Leveraging Technology for Enterprise Wide Human Capital

Management

Krishna VR Muppavarapu & Lalatendu Patnaik

Organizations need to focus on integrating business processes to obtain efficiencies of operation. While integrating one process to the other is important, it is also important to look inwardly to see if components of individual processes are integrated enough within themselves. An integrated Human Capital Management addresses the human resource issues facing organizations, especially performance and attrition. This paper proposes such an integrated system that is powered by the seamlessness offered by an enterprise application and the

optimizing capabilities of an analysis engine.

Human capital management as a very critical function for any organization is an accepted fact. The degree of criticality might vary with the nature of the organization; even with high levels of automation setting in, the importance of managing human capital cannot be undermined. To stay ahead of competition, organizations have to concentrate on having the most efficient people and processes in place. Processes, as important as they may be, are getting streamlined and standardized due to the highly prevalent benchmarking practices. Some of these practices include automation, virtualization and establishing policy-driven frameworks. As processes get standardized across organizations, their contribution to making a substantial difference to the competitive advantage of organizations would reduce with time.

The main differentiator for any organization would then be people and the way they are managed – because of the atypical and heterogeneous nature of this resource. We set out to explore human capital management in terms of its various components and arrive at a metrics driven model to optimize these components in terms of their performance. We also take a stand on how technology can be utilized to integrate these components seamlessly to derive optimum utilization of human capital. Institutionalizing the organizational knowledge on these aspects is a key goal of such an integrated approach.

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We set the tone for the paper by describing the various “components” of human capital management. We take a deviation from the traditional thought process by introducing a key component called “employee separation”, which sometimes is termed as employee exit. We deliberate on each of these components at length with a view to highlight the need for an integrated approach that is metrics-driven.

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Resource Planning

An organization’s human capital is the most valuable and the least controllable of all assets. Planning for this capital with a view to get the maximum returns is a very significant activity. Some organizations may typically have a central resource planning cell while others with a wide reach of operations might evolve localized resource planning cells pertinent to individual departments.

However, a localized resource planning has its own share of challenges which might lead to indecisiveness in planning for a new venture or project which the organization might be targeting. Secondly, a decentralized system of resource planning might lead to wastage of the resources that might be lying idle in some department, whereas they may be critically required elsewhere. Similarly, a central resource planning would have its own share of challenges as the central planning team would not be able to appreciate the challenges faced with regard to loading and competency of the capital employed by the different departments. The challenge lies in creation of a central planning cell which has the capacity to plan and deploy resources based on the future outlook as well as immediate business requirements, both internal and external to the organizations. The challenge is further accentuated, by recruitment decisions that are made based on the inputs for resource planning. This aspect assumes a great significance in view of the fact that on an average, salaries account for 50% of the operating expenses of organizations.

Recruitment

This is the second most important component of human capital management whose trigger points are with resource planning cell. The importance of this department can be estimated from the fact that any inaccuracy in this process would result in cost implications in terms of underutilization or loss of human capital.

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Every organization over a period of time evolves a recruitment methodology that suits the organizational requirements. This evolution is influenced by factors like the size of the operations, type of industry, demand-supply situation of human resource, etc. But generally in organizations, recruitment is viewed as an activity unrelated to the post-recruitment scenario. For example, little analysis goes into determining the correlation between the qualities of a recruit with the actual demands of the job or the actual performance of the recruit on the job. Recruitment ends with human resource procurement and from then onwards aspects like training, appraisals and employee separation are treated as entities that are not related to recruitment. Some amount of feedback is shared by managers with the HR department as to the performance of the employees but seldom is this feedback institutionalized in terms of real data that can be analyzed.

Time and Attendance Management

The metrics of time and attendance management of employees can go a long way in identifying key trends. This is apart from the core requirement of generating invoices. Keeping a record of where employees are and what they are doing is a vital activity for all business.

Hours of work must be recorded for payroll function, billable hours must be converted into sales invoices and absence must be tracked. Although efforts are made to capture the hours put in by the employees, the essential metrics captured from this component are not available for other components like resource planning nor are they utilized for recruitment or for attrition monitoring purposes.

Performance Management

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In any organization, more so in case of large organizations, performance management is a complex process involving multiple stakeholders. Performance management typically comprises four factors:

Induction Training Performance appraisal Compensation and benefits

The interactions between these factors are very strong and for performance management to be optimal, management needs a strong set of metrics (both qualitative and quantitative). At the same time there is also a need to link these metrics with the other components of the human capital management cycle to understand their impact on performance management and vice versa. For example, many organizations fail to take stock of the effectiveness of their induction programs or fail to realize that different people have different induction needs. Similarly, training programs are aligned to the organizational requirement and tend to ignore softer aspects like individual aptitude, aspiration and style of learning. Induction and training also involve costs to the organization and it is a good way to have a mechanism that optimizes these costs with a view to maximize returns. These returns can be in terms of improved productivity, reduced downtime, etc. Performance appraisal, of course is a more complex system, and if not designed well can have a huge impact on organizational performance. It has a direct link to the compensation and benefits aspect of human capital management, which in turn has an impact on softer factors like morale and motivation levels of employees.

Employee Exit

Attrition, forced or voluntary, is something that many organizations are grappling with. According to a report by People First Solutions Ltd., on an average, attrition costs companies 18 months’ salary for each manager who leaves. This is not an insignificant cost. If recruitment, being the entry point can be considered as a significant component, we argue that exit also needs

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to be accorded an equivalent status as one of the nodes of the human capital management cycle. Generally, management is left with no substantial metrics related to the exit of an employee except for the “rate of attrition”.

As a matter of routine, organizations tend to collect feedback from the exiting associate and seldom does this feedback go into analyzing the underlying factors from the other components that have an effect on attrition. As a result, organizations generally convert attrition rates into the required “rate of recruitment” with little analysis into what needs to be done to curtail attrition or bring it to optimal levels. These metrics, managed properly can give useful insights for organizations to design effective retention policies.

Support Structures

While we discuss a lot about the main components of human capital management, there is an organizational need to have a support structure that can feed critical information to these components. An example of this is the most favored “suggestion box” scheme.

However, in practice, these suggestions tend to get neglected in the longer run in the absence of a good mechanism to capture these metrics objectively and correlate them to other components of the human capital management. For example, with an institutionalized suggestion scheme or a grievance resolution mechanism, some wonderful insights can be got to understand the motivational levels of employees, reasons for attrition, improvements sought

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in the work environment, etc, all of which in turn have their impact on the overall performance of the organization.

Need of the Hour

Each component discussed thus far is as important as any other component of the human capital management cycle. But components viewed in isolation give little valuable information that can help the overall organizational goals. For example, attrition, if viewed on a standalone basis might give information about just the number of people that need to be recruited. But the root cause for attrition might actually lie in some other component, say performance management. A weakly integrated system manifests itself in the form of various inefficiencies of which the following are key ones:

Suboptimal organizational performance High attrition and high overheads Employee dissatisfaction Lower employee morale Lowering of brand equity of the

organization

Hence there is an absolute need for an enterprise-wide integrated approach. The first step for an integrated approach is to have a proper set of metrics in place, which, when analyzed for correlations can give amazing insights.

Metrics-driven Model Leveraging Technology

Each component of the human capital management is governed by a set of metrics. Here we propose a metrics driven model of the integrated human capital management characterized by a robust mechanism for feedback and feed-forward. Such a mechanism helps in rendering the components of human capital management flexible and capable of adjusting to dynamic situations.

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Fig.1. General Framework of enterprise application spanning key components of Human Capital Management Cycle

The components of the human capital management cycle are interconnected through an enterprise application that acts as the central nervous system. This application receives and transmits information, data and feedback from one component to the other. The enterprise application can be built in-house or alternatively one of the leading enterprise applications available in the market. The basic purpose of the enterprise application is to enable transactions in real time and collect data or information that can be used for analysis. The application needs to be carefully customized to suit the organizational requirement. A business activity monitoring tool intelligently integrated with the enterprise application helps in decision making. This is where technology can help organizations have access to real time data, reports and decision support systems.

Organizational Benefits

Enterprise-wide integration results in generation of large amounts of data that needs to be analyzed scientifically. Getting meaningful information from this data and using it for decision making is definitely a humungous task. But advancements in computation technology, burgeoning processor speed of

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computers and affordable connectivity are the strongest factors that make technology a great enabler in such integration. This gives rise to the necessity of having strong data warehousing and data mining tools embedded in the business activity monitoring system of the organization.

Each component is governed by a set of metrics which we call “factors of the components”. The interactions between these components are quite complex and are characterized by feedbacks going from one component to the other. These feedbacks, when analyzed properly will help improve the agility of the integrated process. There arises the need to have an analytical approach to identify the impact of one component over the other. In other words there needs to be a measure of the correlations between the factors of various components. For example, the organization might want to know the impact of training on the employee’s appraisal. Similarly, the HR team might want to know how the attrition rate of the organization is impacted by the bucket from which a candidate is sourced. There are almost an unlimited number of combinations in which these factors can be analyzed to benefit the organization.

Having talked about technology as an enabler for the efficient management of human capital, we set out to give a generalized framework for the metrics or factors that need to be captured at various stages.

Applying the Base Metrics driven Model

Firstly, we start by defining an index for each component that actually helps in monitoring the health of the component. The index in turn would be a function of the various factors governing the component. Representing this mathematically,

icn = f (f1cn, f2cn, f3cn, …, fmcn)

where

icn is the index for component number n

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f1cn, f2cn, f3cn… fmcn are the factors governing the component “cn”

The nature of the function f is determined by the organizational requirements. For example, for an organization in which resource planning depends on factors like percentage resource utilization, skill set availability etc., computing the index for resource planning could be based on weights assigned to the individual factors.

This seems to be a good way of capturing the index of a particular component. But this is how generally organizations measure the effectiveness of individual components of human capital management. Of course, the representation might be different in different organizations. For example, the recruitment team might state that their process index is conformance with the agreed KPI (key performance indicator) when they achieve their targets for recruitment and cite the demand for new resources by project managers, as the key driver for recruitment. In that sense the recruiters are justified. But the actual requirement for the new resource might have arisen due to employee attrition. Attrition in turn might probably have been triggered by a wrong fit with the job specification. Interestingly enough, it is the recruitment cell that should be held accountable for the cost associated with such recruitment.

We have given this example to build a case to emphasize the fact that there will always be interactions between the factors of various components and that the traditional model explained by the example shown here does not have the capability to highlight the effects of these interactions. This leads to each component working independent of the other components. Speaking plainly, managers of each component might be reporting a healthy index for their respective components. But their alignment to the organizational goals may not have been considered.

By advocating a metrics driven framework, we actually propose that these interactions need to be captured in the form of reliable metrics. The enterprise application that runs through these components will help in capturing these metrics.

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The simple-looking mathematical model for calculating the indices of the individual components will have to be redefined to make it all encompassing. In other words we go ahead to define a more complex index called the “human capital index” (iHC).

i HC = f (f1c1, f2c2, f3c3, …, f1c2, f2c2, …, f1cn, f2cn, f3cn, …)

The effect of all factors put together gives the overall health of the “human capital management”. Again the nature of the function f is determined by the business requirements. A statistical analysis of the various factors will give the trend of each factor and what weightages the factor has to be given in calculating the index. Before that, it is logical to go and find out the correlations between the factors of the components and draw meaningful conclusions on the effect of one variable on the other. This will also help us identify and rationalize the factors that need to be considered. This is possible by having an enterprise application that enables collection of data and a business activity monitoring tool that comes with data mining ability. Based on the statistical analysis of these factors, we can think of redefining the human capital index in terms of the indices of the individual components. i HC = f (ic1, ic2, ic3, …, i cn)

where c1, c2, … cn are the components of human capital management cycle. For the management, these rationalized indices give a quick view of the health of each component of the human capital management cycle and the overall index.

Deviating slightly from human capital management, we go on to propose that similar indices can be developed for the other functions viz. finance, legal, quality, etc. The organizational index would then be a function of these indices.

Having given the overview of a metrics driven human capital management model with technology as the lever, we set out to illustrate this general model in terms of a specific example. The following (Fig 2) is the conceptual illustration of the example. The advantages of this integrated approach can be tapped to the extent of creating an automated test pattern for selecting prospective employees. This is one way of process optimization at the recruitment level, because recruitment is the gateway for right human capital to get into the organization. This example is just one of the many advantages of having a metrics driven approach to optimize the various components of the human capital management cycle. Core to the entire idea is the concept of an “analysis engine”, akin to a business activity monitoring tool that is capable of generating useful MIS reports. These reports will give the management insights into the various factors that can have an effect on the recruitment process and accordingly fine tune the other components to get the best results.

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The analysis engine for human capital management in practical terms can be a combination of highly automated, semi-automated and manual components. It can be made up of human and non-human components such as:

Data analysis software A team of technical experts Report generators Data analysts Psychologists Human behavior experts

While this is a broad outline of how the analysis engine works, the same can be customized to align with the organization’s goals and objectives.

Managing the Change

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With enterprise applications and BAM / BI tools becoming the order of the day and organizations willing to invest in such applications, the proposed concept of integrated human capital management lifecycle finds a place in the myriad of dynamics that keep occurring in an organization. As competition heats up and with investors getting more and more inquisitive about the way their money is being used, it is imperative for organizations to think innovatively in retaining talent and optimizing the performance of the most crucial resource – the human resource, failing which the consequences would be fatal. Concepts like this have an enterprise-wide impact and will challenge many established notions that the organization might have developed over a period of time based on experience and hunch. While innovative concepts do tend to get a good reception, there are chances that they can antagonize some sections of the organization whose position could come under the scanner. For effective implementation and proliferation of the concept of integrated human capital management, organizations should tread cautiously by rolling out an effective change management program. The promotion of this concept needs to be done carefully by taking all people into confidence and giving them a sense of ownership and empowerment.

Human Capital Management @ Satyam

The Challenge

Having dealt in detail with integrated human capital management at a conceptual level, we set out to explain how this is being adopted at Satyam Computer Services. Being one of the leading IT service providers in the world, Satyam too had its share of challenges pertaining to human capital management. The first and foremost was maintaining and managing a large work force of around 30,000 associates (employees) whose efforts were to be aligned towards the goal and vision of the organization, while ensuring that their aspirations and needs were met to the best of the available opportunities. Moreover, the growing size of the company in terms of employee strength and the expanding client base accentuated the challenges. There was a perceived need to channelise the investments in human capital with a view to maximize the returns on “human capital investment”. This called for a robust system of business intelligence which could provide metrics to the organization to take steps in the direction of human capital management. These metrics related to factors like identifying the “right fit” while selecting employees, ensuring that every individual is employed or engaged to the best of one’s interest and capability and finally assessing the performance of the individual to ensure that their efforts were in synchrony with the direction of the organizational strategy. In other words, a metric-driven approach that could integrate “operational metrics” with the “strategic metrics” was to be designed.

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The Solution and the Approach to Implementation

To begin with, the Satyam management chalked out a broad-level design as shown in Fig. 2. The key role players were the heads of the resource management group, the human resources department and Satyam’s IT department (eSupport) that handles process automation and virtualization. A big challenge lay in assembling a cross functional team involving these role players and in bringing them on to the same plane. More than that, a definite need was perceived to integrate these role-players by “selective sharing of real time data”. For this, a comprehensive study of all the business processes related to human capital management was done. With the active involvement of the role-players, the processes were automated to the extent enabled by policies and within technological constraints. As a parallel activity, a mammoth task of “process virtualization” was taken up. The combined activity of automation and virtualization enabled real time sharing of information and recording of data pertaining to the information.

The entire spectrum of people management activity in the company was virtualized under the following components:

Resource management Recruitment Time and attendance management Performance management Employee exit

An organization-wide platform was built for this purpose under the name of eSupport. Wherever required eSupport took feeds from legacy and specialty applications that worked on the concept of virtualization. Apart from this, there were other support structures that were built on to eSupport and these broadly related to:

Employee grievances Mentoring Employee satisfaction surveys Incident tracking Virtual suggestion boxes

Each component thus automated or virtualized is driven by a set of individual metrics in accordance with Satyam’s proprietary “build-outcome” measure model. The component metrics thus recorded have given the management an avenue to analyze the performance of each component vis-à-vis the other components and also of the overall function of human capital management. These component metrics when aggregated would become important feeds to another virtual application that shows the “performance index” for human capital management in the form of dashboards. This was

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made possible because of the capability of eSupport platform to integrate with other virtual systems.

To achieve this, there was a need to select a suitable Business Intelligence (BI) platform. Since the company already had a robust server* in place there was no question regarding the platform for the data warehouse and the technology for the integration layer. However, not every business intelligence (BI) tool is ideal for the human capital management environment. Hence, to ascertain that their selection would meet the needs at all levels, the management reviewed several of the industry providers, narrowed down to two product prospects and then turned again to the eSupport project team for help.

Using live data, the technology team at eSupport built prototypes in each of the products, and discussed them with the end users (resource management team and human resources department) regarding the ease of access to information. After test-working with the two short-listed products for a week, the BI tool was finalized*. The scalability and integration capability of this tool with the server was the key factor that influenced the decision. Another key factor was the end users’ appreciation of the analysis and reporting capabilities of this tool which were very well aligned with their business intelligence requirements that were quite demanding in nature.

* The BI tool and the server are from leading market players. Owing to policy issues, the products’ name cannot be disclosed.

The eSupport team quickly prepared a project plan and went on to work. An interview was conducted with the stakeholders across the organization to determine business requirements and the technical design for the data warehouse. Efforts were made to ensure that a strong foundation was laid for provisioning of a decision support system which would help the management in taking timely action based on the accurate information available from the system. All efforts were made to ensure that the foundation was enabled to handle the increasing scale of business over time. This would ensure that the adopted methodology was capable of handling the complex ad hoc reporting requirements, OLAP and data mining activities.

The Benefits

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Customized enterprise applications and databases

Futuristic systems (BI, Predictive analytics, etc)

The benefits derived from the project are as given below:

Faster access to information that enables the availability of right information at the right time

Centralization of data and thus a “One-View” of data across Satyam Optimization of human capital engagement through valuable

correlations between various sets of data Operational reporting & analytics capabilities enabled in self service

mode, thereby improving time to decision making Reduction in dependency on people to a large extent for getting

information More transparency in terms of making business decisions is achieved Improved performance management of associates at various levels in

the organization Enhanced policy making pertaining to rewards and recognitions

The Road Ahead

The concept was piloted with one component of the human capital management at Satyam. Buoyed by the initial success, Satyam is setting out to grow this initiative to encompass the whole ambit of human capital management. As this process gets matured, other functions also would get integrated paving way for a seamless system of information flow and analysis and efforts are on in this direction. For Mr. Zain Hussain, Senior Vice President at Satyam who drove the concept of virtual delivery of services through eSupport across Satyam, the philosophy of human capital management is akin to that of any other capital and of course with the added complexity arising due to the unpredictable nature of the human mind. Based on the vast experience he has in handling a wide range of organizational initiatives, he feels that “the success hence would lie in being able to ensure that organizations acquire the right asset for the right job. This asset is to be appropriately allocated to the right assignments and regularly upgraded to continue being engaged meaningfully and optimally utilized. Once the specific productive life-cycle of the asset is complete, opportunities to re-deploy it after re-skilling are to be explored; or if nothing else is possible, the asset is to be retired in an amicable manner. For this we need an appropriate environment to capture the performance of the asset in every state of its lifecycle.

What this means is to have a sensitive set of systems into which data flows at appropriate and relevant intervals so that necessary action, proactive as well as reactive can be taken to optimize the performance of the asset. Having built a sound information backbone on the eSupport platform, we set out on this new venture of integrating the various components of human capital management with the active cooperation of various key role-players”.

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According to Mr. Surya Gadiraju, Vice President, technology at Satyam, “Technology has been a great enabler in this enterprise-wide concept and the initial success has boosted our confidence that we have the capability to scale up at a very fast pace. Automation and virtualization have been key to make this happen”.

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References and Bibliography

A Handbook for Measuring Employee Performance, United States Office of Personnel Management, Sep 2001

Bauer, Kent. “The Power of Metrics: KPIs – The Metrics that Drive Performance Management”

DM Review Magazine, Sept 2004

Hair, Joseph F, Rolph E Anderson, Ronald L Tatham and William C Black Multivariate Data Analysis (5th ed), Pearson Education (Singapore) Pte. Ltd., 1998

Hopkins, Bryan and James Markham e-HR Using Intranets to Improve the Effectiveness of Your People, Gower Publishing Limited, 2003

Levin, Richard I, and David S Rubin. Statistics for Management, Pearson Education (Singapore) Pte. Ltd., 1998

McNamara, Carter. “Performance Management - Basic Concepts” URL: http://www.managementhelp.org/perf_mng/perf_mng.htm

Myers, Paul (Ed). Knowledge Management and organizational design, Butterworth-Heinemann, 1996

Toten, Mike, “Does your induction program actually work?” July 2005URL: http://www.workplaceinfo.com.au/nocookie/alert/2005/050726461.htm

US Office of Personnel Management, “Personnel Management” URL: http://www.opm.gov/perform/overview.asp

White, Colin. “BAM and Business Intelligence” DM Review Magazine, Sept 2003 “The Hidden Cost of Attrition, Why Retaining Top Talent Remains Mission Critical” – A Special Report from People First Solutions Ltd, Vancouver, BC, May 2004URL: www.peoplefirstsolutions.com/resources/reports/pfs_ cost _of_ attrition .pdf

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About the Authors

Lalatendu Patnaik holds a Master’s Degree in Business Management from Goa Institute of Management, Goa (India). He is a business analyst, Satyam Computer Services Limited, Hyderabad. Mail to: lalat1@rediffmail.com

Krishna Muppavarapu holds a Master’s Degree in Business Management from SP Jain Institute of Management, Mumbai (India). He is an associate consultant, Satyam Computer Services Limited, Hyderabad. Mail to: krisonline@rediffmail.com.

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