The four pillars of talent management systems: A solid HR foundation
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With an increasing number of human resources management systems coming to market, offering a broader set of functions than ever before, we consider the benefits to organisations looking to adopt.
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Human resources management systems (HRMS) consist of a broad set of business process and analytical capabilities spanning the employee lifecycle.
They support business processes for hiring and onboarding staff, personnel and benefits administration, compensation, payroll, compliance, performance management, succession planning, and career development.
Analyst Forrester recently looked at HRMS applications designed to support these human resources management (HRM) functions.
It found the cost of labour is among the largest of the operating cost categories, accounting for approximately 26% of US companies’ total revenues on average. Organisations use the HRMS to plan and budget salaries and positions, maintain consistent compensation and promotion practices, control hiring and manage lay-offs.
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The HRMS supports myriad HR business processes, including personnel actions, employee record maintenance, employee pay and benefits management. These activities have traditionally been labour-intensive and paper-based. Efficiency gains come from making these transactions directly accessible to employees and managers via web-based functions within the HRMS, eliminating the need for paper and clerical intermediaries.
Organisations with a strong human resource function will focus on performance, employee development and reward programmes to achieve better retention and higher workforce productivity. Most companies prefer to use best-of-breed talent solutions to supplement the HRMS, but the increasing quality of talent management components within HRMS suites will make it more difficult to justify separate, specialised supplier solutions for these processes. Recruitment and learning capabilities with HRMS suites, however, continue to lag behind best-of-breed solutions.
HRMS application suites are the largest segment of the $9.5bn market for human resource management software and account for half of its total revenue ($4.7bn). The growth rate in this segment is 8.2%, which is healthy but is substantially less than the faster-growing best-of- breed talent management segment, which has a 16.5% growth rate.
Categories of HRMS
Although on-premises, licensed software is the traditional deployment model for HRMS applications, software as a service (SaaS) revenue is growing at a 15% rate, nearly twice as fast as the HRM application market as a whole. Key drivers of SaaS HRMS adoption include faster implementation times and automatic software upgrades and updates.
Improvements in software configuration flexibility in newer products such as Workday also make this deployment model attractive to organisations of all sizes. Four of the nine supplier solutions evaluated by Forrester – ADP, Ceridian, Ultimate Software and Workday – offer SaaS as the only deployment method, and the remaining five suppliers have SaaS available as an option (in some cases via partners).
Many of the leading enterprise resource planning (ERP) software suppliers offer an HRMS as an application component of their overall suites. Within this Forrester evaluation, Infor-Lawson, Oracle, SAP and Workday fall into this category.
One of the reasons to invest in an HRMS is compliance and risk management
Paul Hamerman, vice-president and principal analyst at Forrester Research
ERP HRMS solutions not evaluated include Epicor Software, IFS, Microsoft Dynamics (AX and GP), Oracle’s JD Edwards and Sage Software. Several software suppliers specialise in HRMS applications as their core competency. Of the suppliers in this evaluation, Ultimate Software falls into this category.
Pure-play HRMS suppliers not evaluated in this Wave include Cascade HR, Fairsail, Frontier Software, High Line, HR Access, Meta4, Midland HR, and NuView Systems. Several providers of HRMS solutions offer outsourcing services related to payroll, benefits and human resources as their core business.
Two of the leading payroll service providers – ADP and Ceridian – are included in this evaluation. NorthgateArinso is another HR service provider that offers its own HRMS solution functionality, but was not evaluated.
Along with these categories of software, a few suppliers historically associated with the realm of learning and talent management have recently begun to offer HRMS functionality (excluding payroll). These suppliers, none of which was evaluated by Forrester, include SilkRoad Technology and SuccessFactors.
HRMS suppliers offer product depth and commitment to innovation
The Forrester evaluation revealed a market in which technology plays a key role in product innovation. All of the suppliers evaluated see technology investment as key to customer retention and growth. Three suppliers – ADP, Ceridian, Oracle – made significant new product announcements during the evaluation cycle.
Workday, Oracle PeopleSoft, Oracle EBS and SAP lead for multinational organisations. Competitive evaluations for multinational organisations typically pit Workday’s usability and flexibility against the breadth and maturity of Oracle and SAP. A common scenario involves an incumbent on-premises ERP HRMS, such as PeopleSoft or SAP, in need of an upgrade versus a replacement candidate such as Workday. The Oracle E-Business Suite HRMS has a similar breadth and maturity to PeopleSoft and typically plays within the Oracle EBS financials and ERP installed base.
ADP, Ceridian, Infor and Ultimate Software compete well among US organisations. Medium-size to large companies (1,000 to 10,000 employees) with a predominantly US-based workforce may consider any of the products mentioned here, but increasingly opt for a SaaS solution that includes payroll as an integral component.
ADP has invested heavily in its new Vantage offering; it released the core HRMS in late 2011 and will add talent and compensation functionality in 2012, as has Ceridian with its Dayforce HCM product. Ultimate Software continues to be a strong competitor to ADP and Ceridian in this segment. Infor’s investment in HRMS (via the Lawson acquisition, for example) is starting to pay off – in the future, the supplier will leverage its success in certain vertical markets, including healthcare and government.
ADP, Ceridian and Oracle herald new products. Oracle’s Fusion product line was announced as being generally available in October 2011. Fusion HCM offers a rich graphical interface, embedded analytics, and differentiated talent management capabilities such as talent review.
Ceridian’s recent acquisition of Dayforce brings not only a strong workforce management solution, but also a next-generation software development platform that serves as the basis for the new HR and payroll solutions, Dayforce HCM. ADP’s Vantage is a similarly ambitious effort to provide a fresh user experience and configuration layer across its full range of offerings.
Many companies, both new entrants and traditional suppliers, are developing products to support human capital management (HCM). One of the reasons to invest in an HRMS is compliance and risk management. Numerous compliance laws and risks exist that are related to equitable pay, overtime, time off, hiring practices, employee conduct and working conditions. The HRMS, as the system of record for employees, helps to meet compliance.
Paul Hamerman is vice-president and principal analyst at Forrester Research.
This is an extract from “The Forrester Wave: Human Resource Management Systems, Q1 2012”