Streamlining HR processes to improve ROI: aiming to strike a balance between insourcing and outsourcing for HR efficiency? Consider Web-based "point solutions" to leverage best features that can meet today's and tomorow's needs.

Considering streamlining your human resource processes? Chances a re your company will choose one of two models: expand its internal enterprise resource planning (ERP) system to include HR functionality or outsource some or all HR functions to a single third-party vendor. Your company is not alone.

ERP expansion and total outsourcing are two papular choices. Companies select one or the other, based on their existing needs, and devote significant resources to implementing and maintaining their chosen solution.

However, companies are beginning to wonder if these solutions can meet their future needs. They are asking these types of questions: Is the return on investment (ROI) in our ERP or outsourcing solution as high as it can be? Is our solution capable of supporting our future--possibly very different--objectives? What is the cost of expanding its capabilities? Does association with a single vendor or solution limit our flexibility and leverage?

More and more, companies are concluding that the costs and time associated with upgrading their ERPs and total outsourcing solutions to meet new demands may be prohibitive. And, they are increasingly frustrated by the limitations imposed by their single format, either/or models. ERP and total outsourcing solutions each have unique advantages, and many companies would like to capture the benefits of both.

Fortunately, new technologies are making a more balanced approach possible. Point solutions--targeted, best-in-class applications that easily integrate into existing client legacy and vendor systems through Web-based technologies--allow companies to leverage the best features of their ERP (such as finance, accounts receivable and accounts payable) and outsourcing solutions, while adding new functionality that reflects their changing needs.

Balancing Old and New

Coca-Cola Enterprises Inc. (CCE), the world's largest marketer, producer and distributor of products for The Coca-Cola Co., recently discovered the value of point solutions and a balanced approach to HR efficiency. Like most companies, executives at CCE didn't know how much they were actually spending to administer their benefits.

When they analyzed the return on the company's benefits investments, the results were disappointing: despite significant average annual benefits expenditures, CCE's 72,000 employees did not fully recognize and appreciate the value of their benefits. Decentralized and inconsistent processes were hampering CCE's delivery of health and welfare benefits, reducing their perceived value and driving up costs. At the same time, local HR staff were bogged down with routine benefits issues and had little time to address crucial strategic concerns such as talent recruitment and management.

The company knew it needed a health and welfare benefits administration solution that would centralize and streamline its benefits service delivery processes. Objectives for the solution included: quick implementation; new features, such as case management; integration with an existing pension solution; reasonable costs; and flexibility; and scalability to accommodate future changes.

CCE conducted a strategic analysis to determine the type of solution that would best meet these objectives. A team assessed the structure and implementation schedule for a planned, company-wide ERP, the services offered by several outsourcing vendors and the functions and capabilities delivered by a point solution. Criteria used to evaluate the options included cost, functionality, implementation speed, scalability, integration potential and the degree and immediacy of any business impact.

A side-by-side comparison of the three options showed that only the point solution fulfilled all of CCE's requirements. While incorporating benefits processes into the planned company-wide ERP initially had been the company's preference, the strategic analysis showed that implementation would be too complex and too lengthy to meet HR's accelerated schedule. Significant customization would have been necessary because most ERPs are not designed with FIR processes in mind, and their core functionality is often inconsistent with HR requirements.

Total outsourcing was also rejected due to the potential for high up-front costs, uncertain returns and service delivery gaps. CCE learned during the strategic analysis process that while outsourcing has grown in popularity, recent data suggests that cost savings--the primary mason why companies outsource--have been an elusive goal for several reasons. Companies that retain internal responsibility for certain HR processes are more likely to move toward employee and manager self-service, reducing the amount of corporate time devoted to transactional HR. Hidden fees, transition delays and slow responses to changing market conditions and technology innovations are three additional factors.

The Point Solution Approach

This approach was the best solution for CCE, for several reasons:

* Cost savings. The point solution selected by CCE enables a mixture of insourcing and outsourcing, and the company is benefiting from the lower costs associated with the balanced approach. CCE's analysis of its three options projected that the internal rate of return for the point solution approach was 28 percent higher than the ERP solution and 100 percent higher than the total outsourcing solution (which yielded an estimated negative internal rate of return).

* Integration with existing systems. CCE already had a pension administration solution that worked well. Adopting a point solution approach enabled CCE to integrate its existing pension solution with the new health and welfare system without making significant changes.

Point solutions work for companies like CCE because existing solutions, while approaching the outer limits of their capabilities, do not need to be discarded. Instead, they serve as the basis for growth.

* Flexibility. A growing pool of retirees meant that automating retiree benefits was crucial for efficiency, yet expanding the existing system to include retirees would have been very expensive. The point solution allowed the company to add retirees, as well as bargaining employees--those under a bargaining agreement, such as union employees--into both the health and welfare and pension administration systems without a costly and time-consuming upgrade. This flexibility will help CCE's solution keep pace with future changes in the business environment, new government regulations, demographic trends and technology innovation.

* Control. Because the point solution can integrate with databases across CCE as well as those of its vendors, it was able to establish an HR shared service center through which company employees--not an outside vendor--answer employee questions by drawing on multiple databases that reside on external servers. This has allowed CCE to remain in control of the employee-employer relationship while outsourcing the technical responsibilities.

* Functionality. Unlike solutions that are developed for finance or administrative functions and retrofitted to meet HR needs, point solutions are built from the ground up. This means that in addition to improving the efficiency of HR functions that already have been automated, point solutions extend technology to HR areas that are still in the early phases of technology adoption, such as compensation and communication. Adopting the point solution allowed CCE to introduce case management tools into its pension administration system; now, service center representatives can automatically log, track and resolve individual issues for employees.

* Protection. Point solutions are appealing because they allow companies to hedge their bets. Companies that invest everything in one ERP system or outsource entire HR functions to single vendors have huge stakes in the survival of those companies. In addition, such dependence makes it difficult to switch providers even if the services are unsatisfactory.

The emergence of point solutions is enabling companies to move away from the either/or approach inherent in traditional ERP and total outsourcing solutions. Point solutions can be used to bridge the gap between a company's existing systems and future needs, without significant investments of capital and time.

Finally, financial executives' awareness and understanding of point solutions is crucial for maximizing the return on their companies' HR technology investments. While HR executives can assess the fit between the ERPs, total outsourcing and point solutions and satisfaction of HR goals, input from financial executives is essential for ensuring the selected approach meshes with other existing and planned technology investments, delivers significant ROI and supports the company's objectives.

RELATED ARTICLE: The finance angle.

In the past, chief financial officers and other financial executives would have paid little attention to the challenges of human resource technology selection. Rarely were managing and monitoring the return on investment (ROI) for HR-related expenditures a priority outside of HR.

Recent research is changing this attitude. In 1999 and again in 2001, Watson Wyatt surveyed more than 750 publicly traded companies in the U.S., Canada and Europe with at least three years of shareholder returns and a minimum of $100 million in revenues or market value to determine the impact of specific human capital practices on their bottom lines. The results showed that shareholder returns at companies that maximize specific human capital investments were 47 percent higher than the returns of companies that do not.

Such research, combined with firsthand experience, has convinced financial executives that people and the investments companies make in them--matter. However, this knowledge does not always translate into action. Unlike investments in other functions that are managed through collaboration among finance, operations and technology executives, companies often continue to leave the "people stuff" to human resources alone.

This approach must change. With so much money on the line, companies cannot afford to make HR investments without significant input from the financial side By moving human capital onto their radar screens, financial executives help ensure their companies' HR investments yield the highest possible returns. Financial executives bring a number of strengths to the HR investment process, including business acumen, measurement expertise and deep knowledge of organizational goals and strategy.

Robert "Skip" Hackney is Watson Wyatt Worldwide's Central Division Practice Leader for Technology Solutions, based in the Minneapolis office. He can be reached at [e-mail].