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This report discusses the financial position of Zipoala Ltd. with respect to its annual accounts for the past two years and analyzes the need for a computerized human resource information system (HRIS). The first part of the report establishes the need for such a system and the advantages and disadvantages attached to it. The next part analyzes and interprets the financial information provided by the company's accountant and determines a decision based on the company's financial position. This report recommends Zipoala Ltd. to purchase and introduce a computerized HRIS as it is financially capable of doing so and the system will bring about a positive change for the HR department and smoothen its running, making it efficient in its tasks.
BACKGROUND OF THE PROPOSAL
Zipoala Ltd. is a toy manufacturer employing 2000 people and hence due to the large number of employees the human resource management department cannot function smoothly on a manual basis. Providing accurate attendance, sickness, leave, holiday, age, gender and other employee information is difficult. The human resource management department face the difficulty of going through piles of paper work in order to find such information on an annual or as an when requested basis.
Previous proposals of purchasing a computerized HRIS were rejected on the grounds of the company being financially weak to afford such as system.
INTRODUCTION TO THE PROPOSAL
The purpose of this proposal is to suggest the purchase and introduction of a computerized HRIS for the Human Resource Management department of Zipoala Ltd; in order to relieve the department of manual paper work and provide a technological base to perform its tasks easily, effectively and efficiently.
As previous similar proposals have been rejected on the basis of financial grounds therefore this report takes into account the annual accounts for the past two years and analyzes the financial ratios provided by the company's accountant; which are to be considered valid as they have been calculated independently by the accounts department and this proposal just mentions their values and discusses their manifestation on the decision for a HRIS.
Transaction Processing (e.g payroll)
Management Information Systems (e.g. daily & monthly absenteeism summary)
Decision Support Systems (e.g. How many employees should we hire?)
Wage and salary data
Education and training
Performance data/appraisal results
DEFINITIONS OF TERMS USED
Human Resource Information System (HRIS)
A system which seeks to merge the activities associated with human resource management (HRM) and information technology (IT) into one common database through the use of enterprise resource planning (ERP) software.
(Business Dictionary, No Date a)
Financial analysis comparisons in which certain financial statement items are divided by one another to reveal their logical interrelationships.
(Business Dictionary, No Date b)
THE REQUIREMENT OF A COMPUTERIZED HRIS AND ITS ADVANTAGES
The Hr department of Zipoala Ltd. is finding it difficult to provide information related to employees on an annual and as required basis due to the limitation of manual working and having to go through paperwork to find the desired data. This process hence takes up much time of the HR and other important tasks at hand get neglected.
Introducing a computerized HRIS will provide the basis to improve the efficiency of HR processes. This will in turn drive business performance and will provide effective employee relations and engagement.
Further a computerized HRIS will provide accurate employee statistics through which the HR managers will be able to identify areas of improvement and hence they will be able to use means to bring up employee performance and productivity. On the other hand if investment in such an important area is not considered just save costs, the company will be a huge loss in the long term. Research shows 91% of organizations have introduced a HRIS to improve the quality of information (CIPD, 2007). The only challenge is to integrate it with the company's present system for which the HR plans to work with the company's IT professionals to develop an information system that will meet the needs of HR and the other employees and thus will help achieve the broader business objectives.
The HRIS will automate the payroll process and will gather employee payroll data regularily. Employee attendance will be pulled through the automatic fingerprint attendance system and fed into the HRIS which will calculate various deductions and taxes and generate paycheck amounts.
The HRIS will provide a single gateway to standard, custom and personal information regarding company employees with various levels of security and varied permissions of viewing. Such a system will allow employees to look up information such as their training and development opportunities, their salary, compensation, rewards and benefits and also their areas of continuous learning and improvement. Therefore introducing such a system will allow the company to have reduced levels of HR and administrative staffing in the future which in itself is a cost cutting measure.
Employee benefits are an important way to keep track of which benefits are preferred by employees and being availed. Therefore such information from the HRIS will form basis of many managerial decision to help improve the employee experience and increase their job satisfaction.
Performance management and appraisal specially those entailing a 360Â° feedback will become hassle free due to the HRIS and the line managers and their sub ordinates will be capable to conducting these sessions with ease and the resultant data will automatically reach the HR to induce action.
The HRIS will allow the employees to use self-service to perform tasks such as selection learning plans, looking for promotion opportunities, planning their retirement, changing personal data records like address, phone numbers or qualifications and most importantly they will have access to company policy and procedures on various areas such as absences, sickness leaves, holidays, pension schemes, gratuity funds and bonuses. When tasks like these will be performed by the employee themselves on the HRIS, this will free up time for the HR professionals to focus on achieving broader strategic goals for the company such as turning the human resource of the company to its competitive advantage, reducing turnovers, skill management and inventory and absence management.
The HRIS will work as a self learning tool for the employees and it will make their jobs easier and less stressful with all the information they need at hand and without any time delays. This will enable them to focus more of their time and energy on their own tasks at work and thus increase their productivity.
On the other hand, this would be a very positive tool for the company as the employees' increased efficiency will help reduce delays in the core processes of the business.
The return on investment (ROI) of the HRIS would be reduced query calls, immediate availability of required data in an accurate form, increased employee retention and satisfaction, reduction in staffing saving labour costs and saving up on the cost of paperwork.
The HRIS will also manage a skills inventory whereby it will keep a database of prospective employees (former employees, competitor's employees, who have left the organisation, employee referrals, rejected job applicants) who may be contacted as and when required. This will also save a portion of recruitment costs and the time of conducting recruitment process all over again.
As concern for the environment is a major issue these days and corporate social responsibility is stringently accounted therefore introducing such a system will make our organisation an environment friendly entity and make our Environmental management accounting easier.
The HRIS will function as a competitive advantage for our company as compared to the competitors. Thus the efficiency and effectiveness of our processes, the fewer errors in our systems, the increased accuracy and communication, the faster and consistent screening of our applicants, our quality hiring decisions and the high productivity if our employees will result in a greater market capture and increases our revenues in the long term. It will enable the company to become a learning organisation where employees will be encouraged to enhance their knowledge capital regularly.
THE DRAWBACKS AND THEIR RESOLUTION
The main drawback of introducing a HRIS would be that all employees may not be comfortable in working with technology. But this drawback can be overcome by explaning the need, importance and beneofit of such s system to the employees and providing them with concentrated orientation and tranining of the system. Such would enhance the ability and level of comfort with the technology.
Another drawback is the difficulty of integrating it with currently running systems. This issue can be resolved with the full support of our IT professional who can integrate the many systems together to work cohesively.
Another important issue is Security for which we will have to keep our systems updated with thte current antivirus softwares and use appropriate firewalls and make regular back ups.
IMPORTANT FACTORS TO BE CONSIDERED
After we decide positively on the decision of introducing a HRIS, there are some important factors to be considered. The most important of all is the reliability, validit and user friendliness of the system. The system must provide complete and accurate information without process delays or system slow down or crashing. For this we must see demos from various vendors and then make a buying decision.
Another factor that is of concern is that for the system to be successful it must be constantly updated with information. The Hr department is aware of this requirement and with the co operation of all employees, will try its best to keep all information updated in an accurate and organisaed manner.
The system should also meet the needs of our employees in order for them to be positive towards using it. Thus we should clearly determine what goals the system must accomplish, what applications it must offer and what information it must emit.
Another concern is that the organisational culture and employee attitudes must be encouraging towards the system in order for it to succeed and hence the HR department will specially design orientation session to indicue a learning environment to support the introiduction of HRIS. The Organization must encourage continuous leanring by rewarding employees who develop new skills and providing new opportunities for learning and development.
In order to be able to use the HRIs effectively the employees will need
self-management skills in order grab the opportunities the system offers. This will require some e-HR policies to be set up which will include rulses and regulations governing the proper use of the information system.
There is a possibility that the system may fail if the goals are unclear, selected vendor/product is not appropriate, employees do not use the system, if management has unrealistic expectations, lack of proper planning, poor communication between the IT and HR professionals or inadequate testing before launch. But all these factors can be managed as discussed before with the help and effort of the senior management, HR staff, IT professionals and all the company employees.
INTERPRETATION OF FINANCIAL INFORMATION
The following financial ratios were obtained from the accounts department:
Return on Capital Employed
Net Profit as % of Sales
Mark up Ratio
Gross Profit as % of Sales
Fixed Asset Turnover
Trade Debtor Collection Period
Trade Creditor Payment Period
Dividends per share
It is vital that our company has sufficient liquid resources available to meet its short term obligations of the near future.
We see from the current ratio calculation that for every £1 of liability we had £2.3 of current assets for the year 2011. The year after that (2012) our current assets decreased and now for every £1 of liability we have £ of current assets. Although we see a decreasein our liquidity position when the two years are compared, but on the whole we have an ample amount of available liquid assets to meet our short term obligations.
Being a toy manufacturer our inventories may not be very liquid and cannot be turned immediately into cash and therefore we used the acid test which excludes inventories from the current assets. It revealed that in 2011 Zipoala Ltd. had £1.7 of current assets to cover its current liability of £1 and this value declined to £1.5 in 2012. Although the ratio decreased, but stringently speaking the company has enough adequate liquid assets to pay off its short term obligation.
Our company must keep on creating wealth for its owners and much keep on making profit. Therefore it was essential to see if we are making enough profit in order to introduce a HRIS and still be profitable. The return on capital employed (ROCE) compares the capital invested with the operating profit produced and shows how effectively the funds have been deployed. In 2011, Zipoala Ltd. had a ROCE of 10.20% which was above the average ROCE of manufacturers for 2010-2011 i.e. 9% (Office for National Statistics, 2011) and in 2011 it increased dynamically to a value of 15.4%. This shows that the company it using its resources efficiently and hence has the capability to deploy some more resources.
The net profit which disregards interest and taxation values and is taken as a percentage of sales, shows that in 2011 from every £1 of sales revenue 18.10 p was left as operating profit and on 2012 this increased to an amount of 23.50 p for every £1 of sales revenue. This shows that our costs are going down and our expenses are manageable in order t produce higher profits. This in fact is an indication that the cost of a HRIS would be affordable under such circumstances.
The mark up ratio increase from 66.70% in 2011 to 75.40% in 2012 showing the capacity of buyers of accepting price mark ups to the products. And there such mark ups can also cover for any further additional costs incurred by the company such as purchase of a HRIS.
The increase in the gross profit from 40% to 43% in the past two years shows that our prices are stable/and or rising and that the company jas a good hold on the cost of goods sold.
The overall profitability is seen to be increasing due to the good management of operating expenses which impact the increase in net profit.
Our resources must be used very efficiently in order to make the most out of them and generate more outputs with relatively lesser inputs.
Therefore some efficiency ratios were assessed to see if resources were being efficiently deployed. Being a manufacturing company our inventories account for a substantial proportion of our total assets held. Therefore we need to see the amount of time for which these inventories are being held and then converted into revenue. The figures show that stock turnover decreased over the past two years from 6.4 times to 5.7 times and this indicates a reduction in sales. In 2011 it took almost 57 days (365/6.4) to sell the whole inventory and in 2012 it took around 64 days to sell the inventory. This can also be attributed to the recession due to which decrease in consumer spending must have affected toys sales and may also be due to overproduction or stocking of goods.
Next we need to analyze if we are using our fixed assets efficiently to generate sales as the HRIS will (if purchased) also later fall in this category. Our fixed asset turnover increased from 0.5 times in 2011 to 0.6 times in2012. This increase shows that we have lesser money tied up in fixed assets for each £ of sales revenue.
Being a manufacturing concern, we give out goods on credit terms and it is important to minimize the time in which we get payed. The speed of payment affects our business cash flows and hence we need to have lesser funds tied up in accounts receivable .The figures show that our trade debtor collection period has remained the same for the past two years at 92 days. This shows that not much effort has been made to decrease the number of days and attract the customers to pay quickly by either chasing them vigorously or allowing them discounts for early payments
On the other hand, the trade creditor payment period increased from 101 days in 2011 to 108 days in 2012. On the face of it, it is beneficial as we are using free finance provided by our suppliers but such continued acts may impact on the supplier goodwill and have adverse consequences for the company.
Our shareholders must see a positive return on shares in order to believe that the company is performing well and is successful.
For this purpose it is important to look at how we finance our business and what it yields for all shareholders.
The capital gearing ratio looks at the extent to which we finance our business, using sources that require a fixed return. The figures show a decline in percentage from 22.50% in 2011 to 21.10% in 2012. This is an indication that our long term capital structure is becoming less dependent on our long term liabilities. It shows a step in our progress towards becoming self sufficient over the years.
Dividends are actually a way of distributing profits to the shareholders. Our dividends per share rose from 4p per share in 2011 to 5p per share in 2012 owing to the increasing profit of the company. This growing value is a sign that the company's growth is sustainable in nature.
In order for our investors to compare the returns from Zipoala's shares against returns from other forms of investment we analyzed the dividend yield. Zipoala's dividend yield has drmamtically decreased from a 3.2% in 2011 to 1.7% in 2012. But this can be ascribed to factors other than those in the company's hands. Since zipoala has increased its dividen per share oover the year therefore the decrease individden yield may be due to either the increase in dividend tax credit i.e. rate of income tax or the company's shares are not being valued fairly in the market due to stock market issues that recently prevailed due to the economic recession.
THE ORGANISATION'S FINANCIAL POSITION
DECISION TO INVEST IN A COMPUTERIZED HRIS
After analyzing the benefits against the drawbacks of introudcuing a HRIS and assessing 'the company's financial strength to afford it , this proposal put s forward the recommendation of introducing a computerized HRIS.The introduction of a computerized HRIS will be a step towards putting learning and development as an integral and central organizational value. This will help align HR goals and objectives to the organizations wider business objectives. The HRIS must preferably be bought from a vendor since our IT department does not at this point carry the skills of developing a new information system.
In order to introduce and implement the new information system the following must be done.
Business information must be gathered reagarding setting goals for the HRIS
Decision regarding what areas the HRIS should serve be made. Applications must be identified.
Developing the proposal for the vendor which entails the details and specifications required by the organization for the HRIS
A Vendor must be selected based on the quality, features and price of his product offering selection
Negotiating terms and conditions and service level agreement with the vendor.
Orientation, training and motivation sessions for employees to introduce them to the new system
Feedback from Employees and related necessary action in coordination with vendor/system manager