WHERE'S THE VALUE IN HCM?

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1 R E S E A R C H N O T E P R O G R A M : H U M A N C A P I T A L M A N A G E M E N T D O C U M E N T R 9 7 M A Y VALUE IN HCM RIPPLES FROM THE EPICENTER OUTWARD A N A L Y S T Brent Skinner T H E B O T T O M L I N E Nucleus has found that value in human capital management (HCM) ripples from the epicenter outward. At the very core of this epicenter of HCM is the greatest essential of employing people, payroll, which delivers the greatest value in deployments of HCM technology. The rest of workforce management (WFM) constitutes the remaining essentials rippling immediately from payroll and directly affecting it to deliver much additional value which then decreases precipitously as activity ripples ever farther from the epicenter to entail functionality such as talent management. 27% WHERE'S THE VALUE IN HCM? 19% 18% 13% 11% 9% 3% Nucleus Research Inc. 100 State Street Boston, MA Phone:

2 When it comes to HCM, employers have a broad gamut of options. Most start with payroll (Nucleus Research r22 Four HCM mistakes to avoid, January 2017). From there, they strive to obtain functionality to cover the rest of the essentials of employing people: core HR, time and attendance, scheduling, and benefits administration. After that, depending on their needs, organizations may add functionality for talent acquisition and talent management, as well as solutions for learning, training, and development. The question is, where is the value across this broad cross-section of functionality falling under the definition of HCM? M E T H O D O L O G Y A N D F I N D I N G S To determine where the most and least value resides in HCM, Nucleus sifted through its archive of investigations into user cases and analyses into HCM technology deployments return on investment (ROI). This exercise revealed what Nucleus suspected: Value is strongest where HCM is most necessary and weakest where functionality for HCM is nice to have, but not a must-have. Our findings make sense against the backdrop of several meta-analyses we published in late 2014 (Nucleus Research o216 HCM pays back $9.13 for every dollar spent, October 2014). At that time, WFM was found to provide the most value (Nucleus Research o217 WFM pays back $10.99 for every dollar spent, October 2014). By contrast, talent management was found to return far less (Nucleus Research o199 Talent management pays back $5.94 for every dollar spent, September 2014). Following are the percentages this newest analysis finds: The aspect of HCM delivering the greatest amount of value is payroll, accounting for 27 percent. Then comes functionality for core HR, at 19 percent. The two are interdependent, so this finding is intuitive. The aspect of HCM delivering the greatest amount of value is payroll, accounting for 27 percent. Following payroll and core HR are time and attendance and, then, functionality for benefits administration, scheduling, and the rest of WFM in that order and together accounting for another 42 percent of the value in HCM. In the above areas combined, employers will enc0unter the greatest concentration of direct benefits such as eliminated and avoidable costs, as well as the greatest gains in productivity, also known as indirect benefits. Outside the epicenter of HCM and directly adjacent to HCM-related activities come the following: Copyright 2017 Nucleus Research, Inc. Reproduction in whole or in part without written permission is prohibited. 2

3 Accounting for another 9 percent of value in deployments of HCM technology is talent acquisition, which encompasses not only all of recruiting, but also onboarding and the attendant bevy of administrative tedium. In some cases, technology enables organizations to eliminate the cost of recruitment process outsourcing (RPO); otherwise, however, in talent acquisition direct benefits begin to fall by the wayside as gains in productivity accumulate to account for most of the potential value. At the outer edges resides functionality for talent management to deliver the least value in HCM. Finally, at the outer edges resides functionality for talent management to deliver the least value in HCM: 3 percent. As the rippling effect radiating from the epicenter of HCM wanes, value decreases as indirect and direct benefits alike become scarce and begin to vanish. D E L V I N G I N The following pages delve into the details of why the value of HCM shakes out this way. Notably, previous Nucleus analyses have categorized recruiting and onboarding under the same umbrella as talent management, whereas this report categorizes those activities under talent acquisition. Additional, cumulative improvements industrywide in solutions over the past three years account for the widening gap between value found in WFM versus elsewhere in HCM, compared to even just three years ago. These improvements exponential effects at the epicenter of HCM, where the essentials of employing people reside, are significant compared to incremental improvements at the outer edges. There is nothing more essential to employing people than payroll. At the very center of HCM, it s an area that can be rife with problems. PAYROLL ACCOUNTS FOR 27 PERCENT OF VALUE IN HCM There is nothing more essential to employing people than payroll. At the very center of HCM, it s an area that can be rife with problems. Nucleus s analyses have encountered user cases where the known payroll error rate was 10 percent or greater. Approximately 5 percent is common. These are errors such as underpayments and more that employees pester administrators to fix every pay period which saps productivity. Then there are overpayments, which can run just as rampant as underpayments. Employees almost never report these, and it Copyright 2017 Nucleus Research, Inc. Reproduction in whole or in part without written permission is prohibited. 3

4 becomes lost money. For an organization with annual total payroll of approximately $150 million or greater plausible for an employer of 2,000 or more even a fraction of a percent in overpayments amounts to a large avoidable cost. CORE HR ACCOUNTS FOR 19 PERCENT Core HR is all about eliminating data sprawl to produce a tight, clean central repository for recording requisite information on employees. In solutions lacking this characteristic, HR administrators and others spend undue time entering the same data multiple times for every employee. Modern technology for core HR virtually eliminates this, which spurs gains in productivity within the HR department. The biggest gains in productivity here, however, come from the time an entire workforce saves in self-servicing the basics of their employment. Modern systems for core HR jam pack highly accessible employee and manager self-service (ESS and MSS) portals with information and functionality that decreases the time the workforce wastes tracking down and managing the basics of their employment. For an organization of 2,000 or more employees whose average fully loaded cost is $74,250 common the aggregate gain in productivity equals a large number. TIME AND ATTENDANCE: 18 PERCENT As a discrete activity, functionality for time and attendance is close behind core HR in value. Automation brings the usual gains in productivity for administrators, who no longer suffer the time-consuming task of manually calculating employees hours worked. Additionally, improperly recorded regular time, overtime, personal time off, and more can leave an employer failing to comply with employment law. The range of regulatory framework affecting these activities is broad. The Fair Labor Standards Act (FLSA) is one. Another is the Family Medical Leave Act (FMLA). Modern technology for time and attendance spares employers the avoidable cost of penalties and fines (Nucleus Research r65 Compliance costs one third less with full WFM, April 2017). In reality, the percentage value from time and attendance is probably higher. Activities central to tracking time and attendance do not occur in a vacuum. Interplay between them and payroll is considerable, and the former contribute to payroll s commanding share of value when automation and accuracy in time tracking reduce the incidence of errors. Time tracking related activities affect goings on in core HR, too, where progressive ESS gives an employee real-time visibility into his or her schedule and the ability to influence it. Copyright 2017 Nucleus Research, Inc. Reproduction in whole or in part without written permission is prohibited. 4

5 BENEFITS ADMINISTRATION: 13 PERCENT In day-to-day benefits administration and annual open enrollment, employers will see major time savings when a modern solution does things such as automating workflow and streamlining integration with health insurance carriers. Gains in productivity can be stark (Nucleus Research q85 Boosting productivity in benefits administration, May 2016). Here there is overlap with ESS, as well, where modern technology for core HR enables employees to manage their own benefits, rather than bombard HR and benefits administrators with queries and requests that are time-consuming to address. Not calculated into this percentage are additional savings employers may see in costs for subsidizing health insurance when their employees benefit from being educated on the options to select those better-suited to their needs (Nucleus Research q47 Guidebook DirectPath, March 2016). SCEDULING AND THE REST OF WFM: 11 PERCENT Beyond any incidental miscellany of WFM and WFM-abutting activity not yet covered, the biggest chunk of this portion is scheduling. Scheduling occupies a special place in WFM, and employers have several providers of best-of-breed point solutions to choose for it (Nucleus Research r66 WFM Technology Value Matrix 2017, April 2017). Many organizations do not need advanced capabilities in scheduling; otherwise, it would account for even more value in HCM deployments. In industries such as retail, food services and anywhere else wage employees schedules week to week are especially volatile, however, sophisticated solutions for scheduling increase productivity: Schedules better-tailored to employees requests and needs result in fewer absences. Schedules optimized to minimize the need for overtime and help ensure that the most qualified employees are present for the most appropriate shifts, and in the most appropriate numbers, reduce overhead. Additionally, progressive systems will disallow an employer from scheduling an employee unqualified to work the open shift (e.g., a forklift operator whose license has recently expired). This becomes a compliance issue, and here the system helps to spare the employer the cost of a fine or penalty. TALENT ACQUISITION: 9 PERCENT HCM systems bereft of the automation found in modern technology beset recruiters and HR practitioners alike with a heavy, productivity-sapping administrative burden as they go about sourcing, recruiting, and onboarding employees (Nucleus Research q67 Boosting productivity in talent acquisition, April 2016). But the bigger contributor here, aside from presumably increasing retention rates (whose benefits are difficult to quantify in terms of dollars), is eliminated costs: Nucleus has analyzed user cases where automation enabled the employer to bring more of recruiting inhouse and eliminate a recurring retainer paid for RPO. Copyright 2017 Nucleus Research, Inc. Reproduction in whole or in part without written permission is prohibited. 5

6 TALENT MANAGEMENT: 3 PERCENT Automation delivers most of the value in talent management, and Nucleus s analyses have seen most gains relegated to performance management. A truly painful process for conducting employee performance reviews, for instance, can become a streamlined activity with automation in place. Outside this, however, much of the value talent management promises comes in the form of promised future improvements to employee engagement. It s hard to deny that positive employee engagement is a good thing, or that functionality for talent management can affect employee engagement in a positive way. However, it s not possible to trace measurable gains in productivity to increases in employee engagement (Nucleus Research q44 Showing the value of talent management, March 2016). If there were, talent management s value in HCM would be greater. LEARNING, TRAINING, AND DEVELOPMENT Not analyzed in this report is functionality for learning, training, and development. Many organizations need a way to help ensure that their workforce is properly certified, licensed or in some other way officially qualified to be on the job. Otherwise, they run the risk of paying costly fines and penalties for falling out of compliance with various regulations. Nucleus s analyses of deployments of technology for all this reveals that the potential for ROI is significant. The expense to outsource costly learning content is avoidable, and increases in productivity are measurable (Nucleus Research n10 The impact of learning on human capital management, January 2013). Of the factors affecting ROI in HCM technology deployments, direct benefits far outweigh the indirect ones in most of Nucleus s analyses. C O N C L U S I O N None of these findings are surprising. Of the factors affecting ROI in HCM technology deployments, direct benefits far outweigh the indirect ones in most of Nucleus s analyses. Direct benefits are those hard dollars saved or avoided, whereas indirect benefits come from those gains in productivity brought by automation. Aside from savings that come from eliminating old systems, which tend to be more expensive than the modern technology for HCM replacing them, most hard-dollar savings are payroll-related. The farther from the epicenter those ripples radiate, benefits become increasingly indirect or nonexistent to provide the least financially quantifiable value. Copyright 2017 Nucleus Research, Inc. Reproduction in whole or in part without written permission is prohibited. 6