HCM Keeps Pace
6 April 2006 Albert Pang
The premium that companies are placing on human assets can be seen in the scale of investment in a slew of HCM applications. Albert Pang, director of enterprise applications research, IDC, explains all.
Collectively, human capital management (HCM) and payroll processing vendors posted $4.8bn in licence and maintenance revenues worldwide in 2004, a figure projected to reach $6.8bn by 2009, at a compound annual growth rate of 7%.
The scale of the opportunities for these vendors is indicative of the macroeconomic conditions shaping the world. Companies are either becoming global by necessity or more complex with their output in order to survive, and their workforce characteristics – schedules, allocations and pay rules – are adapting to those changes.
Knowledge workers are in demand, not just in services industries, but almost everywhere else that is driven by the velocity of change and information. That makes the task of hiring, retaining and improving the skills of these employees more important than ever. Finally, finding effective ways to motivate and reward these employees will likely transform the laggards into industry leaders. Conversely, the reverse could occur for companies with outmoded compensation schemes and subjective employee performance measurements.
But not everything is running smoothly in the HCM applications market, which is going through tremendous consolidation as well as fundamental changes to the ways technologies are being delivered.
Consolidation continues to impact the HCM applications market, with suite providers aiming to buy out their competitors and installations, while point solutions vendors are expanding their footprint through strategic acquisitions.
In 2004 at least 14 deals, not including ERP-type deals like Oracle buying PeopleSoft, were announced by HCM vendors on a worldwide basis. By the end of August 2005, that number of deals had already hit 20.
The quickening pace of mergers and acquisitions underscores the fact that it is going to be increasingly difficult for single-purpose HCM application vendors to gain traction when users are hoping to standardise on a platform that supports a multitude of functions from talent management to contingent labour-resource optimisation.
On the heels of these merger activities, questions need to be asked about whether these deals have been done at the expense of sacrificing the quality of the applications, as the acquirers aim to capture short-term profits using slash-and-burn tactics without committing to adequate R&D investments.
FURTHER MARKET SEGMENTATION
Consolidations in the HCM applications market will blur the lines that separate different segments, allowing vendors to cross over from one to another, like from incentive management for total compensation visibility and analysis to performance management for 360° job evaluation and alignment with corporate objectives.
However, new segments are expected to emerge as the global workforce continues to evolve, with accompanying job mobility and transfers, multiple assignments, dynamic profiling and lifestyle balancing requirements. Increased demands for pre-hire testing, succession planning and orgcharting have spawned a new set of HCM applications vendors like Brainbench, Successionwizard, and Human Concepts, which specialise in those areas, respectively.
TASKS VERSUS PROJECTS
Further segmentation is also likely to take place alongside corporate objectives derived from different tasks and projects. Instead of relying on a cookie-cutter approach, companies are finding it necessary to look for better solutions to manage their talents in an effort to handle task-specific requirements vs those that are more project-centric.
Indeed, the future of HCM is going to revolve around task-based automation for job functions that are more or less repetitive in nature like assembly and retail, or project-based HCM for those that rely more on team collaboration and individual creativity.
Thus, the former will require vendors to deliver solutions that allow them to systematically measure, improve and reward the performance of their workers in simple tasks like handling customer service calls, to complex ones like software programming.
The goal is not necessarily to recognise or penalise individual employees, but rather to allow for greater precision in cost and budget planning, in order to sustain and boost overall profitability.
Likewise, project-based HCM solutions will allow companies to head off any unforeseen delays or problems by spotting early on any incongruity or inconsistency in regard to the output, milestones and even the ideas, from a wide range of project participants.
Through role-based dashboards and continuous feedback loops from peers and colleagues, employees working on different projects will be measured by online metrics and ratings set by their managers, as well as internal and external stakeholders.
In both cases, the future of these HCM solutions is going to lie in greater accountability and transparency on the parts of managers and employees, as well as business partners, including contractors and subcontractors who may only play a limited role in an integrated business process, but still their contributions need to be meticulously documented and evaluated for any chance to improve system-wide productivity and efficiency in the future.
While the above market changes and technology developments may sound daunting and far-reaching for many CEOs, the fact remains that most corporate decision-makers need to prepare themselves in order to think ahead of the curve, by utilising the latest technology to maximise their human assets. Invariably the choices for CEOs largely come down to the size of the enterprise: large vs. small.
Globalisation will force large enterprises – especially those with more than 5,000 employees – to re-evaluate the importance of running a standardised HR system as a single instance, but also take into account localised features that are more suitable for their far-flung operations.
However, the standardised approach will be impacted by the degree of change management that a company is capable of instilling through its rank and file, in order to give local managers and employees a better sense of control and empowerment in areas like report design.
While still a small part of the HR transformation process, workforce analytics will become an increasingly important factor in standardising HR systems on a global basis for large enterprises.
Vendors such as SAP are well positioned to take advantage of that trend because of their keen understanding of master data and organisational management, which ensures the data integrity needed for personnel planning and strategy measurement purposes.
MID-MARKET ENTERPRISE DYNAMICS
As growth in the mid-market space is expected to eclipse that of the large enterprise segment due to years of under-investment by mid-sized organisations, ERP vendors like Microsoft and SSA Global have partnered with HCM specialists to shore up their offerings.
That may usher in more moving parts and perhaps integration challenges. As a result, users will need to see better guarantees of stringent testing and database certification procedures to ensure the backward compatibility of a new generation of HCM applications for the mid-market due out over the next 12 to 24 months.