State of Montana HR & Payroll Assessment Nov | 2013

State of Montana HR & Payroll Assessment Nov | 2013

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Program Agenda • Oracle Insight Overview • The HCM Challenge • Benchmark Analysis • Functional Assessment • Recommendations Summary • Conclusion

Objective, Scope & Data Sources Objective • Conduct an assessment of State’s Human Capital Management & Payroll functions & identify opportunities for improvement • Identify a set of “to-be” recommendations • Benchmark key HCM/Payroll KPI’s against median & best-in-class organizations Scope • Position Management • Core HR • Recruit-to-Hire & On/Off-Boarding • Benefits Administration • Employee Development • Time & Absence Management • Payroll • Reporting & Analytics Data Source • Interviews with HR & Payroll management and staff • Data collection exercise • 3rdparty research

Executive Sponsorship & Oracle Team State Exec Sponsors • Anjenette Schafer, Director Human Resources Division, Department of Administration • Michael Sweeney, Information Technology Manager, Department of Administration Oracle Team • Executive Sponsor: Dan Bissi, Area VP, Public Sector Application Sales, West • Project Lead: Simon Threlfall, Senior Director, Oracle Insight • Account Manager: Dan Morgan • HCM Solutions Specialist: Laura Adams • HCM Solutions Specialist: Troy Wintersteen • Application Technologist: Sean McGrath

Oracle Insight Process Followed a proven methodology that delivers value in a short amount of time and resource investment Aug 28 Oct 1 - 2 Nov 13

The US Public Sector is Facing Human Capital Challenges Much Like the Private Sector • Large number of skilled employees are nearing retirement • 70 million baby boomers and only 40 million GenXers behind them, clearly a major talent successor issue • State of MT estimates that approx. 60% of employees are at or near retirement age • Competition for the remaining skilled employees is growing • Diversity in the workforce is increasing both ethnically and generationally, making management more challenging • Expectations among Generation-X and Generation-Y workers regarding responsibility and work/life balance are dramatically different from their predecessors

…the Key is Taking a More Strategic Approach to Human Capital Management Reshaping HR from Administrative Overhead to Consultative Partner... Strategy Planning Transactional Value Consultation Procedures & Compliance Administration 2006 - Future 19xx’s - Present

…By Focusing on Administrative, Delivery, & Performance Excellence Low Impact High Drive Organizational Effectiveness through Analytics “Elevate” Performance Deployment of strategic HCM applications that enable organizations to acquire, develop & retain talent, along with a data warehouse & analytics to enable measurement & reporting of workforce performance Drive Workforce Efficiency “Align” Delivery Deployment of self service applications, in some cases under a portal umbrella, & a service center approach, augmented by an HR Help Desk Value Drive core HR Dept Efficiency “Comply” Administrative Deployment of core record keeping systems – typically ERP along with Payroll & Benefits Admin Low

…& Taking a More Integrated, Transformational Approach to Talent Lifecycle Management Competencies / KSAs • All of the various talent management components are integrated through a common competency model stored in the core HR system of record • “The ERP-based talent management solution continues, since 2008, to be linked to the highest financial performance metrics. This finding argues for the unified and integrated talent management solution to be built upon the ERP-based HRMS.” CedarCrestone 2010-2011 HR Systems Survey

Snapshot Adoption by Industry Performance Excellence High Tech Financial Services Service Delivery Excellence Healthcare Other Manufacturing Other Services Administrative Excellence Retail “Leaders of government agencies operate under handicaps largely unknown within the private sector. But the best of them have improved performance by adopting and adapting some goals and methods that have been proven in business.” Harvard Business Review, May 2006 Change Management in Government Public Administration Higher Education

Program Agenda • Oracle Insight Overview • The HCM Challenge • Benchmark Analysis • Functional Assessment • Recommendations Summary • In Conclusion

Benchmark Analysis: GeneralAnalyzing State’s HR coverage rate & HR labor cost indicates a very large Statewide HR organization MT 0 250 239 58 109 Median / Avg Best In Class / 1st Quartile ≠ 0 58 598 Input Metrics: • 13,691 total State employees (12,276 full time & 1,415 part time) • 234.5 total HR FTEs (26.5 central HR FTEs & 208 decentral HR FTEs) • $13M total annual HR labor cost ($66K avg. fully burdened annual labor rate per central HR FTE & $54K per decentral HR FTE $1,000 $0 $948 $184 $586 Benchmark Sources: 1 CedarCrestone (2008) 14

Benchmark Analysis: RecruitingState’s inability to provide key recruiting metrics is indicative of some issues in the capturing of recruiting data & perhaps the recruiting process itself MT 40% 0% 9% 21% 12.5% Median / Avg Best In Class / 1st Quartile 30% 0% 8.9% 15.2% Inputs: • NA $6,000 $0 $1,300 $3,300 100 0 24 52 0 400 206 Benchmark Sources: 1 Martin & Fletcher (2007) 2 Saratoga/PWC (2006) 3CedarCrestone (2008) 60 100 93 81 6,000 1,000 892 797 15

Benchmark Analysis: Benefits & Employee DevelopmentAnalysis indicates inefficient Benefits Admin & Compensation Mgmt functions but an efficient Learning Mgmt function MT Median / Avg Best In Class / 1st Quartile $200 $0 $53 $88 $168 Inputs: • 13,691 total State employees (12,276 full time & 1,415 part time) • 33.5 total Benefits Admin FTEs (18.5 central & 33.5 decentral) • $2.3M total annual Ben Admin labor cost ($73K fully burdened annual labor cost per central Ben Admin FTE & $62K fully burdened annual labor cost per decentral Ben Admin FTE) • 8 total Compensation Mgmt FTEs (2 central & 6 decentral) • $3.8M total annual Learning & Development Function Cost (3.5 central & 55 decentral FTEs at an avg. annual fully burdened labor rate of $62K per FTE) 1,500 2,500 2,249 2,272 1,711 $1,000 $0 $282 $513 2,500 4,500 4,157 3,535 0 10,000 8,364 4,493 Benchmark Sources: 1 Hackett (2007) 2 CedarCrestone (2008) 3 Saratoga/PWC (2006) 16

Benchmark Analysis: HR & PayrollAnalysis indicates opportunities for improvement in Time Keeping but strong performance in Payroll MT Median / Avg $100 $0 Best In Class / 1st Quartile $7 $42 $38 Inputs: • 13,691 total State employees (12,276 full time & 1,415 part time) • 48 timekeepers across the State & they spend an avg. of 25% of their time on timekeeping activities • Avg annual fully burdened labor rate per timekeeper is $44K • Total annual Time & Attendance cost of $525K • 21 total Payroll FTEs (3 central & 18 decentral) • 361K payments per year • Total annual Payroll function cost of $1.6M ($70K per central Payroll FTE & $39K per decentral Payroll FTE) 1.5 0 0.9 0.7 0.1 1500 500 652 971 964 0 30,000 17,214 12,404 25,584 $200 $50 $73 $115 $131 $10 $0 $5.35 $4.36 $2.47 Benchmark Sources: 1 Hackett (2008) 2CedarCrestone (2008) 3 Hackett (2006) 4CedarCrestone (2006) 75% 95% 90.7% 86% 17

Program Agenda • Oracle Insight Overview • The HCM Challenge • Benchmark Analysis • Functional Assessment • Recommendations Summary • In Conclusion

Functional Assessment SummaryHuman Capital Management & Payroll 19

Assessment Summary: Position Management Issues Current Situation • Exposed to risk associated with licensure / certification expirations • Increased manager “overhead” required to track and manage their teams • Unable to take advantage of new functionality such as corporate directory, manager dashboard • Impact out-of-box HR Analytics (if the State decided to go down that road) • Unable to track accurate org structures from data within PeopleSoft • Manually intensive process to keep track of position budgets • Not tracking job descriptions or competency requirements in PeopleSoft • Many employees are in multiple positions  this is a result of Budget Office’s need to control FTE by “source of authority” (different from “funding source”)  some positions are funded by multiple “sources of authority”  have created custom field that tracks “source of authority on the position • Using “reports to” as an approver of timesheets as opposed to true hierarchy • Not encumbering labor today  just budget checking actual Payroll in the GL • Each division has their own budget analysts who keep track of available budget offline to help managers make personnel decisions

Assessment Summary: Position Management Value Target • Reduce risk associated with license / certification expirations • Make it easier to find State employees with certain skills • Easier to enter time and review time sheets • Fewer positions to maintain • Truer reflection of position counts • Ability to use out-of-the-box, pre-built HR Analytics • Make it easier for agency budget analysts to determine funding levels and if funds are available for new hires • Increase automation • Improve labor productivity • Track Job Qualifications & descriptions in PeopleSoft Profile Management (Core HR) – key skills, abilities, languages, certificates, licenses • Business process re-engineer how “sources of authority” are tied to positions  redesign current customization to be able to track multiple “sources of authority” & FTEs for a single position • Use Time & Labor Groups or AWE delegation instead of “reports to” to drive time sheet approval routing • Consider encumbering approved positions for labor and fringe at beginning of year  would require using the Dept Budget Table • Use forms and approvals to initiate request and approval workflow and for position changes

Assessment Summary: Core HR Issues Current Situation • Inconsistent HR / personnel procedures & processes  it very difficult to get a Statewide view of HR information • No visibility / transparency into an employee’s complete personnel record • Unable to track HR inquiries • Decentralized HR model  HR Div sets Statewide policies & agencies can set own policies above & beyond that  each agency is responsible for day to day HR function • HR Div provides NO oversight or compliance • All HR inquiries handled informally  no formal help-desk system • Each agency keeps their own hard copy personnel files  no electronic personnel file • Have employee self-service for anything that doesn’t require a doc or approval • Employees can’t add degrees, certifications, licenses • Mixed mediums(i.e. email, SharePoint, Portal, etc) for communicating HR-related information to State employees

Assessment Summary: Core HR Value Target • Standardized processes • In the long term reduce the size of the HR organization (using attrition) • Reduced paper & improved labor productivity • Greater visibility / transparency into Statewide personnel data • Greater visibility into HR-related issues • Greater visibility into key employee skills, certifications, licensures, etc. • Reduced paper • Centralize HR authority and control  in the long term move to a centralized shared services org • Completely automate personnel actions using either Forms & Approval Builder or a 3rd party, PeopleTools-based eForms tool (Gideon Taylor) • Consider implementing HR Helpdesk for a formal HR helpdesk & online grievance tracking • Allow employees to enter their own qualifications (key skills, languages, degrees, etc.) via self-service with workflow and approval from manager and/or HR (eDevelopment) • Use Interaction Hub for pushing out HR News, Benefit News, etc. & consider using Workforce Communication to deliver HR info to different employee groups via diverse set of channels

Assessment Summary: Recruit-to-Hire & On/Off-Boarding Issues Current Situation • Poor applicant experience • A lot of manager time and effort spent reviewing/interviewing unqualified candidates • Limited qualified candidate pools; missing passive candidates; local-only recruiting contributes to ongoing high median employee age • Difficult to support custom .NET application over time • Can’t get good metrics out of system even though the system has a data warehouse • Have no idea how well or poorly State is recruiting qualified candidates • If off-boarding hasn’t completed new employees with reused user ID’s can see old EE’s info • Recruiting is done at agency level  no central oversight • Use a custom .NET system that is not integrated to PeopleSoft • Not all agencies are using .NET system or using it the same way • Recruiting is only done locally; recruiting does not leverage job boards or social media • No pre-screening or ranking  all applications have to be reviewed • Interviews managed completely offline • Limited online candidate communication • Each agency manages on-boarding & off-boarding differently but manually  using manual checklists • Are reusing user ID’s to save money

Assessment Summary: Recruit-to-Hire & On/Off-Boarding Value Target • Standardize recruiting processes while accommodating agency requirements • Improve manager productivity • Improve applicant experience • Attract more qualified candidates interested in MT from around the US; decrease the median age of talent pool; increase likelihood of finding qualified candidates for hard to fill jobs • Provide visibility / transparency into key Statewide recruiting metrics / performance • Reduce time to on-board and off-board  improve overall productivity & reduce risk • Improve retention • Replace .NET app with best practice, integrated, flexible SaaS Taleo Recruiting & On/Off-Boarding solutions • Social sourcing & job board distribution • Automatic screening, scoring and ranking based on job requirements • Online interview management & scheduling • Online candidate communication • Automatically transfer information captured during recruiting process into PeopleSoft • Embedded analytics with trends, summaries & drill-down capabilities • Online check-lists for on/off-boarding • Only use new user ID’s • Administer exit surveys

Assessment Summary: Benefits Administration Issues Current Situation • Inefficient use of State resources (i.e. employee time) • Future IT maintenance required to maintain custom “interfaces” to vendors  increase future upgrade effort / costs • Limited visibility / transparency into complete personnel record for employees who retire and come back to work for State • Using Benefits Administration to administer core benefits • 68% of existing EE’s and retirees go online for open enrollment using eBenefits • Not using AP interface for collection and remittance of payments  vendors are paid manually based on reports • Using custom FTP file to send info to vendor rather than using delivered  found delivered didn’t work well • Life Event changes managed manually offline & are managed decentrally • Non-employee COBRA recipients & retirees are tracked in PeopleSoft using ‘active’ job codes

Assessment Summary: Benefits Administration Value Target • Reduce paper & manual effort • Reduce manual data entry by Benefits staff • More effective use of staff time • Reduce number of manual journal entries and voucher requests • Simplify reporting and make it easier to identify actual employees • Encourage more employees to use on-line enrollment  consider using employee kiosks so more employees can enter benefits on-line • Consider using the delivered A/P interface for garnishments and general deductions • Use either Forms Builder or 3rd party Forms tool to create self-service life event forms that employees can use to notify Benefits of a qualifying event  allow employees to attach required docs  in 9.2 can replace with eBenefits Life Events functionality • Once approved, use eBenefits Benefit Enrollment to enter plan changes for life event and job status changes • Set up Non-Employee COBRA participants & retirees as ‘Persons of Interest’ in HCM

Assessment Summary: Employee Development Issues Current Situation • Not maximizing employee development • Reduced alignment between employee time & effort and department / agency / Statewide goals & objectives • Very manual, paper-based processes  inefficient & ineffective use of State’s resources • Risk associated with not being able to fill key position if they become vacant • No competencies tracked in PeopleSoft • Annual performance reviews are not standardized & mostly manual  Div of HR has no visibility into • Profession Development Center (PDC) within DoHR offers training to State EE’s  also a lot of “training” resources across the State outside of Div of HR • PDC is using core Training Administration in core HR to track employee training • No training content development system • Not tracking licensure/certifications • Very limited career & succession planning (Dept of Admin), & what is being done is being done offline  not tracking ‘Key Positions’ or jobs in PeopleSoft

Assessment Summary: Employee Development Value Target • More effective organization • Lower risk • Improved labor productivity • Improved employee satisfaction • Be able to identify critical talent gaps & define strategies for closing those gaps either through recruiting or employee development • Implement a formal competency model as the foundation of ‘fully integrated talent lifecycle management’  start with & build upon 3rd party competency models (i.e. Lohmingers) • Allow employees to update qualifications through eDevelopment • Notify employee & manager when job required licenses are about to expire through on-line pagelets (HCM Portal Pack or Manager Dashboard) or through Alerts and Notifications framework • Implement an integrated, online suite of Talent Mgmt tools (Taleo Goal Management, Performance, Development Planning, Succession Planning & Learn) • Conduct talent audits

Assessment Summary: Time & Absence Mgmt Issues Current Situation • Significant manual employee & ‘timekeeper’ effort • Limited ability to use key talent management functionality (corporate directory, manager self-service and approvals, manager dashboard, etc.) • Manual effort to make sure employees don’t accrue more than 2 years or take more leave than they have accrued • Difficult to do Statewide time reporting or trend analysis • Difficult to determine what is straight time vs. overtime  difficult to manage FLSA • Manual time rules interpretation could be driving higher errors in Payroll • Most state EE’s are positive time • Mixture of self-service time entry (3rd party systems and T&L) and paper time sheets • Time captured in 3rd party systems loaded into T&L • No standardization of time reporting codes • Some employees are in multiple positions, which requires multiple timesheets • ‘Reports to’ used to drive timesheet approval • PeopleSoft does NOT stop leave accrual to manage few exceptions where employees can accrue more than 2 yrs • Leave request & FMLA processes are offline and informal • EE’s can view their leave balances on the timesheet or through a menu item • Most T&L rules handled manually

Assessment Summary: Time & Absence Mgmt Value Target • Reduce manual effort associated with collecting, entering & interpreting time • Reduce number of manual entries and increase accuracy and consistent application of pay practices • Reduce leave abuse • Revisit use of “reports to” field on Position Data  use delegation function or TL groups • Revisit using multiple positions for multiple sources of authority • Standardize use of time reporting codes • Continue rolling out self-service time entry • Use Alerts & Notifications to proactively track leave accrual overages • In the short term, use Forms and Approval Builder or 3rd party eForms tool to automate Leave Requests & FMLA  in the long term, implement Absence Management • Create schedules in T&L for employees not using external systems to capture time • Put rules into T&L to create premium pays & systematically interpret pay rules • InvestigateOracle Policy Automation to help manage complex T&L rules

Assessment Summary: Payroll Issues Current Situation • GL & subledgers (Payroll & T&L) are out of sync • Unnecessary manual effort in Payroll and AP • Payroll Services in HRIS processes payroll for all agencies • All time data comes into Payroll via T&L • Bi-weekly pay cycles • Most adjustments are manually entered in pay lines  labor distribution adjustments done with manual journal entries • Most EE’s are on direct deposit (91%) • Printing out and mailing out about 1,000+ checks and pay advices per pay period • Retropay managed manually • Garnishment payments entered manually into AP • Using ePay for employee self-service  employees can see pdf of W2’s and payslips

Assessment Summary: Payroll Value Target • Keep GL and subledgers in sync • Improve labor productivity • In 9.2, will be able to lock time sheets to prevent changes during critical payroll processing times. • Make corrections in source (Time and Labor) to keep systems in sync • Pass chart fields to Pay lines for adjustments to reduce number of manual journal entries and keep systems in sync • Continue to drive employees towards direct deposit • Use delivered retro pay functionality to calculate retro payments • Use A/P Interface to send garnishment payments to accounts payable for payment.

Assessment Summary: Reporting & Analytics Issues Current Situation • No true end-user reporting • Limited real-time exception-based alerts/reporting • “Driving while looking in the rear-view mirror” • Lack of standardization of HR processes & procedures makes it very difficult to do Statewide reporting or trend analysis • Very difficult to do ‘federated reporting’ • Very difficult to do ‘period over period’ trend reporting • “No single version of the question” • All custom reports created & maintained by HRIS  dedicated reporting resource • HRIS is able to turn custom report requests very quickly  no backlog • Use SQR more than anything else  some Crystal & BI Publisher • HR end-users can only run queries  they can’t create their own • No data warehousing • All ‘federated’ reporting done offline in excel / access • No transactional system performance issues resulting from reporting directly off ERP system

Assessment Summary: Reporting & Analytics Value Target • Pre-delivered metrics, reports & dashboards • True real-time end-user reporting • No longer have to rely on HRIS for reporting needs • Easy federated reporting • Single definition of the question • Period over period reporting • Improve visibility / access to key personnel / HR / Payroll data • Pro-active alerts • The State should begin the process of utilizing Pivot Grids on top of existing queries • Continue the deployment of BI Publisher to prepare for 9.2 reports that heavily utilize BI Publisher reporting engine • Implement pre-built HR Analytics • Pre-built KPI’s, reports & dashboards across multiple subject areas: • HR Performance • Operations • Compensation • Recruiting • Learning Management • Leave & Absence • Time & Labor & Payroll

While the State Has Made Progress, It Is Still Working Towards Overall Service Delivery Excellence Performance Excellence High Tech Financial Services Service Delivery Excellence Healthcare Other Manufacturing Other Services Administrative Excellence Retail Public Administration Higher Education

Recommendations SummaryOracle recommends the State focus on the follow key initiatives to drive true HCM transformation & maximize investment in PeopleSoft • Centralize HR authority within Div of HR to standardize processes & reduce overall HR organization footprint over time (manage through attrition) • Business re-engineer key processes to strengthen the foundation & ensure State is able to use existing & new PeopleSoft capabilities • Focus on implementing a fully integrated Talent Lifecycle Management model built on a formal Statewide competency model • Continue to roll out self-service automate personnel actions & move towards a single source for personnel records • Roll out pre-built, pre-integrated HR Analytics

Oracle recommends MT take a ‘near’, ‘medium’ and ‘long’ term approach to implementing these recommendations • Evaluate upgrade to 9.2 vs. migration to Fusion HCM • In the long run, move to a completely centralized HR shared services model  centralize the HR organization • Automate personnel actions by leveraging new Forms & Approvals Builder &/or a 3rd party PeopleTools-based forms & approvals tool (i.e. GideonTaylor)  move to a single, online personnel record • Roll out pre-built, pre-integrated HRAnalytics • Complete the journey to fully integrated TLC by implementing Taleo Goal Mgmt, Performance, Development Planning, Succession Planning & Learn • Centralize HR authority within Div of HR • Business process re-engineer how positions are set up • Use ‘reports to’ to drive organizational hierarchy rather than time sheet approval routing • Begin the journey towards “fully integrated Talent Lifecycle Management” by building a formal competency model & rolling out Taleo Recruiting products • Continue to roll out self-service

In Conclusion… • Like most Public Sector organizations the State is facing a significant retirement issue • As a result, it must become more strategic in how it attracts, retains & develops its employees • However, lack of standardization, some current business processes & key capability gaps are inhibiting State from becoming more strategic • These issues can be solved by centralizing HR authority & control, re-engineering key business processes, implementing an integrated & competency-based Talent Lifecycle Management model, continuing to focus on automation & implementing pre-built & pre-integrated HR Analytics • By doing so, the State, will transform its HR organization from transactional to strategic and over the long run will be able to drastically reduce the size of the HR footprint (through attrition) while increasing the service levels it provides

State of Montana HR & Payroll Assessment Nov | 2013