Technology solutions for HR
In the first of a series looking at human resource management systems, we track trends and examine recent developments.
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Key points
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The global market for human resource management systems (HRMSs) was worth $5.5 billion (£3.13 billion) in 2005. Overall growth was up 17% on 2004, and that had been 12% up on the previous year, according to figures from AMR Research. The analysts predict that the market will continue to grow and will be worth $6.3 billion (£3.59 billion) in 2006, fuelled by interest in talent management software that enables organisations to better manage their staff by focusing on the entire employment lifecycle, including workforce planning, recruitment, learning management, performance management, career development, succession planning and compensation.
Expenditure on HRMSs has grown significantly as organisations look to technology to improve the quality, speed and flexibility of HR information, reduce further the administrative burden on HR staff and improve services to employees, as well as ensure regulatory compliance. In part, the increasing reliance on IT is due to mounting pressure on the HR function to add value and help the organisation deliver the strategies that support its overall goals. In its latest HR service delivery survey, Towers Perrin says: "Deployment of HR technology remains at the forefront of the HR effectiveness agenda, given its perceived and real impact on the bottom line and management's expectations that it will help streamline the organisation and its HR processes."1
Certainly, the vast majority of organisations, particularly larger ones, operate an HRMS of some description, although their widespread implementation is a relatively recent phenomenon. The Chartered Institute of Personnel and Development (CIPD) found in 2005 that 77% of the HR practitioners it polled in more than 300 organisations said their HR function had an HRMS - which is slightly up on the 73% reported by the CIPD in 20042. The most recent results reveal that HRMSs are more common in the public sector (88% of organisations) and the voluntary sector (79%) than in either manufacturing and production (64%) or the private services sector (66%). It also found that almost all organisations (97%) have had their system in place for less than 10 years.
Trends and developments
As demands on the HR function to become less of an administrative function and more of a strategic partner increase, so the software available is evolving to ensure that HR professionals are better able to make the transition. Key performance indicators that measure effectiveness and contribution now govern most HR functions. These range from measuring training and development and employee turnover to evaluating recruitment costs and employee productivity. As the Towers Perrin report notes: "HR technologies have developed to the point where they are able to support workforce effectiveness in new and increasingly more efficient ways."
Systems are becoming more sophisticated, promising everything from basic employee record-keeping to complex data analysis on a range of issues, including compliance with legislation, absence and turnover, and career progression. Such tools provide HR practitioners with powerful reporting capabilities, enabling the function to produce detailed reports and respond quickly to requests for information. "The sophistication and capability of reporting tools have progressed," acknowledges John Wallace, head of business-focused HR at Airbus.
More choice?
Increasingly, the range of specific HR modules that can be added to core products is becoming more extensive. All of the market-leading HR software companies have a core personnel management product that allows customers to select additional components that meet their needs when required so that a more sophisticated system can be built.
The Ciphr series from Computers in Personnel, for example, has at its heart "People", which combines employee record-keeping with the ability to quickly assess both individual and departmental training needs and match existing skills sets to projects and new or vacant roles. Other applications in the series include Ciphr Net, which provides a self-service dimension, and Ciphr Payroll.
Although the human capital management solution from Oracle - called 11i - is designed as an integrated system covering all people management processes, it is modular in nature, which allows customers to switch on other options, such as a recruitment module, as the need arises.
In addition to HR management and administration, the "Trent" software series from Midland HR includes modules dealing with people development, absence management, recruitment, payroll and learning events administration. Further software is available that enables employee and manager self-service.
Similarly, Chris 21, the latest version of the Complete HR Information System from Frontier Software, is an integrated HR and payroll system whose suite of modules includes absence and leave management, HR reporting, learning and development, recruitment administration, health and safety, and benefits and compensation administration.
The rapidly expanding range of HR modules reflects the diverse nature of the work, a development noted by Wallace. "I think HRMSs are catching up with the fact that HR is a diverse function needing flexibility for the 'softer' career development and appraisal processes, as well as coping with more 'straight-line' processes, such as payroll and time management," he says.
Developments in HRMSs are also making it possible to enhance the offering to employees and to improve communication. Flexible benefits systems, for such a long time resisted by employers because they were costly to administer, have been made more viable by technological improvements. "The biggest barrier to flex is scheme administration - so you need a good system," explains Oracle UK's compensation and benefits manager, Chris Wilson, who oversaw the introduction of the software firm's "Select" flexible benefits scheme (see Oracle's software selection).
Chris Berry, managing director of Computers in Personnel, believes that software that makes administration easier and enables staff to access their own individual benefits information will see more and more companies not only providing flexible benefits but also expanding the range of benefits on offer. "If it's less complex to administer, then offering a wider range of benefits doesn't increase the admin burden," he says.
Do-it-yourself
One of the biggest changes in HRMSs over the past few years has been to shift to self-service applications, meaning that employees, and increasingly managers, can at least view HR information. Some systems also allow individuals to amend their personal details, freeing HR staff from such low-level transactions. Line managers can update employee records, such as hours worked, absence and performance review scores, and authorise leave, for example.
Internet-enabled HR activities and processes are increasingly popular. The latest survey from the Evaluation Centre shows that 69% of firms polled said their primary investment in HR IT in 2006 would be in such applications3. According to Vincent Smallhorne, head of Workforce Excellence at Oracle UK, the shift to internet-type technology that enables HR staff to access a system via a web browser has accelerated since 2002. More widespread internet use and greater bandwidth, which enable employees to access personal data from home and at a time that suits them, has fuelled the use of employee self-service (ESS).
"ESS has grown rapidly, particularly in large organisations, and is now one of the most prevalent and successful methods of HR service delivery used in business today," comments Towers Perrin. According to Seth Russell, head of remuneration and benefits at BBC Worldwide, self-service has been the main development in HRMSs over the past two to three years.
"Self-service has been a real driver for us," acknowledges Oracle's Smallhorne. Mick Morton, HR IT manager at Nottingham Trent University, agrees that internet access has had a significant, impact. "The web has given self-service a big boost," he says. Since September 2004, around 40 managers at the university have had access to administrative information and ESS will be available at the start of the next academic year in October.
Towers Perrin says that most large organisations have had ESS features in place since 2004 and that smaller organisations are rapidly catching up. The majority of HRMSs are now based on the Windows operating system from Microsoft, which not only enables direct links to Word, Outlook and Excel, for example, but means that employees are more likely to use the system because they are familiar with the format. Increasingly, such systems also use internet technology, so navigating the system is similar to using the web. Russell, at BBC Worldwide, says that improved navigation and more intuitive systems have been the main improvements in HRMSs over the past few years. Wallace at Airbus adds that the increase in demand for self-service has now been "matched by much improved usability".
According to Berry, many organisations have taken time to recognise the potential benefits of self-service, and it is only since the emergence of self-service via a web-based interface that it has really taken off. "Although we implemented our first self-service system seven to eight years ago, we had to work hard to convince people of the benefit. Now it's much nearer the top of organisations' requirements and internet access means that people are not tied to using the corporate computer network," he says.
It is not only self-service that has benefited from increasing confidence in the internet infrastructure. There is a noticeable shift, particularly among large organisations, towards web-enabled HRMSs, many of which involve the supplier hosting the system on its own server and the client accessing information from almost any location as and when necessary. "There is a lot of interest in HRMSs that are accessed via a secure web connection," comments Berry. He says costs have come down, making it more viable to have a system hosted by a supplier. Such arrangements can also mean financial savings from not having to maintain the system or invest in new hardware. "It is the responsibility of the provider to make sure the application is running efficiently, that there is ongoing back-up and that upgrades are installed," says Berry.
Smallhorne believes that outsourcing will continue apace. "In the next five years, outsourcing will become much more prevalent," he predicts. "At the moment, most organisations are trying to implement software, and each time they do so it's a one-off. In future, software firms will be saying 'let us do that for you' and give it back to you as a service," he explains. He also believes that service providers will take over most transactional activities, such as payroll, before also supplying other activities, including online recruitment and training.
All together now
The other major change in the HR systems market has been the merger of several of the largest HRMS providers. In December 2003, Northgate Information Solutions acquired the Rebus HR Group in a £150 million reverse takeover, making Northgate one of the largest European providers of HR systems. Twelve months later, Oracle acquired PeopleSoft - which, at the time, was its biggest competitor in the global HRMS market - in a $9.2 billion (£5.3 billion) deal. Oracle will begin the merger process in 2008, reducing the top five suppliers of HR systems in the UK from five - Midland HR, Northgate HR, Oracle, PeopleSoft and SAP - to four.
Berry believes the mergers initially created some inertia in the HRMS market. "Some organisations put their decisions on upgrading or changing their systems on hold, adopting a wait-and-see stance to see how the mergers developed," he says. Although both Northgate and Oracle initially pledged to continue to develop and support the systems of Rebus and PeopleSoft respectively, customers will eventually be expected to switch to their products. Oracle says the next release of PeopleSoft (version 9.0) will be the last before it is merged with Oracle's own enterprise resource planning (ERP) platform.
As well as consolidation among vendors, basing HRMSs on the Windows format means that systems are increasingly similar. Recent legal changes, such as the provisions governing maternity and paternity leave, and discipline and grievance procedures, have also brought about a level of uniformity, as correct record-keeping, for example, is now demanded by the law. "The shift to Windows and tighter legislation is making systems similar," says Jen Paice, business development manager at Snowdrop Systems. Jan Paxton, senior product strategy manager at Northgate HR, agrees that there is some convergence. She offers the car market as an analogy. "There are a number of models on the market, but they all have four wheels," she says.
A failure to integrate?
One change that is often mooted, but which appears to be stalling in many organisations, is integration between HR systems and other corporate systems, such as those in finance, procurement, marketing and sales. Although ERP solutions provide functionality across several areas, including HR, research indicates that, despite a desire to get IT systems to link effectively with each other, integration is rarely achieved.
The 2004 CIPD survey of HR and technology found that 59% of organisations operate a single HRMS that is not integrated with any other system within the wider organisation, while 14% say they operate several HR systems that are not integrated with other operational systems outside of the HR function4. The most recent CIPD survey found a similar picture, with 54% of respondents reporting the use of a single non-integrated HRMS and a further 24% saying they operate at least two standalone systems covering different HR functions that are not integrated with other functional systems.
The CIPD says the non-integration is primarily down to money, power and historical timing. The cost of buying one common system to run IT across the whole organisation is often prohibitive and departments are often reluctant to replace standalone systems that are working well through fear that the integrated systems may not work as well. Also, systems tend to be purchased at different times to fulfil functional needs rather than organisation-wide requirements. "Best-of-breed" (BoB) applications tend to provide greater in-depth functionality for a single HR activity and are often more web-enabled than ERP systems, for example, so are favoured by HR professionals - though they do not always make purchasing decisions. Where integration is demanded - such as between HR and payroll - there is often a compromise on which system is chosen. "If organisations are driven to ERP solutions, the specific requirements of HR are often compromised," says the BBC's Russell. Mick Morton at Nottingham Trent University says its policy is to purchase BoB applications for each of its systems.
Smallhorne believes that part of the problem is HR's historical resistance or inability to quantify exactly what contribution individual employees make to the business. He asks: "Who really cares about putting a value on an individual? The board does. The managing director does. The finance director does. But is it important to the head of HR?" He also acknowledges that the software industry is partly to blame. "Over the past 15 years HR was promised the earth, but software companies have not always delivered," he says.
Money well spent?
The CIPD reported that 68% of survey respondents said the introduction of a new HRMS came in on time and 89% claim it was achieved within budget. It also found that in the majority of cases systems were delivering expected or better-than-expected results, although a significant proportion of respondents acknowledge problems, including 28% who said their system is difficult for HR to use. Research by the Evaluation Centre also uncovered a relatively high level of dissatisfaction with HRMSs among HR professionals. Its most recent survey found that one-third of those questioned said their current systems do not adequately meet their requirements. Likewise, almost one-third of the 46 organisations participating in an earlier IRS study of HRMSs were either dissatisfied or totally dissatisfied with their system (see Systems error? How HR chooses and uses information systems).
Part of the problem is that HR is not responsible for purchasing decisions in many organisations. Berry says a Computers in Personnel survey conducted last year found that in 72% of cases, decisions to switch suppliers of HR software were made elsewhere in the organisation. The CIPD found evidence that choice was often driven by the needs of payroll.
There are other problems too. The introduction of an HRMS is supposed to free HR staff to become more involved in strategy and decision making, but one-third of those polled by the CIPD said the reduction in the administrative burden was less than expected. Towers Perrin's research, however, found that ESS, for example, reduced the workloads of HR generalists and specialists by an average of 15%, with nearly 12% less work for administrators and HR service centre staff. But according to Russell at the BBC, although "some updating has been devolved through self-service, the information demands on HR have greatly increased".
1 HR service delivery: connecting people, process and performance, Towers Perrin.
2 People management and technology: progress and potential, www.cipd.co.uk/subjects/hrpract/general/peopleandtech.htm.
3 Unhappy HR looks to integrate better, www.evaluationcentre.com/DesktopDefault.aspx?tabindex=1&tabid=9.
4 People and technology: is HR getting the best out of IT?, www.cipd.co.uk/subjects/hrpract/general/peopleandtech04.htm.
