The Human Touch

Human capital management helps corporations tune performance when optimization is a must.

Maximizing performance and ensuring accountability are two key goals in an era of economic downturn and executive downfalls. But when budgets are tight and scrutiny is sharp, the ability to optimize the work force becomes increasingly important—and increasingly difficult.

This, no doubt, will also make things more challenging for IT departments called upon to implement new products or to integrate existing platforms into a human capital management framework.

Human capital management is, broadly, the alignment of the work force with corporate goals and strategies. This is achieved through, among other things, effective employee acquisition and retention techniques, incentive and compensation management, performance monitoring, resource management, and training.

The employee has long been touted as a companys most important asset, but that concept is moving from cliché to corporate directive: The employee is our most important asset.

The areas of HCM that have seen the greatest growth are employee and manager self-service, according to Katherine Jones, an analyst at Aberdeen Group Inc., in Palo Alto, Calif. There also has been industry growth in the integration of HR management, performance management and education systems, Jones said.

Indeed, the HCM concept is pushing HR into a new operating model.

"Human resources traditionally has provided mostly tactical services to the work force—managing benefits, making sure you get a paycheck," said Sue Todd, director of product strategy at Inc., in Reston, Va. "What HR is finding now is that people and talent are really the last strategic potential asset. So theyre getting a lot of pressure from their executives to become more strategic in their thinking. Creating value for shareholders is now pushing HR into a whole new role."

A 2001 Watson Wyatt Human Capital Index study showed that the ability to effectively manage human capital can increase shareholder value.

The study states that companies that scored low in their ability to manage human capital averaged a 21 percent five-year return on shareholder value; companies that had a medium score averaged 39 percent; and companies with a high score showed a 64 percent return.

"Companies now have to be fairly flexible with changing market conditions and need to be able to communicate that to the work force," said Stu Roth, Watson Wyatt Worldwides eHR practice leader, in Stamford, Conn. "Part of the enablement of that is technology. On one end, its voice mail; on the other, its portals."

Deciding where on that spectrum to buy must be a business and not a technology decision, said Roth. "Its a drop-down methodology that starts with what the business strategy is. The technology has become in large part a commodity," he said. "The real issue is to get our clients to say, What do I want to be when I grow up, and at that point theyre in the best position to shop."

HCM covers a lot of ground, from payroll to time and expense reporting to incentive management. Roth said companies should take a best-of-breed posture, procuring the products that are best for a particular operational function.

One such focused HCM application is Callidus Software Inc.s suite of EIM, or employee incentive management, products, which are designed to align employee sales and channel behaviors with corporate strategy.

Callidus CEO Reed Taussig, in San Jose, Calif., said that HCM is "becoming a front-and-center issue" and that the return on investment can be "absolutely startling."

"I have Product A—lets say, a computer server with a 25 percent gross margin—and Product B, with a 35 percent gross margin," Taussig said, in describing the capabilities of Callidus TrueComp suite. "I want to pay my salespeople more for selling Product B, which drops directly to my operating profits."

PeopleSoft Inc. takes a more holistic approach, building on a platform that many organizations have already deployed. "Our goal is to provide organizations with an end-to-end business process," said Jason Averbook, PeopleSofts director of HCM global product marketing, in Pleasanton, Calif.

Averbook cited the importance of being able to tightly integrate, for example, a performance review system, a training system and a payroll system.

"In my annual review, going over my performance objectives, I realize that if I took some additional training, Id be able to get to the next level of my pay grade," he said. "With my manager, I decide that theres an e-learning course I could take. The system could send the course out to the employee, update the fact that it was completed and flow to payroll to get a pay increase.

"Your performance review then becomes a living review, so that we always know where people are in the process and that theyre always adding to themselves so that theyre adding to the organization," Averbook said.

At its Connect user conference last month, PeopleSoft introduced a number of HCM products, including incentive, education and performance management applications.

Whether a company decides to standardize on one platform or tie together products from different vendors, the single most important issue is the ability to effectively integrate them, said Aberdeens Jones.

"The main point is not product-by-product functionality as much as the ability of users and of the corporation as a whole to be able to input data once and have it propagate across systems," Jones said. "If its not integrated, its a short-term fix."

If the term "human capital management" sounds a little, well, inhumane, think of it as an extension of HR management, where executives and line managers have access to information that will help them motivate, retain and train employees, and employees have access to information that will help them set and achieve parallel goals. Or think of it as an element of CRM (customer relationship management), with the employee being both the customer and the manager of external customer relations.

The federal government is thinking of it as a high-risk area, as it struggles to manage its own work force.

A report from the U.S. General Accounting Office stated that the governments HCM strategies needed to be improved to meet new challenges—and this report came out before the events of Sept. 11 added significant new security and cross-reporting mandates.

"After a decade of government downsizing and curtailed investment, it is becoming increasingly clear that todays human capital (people) strategies are not appropriately constituted to adequately meet current and emerging needs of the government and its citizens in the most efficient, effective and economical manner possible," the April 2001 report states. "Because strategic human capital management is a pervasive challenge across the federal government, we recently identified it as a governmentwide high-risk area."

A paper released last March by the agency, called "A model of strategic human capital management: a new tool for agency leaders," recommends new strategies for HCM, including eight critical success factors (see chart, below). These can be used by enterprises as a framework for developing or honing an HCM strategy.

Competitive Advantage

HCM is not a new concept, but its gaining exposure and interest as companies look for ways to maximize their resources and attain a competitive edge.

"If you look at the last five to 10 years, most companies have implemented [enterprise resource planning] software, CRM software, [spent] lots of money on infrastructure and so on," said KnowledgePlanets Todd. "Whats becoming evident is that these things have raised the productivity for every organization, so no company has an edge. What corporations cant duplicate easily is when you build competitive advantage into your people."

PeopleSofts Averbook said companies that "meet the Street" are often doing so because of created efficiencies, not revenues.

"One of the interesting things were seeing is that organizations are saying the reason theyre achieving their quarterly numbers is because theyre efficient," Averbook said. "Anything they can do to enhance or extend their business processes starts to come through to the bottom line. Organizations are really looking to see what they can do to improve efficiency, and some of the areas of human resources have been largely ignored."

eWeek Labs could pretty much leave a standing Web services section in any story we write these days, and a story on HCM is no exception. XML and Simple Object Access Protocol can be used today to tie together internal HR, CRM and other systems. When Web services security gets tighter, organizations may feel comfortable enough to use the technology to connect internal HR systems in real time to external partners.

"Weve all recognized that [Web services] will be the next step," said KnowledgePlanets Todd. "When you look at things like driving compensation and rewards, you want to be able to pull financial data in real time."

Averbook said that growing acceptance and use of Web services will really maximize HCMs potential.

"A lot of people are still trying to get up on [Web services]," Averbook said, "but the possibilities are endless."

Executive Editor Debra Donston is at

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