Though organizations spend an average of 30 to 60 percent of their revenue on human capital, many still struggle with maximizing the return on their people assets. Businesses are beginning to realize that technology-based systems are making it possible to optimize the workforce as successfully as they have optimized other areas of the enterprise, such as finance, sales, and manufacturing. Executed properly, a strategic human capital management (HCM) system can lead to increases in profitability, employee morale, customer retention and satisfaction, and ultimately, a more positive market perception.
The building blocks
While technology is not the only solution to a successful HCM plan, the right technology can make organizational processes more efficient and effective. The ability to measurably develop stronger, more efficient human capital, positions HR as an increasingly strategic piece of the organization. When selecting the right technology to support a successful human capital management plan, organizations must ensure that they’re capable of providing the specific elements necessary to deliver financial success—no matter the size the organization. These specific capabilities include organizational alignment, performance-driven employee development, data-driven decision making, and predicative analytics.
The first step in developing a successful HCM program is aligning the overall business strategy to support, and thus achieve, measurable business goals and objectives. The strategies should be dictated from the top down, with training and individual goals cascading throughout the organization to ensure that the strategy is aligned across the entire company—through each business unit, every functional area, and every individual. This enables each individual to know precisely what they must accomplish to help attain the corporate mission and strategy. It is critical to make corporate strategy and objectives visible throughout the organization so that managers and individuals can be more accountable and have a clear understanding of how their actions specifically affect the company’s direction in relation to accomplishing overall goals.
Organizational alignment ultimately helps to increase productivity by ensuring that each employee’s activities support the organization’s objectives, and that time and effort is not wasted on needless activities that fail to support the corporate goals. In addition, aligning the organization reduces the possibility that employees are working on activities that are no longer relevant to the priorities set by the organization.
This task of aligning goals across an organization would be extremely cumbersome if not for intuitive technology solutions capable of offering organizations, managers, and individual users the ability to create and manage goals with cascading target objectives. That being the case, organizations should focus on deploying solutions that allow users to set, align, assign, and track their goals while at the same time allowing managers to conduct similar activities with the goals of their employees to more effectively align their performance with overall corporate objectives.
Additionally, companies should also research systems that automatically calculate scores based on goal achievement and then immediately notify users and managers so they can determine where in the hierarchy targets are and are not being met.
Performance-driven employee development
The second step to achieving a successful HCM initiative goes beyond simply aligning goals and strategies across the board. It requires organizations to determine what training programs truly affect employee performance and drive organizational success, as well as how to ensure the company isn’t wasting time and money on unnecessary training that does not further the individual, the department or the overall corporate objectives and mission. This ability to identify and support only those activities which are critical to achieving organizational success will ultimately increase productivity and employee retention.
Every organization should recognize the importance of tying performance metrics (goals and competency assessments) to predetermined training efforts in order to identify and address skill areas where employee training is needed. Companies need to be able to determine whether employees are hitting their assigned benchmarks and goals, if their competency scores are increasing, and whether training is effective (i.e., Is the resulting increase in knowledge or capability actually being gained from the training being offered?).
Using technology solutions that link training and development programs directly to the tasks that support corporate goals will encourage managers to enter performance information throughout the year so that specific accomplishments and opportunities for improvement are documented accurately. Once implemented, each user’s personal goals and performance objectives can automatically appear in reviews to remind managers of set expectations and provide a basis for measurement. The system also should facilitate clearly articulated performance expectations that minimize the potential for biased appraisals.
A good performance-driven employee development plan will enable an organization to create a consistent and actionable performance appraisal process that impacts employee performance proactively and positively while reducing risks and increasing accountability, encouraging employees to be proactive rather than reactive.
Data-driven decision making
Many organizations understand the importance of setting measurable goals and have processes in place to create these objectives. In addition, organizations see the benefits of conducting training focused on improving performance, and as a result are able to motivate their workforce and drive them to achieve needed skill sets.
However, many organizations do not know how to take this to the next level, which is to assign key performance indicators and metrics to measure progress against those indicators. One major obstacle they face is that metrics data often resides in business systems beyond performance and training applications. More often than not, measuring performance against business goals requires close interaction with other enterprise-wide business systems that are not always easily accessible.
In order to alleviate this communication problem and maximize the rate of return on human capital initiatives, organizations must be able to centralize their software systems and business data. For example, by integrating learning and performance management and data, organizations are better able to leverage their human capital data for better succession planning and more strategic learning initiatives. This data can then be passed through to the HRIS or ERP system to assist with competency management, employee performance incentives, and more.
While it’s important to collect data on an employee’s past performance, human assets do not operate the way material assets do—their past performance provides some insight into future performance, but can not completely predict it. This makes some measurement indicators, such as financials and competency scores, inadequate when predicting what employees might do in the future.
One of the best ways for getting the most out of an organization’s human capital assets is the ability to make changes in employee performance before that performance results in a missed objective. In order to do that, mangers require easy access to real-time data that shows actual individual progress against a plan, and the ability to understand right now whether or not the current behavior of the individual will result in the timely delivery of a particular objective. Current analytics, therefore, must go beyond conventional analytics, which typically focus on what happened in the past and not necessarily what will happen in the future. Analytics needs to be predictive because, while conventional analytics are valuable to some extent, they identify an issue that many times may be too late to be actionable enough to affect future performance.
Many human capital management technology solutions allow for predictive analytics that are easily accessible to managers through a dashboard. This is an important feature as it enables company executives to manage and maximize the ROI on their human capital investments by seeing ‘at-a-glance’ activity that clearly demonstrates exactly what each employee has to do, at any given time, to achieve business goals. This also allows managers to address human capital issues months, or even years, before they occur.
Technology's role in ROI
Along with helping organizations build and support the cornerstones of their human capital initiative, using the right human capital management solution can help companies to realize and achieve a higher return on investment. There are four areas of ROI that HCM technology can impact, including direct administrative costs, operational costs, improved productivity, and soft returns.
Direct administrative costs
Technology solutions can reduce administrative costs because of the time they save administrators in manually tracking and managing information. With the right technology solutions, there are fewer steps involved to retrieve data and the process is much less labor intensive.
The right technology can help to reduce operational costs by enabling the company to offer more targeted and cost-effective programs, and can ensure that such employee activities as training are supporting organizational objectives. In addition, they can help to more easily identify where training is most needed based on gaps in skill sets or strengths that would be difficult and costly to track by hand.
Applying a technology solution to a human capital initiative can help an organization to improve its productivity. It ensures a more efficient workforce as employees are able to know exactly what they need to accomplish, and managers can track the accomplishments of their whole team at a glance. This increases accountability across the board and helps managers to ensure that their employees have the right skill sets to do their jobs. In addition, if necessary, the system can help employees access the training they need quickly without waiting until a review to determine this need.
Soft ROI returns
There are many non-measurable returns that organizations can achieve from their human capital management system. Technology solutions help employees meet their personal goals and they help organizations meet overall company goals. In turn, this makes employees feel better about their performance, especially because they can see and track their progress and identify their value-add to the organization. Ensuring that employees have the proper training for their jobs, helping them to set and achieve goals, and working with them to rise through the ranks will improve employee morale and increase retention, which saves the company time and money in recruiting and on-boarding new employees.
The right solution makes all the difference
Technology alone is not the sole answer to establishing a successful human capital management initiative. However, a good technology solution can take many cumbersome tasks—and in some cases impossible tasks—and make them more manageable and attainable, often saving an organization time and money in the long run.
When looking for the right technology solution, successful businesses need to keep in mind the four cornerstones of strategic HCM if they hope to ensure that their HCM initiatives result in more successful employees, a greater competitive advantage, and broader financial success for the entire organization.
Published: October 2005