Workplace Issues

Why Upgrade Your HR Systems?

CFOs may not be experts in either HR or technology, but they should know enough to sign off confidently on a buying decision.
David McCannMay 14, 2013

This is the first of five articles in a special report looking at the buying of HR technology from a CFO’s point of view. Also included are: What Kind of HR Automation Do You Need?; 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.

As the strategist that you are, when your human-resources and information-technology leaders show up in your office proclaiming a need to upgrade your company’s HR technology, you have a few pointed, business-oriented questions.

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Why now? What will we be able to do that we can’t do currently? What value does that have? How much is it going to cost?

Or maybe you don’t ask those questions. The guys sitting in your guest chairs are, after all, the company’s leading experts in HR and technology. But how comfortable will you be when it comes time to sign off on the buying decision?

Doing It Right
There is a right way and a wrong way to pull the trigger on an HR technology purchase. The right way is to be familiar with your company’s strategic plan, appraise the gap between your existing technological capabilities and what the plan says you need, and begin to replace or add the necessary components in a systematic, prioritized, bang-for-the-buck way.

The wrong, but far more common, way is responding to a pain point. “That never gets you to the right place,” says Naomi Bloom, a 40-year veteran of the HR technology arena who runs consulting firm Bloom & Wallace. “When you hear, ‘We’re running version 7 of this system, and our maintenance contract expired, and we can’t do anything with mobile devices, and so we have got to buy this new system,’ you have to respond with your broad, strategic plan.”

Say the plan calls for the company to grow out revenue from products no more than five years old from 20% of the total now to 60% within three years. “What will you have to do from a people perspective to achieve that?” says Bloom. “Double the sales force? Find better salespeople? Train them better? Have better incentive compensation plans?” The answers to such questions should lead you to the products that can help you fulfill the strategic plan.

Finding the Hidden Costs
CFOs often evaluate HR technology based on direct costs, as in: We’ll save a bunch of money if we move to a cloud HR system because it’s the vendor that has to maintain the hardware, the network, the maintenance and the upgrades.

There are several problems with that. First, it likely won’t address the desired business outcomes. Second, it does not speak to opportunity costs. “If it takes 60 days to fill a sales position, and the revenue target for that role over that time period is $100,000, that actually matters,” says Bloom.

Third, there are also indirect cost implications. Consider, for example, a supervisor at a manufacturing plant. If someone calls in sick, somebody else has to take that shift. But that person has to be certified to use the equipment pertaining to that job, and can’t have already worked beyond a certain number of hours that week or month. Any number of variables may apply.

“So this supervisor is out to dinner with his family and gets a call from the sick guy,” Bloom says. “Well, today there is technology that can run a million reshufflings of the schedule instantaneously. He can do what he has to do from his smart phone within seconds. It used to be that he’d have to go back to the office and pore over spreadsheets while the shift lost an hour of production time.”

Gaining an Advantage
Among the many possible business goals facilitated by HR technology, one that’s increasingly common is about global staffing. “When customers are looking at new applications, one of the biggest drivers is the need to manage talent around the world,” says Kim Billeter, a Towers Watson consultant.

If you want to open a plant in Thailand, for example, talent-management software can help you find out who in the company speaks the language, is mobile enough to go work there, and has the needed skills. But even the large companies Billeter consults for are not yet taking advantage of such capabilities. “Many of our clients cannot do that today,” she says.

Another common goal with the potential for indirectly hitting the bottom line that’s addressable through talent-management applications is identifying who among your company’s top-performing and high-potential employees are “flight risks.”

“Every organization has its one or two superstars at every level, and everybody knows about them. But those ranked three through five are going to be very attractive candidates for other employers,” observes Richard Johnson, an associate professor at SUNY Albany focused on HR technology. Software can look at all the HR data available to the company and create profiles of the types of employees that have left previously and their reasons for doing so.

Similarly, software can help identify candidates who are likely to be successful, based on the traits of those who have succeeded previously. And, notes Johnson, “When you take recruitment online, applications go up dramatically. That creates additional overhead, but with keyword-scanning software you can eliminate many resumes immediately.”

And automating various HR processes, like putting in a requisition for a new hire, completing performance review forms, or documenting developmental plans for employees, frees up time for company managers.

“Time is money, and I can save our executives, directors, and other managers a ton of time in doing those processes,” says Jim Cook, CFO of Mozilla, maker of the Firefox web browser.”

What’s the Return?
But how well can the impact of such technologies be measured and quantified? Although proving ROI is what gets CFOs out of bed in the morning, they tend to be skeptical when it comes to HR technology.

Continuing the discussion about saving time for managers, Cook says, “Can I measure that? I’m not going to spend the time to measure it if I know there’s an impact just by talking to people. When you multiply what a few people tell you – that they can focus on building and managing product instead of spending time on G&A stuff – it doesn’t need to be quantified.”

In fact, Cook doesn’t think there are “great standard ROI measurements” for HR software in general. “Most of the benefit is on the intangible side,” he says.

Steve Armond, CFO for technology services firm T-Systems, agrees. “I don’t know of a good way to track that ROI,” he says. “ROI implies that there’s going to be some revenue created or costs avoided. The way I approach these products is to focus on delivering the capability we need for the business at the lowest cost.”

Cost Plus?
When it comes strictly to cost, by now most CFOs are aware of the differences between installed, on-premise systems and cloud software.

With the former, you buy software, you buy servers, you hire maintenance staff, you pay ongoing support fees, and you rarely get updates. With the latter, the business model is typically a per-use or per-employee fee per month or year, although that could turn out to be more expensive than an on-premise system.

But one thing that sets HR technology apart is its companywide impact. With many applications, every employee interacts with them. “The HR buy is very much an enterprise buy, much more than a finance system that only the finance department is going to work with,” says Scott Bolman, a principal at Mercer. “And so the HR systems have much greater exposure.”

This is the first of five articles in a special report looking at the buying of HR technology from a CFO’s point of view. Also included are: What Kind of HR Automation Do You Need?; 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.