Cash advance baltimore

As she prepared the business case for implementing a human resource management system (HRMS), Margaret Byl calculated the usual costs of the technology and the savings it would produce. But reducing HR transaction costs through automation-though important-was not the most important reason to purchase the system.

"The business case wasn't just about doing HR better but about delivering business value," says Byl, vice president of HR at Suncor Energy Inc. based in Calgary, Alberta, Canada.

Suncor--a mining, natural gas and refining company with about 3,200 employees--is one of a small but growing number of companies savvy enough to understand that the traditional factors considered in calculating return on investment (ROI)--cutting administrative costs and reducing HR staff-to-employee ratio, for instance--are limited. Improving the entire company's productivity is the priority.

So, Byl set out to measure the "business impact" of buying an HRMS. Byl's conclusion matches a growing consensus among consultants and practitioners that the modern HRMS has already squeezed all the inefficiencies possible from transactions and reduced HR staff as much as it can. Now, as HR moves processes to the web, the measures of success will be increased productivity and added business value, experts emphasize.

Not everyone agrees, however, including many CFOs, who are skeptical of the HR profession's business acumen, which is necessary to determine this type of ROI.

The trend, however, is to think about ROI more broadly. "It is legitimate to consider the administrative costs savings, but it should be a small piece of the business case for any investment," says Naomi Bloom, an HRM delivery systems strategy consultant. Bloom, managing partner of Bloom & Wallace in Fort Myers, Fla., advised Suncor.

Beyond Traditional ROI

Historically, if they considered ROI at all, HR professionals focused largely on the people, paper and postage costs to be saved. In other words, how much does it cost to do something today without technology, and how much will it cost to do it with technology, including the cost of the new system?

But if companies don't look for benefits beyond HR, they set themselves up for problems when they justify new systems in the future, argues independent consultant Jay Stright, formerly of AG Consulting. "If you only look at things from an administrative point of view, once you do them right, the only thing you can do better is do them cheaper," he says. "But once you get to a certain point you can't do them cheaper. What are you going to do the next time management tells you to cut costs?"

From the start, Stright says, HR should focus on the second level of ROI--business impact. "If you look at this second ROI, you will allocate dollars differently," he says. HR professionals, who are perhaps more administrative by nature, must become more strategic to see beyond traditional cost-reduction ROI.

It seems HR professionals know they need to measure beyond traditional ROI. In its "2001 Human Resources Self Service/Portal Survey," Cedar Enterprise Solutions Inc., a Baltimore-based HR consulting firm, found that ROI as measured by reduced administrative costs is just one objective sought by HR--and not even the most important one--that respondents hope to accomplish with self-service applications for employees and managers. Others include improving services to employees and managers and enabling HR to become a strategic business partner. (See "HR Has High Hopes for Self-Service Tools," left.)

HR professionals increasingly are afforded the opportunity to make their case. The Cedar survey found that most North American companies--67 percent--require HR to make a business case when pitching technology projects, up from 62 percent in 2000 (the first year Cedar asked this question). In addition, 38 percent of North American respondents collect metrics to gauge success after the implementation, up from 8 percent in 1999. The survey, the company's fourth annual, included 240 respondents--an 11 percent response rate--from large companies in North America.

"ROI is a hot topic because companies still want to invest in technology, but they must have a good business case for it," says Alexia Martin, Cedar's director of research and analytics. "Management is demanding better business decisions be made for technology. ROI is just one piece of that."

When it comes to ascertaining the business impact of ROI on technology, HR must rely on the departments using the system to report back. "The ROI in HR applications is not in the HR department," explains John Johnston, director of strategic consulting and e-HR at Arinso International, a Brussels, Belgium-based consulting firm operating in the United States, Canada and 17 other countries. "It is in all the other departments of the organization. HR ignores that at its peril."

It is easier for HR to remember that caveat if the organization's culture emphasizes business value in all divisions, including HR. For example, Byl--the No. 2 HR executive at Suncor--was trained as a chemical engineer. Before her appointment as vice president of HR in January 2002, she spent several years in business development, conducting economic and business case analyses.

"The business driver for putting someone like me in this position came from wanting to have a more traditional project management focus in implementing the HRMS," Byl says. Company leaders chose Byl because they wanted someone who could help lead a project that would deliver broadly defined business value, not just reduce HR costs, she emphasizes. Byl's experience is complemented by that of her boss, Sue Lee, the senior vice president of HR, who has had a more traditional HR career.

Suncor did a traditional ROI calculation but used conservative estimates about how much it might save with more efficient transactions across the company. "We did a routine ROI looking at the investment, the costs taken out and the discounted cash flow," says Byl. "But we also tried to understand where some benefits could come in non-HR areas."

Business Value ROI in Practice

There are many ways for HR professionals to take the next step beyond traditional ROI. Consultant Bloom offers this example: A web-based resume processing application could reduce the cost of processing each resume. The before-and-after metrics could prove the system is cheaper and more efficient than the manual method.

"But the application doesn't mean that I'm getting better resumes, or easing the hiring decision, or improving the DNA mix of my workforce or screening out wackos," she says. "I might even make things worse if I reduce head count and lose the guy with good judgment who was keeping the loonies out and helping to filter the resumes."

How can HR ensure that its programs have positive business impact? "Start at the top of the organization and ask what it is supposed to accomplish," Bloom advises. "What are the outcomes for which this organization gets rewarded for success?"

In for-profit organizations, the measures are usually financial--improving revenues, profits and market share. The business strategy to improve all three will vary by company. HR should ask: What must workers achieve to meet these outcomes?

In Bloom's example, instead of seeing the resume application strictly as a cost-reduction tool, HR could think of it as a way to recruit the people needed to meet specific business goals.

Need to reduce time-to-market for new products? The resume application should identify people who are risk takers and innovators.

Need to improve profitability through better budget management? New recruits need a cost-containment mindset.

"Once I know what the business outcomes are, I can consider how to use technology to redesign processes to achieve those outcomes," Bloom says. "Now I have a formula for ROI."

Sharing HRMS Data Outside HR

Johnston agrees with Bloom and adds that business value also can be attained by allowing non-HR employees to use the HRMS data in new ways. For example, a Manhattan-based bank continuously expands staff and shifts employees around. The facilities department acquires new office space and handles moves. When leasing new space, the department uses a standard amount of square footage multiplied by the number of employees, then rents that amount of space. But some people need less space than the formula requires. The facilities managers figure they routinely lease 15 percent more space than they need, wasting millions of dollars.