Digital and changing operating models driving HR tech investments

21 June 2016

HR technology is climbing the ranks of both HR and strategic agendas of organisations, according to a new report. Technology push, changing operating models and the convergence of a range of disruptive business models are driving HR technology into a state of rapid, and large scale change. The good news, however, is that once fully in place, organisations will be able to gain significant benefits, and with this in mind, nearly half of the companies are planning on ramping up their spending and efforts on HR technology.

Piggybacking on the benefits technological advances can bring, as well as technology’s growing importance in the wider business landscape, Human Resource (HR) technology has over the past years increasingly been integrated into the HR strategies of companies. Organisations can, for instance, improve the enablement of HR activities and processes through state of the art HR software and (mobile) applications, unlocking untapped human capital benefits. Among the HR technology areas that are commonly used are workforce engagement, talent management, payrolling and regulatory compliancy.

To gain an understanding of the HR technology landscape at multinational firms in the Benelux (Netherlands, Belgium and Luxembourg), as well as how HR tech ties in with the broader human capital agenda, EY recently conducted a study into the matter (delivered by EY’s People Advisory Services practice). HR professionals working either in HR or HR-IT participated in the survey, with the majority of respondents working in a global/multinational organisation with 15,000 or more employees. Participants came from a variety of sectors, ranging from firms in consumer goods and the financial services industry to retailers and oil & gas companies.
Participants in terms of organization size + Participants per industryHR Technology landscape
The study shows that a quarter of the organisations currently have a single solution approach – either a HR system that is part of a company-wide ERP solution or a HR system that is part of a global HR enterprise platform. And 20% of the companies build on a best-of-breed approach – a landscape that uses multiple systems, each for specific purposes and based on the best match between requirements and available solutions in the market. Examples include separate technologies / applications for expense management, performance management, recruitment or specifically developed tools for strategic workforce planning and workforce analytics. An additional 30% of participants indicated that they use an in-house, commonly tailor made, solution to facilitate the operations of their HR function.

HR system and vendor strategy + HR Technology landscape

Hans Groothuis, who leads the HR Transformation & Systems group of EY People Advisory Services in The Netherlands, comments: “Based on our experience, we see that organisations with custom build/in-house developed applications can at times struggle to keep up with the rapid changes in processes and technology. In case of changing needs, the HR application needs to be updated in order to support these changes, and this too then must be developed in-house”. In addition, Groothuis sees an already big but still growing supply of packaged HR technology solutions. Through which software vendors offer their clients growing flexibility. With on top of that a continuous increase of Software as a Service (SaaS) based solutions, which he believes sparks even more the shift towards a higher adoption of standardised, but flexible and modular solutions.

Of the participating multinational organisations, 35% are currently running or implementing a truly global HR system, and only allow HR technology from other vendors by exception. “These exceptions are for example needed when the global HR system is unable to support certain local specific regulation,” reflects Groothuis. An additional nearly 50% makes an effort to use a single system/vendor within a region or country, whereas only 6% of the participants indicated that they allow their geographic units to independently determine their system/vendor strategy. “This supports the view that multinational organisations are moving away from a multi-platform approach. However at the same time it shows that multiple organisations are not ready yet in terms of in realizing a single global platform HR systems strategy. Sometimes simply because country specific functionality is lacking, but also because not all multinationals already have a deliberate HR systems strategy”.

HR system and vendor strategy

HR systems
An analysis of the different segments of the HR landscape shows that the utilisation of systems varies. Tasks which require a relatively tailored approach and environment, such as learning & development and workforce planning, are generally still managed through a custom or in-house tool (40% or above). When it comes to the use of standard enterprise technology, HR administration and payroll, but also performance management, lead the pack. This is not surprising according to Groothuis, as these areas can traditionally build on a highly centralised and standardised strategy and a solid business case in terms of costs and benefits. However, he says, there is growing attention for relatively newer areas for HR automation, “such as learning (other than training administration), compensation and recruitment”, explains Groothuis.

Only a minor percentage of the organisations surveyed (13%) currently still manage some HR processes manually/paper based. This percentage excludes data from learning training administration and payroll, as most organisations have incorporated these areas already in some form of technology. In particular expat management (also referred to as ‘global mobility’) still relies on manual processes, a feat which follows from the level of complexity of expat management (e.g. complex regulations, different tax systems). Nevertheless, 27% indicated that they do not have any dedicated system or tooling in place for their expat management workflows.

Planned changes per functional area

Initiatives and changes in HR systems
Respondents expect significant change in the coming year(s) with regard to their HR systems landscape. The biggest changes are expected in the areas of recruitment (60%), compensation & benefits (57%) and learning management & training (53%). Only 8% of the respondents indicated that no changes are planned in any of the listed functional areas.

The survey reveals that organisations have different reasons that sit behind their change agenda. The most frequent reason cited is a shift in focus from local to a more global (HR) operating model (22%). Transitions however do not always materialise, says Groothuis: “Organisations who claim to shift from a local to a global (HR) operating model, seldom continue to rely often on local (country based) and / or best-of-breed HR systems.” Vice versa he highlights that many organisations that are still using multiple single HR systems and vendors within a region (24%) or country (24%) are likely to be preparing for the transition to a single global or at least better integrated HR system.

Next to the need for better strategic alignment between the (HR) operating model and HR technology, a significant part of the expected changes are technology driven, as 19% of the respondents indicated that they face changes as a result of changes in the wider IT landscape. “This includes domains beyond HR.” At the top of the change agenda stand new technologies such as mobile, big data and cloud. Digitisation of manual processes and facilitating changes in organisation structure rank joint third.

Planned changes per functional area

In order to realise the change potential, there is, according to the respondents of the survey, still room for ramping up spending and investing more on HR technology. Nearly half of the respondents plan to increase spending on HR technology this year, in spite of the broader mood for cost reductions in other areas of human resource operations. A third of respondents estimate the raise in budget to be up to 20% of budget, while 13% say that their spending will rise by more than 20%. These investments will mostly be directed toward implementing or switching technology or adding new functionalities, with performance management and compensation & benefits the main destinations.

Looking ahead, the EY advisors believe that HR technology is set to grow in importance for organisations and HR functions. “HR must become a trusted business partner. This shift to a more strategic role (often also referred to as HR Transformation) relies on designing and implementing a HR target operating model. Technology plays a major enabling force,” says Groothuis. “HR directors therefore need to rethink their HR systems strategy and more specifically align their strategy to the changing HR operating models, processes and jobs and their capabilities accordingly.”

Expected spending on technology and area of investment

Based upon the survey’s findings, and previous research, Groothuis addresses two key takeaways: “The first is that we see that only part of the talent challenges that organisations face are addressed by a centralised global HR structure. Therefore leading companies should develop their HR structure and operating models in such a way that they are flexible enough to allow for global implementations, while being agile enough to adapt to the local markets and/or business needs.”

The second he adds is how organisations struggle with ‘SaaS readiness’. “We see that getting the organisation ready for SaaS and other new technologies typically can be more time consuming than the implementation of the new technology in itself. As further developments in IT will impact HR and the way HR will operate in the future, HR departments have to prepare themselves to cope with (constant) change and learn to embrace it.”