Traditional on-premises applications will continue to thrive, but human capital management (HCM) software innovations will come from innovative on-demand and mobile human resources applications, as well as from other areas, including in-memory technology and social media. “When you look at the major software companies, very few of them are putting major resources into their on-premise talent management applications in the future,” according to Steve Bogner, managing partner of Insight Consulting Partners, based in Cincinnati.
“That’s a trend that’s been going on for a while,” Bogner said of the growing number of cloud HR applications. “I think you’ll continue to see that happen.”
On-demand HR boom driven by social media
One reason on-demand HR is so popular is that HR in general is collaborative in nature, with many people needing to access the system, especially when it comes to employee self-service portals, Bogner and other experts noted.
Bogner identified the proliferation of social media, particularly in those cloud applications, as another growing HR trend.
“HR deals with people, and people are inherently social,” he said. “It’s a good way to get people together to act.”
In the beginning there was payroll
The move to Software as a Service (SaaS) applications began years ago, when companies began to outsource their payroll operations, according to Jon Reed, an independent SAP consultant and head of JonERP.com.
“It wasn’t cloud, but it got people used to the idea that [if] something wasn’t a core process, it could be a commodity and put out for someone else to handle,” Reed said.
That changed with the Pleasanton, Calif., company Workday, which is credited with providing the first SaaS-based HR platform in the cloud, Reed said.
“Workday gets a lot of credit,” he said. “[It] came along and said, ‘Let’s rethink some of these processes and put them in the cloud so that others can access them,’ ” Reed said. “Their focus was more on core HR in the beginning, but I know they are expanding in a lot of other ways.”
Others soon followed suit, including SuccessFactors, based in San Mateo, Calif., recently purchased by SAP as a part of its growing portfolio of on-demand HCM applications. And there’s Taleo, which Oracle bought for the same reason.
Getting strategic with HCM
One of more important factors in using on-demand applications for HR is that it allows companies to think strategically about HR in a way that wasn’t common with typical on-premises applications, according to Reed.
“[I’m not talking about HR] simply as an outsource component, but something that might actually be strategic for companies,” he said. “[It might not be] as strategic as building a next-generation product, maybe, but certainly strategic in terms of realizing that managing people in a smart way can be, to some extent at least, a comparative advantage.”
Joshua Greenbaum, an independent analyst and head of Enterprise Applications Consulting in Berkeley, Calif., agreed. Companies are making big investments in areas such as talent management, which in turn is spurring vendor activity, he said.
“It’s being driven by a strategic realignment in the business world around talent management,” Greenbaum said. “The old model of HR being what you need to hire people and give them insurance and benefits is being replaced by [the idea that] your talent is one of the most important assets that you have.”
Taking HR on the road
The advantage of cloud HR apps is that people outside of the office can use them with mobile devices, according to Greenbaum.
“Workforces are more mobile, more global,” Greenbaum said. “They’re more outside that firewall than they have been in the past. Having cloud-based HR allows the company to manage all those touchpoints easier, given the number of stakeholders.”
The growing mobile landscape has driven the growth of mobile HR applications by vendors such as SAP and Oracle, but also by smaller vendors such as London-based Arch Software’s HTML-based SAP e-forms for a range of HR processes.
Where there’s fast HCM software adoption
SaaS HCM applications have been around for 10 years and continue to gain in popularity, according to Connecticut- based research group Gartner’s report Impact of Cloud Computing on Human Capital Management Applications.
HR buyers continue to favor SaaS deployments over on-premises applications, according to Gartner, even though applications are in different stages of maturity and have varying adoption rates. The speed of initial deployment is one reason that adoption is growing, according to the report.
“Historically, the HCM market has been plagued with painful, lengthy and unsuccessful deployment cycles,” the report stated. “This has spurred buyers to investigate simpler, quicker and easier-to-use alternatives. With most HCM systems being deployed enterprise-wide, the SaaS model has also allowed customers to easily expand the number of users as organizations grow.”
E-recruitment and talent management are the most common SaaS HR applications, according to Gartner. Roughly 70% to 80% of new recruiting and learning initiatives are deployed with on-demand applications, according to Gartner. SaaS applications for employee performance management have also taken off within the past two to three years.
But even though Gartner contends that trend will continue, it will not replace on-premises deployments entirely. On-demand “core” functions such as benefits and payroll administration features have had slower adoption rates, Gartner said.
Challenges to on-demand HR software adoption
Some of the same factors that are driving cloud computing, such as ease of deployment and low up-front costs, are driving cloud HR software adoption. Other factors are specific to the HR market, according to Gartner. For one, many HR applications have been around for a while, leading to a current “technology refresh” cycle in which some companies looking at costly upgrades and increasing support are considering new options, such as cloud applications.
Some of the inhibitors to adopting SaaS HR applications, according to Gartner, have to do with questions about the viability of some smaller vendors, data privacy, integration and security.
Gartner also noted that the total cost of ownership after three years could be higher with SaaS versus on-premises applications for large enterprises with large, well-established data centers.
Learn how to negotiate cloud-based HCM software