Thursday, March 31, 2005
There are probably a couple of contributing factors (all of the following are my assumptions based on experience).
First, GM probably forced a fast implementation. Fast implementations when there is complexity and a huge population are very risky. There simply isn't enough time to test and audit. Unfortunately, when a client is this big, they can demand fast implementations as part of the sales negotiations.
Second, Fidelity's main obstacle seemed to be a lack of control and process around their data import/data conversion from the previous systems. You'd think that they would be good at data conversion, but apparently the conversion dropped employees, dependents, reitrees, etc... (ouch - retirees without benefits).
Bottom line: in major implementations, take it slow, audit well, put in solid process change around the new technology. Without this, you are setting yourself up for failure and termination.
As if GM doesn't have enough problems already, the UAL said "virtually anything that could go wrong, has."
"the notion of using Web-based technologies to automate the growing list of administrative transactions for employees-payroll, benefits, training, corporate resources and the like-serves as a catalyst for transformation for those seeking to move the human resource function to a strategic vantage point" and
"The benefits of automation are significant. It can eliminate routine, repetitive paperwork" and
"Finally, self-service also means that HR specialists are now free to spend less time on day-to-day recordkeeping and focus on value-added functions."
SHRM: thanks for finally hopping on the bandwagon. You are only 3-4 year behind, so it must feel good to be catching up.
Increasingly, those aspects of HR that were people oriented are being outsourced. For example, call centers are really beginning to pick up a huge portion of employee contacts over the phone, and employees increasingly don't see their HR staff. With the globalization of the workforce and centralization of HR strategy, employees can't count on a local HR rep to go to anymore. Similarly, you really need to be able to navigate technology if you want to move up the ladder and contribute strategically.
Anyways, wouldn't we all rather outsourced the company picnic planning process to someone else anyway? lol
Wednesday, March 30, 2005
I'm also very interested in how Inc defined their HRO service offerings compared to traditional PEO prganizations. There would seem to be a large overlap here. If you consider PEO for small businesses, then there is quite a large market.
Tuesday, March 29, 2005
As Sungard goes private, some of the disclosures regarding internal processes might dissapear. This should not be of major concern, but you should know where your data is going and what happens to it.
You can download this report, but basically it says that outsourcing is on the way up. I might comment on this specific survey in a future post, but here are a couple of interesting observations:
- HRO service delivery is not excellent yet. Much room for improvement exists and HR vendors may not have technology or process to deliver yet. As the industry matures, this should get better.
- Over 50% of respondents thought their HR organization would be reduced in size by at least 15%. This is a large displacement of staff, and I have to assume that administrative functions of HRO are displacing administrative staff and skilled HR professionals are being retained.
- About 70% of organizations allocated less than 5% of the HRO budget to change management.
Monday, March 28, 2005
As interest rates keep inching higher, HR professionals often have trouble with creating ROI presentations that are meaningful to financial executives. This week, Greenspan announced that there is some inflation risk in the economy, meaning that interest rates may rise even faster in the upcoming months. As you will see in the following conversation, as interest rates increase, ROI will be much more difficult to find as you try to justify your software purchases.
So why do interest rates impact an ROI? Well, a standard ROI will project cost savings for various processes over a period of time, often 3, 5 or 10 years. As you (an HR practitioner) project these costs over time, a financial executive will want to understand what these costs are in relation to the “Net Present Value” or NPV. For a ROI novice, a simple ROI might mean that a $10K implementation with a $5K/year savings has a 2 year payback. In reality, year 2’s $5K savings are not worth $5K in today’s dollars because of interest and inflation. What is a 2 year payback to the ROI novice is a 2+ year payback to a financial executive. While this does not seem significant, if we use 5-10 years, a simplified (non-NPV) ROI might return a positive dollar value, but a NPV ROI might show that the investment will never produce a financial return.
So what is NPV? NPV is a means of identifying what the current cost of a future investment is worth. NPV uses interest rate assumptions based on the current cost of capital that the CFO uses to borrow money. In other words, if the $10K implementation we used earlier was borrowed money at 14% interest, you can see why it takes more than 2 years to pay off that implementation.
14%??? Yes, 14%. Most CFO’s use their base cost of capital plus a minimum required ROI. So a loan of 7% + minimum ROI of 7% gives you 14%. This is a good thing. Because the CFO uses 14% (most are somewhere between 14-18%), if you can get a ROI of $0 savings using the NPV ROI method, you have achieved the CFO’s minimum ROI requirements. If you need more help, here's a good site.
So in this new age of IT not wanting cutting edge stuff they'll have to fix later, HR is increasingly going to have to be educated on how to write convincing business cases and cost justification in order to get their stuff OK'd by the CFO, CEO's. Traditionally, HR has not been that able to get what they want, but as HR is increasingly providing strategy level input to the business, we need to provide similar strategy level justification for our own internal processes.
Sunday, March 27, 2005
1) ROI on full HRO is nowhere near cost effective in most cases. OK, if a company is fully replacing their call center, call center technology, getting rid of 30 systems that they had to have full integration for in order to make the call center work, and outsourcing payroll production, benefit administration, etc... then maybe HRO works. However, most HRO clients are not doing that. They are seeking a higher level of service for their employee base, offloading a much smaller portion of activities (they never had full call centers with adequate technology in the first place) and doing it at a much higher cost. However, they have decided that the higher cost is justifiable in order to get better service and increase the satisfaction of their human capital, and this is OK. The better service, metrics and insight into the workforce very well might be enough to pay the money for.
2) Don't we all aready know that offloading a few administrative activities allow us all to focus more on strategy? This is the same old outsourcing mantra that we're all getting a bit sick of. It's nothing new and we all know it. The thing is, there may not be any other MAJOR value proposition for outsourcing.
Saturday, March 26, 2005
Thought I’d take a minute to comment on Deloitte’s top 10 problems for financial reporting in 2005. See it here Note that the top 2 items are very HR oriented (number 2 because it hits everyone). The first item is the whole problem with stock options, and since I know relatively little about stock option reporting, that’s not the focus of my commentary.
Instead, I wanted to talk about item #2 which is about Sarbanes Oxley. Sox expenditures are sometimes double what companies initially projected. As organizations get better about auditing these processes and certifying them, the costs should go down, but these are costs that must be recurred on an annual basis. Considering the number of systems that impact the financial systems, the costs can become staggering. As an HR organization, those who outsource benefits or payroll seem to have a “leg up” in these costs. That’s because a decent vendor should provide many of the SAS 70 type 2 audits already done. If they have, an organization would be able to take this documentation to their own auditors and be done with it.
Let’s also say that you only host your systems with a vendor (ASP, or application service provider). They should also have some of the technical SAS 70 reports done, although I think you’d still be on your own for the functional processing of your data.
This is one huge area where an outsourcing philosophy has a pretty decent advantage. If your entire HRMS, PR processing, and benefits administration process is outsourced, it could get your organization out of doing as many as 10 SAS 70 reports. At a cost of $50-100K each, this is a major item to add into the ROI whenever you’re making a decision to outsource, or auditing your vendor.
Smaller organizations tend to outsource more readily, and the entire debate regarding Sox and company size may push more comapnies to outsource. (CFO Magazine and an article about Sox and small public companies going private)
I haven't read the reports yet, but I'm curious that any educated analysis would come out in favor of privatized accounts. Heck, the SSA says it ain't so bad, and even a good majority of Americans think it ain't so bad (ok - maybe this is taking some polls out of context).
At any rate - perhaps still a few good consulting firms out there. I was sure all the DB companies would be trying to derail an attempt for the largest DB plan in America to go semi-DC.
Friday, March 25, 2005
Take this with a grain of salt as this is a Genesys press release and these “trends” may just be application areas they are strong in.
I’ve never paid too much attention to Genesys until recently as I’ve considered them a legacy play. They seem to have revamped their software to compete however, and their presence has been increasing in the marketplace again. I was them in a benefits and compensation magazine the other day where they were interviewed regarding outsourcing payroll along with Ceridian and ADP. That was a little strange.
“According to respondents of the survey sponsored by Genesys, the top HCM priorities for 2005 include
Performance management - 54%
Streamlining processes - 52%
Talent and leadership development -50%”
Fist of all, let’s group both of the talent categories into a larger “Talent Management” category. Let’s then break it out again into staffing/talent acquisition, talent management (with performance, training as subsets) and succession planning/leadership development. Basically what they are saying is that Talent is the big trend. Well this really is no surprise as “Talent” has been one of the big buzz word for the last several years. It is however very true that talent, a more proactive, directed and strategic way to manage your human capital, seems to be a great umbrella category. I say this because you look at talent and every other HR practice really wraps in. As always, individual HR practice groups need to be very collaborative in order to achieve their mission.
The streamline processes priority is a great general operational efficiency goal. I don’t want to discount this because everyone can benefit from better process efficiency. I want to note that when you change your processes, there’s a good chance you are implementing or modifying your software practices with new technology (HRMS, self service or portal) or workflow, all of which may be expensive to implement.
All in all, I think that the Genesys announcement does not contribute anything new. These have been priorities for quite some time now.
With continuing problems around 401(k), are pensions really dead? Consumers are increasingly aware of problems investing for retirement income. Between employees not having any sophistication or investing savvy, employer HR organizations not wanting to provide investment advice (not that they should), and a lack of broker support, 401(k) investors are in a unique position NOT to maximize their returns. Pensions have shown a much higher efficiency rate for actually providing for retirement than DC plans. Much of this is due to a more concerted effort to the plan sponsor’s fiduciary responsibility to minimize risk while maximizing profits. Studies have shown that contributed dollars to provide a set level of retirement benefits is much lower for DB plans than it is for DC plans. The problem is that employers don’t want to be stuck with the entire burden of funding employee retirements in today’s transient employment environment.
Take the current Social Security debate for example. In reality, the SS actuary reports that there is no real (significant) long term shortfall that impairs the ability of the system to pay plan participants.
“During the past year there has been no important change in the financial outlook for either Social Security or Medicare. Under the intermediate assumptions, the combined OASDI Trust Funds show a 75-year actuarial deficit equal to 1.92 percent of taxable payroll, slightly larger than last year's estimate of 1.89 percent. That change is largely attributable to moving the valuation period forward a year from 2004-78 to 2005-79, which adds a year (2079) with a large projected deficit into the estimate of long-range funding adequacy. The OASDI Trust Funds, separately and combined, are adequately financed over the next 10 years under the intermediate assumptions.”
If this were a private plan, the plan sponsors would have increased their annual contribution to the plan decades ago and the projected shortfall would not exist. However, instead of a guaranteed payout, the feds want to privatize a portion of the funds into personal accounts, putting the money further at risk. The long term projection might be less risk for the SSA, but a smaller average payout for retirees.
What’s the solution? I really have no idea. Clearly DC is not going anywhere. However, I’m not convinced that DB plans are going to disappear in the long term. #1) It’s not quite so easy to terminate a plan. #2) even if you can terminate the plan, you’re probably going to pay into it for a period of time and the plan will exist until the last plan participant dies in 50-60 years (year 2060-ish).
Thursday, March 24, 2005
Talenteering from Hire.com
All in all, a great post on how the staffing organization should be integrated to the actual operating arm of an organization. I'm not sure this is so new though.
In the last 20 years that Sr. HR leadership has been gaining access to the corporate boardroom, I think senior HR directors and VPs have been thinking about how to match HR resources to operational requirements in a proactive way. Few of us in major organizations are reactionary anymore. With the advent of technology to track labor standards, position management and full compensation and job analysis, I'd hope that data automation increases the recruiter's ability to be strategic. I don't think that proactive talent management and talent acquisition is a new thing though.
Perhaps in organizations with ineffective systems or HR practices require the staffing agent to provide this level of strategy. Much fewer employers in the mid market employe true comp analysis, labor standards or position management causing the talent strategy to be pushed to the last minute - right to when the recruiter is involved. IMO, the talent strategy should be formulated in a collaborative environment with the operations team, HR, and staffing.
Yup, the day of the massive ERP suite and a huge, built-out HRMS system is dead. In HR, we now back to the modularized applications, but this time around, we can effectively tie everything together on the back end and provide an integrated presentation space to all users.
With the incredible depth in HR modules these days, you almost HAVE TO buy a separate LMS, ATS/HMS, comp system, and Benefit Admin system (or outsource). About the last thing that is integrated is PR and core HR, but even that changes if you outsource PR. Assuming that you accept my premise that data integration is directly related to process efficiency, You have to find a way to bundle everything seamlessly. For example, in one of my previous discussions, compensation analysis (usually in HR or a CMS) should be integrated with position management (usually in HR) should be integrated with labor standards (usually in time & labor) which finally flows over to staffing.
Basically you can now buy all the “best in class” software apps and (given the right budget) tie all of them together so they feel like one app. Portal services provide access to disparate databases (usually with a single sign-on if the target apps allow it) and a single presentation that is based on the security profile. So if you are a salesperson, you see a CRM and perhaps all your employee self service stuff. If you are a manager, you see MSS and ESS, etc…
The obvious leader in the industry (IMO) is Plumtree. There are other vendors like SAP who provide the same functionality, and the integration between existing SAP modules should already be mostly built. Other lower level vendors like Kronos, Ceridian & ADP provide portals, but your chances of linking their MSS/ESS portal to your CRM and and SCM are dubious.
Below is a great high level description of what a portal should do.
IBM has closed a $182 million deal to buy Corio, which delivers software online, and plans to pick up the pace of acquisitions to fuel growth in its mainstay services business, an executive in charge of the strategy said. International Business Machines Corp., the world's largest computer company, aims to strengthen its lead in existing markets for computer services as well as enter new areas, said Todd Gordon, vice president, portfolio management, for the company's services business. In a report published on Wednesday, Merrill Lynch analyst Steve Milunovich said IBM stands to boost profit margins by offering "asset-based" services that depend on software instead of the older labor-intensive approach based upon outsourcing. This he said would make IBM's services businesses more comparable to the likes of payroll processor Automatic Data Processing Inc. than IBM's long-time computer services rival Electronic Data Systems Corp. The model for asset-based services is more ADP than EDS. Margins could be two-three times better than traditional outsourcing," Milunovich forecast.
Wednesday, March 23, 2005
Really randome thought here... One of these days I'll write quite a bit more about my opinions on ATS/HMS (applicant tracking or hiring management) or whatever you want to call it. For now, I wanted to comment on some new technology Recruitmax is rolling out. While I don't completely understand it, it looks like ATS/HMS is really starting to evolve outside of the box that has shaped it for a number of years.
For those of you who care, RecruitMax is one of my favorite 3 ATS/HMS solutions. Taleo being in the number one spot, and RecruitMax being #2 or 3.
Traditionally, ATS/HMS has been a way to gather data, and then push/pull it around between applicants, managers and recruiters before finally reaching an HR administrator for new hire. The evloution into a service centric offering is fairly revolutionary in my eyes although ATS/HMS has always been on the cutting edge. RecruitMax's new offering includes a robust data portal (presumably for recruiting practitioners and hiring managers) that I wonder if it could replace the RecruitMax application. While great from a technology perspective, I wonder if it's really all that necessary and if it will enhance the uder experience by as much as the portal services technology actually cost. Potentially (once all the portal services are wrapped in) RecruitMax has the potential to us this as a practitioner self service site for everything from basic ATS/HMS data and workflow to customer billing.
Second, they seem to be rolling out a customer service support line that will take calls from candidates. All of a sudden we went from outsourcing an application and hosting services, to a possible (un-evolved) HRO model for applicants. How RecruitMax will manage the training of it's call center is questionable. Undoubtedly they only want calls regarding how to fill out applications, but many candidates will call to ask about the actual jobs.
Obviously none of this is new to HR. Good vendors like ADP and Hewitt will provide client facing protals. For ADP, clients need to be able to look into their accounts, track check packages and maybe access their payroll set-up. Same with Hewitt but from a benefits fulfillment perspective. And obviously the likes of ADP and Hewitt take calls from employees in their call centers. However, RecruitMax wants to take calls from a non-employee who does not already have a relationship with the organization. This is an interesting, but risky move, and they better have dotted their i's and crossed their t's.
Tuesday, March 22, 2005
My first thought was "who the heck is ACS?" Word on the street was that Watson Wyatt was the front runner for the Mellon deal. I guess Wyatt didn't offer enough cash or stock. It would have been interesting per the post below if Wyatt had entered the market to compete with the likes of Hewitt, TP, and Mercer. As it remains, Wyatt is the last (major) pure play in HR counsulting and acturarial services.
Traditional service providers such as ADP and Ceridian may have the service models required, but they are not truly HR outsourcers. Granted, Ceridian can't even release their annual report right now, so we should completely ignore their attempts at full HRO. ADP is probably the leader in the market with over 30 HRO clients at this time. Most of them were actually sold AFTER the ProBusiness acquisition. Perhaps only 10 of the 30 were aqcuired. However, ADP will not aquire a client's HR activities as they specialize in payroll, benefits and call center outsourcing.
The consulting firms are an interesting play in HRO. The new Towers Perrin/EDS service offering (press release) now has TP in the game and promises to be very strong. TP is a huge leader in HR thought leadership, and EDS should be able to provide a strong partnership in technology. However, it remains to be seen if they can provide the service delivery that is required.
Big 4 players have been in the mix in similar models to TP/EDS. Accenture has been there for a long time doing PS or SAP setups. IBM and Delloitte do the same, but really need to partner with once of the service bureaus like ADP or Ceridian to make it work. These guys don't want to get their hands dirty in the day to day muck of administration. Why do that when there are SAP modules, process consulting, and call center switches to implement at $500/hour?
They face a very different challenge compared to Hewitt/Exalt/Cyborg. What Hewitt was thinking with the Cyborg purchase is beyond me. The (lack of) integration at this time is ludicrous considering they have had almost 2 years. Exalt seems like a good purchase for Hewitt, but at a huge price premium that will take years to dig out of. Whatever anyone says, Hewitt/Exalt is still primarily a benefits play at HRO and lacks the payroll sophistication. Fidelity is similar to this, but they seem to have more of a go it alone attitude and are not making the acquisitions Hewitt has. This is probably smart as acquisitions in HRO are very expensive right now.
Then there's Mercer/Synhrgy. I don't know what's going on here as Mercer seemed ready to stay out of the HRO play. They never had the commitment to maximize the potential of their partnership with ADP. Maybe if they have more skin in the game they'll do better.
And lastly there is Aon. This is another mystery and they have made a disasterous move by caving to their sense of urgency to get in the market. In a sad display of rash decision making, they partnered with Ultimate Software. They are out in the marketplace trying to buy their way into the business, but with no clients to speak of and the total lack of a service delivery model. I wish the best to anyone cheap enough to be one of their first 5 clients.