October 18, 2019

Here’s what enterprises want and need from their HCM software

Constellation’s Market Overview for HCM Suites report was published earlier this year and highlights what enterprises are looking for in HCM software. Here are the key findings as well as recommendations for enterprises to select the right solution.

Earlier this year Constellation published its Market Overview for HCM Suites. I’m currently in the midst of writing the Offering Overview of the eight vendors that were part of the Market Overview, which leads to some reflection on what enterprises want (and need) from their HCM software solutions.

But let’s look at the market trends first, and then we’ll look at what matters to buyers. To finish, I’ll cover the selection criteria that Constellation sees being used for HCM suites.

Key HCM market trends

Constellation identified seven distinct trends that have been shaping the human capital management (HCM) market. Enterprises recognize these trends in the marketplace and rely on their HCM vendors to respond. Here are three of the most prominent ones identified in the report:

1. “Always-on” payroll is the new normal

Real-time payroll information has quickly become standard for both employees and managers who want and need to make smart payroll-related decisions. "Always-on” payroll allows better transparency into pay-related information and processes. Benefits for all constituents in the process are tangible, so it’s good to see technology progressing— largely powered by cheaper computing in the cloud— enabling these next-level best practices.

2. Voice is the new user experience (UX)

Voice is becoming a much more powerful means of communication, replacing the need for desktops. Consequently, voice is becoming the new UX for enterprise employees, which can be seen in self-service tools, time and attendance, and other high-frequency transactions.

3. Employee experience matters again

For the longest time, enterprises knew that the employee experience is important but didn’t consider it a priority. In the last couple of years, the conversation has been restarted, bolstered by the argument that a better employee experience leads to happier employees, and happier employees lead to higher customer satisfaction. No one can argue with the last goal, but the result is that HCM vendors need to meet employees where they work, and that’s not necessarily within the HCM software. 

 

Figure 1 – Seven Market Trends Defining HCM Systems in 2019 and Beyond

Source: Constellation

 

Buyer Challenges

When enterprises look for HCM software suites, they face several challenges. Here are three of the most prominent ones:

Employee scarcity and the skills shortage

Enterprise executives find it increasingly difficult to find employees with the right skills. The shortage of qualified candidates is driving people leaders to turn to HR technology to help close the skills gap.

The innovation imperative

Enterprises are evolving into software companies, and they need to innovate more quickly than ever. As enterprises are looking for solutions, people leaders must show that HCM software has platform-as-a-service (PaaS) capabilities to allow their enterprise to integrate and extend HCM processes, as well as to build new HCM capabilities—if necessary, for enterprise differentiation. The need for building next-generation applications in HCM increases by the year, and the selection of a PaaS platform is critical for that endeavor.

Global business

Business is becoming increasingly global. This poses substantial challenges for people leaders in terms of visibility, automation, and compliance. Hence, enterprises want vendors that can automate more of their global people systems—either natively or through partnerships. A special emphasis is on payroll and pay visibility because the cost of people is the largest operational cost for most enterprises, and payroll disruptions are pitfalls for employee morale and engagement.

 

Figure 2. Five Areas of Buyer Challenges for HCM Suites

Source: Constellation Research

 

Selection criteria

When enterprises have successfully overcome the challenges associated with a selection process, they are able to choose a solution based on six criteria. Here are three important ones:

Software synergies

People leaders dread little more than being made responsible for a failure of integration between two systems they selected in the past. And the integration challenges in the overall HCM automation portfolio remain daunting. Therefore, people leaders strongly prefer to select suite-level products because they provide integration between the different HCM modules of a suite. When integration fails, it’s not good, and the vendor is at fault—and, more importantly, responsible to fix the issue ASAP.

Usability

An important factor is a high level of usability, especially at the employee level, because it allows workers to complete their few tasks swiftly during their usage of the HCM system. The more a vendor can show support for these users, the better they will fare in selections.

Ease with vendor

Vendor selection success hinges substantially on the overall level of ease an enterprise has with that vendor. HCM selections are no different, and decision-makers as well as their overseers (usually the CFO, CEO, and the board) must feel at ease with the selected vendor.

 

Figure 3. Six criteria for HCM suites

Source: Constellation Research

 

Recommendations

There is no guaranteed way for enterprises to select the right HCM software for their needs, but here are some proven and validated recommendations:

1. Stay with your vendor. The biggest synergies and the lowest risk for an HCM offering can only be achieved when staying with your vendor because only the vendor could provide the out-of-the-box offerings fully integrated. Becoming the system integrator for different HCM products can work but is a riskier strategy.

2. Payroll remains a must-have. The ability to run payroll remains table stakes for enterprises running HCM applications. When payroll does not work, the enterprise comes to a screeching halt, with long-term reputation and motivational damage. Although payroll is often considered a given, people leaders must ensure that the selected vendor has both the right scope and track record for their respective enterprise.

3. Determine your enterprise’s HCM automation needs beyond standards. In this era of business uncertainty, enterprises need to experiment and build their own automation, not excluding HCM automation. Therefore, customization and better PaaS capabilities of a vendor are key for a long-term successful relationship with the vendor as well as an enterprise’s ability to create its own best practices.

4. Create a five-year plan for the remaining on-premises HCM assets. The shift from CapEx to OpEx is in full swing. Don’t underestimate the draw of the cloud, and don’t end up with outdated on-premises HCM software that’s at the end of support. Few things are costlier for an enterprise in the era of digital disruption than badly allocated, inflexible CapEx, as in maintenance payments for on-premises licenses with inadequate return.

5. Realistically assess personnel demand and complexity. History is full of CxOs who overestimated the learning speed of their employees. Cloud-based HCM products are typically more intuitive and easier to learn than the traditional on-premises products. Even the largest enterprise can fall under that challenge, so CxOs need to keep an active eye on managed-service offerings, ideally ones offered directly by their HCM vendor (because service providers struggle with improving skills as well).

6. Assess personal and enterprise-wide comfort levels. There is both a personal and an enterprise comfort level to be weighed with any of the eight vendors. Both need to be in sync to a close-enough degree because a disconnect between the two will not work when things get rough. Decision-makers and the overall enterprise must be comfortable with a vendor selection. Plan for rough patches, so comfort levels at selection time are key to make it through those challenges.

7. Get going. New technologies like AI, big data, and the cloud change enterprise software forever. Enterprises cannot be left behind with old, outdated, and subpar HCM applications. People leaders must actively evaluate the innovation trajectory of their current vendors as well as understand what state of the art is and know what it could mean for their enterprises. 

This post was originally published on Enterprise Software Musings.

Holger Mueller

Holger Mueller is VP and Principal Analyst for Constellation Research covering Next Generation Apps and Human Capital Management. Holger provides strategy and counsel to key clients, including Chief Information Officers, Chief Technology Officers, Chief Product Officers, Chief HR Officers, investment analysts, venture capitalists, sell side firms and technology buyers.

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