Despite the constant discussion about automation and integration in HR, many HR functions remain a technological backwater. Starved of IT investment and widely perceived as a silo focusing on ‘soft’ people skills, the HR department often continues to rely on spreadsheets and other ad hoc systems to manage activities as critical as recruitment and training & development.
This reflects the fact that, in many cases, the drive to automate HR processes has gone little further than implementing or outsourcing a payroll system. And even where the organisation has invested in an expensive heavyweight ERP implementation, or signed up for a technology outsourcing solution, HR often finds itself left behind in IT terms by other functions whose automation is accorded a higher priority, and whose needs can be met more easily and cheaply.
Twin pressures
This historical failure to invest in HR technology needs to be redressed. Technology is playing an increasingly pivotal role in the design and delivery of HR services throughout the employee lifecycle, as part of the enterprise-wide drive for greater effectiveness and lower costs. As a result, HR is facing growing pressure to use technology to further automate its processes. While some HR directors are leading the way, in other cases the decision to automate is forced on HR by rapid growth in the business’s operations and headcount.
For example, we know of one organisation whose HR department functioned perfectly adequately on web-based SQLtype systems while the total workforce was around 60 people. By the time staff numbers had reached four figures, these systems had become completely inadequate – and HR had to seize the nettle, rip out the existing systems and replace them with something far more robust and scalable.
HR systems that suffer from a silo-based approach and ‘unconnected complexity’ can still be found in organisations ranging from fast-growing SMEs to the largest and most mature multinationals. The dangers of uncontrolled use of Excel spreadsheets, Access databases and the like become especially apparent when the user who developed them moves on from the organisation – leaving behind no documentation and little knowledge of how they work.
Tipping-point?
A combination of business growth and systems disintegration can push the HR function to a tipping-point where its only option is to conduct a complete reassessment of its systems against the needs of the business, and adopt a new approach that breaks with the tactical piecemeal responses made in the past.
This presents the business with a range of possible options. However, the choices involved are becoming more complicated for a number of reasons. One of these is that changes on the supply side are making it increasingly difficult to decide on which HR/payroll system to implement.
In terms of possible inhouse solutions, until recently there was a reasonably clear distinction between the three main options of major global ERP provider, second-tier (and generally cheaper) enterprisewide system supplier, or specialist niche ‘best of breed’ solutions. These might have been implemented in some kind of combination, but the boundaries between them were quite well-defined.
Today, a mix of factors – including ongoing consolidation between competitors and down the value chain, rising HR service expectations among business users, demand for a wider range of services to be automated, and the requirement for a faster and more measurable return on IT investment – are introducing a rapidly widening range of variables to the decision.
For example, consolidation between different ERP vendors, or between a vendor and best of breed supplier, can result in step-changes in the acquired provider’s technology and products, creating expense and disruption for its customers.
Outsourcing/offshoring
As well as needing to be sensitive to these emerging risks, organisations also face a critical decision on how to source HR systems support – with a spectrum of choices ranging from inhouse, via outsourced hosting with inhouse support, to outsourcing of both hosting and support.
Each option on this continuum carries a different combination of risks and benefits. When considering an outsourced solution, one factor to bear in mind is the likelihood that some or all of the services may well be provided from offshore.
The decision on whether to go offshore may come down to business philosophy. Some organisations have decided not to source any services offshore whatsoever – perhaps because of the potential implications for workforce relations or their external reputation.
Others believe the cost, and possible effectiveness, benefits of outsourcing offshore outweigh all other considerations, especially given that developing the new HR solution inhouse would probably involve heavy expenditure in systems and licences.
There is also the risk that an inhouse technology solution may become obsolete within two or three years, requiring continuing investment, whereas in an outsourced solution much of this risk is assumed by the provider. Whatever the company’s view on outsourcing and offshoring, it should appreciate that once a decision to outsource is taken it is effectively irrevocable, since the investment required to rebuild the capability inhouse may well be prohibitive. This is most clearly the case in a ‘pure’ HR outsourced solution where the only asset retained by the business is its own data. A business trying to bring processing of this data back inhouse will have to rebuild its HR systems from scratch – and will face costs to match.
Know your business
Given this complex – and evolving – matrix of options, choices and risks, what are the key factors that should be taken into account when selecting an HR system? The first thing to stress is that the decision cannot be taken quickly or lightly. The second is that the choice of HR system should be made in the context of the business’s wider IT infrastructure and management information needs. This means asking three key questions upfront:
- What type and depth of HR information is actually needed to run the business at all levels? Board, business unit manager and employee – and by the finance function?
- Are these groupings getting that management information satisfactorily already?
- If there are any gaps in the management information, how can HR provide the right data in a way that integrates as seamlessly as possible with the other relevant IT systems across the organisation?
Strategic and market factors also come into play. Is the business anticipating rapid growth or decline in its headcount? Is it considering M&A, either as acquirer or target? What shifts are imminent in its competitive and regulatory environment? How will all these affect the need for management information?
All these questions may affect the choice of technology platform, the degree of scalability required, and the timing of any investment. The ultimate answers come back to the business’s overarching priorities and constraints, and to the characteristics and limitations of its existing IT infrastructure.
There is a temptation to think that a full-blown ERP system will solve every problem, especially in cases where other back-office functions in the business are implementing their own ERP bolt-on modules.
However, applying this kind of overarching solution to HR may have the effect of imposing costs and rigidities that actually limit the business’s ability to achieve its strategy – especially where additional HR-specific modules which tend to be expensive, such as self-service, are required. Instead, many businesses find that a smart piece of HR middleware that extracts and integrates the required HR information can provide the ideal balance between shortterm cost savings and long-term effectiveness.
Know your IT
Once the strategic factors have been clarified, the groundwork for making the right technology calls lies in thoroughly assessing the existing technology platform against the organisation’s management information needs. A further key factor to take into account is the shape of the IT assets used by the rest of the organisation.
One common mistake is to approach HR as a distinct entity whose systems will function separately from the rest of the business. This can result in a decision to install the chosen solution, and only then to look for ways to integrate it into the rest of the technology base. This is asking for trouble. HR is a service function whose duty is to provide other parts of the business with the data they need to do their jobs effectively. The choice of HR systems should reflect this, rather than striving to provide a theoretically higher level of service that may actually be above what the business requires.
For HR, this means maintaining an unwavering focus on the needs of the business – not seeking to implement something simply because it is the flavour of the month or other people are doing it.
A good example is employee and manager self-service. For organisations with a suitable culture and working practices, this may be exactly the right option – despite the fact that it is expensive both upfront and in terms of ongoing training.
But for other organisations, self-service may be largely a waste of money. A manufacturing business where most employees do not have constant access to a PC, or a utility or financial services company with large numbers of sales reps constantly out on the road, may well find that the workforce simply cannot – or will not – use HR self-service.
Summary
The overall message is clear: the choice of HR system should be made in the context of the organisation’s strategic objectives and broad technology environment, and geared specifically to meet the requirement for management information across the business.
This means approaching HR as an integrated support function rather than a distinct silo, and taking a hard look at the pros and cons of each option before deciding which way to leap.
There are no easy, one-sizefits- all answers – but taking all the relevant factors into account will help ensure the organisation reaches the right decision for its own unique circumstances.
