Human capital management (HCM) software used by HR departments has rarely been considered cutting edge. Yet a fair amount of innovation is taking place in HCM, thanks largely to vendors' decision to move their applications to the cloud, points out Holger Mueller, a vice president and principal analyst for Constellation Research.
"... HR software users massively benefit from the consumerization of IT," he wrote in a report titled Inside the Future of HCM: The State of Human Capital Management Technology in 2015. "In fact, even the user experience on mobile devices is not an afterthought today. The shift to cloud-based design, creation and delivery by the vendors has created a faster adoption of cloud-based software in the HR space than in any other enterprise automation area. And with the shift to cloud, a higher rate of user experience innovation has been achieved."
There are no HR software user interfaces more than two years old, he noted.
As with other types of enterprise software, HCM vendors release updates more often in the cloud, Mueller told Enterprise Apps Today. Because of that, he said, "They are closer to what best practice is. And with that their customers are closer to best practices, too. In the past it was mainly innovation on the talent management side. Now it is moving to workforce management, analytics and recruiting."
Analytics is an area that is especially ripe for innovation in the human capital management arena, he wrote in the report. "With the emergence of Big Data technologies and very affordable deployment and utilization options with the cloud, it is time to push the use of analysis beyond reporting, but to real analytics."
Cloud HCM 'Tipping Point'
Few companies are moving all of their HCM applications to the cloud, Mueller said – at least not all at once. They are taking a slower and more measured approach to the cloud than they did with some other applications such as CRM. "We are seeing a lot of hybrid deployments," he said. "So, for example, many companies switch talent management to cloud before other areas."
According to the Sierra-Cedar 2015-2016 HR Systems Survey whitepaper, 18th annual edition, the industry has seen a "tipping point" this year, with more than half of purchased core human capital management systems now in the cloud.
Small and midmarket companies were quicker than their larger counterparts to move to cloud HCM, said Stacey Harris, VP, Research and Analytics for Sierra-Cedar. Among companies with fewer than 2,500 employees, 61 percent have their core HCM management system in the cloud. Contrast that with 43 percent of companies with 2,500 to 10,000 employees and 33 percent of companies with 10,000 or more employees.
Large, global companies tend to have an eclectic mix of solutions, due to their more complex requirements and existing investments. They are more likely to maintain hybrid environments, in which talent management and/or workforce management applications are moved to the cloud while core HCM and/or payroll are kept on-premise. It is significant, Harris said, that about a third of these largest companies have now moved their core HCM systems to the cloud.
Talent management was "the first foot in the water" for many companies when it came to cloud HCM, Harris said, and it provides "a platform to jump off of" for further cloud investment. More than 80 percent of companies with talent management software use cloud solutions, found the Sierra-Cedar 2015-2016 HR Systems Survey whitepaper. Contrast that with workforce management, with 37 percent of companies using cloud software, and payroll, with 38 percent in the cloud.
HCM Vendors and the Cloud
Early adopters moved human capital management software to the cloud for cost savings and enhanced innovation, Harris said. However, middle and late adopters are being pushed by vendors. "The vendors are saying 'If you want our newest and most innovative stuff, you've got to go to the cloud. If you want a better user experience and upgrades to come more quickly, you've got to go to the cloud.' "
Cloud HCM is cost effective for vendors and it gives them more control over their customers, Harris said. "Oracle and SAP cannot tell you how many people are actually using PeopleSoft HCM or SAP HCM. Once the license lapses, there is no connection," she said. "By moving organizations to the cloud they create an ongoing connection and they can help organizations leverage more aspects of the platform."
In addition, she said, cloud HCM is easier for vendors to support because they need to maintain only a single line of code rather than multiple legacy versions.
Only a few vendors, most notably Oracle, still offer some HCM applications to new buyers in an on-premise format, Harris and Mueller pointed out. However, the software giant is increasingly nudging its customers to migrate their Oracle apps to the cloud.
Cloud HCM Challenges
While boosting their capacity for innovation is a big driver for companies to migrate human capital management to the cloud, Mueller said one of the biggest challenges following such a move is the rapid pace of innovation.
"Before it probably took three to five years to do an upgrade, but now they will get several major upgrades a year," Mueller said. "Enterprises are trying to get their arms around that. It affects your whole enterprise, not just HR, if you change your HR processes. So enterprises must pay far more attention to change management."
Creating differentiated HR processes and approaches can also be a challenge for companies after they move to the cloud, Harris said. Vendors often help with initial configuration of cloud HCM software but may not offer much hands-on assistance after that.
"Vendors are starting to build annual check-in programs or optimization programs, but that is just starting to happen," she said. "Once a company standardizes on the cloud, it is using the same solution as everyone else. It needs to have people to create unique configurable processes and tools, including reporting and analytics capabilities, to help differentiate it from competitors."
Ideally this would be a kind of "functional technologist" role, she said. "Companies need to think about resourcing from the perspective of 'what do we want to achieve from this technology?' not 'what does it take to run this technology?' Those are two different things," she said.
The "massive process mapping exercises" that were common in on-premise HCM implementations do not translate well to cloud environments, Harris said. In many cases, such exercises resulted in highly customized applications.
"You were often asking the system to do backflips it maybe was not meant to do on processes you designed," Harris said. "Cloud is based on the idea of best practices. Organizations that succeed with cloud have done a parallel journey. They figure out their biggest use cases -- five or six, not 200 -- and determine which vendors can do those best. Then they work with a short list of vendors to see how well they match up."
Harris likened it to working with mobile applications. "You don't build a process and then go look for an app. You download an app and determine if it fits what you are trying to do."
Integration is another challenge for companies moving HCM applications to the cloud, Mueller said.
"HR leaders have accumulated a plethora of solutions over time and now have to make them work together. What looked like a great idea and a strategic project five years ago in many cases is now technical debt that employees and HR professionals have to live with," he said. "Ironically moving pieces of automation to the cloud even makes the integration problem bigger, as enterprises need to navigate the on-premise and in-the-cloud pieces of automation."
Luckily, Mueller said, integration is becoming easier as cloud momentum grows. "We see a new type of integration, vendor-built integration between different software-as-a-service vendors, that was technically and business-wise not possible on-premise."
Ann All is the editor of Enterprise Apps Today and eSecurity Planet. She has covered business and technology for more than a decade, writing about everything from business intelligence to virtualization.