Business Intelligence

Managing Talent: HCM and Higher Education

Human capital management has been slow to catch on at academic universities. But the economic downturn and the need to keep high-performing employees may be changing all that.

• By Rama Ramaswami
• 10/01/10

'Human capital'--the value of a worker to his enterprise--has been around as a concept at least since the Industrial Revolution. The term "human capital management" (or HCM) started to gain currency in the 1950s, but as a business phenomenon, HCM didn't really take off until the 1990s. These days, HCM is on the human resources agenda of thousands of corporations, both large and small.

HCM theory posits that a company's profitability is directly related to how well the organization manages its talent--acquiring, developing, and retaining high-performing employees, matching skills and competencies with workplace demands. Research seems to back up the theory: A 2004 Harvard Business Review analysis, for example, found that firms that "invest a significant amount in training and developing their employees subsequently outperform the market."

Organizational objectives like profitability or outperforming the market are not exactly part of the mission statement of traditional higher education institutions, whose business, after all, is not to make money but to foster an environment that promotes scholarship and learning. Universities don't usually think about managing talent either--a person is hired into a position based on his curriculum vitae or previous experience, gets on the tenure or seniority track, and if he meets agreed-upon criteria, remains there until he retires or gets hired away by another institution.

Ah, there's the rub: losing people--valuable people--to other institutions.

"I think that a lot of organizations that I know, such as Johns Hopkins [MD] and other universities attending our classes, are becoming very concerned about how to attract and retain people," says David Forman, chief learning officer of the Human Capital Institute, a global association for talent management research and education. "Universities were hard hit in this financial downturn, so they want to know how to engage and develop the people they already have. Like the government, you probably have situations in universities where it is hard to remove people."

Indeed, the economic crisis, steep budget cuts, and increasing competition from for-profit colleges and other non-traditional educational institutions have led some university administrators to overhaul their approach to human capital management, says Andy Brantley, president and CEO of the College and University Professional Association for Human Resources, whose members include more than 1,700 higher ed institutions.

"There are many human capital management challenges on campus," Brantley notes. "Many schools have had to focus on what programs and services are absolutely essential and how they use their faculty and services. They're eliminating many functions and outsourcing many functions. These are decisions that they were not making even a few years ago."

Corporate Universities as Models
Brantley points to applicant tracking systems as a "key trend" on campuses, and believes that another growing HCM trend is improved use and understanding of workforce metrics. Universities are "using technology to better understand the metrics they are collecting on their ERP systems. Institutions are doing a much better job of using data now than previously," he says.

He cites the University of Michigan's advanced business intelligence system, which includes a proprietary application called HR Metrics, accessed through the ProClarity tool from Microsoft. According to a spokesperson at the University of Michigan, HR Metrics is designed to "facilitate strategic decisions regarding human capital management and staffing trends" by providing data on such measures as number of full-time employees (FTEs), head count, years of service by age, total compensation per FTE, and average number of days to fill a position.

"These are really powerful workforce metrics," Brantley says. "They help managers at the university better evaluate what the campus workforce needs are. They can also easily access [data on] turnover of staff, performance of faculty and staff, and benefits costs."

While the use of such metrics is certainly a big step for a traditional university, it doesn't even approach what corporate universities do, says Alan Todd, CEO of Corporate University Xchange, a New York City-based consulting firm that specializes in corporate university management.

Corporate universities are the internal units within corporations designed specifically to develop human capital. Responding to the demand for better ways to manage talent to improve profits, corporate universities have surged in number from 400 in 1988 to more than 3,000 currently, according to Corporate University Xchange.

"Corporate universities make the best use of talent in an organization," says Forman of the Human Capital Institute. "I think that's really what human capital management is trying to do. It's looking at people as an asset, not a cost."

Corporate education is intensely focused on outcomes and return on investment (ROI). It helps executives determine the human capital roles their businesses will need in the future, explore whether the corporation is at risk because it doesn't have the necessary skills, and match employee data with business needs on an ongoing basis. These learning enterprises are also deeply involved in leadership development and succession planning, as well as delivering courses, training, and workshops at all levels of the organization.

Much of this human capital management is accomplished through leveraging technology, Todd notes. "Competency management or talent management systems" help these organizations stay "focused on talent management, leadership development, business execution, compliance," he says. (See "HCM Software," page 40.)

Although academic universities may have different internal goals, Todd adds, there's no reason they can't use the same tools as corporations.

Using Predictive Analytics
One tool that is catching on in higher ed institutions is predictive analytics, a component of HCM systems that mines data to predict future trends.

Predictive analytics are well suited to an emerging preoccupation of higher ed institutions, which is improving their relationship to their primary customer--the student. By applying predictive analytics to historical enrollment data, for example, a university can identify which combination of variables tends to lead to an enrollment application--valuable information for recruiters.

Another important application, based on data from incoming freshmen, is using a statistical model to predict the likelihood of a student successfully graduating. To improve freshman retention rates, the University of Nevada-Reno deployed IBM's SPSS predictive analytics software to develop at-risk student forecasting models. The resulting data is used to guide a campus student-retention task force in its efforts to identify and help freshmen at risk of dropping out.

The model was the brainchild of Serge Herzog, UNR's director of institutional analysis. Using student information such as course load, pre-collegiate academic performance, and financial aid status, Herzog created Target 500, a freshman retention program aimed at identifying and retaining at least 500 students who were at risk of dropping out.

The data from predictive analysis greatly narrows the range of potential candidates. "It's almost like a surgical intervention," explains Herzog. "It's not casting the net randomly. The actual score on the analysis is divided into deciles [a decile is one-tenth of the sample]. Deciles between 6 and 4 are the best prospects. These are not students that are hopeless. These are people we can help."

In the first year of the program, reports Herzog, "our freshman retention has jumped four percentage points. This improvement in just one year is clearly due to the fact that we are creating at-risk scores at the beginning and then sending them out to counselors and advisers, who can target the individual students at risk. We are tracking the students on a weekly basis."

In his push to improve retention rates, Herzog is thinking like a corporate executive. "I look at this strictly from a customer service perspective," he says. "Students are our customers, and we want satisfied customers. Satisfied customers are students who are persisting. It's much cheaper to retain a student than to recruit a student. It translates directly into our revenue stream. One-third of our budget comes from the state, and much of that is tied to the actual enrollment we have. So student retention is very much a bottom-line kind of metric."

Not that he's ignoring recruiting. Flush from his success with bumping up retention rates, Herzog has begun work on a predictive model to recruit students to UNR. "We're looking to more effectively target high school students who are good for us--we're looking at neighborhood, socioeconomic profile, and so on," he says. "It's not much different from what a private company would do for market segmentation. For example, 45 percent of our new freshmen come from within a 40- to 50-mile radius of our campus. We get the greatest rate of return in our local market." But to mine that market more thoroughly, Herzog plans to segment it into smaller, more precise indicators of which students would be good prospects. With that in mind, he has piloted a data sharing agreement with local high schools, whereby he takes student transcript and other academic information and runs predictive analysis on it. "We are using very specific student information to go into that model," he says.

Leveraging the Whole System
But predictive analytics is only one aspect of an HCM system's extensive capabilities. In addition to managing workforce training and education, a world-class HCM system supports such activities as planning, modeling, recruiting, staffing, on-boarding, performance management, benefits and compensation administration, and time and attendance tracking.

Jim McGlothlin wishes universities would use more of their HCM systems' capabilities. "It has been a puzzle to me why they don't," he says. "I wish I had the answer to that."

As the vice president of Higher Education Applications Strategic Programs at Oracle, the largest provider of enterprise technology to all segments of higher education--including adult learning institutions as well as classic four-year universities--McGlothlin has a 360-degree view of market trends. And what he's mostly seen so far is widespread use of payroll, benefits, and general HR functions, but only modest awareness of an HCM system's vast range of features, including the ability to calculate ROI.

Eventually, he says, that will have to change as universities continue to cope with shrinking budgets and the impact of demographic shifts such as population aging, which will affect faculty and staff retirement projections. Already, some of Oracle's larger higher education customers are "trying to tie their performance as an academic entity with what makes that happen, such as levels of proficiency among the faculty and class-size ratios," says McGlothlin. "HCM systems can help them figure out, for example, how many financial aid people are supporting how many students? How much does it cost to hire a new faculty member? How can they best manage adjunct and flexible faculty?"

One feature of HCM systems that universities will find very useful is position management, McGlothlin believes. "That's something every business does. They'll describe a position and the pay range for it and the qualifications for it. Higher ed has never done that--historically they have resisted it." But inevitably, they've had to change as cost-cutting mandates increase, and several institutions have begun to categorize positions, set pay ranges, and chart individual career progress. "There's a new attitude toward understanding and measuring performance," McGlothlin says.

"But measuring actual return on investment on the faculty side gets very touchy," he adds. "On the academic side, there's a lot of tradition you can't change." He points to the growing practice in K-12 to measure teacher effectiveness using test scores and other student data. "There's no equivalent in higher education," he laments.

It's not surprising that corporate-style workforce planning has caught on not at traditional universities but at for-profit colleges, notes McGlothlin. These institutions emulate corporate universities by using HCM systems to rigorously match resources with outcomes. "It's almost like capacity requirements planning in manufacturing," he says. "I need to turn out 300 biochemical engineers, but I don't have the instructors. What am I going to do? It forces me to think about the people I have on board and whom I need to hire."

Tweaking the System
For all their potential, however, HCM systems have some shortcomings when it comes to academia. Since universities are fundamentally different from corporations, even the most feature-rich systems need customization, often in highly specific ways. Northern Illinois University, for example, has implemented Oracle's PeopleSoft Enterprise Human Capital Management Suite, including Human Resources, Payroll, Absence Management, Time and Labor, and ePerformance, but has had to write its own processes to handle situations specific to academic environments. These include contractual employment and its variations (professors who are paid for a nine-month contract, for instance, may elect to have their pay spread over a 10- or 12-month period); grant funding or salaries that are spread across several departments; and in particular, reconciliations of encumbrances, which are reservations of funds for future expenditures. Universities like NIU, for example, will encumber an employee's entire salary for the year, releasing funds as the person is paid and reserving the rest. At the end of the fiscal year, financial systems need to reconcile what was ultimately paid.

While the Oracle system keeps track of encumbrances, "it would be off by a dollar here or there--a huge amount if added up for the whole university," explains Steven Pace, associate director of NIU's Division of Finance & Facilities. "Our budget managers get upset if the encumbrance is off even 10 cents. So we wrote our own bolt-on process that enables us to recalculate the exact amount every month, and we submit that to payroll."

Another quirk of a traditional academic environment is employee and faculty seniority processing, something that off-the-shelf HCM systems aren't always built to handle. "It's critical for us to keep to a timeline with seniority processing," says Sally Betz, NIU's associate director of information services. "We have to do that with the delivered piece of software, and there are some challenges with that."

In a sense, though, these are bookkeeping problems. For his part, Oracle's McGlothlin hopes to see the more advanced features of his company's HCM system eventually become commonplace in mainstream higher education. "If I could have one wish, like a Christmas present, it would be really having all of our customers making use of the competency management part of the system," he says. "This includes processes like disaster preparedness, obtaining research and grant funding, and employee training and development. A lot of these things are not on any university computer system today--maybe not even on a 3-by-5-inch card."