Workplace Issues

What Kind of HR Automation Do You Need?

Questions abound: A big system or a collection of stand-alone modules? How much integration is enough? How many bells and whistles are too many?
David McCannMay 14, 2013

This is the second of five articles in a special report looking at the buying of HR technology from a CFO’s point of view. Also included are: Why Upgrade Your HR Systems?; Making a Mess of People-System Purchases, which explores pitfalls to avoid; HR Tech Vendors: Who’s Out There?; and Anatomy of a Buying Decision, one CFO’s journey to procurement success.

For a CFO who aims to learn enough about human-resources technology to feel confident when signing off on a purchase decision, simply visualizing what the product universe consists of is a big part of the challenge.

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For starters, there are big, comprehensive systems aimed mostly at large companies, and others for smaller companies. At the same time there is a raft of software designed to perform one or two specific tasks. A company could plant its stake in the former or cobble together a collection of the latter, which may include some best-of-breed solutions not found in the big systems.

Some of the big systems are based on technology developed in the 1990s that required, and still do require, complicated physical installations and heavy up-front capital costs. Most of the newer tools are cloud-based, with a pay-as-you go pricing model.

Another way to break down the market: there are “core” HR systems that manage employees’ personal information, payroll, taxes and benefits. Most companies have had long experience with these, so there won’t be much of a learning curve for CFOs. There are also newer, “talent management” applications and suites that handle such functions as recruiting, performance management, succession planning, compensation management, onboarding and learning. Grasping the value those provide is a more nuanced undertaking.

And if you want multiple capabilities to be integrated with one another, be aware that what constitutes “integration” is in the eye of the beholder. A suite of products is not integrated – at least, in a way that boosts value – just because the vendor says so.

Making Sense of It
What guides a buyer through this maze?

First, come to terms with the fact that there is no perfect solution. No software firm can or will provide all the tools any company would want, with all the capabilities being the best on the market, and all tightly integrated down to the core design level. Even if creating such a system were feasible, it would likely be prohibitively expensive even for very large enterprises. So there will always be tradeoffs.

Second, take heart in the probability that there is a solution that does make sense for your company. “I just talked to a guy who’s got a new product coming out targeted at companies with fewer than 100 employees,” says Naomi Bloom, a consultant and 40-year veteran in the HR technology space. “There’s no way that would be appropriate for large, complex companies.

“The challenge has been in the awkward middle ground, where you have, say, 500 to 5,000 employees. But the thing that today’s [software-as-a-service, or cloud] tools have finally given us is a pricing model that lets those companies pay a rate for the software based on their head count of 500 or 5,000, rather than 10,000 or more.”

Third, know that in some respects it doesn’t matter as much as one might think whether to go with an integrated system or individual tools.

“The reality is, whether you buy all your software from one vendor or procure modules from five different vendors, there is a cost to managing the seams between the pieces of software,” says Kevin McDonald, vice president of BPO governance at media company E.W. Scripps and a longtime HR technology buyer. “Because you’re going to want integrated reporting and dashboards.”

And, McDonald adds, “just because one vendor owns all the software doesn’t mean it’s integrated.”

Patchwork Quilting
One option is to hire a third-party systems integrator to stitch together a handful of disparate tools. “That’s quite doable,” says Josh Bersin, principal and founder of Bersin by Deloitte (until recently Bersin & Associates), a research and analysis firm focused on talent management, learning and leadership development. “So much of today’s technology is in the cloud, and the interfaces are fairly open, so you don’t have to upgrade the software every year with a whole new release.”

Rather, the cloud vendor performs the updates for you. And there are usually several of them per year, as opposed to one every year or two for installed systems, so the technology can get much more sophisticated very quickly.

“Even if you don’t have everything right away that you eventually will want, by looking at a vendor road map and understanding where they’re going, you might be able to pick up something that, first, will get you where you need to be now,” says Scott Bolman, a Mercer principal focused on HR service delivery. “And then maybe in 18 months it will satisfy all your needs, at a cheaper price than if you’d gone the other way and had an overpowered system for what you needed on Day 1.”

On the other hand, systems integrators are not cheap, nor are they necessarily miracle workers. “It always costs more than you think it will, and you will still have data-synchronization issues,” says Kim Billeter, an HR technology consultant with Towers Watson.

She adds, “If you’re staying with the big, broad vendors that have more unified solutions, you’re probably going to be better off from a cost standpoint, a user-experience standpoint, and a longevity-in-the-marketplace standpoint.” [Editor’s note: Billeter acts as Towers Watson’s practice leader for implementations of Workday, a cloud-based HR technology provider aimed at large companies that is fast taking share in that market from longtime leaders Oracle and SAP.]

For smaller companies, the formula for satisfaction is likely to be different. T-System, a $100 million provider of emergency-medicine management solutions, uses core HR technology from Safe Software, called Mas 500, that’s designed for companies its size. “But I found that platform stopped well short in more value-added areas, like performance management and creating organizational scheme charts,” says T-System CFO Steve Armond.

Armond’s strategy has been to buy “best-of-breed solutions that have enough integration capability that I don’t have to create a whole bunch of manual process to get the core underlying data from point A to point B.”

Bells & Whistles
Another aspect of the buying decision relates to waste. Is it an inefficient purchase when the software has way more capabilities than you need? After all, says McDonald, “if you asked 100 people who use HR technology, whether core or talent management, what percentage of the overall functionality they actually use, I’d be shocked if the average was more than 50%.”

But it may not be helpful to think about a buying decision with that in mind, he adds. It means you’re evaluating the software’s overall capabilities rather than whether it meets your needs.

“You need to keep pushing back, asking yourself what you really need, what are your must-have features, and can you get it somewhere else than from this specific vendor,” says Bolman.

Still, for Armond, the potential for buying more than he needs is a concern. The company formerly used a third-party software tool for certain HR-related transaction processes and reporting needs, and was frustrated that it was using only 20% of its capabilities.

“It wasn’t a flexible model such that we could simply consume what we needed as opposed to buying the whole,” Armond says. “That caused us to go in a different direction. If you bought Microsoft Office but really needed only Outlook, wouldn’t that be a waste? Same thing for HR technology vendors. If they offer X, Y and Z, and we’re only looking for X and Y, then we want to buy those at a price point that reflects a reduction in capability. If we can’t, we’ll keep looking.”

Beware Merger Mania
If you do buy smaller, stand-alone solutions, how worried should you be that they will be swallowed up by the bigger players and morph into something slightly (or more) different? Very worried, according to Bloom. “They will likely be purchased. If they’re not, it’ll probably be because they haven’t had the resources to keep up, so you’ll be at an evolutionary dead end. There are lots of those out there.”

Bolman advocates for some forethought on the possible contractual impact of consolidation. One vendor may be gobbled up by another one that you’re already doing business with, either for HR or financial software. “I’ve seen many organizations that don’t have flexibility built into their contracts [with that second vendor] and have to reopen negotiations, and it can become a big mess,” Bolman says.

Bersin, though, thinks the potential for danger is overblown. Start off, he says, by picking a vendor that looks like it will have staying power, based on its financial stability and size of customer base. Then assume that it’s not going to last forever – but that’s OK. The lifecycle of HR software is five to seven years, Bersin says, after which most companies get tired of the software anyway and start looking at how to upgrade.

This is the second of five articles in a special report looking at the buying of HR technology from a CFO’s point of view. Also included are: Why Upgrade Your HR Systems?; Making a Mess of People-System Purchases, which explores pitfalls to avoid; HR Tech Vendors: Who’s Out There?; and Anatomy of a Buying Decision, one CFO’s journey to procurement success.