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HR technology focus affects shareholder value. (New and Noteworthy Information You Can Use).

A new Watson Wyatt study is sending a clear message to companies about their HR technology investments -- make sure they have teeth. According to the company's 2001 Human Capital Index (HCI) study, companies that focus their HR technology initiatives on making specific, quantifiable improvements see as much as a 6.5% increase in the company's shareholder value. Those with softer, less quantifiable goals can see negative returns.

"When it comes to implementing HR technologies, the focus of the initiative is the key driver in achieving financial results," says Ed McMahon, national practice leader for eHR Canada, Watson Wyatt. "The same technology initiative implemented in two similar organizations, but with a different focus, can actually result in a dramatically different impact on company market value."

According to the HCI study, when technology is used primarily to help reduce costs, improve employee service and increase transaction accuracy, the returns on that investment can be significant. But where HR service technology is implemented with a primary focus on less quantifiable goals -- such as enhancing communication and promoting culture change -- the technology is associated with a significant decrease (-14.3%) in market value.

"The important point here is not that HR technology shouldn't be used to enhance employee communication and build organizational culture. Both are important components of organizational success, and both are valuable results of successful HR technology implementations," notes McMahon. "But making them the primary focus of those technology implementations negatively impacts the results."

The HCI data is also used to measure factors such as the impact of HR technology choices on total returns to shareholders over a five-year period. For example, most HR organizations today depend on some combination of Enterprise Resource Planning (ERP) systems, outsourcing and individual best-of-breed HR applications. The study indicates that those decisions can affect market value as well, depending on company size.

"Clearly, larger organizations are achieving significant returns for their shareholders from properly focused HR technology initiatives, regardless of the primary HR technology chosen for service delivery. For small and mid-size firms, however, the technology choice itself can severely restrict any positive impact on financial results," observes McMahon.

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Author:Colman, Robert
Publication:CMA Management
Article Type:Brief Article
Geographic Code:1USA
Date:Jun 1, 2002
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