Tactical Human Resources Evolves into Strategic Human Capital Management

Given the examples of the changes in human resource (HR) management discussed in Thou Shalt Manage Human Capital Better, and the mushrooming number of point solution providers, many enterprises have realized the significant shortcomings of traditional HR (in terms of technology, beliefs, processes, and practices) that require a strategic-level mind-set change. This is particularly relevant during times of economic sluggishness and low investment capacity (which typically translates into layoffs or hire freezes, cost containment, and stalled innovation), when most enterprises and their employees are left wondering if they can (or should) rely on each other for their future.

Part two of the series Thou Shalt Manage Human Capital Better.

In the early 2000s, with the economy in a downturn, HR administration delivered some organizational value by outsourcing an increasing number of HR business processes, either wholly or in part. In many cases, outsourcing to some trusted technology vendors that have already demonstrated their HR domain expertise may help companies achieve additional efficiencies and functionality, reduce head count, and cut costs.

Of the many solutions in the HR realm, the most predominantly outsourced have been payroll processing, employee assistance programs, payroll tax filing, and background screening. The most appealing and achievable benefits of outsourcing are streamlined operations, access to better HR capabilities and industry expertise (when it is not a core competency of the user enterprise), freeing up of internal staff, reduced labor costs, and accurate and predictable monthly costs.

However, the returns from layoffs (often undertaken without much thought to who should really go, potentially resulting in the hasty release of the lynchpins of the enterprise's ongoing performance) and relentless cost-cutting have proved to have only a limited (if not negative) effect. While some organizations have tried to cut labor costs to be competitive in their markets, the most progressive companies have embraced their labor forces and used them as a strategic differentiator.

As products and technologies become commoditized in this information-based economy, companies are beginning to realize that the best way to differentiate themselves and create long-term strategic advantages over their competitors might be through their people. It is no longer what one owns that counts, but rather what one knows, which is particularly critical in information technology (IT) and similar professional services organizations (PSOs), because it is the technical expertise and experience of knowledgeable staff that means the difference between success and failure.

In fact, according to Forrester Research, more than 85 percent of the market value of a typical Standard & Poor's (S&P) 500 company today is the result of intangible assets. For many companies, the bulk of these intangible assets is their people (or human capital), and such companies spend as much as two-thirds of their overall costs on labor. Thus, they should focus on business processes, using technology to more effectively manage employees and improve their productivity. Combining training, incentive management, and compensation management tools delivered through a role-based dashboard, emerging people-centric software category aims to transform each individual in the workforce into an enterprise asset.

Best-of-breed HR Technologies

The most progressive of companies have been using best-of-breed HR technologies for attracting, hiring, training, motivating, and managing their people. Software applications are becoming more and more sophisticated to help companies with these tasks, and as these solutions continue to evolve and communicate with one another, user companies will have a more seamless access to methods and data for managing their employees throughout the employee life cycle.

On the other hand, the laggard companies that do not embrace these technologies will likely fall behind in their quest for market dominance. For instance, by implementing a holistic employee performance management process across the enterprise, corporate strategy can be aligned (and properly communicated) with individual goals and objectives, whereby actual performance against those goals can have ramifications for individual compensation and rewards. This should drive behavior and attitude toward executing on the corporate strategy, with improved employee satisfaction and loyalty as a result.

This certainly comes in handy when the economic downturn ends, when employees begin to feel that they have more employment choices. Enterprises will again need clear, credible, and reliable strategic sourcing strategies and management in order to plan for and engage the competencies (people and companies) needed to accomplish their business strategy (by building the required effectiveness and increasing efficiency). For instance, with the economy improving and IT budgets rising, competition for IT talent—especially in key skill areas—is bound to intensify. At the same time, an improved hiring picture in IT will most likely mean higher turnover, as many unhappy IT staffers who saw workloads increase while compensation and benefits stagnated (during the economic downturn of the early 2000s) will put even more pressure on IT management.

Hence, there is a true need for much tighter integration between performance management and compensation (regardless of the economic milieu), so that exemplary employees can be rewarded more often (and feel truly special to the enterprise), as opposed to the outmoded, blanket-regulated, across-the-board annual basis (which typically produces mediocrity).

Analyzing the workforce and strategically managing the company's human capital has become the focus of human resource management systems (HRMS), as a way to transform these from dull functions to those that greatly affect corporate performance. Integrated business information warehouses, to that end, enable multidimensional analysis on information aggregated from internal and external resources (salary survey, for example), performance indicators (as in turnover), and views on strategic HR information with powerful drill-down features. Some surveys indicate that almost a third of businesses are already using data warehouses, a quarter of them are using workforce performance management or analytics, and one-eighth of them are using workforce planning.

Workforce analytics have become a core of talent management systems. This is because they focus not just on "time" (or who has clocked in and who has not), but also on such strategic business issues as overtime and turnover trends that impact a business's bottom line profit, equal employment opportunity (EEO) or ethnicity-based hiring trends, compensation patterns, relative recruitment effectiveness and sourcing costs, cost per hire, etc..

Human Capital Management

This brings us to the notion of human capital management (HCM), or talent management, which Gartner defines as a set of HR practices that focus on acquisition, management, and optimization of the enterprise workforce. These practices include such processes as competency and skills management, succession planning, and team management. The key tenet of HCM is that companies must change the mind-set of viewing employees as an administrative cost, and instead see them as a strategic investment and a key enterprise asset, with a resulting focus on aligning workforce capabilities with business strategy. This more strategic view of the workforce will gradually become less an HR function and more a management discipline.

HCM should be about value and not cost, since people should be regarded as value-adders, and not overheads and liability. It should measure organizational outputs (such as profit, revenue, and service levels) related to better management of people rather than focusing on input measures (such as recruitment costs) and the HR “best practices” of earlier days.

According to studies by the Brookings Institute, in the early 1980s, tangible assets amounted to over 60 percent of firms' total assets. This ratio has now been reversed, with over 80 percent of assets being intangible, most of which is represented by human capital. Yet, while decades have been spent investing in automation technologies for better use of tangible assets, only recently have enterprises begun to invest in optimizing human capital.

Moreover, many non-HR business processes can benefit from leveraging HCM strategies, such as project portfolio management (PPM) processes (see Project Portfolio Management for Service Organizations: Bridging the Gap between Project Management and Operations), which can be improved via incorporating competency and skills data and by leveraging the team management capabilities of HCM applications. Similar examples of business processes that should benefit from “picking the HCM brains” include production planning, job costing, scheduling, training, compliance, budgeting, and field service. In fact, any people-centric business process should benefit from integration to HCM, whereas traditional administrative HR applications and processes will hardly support this integration at all.

This leads us to a broader notion of employee relationship management (ERM), business-to-employee (B2E) management, or whatever the three-letter acronym (TLA) du jour might be (see BLM—Buzzword Lifecycle Management). In any case, these acronyms try to depict a business discipline that focuses on optimizing the employee's total employment experience—including both the human and technology aspects of that experience.

ERM espouses a comprehensive and unified view of the processes and technologies that support the workforce and their workplace, including manager-employee interactions, the formal business tasks required to manage employee relationships, and the technology used to manage the employee experience. To that end, ERM encompasses the full suite of B2E services needed by employees, managers, and others, including knowledge management, e-learning, self-services, community and collaboration support, travel and expense (T&E) management, indirect procurement, and so on. Thus, ERM is most closely aligned with the HCM focus area of workforce management.



SOURCE:
http://www.technologyevaluation.com/research/articles/tactical-human-resources-evolves-into-strategic-human-capital-management-19578/

Innovation and Change in Human Resources

Veronica Inoue: What is [Federación Interamericana de Asociaciones de Gestión Humana] FIDAGH's perspective on human resources [HR] in Latin American countries?

Paul Rosillón: We have to look at it from different points of view. First, I think that Latin America is undergoing a process of change and transformation—as is the whole world— but this particular geographic region is where we are experiencing the most changes.

On the other hand, a big part of the changes that we are facing in Latin America are related to the needs of individuals and the way people are acting in the social, political, and economic spheres.

Third, and regarding the world of management and organizations, in the last 20 years, the topic of people management has changed dramatically. This has been a paradoxical change, because people have always been the most important factor. However, from a managerial science standpoint, individuals are a different subject now because they are managed differently and they are considered an economic factor. What do I mean by this? When knowledge and innovation become critical, people go from being a resource to being owners and capital. And that is somehow what is leading managerial sciences to focus more on intangibles and make leadership once again the underlying topic.

Another important change is occurring, and that is that people management is no longer part of HR functional management; it now concerns the whole management process. Therefore we, as management professionals, have had to understand that our roles are different—that we are also facilitators, internal consultants, coaches, or internal staff managers. In this sense, we can say that great changes are taking place.

Personally, I think there are two different levels: organizations understand that people are very important, but professionals in this area are not progressing at the same pace. A lack of connectivity exists within managerial education and training programs. Take, for example, an [master of business administration] MBA or similar postgraduate program; the attention to people management is minimal. Marketing and finance are still the more prestigious subjects.

To expand on this idea, we are undergoing change and transformation, but we still have a long way to go. We lack clarity, and we haven't been able to develop the connecting points [that will link managerial education and training programs together]. We could say that we know what we want to stop doing, but we still don't know how to take new steps. Even the way our federation works reflects that since 2001, we have been experiencing a restructuring process. Today, we have completed the first stage, but we must start stage two.

FIDAGH: The Lever and the Engine in the Arena of People Management

VI: How is FIDAGH searching for a way to do this?

Eladio Uribe: We at FIDAGH think of ourselves as a lever, but we also want to be the engine behind the transformation process that Latin America has to experience.

In Latin America, we all speak the same language—in general—but there are many differences in education, criteria, politics, strategic vision, and direction. The domain of HR in this region of the world is living this debate, which is also reflected in our federation. While we ask ourselves, “What does FIDAGH do for me?” others are asking, “Where should we go from here? What should we do with the HR people and people in other organizations and countries?”

I want to clarify here that the main issue is not the HR people; the main problem is our countries, our communities. The people in HR are working hard to help our communities overcome poverty.

We still have to understand that we must accept people from Argentina, Guatemala, Mexico, Uruguay, etc. as equals—as Latin Americans—instead of as Argentineans, Mexicans, etc. But overcoming inequalities is very difficult for us. We are convinced that we will be able to do it because we have a great source of motivation, and this source is that people who do not work in HR have been pushing these professionals to make a change, so there is no other option.

VI: Today, what are the key areas for HR in Latin America? Which other areas need to be reinforced?

EU: An agreement must be reached between the people of HR and employers on one side, and the state on the other, if we want to improve education systems. One of the greatest issues HR people face is the hiring process, the challenge of bringing “new blood” into the organization—people who are capable, competent, and ready to face the challenges that an organization brings. That is the biggest hurdle they have to overcome.

The other challenge is diversity. We still have to learn to accept and believe in diversity—believing that the person who comes from Asia, the US, or any other country in America can make an important contribution, can be helpful for our performance.

I think these two factors are fundamental: educational development and acceptance of diversity.

PR: There are two issues. The first one is corporate social responsibility [CSR]. While it is a common topic, we haven't started managing it and moving forward with it. Nobody expects organizations to become philanthropists, but they do have to play a role in society, and that is a paradigmatic change that is still in progress.

The other issue is the way companies are organized—the division of work according to tasks and descriptions of positions and roles within the organization. This is a model that is in crisis, and though it is becoming less and less common, we still are not certain of what the new trend will be. It's not easy to change a paradigm that has been the standard for almost 100 years, and that is taught in universities and reinforced everywhere. I think this is a golden opportunity for us, as HR professionals, to contribute and make a change. The problem is that we have been educated with the same old paradigms, so abandoning those notions is like getting undressed—

EU: It also means breaking another important paradigm: believing that only our organization can solve its internal problems with staff, management, or processes, without taking into account what is happening around the world.

Furthermore, my actions as HR have to be collective actions. Instead of aiming solely at my company, these actions must generate change in the community and in my daily environment. This will allow me to have capable individuals in my organization that will help realize strategic, sales, and other goals.

VI: How are the 15 member associations of FIDAGH participating in and committing to these objectives?

PR: As I said before, since 2001, we have been questioning ourselves and acknowledging that we have to change the way we think and see things.

We are halfway through the process. We—both the federation and the associations—have been going through this process since 2001. Next week [referring to May 14, 2007] we will have our 20th conference, our board meeting, and our management meeting, where we will change our approach. We are convinced that our current approach is not working, so we have to take a different direction. We don't know exactly what that direction will be, but we will say, “Gentlemen, we must admit that we have to change. We need to find ways to evaluate the changes that we will implement, and how we will work together in the future.”

Now, as Eladio said, we have diversity, and we feel pressure from each association and each country. But each one of them is different. Therefore, this diversity forces us to modify our ideas of the need for change. During this process, we have had to admit that we are not the same and that we don't experience the same pressures. We understand that the subject of people is important and that we must do something about it, but we have different driving forces. FIDAGH is responsible for harmonizing all these approaches.

EU: Besides, our goal is a collective one that involves management and integration. Therefore, from this standpoint, we do not want to exclude anyone—on the contrary; we have to insist that people come and learn. But we are aware that there are different levels of learning and that we have to work to unify them. It's a difficult task, but we are working on it.

Information Technology: Driving Innovation

VI: Do you think that the new information technologies are driving innovation and changes in organizations?

PR: We have learned a lot from this subject. We have learned that IT is not a source of innovation, but that it does facilitate and dramatically increase the potential for innovation.

We have learned to assign a place to the role that technology plays in innovation. But what Horacio Cortese and Ricardo Perret said at the [Human Management Conference] is crucial: if I don't have a working environment in which I build trust or create the emotional conditions that will allow people to think differently, take risks, do their best, defy models, etc., then regardless of how much IT I can have, it won't be enough. Although IT and the human factor come together, there is no question that the latter will always be the more important one.

EU: Let me use an analogy: comfort is important, but it's also important to strike a balance between work and recreation. Nobody questions that. However, Latin Americans in general and HR people must try to put comfort aside at this time, [and focus on the work at hand].

This is a time for study, energy, commitment, and strength—definitely not for comfort. We have to work hard now to get the desired results; then we will be able to rest. What I mean is that this is a transcendental moment for those involved in human management; we are approaching an extraordinary challenge, and if we don't grasp this opportunity, we will stay behind. And those who stay behind in human management might disappear.


SOURCE:
http://www.technologyevaluation.com/research/articles/innovation-and-change-in-human-resources-19112/