What to Consider When Considering HR SaaS

Linda Merritt, HRO Research Analyst, NelsonHall

Based on the HR Outsourcing Association’s (HROA) SaaS webinars and my discussion with Ceridian’s senior vice president Howard Tarnoff, who has been instrumental in the successful launch of Ceridian’s Dayforce HCM, here are a few key elements to consider when considering SaaS.

Determine Business Needs

Determine what business, operational, and organizational needs are driving change and if each decision-factor is equal or if there is a rank order as needs often conflict. For example, the need for control and customization will come at a higher cost and takes more time and effort than the configuration and standardization that comes with SaaS.

Sometimes that process is not completed before bringing in potential vendors. Howard has sat in discovery process meetings where the buyer team is having this discussion amongst themselves as much as with the vendor. Maybe that’s a bit late, but better late than never.

Consider Trade-Offs

Consider what trade-offs will be needed to deliver the best solution. HR SaaS can meet many needs and deliver many benefits, but it is a fundamentally different choice than a traditional ERP or other licensed or subscription software products.

Configuration and standardization:  acceptance and understanding of configuration and standardization is growing, as is awareness of the on-going cost of customizing into a corner, according to Howard. Still, it is vital to determine the limits of what can be accommodated as configuration is not infinite.

If compliance is a key factor, then the pain of standardizing policies and processes to fit within a system where the vendor keeps up with the constant changes to complex governmental regulations may be a risk management plus.

IT collaboration: the role of IT changes and becomes more collaborative with SaaS.  The HROA SaaS series reminds us there will still be a role for IT to play, so bring them in early in the process to address:

• The impact on enterprise technology roadmap
• Changes to IT workload and budget
• Integration into the larger architecture (e.g., maintenance of interfaces, implication to other vendors connected to the system)
• Vendor-driven upgrades on the IT team (e.g., understand the role, workload, and timing).

Customer collaboration: with real SaaS you will be one of multiple clients using a web-based system riding a single code base and that changes the nature of the client-vendor relationship and opens the need and opportunity to collaborate with other customers. You may have more input into the development of system enhancements, but you will be one among others.

Worried about future-proofing your services? Howard says change is coming fast and furiously. SaaS, with a great vendor partner and an active team of client users, can support affordable innovation.

Quickly, the question is becoming not if, but when and where to use HR SaaS.

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HRO: Are you Violently Good at the Talent Process?

In following up on my recent talent management (TM) blog, Building HRO Business Value, I spoke with Marianne Langlois, Global Process Executive with NorthgateArinso (NGA).  Marianne agreed that TM has been on the back burner for many companies, but now she sees growing interest. It may even be that TM is one of several paths to climbing out of crisis.

With several lost years, simmering issues of an aging skilled workforce and new generations entering the workforce are heating up. Surveys show that succession planning has become a critical concern of senior business leaders. Creating succession plans is fine, but there is too often a cycle of identifying and/or hiring top talent and then losing them within two years.  If this is happening, then whether the tools and processes are home grown or “best of breed” doesn’t matter because they are not adding full value to the business.

We do not need to make the case here for the value of a holistic and integrated talent management system and process supported along with, as Marianne says, HR partners who are “violently good at the talent process.” We do need to discuss how to get there from where many companies are now: scattered with underutilized tools, disconnected processes, islands of related data, as well as what roll HRO plays.

For NGA, the underlying HR system is key because it helps bring all of the data together to monitor and manage talent and workforces across the enterprise. Core HRIS and payroll is a necessary part of the whole, and the sooner the base is considered, the faster and more direct the value added TM services can be built. With today’s many HR system options, TM can be added now or later as a module, hung off the side as a specialty system, or even connected via a cloud-based SaaS application.

In this environment, are organizations willing to do more than talk? Yes. For example, a major global pharmaceutical company is working with NGA to build the integrated TM platform it needs, including letting go of their earlier investments in TM systems that were not connected or fully used.

Renewals are a great opportunity for TM. NGA is working with major clients that came with the Convergys acquisition last year on plans for the future. Fifth Third Bank will be continuing with NGA for another seven years and it will also be moving to the next generation of HRO services based on SAP HCM and euHReka.

With clients looking for integrated and streamlined systems and data across the enterprise and around the world, vendor, product, and service selection need to keep glob-ability in mind. Can you get a unified view of your top talent and their compensation, appraisals, laterals and promotions, as well as development plans and activities?

Linda Merritt, Research Analyst, HRO, NelsonHall

HRO Themes at the HR Tech Conference: Portals, Platforms and Self-Service

If you’ve never attended the HR Tech conference – which was in Chicago last week – I highly recommend finding a way to do so next year (and not just because the venue is changing to Las Vegas.) It’s always a top-notch conference with a superior speaker line-up, and a great forum for meeting with HRO buyers, providers and pundits.

With my eyes and ears focused, of course, on all things HRO, the key themes I witnessed – during both public sessions and private meetings with providers – were portals, platforms and self-service, all geared toward improving the customer experience and getting work done as quickly and easily as possible. By-the-drink-pricing and quick solution implementation were also key focuses. Some examples:

• Caliber Point’s recently launched multi-tenant HRO service, called Republic. For mid-market organizations with between 2,000 and 15,000 employees, it’s a SaaS solution based on Oracle and includes software hosted and maintained by Caliber Point covering payroll, recruiting, performance management, compensation, employee benefits, time and attendance and reporting. Pricing is per employee per month by country, which covers both software licensing and BPO services, and implemetation can be completed in as quick as six – eight weeks.
• ADP’s new portal and mobile developments, to be launched by early 2011. I must admit that increased mobile access to HR information, anytime, any place, didn’t wow me until ADP used the example of getting a listing of your in-network benefits and providers on your mobile phone. Think about it…you’re out of town on holiday – without your laptop – and you cut your foot on a piece of glass on the beach or sprain your ankle while skiing. You could pull your insurance card from your wallet or purse and call the 800# to find a local in-network provider. But, with instant access to the information on your mobile phone, why wouldn’t you take the quick route?
•  Mercer’s integrated rewards and talent management offering, called Human Capital Connect. The technology platform includes performance management, succession planning, compensation and incentives. While a third-party provider can’t replace an in-house manager’s performance management responsibilities, Mercer provides not only the technology but also consulting for implementation, training, change management and execution, and a dedicated client team to ensure success. 
• IBM’s transformation of its HRO client Kraft’s employee portal, with enhanced self-service, phone-based call center support and live chats with call center specialists. During its session at the HR Tech conference, Kraft stated IBM’s recently established Manila HR Services Center is getting high marks for customer satisfaction and intuitive and user-friendly employee self-service. And we can anticipate this contract, which will further roll out into 2011, will continue to support Kraft’s approximately 140,000 employees, per its acquisition of Cadbury, with the same improved employee experience, including further enhancements to live chats.

Yes folks, today and into the future, we’ll see rapid developments in portals, platforms and self-service. But these technological developments won’t remove the “human” element from HRO. Rather, they’ll increasingly support the way humans need, want and expect to accomplish their tasks and jobs, at an increasingly attractive price point.

Gary Bragar, Lead HRO Analyst, NelsonHall

Top HR Issues by Geography: The Same, But Different

In blogs earlier this month I addressed: 1) increasing use of SaaS; and 2) cost reduction as a top HRO driver based on data from NelsonHall’s recently published HRO buyer report, “HR Issues and Outsourcing Intentions.” Now let’s talk about the top HR management issues by geography.

On a 1 – 5 scale, with 5 being most important:

Asia	Importance
Low consistency of HR processes across the organization	4.8
Difficulties in obtaining consistent single view of the employee	4.4
Need accurate and consolidated workforce information and reports	4.3
Continental Europe	Importance
Difficulties in obtaining consistent single view of the employee	4.4
Corporate requirement for reductions in costs of HR administration	4.3
Need accurate and consolidated workforce information and reports	4.1
U.K	Importance
Corporate requirement for reductions in costs of HR administration	4.2
Need accurate and consolidated workforce information and reports	4.1
Need to improve identification of high performers and succession management	4.0
U.S.	Importance
Corporate requirement for reductions in costs of HR administration	4.2
Need to improve identification of high performers and succession management	4.2
Need for improved talent management capability	4.1

While the relative rankings vary a bit from geo to geo, and although there are a couple of outlier line items, the cited HR management issues can pretty much all be addressed by outsourcing core HR technology. Not surprisingly, this was identified as the number one HR service to be outsourced in our HRO buyer study, and its validity is bearing itself out as evidenced by recently-signed HRO contacts that are either for technology or technology plus HRO services. Let’s look at a couple of examples:

•  In just the last two weeks, Netherlands-based Raet has been awarded five SaaS contracts for its HR portal, RaetOnline, to leverage one system for HR and payroll, standardize to achieve improved efficiency, data accuracy and cost savings from elimination of systems and/or what may have been manual processes, and gain self-service capabilities 

•  Infosys is implementing a platform-based HRIS and global payroll platform for a leading Australian insurer, using PeopleSoft 9.0 to enable the client to have one standard integrated platform, eliminate disparate technologies, drive up process consistency, increase data accuracy and reduce costs

Tangentially, I found it interesting that cost reduction didn’t even make it into the top three HR management issues in Asia, while the U.S. and U.K. cited it as the primary issue, and continental Europe ranked it second. This made me think about my prior background in quality, long before I started working in HRO, and the work of Dr. Deming and Dr. Juran who trained Asian workers and managers on the importance of quality for three decades following World War II. Their tenet was that if you first focus on process and quality (of data), reductions in cost will follow. Cost reduction is of course important in Asia, but there’s clearly a different mindset in how to achieve it. Rather than my views on the principles of management, let’s engage. Where do you think cost reduction should fall in the “fix HR issues” equation?

Gary Bragar, Senior HR Outsourcing Analyst, NelsonHall

SaaS-based HRO is More than Catching On

The current economic environment is increasingly leading buy-side organizations to up-step their usage of SaaS-based, vendor-hosted applications to underpin outsourced HR services, with the adoption of new HR technology becoming an important enabler of improved HR process cost-effectiveness. NelsonHall’s recently published HRO buyer report, “HR Issues and Outsourcing Intentions,” found that 72 percent of the HR executives who participated in the study cited increased likelihood of using SaaS applications for new outsourced services. And HRO service providers responding to NelsonHall’s 1Q10 HRO Confidence survey cited that 44 percent of client prospects are seriously considering platform-based HRO. Gasp! Can you recall the last time buyers’ anticipated uptake of – well, name it – outpaced the providers’ predictions?

To properly frame HR departments’ increased utilization or consideration of SaaS, it’s important to remember HR is typically the process area in which there is greatest organizational acceptance of use of vendor technology, driven by the traditional low priority given to HR in terms of HR investment. But this historically minimal investment is exactly the point – and much of the upside – to leveraging SaaS-based HR applications. Buyers don’t need to make a capital investment in, but have access to, the most up-to-date technology without worrying about upgrades. Add to the benefits mix the elimination of multiple – and oftentimes outdated – HR and payroll systems many medium and large companies around the world still have in force, with the resulting reduced redundancy and further savings costs.

The services provided using hosted HR applications are these days largely singular in nature. For example, the HRO services enabled by supplier-hosted SAP human capital management (HCM) services are typically restricted to payroll services and employee care. There is also an increase in the use of supplier-hosted applications that support single services including learning, recruitment process outsourcing (RPO), and HR administration. For example, earlier this year MidlandHR was awarded an HR and payroll software contract by Kent County Council utilizing its iTrent software to provide several modules including learning and recruitment. And NorthgateArinso was awarded a six year contract for payroll and employee administration software by Garlands Call Centres. NorthgateArinso’s ResourceLink Aurora system will be used to support administartion of employees’ personal details and employment records, process hires and leavers, and run the payroll process for 1,500 employees.

Based on contracts I’ve seen and research I’ve conducted, I believe we will continue to see an increasingly high number of platform- and SaaS-based contracts, particularly in the mid-market. There will also be more platform- and SaaS-based HRO contracts in the large market, but they will be supported by more comprehensive BPO in terms of outsourcing of people (e.g., recruiters in BPO) in addition to technology to perform service delivery, as buyers look to maximize quality in delivery of services and further reduce headcount and costs. 

Gary Bragar, Senior HR Outsourcing Analyst, NelsonHall

Will Talent Management be the Next Hot Thing in HRO?

One of the challenges for any business, including HRO, is balancing meeting today’s needs while getting ready for the future. I am seeing a positive tone change emerging in HR articles, blogs, service provider and consulting firm research and marketing. Broader workforce issues are starting to get attention again, and will hopefully lead to more business for HRO.

Talent management is one of the topics getting a lot more coverage. After the deep cuts, cost controls and contraction of the labor market of the recent past, employers are now interested in how they are going to shape their talent programs going forward.

HRE Online has a very good article by Tom Starner, Refocusing on Talent Management, that references recent talent management research by Ernst & Young and Mercer. According to Mercer, 51 percent of surveyed employers rated talent management as a top priority, and 76 percent expect it will be a top priority in the next three to five years.

Ernst & Young’s study highlighted three key initiatives: rebuilding the internal talent pipeline; understanding and coordination global talent for key positions; and offering flexible work strategies.

With the expected slow return to growth, employers want to know how well targeted talent management investments are working. Mercer reports that only five percent of respondents were confident in their ability to effectively measure the impact of talent decisions and investments, and 41 percent said they were not at all effective.

Institute for Corporate Productivity (i4cp) research indicates that high-performance organizations were more than twice as likely to emphasize the measurement of talent management (37 percent) than low-performing organizations (16 percent).

A talent management application suite can help organizations manage, track and report on talent management activities, and there many in the marketplace. But some clients have learned that no matter how capable the application, if it isn’t well understood and used, it is no bargain.

Mercer has just launched its new offering, Human Capital Direct, a rewards and talent management consulting and technology service based on software from Peopleclick Authoria. Mercer is embedding its own intellectual capital, and will be implementing and hosting the software and surrounding the whole package with pre- and post-implementation consulting.

Companies can get talent management applications as stand-alone services. The same is true for the broader systems that cover HR, payroll and more; buyers can contract directly from Oracle and SAP for HR SaaS applications. They can also obtain them as fully supported BPO services where vendors such as ADP, Logica, NorthgateArinso, Infosys and others add portals, tools, services and reporting, along with implementation support and hosting.

I always like seeing a full range of available HRO offerings, from client-managed to vendor-managed, from basic cost saving functionality to fully featured transformative vendor relationships. Each type and level of HRO has its time and place.

Can talent management be turned into a full platform BPO service? Is now the time? Mercer is hoping the answer is “yes.” What do you think?

Linda Merritt

NelsonHall

Research Director, HRO 

Linda Merritt, Research Director, HRO, NelsonHall

Much Ado About Payroll Outsourcing

When taken literally, the title of Shakespeare’s famous play “Much Ado About Nothing” implies that a great fuss is being made of something insignificant. But we can all easily agree there is nothing insignificant about payroll – not for those being paid, the company paying its employees or the vendor providing the payroll services in an outsourced environment.

As I reported yesterday on NelsonHall’s webinar, “Payroll BPO, How Buyers Benefit and What Providers Should Know”, two of today’s top drivers of outsourced payroll are, not surprisingly given the state of the economy and increased globalization, cost reduction/cost control and multi-country payroll requirements. Let’s look a little more closely at both of these.

Reduction and control of costs – this is the top driver in both the mid-market/national segment and the large multi-national segment, with a full 80 percent of all buyers outsourcing to reduce costs. And the savings are big…clients have reported anywhere from 10 – 50 percent, with an overall average savings of 25 percent. Providers are lowering buyers’ payroll costs by: 1) economies of scale via the one to many model; 2) labor arbitrage through offshoring and nearshoring of both back-office and front-office administration; and 3) improved quality of service/process improvement with better consistency and efficiency. For example, one vendor estimated that reducing “quill pen” (sorry, couldn’t resist the temptation to link back to Shakespeare) manual work and eliminating duplicate work can save clients 40 – 50 percent.

Multi-country payroll – large multi-national corporations are increasingly demanding a global/multi-country payroll platform environment wherein one single vendor – albeit with a SaaS solution or an ERP system such as SAP or Oracle PeopleSoft – can support multiple geographies with pre-defined country specific rules and templates. Providers that use ERPs and/or SaaS also use in-country payroll provider partners, as required, to ensure correct payroll-related activities. For example, although Patersons has more than 20 countries in which it can provide its own payroll services, it frequently uses a third-party provider to process in-country net payroll calculations. The third-party then passes the data back to Patersons Logon2 system, and Patersons in turn issues standard pay slips and reports.

Although the mid-market national segment is much larger today than the large multi-national market, we saw some very large multi-country payroll contracts awarded in 2009. For example, NorthgateArinso and AstraZeneca entered into a seven year payroll, HR administration, and talent management contract. The payroll component calls for NorthgateArinso to provide payroll services to AstraZeneca’s 65,000 employees across more than 100 countries (including Shakespeare’s native U.K.) And ADP was awarded a contract for managed payroll services by Swiss Re to support 10,000 employees and 2,500 pensioners in 25 countries (yes, you guessed it…including the heralded playwright’s own country.) Given that the large multi-national market is forecasted to grow at a much higher rate than the mid-market segment, we can anticipate seeing more large multi-country payroll contracts being signed this year.

There are many other drivers – beyond cost reduction and multi-country capabilities – behind outsourced payroll, including eliminating transactional work to enable focus on more strategic initiatives, gaining access to better technology without the capital investment, and ensuring compliance with ever changing tax laws and labor regulations. What are you seeing in the payroll outsourcing marketplace?

Gary Bragar, Lead HRO Analyst, NelsonHall

Weathering the Weather in HRO

I am weary of Winter and ready to get on with Spring! A record setting Winter snow storm just blasted the East Coast of the U.S. this past weekend, and more snow is heading this way by mid-week. London has also seen the heaviest snows in twenty years. Some areas are prepared for lots of snow and can handle it with aplomb and as an economic boom. But in cities like London, Philadelphia and Washington, D.C., big snow is disruptive, dangerous and a budget buster.

At least we are seeing signs of the coming Spring in HRO, with a generally upbeat tone to most of the earnings calls, even as most vendors continue to report revenue declines and offer guidance of relatively flat revenues for 2010.

Winter is not yet over

For example, last week ADP announced that its Employer Services fiscal Q2 2010 revenues were down two percent compared to 2009. ADP saw client payrolls down five percent leading to a drop of seven percent in payroll and tax filing revenues, reflecting continued workforce reductions at the end of 2009.

ADP’s Employer Services revenue growth will be constrained until payroll volumes increase, which are expected to start improving in the first half of 2010.

An expected thaw is on the way

HRO vendors reporting results that are less bad compared quarter over quarter and the universally reported increased pipeline activity are indicators of a thaw.

For example, for ADP, the view beyond payroll revenues, which includes HRO services, remains more optimistic based on three percent increases in each of the last two quarters. And ADP’s small business sales have increased, largely due to the successful introduction of Workforce Now, a new payroll, benefits and HR services SaaS platform for the less than 100 employee market. Workforce Now has already added 2,000 clients since its introduction in October 2009.

According to ADP, larger employers are starting to reengage in new services discussions, but remain slow to make contract commitments. Even with the uptick in the small market and the beyond payroll services, the overall decline in revenues driven by smaller payroll pays and lower client fund balances keeps the forecast for FY 2010 ES as flat to down one percent.

With some signs of the coming Spring

ADP is confident enough that the economic recovery is starting that it plans to begin modest hiring to have more sales and service personnel onboard and trained to take advantage of increased opportunities.

The truth is, Winter is still not over. We need to see an increased rate of contract signings Then we need to see positive revenue gains not clouded by currency exchange rates. And a few larger HRO deal announcements would help warm us up nicely.  

For awhile yet we will continue to see mixed signs of recovery and there is likely another Winter storm or two to weather. Still, I can almost hear the birds of Spring chirping…can you?

Linda Merritt, Research Director, HRO, NelsonHall

More Sass on HR SaaS – Deal the Cards Face-Up

Continuing the SaaS thread my colleague Gary Bragar began in his blog last week, I’d add that SaaS can help address the consistent client call for more innovation in HRO.

One of the advantages of SaaS for HR is the ease of access to updates and enhancements, with minor improvements included at no extra charge to all customers. New service modules come pre-designed as plug and play, and can be added easily and at less cost than trying to integrate new services into a client-customized system.

An example is Salary.com, which maintains a rapid and continuous pace of enhancements and updates to its HR SaaS offerings. Recent enhancements included expanded employee development and career planning, a new interface for employee self-services in TalentManager, and CompAnalyst added advanced merit modeling analysis and new reporting tools.

Know the Table Stakes

Since this is not poker, be sure all the cards are on the table, face-up, before buying in. The buyer beware caveat: it’s critical to understand what updates and enhancements are free and what will cost extra. While SaaS is known for having a lower cost of implementation and less total spend on application maintenance and upgrades, not all is gratis. To ensure they know what they’re buying into, companies considering entering into a contract for an HR SaaS offering should ask the vendors under consideration critical questions including:

• What recent service enhancements were released and included at no charge to current clients

• How service enhancements or upgrades that do cost extra are handled

• The age and planned life span of the service platform and how migration to a new platform, if needed, is managed

• If the services are offered on more than one platform, by client size for example, what happens if a client outgrows the platform’s normal parameters

Watch for Wild Cards

Another wild card in HR SaaS is the possibility of mergers or acquisitions which could severely impact both buyer and provider operations. While the HR SaaS provider under consideration may not be able to answer, potential buyers should ask if there are announced intentions to pursue an M&A, or if the vendor is known to be under a pursuit.

Can the Players Cover Their Bets?

Yet another consideration is the financial stability and ability of the vendor to fund continued R&D and growth. If the provider is private, raise the issue of financial stability and if the company is taking on significant additional debt, pursuing private equity funding or an IPO.

SaaS is already and will only continue to grow as a transformative force in HRO. Throughout 2010 we will continue to explore HR SaaS. What do you want to know more about, and what are you doing that is SaaS-y?

Linda Merritt, Research Director, HRO, NelsonHall