1. technology and computing

CFO
HOW TO BUY HR TECHNOLOGY
WHY UPGRADE YOUR
HR SYSTEMS?
WHAT KIND OF HR
AUTOMATION DO YOU NEED?
MAKING A MESS OF
PEOPLE-SYSTEM PURCHASES
SPECIAL REPORT
HOW TO BUY
HR TECHNOLOGY
CFOs often leave the task to human-resources or informationtechnology leaders, but that’s a risky course of action.
BY DAVID MCCANN
HOW TO BUY HR TECHNOLOGY
it’s a rare cfo in today’s world who hasn’t gained a
working familiarity with the financial and operational
systems that make his or her company go. But even
though human-resources technology tools are just as
prevalent, are vital to organizational success and can be
significantly costly, any particular CFO or other finance
executive is far less likely to be up to speed on them.
To finance folks, human-capital-management systems are often subject
to the same mind-set they apply to
everything else that’s HR-related: it’s
someone else’s concern. But if you
rubber-stamp the sign-off on purchases of such tool, you’ll be complicit
when they don’t perform as advertised,
break down or for some other reason
don’t help accomplish goals as they’re
meant to.
This package of articles is intended to
give finance executives the perspectives they’ll need to make reasonably
confident decisions on HR technology.
The articles are vendor-agnostic. That
is, they don’t aim to tell you which
vendor or product is best for you.
Rather, their purpose is to reveal the
kinds of thought processes and considerations that will lead to the correct
decisions.
Why Upgrade Your
HR Systems?
CFOs may not be experts in either
HR or technology, but they should
know enough to sign off confidently
on a buying decision.
As the strategist that you are, when
your human-resources and information-technology leaders show up in
your office proclaiming a need to up-
CFO SPECIAL REPORT | HOW TO BUY HR TECHNOLOGY
grade your company’s HR technology,
you have a few pointed, business-oriented questions.
Why now? What will we be able to do
that we can’t do currently? What value
does that have? How much is it going
to cost?
Or maybe you don’t ask those questions. The guys sitting in your guest
chairs are, after all, the company’s
leading experts in HR and technology.
But how comfortable will you be when
it comes time to sign off on the buying
decision?
DOING IT RIGHT
There is a right way and a wrong way
to pull the trigger on an HR technology purchase. The right way is to be
familiar with your company’s strategic
plan, appraise the gap between your
existing technological capabilities and
what the plan says you need, and begin
to replace or add the necessary components in a systematic, prioritized,
bang-for-the-buck way.
The wrong, but far more common, way
is responding to a pain point. “That
never gets you to the right place,” says
Naomi Bloom, a 40-year veteran of the
HR technology arena who runs consulting firm Bloom & Wallace. “When you
hear, ‘We’re running version 7 of this
1
HOW TO BUY HR TECHNOLOGY
“If it takes 60 days to fill a sales position, and the revenue target for that
role over that time period is $100,000,
that actually matters,” says Bloom.
system, and our maintenance contract
expired, and we can’t do anything with
mobile devices, and so we have got to
buy this new system,’ you have to respond with your broad, strategic plan.”
“SO THIS SUPERVISOR IS OUT TO
DINNER WITH HIS
FAMILY AND GETS
A CALL FROM THE
SICK GUY. WELL,
TODAY THERE
IS TECHNOLOGY
THAT CAN RUN A
MILLION RESHUFFLINGS OF THE
SCHEDULE INSTANTANEOUSLY.”
Say the plan calls for the company to
grow out revenue from products no
more than five years old from 20% of
the total now to 60% within three years.
“What will you have to do from a people perspective to achieve that?” says
Bloom. “Double the sales force? Find
better salespeople? Train them better?
Have better incentive compensation
plans?” The answers to such questions
should lead you to the products that
can help you fulfill the strategic plan.
FINDING THE HIDDEN COSTS
CFOs often evaluate HR technology
based on direct costs, as in: We’ll save
a bunch of money if we move to a
cloud HR system because it’s the vendor that has to maintain the hardware,
the network, the maintenance and the
upgrades.
There are several problems with that.
First, it likely won’t address the desired business outcomes. Second, it
does not speak to opportunity costs.
CFO SPECIAL REPORT | HOW TO BUY HR TECHNOLOGY
Third, there are also indirect cost
implications. Consider, for example, a
supervisor at a manufacturing plant. If
someone calls in sick, somebody else
has to take that shift. But that person
has to be certified to use the equipment pertaining to that job, and can’t
have already worked beyond a certain
number of hours that week or month.
Any number of variables may apply.
“So this supervisor is out to dinner
with his family and gets a call from
the sick guy,” Bloom says. “Well, today
there is technology that can run a
million reshufflings of the schedule
instantaneously. He can do what he
has to do from his smart phone within
seconds. It used to be that he’d have
to go back to the office and pore over
spreadsheets while the shift lost an
hour of production time.”
GAINING AN ADVANTAGE
Among the many possible business
goals facilitated by HR technology, one
that’s increasingly common is about
global staffing. “When customers are
looking at new applications, one of the
biggest drivers is the need to manage
talent around the world,” says Kim Billeter, a Towers Watson consultant.
If you want to open a plant in Thailand, for example, talent-management
software can help you find out who
in the company speaks the language,
is mobile enough to go work there,
and has the needed skills. But even
the large companies Billeter con-
2
HOW TO BUY HR TECHNOLOGY
employees are “flight risks.”
“Every organization has its one or two
superstars at every level, and everybody knows about them. But those
ranked three through five are going to
be very attractive candidates for other
employers,” observes Richard Johnson,
an associate professor at SUNY Albany
focused on HR technology. Software
can look at all the HR data available to
the company and create profiles of the
types of employees that have left previously and their reasons for doing so.
Similarly, software can help identify
candidates who are likely to be successful, based on the traits of those
who have succeeded previously. And,
notes Johnson, “When you take recruitment online, applications go up
dramatically. That creates additional
overhead, but with keyword-scanning
software you can eliminate many resumes immediately.”
And automating various HR processes,
like putting in a requisition for a new
hire, completing performance review
forms, or documenting developmental
plans for employees, frees up time for
company managers.
sults for are not yet taking advantage
of such capabilities. “Many of our clients cannot do that today,” she says.
Another common goal with the potential for indirectly hitting the bottom line that’s addressable through
talent-management applications is
identifying who among your company’s top-performing and high-potential
CFO SPECIAL REPORT | HOW TO BUY HR TECHNOLOGY
“Time is money, and I can save our
executives, directors, and other managers a ton of time in doing those
processes,” says Jim Cook, CFO of
Mozilla, maker of the Firefox web
browser.”
WHAT’S THE RETURN?
But how well can the impact of such
technologies be measured and quantified? Although proving ROI is what
gets CFOs out of bed in the morn-
3
HOW TO BUY HR TECHNOLOGY
ing, they tend to be skeptical when it
comes to HR technology.
Continuing the discussion about saving time for managers, Cook says, “Can
I measure that? I’m not going to spend
the time to measure it if I know there’s
an impact just by talking to people.
When you multiply what a few people
tell you—that they can focus on building and managing product instead
of spending time on G&A stuff—it
doesn’t need to be quantified.”
“ROI IMPLIES
THAT THERE’S GOING TO BE SOME
REVENUE CREATED OR COSTS
AVOIDED. THE
WAY I APPROACH
THESE PRODUCTS
IS TO FOCUS ON
DELIVERING THE
CAPABILITY WE
NEED FOR THE
BUSINESS AT THE
LOWEST COST.”
But one thing that sets HR technology apart is its companywide impact.
With many applications, every employee interacts with them. “The HR
buy is very much an enterprise buy,
much more than a finance system that
only the finance department is going
to work with,” says Scott Bolman, a
principal at Mercer. “And so the HR
systems have much greater exposure.”
What Kind of HR Automation
Do You Need?
In fact, Cook doesn’t think there are
“great standard ROI measurements”
for HR software in general. “Most of
the benefit is on the intangible side,”
he says.
Questions abound: A big system or
a collection of stand-alone modules? How much integration is
enough? How many bells and whistles are too many?
Steve Armond, CFO for technology
services firm T-Systems, agrees. “I
don’t know of a good way to track that
ROI,” he says. “ROI implies that there’s
going to be some revenue created or
costs avoided. The way I approach
these products is to focus on delivering the capability we need for the
business at the lowest cost.”
For a CFO who aims to learn enough
about human-resources technology to
feel confident when signing off on a
purchase decision, simply visualizing
what the product universe consists of
is a big part of the challenge.
COST PLUS?
When it comes strictly to cost, by now
most CFOs are aware of the differences between installed, on-premise
systems and cloud software.
With the former, you buy software,
you buy servers, you hire maintenance
staff, you pay ongoing support fees,
and you rarely get updates. With the
latter, the business model is typically
a per-use or per-employee fee per
month or year, although that could
turn out to be more expensive than an
on-premise system.
CFO SPECIAL REPORT | RENEWING YOUR INSURANCE
For starters, there are big, comprehensive systems aimed mostly at large
companies, and others for smaller
companies. At the same time there is
a raft of software designed to perform
one or two specific tasks. A company
could plant its stake in the former or
cobble together a collection of the
latter, which may include some bestof-breed solutions not found in the big
systems.
Some of the big systems are based on
technology developed in the 1990s that
required, and still do require, complicated physical installations and heavy
up-front capital costs. Most of the
newer tools are cloud-based, with a
4
HOW TO BUY HR TECHNOLOGY
pay-as-you go pricing model.
Another way to break down the market: there are “core” HR systems that
manage employees’ personal information, payroll, taxes and benefits. Most
companies have had long experience
with these, so there won’t be much
of a learning curve for CFOs. There
are also newer, “talent management”
applications and suites that handle
such functions as recruiting, performance management, succession
CFO SPECIAL REPORT | HOW TO BUY HR TECHNOLOGY
planning, compensation management,
onboarding and learning. Grasping the
value those provide is a more nuanced
undertaking.
And if you want multiple capabilities
to be integrated with one another, be
aware that what constitutes “integration” is in the eye of the beholder. A
suite of products is not integrated—at
least, in a way that boosts value—just
because the vendor says so.
5
HOW TO BUY HR TECHNOLOGY
“THE CHALLENGE
HAS BEEN IN
THE AWKWARD
MIDDLE GROUND,
WHERE YOU HAVE
500 TO 5,000
EMPLOYEES. BUT
THE THING THAT
TODAY’S TOOLS
HAVE GIVEN US IS
A PRICING MODEL
THAT LETS THOSE
COMPANIES PAY
A RATE BASED ON
HEAD COUNT.”
MAKING SENSE OF IT
What guides a buyer through this
maze? First, come to terms with the
fact that there is no perfect solution.
No software firm can or will provide
all the tools any company would want,
with all the capabilities being the best
on the market, and all tightly integrated down to the core design level.
Even if creating such a system were
feasible, it would likely be prohibitively expensive even for very large
enterprises. So there will always be
tradeoffs.
Second, take heart in the probability that there is a solution that does
make sense for your company. “I just
talked to a guy who’s got a new product coming out targeted at companies
with fewer than 100 employees,” says
Naomi Bloom, a consultant and 40year veteran in the HR technology
space. “There’s no way that would be
appropriate for large, complex companies.
“The challenge has been in the awkward middle ground, where you have,
say, 500 to 5,000 employees. But the
thing that today’s [software-as-a-service, or cloud] tools have finally given
us is a pricing model that lets those
companies pay a rate for the software
based on their head count of 500 or
5,000, rather than 10,000 or more.”
Third, know that in some respects it
doesn’t matter as much as one might
think whether to go with an integrated
system or individual tools.
“The reality is, whether you buy all your
software from one vendor or procure
modules from five different vendors,
CFO SPECIAL REPORT | HOW TO BUY HR TECHNOLOGY
there is a cost to managing the seams
between the pieces of software,” says
Kevin McDonald, vice president of BPO
governance at media company E.W.
Scripps and a longtime HR technology
buyer. “Because you’re going to want
integrated reporting and dashboards.”
And, McDonald adds, “just because
one vendor owns all the software
doesn’t mean it’s integrated.”
PATCHWORK QUILTING
One option is to hire a third-party
systems integrator to stitch together
a handful of disparate tools. “That’s
quite doable,” says Josh Bersin, principal and founder of Bersin by Deloitte
(until recently Bersin & Associates),
a research and analysis firm focused
on talent management, learning and
leadership development. “So much of
today’s technology is in the cloud, and
the interfaces are fairly open, so you
don’t have to upgrade the software
every year with a whole new release.”
Rather, the cloud vendor performs the
updates for you. And there are usually
several of them per year, as opposed to
one every year or two for installed systems, so the technology can get much
more sophisticated very quickly.
“Even if you don’t have everything right
away that you eventually will want,
by looking at a vendor road map and
understanding where they’re going,
you might be able to pick up something
that, first, will get you where you need
to be now,” says Scott Bolman, a Mercer
principal focused on HR service delivery. “And then maybe in 18 months it
will satisfy all your needs, at a cheaper
price than if you’d gone the other way
6
HOW TO BUY HR TECHNOLOGY
“MY STRATEGY
HAS BEEN TO BUY
BEST-OF-BREED
SOLUTIONS THAT
HAVE ENOUGH
INTEGRATION
CAPABILITY THAT
I DON’T HAVE TO
CREATE A WHOLE
BUNCH OF MANUAL PROCESS TO
GET THE CORE
UNDERLYING DATA
FROM POINT A TO
POINT B.”
and had an overpowered system for
what you needed on Day 1.”
On the other hand, systems integrators
are not cheap, nor are they necessarily
miracle workers. “It always costs more
than you think it will, and you will still
have data-synchronization issues,” says
Kim Billeter, an HR technology consultant with Towers Watson.
She adds, “If you’re staying with the
big, broad vendors that have more unified solutions, you’re probably going to
be better off from a cost standpoint, a
user-experience standpoint, and a longevity-in-the-marketplace standpoint.”
[Editor’s note: Billeter acts as Towers
Watson’s practice leader for implementations of Workday, a cloud-based
HR technology provider aimed at large
companies that is fast taking share
in that market from longtime leaders
Oracle and SAP.]
CFO SPECIAL REPORT | HOW TO BUY HR TECHNOLOGY
For smaller companies, the formula
for satisfaction is likely to be different. T-System, a $100 million provider
of emergency-medicine management
solutions, uses core HR technology
from Safe Software, called Mas 500,
that’s designed for companies its size.
“But I found that platform stopped well
short in more value-added areas, like
performance management and creating
organizational scheme charts,” says TSystem CFO Steve Armond.
Armond’s strategy has been to buy
“best-of-breed solutions that have
enough integration capability that I
don’t have to create a whole bunch of
manual process to get the core underlying data from point A to point B.”
BELLS & WHISTLES
Another aspect of the buying decision
relates to waste. Is it an inefficient purchase when the software has way more
7
HOW TO BUY HR TECHNOLOGY
capabilities than you need? After all,
says McDonald, “if you asked 100 people who use HR technology, whether
core or talent management, what
percentage of the overall functionality
they actually use, I’d be shocked if the
average was more than 50%.”
“YOU NEED TO
KEEP PUSHING
BACK, ASKING
YOURSELF WHAT
YOU REALLY
NEED, WHAT ARE
YOUR MUST-HAVE
FEATURES, AND
CAN YOU GET
IT SOMEWHERE
ELSE THAN FROM
THIS SPECIFIC
VENDOR.”
But it may not be helpful to think about
a buying decision with that in mind,
he adds. It means you’re evaluating the
software’s overall capabilities rather
than whether it meets your needs.
“You need to keep pushing back, asking
yourself what you really need, what are
your must-have features, and can you
get it somewhere else than from this
specific vendor,” says Bolman.
Still, for Armond, the potential for
buying more than he needs is a concern. The company formerly used a
third-party software tool for certain
HR-related transaction processes and
reporting needs, and was frustrated
that it was using only 20% of its capabilities.
“It wasn’t a flexible model such that
we could simply consume what we
needed as opposed to buying the
whole,” Armond says. “That caused
us to go in a different direction. If you
bought Microsoft Office but really
needed only Outlook, wouldn’t that be
a waste? Same thing for HR technology
vendors. If they offer X, Y and Z, and
we’re only looking for X and Y, then
we want to buy those at a price point
that reflects a reduction in capability.
If we can’t, we’ll keep looking.”
BEWARE MERGER MANIA
If you do buy smaller, stand-alone
CFO SPECIAL REPORT | HOW TO BUY HR TECHNOLOGY
solutions, how worried should you be
that they will be swallowed up by the
bigger players and morph into something slightly (or more) different? Very
worried, according to Bloom. “They
will likely be purchased. If they’re not,
it’ll probably be because they haven’t
had the resources to keep up, so you’ll
be at an evolutionary dead end. There
are lots of those out there.”
Bolman advocates for some forethought on the possible contractual
impact of consolidation. One vendor
may be gobbled up by another one that
you’re already doing business with, either for HR or financial software. “I’ve
seen many organizations that don’t
have flexibility built into their contracts [with that second vendor] and
have to reopen negotiations, and it can
become a big mess,” Bolman says.
Bersin, though, thinks the potential for
danger is overblown. Start off, he says,
by picking a vendor that looks like
it will have staying power, based on
its financial stability and size of customer base. Then assume that it’s not
going to last forever—but that’s OK.
The lifecycle of HR software is five to
seven years, Bersin says, after which
most companies get tired of the software anyway and start looking at how
to upgrade.
Making a Mess of
People-System Purchases
Committing any of these mistakes
could doom your company to a
painful experience with human-capital-management technology.
Choosing HR technology can be less
8
HOW TO BUY HR TECHNOLOGY
risky than it was a number of years
back, when the only options were
expensive installed systems. Once you
had them, you had them for a good
while. Today’s cloud-based systems are
easier to ditch if you don’t like them,
“IT’S A VERY EASY because there are no up-front capital
WAY TO BOTCH costs.
THIS. TO THINK
YOU COULD GET A
SALES CALL, SEE
A DEMO AND SAY
‘OH, THIS LOOKS
COOL,’ AND THEN
JUST WRITE THE
CHECK AND THE
SYSTEM WORKS
FINE—THAT’S A
BIG FALLACY.”
Does that mean the selection process is
worry-free? Hardly. There will always
be some financial penalty for making a
wrong decision, and the list of ways it
could be messed up is long indeed.
The cardinal sin in buying technology
is getting overly excited upon viewing flashy product demos. CFOs are
especially vulnerable to the trap when
it comes to HR technology, owing to
their relative lack of familiarity with it.
“It’s a very easy way to botch this,”
says Jim Cook, CFO of Mozilla, maker
of the web browser Firefox. “To think
CFO SPECIAL REPORT | HOW TO BUY HR TECHNOLOGY
you could get a sales call, see a demo
and say ‘Oh, this looks cool, it would
be great to do it this way,’ and then just
write the check and the system works
fine—that’s a big fallacy.”
Steve Armond was burned in just that
way. “In hindsight, we didn’t test [an
HR technology] tool nearly as well as
we should have before deploying it,”
says the CFO of T-System, a $100 million provider of emergency-medicine
management solutions.
The vendor had described a certain
level of work-flow efficiency, feature
functionality and ease of use that
never materialized. “What we got
instead was a frustrated organization, a lot of difficulty leveraging the
system’s processes, problems getting
information out of the system and too
much down time, among other things,”
Armond says. T-System quickly abandoned the product and, smarting in the
9
HOW TO BUY HR TECHNOLOGY
wallet, went in a different direction.
“I’VE SEEN VERY
UNSUCCESSFUL
IMPLEMENTATIONS AT ORGANIZATIONS THAT
DIDN’T STEP BACK
AND CONSIDER
HOW TO PARTNER WITH I.T. TO
UNDERSTAND
THE COMPANY’S
OVERALL TECHNOLOGY STRATEGY AND HOW
THIS NEW SYSTEM
WILL FIT.”
In a way, the unhappy experience was
a blessing in disguise. It prompted
T-System to put together a cross-functional team of technology end users
among those responsible for making
business decisions. The team has established a program for detailed testing
before buying new technology, what
Armond calls “a solid try-before-buy”
process. The company also now refuses
to sign technology contracts unless
given freedom to walk away without
penalty if it encounters any issues.
“The experience with the HR tool
helped us rethink how to mitigate risk
in the technology-purchasing process,”
Armond says.
The main cause of that error is not being clear on what you’re looking for in
the first place. “We see time and again
where HR technology vendors show
functionality that then becomes what
the client believes it needs to have,”
says Scott Bolman, a Mercer principal focused on HR service delivery.
“Instead you should define your requirements up front and then go to the
marketplace.”
Following are a number of other red
flags for potentially poor decisionmaking, according to experts in the
HR technology field.
CFOs
should consider company culture and
the appetite for change before making
a purchase. If you purchase a human-resources technology system but
can’t get managers and employees to
use it, there may be a huge cost to the
FAILING TO ASK: ARE WE READY?
CFO SPECIAL REPORT | HOW TO BUY HR TECHNOLOGY
company, says Joy Krausert, CFO of
Pinstripe, a recruitment-process outsource company that also gives clients
vendor-agnostic advice on optimizing
HR technology.
For example, some of the newer recruiting solutions are linked to socialmedia platforms. Depending on where
a company resides on the spectrum
of adopting social media, there may
be resistance to such a platform. “You
would be paying for an enhanced
offering that people may be slow to
adopt,” Krausert says.
BUYING FROM A VENDOR INEXPERIENCED
IN YOUR SPACE.
CFOs should ask themselves: Has the vendor worked in my
industry? With companies of my size?
Make sure the vendor can show you
a track record of success with companies like yours, especially if you are
in an industry with specialized hiring
needs (like manufacturing, utilities or
energy) or compliance requirements,
counsels Krausert.
“They need to be able to speak the
language of your employees in order
to get full adoption,” she says. Seek
references to customers that have gone
through implementations in the past
three to six months.
How much
of a role should IT have? A large one,
says Harry Osle, global HR practice
leader for The Hackett Group. “Often
HR thinks it can take on all this [HR
technology] work alone,” he says. “I’ve
seen very unsuccessful implementations at organizations that didn’t step
back and consider how to partner with
IT to understand the company’s overLEAVING IT ON THE BENCH.
10
HOW TO BUY HR TECHNOLOGY
all technology strategy and how this
new system will fit with that.”
That’s fear,
uncertainty and doubt—in particular,
over data security. “Some vendors will
tell you anything,” says HR technology
evangelist Naomi Bloom, managing
partner at Bloom & Wallace, clearly
referring to vendors of the installed
(“legacy”) HR systems. “Like, ‘Well
you know, that [cloud] stuff is really
dangerous, with your data floating
where anybody could get at it.’ ”
FALLING VICTIM TO FUD.
Don’t take such claims at face value,
CFO SPECIAL REPORT | HOW TO BUY HR TECHNOLOGY
Bloom says. Cloud-based HR software is
often equally or more secure. Make sure
IT does a thorough investigation of any
system you’re seriously considering.
Bloom:
“This is where a naïve, uneducated
consumer, aided and abetted by a systems consulting firm, comes up with
a 500-page request for proposal and
sends it out to a big bunch of vendors,
and they all say ‘Yep, we can do all
that.’ They probably can’t.” Send fewer
RFPs so that you can more thoroughly
investigate a smaller number of vendors.
GETTING A CASE OF RFP-ITIS.
11
HOW TO BUY HR TECHNOLOGY
If
you do not invest in HR technology,
you will seep cost into the organization, says Hackett’s Osle. “You will
instead create things like spreadsheets
and Access databases, so you’ll have
a multitude of manual inputs, with
higher-paid people doing transactional
work. You think you’re lowering costs
by not investing in technology, but
world-class organizations spend to
drive down costs of labor, outsourcing
and lack of process standardization.”
DECIDING TO SIT ON THE SIDELINES.
HR Tech Vendors:
Who’s Out There?
CFO SPECIAL REPORT | HOW TO BUY HR TECHNOLOGY
Use this guide to tell the players
apart from one another.
Over the past two years the human-resources technology market has grown
more competitive than ever. The market wars have been tempered slightly
by high-profile acquisitions that have
removed some key players. But the
buying spree has given some of the
larger incumbents a long-overdue dash
of presence in the cloud, adding a new
level of competitiveness to the field.
In the context of this market, some of
the deals have been fairly seismic. SAP,
long a vendor of installed, on-premise
systems, acquired cloud-based tal-
12
HOW TO BUY HR TECHNOLOGY
“THE HR TECHNOLOGY MARKET
IS REALLY MULTIPLE MARKETS
AIMED AT DIFFERENT-SIZED
COMPANIES. THE
CHALLENGES FACING ONE WITH 50
EMPLOYEES ARE
VERY DIFFERENT
FROM THOSE
FACING ONE WITH
50,000.”
ent-management vendor SuccessFactors billion in late 2011. A few months
later Oracle announced it had acquired
another cloud talent-management-system vendor, Taleo, for $1.9 billion.
also offers several talent-management
applications. It doesn’t, Otter points
out, offer a recruitment solution, but
the company announced last year that
it would release one by 2014.
Then, last August, IBM launched itself
into the HR software market by revealing its $1.3 billion acquisition of Kenexa,
which wrapped up in December.
Of special interest for CFOs is that
Workday also offers financial-management applications linked to the HR
software. “It gives you the ability to
look at your workforce through a financial lens and understand the true cost
of the workforce,” says Leighanne Levensaler, vice president of applications
product management at Workday.
Now, Oracle and SAP are working to
integrate those technologies with their
existing ones while also developing
new cloud applications, while IBM
reportedly is seeking other acquisitions.
In large part, the HR technology market is really multiple markets aimed at
different-sized companies. The humancapital-management (HCM) challenges
facing one with 50 employees are very
different from those facing one with
50,000, notes Gartner research vice
president Thomas Otter. Solutions that
work for large enterprises tend not to
work for small companies. Still, he says,
“It’s a very large market, and the options are myriad.”
Here’s a look at the major players in
the two broad categories of HR technology—core HR and talent management—and their key differentiators.
WORKDAY
Workday, like SAP and Oracle, focuses
highly on large companies with thousands of employees. Its software is
touted for its user-friendly interface,
which is designed to increase adoption across an entire organization
and thereby leads to richer data. The
Workday platform manages such core
HR tasks as benefits and payroll and
CFO SPECIAL REPORT | HOW TO BUY HR TECHNOLOGY
The company is coming on fast. In the
most recent HR Systems Survey by
information-systems consulting firm
CedarCrestone, released last November, Workday’s share of the core HR
technology market was projected to
jump from 3% to 10% by late this year.
Among the 10 largest vendors tracked
by the report, which surveyed 1,246
participants (the bulk of them HR
leaders), SAP’s SuccessFactors was the
only other one expected to increase its
market share, and that only by a single
percentage point.
Similarly, with regard to talent management, Workday was expected this
year to double its share of the market,
reaching 6%. Perhaps more tellingly,
of the 426 survey respondents who
provided their vendor choices for both
2012 and 2013, 23.5% indicated they
would make some kind of change, and
among those, one in four planned to go
with Workday.
Many HR technology experts are enthusiastic about the potential of Workday. But the long-established players
13
HOW TO BUY HR TECHNOLOGY
are fierce competitors that are hardly
sitting idle, and in the end Workday’s
current edge in cloud technology may
well be temporary.
Workday’s growing popularity lies
in its flexibility and innovative approach. From the beginning it has gone
to market with a single solution and
allowed users to subscribe to whichever applications they please. Users are
presented only with the information
they’ve deemed valuable, in a cloudbased environment accessible from
anywhere, including mobile devices,
with an interface that is said to greatly
reduce the need for training. “If you
know how to shop online, you know
CFO SPECIAL REPORT | HOW TO BUY HR TECHNOLOGY
how to use our application,” Levensaler
asserts.
When Workday launched in 2005, it had
a brand-new and compelling story to
bring to organizations, says Steve Boese,
co-chair of the annual HR Technology
Conference & Expo hosted by LRP Publications and a well-known blogger in
the space. “It was really the only viable
[software-as-a-service] core HR system
that could scale to midsize and larger
enterprises,” he says. “This was before
SAP and Oracle got wise to what was
happening in the trend toward SaaS.”
Workday was founded by former
PeopleSoft executives who, Boese
14
HOW TO BUY HR TECHNOLOGY
believes, “put together a good product
with a great delivery model. They definitely had a head start as organizations
were starting to embrace the idea of
putting HR in the cloud.”
With about 350 customers as of February, Workday’s reach is still far from
that of SAP and Oracle, but it is “a significant disruptor in the HR market,”
says Otter. “They’ve come on in leaps
“WE’RE NOT and bounds and they’re providing a
ABANDONING OUR major alternative to the incumbent
ON-PREMISE SYS- players.”
TEMS. WE STILL
HAVE 14,000 CUSTOMERS WORLDWIDE USING THE
ON-PREMISE CORE
HR SYSTEM. NOT
EVERYONE IS GOING TO MOVE TO
THE CLOUD OVERNIGHT, ALTHOUGH
WE ANTICIPATE
THE MAJORITY
WILL OVER TIME.”
ORACLE AND SAP
Oracle has been offering on-premise
HR software for more than 15 years
through its big ERP system, Oracle
E-Business Suite. Eight years ago,
says Oracle’s vice president of HCM
strategy Gretchen Alarcon, it began
designing its Fusion family of HCM
applications, which were designed for
the cloud from the beginning.
With Fusion, which did not launch
until October 2011, a company gets
to pick and choose what processes it
wants in the cloud and what it would
rather keep behind its own walls.
Oracle’s plethora of HR-related offerings also includes PeopleSoft, which it
acquired in 2005 and still updates. “If
PeopleSoft is still meeting your needs,
you can continue to get functionality that way, but if you’re ready for a
change and want to move to the cloud,
you have the opportunity to migrate
from PeopleSoft to Fusion applications,” says Alarcon.
The company also has its foot in the
cloud-based talent management door
CFO SPECIAL REPORT | HOW TO BUY HR TECHNOLOGY
with Taleo. “Taleo’s strongest equipment is definitely in the recruiting
space, which meant we completely
filled out the recruiting part of talent
management,” says Alarcon. “Now we
have a comprehensive solution that incorporates everything together in the
cloud if the customer wants that.”
SAP has been in the HCM space for
more than 25 years with its Business
Suite ERP system. It moved into the
cloud by acquiring SuccessFactors,
which itself had 10 years experience
with core HR, talent management, and
workforce analytics.
David Ludlow, group vice president
of HCM solutions for SAP, asserts the
company can offer a platform enabling
full cloud capabilities for HR deliveries and has been investing heavily in
cloud-based solutions for some time.
“Now, that’s not say we’re abandoning our on-premise systems,” Ludlow
notes. “We still have 14,000 customers
worldwide using the on-premise core
HR system. Certainly not all those are
going to move to the cloud overnight,
although we anticipate the majority
will over time.”
Oracle and SAP remain the major
players in the market, despite HR technology’s shift away from catch-all ERP
systems in favor of more lightweight,
scalable offerings that live in the cloud
and follow a SaaS business model.
The CedarCrestone report says that
with the acquisition of Taleo and the
availability of Fusion, “Oracle will continue to keep its lead in the overall HR
technology market for years to come.”
15
HOW TO BUY HR TECHNOLOGY
Human-capital-management strategist
and consultant Naomi Bloom agrees.
Both companies, she notes, are justifiably concerned about the SaaS trend,
as shown by their recent acquisitions.
“But these flagship ERPs are going to
have a long tail,” she says. “They are
very capable of moving heaven and
earth to have competitive next-generation offerings, and I think there’s a fair
amount of business out there for them
in the next few years.”
Boese also believes that SAP and
Oracle will remain as major forces in
the HR technology arena. “In 2013 and
going forward, the field is evening out
quite a bit because Oracle and SAP are
catching up or have caught up in terms
of being able to offer almost like-forlike capability in the cloud,” he says.
“IN THIS DAY AND
AGE YOU HAVE A
PROFESSIONAL
OBLIGATION IF
YOU’RE A CFO OF
CIO TO SAY, ‘BEFORE WE SPEND
MILLIONS ON
THIS UPGRADE,
SHOULDN’T WE
CONTEMPLATE
WHAT THE OTHER
OPTIONS ARE?’”
Oracle and SAP still control their
destiny in the global market, adds
Gartner’s Otter. “For the last 10 years
or more it’s been a duopoly. It’s very
easy to say, ‘This new vendor is much
better,’ but SAP and Oracle have dominated the space for so long because
the products have developed great
strength over time.”
But with licensed, on-premise software, Bloom points out, the customer
is burdened with labor costs for implementing upgrades. “In this day and
age you have a professional obligation
if you’re a CFO of CIO to say, ‘Before
we spend millions on this upgrade,
shouldn’t we contemplate what the
other options are?’” And competitors,
especially Workday, are opening the
door to that type of analysis.
IBM AND KENEXA
CFO SPECIAL REPORT | HOW TO BUY HR TECHNOLOGY
IBM is new to the HR technology
arena, although it has offered numerous HR-related services, in such areas
as outsourcing, analytics, and talent
management, for some time. And after
acquiring talent-management and
recruiting veteran Kenexa last year, it
has moved to cloud-based solutions
with its Smarter Workforce initiative,
which emphasizes social learning,
social recruiting, social performance
management, and social rewards, aspects which are more and more being
applied to HR practices.
“Prior to the Kenexa purchase, IBM’s
presence and impact on HR was more
on the advisory and consulting side,”
explains Boese. “The company has
pretty big practices that advise on
HR and workforce strategy, as well as
implementation practices for the larger
products like SAP and Oracle.”
Kenexa was built around helping companies hire good people, then motivating and engaging them, says Tim
Geisert, the company’s CMO. It offers
recruiting and other talent-management solutions through a combination
of Cloud-based software and consulting
services. “If IBM is going to do what
it does best, which is help businesses
become better, it has to help them hire
better people,” Geisert says.
Boese believes it may be smart for IBM
to bet on social characteristics becoming a key influence in HR technology.
“For the last few years, all the established vendors have been adding social
features to their solutions, and lots of
new startups that offer social solutions
have entered the space, so I would say
it is indicative of overall trends.”
16
HOW TO BUY HR TECHNOLOGY
And, of course, with IBM’s deep
pockets, if it wants to become a bigger
player in HR technology, the company
should be able to give it a good go.
ADP
With an enormous customer base
composed of companies of all sizes, but primarily midsized and small
companies, ADP provides outsourced
core HR, payroll, and benefits administration services. Customers also have
the option of combining those core
solutions with a suite of talent-management applications that ADP has
been acquiring over the last few years.
ADP talent applications are now fully
integrated with one another and with
the company’s core HR technology,
according to its CFO, Jan Siegmund.
ONE OF THE KEY
ADVANTAGES OF
CLOUD SOFTWARE
IS THAT COMPANIES CAN PICK
AND CHOOSE
APPLICATIONS
FROM MANY DIFFERENT VENDORS,
INTEGRATE THEM,
AND HAVE A
COMPLETE SUITE
IN A MATTER OF
WEEKS. “With strong financial viability, a
very large customer base for payroll
and core HR, and a large sales force,
ADP is positioned for growth in talent
management,” wrote Claire Schooley,
senior analyst at technology research
firm Forrester, in a March 2013 report.
OTHER KEY PLAYERS
One of the key advantages of cloud
software is that companies can pick and
choose applications from many different
vendors, integrate them through application programming interfaces or thirdparty cloud integration services, and have
a complete suite in a matter of weeks.
For those who prefer best-of-breed applications over a single solution, the market
is saturated with them. In the cloudbased talent management space, Cornerstone OnDemand is one of the strongest
players, Otter says, while iCIMS excels at
recruiting and applicant tracking.
CFO SPECIAL REPORT | HOW TO BUY HR TECHNOLOGY
Cornerstone OnDemand is a cloudbased talent management software
company with a customer base that
spans the globe. It offers a career-development product, performance management, a full recruiting suite, and a
learning-management system released
last November, all of which is available
to customers via mobile devices. The
company was ranked among the top
talent-management providers in the
Forrester report.
“Cornerstone is the fastest-growing
talent-management vendor in organic
growth of new customers, active customer increases, and company employees,” Schooley wrote in the report, in
which she also cited SumTotal, Peoplefluent and ADP as top performers in
the talent-management space. Another
well-known talent-management vendor,
with a particular specialty in learning
systems, is Saba Software.
Otter also recommends Halogen, a
strategic talent-management software
vendor with a particular proficiency in
performance management. And Fairsail
offers a core HR system based on the
familiar Force.com platform created by
Salesforce.
Founded in 1990 as an on-premise solution, midmarket vendor Ultimate Software now offers a complete HR system
that includes some talent-management
aspects through a SaaS business model.
Bloom notes, though, that the company
does not offer a complete talent-management suite.
Ultimate has established itself as a
leader in cloud-based payroll, benefits,
and talent-management software, which
17
HOW TO BUY HR TECHNOLOGY
it offers in two suites: UltiPro Enterprise, designed for companies with
1,000 employees or more, and UltiPro
Workplace for smaller businesses. The
company, which has about 1,300 customers primarily in the United States
and Canada, announced in the spring of
2012 its new Global HCM solution, giving organizations one system of record
for their worldwide workforce.
Anatomy of a Buying
Decision
“IF YOU THINK
YOUR HR PEOPLE
CAN STILL BE IN
TOUCH WITH ALL
THE EMPLOYEES,
WITH WHAT’S
GOING ON AND
THE RUMOR MILL,
OLD-STYLE HR—
WELL, THAT’S
NOT HAPPENING
ANYMORE. THE
WAY YOU PREEMPT LITIGATION
IS BY MAKING
SURE YOU HAVE A
STRONG TRAINING
MUSCLE IN HR.”
A CFO seeks and finds an HR technology solution to address some
very-specific needs.
Having good technology is not a worthy goal. Technology is an enabler, a
tool for achieving the true goals of a
business. CFOs understand that but
may be less rigorous about walking
the walk when it comes to selecting
HR technology than, say, an enterprise
resource planning system.
Not John Toth. The finance chief at
ARC Document Solutions personally
oversaw last year’s selection of an HR
system intended to satisfy some very
specific business needs related to human-capital management.
When Toth joined ARC Document
Solutions as CFO in 2011, the company
CFO SPECIAL REPORT | HOW TO BUY HR TECHNOLOGY
was completing a shift in its mission.
Whereas it had previously been a manufacturer of architectural and engineering blueprints for the construction
industry, it was now mostly a service
company, managing engineering and
regulatory data for building owners,
architects and contractors.
That shift meant starting up operations
in many more locations around the
world in order to be close to customers.
As always, such a transition produced
some pain points. For ARC, a 2,500-employee company, one result was an
increase in litigation from ex-workers
claiming wrongful termination.
Toth sees that as a potential problem
for many midsized but growing companies. “If you think your HR people
can still be in touch with all the employees, with what’s going on and the
rumor mill, old-style HR—well, that’s
not happening anymore,” he says.
“The way you preempt litigation is by
making sure you have a strong training
muscle in HR.”
In other words, Toth wanted HR to
train managers companywide how to
manage in such a way that incidences
of wrongful termination lawsuits
would decrease. “HR would no longer
be the front line,” he says.
18
HOW TO BUY HR TECHNOLOGY
And so, under a deal that closed on
Dec. 31, ARC, a $400 million publicly
traded company, will use learning, recruiting and onboarding modules from
software provider SilkRoad.
The SilkRoad learning software, Toth
hopes, will help with the training mission. It can be configured to facilitate
quick detection of trends in employee
complaints from region to region and
identify appropriate training that can
be delivered quickly and remotely, “because we can’t afford to fly HR people
“OUR TRAIN- all over the world to support this.”
ING SOFTWARE
HELPS US USE A
WIDER VARIETY
OF PLATFORMS TO
ADVERTISE JOBS,
AND ALLOWS
US TO DO MORE
PRE-SCREENING BECAUSE
CANDIDATES CAN
LOG ON TO THE
SYSTEM TO ENTER
INFORMATION
AND ANSWER
QUESTIONS.”
It will be HR’s job to train regional
managers how to use the software and
organize their consumption of video
training modules provided by SilkRoad.
There are sets of videos on, for example, avoiding age discrimination, the
latest EEOC regulations and the Foreign
Corrupt Practices Act. “Rather than
invent documentation in these areas,
we’re partnering with SilkRoad, which
knows these issues well and has lots of
customers that are dealing with them,”
Toth says.
He says research by ARC’s marketing
department “shows that people are six
times more likely to click and watch a
video than they are to read a multi-page
document.”
up front. SilkRoad’s software, he says,
“helps us use a wider variety of platforms to advertise jobs, and allows us to
do more pre-screening because candidates can log on to the system to enter
information and answer questions.”
He says his examination of products on
the market brought the choice down
to SilkRoad and Workday, and from
there he let his HR team make the final
choice.
Toth declines to quantify how many
wrongful-termination lawsuits ARC
has been hit with. The company’s
quarterly and annual reports in recent
years do not mention any, so however
many there are, ARC evidently does not
consider them potentially material to
financial results.
Still, the CFO has a specific early ROI
target for its investment in SilkRoad:
three fewer lawsuits in the first year.
And the performance of HR leaders
will, in part, be evaluated on that basis.
“We make too many mistakes in hiring
employees and letting them go, and
there are far too many incidences of
litigation or complaint,” Toth says. “So
this is me drawing a line in the sand.
Toth is also looking for a one-week
reduction in the time it takes auditors
to complete labor-compliance audits of
the company.
“Now, you could have three fewer lawsuits just because you had a lucky year.
But creating a quantified, crisp statement of the objective makes for a better
focus than if I just say I want litigation
to go down.”
The recruiting software comes into play
because Toth believes “half or more”
of firings or otherwise losing employees are because of making wrong hires
ARC is also using SilkRoad solutions
for onboarding new employees and
collaboration between employees and
with customers.
CFO SPECIAL REPORT | HOW TO BUY HR TECHNOLOGY
19