Automated Talent ManagementThe New Strategic Imperative for Performance Efficiency

March 2010

The ADP Logo is a registered trademark of ADP of North America, Inc. All other products and marks are the property of their respective owners. ©2010 ADP, Inc.

introduction 2

What is Talent Management? 3

the evolution of talent management processes and systems 4

The State of Talent Management in Small to Mid-sized Companies 5

Current Issues and Challenges 5

The 15 Most Common Talent Management Tasks 7

benefits of automation and integration 10

Taking Advantage of External Resources 10

HR Systems Integration: The Key to Improved Efficiency 12

summary 14

about the study 15

about ADP 16

contents

2

introduction

The purpose of this white paper is to help decision makers in small to mid-sized companies understand the role that talent management plays in their competitive success, and to gauge the benefits of investing in an automated solution for managing the requirements of an effective talent management strategy.

When it comes to making sure the right people with the right skills are in the right positions at the right time, mid-sized companies have just as much at stake — perhaps more — than larger ones.

With automation of key talent management functions comes efficiency. Resources (both human and financial) are freed up to contribute to business growth, not business administration. People continue to make the decisions. Technology is just a tool — but a highly valuable one.

3

1 “Talent management – Managing talent from the danger zone to the value zone,” Ernst & Young, EYGM Limited, 2009.

2 IDC MarketScape: Worldwide Integrated Talent Management 2010 Vendor Analysis, IDC, 2010.

3 “Talent Management: Buzzword or Holy Grail?” Stephen Joyce, Jean Herreman, Kel Kelly, The Hackett Group, 2007.

What is Talent Management?Also known as Human Capital Management (HCM), talent management has been described as “a deliberate and ongoing process that systematically identifies, assesses, develops and retains talent to meet current and future business needs and objectives.”1 It begins as soon as a potential hire is identified, and continues throughout the person’s entire tenure as an employee.

A 2010 analysis of the integrated talent management landscape by IDC2 identified the following functions as vital to a single integrated solution:

• Recruiting and applicant tracking The capabilities needed to manage job openings and potential candidates (both internal and external) for those openings.

• Employee performance management Management of the goals, objectives and skills of the position to provide ongoing feedback to the employee.

• Learning and development Assessment of skills gaps, prescription of learning and development activities to fill those gaps, and delivery of learning content.

• Compensation management Management of salary planning and tools to ensure equitable policies are applied.

• Career and succession planning “Internal recruiting” designed to have the right people ready to ascend from within.

To this list of critical talent management functions, many HR professionals would add onboarding — the systematic, comprehensive approach to orienting new employees so they quickly acclimate to new surroundings and become productive, contributing members of the workgroup.

Though larger organizations have adopted technology solutions designed to facilitate the process of talent management, recent research shows that similar solutions have yet to be embraced by smaller organizations.

talent management by the numbersResearch from strategic advisory firm The Hackett Group3 reveals that companies with top-quartile talent management outperformed typical companies across four standard financial metrics:

• EBITDA (earnings before interest, taxes, depreciation, and amortization) of 16.2% versus 14.1% for typical companies

• 22% improvement in net profit margin

• 40% improvement in return on assets

• 27% improvement on equity

4

the evolution of talent management processes and systems

* Net gain based on comparisons of business units within companies (year one to year two), comparing growth units to average performance.

Research by Gallup4 shows a direct correlation between increased employee engagement and a positive impact on key business metrics. Business impact studies have demonstrated typical net gains as follows:

Annualized Net Gain*

• Retention (for high-turnover companies): 60%+ 15%

• Retention (for low-turnover companies): <60% 26%

• Customer 3%• Safety 48%• Productivity 11%• Profitability 15%

4 “Employee Engagement: What’s Your Engagement Ratio?” Gallup Consulting, 2008.

The growth of talent management parallels the development of the overall human resources function — from an original focus on efficiency and effectiveness to a critical driver of 21st century corporate strategy. Just as HR has progressed from its roots as a solely administrative function, talent management has grown into an increasingly imperative and complex process over the years. Top-performing organizations across the globe understand that talent management — and by extension, employee engagement — is a force that drives business outcomes.

Today, HR support systems and solutions take many forms. Companies of all sizes adopt automated or outsourced technologies for common HR administration functions like payroll, time and attendance, and benefits administration.

However, the automation or outsourcing of specific talent management functions — such as recruiting, performance management, compensation management and learning — remain the exclusive domain of larger organizations, despite significant advances in solutions designed specifically for mid-sized businesses.

employee engagement: a proven return on investment

5

The State of Talent Management in Small to Mid-sized CompaniesIn 2009, ADP commissioned a study, Identifying the Talent Management Needs of Small to Mid-sized U.S. Companies, that provided an in-depth look at how organizations with fewer than 1,000 employees are currently handling their talent management functions. The intent of the study was to develop a detailed profile that provides insights regarding how talent management tasks are processed.

Respondents to the study were HR heads or senior HR executives within their organizations with the best overall view of their company’s needs in hiring, assessing, retaining, and developing their employees; those either fully or partially responsible for evaluating alternatives who made either recommendations to senior management or who had actual purchasing power.

Current Issues and ChallengesThe study uncovered three main areas of concern among respondents with regard to their talent management needs:

Recruiting Recruiting is the #1 challenge facing HR executives. Problems include the volume of applicants (too many or too few), applicants lacking the right skills and experience, applicants lacking qualities related to a desirable work ethic, location, and compensation limitations. One HR executive recalls posting an ad for an administrative assistant on Craigslist earlier this year. Nearly 400 applicants responded in four hours. She says, “That’s an average of 100 applications an hour. I took the posting down because I couldn’t possibly deal with that kind of volume.”

While the war for talent may have cooled in the current economy, the flip side presents an even greater hurdle for resource-challenged companies — wading through the deluge of applications for every position posted to find the best candidates and streamline the onboarding process.

Retention The study also shows that keeping employees is HR’s next most significant challenge, with compensation more strongly linked to this particular issue. When budget constraints and/or lack of funding limit or prevent pay raises, it often results in a high turnover rate.

In a down economy, an intense talent shortage may be difficult to envision, yet the impending retirement of an aging boomer generation will soon force companies to confront significant labor and talent shortages, especially in industries such as healthcare.

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Recruiting Presents the Biggest Challenge, Followed by Retention and Learning

59%

23%

20%

17%

Recruitment

Retaining employees

Learning/training

Nothing/no issues/not sure

Learning In Identifying the Talent Management Needs of Small to Mid-sized U.S. Companies, 20% of those surveyed ranked learning and training as their most pressing talent challenge.

The challenge comes with implementing cost-efficient systems for not only increasing employee engagement and aligning the goals and interests of individuals with those of the organization, but also determining if these investments are producing tangible returns, such as increased sales or greater productivity.

Training departments are also frequently tasked with meeting complex industry compliance and certification requirements — and avoiding costly penalties by tracking and fulfilling all the necessary federal, state and regional reporting requirements.

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89%5%6%

84%7%9%

92%2%6%

89%7%4%

81%12%

5%2%

1 Requisition Management Tracking of all open positions (requisitions) from initial posting and

approval by senior management to closing out the requisition when job is filled.

2 Talent Acquisition Posting jobs to attract internal and external candidates using tools like

company web site or national job boards.

3 Candidate Screening Managing and searching résumés, as well as screening candidates before they

begin the interview process.

4 Applicant Tracking Tracking job candidates through the entire recruitment process,

from their initial application to final hiring decision.

5 Background Verifications Conducting background checks (verifying identity, education,

previous employment, etc.) and screening (driving record, credit record, criminal record, etc.) on new hire candidates and current employees.

Recruitment

task method

manual automated only combination not sure

The 15 Most Common Talent Management Tasks Identifying the Talent Management Needs of Small to Mid-sized U.S. Companies focused on 15 tasks related to recruiting, retention and learning, and how they are currently addressed by small to mid-sized companies. The following identifies those tasks and the prevailing methods currently in use among respondents.

8

Performance Management

87%5%8%

89%4%7%

89%4%6%1%

86%6%6%2%

6 Performance Reviews Scheduling and conducting employee performance appraisals

as part of the annual, introductory, or disciplinary review process.

7 Goal Management Setting goals for individual employees that are aligned with

company-wide goals.

8 Competency Management Establishing company-level and/or job-specific competencies

for employees.

9 360 Reviews Gathering performance feedback on employees from peers, managers,

subordinates and external sources.

task method

96%1%2%1%

94%2%3%1%

10 High Potential Management Identifying, preparing, and tracking high potential

employees for promotion.

11 Position and Pool-based Planning Building talent pool and identifying successors for

key positions and leadership roles.

Succession Planning

task method

9

84%4%

12%

80%8%

12%

12 Employee Development Providing employee training courses to address skill gaps,

achieve individual goals, and prepare for future roles.

13 Learning Administration Managing and tracking all learning and training activities,

including e-learning, classroom training, on-the-job learning, and certifications.

Learning Management

task method

87%6%5%2%

88%5%6%1%

14 Compensation Planning Developing company salary structure and benchmark pay

grades against the broader market.

15 Incentive Management Managing the overall compensation budget and

link pay to performance for merit increases, bonuses, stock options, and commissions.

Compensation Management

task method

manual automated only combination not sure

The data in the preceding charts provides a clearer view of how most small to mid-sized companies currently handle talent management — for the most part, manually. Manual tasking depletes human and capital resources that could be focused on business growth instead of business administration.

Instead, companies can realize significant business advantages — including relieving recruitment and retention issues, increasing overall employee productivity, and strengthening their bottom lines — by implementing cost-efficient solutions that offset manual tasking and allow them to benefit from the strategic levers provided by an appropriate talent management solution.

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Taking Advantage of External Resources With the demonstrated financial and productivity benefits associated with today’s talent management solutions, why do so many small to mid-sized companies continue to address these tasks manually? Survey data indicates that most are simply not aware of the more efficient options available to them, or assume that they carry too high a price tag. However, many survey respondents were receptive to the concept of outsourcing or automating several talent management tasks:

Recruiting The research indicated that heads of HR are most interested in having an outside service provider track applicants and verify background information (35% are extremely/somewhat interested in the former, and 29% in the latter). Twenty-five percent are interested in even more services: initial candidate screening, developing job descriptions/tracking job ads, and generating/tracking requisitions.

Automated recruitment tools can screen and vet candidates with precision. Employers can review résumés by searching for a specific keyword, or identify applicants who have answered specific prescreening questions inserted in an initial job posting. This frees employers from having to review hundreds, perhaps even thousands, of résumés from unqualified applicants.

In addition to identifying the best candidates, outsourcing and automation can thoroughly vet candidates who merit serious consideration. Additional filtering options help refine searches even further (e.g., background checks, driving records, etc.). These types of recruitment tools deliver functionality that makes it a lot easier — and faster — to recruit than even the best manual process can ever approach.

A Florida-based VP of HR describes the efficiencies gained over manual recruiting systems, such as email. “It used to take more time to sift through résumés in our inbox and spam folder,” she says. “Automated tools have helped our applicant process by giving us one place to keep résumés and no longer having to use email.”

Onboarding Onboarding is the critical bridge that new

benefits of automation and integration

getting onboard with onboarding

The results of a soon-to-be-released Aberdeen Group study5 support the view of a strong onboarding program as a significant contributor to employees’ future success. Some highlights of the research:

• 37% of executives surveyed said their onboarding budgets would increase in 2010.

• 65% of respondents indicate their onboarding process is at least partially automated.

• 57% of those with at least partially automated onboarding indicate their cost-per-employee onboarded has decreased.

5 "Onboarding: The First Line of Engagement," Kevin Martin, Justin Bourke, Aberdeen Group, 2010.

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hires cross between the hiring stage and the beginnings of performance assessment. Automation lets employers collect much of a new hire’s information at one time. It can introduce the company, policies and culture, provide learning and conduct orientation. And, by using self-serve employee and data update wizards, employers can ensure their records are always up to date.

Not only does automation gather all the data an employer needs, it provides the new hire with all the information he or she needs, such as company policies. It also helps capture the specifics of employees’ “talent” records — details about education, prior experience, and certifications that can be leveraged in the employee’s new role.

Performance ManagementAbout a third of heads of HR are interested in help with performance reviews, building competency models, performing regular audits of their performance review process, creating a competency library, and creating company-wide goals that tie to employee goals. The biggest challenges respondents face in performance review processing are the timeliness of reviews (managers doing them on time/finding time to do them), participation (getting the managers to do them), consistency/uniformity, and accuracy/honesty of the comments contained.

Automated solutions can resolve many of these performance management issues — helping employers accurately identify top talent; assess individuals’ strengths and weaknesses; provide an historical perspective of performance, and even uncover opportunities for development and learning — in addition to reducing the overall cost of performance management.

A regional hospital that upgraded its redundant paper-based system, for example, realized an estimated $50,000 in man-hours and paper costs during the first year of implementation.

Learning ManagementWith learning and development, there are many areas for HR executives to address. It’s important to capture the skills every employee brings to the table, establish short-, mid-, and long-term goals, identify learning needs, track and maintain essential industry certifications, and provide appropriate learning opportunities.

Four in 10 heads of HR who responded to the study expressed a desire for help in building learning curriculums and providing job-relevant, instructor-led and on-line self-study courses. The biggest challenges identified in learning management are scheduling/finding the time for learning, lack of learning, and identifying learning needs — all issues that can be addressed with the right technology tools, such as a Learning Management System (LMS).

One HR manager points to the benefits of an automated solution for maintaining compliance. He says, “Tracking training for our SASS 70 and other reports was a nightmare. What used to take me three weeks to gather now takes 10 minutes. I have everything I need at my fingertips.”

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HR Systems Integration: The Key to Improved Efficiency With automated talent management tools now spanning the entire employee lifecycle, clearly the largest gains to be had in terms of organizational efficiency will be made with solutions that not only streamline the number of vendors involved in the integration process, but also fully integrate with a company’s current HR systems and processes.

A 2007 research study by Aberdeen Group reported that best-in-class organizations favored fully integrated talent management solutions across multiple benchmarks:

• Global war on talent

• Competency management

• Employee performance management

• Learning and development

• Core HR systems

Four in 10 respondents to the ADP study found the idea of an integrated talent management solution extremely compelling/interesting; especially if a single vendor could meet all of their talent management needs with an integrated software solution with modules that would:

• address specific data categories;

• move data automatically among the modules, and

• easily share data with any existing HR software.

Among study respondents who did not express an interest in an integrated talent management solution, reasons included the perception that their organizations were too small to benefit from such a solution, or that it would be too costly.

But the true cost may lie in not exploring these types of integrated solutions. By consolidating data and processes, businesses benefit from what Aberdeen Group terms “a single source of truth” — improved data integrity and the ability to leverage that data more easily for strategic planning purposes.

58%

53%

49%

Most Respondents Receptive to Automating Certain Talent Management Tasks

Recruitment

Performance Management

Learning Management

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finding and onboarding new hires: the power of automation

There’s no doubt that the process of recruiting and onboarding new hires represents significant investments in time and money…especially for companies who are still handling each task manually. If you’re among those who have yet to make the leap to automation, compare the following scenario to your organization’s manual methodology:

Manager defines a hiring need and fills out a requisition using an automated job description template.

Requisition is automatically routed to upper management for approval.

Approval triggers posting of the position on internal and external job board sites.

Respondents’ résumés are sorted and prioritized according to requirements specified in the job description.

Top-ranking candidates are interviewed. When a desirable candidate is identified, a background screening is ordered.

When screening is complete, hiring manager uses “click to hire” functionality to map the candidate’s information over to their new position.

On the new hire’s first day of work, he or she is presented with an online link to all the necessary documentation and paperwork (such as I-9, W-4 withholding and benefits elections, and company policy handbook/acknowledgement form), and is automatically set up in the company’s payroll and benefits administration systems.

Employee starts the new job with a clear position description and onboarding/learning curriculum, so he or she can get off to a very fast start…and hopefully long-term success.

If the new employee’s business objectives were included in the original job posting — a best practice now adopted by many companies — those objectives are also automatically mapped over to the new employee’s performance record. With this information so plainly defined, employees and managers alike are able to achieve real clarity about their respective roles right from the start.

23456

7

8

1

14

Today’s highly accessible talent management solutions represent significant opportunities for small to mid-sized companies to streamline their recruiting, retention and learning processes, and to relieve much if not all of the burdens and barriers related to manual processes.

More importantly, by integrating talent management with core HR processes, organizations can benefit in multiple ways:

• Economies of scale in leveraging a single provider relationship

• Reduced learning curve with familiar, consistent user interfaces

• Less drain on internal IT resources

• Improved data integrity and accessibility for strategic decision making

With 83% of the small to mid-sized companies surveyed agreeing that they face important challenges with their current manual approaches to talent management, it’s clear that the time has come to explore the benefits of solutions designed to meet the needs of smaller organizations.

Regardless of the economic or competitive climate, one fact remains constant for today’s employers — employees remain a company’s most important investment. There is no doubt the right employees add measurable, significant value to a business. Driving the continuing emphasis on talent management are several factors, including a hypercompetitive global business environment, changing stakeholder expectations, shifting workforce demographics, and evolving legislative and compliance demands.

Take some time to study today’s best-in-class companies, and you’ll find a number of commonalities in their approaches to talent management — including clearly defined business goals, the core competencies needed to reach those goals, and a systematic approach to talent management that recognizes and exploits the proven relationship between better talent and better business performance.

With talent becoming a rapidly increasing source of value creation, clearly managing that talent — using the latest and most effective tools available — has become an indispensable part of every business strategy.

summary

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about the studyIdentifying the Talent Management Needs of Small to Mid-sized U.S. Companies

Study Universe: • Non-federal government companies/organizations (state and local government

were included) with 50-999 total U.S. employees

Respondents: • Head of HR or senior HR executive with an excellent strategic overview of their

company’s needs for hiring, assessing, retaining, and developing their employees.

• The person or one of the people responsible for evaluating alternatives and making recommendations to senior management regarding HR systems and services.

• 62% of respondents were final purchase decision makers for major new HR system or service.

Survey Process: • Telephone interviews: April-May 2009; 24 minutes (average)

• ADP was not identified as the study sponsor

Group Size/Weighting: • 50-99, 100-249, 250-499, 500-999 U.S. employees in company/organization.

• 95-185 interviews in each size group (485 in total) – enough for statistically reliable data at the 95% confidence level.

• Within the four groups, interviews were weighted back into proper proportion by industry, geographic region, and whether or not they are an ADP client.

• Interviews in the four groups were then weighted back into their proper proportion, so no group is under-/over-represented in the total. Data are representative of the entire non-federal government universe.

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about ADPAutomatic Data Processing, Inc. (Nasdaq: ADP), with nearly $9 billion in revenues and 570,000 clients, is one of the world’s largest providers of business outsourcing solutions. Leveraging 60 years of experience, ADP offers the widest range of HR, payroll, tax, and benefits administration solutions from a single source. ADP’s easy-to-use solutions for employers provide superior value to companies of all types and sizes. You can count on ADP for unparalleled compliance support and the most qualified and accessible client service in our industry. For more information on ADP talent management solutions, visit (www.adp.com/strategichr).

Study Universe by Size of Company

50-99

100-249

250-499

500-999Percentage of Market

56%28%

8%4%

60%

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The ADP Logo is a registered trademark of ADP of North America, Inc. All other products and marks are the property of their respective owners. ©2010 ADP, Inc.