Managing human capital: the executive’s dilemma

Dr Katherine Jones, Research Director for Enterprise Applications at Aberdeen Group, highlights what's next on the HR executive agenda.

Executives in human capital management are caught between the proverbial rock and a hard place. They face strategic challenges, such as ensuring a talented workforce for tomorrow, while trying to align the workforce with upper management’s goals. They face economic challenges, such as optimizing benefits dollars, balancing compensation with performance results, and the growing dilemma of healthcare costs for their employees. And each day they face a plethora of tactical issues, often stemming from laws and government regulations and how they apply to the workforce.

Yet some HR executives are balancing these challenges better than others. Aberdeen’s most recent human capital research, The HR Executive’s Agenda: 2005 Benchmark Report – which reviews and analyzes HR executives’ data on business pressures, technology directions, use of outsourcing and future plans – distinguishes the differences between workforce management strategies and the success of those strategies. The report explores the key issues of concern for those charged with management of the corporate workforce, as it answers the question “what keeps HR executives awake at night?”

The driving factor: the war for talent
Hiring and retaining top talent is the driving concern of human capital management professionals today. For companies of all sizes, at all levels of revenue, the fear of not being able to staff the firm adequately was predominant across all industries. From small stores to mid-sized factories to large corporations, the inability to attract and maintain a quality workforce drove the agenda for both the short and long term. HR executives identify challenges such as creating an image of the corporation as a good place to work while serving the current workforce, and retaining and rewarding star performers while keeping the HR cost per employee as low as possible (Figure 1). These challenges keep these professionals awake at night.

The top three responses to the challenges HR executives identified were:

• Emphasizing strategic, longer-term workforce planning. Executives interviewed expressed concern about their workforces – particularly about the workforce of the future. Companies all felt they needed to better plan for the future.
• Improve the company brand as a good, viable place to work. This was the second most common response from HR executives. This step covers many components, from improving the company’s recruiting website to improving the benefits the company offers to attract new employees.
• Update human capital management technology. 59 percent of HR executives identify the improvement of their HCM technology as a key response to their business challenges.

What actions will HR executives take to execute their 2005 strategies? Companies determined the importance of a series of tactics. Securing budget to source and secure the best candidates was the primary tactic – with 98 percent of HR executives across all industries identifying it as important. Other tactics identified include focusing on internal talent, career paths and succession planning (96 percent), and building a brand to attract new employees (89 percent of all respondents have this on their ‘to do’ list).

Where will they invest?
HR executives and the IT staff that supports human capital are besieged with choices to better manage their workforce. Sometimes the HR software is part of the ERP program – integrated with all core applications that support the corporate whole. Sometimes it is a ‘mini-suite’ – an integrated solution that only includes human capital, such as hiring, performance management, career planning, training and the like. These applications are growing in popularity as companies can often get high quality applications without the weight of linking with corporate production, as they do with the total ERP applications. And standalone applications abound in human resources, often causing a mish-mash of disparate solutions used across the company – one here and another there – so a comprehensive view of the workforce is impossible.

Given the interest in recruiting and hiring a competitive workforce, the growing interest in adding hiring management solutions is hardly surprising. Companies continue to invest in automated hiring management systems, adding to significant growth in that area over the past year. Figure 3 illustrates planned growth in two other areas relevant to hiring: software that can help identify candidates that are like the ‘A’ players currently employed; and a planned increase in the use of pre-employment assessment and testing solutions.

Integration is important
In considering technology, HR executives say they’re interested in providing required functionality and the ability to deliver services (the application method was less important), as long as the solution is integrated (Figure 4). They’re concerned with the best functionality first and foremost, but with preferences for either an integrated suite of applications or standalone ‘best of breed’ software if it can be integrated.

The value of technology
Today’s HR executives see the value in HCM technology. They have added in-house software and third-party, hosted solutions in the recent past. Meanwhile, many have moved non-core functions to third parties. They also have plans for the future, looking to add to their HCM technology arsenals over the next 12 months. Among all survey respondents, automated benefits selection and administration programs for HR administrators are the most prevalent in use (46 percent of companies surveyed) followed by in-house or externally hosted hiring management systems (41 percent). Service industries lead in the use of benefits selection tools (cited by 53 percent of all services respondents). Meanwhile, performance systems (online rather than paper) represent the leading planned expenditure.

HR executives today have more options for workforce management and service delivery than ever before. They report that the specific delivery method – in-house software, standalone applications, an integrated ERP suite, third-party hosted solutions or outsourced delivery of services – was generally only somewhat important. Thus, the ability to provide the function was more important than how it should be delivered.