Making the Business Case for HR Investments During Economic Crisis

I D C V E N D O R S P O T L I G H T Making the Business Case for HR Investments During Economic Crisis March 2009 Adapted from Putting Performance at the Hub of the Talent Universe by Lisa Rowan, IDC #214468 Sponsored by SAP The HR department in most organizations is primarily concerned with everything related to the management of the employee life cycle, from recruiting and hiring to retaining, training, ongoing development, and finally separation or retirement. For HR, the benefits of implementing automated systems are fairly clear and include improved efficiency and enhanced consistency, particularly in those organizations that rely heavily on manual and standalone processes. However, deploying HR systems can also enable HR to gain a seat at the executive table by providing insights into personnel trends, benefits costs, compliance issues, and skill gaps. For example, HR systems can enable the HR department to serve as a strategic advisor to business executives. Indeed, the ability of HR systems to play a strategic role in the business is critical in determining whether many HR system initiatives get funded. There is a key reason to invest in automated and integrated HR processes. HR needs to consider both the benefits it directly realizes from good systems practices and those that the business derives from having automated HR processes that provide insight and visibility into the workforce. All too often, HR requests for systems investments are declined because HR doesn't build a convincing business case around the technology, opting to emphasize efficiency gains rather than the strategic advantages such systems can deliver. IDC believes that the needs of HR and of the business can be characterized in much the same fashion as an ecosystem in which basic efficiency and accuracy benefits can lead directly to the ultimate goal of workforce optimization. This paper helps HR build the business case by exploring how HR systems can provide strategic benefit to both the HR department and the business overall. In addition, this paper discusses SAP's role in the important market for HR systems. Integrated HR Systems At their most basic, HR systems can deliver transactional benefits for the HR department. Automated and integrated workforce management systems (for administrative tasks such as time and attendance, benefits management, and payroll) can eliminate manual processing, thereby reducing errors and improving efficiency. In addition, such systems can reduce if not eliminate data entry errors and compliance issues by enforcing consistent, accurate, and auditable processes for functions such as payroll, time and attendance, and scheduling. Workforce automation can also reduce the costs associated with benefits administration and payroll by eliminating manual, errorprone processes. IDC 748

Traditionally, such systems have been viewed primarily in light of the HR department and its functions. In other words, such systems have been seen as a way to improve how HR does its job of recruiting, hiring, training, paying, and terminating the workforce. However, with many budgets constricted, the value of HR systems must be seen beyond the HR department itself and viewed in the context of helping the organization's bottom line. The Business Value of Integrated HR Systems It is on the business side where HR systems can transcend purely transactional advantages to deliver strategic benefits. By providing insight and visibility into the workforce in such areas as salaries, overtime, training, attendance, and performance HR systems can help business managers make important decisions that can directly impact the bottom line. In today's economy, many organizations are focused on cutting operational costs; business managers need information regarding workforce trends to determine how best to cut costs without compromising competitiveness, morale, compliance with regulations, and, in some cases, safety. In some situations, freezing salaries, halting promotions, eliminating overtime, and reducing benefits contributions for things such as retirement plans may be sufficient measures to reduce costs. In these cases, business managers can utilize the information in HR systems to make well-informed decisions that are consistent and objective. In situations where a reduction in workforce is required, HR systems can enable business managers to make decisions based on a variety of criteria such as salary, skills, attendance record, performance history, and demographics. In this way, HR systems can equip managers with accurate information so that their decisions can be based on the objectives of the business while also taking into consideration the need to comply with regulations where appropriate. In addition, HR information can enable business managers to make layoff decisions without disproportionately impacting specific groups of employees, which could result in legal action. With an integrated and global HR system, there are fewer local systems to support, which translates into reduced costs and lower overhead for the IT department. In addition, such systems can boost employee morale by ensuring accurate and timely pay and provide line managers with valuable visibility into the workforce. Integrated talent management systems include functionality for critical tasks such as recruiting, training and development, compensation planning, performance management, and career and succession planning. Such automated functions have obvious benefits for the HR department and are also beneficial to the business:! Automated systems facilitate identifying and hiring the best candidates and in turn retaining them through compensation plans and training programs. Well-integrated systems enable a company to be opportunistic in recruiting personnel, as the top talent from competitors may be looking for new opportunities. To attract and hire top talent, the candidate experience has to be perfect. Yet the recruiting function is not just for external hiring; it can help redeploy existing internal resources something that is particularly needed if there is a reduction in the workforce. During layoffs, business managers need to ensure that there are enough qualified people to enable the organization to meet its goals and be in a position to grow when business expands.! Retaining top talent and maintaining their morale is critical during economic downturns; talent management systems can help identify top talent, something that is particularly important to remain competitive. Once identified, top talent can be specifically targeted for training opportunities, career development programs, and compensation strategies so that they are retained. 2 2009 IDC

! Business managers with a strong need to identify successors require visibility into their workforce regarding skills, training, career preferences, and performance history. Such visibility is facilitated by integrated HR systems; such systems can also help managers reduce turnover by providing information about tracking and developing skills.! Enabling employees with self-service abilities for such things as open enrollment, retirement distributions, and requesting paid time off has mutual benefits. For HR, such self-service options reduce the burdens associated with managing employee inquiries and paperwork. On the business side, managers also can reduce the time they spend on administrative tasks. And empowering managers with self-service helps them gain needed insight and respond to workforce situations immediately. With self-service, managers can also become more productive, particularly those who have an expanded span of control due to flatter organizations. Such managers have more day-to-day tasks and overall responsibilities, and automated self-service tools can enable them to respond more quickly to employees.! Analytics which depends on data from self-service, talent management, and workforce applications can bring the HR department to the executive table by enabling it to add more value to the business. On the business side, managers have access to workforce trends and cost metrics at their fingertips. Analytics is needed for insight and to facilitate responsive and critical decision making regarding workforce recruiting, training and development plans, and compensation and benefit strategies. By assessing productivity and attendance trends, analytics provides visibility into where the top performers are and how those performers contribute to revenue generation. This insight is particularly useful for those organizations that are planning a reduction in workforce. Ultimately, automated HR systems by providing accurate information that can help business managers maintain a well-motivated and experienced workforce with a vested interest in the organization can contribute to improved customer service, increased sales, and higher profits. Considerations The difficult economic conditions may hinder adoption of new HR systems, as budgets remain flat or are reduced. However, it is in fact a good time for such moves, in that the benefits provided by wellintegrated HR systems can more than offset the investment. Benefits such as improved visibility into the workforce and accurate information flow empower well-informed decision making, which ultimately will benefit the bottom line in the form of more effective cost-cutting measures and improved profits. Consequently, HR needs to firmly establish a solid connection between investing in HR systems and contributing to the well-being of the organization as a whole. Consequently, getting approval for investments today often requires more due diligence on the part of the HR department. In response to tight budgets, HR may look to take most advantage of its existing systems by augmenting functionality only where needed. This may leave companies that choose this approach without the integration benefits discussed in this paper. Integration is important to true visibility into key talent and the workforce as a whole. Considering SAP SAP is the world's largest business software company with nearly 50,000 employees at locations in more than 50 countries worldwide. The company develops world-class enterprise business software applications known as the SAP Business Suite, which includes enterprise resource planning (ERP), customer relationship management (CRM), supply chain management (SCM), supplier relationship management (SRM), and product life-cycle management (PLM). 2009 IDC 3

SAP offers talent management capabilities as part of its SAP ERP Human Capital Management (HCM) offering and covers all of the strategic HR functions. According to IDC, one of SAP's strengths is the integration among not only the talent functions but also the underlying HR system of record. Other SAP strengths include global perspective and reach, vendor brand and viability, and an exceptional partner ecosystem. SAP ERP HCM includes the following capabilities:! End-user service delivery gives end users multiple options to access ERP services, depending on their situation, their preferences, and the business context.! Workforce analytics provides insight into the workforce and metrics to measure the workforce's contributions to the bottom line.! Talent management facilitates support of personnel during every phase of employment, from recruitment through training, development, and retention.! Workforce process management streamlines and integrates essential workforce processes such as employee administration, organizational management, time management, benefits, payroll, and legal reporting.! Workforce deployment enables the creation of project teams based on skills and availability and supports the monitoring of progress on projects, time tracking, and the analysis of results for strategic decision making. According to the company, SAP ERP HCM is designed to enable organizations to assign workers to appropriate jobs, projects, and teams; unify resource management, project execution, and skills management; and optimally schedule call center staff and retail staff. Challenges Traditionally, HCM systems have been sold primarily to HR departments as a way to improve accuracy and efficiency. As many organizations now resort to layoffs and as a result have fewer employees to manage and track many departments including HR are particularly challenged to justify their investments. When times are difficult, functions considered overhead such as HR are particularly constrained. SAP, along with other vendors in the HCM market, has to help customers build the business case for HCM. This will be a significant challenge in organizations where budgets are tight. As part of its marketing and education efforts, SAP may have to reach out to potential customers from finance, IT, and HR. Conclusion From the perspective of many HR departments, investing in talent and workforce management systems is an easy sell. By reducing or even eliminating manual processes, and providing an integrated approach to managing the entire employee life cycle, HR automation can reduce errors, improve productivity and efficiency, and mitigate compliance risks. Also, automation will enable HR departments that are facing staff cutbacks themselves to do more with less, an important consideration when investing in automation. However, trying to sell HR automation based on what it can do for HR often leads to a denial of a request for funds. HR has to do a better job of linking the benefits of automation to the business as well as its own functions. One key to aligning the business benefits includes pointing out potential improvements with real dollar values such as the cost of losing an excellent engineer or 4 2009 IDC

top salesperson. Without proper insight into the workforce, business managers often don't have the information they need in a timely manner to identify and keep top people. On the business side, automation of HR and integration across the various functions can provide visibility into and analysis of the workforce. Having a single reliable source of workforce information is key to enabling this visibility, which in turn can enable organizations to align skills with the objectives of the business and map future requirements to training, development, and succession planning. In essence, HR automation can indeed deliver value to the organization as a whole, a capability that is particularly critical now as many organizations consider downsizing and redeploying their workforce. A B O U T T H I S P U B L I C A T I O N This publication was produced by IDC Go-to-Market Services. The opinion, analysis, and research results presented herein are drawn from more detailed research and analysis independently conducted and published by IDC, unless specific vendor sponsorship is noted. IDC Go-to-Market Services makes IDC content available in a wide range of formats for distribution by various companies. A license to distribute IDC content does not imply endorsement of or opinion about the licensee. C O P Y R I G H T A N D R E S T R I C T I O N S Any IDC information or reference to IDC that is to be used in advertising, press releases, or promotional materials requires prior written approval from IDC. For permission requests, contact the GMS information line at 508-988-7610 or gms@idc.com. Translation and/or localization of this document requires an additional license from IDC. For more information on IDC, visit www.idc.com. For more information on IDC GMS, visit www.idc.com/gms. Global Headquarters: 5 Speen Street Framingham, MA 01701 USA P.508.872.8200 F.508.935.4015 www.idc.com 2009 IDC 5