Human Resources Management (HRM) is undergoing a surprising revolution. The business function, which in most organisations is given the smallest IT investment budget, is riding high on the waves of technology. In consideration are emerging technologies—Social Media, Mobility, Analytics and Cloud (SMAC)—allegedly transforming the IT world and gracing the front page of every analyst report. However, like all other emerging technologies, SMAC (although still in its infancy) has the potential to transform the technology landscape. It right now accounts for only a tiny fraction of the total global IT spend (approx. $3 trillion). However, SMAC is becoming a priority across HR functions, traditionally considered to be corporate technology laggards. Today HR is jumping to the front and starting to show the way to the rest of the business. But is this really possible? Well, it seems that three driving trends have coalesced to create the perfect storm in HR, resulting in innovation as a surprising consequence.
The first trend is increased business need. Whilst academic articles on HR strategy talk about employee engagement and motivation, the truth is: HR has suddenly become important because of the global recession. According to The 2012 Aberdeen Group HCM Report, the number one driver for HCM efforts is delivering greater organizational efficiency; true for 46% of firms. Simply put, businesses need a greater return from their payroll. And whilst this may seem rather mercenary, the facts underpin the need. PWC’s Saratoga database tracks the return on HCM; revenue (less non-people costs) per working employee versus the average salary per employee. It found in Western economies productivity dropped dramatically in 2011; for example, the HCM ROI is just 1.11 in Europe that compares to 1.7 in APAC and 3.4 in LATAM. Real, material action is being demanded.
But it’s not just efficiency. HCM drivers at number two and three in The 2012 Aberdeen Group HCM Report relate to supporting growth (38%) and in finding scarce skills (33%). The education mismatch continues apace. In a world where unemployment is a major challenge, the employers are still struggling to find the skilled workers. The PWC Annual Global CEO Survey found that this year, 78% of CEO’s plan to make changes to their talent strategies in response to the global business environment, and 31% CEOs believe that talent constraints hampered innovation at their organisation.
As the business environment becomes more challenging, the demand from a company’s human capital is increasing, more so in the last two years.
The second trend is the poor starting position of HR. Perhaps it is due to the origins of HR serving in administration, or a reflection of a lack of investment over the years, HR was not in a good place to respond to the challenges it faced. The Aberdeen Group found that 53% of HR functions still spend far too much time on day-to-day tactical activities that add no value; even after all these years. Most other back office functions have cracked the nut. They also suffer from low levels of confidence within the businesses they support. Lack of support amongst business leaders for HCM and lack of buy-in from senior leadership are barriers number two and three in the same report.
HR doesn’t have the tools for managing and developing the HR assets they own. According to the same Aberdeen report, on average only 43% of firms have employee self-service (a technology that has been around for over a decade, and which has a no-brainer ROI), only 54% a recruitment technology platform and only 57% an HRMS software platform. That’s like saying half of companies produce their financial accounts on manual ledgers. No company would accept that, but for many, they have been prepared to accept it for HR.
The scorecard is not any better when it comes to the HR processes that encompass the business. Only 33% of companies have a process to identify job roles necessary for organizational success and only 48% of managers have access to data about their employees. Again, that would be like expecting a business unit manager to operate without giving him or her access to the financial performance of the unit. No wonder HCM causes CEO’s such heartburn.
However, being in a poor starting position, one might think is not a driver for innovation. But as is often said, necessity is the mother of innovation; the principle seems to have worked for the HR. When the pressure is high and the tools limited, you have to get creative, innovate, and take a few risks.
The third trend is significant innovation in the technology provider market. HR has a number of unique factors that allow it to tap technology in a more accessible manner than most other business functions. The first is that it can take advantage of consumer technology. It’s dealing with people, and the way people interact, find information and share ideas has completely changed over the last five years. The arrival of Facebook and other social media sites that it has spawned, coupled with ‘never off-line’ 3G mobile technology means HR functions can quickly become a member of relevant social groups bringing together people who have skills that somehow complements their organization's business. They can also stay in touch with ex-employees and track careers of potential future executives. Oh, and they can do this all for free. A perfect price-tag for an underfunded HR function!
But consumer technology, especially mobile apps, is also reshaping expectations and capabilities of the workforce. If for 99 cents you can get an app that empowers you do pretty much anything in your private life, why can’t the employer create apps to push employee payslips, enable them to book and monitor holiday, plan travel, and receive reports? If the consumer marketplace can build and deploy apps at an incredibly low price and high speed, what excuses do organizations have? Many providers of the HR function have helped organization deploy apps at speed, and for modest spend and have significantly changed the perception of users within their organization.
HR also benefits from being fairly homogenous from company to company. This allows it to do things most other functions can’t. Firstly, a move to Cloud is much simpler. It can accept pre-configured, best practice solutions more readily than other functions even in very large enterprises. This is aided by the fact that the existing technology platform is probably so poor that a Cloud-based solution will be better. Cloud offerings are not well-tailored and have functionality limitations for other areas that have enjoyed investments over the years. This doesn’t hold true for most of the HR processes/functions. Also, large enterprise HR functions have been able to leverage solutions developed for the mid-market (SMB) channel. This is highly unusual.
Large enterprise technology typically comes from a small stable of providers; SAP and Oracle being the global leaders. The mid-market players have been unable to crack the large enterprise market because of scalability, resilience, security and functional richness concerns. But as HR processes in small and large companies are similar, and because mid-market companies today consume almost all applications via the Cloud, the large enterprise’s ability to buy-in this model is fast and involves a lower risk.
A dramatic shift in business needs, innovation borne from necessity, and a group of innovative providers have all conspired to push HR to the top of the pack in becoming the technology innovators.
A View on Technology . . . It’s Here, and It’s Now
Forrester’s review of the software market this year reveals that the rate of investment in HCM implementations for the next 12 months (22%) is higher than any other category of software except CRM, which it lags by just 1% (23%). HCM: It is second in the investment priority list. An unheard of statistic and a clear indication that the time is now and that solutions are ready.
Undoubtedly SaaS (Software as a Service) is where most companies are going, and key HRM vendors in this space including Cornerstone OnDemand, SuccessFactors (an SAP company) SumTotal Systems and Workday are all growing in excess of 50% per annum. Indeed the recent acquisitions of SuccessFactors by SAP and Taleo by Oracle indicate just how nervous these large organizations are about the end of their on-premise products. Just look at the premiums paid for these acquisitions if you are unsure . . .
SaaS is indeed enticing as a model. Forrester found six key reasons for implementing HCM platforms through SaaS and they are all compelling. It improves business agility, it allows the HCM function to focus on more important projects, it dramatically increases the speed of implementation and deployment, it enables faster delivery of new features (no longer on the upgrade cycle), it is at a lower overall cost, and it improves cash flow by regular monthly payments rather than large upfront costs. Compelling!!
Too good to be true? Well it does make us ask two critical questions. For large enterprises, does it work (i.e. are the solutions broad enough and rich enough to meet their business needs), and is it really cheaper?
Let’s think of HRM having six towers; Core Functions, Workforce Management, Compensation Rewards, Recruitment, Talent Management and Learning and Development. If we look at the vendor marketplace, the first observation is that there are many players – probably over 100 reasonably strong players – but also there has been significant consolidation over the last two years. Most firms began with a specialisation in just one or two of the towers, but we have seen very fast integration happening with probably Workday, Oracle and SAP leading the charge; the latter certainly offering solutions across all six towers. What’s more, the rate of growth in this market and the attention it has of very large providers (include Infor, IBM, ADP and SumTotal in the list) means that what is not there today will undoubtedly be in the coming 18 months. So does the market have a large enterprise offering ready today? I think the answer is a yes. Clearly, the piece of work that aligns HR strategy to process needs and technology offerings is necessary before knowing the answer for a particular company. But in terms of a market mature with offerings to meet the majority of business needs in a SaaS model – yes, it’s ready.
Is it cheaper? Err . . . perhaps not. The markets are awash with great case studies that compare on-premise to SaaS and the significant savings that are involved. But we have found these case studies paint a glossier picture than is true. Why? Well firstly, HR has been a low investment function, and so the baseline costs of what full on-premise costs in the case studies is normally much higher than what companies have or do actually spend. There is more sticky tape and string involved than the case studies assume. And secondly, on-going maintenance costs of on-demand solutions are often very low. When faced with a $10 million bill to implement a new system, the $2 million per year cost of a With the rapid increase in products and applications by n folds, the software testing market is also undergoing transformation to align with the disrupting environment. But if in year two it only took $400k to maintain that solution, the $2 million invoice now looks shockingly high. And to some degree, you are a captive customer. Whilst the vendors highlight flexibility and speed, we cannot forget they have commercial businesses whose profit motive will not always align with the customers ‘reduce cost’ goal.
A new kind of assessment process is needed that looks at all the factors involved in these two very different models of operation. In favour of SaaS, we must fully cost out speed of deployment, company resources tied up in an on-premise project, hardware and its cost to maintain as well as on-going flexibility. Against it is the high monthly bill, the cost and real flexibility of a captive customer wanting to make changes and integrating HR data back into other enterprise systems.
Somehow, HR has found itself leading the charge with end-to-end Cloud-based solutions, including strong analytic modules, delivered easily to mobile devices, and especially in the talent space, fully integrated into a plethora of social media platforms. HR is the SMAC kings. Is your organisation taking advantage of it?
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