CH-5-8 System Design and Acquisition – Human Resource Information Systems: Basics, Applications, and Future Directions : Chapter Notes

This Document Contains Chapters 5 to 8 Lecture Outline Chapter 5:System Design and Acquisition CHAPTER OBJECTIVES After completing this chapter, the reader should be able to do the following: Understand the difference between the data and process views of a system Understand the purpose and components of the data flow diagram (DFD) Understand the hierarchy of DFDs and the concept of DFD balancing Understand the three choices or options that organizations have when moving into physical design Understand the purpose of an RFP and what information should be included in it Understand the various criteria used to evaluate vendor proposals Describe the various types of feasibility and their purpose in evaluating potential solutions INTRODUCTION The goal of this chapter is to provide a deeper understanding of the process through which an HRIS is designed and acquired. As noted in previous chapters, the larger development process is called the systems development life cycle (SDLC). This chapter focuses on the design phase by briefly discussing the role and features of structuring of a system’s requirements through process system modeling, where analysts use DFDs to model the business processes that the system will use to capture, store, manipulate, and distribute data, and the options facing the HR department as they move into design. Next, the vendor–management relationship is covered, including the creation and use of a request for a proposal (RFP), evaluation of vendor responses, and choice of a vendor or vendors. Finally, the chapter ends with a discussion of the HRIS feasibility criteria. Design Considerations During the Systems Development Life Cycle The goal of the SDLC is to provide those organizations updating existing systems or designing new ones with a stronger, more structured process to follow. Given the wide variety of program needs in the HR department, such as recruiting, selection, training, performance management, and compensation, and the complexity of these needs, the importance of following a structured approach to the development of an HRIS cannot be understated. Although each phase in the life cycle is important, the goal of this chapter is to specifically focus on the activities associated with design of the HRIS. The design phase is separated into two components: logical and physical design. The logical design of a system focuses on the translation of business requirements into improved business processes, irrespective of any technological implementation. Conversely, the focus and goal of physical design is the determination of the most effective means of translating the business processes into a physical system, including hardware and software. To merge the phases together can invite the temptation to focus heavily on the physical aspects of the new system (hardware/software) at the expense of improved business processes. In addition, focusing on the physical aspects of a system can invite premature decisions on a physical solution that may not be the most effective solution for the business processes identified. Logical Design After the organization has completed the analysis phase of the SDLC, one of the key tasks facing the HR staff and development teams is to model the needs for the new system. There are two ways in which the system can be modeled: the physical model and the logical model. The physical model focuses on the computer technology for the HRIS—that is, the hardware, software, networking plans, and technical manuals. The strength of this type of model is that it focuses on how the system will actually operate. In turn, this strength also becomes its weakness because by focusing on the actual way the system will be implemented in terms of technology, analysts and HR staff may be constrained by the current, operational physical model. Therefore, system developers like to focus on the essence of the business processes independent of any technological implementation. To do this, logical models of the system are created. Logical models are HRIS models that could be operationalized in multiple ways in terms of the technology. For example, in the logical model, an organization might focus on receiving and processing applicant files. There are several physical ways in which an organization could implement this process. They could use a Webportal in an HRIS, a kiosk at a retail outlet, direct e-mail, or physical mail. The strength of using logical models is that the HR staff and developers can focus specifically on the business processes, policies, and procedures instead of on technology. By focusing on what the system does or needs to be able to do, the analyst and HR staff will be less likely to be distracted by or to focus on a single technology platform. In turn, they will be more likely to design a stronger solution. Essentially, a logical model is similar to the blueprints for a home or an airplane. It provides the organization with an outline of the key business processes and goals for the system. Then, as the physical system is designed, these are translated into the hardware and software platforms that best fit the business’s needs. For an HRIS, there are two types of models created for the system: those focused on the system processes and those focused on the data the system captures. Two Ways to View an HRIS: Data Versus Process For any HRIS, the organization must look at the total HR system from two different perspectives: the data perspective and the process perspective. The data perspective focuses on an analysis of what data the organization captures and uses the definitions and relationships of the data while ignoring how or where the data are used by the organization. This perspective would focus on the important data but would not be concerned with how the data are to be used within the organization. In addition, the data perspective focuses on the most efficient and effective way to capture the data to ensure accuracy and uses tools that describe the data that the system uses. The process perspective, conversely, focuses on the business processes and activities in which the organization engages and on how data flow through the HRIS. The designer would focus on the specific business processes, including the input of the data into the system, the flow of data through the system, and the storage of the data, and not on precisely what data are captured and how they are best organized or stored. The distinction between process and data perspectives is important since each represents a portion of the total HRIS but neither provides the complete picture. By modeling each separately, the organization is better able to understand and communicate its needs to the technical staff. In addition, while processes may change in the future, data generally represent the most permanent and stable part of a system. This permanency of data and the more dynamic aspect of processes suggest the importance of dealing with each separately. A common aspect of all design methodologies is the use of diagrammatic modeling techniques. While the style of the charting symbols varies, the fundamentals are well established. Our focus in this chapter is on the creation and use of process models. Logical Process Modeling With Data Flow Diagrams (DFD) A process model describes and represents the key business processes or activities conducted by the organization. The specific type of process model typically used by organizations is a DFD. A DFD is a graphical representation of the key business activities and processes in the HR system and the boundaries of the system, the data that flow through the system, and any external individuals or departments that interact with the system. The focus of a DFD is on the movement of data between external entities (such as a job applicant) and processes (the applicant-tracking process) and between processes and data stores. Kendall and Kendall (2008) argue that DFDs have four distinct advantages over narrative (e. g. , written) descriptions: 1. There is freedom from committing to the technical implementation of the system too early. 2. They provide a deeper understanding of the interrelatedness of systems and subsystems. 3. They allow for stronger communication of system knowledge to the employees, since the diagrams are in pictorial form. 4. They ensure a deeper analysis of the proposed system to determine if all business processes have been identified. A DFD consists of four symbols (see Figure 5. 1). These include the entity, the data flow, the process, and the data store. Entities represent a specific person, place, system, or department and are labeled with a noun in the DFD. The data flow represents the movement of a single piece of data from point to point (e. g. , process to process, entity to process, or process to data store) through the system. As a data flow represents data about a person, place, or thing, it should also be labeled with a noun. Because DFDs describe the key business processes and the flow of data between them, an important rule to remember is that all data flows must begin and end at a process. The third component of a DFD is the process. A process represents a business activity. The goal of each process is to change or transform inputted data into a useful output. Since data are transformed as part of the process, processes should be labeled with an action verb—for example, calculate, send, print, or verify. The final symbol is the data store. The data store represents data at rest in the system, or a repository of data. A data store contains data about a person, place, or department and should be labeled with a noun. Creating and Using the DFD Most DFDs for integrated business systems are very complex, consisting of hundreds to thousands of processes, data flows, and data stores. Therefore, DFDs are organized by modeling the individual processes (such as the applicant-tracking process) and components (such as the recruiting module) of an information system. Furthermore, a series of DFDs are created to visually depict increasingly detailed views. The highest-level DFD developed is called the context-level diagram. The context-level diagram describes the full system, its boundaries, external entities that interact with the system, and the primary data flows between the entities outside the system and the system itself. (See Figure 5. 2. ) The single HR process in the context-level diagram is then broken into greater detail on the Level 0 diagram to provide a clearer picture of the HR business process. The Level 0 diagram contains the major system processes and the data that flow between them. Each process should be labeled with a verb that reflects the action that the process conducts. In addition, each process is numbered consecutively starting with 1. 0 (e. g. , 1. 0, 2. 0, 3. 0, 4. 0, etc. ). It is important to note, at this point, that the context-level diagram and the Level 0 diagrams should reflect and communicate the same information (see Figure 5. 3). This concept is called the balancing of DFDs. Balancing DFDs is important because we want to ensure that all individuals are viewing and using the same model of the system. Otherwise, there is the risk that the system will not be designed appropriately. In the same manner that the context level can be decomposed into a Level 0 diagram, the Level 0 diagram can be decomposed into additional-level diagrams. Thus, the next-level diagram (Level 1 diagram) would break down the processes within the Level 0 diagram to better portray and help understand the HR processes in the system. The DFD is considered complete when it includes all of the components necessary for the system being modeled. The DFD can also be used as a tool for analyzing the current system versus the desired system. In addition, DFDs are often used for business process reengineering, in an effort to improve the system. Physical Design The acquisition of a system is the culmination of a series of important steps. The major goal of this phase of the SDLC is to translate the logical model and requirements into a physical system, including all hardware, software, and networking. Major activities in this phase include (1) determining whether or not there is value in continuing the system design and actual implementation processes, (2) determining hardware and software options and requirements, (3) determining where to obtain the hardware and software (e. g. , by in-house development, commercial software purchase, etc. ), (4) developing an implementation schedule, and (5) working with potential vendors to assess and select software if system software is to be obtained externally. During the physical design phase, the HRIS and IT staff will focus heavily on how any new software and hardware will fit within the current IT architecture. In addition, IT and HRIS staff will provide technical recommendations on the relative value and cost of building the system internally or purchasing an off-the-shelf package from a commercial vendor. The HR staff will also work with the external vendors to ensure that the focus of the system is on the business requirements and not the technology itself. It is also important at this point to remind the HR staff to be very careful of scope creep (which was discussed in detail in Chapter 4). Three Choices in Physical Design The first step in this design phase is to determine how to proceed with physical design. First, the organization has the option of doing nothing. Although this may seem to be counterintuitive because much time and money typically have been spent on the analysis and design process to date, there may be important organizational or environmental reasons for not proceeding. The second option is to make changes to only the HR business processes without new or upgraded technology. Before any time or money is spent on new technology, it is important that the organization address all proposed business process changes and determine if they can be handled using the current HRIS technology. At this point in the process, it can be easy to forget that the goal for the development of the new system should be to use technology to support HR practices, making them more efficient and adding value to the organization, and not to get caught up in the promise of a new technology with industry “best practices. ” The final option that an organization can choose is to implement the business process changes along with new or upgraded technology. There are three basic ways that this can be done: build it, buy it, or outsource the development. Organizations that choose the first approach—to build the technology internally—will take responsibility for the development of the software and hardware. There are advantages and disadvantages of this approach. For most organizations, this is a daunting task because software development is generally not part of their core competency, and they likely do not have the staff and resources available to complete such an undertaking. The second approach of buying prepackaged, commercial off-the-shelf software (COTS) can fit many of the needs for most organizations. These systems can range from small, single-function applications costing a few thousand dollars to large-scale, enterprise resource planning (ERP) software packages costing millions of dollars. The advantage of using this approach to acquiring software is that the systems are well tested and proven and can be purchased and implemented in a short period. For this reason, most of the HR software adopted and used today is COTS. The bad news is that even the best system will rarely meet all of the specific needs of the organization, with most meeting about 70% of the organization’s needs. Thus, organizations choosing to purchase a COTS solution should be prepared to either work with the vendor to customize the system to meet their unique needs or change their processes to fit with the software (and thereby opt for what is referred to as the “vanilla” approach). The final approach to developing the software is to outsource the development to an external company or to obtain access to existing software through an application service provider (ASP). The greatest advantage of outsourcing is that external software development can bring vast resources, experiences, and technical skills to design a much more effective solution than would otherwise be possible. However, outsourcing the development can be risky. Second, outsourcing may not lead to reduced time and expense for the organization because many of the tasks that would need to be completed if the software was in-house would still need to be completed with the external software developer. As can be seen in the previous discussion, there are advantages and disadvantages in each approach for software development. Thus, the decision as to which approach to use will be based on multiple factors and may differ from organization to organization and project to project. In addition, an organization need not rely on a single approach. For most organizations, the solution chosen is often a combination of in-house and external development. The decision regarding which approach to choose is based on a series of factors, including the nature of the business process; the size, technical skills, and project management skills of the software staff; and the development time frame. Working With Vendors By far the most common decision that the HR department will make is to work with an external vendor to develop or acquire the system. The first step in this process is to develop a request for proposal (RFP). An RFP is a document that solicits proposals and bids for proposed work from potential consultants or vendors. An RFP defines the organization’s goals and requirements for the new information system. The RFP provides an opportunity for the HR department to systematically record what they will need the system to do. As part of this process, any remaining implicit assumptions should be made explicit. Basically, the RFP will define what is needed and what is not needed in the system. In addition, the RFP begins the communication process and relationship building with vendors. When developing the RFP, organizations should keep several things in mind. The first recommendation is to focus on the business requirements. Associated with this requirement, the second recommendation is to be specific. With all of the effort placed into the needs analysis and the redesign of business processes, very specific requirements will be available and should be included in the RFP. Although it is desirable to work with a vendor to develop the final system, it is important that the system be developed to meet your specific business needs, not just match the system a vendor has available. The overall objective of the RFP is to have the vendors propose system hardware and software to meet the specific requirements you have identified for your new system. The third recommendation is to keep it simple. Essentially, this would mean that if it’s not something that is important to the HR department and reflective of the business processes modeled in the DFDs, it is best not to include it. This leads to the fourth recommendation, which is to work closely with the HRIS and IT staff as the RFP is developed. See Table 5. 2 – Recommended Components of an RFP Vendor Selection After the RFPs are sent, the vendors will then evaluate them to determine if they have a product that would fit the company’s needs. After receiving the vendor responses, you will have the opportunity to evaluate the relative strengths and weaknesses of each vendor. To do this, there are several considerations to be made and criteria you will use in assessing the software options. These are described below. Functionality As you evaluate the different vendor responses, it is important to evaluate how fully the functionality of the HRIS meets the HR needs. It is important that the HRIS implemented today be able to change as the organization grows. Otherwise, within a few years, the organization will have to go through the entire systems development process and purchase and develop an entirely new solution. Finally, an HRIS that will meet your organization’s needs with minimal customization for actual use would be more attractive than one that will require significant customization. IT Architecture and IT Integration The organization will need to know whether the HRIS will be a stand-alone system or a networked system or a Web-based one and so on. In addition, the organization will want to know with what technology or platform the HRIS has been developed (e. g. , UNIX, Linux, Windows, etc. ). Finally, as important as knowing the answers to the above questions, it is also important to understand the extent to which the HRIS will integrate within the broader corporate IT architecture. The easier the integration with the broader IT architecture, the easier it will be to implement and use the system. Finally, if functional HR systems are being considered from multiple vendors, the extent to which they can be integrated and communicate with each other also becomes important. Price Although price will ultimately play a very large role in the selection of an HRIS, price should be secondary to the goal of finding a system that meets your process needs. At the same time, price will ultimately determine which system is selected. The ultimate cost of the system will include the visible costs, such as cost of hardware and software, as well as the less visible costs, such as customization costs, employee training costs, licensing fees (e. g. , site licenses, per seat licenses, etc. ), upgrade costs, and the cost of system operation and maintenance over time. Vendor Longevity and Viability As with any purchase decision, it is important to evaluate the quality of the vendor itself. In today’s environment, the viability of vendors can often be assessed through their responsiveness to existing companies—their history of providing timely upgrades and increased flexibility. See Table 5. 3 – List of Sample Vendors Assessing System Feasibility It is important to conduct a thorough feasibility assessment of the project. A feasibility assessment should go beyond the traditional economic metrics and should include multiple dimensions, such as technical, operational, human factors, legal, political, and economic. Technical Feasibility Technical feasibility focuses on the current technological capabilities of the organization and the technological capabilities required for the implementation of the proposed system. As part of any assessment of technical feasibility, the HR staff must work closely with systems analysts and technical staff to determine whether or not the current technology can be upgraded to meet the needs of the organization or whether an entirely new technological architecture will be needed to implement the proposed system changes. Operational Feasibility Operational feasibility focuses on how well the proposed system fits in with the current and future organizational environment. In addition, operational feasibility assesses the extent to which the project fits within the overall strategic plans of the HR and IT departments, as well as the organization’s overall strategy. A second area of operational feasibility focuses on human factors. An assessment of the human factors feasibility of the system focuses on how the employee uses and works with the system, the system’s usability, and the training the employees receive. The usability of the system reflects the effectiveness and efficiency of the system to the user. Do not underestimate the importance of this human feasibility issue to the ultimate success of the system. Over the past 20 years, hundreds of studies have found that the usefulness and ease of use of the system play a large role in system use and adoption. Legal and Political Feasibility The best-designed and -implemented system can end up causing major headaches for the organization if it violates existing laws and regulations. This is even truer for an HRIS than for many other types of information systems. Political feasibility focuses on the organizational political environment in which the HRIS is being implemented. Issues such as power redistribution involving loss of individual or department control can have major political implications that can affect the effectiveness of the implementation. Political issues can undermine the implementation of a new HRIS more quickly and completely than any technical shortcomings. Economic Feasibility The goal of an economic feasibility analysis is to determine whether the costs of developing, implementing, and running the system are worth the benefits derived from its use. CHAPTER SUMMARY The goal of this chapter was to discuss the factors that contribute to a more effective system design strategy. First, we discussed how the HR staff and consultants will translate the requirements from previous phases of the SDLC into improved logical business processes. We then discussed how these new processes are then modeled through logical modeling tools such as the DFDs. DFDs are important because they allow the HR staff, consultants, and programmers to have a common model of the system from which to work and because they can be used to identify potential shortcomings not yet identified in the new system. Given that the cost of making changes becomes significantly more expensive once the physical design of the system has been undertaken, it is important that these models be as effective and accurate as possible to avoid system rework. Third, we discussed the options available for the firm when developing the final physical design for the new system. One option available to firms is not to change their existing practices. Other options include building the software internally or sourcing the software through external vendors. The chapter also briefly outlined the steps of working with a vendor, from the RFP through the selection of the vendor, providing several suggestions for getting the most out of the RFP and the vendor selection process. Finally, whatever approach is chosen for the final design, any selected physical system must be assessed as to its feasibility. Although budgeting committees will pay especially close attention to the profitability of the system, we also explained the importance of considering different types of system feasibility. Although this phase of the SDLC can be complex and challenging to manage, we believe that following a structured and disciplined approach as outlined will result in the development or acquisition of a system that is a stronger fit for the organization. Lecture Outline Chapter 6: Change Management and System Implementation: Changing Business Processes and Implementing the Human Resource Information System CHAPTER OBJECTIVES After completing this chapter, you should be able to do the following: Understand the management of change through the perspectives of various change models Understand the factors that contribute to HRIS implementation failure Discuss the elements important to successful HRIS implementation Discuss the importance of integration of the HRIS with the other systems in the organization Discuss the importance of continual maintenance of the HRIS Understand the differences and similarities between organizational development (OD) and change management(CM) INTRODUCTION TO THE MANAGEMENT OF CHANGE Most mangers face change management issues every day; managing change is now a permanent part of every manager’s job. Effective management of change represents a critical core competence that all organizations and HR leaders must master. By better understanding the field of knowledge and competencies related to managing change, HR professionals can better manage change in organizations and reap the rewards that accrue to successful change initiatives. However, as the HRIS literature suggests, the track record of most change initiatives—be they restructuring, introduction of new technology, mergers, process improvement, or reengineering—is poor. Organizational Development Organization development (OD) isa planned system of change. Porras and Robertson (1992) define OD as “a set of behavioral science–based theories, values, strategies, and techniques aimed at the planned change of the organizational work setting for the purpose of enhancing individual development and improving organizational performance, through the alteration of organizational members’ on-the-job-behaviors (p. 722). ” Another aspect of OD is that it is “organization-wide. ” The goal is to continually transform the organization to remain competitive and remain effective at meeting the needs of the various stakeholders. What Is Change Management? We define change management as a systematic process of applying the knowledge, tools, and resources needed to effect change in transforming an organization from its current state to some future desired state as defined by its vision (Potts & LaMarsh, 2004, p. 16). Because what happens in an organization is driven by the attitudes and behaviors of the individuals in that organization, change management must also consider altering the behavior patterns of the people within that organization. Change management typically involves the use of a systematic approach that includes both a vision and a plan. Change management is focused more on changing employees’ attitudes and behavior than OD, which is also interested in changing employees’ attitudes and behaviors; but CM is only one part of an OD intervention. Change management can be used on projects that can be either larger or smaller in scope because it is only focused on changing the attitudes and behaviors of the individuals in that organization, which are important in any OD project. Change management must consider altering the mindset and behavior patterns of the people within that organization. The Change Management Process: Some Terminology Organizations are in a constant state of change, which enables them to remain competitive in the marketplace. Some of the forces for change are external while others are internal. The person who is in charge of the change is referred to as a change agent or a change leader. The process of managing change typically begins with a gap analysis. A gap analysis indicates the differences between the current state of affairs in the organization and the desired future state. After the gap analysis has been completed and plans for the change process have been made, the next stage is to begin the implementation of the change. At this point, a major consideration is the resistance to change from members of the organization. There is a discipline to managing change. As such, we know that managing change can be applied to any change initiative with a reasonable expectation of success. At this point, a major consideration is the resistance to change from members of the organization. Change is never easy. When faced with change, a natural reaction by employees is to express fear, concerns, struggle, and opposition. MODELS OF THE CHANGE PROCESS We introduce and describe a general model of the change process and then four specific models of organizational change that have received considerable attention in the change management literature. These models help draw our attention to the elements important in successfully managing any HRIS implementation project. In this section, we introduce and describe a general model of the change process and then four specific models of organizational change that have received considerable attention in the change management literature: Lewin’s change model, Gleicher’s change equation formula, Nadler’s congruence model, and Kotter’s eight-stage change model. Action Research Model The action research model can best be seen as a general perspective to use in any planned change effort. Although we use the term model to describe the prescriptions of action research, it is better viewed as an approach to the management of change. The term action research is not new. It can be traced to the work of Collier (1945) and of Lewin (1946) and Lewin’s student (Lippitt, 1950), while others (Corey, 1953; French & Bell, 1973) have provided excellent descriptions of the action research model. Frohman, Sashkin, and Kavanagh (1976) provided the following definition: Action research describes a particular process model whereby behavioral science knowledge is applied to help a client (usually a group or social system) solve real problems and not incidentally learn the processes involved in problem-solving, while generating further knowledge with respect to the field of applied behavioral science. (p. 130) The basis of the action research model is the interaction of managerial or organizational action and research that both evaluates the action taken and provides data for future planning of the change effort. A cycle in the action research model would include the following: (1) initial data collection and gap analysis, (2) feedback of results to the HRIS project team, (3) action planning for the next phase of the HRIS project, (4) directing and implementing changes during the next phase, (5) data collection and analysis to evaluate the changes, and (6) feedback of results to the project team and action planning for the HRIS project. Burke (2008) outlines five reasons why the use of change models is helpful to change leaders: Categorize Information. With literally thousands of bits of information related to a change initiative, models help categorize the information into manageable compartments. Enhance Understanding. Given that a change model has a beginning, middle, and end, if problems arise in any of these areas, we can use this information to help diagnose the problem and where action is required. Interpret Data About the Organization. There is much interdependence with any change effort. As such, a model helps us in recognizing these linkages and in taking appropriate action to remedy any problem areas (e. g. , structure and strategy). Provide Common Language. A model helps provide a common language and vocabulary to discuss the change with stakeholders and the change team. Guide Action. Most importantly, a model helps provide the roadmap mentioned earlier. The sequence of actions and potentially the priority of those actions (depending on the robustness of the model) helps guide the change journey and enhances the potential for success. Lewin’s Change Model Lewin’s (1946) framework serves as a general model for understanding planned change. In his study of group behavior, Lewin argued that behavior was a complex interaction of what the individual brought to the situation and the environment (or field as he called it). We can express this relationship as B = f(P, E), where behavior is defined as a function of the person and the environment. Lewin’s (1946) change model conceived of change in terms of a modification of the forces that stabilize a system’s behavior. In particular, he envisioned a dynamic in which there are two sets of opposing forces—those that are focused on maintaining stability and the status quo and those driving change. When we have a balance between these two opposing forces, we have what Lewin called a state of quasi-stationary equilibrium. To alter that state to enhance the probability of change, we must decrease the forces that oppose the change while simultaneously increasing the forces for change. Conversely, increases in the forces to oppose change and decreases in the forces for change would reduce the probability of change occurring. The key to understanding this approach, at the individual level, is to see change as a profound dynamic psychological process (Schein, 1996). This psychological process involves painful unlearning and difficult relearning as one cognitively attempts to restructure one’s thoughts, perceptions, feelings, and attitudes. Lewin (1946) viewed these three steps as follows. Unfreezing At the outset, every change project requires getting people to change their minds and behavior regarding the old way of doing things and to embrace the new state. This means that the quasi-stationary equilibrium supported by the complex set of driving and restraining forces needs to be destabilized (unfrozen) before the old way of doing things could be discarded (unlearnt) and the new behavior successfully adopted (Burnes, 2004, p. 985). However, the unfreezing process is not that easy to accomplish. Edgar Schein (1996), in his excellent reflection on Lewin’s (1946) impact on his own thinking and work, suggests that for any change to occur, some form of dissatisfaction or frustration with the status quo must be presented. People need to know what drives the need for change, why they should change, and where they are headed. This is where Schein’s survival anxiety comes into play. Providing a reason for change is not always enough. We also need to convince people that if we do not change, individual and organizational goals will be frustrated. This process is what Kotter (1996) calls creating a sense of urgency. Psychological safety refers to mitigating the anxiety that people feel whenever they are asked to do something different or new. This anxiety can be a significant restraining force to change. Changing/Transition Whereas unfreezing creates the motivation to change, the changing or transition stage focuses on helping change the behavior of organization members to the new state of affairs. The transition phase consists of three key elements: ending → neutral zone → new beginnings (pp. 4–5). Refreezing This final step seeks to stabilize the organization at a new state of equilibrium and to ensure that the new behaviors are relatively safe from regression (Burnes, 2004, p. 986). Refreezing often requires changes in the organization’s culture and norms, policies, and practices. Gleicher’s Change Equation Formula Gleicher’s change equation formula helps us assess this degree of readiness as follows (Beckhard & Harris, 1987): C = (D × V × F) > R, where C is the change, D the dissatisfaction with status quo, V the vision, F the first steps (feasibility), and R the resistance to change (costs). If we refer to Lewin’s (1946) forcefield analysis discussed earlier, D, V, and F are all “forces for change,” while R represents the “forces against change. ” Gleicher’s change equation formula provides a simple and straightforward perspective that reveals the possibilities and conditions at work in organizational change. Note that all three forces for change must be active to offset the forces against the change, which is usually manifested as resistance to change from organizational members. The change program must address dissatisfaction with the present situation, present a clear vision of the future and what is possible, and demonstrate knowledge of the first steps necessary to reach the vision. If any one of the three is missing, the product of the equation will tend toward zero, and resistance to change will dominate. Nadler’s Congruence Model According to David Nadler (1998), one of the key steps in understanding and managing change is to first fully understand the dynamics and performance of the organization. The model is based on many years of academic research and practical application in a wide range of companies and industries. There are several benefits in using the congruence model (Mercer Delta Consulting, 2003, pp. 10–12): If we use a computer metaphor, at its core, the model depicts both the “hardware” and the “software” dimensions of an organization. The hardware represents the strategy, work, and formal organization—how the firm is organized to coordinate, communicate, and motivate the workforce in accomplishing its vision and goals. The software side of the model makes up the social dimension of the organization—its people and the informal processes (e. g. , shared values) that shape the behavior and performance of an organization’s people. The model helps us understand the dynamics of change by allowing us to predict the impact of change throughout the organizational system. The model helps change leaders see organizations not as inflexible, static structures that produce outputs but as organic, dynamic sets of people and processes that are interdependent. Nadler’s congruence model is an organizational performance model that is built on the view that organizations are systems and that only if there is congruence (“fit”) between the various organizational subsystems can we expect optimal performance. As reflected in the model, the basic components of any organization system include the following elements (Nadler, 1998): input, strategy, output, and operating organization. The transformation process of any organization is composed of four components, or subsystems, which all depend on each other (Nadler, 1998, p. 32): the work, the people, the formal organization (structure), and the informal organization (culture). This model proposes that effective management of change means paying attention to the alignment of all four components, not just one or two. If alignment of each of the components—work, people, structure, and culture—with each other is deficient, then performance will suffer. The greater the fit or congruence, the greater will be the organization’s ability to manage a change process. The model is particularly good for pointing out, in retrospect, why changes did not work. It is important to note that this model is problem-focused rather than solution-focusedand lacks any reference to the powerful effects of a guiding vision or to the need for setting and achieving goals (Cameron & Green, 2004, p. 104). Kotter’s Eight-Stage Change Process Kotter’s (1996) eight-stage model was developed after studying more than 100 organizations undergoing change. The model offers a process to manage change successfully and avoid the common pitfalls that have beset failed change programs. The model provides two key lessons: first, that the change process goes through a series of phases, each lasting a considerable period of time, and, second, that critical mistakes in any of the phases can have a devastating impact on the momentum of the change process. The first four stages focus on the practices associated with “unfreezing” the organization: 1. Establishing a greater sense of urgency 2. Creating the guiding coalition 3. Developing a transformational vision and strategy 4. Communicating the change vision The next three stages introduce many new practices (“change/transition”): 5. Empowering a broad base of people to take action 6. Generating short-term wins 7. Consolidating gains and producing even more change Finally, the last stage is required to ground the changes in the corporate culture (“refreezing”) and make them stick: 8. Institutionalizing new approaches in the culture The model requires that all the stages must be worked through in order—and completely—to effect change successfully. Skipping even a single step or getting too far ahead without a solid base almost always creates problems. It is also important to view the change process as a continuous cycle rather than as a step-by-step progression. More than one step may be activated at any one time. WHY DO SYSTEM FAILURES OCCUR? Increasingly, the failure to successfully implement information systems has less to do with the hardware or software aspects of the new system and more to do with the skills of the change leader and the people and organizational issues related to the change. Research has identified a number of key factors that contribute to IT system implementation failures. We have grouped the key causal factors related to HRIS implementation failures into five main categories: leadership, planning, change management, communication, and training (Blanchard, 2007, pp. 203–204; Kandel, 2007; Lorenzi & Riley, 2000). Leadership Major change is almost impossible without top-leadership support. Lack of executive support is one of the main reasons why HRIS implementations fail. Without this support, organizations lack the funding, approvals, and leadership necessary to properly implement, integrate, and maintain the system. Project managers lacking in leadership skills have also contributed to project failure. Any successful major change initiative must also be driven by a strong and stable project management team. What is needed for successful change is a team of individuals: key executives, department heads, managers, and frontline employees who are committed to the change and who can work together as a team. Project managers lacking in leadership skills have also contributed to project failure (see Chapter 6). Those individuals given the responsibility to manage the HRIS project are often very knowledgeable in HR or IT. However, they cannot lead a major change project effectively unless they possess strong leadership and communication skills. They must be able to communicate clearly, prioritize projects, make tough decisions, manage people effectively, and navigate the political environment (Kandel, 2007). Any successful major change initiative must also be driven by a strong and stable project management team. It would take a superhuman individual to lead a successful change initiative by him or herself. What is needed for successful change is a team of individuals: key executives, department heads, managers, and frontline employees who are committed to the change and who can work together as a team. With respect to leader role and behavior, Higgs and Rowland (2011) identified five broad areas of leadership competency needed in the change process: Creating the case for change Creating structural change Engaging others in the process and building commitment Implementing and sustaining change Facilitating and developing capability Planning Effective planning is essential to change management. Each successful project has a clearly identified project scope and strategy that outline key business requirements and project goals. Additionally, a clearly defined project scope will prevent scope creep (sometimes called project creep) from occurring—an enlargement of the project as it progresses. Inadequate funding and staffing further contribute to project failure. Organizations often consider the initial start-up costs for an HRIS project but fail to consider fully the costs of the change management process, of ongoing training, and of the support and maintenance of new systems. One key resource relates to adequate staff to manage the project. The time requirements needed to manage a project are often severely underestimated. Change Management Change management is an ongoing challenge for HR leaders and organizations. A review of the research literature on change suggests that a large percentage of change efforts end in discouraging results. Experts suggest that the figure may be as high as 70% (Mourier & Smith, 2001; Pascale & Millemann, 1997). In a world where the only constant is change, this poor track record is disappointing to say the least, and it suggests that there is considerable room for improvement in successfully managing change. Communication Effective change communication can make the difference between the success and failure of an HRIS implementation project. No matter what kind of change initiative an organization’s leadership may desire, the change won’t be successful without the support and commitment of a majority of its managers and employees. Getting people “unstuck”—that is, getting them to not only embrace the vision but also change their beliefs and thinking to move in the new direction—is a huge communication challenge. Mercer Delta Consulting (2000) suggests that five key elements make up a persuasive case for change: Reason for the change Vision of the future Plan for getting there Believe change is achievable Clear expectations Communication plays a vital role in the success of change programs. It is difficult to engage everyone based only on communication alone, however. Ideally, people must participate in the process from beginning to end. If the sentiment is that the change is imposed from the top, then gaining commitment will be tough. Training Ongoing, effective training is essential in any change management initiative, particularly when new technology and work processes are involved. At the beginning of the project, a training plan should be developed. This plan should include a complete assessment of the current skills and future requirements for all who will be affected by the change. This plan should include a complete assessment of the current skills and future requirements for all who will be affected by the change. The plan must also include the following: What training will be provided When training will be provided for implementation team members and user groups Who will provide the training—vendors, consultants, staff, or others A plan for training new users and addressing turnover issues A plan for ongoing training, including advanced skills and refresher training A plan for training users in the event of system upgrades or procedural changes The resources needed—financial and human—to provide the training Although some training early in the process is recommended, full training should not be offered until just before the system will be used. One common error is providing too detailed training too early in the learning process. If training is provided too early, users will not retain the material. Additionally, advanced training should be provided in phases, as users become accustomed to performing routine tasks. Training should also be provided in new employee orientation programs. Involving power users can be an effective training technique. Organizations may use individuals who adapt to the new technology quickly to provide one-on-one on-the-job training to those who do not learn the system as rapidly. ORGANIZATIONAL AND INDIVIDUAL ISSUES IN HRIS IMPLEMENTATION Cultural Issues Successful implementation is more than putting in new technology; it often requires a change in the organization’s culture. A wide variety of people and cultural issues play a huge role in any change effort or transformation. Culture can “not only stop a change effort dead in its tracks, it can also propel it to great heights. ” We define organizational culture as a complex set of shared beliefs, guiding values, behavioral norms, and basic assumptions acquired over time that shape our thinking and behavior; they are part of the social fabric of the organization—its genetic code. As such, culture drives the organization and guides the behavior of everyone in that organization—how they think, feel, and act. In other words, the culture forms a behavior template. It’s critical that change leaders fully understand the organization’s cultural profile before undertaking the change. An assessment of a firm’s culture (sometimes called a gap analysis) is a useful tool in ensuring that the correct cultural elements are in place to support and align the strategy or vision, resources, and systems required to follow the road map to change. Whenever there is an incongruity between the current culture and the goals of the change initiative, the culture always wins (Conner, 1998, p. 207). The elements of change can become misaligned for many reasons, but at least two stand out. The change leaders either don’t recognize the need to align the four dimensions, or they do so “only perfunctorily because they don’t understand the implication of the required alignment” (Higgins, 2005, p. 7). We should note that not all four elements need to be misaligned to reduce the effectiveness of the change. The misalignment of the culture, for example, is enough in itself to lead to difficulties in successfully executing the transformation. Culture, although difficult to measure precisely, is a real and very powerful force in organizations. Change leaders can use the information gained through the assessment of a firm’s culture to help guide each phase of the change process, from the unfreezing phase and determining readiness for change to implementing the transformation and then consolidating and institutionalizing the new state. Through careful planning and effective change techniques and processes, change leaders can shape and develop organizational cultures that are in alignment with and supportive of the desired changes. Resistance to Change Both groups and individuals resist change. Michael Beer (1987) captured the essence of why people resist changing old habits: Changes usually mean losses of power as responsibility and accountability are shifted; losses in relationships as new patterns of interaction are demanded by new approaches to management; losses in rewards, particularly status, money, and perquisites as power shifts; and losses in identity as the meaning people make of their work lives is threatened by changes in the firm’s strategy and allocation of responsibility. (p. 52) In the end, what people resist is the loss of control over their lives that they fought so long and hard to create. This sense of loss of control often leads to a lot of uncertainty about the future. One way to help people regain control of their work lives is effective two-way communication. People need to understand what is happening—that change is essential. It is through change that we learn and grow, although not always without pain. (Handy, 1989, p. 28) Another barrier to organizational change related to maintaining the status quo is the tendency for many organizations to develop a comfort level based on their current performance. In addition, Kotter (1996) suggests that change initiatives can encounter challenges because of “inwardly focused cultures, a paralyzing bureaucracy, parochial politics, low levels of trust, lack of teamwork, arrogant attitudes, lack of leadership in middle management, and the general fear of the unknown” (p. 20). We also know that if an organization accumulates a series of failed change initiatives, big or small, expensive or relatively inexpensive, employees can become burned out and cynical. Unfortunately, not many organizations bother to assess why change programs don’t succeed. Instead, they try some other change initiative. By recognizing the mistakes to avoid in managing change, we can better focus on the key success factors necessary to increase the probability of success while trying to avoid some of the key pitfalls—one of which is employee resistance to change. Despite the fact that the new systems are being implemented to improve the efficiency and effectiveness of the HR function, fear and resistance to the new system from HR staff will be common and must be anticipated and addressed. This resistance to a technology change can take many different forms. Employees can overtly resist the changes by refusing to make the change or use the new system. They can also overtly sabotage the new system or engage in a passive-aggressive fashion, where they outwardly support they system while working behind the scenes to defeat the systems change (Marak as & Hornik, 1996). Despite the negative connotations of resistance to change, resistance can provide important feedback to change leaders. Resistance can represent critical feedback about potential problems associated with the change. For example, those who are providing the resistance may possess vital details of problems that will arise if the change is made. Those resisting the change often care passionately about the organization and this passion ignites the resistance. Change leaders may be able to work with these individuals to refine the change, harnessing their energy to redesign the portion of the plan that could have ultimately derailed the change. Resistance can help narrow the focus and hone the change manager’s ability to return to the original focus of the change and help hold him or her more accountable to the change initiative. Resistance may serve as a conduit for increased communication, participation, and engagement. This increased engagement can potentially deliver greater acceptance and success for the change initiative. Resistance can heighten the awareness of change and can raise its prominence in the organization, extending its life. When employees outside the HR department are affected by new technology, as is the case with the introduction of manager or employee self-service components, resistance to the change is also a common source of problems in an implementation. All of these issues can be prevented or addressed with proactive, continuous communication and effective, ongoing training. User Acceptance One approach to improving the odds of convincing people that the change is necessary is to help them understand that the vision for the change is headed in the right direction. It’s important that people understand both emotionally and intellectually why they need to change. Ultimately, acceptance of the new technology and new processes represents project success. Although the technical challenges in implementing any system can be great, it is the people “challenges that cannot be overlooked (although often are) during the implementation phase” of an HRIS (Ruta, 2005, p. 36). Organizations cannot simply rely on the strategy of “if you build it, they will come. ” Change leaders must use appropriate change management techniques to create user acceptance; otherwise, they risk failure. To help us achieve the successful acceptance of an HRIS, we should understand how users will develop and experience the information system (Ruta, 2005, p. 40). End users must be involved and feel ownership of the new system. When future users participate in the planning and acceptance testing of a new HRIS, as well as in the process of converting to a new system, their commitment to the project increases. It may also be a good idea to identify the most resistant users and involve them right from the beginning to gain their buy in (Keener & Fletcher, 2004). Otherwise, they may influence others negatively toward the change. Instituting a phased implementation plan or an initial pilot program can provide a higher comfort level, allowing some users to “try out” the new system and to share outcomes (hopefully positive) with the remaining users. In more complex or highly challenging implementations, Morgan (2000) recommends starting with small steps to increase user acceptance. One of the major obstacles in gaining user acceptance is getting users to try out the new system. Offering rewards to encourage user participation in new systems can be very effective. Research clearly shows that acceptance is improved if information is clearly communicated, if users are involved in the process, and if ongoing training is provided. Not everyone will accept the changes at the same time. User acceptance can be influenced by culture and demographics. CHAPTER SUMMARY The aim of this chapter is to deepen your understanding of change management and the behaviors and organizational factors required for success in implementing an HRIS. To help illuminate the challenges in this effort, this chapter defines change management and the important role effective change management plays in the implementation of any HRIS. The chapter introduces several change models and explains why these are important concepts for today’s HR leaders. The evidence is clear that successfully introducing a major HRIS into an organization requires the effective blend of good technical and good organizational skills. Effective management of change is a critical core competency that management and HR leaders must master. By better understanding the competencies needed to manage change, HR professionals can help in the process of change in organizations. It is interesting for the student to note that Lewin’s (1946) and the action research models are quite similar since both are process models. Process models of change look for emotional, attitudinal, and behavioral changes in employees during the implementation of change. Both Nadler’s congruence (1998) and Kotter’s (1996) eight-stage change model are more structural and describe how change occurs, but they do not explain the processes required for congruence or, in the case of Kotter, there is no explanation of the processes that enter into the eight steps. Basically, the easiest change effort is the one that involves the employee early in the planned change. Research has identified a number of key factors that contribute to IT system implementation failures, including lack of leadership, communication, planning, change management, and training. Finally, change leaders must prepare for the inevitable resistance to change and plan to gain user acceptance. A plan must also be created for ongoing postimplementation review and maintenance of the new system. Lecture Outline CHAPTER 7: Cost Justifying Human Resource Information Systems Investments CHAPTER OBJECTIVES After completing this chapter, you should be able to do the following: Explain why a CBA (cost–benefit analysis) is critical for a successful HRIS project Explain the differences between cost reduction and organizational enhancement as strategies for HRIS investments Explain how using guidelines for approaches for investment analysis will lead to a better HRIS project Identify the various costs and benefits that are in a CBA for an HRIS investment Explain the differences between direct and indirect benefits and costs Describe how to estimate costs and benefits, both direct and indirect Explain the difference between average employee contribution (AEC) and variance estimates for estimating values in a CBA. Understand why the difference between these indices is important for investment analysis. Define and describe utility analysis as being built by alternate CBAs for different outcomes Discuss three common problems that can occur in an HRIS CBA INTRODUCTION An HRIS provides the primary infrastructure used to deliver HR programs, ensure HR regulatory compliance, and produce the metrics that are used to evaluate not only the HR function but also the contribution of the organizations’ human resources to the accomplishment of firm-level strategic objectives. HRIS functionality, the number of programs or functions—such as recruiting, compensation, and job analysis—that are operational using the specific HRIS configuration continues to evolve and to expand. It is not simply shifting paper-and-pencil processes to their electronic equivalents but seeing new capabilities that leverage the advantages of integrated information systems and faster and more capable computing technologies. Statistics measuring the success of HRIS projects are not very encouraging. The failure of systems implementation have been well documented (Browne and Rogich, 2001). Delays in projects and budget overruns, as well as user dissatisfaction, are some of the most common reasons for the failure of HRIS projects. Significant failure rates for the implementation of HRISs in major corporations that indicate HRIS projects need better planning and cost–benefit analysis (CBA) as part of the business case for the justification of the HRIS project. In the 1990s, CBA played only a limited role in HRIS investment decisions. The pending obsolescence of noncompliant systems in Y2K (Year 2000) fueled widespread implementation of new HRIS technology. The result was one of the most concentrated and dramatic shifts in HR practice ever. During this period, purchase decisions were driven by two primary criteria: Did new systems offer the baseline functionality required by the organization in a Y2K-compliant form, and could the systems be delivered and implemented on time? Many decision makers, some of whom are still waiting to see returns from past IT purchases in terms of successes and failures, are wary of new HRIS investments. Without an event like Y2K driving change, justifying new investments in HRIS will require strong business cases, that is, cost–benefit analyses (CBAs). Note to Instructor: It is important that students understand what composes a business case for justification of any organizational acquisition in general (e. g. , purchase of a new piece of equipment). Justification Strategies for HRIS Investments There have been two approaches to justify the acquisition or upgrading of an HRIS: Risk Avoidance Approach Justification: firms use a risk avoidance approach to justify the new HRIS—for example, the need for accurate and timely employee records in litigation (e. g. , EEO litigation). Organizational enhancement approach: firms adopt a new or updated HRIS because it will enhance organization on such factors as employee productivity and morale, as well as increased sales and profits. This approach requires the development of a business case for presentation to management. Evolution of HRIS Justification Due to the Y2K implementation “scare,” HRIS implementations in the past decade have shifted many organizations from administratively intense paper-and-pencil HR processes to electronic transaction processing supported by integrated computer systems. Examples of these applications include the following: employee and applicant self-service, online recruitment, and electronic payroll processing. These and other applications have dramatically reduced transaction costs. Employee self-service alone is reported to reduce the cost of many HR transactions by 50%or more. The next wave of HRIS functionality is unlikely to generate comparable reductions in costs, making investment decisions based on further cost reductions more difficult to justify. However, as is argued in this chapter, the use of an organizational enhancement approach may provide a more powerful strategy in determining the CBA for investment in a new HRIS. Note to instructor: It seems clear that organizations will demand the organizational enhancement approach through the development of business cases for HRIS modifications or acquisition, and this is the central point of this chapter. However, you should also note for the students that risk avoidance may also occur but not the major risk avoidance effects that occurred in the past (e. g. , Y2K implementation). HRIS Cost–Benefit Analysis The following points should be emphasized for this section of this chapter: A CBA is simply what its name indicates—a comparison of the projected costs and benefits associated with an HRIS investment. This comparison means the cost–benefit ratio for the current HRIS must be calculated first. Then, the cost–benefit ratio is estimated for the projected HRIS. The size of the gap between these two cost–benefit ratios is what will affect on the decision to implement a new HRIS or upgrade a current one. A cost is any new outlay of cash required for the initial purchase, implementation, or ongoing maintenance of the investment. A benefit is any financial gain resulting from the investment that occurs at any time during the investment’s useful life. Benefits include both revenue enhancements and cost reductions. At its core, CBA is an analysis of change in the cost–benefit ratio—a comparison of existing circumstances with new conditions that are projected to exist after the HRIS investment. Here are further points to discuss with the students: Organizations differ in the specific financial measures they use to evaluate investments. Organizations may use ROI, internal rate of return (IRR), payback period, or other measures alone or in combination. It can be useful to seek out an internal advisor to help you package your analysis for the managerial decision-making process used in the organization. Typically, this internal advisor will be someone in the finance or accounting department. Regardless of the specific financial measures used in the organization, investment analyses are based on three basic pieces of information: (1) sources of costs and benefits, (2) an estimated dollar value for each cost and benefit item, and (3) the time when the organization will incur each cost and receive each benefit. Estimating the Timing of Benefits and Costs The next step of the CBA analysis is to determine when in time each benefit and cost will be incurred during the entire HRIS project. Organizations use this information to estimate the cash outflows and inflows associated with investments. The task of assigning the benefits and costs to time periods can be accomplished by constructing a simple grid that lists benefit or cost items along one axis and future time periods on the other axis. This will produce a Gantt chart. It is important that students understand the use of Gantt charts, which are the simplest way to monitor costs and benefits over time, so the instructor might want to discuss a simple Gantt chart at this point. Estimating Indirect Benefit Magnitude One of the most difficult tasks in HRIS CBA is estimating the value of the indirect benefits. The difficulty of converting indirect benefit estimates to a dollar metric has limited their role in HR technology investment decisions. The challenge is to provide an estimate of the value of soft, or indirect, benefits and to do so in a way that can be justified to skeptical decision makers. In order to accomplish these indirect estimates, one should break this task into the following three steps: (1) estimating benefit magnitude, (2) mapping benefits to cost or revenue changes, and (3) converting magnitude estimates to dollar values. Using employee turnover is a very good example for estimating indirect benefit magnitude for a new or modified HRIS. If the new HRIS functionality is predicted to reduce turnover, the magnitude of the expected change using turnover rates would be estimated first, usually in a percentage (1). Then, the determination of the dollar value of the differences between the current rate and the expected change rate needs to be done—a difference in terms of percentages (2). Finally, the value of the changed percentage is converted to dollars (3). For example, if a 1% reduction in annual turnover for a company’s sales force will result in a savings of $15,000, then it is a simple matter to multiply the expected difference in percentages between the current and expected rate to get the magnitude of the benefit. Since these benefits are not reported in a dollar metric, current CBAs typically do not include these items in the numeric analysis but will often address them in the narrative discussion supporting the investment Indirect cost reductions involve those changes that are expected to lead to reduced costs. These benefits would fall in box number 4, potential cost reductions through saved staff time, and would include (a) staff time saved but not those reductions that lead to direct reductions in payroll (i. e. , not ones tied directly to reductions in overtime or employee head count); (b) expected reductions in the amount of or requirements for technical support; (c) expected reductions in absenteeism and turnover; and (d) expected reductions in the time required to bring trainees up to the status of fully functioning employees. In many instances, time-saving applications are incorrectly projected to result in reductions in employee head count or FTEs—a direct savings in payroll expenses. More often, though, the deployment of new HRIS functionality results in a new structuring of work that enables the elimination of parts of jobs rather than whole jobs. As a result, the benefit is indirect—a saving of time that can be deployed in other activities rather than a direct saving of the costs of salary and benefits. In the e-learning example, enhancements in training effectiveness are expected to lead to faster learning curves and less time to proficiency. This benefit is expected to result in fewer errors and less rework. Reductions in turnover costs are also anticipated because better-trained employees are expected to have higher satisfaction and remain in their jobs longer. Lower turnover rates for valued employees would have a strong positive effect, allowing the firm to reduce the costs of hiring new employees (see Cascio, 2000). Furthermore, improved access to safety training is also expected to result in less time lost as a result of injuries and reduced insurance claims and worker compensation costs. Consequently, because the effects are indirect, analyses of indirect benefits can be challenging. But in many instances, these indirect effects are the real source of benefits for new HRIS functionality. Being able to identify the indirect effects and understand how they are expected to affect costs and revenues is critical to understanding how to justify HRIS investments. An important advantage of understanding how and where indirect benefits are expected to occur is that it allows the organization to plan and manage HRIS implementations specifically, in ways that make it more likely for indirect benefits to actually occur. Because these benefits are often contingent on other events, knowing what those events are and managing them as a part of the implementation will likely result in greater organizational impact. Implementation Costs Once benefits have been estimated, the analysis can proceed to estimating the costs of implementation. In contrast to estimating benefits, cost estimation is often easier to complete because cost information is readily available and already offered in a dollar metric. In most cases, many sources of implementation costs will be direct. Direct costs will include but are not limited to (a) costs for the initial purchase and updates of software and any additional hardware and (b) ongoing costs for internal or external systems support. In the e-learning example, direct costs include the purchase of any new software, hardware, and licenses required to implement the system, as well as the cost of the expertise necessary to develop and manage training on this new HRIS platform. Indirect costs comprise those areas of cost that cannot be known specifically up front but may arise in the process of implementing the system. These include the impact of the implementation on the organization, such as lost productivity while the organization completes implementation. This impact includes lost productivity for rank-and-file employees, as well as for the HR staff involved in implementation. The e-learning example includes increased use of end-user help desks or other support functions, costs necessary to revamp existing courseware while the organization learns how to use the new system most effectively, and the lost productivity that will occur for any current employees who will be required to take on additional responsibilities associated with the adoption of the new system. It is important to be thorough in attempting to identify all of the sources of cost. If your analysis recognizes some benefit without incorporating an offsetting change in cost, you likely have missed a source of cost in your analysis. The total costs of implementation will depend on the current state of information system development in the organization. These components would include those that are operational within departments concerned with finance, operations, marketing, and information systems, as well as HR. Assessment of these departments’ systems should include evaluations of (a) the current state of their computer hardware, software, data, and processes; (b) user sophistication and networking; and (c) telecommunications technology. New HRIS investments may affect all of these information systems (IS) components. Total cost will be driven by (a) the scope or size of the HRIS implementation; (b) the amount of customization required; (c) the maturity of the HRIS functionality being considered—the less mature the functionality, the greater the costs of implementation and upgrades are likely to be; and (d) the experience levels of the implementers. Methods for Estimating the Value of Indirect Benefits These methods require more effort and some assumptions. They require estimating the strength of the relationship between the change in intermediate outcomes and changes in revenue or cost (e. g. , each new account will generate $50,000 in gross profit annually; reducing scrap by 5% will save $10,000 per month). For other outcomes, such as employee time saved, these conversions are somewhat more difficult to conduct. There are two methods for estimating the value of employee time that have slightly different purposes—average employee contribution and individual employee differences (variance) in work outcomes. Both of these methods are somewhat complicated; however, it is important that students understand the general ideas (1) average employee contribution (AEC) The average contribution approach argues that the AEC in an organization is equal to total gross profit divided by the number of employees, or full-time equivalents (FTE). AEC is not a metric that most organizations track, although a measure of average daily gross margin (i. e. , Revenue −Cost of goods sold) generated per sales person would be an example of this type of measure. This is one of the simplest that captures AEC as accurately as is needed for estimating the value of indirect benefits. The advantage of this method is that it establishes a baseline contribution value by jobs that is consistent with the actual financial performance of the organization. AEC = (Net revenues − Cost of goods sold)÷No. of employees. By definition, in a profitable organization, this number will be substantially higher than (Labor costs − Total employee pay and benefits). Dividing this number by the number of workdays in a year(i. e. , 252) produces an estimate of average daily contribution. (2) individual employee differences (variance) in work outcomes Average contribution estimates, though, provide little guidance in estimating differences in contribution between employees holding the same or similar jobs. These variance differences are produced by a large number of individuals holding equivalent positions. Not all settings allow for the development of these data for AEC. There may not be a large number of people doing similar work, or a job’s content may change frequently. Thus, this is different from AEC and is the basis for utility analyses for developing contrasting cost–benefit ratios. BENCHMARKING Benchmark data on the magnitude of indirect benefits achieved in other firms can be used. The advantage of benchmarking is that it allows an organization to build on the experiences of others. These data can provide evidence that a specific outcome can occur, as well as evidence of its potential magnitude. Howes (2002) offers an insightful example of how benchmarking data can be used to estimate how much reduction in turnover an organization might expect. In this example, benchmark data about industry-wide levels of turnover are used to construct estimates of the potential for improvement in turnover that might be possible for a given organization. If an organization has high turnover relative to industry standards, it has the potential for greater improvement than might be expected for other firms in that industry. Benchmarking information of various types is becoming more widely available from a number of sources (e. g. , Gartner, Inc. , The Hackett Group, the Saratoga Institute, the Society of Human Resource Management, and Harris Associates—see the websites provided in the Appendix). Chapter 7contains a reference to HR metrics that can be used in benchmarking (SHRM, 2010). Organizations can also conduct their own benchmarking studies to gather specific data from targeted firms, data that may not be readily available from third-party sources. Benchmarking is preferred over direct estimation for larger, more costly projects for which investment risks are greater. Benchmarking is also useful when organizations have limited experience with the targeted functionality of the HRIS project or when there is no access to local data. The primary disadvantage of benchmark data is that the experiences of other organizations may not completely generalize to your firm or business unit. A good recent source of information on benchmarking is the SHRM Human Capital Benchmarking Study: 2009 Executive Summary (Dooney, Blackmon, & Williams, 2009). INTERNAL ASSESSMENT Internal assessment involves the use of a firm’s own internal metrics or other forms of the firm’s specific data as the basis for estimates. Use of this method requires that the organization has maintained historic records on previous information system projects. Internal assessment is best done when investment scopes are large, and direct estimation or benchmarking suggests that benefits may not be dramatically higher or lower than costs (e. g. , less than ±30%) Internal assessment provides the most precise estimates of the baseline costs and current performance of existing processes against which to compare potential improvements. However, internal assessments will result in higher costs than direct estimation and, depending on the nature of the assessment, could result in higher decision support costs than benchmarking. The ideal method for estimating the magnitudes of indirect benefits in most HRIS analyses is to use a combination of these three approaches. This permits each benefit to be estimated using the method that is most appropriate given the availability of data and the investment’s cost, risk, and opportunity characteristics. AVOIDING COMMON PROBLEMS IN COST JUSTIFICATION It is not uncommon for HRIS CBA to include an extensive analysis of costs matched with a single source of benefits—typically, an estimate of direct cost reductions. Recognizing only direct cost reductions is problematic for two reasons First, it ignores HR’s more strategic role in improving organizational effectiveness. Secondly, items listed as direct cost reductions are actually indirect cost reductions. Time saved is a prime example. An HRIS will reduce the amount of time required to complete typical HR transactions, but these time savings do not result in actual reductions in overtime or head count. In these instances, time saved is actually an indirect benefit. Its value depends on how individuals spend the extra time made available to them. Incorrectly recognizing time saved as a direct cost reduction creates the wrong expectation among decision makers. This false expectation can lead to the incorrect perception that an investment did not succeed—no reduction in payroll expenses occurred—when, in fact, the benefits to the organization actually occurred in other forms. Importantly, be sure that value estimates assigned to time saved are reasonable. Many HRIS investments purport to save employee time, making it a common component of an HR technology CBA. When new HRIS functionality will save enough time to make it feasible to reduce the number of employees or reduce overtime expenses, time saved is a source of direct cost reduction. However, more often HR technology saves time in smaller increments that do not permit direct savings. That is, the amount of time saved does not permit whole positions to be eliminated. In these circumstances, time saved is an indirect benefit. The value of the time saved actually depends on what value-generating activities employees engage in during the time made available to them. Time saved, though, may not always have value. Consider a situation in which an individual engages in an activity that requires 5 minutes every day, but the application of new HRIS functionality is estimated to cut this time from 5 minutes to 1 minute. What is the value of the 4 minutes saved each day? Therefore, it is questionable whether most employees can consistently use short periods of time (i. e. , blocks of less than 5 minutes, for instance) productively. Thus, it may be very difficult to generate value for HR technology that is expected to save time but does so in many small increments. PACKAGING THE COST–BENEFIT ANALYSIS TO PRESENT TO DECISION MAKERS When you have completed your analysis, you should have (1) data that identify each benefit and cost component examined; (2) estimates of the dollar magnitude of each, including upper and lower bounds; (3) estimates of when the organization will incur each cost and receive each benefit; and (4) documentation justifying each decision you made in developing these values. This process should be done with the entire project management (PM) team since the report must cover the entire HRIS project, not just the investment analysis. A table outlining the value and timing of costs and revenues is likely to be the central focus of the analysis. Some experts encourage limiting the number of sources of benefits presented to decision makers to simplify the presentation and the required justifications. This approach is satisfactory for small projects, which is, for a stand-alone HRIS application, such as applicant tracking, but would be inappropriate for a complex HRIS project. There are several advantages in including all of the cost and benefit components that influence the likely outcomes of the investment decision. First, this offers the most complete, best estimate of the value of the investment, thereby giving decision makers the best information to make an appropriate investment decision. Second, it provides the decision maker with a fuller understanding of the investment and of the impact of the investment on the organization. Particularly with respect to indirect benefits, contingent actions taken by managers are likely to influence the extent to which the estimated benefits will be achieved. Making decision makers aware of these contingencies can help enlist their assistance in ensuring each investment’s future success. CHAPTER SUMMARY The central focus of this chapter has been estimating and understanding the cost-effectiveness dynamics of new investments in HRIS by completing a cost–benefit analysis (CBA). The calculation of a CBA has become critical for any new investment by an organization, as CBAs are closely linked with strategic goals such as profitability and survival of an organization. Without a well-done CBA, it is becoming less likely that managerial decision makers will approve expenditures for new HRIS investments. In the past, investments in an HRIS were primarily driven by a risk avoidance strategy or cost reductions made possible by replacing paper-and-pencil or out-of-date systems. Organization enhancement strategies highlight how firms’ effectiveness will be improved by the addition of a new or improved HRIS, as measured by estimated increases in benefits (e. g. , revenues) compared with estimated costs in a formal CBA. This requires that we change our approach of cost-justifying HRIS to account for these new types of benefits. This chapter also addressed the importance of adopting an appropriate perspective to CBA before any numbers are analyzed, as well as providing guidelines for successful HRIS CBA. An organizational enhancement strategy was shown to be the appropriate approach for conducting a CBA to justify an HRIS investment in today’s organizations. Instructions on how to estimate direct and indirect costs and benefits were covered in detail, with a focus on creating a palatable CBA report for managerial decision makers. The various direct and indirect costs and benefits of an HRIS that go into the CBA have been discussed throughout the chapter. However, identifying the direct and indirect costs and benefits for a CBA is the first step. Next, the direct and indirect costs and benefits must be estimated. This chapter provides example of how to complete these estimates. Both AEC and variance analysis were covered as methods to assess the indirect benefits of an HRIS investment. It was argued that, when possible, both AEC and variance estimates in developing a CBA should be used. However, both approaches to estimation of indirect benefits, as well as the other methods for estimating costs and benefits discussed in this chapter, should be used for postimplementation evaluation of the HRIS. The three common problems that can occur in a CBA were covered: (1) an extensive analysis of costs matched with a single source of benefits—typically, an estimate of direct cost reductions; (2) in many instances, items listed as direct cost reductions are actually indirect cost reductions; and (3) be sure that value estimates assigned to time saved are reasonable. In addition, as recommended in the earlier chapters, the CBA should be documented carefully and completely, as it will be useful in both HRIS project management and HRIS implementation. Lecture Outline Chapter 8: Human Resource Administration and Human Resource Information Systems CHAPTER OBJECTIVES After completing this chapter, you should be able to do the following: Understand the basic role of job analysis in human resources, and explain the role of HRIS in supporting job analysis Discuss the complexity of HR administration and the advantages of an HRIS over a “paper-and-pencil” HR operation Discuss the advantages of having a service-oriented architecture (SOA) for the HRIS Differentiate among the four structural approaches to HR administration service delivery (e. g. self-service portals, shared-service centers, human resource outsourcing, and offshoring) Discuss the advantages and disadvantages of each of the four structural approaches to HR administration Understand how legal compliance with government mandates is an important part of HRIS functionality and how these mandates add to the complexity of an HRIS in both domestic and multinational organizations Discuss the various privacy laws, particularly as they relate to an HRIS Discuss the elements important to successful measurement of the strategic alignment of the HR balanced scorecard and how this alignment is related to the strategic alignment of an organization. INTRODUCTION Human resource management (HRM) administration deals with the efficient performance of the transactional activities introduced in Chapter 1. Recordkeeping, updating policy and informational materials for a self-service portal, generating and disseminating internal reports, complying with governmentally mandated external reporting, and administering labor contracts are all examples of HRM administration associated with managing an organization’s workforce. Research has shown that approximately 65% to 75% of all HR activities are transactional. Human resource information systems (HRISs) are vital tools in managing these increasingly complex transactional requirements. For this reason, it is absolutely crucial that the employee database, frequently referred to as the employee master file, be carefully constructed so that the information is accurate and timely. The employee master file is a record and repository for all relevant employee information and must be created prior to any other modules for programs, such as recruiting and applicant tracking. The approaches and technological techniques described in this chapter ensure that the BEIM, once initially built, remains accurate and up to date. JOB ANALYSIS The aim of an effective HR department is to ensure that the organization has the best available people working in the proper jobs at the appropriate time to maximize the organization’s productive capacity. To do this, however, the organization must know not only what each job entails but also what knowledge, skills, and abilities (KSA) are necessary to perform the job successfully. Job analysis provides the organization with both sorts of information. Job analysis is the process of systematically obtaining information about jobs by determining the duties, tasks, or activities of jobs, from which KSA can be estimated. From this analysis, job descriptions can be developed. Job descriptions define the working contract between the employee and the organization. Job descriptions uses include (1)evidence for any litigation involving unfair discrimination in hiring, promoting, or terminating employees; (2)development of all of the HRM programs, especially talent management in organizations and other important HRM programs, including recruitment, selection, training and performance appraisal;(3) development of compensation structures; and employee disciplinary programs and union grievances. Job descriptions are often termed the “heart” of the HRM system. It is critically important that they be accurate and timely. In addition, to ensure that the above processes are effectively managed, the HR department should capture and store the results of the job analysis and job descriptions within the HRIS. Approaches and Techniques There are variety of approaches to job analysis, but only a general approach to conducting job analyses is discussed in this chapter. Job analysis involves the following general steps: The sources of information about the job must be identified, and this is a starting point. The type of job information or data must be identified. This information can include tasks, duties, responsibilities, knowledge required, performance standards, job context, and equipment used. The methods of collecting the job data must be determined. Interviews, questionnaires, observation, and focus groups can be used. There are standardized techniques for conducting job analysis, like functional job analysis, the position analysis questionnaire system, the task inventory analysis, or the critical incident method. HRIS Applications and Job Analysis The utilization of technology, especially web-based job analysis tools, has dramatically increased the availability of information supporting job analysis and the convenience of conducting job analysis. For example, the O*Net database is an online repository of information on 1,000 broad occupations (http://online. One t center. org), which can be used to help guide in the development of job descriptions. As another example, HR-Guide. com (http://www. hr-guide. com) provides a simple, free job analysis tool for HR professionals (http://www. hr-software. net/cgi/JobEvaluation. cgi). Finally, there are many different vendors who offer these tools as stand-alone products or components of a larger product offering. Completing job analysis and deriving job descriptions can be accomplished through online survey techniques. THE HRIS ENVIRONMENT AND OTHER ASPECTS OF HR ADMINISTRATION HRIS can assist managers charged with improving the efficiency of HR administration by reducing costs, enhancing the reliability of reporting, and improving service to internal customers. Information technology facilitates administration in multiple ways. First, an HRIS can help improve data accuracy by reducing the need for multiple inputs, eliminating redundancies in data, and reducing the opportunity for human input errors and associated corrections. In addition, an HRIS, through relational databases (see Chapter 2), speeds the process of building reports with simple query capabilities. Moreover, an HRIS, if properly designed for flexibility, can support differences in reporting mandated by global governmental jurisdictions. Finally, a properly designed HRIS permits secure global distribution of data while providing the desired privacy for employee data, facilitating consideration of alternative methods of consolidating and improving services to internal customers. HR managers face a variety of other administrative requirements in the rapidly evolving HRIS era. The HRM administrative issues highlighted in this chapter include (1) organizational approaches for providing HR in a global economy (i. e. , self-service portals, SSCs, outsourcing, and offshoring); (2) compliance mandates for record maintenance and report requirements (e. g. , Employer Information Report EEO-1), which are associated both with government laws in the United States (i. e. , Occupational Safety and Health Act [OSHA]) and with the labor laws of other countries; and (3) the measurement of HRM contributions to an organization’s strategic goals via a balanced scorecard. HRM ADMINISTRATION AND ORGANIZING APPROACHES Today, computer hardware and the accompanying software packages offer considerable support for daily HR transactions and make it possible to move beyond the limited administrative approaches available to the HR managers of the 1950s. Indeed, 92% of the companies worldwide included in the 2012–2013 Cedar Crestone HR technology survey indicated the use of some type of HR administrative technology (Cedar Crestone, 2012). Moreover, global companies reported that even with challenging economic conditions, they anticipated growing their technology commitment for strategic human capital talent management, as well as for workforce management, service delivery, and business intelligence. Service-Oriented Architecture (SOA) and Extensible Markup Language “SOA is a paradigm for organizing and utilizing distributed [computing] capabilities that may be under the control of different ownership domains . . . providing a uniform means to offer, discover, interact with and use capabilities to produce desired [business] effects. ”SOA is a collection of internal and external services that can communicate with each other by point-to-point data exchange or through coordination among different services to achieve a business purpose. The architectural benefits of SOA include the following: IT consolidation opportunities and standards-based integration, using a standards-based approach to integration for IT systems that are very complex and heterogeneous to reduce both cost and complexity over time Faster implementation and change management through reuse, modeling, and composite development Improved alignment of business processes and IT implementation Advantages of XML-Enhanced SOA Security is improved—This is especially important because of the privacy protection issues associated with HR data and applications Performance is enhanced—This aids in reducing transaction costs and increased customer satisfaction Auditing capabilities are added—This supports the growing demand to demonstrate compliance with corporate quality and policy mandates Change capabilities are enhanced—This improves reaction time to better meet business-driven change requirements Alternative HR administration structures (e. g. , self-service portals, SSCs, and outsourcing) are facilitated—This encourages HR managers to consider multiple approaches to meeting the HR administration goals of cost reduction and service improvement Typical HRM Administration Service Delivery Alternatives There can be four structural approaches to HR administration facilitated by technology. Each has opened paths to increased efficiency and effectiveness, improved service, and cost controls, possibilities unimagined by HR professionals a decade ago. The four HR administrative approaches—self-service portals, shared-service centers, outsourcing, and offshoring. The self-service portal is an electronic access point to an organization’s HRM information, such as company policies, benefits schedules, and an individual’s payroll data or other records; access may be via the organization’s computers and intranet or remotely from other locations via the Internet. A shared service center (SSC)is a technology-enabled HRM group focused on value creation by providing excellent service to internal customers while reducing costs through increased efficiency and continuous improvement. Human resources outsourcing is the practice of contracting with vendors to perform HR services and activities. Offshoring is an extension of outsourcing that involves contracting with vendors outside a nation’s boundaries to effect additional cost savings or gain other benefits over domestic outsourcing alone. Theory and HR Administration Resource-Based View of the Firm: Barney argued that organizations are bundles of resources, identified as physical capital, organizational capital, and human capital. To achieve sustainable competitive advantage, a firm’s resources, when compared with its competitors, must be valuable, rare, difficult to imitate, and invulnerable to substitutes. Based on this theory, then, it is likely that innovative combinations of technology (physical capital), organizing systems (organizational capital), and strategic individual knowledge, skills, and abilities may serve to give an organization a strategic position in its marketplace. Transaction Cost Theory: suggests that organizations can choose to purchase the goods and services they need in the competitive marketplace or make those goods and services internally. This is the classic “make-or-buy” economic choice facing rational economic actors. Behaving rationally, organizations would make such decisions based on total costs, choosing to “buy” from external providers when total costs were lower and products/services were readily available or choosing to “make” the products/services internally when total costs from external sources were higher or products/services were not readily available. Both theories can explain the different choices organizations make in their preferences for human resource administration approaches. Self-Service Portals and HRIS Employee self-service (ESS) HR portals provide an electronic means for a company’s employees to access its HR services and information. Such portals provide a single sign-on capability for employees, who can complete transactions based on data previously established in records and/or knowledge bases, without HR. In addition to providing an interface for current employees, ESS portals are also available to prospective employees. Manager self-service (MSS) portals are becoming more prevalent in organizations as well. MSS portals are specialized versions of ESS portals designed to allow managers to view extensive information about their subordinates and perform many of their administrative tasks electronically, including traditional HR functions. Advantages of Self-Service Portals for HR Administration Self-service portals improve the speed and quality of service to employees and managers for routine inquiries and changes. Self-service portals reduce inquiry transactions requiring direct HR staff involvement and facilitate keeping information current. Self-service portals enhance employee satisfaction by permitting employees to control when and where such access activities occur. This empowers employees; increases their productivity, especially for those who travel frequently; and offers privacy for those who prefer to handle such matters without the presence of coworkers. Self-service portals facilitate easy, increased access to HR information, helping employees ensure that important personal data, such as individual job performance appraisals used by managers in making decisions about salary increases, promotions, or other employment rewards, are accurate and current. Executives believe that having managers use this more accurate, timely information contributes to improved managerial decisions. Self-service portals help reduce the number of transactions for HR employees and, correspondingly, overall HR costs. Disadvantages of Self-Service Portals for HR Administration Permitting employees to access company data through Internet self-service portals may increase the possibility of security breaches and associated negative outcomes for affected employees, including identity theft. Moreover, employees are concerned that even having their data in company HRIS can lead to misuse of such information by others in the organization. HR administrators may find that unions and managers resist using the self-service portals. In particular, unions may argue that employees are “doing HR work” when they enter data and make changes online via ESS. Managers may also resent having to do work that previously was handled completely by HR staff, particularly when such work previously involved calling the staff rather than completing forms. Shared Service Centers and HRIS SSCs generally appeared in response to the increasing globalization of competitive markets occasioned by proliferation of multinational enterprises (MNEs). To compete successfully, organizations were pressured to reduce costs through the consolidation of administrative transactions while still providing excellent service. Functions in Shared Services: Centralizing/decentralizing of business processes Using economies of scale to reduce unit costs Developing customer relationship models (CRM) to better meet the needs of customers Concentrating on cost reduction to enhance competitive positioning Deploying quality tools to ensure continuous process improvement SSCs must view themselves as an independent business unit offering products. Internal customers are managers in different business units, such as operations and marketing. If the HR function is unsuccessful in reducing costs, providing desirable services, and adding value, it may find itself “outsourced” by business unit managers who perceive that they can get better service and value from an external provider. To demonstrate added value to the organization, SSCs should establish measures that demonstrate customer satisfaction levels, productivity, cost controls, and quality. Advantages of Shared Service Centers for Human Resource Administration SSCs permit HR administration managers to focus on delivering timely, high-quality transactions necessary to fulfill corporate requirements like mandated governmental reporting, particularly in MNEs, which have to respond to labor laws of multiple countries. By combining such transactional responsibilities in a single business unit, organizations can encourage a focus on customer satisfaction for specific user interactions, such as responses to employee questions or requests for assistance, freeing specialists to focus on more strategic activities. SSCs encourage efficiency and standardization to support strategic cost control goals by consolidating individuals responsible for transactions, providing motivation for redesigned and more effective procedures. Such centers facilitate development of measures of efficiency, quality, and customer responsiveness necessary to demonstrate appropriate contributions to strategic goals. Disadvantages of Shared Service Centers for Human Resource Managers Frequently, organizations combine multiple, unrelated shared services into a combined business unit. Depending on the nature of such functions, synergies to consolidate and improve processes may be less prevalent (e. g. , vehicle fleet management and HR transactions). Leaders of such units may be stretched as they seek to unify and manage such functions. Creating shared service centers may lead to unanticipated power shifts in organizations. Shared service centers can lead to depersonalization. Outsourcing and HRIS The third approach to HR administration, outsourcing, is the practice of contracting with vendors to perform HR services and activities. Outsourcing is not new in HR administration. For example, Automatic Data Processing, Inc. (ADP) moved quickly in 1945 to offer its expertise in payroll and tax calculations to businesses facing increasingly complex employee income tax and withholding calculations (Dominguez, 2006). According to the 2012 KPMG Institutes’ outsourcing survey, 31% of participating global firms viewed HR as a top functional area for outsourcing. In addition, 40% of those surveyed were in the process of coordinating new global sources for outsourcing some HR functions (KPMG Institutes, 2012). HR outsourcing (HRO) firms are hardly uniform. There are many different types of providers, reflecting the diverse needs of organizations. HRO firms provided HR services for 3. 3 million employees in North America (Everest Research Institute, 2007). Moreover, for firms that had more than 1,000 employees and revenues of greater than $100 million and that participated in comprehensive outsourcing (defined as more than five human resource functions outsourced), satisfaction with HRO levels increased over time. Of the 310 firms surveyed, HRO satisfaction (on a scale of 1 [not at all satisfied] to 5 [very satisfied]) improved from an average of 2. 9 in the first two years to 3. 4 after two or more years (EquaTerra, 2007). Outsourcing contracts should include specific pricing agreements (e. g. , flat or fixed fee per process or per employee served, unit prices per transaction levels, hourly and overtime rates, revenue sharing, risk-reward sharing, and failure penalties), expected performance and associated measures (e. g. , transaction quality standards, error rates, system availability and downtime, customer satisfaction levels, and hours of operation), and terms and conditions (e. g. , start and end dates, extensions permitted, termination agreements, dispute resolution procedures, and audit procedures). Obviously, HR administration managers would require significant assistance from multiple groups such as the legal, operations, and information systems departments within the organization to establish and monitor the contract, ensuring that the organization is adequately protected from incompetent or unethical outsourcing providers. Reasons to Pursue HR Outsourcing (HRO) Some organizations outsource only discrete or selected functions, pursuing tactical HRO through niche third-party providers. This involves having specialized external firms deal only with a particular HR function. Discrete HRO serves to reduce HR administration employee and HRIS expenses while ensuring the desired strategic outcome that is to hire the right executive and to pay employees correctly on schedule. Multi-process HR outsourcing involves outsourcing all of one or more related HR functions to niche third-party providers. Also known as comprehensive or blended services outsourcing, this total outsourcing of sets of functions reduces the number of specialized HR employees, improves service levels to employees, and reduces HRIS hardware/software upgrades and ongoing maintenance costs. Overall, such an HR administration approach can provide significant cost reduction while maintaining or enhancing service levels. Total HR outsourcing involves having all or nearly all HR functions handled by one or more external vendors. All of the traditional HR administrative and functional activities would be managed through third-party vendors. Employees would contact the vendor for assistance or inquiries directly, without any company HR employee involvement or knowledge. Advantages of HR Outsourcing The advantages of HR administration outsourcing can be both financial and strategic. Strategic advantages to HR outsourcing might include the ability to better focus on a firm’s core business through HR transformation, moving from a historical focus on administrative activities to a strategic business partner perspective. The strategic advantages of HRO might include the ability of the organization to better focus on its core business by transforming the HR function. By outsourcing the simpler, transaction-based function, the HR department can move from its historical focus on administrative activities to a new position as strategic business partner. HRO could free HR professionals to focus on strategic issues, such as talent management, while providing the firm with skilled transactional and professional services in HR functional areas such as compensation and in administrative areas such as governmental compliance and regulations. Moreover, these services would be powered by the up-to-date technology provided by the external vendor. Disadvantages of HR Outsourcing One big disadvantage of HRO is the likelihood that the organization will not achieve its strategic goals. Such a failure could have significant, negative impact on the organization’s ability to survive. Another disadvantage of HR outsourcing includes the loss of institutional expertise in the outsourced functions, making an HR outsourcing decision reversal difficult or impossible. HR organizations may lack the contract management expertise to oversee the vendor and hold it accountable for contract terms, compounding its problems. Additional disadvantages include security risks in multivendor outsourcing, internal employee and manager resistance, compliance failures, and cultural clashes between the organization and its vendors. The effort to bring functionality back inhouse, also known as back sourcing, can be expensive, as firms pay to reorganize twice: first when outsourcing a function and again when back sourcing it. Offshoring and HRIS Offshoring is an expansion of HR outsourcing that includes sending work outside the U. S. to vendors located in other countries. Technological capabilities and global competition have combined to make HR outsourcing a global business, and offshoring in MNEs is quite complex. Types of HR Offshoring When their organizations pursued offshoring, HR managers reported that manufacturing (43%) functions were most common, followed by IT (29%) and computer programming (22%), customer call centers (29%), and HR functions (16%). Offshore ownership may include opening a new subsidiary in the foreign country, entering into a joint venture with an existing firm in that country, or purchasing an existing firm. By comparison, offshore outsourcing is a traditional contractual relationship with an existing firm. Offshore ownership is riskier than simple offshore outsourcing. In addition to appropriate strategic and financial due diligence, organizations considering offshore ownership must pay particular attention to ready availability of necessary employee knowledge, skills, and abilities such as language; information and communication systems compatibility with HRIS; governmental regulations and legal employment requirements such as wage laws; political stability of the country for facility and employee security; and cultural differences such as expectations about participative versus directive supervision. Summary of HR Administration Approaches HR administration managers have a number of approaches that can contribute to the goals of reducing costs, improving efficiency, and increasing service levels for internal customers. It is also important that such alternatives be pursued consistent with each organization’s strategic plan to achieve sustainable competitive advantage in its industry. Moreover, multiple approaches may be appropriate based on those strategic goals. In assessing whether one or more approaches is best, HR administration managers must understand the impact of their decisions on the specific administrative functions to be accomplished. LEGAL COMPLIANCE AND HR ADMINISTRATION The country and its general environmental have the major effect on HRM and the development and implementation of an HRIS (Beaman, 2002). The labor laws provide the foundation of employee protections in the workplace. It is important to recognize that the U. S. employment laws are based on important and general principles used in the practice of HRM. There are a numbers of laws in the U. S. prohibiting unfair discrimination on the basis of employee sex, race, age, and disability. There are also laws and regulations in industrialized nations that prohibit unfair discrimination. The general principle underlying the unfair discrimination laws and regulations is that job performance should be the primary basis for employment decisions that change the employment status of an individual. Since compliance with employment laws and regulations are a critical part of HR administration, provisions for handling the employment laws of multiple countries need to be considered in the development of an HRIS for a MNE. What complicates U. S. employment laws for HR professionals is that the 50 states frequently expand on, adopt rules and regulations that differ from, or add additional protections not covered by federal law. For example, a partial comparison of elements of the Family Medical Leave Act (FMLA) with the federal and state legislation of California and Oregon demonstrates these variations. HR ADMINISTRATION AND EQUAL EMPLOYMENT OPPORTUNITY U. S. Civil Rights Act of 1964, Title VII, and the EEO-1 Report Title VII of the Civil Rights Act of 1964 provides the requirements for such equal employment opportunity. Under the statute, it is illegal for employers with 15 or more employees working 20 or more weeks per year to “(1) fail or refuse to hire or discharge any individual with respect to his compensation, terms, conditions, or privileges of employment because of such individual’s race, color, religion, sex, or national origin, or (2) limit, segregate, or classify his employees or applicants for employment in any way that would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee because of such individual’s race, color, religion, sex, or national origin. ” Employers who engage in business with the federal government and have contracts valued at $50,000 or more must comply with additional requirements that include providing a written affirmative action plan (AAP) to the Office of Federal Contract Compliance Procedures (OFCCP). Congress expanded protection against illegal discrimination in employment in 1967 on the basis of age (i. e. , persons over 40) by the passage of the Age Discrimination in Employment Act. The Americans with Disabilities Act (ADA) of 1990 extends protection to individuals with disabilities. EEO-1 Report (Standard Form 100) The Equal Employment Opportunity Commission (EEOC) was charged with gathering data, investigating alleged violations, and bringing legal charges against employers who failed to comply with Title VII requirements. Accordingly, all employers with 15 or more employees must keep records regarding their compliance with the law based on occupational category (i. e. , professional, technical, managerial, or craft) by sex and race/ethnicity. EEO-1 and HRIS Smith (2006) suggests that the recent changes to the EEOC guidelines will be the most sweeping change in the history of the EEOC, as workers are asked to reclassify themselves based on the new EEO designations and organizations pour through job descriptions to classify individuals into the new work categories. Potential system changes required by the updated EEO-1 report include the following: Track race separately from ethnicity (e. g. , Hispanicor not Hispanic) Separate codes for Asian and Native Hawaiian or Other Pacific Islander Modify limitations on reporting only one race (e. g. , individual may be black and Asian) Ensure queries can identify all individuals in a particular category (e. g. , American Indian), even when individuals self-identify as two or more race categories. EEOC is encouraging online reporting of the EEO-1 and, simultaneously, discouraging manual reporting (EEOC, 2006). Without an HRIS, the amount of paperwork required to be in compliance with all federal and local employment laws and regulations would be overwhelming. The HRIS applications software helps to greatly reduce this complexity. Occupational Safety and Health Act (OSHA) Recordkeeping OSHA primarily established, in the general duty clause of the law, that employers must provide a workplace free of known hazards likely to cause death or serious injury. The National Institute for Occupational Safety and Health (NIOSH) researches and publishes safety and health standards under the law. For all businesses with 11 or more employees, OSHA compliance officers are required to arrive unannounced for an OSHA inspection. The inspector then proceeds to (Noe, Hollenbeck, Gerhart, & Wright, 2004) review employer records of workplace deaths, injuries, and illnesses; conduct on-site inspections of the work premise and note observed violations; conduct employee interviews to elicit any safety concerns; and discuss findings and violations or issue citations to the employer. Failing to correct violations or maintain required records can result in substantial fines and jail sentences for employers. OSHA Form 300 (Log of Work-Related Injuries and Illnesses) and HRIS All covered employers are required to notify OSHA within 8 hours of any accident involving either a fatality or an in-patient hospitalization of three or more employees. In addition, all covered employers must complete an annual OSHA Form 300 recording all reportable work-related injuries and illnesses. Form 301 (Injury and Illness Report) is used to record supplementary information about reportable cases. Finally, Form 300A (Summary of Work-Related Injuries and Illnesses), which displays total injuries and illnesses for the year, must be posted for all employees to view. HR administration managers must be aware of daily activities and any safety problems in order to meet OSHA Form 300 regulations and ensure that up-to-date records are available for OSHA inspections. Technology, HR Administration, and Mandated Governmental Reporting The increasing use of HRIS is essential to accurate, timely recordkeeping and reporting for both EEO and OSHA mandates. For organizations with centralized HRM, either operations employees or managers would be required to do the report at each remote location. However, this waste of productive time is substantially reduced by the presence of an HRIS in the following ways: HRIS records can be established coincident with the employee application, including optional self-reporting of EEO race/ethnicity and sex data. No separate input functions are required unless corrections are needed. Self-reported data is likely to be more accurate and is preferred for compliance reporting. Simple queries of the HRIS database can secure required employee job classification, sex, and race/ethnicity in the EEO-1 format if desired. Required information can be secured in minutes, with minimal HR employee involvement, rather than days or weeks required to manually review records, compile the information, and forward it to a centralized location for further compilation. HR employees can handle the complete reporting function without interrupting productive time in operational units. Changes in mandated reporting requirements (e. g. , increase in numbers of job classifications) can be handled mechanically by HR, without involvement of field employees. Electronic reporting (i. e. , computer to computer) can ensure timely receipt or reports. An HRIS, augmented by HR portals (i. e. , ESS and MSS) and shared service centers, can substantially improve accuracy and timeliness of mandated governmental reporting while reducing productive hours wasted on administrative work. Similarly, HR portals, shared service centers, and even outsourcing can facilitate OSHA recordkeeping and reporting, reducing costs and enhancing timely reporting. The laws safeguarding personal privacy have added more requirements to the HRIS software and often updates are needed due to court decisions or modifications to legal guidelines. The initial federal privacy law was the Privacy Act of 1974, which allowed employees to review their personnel records, but the law applied only to federal agencies. Most states have extended this law to apply to all organizations, public and private. The Fair Credit Reporting Act of 1970 permits applicants and employees to know of the existence and context of any credit files maintained on them. The Family Education Rights and Privacy Act – The Buckley Amendment of 1974 prohibits educational organizations from supplying information about students without their consent and gives students the right to inspect their educational records. The Electronic Communications Privacy Act of 1986 was enacted to protect private information being communicated via electronic means. The law specifically prohibits the interception, recording, or disclosure of wire, electronic, and aural communications through any electronic, mechanical, or other device. It is highly recommended that employers create and disseminate policies indicating when employees can be monitored when using the employers’ electronic media. It is wise to have employees sign a form indicating they have read and understand the policy. All of this need for security and privacy directly affects HR administration within the context of an HRIS. It is most important that the employee database be secure, and this means limiting access to individuals by use of passwords. The underlying principle for database security and individual employee privacy is the “need to know” rule—only persons with a “need to know” can access specific personnel records and reports. These laws may differ significantly from country to country, which would add more complexity to an HRIS for a multinational enterprise (MNE). HR STRATEGIC GOAL ACHIEVEMENT AND THE BALANCED SCORECARD Kaplan and Norton (1992, 1996, 2006) recognized that an organization could no longer rely solely on simple financial measures to assess its ability to achieve sustainable competitive advantage. They devised the balanced scorecard to facilitate the organization’s efforts to measure its success in achieving strategic goals required to meet the needs of its stakeholder groups. A balanced scorecard is both a management and measurement system that “enables organizations to clarify their vision and strategy and translate them into action . . . [providing] feedback around both the internal business processes and external outcomes to continuously improve strategic performance and results” (Arveson, 1998). Kaplan and Norton (1996) defined the four components of the balanced scorecard as financial, customer, internal business processes, and learning and growth. Inclusion of these components reflects an organization’s commitment to balance its strategic goals, reflecting expectations of its multiple stakeholders. HRM and the Balanced Scorecard HR professionals understand the impact effective human capital management has on an organization. However, unless measures to reflect the value-added nature of HRM in leveraging human capital are developed and linked to the strategic goals reflected in a firm’s balanced scorecard, it is unlikely that organizations will view such activities as strategic. A leading indicator is a predictor of future outcomes (e. g. , on-time order delivery), whereas a lagging indicator shows what has already occurred (e. g. , customer satisfaction level). Thus, to ensure on-time order delivery required to retain customers, HR professionals must understand the internal business process and identify HR functions (e. g. , training) that can be employed to improve the process (e. g. , increased productivity) and increase the probability of the desired strategic outcomes (customer retention). HR Scorecard, Its Measures, and Its Alignment With the Organization’s Balanced Scorecard Consider the following hypothetical example: HR professionals want to identify the processes and measures that support the strategic goal of customer retention. The steps they might take are as follows: Specify the business strategy to be supported (e. g. , customer retention). Identify leading (e. g. , on-time order delivery) and lagging (e. g. , customer satisfaction level) indicators. Identify associated internal processes (e. g. , worker productivity and product quality). Identify HR linkages (e. g. , training and rewards). Specify the HR strategy (e. g. , offer enhanced productivity training for workers to reduce product time to market and ensure on-time order delivery). Measure worker productivity increase, on-time deliveries, and reduction in customer complaints to demonstrate the strategic value of HR training in the “Customer” and “Learning and Growth” balanced scorecard categories. A leading indicator is a predictor of future outcomes (e. g. , on-time order delivery), whereas a lagging indicator shows what has already occurred (e. g. , customer satisfaction level). Thus, to ensure the on-time order delivery required to retain customers, HR professionals must understand the internal business processes involved in this retention and identify the HR function (training) that can be employed to improve these processes (i. e. , to improve productivity) and increase the probability of the desired strategic outcome (customer retention). HR Scorecard and Balanced Scorecard Alignment In recognition of the importance of alignment between the organization’s balanced scorecard and HRM strategic initiatives, researchers (Becker et al. , 2001) have suggested that HR professionals develop an HR scorecard as a means of establishing measures for HR that reflect such alignment. HR measures should reflect a balance of cost controls (e. g. , improved productivity) and value creation (e. g. , increased innovation) consistent with the business balanced scorecard and strategic goals. HR administration managers can make decisions that support strategic goals contained in the balanced scorecard. SUMMARY This chapter discussed the relative value of the HR administration module versus a traditional, “paper-and-pencil” approach to HR administration. In addition, the chapter discussed the various options available in the implementation of an HR administration module, including HR portals, shared services, outsourcing, and offshoring. Each of these approaches was considered in detail, and its advantages and disadvantages were outlined. The chapter also briefly discussed the flexibility that organizations have in implementing the HRIS. For example, HR portals may be combined with SSCs and selective outsourcing or offshoring to achieve the optimum solution for a particular firm. Instructor Manual for Human Resource Information Systems: Basics, Applications, and Future Directions Michael J. Kavanagh, Richard D Johnson 9781506351452, 9781483306933