Transforming Your HR Spend Into a Strategic Corporate Investment

Employees are a company's greatest asset yet they are also a company's greatest expense. From the first interview through on-boarding, payroll and benefits administration to retirement planning and termination, the employee lifecycle is fraught with costs and pitfalls. That's why annual HR costs per employee continue to go up instead of down-despite the widespread adoption of HR technologies.

Inefficient management of the employee lifecycle is problematic for two reasons. First, it costs you time and money that you'd rather allocate elsewhere. Instead of getting bogged down by administrative duties, employees should focus on contributing to the company's corporate strategy and bottom.

Second, you need to execute with excellence across the employee lifecycle. In today's super-competitive markets, it's more important than ever to hire and retain the right people-and to fully mitigate your exposure to legal and regulatory risks. So by optimizing the quality of your HR processes and policies, you also improve your bottom-line business performance.

As difficult as it may sound, it is actually quite possible to reduce HR burdens while optimizing the quality of delivery. This can be done by adopting five proven best practices:

1) Understand total current internal and external HR spending

2) Offload HR operations where appropriate

3) De-fragment management of the end-to-end employee lifecycle

4) Identify opportunities for getting more business value from HR processes5) Continually modify HR processes to adapt to changing conditions

Companies that do these five things can, in fact, substantially lower their HR-related overhead while improving the quality of HR processes. As a result, they are far better equipped to grow and compete in a world where skilled, committed people continue to play a central role in the bottom-line performance of the business.

The employee lifecycle

To succeed in today's challenging and highly competitive marketplace, your business needs skilled people who are committed to that success. People develop and design your products. They sell and support your customers. They figure out where you should spend your money and where you can save it. If you can't recruit and retain quality people-and keep them highly motivated-your business will suffer.

The relationship between employees and employers is, however, a complex one. Your computers won't go work for someone else if they are offered more money. Your company vehicles don't have children who need medical care. And you don't have to worry about your office furniture saying or doing anything that will land you in court for a sexual harassment suit.

In fact, your relationship with your employees extends across a lifecycle that is fraught with risks and opportunities. It is a complex relationship-and is likely to become even more complex as society and government regulations continue to evolve.

Who works for whom?

Because management of the employee lifecycle has become increasingly complex, HR costs continue to rise. According to PricewaterhouseCoopers LLC, mid-sized companies are spending almost $2000 per employee per year. And that same study revealed that the real cost of HR operations such as payroll has increased by 6% since 2003-despite expectations that technology would drive costs down.

There are several reasons that businesses continue to have to spend more and more on HR:

Higher visible costs

As everything about HR has gotten more complex, costs have gone up. Once upon a time, all you had to do to advertise an open position was take out an ad in one or two publications. Now, you have to navigate the Internet-which yields a deluge of applications to review. Health plans and tax codes are more complex. Employee turnover is higher. And the technology you put in place to automate HR require substantial investment as well. This all drives visible higher.

Higher hidden costs

The PricewaterhouseCoopers study also uncovered a wider range of hidden HR costs. These include "indirect" labor costs-such as the time it takes to approve submitted timesheets and physically distribute of paychecks. Hidden costs also include the time that business and HR managers spend dealing with benefit plan decisions and employee questions, as well as the ongoing costs associated with technology maintenance and upgrades.

Process gaps

According to this same study, companies pay a substantial premium for taking a fragmented approach to their time and attendance, payroll, workforce administration and benefits administration processes. These various processes are obviously interdependent, so companies that rely on different systems and/or different vendors to manage them have to link them manually or via some "one-off" software integration. The cost of maintaining these linkages can amount to $200 per employee per year.

Incessant change

In addition to being more complex than ever, HR is also increasingly subject to change. The healthcare benefit landscape is particularly in flux-but so are the many federal, state, municipal and industry-specific regulatory mandates to which companies are subject today. This constant change forces business and HR managers to almost continually review emerging requirements and available solutions.

The continued escalation in HR costs means that your company's resources are increasingly being consumed by overhead, rather than being invested in potentially more lucrative areas such as product development, marketing and customer care. More and more, you wind up working for your employees-instead of ensuring that your employees are working for you.

Risks and rewards

The complexity of the employee lifecycle doesn't just drive up costs. It also increases the potential for errors and omissions. So the challenge facing HR today isn't just to find ways to save money. It's also to continuously improve processes and outcomes.

There are several reasons why you need to pursue HR excellence at the same time as you try to reduce HR costs:

Recruitment and retention of quality employees

The ability of your company to successfully compete in today's fast-moving markets is largely contingent upon the quality of the people on your team. If your HR processes are weak, it is unlikely that you will be able to find, attract and retain the best possible candidates for every position at your company. If you achieve HR excellence, on the other hand, you will be able to hire and keep a better class of employee.

Motivation and development of employees

It's not just the quality of the people at the time you hire them that matters. What you do with that raw potential over time also has a significant impact on your long-term business performance. If you mess up people's paychecks, make it hard for them to get access to the benefits they need, don't appropriately reward exceptional work and don't quickly address workplace problems, your company's performance will suffer. If, on the other hand, you do all these things right, your employees will be more productive, take more initiative, have better morale, and make a consistently better impression on your customers.

Mitigation of legal and regulatory risks

Complex processes and constantly changing regulatory requirements can put your company at risk. These risks can include fines, legal fees, negative publicity and erosion of brand value. If your processes are not highly accurate and compliant, your exposure to these risks increases. By optimizing the quality of your HR processes, on the other hand, you can substantially mitigate your exposure to these risks.

Continuous alignment of HR spend with business objectives

Every company needs to align its HR spending and processes with its specific business objectives. If you're in an extremely price-sensitive market, you may need to whittle your spending down to the lowest amount you can reasonably achieve. If you're in a high-end/high-margin market, you may be willing to spend whatever it takes to get and keep the best and brightest people available. But chances are you're somewhere in between. There are areas where you might consider investing more to get more-and areas where you just want to minimize expenses. These priorities and objectives may also change over time as business conditions change. Quality HR processes enable you to align your HR spending with these shifting priorities, so you're always getting maximum business value from every HR dollar.