Analyst Perspectives

One thing became crystal clear while I was at ADP’s industry analyst day last week: The world is more connected than ever before, and this contributes to making the world more complex than ever before.

For human capital management this means it is easier for organizations to communicate and collaborate but more difficult to manage the increasingly massive amounts of workforce data in core HR systems, multiple databases from other lines of business and a myriad of divisional and interdepartmental spreadsheets. Many companies can’t even pull together an accurate employee headcount, much less understand the internal movement of employees, including which have been promoted, are flight risks or are retiring, as well as the impacts on gender, ethnicity, age group, knowledge sets and skills gaps. All of this information is important when planning talent acquisition, talent management and workforce planning strategy that is part of my 2011 research agenda.

For example, consider the increased complexity of global payroll and benefits administration for a larger, worldwide contingent and virtual workforce, which must take account of the diversity of each country’s workplace cultures and regulatory ideologies – and the U.S. is at the top of that list. An ADP exec joked that of the five countries with the most complex workforce compliance regulations, the U.S. is the top three (with Japan and France crowding in noisily behind).

Amid this complexity, global organizations need analytics software that is easy to deploy and to use to help them manage workforce data effectively and to develop insights into their talent management and workforce planning across all lines of business. This kind of product has not been a strength of ADP to this point.

ADP plans to release its integrated, cloud-based ADP Vantage HCM suite this fall (it’s now in pilot) and is upgrading the fairly new Workforce Now system for small and midsize companies and better integrating Virtual Edge (for recruiting), Workscape (benefits) and GlobalView (payroll) with both Vantage and Workforce Now, its core HCM products. Its customers demand greater manageability and accessibility of data and transparency into their global workforce. To provide these capabilities, ADP needs better metrics management and predictive and visual analytics capabilities.

To be clear, when we refer to analytics we mean programs or algorithms that derive meaning from data. Metrics are measures of business performance, and performance indicators are specific metrics chosen to measure the performance of an organization or some component of it. According to our own benchmark research on workforce analytics, a variety of workforce metrics are important to organizations. From a financial perspective, adherence to budget and profitability are the top metrics in more than half of organizations, followed closely by return on investment. In process terms, more than three-fourths of participants said onboarding new hires and making them proficient is most important, and time-to-hire is most important in more than two-thirds of organizations.

For 77 percent of executives and managers who participated in our analytics research, the performance of the workforce is the most important metric. All these aspects of talent management require analytics that can measure performance. But our benchmark research also found that almost half of organizations are not satisfied with their current process to create workforce analytics, and this view is even more prevalent among management (65%) and in very large organizations (62%).

For vendors of both integrated HCM suites and stand-alone workforce BI analytics I’ve spoken to of late, providing predictive, visual insight into the state of the workforce as it relates to business growth (and lack thereof) is a work-in-progress at best. ADP is working hard on developing comprehensive workforce analytics and business intelligence (BI) capabilities that address what organizations want to see today. A release is planned for 2012 and beyond. As well as expanded BI, it will include a global system of record in which companies will be able to maintain all employee records across payroll, compensation, benefits, core HR, time and attendance, talent acquisition, talent management, performance management, career management and development, in a single data warehouse. (Similar efforts are afoot with other vendors.) It will facilitate greater metrics, data visualization and predictive analytics capabilities as well as standard and ad-hoc reporting. Overall our analytics research found that the larger the organization, the more important the data warehouse is, which indirectly validates ADP’s global system of record development.

Other exciting functionality in the works includes being able to benchmark workforce analytics against other areas of the organization as well as other companies. ADP’s mobile strategy  includes giving executive management and analysts on-the-go access to comprehensive workforce analytics.

Workforce analytics offer capabilities more helpful than reports from a human resources management system (HRMS) or the dashboard of a stand-alone talent management application. They can help maximize an organization’s return on its labor investment and ensure that it retains talent as long as desired. As workforce metrics management and analysis matures and companies become more sophisticated in selecting the technology they’ll need to give them the insight they want to make timely talent management decisions, ADP and other HCM vendors will face intensified competition.

It’ll be interesting to see who gets there first. And second, even third. To find out who’s “hot” in this space, look for our Workforce Analytics Value Index evaluating the current vendors in this space coming soon.

Regards,

Kevin W. Grossman – VP & Research Director