Friday, June 19, 2009

The Modelling Approach to Post-implementation Agility in Enterprise Systems

Model-based Architecture:One way to approach the requirements of changing an implemented enterprise resource planning system would be via so-called model-based architectures. These are application development frameworks that allow software applications to be described in terms of what they must do (the business view of the software) rather than how they must do it (the technical view of the software). Such an approach puts the emphasis on designing the business processes and the business rules up front, to make sure that business functionality is complete and correct before coding begins. For a discussion of the challenges faced in changing an enterprise system post-implementation, see The Post-implementation Agility of Enterprise Systems: An Analysis.

Part Two of the two-part series The Post-implementation Agility of Enterprise Systems: An Analysis.

The modelling approach allows visualization of the intended solution so that business analysts, users, and developers can ensure that business needs are met before implementation in software code renders changes difficult and expensive to make. Using this model, the framework automatically generates the executable application, instead of a programming team manually converting the specifications into software. This code generation increases development efficiency and typically allows generation onto a range of platform choices. For more information, see What's Wrong with Application Software? A Possible Solution—What Is It, Why And How Does It Fit Into Your Future?.

On the other hand, an organization-wide information warehouse (as an intrinsic part of the enterprise transactional backbone system rather than a separate information "twin tower") has to provide such intelligent availability to data throughout the system. The applications should thus reside within a single shared environment in which metadata (data about data) is defined once and made available immediately to financial, procurement, project costing, HR, payroll, and other applications. This data model not only serves as a shared repository of information for the applications, but also acts as an automatically defined "catalogue" for a range of specialized reporting and information delivery tools. In other words, fully integrated analysis, reporting, and communication facilities (with user-defined business views in an "anytime, anywhere, anyway" manner) are becoming a given in people-, project-, and service-centric organizations. Only by providing all these elements within an integrated ecosystem and context can one hope to achieve a rapid response to change.

Increasingly, central governments worldwide are mandating the use of computer automation and the Internet, in order to link and manage the agencies under their authority, and to enable better employee empowerment. The idea is also to enable better provision of local services and accountability to local authorities, boroughs, cities, towns, and ultimately, end users (citizens). In addition, local authorities, health care, or emergency services have an obligation to report their performance to larger governmental units, whether they are states, provinces, cantons, or the central governing bodies. These bodies, in turn, have to publish the results to the electorate. Thus, public officials not only must provide online services to their clientele, but must also be able to retrieve, amalgamate, and report data on the success of their agencies and the status of their progress toward information automation. They require a complete view of management information at all times to make effective judgments about resources and service delivery. Therefore, software applications in support of the public sector must be integrated across all processes, and they must support the internal aspects of the agency or governmental body in its management of data, people, finances, and its particular mission—as well as the public that should, at the end of the day, benefit from the body's charter.

Furthermore, applications using model-based architectures are built on business processes and rules, which allows business analysts to understand and make customizations to the application without compromising the quality of the application. This also obviates complex switches and parameterized tables for configuring the application with simple changes to rules. Custom applications can be built rapidly for very unique businesses or business functions, and such architectures allow for less complexity in the code and significant automation of the software code development, which promises significantly increased application quality.
Service-oriented Architecture Siren Song Danger:As seen in Architecture Evolution :From Mainframes to Service-oriented Architecture, the service-oriented architecture (SOA) concept should (in theory) be able to help businesses respond more quickly and cost-effectively to changing market conditions by reconfiguring business processes. It should eventually enable agility, flexibility, visibility, collaboration with trading partners (and between functional and information technology [IT] departments), and so on, by promoting reuse at the coarser service (software component) level, rather than at the more granular (and convoluted) object levels. In addition, SOA (again, in theory) should simplify "plug and play" interconnection and usage of existing IT assets, including the legacy assets.

According to Forrester, from the vantage point of business drivers, the concept should in the long run enable users to adapt their system to processes (and not vice versa); improve system intuitiveness and usability; deliver relevant analytics; connect to external data and services; and leverage readily available best practices and industry knowledge within the vendors' repositories. In the technology lingo, SOA should reduce custom coding through configuration; promote open standards to reduce integration costs; enable end user self-sufficiency (meaning no reliance on nerdy programmers); and provide more flexibility to use best-of-breed products (possibly within composite applications).

Data published in InformationWeek on September 4, 2006 concurs with the above findings. According to a survey conducted by InformationWeek Research, 72 percent of companies hope to achieve increased flexibility in application development by moving to SOA; 61 percent hope to create service-oriented applications faster; 58 percent are aiming at increased software modularity; and 32 are aiming at greater potential for customization.

Still, in addition to still-maturing (and sometimes even conflicting) commonly accepted standards, challenges facing SOA implementation include managing disparate software metadata repositories (meaning frequent data rationalization and replication), disparate software abstraction incompatibility, and appropriate levels of security. Directing and supplying information on the interaction of services can be complicated, since the architecture relies on complex multiple messaging that opens the door to messy code and broken communication, on top of potential non-compliance with government regulations. The flexibility of SOA poses security threats, since these applications engulf services, especially those external to company firewalls. The services are thus more visible to external parties than traditional applications, which is why businesses must set policies to protect who can see exactly what information.

Problems can also arise when users try to connect services that were not developed in the exact same manner, which is very likely if this not controlled within a certain vendor's ecosystem. One of the key goals of SOA is to remove hardwired, purpose-written point-to-point links and replace them with generic links centred around business functions and processes. However, to achieve this, new software components such as orchestration and workflow engines, communication adapters and translators, testing tools, and service locators have to be added to the already complex architecture. Such large, mega implementations might be another opportunity for the consulting giants like IBM that hope to make a small fortune on SOA projects, which rekindles a sense of d�j� vu with respect to the pre-year-2000 (Y2K) salad days. Considering the probable expensive and disruptive upgrades with unproven benefits (and the fact that vendor hype is forging ahead of actual SOA capabilities), many prospective customers might at this stage see these projects as yet another exercise in IT department futility.

Ironically, although seen as helping heterogeneous and legacy environments rejuvenate themselves, SOA might function best within a homogenous domain and context, where data and processes are well aware of each other, as in the case of the Agresso Business World (ABW) or Epicor for Service Enterprises products. Lawson Software has also recently embarked on a major SOA-based product rewrite called Landmark, where the idea is to automatically generate product code (and services), and to avoid the possible SOA traps mentioned above, since the code generator will have all the validation rules and constraints within the context of the scope for the Lawson S3 product (see A New Platform to Battle Software Bloat?).
These provisos aside, we still have a ways to go before post-implementation change becomes a solid, controlled process with built-in management and quality, while providing the business user visualization and evaluation of potential modifications. Ideally, it should assist the business user to understand what the system will look like and how it will operate after the change—in order to avoid surprises and rework, and further user acceptance. The full impact of any change must be known in advance, including the impact on the system, and the cost and time required to make the change. This should be reflected in the "total system," including documentation, user manuals, help text, and so on, as such information will facilitate the management process. However, most of the current SOA developments are far from the promised nirvana of new product releases that will allow any modification to be easily re-evaluated and re-applied as necessary at a realistic time, cost, and quality—to say nothing of modifications that evolve with the needs of the business and the advances made by the vendor.

To recap, while SOA does facilitate standardization, allow for loosely coupled software components (services) assembly and integration, accommodate customized portal-based presentation, and thus perhaps facilitate integration, it is not yet a panacea. Hence, it is a fallacy to expect that the mere concept will turn rigid products written in ancient code into flexible applications providing analytic information that has not been natively enabled, and like benefits. To radically change, the underlying product has to be either properly architected from the ground up (as with Agresso, which likes to compare its agility to a chameleon's ability to adapt to the environment), or totally rewritten in new, modern languages and technologies. For more information, see Rewrite or Wrap-around Old Software. Without true modernization of underlying applications, the SOA embellishments will largely be analogous to "putting makeup on a pig."

While in theory, one can abandon the existing infrastructure and go to an ideal, agile applications world, this will not prove practical for the vast majority of heterogeneous environments. For most of us, the IT world is a mix of multiple applications, technologies, and so on, and the preferred architecture will be the one that can rationalize business processes without ripping out the current investments that most companies have made in applications.

Summary and User Recommendations

Change happens, and it will always happen in virtually every business environment. The underlying enterprise system should thus be an aid to changing the business, rather than an obstacle, as is the usual case today. The enterprise system architecture of the future should accept and assist in the reality that business changes and software must change with the business. User companies do need best practices, but they also need "differentiating practices" and the ability to respond to the needs of customers, employees, and trading partners. Modification projects are often very large, but to be responsive, the applications must be economically changeable for small and large requirements alike.

Software as a Service's Functional Catch-up

One should not readily dismiss software as a service (SaaS) as an effective solution for front-office functions only (that is, e-mail, messaging, calendaring, and similar team-oriented collaboration functional nuggets), or for juvenile purposes like managing personal web sites or music and movie downloads. SaaS solutions are emerging to address nearly every "mission critical" business application need. These needs range from financial and accounting, asset management, and human capital management (HCM) applications to supply chain management (SCM) and channel management solutions.

Part Three of the series SaaS-ing the Manufacturing Opportunity.

In fact, while in many sectors functional depth, vertical orientation, and customization remain works-in-progress for SaaS vendors, there are certain realms of HCM (recruitment, employee performance management, expense management, talent management, human resources [HR]/payroll, eLearning, and compensation management), where SaaS solutions have quite a deep functionality (at least on par with that of on-premise solutions) and serve the largest, most complex organizations in the world. Authoria, Taleo, and Ultimate Software, in addition to the earlier mentioned ADP/Employease and Centive, are only some companies worth mentioning here. For more information, see Thou Shalt Manage Human Capital Better.

Along similar lines would be the on demand collaborative e-procurement, sourcing, spend management, vendor on-boarding, or contract management providers like Ketera, Procuri, or Frictionless Software (now part of SAP). Procuri, for example, offers on demand software for spending analysis, supplier management, sourcing, and contract management. Emptoris, which recently merged with contract management vendor diCarta, offers a similar array of supplier relationship management (SRM) software that users can opt to deploy on premises or via a SaaS model.

A good indicator that the market for back-office and SCM SaaS solutions is growing could also be the increasing number of application providers adding their names and solutions to THINKstrategies' SaaS Showplace online directory (www.saas-showplace.com). While the uptake has thus far been too fast for one to remain current with the latest number of available solutions therein, there are presently a few dozen SaaS providers in such software categories as accounting and financial management applications and various e-commerce providers. In addition, there are also over a dozen enterprise resource planning (ERP) and SCM solution providers, and even several offering some niche manufacturing SaaS applications. Among the forty or more software categories listed in the SaaS Showplace directory, some of the more notable ones include call center management; dispatch management; document management; project portfolio management (PPM); product lifecycle management (PLM); and web analytics.
Manufacturers and Distributors are Checking Out Software as a Service:There are a growing number of indications that manufacturing and distribution enterprises of all sizes are looking into hosted software for such core supply chain functions as demand planning and factory scheduling. This interest stems from the need of these companies for tools to streamline business-to-business (B2B) processes across increasingly distributed supply chain networks. Web-centric environments are not new to manufacturers (see Differences in Complexity between B2C and B2B E-commerce), since online B2B trading hubs and exchanges mushroomed during the late 1990s. Many have meanwhile ceased to exist, but some, such as E2open, thrive today as community marketplaces and SaaS hubs for trading partner collaboration in terms of order and inventory management, supply chain visibility, spend consolidation, demand/supply synchronization, and eco-compliance management. Some might remember that this company began as a trading exchange for high-tech companies in mid-2000, at which time IBM led the formation of a consortium that included Nortel, Solectron, Toshiba, Hitachi, Matsushita, Seagate, and Panasonic.

CommerceHub would be an example of a focused SaaS provider in the tricky realm of drop-shipping; see A Drop-ship Enablement Pioneer Leads the Way. Global trade management (GTM) and similar applications that entail event management and visibility in a dispersed environment seem to lend themselves well to on demand deployment (see article on TradeBeam, Confronting Core Global Trade Problems: Order, Shipment, and Financial Settlement). Since 2005, Revionics has been offering SaaS pricing management and optimization capabilities for its retail customers.

Newcomer Mitrix is something of a hybrid, since its on demand SCM Live suite includes collaborative features such as private trading communities, but the vendor also has more traditional on-premise SCM functions including forecasting, inventory management, fulfillment, and logistics. Headquartered in Irvine, California (US), the company currently manages over $250 million (USD) in supply chain transactions across eight countries. The start-up software company has an interesting pedigree. It is a subsidiary of Japanese conglomerate Mitsui & Co., which built the Mitrix system to handle supply chain activities for its assorted business units. Mitsui USA, founded in 1966 and headquartered in New York City, New York, is a leading international trading and service enterprise with an extensive global network consisting of eleven local offices and over ninety subsidiaries and affiliated companies across the United States.

Certainly the hosted, multi-tenant software model might be relatively new to the computationally intensive SCM world, whose users traditionally have needed the speed and power of a memory-resident client/server application, but even that is beginning to change. Broader availability of wireless and broadband products has improved access and performance, while web services' application programming interfaces (APIs) have helped streamline application integration efforts. In addition, technologies such as Asynchronous JavaScript and XML (AJAX) as well as related part-and-parcel technologies of the Web 2.0 generation are letting developers add functional bells and whistles to the user experience while reducing data transport and response time requirements. Consequently, vendors lately have built SaaS applications that offer such traditional SCM features as distribution and transportation requirements planning, inventory optimization, material and transportation sourcing, and advanced planning and scheduling (APS).
JRG Software, which CDC Software (a Ross Systems' parent) acquired in early 2006, is tackling one of the more computationally intense elements of SCM. Namely, JRG's OnePlan is an on demand solution for factory planning and scheduling that combines an interactive graphical planning environment with integrated business intelligence (BI). This combination enables the real-time creation, sharing, and monitoring of production plans across a manufacturing organization. In other words, OnePlan offers web-based factory planning and scheduling applications aimed at helping companies improve store fulfillment rates, trim order-to-production times, and respond more quickly to all-too-common demand fluctuations.

As a good example of coexistence of on demand and on-premise solutions, Wise Snacks, a renowned maker of snack foods in North America, needed a solution to address production delays and high overhead costs resulting from the company's highly variable production schedules. The company also sought to reduce the overall investments in finished goods inventory. Because of frequent schedule changes, one of the biggest problems for Wise Snacks was simply the amount of time required daily to create and modify schedules. To that end, the company selected the OnePlan Factory Scheduler to address this problem with a vision of making the plant more efficient while also cutting costs. The solution was also selected because of its low up-front costs and lower overhead for ongoing maintenance enabled by the on demand, SaaS application. Within ten weeks, OnePlan was reportedly fully implemented, integrated to the existing JD Edwards ERP system, and live in production. After one month in production with the OnePlan production scheduler, Wise measured several immediate benefits including

* Scheduling times reduced from six hours to one hour,
* Inventory levels decreased by 28 percent,
* Short (incomplete) shipments reduced by 95 percent,
* Lengthy line changeovers across packaging and processing lines reduced by 35 percent,
* Labor costs reduced by $600,000 (USD) annually, whereby much of the scheduling staff has been redeployed within operations.

More Vendors Offer Supply Chain Management SaaS:Among the most recent additions to the SCM SaaS landscape is Kinaxis (formerly Webplan) with its new web-based, on demand RapidResponse Response Management service that enables brand owners and contract manufacturers to respond to possible changes in product demand and supply. Kinaxis has long delivered the on-premise Response Management software to drive operations performance in today's complex manufacturing world, and the product has recently been enabled for SaaS delivery. By responding more rapidly to constant volatility and real-world variances in demand, supply, capacity, product, and daily operations, Kinaxis's RapidResponse supersedes the need for traditionally tardy and complex supply chain planning (SCP) systems by enabling quicker collaborative response and operations action aligned with corporate objectives.

Customers use the product to gain multi-enterprise visibility and to drive swift response to change across their supply chains, as the software empowers action teams with a single view of the truth and real-time collaborative what-if analysis of action alternatives. Action teams are able to respond with more speed and confidence, thereby reducing costs, shrinking cycle times, and increasing customer service levels, which have been reported by global companies like Casio, Coty, Honeywell, Jabil Circuit, Raytheon, and Benchmark Electronics. For more information, see Can Webplan Reconcile Planning and Execution? and Supply Chain Vendor Morphs into SCEM with Response Management Vision.

In a recent supply chain spending survey, AMR Research reported that 26 percent of surveyed companies were considering on demand service offerings. Similar findings came from Aberdeen for such areas as network design and strategic inventory optimization; supply chain execution (SCE); trade compliance; SCP; data quality monitoring and cleansing; data mining and analytics; supplier on-boarding; and others. Both confirm the market trends, which one should expect to see accelerating over the coming months and years (see Software as a Service beyond Customer Relationship Management and Sales). Times and mindsets have changed and moved on from the days when most companies felt that their information technology (IT) operations and business applications were strategic assets. Namely, today's economic and competitive pressures make nearly any form of outsourcing fair game, as many companies now consider a range of IT functions and business applications to be commodities rather than core competencies.

To that end, as long as the quality and reliability of SaaS solutions continue to improve, the appeal of SaaS will not go away—quite the contrary. Hence, nearly every established software vendor is being forced to rethink its traditional approaches and determine how to overhaul the ancient application business models in order to join the SaaS movement. Not only do they have to painstakingly redesign their products, but they must also revise their sales and financial models to accommodate the SaaS, pay-as-you-go fee structures. They also need to rebuild their corporate cultures to make them more service-oriented rather than product-centric, which is no small feat given the myriad of cultural, business model, technology, and service and support transitional issues. What's more, these vendors must try to avoid cannibalizing their existing software business in the process.

On Demand Compensation Management Partnerships for Spiffed-up Success

As an early entrant in the enterprise incentive management (EIM) and on demand sales compensation software arena, Centive is committed to and focused on the software as a service (SaaS) delivery model only. The vendor remains determined to maintain its leadership position in this new market, as well as to expand its offerings in the on demand-sales compensation space. For more background, please see On Demand Delivery Compels a Compensation Management Vendor and The Compelling Capabilities of One Compensation Management Vendor's Solution.

Partnering up for Spiffed-up Success

As momentum for Centive's Compel continues to grow, the solution has sparked interest from a wide variety of business and technology partners. The most prominent result of this flurry of new interest was the May 2006 announcement of the availability of Compel for Salesforce.com's AppExchange—Centive Compel for AppExchange. With this development, Centive has become a certified solution partner of Salesforce.com, the leading on demand, customer relationship management (CRM) vendor.

Salesforce.com customers can now deploy Compel within their Salesforce.com implementations. The solution will provide these users with an at-a-glance look at interactive dashboards that display quick summaries of key sales performance indicators with a single-click, drilldown capability. Built on the AppExchange on demand platform, Compel for AppExchange has since been available for test drives and deployment at http://www.salesforce.com/appexchange. More recently, Centive has become active within the Salesforce.com Incubator Program, which opened in January 2007 in San Mateo, California (US) for a number of selected independent software vendor (ISV) partners.

Centive Compel for AppExchange is 1 of more than 430 applications created by Salesforce.com and its customers and partners that are now available on the Salesforce.com AppExchange—the world's first on demand application platform. AppExchange (renamed Apex and bolstered by its own namesake programming language) provides ease of customization and integration for Salesforce.com deployments, and enables a slew of on demand applications that go beyond the realm of CRM. Apex enables all of these on demand applications to be easily shared, exchanged, and installed with one or a few clicks into a customer's Salesforce.com account. For instance, Compel ensures a single sign-on with the Salesforce.com application, and is displayed as a commissions tab in the Salesforce.com interface.

In addition to the Salesforce.com Apex certification, Compel features integration with other CRM systems (albeit via either comma-separated value [CSV] files or Web-service integration) to enable sales representatives and managers to forecast compensation based on opportunities within their pipelines. This integration provides customers with full automation of the sales life cycle. Branded as From Prospect to Paycheck�, the following phases are involved: qualify, forecast, strategize, close, commission, and payroll (that is, from the point of pipeline initiation through to the commission paid to the sales person).

This integration of opportunity-based earnings and actual commission earnings is aimed at ensuring sales representatives stay focused, aligned, and motivated to close the right business. While sales representatives should be able to more easily forecast their commissions and identify those deals that will maximize individual earnings in a given period, sales management becomes equipped with real-time access to key performance indicator (KPI) metrics to help them better manage their assigned teams.
Through a much tighter integration with the Apex application programming interfaces (APIs), Compel imports pipeline opportunity data to enable sales associates to forecast commission and bonus earnings for current periods. Compel applies import filters, such as estimated probability, amount, seats, stage, completed milestones, and close dates, to allow users to select opportunities that meet specific pipeline criteria.

For example, users can forecast opportunity-based earnings associated with a predicted opportunity close date in the current period, as well as a number of additional days, such as the current month plus sixty days. Compel then calculates projected participant earnings, and processes the associated commission value of these opportunities according to the plan rules, taking into account such factors as reaching higher ramped tiers or hitting accelerators. From their sales dashboards, sales folks can narrow the base filter with criteria specific to their needs. Once the filter is set, Compel automatically saves it, and applies this filter to future opportunity imports. The personal earnings forecast, which becomes more accurate, enables sales associates to better prioritize opportunities and maximize commissions; it motivates sales representatives to keep their pipeline records up to date.

In October 2006, American Express Incentive Services (AEIS), a business-to-business (B2B), prepaid card industry leader, joined with Centive to offer prepaid AEIS cards as a special incentive reward, or sales performance incentive funding formula (SPIFF), option in Compel. AEIS, a joint venture between American Express Travel Related Services Company Inc. and Maritz Inc., provides B2B reward solutions, including prepaid cards, American Express Gift Cheques, and a Web-based reward management tool. Its products address a broad array of applications, such as employee reward and recognition, sales incentives, and consumer promotions, while helping clients drive consumer and employee behaviors, build loyalty, and increase brand awareness.

AEIS's prepaid cards provide Compel customers with a SPIFF option that is distinctly separate from a standard cash reward. A SPIFF is a small, immediate bonus for a sale, and traditionally, SPIFFS are paid, either by a manufacturer or an employer, directly to a salesperson for selling a specific product. However, unlike cash, AEIS cards may be customized and personalized, and can direct recipients' spending options to ensure that the reward is memorable, and that it has some sentimental value, too. A couple of examples of customization options include the ability to control card spend through AEIS's DirectSpend filtering process, and the ability to design a card face to feature a company logo, program theme, and participants' names. With such customization options, reward earners are reminded how they earned the card and who gave it to them every time they open their wallets.

Compel enables users to build SPIFF programs via the product's automated SPIFF Builder. With SPIFF Builder, users can quickly design their programs, choose an AEIS prepaid reward card as the reward option, and launch the program to the participants. The AEIS reward solution for Compel is seen as suitable for such sales incentive and dealer-distributor programs as sales contest SPIFFs, bonus payouts, dealer-distributor SPIFFs, training certifications, new business developments, sales lead referrals, salesperson performance recognition, etc. The idea here is to motivate sales people to deliver measurable results for the business.
Will Centive's Momentum Allay the Concerns of the "Doubting Thomases"?

Following the CompCentral divesture, some observers have rightfully assessed Centive's strategy as risky, given the fact that Compel alone now has to gain a sufficient subscription base to sustain Centive's business as well as any future product development or organizational expansion. The CompCentral business had previously produced most of Centive's revenue, and it even helped fund Compel. But only a minority of Centive's headcount was transferred to Incentive Technology Corporation (ITC). In other words, the staff and investment needed to market, service, and develop Compel will be relatively high initially in proportion to its revenue. The remaining Compel-based revenue streams will be relatively limited in the near future because of the nature of the SaaS market, which is subscription-based, and typically has smaller size deals than the on-premises counterparts.

To allay those concerns somewhat, Centive announced in November 2006 that the number of subscribers to Compel had surpassed the 10,000 mark. As a true indicator of leadership status, Compel has been selected and deployed by more chief financial officers (CFOs) and vice presidents (VPs) of sales than any other on demand sales compensation management system.

The vendor measures its on demand space leadership using many yardsticks, including product functionality, product maturity, number of customers, average customer size, awards, and coverage by the press and analysts. Namely, in addition to surpassing the 10,000 subscribers mark with about 50 corporate customers, Centive is also tracking up in terms of the average number of subscribers per Compel customer. In 2006, that number has reportedly increased by 26 percent, to an average of over 200 subscribers per customer. Compel is now deployed at companies ranging from those with as few as 20 sales representatives to those with over 1,000.

In December 2006, Centive announced MoreMentum, a program designed to help companies gain sales momentum by getting more out of their sales incentive programs. To this end, Centive will provide new Compel customers with free, personalized AEIS cards for use with their SPIFF programs. The MoreMentum program was available to new customers through the end of February 2007. In addition, Centive announced its own "More-Mentum"—a series of real world measurements that should validate the vendor's leadership position in the sales compensation market.

In November 2006, companies such as McData, UTStarcom, Flowserve, SPX, and BBUP completed deployment of Compel. Additionally, in the fourth quarter of 2006 alone, 17 companies, including IKON, ADIC, Knology, Cars.com, and Wolters Kluwer—representing more than 3,000 subscribers—selected Compel to automate their sales commission processes. The momentum continued into early 2007, with new customers that include well-known brands such as McKesson, ChoicePoint, and WebEx. At the same time, new "live" customers in February 2007 included Cars.com, Isymmetry, Intervoice, and the Asia-Pacific division of Quantum.

Product Development and Deployment Partnerships

For better performance and a richer user experience, Centive uses Flex technology from Adobe Macromedia for Compel's user interface (UI) instead of the more commonly used asynchronous JavaScript and XML (AJAX) technology in peer on demand applications. The technology's form elements (expandable and contractible, as required) in Centive Compel's UI, which business analysts use to build compensation plans, make it easy to arrange plan components and unnecessary to fill out a single, cumbersome form. Further, Centive uses technologies from Oracle, Microsoft, and BEA Systems for a strong and secure system performance.
Compel is hosted at a top-security, carrier-grade site that is SAS 70 Type II certified by Ernst and Young, and owned and operated by Computer Sciences Corporation (CSC), as mentioned in On Demand Delivery Compels a Compensation Management Vendor. SAS 70 is an auditing standard designed by the American Institute of Certified Public Accountants (AICPA) to enable an independent auditor to evaluate and issue an opinion on a service organization's controls. The service auditor's report contains the auditor's opinion, a description of the controls placed in operation, and a description of the auditor's tests used to determine operating effectiveness (if the report is a Type II). The audit report can be shared with the service organization's customers (user organizations) and their respective auditors. The service organization is responsible for describing its control objectives and control activities that would be of interest to user organizations and their respective auditors.

Also, while Centive has a back-office staff of nearly thirty individuals who are involved in all aspects of product development, upgrades, updates, and deployments, the vendor also has partnerships with many outside organizations for additional deployment services, customer service, and support. One of the more longstanding partnerships is the one Centive has with Compensation Technologies (www.compensationtechnologies.com). Compensation Technologies is a provider of services for planning, implementing, and supporting a user company's incentive compensation infrastructure. In addition to EIM system deployment services, the firm offers such solutions as needs assessment, requirements planning, business case development, administration support, and outsourcing.

In early 2006, Centive formed a strategic alliance with Southborough, Massachusetts (US)-based Theikos (www.theikos.com)—a provider of CRM-related services and solutions—based on its expertise in sales, marketing, and customer service operations and automation. Under the terms of this relationship, Theikos has been referring Centive Compel to new and existing customers, and providing deployment services to help customers automate the holistic sales process (that is, the previously mentioned From Prospect to Paycheck) to enhance forecasting and to improve sales performance. The firm, which was founded in 2000, and which is a gold-level Saleforce.com partner and leading AppExchange developer, provides implementation, development, and outsourcing services, as well as value-added software solutions.

As Centive's strategy is to form a limited number of strategic partnerships with leading management consulting firms to ensure that all of its customers receive the highest possible levels of service and support, mid-2006 saw a number of additional pertinent alliances. To that end, Centive signed a joint sales agreement with Dallas, Texas (US)-based MW Advisors, LLC (www.mwadvisors.com), a management consulting and technology services firm focused on helping clients accelerate sales through its marketing, selling, employee performance, and technology practices. MW Advisors, with offices in over a dozen major US markets, provides solutions to clients across North America as well as internationally. The provider's clients represent a variety of industries, and range in size from small and medium-sized, private businesses to publicly traded, global companies. MW Advisors has added Centive Compel to its list of solutions offered to its clients.

A similar joint sales agreement was signed at about the same time with Atlanta, Georgia (US)-based GrowthCircle (www.growthcircle.net), a management and technology consulting firm with a dedicated practice in Salesforce.com implementations. In early 2007, MW Advisors and GrowthCircle announced a merger. The new company, Astadia, provides Centive with trained human resources that cover a broader spectrum of territories and vertical markets.

Centive also entered into a joint sales partnership agreement with Atlanta, Georgia (US)-based Profiling Solutions (www.profilingsolutions.com), a systems integration (SI) firm that delivers expertise and tools to streamline and improve customer interaction and retention. The firm has been a reseller of ACT!, Sage CRM, Sage CRM SalesLogix, KnowledgeSync, QlikView, and Centive, and offers a broad suite of solutions and best practices for businesses of all sizes and industries. As a partner, Profiling Solutions will implement and provide deployment services for Centive's Compel sales compensation management solution to new and existing customers using SalesLogix sales and help desk automation software.

Finally, while not providing specific company names, Centive reports it has been actively developing relationships as of April 2007 with potential partners to support international expansion. Several Centive customers use Compel's multicurrency capabilities now to pay their international sales force. Centive claims its plan is to engage and train a select group of partners that will be able to provide sales and services support for international customers.

This is part three of the series On Demand Delivery Compels a Compensation Management Vendor. In the next and final part, Centive's game plan for establishing itself as a leading vendor in the EIM-SaaS market space encompasses a host of strategies, which will be discussed at length.

Enter Enterprise Incentive Management and Incentive Compensation Management

Companies with large sales forces, huge product portfolios, and complex incentive plans with many variables need to offer variable pay based on individual or corporate performance. This need creates opportunities for a new enterprise software category called enterprise incentive management (EIM) or incentive compensation management (ICM), which should provide managers with decision support tools to model various compensation scenarios, measure the impact of those plans on sales performance, and effectively communicate incentive compensation objectives to the selling organization.

Part Four of the series Thou Shalt Motivate and Reward Workforce Better.

For a comprehensive background discussion of incentives and compensation, see Thou Shalt Motivate and Reward Workforce Better, Are Sales Incentives Even in tune with the Corporate Strategy?, and What Makes Incentives and Compensation So Tricky?.

Best-of-breed players like Callidus Software, Centive (formerly Incentive Systems), Incentive Technology Corporation (ITC), which is the recent spin-off from Centive which continues to sell the former Centive's CompCentral on-premise software), Oracle, SAP, Practique Associates, and one of the first companies in this market, Synygy, all provide EIM or ICM solutions. By and large, they enable powerful, flexible ICM by automating many of the major tasks related to sales compensation:

* modeling compensation plans from strategy to execution
* processing and calculating incentive compensation, from sales transaction to accounts payable (A/P) system integration
* maintaining multiple levels of reporting hierarchies, for complete organizational support
* effective dating applied to all major compensation plan components, for flexibility and change management
* supporting business units running on different fiscal calendars and in different currencies
* automating dispute resolution, providing for easy entry, research, and communication of compensation-related disputes

In general, insurance, health care, financial services, and certain manufacturing companies (such as high tech) are prime users of full-blown EIM solutions. Large enterprises with several hundred sales employees use these systems to model, set up, administer, analyze, and reportt on incentive management plans that compensate employees and distribution channel partners for the achievement of targeted quantitative and qualitative objectives, such as sales quotas, product and territory milestones, and customer satisfaction. That's to say that these software products enable companies to access applicable transaction data; allocate compensation credit to appropriate employees and business partners; determine relevant compensation measurements, payment amounts and timing; and accurately report on compensation results. Furthermore, additional analytics software allows customers to analyze the effectiveness of their incentive programs, which in turn gives them insights into driving greater sales performance. By facilitating effective management of complex incentive and sales performance programs, such products should allow customers to increase sales revenue, make better use of their incentive budget, and drive productivity improvements.
In other words, automating incentive management should not just enable businesses to pay workers more accurately; they also make user companies more accountable, by providing them with better modeling and reporting (so they can react to changing dynamics and improve relationships with their employees). As a result, some EIM providers have lately been drifting away from simply providing big, calculating, number-crunching solutions that help user enterprises pay their employees �right,� and are rather trying (more in tune with the performance management space) to help companies align strategic company objectives with sales execution. This way, they can be regarded as the execution platform for business performance management (BPM) and corporate performance management (CPM) (see Financial Reporting, Planning, and Budgeting as Necessary Pieces of EPM). Naturally, the focus for EIM is on all customer-facing roles that may have an impact on revenues. Initially used, therefore, for sales force compensation, EIM applications are also finding traction in call centers; in financial institutions for bank tellers involved in cross-selling and up-selling; and in retail situations where employee compensation is tied to store productivity and profitability.

As for a simplified description of how an EIM suite works: one starts by configuring the software to model the internal rules and structure of the user enterprise's commission and bonus programs. The software then imports sales and other performance data from a company's enterprise resource planning (ERP) or back-office system (meaning the sales and service order management and human resources [HR] modules), and calculates the commissions, whereupon it feeds the payment data back into the company's payroll system. Along the way, the software generates reports for managers which can also be used in audits to catch errors and cheating attempts, which is especially important in environments where one of the biggest expense items is cost of sales.

In addition to these policing capabilities (which are not to be sneezed at�companies keep missing their earnings because they cannot audit their compensations), managers can also use the applications more strategically, to model changes to their incentive-pay programs, for instance, so that they can better understand the financial effect of new rules before instituting them. Business users, without needing to be at the mercy of the information technology (IT) department and nerdy programmers, should be able to leverage intuitive graphical user interfaces (GUIs) with all-too-familiar drop-down menus and check boxes, in order to quickly implement any business rule changes�of course after verifying the potential outcome before the payment even takes place.
EIM Constituencies:Naturally, many different organizational parts are affected by and are in need of EIM, starting with top or executive management. In fact, two critical concerns of corporate executives are

1. delivering consistent and predictable financial results; and
2. ensuring customer satisfaction.

Furthermore, to continually succeed, it is imperative that executives stay abreast of market conditions and adjust strategic business objectives when necessary. Executives must operate their businesses nimbly enough to shift from one major initiative to the next within a very short time frame. Whether the key initiative is revenue growth, driving a competitor out of the market, reducing discounts, expanding internationally, or introducing a new product line, EIM systems can play a crucial role in aligning the actions of the entire company and its partners with overarching corporate objectives.

Regarding EIM programs, executives have traditionally faced various concerns:

Limited ability to align compensation programs and strategic direction
Traditional manual and spreadsheet-based processes make it difficult to figure out how to motivate sales to execute on simple elements of corporate strategy (such as "sell more product XYZ").

Limited predictive impact analysis
Predictive analysis is necessary to forecast the impact of new or modified plans, for instance. Aggravating the problem is lack of access to historical performance data; consolidating prior period spreadsheet data is time-consuming, and often difficult to organize for any meaningful analysis. Executives are thus forced to create and modify incentive plans based on mere hunches, as opposed to a fact-based forecast of financial impact.

From a financial manager's standpoint, incentive compensation represents a significant line item in the budget. Finance staff (and ultimately the chief financial officer [CFO]) are responsible for accurately accounting for variable compensation costs, especially those associated with sales incentive management. Compliance with the US Sarbanes-Oxley Act (SOX) dictates that organizations accurately and properly account for payments made to individuals based on transactions (a product sale, for example). Given the overall fiduciary responsibility that organizations are exercising, the following business issues clearly need to be resolved:

Unacceptably high levels of overpayment
Finance departments not only need to account for the disbursement of funds, but also need to identify errors and inaccuracies. Spreadsheets and in-house systems do not allow for easy analysis of incentive plan payouts, making it extremely difficult to identify potential discrepancies.

The need for more reliable testing and modeling tools
Finance departments are particularly concerned with cost-effectiveness and return on investment for incentive-based compensation programs; without tools to analyze and predict the cost-eeffectiveness and value-add of proposed plans, they are subject (like their executive counterparts) to "hit and miss" management of incentive-based pay budgets.



Cumbersome and error-prone accounting and auditing
Spreadsheet systems (to say nothing of manual systems) do not lend themselves to easy tracking, resulting in a difficult and time-consuming auditing process.

Sales executives and management, who require tools for creating and changing incentive compensation plans, are also driven to EIM solutions by various factors:

Lack of "operational agility"
Sales management teams have traditionally been limited to an annual plan modification policy, whereby they cannot make on-the-fly changes to existing incentive plans as dictated by market conditions, new product introductions, sales promotions, or corporate strategy shifts.

A shortage of timely data about plan effectiveness, employee performance, and financial impact
Compensation plan data needs to be consolidated in a format conducive to analysis (to properly understand the effect of compensation plans on staff behavior and to develop more effective plans). Management requires analysis and reporting tools that facilitate accurate, timely, and straightforward examination of incentive plan data; this information is required via a mechanism that can be accessed anytime, anywhere (the Internet).

Difficulty in managing commission pay disputes
Traditionally, sales management has to comb through spreadsheets for exact transactions, conduct follow-up analysis and fact checking, check accounts and inventory, and verify records before a resolution can be made. There is thus an acute need for a more efficient pay dispute resolution process to reduce administrative time, and maximize time spent on revenue-generating activities.

Compensation administrators are responsible for the calculation of the incentive compensation payments that go out to the sales force and partner channels, and while working extremely long hours ensuring the accuracy and timeliness of those payments, they must field frequent (and often irate) inquiries from the people they're compensating. As the last line of defense between compensation plan design, and implementation of those compensation plans in a system to calculate payments, they face some key EIM difficulties:

Limited ability to implement management's desired compensation plans
Without the flexibility to support whatever compensation plans are right for the business (the plans executive management wants, and that are appropriate for overall business strategy), compensation administrators are forced to do manual calculations, or to rely heavily on overbooked IT staff to code around system limitations.

Limited ability to query or access all aspects of compensation results
Compensation results include payments, quota performance, sales credits, or performance measures; manual adjustments also need to be made, when necessary. In many cases, while questioning their payments and other aspects of incentive compensation (and then placing calls and sending e-mails to the compensation administration group), the sales representative or channel manager catches an error that needs to be manually corrected by the compensation administrator.

IT Has To Make It Work:Last but not least, IT departments are often the unseen victims of manual incentive management processes, since they are after all responsible for building custom integrations between various transactional, payroll, order management, inventory, and other systems to facilitate the data integration that feeds incentive management systems. They also then have to generate the formulas that spreadsheets execute, and make the modifications desired by the sales and finance departments. Needless to say, almost everyone turns to IT when they need "a quick report run" (while we all know that creating custom reports and performing custom data extraction tasks to support incentive compensation management is time-consuming and cost-intensive), and the workload can be staggering.

In addition to strained resources (the eternal mandate to do more with fewer resources), the key EIM issue for IT includes non-IT-related workload. Namely, in many cases, IT staff is called upon to create reports and gather required data for executives, finance teams, and sales organizations, although these service-asking users should be self-sufficient (and should themselves be compensation analysts, instead of leaving that job to IT staffers). Consequently, IT staffers are taken away from IT's core function: maintaining business systems, maximizing the value of technology within the organization, and streamlining efficiencies through innovation.

Logically, given the many types of users in the system, each type requires characteristic dashboards or user interfaces. For example, salespersons should be able to log into their dashboard and see exactly where they stand (in terms of their objectives and goal attainment) this period, this quarter, or this year�or if there are any escalations. They can thereby see commissions earned to date, attainment against quota targets, and even their ranking against peers. And the dashboards should be interactive, since sales representatives might have to drill down to transaction-level detail to see exactly how their commissions were calculated. If they should perceive a problem or have a question, they should then be able to send messages to their manager or the compensation administrator, and track progress as the issue is resolved.

On the other hand, sales managers and senior executives need access to an executive dashboard as a decision support system for team performance and plan effectiveness, whereby security setups would control what they can see. For example, a regional vice-president (VP) of sales should only be able to see information about his or her subordinates. This dashboard should provide real-time information to help managers see how their teams are doing, who is hitting quota and who is lagging, and which products are selling best in each territory.

Managers can also drill down into results for individual sales people and then compare them to the rest of the team. Managers should get graphical analytics too, so that they can see how their team's results compare to various modeled scenarios, for example, which goes back to the strategic level of sales compensation management�giving managers information in time to make a difference. Sales executives typically use EIM analytics software to analyze sales performance by region, team, product, or channel; examine customer growth; monitor sales incentive costs; and detect trends in business performance. On the other hand, marketing executives use the software to analyze market segments; determine product success by channel or segment; and analyze channel effectiveness.

Last but not least, the administrators' workbench is where the user company can set up the compensation plans, organizational structures, quotas, territories, overrides, draws, and bonuses. The software should give administrators full control to model and manage the entire sales compensation structure, whereby complex compensation plans with sophisticated plan logic are easy to build, since the software abstracts all the code behind. The application should be strong enough to allow administrators to set up multiple models and apply those models to different teams, in virtually no time. Compensation professionals use EIM analytics software to analyze compensation plan effectiveness; understand attainment distributions; and gauge the impact of new incentive programs. Reporting and dashboards also help the finance folks with better control over discounting, cost of sales, accruals, etc.

In summary, using inadequate homegrown systems in environments with large sales forces and complex incentive plans typically results in several pain points:

* incentive plan introduction and change bottlenecks (owing to the lack of scalability and out-of-sync data), leading to delayed new product introductions, or to entering the market without proper incentive support
* lack of credibility with the sales force (owing to high commission data error rates; slow dispute resolution; and lack of reliable, detailed reporting on commission payments)
* lack of insight into plans' effectiveness, and the inability to forecast the impact of proposed plan changes (since manual, non-standardized processes with silo banks of commission plan data cannot accommodate the company's need for such analytics), which makes predicting and tracking commission plan effectiveness for up-selling and cross-selling capacity impossible
* commission over- or under-payments
* high administrative costs
* time wasted reconciling frequent disputes (owing to much of the commission data being entered manually and a lack of automated facility to trace commission transactions)
* lack of traceability and audit trails of incentive transactions, due to manual processes and lack of standardization (with different incentive management processes being used by different groups within the user corporation)

EIM software is thus designed to help businesses gain better financial management over employee incentive payments, while reducing errors, fostering visibility, more effectively motivating workers, and reducing administrative costs.

Agile ERP Vendor Ditches a Microsoft Dynamics CRM Alliance for, well, its own CRM Solution (Part I)

Writing about failed partnerships in the enterprise applications market is like writing about the sun setting in the evening and to the west, given almost daily occurrences of vendors announcing alliances that never materialize. However, it doesn’t happen every day that a potential high-profile alliance gets called off at the 11th hour and in favor of an overlooked in-house solution.

The protagonist of the story is enterprise resource planning (ERP) vendor Agresso, which reported approximately US$225 million in revenue in 2006. Agresso is the primary operating business of the Netherlands-based Unit 4 Agresso (Dutch Stock Exchange EURONEXT-U4AGR) and has subsidiaries selling its ERP platforms (Agresso Business World and others) around the world. In aggregate, Agresso is one of the top five providers of ERP solutions for people-based businesses, i.e., professional services and public sector organizations (besides SAP, Oracle, Infor and Lawson Software).

Agresso targets businesses with over 500 and fewer than 5,000 employees, and has been the market leader in the United Kingdom (UK), Norway, and Swedish public sectors. The vendor has been thriving lately owing to the market drivers requiring post-implementation agility within such rapidly changing people- and project-based business environments. Some of these change-inducing drivers are:

* The industry consolidation landscape (with constant acquisitions/divestments);
* Ongoing organizational changes of direction due to compliance, accounting laws, obsolescence and so on;
* Initial public offering (IPO) pursuers requiring “Best-Margin” practice;
* Many public sectors pushing for “Best Value” for constituents ; and
* Intensified “C-Level” executive turnover (i.e. according to the Financial Week’s CFO “Churn-O-Meter” article, there were 208 executive departures only in August 2007).

Although founded in 1980, and with nearly 2,900 employees, over 2,700 customers, 10,000 deployments and 1.5 million users in about 100 countries, Agresso is fighting aggressively to broaden its name recognition beyond European service industries.

In the last six months alone, a host of North America analyst firms (IDC, Forrester, TechVentive, etc.) have reported on or ranked Agresso based on both its global revenue surge and have taken notice of staggering growth stats in North America: 200 percent annual revenue growth, a, 370 percent surge in average deal size from new customers, 320 percent spike in qualified business leads, 40 percent increase in deals with an over $1 million value, about 30 percent year-over-year growth in new ERP deals (not re-sales/services), over 90 percent year-over-year growth in the $500,000-990,000 buyer market, and so on.

The overall Unit4Agresso corporation, of which Agresso is a major part (TEC estimates 65 percent or more), plans to grow to a $700 million company by 2010. One avenue to this ambitious target is via a continued accelerated organic growth, since the company has been growing organically at 40 percent or more in 2007 on the strength of its flagship ERP product line, Agresso Business World 5.5 [evaluate this product], which was released with advanced features in late 2005. Over 2,700 companies and organizations in 100 countries deploy Agresso Business World for both operational support and strategic management.

The suite’s role-based, Web Services and Services-Oriented Architecture (SOA) enabled solutions include: Financial Management, Human Resources (HR) and Payroll, Procurement Management, Project Costing and Billing, Reporting and Analytics and Business Process Automation (BPA). Industries that need these capabilities are governments, higher education, Not-For-Profits (NFPs), utilities, architecture, engineering and construction (A/E/C) bureaus, information technology (IT) services, real estate and other business service firms.

Since 2005, the company has been aiming its flagship ERP product exclusively at a fast-growing market segment that Agresso calls BLINC (or Businesses Living IN Change[TM] that require dynamic change features, especially after implementation). This post-implementation agility is enabled via Agresso’s underlying VITA architecture, whereby Agresso is housed on a one-of-a-kind “outside-in” reversely engineered metadata model: data, business process and the delivery (reporting and analytics) are tightly coupled, move in lockstep and are focused outward.

In other words, while most other ERP vendors were initially concerned with ensuring fixed positions for inputting data into the ERP database (without much thought about how to extract it afterwards), Agresso rather designed its applications with the “extrovert” logical system of how to add, modify and, especially, easily retrieve any piece of data (even though their physical position in the database is not necessarily fixed).

In layman’s terms, this is like a wardrobe, where we can arrange our clothes and know the exact position where certain items should always be (unless being worn or washed, which is a bad utilization of the space). Alternatively, we can have some effective logical system to know where to look for something when retrieving it or when adding a new item of clothing to the closet (even though these will not always be in the same physical location).

To that end, Agresso VITA’s difference is a service model-based data and architecture foundation, with the focus of complete insulation of business logic from data. While unjustifiable physical changes in data are not allowed (for integrity and consistency sake), data is captured and coded by many attributes like Dimension (e.g., Name), Measurement (e.g. Salary), Time (e.g., Fixed or Within Range), and so on. This makes business change much easier (often with no required IT expertise), faster (often in an elegant drag-and-drop fashion) and more efficient (with no pesky data re-entry, re-checking, replication, and so on).

Agresso offers a closely integrated data/process/reports delivery architecture designed specifically for the above-mentioned BLINC environments. The vendor prides itself as “The ERP Market’s Definition of Agility” as it allows an unlimited amount of ongoing, post-implementation changes without the typical external IT costs and interventions that can save pretty dollar amounts in revenue for the forward-thinking user enterprises.

Outside of the native architecture and the more recent Agresso Business World 5.5 release at the end of 2005, the company’s functional (product) footprint has not grown aggressively in recent years, although the company expects to add up to four new functional products in the Governanace, Risk management & Compliance (GRC), Human Capital Management (HCM) and Financials realm in 2008 .

The most recent 2007 additions to the product footprint were Agresso Field Force in June 2007, (please see an in-depth analysis of that product soon at TEC’s site and newsletter) and in November 2007 Agresso announced the immediate availability of Agresso CRM, a customer relationship management (CRM) solution aimed specifically at the mid-market services sector that Agresso has addressed for more than 20 years. It is fully web based, and can run on multiple databases, operating systems, and stationery or mobile devices. Agresso CRM is being rolled out globally via either a standard, on-site license or software-as-a-service (SaaS) agreement.

Agresso CRM is the first in a series of so-called “BLINC Solution Plug-Ins” to its native architecture, and the product will achieve integration into the Agresso Business World ERP suite similar to that of SOA platforms. Revenue from these BLINC Plug-Ins is critical to the Agresso parent company achieving the above mentioned ambitious $700 million revenue mark by year-end 2009.

Going back to the beginning of the story, Agresso’s parent, Unit4Agresso in the Netherlands, initially evaluated a wide scope of global CRM partnership strategies, including an alliance with Microsoft. It was the original intention to partner with Microsoft who Agresso thought might come closest to meeting the CRM needs of mid-market, services organizations with Microsoft Dynamics CRM [evaluate this product].

Part II of this blog topic will analyze why Agresso had a last-minute change of heart. Your comments and opinions about post-implementation agility and Agresso’ growth strategy are welcome in the meantime.

To be more precise, how crucial is a system’s inherent agility in your evaluation efforts? Are rigid architectures, which entail deep (and painfully costly) modifications at the database and/or application server level in order to accommodate business changes (rather than on the user interface [UI] level in a drag-and-drop or point-and-click fashion), still and acceptable standard for you?

Thursday, June 18, 2009

Technology's Role in Strategic Human Resources

The Imperative for Strategic Contribution:Most chief executive officers (CEOs) are challenging their human resources (HR) departments to make more strategic contributions to the organization. With HR traditionally viewed as a cost center, it is often difficult to know precisely what that means. CEOs, who are focused on growth, earnings, and shareholder returns, want HR to support corporate business objectives and to have the necessary data to support business decisions. These roles are necessarily integrated with HR's responsibility to ensure that there are qualified and satisfied workers when and where they are needed. The way to fulfill these roles is through process excellence, integrated HR systems, and accurate and actionable data from all HR departments. When these elements come together, HR can have a tremendous and meaningful impact on the bottom line.

It sounds like a lot to ask, but these demands are achievable today. And the HR department doesn't have to go it alone. There are technologies and service providers that can help move HR from the administrative rut, free up manpower for strategic tasks, and employ business intelligence capability to align HR with desired business outcomes.

The Role of Outsourcing

Human resources outsourcers play a critical role. Companies often choose to work with outsourcers to gain access to the latest technologies without having to make the associated capital investment. At most enterprises where HR functions have been outsourced, the initial tier of value is well-established. Processes are standardized and employee interactions are professionalized. Transactions are faster, more user-friendly, and less costly. As employee programs continually become more complex and difficult to administer, outsourcing consistently delivers high levels of service.

But it's that next critical tier where advanced HR outsourcing technologies are delivering strategic leverage by gathering and combining fragmented data from discrete vertical HR systems. When data from various departments is integrated into a reliable, consistent source of centralized information, HR can make better-informed and more strategic business decisions daily. The impacts of HR programs and practices can be assessed, and critical insights into the workforce revealed.

Sophisticated analytics can measure how HR systems and programs affect employee behavior and influence customer behavior (for example), ultimately impacting financial results and corporate growth. Companies are beginning to see that reducing HR administrative costs is only the tip of the iceberg. A new priority is to employ the technologies that provide data and analysis, in order to realize the savings that lie in HR.
Technology at Work :For example, your time and attendance program tracks worker hours and absences, and is the entry process for generating payroll. A separate program handles short-term and long-term disability payments. Both of these systems are important. But viewed separately, they reinforce HR's traditional administrative role. An outsourcing solution that combines information from both systems and employs business intelligence functionality delivers a human asset management program that tracks absenteeism, peak work periods, and turnover. Now your data shows impacts on labor costs, overtime, and the amount of money spent on temps and employee replacement. This business intelligence can be used to closely align the workforce with long-term labor needs, manage absence and labor utilization, and thereby reduce operating costs.

Training, staffing, and recruiting programs can be linked in beneficial ways, too. There are lots of technology tools that enable prospective employees to submit r�sum�s online. But does your HR department use that information beyond the recruiting process? By integrating prospective employee data and skill sets against the company's development plan and training programs, qualified individuals can be "pipelined" into the organization over time, and existing staff can be educated. This ensures more strategic hiring decisions from the outside, and better use of existing personnel.

Succession planning is another key area where HR outsourcing can provide strategic value. For example, if a company has a 10 percent turnover rate, and it typically takes 30 days to fill a job, what does that mean for its staffing at any given point in time? It means the company is nearly one percent understaffed at all times. In an organization of 50,000 employees, that's 400 workers not meeting deadlines or producing, which negatively impacts customer satisfaction.

In that same scenario, add in the ramp-up time required for new hires to fill the open slots, and the "downtime" could be as much as sixty days per opening. Factor in absenteeism, short- and long-term disability, sabbaticals, maternity and paternity leave, job sharing, and other benefits, and the staffing levels are likely to be much lower than imagined. Using business intelligence technologies and analytics allows HR departments to better see and manage what is really happening with staffing levels, and predictive measurements can help plan more accurately for the normal ebbs and flows of business.

Selecting the Right Outsourcing Provider

As important as deciding to outsource HR functions, however, is selecting the right partner. Partnering with an HR provider is a critical business decision, and should be considered with the same due diligence as a merger or joint venture. Companies should be culturally compatible and share a common vision.

An outsourcing partner's service framework and delivery model should be engineered to meet your requirements, and there should be a clear definition of the scope of services and defined service levels. The objectives of outsourcing should be translated into service-level agreements so performance can be measured against stated expectations. Most large enterprises will want a full-service provider rather than one that handles just one element (such as payroll). References should be checked, and the provider should demonstrate capabilities in full-spectrum HR outsourcing (and have the financial backing to be around for the long term).

Remember, working with an outsourcer is not about giving up control. Rather, it is about finding the best ways to deliver quality service, impact organization economics, and provide the data that aligns the HR department with business outcomes.
The Metamorphosis :In today's economic climate, all CEOs have a growth agenda that requires a solid and committed workforce—in other words, they need to have the right people in the right place at the right time. The true value of the human resource team will be measured in how well it aligns with this growth agenda. Effectively integrating HR business intelligence technologies is foundational to HR's metamorphosis from administrative cost center to strategic contributor to corporate growth.

Examples of Strategic HR

Here are some quick takes on how companies can strategically leverage HR for measurable gains. The impact areas and results in the list below are far from complete, and are provided here only as samples:

* Staffing levels: Aligning time tracking with disability and leave information fosters greater understanding of staffing needs.
* New hires: Melding r�sum� data with future business needs "pipelines" qualified individuals for impending job openings.
* Succession planning: Assessing skill sets of existing employees and overlaying it with upcoming job openings promotes hiring from within.
* Benefits cost: Integrating HR survey data with corporate goals can help predict changing corporate contribution rates that would result in more job turnover.
* Hiring assessments: Extracting data from various HR functions allows you to determine if increased hiring is due to growth and skill upgrades, or to unwanted turnover.

Essential Considerations When Selecting an Outsourcing Provider

Beyond general considerations with respect to the utility of outsourcing providers, there are specific questions which enable companies to determine the compatibility of a prospective provider:

* Do the provider's systems have the capabilities to meet specific technology and business requirements? Note that inadequacy with respect to this question can of course come on two counts: either the provider's systems are too "generic" to meet these specific requirements, or else (in the case where they do in fact address the particular requirements) they simply underperform.
* Does the outsourcer have a clear understanding of needed capabilities?
* Will the operation be transparent, both financially and managerially?
* Do the outsourcer and your company share a common vision?
* Does the outsourcer have a partnering mindset?
* Is the outsourcer's culture compatible with your corporate culture?
* Will the outsourcer be proactive in engaging your company to resolve problems?
* Are the scope of services and performance levels clearly defined in a service level agreement?
* Can the provider enable your company to deliver business performance impact?

By conducting a thorough review of the tangible and intangible elements underlying these questions, companies should be in a strong position to ensure that HR is not only a fundamental element for achieving corporate objectives, but an integral driver of success.

Tactical Human Resources Evolves into Strategic Human Capital Management

Given the examples of the changes in human resource (HR) management discussed in Thou Shalt Manage Human Capital Better, and the mushrooming number of point solution providers, many enterprises have lately realized the significant shortcomings of traditional HR (in terms of technology, beliefs, processes, and practices) that require a strategic-level mindset change. This is particularly relevant during times of economic sluggishness and low investment capacity (which typically translates into layoffs or hire freezes, cost containment, and stalled innovation), when most enterprises and their employees are left wondering if they can (or should) rely on each other for their future.

Part Two of the series Thou Shalt Manage Human Capital Better.

In the early 2000s, with the economy in a downturn, HR administration delivered some organizational value by outsourcing an increasing number of HR business processes, either wholly or in part. In many cases, outsourcing to some trusted technology vendors that have already demonstrated their HR domain expertise may help companies achieve additional efficiencies and functionality, reduce head count, and cut costs. Of the many solutions in the HR realm, the most predominantly outsourced have been payroll processing, employee assistance programs, payroll tax filing, and background screening. The most appealing and achievable benefits of outsourcing are streamlined operations, access to better HR capabilities and industry expertise (when it is not a core competence of the user enterprise), freeing up of internal staff, reduced labor costs, and accurate and predictable monthly costs.

However, the returns from layoffs (often undertaken without much thought to who should really go, potentially resulting in the hasty release of the lynchpins of the enterprise's ongoing performance) and relentless cost-cutting have proven to have only a limited (if not negative) effect. While some organizations have tried to cut labor costs to be competitive in their markets, the most progressive companies have conversely embraced their labor forces and used them as a strategic differentiator. As products and technologies get commoditized in this information-based economy, companies are beginning to realize that the best way to differentiate themselves and create long-term strategic advantages over their competitors might be through their people. It is no longer what one owns that counts, but rather what one knows, which is particularly critical in information technology (IT) and similar professional services organizations (PSOs), because it is the technical expertise and experience of knowledgeable staff that means the difference between success and failure.

In fact, according to Forrester Research, more than 85 percent of the market value of a typical Standard & Poor's (S&P) 500 company today is the result of intangible assets. For many companies, the bulk of these intangible assets are their people (its human capital), and such companies spend as much as two thirds of their overall costs on labor. Thus, they should focus on business processes, using technology to more effectively manage employees and improve their productivity. Combining training, incentive management, and compensation management tools delivered through a role-based dashboard, the nascent people-centric software category aims to transform each individual in the workforce into an enterprise asset.
Best-of-breed HR Technologies:The most progressive companies have thus been using best-of-breed HR technologies for attracting, hiring, training, motivating, and managing their people. Software applications are getting more and more sophisticated to help companies with these tasks, and as these solutions continue to evolve and communicate with one another, user companies will have a more seamless access to methods and data for managing their employees throughout the employee life cycle. On the other hand, the laggard companies that do not embrace these technologies will likely fall behind in their quest for market dominance. For instance, by implementing a holistic employee performance management process across the enterprise, corporate strategy can be aligned with individual goals and objectives (and properly communicated), whereby actual performance against those goals can have ramifications for individual compensation and rewards. This should drive behavior and attitude towards executing on the corporate strategy, with improved employee satisfaction and loyalty as a result.

This certainly comes in handy when the economic downturn ends, when employees begin to feel that there are more employment choices. Enterprises will again need clear, credible, and reliable strategic sourcing strategies and management in order to plan for and engage the competencies (people and companies) needed to accomplish their business strategy (by building the required effectiveness and increasing efficiency). For instance, with the economy improving and IT budgets rising, competition for IT talent—especially in key skill areas—is bound to intensify. At the same time, an improved hiring picture in IT will most likely mean higher turnover, as many unhappy IT staffers who saw workloads increase while compensation and benefits stagnated (during the economic downturn of the early 2000s) will put even more pressure on IT management.

Hence, there is a true need for much tighter integration between performance management and compensation (regardless of the economic milieu), so that exemplary employees can be rewarded more often (and feel truly special to the enterprise), as opposed to the outmoded blanket-regulated, across-the-board annual basis (which typically produces mediocrity). Analyzing the workforce and strategically managing the company's human capital has become the latest focus of human resource management systems (HRMS), as a way to transform these from dull functions to those that greatly affect corporate performance. Integrated business information warehouses, to that end, enable multidimensional analysis on information aggregated from internal and external resources (salary survey, for example), performance indicators (as in turnover), and views on strategic HR information with powerful drill-down features. Some surveys indicate that almost a third of businesses are already using data warehouses, a quarter of them use workforce performance management or analytics, and one eighth of them are using workforce planning.

Workforce analytics have become a core of talent management systems. This is because they focus not just on "time" (or who has clocked in and who has not), but also on such strategic business issues as overtime and turnover trends that impact a business' bottom line profit, equal employment opportunity (EEO) or ethnicity-based hiring trends, compensation patterns, relative recruitment effectiveness and sourcing costs, cost per hire, etc., have become a core of talent management systems. As a good example, Ultimate Software UltiPro's business intelligence (BI) tools and built-in reports offer strategic business value through over 600 ready-to-use customizable reports and analytics that should enable organizations to evaluate workforce trends dynamically and explore UltiPro HR data from multiple angles. Unlike many web-based reporting solutions that provide for report snapshots that can only be circulated over the Web, UltiPro enables custom ad hoc query and report creation with real-time data mining over the Internet, as well as automated data alerts. Furthermore, UltiPro includes a data mapping dictionary, or pre-built catalog, that links reporting to the data in UltiPro database, to facilitate report building.
Human Capital Management:This brings us to the notion of human capital management (HCM), or talent management, which Gartner defines as a set of HR practices that focus on acquisition, management, and optimization of the enterprise workforce. These practices include such processes as competency and skills management, succession planning, and team management. The key tenet of HCM is that companies must change the mindset of viewing employees as an administrative cost, and instead see them as a strategic investment and a key enterprise asset, with resulting focus on aligning workforce capabilities with business strategy. This more strategic view of the workforce will gradually become less an HR function and more a management discipline.

HCM should be about value and not cost, since people should be regarded as value-adders and not overheads and liability. It should measure organizational outputs (such as profit, revenue, and service levels) related to better management of people, rather than focusing on input measures (such as recruitment costs) and the HR "best practices" of earlier days. According to studies by the Brookings Institute, in the early 1980s tangible assets amounted to over 60 percent of firms' total assets, whereas this ratio has been reversed by now, with over 80 percent of assets being intangible, most of which is represented by human capital. Yet, 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.

Moreover, many non-HR business processes can benefit from leveraging HCM strategies, such as project portfolio management (PPM) processes (see Project Portfolio Management for Service Organizations: Bridging the Gap between Project Management and Operations), which can be improved via incorporating competency and skills data and leveraging the team management capabilities of HCM applications. Other similar examples of business processes that should benefit from "picking the HCM brains" include production planning, job costing, scheduling, training, compliance, budgeting, and field service. In fact, any people-centric business process should benefit from integration to HCM, whereas traditional administrative HR applications and processes will hardly support this integration at all.

This leads us to a broader notion of employee relationship management (ERM), business-to-employee (B2E) management, or whatever the three-letter acronym (TLA) du jour might be (see BLM—Buzzword Lifecycle Management). In any case, these acronyms try to depict a business discipline that focuses on optimizing the employee's total employment experience—including both the human and technology aspects of that experience. ERM espouses a comprehensive and unified view of the processes and technologies that support the workforce and their workplace, including manager-employee interactions, the formal business tasks required to manage employee relationships, and the technology used to manage the employee experience. To that end, ERM encompasses the full suite of B2E services needed by employees, managers, and others, including knowledge management, e-learning, self-services, community and collaboration support, travel and expense (T&E) management, indirect procurement, and so on. Thus, ERM is most closely aligned with the HCM focus area of workforce management.

While traditional HR and payroll management may not seem to provide a significant competitive advantage in the same respect that the aforementioned emerging technologies do, some ERM systems like Extensity or Apptricity help reduce cost, simplify administration, and promote a more connected company-employee relationship. What customer relationship management (CRM) solutions do for customer intimacy, today's ERM packages (replete with employee self-service and manager self-service functions) do for employee intimacy, by providing all concerned parties (executives, managers, employees, government, and so forth) with immediate access to a wide array of vital information.