The days of the dusty old personnel department – straining under mounts of overdue expenses claims, out-of-date employee records and badly constructed performance review sheets – are numbered.

Adopting real-time, web-based technologies, businesses of all sizes are profoundly shifting the way they manage their employees. Many are using employee portals to give self-service access to information and personal data; they are using balanced scorecard software to assess group – and even individual – performance; analytics tools to give a clear understanding of human resources (HR) trends; and e-learning technologies to enable ‘anytime’ training.

All this raises the value of the business by recruiting and retaining key talent, maximising employee productivity and aligning the workforce with high-level corporate objectives.

Demand for the technologies that support these new business processes is rising, according to analysts. The employee-software market – often regarded as a quiet backwater of the IT sector – is destined to grow at a compound rate of 13% over the next five years, says AMR Research. Employee performance management and enterprise incentive management functions will drive much of that growth.

“There’s a lot of opportunity in this market, since all employees and managers are users,” says AMR analyst Monica Barron. She observes that vendors of HR software, including PeopleSoft, SAP, Siebel and Oracle, have raced to develop products that broaden the scope of HR and change the way it interacts with employees. Other suppliers, including Microsoft, Great Plains and Kronos, are pushing into the small to mid-size market for human capital management (HCM) software, while Siebel Systems, Extensity and Workbrain are prominently marketing employee relationship management (ERM) suites, she says.

Such vendors say the demand is reflected in their balance sheets. Siebel, for example, only launched its employee-software division in 2001, but it is already one of its fastest growing product lines. In recent weeks, the state of Florida has begun to implement ERM technology to more than 220,000 users, making it Siebel’s largest client. And average ERM deals are now on a par with the supplier’s flagship customer relationship management products, at about $700,000.

Suppliers say that they are changing the way they sell their products to reflect the wider role of employee software. Sales people at Siebel’s ERM division, for example, originally targeted the head of HR or the existing Siebel CRM sponsor. But now it is more common for the chief operating officer, CEO or financial director to buy suites of ERM software, says Stacey Lawson, vice president and general manager of Siebel ERM. “Our technology seeks to improve the broad enterprise performance of our customers, not just streamline the HR department, which it is why it is necessary to work closely with the COO,” she says.

New ways of working

There are some key drivers behind such take-up. “The business environment is at a tipping point,” says Mark Lange, VP of global product marketing for PeopleSoft’s human capital management (HCM) software. He cites economic instability, investor pressures, leadership changes and global expansion among the key trends driving the need for effective HCM.

Lange advises that organisations take four steps on this road to effective HCM: streamline your HR systems; remove such hidden costs as excess manual HR staff; deploy employee self-service; and align employees with corporate goals.

One major change – as cultural in nature as technological – is that individual employees are being trusted with administering everything from their personal records to career development. ‘Self-service’ – one of the buzzwords of the real-time enterprise – is delivering significant savings in administration and training costs.

And not before time. Surveys have found that 20% of employees call the payroll department at least once a month; half of those only want to know when pay day is. Information portals, accessed from every desktop in the enterprise, can display such information. At the same time they can provide an executive platform for aligning employees with corporate goals, tracking the company’s stock prices and relevant news, providing access to online expense forms and timesheets, monitoring customer data, and holding internal phone numbers and technical manuals.

It clearly pays to have all employees pulling in the same direction. Studies have shown that, at companies with a workforce distributed across many different locations, less than 5% of them are familiar with corporate strategy. By linking new HR systems with analytics tools and employee performance management technologies into a single web-based, real-time application, executives can respond to events and execute plans more quickly.

But, at this stage, such approaches are only evident at the most enlightened enterprises, warn analysts. Too many businesses are still run by administrators, protective of corporate data, he says, but competitive pressures will motivate more organisations to support real-time employee functions. The power base and structure of the traditional HR department may be eroding, but the most agile businesses are unlikely to mourn its passing.