Making HR a profit center: current technological advancements make it possible for human resource departments to play a strategic role in managing a company's key assets, its people. (Human Resources).

Consider these statistics for healthcare, employee benefits, human resource (HR) administration and corporate earnings:

* America's Fortune 500 corporations spend approximately $5,000 per employee per year on healthcare, and those costs are increasing 11-15 percent yearly.

* Employee benefits, including HR administration costs, adds another $7,000 per year per employee.

The total cost of healthcare, employee benefits and HR administration per employee per year equals approximately $12,000.

* The median of Fortune 500 corporate revenues per employee in 2002 was $200,000.

The cost to U.S. corporations: approximately 6 percent of revenue for healthcare, employee benefits and HR administration.

As a financial executive, how much would you expect to invest to increase your revenues 6 percent? How many people would you hire? What capital expenditures would you imagine? What financial reporting systems would you ensure are in place to track such growth?

Now, compare the energy, investment and resources that goes into increasing revenues 6 percent versus the amount your company spends managing the HR budget. Your comparison will yield vastly different results--however, managing the HR department as you do other business units could have much greater impact on the bottom line.

You might agree with this, but HR is probably not one of your corporation's core competencies, so the company would never spend that kind of money managing HR.

The question is bigger than just HR; it's really about the people. Regardless of the dot-com bust, the knowledge economy continues to evolve in the U.S., and employees are increasingly becoming a company's biggest asset. How we manage the asset of "people" will differentiate the winners from the losers.

Many have heard of the emergence and importance of Human Capital Management--or the paradigm shift of making the HR department less administrative and more strategic to the organization. This movement is slowly taking hold in corporate America. Indeed, as corporations become more dependent on people, HR becomes more strategic.

There are many thought leaders in the human capital arena, but few are as ahead of the curve as those in Pitney Bowes Inc.'s HR department. Led by a cadre of veteran HR executives, the company has attacked the costs and sought to enhance the values of its human capital.

"It's the ability for the corporation to maximize the value of the employee/employer contract in every way so that the employee is happy and the corporation gets the best possible performance from that employee during the term of the employment contract," explains Pitney Bowes Corporate Medical Director Jack Mahoney.

A recent Watson Wyatt Human Capital Index report expressed the concept this way: "If you hire the right people, create an environment that supports creative thinking and increased productivity, leveraged by technology, you'll reap the rewards."

Maximizing Performance Using HR

So, how can organizations maximize employee performance through HR? Before hiring a human capital management consultant and assuming all your problems are solved, some basic steps must be taken to enable an effective initiative. Start by understanding the current state of the HR department. Unless you have a thought leader in your HR department, you are likely in for a surprise.

To understand where the HR department is spending money, you must look deeper than a percentage of payroll or revenue. You must understand the largest costs and how the money is being utilized within those large items. What is the return on investment? It is unacceptable to allow HR spending to continue without a solid justification.

Unfortunately, most HR departments do not have the data or the systems in place today to be able answer the ROT questions. The data required to do so cannot be found in an ERP system, and management techniques such as supply chain management, just-in-time (JIT) and total quality management (TQM) have not been truly embraced by HR.

Faced with this black hole of costs, corporations must establish initiatives to treat the HR office as a strategic target for cost management. These specific areas of high cost and inefficiency involve a lack of consistent, effective vendor management, specifically in procurement protocols; vendor performance guarantees; vendor improvement; customer (employee) feedback; lack of data control and ownership; dependence; high-cost of third-party consulting; and flat departmental learning curves.

With a deeper understanding of these inefficiencies, corporations can accelerate the evolution of their HR departments into efficient profit centers by deploying technology.

Make the Technological Leap

One way to learn is to look at how other successful companies have historically gained competitive advantage. In Good to Great, best-selling author Jim Collins discusses the role of technology in the evolution of 11 companies that achieved greatness. He found that when used properly, relevant technologies accelerate business momentum and help companies "make the leap" to greatness.

With the healthcare and employee benefits industry nearly a decade behind other industries when it comes to technology adoption, it is no wonder that the HR department is costly and inefficient.

HR cost management software is emerging on the market to enable the management of all HR data. This software is one of the first tools available to enable corporations to understand their HR spending. It puts the corporation in control and, for the first time, gives HR professionals the information and the tools to:

* Control and own relevant cost information.

* Employ supply chain management techniques.

* Adopt procurement protocols.

* Evaluate vendor performance consistently.

* Improve vendor performance.

The HR cost management technology that has been embraced by dozens of Fortune 500 companies is a first step in Human Capital Management adoption. In many ways, it enables HR to have some early successes in managing costs with technology. Corporations can lower administrative costs, third-party consulting costs and typical services costs by better managing their vendors. But more importantly, the concentration and control of the HR spending information provides HR to leverage its increased knowledge to improve employee performance.

By impacting employee performance, the HR department becomes a strategic asset within the corporation. To increase human capital as an asset, HR must understand the relationship between the HR department's actions and the performance of employees.

How, then, can HR people ensure that employees are more productive tomorrow than they are today? If HR can solve this problem it will become the most strategic asset to the company. Driving the per-capita performance well beyond the Fortune 500 median of $200,000 should be every HR executive's goal.

In order to get there, HR must:

* Adopt technology to gain information and control.

* Reduce current HR spend by adopting procurement, vendor management and supply chain techniques.

* Spend time and money only on things that will increase employee performance and contribute to the asset of human capital.

It is the job of corporate leaders to provide employees with the leadership and resources they need to continually outperform. Especially during this challenging time of increased HR costs and slowing corporate revenues, corporate leaders need to have the courage to invest in HR leaders so that they will be able to manage a company's most important asset: its human capital.

Brent Bannerman ([e-mail]) is Co-Founder of Waltham, Mass-based IE-Engine (www.IE-Engine.com), which develops solutions to help Global 1000 companies better manage the data and spending associated with employee benefits such as healthcare.