Making HR Technology Decisions

Janet H. Marler, Sandra L. Fisher

• Publisher: Business Expert Press
• Year: 2016
• Print ISBN: 9781606498149
• eBook ISBN: 9781606498156
• Topic: Business
• Subtopic: Human Resource Management
• Index: Business

The goal of this book is to help HR decision makers recognize where to capture value from HR technology, learn how to demonstrate that value, and make better implementation decisions. The authors include topics such as how HR technology can deliver strategic value; whether to outsource HR processes, HR technology, and project management; training and change management; measuring value through ROI analyses and HR Analytics; and, how to evaluate and manage future HR innovations. Our approach is to introduce theoretical frameworks from management science to guide decision making about HR technology. These theoretical approaches provide a scientific basis and structure to analyze business challenges and improve decision making compared with using intuition alone or relying on vendor best practices. The theories and frameworks come from strategic management, economics, accounting, finance, organizational behavior, and information systems. This breadth helps managers understand the many ways HR technology decisions can increase value.

CHAPTER 1

Introduction

To achieve great things, two things are needed: a plan, and not quite enough time.

—Leonard Bernstein

The growth in capabilities of information technology (IT) in the past 50 years parallels, and in many ways supported, the growth and sophistication of human resource management (HRM) in companies. As this amazing trend of revolutionizing technological innovation continues, HRM professionals in organizations face many exciting opportunities to enhance the practice of HRM and also many challenges as they ponder how to engage with an array of IT innovations. A brief history of the past 50 years illustrates clearly both the opportunities and the challenges faced by HRM professionals in organizations.

Historical Context

In the 1960s, IT and HRM (more often called personnel management [PM]) were stand-alone specialized functions concerned primarily with processing standardized transactions correctly and accurately. For PM, there was limited interaction with other organizational functions such as sales and marketing, manufacturing, or accounting except on an as-needed basis. Similarly, there was little interaction within areas of PM specializations such as workforce planning, recruiting and selection, compensation, training, and performance management. In IT, mainframe computers processed large transactions such as payroll, purchasing, accounts receivable, billings, and bookkeeping independently and inflexibly. IT capabilities began to change, however, in the 1970s, paving the way for greater integration between processes. These increasing computing capabilities began with Manufacturing Resource Planning and Management Information Systems (Romero & Vernadat, 2016). As the labels suggested, these early forerunners of enterprise resource planning (ERP) systems were primarily located in manufacturing. However, these software capabilities that included automation of processing transactions as well as providing increased reporting information to support decision making eventually spread to other administrative functions such as HRM. The introduction of the early versions of ERP systems in the 1990s made possible rudimentary integration of administrative databases in manufacturing, accounting, marketing, and human resources. This integrated capability interestingly coincided with the growth in strategic management and, soon after, strategic HRM. In the 1990s, the notion of strategic HRM was just taking shape (Kaufman, 2014). Early conceptions of strategic HRM introduced notions of alignment, both internal and external. Internal alignment involved aligning or integrating the specialized areas of HRM, which included recruiting, selection, training, performance management, and compensation into reinforcing configurations of HRM practices. External alignment involved becoming knowledgeable about the company’s business strategy and making sure each specialized area of HRM supported this strategy. HRM professionals were slow to embrace these strategic alignment practices (Kaufman, 2010), and early ERP systems were also not quite up to this task either, despite marketing rhetoric to the contrary.

Pushed by the increasing evidence supplied by academics using early versions of data analytics, that having strategic HRM was associated with better financial performance (e.g., Delery & Doty, 1996; Huselid, 1995), IT vendors promoted their ERP software as enabling HRM to become strategic business partners. This was when major HRM IT vendors such as PeopleSoft, Oracle, JD Edwards, Lawson, and SAP, first emerged. One way in which IT vendors claimed HRM could become strategic was to automate HRM processes so that HRM professionals would have more time to design strategically aligned HRM practices (Marler, 2009; Marler & Fisher, 2013a; Parry & Tyson, 2011). However, the promises and expectations associated with adoptions of early ERP systems were frequently not met as the reality of the limitations of early-stage software capabilities and the expense associated with implementing on-premise software systems sank in (Bondarouk & Ruël, 2009; Ruël, Bondarouk, & Looise, 2004). These concerns, however, were soon addressed by the next wave of technological innovation.

In the 2000s, with the increasing diffusion of networking, initially within company boundaries but with the introduction of communication protocols that enabled the Internet and the World Wide Web, networking extended outside company boundaries. The widespread diffusion of Internet-based technology accelerated intra- and interorganizational sharing of data and computing. With the ability to share data and computing using Internet-based technology came the notion of cloud computing, a term popularized when Google CEO Eric Schmidt introduced it in 2006 (Daylami, 2015). The National Institute of Standards and Technology defines cloud computing as “a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, services, storage, applications and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction” (Daylami, 2015, p. 41).

Cloud computing along with business intelligence (BI) software systems touted a new approach that would enable HRM to better manage talent and human capital. Talent management best practices embedded in software modules that would augment ERP HRM software could be acquired quickly and easily through Software as a Service (SaaS). SaaS, a cloud computing–enabled innovation, lowered the cost of implementation compared with on-premise ERP HRM by outsourcing the software and its management to the software suppliers. This newer generation of software also had a new name, talent management applications. Talent management applications software promised to provide improved and integrated best practice HRM processes to better support HRM professionals’ increasing desire to become strategic business partners, all for a lower implementation price tag. Rather than buy HRM software and hardware, companies could once again time-share as was done in the 1960s (Daylami, 2015) and lease their technology solution.

In the past 10 years, HRM professionals are being challenged to be both strategic business partners and show their value added. To be truly strategic, HRM must be able to link HRM processes to business outcomes such as employee productivity, customer satisfaction, and employee engagement and profitability. To meet this new demand (or perhaps driving this new trend), software vendors are introducing BI that enables HR metrics, but with a new name, HR analytics (Lawler, Levenson, & Boudreau, 2004).

Another trend HRM professionals are grappling with in the advent of cloud computing solutions is the strategic responsibility of protecting the security of their data and their intellectual capital. Here, HRM is pushing IT for a new wave of innovation by asking, “How much of my EIS must be open to partners or stakeholders while protecting the security of my data or my intellectual property rights?” (Romero & Vernadat, 2016, p. 9). Finally, other IT trends pushing HRM include the growing use of mobile computing, social media, and data from the Internet of Things (IoT). These emerging innovations are sure to influence how HRM is practiced in the future as the implications for the traditional employment relationship between the sharing economy and intelligent robots and devices play out.

A Strategic and Scientific Perspective

As this brief historical review suggests, HRM professionals in organizations face opportunities and challenges in deciding when to adopt and how to adapt to HR IT innovations. Fortunately, there are decision-making frameworks that HRM professionals can use to make this process more transparent, reduce uncertainty and improve outcomes. In this volume, our goal is to provide you with new perspectives concerning the intersection of IT and the practice of strategic HRM. To do this, we take a strategic perspective, which is a current gap in the literature (Marler & Fisher, 2013b). We also apply other theoretical frameworks developed by leading academicians and whose efficacy has been scientifically tested over the years by management scientists.

Our strategic perspective is based on the premise that companies seek to achieve competitive advantage in order to maximize shareholder or owner value. Competitive advantage is achieved when there is a greater difference between what the company’s customers are willing to pay for the company’s product/service and what it costs to produce the product/service compared with rivals. In short, the company creates more value than do its rivals, which ultimately translates into greater sustained profitability and shareholder/owner returns. We develop this perspective in greater detail in the next chapter. Given the company’s goal to produce greater value, managers and employees are charged with making decisions and taking actions that will increase the likelihood of achieving this goal.

We apply this perspective to decisions about adopting and implementing IT innovations that involve the practice of HRM. We start with the initial strategic decision, whether to adopt a new electronic HRM (e-HRM) innovation or not. We assume that this decision is largely made by senior or executive managers, particularly when adoption involves committing significant organizational resources. We then focus on operational decisions associated with implementation, which we assume involve middle-level HRM, IT and financial managers, and ultimately the end user. Each of these decision makers has different responsibilities and self-interests, which bear on how decisions are ultimately made. In addition to these various decision makers who we assume have an arguably overrationalized overriding goal to achieve competitive advantage, we also acknowledge that IT innovations represent the encoding of the software developers’ goals. There is therefore goal conflict that occurs throughout the adoption and implementation process. This conflict should not be underestimated. Finally, in our volume, we use major theoretical frameworks to provide scientific approach to analyzing the adoption and implementation decision.

A Scientific Orientation

In our chapters, we introduce theoretical frameworks from various fields of management science to serve as a guide for decision making. These frameworks allow us to think about what important factors to consider when deciding what actions to take. Theoretical frameworks also provide scientific basis and structure to analyzing business challenges that increase the likelihood of making better decisions compared to using intuition or copying what others are doing without fully understanding why. The theories and frameworks used in this book come from many different disciplines, including strategic management, economics, accounting, finance, organizational behavior, and information systems. This breadth helps managers understand the many different ways in which e-HRM affects an organization.

Given the strategic orientation of this book, it should come as no surprise that we use three theories from the strategic management literature: the five forces and competitive positioning framework, resource-based view theory, and competitive dynamic theory. These theories were developed in the 1980s and 1990s and have been very influential in guiding companies’ competitive strategies. We use these theories to inform us about how to think about creating and capturing value with respect to the adoption and implementation of e-HRM systems within organizations. Later in the book, we explore the concept of organizational ambidexterity as it relates to strategic innovation. Firms that are able to both explore and exploit are ambidextrous and enable them to better survive and thrive in a rapidly changing external environment.

We also use several theories from the field of economics. Transaction cost economics (TCE) is a theory first introduced by the Nobel Prize winner Ronald Coase in his transaction cost-based theory of the firm in the 1930s but largely ignored until the 1980s. TCE speaks to the factors organizations should consider when deciding whether to make or buy a service or product. Transaction costs determine when one or the other is more favorable. Agency theory addresses the challenge organizations face when the individual performing the work is not the same individual who either owns the organization or is responsible for the outcome of the work. In these situations, there is inherent conflict of interests between both parties. We apply these two theories to thinking about how whether to make or buy an e-HRM system, how to structure the organization to best utilize an e-HRM system, and finally how to consider the conflicts of interests that inevitably arise when the party who is using the e-HRM system is different from the party that owns the e-HRM system.

We use several theories and frameworks drawn from different aspects of the HRM and organizational behavior fields. One is the instructional design model of training, which provides a clear structure on how to approach any kind of training intervention in an organization. This framework guides the development and implementation of training from beginning to end, and helps ensure that the training for e-HRM enhances the overall value of the system. We also introduce Kotter’s model for change management, as getting employees to effectively use a new e-HRM system often involves more than just teaching them the skills needed for the new system.

Two other theories we used are often found in the information systems literature but have been used to understand a wide spectrum of innovation and system adoption issues. Diffusion of innovations (DOI) theory comes from Everett Rogers’ decades-long research on how innovations of all kinds spread, and what factors contribute to innovation adoption or abandonment. The theory, which is documented in Rogers’ book, Diffusion of Innovations, represents a seminal contribution to our understanding of how new ideas, products, and services eventually are adopted and become commonplace in society. The technology acceptance model (TAM) focuses on two attributes of systems that are likely to affect their adoption: ease of use and usefulness. The general idea is that information systems that are easy to use and that help employees get their jobs done will be more readily accepted in organizations. We employ this theory to help understand some of the content that should be communicated during the training and change management phases of an e-HRM implementation project. Both DOI and TAM help us better understand how to think about the future of e-HRM and how to make decisions in a context where there are always new ideas and opportunities that may threaten the status quo.

From the fields of finance and accounting, we use two primary frameworks. Capital budgeting theory is premised on the existence of a quantitative algorithm, which maximizes the firm’s value. There are several different capital budgeting quantitative algorithms that can be used to evaluate investment decisions, and these are described and illustrated using a decision about whether to adopt and implement workforce analytics software. The second framework in this area is the balanced scorecard (BSC) framework, first introduced in the late 1980s by two accounting professors. The original purpose of the BSC was to shift decision makers focus on organizations away from purely financial accounting data, which represented largely historical data, and toward other organizational data related to operations and customers. A key insight from using this framework is to understand the difference between leading and lagging indicators of performance.

Definitions of Concepts

There are a lot of terms used in the area of HRM, and sometimes it is hard to keep them all straight. Often there are multiple names for essentially the same concept. This happens when new labels are created for existing concepts to give a sense of innovation or newness. Unfortunately, this contributes to miscommunication and confusion. In our book, we try to minimize the number of terms used. However, because we are often reporting on research conducted by other scientists who use different terms, we also need to point out concepts that largely overlap but, for various reasons, have different labels. For example, HR function, HR practices, HR processes, HR capabilities, and HR activities refer generally to the same thing and are used interchangeably. They represent the tasks, actions, and policies that are intended to create HRM outcomes such as a new hire, a new job, improved knowledge or skill, base pay, individual incentives, a performance appraisal, a promotion, or a termination. Human resources, human capital, and talent are also used interchangeably and refer to people with particular knowledge, skills, and abilities who perform tasks or jobs that contribute to producing the company’s product or service. They can be employees, independent contractors, temporary agency workers, or contract workers.

With respect to information systems, the terms human resource information systems (HRIS), e-HRM, human resource IT (HRIT), and human capital management (HCM) ERP module, or HCM Applications are all used by different writers in the field. We believe these terms have more in common with each other than differences, and therefore they can be used interchangeably. At the core of these terms is an underlying concept of comput...

Table of contents

• Cover
• Half Title Page
• Title Page
• Copyright Page
• Contents
• Preface
• Chapter 1 Introduction
• Chapter 2 The Value Proposition: A Strategic Perspective
• Chapter 3 Organizational Boundaries: Insourcing or Outsourcing Decisions
• Chapter 4 Training and Change Management
• Chapter 5 Measuring Value Creation
• Chapter 6 Innovation: The Next Big Thing
• Index