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"SAP ERP Human Capital Management includes functionality for talent management processes -- so you can attract, acquire, educate, and develop talent; identify and grow future leaders; and align and motivate talent with corporate objectives."
Source : SAP
The Economic Benefits of an Integrated Talent Management Suite
Talent Management is also known as :
Human Capital Management,
Performance Management,
Leadership Development,
Talent Marketplace,
Human Resource Management,
Human Resources,
Performance Improvement Plan,
Performance Appraisal,
Talent Management Systems,
Incentive Program,
Personnel Management,
Change Management,
Skills Management,
Training and Development,
Human Resource Development.
For the last several years, there has been a tremendous focus on the
emerging market for talent management software. Our research shows
that the total market (including software used for recruiting, performance
and succession management, compensation, and learning) will reach more
than $2.6 billion in 2009 and more than $3 billion by 2010.
As Figure 1 illustrates, this market has developed through the slow but
steady growth of five separate software segments:
- HRMS;
- Recruiting and applicant tracking;
- Learning management;
- Benefits and compensation; and,
- Performance and succession management.
Each of these five segments started at different points in time and
has evolved in its own way. Today, unfortunately, most large HR
organizations find themselves with a tapestry (maybe more of a "bag
of doorknobs") of systems, many of which do not work well with
each other.
Around 2004, savvy HR software vendors realized that there was an
"exponential" benefit to building an integrated suite. Such a suite
would do far more than automate the existing processes for recruiting,
compensation, learning or performance management " it would
actually enable a new set of talent management applications, some of
which were either impossible before or required "heavy lifting" from IT.
These "new integrated" applications include:
- Pay for performance;
- Cascading goal management and performance management,
integrated with development planning and succession management;
- Integrated and employee-wide succession management, based on
high-potential identification;
- Coaching and development-based performance management, using
peer- and mentor-based coaches throughout the organization;
- Implementing "learning on-demand" (including the management
of training, informal learning, coaching, mentoring and employee
development), in support of an employee's career lifecycle;
- Identifying and tracking quality of hire and quality of source,
through the employee lifecycle;
- Leadership development, coupled with succession and
performance management;
- Enterprisewide competency and capability management;
- Lifecycle employee career management, for both professional and
managerial roles;
- Workforce needs-based internal sourcing and employee mobility;
- Employee expertise-directories and team-based collaboration;
- Highly scientific analysis of employee fit, high-performing work
profiles, candidate analysis and leadership potential based on true
performance; and,
- Enterprisewide workforce planning, which identifies hiring needs,
expected skills gaps, expected leadership gaps, and skills and
capabilities gaps matched with the business plan.
If we consider the real talent challenges facing organizations today,
they are both complex and integrated. Consider the needs of a global
oil company that faces the retirement of 25 percent of its senior
employees in the next five years? How does the company identify the
replacements for these positions, recruit and train for these positions,
and share knowledge among those leaders? How does it even identify
the most critical risks when people leave?
In the healthcare industry, organizations face a tremendous labor
shortage, coupled with the need to deliver ever-higher levels of patient
service at lower operational costs. This demands a strong focus on
strategic recruiting training, career management and performance
management " but in an integrated way.
These types of problems plague almost every major organization " and
they cannot be solved by an "automated recruiting application" or
"online performance appraisals."
Enter the Talent Management Suite: New
Economic Benefits
Given these challenges, we must rethink the economic benefits of HR
software. Rather than provide value by "automating processes," and
"reducing errors and paperwork," we have really entered a new era "
an era in which the benefits of software are "new integrated solutions,"
not just more efficient online systems. Standalone HR systems do
provide value, but not what we may have expected. It is important to
automate existing processes, but if we cannot use the system to drive
strategic value, then an automated HR system does nothing more than
shift costs from "paper" to "computers." As any experienced IT person
realizes, automation is not always inexpensive. In almost any IT project,
the costs for the first few years (including software, training, change
management, integration, data management and systems maintenance)
are five to 10 times the cost of the software itself.
Our most recent research illustrates that the corporate HR and
learning industry has now "crossed the chasm" from automation to
breakthrough applications. While most big companies cannot even
implement a talent management suite (they have too many legacy
systems in place), many smaller companies have now implemented an
end-to-end talent management system " and they are showing five to
10 fold higher returns on investment.
Consider the following compelling data.
- In our 2007 and 2008 research, High-Impact Talent Management®
(which studied more than 700 global corporations in a wide variety
of talent management practices and systems), organizations with
integrated talent management suites deliver between 3.5 and five
times greater returns from their top 62 internal HR processes than
those organizations which use standalone, unintegrated software.
In fact, this research shows that organizations with standalone
talent software (e.g., independent recruiting, LMS or performance
management software) are not generating much better returns
than those without such software.
- In our 2008 Corporate Talent Management Factbook® (a global
research study which looks at the practices and systems of more
than 1,000 global companies), organizations with integrated talent
management suites (fewer than eight percent of all companies)
gained more than 270 percent higher returns on investment
than those with standalone performance management, learning
management or recruiting systems.
Consider the following benefit areas.
This data (which is very compelling) illustrates the fact that, in
today's talent environment, "integration is far more important than
automation." While organizations may see some benefits from
standalone HR applications, the end results pale in comparison with the
potential benefits of an integrated solution.
How Do You Gain the Benefits of an Integrated Suite?
This is the $64,000 question. Today, because of the maturity level of
today's rapidly changing HR software market, there are two obstacles to
achieving this level of integration.
Challenge 1 " Your Company's Existing Legacy Systems
The first challenge we face is the fact that companies already have
hundreds of thousands to millions of dollars invested in "legacy"
standalone systems " systems which were "the best possible solution"
available at the time they were implemented.
These legacy systems have a major benefit " they work. (In fact, one
of the best definitions of a "legacy system" is that it is a system which
"works.") The reason these systems work is that companies have
invested years of time, money, customization and change management
to make sure these systems automate the processes for which they
were designed.
Unfortunately, most of these systems are not integrated with any other
HR systems, aside from the organization's ERP. For example, one of the
world's largest automobile makers uses PeopleSoft " but has still not
implemented a global domain structure that would enable the company
to use PeopleSoft for its global learning management system. Why?
Because the PeopleSoft system has been focused on running global
payroll, a very important application. Would the company sacrifice
the ability to run global payroll for the potential benefit of integrated
talent management? Of course not.
So these "legacy systems" must be treated gingerly and, in many cases,
they must be "surrounded" and "integrated" with new applications.
Our research clearly shows that large organizations (that are more than
10 years old) have the toughest time migrating their applications to
integrated talent management software. Added to this challenge is the
fact that, in today's tight economy, HRIS is not the top priority for many
IT departments.
More and more large organizations are "biting the bullet" to make
these transitions. Charles Schwab, for example, a very sophisticated IT
company, is migrating much of its legacy talent management software
to an integrated suite. Bank of America, one of the most complex
organizations with legacy systems from more than a dozen acquisitions,
is also about to do the same.
While the challenges are daunting, there is no substitution for "building
a plan." We are working with one of the world's largest healthcare
providers, as well as a well-known global oil company, to map out this
plan today. Such an effort requires a careful look at existing systems
and processes, and mapping the "new processes" against the "old
processes" to make sure that a transition does not cause any business
interruption. Most IT organizations now have experience with such
projects and, as organizations come to understand the ROI of integrated
talent management, we will see more and more of these.
Challenge 2 " Your Legacy Systems Vendors
The second challenge organizations face is the relatively slow and
painful process that HR software vendors go through to build out an
integrated suite. As Figure 1 shows, each of the talent systems markets
(each colored oval) has 20 to 30 major software providers. Only a few
companies have truly reached the nirvana of an integrated suite (our
industry study on Talent Management Suites will help you identify the
right provider). Even those vendors that have such suites tend to be
strong in their primary application areas and weak in most others.
Moreover, you probably have an incumbent vendor you like for at
least one system. This vendor (whether it is your LMS vendor, recruiting
vendor or performance management systems vendor) may or may not
be moving "fast enough" for you to get to where you want to be. They
may be building out their suites via acquisition " which often creates a
fast time to market but a slower end-to-end integration. Also, they may
have a fantastically well-developed, long-term plan that takes years to
implement. (Oracle, SAP and PeopleSoft fall into this camp.) You must
trade off speed and functionality versus your own business relationship
and experience with a vendor.
Worst of all, in a market going through such turmoil there are software
companies that succeed and those which fail (and are often acquired). In
your selection of a "strategic" platform, you must not only consider the
functionality of the product and the company's support " you must also
consider the long-term stability (viability) of the company. If the vendor is
not rapidly growing and gaining market share, it could easily be acquired.
Bottom Line: The Economics of Integration Are
Now Proven
Even given these challenges, our data and research clearly shows that
in today's HR software market integration is an imperative. Some
important guidelines include the following.
- The days of a new, standalone LMS are over. While the LMS
market continues to be very large and complex (more than $600
million and growing), any system for internal training must have
features or an integrated solution for development planning
and integration with performance management. Almost all LMS
companies now offer such an integrated solution.
(This is not to say that many standalone LMS systems for
applications, like customer education, partner training,
departmental training and other applications, are not valuable "
but any new "corporate LMS" must now be an integrated talent
management system.)
- The days of a new "performance management" system are now
over. Companies that sold standalone performance appraisal
automation systems are gone " being replaced by systems which
include goal alignment, succession management, development
planning and complete employee profiles (that import résumés
and create a rich employee profile for workforce planning,
expertise location and succession management). If you are
considering the implementation of performance management
software, think about it as an integrated system for performance
management, succession management, career development
and more.
- The days of a hand-crafted, standalone "succession" system are now
gone. Many organizations built their own hand-crafted succession
management systems. These are not attached to performance
management and learning " and can now be replaced by integrated
performance and succession management applications.
- Compensation should soon be considered part of the suite.
Today, compensation management is a highly automated but
very disparate process (often done on complex spreadsheets).
We expect to see vendors build integrated, highly functional
compensation management within their talent management
suites. Organizations should consider looking at the new
compensation modules offered by performance, learning and suite
vendors. While the total compensation problem will not be solved
quickly by suite vendors, many of the management-level functions
(e.g., pay for performance, sales compensation) are available in
talent management suites now.
- Talk with your HRMS vendor. Even though many organizations
have standalone payroll and HRMS systems built years ago,
more and more of these systems are being enhanced with talent
management functionality (e.g., Lawson and Workday, in addition
to the ERP vendors). Ultimately, the talent management suite and
the HRMS must have a strong level of integration, and we see the
two converging. Standalone payroll vendors are starting to partner
with talent management software vendors, as well.
- We must consider the role of social networking in the application
suite. Finally, one of the fastest-growing new segments of talent
management is the emergence of an employee social-networking
platform. This system forms the basis of the "corporate Facebook" "
and stores employee locations, skills, experience, interests,
educational history and contact information.
- Today we see these systems being built by new companies (and by
existing suite providers). Consider the role of these systems in your
company's architecture " the jury is out as to whether your social
networking solution will come from your HR software provider or
one of the 80-plus enterprise social-networking software companies.
- Develop a long-term plan. While no organization can rip out
existing software and replace everything you have overnight, with
a long-term plan you can gain the benefits of integration over the
coming years. Give yourself some time, and consider the issues and
benefits in this research as an imperative.
The changes taking place in HR software are profound, powerful and
exciting. We are here to help you.