The Decision

Is your large organization ready for a SaaS-based enterprisewide system? Two experts offer their take on what you need to consider before answering that question.

Thursday, September 16, 2010
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While cash is king in the business world, cost efficiency is king when it comes to the inner workings of today's organizations. And in the realm of technology, more and more companies -- including large multinational firms -- are intrigued by the potential cost savings and ease-of-use promised by Software-as-a-Service-based solutions for functions previously handled by on-premises, installed software.

Because the software runs on the vendor's premises, not the customer's, the SaaS model shifts the burden of maintenance, daily technical operation and support of these various HR technologies -- not to mention all software upgrades -- to the service provider. Theoretically, this not only lowers the demand for internal IT resources; it also frees up HR to focus on more important objectives.

Not surprisingly, SaaS-delivered solutions are being widely adopted in the small and midsize (below 2,500 employees) business markets, according to the Stamford, Conn.-based Gartner Group.

But the picture is far different when it comes to the large-enterprise HRMS market: Gartner found that more than 85 percent of large organizations have bought perpetual licenses and implemented software solutions on their premises.

However, after reviewing the latest research on the subject and talking with clients about their future technology plans, we at Mercer anticipate that more and more large firms will continue to explore SaaS solutions in the coming years.

In doing so, they'll need to clear up the misconceptions that continue to surround SaaS -- particularly with regard to its security, cost and customization -- in order to get a better idea of whether SaaS is right for them. 

Is SaaS Cheaper? 

SaaS typically has three components: implementation, initialization/set-up fees and ongoing subscription fees based on headcount. This means that the "face value" price tag over three to five years may be equal to, or more than, a traditional on-premises solution due to those ongoing subscription fees.

However, when clients add up the internal costs of the traditional solution -- with its servers, hardware, security costs and dedicated IT resources -- many find the total cost of ownership of SaaS is either cost-neutral or slightly less expensive.

Another common notion is that a SaaS solution means IT support is no longer required. But that's not exactly true. While a SaaS system won't require a small army of IT folks to implement and maintain it, HR will still need to partner with IT on critical aspects of SaaS.

This includes initial support and buy-in for a new HR platform, including agreement on the service-delivery model and due diligence. Beyond that, IT support will be needed during the technical implementation: managing the building of interfaces, data conversion, browser and hardware configurations, ongoing help-desk support and the "sunsetting" of the old system.

Then there's the perception that company data simply won't be safe with a SaaS platform that resides off-premises. Not so -- so long as your organization does its due diligence during the selection process. Many SaaS vendors have invested so heavily in data security that their environment and back-up systems are more advanced than what is available in an on-premises system.

But it is critical that a vendor's approach to data security, privacy and disaster recovery be scrutinized carefully during the evaluation period. This should include a site visit to the SaaS provider's data center, and a request for an SAS 70 (an internationally recognized auditing standard) and other documentation.

There's also the widely held perception that large, global organizations can't turn to a SaaS solution for HR in multiple geographies, but again, this is not true. Many of today's SaaS vendors are already -- or will soon be -- in the global arena, simply due to client demand.

All the same, HR executives will need to have a thorough dialogue with SaaS vendors on the requirements for functionality outside the United States, or wherever the home country may be.

It is true that one of the leading benefits of SaaS is that your organization will always -- and automatically -- be current with the vendor's latest software versions, so from that perspective it's fair to say that SaaS has a considerable upside. That being said, the potential tradeoff is the requirement for HR to effectively partner with a SaaS vendor to fully understand the timing and impact associated with the introduction of new functionality or versions.

Also, our clients tell us that having a SaaS partner allows them to more easily prioritize and accomplish their goals without having to get in line with other competing internal business priorities. But whether SaaS is faster depends on the complexity of your implementation and, once you go live, the quality of your Internet connection. As for whether SaaS is cheaper, that is a question that can only be answered in the long run, after establishing the IT costs that won't be required.

The Upgrade Scenario

Before deciding whether to go with a SaaS implementation, it's advisable to evaluate a number of key issues up front -- including how the vendor manages releases such as patches, functionality improvements and full upgrades, as well as how it handles customization requests -- along with your own internal HR operating model. (Most SaaS agreements include upgrades, enhancements and patches in their base-subscription fees.)

In a multi-tenant SaaS environment, all upgrades are delivered to customers at the same time on the vendor's release schedule -- whether the customers are ready for the changes or not. It's important to know if your vendor provides the flexibility for you to "turn off" upgrades until you're ready to communicate and rollout changes to your end-users.

In true SaaS models, you must also work through the vendor for customizations and special data requests. So, if your organization requires heavy customization to meet unique business requirements, you likely won't have that flexibility in a SaaS model and will need to ensure that the configurability provided by the software meets the majority of your needs.

Organizations also need to evaluate their HR operating model to ensure that the SaaS model is aligned with the overall HR service delivery strategy. Larger companies typically have an HR operating model that includes questions of sourcing talent -- which sourcing activities will be done in-house or outsourced?

Then there's the most complex aspect of an HR operating model: the infrastructure, which includes the capabilities needed to fulfill HR strategy -- process, talent, technology and organization. Finally, there's governance, which addresses how the HR function is led and its related investments are managed.

SaaS and Talent Management

While SaaS can be deployed effectively with such a model, it's important to note that HR's needs in the crucial area of talent management have been evolving quickly, especially since it is widely acknowledged that human capital strategy -- deploying the right people in the right place at the right time -- is the linchpin for matching the HR function to overall business strategy, especially for global firms.

Thus, many companies have been investing in talent management software as a priority, but the complexities of talent management can be an especially tall order for SaaS. 

That's not to say that an on-premise technology solution for talent management is the answer. As analyst Josh Bersin, of Oakland, Calif.-based Bersin Associates, pointed out this June in a bulletin on enterprise learning and talent management, "While the excitement for talent management software continues to be very high, most buyers now realize that the implementation of such software is quite complex."

Bersin noted that most companies already have some type of performance appraisal process and, in most cases, it is somewhat integrated -- but not fully integrated -- into the company's process for annual compensation reviews.

"One of the visions of an integrated talent management system is that these two processes would work even better together," he wrote, "enabling a manager to make far better informed decisions about pay-for-performance or pay equity."

Most companies first implement performance-management software for one or two annual cycles, and then add the compensation module later, said Bersin. What this means is that the implementation of a very high-value solution is dependent on the selection of the "best product" and also on the development of a solid, multiyear implementation strategy.

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The majority of software vendors tend to stay away from these strategic consulting opportunities, turning this over to the client or a small number of consulting firms that can help.

The emerging trend, therefore, is to combine capabilities, so that organizations can have it both ways: a best-of-breed rewards and talent-management software on a SaaS platform along with dedicated human-capital strategy expertise, rewards and talent- consulting methodologies.

These offerings would embed proprietary intellectual capital -- such as decision guides for line managers, competency models, role profiles and analytics -- into the technology platform, with the goal of making the platform a "ready-to-use" system for managers, as well as having HR-driven content readily available to provide "just-in-time coaching."

Global HR consulting organizations are now rolling out their versions of these integrated systems. For example, Mercer's offering -- known as Human Capital Connect -- combines its consulting expertise with the Peopleclick Authoria software platform, exclusively on a SaaS basis.

Some Profound Changes

For companies that do decide to implement a SaaS solution, there are a range of recommended actions focused on readying the HR infrastructure for SaaS. For starters, from an organizational HR standpoint, the right leadership must be in place to support the implementation (see sidebar).

Next, an implementation road map, including timeline and key milestones, is important. Defining the new roles and responsibilities of a post-implementation organization is also key, as is treating the SaaS implementation as a change-management effort, and not just a purchased product.

From a process standpoint, the new SaaS service delivery model calls for a review of business processes and a redesign as may be appropriate. This means training the future SaaS users in new processes; reviewing approvals, workflows and tools based on the SaaS model; and making sure the SaaS vendor reviews with the HR team how to most effectively communicate issues and questions to the SaaS support system.

This will be a different process for any HR team that has grown used to the on-premises enterprise software model and is accustomed to walking down the hall to IT when issues arise.

Obviously, HR technology issues are central. It's vital to make sure that existing technology infrastructures can support the SaaS solution. Hand in hand with that go the aforementioned concerns about data security and data privacy, while due diligence requires that the SaaS provider disclose such information as whether full-time staff is dedicated to data security, what types of audit logs are in place, what the level of data encryption is, and so on.

As with any transformational project, change management and communication are key -- perhaps the ultimate key -- to success. But until an organization decides on a SaaS solution, the larger issue remains: Is it the way to go? SaaS demands a hard look and an early decision about whether the model is right for your company -- it's not something to be entered into on a tentative basis.

Instead, the SaaS solution asks that you think about some profound shifts, including new roles for HR, changes in processes to fit a new system and the use of IT for strategic guidance instead of day-to-day support.

As much as SaaS may seem like a simple way of off-loading the complexity and resource demands of on-premises technology, it's hardly a decision to be taken lightly. In today's new era of HR technology, SaaS demands true HR leadership to ensure that it adds value for the long term.

Kimberly L. Seals is the global segment leader for Mercer's human capital business's operations and technology solutions segment, located in Atlanta. Her team helps organizations improve their human resource function within a single country, regionally or globally. Michael H. Martin is a principal in the HR Effectiveness segment of Mercer's Human Capital Advisory Services business, based in New York. His areas of expertise include HR strategy and organization design, business process redesign and evaluation and implementation of HR technology.

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