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The Road Forward

The top analysts in the field met at the most recent HR Technology Conference® to discuss today's trends and tomorrow's issues.

Sunday, January 1, 2006
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Last fall's HR Technology Conference®, held Oct. 19-21 in Chicago, featured the industry's top analysts for a wide-ranging discussion on the state of HR technology today -- and in the future. Moderated by Human Resource Executive® technology columnist and conference co-chair Bill Kutik, the panel explored the subjects of "mini-suites;" the state of HR business-process outsourcing; new technologies on the horizon, including subject-oriented architecture; and what's keeping HR executives awake at night.

The panel included Katherine Jones, HCM analyst for the Aberdeen Group; Jim Holincheck, research director at Gartner; and Phil Fersht, a consultant with EquaTerra. Longtime panelist Naomi Bloom, of Bloom & Wallace, was unable to attend this year due to travel-related complications caused by Hurricane Wilma.

Kutik: Katherine is going to open with her own question, which is, what issues are keeping HR executives awake at night? And, what do you think they really should be worrying about?

Jones: I just finished a report that really did look at what keeps HR executives awake at night, called the HR Executive's Agenda. The biggest concern, both short-term and long-term, was how to attract and retain talent. One of the things they thought they would do first to address this problem of attracting and retaining is improve the company's brand. And they really were looking for guidance in long-term workforce planning -- something that, from the technology point of view, I don't think we've done enough with.

Over the course of the next 12 months, what these folks indicated they were going to do was look at how to grow their internal talent, how to look at career paths and how to look at performance management. Fifty-nine percent of the HR execs indicated that they were going to buy software applications this year to better their HR/IT implementation. One of the key things strategically that the HR execs mentioned in terms of how they were going to move forward was to make sure they had very good communications with their executives. So increasing executive involvement in human capital was of prime concern to the execs.

Kutik: Now Jim's going to talk about the talent-management application suites, or TMAS. And the whole point of TMAS is that it's a lot more than just recruiting.

Jim, please tell us what TMAS means, exactly. Is anyone doing anything interesting with it, including the two remaining ERPs, the other HRMS vendors, the BPO providers, or even consulting firms? And are any corporations buying it yet, separate from their HRMS? And what are the barriers to HR using these applications in the integrated fashion they're supposed to?

Holincheck: Our definition of TMAS includes workforce planning, workforce acquisition -- which would include both permanent full-time hires as well as contingent workers -- performance management, career development, succession management and compensation management and learning as an integrated set of applications, built on top of a common competency foundation.

So we're talking about a pretty broad set of applications. And what we see happening today is people aren't buying a broad sweep. However, from the vendor side of it, they are trying to build out this broad suite of products, in many cases.

There's been a lot of merger-and-acquisition activity going on in the market, as vendors have been trying to build out all the different components of the suite.

But if you look at it from the customer perspective, the customers are still buying predominantly niche applications for recruitment, for performance, etc. We're starting to see more of what I would call a mini-suite type of concept -- trying to solve a specific business problem around pay-for-performance. And so I may look at performance management and compensation management as a unit, and try and get an integrated solution for that. Or performance management and succession management together, because performance is such a key element of really doing a good job in succession management.

So, we see some of these mini-suites being interesting to customers. But the other thing is, I think the influence of IT on the decision process is that it doesn't want to have a whole bunch of different point solutions to necessarily have to integrate together. And there's a big push for that, to try and have fewer vendors to work with.

Kutik: Finally, let me ask you an incredibly broad question, which you probably won't want to answer. Do you think the existence of this notion and the growth of these mini-suite vendors has occurred because the ERP offerings are generally weak in this category historically? 

Holincheck: Do they have as deep a functionality as some of the best-of-breed solutions? No. That's the bottom line. Do they have good enough functionality for many organizations? Yes. When I talk to clients who are evaluating these applications, they're always going to look at the ERP vendors if that's what they're using for their HRMS, to see if it's good enough.

Jones: In my research, which totally backs up what Jim is saying here, one of the questions I asked was, "Would you, are you and will you get new applications from your ERP vendor or from the best-of-breed?"

But most of the answers, the biggest majority, really referred to the depth of the best-of-breed applications. Fewer of them looked at the need for those products to integrate with their existing ERPs. The majority wanted to know that those products were either integratable with each other or integratable with what they had other than the ERP.

So, as Jim said, they're definitely looking for the ability to have a business process that is integrated. 

Kutik: We'll move on to Phil, who's going to start by defining HR BPO for everybody. HR BPO has clearly moved beyond being a fad to becoming a trend. Now, it's also hitting some bumps in the road.

Towers Perrin, which actually has a deal with EDS to provide HR BPO, released a report last night in which they surveyed 80 percent of the companies that had big end-to-end BPO deals. Forty percent were disappointed with the service they were getting, the functionality that was being provided. And that that was a major problem with the BPO providers. So the question to Phil is, does BPO represent the historic restructuring of the HR department, much as benefits administration outsourcing did years ago? And then, more importantly, the early contracts are expiring. Are early adopters happy? Are they re-signing their contracts? Are they enlarging the scope of their contracts?

Fersht: Well, anyone operating in any type of managed service suddenly claims what they're doing is BPO. Let's backtrack and explain what HR BPO really is.

It's the transition of the management of multiple HR processes to a third party. So that would normally be something like benefits administration, payroll, recruiting, HR/IT, and maybe employee care, as a multi-tiered HRO offering. It is not a single payroll and maybe a benefits-outsourcing contract with a Hewitt or an EDS. It has to be a multi-process collection of solutions that have been transitioned over to the third party. And that third party needs to adopt the management responsibility for those solutions. 

So when you look at this real definition of BPO, you can suddenly think, "Well, hang on a sec, there aren't actually that many true HR BPO deals out there." In fact, there've been around 100 since the concept began. I think the Towers Perrin report which Bill refers to is very credible. If they're coming out and saying only 40 percent of the current adopters of HR BPO are dissatisfied with the level of service, that's actually a good thing for the industry, because I wouldn't have been surprised if they'd said something like 60 percent or 70 percent were actually dissatisfied with their current service.

When we moved into the first generation of HR BPO, the prime motive was that companies wanted to save money and they wanted their HR department to focus on its core processes. So in concept, it's absolutely wonderful. In reality, what's been happening is it's moving a lot slower than many people thought it would. And that's because, during the first generation of contracts, people jumped into it too fast. People got overexcited. It was almost, well, too good to be true for many organizations -- that an HR BPO company would come along, take on your existing mess and manage it for 20 percent less money.

In reality, it doesn't work that way. You cannot take those existing processes that are set in stone and leverage them across multiple clients. That's too difficult. And this is the problem many of today's vendors are having: How do they take their existing two or three clients and take these existing resources and deploy them across their other customers? So what we're seeing emerge is this model in which those HR outsourcing vendors need to actually build out their own shared-services competencies. And then they need to go and try and pick up five or six-plus customers, and only then might they start to reap those economies of scale that they promised.

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Kutik: All right. Katherine, did you want to jump in?

Jones: A year ago, I asked folks whether they'd consider moving to a BPO, and the near-universal answer was "no." But I didn't frame the question correctly.

So this year, I got a little smarter, and asked, "Under what conditions, or what would be the tipping point, that would move an HR exec to go for a total BPO solution?"

The top reason folks came up with was, if the amount of time their department had to spend on administrivia was so great that they couldn't do anything strategic.

And the second most important thing was, if it was radically cheaper than what we have today. And the third most important option was, if the service was radically better than what we have today.

Kutik: I want to skip down a bit to question number six, about the new technologies, which include Web services and service-oriented architecture. Jim, please explain them briefly, keeping in mind that we do have a bunch of HR/IT people here, as well as HR executives. Why should each side care? And which vendors, if any, are doing anything interesting with these technologies?

Holincheck: I think the reason you want to care is that you don't want new technology just for technology's sake. First, ask what business problem the technology is really meant to address. And the business problem many of the technologies that Bill mentioned are really trying to address is about flexibility, especially process flexibility. When you buy your applications today, you're pretty much limited to how you can use the different configuration options that are in the application and whatever customizations you may be able to make to those applications. Those can get you part of the way. But should you need to change those processes in a major way, it's usually very painful to reconfigure them.

So when people talk about services-oriented architecture and Web services, the technology is really meant to provide a different style of building applications that allows more flexibility.

The ability to "plug and play" different components of an application allows you more flexibility to change the processes you have. So now the question becomes, is this something that will require you to tear out everything you have today and replace it with something else? Or is it something that can be much more incrementally adopted? And I'm not sure we necessarily know yet.

So when you talk about services-oriented architecture -- and I'm trying to really keep this pretty simple -- it's a way of building applications that use what are called services. But they're sort of discrete services that typically have a well-defined interface.

And probably the best example of how this might work is to look at something like a recruiting process. If you look at recruiting, there are a number of different pieces of that process where you may want to plug and play different components.

Let's say I'm using Lotus Notes as my e-mail system or my calendar-managing system today, and I want to shift to Microsoft Exchange to do calendaring services tomorrow.

In a services-oriented architecture environment, basically what I would be able to do is have a relatively well-defined interface via some sort of standard such that, if I swap that out, it's pretty seamless to the process and the end-user. I can use a whole different component, a whole different application with a different functionality that may be a benefit to me, as part of that process, and then, you know, go on my merry way.

Kutik: So what it sounds like you're saying -- correct me if I've got it wrong -- is that the same flexibility is actually possible with ERPs, but it's just too damn hard?

Holincheck: No. What I'm saying is that they're evolving their architectures to provide that type of capability. So they're breaking up what used to be bigger application modules into more discrete services. But it's a big effort to do that. It's a big effort to re-architect an existing set of applications to do that.

Payroll is probably a good example. Do I really want to go through the effort of breaking apart into discrete services something like payroll? Payroll is something that you want to be predictable. If you start trying to break all those pieces apart again, you risk instability bugs. And are you really getting any extra benefit out of it?

I think that's the other point of SO -- you get the most benefit from doing this type of change in areas that are more strategic to your business.

For something that's very tactical, like payroll, moving that to a services-oriented architecture actually may have more benefit to the vendor in terms of its ability to maintain it, than to customers who are using it.

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