Why Human Capital Solutions Make a Difference

Although I have been working in the HR Technology business for over two decades, I still encounter many people who question the necessity of a new human capital solution for their organization. The rationale for status quo is driven by the fact that people are getting paid correctly, you can produce an accurate headcount of how many people are employed in your company, and your business is profitable. It is hard to argue with the “if it isn’t broke, why fix it?” mentality that most people have in these circumstances. This comfortable position creates an understandable disposition to leave well enough alone. Unfortunately, status quo most likely means that several issues are already eroding future capabilities while leaving lingering problems unresolved. I want to highlight five considerations that may cause you to think twice before deferring an investment in HR systems for another year.

Complexity and Compliance

Number one on my list is a two-headed consideration: complexity and compliance. Payroll and time administration complexity, together with increased compliance requirements, are creating issues that all organizations must assess if not address. Challenges of accurate application of new laws that impact overtime, incentive pay, and special taxes are just the start of potential problems. NGA Human Resources completed a study in 20171 that highlights zero tolerance for payroll non-compliance together with a growing number of government audits driven by country-specific cultural, regulatory factors, and union agreements that impact payroll. Additionally, multi-level rules, legislations and agreements are continually adapted to comply with economic factors and changing working practices that make it virtually impossible for any company to always be current. The Office of Information and Regulatory Affairs reported that Americans will spend more than 8.9 billion hours complying with IRS tax filing requirements in 20162 . This is equal to nearly 4.3 million full-time workers doing nothing but tax return paperwork. The IRS recently revised its estimate of the hours required to comply with business tax returns from 363 million to 2.8 billion, which increased the total time estimate by nearly 50 percent.3 Put in dollar terms, the 8.9 billion hours needed to comply with the tax code computes to $409 billion each year in lost productivity, or greater than the gross product of 36 states.2 Now, do you want to trust a 10 year-old system to address this level of complexity? The only way to formally limit this potential liability is to assess and monitor compliance with critical regulations and work practices.

Data Integrity

The second consideration that should spur review is data integrity. Several factors complicate data integrity including data input rigor, volume, recency, and historical accuracy. Add to this, most organizations today are a conglomeration of at least one other entity, if not multiple companies, and it is easy to see where errors may occur. Harvard Business Review further breaks down this issue by highlighting that knowledge workers waste 50% of their time looking for data4, finding and fixing mistakes and looking for confirmation from other sources for data they don’t trust. There’s no shortage of scary statistics and numbers on the high cost of bad data. In 2016, IBM estimated that bad data cost the US $3.1 trillion.3 Another study by Lemonly.com and Software AG notes that bad data5:

• May cost businesses as much 10-25 percent of an organization’s revenue each year. (Ovum Research puts it higher, at 30 percent of revenues, according to Informatica.)

• Costs the U.S. economy over $3 trillion a year.

• Adds up to $314 billion to health care costs.

It is easy to understand why data quality is one of the biggest obstacles to overcome in creating meaningful people analytics. Most HR data is a collection of information that has been input through a combination of employee entry, copied forms, and data imported from multiple sources. Sound like a lot of time and effort? It is. Data auditing and data maintenance is an ongoing process, but the accuracy and health of data in any human capital system is critical for an organization’s ability to effectively and swiftly make key business decisions – and to reduce risk regarding compliance and security. The bottom-line is that the hours to get clean HR data will be spent one way or another so the value in proactive remediation is always most advisable. At best, unreliable, incorrect and untrustworthy data keeps companies from realizing the benefits of their Human Capital Systems. At worst, inaccurate data creates errors in calculations that impact pay, reporting, seniority, promotional opportunities, and other areas that often result in litigation.

Talent Management

A critical third consideration is talent management. Competition for talent is a primary differentiator in the success of any company, and having the best tools to identify, develop, and retain key employees is essential for any organization. Talent management introduces new strategic goals to streamline hiring and leadership succession processes. Using this lifecycle model, HR guides employees through each stage of their career from competency-based recruitment to career development and finally termination/transition. During each phase, HR strives to measure and manage employee performance through training, feedback, and support. Talent management is a key component to business success in the current economy as it allows companies to retain top talent while increasing productivity. According to a recent report from Ernst & Young, companies that effectively manage talent consistently deliver higher shareholder value. The report, titled “Managing Today’s Global Workforce: Elevating Talent Management to Improve Business,”6 analyzed results from a survey of 340 senior executives conducted in 2009 to assess global talent management practices and evaluate their impact on business. It was found that companies that align talent management with business strategy deliver, on average, 20 percent higher return on equity than those without alignment, and those that integrated their talent management programs delivered 38 percent greater returns.

Employee retention is at a low point with employees holding on to jobs for an average of just 4.4 years, and hiring, as we mentioned earlier, is taking longer than ever. As a result, talent management and recruiting strategies are changing. There's more emphasis on improving both the speed and quality of hiring, getting new employees up to speed faster, and managing the employer brand to be more attractive. Both CEOs and HR are aware of the value of talent management and the difficult hiring market we're in yet 35 percent of companies are still stuck in "reactive" mode - just hiring as needed. Additionally, only 13 percent are actively using a talent management approach that is strategically aligned with the business and prepared for future needs.7 Clearly, it's not enough to understand what talent management is - companies and organizations need to put it in practice to find, retain and develop talent and a new human capital solution is one of the best steps to make this reality.

Analytics

The fourth rationale to seek a new human capital solution is the criticality of analytics. Human capital analytics is the use of people-data in analytical processes to solve business problems. These analytics use both people-data, collected by HR systems (e.g. payroll, time & absence management, performance reviews) and business information (e.g. operations performance data). Analytics then enable HR practitioners and employers gain insights into their workforce and HR policies and practices with a focus on increasing evidence-based decision making. The ROI Institute recently completed a major analytics study along with The Institute for Corporate Productivity, and The Center for Talent Reporting and Vestrics8. Data was collected from 317 human resource teams with a dedicated analytics practice to find out the state of the industry. Almost 70 percent of survey respondents expect their analytics budgets to increase in 2017 and management appears more convinced than ever of the power of people-related data. According to a joint study by MIT and IBM9, HR analytics are a key indicator of whether a company is a leader in their space, delivering higher revenue growth and larger profit margins. Specifically, for companies using HR analytics, they see:

• 8 percent higher sales growth

• 24 percent higher net operating income

• 58 percent higher sales per employee

According to a report by Price Waterhouse Coopers (PwC)10, over three-quarters of companies rate HR analytics as an important priority. Unfortunately, approximately 40 percent of these same companies report limited HR reporting, and less than 20 percent can apply predictive analytics. PwC explains that part of the problem is that nearly half of these companies don’t have the HR technology in place to produce HR analytics. Consider also that roughly 69 percent of the data is stored in different computers and paper files, so even accessing data analytics is a challenge.

So, what is driving the upsurge in people analytics adoption? Many companies are now adopting more integrated cloud-based HR systems, giving them an opportunity to look at their HR data in an integrated way for the first time. Nearly 40 percent of all global firms are either replacing or plan to replace their core HR systems over the next two years11. This significant movement supports my premise that decisions in this area should not be deferred. The vendor market is exploding and nearly every vendor now offers off-the-shelf analytics tools, and many include embedded models. In addition, organizational data is more useful than before. This trend toward analytics-driven HR will only continue to grow as more companies realize value. As this happens, analytics will penetrate deeper within HR, extending beyond talent acquisition to learning and development and operations. In fact, the Global Human Capital Trends12 survey data show that while 71 percent of companies see people analytics as a high priority in their organizations (31 percent rate it very important), progress has been slow, and readiness remains an issue. After years only highlighting the opportunity, only 8 percent report they have usable data; 9 percent believe they have a good understanding of which talent dimensions drive performance in their organizations, and 15 percent have broadly deployed HR and talent scorecards for line managers. HR has the opportunity to show the value and ROI that investment in analytics can bring which will result in a willingness to invest further and spur acceleration in analytics capabilities.

Integration

Finally, the last consideration for review is Integration. One of the easiest methods to optimize everything you do in Human Capital Management is to employ one source of truth for all key decision-making information. Holistic and optimized cloud-based solutions are now available with an architecture that allows recruitment, onboarding, learning, performance, succession and predictive reporting all integrated with basic HR and payroll functionality. The result is end-to-end visibility across an employee’s journey for the HR professional and the employee alike. In the past,

organizations would spend millions of dollars in their quest to achieve the best version of the truth by pulling data out of multiple source systems, cleansing it, standardizing, and then preparing it for analysis in a data warehouse. The advantage of using an integrated HCM system is that, ideally, information flows seamlessly between the different modules, and data only needs to be entered once. System integration is crucial for any company to succeed. It ensures seamless data connectivity and reduces proclivity to errors, improves efficiency and improves real-time visibility. System integration minimizes risks and enables you to make critical decisions based on accurate information and not on your gut instinct. Finally, the opportunity to realize significant cost savings is just one of the benefits from integrated HCM solutions that also include:

• Two-thirds of companies are satisfied or very satisfied with their integrated HCM

• Time and Attendance, Onboarding and Learning Management are the least integrated HCM modules. Recruitment and Learning were the HCM modules companies most often wish they had integrated

• 85% of organizations report an integrated HCM system led to easier access to employee data and 75% benefit from increased employee data accuracy13

• 38% of organizations identified reduced administrative cost as the main source of ROI13

There is a growing trend as more businesses abandon legacy systems and transition to new and improved Human Capital Solutions. According to Sierra-Cedar research14, 45 per cent of large companies and 51 per cent of mid-sized companies are increasing their spend on HR technology.14 The value proposition is the opportunity to transition to solutions that that manage multiple areas of an organization’s workforce and provide insights that ultimately improve the profitability of any organization. Unfortunately, many other organizations put off this transition due to higher priority spending, concerns about transitioning to a new solution, and/or mixed assessments on the potential value. Delaying the move will only make matters more complex and costly down the road due to a higher volume of fragmented data from multiple sources that are not clean, or because of inefficiencies from having multiple providers. Cost and potential liabilities only grow while deterioration of your competitive position continues. The business case for change is compelling and the options available to find a solution that uniquely address your business issues and opportunities have never been better. It will make a difference – data quality, improved decision-making and optimized talent management practices will provide ingredients to make your company thrive.

Endnotes

1 2017 Global Payroll Complexity Index Reveals Top Payroll Risks & Challenges, http://my.ngahr.com/payrollcomplexity-2017/

2 Scott A. Hodge, The Compliance Costs of IRS Regulations, June 15, 2016

3 Dan Goldbeck, “The IRS’s New Year’s Resolution,” Insight, American Action Forum, January 4, 2016. http://www.americanactionforum.org/insight/the-irss-new-years-resolution/

4 Thomas C. Redmon, Bad Data Costs the U.S. $3 Trillion Per Year, Harvard Business Review, September 22, 2016

5 Loraine Lawson, What Does Bad Data Cost? IT Business Edge, February 17, 2015

6 Esther Hahn and Bill Leisy, Managing Today’s Global Workforce, May 2010, http://www.globalhrbusiness.com/b4/vsites/22/storydoc/ManagingTodaysGlobalWorkforce_100524.pdf

7 Josh Bersin, The Talent Agenda for 2015, What comes after integrated Talent Management, Bersin by Deloitte, October 2014.

8 Jack J Phillips and Patti P. Phillips, Calculating Success: The State of Human Capital Analytics, Talent Economy, April 25, 2017

9 Steve LaValle, et al., “Analytics: The New Path to Value”, MIT Sloan Management Review, October 24, 2010.

10 Trends in People Analytics -- With Excerpts from the 2015 PwC Saratoga Benchmarks,” PwC, May 2015.

11 Josh Bersin, HR Technology Disruptions for 2017: Nine Trends Reinventing the HR Software Market, Bersin by Deloitte, Perspective 2016

12 Laurence Collins, David R. Fineman, Akio Tsuchida, 2017 Deloitte Global Human Capital Trends, People analytics: Recalculating the route, Deloitte Press

13 David Creelman, "The Impact of Integrated Human Capital Management Technology for Employers with Hourly Workforces", HR.com, July 2017

14 Sierra-Cedar: HR Systems Survey, https://www.sierra-cedar.com/research/annual-survey/

15 Here are 5 ways for your business to get the most out of HR – and to do HR well – in 2018, By Danny Lessem - Mar 9, 2018, Australian Anthill