State of the Sector HRMS

June 3, 2005

Oracle’s takeover of PeopleSoft in December continues to send shock waves through the human resources software industry, but the real action may be in the seismic changes under way in traditional HRMS services.

    HRMS market leaders like Oracle, SAP and Kronos are blending a host of new products into the staid old back-office mainstays like payroll and benefits administration and flying them under the banner of human capital management systems.

    Technology and market demand are combining to create products that allow the software companies to stitch together the big enterprise-level HRMS back-office payroll and benefits administration programs with much more strategic front-office software that’s designed to identify, train and manage talent in a highly focused way.

    The blending of front-office and back-office products is now so common that these hybrid human capital management systems are on the verge of swallowing up the whole notion of HRMS applications.

    Consider Oracle’s HRMS product family. It includes payroll, self-service benefits administration and other core human resources features. Along with that, Oracle offers HR Intelligence, a system that helps analyze salary, recruitment, vacancy and termination trends. It can automate time and attendance record keeping. Learning management tools within the HRMS suite help deliver and track online or classroom-based training. Oracle Tutor sets up a personalized repository of procedural and instructional content.

    Oracle iRecruitment, also part of the suite, is self-service applicant tracking software that allows managers, recruiters and job candidates to weave seamlessly through the new employee recruitment, hiring and tracking programs.

    The Oracle products mirror offerings from other HRMS market leaders. This is a dynamically changing market, keyed to developments like the growing acceptance of outsourcing by companies that traditionally liked to keep HR processes behind tightly controlled corporate firewalls.

    Yankee Group believes that global expenditures for human resources outsourcing will increase by 27 percent this year to more than $4.6 billion. Healthy growth in the double digits will boost revenue to $14 billion by 2009.

    Outsourcing will reduce human resources administrative costs by as much as 20 percent for organizations with more than 10,000 employees, Yankee Group researchers say. Putting out a tantalizing estimate, Yankee Group says that for a 20,000-employee company, a 15 percent reduction in workforce costs and a 5 percent increase in revenue would have a financial impact of more than $1 billion.

    Outsourced HRMS products are just part of an abundance of offerings hitting the market. Companies are being offered choices to either buy and license their own software, lease it from a Web-based provider or completely outsource payroll, benefits and other bread-and-butter HRMS jobs.

    But whether the offerings are called HRMS or HCM, almost every week brings the announcement of new partnerships or products.

    Towers Perrin, with its regulatory, pension and health and welfare administration services, has joined with EDS, known for muscular payroll and other HRMS services, to form the outsourcing company ExcellerateHRO, which combines the strengths of both companies.

    Since it digested PricewaterhouseCoopers Consulting for $3.5 billion three years ago, IBM developed and now is aggressively marketing its IBM Workplace for Human Resources Managers, a technology framework that links traditional HRMS functions, like benefits and payroll administration, with an enterprise-wide approach to talent development and workforce productivity enhancements.

    Along the way, IBM has entered collaborative arrangements with SAP and Hewitt Associates as well as smaller software vendors like Saba Enterprises and Softscape.

"Customers tell us they don’t want to cobble together a lot of separate systems. They want a single
HCM system."
--Vicki Morris vice president of marketing for Saba

    "We are seeing very strong growth in the human resources software market," says Mary Sue Rogers, the London-based global leader of IBM’s human capital management business. She said IBM expects the market to produce a compounded growth rate of 13 percent to 18 percent over the next four years.

    Payroll heavyweight Automatic Data Processing has forged an agreement with SAP to outsource its payroll product globally using an interface with SAP’s advanced technology. The product, which ADP calls Global View, was rolled out in Asia and Europe, with the U.S. to follow this year.

    ADP started out installing its HRMS products behind company firewalls but moved to Web-hosted services about 12 years ago and continues to build out its system.

    "Like many vendors, we have had to migrate to the Web," says Greg Secord, ADP’s vice president of marketing. Today, about 15 percent of ADP’s clients own their HRMS systems in-house, while 85 percent get services delivered over the Web.

    While it partners with other software companies, SAP America is going after former PeopleSoft customers with a vengeance. SAP has developed a Safe Passage Program that offers a bridge to SAP for PeopleSoft’s 6,500 customers. German-owned SAP, which traditionally has sold enterprise-wide software to large companies, is also making a big play for smaller firms.

    SAP’s human resources outsourcing agreement with ADP, which includes other partners, could be the competitive advantage that will separate SAP and Oracle, says analyst Phil Fersht, a vice president at Yankee Group.

    SAP got a huge jump on Oracle in the exploding outsourcing market, Fersht believes. "SAP clearly has seen the future with this one," Fersht says. "They recognize it as a way to really push sales."

    Despite the fireworks, relatively few customers have left PeopleSoft, according to a survey by Piper Jaffray. The investment firm says it believes Oracle will meet its goal of retaining at least 95 percent of PeopleSoft’s customers.

    Succeeding in today’s human resources technology market is about being flexible and driving down costs, says Mark Lange, SAP America’s national vice president of human capital management. That may mean outsourcing, or it could mean moving down market, both of which SAP is doing.

    "No vendor can be all things to all customers," Lange says. "If there is a niche solution that a customer wants to run, on an SAP platform or behind a firewall, we have developed software that makes it easy."

    While the bigger HRMS players are growing and realigning through new partnerships, smaller companies are using technology to make big jumps. The upshot is that there is a blurring of the line between HRMS and best-of-breed software applications.

    Saba has invested $22 million to develop a human capital management suite, Saba Enterprise 2005, that is designed to fully integrate back-office HRMS systems running Oracle, PeopleSoft or SAP enterprise platforms with its learning, performance and talent management applications.

    The idea, says Vicki Morris, Saba’s vice president of marketing, is to present customers with a single system. "Customers tell us they don’t want to cobble together a lot of separate systems," Morris says. "They want a single HCM system."

    This is a business that’s often way ahead of the sophistication of its clients, who may simply want to take care of payroll, benefits administration, 401(k) plans and, in particular, tax and regulatory compliance issues created by Sarbanes-Oxley and other legal mandates.

    A survey by the International Association for Human Resource Information Management and consulting firm Knowledge Infusion found that companies understand the possibilities of using technology to cultivate, grow and keep talent, but only a small percentage have the infrastructure to make it work. Still, Knowledge Infusion CEO Jason Averbook says the interest is there.

    "Back-office HRMS systems hire, fire, do payroll, handle some regulatory issues. They are a minimum requirement to run a business," Averbook says. "Organizations spend one-half to 1 percent on administering core HR services. These same organizations might spend 70 percent on labor. Workforce managers who are strategic help optimize the 70 percent, not try to create a return on investment of the half to 1 percent. That means going beyond HRMS."

Workforce Management, June 2005, pp. 57-62 --Subscribe Now!