Integrated enterprise resource planning (ERP) software solutions became synonymous with competitive advantage, particularly throughout the 1990's. The idea behind ERP systems was to replace "islands of information" with a single, packaged software solution that integrates all traditional enterprise management functions like financials; accounting; payroll; human resource (HR) management; and manufacturing and distribution, and thereby ensure enterprise-wide transaction system coherency. Knowing the history and evolution of ERP within the broader enterprise applications concept is essential to understanding its current use and its future developments. The following is the genesis of enterprise applications by era.
By the time each functional area of a company had developed its integrated software program, the need for tightly integrating them became obvious. The next major shift during the late 1980s and early 1990s was that "time to market" was becoming increasingly short, as the shift from Fordist' mass production to nowadays' prevailing mass-customization (see Glossary*) principles and mindset has irreversibly changed the society and economy standards. Lead times expected by the market continued to shorten and customers were no longer satisfied with the service level that was considered world class only a few years earlier. Also, by the 1980s, competition from Japanese manufacturers and their philosophy has caused US and West European enterprises to look for new efficiencies using information technology.
Namely, customers were demanding to have their products delivered when, where, and how they wanted them. Companies were therefore compelled to develop and embrace the philosophies of just in time (JIT) and closer supplier partnerships as a way to remain competitive. During the same time frame, the cost of goods sold (COGS) was shifting drastically from labor to purchased materials. Consequently, planners needed to know materials allocations or finished goods' available-to-promise (ATP) values, immediately after customer order entry. On the other hand, buyers needed to know the sales plan several months in advance in order to negotiate prices for individual materials. Empowerment of employees was needed to provide the agility that was required to compete in the market.
Hence, the need to develop a system with tightly integrated programs that would use data stored on one common database and would be used enterprise-wide (such as, actions in one department's program driving actions elsewhere), became the highest priority for IT professionals. No longer was it tolerable to submit a request to the IT department and wait several "man-months" of programming time to obtain this critical information. This common-database, company-wide integrated system was named enterprise resource planning (ERP), as companies realized the need to see the entire picture.
This is Part Two of a six-part note.
Part One covered developments from the 1960s through the 1980s.
Part Three will discuss the 2000s.
Parts Four and Five will discuss ERP evolution.
Part Six will look at the future.
*There is a Glossary for the terms italicized throughout this article.
ERP Defined
APICS still defines ERP as follows:
"1) An accounting-oriented information system for identifying and planning the enterprise-wide resources needed to take, make, ship, and account for customer orders. An ERP system differs from the typical MRPII system in technical requirements such as graphical user interface (GUI), relational database management system (RDBMS), use of fourth-generation language (4GL), and computer-aided software engineering (CASE) tools in development, client/server architecture, and open-system portability;
2) More generally, a method for the effective planning and control of all resources needed to take, make, ship, and account for customer orders in a manufacturing, distribution, or service company."
Given many new very recent functional and technological developments, which will be analyzed in other upcoming articles, many may rightly consider certain parts of the above definition as somewhat outdated or not all encompassing. In general, the second part of the definition holds true, given traditional ERP involves software packages that by and large automate and support the processes of the administrative, production, inventory, and product development aspects of an enterprise.
Impact of the PC
Further on, the cost of technology continued to plummet and the advent of the personal computer (PC) revolutionized once again the face of business management systems. At a fast pace, the large inflexible mainframes were replaced by new client/server technology. The power of these small PCs exceeded the power of the large mainframes that were routine only a few years earlier. It became possible to run a fully integrated MRPII system on a small PC. Still, these systems have trickled down slowly from large to smaller enterprises. Many manufacturing enterprises were not computerized in the 1980s, which is largely true even nowadays in the segment consisting of a great number of small workshops that still go by with little or no computerization at all.
IT, however, gained momentum in the 1990s, when PCs become even cheaper, software more sophisticated, and companies become more amenable to using technology. The changing pace of technology had once again leveraged forward the planning and control systems in recognition of a real business need. In addition, unlike previous evolutions, the ERP software vendors offered these critical business applications also to non-manufacturing companies, which sell "know-how" rather than physical products.
ERP is far more than just MRPII which runs on a client/server architecture, given it encompasses all the resource planning for the enterprise including product design, inventory management, material planning, capacity planning, quality control, forecasting, budgeting, purchasing, distribution, reporting tools, and communication systems, to name but a few. These critical business issues affect not only manufacturing companies but also all companies that desire to achieve competitiveness by best utilizing their assets, including information. In other words, ERP systems should help companies become leaner by integrating the basic transaction programs for all departments, allowing quick access to timely information. However, ERP inherited MRPII's basic drawbacks, which are the assumption of infinite capacity and the inflexibility of scheduling dates, preventing companies from taking full advantage of speedy information flow.
SOURCE:
http://www.technologyevaluation.com/research/articles/enterprise-applications-the-genesis-and-future-revisited-part-two-1990s-enterprise-resource-planning-17229/
Wednesday, August 18, 2010
Performance and Compensation Management at the Core of Human Capital Management?
While decades have been spent investing in automation technologies for better use of tangible assets, only recently have enterprises begun to invest in optimizing human capital. Tactical and administrative human resources (HR) management is morphing into strategic human capital management (HCM).
Part Three of the series Thou Shalt Manage Human Capital Better.
Some might argue that HCM revolves around better performance management and employee compensation. As the economy continues to rebound and talent wars intensify, companies have been increasingly leveraging traditionally elusive "pay-for-performance" technologies that successfully automate and link compensation planning with business and employee performance. Practically every organization regularly reviews the performance of its employees, which most managers confess to be a chore that is ironically the centerpiece of their existence. In other words, most managers hate personnel reviews, and many procrastinate until the HR department or the employees "scream." Since no employees can get a pay raise until they get a review, HR departments implement systems to automate and force the review process as a means to address this.
The aim of performance management systems is to both automate the employee review process and link reviews to organizational performance. The aim is to ascertain whether employees are taking definitive steps to achieve their determined performance goals; whether there are succession plans in place for top managers; what kinds of skills the organization will need in the next few years; and so on. Those are the kinds of questions (and hopefully appropriate answers) that performance management systems should put on the desktops of both managers and employees.
Performance management systems often include or feed into compensation (sometimes also called employee incentive management [EIM]) systems in order to more justly distribute merit-based pay increases. Before deploying such a system, managers would customarily review employees annually around their date of hiring, often with the result that well-deserving employees would not get the increase they deserved simply because the pool of available money had already been spent by the time they received their reviews. Surprising or not, compensation represents more than 60 percent of total corporate expenditures, yet most Global 2000 firms are still not properly rewarding their highest-performing workers. The aim is now to complete employee reviews at the end of the fiscal year, and also manage the merit expense budget by reviewing all performance scores before distributing the pay increases. Additionally, such systems are useful for obtaining a twelve-month view of employee performance, versus focusing too closely on the period that immediately precedes the review. The customary "defeat the purpose of performance review" experience of many managers has been that the company would set the parameters for pay raises and salary ranges at "budget time," and then expect managers to predict the percentage raises individuals would receive, so that the money would be in the budget when time came to review the employee.
More comprehensive performance management systems nowadays include a stronger link to upstream business goals and objectives, as well as a tighter connection to rewards, including merit pay, short-term variable incentives such as bonus or commission awards, and longer-term incentives such as stock grants. Some vendors offer succession-planning software that builds on performance and training systems to identify likely candidates for jobs further up the food chain. Again, the aim is to turn people into a competitive advantage and to ensure that there are programs that pay for performance and reward people for achieving goals that move the enterprise forward. These outlined capabilities should help users not only hire a higher-quality employee, but also better track that employee's performance, and establish a stronger link between the employee's performance and compensation. Enterprises want to be able to raise the bar for high performers while placing low performers on a performance improvement plan.
One illustration could be at an apparel retailer that often fell short of expectations with the launch of a new line of jeans, which prompted it to decide to test market jeans fitters who had been trained through e-learning about the products, how to fit jeans on women, and how to give the best advice. The project purportedly returned a 75 percent increase in revenue, since the fitters began receiving an incentive every time a pair of jeans was sold. There was a performance management solution in the background telling them how they were doing according to their goals, whereby learning, performance, and incentives were all tied together in an integrated way to drive corporate revenue and performance.
For background information see in Thou Shalt Manage Human Capital Better and Tactical Human Resources Evolves into Strategic Human Capital Management.
Leading Vendors
Leading vendors in this space include Authoria (which recently acquired Advanced Information Management [AIM], a provider of compensation management), SuccessFactors, Halogen Software, Workscape (including recently acquired Performaworks), FirstDoor.com, Callidus Software, Centive, Ceridian, HRsmart, Kadiri, ProAlt Technologies (now both part of Workstream Software), Softscape, Kenexa, and enterprise resource planning (ERP) giants SAP, Oracle, and Lawson Software.
In July, Lawson announced the acquisition of Competency Assessment Solutions (CAS), a provider of performance management solutions for the health care industry to comply with reporting standards set by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). Compensation management aligned with individual performance management creates a true pay-for-performance environment, and leaders in this realm are tying the workforce to organizational goals and productivity, such as revenue per full-time equivalent employee (FTE). Developing competency models for each work position can be time-consuming and costly, but once conducted, these models can be leveraged across the entire HCM realm to improve the quality of new hires, compel desired employee performance, facilitate employee development, and assist in the development of succession plans. In other words, the entire employee life cycle (acquiring, developing, managing, and measuring performance) can be facilitated.
To recap, HCM has evolved beyond the simple automation of business tasks to the more complex streamlining of traditional HR processes and increasing of efficiencies in the broad management of human capital. Strategic HCM solutions can help organizations transform their people into a competitive advantage by aligning managers and employees with corporate goals of driving business value. Authoria reportedly recently spoke to more than 200 senior HR executives and asked them about their top "pain points." Leading this list was aligning employee goals and corporate goals, paying for performance, and developing top talent. Trying to accomplish these important objectives in a pedestrian way has proven to be equal to finding the fountain of youth or the holy grail. Conversely, well-devised HCM strategies and methods should help execute these priorities and make these initiatives successful.
Moreover, Genesys recently released the results of its HCM trends survey. The vendor's web-based suite PeopleComeFirst streamlines HR, benefit administration and payments, payroll processing, self-service, competency-based learning management, performance management, recruitment, and time and attendance (T&A), and it can be implemented as either human resources outsourcing (HRO) services or as licensed software. According to respondents of the survey, the top HCM priorities for 2006 included talent and leadership development, combined with talent acquisition and retention (45 percent), performance management (21 percent), and streamlining processes (18 percent). In addition, 18 percent of respondents also indicated that aligning people and business goals would be an important priority in the coming year, which shows that the attention of HR departments is increasingly centered upon becoming process experts and improving business processes, focusing on talent acquisitions and subsequent management, and providing better data for decision making. Moreover, 38 percent of respondents indicated that budget expectations over the next 12 months for HR technology and outsourced solutions would increase, by as much as 9 percent in some cases, thereby enabling funding of the services and tools required to support these top priorities.
Evidence of a Shift in HR Applications
Each year, the CedarCrestone HCM survey also provides the latest data on workforce technologies and service delivery approaches worldwide. The early-2006 survey found that there is now a statistical and causal relationship among key HCM applications and operating income growth. Those four applications are workforce planning, competency management, learning management, and an HR-oriented help desk (call center). However, succession planning shows opportunities for improvement, and this is the area that users cite they would like more help on from IT solutions. Logically, the processes and people that are seen as part of strategic core competencies and competitive differentiators are retained in-house. Conversely, non-core and non-strategic services like payroll, US 401(k), pensions, and benefits administrations are frequently outsourced, as well as hardware technology components.
Consequently, there are many indications that strategic HCM applications have moved to the forefront of enterprise application priorities, replacing the prior focus on core transactional systems and employee self-service. Waking up to the realization that their workforce is one of the most critical, yet perhaps one of the most unexploited sources of competitive advantage, and the recognition of the need to align business and individual performance goals (along with better tools to accomplish this) has been driving HCM investments in many companies.
Again, this increase in demand is a result of a shift from a compliance-driven human resource community to an emphasis on human resource management as a strategic differentiator for organizations. In the modern global economy, success (or even survival) depends on critical human factors such as recruiting and retaining the best talents; successfully leveraging skills, knowledge, and competencies; and adapting to change (for instance, by anticipating and planning new positions, job requirements, training, careers, and succession). To this end, HCM software packages should equip organizations with the means to analyze the workforce and strategically manage the company's human capital. They should at the same time serve as a conduit for information to employees, with comprehensive access to their HR information (meaning the ability to view and update such data as address, dependents, benefits, payroll information, and education) and corporate HR information (such as job openings and training enrollment).
When no clear enterprise HCM strategy is in place, managers often formulate their own departmental plans and adopt the technologies they feel they need to support individual and group responsibilities for enterprise performance. Such a situation, where managers bypass the remiss corporate HR organization to define and implement their own technologies and practices to support HCM, was termed HR disintermediation by Gartner.
SOURCE:
http://www.technologyevaluation.com/research/articles/performance-and-compensation-management-at-the-core-of-human-capital-management-18740/
Part Three of the series Thou Shalt Manage Human Capital Better.
Some might argue that HCM revolves around better performance management and employee compensation. As the economy continues to rebound and talent wars intensify, companies have been increasingly leveraging traditionally elusive "pay-for-performance" technologies that successfully automate and link compensation planning with business and employee performance. Practically every organization regularly reviews the performance of its employees, which most managers confess to be a chore that is ironically the centerpiece of their existence. In other words, most managers hate personnel reviews, and many procrastinate until the HR department or the employees "scream." Since no employees can get a pay raise until they get a review, HR departments implement systems to automate and force the review process as a means to address this.
The aim of performance management systems is to both automate the employee review process and link reviews to organizational performance. The aim is to ascertain whether employees are taking definitive steps to achieve their determined performance goals; whether there are succession plans in place for top managers; what kinds of skills the organization will need in the next few years; and so on. Those are the kinds of questions (and hopefully appropriate answers) that performance management systems should put on the desktops of both managers and employees.
Performance management systems often include or feed into compensation (sometimes also called employee incentive management [EIM]) systems in order to more justly distribute merit-based pay increases. Before deploying such a system, managers would customarily review employees annually around their date of hiring, often with the result that well-deserving employees would not get the increase they deserved simply because the pool of available money had already been spent by the time they received their reviews. Surprising or not, compensation represents more than 60 percent of total corporate expenditures, yet most Global 2000 firms are still not properly rewarding their highest-performing workers. The aim is now to complete employee reviews at the end of the fiscal year, and also manage the merit expense budget by reviewing all performance scores before distributing the pay increases. Additionally, such systems are useful for obtaining a twelve-month view of employee performance, versus focusing too closely on the period that immediately precedes the review. The customary "defeat the purpose of performance review" experience of many managers has been that the company would set the parameters for pay raises and salary ranges at "budget time," and then expect managers to predict the percentage raises individuals would receive, so that the money would be in the budget when time came to review the employee.
More comprehensive performance management systems nowadays include a stronger link to upstream business goals and objectives, as well as a tighter connection to rewards, including merit pay, short-term variable incentives such as bonus or commission awards, and longer-term incentives such as stock grants. Some vendors offer succession-planning software that builds on performance and training systems to identify likely candidates for jobs further up the food chain. Again, the aim is to turn people into a competitive advantage and to ensure that there are programs that pay for performance and reward people for achieving goals that move the enterprise forward. These outlined capabilities should help users not only hire a higher-quality employee, but also better track that employee's performance, and establish a stronger link between the employee's performance and compensation. Enterprises want to be able to raise the bar for high performers while placing low performers on a performance improvement plan.
One illustration could be at an apparel retailer that often fell short of expectations with the launch of a new line of jeans, which prompted it to decide to test market jeans fitters who had been trained through e-learning about the products, how to fit jeans on women, and how to give the best advice. The project purportedly returned a 75 percent increase in revenue, since the fitters began receiving an incentive every time a pair of jeans was sold. There was a performance management solution in the background telling them how they were doing according to their goals, whereby learning, performance, and incentives were all tied together in an integrated way to drive corporate revenue and performance.
For background information see in Thou Shalt Manage Human Capital Better and Tactical Human Resources Evolves into Strategic Human Capital Management.
Leading Vendors
Leading vendors in this space include Authoria (which recently acquired Advanced Information Management [AIM], a provider of compensation management), SuccessFactors, Halogen Software, Workscape (including recently acquired Performaworks), FirstDoor.com, Callidus Software, Centive, Ceridian, HRsmart, Kadiri, ProAlt Technologies (now both part of Workstream Software), Softscape, Kenexa, and enterprise resource planning (ERP) giants SAP, Oracle, and Lawson Software.
In July, Lawson announced the acquisition of Competency Assessment Solutions (CAS), a provider of performance management solutions for the health care industry to comply with reporting standards set by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). Compensation management aligned with individual performance management creates a true pay-for-performance environment, and leaders in this realm are tying the workforce to organizational goals and productivity, such as revenue per full-time equivalent employee (FTE). Developing competency models for each work position can be time-consuming and costly, but once conducted, these models can be leveraged across the entire HCM realm to improve the quality of new hires, compel desired employee performance, facilitate employee development, and assist in the development of succession plans. In other words, the entire employee life cycle (acquiring, developing, managing, and measuring performance) can be facilitated.
To recap, HCM has evolved beyond the simple automation of business tasks to the more complex streamlining of traditional HR processes and increasing of efficiencies in the broad management of human capital. Strategic HCM solutions can help organizations transform their people into a competitive advantage by aligning managers and employees with corporate goals of driving business value. Authoria reportedly recently spoke to more than 200 senior HR executives and asked them about their top "pain points." Leading this list was aligning employee goals and corporate goals, paying for performance, and developing top talent. Trying to accomplish these important objectives in a pedestrian way has proven to be equal to finding the fountain of youth or the holy grail. Conversely, well-devised HCM strategies and methods should help execute these priorities and make these initiatives successful.
Moreover, Genesys recently released the results of its HCM trends survey. The vendor's web-based suite PeopleComeFirst streamlines HR, benefit administration and payments, payroll processing, self-service, competency-based learning management, performance management, recruitment, and time and attendance (T&A), and it can be implemented as either human resources outsourcing (HRO) services or as licensed software. According to respondents of the survey, the top HCM priorities for 2006 included talent and leadership development, combined with talent acquisition and retention (45 percent), performance management (21 percent), and streamlining processes (18 percent). In addition, 18 percent of respondents also indicated that aligning people and business goals would be an important priority in the coming year, which shows that the attention of HR departments is increasingly centered upon becoming process experts and improving business processes, focusing on talent acquisitions and subsequent management, and providing better data for decision making. Moreover, 38 percent of respondents indicated that budget expectations over the next 12 months for HR technology and outsourced solutions would increase, by as much as 9 percent in some cases, thereby enabling funding of the services and tools required to support these top priorities.
Evidence of a Shift in HR Applications
Each year, the CedarCrestone HCM survey also provides the latest data on workforce technologies and service delivery approaches worldwide. The early-2006 survey found that there is now a statistical and causal relationship among key HCM applications and operating income growth. Those four applications are workforce planning, competency management, learning management, and an HR-oriented help desk (call center). However, succession planning shows opportunities for improvement, and this is the area that users cite they would like more help on from IT solutions. Logically, the processes and people that are seen as part of strategic core competencies and competitive differentiators are retained in-house. Conversely, non-core and non-strategic services like payroll, US 401(k), pensions, and benefits administrations are frequently outsourced, as well as hardware technology components.
Consequently, there are many indications that strategic HCM applications have moved to the forefront of enterprise application priorities, replacing the prior focus on core transactional systems and employee self-service. Waking up to the realization that their workforce is one of the most critical, yet perhaps one of the most unexploited sources of competitive advantage, and the recognition of the need to align business and individual performance goals (along with better tools to accomplish this) has been driving HCM investments in many companies.
Again, this increase in demand is a result of a shift from a compliance-driven human resource community to an emphasis on human resource management as a strategic differentiator for organizations. In the modern global economy, success (or even survival) depends on critical human factors such as recruiting and retaining the best talents; successfully leveraging skills, knowledge, and competencies; and adapting to change (for instance, by anticipating and planning new positions, job requirements, training, careers, and succession). To this end, HCM software packages should equip organizations with the means to analyze the workforce and strategically manage the company's human capital. They should at the same time serve as a conduit for information to employees, with comprehensive access to their HR information (meaning the ability to view and update such data as address, dependents, benefits, payroll information, and education) and corporate HR information (such as job openings and training enrollment).
When no clear enterprise HCM strategy is in place, managers often formulate their own departmental plans and adopt the technologies they feel they need to support individual and group responsibilities for enterprise performance. Such a situation, where managers bypass the remiss corporate HR organization to define and implement their own technologies and practices to support HCM, was termed HR disintermediation by Gartner.
SOURCE:
http://www.technologyevaluation.com/research/articles/performance-and-compensation-management-at-the-core-of-human-capital-management-18740/
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