3.74 4.05 2.87 Compensation Sales/Incentive 3.70 3.71 3.96 2.66 Total rewards statements 3.97 3.66 4.10 2.67 Performance management (goal setting, assessment) 3.88 3.65 4.19 2.83 Learning management and training 3.58 3.53 3.85 2.87 Career development/planning 3.60 3.37 3.68 2.66 Succession planning 3.64 3.57 3.65 2.61 Workforce planning/analytics 3.35 3.19 3.64 2.51 Competency models 3.61 3.47 3.85 2.50 Note: Effectiveness is measured on a 1 to 5 scale, where 1 is not at all effective and 5 is very effective. Gray indicates effectiveness score for the technology is statistically higher than those for all other technologies. Teal indicates effectiveness score for the technology is statistically lower than those for all other technologies. Manual/ Paper-based 2012 HR Service Delivery and Technology Survey Executive Summary Report 19

Figure 20. Talent management Career management process and program effectiveness At our organization, we want: 61% 9% 30% Effectiveness of career management programs 0% 20% 40% 60% 80% 100% Employees at our organization are frequently able to move across organizational boundaries, geographies, functions and business units (n = 564) 8 41 30 18 3 Our organization measures the effectiveness of our career management programs (n = 560) 3 21 32 37 7 Our company has developed effective tools and resources for career management (n = 569) 3 32 35 27 3 Employees understand how they can influence their careers (n = 569) 2 38 37 21 2 Our career management programs support our attraction and retention goals (n = 565) 3 34 38 22 3 Strongly agree Agree Neither agree nor disagree 30% Employees to take ownership of their own careers 61% Employees and managers to have joint ownership 9% Managers to guide employees careers n = 535 Disagree Figure 21. Regional differences in career management process Organizations headquartered in the U.S. and Canada United States/ Canada (n = 271) Employees to take ownership of their own careers 38% 22% Employees and managers to have joint ownership 59% 62% Managers to guide employees careers 3% 16% Strongly disagree Asia Pacific/ EMEA (n = 264) Career Management: Whose Job Is It, Anyway? When it comes to managing employees careers, a majority of organizations (61%) prefer that employees and managers take joint ownership of this activity, with half as many organizations (30%) believing that career management is the responsibility of the employee. Either goal has an inherent paradox in that the supporting tools and processes provided to both employees and managers enjoy less than 50% effectiveness in all cases (Figure 20). This ranges from a high of 49% for career mobility across geographies and functions, to a low of 24% in managing the effectiveness of career programs. Regional differences exist in the area of career management. While joint ownership between the employee and manager is again most prevalent, the U.S. and Canada (headquartered organizations) are much more likely to indicate that the career management process requires employees to take ownership of their own careers 38% for the U.S. and Canada, compared to 22% for EMEA and Asia Pacific (Figure 21). In contrast, 16% of Asia Pacific and EMEA respondents indicated that the manager is responsible for guiding an employee s career, versus 3% of U.S. and Canada companies, reflecting perhaps a more paternalistic approach to career management in general for Asia Pacific and EMEA. Measurement Most regions talent management program effectiveness ratings are in line with aggregate results. However, we see significant variation regarding measurement of career management programs. Almost one-third (32%) of Asia Pacific and European organizations said they measured program effectiveness, but less than 20% of organizations in other regions said they did. This suggests a more rigorous process in Asia Pacific and EMEA. 20 towerswatson.com

Our Take The fact that organizations are continuing to emphasize talent and career management is quite encouraging to us. The question, however, is whether they will be successful at it in the long term. Companies that rely solely on technology to implement their programs will be far less effective than those that deploy it as simply one part of a more holistic plan. Leaders must provide strategic input, and managers need to steer programs using proper processes, governance and the necessary metrics. And correct alignment with the business strategy and solid change management to make it happen right will help ensure that programs are effectively delivered at all levels. 2012 HR Service Delivery and Technology Survey Executive Summary Report 21

Employee and Manager Self-Service We probed deeply. Our survey tracked the availability and prevalence of employee and manager self-service applications. We followed the movement of self-service from a new and innovative development, to an established and ubiquitous way of completing many basic employee processes and from a modest presence, to an established foothold in the more complex realms of HR service delivery for basic manager processes. We explored globally. The survey s worldwide reach reveals greater variability regionally than any other area (Figures 22 and 23) to illustrate how self-service success depends on many factors from existing functionality, to effective implementation, to solid change management and communication practices that provide support. Breakouts. Specific regional breakouts for self-service trends including prevalence now and future implementation plans provide further details in each region covered by this survey. Figure 22. Employee self-service functionality in place now (employee location) Asia Pacific Canada Europe Middle East/ Africa Latin America Change personal data 46% 58% 51% 47% 37% 78% View pay stub/pay slip 44% 54% 40% 33% 22% 84% View total compensation and/or benefit statement 31% 36% 33% 27% 19% 54% View vacation/sick-time usage and balances 55% 51% 46% 40% 26% 73% Update skills, competencies, education, certifications 36% 41% 39% 41% 34% 53% Update performance goals and results 52% 55% 54% 52% 48% 64% View career ladders/job-level definitions 21% 28% 24% 23% 21% 27% Identify/Enroll in learning and development opportunities 41% 45% 43% 41% 38% 64% Review career development possibilities and priorities 22% 27% 27% 23% 25% 31% Begin onboarding or joiner administration before start date by updating personal data, taxes, benefits, orientation, etc. via the web 18% 17% 18% 18% 13% 32% Offboard or leaver administration as employees exit the organization 23% 16% 18% 19% 12% 19% United States Figure 23. Manager self-service functionality in place now (employee location) Asia Pacific Canada Europe Middle East/ Africa Latin America Register/Approve training classes for employees 42% 42% 41% 40% 33% 58% Change salary (e.g., off cycle) 25% 40% 32% 31% 31% 48% Determine bonus/variable compensation 31% 48% 42% 38% 39% 48% Make/Extend offers 22% 30% 27% 23% 26% 39% Initiate/Approve job requisitions 39% 48% 43% 39% 37% 62% Perform succession-planning activities 20% 28% 24% 25% 26% 28% Promote employees 28% 39% 33% 31% 32% 46% Review/Update employee performance 54% 57% 56% 55% 50% 65% Search existing employee population for suitable candidates 21% 22% 18% 26% 16% 20% Terminate employees (voluntary, retirement) 27% 38% 31% 30% 30% 48% Terminate employees (involuntary) 23% 33% 27% 25% 24% 42% Transfer employees 29% 36% 28% 30% 29% 44% View scorecard of key human capital and business performance metrics 15% 13% 14% 13% 10% 15% Workforce planning (project future workforce demand and supply) 12% 12% 10% 13% 9% 9% United States 22 towerswatson.com