Role of ERP in Successful Human Resource Management System
What is Human Resource Management?
HRM is the utilization of human resources to achieve organizational objectives (HRM by Mondy & Noe)
The policies and practices involved in carrying out the “people” or human resource aspects of a management position, including recruiting, screening, training, rewarding, and appraising. (HRM by Gary Dessler).
Human Resource Management is a process of attracting, developing, and retaining capable and willing human resources (employees) to achieve the organizational goals.Function in the organization concerned with the staffing, training, development, motivation, and maintenance of employees. (HRM by DeCinzo/ Robins).
Human resource management (HRM, or simply HR) is the management of an organization’s workforce, or human resources.It is responsible for the attraction, selection, training, assessment, and rewarding of employees, while also overseeing organizational leadership and culture, and ensuring compliance with employment and labor laws. In circumstances where employees desire and are legally authorized to hold a collective bargaining agreement, HR will typically also serve as the company’s primary liaison with the employees’ representatives (usually a labor union) (WEB).
The process of hiring and developing employees so that they become more valuable to the organization. Human Resource Management includes conducting job analyses, planning personnel needs, recruiting the right people for the job, orienting and training, managing wages and salaries, providing benefits and incentives, evaluating performance, resolving disputes, and communicating with all employees at all levels. Examples of the core qualities of HR management are an extensive knowledge of the industry, leadership, and effective negotiation skills. Formerly called personnel management (WEB).
Human Resources: The Key for Success
The intense competitiveness in the global markets demands an improvement in the results. In this context, it is critical of the management of human resources. The concept of Human Resources as a cost generator has to change into a profit generator (WEB).
Human Resources is a fundamental part of the scheme of every successful enterprise, as the information received from this area needs to have a continuous follow-up and correct evaluation of the professional development and the social welfare of the workers. However, due to the large quantity of information that is handled in this area, the job is becoming more difficult every day. ERP is represented like a useful tool to help and orient the users to focus their work in the direct relationship with the staff, and to link the personal skills and aspirations of the personnel related to the objectives and goals of the company.
Enterprise Resource Planning (ERP) System definition:
Enterprise Resource Planning is defined in many ways with respect to the author’s descriptive and less for these definitions are listed below:
Fui-Hoon (2002) describes Enterprise resource planning as “configurable information system packages which integrates information and processes across organizational functional areas”.
ERP according to Bidgoli (2004) is defined as “an integrated computer-based system that manages both internal and external organization resources”.
However Vollmann (2005) , argues that the term ERP can be defined differently depending on one’s point of view. From the manager’s approach, ERP symbolizes as comprehensive software which supports decision making along with planning and controlling the firms’ tasks. Conversely, based on the business information technology viewpoint, ERP is defined has the software system that integrates applications of various sectors like finance, manufacturing, logistics, sales and marketing, human resources and other functions in a company. This integration is achieved by the means of database in all the functions and data processing application within an organization (Vollmann, 2005).
Glenn (2008) says that, “ERP is the method of integrating various functional systems of a large organization into a single system.” In precise, he defines Enterprise Resource planning as the process of merging the entire data of an organization from different departments into one single system. A well implemented ERP system builds a comprehensive efficiency across the various departments and uses a unified database to store data across many functions within an organization (Glenn, 2008).
The ERP system is a kind of system that integrates management information by managing the flow of data across an entire organization. It typically implements a common enterprise-wide database as well as a range of application modules in order to support everyday business activity, for example finance, accounting, distribution, inventory management, sales, marketing, planning, manufacturing, project management, human resource and so forth. An ERP system is utilized for standardizing process and storing information as well as recalling that data when it is required in real time environment.
Evolution of ERP System:
The ERP systems evolution tightly followed substantial innovations in the field of computer software and hardware.
In 1960s, inventory control was the focus of manufacturing systems. Therefore, inventory control software was designed, modified and applied in order to automate inventory control based on conventional inventory principles. MRR or Material Requirements Planning systems were created during the 1970s and primarily involved planning product or parts requirements based on BoM or Bills of Materials and MPS of Master Production Schedules. The evolution of Manufacturing Resource Planning (MRP II) occurred in 1980s decade. The MRP II was an extension of MRP with stress on manufacturing process optimization by synchronizing production requirements with material delivery. MRP II involved area, like finance, distribution management, shop floor, project management and human resource.
The following diagram summarizes the ERP system evolution.
Resource : Focus Research
At present the primary advanced ERP vendors offering ERP solutions are SAP, Oracle, JD Edward,PeopleSoft,Microsoft Dynamics and Invensys. They focus on internet based architecture because of the raise in E-commerce and globalization of business (Garg and Venkitakrishnan, 2006). Few of these organizations are growing their ERP system with new modules and also have changed their names of ERP systems to catchy names such as ‘Enterprise Suite, E-commerce Suite, Enterprise solutions’ etc. However, today’s ERP is much more advanced than the Manufacturing Resource Planning (MRP II) and is famous today for non-manufacturing operations (Hunter, 2008).
In the present day SAP is the global leader in inter-enterprise software manufacturing company and leading ERP supplier in the world. To have a wide-ranging applications, SAP idea was to give customers the ability to cooperate with a common database in an organization and today the corporations like IBM also use SAP products for running their business.
The ERP’s Human Resources Module – Main Features
A business is concentrated by four productive resources namely its Land, Labour, Capital and Enterprise to produce or sell products and provide services. Simultaneously while achieving business tasks, concentration must be also be given to the people who carry out these functions jobs i.e., the organization’s Human resource (HR). Human Resources are the company’s people included in all hierarchy from employees to middle managers and non-managerial employees to the CEO and others (Jones, 2007).
The management which involves the activities framed to recruit the best candidates suitable for the respective nature of the job and improve their skills and abilities by providing them good and proper support is called Human Resource Management (HRM). The five gears of HRM system are: recruitment and selection, training and development, performance feedback, payments and benefits, and labour relations (Jones, 2007).
According to Kapp et al (2001), the usage of ERP’s in Human Resource Module is each core part of HR practice is explained below.
Recruitment, Retention: This ERP module used to maintain the record of college visits for the recruitment process, candidates from consultancies and their resumes; list of candidates available for full-time or Part-time work etc. This HR module can be integrated with training management to link with the initial process of the selected candidates.
Training Management: This module tracks the newly enrolled candidates who are under training process. It also maintains the course description, course availability, review course assessment, traces the training cost and fixes a training budget. The most important thing about this module is that, the e-learning training sources are connected to the employee’s desktop which can be used for requirement. Finally, ERP records the employee’s performance during the training period which will be useful to be reviewed by the training supervisors.
Payroll: Employee’s attendance and their time of entry to work and exit are entered into the system to determine the number of work hours. This module tracks, check and reports both the hours of work and respective wages of employees. It also includes the process of calculating the taxes and deducts from the salary and also garnishee wages for charitable purpose like child support and for cancer patients.
Time and Attendance: this module is integrated with Payroll module. Apart from the roles of Payroll systems, it also concentrates on the sick leave of the employees. Time and attendance are easily recorded in the system by scanning the employee barcode which is located on every employee’s identity card.
Performance: ERP performance module basically maintains the history of employees’ performance and determines the number of employees eligible for reaching a certain level of hierarchy.
Succession planning: This module highlights those employees who are well qualified at work and could be moved to the next level of hierarchy.
Compensation management: In this module, the top performed employees are targeted and supported by the compensation and a retention scheme as the planned objective of the company. This package includes retention risks, cost replacement, and noticing a successor.
Through the different features that ERP may have, the only reality is that the human resources area will be able to define the organization structure of the enterprise, representing it by the display of the organization chart, the assignment of responsibilities, functions and persons inside the structure. It will also help to manage the personal and professional information of the permanent, temporary, or former employees, as well as the candidate’s one, avoiding the delays in the daily work,. This is a common situation that most human resources departments have to face.
Why invest ERP in Human Resource Management?
Companies today are coping with few contradictories i.e. Developing innovation to run a real business value, managing IT successfully and maintaining the cost of the firm. Several companies try to minimize their IT facilities and lessening the software usages. But for the success of standardized business strategies, an effective business solution is required. If the company operates these requirements beyond the ability to understand whether these solutions support the new obligations or not can cause damage to the company. ERP is the leading example of such issues as many companies tend to invest large amounts (around billion dollars) and time on ERP implementation and practice but do not achieve a maximum on their Return on Investment (ROI) (Hoy,2008).
Benefits of investment in ERP’s Human resource management:
The HR module act as a foundation module where other modules are nourished as the decisions taken in this department affects the other functions within a firm. One of the most effective integration of HR module is with financial management module. The human resource module value is increased in the organizations by providing its linkage with the financial systems into one single database which is flexible and user-friendly to carry out payroll operations, project costing and budgeting. In addition, this integration is adaptable in the compensation program in which the ‘Automated position control’ i.e., verifying that the cost of the salary of employees should not go beyond the budget, forecasting the working hours, expenditure is included (Ashbaugh and Miranda, 2002).
According to Ashbaugh and Miranda (2002); the other strengths which stress on the worth of investing Human resource ERP systems are as follows:
ERP is replacing a standalone HR application with a single integrated approach.It supports the operation of one common database of staff information across the firm.Technology throughout the HR department is beneficial in carrying out all the HR functions like hiring; enrollment to change is employee pays or any other details.Legacy system risks are reduced.It also avoids the duplication of data entry as well reduces the manual entry and paper based works.There is an improved management in providing or reporting the information in particular for managerial works.
These systems can be used with the support of Internet and Web resources. For instance a candidate applying for a job can send his resume through the company’s website and few interview rounds like questionnaires can be answered on-line. But the HR module software does not feed this information directly into the system but they are entered manually. However, this process can reduce cost.Software upgrades are very flexible and improves the quality of HR practices more effectively.
Sometimes this application may be time consuming but it is free from errors.On the other hand, it is easier to access the detailed history of every transaction.Accountability is regarding employees’ wages is improved and accurate through domain audit levels i.e., recording activities like employee names, address, and their transactions and so on.
• Any employee can assess data as provided self-service function through web applications for instance travel reimbursement, changing personal data and enrolling for different training courses.
• It also promotes the labour management by supplying the precise information and tracking on the disciplinary actions, bid processes, complaints, labour compensation and disability programs. Along with these employee absences or cost of over time work and staff benefit cost is also tracked.
• ERP overall helps to develop employee productivity.Decision making by HR managers will be easier from the information accessed and also helps in organization-wide planning.ERP HR modules are vigorous, very protective and provide security throughout access or alteration. Security is also offered during login, recording data and logout.
• ERP is a scalable application which can process many transactions, supports many users and is adaptable in future without any difficulty.Now, HR has a powerful tool than before but still the companies lack behind and suffers from these advantages because ERP systems are not utilized in a right way (Greengard, 2001).
To initiate the Human resource systems an organization must take part in many activities. The package offered by ERP is expensive in terms of its software license, hardware, training cost; its implementation is lengthy, higher consultant cost and other internal cost of the organization. However, this best business practice has the power to redesign the business operations with the increase flow of productivity; employee management and so on which is consecutively exhibits the Return on Investment (ROI) unless and until the organization manages to implement and utilizes it in a right way by changing the work environment, its technical levels, reprogramming or repacking and give proper training on this project (Ashbaugh and Miranda, 2002).
The most important out of all these is the proper management support during the entire project especially during its implementation and redesigning the business (Salvendy, 2001).
However if estimated organizations are paying worth for advanced product which has the larger number of benefits which is an addition of functionality and subtraction on risks (Ashbaugh and Miranda, 2002).
ERP, HR: cut costs:
The combination of Enterprise applications i.e. ERP and its HR module can bring up to 30% savings on the enterprise costs said by the business advisory organization: The Hackett Group. According to their report on the effective way to get a return on business complication in 2005 explains that the companies can cut their operating cost by introducing an IT system with the process of integration application like Enterprise Resource planning (Saran, 2005).
However, the companies which fail to put in practice the integrated solutions can be unsuccessful in reducing the operational, functional and other internal costs. According to the Hackett’s survey, organizations which lack to execute the IT solutions tend to spend “30% more on financial operations and about 18% more on the human resource practices”. Conversely, investing in Human resource systems can reduce the HR employees up to 35% and HR standalone operations to 27% less than that of the integrated systems (Saran, 2005).
ERP systems do not weaken the financial and business runs if the organizations have properly defined its business process and need for its implementation (Griffiths, 2002). Beaumont and Sutherland (1992) say that, “However the failure and success of this package depend on the quality of the company’s management but not the quantity of investment”.
Human Resource is a vital part of every successful organization. The information received from this section is required to have a continuous flow and accurate evaluation for the professional development and for the social welfare of the workers. In this area, the job is becoming more difficult each day in order to handle large quantity information. Thus ERP is represented as a useful tool to help and make the users easier and focus their work in a direct relation with the staff, skills and aspiration of an individual related to the objectives and the goal of the company. The success of an organization depends on the capacity of the companies in attracting, developing and maintaining its key employees. Thus, it is important to have an integrated system and most favorable processes for the management of the same.
In today’s emerging business environment, large companies have no options to avoid such massive IT packages. Basically its aim is to mechanize work flow and generate cost savings. For the present competitive scenario, lagging ERP technology seems to be unsuccessful for a firm. Thus ERP systems have the possibility either to confine or expand the organization’s capabilities and lead a pathway to competitiveness.
Competitive edge develops from the company’s ability by renovating its operating technology systems to its latest kind with following business changes and reflects and improves the structure and employee relationship. It is also developed by building intellectual capital which can create a strong knowledge base for the company’s welfare. Therefore organizations using ERP as a mean for competitiveness must reorient their Human resource activities because these activities are essential in competitive platform.