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The Next Big Thing for HCM: Why the Future of HR Starts Outside of the HR Department

by David Ludlow | SAPinsider

April 1, 2008

Learn how to strike the right balance between reducing costs and keeping the HR department stocked with the technical resources it needs for successful talent management, employee education, and recruiting.



David Ludlow
Vice President, ERP Strategy, HCM


HR organizations continue to be pulled in two directions: They're expected to be both efficient and effective, which outwardly appear to be at fundamentally opposite ends of the spectrum. On the one hand, enterprises want to reduce HR costs. But on the other, they want to make sure they have the HR resources in place to drive strategies that attract, develop, and retain the best employees.

Leveraging technology to achieve this balance is key. But once you've automated all those processes, get ready for the next wave of demands: how to use all that data you've started to gather as a result.

In this executive interview, SAP's David Ludlow explains HR's evolution — how technology has been employed in the recent past to achieve cost efficiency using shared services and services delivery; how the focus today is on talent management; and how, in the future, HR data will be employed throughout the company as a strategic weapon.

Q: Let's start with a current trend in human capital management (HCM). What is talent management, and why is everybody talking about it?

A: There are as many different definitions of talent management as there are companies. In its simplest form, talent management refers to a collection of processes that enable organizations to manage what their employees do as part of their daily work activities, and what they might be capable of doing in the future. Today, these activities have been categorized into groups like performance management, succession management, career management, learning, and recruiting. Ideally, they leverage a strong — and common — job and competency architecture to effectively understand what's expected for every position in the organization.

Two main factors are driving the increased awareness of talent management's importance:
first, predictions of upcoming shortages of skilled employees, and second, study after study linking employee engagement and retention with business results. By managing organizational talent more effectively, the result is less potential business disruption from talent shortages and better results from the talent in place.

Q: Have companies been able to successfully wield technology to manage these far-reaching talent processes? Or are there some common hurdles you see them running into?

A: Technology's primary role in talent management is to first automate talent-related processes, then deliver them to end users through user interfaces (UIs) that are intuitive to interact with and easy to navigate. Both points are crucial: automation since it generates data that can provide insight and transparency, and usability since it's the business leaders, managers, and employees who will actually be driving key talent decisions, not the HR department. Yet, while the delivery of some of these talent management processes has been met with success, often what gets delivered is spread across multiple applications and desktop tools. The result is that no one really gets a full picture of what's important, leading to a fragmented approach to talent management.

Within talent management, you're looking at organizational goals and objectives, at competency models, at key roles, critical positions, and job families throughout the organization. Each is interwoven with the other as a common foundation that, in turn, drives how you manage and grow successors, how you identify top talents in your organization, and how you determine compensation, performance ratings, assessments, and employee development needs. By tearing down the silos that currently exist around these processes, we can start to see a potential convergence, not just a common foundation of data, but the sharing of process results with other related processes. For example, think of performance results directly tied to compensation decisions, or analytics that link employee potential assessments with employee profile data to determine what common factors may define top talents in your organization1.

As companies build better infrastructures for managing their workforce data and processes, that data will become more and more valuable outside of HR.

You can no longer look at processes individually without considering how their outcomes will affect the input of the other processes. And you can't run these processes on multiple foundations. The technology challenge that many companies face today is that they are trying to run their talent management processes on a hodge-podge of HCM systems implemented over the last several years: individual systems for HR, payroll, performance management, recruiting, and more (see Figure 1). Integrating these systems is overwhelming and expensive, yet not doing so leads to disjointed processes and a lack of insight, which can be even more detrimental to the business. That's why consolidation has become a powerful, lasting trend in the HR space.

Figure 1
The challenges of point HCM systems include disjointed processes and siloed events; with its integrated approach to HCM, SAP is uniquely positioned to help companies avoid these process disconnects

Q: How so?

A: The heart of effective HCM is a solid HR foundation, one based on generating, storing, and maintaining good, clean data. This includes employee master data, competency models, job architecture, and
organizational management. This data forms most of the basis of the HR "must-dos," like administration and payroll. I remember a quote by one of my SAP colleagues, who — at her prior job — was responsible for HR shared services. She said, "This may not have been the most glamorous position I've ever had, but
I can shut down the company. All I need to do is not run payroll." It's often undersung, but it's true. If you don't run payroll accurately, then all the talent management in the world is not going to matter.

The heart of effective HCM is a solid HR foundation — one based on generating, storing, and maintaining good, clean data

Since there is a business need to keep this HR data accurate, what better place to start a talent management strategy than on top of your HR foundation? You already know who reports to whom through organizational management, the employee profile, and probably some kind of job architecture. By leveraging this foundation, you've got one set of HR data, which can then be shared across all workforce processes (see Figure 2). That's the foundation of effective HR business processes.

Figure 2
SAP's integrated HCM solution — SAP ERP HCM — guarantees one set of HR data shared across all workforce-related processes

Q: You mention shared services. If we mapped the past, present, and future of HR, it seems that shared services would represent the past — or at least the recent past. Does this mean it's a widely accepted practice?

A: Under the traditional model of HR, every location had its own HR staff member who was responsible for processing HR transactions and often developing HR strategies. With that also came myriad ways of doing things and a lack of consistency across locations. And, of course, it was also very expensive.

In a shared services environment, you standardize these processes across wide regions and consolidate back-end functions in a centralized environment, driving down costs2. But shared services is only one part of the strategy. For maximum efficiency, employees and managers can complete many common HR transactions, like an employee address change, without intervention from HR. They can even initiate more complex tasks, and a centralized HR support group can complete them. Add an employee call center and you have a comprehensive, efficient foundation to deliver HR services to the entire organization.

Only once you've automated your HR processes can you use HCM data in a wide variety of areas across the company. The more processes that are automated, the more insight that can be gained.

To answer your question, shared services isn't really the past, rather it's one point in the overall evolution of how organizations deliver HR services. The concept is widely accepted — but many companies still haven't embraced it. This continues to mystify me. We recently had a customer reduce its number of HR employees from 1,400 to 800, just by implementing SAP ERP HCM and shared services. Previously, this customer had at least 30 different HR systems, which it consolidated into one global instance built around a shared services model3. This gives you an idea of how much potential there is.

Q: So the future of HR, if I understand you correctly, is in the data. Once you've implemented shared services and service delivery, and you have your integrated talent management business processes in place, is integrating HR into the rest of the enterprise next?

A: Absolutely. We've been talking for years about making HR part of the strategic fabric of an enterprise. That was impossible in the past — HR data sat somewhere in a file drawer, and the only time it was used was when an employee sat down with his or her manager. HR data has always had tremendous value within an organization, but in the past it was far too expensive to access it.

One result of process automation is that it generates a tremendous amount of data. With integration, you will not only be able to get at that data more efficiently, but also use it in a wide variety of areas across the company to transform your business. The more processes that are automated in a single integrated system, the more insight that can be gained.

Q: And are those strategic activities limited to the boundaries of HR?

A: It's quite the opposite. All that integration will generate a lot of data and unprecedented opportunities to leverage it throughout the organization. The future of HR lies outside the HR department. As companies build better infrastructure for managing their workforce data and processes, that data will become more and more valuable outside of HR.

For example, nobody knows as well as HR when someone first joins or leaves the company. Imagine creating an onboarding scenario, one that automatically creates an order to buy a laptop or order a phone when a new employee joins the company. But then also imagine the integration between HR data and governance, risk, and compliance (GRC): By linking HR data to an identity management system, for example, you can instantly add or withdraw permissions. You can reduce risk to your company's data by reducing the lag time between creating user IDs and enabling system access4.

How Leading HR Organizations Balance Efficiency and Effectiveness: Ludlow's 7 Strategic HR Best Practices

1. Start with clean, consistent data. Without a good idea of your employee profile or even basic core HR data like organizational assignments or job descriptions, you destroy your credibility. And then, even the best talent management or succession planning strategy is not going to matter.

2. Find your biggest pain point and focus on that first. Take the long-term view — a "big bang" approach is not necessary. If you have a strategic need for recruiting, then make that your first initiative; if performance management will add the most value for your organization, go for that. The key is to understand how all the pieces will fit together once they are implemented. Consider also that the first implementation will likely be the most difficult since you'll need to set up your jobs, positions, competencies, and reporting structures and clean up your data if necessary. But once you've done the work, you can reuse it for the remaining initiatives.

3. Focus on efficiency by determining which HR processes you could convert to a self-service model. Again, you don't necessarily need to roll out every possible self-service to every employee and manager in the organization. Try to identify if cultural change is required and how much your organization can digest. Maybe access to the organizational structure and some basic employee self-services are the best place to start. Or maybe performance management is right for you. Once you get employees and managers to do more things on their own, HR can be more efficient. Then bite off more — that's how HR can be more effective.

4. Understand what line managers' needs are. This way, you can more effectively identify the strategies and procedures that will have the biggest impact on helping the company. It could be identifying successors for key positions, or ensuring performance management in your highest-performing business units — but communicating with line managers will lead you to that silver bullet.

5. Don't miss an opportunity for HR to become more strategic. Whether you first focus on succession management, performance management, or learning and training, avoid leaving a strategic opportunity on the table.

6. Have an eye outside the HR department. For HR to have a seat at the executive table, department leads need to be able to look at their processes and see how HR, as the keeper of workforce data, can support those processes.

7. Do it all with an eye on the big picture. Remember, you can start small and build on prior successes. But try to identify where you want to be with an integrated HCM and talent management suite at the end of your journey. Build your implementation and rollout plan from there.

Q: In what other areas do you foresee HR data presenting significant opportunities?

A: There are other areas outside the traditional realm of HR: workforce-scheduling optimization, GRC, even project planning. We will also be looking at how to leverage social networking concepts to build better talent profiles. These may not be anything HR is directly responsible for — they are very operational in nature — but HR is the ultimate owner of the workforce data that is crucial to these processes: the employee data, the skill data, the data that's necessary to run a lot of these operational and company-wide processes effectively.

Beyond that, good HR data sets the foundation for doing all kinds of other things. Clearly everybody expects HR to be efficient today, so whether that's accomplished through a shared services environment or a rollout of manager and employee self-services, you have to reduce costs. And once you get managers and employees used to those more efficient systems, once you have good, clean data, that is when you can start biting off more. But whether it's performance management, succession management, or something else, be sure to do it with an eye to how all the processes will link together in the future.

Additional Resources

The HR 2008 conference, for comprehensive strategies and best practices for revolutionizing HR's strategic position in your business (

"Three Steps to Gain Competitive Advantage Through HCM" by Mark Lange (SAP Insider, October-December 2006,

HR Personnel Planning and Development Using SAP by Christian Krämer, Christian Lübke, and Sven Ringling (SAP PRESS,

SAP ERP HCM Performance Management by Christos Kotsakis and Jeremy Masters (SAP PRESS,

1 For more on talent management, see Harry West's article "Many Hands Make Talent Work: Partners Enhance Talent Management with New and Innovative SAP ERP Offerings" in this April-June 2008 issue of SAP Insider (

2 To learn more about increasing the efficiency of HR shared services, please see Heike Kolar's article "Drive HR Efficiency with Shared Services: 5 Success Factors for Taking HR Services to the Next Level" in this April-June 2008 issue of SAP Insider (

3 For more on consolidating multiple HR systems into one global instance, please see "Achieve Truly Global Human Capital Management: An Overview of the Global HR Capabilities Delivered with SAP ERP HCM" by Michael Wulf in this April-June 2008 issue of SAP Insider (

4To learn more about SAP's new identity management solution, please see Keith Grayson's Security Strategies column "Getting Started with Identity Management: A Roadmap for Automated, Regulated User Access to IT Resources" in this April-June 2008 issue of SAP Insider (



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