HUMAN CAPITAL MANAGEMENT – NEED FOR AN ERP SYSTEM

Enterprise Resource Planning solution has been implemented in most of the big enterprises in India and many of the mid size companies are in the process of implementation. The Vendors of such systems are providing solutions customized to midsize and smaller enterprises to suit their needs and investment capability. ERP systems are integrated software solutions encompassing all areas of operations of an enterprise like Manufacturing, Distribution, Finance, Procurement, and HR. The leading ERP systems like SAP, Oracle, People soft are built on solid foundation of best practices in every aspect of the functioning of an enterprise bringing about operational efficiency, decision support and elimination of process redundancy. Further, many of the cutting edge software applications like CRM and SCM can only be bolted on to ERP system.

While the implementation of Enterprise systems is fairly widespread in India, many such companies have not implemented Human Capital Management module and some of the companies take up HR implementation as last priority. For instance, Aventis Pharma a multinational pharmaceutical company implemented SAP solution for manufacturing, Finance and other processes in India many years back but People Soft HR was implemented only in 2002. Some of the companies have taken decision not to implement HR midway through implementation. When most of the companies declare that Human Resource is their most important asset, HR has been the least important area for ERP implementation. Let us examine some of the important reasons for this dichotomy and understand the benefits of implementing HRMS in Organizations along with other modules of ERP.

Disparate HR practices

ERP system is developed on the basis of standardized processes based on best practices which can be configured to a large extent to enterprise specific requirements. While manufacturing, finance and distribution functions have standardized and documented processes all over the world albeit minor variation in practice, HR practices are widely disparate due to its organic growth rooted on cultural milieu of organization and the social context. For instance, public Sector companies in India have to cope with complicated reservation policy in recruitment and promotion and meet rigorous legal reporting. Many of the policies and practices are results of Organization specific long term settlement with Trade Unions. The main concern of companies in Middle East is annual vacation management including vacation pay and resource replacement. Organizations in US and Europe lay great emphasis on Benefit enrollments and Self Service and government reporting. The leading ERP systems like SAP, People soft, Oracle etc have configured the HR processes of Organizations in the west like benefit enrollment, Workers Compensation and local tax laws. These systems cannot be directly configured to meet the Indian requirement which calls for extensive customization of the system to meet the process requirement or change in processes itself. A general survey of companies implementing HR module of ERP in India reveals that extensive customizations have been done in terms of Payroll, Leave Management, Compensation and Benefits to suit the requirements. Customizations may range minor tweaking of functionality to major changes to kernel applications and custom development of small modules with the help of tools available. The leading ERP systems do not have configurable processes to pay or compensate employees out side payroll which is a great limitation. Further, there is huge limitation in terms of Leave management in all the packages considering the various types of leaves and complexity of leave rules in India. We, at Hindustan Petroleum Corporation, decided to custom develop the Compensation and Benefit module and Leave Administration and Payroll in JD Edwards (now PeopleSoft) system to meet our specific requirements. Aventis Pharma customized their Leave administration and Performance Appraisal processes in People soft to configure their processes..

Customization of standard applications can be very costly and difficult to maintain. While applying upgrades or service packs, customization to existing applications gets overwritten requiring recoding. There is a need for localization of international products to suit Indian requirement and standardization and maturing of HR practices in India. HR professionals in India should take up the conflicting challenges to standardize policies, payroll, and benefits across Organizations to improve efficiency and meet enterprise specific HR objectives.

Return on Investment

The second reason for lack of ERP HR implementation by Organizations is the general belief that it does not justify return on Investment. Organizations argue that huge investment in ERP HR system is unwarranted while Employee related information is available in legacy systems and Personal Folders.

But disintegrated raw data is only helpful in taking micro level decisions. Strategic decision can be taken only when the raw data travel through the continuum of Data, Information, Knowledge and Decision support. The movement across this continuum will be very resource intensive and time consuming, if ERP HR system is not in place in the Organization. Maintenance of multiple standalone systems will result in avoidable data mismatches, complex interfaces, reconciliation and lack of scalability which can prove costly in the long run. Steve Rice, Director HR Global Enterprise Programs and Technology of Hewlett Packard says that with PeopleSoft 8 HRMS, HP will immediately save $3 million per year in hardware, software, database, and maintenance costs. With ERP implementation, you can channel money right back into our bottom line.

Customer Service

One of the most important benefits of ERP HR Implementation is its capability of Self Service and seamless integration with Web technologies. Self Service allows individual employees to view and update their personal profile like name and address change, qualification and skill, apply on line for jobs, enroll for various benefit plans in the Organization, and fill in self appraisal with a provision for HR department to review and approve. Self Service applications relieve HR function of the onerous task of data entry and maintenance allowing them to shift their focus from transaction processing to transformational processes. Further, when capturing information at source, accuracy of information is also assured. The internal customers are delighted with relevant online information concerning their benefits and career allowing them to focus on business. In India unfortunately, self service as a concept is yet to take off due to lack of trust in Employees in terms of their ability to adopt Self Service and fear of updating wrong information by them. Another reason is the lack of awareness of cost involved in maintaining such vast amount of information in disintegrated legacy systems and manual records by HR Department and difficulty of meaningful retrieval.

Payroll Integration

Payroll and HR go hand in hand every Organization and therefore ERP system should provide robust payroll solution which can handle local tax rules and other imperatives of employee compensation peculiar to each country. India Localization of payroll is a very important prerequisite for ERP HR to take wings in India. Many Organizations who have implemented ERP HR systems have either interfaced legacy payroll to ERP or custom developed payroll package in ERP system. For example, Bharat Petroleum Corporation Limited has localized SAP payroll and is successfully running the same. At HPCL, we are implementing a customized payroll in JD Edwards (now People soft) ERP system. In the near future such localization would become part of the standard offering of ERP vendors. Integration of HR, Payroll and Finance subsystems of ERP gives huge advantage in terms of accurate and real time information flow among the sub systems eliminating time consuming document flow, inaccuracies and complex interfaces.

Transformation processes

ERP Systems provide some of the most powerful tools for enhancing employee productivity and organizational Efficiency. For Instance, PeopleSoft HRMS provides comprehensive knowledgebase for tracking, understanding, and deploying an organization’s employee skills base, unlimited competencies and review rating, 360-degree evaluation, extensive skills-matching features for recruitment and training, outstanding career and succession planning capabilities. SAP provides comprehensive functionality for strategic tools like balance scorecard, competency management and eAppraisal. Very few organizations in India have adopted such best practices in HR and therefore others do not see the need for an ERP HR system. Organizations cannot sustain or succeed without adopting such best practices which can transform the way organizations work. ERP systems are the best bet for speedy implementation of such practices in big enterprises.

Some of the other processes like eLearnig and Knowledge Management which can give competitive advantage and cost effectiveness to Organization can only be implemented effectively on an ERP platform. A large number of Organizations in India still believe instructor-led training, where an employee attends courses in a classroom with an instructor in a training institute. Corporate training follows the pattern of learning institutions, where training is centered on the institution, the classroom, and the instructor. Courses are scheduled in a training administration system, and employees are nominated for training programs arbitrarily without regards to skill gaps and data is maintained in haphazard manner.

ERP eLearning system facilitates a major shift, placing the focus on the individual learner rather than on the classroom. Now, learning can happen at the workstation, at home, anywhere an employee has access to a computer—as well as in the classroom. The introduction of testing and metadata tagging means that this learning can be personalized to the learner and that the enterprise can track detailed results and responses. Integration with Competency Management and career and succession planning provides the facility for identifying skill gaps and providing right content to employee.

All leading ERP solutions provides eLearning modules which comprises following broad components

• Learning Administration Components
• Learner Interaction Components
• Strategic Enterprise Components
• Enterprise Information Management Components

Managing knowledge is becoming a business imperative for those corporations who want to protect their present market share, build future opportunity share and stay ahead of competition. The application of knowledge and practice of knowledge management can create wonderful results in any organization. A significant part of an Organization’s business knowledge can be found embedded within its data and information layers. An ERP solution can ease the task of aggregating, cleansing, filtering and extracting information and bring out patterns and hidden knowledge. The dissemination of this knowledge to employees in the Organization within his operational context also becomes easy with ERP.

Hindustan petroleum Corporation Limited is implementing cutting edge HR processes like competency management, balance scorecard and eLearning with a view to give strategic support to Business. Implementation of ERP HR will give tremendous system support in these areas.

Conclusion

Global competition is driving organizations to strive for lean and mean structures to bring in cost and operational efficiencies. It is time for HR to take some radical steps to reduce the flab and deliver efficiently by adopting new technology. Hindustan petroleum Corporation has around 12000 employees in more than 300 locations spread across India and abroad. With the implementation of ERP system, we have a centralized data repository which ensures that information not only is accessible throughout the company but also is up-to-date, consistent, and complete – ready at any moment to support HR- and business-related decisions and initiatives.

Progressive Organizations can reap huge benefit from Implementation of ERP HR system and streamline their HR processes and align the same with business strategy. Organizations need to take bold steps in terms of Package enabled Reengineering in HR processes which make remarkable business sense. Mere Implementation of Human Resource Information system will not justify the efforts and Investment. SAP claims that mySAP manages 32 million employees for more than 7800 customers in 60 countries. Other ERP systems like People Soft, Oracle etc may also be supporting similar number of Organizations. If large number global organizations felt the need for implementing HRMS, it is time that Indian Organizations take notice and manage their most important asset better through a world class ERP system.

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