BlogERP: Jim Holincheck's HCM Software Blog

An Interesting Experiment in New HCM Software Business Models

MrTed announced yesterday its new SmartRecruiters offering.  It is a free E-Recruitment software solution targeted at companies with fewer than 2,500 employees.  MrTed plans to make money by taking a percentage of value-added services from partners who integrate their services (for example, job board posting, assessments, background checking) to the SmartRecruiters solution.  I had posted previously on the idea of an ad-supported model to offer free talent management applications.  This is a different free model.  To date, we have not seen too many attempts to experiment with alternative business models in the HCM software world.  There are some ongoing attempts with Open Source (CATS in Recruiting, and OrangeHRM in HRMS).  However, this is a different model (MrTed calls it OpenSaaS). 

The SmartRecruiters offering is a recognition that over time functionality becomes commoditized (that is, there is a minimum set of functionality that all vendors offer and there is little differentiation in that functionality).  When functionality becomes a commodity, prices naturally go down.  It is the extreme case that they go down to zero.  It can only go down to zero when there is a different way to make money.  That is what makes this an interesting experiment.  MrTed is betting that customers will want to pay for value-added services from its partners (yet to be announced).  It is in essence saying the value has moved away from the software itself and to other elements of the recruiting value chain.  Historically, in the business applications market, when functionality became a commodity it was absorbed into broader suites (for example, ERP suites) of products.  New models like this give a glimpse into different possibilities for software market evolution.

The success of SmartRecruiters depends on enough SMB customers adopting the software (otherwise there will not be enough customers interested in paying for value-added services from its partners).  There is always a natural skepticism when a vendor offers "something for nothing".  However, MrTed is not a new vendor.  It does have a track record and real customers using the software.  It has had an very strong E-Recruitment solution for many years (for Gartner subscribers, see "Magic Quadrant for E-Recruitment Software" for more information).  In creating SmartRecruiters, it has tried to create a simplified interface to the same code base.

It is too early to tell if this will be a game changer in the SMB segment of the E-Recruitment market.  However, it should be a wake up call to all HCM vendors that they need to starting thinking more creatively about how they can leverage software to meet customer needs.  What do you think?  Does this approach have merit?  Will it succeed long-term? 

For another take on the SmartRecruiters announcement, see this post from Brian Sommer.

KronosWorks 2008

Given the economic climate, there was a good turnout at KronosWorks (I do not have official numbers -- maybe Kronos will post a comment).  Opening remarks by CEO Aaron Ain focused on continuing to invest in products, employees, and support (though like everyone else they will be scrutinizing their operating expenses in the near term).  Aaron also stressed that Kronos continues to perform well financially (115th consecutive quarter of Y/Y revenue growth and 82nd consecutive quarter of profitability).  Kronos is focused on three main strategies:

• Global -- Kronos has already invested in building operations in Brazil, India, and China (they already have 20-30 customers in China).  In addition, they acquired Captor last year which provided an entree into France, Belgium, and the Netherlands (to compliment its already strong business in the UK).  Also, Kronos has started to build a presence in the Middle East.  Kronos has always been strong in North American and Australia.  today, Kronos generates approximately 18% of its revenue outside the US (outside includes Canada).  There was quite a bit of interest in global implementations.  Dell and Dresser-Rand discussed their multinational implementations.  These sessions were well attended.

Jenine Bogrand presented the Dresser-Rand case study.  Dresser-Rand has 6,000 employees in 25 countries.  To date, it has implemented Timekeeping and Activities (WFC 6.0) in U.S. plants, France (it has not implemented Timekeeping here yet), and Germany.  The most interesting thing for me was the use of Activities to capture work order, operation, resource, and quantity completed data (using a combination of laptops and time clocks with bar code scanning).  It uses this data for more accurate product costing and to have more detailed labor effectiveness (especially understanding idle time) data.

Patty Powers from Dell discussed its global implementation.  It is using WFC 6.03 (looking at upgrading to SP8 or SP9) in a single global DB.  It has 50,000 employee users (5,500 manager users).  Dell has implemented (in English) in the US, Canada, Panama, Philippines, India, Poland, and Singapore.  It has started to implement in Malaysia (it is on hold right now) and plans to implement Ireland, Australia, Mexico, and EMEA emerging markets (27 countries).  Dell used Kronos for the initial implementation in the US.  However, it has done the other implementations itself.  That has caused some difficulties.  It plans to engage Kronos to review requirements in the future (but will continue to do the implementations itself).  Dell's deployment of Java Runtime Environment (JREs) has been challenging and it has started to use Citrix for thin client deployments.  Patty discussed a lot of the local regulatory complexities.  The US was pretty easy for Dell (no unions, just state/local rules).  Other countries have proven to be more difficult.  It has taken typically 60-90 days per country to deploy (more complex countries are around 120 days).

• Talent Management -- For Kronos, this primarily means "field-based" (hourly worker) recruiting.  Kronos (via the acquisitions of Unicru and Deploy Solutions) has a strong customer base in Retail.  However, only 12 customers are implemented on v8.x at this point (another dozen are in process).  It was interesting to hear about the experience of Lee Ann Lecheler at healthcare customer Cambridge Healthcare Management (a 750 employee provider of long-term care services).  It showed that the same principles of using assessments to target hiring people with the right competencies leads to better results (turnover was reduced from 72% in 2005 to 57% in 2007).  It also shows the solution is not just for large retailers.  However, there are large retailers that had good stories to tell as well. 

Steve Parrillo of CVS Caremark discuss its Workforce Recruiting v6 implementation at more than 6,300 retail locations (as well as 15 distribution centers).  It has more than 190,000 employees and has grown via acquisition.  It was interesting to see how fast it has been able to bring up acquisitions on the solution.  In fact, it has just agreed to acquire Long Drugs and plans to add another 520+ locations in Q408 (if the deal closes promptly).  It also had strong results.   It reduced turnover in key hourly roles by 5-10%.  It increased retention at the 90 and 120 day points in tenure (it knows employees retained for more than 120 days are retained for a longer time -- high school and college students continue to work there throughout their time in school).  It also estimates that it has saved managers a significant amount of time in the hiring process.  It plans to upgrade to v8 (Deploy Solutions technology with Unicru assessments) in Q209.

• Workforce Management -- This is the main business for Kronos.  It wants to move its emphasis from having the "best product" (focusing on functionality) to "easiest to own".  "Easiest to own" for Kronos means lower TCO (fast measurable ROI), easiest to use, and easier to integrate with other applications (specifically the large ERP solutions).  It was hard for me to get my arms around this entirely.  There were few concrete examples of how Kronos was going to do this.  The new Workforce Integration Manager introduced with WFC 6.1 (not available for TKC, iSeries or pre-6.1 WFC customers) was one concrete example.  It moves more functionality to the web and addresses some shortcomings of Connect (for example, configurable record IDs and variable error messages).  WFC 6.x has a revamped UI, but it is not clear where some of the new UI technologies (Ajax, Flex, Silverlight, etc.) would fit in.  Kronos ran usability labs throughout the conference so there may have been some preview there, but I did not see it (comments welcome if you know more details).  Kronos talked about simplifying the server environment so that the solutions were easier to run, but there was not a lot of detail provided.

All in all, it was a good conference with a lot of customers doing a lot of interesting things.  In the tough economic times, we probably will see a lot more companies focus on the basics and the opportunity to lower costs.  Workforce management will take center stage for many industries because of the possible quantitative labor cost savings.  Likewise, companies with large percentages of hourly workers will also want to look at recruiting, more specifically tax credits (for example, WOTC and WTW in the US), to impact the bottom line (many retailers literally get millions of dollars of these tax credits per year that go directly to the bottom line - as one of our retail clients pointed out though - you need to make sure that you turn on that functionality).  Kronos is well-positioned to help customers in both of these areas.

HR Technology Conference Wrap Up

I had planned to write a blog post on the HR Technology Conference.  I have had quite a busy 10 days.  I was at the Gartner Symposium/ITxpo from Monday through Wednesday last week (my first three presentations of the week plus many customer 1:1s).  I flew back home to Chicago on Wednesday night so that I could participate in the Industry Analyst Panel at the HR Technology Conference on Thursday morning (plus attend a great session on Workforce Planning and Analytics by Rogers Communications and Vemo -- another fantastic example of fact-based decision making driven by HR working with the business).  Then, I flew back to Orlando to speak at Gartner's EXP HR Summit on Friday.  I stayed over the weekend in Orlando and spent Monday and Tuesday at KronosWorks (more to follow in a separate blog post in the near future).  So, I have a lot to catch up on.  Fortunately, Bill Kutik beat me to the punch on one item.  He published a nice synopsis of the conference with links to other commentaries.

Keep the Performance Reviews!

Ok, I cover the market for solutions that help automate performance reviews.  So, if you think that makes me biased, so be it.  However, I thought it was important to post about a recent Wall Street Journal article called "Get Rid of the Performance Review!".  The author offers seven reasons why performance reviews are ill-advised and bogus.  I will offer commentary (and counterpoints) to each:

• Two People, Two Mind-Sets -- The author believes the boss and subordinate have different motivations.  The boss wants to discuss where performance can be improved while the subordinate is concerned about compensation and career advancement.  I think this true, but not irreconcilable.  That is the whole point of pay for performance.  An employee should be concerned about improving performance if they are concerned about compensation.  Likewise, a manager should be concerned about development (including career development) if they want subordinates to improve performance.
• Performance Doesn't Determine Pay -- The author believes market forces are the primary determinant of pay.  Certainly, market forces do drive total compensation as well as the ability to pay bonuses.  However, most organizations (studies show nearly 80% in the US) have some sort of variable pay program.  Companies that truly differentiate performance (that is a pre-requisite -- if there is grade inflation, all bets are off) can also differentiate that variable compensation.  This is also an important point.  Some companies that do differentiate performance do not always differentiate bonuses and stock allocation.  However, a well-conceived and administered pay-for-performance program can motivate employees to improve performance.  I do not buy the argument that a performance review is a "cover story" to justify pre-determined pay.  There are certainly boundaries placed on pay based on market forces, but in many organizations there is a lot of flexibility within those boundaries.
• Objectivity is Subjective -- For some jobs, performance evaluation is actually quite objective.  There are easily quantified for metrics to evaluate performance in jobs like call centers and sales.  The challenge is that for many jobs there is going to be a subjective evaluation.  The author is correct to point out that there are always going to easy graders and hard graders.  However, that is why it is important to at least try to make sure that managers are using the same criteria for evaluation.  It is also why it is so important that organizations do calibration (are you listening vendors?) to minimize grading differences.  The author I think misses the point on the 360 reviews however.  360 assessments are typically used for development, not performance appraisals.  Some organizations certainly get feedback from multiple people in determining performance, but that is different (and certainly that feedback has to be taken with a grain of salt as the author points out).
• One Size Does Not Fit All -- I do not know where to begin on this one.  Performance reviews have structure so that there is a consistency in terms of what is evaluated in each position.  However, what is actually put in the review and the subsequent conversation around can be individualized.  In addition, you do have to evaluate the right competencies and goals for the job and the individual.  I think the author and I agree on that point. I have often told clients (and others) that garbage in = garbage out.  If a reviewer enters boilerplate information into a review that is the same for everyone and does not take the employee conversation seriously, you will get poor results.  If the manager is not assessing the right competencies or the wrong goals are set, you are going to get sub-optimal results.  However, you would still get the same poor results even if you did not have performance reviews because the manager in question is a poor manager.  Performance reviews are not the problem.
• Personal Development is Impeded -- I am sorry but I just do not get the justification on this one.  As I understand the author, subordinates will not turn to a boss for development advice because they do not understand them well-enough (I guess because the subordinate does not think the boss has captured reality in the performance review).  In addition, the author asserts subordinates do not want bosses to know their weaknesses because it could come back to haunt them in a future performance review.  There is certainly plenty of research that shows that the relationship between subordinate and boss is the important factor in employee engagement (and ultimately productivity and performance).  There are plenty of bosses who do performance reviews and have good relationships with their employees.  They are not mutually exclusive.  If a subordinate does not trust the boss, regardless of whether or not there is a performance review, there are going to be issues.
• Disruption to Teamwork --  The author contends that the performance review is one sided and gives all of the power to the boss and creates a "conflict of interest" in effective teaming.  This certainly can happen.  However, it does not have to happen.  I know one professional services firm that allows any person at any level to provide performance feedback for any other person regardless of level.  It works in their culture.  360 assessments and employee climate surveys can also be useful in identifying managers that are too one-sided.  To look at the performance review alone is does not paint the full picture.
• Immorality of Justifying Corporate Improvement -- The author thinks it is immoral to maintain the facade that annual pay and performance reviews lead to corporate improvement (leading to more bogus than valid activities).  The author cites no authority for this assertion.  There is ample research including the annual Watson Wyatt Human Capital Index studies that show companies that utilize best practices in "Total Rewards and Accountability" have significantly higher total return to shareholders than those who do not.  Obviously, there are companies that "talk the talk", but do not "walk the walk".  There is plenty of other research that show employees do not feel performance reviews are fair, consistent, etc..  It does not mean that performance reviews are not worthwhile, it just means that you have to have a healthy performance-based culture to make it work.  If you try to do pay for performance and align it with corporate objectives without the right culture, it is probably doomed to failure.
• The Alternative -- Performance Previews -- The performance preview is future-oriented.  It focuses on what supervisors expect from subordinates and how they can work together to accomplish what both want to see happen.  It is not an annual process.  Rather, it takes place anytime boss and subordinate are not working well together.  I do not see this as a wholly new idea.  It groups some good practices together under a single banner (which is not a bad thing).  Many organizations do goal setting at the beginning of the year to level set expectations of supervisors with subordinates.  If there is training or other resources required to meet those objectives, those issues can be identified up front and addressed.  However, the author makes a good point.  Sometimes, this is the only time these issues are discussed.  They are not discussed again until the end of year performance appraisal (or maybe in a mid-year conversation).  However, the performance appraisal should not be the be all end all of the performance conversation between managers and employees.  Informal feedback and discussion are important and supplement the more formal performance appraisal process.  I do not think you have to throw out performance appraisals to get the benefit from informal performance discussions.

Even though I am speaking up for performance reviews, I do recognize that they can cause more problems than they solve.  I also realize that many organizations do not have the right culture, systems, structures, and trust (between line employees and management) to get good results from performance appraisals.  However, I do not think that means we need to throw out the performance reviews.  It just means there is room for improvement.  I do believe accountability is important.  I do believe compensation and rewards can drive specific actions and behaviors (you just have to be careful they are the ones intended).  So, it would be a mistake to get rid of performance reviews entirely.

What do you think?  Are performance reviews a good thing?  Do you think the idea of performance previews is a better approach?

Q&A from the ERP Process Integrity Cathedral vs. BoB Innovation Bazaar

This post is a follow up to the presentation Jeff Woods and I did at Gartner Symposium/ITxpo on Wednesday, October 15.  We did not get a chance to answer any of the questions submitted from the audience so we thought we would use this blog post to provide answers to the attendees (and others)

• During your presentation, you present arguments for both sides (ERP suites and Best of Breed - BoB -- solutions).  Is it possible to take a clear position on some of them (for example, TCO, Time to Implement)?

It just is not clear cut.  The TCO argument depends on the purchasing model (perpetual license vs. subscription), delivery model (on-premise vs. hosted), maintenance model (self-maintained vs. vendor-maintained), and the timeframe of the analysis (SaaS may provide a short-term cost savings, but be more expensive in a longer-term compared to a perpetual license, on-premise installed, self-maintained solution that is fully depreciated).  That is why we tell you to not blindly believe vendor assertions.  You have to do the analysis yourselves based on your particular circumstances.

I am also somewhat skeptical of claims that SaaS has a much shorter time to implement.  Yes, it can be quicker to start a project because the environment is already up and running (you do not have provision the infrastructure).  However, when comparing "apples to apples", most of the things that drive the time to implement are vendor (and delivery model) independent.  It includes factors such as:

• how much process reengineering will be done
• how much customization is required (this is a vendor and deliver model-specific factor -- SaaS allows limited customization so this can be an advantage assuming it meets requirements)
• difficulty of data conversion and interfaces
• report creation
• training/rollout strategy

The challenge for ERP solutions is that a particular area is not implemented in a vacuum.  There are dependencies.   I can make a change in module of the application that has a downstream impact on the usage of other models.  In addition, the scope is often not "apples to apples".  A specific module may be implemented as part of a broader ERP solution implementation (a larger, more complex project).  So, best of breed may have an edge because it is a smaller, self-contained project.

• In user acceptance testing, I saw that often users simply want to avoid the governance issues/complexities or shared services associated with ERP.  Is this a common issue?

The short answer is yes.  What I advise clients is that you have to define the WIIFM (what's in it for me) for users to change.  If they do not see the benefits to themselves personally, they will often revert to the "old way" of doing things.

• Hasn't ERP (for example, SAP) become more modular (synchronized/integrated) than engineered?

This is an interesting question.  Many ERP solutions are becoming more componentized (and service-oriented).  However, SAP's ECC 6.0 would still fall in the engineered suite category.  Oracle PeopleSoft would be an example of a synchronized suite (it followed a "pillars" approach for Finance, HCM, etc. that allowed independent implementation and upgrade, but still synchronized data).  However, the direction seems to be moving somewhat away from engineered as the large ERP vendors do more acquisitions and service-enablement.

 

• Does BoB or ERP better support integration with external systems and processes such as income tax management or payroll tax management via a third-party BPMS?

I am not sure I understand this one.  Most BoB and ERP vendors do not use a third-party BPMS to either orchestrate processes or to integrate with external systems.  So, if you submitted this question, please feel to clarify via a comment.

 

• Which module do you recommend implementing first (HR, Finance, etc.)?

All things being equal, usually Finance is the best place to start.  All financially related transactions ultimately end up there.  In addition, management and statutory information requirements are often defined as well (for example, accounting key design).  However, it is certainly possible to start with HR and integrate with an existing financial system if there is a more compelling business case.

 

• What can you do with a combination of both ERP and BoB?  What is the best strategy to manage?

As we discussed in the presentation, the best way to manage it is to think of it as a portfolio.  You will have a combination of ERP, BoB, and custom solutions.  As business requirements evolve in your organization, look for opportunities to move commodity processes to the ERP (remember leading edge practices become more commodity over time).  Leverage BoB for emerging practices or to meet business requirements that cannot be met in ERP.  If it is truly strategic and differentiating, do not forget to consider custom development because it is likely there is not a packaged solution to support your needs.  Revisit you application portfolio mix regularly and adjust as needed.

• With ERP how do you avoid being held over a barrel regarding maintenance cost?  You're tightly coupled with the vendor.

This is the lock-in issue we discussed.  One way to avoid lock-in is to put a fence around your ERP usage that is well-defined.  Another way is to use multiple ERP vendors so that you keep alive competition over time.  A third way is to make sure if you buy a suite, that you get itemized pricing so that you discontinue paying maintenance on a module if you stop using it.

The Changing Face (and Needs) of Enterprise Application Users

I did a presentation yesterday Gartner's Symposium/ITxpo about how to align IT with ERP, CRM, and SCM users.  I thought I made a pretty compelling case.  Most CIOs think that IT does not lacks the flexibility to respond to business change, that it could do more to deliver technology innovations needed by the business, and is not as effective as it could be in delivering against the enterprise strategy.  Enterprise applications are a root cause because they are often viewed as inhibitors to business change (lacking the flexibility to change as the business changes).  In addition, they often lack the decision support capabilities needed to ensure that the business is executing against the enterprise strategy.  This situation has a potential to get worse.  Users are increasingly blazing their own path.  They are not afraid to go find solutions to meet their needs.  These often take the form of Software as a Service and even consumer-grade software (the use of consumer grade software at work is surprisingly high compared to the expectations of both end users and IT -- we have done some survey work that highlights this result).   Add to that, there is new generation of workers coming into the business world that are tech savvy and have had their user experience expectations set by consumer-grade software.  The bar is defining moving higher for IT to meet enterprise application users needs.

I provided some context about how the user needs are changing and what they can do to better align with those needs.  The reaction of the audience was relatively subdued (I hope it was not my delivery!).  There were a few people who asked questions afterwards who seemed to feel this was an issue for them.  However, many, I think, felt that this was not that big a deal.  They were working with the users and understanding their needs.  I have seen enough self-service projects stumble to know that just dealing HR or Finance users is not enough, you have to reach the ultimate end users.  Am I overstating the importance meeting these more casual user needs?  Do you think IT is doing enough to understand these needs?

Interesting HCM Links

My automatic posting of links from del.icio.us is on the fritz (again).  So, I thought I would do a post to get them on the blogs.

YouTube and recruitment - Thomas Otter — A member of the Gartner Blog Network

Thomas has a great post on the use of video in recruiting with some great examples.

On the Death of 20th Century thinking!

My colleague, Daryl Plummer, discusses the change of mindset that is happening around cloud computing. Good stuff.

Progressive Insurance Recruiting Team

A good case study on employer branding, career sites, and candidate relationship management.

Knowledge Infusion Center of Excellence: Consultant's Corner: Agree...And Then Stick to the Agreement

This is a fantastic post about the types (and their inter-relationships) of workforce analytics.