Asian IT Case Series

Case No: Case No: ES-006 Date: November 11, 2008

LG Electronics, Inc.: Implementing an e-HR System

Background LG Electronics, Inc. (formerly known as Lucky-GoldStar) was a subsidiary company of LG Group that was established in 1958 by developing the nations first radio, as the pioneer in the Korean consumer electronics market. By 1965, LG Electronics was producing transistor radios for export to Latin America. In 1967, the company became a pioneer in the energy sector in South Korea when it established Honam Oil Refinery and the company was the first in the country to produce refrigerators. Since then, LG Electronics (LGE) had made constant efforts to maintain high levels of innovation, research and development. This made the company a successful global electronics manufacturer. The company produced electronics, information and communications products with more than 64,000 employees working in 76 overseas subsidiaries and marketing units around the world with annual total revenues of more than (non-consolidated) US $16.9 billion (LG home page, 2006). LGE comprised of four main business units: Mobile Communications, Digital Appliance, Digital Display, and Digital Media. LGE has garnered a reputation in innovative technology with the development of consumer electronics, home appliances and IT product. LGE initiated a transformation in Human Relations Management (HRM), as part of continuous efforts to steer various reform initiatives to secure global competitiveness. The company not only undertook activities in operations, and sought to strengthen its competitiveness and create profitability, but also made an effort to transform its human resource management practice. LG Electronics and its members discarded the old vertical relationships of pursuing and keeping their respective shares. Instead, horizontal relationships were embraced wherein workers and managers assumed their functions and roles in pursuit of a common goal. The above paradigm shift triggered LGE to initiate their HR transformation. LGE targeted its HR direction in two categories according to different purposes. One was focused on people performance improvement and the other was HR Service level improvement. Although these two directions encompassed distinctive purposes, they should not be isolated but should be understood as supporting and interacting together. People performance improvement was aimed at establishing a strategic human resource management structure. LGE practiced strategic human resource management by following programs such as strategic staffing programs (for planning, recruiting, and changing of positions), performance/reward programs, and strategic human resource development programs (for career development, succession planning, training and education). They perceived these practices as a core of HR management, which conveyed their purpose of improving people performance. The other direction, HR Service level improvement, was aimed at providing and delivering effective HR service. This was put into practice by establishing a HR Service Delivery Model, which included
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LG Electronics

the delivery strategy, process, role of responsible person, and HR performance measurement. Furthermore, in order to deliver effective HR service, LGE implemented a total e-HR system, that is, the Human Resource Management Systems (HRMS), ERP and HR program solutions. LGE practiced intensive HR policies to create value for customers through management based on esteem for human dignity by challenging and building employees competences. These were explained in five value streams as the basis of LGs main HR system: organization, recruitment, development, appraisal, and compensation. The end result of this was the establishment of Human Resource systems that directly recognized management philosophy and business strategy. First, LGE sought to recruit and maintain knowledgeable employees who were capable of using and applying their knowledge to the creation of new values and ideas. LGE saw an individuals creativity as the source of creating value and at the same time respected diversity and autonomy so that each could exercise their own creativity to their full extent. Secondly, they focused on building equal opportunities. LGE portrayed equal opportunity in gender, race, age, religion or nationality as a central point in building trust between people. Third, the company emphasized and adopted competence as the most important criterion for making personnel decisions. In order to compete in global context, the company made an effort to attract talented individuals who pursued the top spot and who constantly evaluated their main areas and objectives on the basis of their ability to embrace cultural diversity. At the same time, the company hoped that their employees pursued the number one position with interest and a challenging spirit, and broadened their horizons. Fourth, regardless of the turbulent industry environment, LGE tried to maintain a long term perspective on its HR policy. As the company respected and encompassed a long term view, it also placed persistent effort in designing a HR policy, its implementation, and lastly performance based rewards. Similar to other organizations, the company also saw the importance of rewards based on performance. LGE evaluated employees annually according to competencies and performance. Based on the evaluation, promotions, incentive, and raises were granted. The development of HR Shared Service Center (HR SSC) LGEs effort to improve their HR Service level was shown by their attempt and output of reorganizing their HR Service Department. LGE transformed their HR service department from an Old HR service delivery model to a New HR service delivery model by implementing an in-house service center called the HR Shared Service Center to oversee their HR administrative activities. In other words, the HR service departments that existed in each business units were transferred to a centralized location to provide complete HR services under one roof. As HR manager suggests: We understand the Shared Service Center is an output of company's efforts to move towards a more efficient HR function, primarily by streamlining and centralizing routine HR transactions and processes. It is there to act as the focal point for handling HR enquiries from line managers and employees. The benefits and original purpose of this new transition could be categorized as follows. First, LGE hoped that this center would provide support so LGE business units could focus on its core competencies, that is, research, marketing, manufacturing. Second, they wanted to ensure effective use of management resources and processes. By centralizing its processes, the company could avoid wastes in time and human resource. They hoped to achieve a greater consistency of the approach to HR matters across the company. Third, as the name Shared Service Center suggested and emphasized the company (particularly the HR department) hoped to change the way they collaborated with employees. They wanted to stress the partnership between the companys employees and HR department instead of just executing what needed to be done. Fourth, it was expected that this center would be financially more efficient because of lower transaction costs and reduced staffing levels. The company hoped to save approximately 35% in cost, a percentage that was similar to other
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LG Electronics

developed nations HR service. Fifth, the company could provide more customer-focused service to their employees by focusing their HRM strategy. LGE incorporated 5 steps in the construction of the HR Shared Service Center (HR SSC). Figure 1 shows its road map.

SSC Road Map

Strategy

Business Case

Delivery model

Implement

Optimize

Establishment of a purpose and object of HR Program HR service and strategy road map

Collect Benchmarking Data

Design of IT platform and new process

Design a change plan

Verify initial purpose

Identify future service Acquire commitment delivery model from top level management on the new HR service

New process and IT implementation

Advance Requirement for the reduction of complication -Develop clear object / strategy -Study on the business case -Achieve mutual agreement and consensus

Figure 1: SSC Road Map

When LGE decided to embark on constructing the HR SSC, the first thing they faced was to select the business units and processes of HR SSC that they would like to incorporate in HR SSC on the basis of HRM and LGE competency. This selection was made by answering the following criteria. Do we require this service? Is this service specific to the business unit? Is the service common? (e.g. Payroll) Can the service be measured? Do we have the skills to deliver the service? A project team member noted: Although we tried to answer related questions and it may seem very easy to identify, possibly saying YES to all, at that time, it was not an easy task to decide. The specific services that LGE finally decided to provide from HR SSC were categorized as threefold. First, administrative services such as payroll, fringe benefits, personal information, and FSE (personal file system extender) support were included in this category. The second category was related to HR support. They included data service providing and emailing regular HR statistics. Also, it involved monitoring and surveying HR operations. Third was the management of service infrastructure. This category was aimed at providing general HR contents, that is, company HR policy, user manuals, and references. In addition, this category also included matters of IT system improvement for HR SSC employees to continue data management. Implementation of Human Resource Management e- Transformation (e-HR) Project One of the significant developments during their human resource e-transformation was the creation of an e-HR system to support the HR SSC. The development of HR SSC included the implementation of an e-HR system to maximize and induce its purpose. Started in 2001 as a HR Data Mart, the e-HR system aimed to support the Shared Service Center more effectively by aligning and integrating it
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LG Electronics

with the existing companys intranet/portal. The e-HR system project was an extension of LGEs l ERP project. Figure 2 outlines the overall master plan.

2001.3

2002.2

2002.9

2003.5

2003.12

2004.8

ERP HRMS System Dev.

ERP Stabilization

Synthesize ERP Dev.

Synthesize ERP Stabilization

HR Analysis Data Mart Design

System Dev.

Stabilizati on

Master Plan
Portal
Strategy Planning Develop ment Pilot Test Company diffusion

Shared Service

HR SSC Introducti on

Design / Planning

Develop ment

outsourcing HR SSC Stabilizati of specific IT features on & diffusion

Figure 2: Master Plan

The main purpose of the e-HR system was to streamline HR processes and provide a single source to access all associated employees and organizational data. It aimed to provide the opportunity to automate labor-intensive processes and devolve routine transactions to line managers and, in some cases, to employees themselves. An e-HR system could also lay the foundations for a wider e-HR strategy, which might include e-learning and online recruitment by providing more consistent and accurate internal profile. The main purpose of the e-HR system was to focus on the HR model that was based on job, competency, and performance. Figure 3 presents the overall picture of this HR model. This had to be prepared before the e-HR system implementation, and through a separate project, issues such as the job, competency model definition, companys job structure definition, and competency profile and competency development. LGE made an effort to structure overall job categories and architecture with necessary competencies for each job category. This enabled LGE to redefine its recruitment, development, evaluation and reward systems for the better operation of HR Processes. According to a senior manager at HR SSC: This has allowed LGE to concentrate its operation of HR and organization based on job and rational standard. With the e-HR system, job and competencies were managed more effectively through a work structure management function. Within the competency profiling function, issues such as competency type, definition, and necessary knowledge/skill/value (or attribute) were managed and explained. In addition, this system provided advice and methods for giving information where and how employees could acquire and improve necessary competencies (i.e. internal/external training programs, books, conference/seminars, expert internet site, and internal knowledge base).

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LG Electronics

This enabled employees to identify necessary competencies for their jobs and tasks. For the managers, this helped to evaluate and assign the right people for the right job in vacant positions. Also, managers could both evaluate their employees through the competency profiling and make suggestions.

Strategy

Applicant / Employees

Define Job (Job Analysis)

Identify competency and needed skills

Position

Matching

Hold Competency

Availability of position / Organize

HR ERP

Recruitment Strategy Organizational Analysis Development Strategy

Selection, Position, Transfer Training and Education

Figure 3: HR model based on job and competency

The main menus of LGEs e-HR system were categorized as HR information (annual income, benefits, performance index, 6 sigma belt rank), past experience, career development program, and list of employee in the same department/team. Several sub menus included my work, supporting work, knowledge, learning, communication and HR service. e-HR System Project The overall e-HR system development project began in January 2001 and finished in December 2002. This included LGEs ERP development from May 2001 to August 2002. The decision to outsource was not an issue because companies like LGE were used to being involved in such IT projects. According to a senior manager in HR SSC: We are accustomed with this type of project. Outsource or in source is not a question, but finding a right consultant and vendor is what we always find it difficult. A senior manager in HR SSC continued: Most of times LGE decides on the LGCNS (subsidiary company of LG Group, which was formerly a joint venture between LG and EDS named LGEDS) for any IT project. As a subsidiary company LGCNS knows our business process, culture and the future directions that we wanted to follow. As you know, this is quite common in Korea as most of large companies tend to use their own subsidiary IT consulting company. For example, Samsung tend to use SDS. Apart from LGCNS, two other companies were involved in the project: LGE (a project owner) and Oracle (ERP HRMS product vendor that was responsible for providing IT application and solution).
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LG Electronics

LGE employees were responsible for monitoring the progress and facilitating the development while employees from LGCNS were mainly responsible for software and system development in cooperation with Oracle. A project team of 35 members was formed initially. 10 of them were from LGE, 20 from LGCNS, 4 from Oracle Korea who were responsible for the application coding, and 1 from Oracle HQ who was responsible for supporting the alignment between the existing ERP and new Oracle HRMS module. Also, 40 software developers who were contracted by LGCNS were involved. However, the number of software development people from LGCNS fluctuated very often as the project progressed. LGCNS employees were still stationed within LGEs HR SSC to improve the functions of the e-HR system when it was necessary. The overall cost for the project was approximately 9,000,000,000 Korean Won (i.e., approximately US $ 9,000,000) including a Data Mart for the database. A Project Manager mentioned: It was very difficult to have implemented a HR Shared Service Center. First, we did not have any possible benchmarking company in Korea (Now, we are proud of ourselves being the first one). Second, as we expect an operation of HR service to be changed, we had to prepare ourselves to face many obstacles. For example, executives who are accustomed to receiving face to face HR service (a secretarial service), they might face difficulties to handle all their HR issues personally by themselves. In fact some of them asked to have additional service, so that they can ask their secretaries to look after some of administration (although that is personal). Operation of the HR SSC The HR SSC was managed by both LGE HR SSC employees and contracted employees. LGE employees were full time LGE staff responsible for the overall management of the center. A contracted outsourcing company was responsible for providing part-time contracted employees for LGE. They were responsible for taking queries from LGE employees via email, phone, and bulletin boards while using the service. In most case, LGE employees were able to get necessary information from the Intranet. However, in several particular cases, LGE employees needed to have case by case instructions. When call center employees interacted with customers (i.e. LGE employees) on the phone, they had to complete the service in the shortest time possible and at the same time provide accurate service. According to a manager of a HR SSC: At the moment, the HR SSC is run by 44 people to take a call. Managerial positions are run by 4 senior manager, 3 managers, and 6 assistant managers. Others who are in charge of everyday running of system consisted of approximately 35 people. Although they have been relying on contracted people to take a call, they hope to recruit own staff from 2006 due to the conflict between full time employees and contracted employees. With the help of the e-HR system, LGE was able to identify and analyze employees needs and behaviors. For example, the analytical tool helped to identify who and which job level was interested in what types of benefits. Statistical reports could be drawn from the analysis. According to a senior manager: We have found that employees in LGE Mobile Communication Business Unit have inquired a lot (with 10000 people inquired). During the February, 2006, employees in
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LG Electronics

accounting and finance have inquired mostly. We can also segment according to level of jobs. Office workers inquired rating 53%, R&D 26%, and technicians 11%. LGE employees could access various HR services via different channels. They could use the company portal/intranet, phone and internal snail mail. In addition, employees were able to visit HR personnel who were stationed at each business units as contact points. To provide the best possible service, LGE carefully considered the operation of the service. There were several reasons that LGE emphasized on the measurement. For LGE employees, they wanted to ensure that this transformation and reorganization of the HRM service was not only a usual change of organizational structure from decentralization to centralization, but also something that was very important in HRM. For employees who worked at HR SSC, they needed performance measurement indexes for the operation of the center. The measurement index of the service performance was identified by categorizing detailed service that HR SSC provided. They segmented the possible errors and problems that could arise during the use of the service whether it related to the system or human from the employees (user) perspective. The main errors and problems were associated with the service delivery time, service satisfaction rate, the number of claims, the error rate, and customer satisfaction of the system. A senior manager in HR SSC mentioned: In 2005, weve achieved 66% improvement in cost per service, 53% improvement in service delivery time, and internal customers satisfaction rate 6.2 (7.0 max). [The internal customers satisfaction rate in 2004 was 5.8 (7.0 max)]. Overall saving of cost was around 30%. Apart from main users of the SSC (LGE employees), there were other customers who were in regular contact with HR SSC. They were external organizations, such as, hospitals and insurance companies that collaborated with HR SSC closely. Figure 4 shows the image of the service operation.

Customer

Service Channel

HR Service Center

Customer

Manager Self Service

HR ERP Email Payroll/ Fringe Benefit Service Phone Data Contents

HRM Department

Apply & Authorize Internal Mail People Self Service

HR Support

Service Management 1st Service Line 2nd Service Line

Employees stationed at each business unit

External Organization / Collaborative Firms Claims (e.g. Hospital, Contract Insurance Co.

Figure 4: Image of service operation

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LG Electronics

Changes and Benefits introduced by Project Implementation The development of the e-HR system permitted LGE to transform a paper-based system to a centralized digitalized system. This transformation had several benefits and changes. First, the e-HR system facilitated the overall recruitment process from the recruitment request to acceptance of position online. Managers in each department were able to request a new recruitment via the system and they could follow the full process until the position was filled. This helped them to share and use the information of external and internal applicants across the company. For example, a department could post the availability of internal positions for internal employees to apply as well as to help them to evaluate and ensure applicants competencies. For the interview, e-HR system helped to perform video interviewing. Department managers, HR department, and applicant could get together online for the interview, thus diminishing the need to travel. To select competent new employees, the e-HR system provided an online test (Situational Judgment Inventory) for applicants to evaluate themselves. The result would be used as a reference during the interview to help the interviewer to identify applicants that shared a common understanding regarding the companys policy. Second, the e-HR system facilitated the overall performance and competency management process. The emphasis was placed not only on performance issues but also on human resource development for individual employees. LGE practiced MBO (Management by Object) at the beginning of every year. To emphasize their competency, MBO was only fully completed on the condition that each employees performance object and competency development had been agreed upon and registered on the system. Also, it was to stress the importance of process until the finalization of the MBO to ensure reliable performance evaluation. Therefore, the employee and the manager had to register their consensus meeting date and result on the system. In addition, the system allowed managers to upload current year objects and targets for employees to align their individual objects. Also, each employee could express her/his views on job satisfaction and examine long term personnel development management. Third, the e-HR system helped to achieve standardization of work, process alignment and self service in the area of management of salary, working hours, and fringe benefit processes. Another benefit was improvements in process alignment. Without any further work, changes in personal information and changes in qualification details were amended accordingly and applied to individuals salary management. The interconnection of personal information and salary management was made possible to validate data across the HRM. For the employees, a full screen was presented to allow them to view employees salary, incentives, retirement benefits and the end of year balance. Employees could quickly get the results of queries. For example, the result of payroll query, fringe benefit query, and the selection of New Years gift were immediately notified to employees mobile phone via mobile short messaging service (SMS). As a third of LGE employees were technicians working at the product line that did not have much time to check emails and connect to the company Intranet, employees found this service very useful. In the management of working hours for the white color workers, the e-HR allowed self management through a web based system. Previously, the working hours were managed by a person in charge in each department. Now, individuals could check and register times and dates when they needed to work over time (e.g. coming into the office on Sundays).
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LG Electronics

The fringe benefit management process was also made easier by the e-HR system. Previously, any benefit application had to be approved by managers, but now they could apply for benefits according to their need and the company regulations. Proof of certification and documents could be sent to the HR SSC later by internal post. Individuals could review the current status of the process online. Once benefits were confirmed and provided by the HR SSC, such information was then notified to the employees manager, so that the manager could express their congratulations/wishes/condolences. This helped manager to know and get interested in employees welfare. Fourth, the e-HR system facilitated routine work. Now, employees could amend personal information and apply for benefits directly. Previously, employees personal information was handled the HR department employees in the respective business unit where employees worked. Now, with the help of the new HR SSC with the e-HR system, employees could manage their personal data unrestricted by geographical location. Furthermore, the e-HR system allowed self service so that employees could personally update their information, such as, address and telephone numbers and so on. For the managers, they could manage HR (i.e. employees) through the manager self-service system. For example, they could show department objectives, manage employees performance, and recommend incentives and annual salary level. Also managers could recommend necessary training and education courses. On the downside, HR SSC faced many telephone calls from employees in the beginning of the use of the e-HR system. As they were accustomed to inquiring via telephone, employees just picked up the telephone handset. It was thus quite a volume of calls to handle, guide and explain where information was in the system. This made the system developers and HR SSC employees aware of the importance of the system user interface and content of the e-HR system. Several of the HR SSC employees mentioned the notion of service pull and service push in relation to the customer service. As one

of the HR SSC employees noted:

I have experienced the behavioral changes and the mental attitude towards conducting his work. Previously, I was to provide HR service to employees when they need (Service pull), however, now, it is my job to provide and push services (Service push). Functional features of e-HR system The first was the authorization feature. When there were large numbers of employees, a manager could share and transfer his/her HRM duties to his subordinates and other team leaders through the authorization function within the system. The second feature was the automated work flow. Through this function, a preset process could be followed. For example, applying, authorization, agreement, confirmation, notification due date, and notification unfinished work could be automated accordingly. The last feature was enabling data track. For example, if a new employee was supposed to start work a month later, the HR manager could input the work start date accordingly. This helped managers to perform their job in real time (when they made a decision) to prevent a failure in inputting necessary data. This also helped administration staff to prepare office equipment such as the computer and desk. Challenges faced by LGE during e-HR implementation LGE found the process of implementing a new e-HR system a major task undertaking both in terms of cost and time. Furthermore, integrating the e-HR system into LGEs ERP system was something that they never challenged.

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LG Electronics

The main focus of the project was to implement new technology to leverage the reconfiguration of HR SSC. However, there were other challenges that LGE faced during the implementation process. The main challenges are outlined in this section. First, LGE went through a M&A with one of its subsidiary companies (now a Mobile Communications business unit of LGE) in which the company needed to reconfigure all of their employees HR data under one roof. Second, LGEs ambitions to be a global leader in consumer electronic market placed a load on their implementation. As the company tried to align their work (i.e. planning, strategy, purchasing, logistics, etc.) processes according to the value chain, they expected a new process innovation. This innovation process aimed to provide the same platform, service, and management in all LGE branches in Korea and abroad. LGE considered that these changes were necessary for them to prepare to be a global leader. The HR SSC was no exception to this change and had to accept the burden of preparing to provide a global standard of HRM practice. Third, employees (users) presented unsatisfactory remarks at the beginning of the use of the system. This was mainly by employees who needed to send out documents by post or special courier. Although the completion of the service delivery was late with a delivery time of 12.5 days before the system implementation, it could be done at the same place with face to face interactions. The short time scale in service delivery time and the local point of contact led employees to see the benefits. Fourth, during the development period in particular, IT and system development issues placed HR SSC in a difficult situation. The software package from Oracle did not include all the necessary elements that LGE sought within the system. The package presented categories that were founded on American HRM practice. For example, American HRM practice was based on self regulation that did not need much support on HR issues, while Korean employees needed detailed management of work and support from the HR center. In addition, in the user interface issue, LGE found the need to develop a few items with their own specification. In particular, HR SSC wanted to view complete categories of the menu rather than the segmented step by step view that the Oracle package presented. Fifth, due to the sensitivity associated with personal data, HR SSC was not able to incorporate all elements that they had in mind. Elements such as changes in an appointment or promotion had to be restricted to HR personnel which did not allow individuals to change their information. In addition, amendment of personnel information regarding increases in the number of family members and degrees awarded was also restricted. Employees were asked to present appropriate documents for HR SSC employees to change the information for them. Sixth, managing projects which needed to be incorporated and aligned with LGEs ERP system required a significant amount of effort in handling the careful configuration of the system. A HR manager explained: We strongly think (100%) that works on the process innovation should be carried out before hand and jobs on IT can come in later. The reason that we had to do process innovation and IT implementation without much time difference are due to the implementation of overall ERP in the company. Meanwhile, how fast you can realize the errors and correct depends a lot on the understanding of the business process.

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LG Electronics

Author Information Shan-Ling Pan Department of Information Systems School of Computing, National University of Singapore 3 Science Drive 2 Singapore 117543 Email: pansl@comp.nus.edu.sg Tel: (65) 65166520 Shan-Ling Pan is the coordinator of the Asian IT Case Series, NUS. He is a faculty member in the Department of Information Systems, School of Computing, National University of Singapore. His research interests include enterprise system implementation, eGovernment, IT-enabled organizational transformation and knowledge management. As a case study researcher, Dr. Pan has conducted and published more than 30 case studies on Asian organizations. He has published two case books in 2004 and 2006: Managing Strategic Enterprise Systems and E-Government Initiatives in Asia: A Casebook and Managing Emerging Technologies and Organizational Transformation in Asia: A Casebook. Hyun-Jeong Kim College of Business Administration Inha University

Email: kimhj@inha.ac.kr
Hyun Jeong Kim is an Assistant Professor of Organization HRM in the College of Business Administration at Inha University, Republic of Korea. Her primary research focuses on the recursive interaction and integration of organizations and technology, with particular emphasis on issues such as transformation, human resource management, learning in the organization. She has conducted an egovernment case study research and published findings in Government Information Quarterly. Mahdieh Taher Research Assistant Asian IT Case Series School of Computing National University of Singapore Email: isct1088@nus.edu.sg Tel: (65) 84091047 Mahdieh Taher is a research assistant at the Asian IT Case Series, NUS School of Computing, NUS. Her research interests are e-Government, Analysis and Design of Information System, Information Technology Management, and IT Strategic Planning. Her research has been published in the Journal of Information Technology Era, IEEE International Workshop and International Electronic City Conference. She has also worked closely with Global360 Corporate.

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