Cloud-based HR management systems not living up to expectations

31 August 2016

New cloud-based human resource management systems have been expected to be the silver bullet that transforms HR into a department of game-changing competitive advantage. The reality, however, is somewhat more muted. A new report finds that, while the technology has considerable potential, wider strategic transformation within HR departments is required to leverage its full potential.

Cloud based solutions for a range of business needs have been marketed successfully over the past years, promising reductions in costs, ease, as well as a range of business benefits. Given the promise, a range of corporates have in recent years embraced cloud-based HR solutions, as part of a wider drive to bolster the use of technology within the human resources field.

In a new report from KPMG the professional services firm explores the cloud-based HR system landscape. The report, titled ‘Cloud HR: the future belongs to the bold’, involved 850+ executive respondents, 44% of whom work in organisations with >5,000 FTEs, based in 52 countries.

Benefits of new HRMS systems

According to the report, the optimism that many companies had – going into investing in the cloud – are not finding fruition, with just 24% finding that the technology reconfigures the HR function, thereby driving greater business value. Investment into cloud-based HR systems is continuing, with 42% of respondents saying that they will invest in the technology.

The respondents highlight that the top benefit of cloud-based HR systems, compared to on-premise-based systems, are lower operating costs, cited by 35% compared to 23%, and improved upgradability, cited by 22% versus 10%. Other areas in which cloud-based systems are said to win out are predictable on-going costs, at 10% of respondents compared to 3% for on-site solutions.

On-premise solutions win out in a number of functional areas, including better functionality, at 72% versus 69% for cloud-based solutions, and in improving value-added from HR to the business, at 67% compared to 63% for cloud-based solutions. On-premise solutions were also cited as easier to manage on an ongoing basis, by 43% of respondents compared to 32%.

Benefits of existing HRMS

The survey also asks respondents to compare the actual benefits of cloud-based and on-premise-based HRMS. The results suggest respondents primarily gained tactical benefits, such as increased use of manager and employee self-service cited at 57% for cloud-based HRMS systems and 36% of on-premise HRMS system. Cloud-based systems also improved the availability of management information, at 53% versus 40%, and improved processes and process management including workflow, at 53% versus 32%. On-premise solutions, the research finds, are less expensive to maintain – as cited by 25% compared to 10% for cloud-based solutions.

The research highlights, however, that cloud-based systems, as well as on-premise systems, are not creating value in areas of critical importance to businesses. Particularly an ability to reconfigure the HR function to drive greater value in the business scores lowly at 24% and 17% of respondents respectively, followed by improved availability of workforce analytics, including predictive analytics which comes in at 20% and 17% of respondents respectively.

According to the consultancy firm, the lack of core business benefits derived from the technology, and thereby, disappointment or dissatisfaction, is in part, due to the technology not being leveraged within a wider transformation of the HR function within businesses. According to the firm, business wide data integration is required, as well as the skills to transform and integrate that data into the decision making process.

“Without understanding the business outcomes you are trying to achieve, cloud technology projects can turn into an expensive exercise delivering very little value,” says Patrick Fenton, a Partner at KPMG in the UK. “You need to a paint a clear picture of what the future should look like and then address the diverse elements that need to be in place to generate the effective change you are seeking.”