Could Software as a Service be the answer for specialist HR functions?

Software as a Service (SaaS) looks to be changing from a flavour of the month to an accepted alternative for HR.

As reported in Gartner’s “Magic quadrant for employee performance management software” report in March 2011, external hosting of HR applications has increased from 50% in 2010 to 62% in 2011. Gartner concludes that market acceptance of externally hosted employee performance management applications continues to grow, with customers of all sizes adopting this approach.

This view is reiterated by Forrester’s “HRM solutions: traditional models clash with next-generation processes and technology” report, which concludes that SaaS will become the deployment model of choice for HR solutions. Indeed, for areas including compensation, HRM vendors have seen their ratio of subscription deals reverse in the last two years licences from 80% licence to 80% SaaS.

Ruth Thomas

Ruth Thomas, chief operating officer, Curo

In this article, I look at just a few of the specialist areas where SaaS may offer users an advantage over more “traditional” approaches.

In terms of the delivery of HR technology, it is worth considering that, while traditional enterprise-resource planning (ERP) systems are often still the best option for core HR functions that need to integrate with corporate-wide data, SaaS is fast becoming an accepted option for specialist applications in such areas as compensation planning, benefits and performance management.

More often than not, SaaS software providers in these particular disciplines have in-depth and extensive knowledge of their specialist area, and the capacity and ability to build their products from the ground up, ensuring that their solutions address the real and unique needs of HR in these functional areas.

In addition to this industry knowledge, there are often other benefits of HR SaaS solutions:

  • Rapid deployment of software and enhancements. SaaS solution providers can provide customers with access to product enhancements and new releases at a much faster pace than “on-premise” software, which is often associated with painful, slow and expensive upgrades. This is due to the shared or multi-tenanted approach taken by many SaaS providers that allows them to share a single version of code securely. Therefore, all clients can be upgraded simultaneously and often as part of the standard licence fee.
  • Sharing best practice and enhancement. Leading SaaS providers continuously invest in and enhance their product to meet evolving client requirements and to ensure that their product remains leading-edge and adaptive to changes in market or compliance. Through the multi-tenanted approach all clients can benefit from these product enhancements. This not only ensures that your software and the business processes it supports are aligned with market trends but enhances the value of your original investment as you gain incremental functionality at no additional cost during the period of the contract.
  • Faster implementation timelines. SaaS solutions speed up implementation times as there is no need for purchase and installation of physical client servers and associated software and hardware or extensive customisation. This allows clients to adopt software enhancements at a faster pace and deploy them to their end-users in line with changing requirements. This is particularly important in the provision of compensation solutions where business requirements are subject to more regular change in line with annual compensation cycles, budgets and legislative requirements.
  • More effective ways of controlling costs. A typical SaaS model involves customers paying a licence or subscription fee for access to the solution and associated upfront implementation fees. These are greatly reduced from the cost of implementing traditional “on-premise” solutions as the supplier is responsible for delivering the software, maintaining the platform and managing upgrades. This should equate to a lower total cost of ownership over the lifecycle of the contract and a faster return on investment.
  • Enhanced security. SaaS delivery models depend on high levels of security, as customers outsource data storage and security to the provider. SaaS vendors place a strong emphasis on ensuring the security of their customers’ information, and standards such as SAS70 will ensure that high levels of security are maintained and are often more rigorous than internal controls.

Of course, it is worth considering adopting a mix-and-match approach that enables you to recognise the investment already made in core HR technology (such as ERP systems) but connect these to specialist and integrated SaaS solutions. This approach is facilitated by the increased adoption of common interface standards controlling data flows between different software applications. This allows employers to swap components in and out as better solutions are developed and come to market.

A SaaS approach may mean that you end up dealing with several providers and their respective contracts, pricing approaches and support services. However, if this mix-and-match model is adopted and limited to a small number of key support services, the advantages may well outweigh the additional overhead.

Ruth Thomas is chief operating officer at compensation planning solutions provider Curo.

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