Global Warming in Human Resources Management

Having consolidated human resource (HR) functions at the national level, many enterprises are investigating centralization on a global scale. User interest was kindled at the supply side several years ago by vendors that, having already sold to most of the U.S. market, were eager for new markets.

Provided by META Group  

Untitled Having consolidated human resource (HR) functions at the national level, many enterprises are investigating centralization on a global scale. User interest was kindled at the supply side several years ago by vendors that, having already sold to most of the U.S. market, were eager for new markets. However, initial attempts at single-image, top-down global HR fell well short of expectations. The complexity of the problem was underestimated (for example, the work required to model many countries' practices and regulations) and the capability of the solutions overestimated (especially, the ability to handle many users, countries, and languages). This has led to a period of diminished expectations for global deployments. Few of META Group's clients considered global human resource management system (HRMS) and payroll deployments to be a high priority in 1999 and 2000.

Throughout 2001, a new globalization consensus will emerge. This hybrid global/local model will be based on a two-pronged approach:

  • From the bottom up (country by country) for small operations (1,000 to 5,000 employees) via a clear definition of what information needs to be reported and consolidated to corporate headquarters (and otherwise, wide latitude on which vendors to use)
  • From the top down (multinational implementations) for the largest sites (typically U.S. operations and European headquarters, sometimes also the primary Asia/Pacific site)
Only the largest firms will be able to build the business case for an immediate jump to truly global deployments during the next three to four years; a transition using the hybrid model will take at least until 2006, and for most organizations much longer. The significant product maturation of the last six months will make deployments smoother, but the magnitude of the problem remains massive.

Oceans Apart: Not Such a Small World, After All
Many barriers to global adoption are intuitive: the costs of 24-hour operations, the specter of United Nations-like complexity in dealing with dozens of languages, and the IT challenge of global application deployment and change management. But these are technical issues that will be or have already been resolved by improved product capabilities. Of more lasting concern are structural impediments, particularly implications of process rationalization and uneven distribution of employees.

Simply put, for all but the largest conglomerates, diffuse populations propel one basic economic principle (diminishing returns) over another (economies of scale) when considering truly global deployments.

Think Globally, Act Globally
Though the barriers to global strategy are substantial, the potential benefits are even greater. Large companies still spend a large portion of profits on the routine tasks of workforce administration; many ostensibly global companies waste their hard-won leverage by operating on the same models as small firms, only with higher costs. However, the benefits are highly diffuse and tend to accrue to groups other than those that pay the costs. In other words, corporate headquarters sees the reward, local countries pay the premium, essentially a situation of stability in the suboptimization of parts. This is, in a sense, a restatement of the true culprit for what has been to date a weak adoption of global HR: most companies still cannot articulate the goals and benefits of a single global strategy.

The key objectives of most projects can be summarized as:

  • Operational efficiency--lower costs of processing payroll and benefits
  • Compensation rationalization--compiling compensation and performance statistics to enable comparisons across geographic regions
  • Analysis--retention and churn as significant cost factors for business operations, and HR helping executives to understand true costs by geographical location
  • Human asset utilization--redeploying people around the world on a project basis, and recognizing and retaining key personnel
Our research suggests that operational efficiency (in other words, lower administrative costs per employee) will be a substantial net benefit, but we have not seen evidence that it will be sufficient on its own to justify the cost (and perhaps more importantly, upheaval) of a global project. Compensation rationalization and analysis are generally acknowledged as being of a lower order of magnitude, leaving employee utilization to carry the remaining weight. But we are concerned that this is a red herring for most of global 2000 enterprises.

Few organizations have yet to implement effective strategies for human capital management within their home country. We see little evidence that the challenges of such a course have been eased (or the likelihood of success increased) by trying to implement across continents, languages, and cultures. Confidence in the ability to leverage human capital is therefore critical to any plans for global HR administration. This, in turn, confronts a legacy of the past five years of expensive ERP-style projects: human capital management (or workforce management, skill management, or strategic HR) was promised but not delivered in the last round.

The uncertain nature of the benefits of a global approach leads us to conclude that globalization investment in 2001/01 should be largely preparatory and directed toward the seemingly oxymoronic strategy of limited global deployment. Organizations must analyze country head count in order to segment sites into Tier 1 (targeted for eventual migration onto a global system) and Tier 2 (free to make their own local HR system decisions). Companies can prepare Tier 1 sites for top-down global HR by:

  • Identifying supplier coverage across the countries with the highest head count
  • Templating HR processes to prepare for some level of standardization
  • Building IT infrastructure in terms of network and application support
Organizations can prepare for bottom-up global HR in Tier 2 sites by defining service-level agreements between corporate HR and individual countries with respect to data to be reported and frequency of consolidation.

Global Warming in Human Resources Management?
By Mark Huey
First published in August, 2000

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