The pros and cons of SaaS-based HCM systems

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20th Jan 2013
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Analyses of the human capital management applications market indicate that Software-as-a-Service-based offerings are steadily gaining market share over their on-premise counterparts.

While the consensus is that SaaS HR implementations still only make up just over a tenth of all deployments, current adoption rates are far outstripping those of more traditional approaches. This trend appears to be reflected in two major deals completed earlier this year that have dramatically altered the HCM applications landscape. In IT research organisation Gartner’s 2012 ‘Hype Cycle for Human Capital Management Software’, analysts Thomas Otter and Jeff Freyermuth pointed out that the acquisition of SuccessFactors by SAP and Taleo by Oracle showed that these HCM market leaders (in revenue terms) were preferring to get into the market by buying up innovative products rather than building them themselves. But such moves were important because they demonstrated that SaaS was now becoming the dominant delivery model for HR systems. In addition, as SAP and Oracle increasingly went after this space, it made increasing amounts of sense for HR directors to evaluate hosted offerings that could be accessed online for a subscription-based, per-user fee, as part of their procurement process, they said. Taking it a step further, Clive Longbottom, founder of IT analyst firm Quocirca, even attests that SaaS’ economics have now led to on-premise applications “becoming an anachronism”. Big decisions He believes that organisations, regardless of their shape and size, are turning to SaaS-based HCM offerings because traditional alternatives just cannot compete in today’s rapidly evolving online business environment due to the capital outlay required in a hardware sense which, in turn, requires energy and a place to house it. “Operating systems, application server platforms and so on need to be licensed, installed and managed,” Longbottom says. “The software licences need to be purchased – enough to cover immediate needs – along with all the extra licences that may be required to enable application-to-database, client licences and so on.” Therefore, as far as he is concerned, the comparative lack of upfront cost and the convenience of HCM SaaS systems makes them a no-brainer, particularly in today’s straitened economic times. While on premise systems need to be patched, updated and managed, which includes securing them, backing them up and auditing them, “SaaS makes it a case of, choose the right partner that meets the organisation’s needs, pay your money and off you go”, Longbottom attests. However, while talent management applications have so far been at the vanguard of SaaS adoption, Gartner forecasts that, over the year ahead, the focus will shift to core HR management systems as a good number of legacy packages come up for renewal – hence the interest in the market being shown by incumbents, Oracle and SAP, of course. Nonetheless, Otter and Freyermuth predict that many organisations will “grapple with the decision of whether to continue to invest in on-premise core HRMSs or shift to SaaS-based offerings over the next 12 months”, in some instances as part of a wider enterprise resource planning applications strategy rethink. Lisa Rowan, HR, talent, and learning strategies programme director for rival analyst firm IDC, on the other hand, expects HRDs to focus their investment on integrated systems, whether they take an on premise or SaaS form. “They are weary of one set of capabilities not talking to the other and having different databases and architectures,” she explains. Key considerations Another key consideration when undertaking procurement is whether organisations would prefer to customise their HR applications to support their own unique business processes or customise their business processes to fit in with their HR system. “With on premise, HR was, and is, likely to bend the application to meet very unique needs, while configurable, SaaS systems generally require HR to adapt processes and rethink the ways in which things are done,” Rowan explains. “More upfront work is needed on the part of HR to go to a configurable, rather than customised, delivery.” But this configurability can make it somewhat easier to switch to rival products. “If an organisation was using SuccessFactors, for example, and was not too keen on being beholden to SAP, then SaaS is a great way to just move off and over to another vendor,” Longbottom says. “There may be issues around moving the data, but at least there are no problems with platform, software licences and maintenance to worry about.” Nevertheless, there are a number of SaaS-related data privacy and governance matters that must be taken into consideration. “Those offering SaaS solutions have to be able to adhere to the various issues around data sovereignty – will German data be held in Germany or will special systems have to be agreed around German data being held elsewhere, but on a specific ‘German’ storage system for example?” Longbottom point out. Other key questions to bear in mind are: 

  • Does your chosen SaaS provider have a reasonable chance of long-term survival? Has it been around for a while, has it got a good customer list, does it have actionable references and what do its financials look like?
  • Is it up to the job? How much downtime has it suffered over the last two years, what standards does it support for information management and auditing, what service levels does it guarantee, and how often has it failed to meet these?
  • Finally, can it demonstrate that it meets governance requirements around rapid reporting and regulatory compliance?
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