In 1908, Henry Ford rolled out the first Model T from the Piquette Avenue Plant in Detroit. At the time, most people didn’t give Ford’s idea of a car for the multitudes much chance of catching on. Until then, cars were considered a plaything for the rich and famous, an expensive toy for Vanderbilts and Rockefellers. Critics dismissed Ford’s vision as naïve. After all, who needed a car when they had a horse?
But what nay-sayers missed was the real appeal of the Tin Lizzy: It got people off the farm. Suddenly, regular citizens could go to town when they wanted, get supplies when they needed them, deliver goods directly to sellers. In short, it enabled people to do for themselves.
Same thing for the Internet. By eliminating the middleman — a process now grandiosely dubbed disintermediation — the Web lets people do for themselves. That’s pretty powerful stuff — 1908 or 1998.
While thousands of companies are embracing this notion by selling directly to consumers over the Web, some businesses have begun applying disintermediation to their own corporate structures. Take human resources. These days, an increasing number of companies are employing a self-service approach to HR — that is, relying on corporate intranets and Web-enabled software to deliver documents, benefits information, and company data directly to workers. In theory, virtual HR takes off where interactive voice systems leave off. In practice, it goes way beyond that. Virtual HR calls into question the very need for large human resources departments.
Boston Scientific (www.bsci.com) is one convert to HR self-service. Managers at the Natick, Massachusetts-based company got virtual HR religion after they found a Web-based application that handled one of their messiest annual events — the assessment of merit pay. In the past, calculating the merit pay of employees took up to two months, with an additional two months for the reconciliation of missing data.
But in 1998, Boston Scientific began rolling out SIR, or Salary and Incentive Review. This is a customized version of Department Merit Review, an HR self-service application developed by vendor Interlynx, which was acquired in December 2000 by ProAct Technologies (www.proacttechnologies.com ). By hooking into the company’s ERP system, SIR allows Boston Scientific’s managers to view their direct reports’ compensation data and allocate the merit pool via the company intranet. The system monitors the completion rate of the managers and automatically rolls up any increases throughout the company. Since going live with the Interlynx system, managers at Boston Scientific say they’ve been able to slash the merit pay process from four months to 20 days.
Surprisingly, HR managers at the medical device manufacturer couldn’t be more delighted with the by-passing of their department. Says Olivier Deslandes, manager of Boston Scientific’s human resources information services group, “You don’t want to have a VP spending three days running around looking for numbers.” In fact, human resources executives at Boston Scientific seem to welcome the coming of self-service HR. “My goal for HR is to take the manual transactions out of our hands and let managers do it themselves,” explains Nick Messerschmidt, vice president of human resources at the company. Messerschmidt says Web browsers and employee portals will free up HR employees to add real value to their companies by acting as high-level consultants to senior managers.
Indeed, many industry watchers say cyber technology is forcing HR heads to rewrite the job description for their departments. “Business has changed and HR needs to react and keep pace,” notes David Link, vice president of the eWorkplace division at the Hunter Group, an information management consultancy based in Baltimore. Link believes self-service HR will go a long way toward changing the way some employees view their HR departments. “HR is perceived as where you go to get wrong answers and poor service,” he concedes. “Self-service is part of a rebranding effort.”
Many Happy Returns
Rebranding sounds about right — a few CFOs wouldn’t mind taking a brand to their HR managers. Cost reductions would be an even bigger incentive, however. While vendors point to robust returns on investment with self-service HR, those numbers are mostly predicated on time reductions of processes. That’s not necessarily a bottom-line booster — not early on, anyway. What’s, more, implementing a virtual HR system can cost more than $1 million for large companies, depending on the size and range of applications.
Still, the Hunter Group claims self-service HR initiatives typically pay for themselves in about 18 months. Specifically, analysts at the consulting firm say that self-service reduces the cost of individual HR transactions by around 30 percent. This average, they point out, is based on early adopters and is likely to move lower as Web technology becomes ubiquitous across the enterprise. At the very least, backers say self-service HR gives companies more bang for their HR buck.
That buck could stand a little more wallop. Right now, the average company employs about one HR staffer for every 100 workers. Browser-based systems (available from such third-party vendors as Concur Technologies (www.concur.com), Talx (www.talx.com), Netdynamics (www.netdynamics.com), and ProAct) should improve that ratio dramatically by either increasing the productivity of existing workers or reducing overall headcount.
More important, employees seem to prefer self-service HR. With virtual HR, workers can access real-time benefits information, medical forms, W-4 forms, and even pay stubs, all from their personal computers.
PC and Web design software maker Autodesk (www.autodesk.com), for one, implemented a virtual payroll system almost two years ago. Through its payroll outsourcer ProBusiness (www.probusiness.com), Autodesk workers can view a check online the day before the check goes into direct deposit. Employees who still want paper have checks mailed to their homes. But payroll supervisor Mirella Alexander says 95 percent of the company’s 2,000 employees have gone virtual through a system that stores all electronic pay stubs. With that kind of take-up, it’s not surprising Alexander is no longer walking the halls at Autodesk. “It used to take half a day to sort checks to all the different locations,” she explains. “[The new system] isn’t saving a drastic dollar amount, it just makes life easier.”
Some experts believe arduous annual events like merit raises and open benefits enrollment — processes that seem to beg for automation — will generate more-substantial savings. The Hunter Group estimates that a self-service program reduces the average cost of open benefits enrollment from $77 per transaction to about $31. Currently, new-hire enrollment costs about $192 per employee. Self-service should pare that down to about $68.
Managers at Analog Devices (www.analog.com), a semiconductor manufacturer based in Norwood, Massachusetts, recently ported the company’s annual benefits open enrollment to the desktops of its 4,000 employees. The move has not only saved time, it has also improved the accuracy of the data, reports Frank Granato, manager of US benefits and HR systems. “It’s freed people from a labor-intensive problem and enabled HR to provide other value-added services,” says Granato. “Nobody needs to be in the business of handling paper.” Moreover, the behavioral change among employees prepares them for other self-service options down the line.
The New York Times is another customer of Workscape Inc. (www.workscape.com), which hosts Analog Devices’ HR data. The Times provides Web-based benefits enrollment. It has also rolled out a graphical interface for employee stock purchases, as well as online direct-deposit information.
Consultants advise against making too much data available to workers, however. Some companies, they note, make the mistake of stuffing their HR user interfaces full, cramming 20 self-service applications into one site. This tends to defeat the purpose of self-service HR. Says Link: “The reaction from employees is, ‘I don’t know how to find it, so I just don’t use it. I pick up the phone and call HR.’ “
Until recently, picking up the phone and calling HR was how prospective employees inquired about job openings. But self-service HR has found a home in the competitive world of recruitment, as well. Hire.com (www.hire.com), an Austin, Texas-based application service provider, markets an application called e-Recruiter, which allows potential hires to click onto job listings posted on a company’s Web site. Once there, the guest answers a list of questions. Those answers serve not only as a de facto resume, they entice a visitor to go beyond mere browsing. “If you can spend 90 seconds and say, I’m interested in this kind of position, want to make this kind of money, and want to travel this much,” says Hank Stringer, president of Hire.com, “you’re more likely to apply.”
Managers at US West (now Qwest) (www.qwest.com) discovered Internet job screening speeds up the hiring of qualified candidates. When the Denver-based Baby Bell needed to recruit network technicians recently, company managers brought in Hire.com. Using e-Recruiter, the company then built a series of 12 questions to pose to prospective workers. Jimmy LaValley, executive director of strategic staffing services at the telco, says the Internet screening process netted higher-caliber candidates — and the company began making much faster hires.
“The recruiter, instead of having to screen 100 candidates, already knows who the top 15 are,” says LaValley. “The candidates are prescreened before we have any conversations with them. The efficiencies you gain from that gives us a critical competitive edge.” Using virtual recruitment, LaValley says his cycle time for hiring has been reduced by 26 percent, and his cost per hire has dropped well below benchmarks set by the Saratoga Institute, a management consulting firm based in Santa Clara, California.
The beauty of virtual applications is that they’re browser-enabled, and thus work across almost all computing platforms. Hire.com, for instance hosts its own application, renting it out to corporate clients for a fee. Workscape, on the other hand, offers both internal installation and Web hosting. Leasing applications eliminates the need to buy and load software onto the company ERP system. Several ERP players, including SAP (www.sap.com), Oracle (www.oracle.com), and PeopleSoft (www.peoplesoft.com), also market virtual HR applications.
Not surprisingly, almost all vendors say corporate managers who think they can develop a virtual HR system in-house should think again. “Companies can’t transform their HR into a Web-enabled department without help,” insists Mark Hodges, vice president of marketing at Exult Inc. (www.exult.net), a business-process management services firm based in Irvine, California. “HR is never going to get the talent and capital it deserves” to implement the changes on its own.
Rather than try, some corporate managers have outsourced entire HR departments. A recent study by research firm Dataquest found that approximately 70 percent of the US companies surveyed currently use or plan to use HR outsourcing services. Dataquest predicts the HR outsourcing market will top $37 billion by 2003. BP Amoco (www.bp.com), for one, recently announced a $600 million contract that will effectively hand over the bulk of the company’s HR function to Exult. While Exult will add 100 to 200 workers to handle the job, BP Amoco will likely cut its 500-person HR department by up to 40 percent.
Ultimately, it’s the potential reduction in headcount — along with the empowerment of employees — that will sell corporate managers on the merits of virtual HR. In the BP Amoco deal, for example, Exult will take over responsibility for the mechanics — the technical, transactional layer — of every HR process at the giant energy and petrochemical company (except labor relations). Exult’s Hodges says that browser-based technology allows all kinds of administrative work to happen behind the scenes.
That’s not necessarily great news for middle managers in large human resource departments. The push toward employee self-service, Hodges says, “means a lot of what HR used to be goes away.” Some finance managers can probably live with that.
George Donnelly is a former senior editor of CFO.