Research from ISG points to increased adoption and further development of SaaS solutions.
By Debora M. Card
For HR organizations, moving their systems to the cloud is not a question of “if” but of “when.” The upside is clear: vastly improved functionality, better data and analytics, and—perhaps most obviously—better user experiences and mobile access. The downside? The cost of change and the lack of resources are real. But neither of these hurdles are new to HR.
Recent research from ISG Insights™ indicates that more than 50 percent of enterprises will rely on subscription-based SaaS and hybrid HR/human capital management (HCM) solutions as their primary HR systems by the end of 2020 (see Figure 1). More than 75 percent also indicate they’ll migrate at least one major HR function to software as a service (SaaS) by 2019 (see Figure 2 on page 59).
This journey is accelerated by the fact that the leading on-premise HR software vendors have shifted most of their development efforts to the cloud, with support ending for some popular versions of HR information system(HRIS) platforms as early as the end of this year. This leaves those with legacy, on-premise solutions with little choice but to plan for a shift to cloud-based HR/HCM.
Companies with the largest investments in legacy solutions are taking a phased, hybrid approach to the inevitable migration, choosing to change the areas of greatest pain or business criticality first.
Although the U.S. is leading the movement to HCM SaaS suites, Asia Pacific is poised to overtake the U.S. in percentage of spend on SaaS over the next two years. Companies with between 1,000 and 5,000 employees have been most aggressive in moving to SaaS, most likely because they did not already have huge investments in legacy systems and value scalability.
With the current momentum toward integrated HCM SaaS suites clear, it’s worth taking look at what benefits buyers’ expect from these new technologies.
Reducing cost is a primary expected benefit of SaaS adoption (see Figure 3), yet HR SaaS solutions can be more expensive than enterprises anticipate. This stems from the price-tag for premium SaaS functionality, transition costs, as well as the cost of support for ongoing release management and configuration changes. The business case for HR SaaS often needs to include a timeframe of five-plus years to take into account the elimination of at least one major future upgrade to a legacy HRIS system. It also needs to consider the potential savings beyond technology costs, such as administrative savings and measurable improvements to business performance.
On top of cost-savings, buyers also expect to reduce their dependence on scarce IT resources and to improve the user experience. Here SaaS solutions can reliably deliver expected results, as long as they are effectively deployed. The three most important things organizations can do to ensure effective deployment are:
1) Rethink processes before configuring them into the system.
2) Pick the right partners and manage them well.
3) Never underestimate the need for change management to drive adoption.
Even a change to a better solution is still a change and brings the need minimize disruption by communicating effectively and preparing people for transition.
New Technology Does Not Equal Transformation
Technology is an enabler, but it does not bring HR transformation on its own. To take full advantage of the enablement, organizations must develop new models for delivering services and extract new value from the HR information that is now readily accessible.
ISG research demonstrates that companies are continuing to increase their reliance on both internal and outsourced shared services. Such hybrid models balance what buyers consider strategic and best fulfilled within a broader global business services environment with the administrative elements a third-party may be able to do better and/or cheaper at scale. The research also shows increased usage of both internal shared services and outsourcing at nearly the same levels (see Figure 4).
Today’s sophisticated buyers are much more deliberate in choosing specific services to source and picking partners with capabilities and experience for those services. A hybrid solution naturally increases the complexity of vendor management, so attention to integrated governance models becomes critical.
Improved quality of and access to data are among the key promises of integrated HR SaaS suites, yet often one of the last areas to be fully developed and adopted in the toolsets of HR professionals. This is due in part to the challenges of standardizing data definitions and validating data, but it’s also symptomatic of HR’s needing to adapt its value focus to the business.
The good news is that the ISG survey results show expected movement toward higher-maturity analytics and data use over the next couple of years (see Figure 5). After all, HR is not the only department that needs to mature in its ability to make sense out of big data. As these skill sets develop and HCM suites continue to make analytics easier to produce and understand, analytics should become a key driver of value to the organization. HR organizations beginning their foray into this area should start with a few important questions that help answer what will drive value and prepare to work through a steady process of bringing more data to bear on human capital decisions. Like all changes, there likely will be some resistance from within HR and the business, so start small and build credibility by driving great results.
Enabling technology and delivery model changes toward transformation is not a one-and-done activity. The speed of change is ever-increasing. When new functionality is rolled out 2-4 times a year by an HR technology vendor, it raises the stakes for continuous change and improvement across HR delivery. Organizations need to plan sufficient resources to evaluate and adopt the right enhancements and flow benefits through processes and analytics.
In other words, buckle up! The journey may at times be bumpy, but it’s one that will lead to greater value for both the business and its workforce.
Debora M. Card is partner for ISG HR technology and delivery strategies