October 8, 2019 · HRM software, Human Capital Management System, Human Resource Management,
What is the value that you derive from an HCM or HR system? How do you calculate that value or even compare the value proposition of two HCM systems. Organizations, small, medium and large, are investing in Human Capital Management systems (HCMs) at an increasing rate and selection of the HR system is a multi-tiered process. As in all systems acquisitions, the buyer considers the costs versus benefits of the systems that are available. More and more it is becoming evident that this traditional decision model may not apply easily to the problem of HRIS. There are many reasons as to why that is the case.
Success is in the Details – A Diner Analogy
Modern Human Resources Information Systems (HRIS) are complex collections of functions, features, interfaces and integrations. On the surface they all look similar and perform many of the same functions. Most systems cover the basics like; employee records management, part-time off and leave management, payroll administration, applicant tracking, onboarding of new hires and time and attendance. Many systems may also add in other functions like training management, skill, and career planning, or retention management
But only knowing the functions available in an HR software is just a small part of understanding the system’s possibilities in context with your organization’s requirements and future. Looking for a value provided by an HCM is like walking into a new popular diner and seeing the array of pies and soups and sandwiches, entrees and desserts for the first time – the sights and smells are overwhelming. But you must select from all that’s available according to your own appetite and dietary needs – and you still don’t know if the food, service, and prices are good. Looking at just the functions in the HR Software to understand the value proposition of HCM is like ordering the meatloaf in the diner – you don’t know if it suits your taste, what side orders it comes with, how it will fit with an appetizer or dessert and if the service is good and the price affordable.
Each HRIS function will have a variety of features that help guide or expand the processes performed and, among these features, there are various levels of internal interfaces and integration. The features help define how well the system will perform for the existing requirements of an organization. They will also aid or limit the ability of the system to expand in scale or to perform functions differently as the organization grows and changes.
It is important to look deeply into the combinations of capabilities that an HRIS can perform. For example, we can expect the system to be able to manage employee records that include the basic data elements for generic operations like recruiting and onboarding. But what if the organization has seasonal fluctuation in the number of employees and many of those temporary employees are re-hires that do not need the same degree of vetting as would a new hire? Can the system manage active and inactive employees in a way that maintains contact lists of prior seasonal hires along with personal identity information, skills, and compensation? Such a feature can be a major aid in managing the changing employment needs of a seasonal operation.
A Cross-Sectional View of an Employee
An often overlooked feature is the ability to track certain employee information across different parts of the organization. For example, many systems provide various value propositions and performance reward functions. Suppose John Smith is assigned to Department Y and his performance is such that he is recognized for a reward bonus. But when the time comes to determine the rewards for Department Y, John has already been moved to Department Z at another location? Will the system be able to track that individual’s bonus across the varied organizational assignment, appraisal, budgeting, and accounting functions? In operations where there is a strong goal-performance reward system, the ability to track rewards to individual employees across all parts of the organization can be a critical element of an effective morale and retention process.
Over recent years HR management responsibilities have grown substantially and the systems that support those responsibilities have followed suit. It is rare that one-size-fits-all the needs that are possible. The HRIS is a complex solution with many functions, features, interfaces, and internal and external integrations. It is critical for potential investors in an HRIS to understand their own goals and specific needs and to conduct the proper breadth and depth of due diligence in determining a system choice. Like the diner, all the selections look great, but it’s not until you sit down and start to look at the details of each meal that you begin to match it to your needs. Read more to learn how to select a good HR software.
This is when the vendor must provide knowledgeable and trustworthy assistance in making your selection. The buyer needs to know what will satisfy their needs and be willing to ask the key questions. The vendor needs to provide meaningful answers to those questions, regardless of the focus or the number of questions. It’s only through this process that the details can be found that will eventually make the system successful within each unique set of organizational requirements.
There are many different value propositions for an HRIS based on the functions that provide different values and priorities. The features also enhance the value of HCM which are driven more by factors like ease of use and flexibility. The interfaces are yet another level of value of HCM as they may provide different access to different parts of the system for administration, management oversight and integration with external services.
Additional, more abstract values can be identified such as morale building, culture-changing or even impact on business valuation in a mergers or acquisition process.
Understanding these values will play in the ultimate success of the HRIS in meeting its goals in each organization. Focusing on the details early and understanding their values and impacts is a critical part of the HRIS selection process. Success is in the details.
Key Consideration #1: Interlinking Modules Makes it Hard to Estimate Value
The value of HCM systems and services is both multi-functional and multidimensional. They typically incorporate a variety of functional modules that perform traditional human resources processes such as managing core employee records, managing payroll, leave, employee acquisition and onboarding, training, performance reviews, and more. Cloud and online browser technology make delivering these modules, singly or in groups, a simple and affordable process.
Since the functional modules are like product commodities, they are readily available from different vendors and perform traditional functions with very similar efficiency. The differences from a vendor to the vendor are more in considerations like price, customer support, external interfaces and scalability. Purchasing these modules can often be done very easily from the internet with billing for services similar to commodities like Netflix or a cell phone account.
But as you begin to add modules, the problem of assessing the value of the HCMS/HRMS becomes more complex. For example, how do the modules work together? How does leave management interact with payroll; or new hiring interface with the training process? Are these modules equipped with strong inter-module system coordination and cooperation, or is the user expected to move data from one module to another? Even more complex, is there a tracking process that monitors those tasks that cross from one module to another? How about assigning those tasks and monitoring not only their progress and completion but also their efficiency?
Key Consideration #2: HCM goes beyond Tactical (Operational) into Institutional
Understanding the HRIS and its costs versus benefits doesn’t stop here. There is another dimension that becomes a concern for senior management that we can call “institutional”. A fully operating, integrated HRIS can dramatically enhance or even change the way an institution is managed and how its culture is created and maintained. The ability to standardize how new hires are on-boarded introduces the organization’s culture. The way career paths are described and encouraged provides another element of the opportunity culture. Consistent performance evaluations, frequent public notice of exceptional performance and internal organization communications all contribute to the management of goals and consistent rewards.
All organizations develop a unique culture that includes the influence of personalities, the mission, the geography, goals of the founders and senior management, along with many other factors. The Center for Advance Research on Language Acquisition goes a step further, defining culture as shared patterns of behaviors and interactions, cognitive constructs and understanding that are learned by socialization. An HRIS with rich features for functional and social interaction across employees can not only help to foster the organization’s culture, but it may have the potential to change or even create a new culture. These are fundamental considerations in both the leadership and management of any institution where the interaction between human beings is a vital component. What is the value that can be assigned to supporting or even fostering a change to an institution’s culture? Both HRIS vendors and buyers need to evolve a better understanding of the value of agile management.
Perhaps the most significant potential benefit of the institutional HRIS is its ability to implement and measure the attainment of strategic goals. A system that can evaluate performance against goals at a strategic level provides senior management with powerful leverage to manage change. Systemic and timely knowledge of the critical parts of an integrated process can aid managers in many ways as can the impacts of full digitization of parts or all an organization’s operations.
One of the most interesting benefits is the potential for increasing the financial value of the organization in the eyes of possible acquirers. An organization that is formally defined by the data produced from an integrated HRIS can be much easier to evaluate and integrate through an acquisition.
As we can see, the analogy “if it walks, quacks and has feathers like a duck …” doesn’t work well for describing an HCM system. Both vendors and buyers are gradually understanding the variety of potentials, and their costs and benefits. Purchase of a couple modules to satisfy only functional needs can be a simple transaction. Expecting varied integration or other features can complicate the expectations of a buyer and the ability of the seller to meet those needs. When a complete HRIS is considered then there should be full understanding of all buyer expectations according to each function, the integrations they may employ, the extent of internal communication expected, and the end goals envisioned.
As the extent of automation in institutions increases and includes the capabilities of such technologies as artificial intelligence, systems like the HRIS will deliver many paradigm shifting impacts. Both developers and users need to insure that they are aware of the potentials for new requirements and of the need to provide different levels of support through the sales and service cycles.
Bob Cofod is a compliance expert with a specialization in business strategy. As the president of BizMerlin, Bob leads all key product initiatives and customer implementations. In his spare time, mentors young entrepreneurs and helps them overcome their challenges!