Human Capital Management
Human Capital Management
Table of Contents
Executive Agenda ASUG/SAP Human Resources Benchmarking Study Balancing Efficiency and Effectiveness Driving Higher Performance HR Matters for Profit and Growth About the Sources 1 2 4 6 9 11
EXECUTIVE AGENDA
Human resources functions and responsibilities are changing and intensifying at a faster pace, and to a greater degree, than many other areas of the corporate organization. Once relegated to the back office and concerned mainly or even exclusively with transactional processes and functions, HR organizations are taking a greater role in strategic business activities. Efficiency remains the foundation of HR. More transactions must be completed at lower costs, while processes are becoming increasingly complex to manage. A typical 10,000-employee company handles more than one million employee-related transactions annually, each of which costs anywhere from US$10 to US$50.1 The top 10 recruiters in the United States report they are placing 35,000 to 95,000 employees annually. Managing the recruitment pipeline, the selection process, and the induction process is a complicated endeavor. At the same time, however, leading HR organizations are looking beyond the execution of HR transactions to a more value-added and strategic focus. These organizations are aligning human resources and workforce planning functions with the overall business strategy to help increase profit margins and support long-term goals. To understand the changes and momentum in human capital management (HCM), the Americas SAP Users Group (ASUG) and SAP have established an ongoing HCM Benchmarking forum. The study analyzes several dimensions staffing, cost, organizational model, IT deployment, and best-practices adoption. The following key conclusions demonstrate how companies are meeting todays human capital challenges: As a first step, HR managers strive to optimize the efficiency of transactional processes through standardizing, automating, and integrating business processes, based on best-practice process and technology models. Optimizing transactional processes frees up resources that allow HR organizations to invest in more strategic functions that facilitate business growth and increase employee productivity. Centralizing and consolidating HR operations in a shared-services environment helps increase the efficiency and effectiveness of HR processes. Outsourcing, while used frequently for transactional processes, does not always drive top performance, either in cost or service quality. Organizations need to carefully evaluate the value, performance, and cost trade-offs in outsourced versus in-house service delivery. Information technology continues to provide the basic foundation for efficiency and acts as the key driver for effectiveness and future innovation. Leading organizations recognize that IT supports the development of many best practices, and they continue to invest in IT to integrate systems, data, and processes across the enterprise. In short, the study finds that the best human capital management organizations constantly reassess their processes to strike a balance in the drive to optimize efficiency, cost, and service delivery in a continually changing environment. Top performers in this area balance the traditional demands of transactional efficiency with value-added activities that drive company profits and growth and help prepare for future innovations.
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Focus
Methodology
Figure 1
ASUG/SAP Benchmarking Framework
Strategic Decision Support
Effectiveness
Efficiency
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Process-specific, such as time to hire, cost to hire, and payroll error rate Degree of outsourcing and centralization Use of shared services Information technology used by HR employees Degree of IT automation and integration The study also covers the level of best-practice adoption across the full range of HR functions, with companies providing self-evaluation for coverage and the perceived importance of each best practice. Best practices are winning strategies, approaches, and processes that produce superior performance. Some examples of HR best practices include the following: Recruiting Ability of internal and external applicants to place themselves in the talent pipeline according to their own interests and goals Automated recruiting system analysis and reporting Integrated applicant tracking system
Payroll Online access to direct-deposit and payroll data Single point of contact established for all payroll-related questions Benefits and pensions Benefits and retirement planning self-service Ability to model and analyze the impact of benefits plan changes on the overall business model The study then uses companies quantitative KPI results and qualitative best-practice coverage ranking to rate them against the other participants, and categorizes each company as first quartile (the most effective or efficient top performers), average, and fourth quartile (the least effective or efficient bottom performers). Analysis of both qualitative and quantitative measures allows inference of key findings and insights related to the drivers of top performance. Continuous participation in the program will allow companies to track their progress against internal and industry metrics on an ongoing basis.
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Despite HR organizations continued or renewed focus on efficiency, our research has identified significant gaps between first quartile (the companies most effective in instituting best practices) and average performers (those that are average at instituting best practices). First-quartile HR organizations had over 50% better staffing ratios, and their HR costs were 30% or more lower. A single HR FTE in a first-quartile company served 120 employees, compared with 77 employees served by one HR FTE in an average company. HR costs per employee were $1,760 on average, compared with first-quartile company costs of about $1,100 per employee. While its true that companies with higher HR staffing levels or costs tend to have more complex organizations or more complex industry environments, the gap between first-quartile and average performers in many cases indicates an opportunity for improvement in efficiency among the lesser-performing companies.
KEY MEASURES FOR EFFECTIVENESS Effectiveness is much harder to measure than efficiency, and many HR organizations rely on a combination of hard (quantitative) and soft (qualitative) metrics, such as: Hard metrics cycle times (such as time to hire), error rates, and employee turnover Soft metrics employee engagement, customer satisfaction, alignment with corporate goals, impact on business results, and adoption of best practices The study shows that these effectiveness metrics do not necessarily correlate with efficiency metrics. There are study participants with strong results for effectiveness but very high costs, as well as companies with low effectiveness and low costs. The most desirable case is to achieve high effectiveness while at the same time managing costs.
Figure 2
EFFECTIVENESS
Low
EFFICIENCY
Source: ASUG/SAP HR Benchmarking Program (excluding Asian Pacific and Latin American participants)
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Figure 3
Shared-Services Adoption and Results
% of Companies
32 23 15 8 5 1 0.5 14
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True HR business partners spend less than 20% of their time on administrative tasks, and make change management a key responsibility. Top-performing companies even measure HR business partners by the success of such change programs. In this role, they also work with company leadership during the business planning process to identify future competency profiles and needs. OUTSOURCE WISELY AND CONTROL EFFECTIVELY The best companies take time to analyze what to centralize in-house, what to outsource, and what to decentralize, based on the demands of their unique cultures. This study calls into question some of the conventional wisdom about outsourcing. Results are inconsistent in the sense that outsourcing does not always drive first-quartile performance. In analyzing the cost per employee for in-house versus outsourced services, for example, we find significant cost gaps in payroll and benefits administration
between first-quartile and average companies. Even more important, best practices are not always as prevalent in outsourced functions as they are with companies that control more of their HR functions. A possible explanation for the inconsistency of these findings is that organizations that do not outsource may already have decent scale and standardization, and are therefore already at respectable benchmark performance levels. In payroll, for example, organizations with centralized operations in a shared-services environment with standardized and simplified processes based on a single-instance enterprise resource planning (ERP) solution have a very good chance to achieve first-quartile performance in-house.
DOCUMENT MANAGEMENT COMPANY SUPPORTS TALENT MANAGEMENT AND MORE AND REDUCES COSTS
A global provider of mail and document management systems has launched a shared-services initiative to meet a number of crucial targets. Overall, the company wants to support comprehensive talent management within its global workforce, reorganize HR to eliminate redundancies and duplication of effort, and leverage a new HR structure and systems to upgrade and establish quality processes that can be measured and documented. From a metrics perspective, the companys goals are to reduce the HR professional-to-employee ratio and HR service cost per employee. The foundation of the reorganized HR structure is a new global shared-services model and an integrated, enterprise-wide human capital management solution. Now, the focus on mission-critical work is enhanced, driving the hiring and retaining of top talent to contribute to strategic business goals. The company has established centers of excellence focused on strategic leadership management, talent management, workforce relations, and accelerated growth. These initiatives have enabled the company to reduce HR costs while offering a higher level of service, centralize transactional processes with an integrated database, share knowledge and processes, and leverage expertise. The company has increased transactions processed per week, shortened recruiting cycle times, and reduced its HR professional-to-employee ratio.
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On the other hand, companies that do outsource may have intrinsically higher cost structures to start with. Significant reductions may be made, but the impact of these results must be weighed against the higher-cost starting point. The key takeaway is that HR organizations should evaluate their outsourcing decisions carefully and establish a benefits and cost analysis up front to weigh any potential alternatives (such as an optimized in-house solution).
LEVERAGE IT Our study shows that IT is a critical enabler for HR efficiency and effectiveness. Companies with a single HR system are more efficient and effective and more strategically focused than companies with fragmented system landscapes. In our study, companies with a single enterprise-wide IT system have lower staffing levels and enjoy higher levels of best-practice scores.
$2,130
Figure 4
HR Costs per Employee, per Number of Additional HR Applications
$1,470 $1,590
$1,830
Less than 5
Between 5 and 10
Between 10 and 20
More than 20
Note: Applications include Microsoft Officebased tools such as spreadsheets, Access databases, etc.
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Figure 5
HR Costs as % of Revenue 0.9% $79 13%
High Tech
0.6% $92 13%
Consumer Products
0.5% $36K 13% 0.4% $49K 13%
44%
71%
41%
68%
Average
Top Performers
Average
Top Performers
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As an initial step, top companies optimize process and transactional support instead of concentrating on payroll and compensation administration to focus more on strategic workforce planning, career planning, employee development, and recruitment and retention. And monitoring and evaluation do matter: HR organizations that establish benchmarking programs ensure that goals are mapped out and met. Standardizing, consolidating, and centralizing HR operations in a shared-services environment helps increase process efficiency and effectiveness and enables companies to raise service levels and focus on talent not transactions. Information technology provides the necessary foundation, facilitating efficiency and driving future innovation and growth by integrating processes and data across the enterprise.
Following this road map, HR organizations can contribute to long-term and immediate company goals by promoting and advancing employee productivity optimizing the operating margin per employee. While constantly assessing and improving processes, companies can enable a shift in mind-set to focus on value, not effort and make HR a true business partner to the corporation.
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SAP products and services, and personal networking opportunities with SAP customers. As a result, members from any sized organization continuously solve their SAP-related business problems more efficiently and cost-effectively, realizing a significant return from their membership. For more information, please visit www.asug.com. ABOUT THIS STUDY The ASUG/SAP Benchmarking and Best Practices program is open to participants on an ongoing basis. Companies are encouraged to participate annually to track trends, share best practices, and measure value realization. In addition to human capital management, benchmarking programs are also offered in several additional areas including: finance; supplier relationship management and procurement; governance, risk, and compliance (GRC); supply chain planning; manufacturing; new product development and introduction; customer contact centers; warehouse management; transportation management; business intelligence and analytics; and total cost of ownership. If you are interested in participating in any of these efforts, or if you would like additional copies, please e-mail the ASUG/SAP Benchmarking and Best Practices Program at [email protected]. ABOUT THE AUTHOR Katharina Mllers-Patel, PhD, a senior principal in the SAP Value Engineering group based in Newtown Square, Pennsylvania. She manages the joint ASUG/SAP Benchmarking and Best Practices program, which covers finance; human capital management; supplier relationship management and procurement; governance, risk, and compliance; total cost of ownership; supply chain planning; manufacturing; new product development and introduction; and customer contact centers. Prior to joining SAP, Mllers-Patel worked as a strategy consultant with A.T. Kearney, delivering operational, organization, and corporate strategy engagements at the C level for global corporations with a particular focus on shared services, business transformation, and strategic planning.
ABOUT ASUG The Americas SAP Users Group (ASUG) is an independent, volunteer-run organization that facilitates knowledge transfer among the community of SAP customers by providing user-driven educational opportunities, professional networking, and a forum that provides insight and influence to SAP. ASUG maintains a unique position within the SAP community through its combination of highly focused education tools, access to subject matter experts and SAP executives, ability to influence
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