Processes first, technology second: For International Paper, successful HR transformation depends on getting the steps in the right order - Technology - Statistical Data Included

Four years ago, the HR function at International Paper Co. operated at a ratio of one HR professional to 80 employees at a cost of $1,600 per worker. By the end of February 2002--11 months after going live with new HR systems--the company had improved the ratio to 1 to 126 and reduced the cost to less than $1,200 per worker.

These two measurements prove the success of Project Viking, which is redesigning HR processes across U.S. operations and installing technology to support them, say executives at the company, based in Stamford, Conn. "When our project was conceived, those were the two primary metrics," says Paul Karre, vice president of HR at the forest products company, which has about 60,000 workers in 46 states and a total of 100,000 worldwide. "While there are other strategic deliverables, we justified Viking based on our ability to get to these metrics. This is how you impact the bottom line."

The ongoing Project Viking is the second attempt to transform HR at International Paper (IP). The first, in the mid-1990s, fell short for many reasons but mainly, say Karre and others, because the company installed technology without first understanding how the change would affect processes and people.

In 1998, the company's HR leaders decided to try again. Viking involved assessing, redesigning and integrating payroll and HR administrative processes, aligning the workforce with the processes and installing technology. The technology included four projects on parallel tracks: a data warehouse, new technology for an existing HR service center, SAP's HR and payroll modules, and an employee portal on the corporate intranet.

"This was an HR transformation project," says Joanne G. Olson, a principal at PwC Consulting, a business unit of PricewaterhouseCoopers in New York, which IP retained to work on Viking. "There was a lot of synergy between the PwC vision of transformation and what International Paper had in mind," says Olson, PwC's Viking project leader.

Sea Change

What IP had in mind was an overhaul of HR processes. The decentralized company was mired in inconsistent procedures, most of them undocumented, and several legacy systems. "We had no long-range integrated strategy around people, processes or technology," says Karre. "There was a clear pattern of non-integrated, complex HR systems. It was very fragmented and very costly."

How bad was it? "We could not easily generate an accurate companywide head-count report," says Gail Cantrell, a program manager and the HR lead for Viking. And forget about complicated administrative transactions. For example, there were 16 distinct steps in the retirement process, she says, including numerous hand-offs from one person to another. "Part of it was enabled by technology and part of it wasn't," she says. "We couldn't do an accurate retirement process." In early 1998, after completing an assignment in Russia, Jack Flynn returned to IP's operational headquarters in Memphis, Tenn., to assume his previous job as vice president of HR. Right away the CEO asked Flynn to figure out what happened with the first implementation and to decide what to do next, recalls Flynn, who has since retired.

Flynn hired a strategic consultant to help him understand the earlier problems. He then proposed a new plan, contingent on getting outside help. Given the mixed results of the first implementation, it was essential that the second effort include assistance from a top-tier consulting firm. IP chose PwC because it had a similar vision of HR transformation: First, redesign processes, next, align the people and, then, make technology decisions.

Beginning in August 1998, a small vision team laid the foundation for Viking. Team members included Flynn, Olson and Karre, who was head of HR for one of the six IP domestic business units at the time, and John Beckham, a longtime IT professional at the company. They made the business case for the HR system and payroll implementation. Besides process change and organizational restructuring, the plan involved upgrading technology in the 200-worker HR service center, including case management software, a knowledge base and computer-telephony integration. It also included SAP, a data warehouse and a web portal for employee self-service (ESS). "I didn't even know what a portal was in 1998," recalls Flynn.

Leadership, Sponsorship, Ownership

Viking project leaders say success had little to do with technology per se. Rather, it depended on HR leadership, the HR-IT partnership, executive sponsorship and a sense of ownership among rank-and-file HR workers. Beckham, who became the project's IT lead, and Cantrell agreed that Viking was an HR project, not an IT project. "You can't say it is the responsibility of the technical people, dust your hands of it, then blame them later," says Beckham, a veteran of many IT implementations.

HR was responsible, but its partnership with IT had to be strong. "It worked out well," says Beckham. "Jack Flynn had the ear of everyone up to the chairman. I had the ear of every IT person. Gail Cantrell had the ear of the whole HR organization, and so did Jack."

Karre says another key to success was the early formation of an executive sponsorship committee, including two business unit leaders, the GPO, the CIO and the senior vice president of HR. Monthly meetings lasted two to four hours. "There was visible and active ownership by that group," says Karre. "I can't overemphasize the importance of support at this level." Adds Olson: "They did a good job of communicating with top leadership and keeping them involved throughout the project."

Things went so smoothly that even a change of leadership did not cause Viking to miss a beat. Flynn retired in August 2000, handing over the project reins to Cantrell. Karre became vice president of HR. "We had a succession plan long before most people knew Jack was going," says Beckham. Now Beckham and Cantrell have moved to other projects, replaced by people groomed to succeed them.

It also was important to establish a sense of ownership among 800 HR professionals. "Engaging the businesses to participate, and gaining and retaining their commitment, is a key success factor," says Olson. The project team brought HR professionals into the process early and often.

What Is, What Should Be

The first step, begun in July 1999, was to determine the way things were--the "as is," Cantrell calls it. "You have to see how broken things are," she says. Scant documentation existed, and the team needed input from HR staff in the field. "We brought them in to help us define the 'as is."'

When it was time to define the "to be," the team also sought input from the HR staff. "Every step of this project involved our HR organization," says Cantrell. "We told them, 'we are a small team of people pulled together to do this project. We want you to tell us what you need and walk with us down the path to get it done."'

The project team considered all the input in light of what SAP could do, then designed a process, which it took back to field people to approve or amend. Each process typically went through a couple of iterations. After code was written, there was a final validation by senior HR staff. That effort took a year.

As each process was approved, IT began to write code. By the time the processes were validated, the team could give HR staff a complete run-through in an early version of the SAP system, says Cantrell.

Officials chose SAP even before the process requirements phase, says Beckham. IP had installed the SAP accounting and business logistics modules in the mid-1990s. The Viking team evaluated other HR and payroll software and was satisfied that SAP would meet its needs. "We had experience with SAP," he says. "From an investment standpoint it did not have much competition."

The technology projects were sequenced to bring up pieces early that had value in their own right and were foundations for SAP and the portal. It also was important to show quick wins, Olson says. In the past, she has seen executive support for projects wither due to lack of early results. "That's why speed and early wins are important."

For example, the first technology milestone was installing case management software to help service center staff achieve a higher first-call resolution. The Viking team did this while still defining the scope of the entire project.

Although no milestones were missed, if there was one piece the team could do over, it would be the data warehouse implementation, says Beckham. People with mainframe and client-server expertise made up most of the project team because the original purpose was to store data from legacy systems. But those systems are being retired as the SAP servers come up. "We had too many people knowledgeable about the old world," says Beckham. "We needed more people who understood how to make the information valuable to the HR community in the future."

Focus on the Portal

The biggest surprise was the timing for rolling our the portal. "Consultants and others told us to do the portal after we got live with SAP," says Beckham. However, as the team started to look at process changes, it became evident that security, user interface and other portal features had to be tackled sooner rather than later. "We pushed the timing forward," he says.

IP had launched an intranet in the mid-1990s. The Viking team studied Ford Motor Co., Microsoft Corp. and others that were using portals for ESS. IP's long-term goal is to use the portal for HR and other transactions, giving users a single place to go, with one login and one password. "We're not there, but the HR project has put these elements in place," Beckham says.

Testing was essential throughout the project. For example, a couple hundred HR field people and service center personnel spent two to four weeks each testing changes in the service center. But nowhere was testing more important than on the portal. "We did a series of usability tests with employees, from hourly workers to union presidents to IT people," says Cantrell.

Employee adoption of portal-based ESS was essential to the desired return on investment, and usability was key, says Mimi Brooks, CEO of Logical Design Solutions Inc. in Morristown, N.J., which helped implement the portal. The Viking team was concerned that plant workers would not be up to speed on personal computers. "We actually found a lot of these people did a lot on the Internet using PCs in their homes," says Brooks, who sees increasing PC literacy among all workers.

More User Input

By September 2000, the process changes had been made. Many HR professionals had only seen the pieces that affected their area. Cantrell's group began a series of two-day regional workshops to educate all HR staffers--from executives to those who did transactions--in the new processes and to help them devise action plans for rolling them out. Each plan addressed how to educate and secure buy-in from local executives, how individual roles would change and which skills would be needed, and how to sell ESS in each locality.

During the workshops the team also identified staffers who were power users--people comfortable with and interested in the technology. They gave them special training twice before SAP went live in 2001. "We wanted the local power users to be the first go-to person for problems," says Cantrell.

Just before going live, the Viking team put more than 500 HR employees through a week of training. "We began by educating them to the new processes, and then said, 'Oh by the way, here's how you do that in SAP,"' Cantrell says.

Each business unit could decide how to make the portal available to employees who did not have computer access. Most chose to set up on-site community computer rooms, says Beckham. Each business unit was also responsible for determining what--if any--training its workers might need.

Goal: Improving Metrics

The system went live April 1, 2001. The preparation was so thorough that Beckham and Cantrell characterize the go-live as a "non-event." First they rolled out ESS to 14,000 employees. Rollout to the other 40,000 domestic workers continues. The first 14,000 workers use ESS for 50 percent to 60 percent of the HR transactions enabled for the portal, says Karre. The goal: To have 70 percent of transactions done via ESS by the end of June 2004 when the entire U.S. workforce will be on the new system.

Karre says the ultimate goal is an HR staff-to-employee ratio of 1-TO-150 and a cost per employee of $800 for delivering HR service. In a move that affected the staffing ratio, IP sold the service center, with all assets and 200 workers, to an outsource provider. Karre says IP was attracted to this strategy for several reasons: The service center function is the new owner's core competence, the contract stipulates committed service levels at predictable costs, and IP will no longer need to invest in upgrades. The sale helped IP dramatically reduce the staffing ratio, although the cost of oursourcing the service center still appears in the cost-per-employee ratio, Karre says.

The goal from the beginning was to reduce HR staff (by about 300 so far). So how did the Viking team sustain the interest of HR staff, some of whom would be restructured right out of a job? Cantrell says they communicated clearly and often what the project would accomplish, and the new processes and tools it would give HR staff. These processes and tools would allow HR staff to do their jobs better than before. "The overall response from HR was, 'We never had these tools, and it is about time,"' she says.

Viking team leaders also were clear about the skills HR staff would need once they were realigned, and they helped employees assess their competencies. Those skills include the ability to develop leadership within and outside HR, recruiting and training competence, and understanding of e-business processes. It also made clear up front how people who would eventually be let go would be treated, explaining the severance and ourplacement offered, as well as opportunities for placement in other areas at IP.

In keeping with the philosophy of involving the business units in the project, Cantrell says, it also helped that corporate headquarters never mandated how to reduce the HR staff. "The lead HR person in each business unit was responsible for reorganizing [and] reducing head count and that way they felt a great deal of ownership."

RELATED ARTICLE: CALCULATING KEY METRICS

International Paper calculates its HR-to-employee ratio by dividing the total number of domestic employees (exempt, non-exempt and hourly) by the number of exempt and non-exempt HR employees in business units and at corporate.

Calculating the HR cost per employee is a bit trickier.

It adds annual salaries and related payroll costs of all HR employees from business units and corporate, the annual cost of third-party outsourcing and administration, and office overhead (phones, etc.) for HR corporate staff. (HR office overhead for business units is not included.)

It divides this total dollar figure by the total number of domestic employees.

HR METAMORPHOSIS

Project Viking focused on changing some vital HR processes:

* Determining and tracking key performance measures to better manage processes transactions and HR function.

* Maintaining and providing key data and reporting of HR information for the enterprise.

* Managing HR information audit trails and security access.

* Managing HR and payroll systems development and maintenance.

* Processing and reporting EEO/AAP compliance data.

* Creating and maintaining the organizational relationships within the system such as organizational units, locations, cost centers, jobs and positions.

* Determining processing pay increases and adjustments.

* Processing benefit plan eligibility and enrollment.

* Processing leaves.

* Accepting time and attendance information feeds for payroll processing.

* Processing payroll.

* Processing promotions, demotions and lateral job changes.

* Processing transfers, separations from service and retirement.

* Creating requisitions for open positions.

* Processing new hires.

Source: International Paper

Bill Roberts is a freelance writer based in Los Altos, Calif. who covers business, technology and management issues.

COPYRIGHT 2002 Society for Human Resource Management
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