SaaS Update: Embracing theSoftware Revolution

Whether it’s a whole new HRMS or simply a best-of-breed point solution, SaaS is quickly becoming the software delivery model of choice around the industry.

by Andy Teng

If HR’s revolution is ever televised, you can probably expect to find it on YouTube. That’s because the sea change won’t be happening behind the closed doors of a boardroom, nor will it occur in a faraway call center. Most likely, it will play out on the web browser of just about every desktop in the office and at home. Welcome to the world of HR services delivered via SaaS.

SaaS, or Software as a Service, has been around for nearly a decade now, but only in the past several years has it reached prime time in HR services. Its first widespread adoption was from HR’s rally around applicant tracking systems, which have infiltrated into myriad organizations around the world. As companies grew comfortable with the idea of using software that had been specifically developed for a multi-tenant, web-based environment, the market exploded, leading to myriad offerings that now address all the needs of the HR professional, including recruitment and contingent workforce management, talent management, learning, HRMS, and more.

In the minds of a number of industry observers, SaaS is a game changer. That’s because it is offering HR organizations a powerful alternative to traditional on-premise applications, is a step above the old application service provider (ASP) model, and theoretically is more economical than on-demand hosted services. As the market continues to develop, a cornucopia of offerings will eventually enable HR organizations to process payroll, manage employee benefits, provide robust self-service, and enjoy a panoramic view of their entire human capital landscape all with the click of a mouse. Although the SaaS market is still some distance from reaching such sophistication, you can bet there is a frenzy of development activity underway to help HR buyers get there.
SaaS can also become a game change for the HRO industry as well. Although some see SaaS providers as a competitor to outsourcing, like all markets, competitors sometimes are also the best channel partners too. With the recent release of ambitious SaaS-based HRMS on the market, it probably won’t be long before one or more enterprise HRO providers embrace a commercial SaaS offering as their platform of choice.

“The problem with BPO is it doesn’t have decent software to run on. That’s changing,” said Naomi Bloom, managing partner with consulting firm Bloom and Wallace.

Bloom said she believes with the ramp-up of Workday, a start-up built by PeopleSoft founder Dave Duffield, one or more large BPO providers may just decide to abandon their own in-house platforms in favor of the Workday solution, which, unlike some of the ERP solutions, was created as an SaaS solution from the ground up.

Market Confusion
So what’s the difference between SaaS software, which is served up through the web, and ERP systems that also offer HR service through a web portal? And why should HR professionals and executives care?

They should care because SaaS offerings will change the way HR services will be delivered in the future.

First, an explanation of what SaaS is and isn’t, because right now lots of vendors are trying to exploit the hype over this delivery method. Some of these companies offer SaaS-like solutions that a purist would argue doesn’t qualify to be called such. Other solutions are simply recycled ideas with a new packaging, kind of an ASP in sheep’s clothing. And then there are the true SaaS offerings, technology that is truly multi-tenant.

To ease the confusion, here’s how analyst Jim Holincheck at Gartner defines SaaS: software that resides off-premise and comprises a single set of code and data definition across multiple customers. The service is sold on a subscription-based model. In some instances, the software architecture allows virtualization so that multiple copies of the code are used to serve multiple clients, as long as that code is kept in sync with each. So each time an update is made, all copies of the code are refreshed at the same time.

The allure of the SaaS model is that buyers who opt for this model don’t need to worry about hosting the application in house, need little IT support to make it run (other than making sure all users have a capable web browser), automatically get regular software updates, and pay for only the number of subscribers using the software. In other words, SaaS requires no big capital costs associated with ERP implementation and is paid on a monthly basis.

There are clear indicators that buyers are turning to SaaS offerings over traditional on-premise licensing. Ultimate Software, a provider of both on-premise and SaaS solutions, said last year 80 percent of its new customers opted for the on-demand model over traditional licensing; in the fourth quarter, it grew to 85 percent. And the growth isn’t just among small and mid-size companies. Even enterprise-level organizations are investing in SaaS products, said Linda Miller, senior vice president of marketing for the company.

“There is more confidence in the marketplace, and I think the technology is there to handle more and more large organizations,” Miller added.

Indeed many buyers are growing at ease with the use of SaaS tools throughout the HR organizations. As they have become familiarized with the concept through their use of recruitment or performance management tools, they are opening up to the idea of relying on a SaaS solution across all of their HR processes.

“There will certainly be others focused on talent management that will come along and offer solutions there,” predicted Holincheck, who added that while the delivery model has made deep inroads in some areas, it’s failed to achieve similar success in other service lines. But it may only be a matter of time before SaaS solutions become the dominant offering across areas such as time and attendance or HRMS.

As Bloom pointed out, SaaS is just a different way of delivering software, so why the excitement over some of these offerings? For one, some of the solutions are only available through a subscription model, and they offer functionality absent in on-premise counterparts. Additionally, HRMS such as Workday and Emportal offer a rich user experience that integrates a number of services and in some cases aggregates data generated by other third-party applications. This ability to unify all of the pieces of HR services and data is one reason why next-generation SaaS offerings are catching on.

“The market is consuming those [point solution] services, but it creates a whole new set of problems—integration and data distribution,” said Mark Robinson, CEO of Walnut Creek, CA-based Emportal. He pointed out that because of the proliferation of SaaS technology, HR organizations now use a variety of technologies to help them acquire talent, administer services, and train workers. But what they need is a solution that enables all of these disparate components to talk to each other, and that’s what Emportal is trying to achieve with its HRMS platform—marry new point solutions with legacy applications.

“I think there is a huge market opportunity because there is such a pent-up demand,” he added, pointing out that ERP in many instances has not delivered on its promise for a variety of reasons, whether that’s because it lacks the functionality HR needs or it’s too costly or complex to implement.

As a result, SaaS HRMS is garnering lots of attention these days. And for Workday, the spotlight couldn’t be any hotter. Since its launch in November 2006, the company has already made two additional version releases. Along the way, it has signed up 35 customers, some with as many as 25,000 employees. Perhaps it’s the Duffield mystique or simply that its software was built around HR’s needs or the SaaS proposition is so attractive, but in any case, the company is not short on prospects these days.

“Customers a few years ago said, ‘We can’t have a three- to five-year ROI on our projects. We need to begin to see an immediate return on our projects,’” pointed out Kelvin Gray, director of solution consulting at Workday. He said studies have shown that more than 10 percent of SaaS buyers opted for this delivery method to save on capital costs. So for a number of companies whose HR needs are outstripping their current systems—and there are many in the vast mid-market—they face a decision to either implement a traditional ERP platform such as Oracle, PeopleSoft, or SAP, or look to the new breed of SaaS platforms. For those who simply can’t afford big-ticket items in this economy, the choice is clear.

Lots of Point Solutions

But it’s not just buyers of HRMS driving the SaaS market; in fact, point-solution services still account for the lion’s share of SaaS revenues, with a wide range of software companies such as SuccessFactor, Cornerstone OnDemand, Taleo, Vurv, and many others (see the following list of SaaS vendors) who are piquing the interests of HR departments. And it’s no surprise that many of these offerings are focused on talent management as companies look to make the most of its human capital.

“HR is evolving as a group of people. They are starting to realize how strategic talent is to their organization,” said Julie Norquist Roy, vice president of marketing for Cornerstone OnDemand, which provides SaaS-based learning and performance management solutions. “I think this evolution is driving growth in companies who are coming to us looking for talent management solutions.”

Whether HR organizations see SaaS as an avenue for improving talent management, reducing costs, providing scalability, getting access to more robust technology, or any one of a host of other reasons, there’s no question they are making a shift. And in an era in which HR data will be easily captured and integrated, you can be sure that the forthcoming revolution will at least be recorded somewhere in the HRMS, if not televised.

Posted April 10, 2008 in Engaged Workforce

Leave a Reply