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Analyst Opinion: Cloud HCM gathers momentum for enterprises

By Ashton Young, 19 Apr 2016
FYI, this story is more than a year old

Article by Tim Jennings, Ovum analyst

Following the path led by customer-facing applications, human capital management (HCM) systems are transitioning rapidly to a cloud-delivered software-as-a-service (SaaS) model, as enterprises place greater emphasis on employee engagement and workforce management. Just as chief marketing officers have assumed greater responsibility for the technology used in their domain, so chief human resources officers (CHROs) are at the forefront of the shift in their realm. Key business drivers include the need to recruit, onboard, and retain talent in a competitive market; a switch away from traditional appraisals to more continuous and holistic approaches to performance management; and a desire for the standardisation of HR processes and efficiency gains across large organisations.

A recent survey by IBM’s Institute of Business Value indicated that 61% of CHROs were planning to leverage cloud services to enhance the employee experience and manage change, but as with any major enterprise application, this transition will take place in stages. The status quo for most organisations is an on-premise application for core HR, with payroll either run in-house or more typically outsourced to a bureau service. These are the most difficult pieces of the jigsaw to move to the cloud, but particularly in larger organisations, merger and acquisition activity has often resulted in a thorny mix of different HR systems that is costly to maintain and a major barrier to common processes. Most CHROs want to tackle this hurdle, but recognising that there is a considerable degree of change management involved, they view it as a multiyear project of which they are currently in the early stages.

The same is not true of the surrounding, complementary HCM applications, where there is less likely to be an incumbent system, and where digital transformation is having a significant impact on employee engagement and HR processes. The classic example here is recruitment, where online talent search and job markets, the availability of candidate data, and an added social dimension to the process have transformed the landscape. It has rapidly reached a point where the lack of an online recruitment capability, whether corporately managed or outsourced as a value-added process, puts an organisation at a competitive disadvantage.

A similar dynamic applies to HCM applications including talent management, performance management, compensation management, and benefits management. All are now readily available as enterprise-grade cloud services, and many CHROs are adopting these solutions, seeing benefit not only in the functionality available, but also in the relatively rapid deployment that is possible using a SaaS model, while coexisting with the on-premise core HR. New applications in areas such as employee learning and wellness are also gaining ground, and there is an emphasis on improving the user experience to encourage self-service for both managers and employees.

This is a dynamic time for HCM as organisations set greater store by the benefits of an engaged workforce, while recognising that there are efficiency gains (and potential cost savings) to be made in managing their most important asset. We recommend that CHROs should have a five-year plan in place to transition both core and complementary HCM applications to the cloud, and have the opportunity to make a more direct link between the cost of running those applications, the total cost of managing the employee headcount, and the benefits of increased engagement.

Article by Tim Jennings, Ovum analyst

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