Building a Better Workforce

Knowledge-intensive companies are focusing on a mix of measures to enable more effective human capital accounting

There is a fundamental shift afoot in the way organizations manage their people. Companies whose traditional focus has been on reducing labour-intensive tasks and automating traditional human resources (HR) functions suddenly find their futures hanging on their ability to improve workforce productivity.

Now, top organizations battle for talent in an arena where the skills needed to drive business performance are in ever-decreasing supply. That creates a new mandate: improving employee productivity by taking a business operations-centric approach to workforce performance and talent management.

Leading executives know managing talent well is fast becoming an imperative, and that doing it poorly is proving a major and obstinate barrier to optimal business success. The market leaders are already starting to rope in big gains by using human capital management (HCM) technologies.

Take Corning Incorporated, which is claiming savings of more than $US1 million a year in HR-related costs thanks to its use of Softscape's integrated HCM platform. That is four times more than it predicted in 1999 at initial roll-out, its executives say. Those savings embrace greater efficiencies in process time, a significant reduction in the number of queries per administrator, and a reduction in time spent managing the review process.

"The benefits to Corning have stretched beyond our expectations into entirely new areas," says Corning manager organizational effectiveness Hank Jonas. "Not only have we seen a marked jump in the hard dollar return of the performance automation process, we have also seen a significant increase in the demand for the 360 [degree] feedback process."

According to IBM's Asia-Pacific leader for human capital management, Bill Farrell, how talent is managed is where the battle for organizational competitiveness is going to be won or lost. "Some organizations do it well; others really struggle. I think the war for talent is on and a lot of organizations are losing the battle," he says.

IBM's Global Human Capital Study 2005 examined how organizations around the world are leveraging their human capital to improve workforce effectiveness and organizational performance. It found companies in both Australia and New Zealand struggling to hang on to executive talent, yet fewer than half adequately equipped to respond.

Despite being a leader in efficient HR methods, Australian organizations have real trouble in retaining their best and brightest employees and executives, the study showed, with the Asia Pacific region - including Australia - having the highest voluntary turnover of senior and middle management in the world. This costs organizations both dollars and intellectual property (IP).

"One of the key findings for organizations in this part of the world is this paradox of being very efficient in terms of HR processes while having an executive turnover that is the highest in the world. In other words, we're very efficient at recruitment but not necessarily very effective," Farrell says. "So you have to question where we are focusing our resources in terms of the HR function and the outcomes we're trying to achieve. I think we've lost track of what we're trying to do in terms of outputs."

Part of the problem seems to lie with the nature of systems already in place. A recent study from Curtin University of Technology found a majority of all current performance management systems had been designed by internal organizational HRM specialists or project teams, with the remainder imposed by multinational headquarters or designed by external consultants. The main types of performance management systems reported in the study were tailored combinations of traditional techniques, largely designed by the organizations themselves and incorporating all employees, and often consciously linking employee and organizational goals and imperatives.

However, traditional HR systems and practices seldom allow decisions about the talents of people to be made with the rigour, logic and strategic connections attending those about money, technology and products, and - unlike strategic planning, marketing, operations, and budgeting processes - only minimally connect to core business management processes. Too often people issues barely rate a mention in strategic plans.

Human Capital

Effective human capital management is proving a major differentiator for some organizations. Results of the Deloitte Touche Human Capital ROI Study, which set out to measure human capital practices and link them to corporate financial performance, suggest human capital practices may account for as much as 43 percent of the difference between a company's market-to-book value and its competitors'. And Aberdeen Group's 2004 Employee Performance Management Benchmark Report found 90 percent of respondents saw improved employee performance management as a key to gaining competitive advantage.

Aberdeen found that even though leaders in employee performance management enjoy a competitive advantage over their peers, while also gaining improvements in employee satisfaction and retention, 40 percent are not ready to evaluate performance beyond its demonstration at the departmental level, and 52 percent are locked into paper-based evaluations that are conducted yearly and rarely reviewed again.

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When the Accounting for People Task Force instigated by UK Secretary of State Patricia Hewitt set out to explore the current capability of HR to report on human capital metrics and the capability needed to report in the future with 246 HR professionals and business leaders in the UK and Canada, it found 78 percent of managing directors acknowledged that human capital management was critical to the fundamental success of the business and that more than half believed measurement was key to the delivery of human capital management. Yet it also found HR professionals and business leaders simply were not focusing on the measures that count. "Today, metrics inform rather than drive strategy. Tomorrow, the metrics need to drive strategy. Our research concludes that human capital metrics and reporting need to align to the business strategy to be useful as a driver of business outcomes," the task force noted.

Managing directors want measures that are more strategic, primarily to enhance their ability to deliver customer satisfaction and operational effectiveness. Only 31 percent believe that the current HCM measures actually enable an evaluation against strategic objectives. Nevertheless, the majority believes that HCM has the potential to be critical to the fundamental success of the business.

High priority HCM measures executives want their organizations to report on in the future include leadership team capability, effective change programs, employee competency and motivation. Managing directors want HR professionals to give their top priority focus to strategic measures to drive the business as well as operational HCM metrics. Part of the current difficulty, as Deloitte found, is that most metrics look backwards at historical measures like headcount changes, hires and terminations and total compensation, rather than focusing on the HCM metrics that can inform strategic decisions and prove crucial to future success.

"Tomorrow, business leaders want to capture and focus on strategic measures that drive the business in addition to basic operational HCM metrics. Business leaders clearly understand the value of HCM metrics in managing people for performance. They want access to a broad range of people measures to help them assess current performance and support key decisions about the future of the business," Deloitte says.

"Both business leaders and HR professionals understand that they need to focus on different, more strategic metrics, if they are to realize the potential performance gains available from HCM information. The shift towards strategic HCM within this broad range of measures is dramatic. In the future, business leaders want internal reporting to reflect these changed priorities."

It also finds operational measures will remain relevant to managing directors in the future, but will fall down the reporting agenda relative to strategic measures. Business leaders will continue to see those metrics as important in the portfolio of information that HR professionals provide to them.

New Buzz on Skills

The latest buzz in HCM, according to Ed Cohen, chair of the Aviation Industry CBT (computer-based training) Committee (AICC) standards committee - one of the main standards bodies for learning management software (LMS) that ensures interoperability with legacy systems and new software installations - is around competency and skills management.

Competency management lets organizations track key skills, behaviours and knowledge needed to meet business goals throughout the enterprise. It lets organizations define competency models based on the organizations' objectives; map competencies to jobs, projects and groups within the organization; use industry-specific competency models via established competency content partners; and quickly identify employees with the skills needed for specialized projects and just as quickly identify and manage competency gaps and levels associated with the changing needs during mergers and acquisitions.

"We have an airline customer which has mechanics that work on the [Boeing] 737, the 747, all these different planes," Cohen says. "Traditionally you took a bunch of classes and you could work on a 747, but if you wanted to do something on a 737 you would take a bunch of different classes. And what's changing is they're saying that if you know how to perform this procedure, you have these skills and you've demonstrated it on a 747, you can do it on a 737."

Cohen says the US government is leading the way in competency and skills management, closely followed by major industries like pharmaceuticals, manufacturing and airlines. Growing numbers of Australian companies are also expressing keen interest.

He says the discipline can be crucial in helping organizations competing in the marketplace to maintain a competitive edge that can distinguish themselves from their competitors. Employees must have the ability to learn new skills quickly, acquire new product information and adapt to changing business environments. Competency management - already built into some off-the-shelf products - helps ensure they can, he says.

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Biggest Expenditure

Today, experts say, organizations need to go beyond automating traditional HR processes. Even with investments in automation and operational efficiency, people remain the biggest cost for most organizations, says chairman and CEO of Plateau Systems, Paul Sparta. To further drive business performance, organizations must take a business operations-centric approach to managing people to increase workforce productivity and improve business performance.

Sparta, whose company provides learning and performance management systems, says an approach centred on business operations requires organizations to:

• Assess and track skills and capabilities across the enterprise.

• Develop capabilities based on job performance requirements.

• Manage individual performance by assessing employee skills, identifying future development opportunities and aligning results to organizational goals and performance metrics.

• Deliver just-in-time content directly to the operating workforce.

• Match people to the right jobs, at the right time, at the right place to maximize business results.

And enterprise-wide adoption is critical. "When you implement this technology, the wider you use it throughout your company, the more value you get out of the software," Cohen says. "If you do learning management for one little department then the number of employees that you can substitute for a position or cross-train is very limited, so a lot of companies that implement in one area see very little return on their investment. This whole technology's value comes when you open it up to the whole company and the smarter companies open it up to their vendors and their customers."

Recipe for Conflict

Unfortunately the issue of workforce management frequently turns IT and HR into adversaries, as the HR team lobbies for "user-friendly" against IT folks pushing "easy integration".

"It is not unusual for human resources, the IT department and corporate executives to have entirely different ideas about which system is best and what approach to take," Ed Newman, president and founder of The Newman Group, a US consulting firm, told the Workforce Management Web site last year.

HR tends to favour functionality, speed and performance, Newman said, while the IT department weighs compatibility, ease of integration and its ability to support the application. Other executives sit somewhere in the middle, arguing for efforts to leverage existing enterprise technology investments. Not surprisingly, cost and compatibility often win out as the organization ends up favouring the more basic functionality that comes with an enterprise resource planning module or human resources management systems over niche or "best of breed" solutions that tend to be seen as luxuries.

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