Working Capital

Companies are driven by the fear of competition - not just the competition created for their products or services, but for their labour force. The single greatest challenge in workforce management for HR executives is creating or maintaining their companies' ability to compete for top talent [1]. And retaining those 'A' players is just as challenging as finding and hiring them. Given the difficulty of recruiting a competitive workforce, the growing interest in 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 1 illustrates predicted growth in two other areas relevant to hiring: the use of software that can help identify candidates who are like the top performers currently employed, and the use of pre-employment assessment and testing solutions.

RECRUITMENT PROCESS OUTSOURCING

In a study that looks at corporate interest in outsourcing human capital management, 66% of companies have installed hiring management systems and 13% use a hosted hiring management application. These solutions combine candidate sourcing, CV ranking, applicant tracking through the interview and review process, communicating hiring decisions to the applicant and on-boarding. 16% outsource this function - a business practice called Recruitment Process Outsourcing (RPO), with 3% considering this option [2].

HR executives' strategies are directed not only at workforce acquisition, but ongoing employee lifecycle management and retention, too. The top-ranking strategies for this year include optimising the current workforce through better performance management. (This is a more significant initiative among companies Aberdeen rates as best-in-class.) Some key points pertain: 90% of the HR executives see improved employee performance management as a key to gaining competitive advantage.

82% say that their employees' work objectives are tied to corporate goals. 97% of the best-in-class companies derive their employees' objectives from corporate goals Training managers to conduct performance evaluations and employee objectives tying to corporate goals are seen as the biggest issues in managing employee performance. Revisiting the performance review throughout the year, to ascertain employee progress, is critical.

Leaders in employee performance management enjoy a competitive advantage over their peers. As shown in Figure 2, these enterprises achieve superior worker productivity and revenue generation, while also gaining improvements in employee satisfaction and retention. In employee performance management, there are some very clear distinguishing factors between those who are at the forefront and those companies that trail behind.

Over half of the best-in-class companies use workforce management technology to enable both timeliness and consistency; they also exceed the others in viewing employee evaluation as an ongoing process rather than a once-a-year, one-shot deal. On the other hand, only laggards conduct no measurement of their workforce whatsoever, and exceeded the industry norm in viewing performance management as the bastion of HR. Both laggards and the industry average far exceed best-in-class companies in using employee evaluation solely for yearly budgeting, tied to raises and merit increases.

IMPACT ON CORPORATE FINANCE

A workforce of top talents, aligned with overall corporate goals and objectives does not come without cost. And securing budget to source and secure the best candidates is top of the agenda, with 98% of HR executives across all industries identifying it as important. Other areas of cost identified focus on internal talent, career paths, and succession planning (96%), and building a brand to attract new employees (89% of all respondents have this on their 'to do' list).

Another area of human capital spending for 2006 is a move of pre-employment assessment and testing from paper to online applications. In the long term, this move should save companies time and costs, with the advantage of hastening the data collected to accomplish hiring a candidate. Thus, top candidates will not be as readily lost to competing offers.

THINKING AHEAD

Creating a plan for the future is also a priority for HR executives in 2006. New Year's resolutions will have included developing a five-year staffing plan that includes succession planning. While these strategies were important to all respondents, best-in-class companies have different see their strategies less in 'fix-up mode' and more in 'anticipation mode' (Figure 3).

While the majority of respondents focus their strategies on integrating their workforce management practices, the best-in-class are ahead of the curve in planning for the truly global workforce. And the economics of workforce management continually pressure those responsible for managing the workforce. Addressing benefit costs, such as health and childcare, is HR executives' second greatest challenge after locating, hiring and retaining the talent to run the company.

While benefits are a challenge for everyone, as healthcare costs soar, it is clearly an area in which laggard companies need to make progress. Fully 88% of laggards fear being unable to compete for talent, and 85% are challenged in managing benefit costs.

Addressing the costs and provisioning of benefits is key to maintaining competitiveness as employers weigh future hires against their added benefits costs, and prospective employees look very seriously at benefits as an indicator of which company they would like to work for.

IMPLICATIONS AND ANALYSIS

Defining the balance between service level and the cost of benefits and services for employees is a driving force for HR executives today. The ongoing need to streamline costs, driven from the top, has these executives looking at options such as outsourcing and on-demand solutions (more than 45% of best-in-class companies plan to increase their use of externally hosted applications.)

HR executives emphasise strategic, longer-term workforce planning, and the actions they are planning to address this (see Figure 4) demonstrate that best-in-class companies are looking at improved analytics and reporting metrics across the workforce. They are also aiming for enterprise-wide consistency in policies and procedures as the foundation for the future.

In conclusion, cost implications from these plans include budgeting for competitive employee salaries to attract and retain top talent, and training and performance management - both in personnel and technology - to improve the workforce, support a trained labour base for the future and create strong leadership succession.

Supporting technologies lead to both employee and managerial empowerment through employee self-service and portal-based applications that both communicate corporate data to the workforce and allow employee data and life changes to be recorded by the employee. A good corporate analytics platform underlies all these; all managers, HR professionals and employees themselves need visibility into their performance and their group's performance as a whole, as well as insight into the relationship of that performance to corporate performance as a whole.

The concept of building a better brand - both internally to retain employees and externally to attract new hires - may be a new item on the ledger, as companies adopt personalised programmes to improve their competitive position within the labour market.

1. Dr. Katherine Jones, The HR Executive's Agenda: The Benchmark

Report, Aberdeen Group (September 2006).

2. Dr Katherine Jones, Human Resource Outsourcing (HRO): The 2006

Benchmark Report, Aberdeen Group (December 2005).