The demand for human resource (HR) technology systems is booming as businesses replace on premises legacy technology with cloud applications.
Over the next 18 months, nearly 60% of organisations are planning to implement new HR or talent management systems, according to research by analyst group Bersin by Deloitte.
“We have found that the average HR system is 6.5 to seven years old. Most companies have four or five systems, so there is a huge replacement cycle, mostly replacing IT systems with cloud,” said Josh Bersin, principal and founder of the company.
Rivalry between top three core HR suppliers
The trend has led to intense rivalry between the top three specialists in core HR technology – Oracle, SAP and emerging cloud HR pioneer Workday.
In global companies, 46% of HR executives said their companies used Oracle PeopleSoft to manage HR in their enterprise resource planning (ERP) systems, just over one-fifth used SAP HCM, while Workday is used by 5%.
Workday is making inroads among companies that find its user-friendly cloud-based technology attractive, but SAP and Oracle are fighting back with their own cloud services. “It's going to be a blood war,” said Bersin.
Companies that have experienced difficulties with HR technology implementations in the past are often willing to change suppliers, despite the upheaval of changing to a new IT system.
“In the world of HR there is a lot of history and a lot of customers got burned with a supplier so they just want to change suppliers. Workday is picking up a lot of work because of that,” he said.
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Growth of talent management
Outside of the core HR technology suppliers, there are a growing number of suppliers offering talent management technology, which aims to aims to simplify recruiting, training, learning, staff appraisals and collaboration.
A large number of startup companies have sprung up, specialising in HR to supply mid-sized companies. And with new startups emerging all the time, Bersin does not see any signs of imminent consolidation.
One of the biggest growth areas in HR technology is talent analytics, which has the potential to generate big returns on investment for employers.
In one case, an insurance company was able to add over $3m to its bottom line, after using analytics technology to predict which job candidates were likely to become top sales people.
The company had traditionally hired people from top colleges with top grades. But analysis showed that the most important predictor of success was whether there any mistakes on their CV, and whether they finished their degree, rather than their grade or their college.
Companies that have experienced difficulties with HR technology implementations in the past are often willing to change suppliers, despite the upheaval of changing to a new IT system
Investing in retention
Retention analytics is another growth area. The technology allows companies to predict when talented staff are likely to leave, giving companies the opportunity to intervene to retain them.
“Increasing your retention rate can add millions to the bottom line. Not only are you losing people, but you have to hire someone else. Sometimes that can cost two or three times the salary,” said Bersin.
Companies are also turning to social media to replace traditional employee appraisals, based on performance metrics, with feedback and coaching.
“Companies such as Adobe have realised that the process is causing people to leave, harming relations between employees and managers, and making employees feel bad about their work. They are asking why are we doing it,” he says.
Companies often assume that because cloud HR services such as Workday have a user-friendly front end they are easier to implement.
But they take the same amount of design and implementation work as other ERP software, said Will Davies, director of consulting at Deloitte, who advises companies on HR implementations.
“The design is really critical. Before you have selected the system, you need to be really clear about your requirements, and let HR drive the project, rather than group IT,” he said.
Another mistake is for companies to buy in HR systems with sophisticated reporting capabilities without considering what reports they actually need for their business.
Increasingly, HR technology is moving away from the CIO to become the responsibility of the HR department, said Davies. “Internal IT organisations are very happy for HR to manage the suppliers,” he said.