Largest investment, financial execs frustrated in measuring ROI

Companies spend an estimated 36% of their revenues on human capital — pay, benefits, training, and other expenses related to their workforces — yet only 16% of the financial executives who participated in a recent study say they significantly understand the return they are getting on this huge investment.

The study, “Human capital management: The CFO’s Perspective”, was conducted by CFO Research Services in collaboration with Mercer Human Resource Consulting to examine the changing role of the finance function in managing human capital. It is based on a survey of 180 senior financial executives at large US and multinational corporations, as well as select in-depth interviews.

“CFOs are in a difficult situation,” says Rick Guzzo, PhD, a human capital strategy consultant with Mercer.

“Most see the importance of human capital to business success, yet they are unable to apply ordinary financial discipline to managing what is often their company’s largest investment. Their predicament is getting tougher. Financial executives are feeling increasing pressure from boards, investors, and analysts to show how human capital is being managed in their companies.”

According to the study, half of the financial executives surveyed (49%) report that investors are beginning to ask about human capital issues to at least a moderate extent. About a quarter (23%) say their boards currently are involved in human capital issues to a considerable or great extent, and 36% predict that their boards will be involved at this level in two years.

Relationship with HR function
The changing role of the CFO in managing human capital demands a corresponding change in the relationship between the corporate finance and human resource (HR) functions.

“Historically, there’s been little love lost between finance and HR in most companies,” Dr. Guzzo says.

“However, the changing business landscape makes it necessary for these two areas to come together in new, more collaborative ways. The financial executives surveyed acknowledge both a need and a willingness to work in partnership with HR to better manage the human capital of their enterprises.”

According to the study:

* Financial executives want to be more involved in human capital decisions — not just in setting and allocating HR budgets, which has been their traditional role. Of those surveyed, 62% say they should have an “important” or “leadership” role in human capital decisions, but only 38% say they currently play such a role.

* Financial executives today see human capital as a key value driver, not merely an expense as they once did. Among those surveyed, 92% say human capital has a great effect on the company’s ability to achieve customer satisfaction. Eighty-two percent believe this is so for profitability, 72% for innovation/new product development, 71% for success in integrating acquisitions, and 64% for growth.

* Financial executives believe both finance and HR should report directly to the CEO and work together collaboratively. “The relationship between HR and finance has changed because managing human capital is no longer just the province of the HR function,” Dr. Guzzo says. “It is a responsibility increasingly shared by senior leadership across the organization.”

The value of HR technology
As part of the study, respondents were asked to comment on the investments their companies have made in HR technology. Their assessment: It’s been a disappointment. The financial executives report that the HR technology provides some value in tracking employee turnover, but is much less valuable for systematic workforce planning, measuring employee skill levels, or measuring leadership capabilities.

Just 8% of the respondents say they are “largely” or “highly” satisfied with their HR technology’s usefulness in quantifying the company’s return on human capital investments.

“The problem may not be the technology,” Dr. Guzzo points out. “More likely, the problem is what the company does with data captured by its systems. Traditional approaches to data analysis won’t give CFOs the answers they are seeking, but new, more powerful human capital measurement techniques can provide these answers.”

“In all likelihood, the right data already is accessible and can be used to help both finance and HR leaders answer questions about what’s working, what’s not working, and what kind of return the company is getting on its human capital investments,” Dr. Guzzo adds.

About the study
A complimentary copy of the study report, “Human capital management:” The CFO’s perspective, is available at and

Mercer Human Resource Consulting, one of the world’s leading consulting organizations, helps organizations create measurable business results through their people. With more than 13,000 employees serving clients from 142 cities in 40 countries worldwide, the company is part of Mercer Inc., a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (NYSE: MMC) on the New York, Chicago, Pacific, and London stock exchanges.

CFO Research Services, based in Boston, Mass., is the sponsored publishing unit of CFO Publishing Corporation, which publishes CFO magazine, the leading business magazine written and edited specifically for senior executives with financial responsibility. CFO Publishing Corporation is an Economist Group business. At CFO Research Services, a dedicated team of business research professionals dissects emerging trends in corporate financial management using mailed surveys and personal interviews with respected financial executives.

Avoiding Liability

MIAMI, FL — Attorney Richard D. Tuschman, a member of the litigation department in the Miami office of Baker & McKenzie, the leading international law firm, is offering tips for avoiding liability in the hiring process. Tuschman, who specializes in employment law matters, says there are two principle federal laws restricting an employer’s inquiries during the hiring process — the Americans with Disabilities Act (ADA) and the Fair Credit Reporting Act (FCRA).

“These laws protect employees’ privacy concerns and are very specific in their requirements. Failure to comply may subject an employer to an expensive, time-consuming lawsuit,” Tuschman says.

Under the ADA, employers are forbidden from asking about the existence, nature, or severity of a disability and may not require a medical examination until a conditional offer of employment has been made. The following are some examples of topics employers should not ask during interview or reference checks:

  • Don’t ask about current or past disabilities, or about any conditions or diseases for which they have been treated, including back problems or mental illness
  • Don’t ask whether an applicant has ever requested or needed assistance in performing past jobs
  • Don’t ask whether the applicant has any disabilities or impairments that may affect performance in the position
  • Don’t ask about past drug or alcohol use

Tuschman also suggests staying away from questions about past on-the-job injuries or whether the individual has ever received workers’ compensation benefits. Also, employers should not ask about previous hospitalizations or the use of prescribed medications.

Employers can ask about the applicant’s ability to perform essential job functions and about current use of illegal drugs or alcohol use. Also allowed are questions about qualifications required for the position — education, experience, licenses, and basic reading, writing, and mathematical skills.

FCRA, the second federal law, governs companies’ use of credit reports. Employers can request an applicant’s credit and driving records as well as their criminal history. However, the employer is required to obtain the authorization of the job applicant or employee before requesting any information, and there are very specific requirements regarding the use of such reports.

“FCRA applies to all employers who use outside agencies to obtain `consumer reports,’ which include any written, oral, or other form of communication where the reporting agency gives background on the person’s character, reputation, and credit capacity. It also refers to any other details used to establish the applicant’s eligibility for employment purposes,” Tuschman goes on to say.

In conclusion, Tuschman summarizes the guidelines for FRCA compliance:

  • Obtain applicant’s consent before ordering any background checks.
  • Notify the applicant of negative report before taking action.
  • If the applicant does not respond to notification within a reasonable time period, proceed with decision.
  • Notify applicant of adverse action.

Tuschman is available to elaborate on the ADA and FRCA federal laws and to offer additional tips for employers for avoiding liability. Baker & McKenzie opened its first office in 1949 in Chicago, and today has 64 offices in 35 countries. It established a global presence more than 25 years ago, with an office in each of the world’s major money centers. The Firm currently has 612 partners, 3,169 lawyers, and a total of almost 4,200 legal professionals. The chairman of the international firm is Christine Lagarde. For more information, visit Baker & McKenzie posted record financial results for FY01, with a global fee income figure of US $1 billion.

Recruitment Outsourcing Strengthens Overall Value of HR

Ron LeVan, Director of Client Services

Advantage Human

While today’s weakened economy has increased the number of active jobseekers, recruiting is no less challenging now than in times of full employment. On the contrary, recession places additional demands on the Human Resources Department. The inundation of resumes from unqualified applicants only complicates and lengthens the hiring process, putting you in jeopardy of losing first-rate candidates. More importantly, your department’s expenses may be under the very watchful eye of upper management.

But believe it or not, there is a bright side: Tough times such as these present the opportunity to further enhance HR’s reputation as a strategic business partner.

Outsourcing your staffing function can resolve the challenge of time- and cost-effectively pinpointing top performers – both temporary and permanent – while also freeing you up to participate in high-level corporate priorities. Recruitment outsourcing is becoming increasingly popular for a number of reasons, each of which is compelling in any economic environment.

1. Specialization
Your organization’s core competency is developing and/or delivering the products and services that it offers, just as recruitment is a staffing provider’s core competency. Leading vendors actively capitalize on this expertise, resulting in:
– Up-to-date mastery of sophisticated Internet search techniques, as well as traditional and “grass roots” sourcing methods;
– Insights into industry developments and salary trends;
– Streamlined internal processes; and
– Robust resume collection, sorting, tracking, and search capabilities.

This powerful combination of factors results in the identification of stellar candidates – even those that are seemingly elusive (or “passive”) – swiftly and efficiently.

A high-quality staffing firm will also use their in-depth knowledge in a proactive, consultative manner. In addition to sourcing and qualifying applicants and handling the related administrative details, some may help establish quality and productivity benchmarks, evaluate candidates in relation to organizational “fit” factors (as well as skills and motivation), continually refine procedures to reflect best practices and lessons learned, and measure and report both hard and soft dollar savings. It is these services that transform the vendor-client relationship into a true partnership.

2. Cost savings
Outsourcing to a staffing firm eliminates the fixed expense of a recruitment infrastructure, a benefit that is particularly appealing if your personnel requirements, like those of most employers, are variable. It is no longer necessary to train and compensate in-house recruiters and support staff and, more importantly, to deploy and maintain the requisite technology. The latter is especially advantageous when you consider how quickly systems and software become obsolete.

Candidate cycle time and cost-per-hire are also reduced by virtue of the vendor’s deep understanding of what works and what doesn’t. While perhaps less dramatic than the expenses cited above, these costs also have a significant impact on an organization’s bottom line.

3. Redirected HR focus
Finding the “right” employees, while critical, is only one small item on the sizable HR “to do” list. As your firm’s success hinges upon its ability to hold onto these stars and help them flourish, you cannot afford to push retention and development activities to the back burner. Outsourcing recruitment will enable you to dedicate ample time to the planning, implementation, and support of these and other high-level pursuits.

It is important to note that recruitment outsourcing is not necessarily an “all or nothing” venture. While a skilled full-service provider can certainly administer your entire staffing function – from performing departmental needs assessments to orienting new hires and temporary workers to the organization – there are a variety of other options available, including:

  • Keeping your direct-hire process in-house while turning “ownership” of your contingent workforce over to a staffing partner;
  • Submitting temporary, temporary-to-hire, and direct hire requests to the vendor only on an “as needed” basis (i.e., when internal staff is overloaded or their efforts have been unsuccessful); and/or
  • Utilizing a staffing firm to expand, support, or completely manage outreach programs such as college recruiting, job fairs, etc.

The importance of the staffing function cannot be overstated. A company’s performance, after all, can only be as strong as that of the people who work for it. Equally vital, however, are performance management, leadership development, succession planning, and a host of other strategic HR initiatives.

The operational nature of recruitment lends itself very well to an outsourcing situation. Partnering with a staffing firm allows you to capitalize on the vendor’s technology and expertise, reduce costs, meet fluctuating personnel demands while maintaining a steady headcount, and – last but certainly not least – leverage existing resources in a way that makes a very direct and meaningful contribution to organizational effectiveness.

Services provided by recruitment outsourcing vendors Strategic consultation:

  • Working closely with the employer to define present metrics and set future goals
  • Developing a customized recruitment strategy
  • Facilitating the transition from an in-house recruitment staff (or existing vendor)

Ongoing administration:

  • Determining job specifications/candidate requirements
  • Sourcing candidates
  • Tracking, managing, and reporting on candidate activity
  • Screening candidates via telephone and face-to-face interviews
  • Scheduling and coordinating the logistics of employer interviews
  • Conducting reference/background checks, arranging drug screenings, etc.
  • Extending/negotiating job offers
  • Preparing necessary “new hire” paperwork
  • Handling candidate correspondence (e.g., offer letters/welcome packages, declination letters, etc.)
  • Generating compliance reports

Benefits of recruitment outsourcing
Vendor Specialization

  • Traditional and high-tech sourcing expertise
  • Efficient candidate management capabilities

Cost savings

  • Office space, technology, equipment, supplies
  • Staff compensation and training
  • Decreased cost-per-hire and candidate cycle times

Redirected HR focus

  • Performance management, career development, and retention activities
  • Ability to accommodate high growth needs and special projects without adding to headcount

Seizing the WoW Advantage: The Next HR Challenge

What should a smart HR leader do in these tough economic times? A targeted rather than ‘slash and burn’ approach to cost cutting, of course, but also development of a strategy for better leveraging talent. In a global, knowledge-based economy, survival and future prosperity depend heavily on our ability to mine the imaginations and expertise of men and women often working thousands of miles from each other. As part of the strategy, a smart HR leader will embrace new information and communication technologies and create work environments in which distributed talent can connect and collaborate – in planned and spontaneous ways.

Often the new ‘workplace’ is not a ‘place’ at all, but a virtual workspace. In a world seeking cost savings and higher value-added from employees, we will see the increasing use of virtual work environments, or what I call WorkWebs (WoWs). New user-driven Web 2.0 tools like wikis, blogs, and social networking technologies are converging with audio, video and web conferencing to make possible global WoWs. These collaborative spaces offer enormous potential for juxtaposing and mashing up individual knowledge, skills, and experiences to create new competitive advantage.

A WoW can be broad or narrow depending on the distribution of talent, and focused or unfocused depending on how sharply the purpose of those inside the WoW has been defined. Typically, a global project team is a broad and focused WoW, while social networking groups in business can be broad or narrow/ focused or unfocused depending on the intent and wishes of members. They can also have defined leadership or not.

While available technologies are powerful enablers of cost-effective global collaboration, the real challenge is people enablement – developing individuals and groups who can be effective in a virtual workspace – Millennials, Boomers, and those in-between. Many hours spent by Millennials playing video games doesn’t guarantee competence in a WoW role, and Boomer mindsets and skills don’t always adjust easily.

What can we do to enable people to be high performers in WoWs?
First, we need to understand the primary challenges people face collaborating virtually. In my experience, the challenges are threefold: isolation, fragmentation, and confusion. Physically and psychologically separated by virtual distance, individuals can easily become alienated from others, and paranoia, resentment, and false assumptions will try to fill the space. Distance and reduced communication also magnify the chances a collaborative group will fragment. Even small differences in understanding of team purpose direction, and priorities, etc., can open up large gaps in a team’s sense of itself and easily diffuse its efforts. Working across geographic, time zone, and cultural borders also increases the chances of confusion and misunderstandings. Many of the clues we use to understand others, e.g., facial expressions, eye movements, gestures, and knowledge of the other person’s context are often restricted or absent. Quick adjustments to communication signals can be made in face-to-face settings, but not so easily in a WoW.

The second thing we need to do in developing high performing WoWers, is to turn the challenges on their heads so that we understand the conditions to make collaboration across distances successful. Isolation will be countered by fostering high levels of engagement, fragmentation by cohesion, and confusion by clarity. These desired outcomes are dependent on performing well in what I call The Six Cs of Global Collaboration:

  • Cooperation: Ability to develop trusting relationships across geographies, time zones and cultures
  • Convergence: Ability to maintain shared purpose, direction, priorities, and performance measures across distances.
  • Coordination: Ability to align distributed work through clearly defined roles and responsibilities, tools, and processes.
  • Capability: Ability to leverage the knowledge, skills, and experiences of team members across all locations.
  • Communication: Ability to establish shared verbal and written understandings across distances via technology.
  • Cultural Intelligence: Ability to maintain a virtual workspace inclusive of value and style differences.

When people connect via technology they are consciously or unconsciously creating a virtual space in which they interact and work together. A virtual territory like Second Life is an extreme example of such a space complete with personal avatars, real estate, shops, classrooms, and so on. But even when we make a phone call, instant message someone, create a wiki document, or send an e-mail, we are creating a virtual interaction space. Our experience of that space is influenced by our choice of technologies – some technologies provide for greater communication and contextual richness than others. The technology shapes the virtual environment to a degree, but so do the mindsets and behaviors of the individuals interacting via the technology.

To realize the potential collaborative advantage of WoWs, we need to develop individuals who take personal – as well as mutual – accountability for performance in each of the Six Cs. Every member of a WoW should receive feedback on their active, value-added contribution to each C. What are the contributions we should be encouraging and rewarding?

Cooperation – Partnering
Key question: Am I contributing actively to creating a WoW in which everyone feels a desire to share and fully participate?

It is well known that trust is a key factor in the success of virtual teams. It is important to develop trust early on, and shared leadership is needed in creating the environmental conditions for developing trust. How? By modeling the attitudes and behaviors that promote cooperation and partnering from the very beginning – these include openness, support, honesty, predictability, caring, reliability, and inclusion. When a cooperative climate is created at the outset, distance loses much of its potentially negative power.

Convergence – Navigating
Key question: Am I contributing actively to creating and maintaining clear navigational markers in the WoW to help overcome potential fragmentation of the team?

Virtual space is a void and only has the navigational markers and coordinates we set up. Virtual workspaces need clear signposts such as a well-defined purpose and strategic direction, clear goals and objectives, shared principles for working together virtually, agreed upon priorities, and common performance measures. Shared leadership in developing and maintaining these markers builds ownership and commitment across distances, helping to prevent focus drift by individuals and sub-groups.

Coordination – Facilitating
Key question: Am I contributing actively to enabling the efficient and effective synchronization of team effort to achieve goals?

WoWs are made possible by a dazzling array of asynchronous and synchronous information and communication technologies (ICTs). The opportunities made possible by these technologies, however, will only be realized if participants apply them appropriately and consistently to facilitate the type of coordination and collaboration needed at a point in time. Each technology has strengths and limitations, but too often a small number of tools are used as all-purpose vehicles, e.g., e-mail. All members of a WoW need to take a vested interest in how well the different tools support the task and relationship needs for accomplishing their independent, interdependent, routine and non-routine work.

Capability – Developing
Key question: Am I contributing actively to identifying and leveraging the ranges of capabilities and resources available to the WoW?

Distance tends to hide resources and capabilities. Team members are brought into a virtual space to play a role, and the ‘wholeness’ of individuals – character, background, and range of knowledge, skills, and experiences – is often underutilized as a source of value. A key role for everyone in a WoW is to communicate who they are, what they can do, and what they want to learn from the WoW experience. This can be done formally through the exchange of CVs or more informally through creative activities and exchanges between participants. Everyone needs to work at uncovering the talents on a team, and unblock or create channels and processes in which personalities, cultures, knowledge and skills can flow and combine together to develop new possibilities.

Communication – Sensemaking
Key question: Am I contributing actively to identifying, resolving, and preventing confusion and misunderstandings in the WoW?

Misunderstandings cause chaos in virtual workspaces. Silence often hides confusion and panic rather than agreement and alignment. Interpretations can differ radically across national, organizational, and professional cultures. As well as modeling clear and precise communication, everyone must be on alert for the potential misperceptions and misunderstandings; too often they are not corrected fast enough in the virtual environment and a small communication disconnect can become a major issue.

Cultural Intelligence – Integrator
Key question: Am I contributing actively to helping everyone in the WoW feel that they are able to participate fully and make a difference?

Members of global virtual teams contribute diverse values, perspectives, approaches, and styles. These differences are so necessary for creativity and robust problem solving on the team. While that is certainly true, participants must support the development of a WoW culture that provides some shared operating agreements, e.g., how will we make decisions, share information, communicate, give feedback, and handle conflict.

During this economic downturn, HR departments should seize the opportunity to strengthen cost-effective global virtual collaboration in their organizations. Strategic collaborative advantage can be developed now to increase competitive advantage in the recovery.

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