July 09, 2013, 11:07 AM — Recently, BPR-Rico Manufacturing decided it was time for a change in its human resource systems.
The Medina, Ohio-based engineering outfit, which builds lift trucks and other material-handling equipment, had been using Sage North America's Abra HR solution. The on-premises deployment was more than a decade old and had acquired some eccentricities. The system would randomly change employee dental insurance deductions to the two-year prior rate. An employee who generally worked a 32-hour week would occasionally flex to 40 hours, but the system would still pay for only 32 hours.
As it happened, Rico Manufacturing already was replacing its paper-based time card system with cloud-based time and attendance software from Kronos. The company decided to tap Kronos to replace its human resources and payroll system as well-and move it to the cloud.
The company went live on Kronos' Software-as-a-Service (SaaS) human resources platform last July. The time and attendance system kicked in two months later. Kent Stelmasczuk, CFO at Rico Manufacturing, says the Kronos SaaS approach is cost-neutral with respect to the on-premises system, just considering the software licensing fees and not taking the cost of hardware into account.
"Anything we save on hardware is all upside," Stelmasczuk says, noting that the company had been preparing for a server upgrade prior to the cloud shift.
The fundamentals of SaaS human resources are lining up for other organizations as well. The Department of Veterans Affairs is working toward a pilot launch of a SaaS HR system under a 10-year, $123 million contract with IBM. That deployment will replace a legacy human resources application that dates from the early 1960s.
Indeed, the sheer age of many human resources systems encourages migration to a new platform and that often means SaaS. Jason Averbook, chief business innovation officer at cloud services provider Appirio, says the HR application sector is in the midst of a replacement cycle. Averbrook was previously CEO at Knowledge Infusion, a human capital management consultancy Appirio acquired last year.
Up to 90% of the Fortune 1000 will replace or re-implement its core HR system in the next four years," he says. "Most of the software that's out there was written before the Internet was born. It doesn't meet the needs and expectations of employees and managers. That's why you see so much activity around the cloud."
Cloud Offers Benefits for Firms Replacing Legacy HR Software
CIOs opting for human resources in the cloud have a number of choices from companies that grew up in the cloud or have moved to SaaS delivery following a history on on-premises products. Vendors offering human resources management applications in SaaS form include ADP, Ceridian, Kronos, Oracle, SAP and Workday.
Averbook says a pending on-premises upgrade of a legacy human resources system can trigger a move to SaaS. Many aging in-house systems have been customized beyond recognition and require a ton of internal support to keep them running, he points out. "CIOs want to get out of the business of maintaining back office systems. When the time to upgrade comes, it's natural to look elsewhere."
Rico Manufacturing avoided a legacy system and infrastructure upgrade and also offloaded the ongoing chore of updating an in-house application. The company used to receive quarterly state and federal tax updates from its previous HR vendor. But the updating task was susceptible to human error. The in-house software, for example, let customers select which portions of the update they wanted to install. (In one case, prior to Stelmasczuk's arrival, the state tax updates were applied, but not the federal.)
In addition, the updating process involved downloading the update file, applying the update to the software and then going into the application and launching the updates, Stelmasczuk explained: "It was a multi-step process."
Now, Kronos handles the job of keeping the software current. "We don't have to do the application of the updates and patches," Stelmasczuk says. "It's all happening behind the scenes."
The VA, meanwhile, benefits from its SaaS deployment shared-services pricing model, according to Adam Jelic, partner at IBM Global Business Services. IBM is providing the VA's human resources management application through an HR Line of Business Shared Services Center. SaaS advantages, Jelic says, include sharing cost across multiple clients, keeping software up to date and deploying software quickly.
IBM is working on the application design, development and testing phases of the VA project. The company will eventually operate the SaaS system, which will be built around Oracle PeopleSoft, Monster Government Solutions and IBM software. Deployment of a production application is slated to begin in January 2014, with the rollout to be completed by the end of 2015.
SaaS HR Implementation Isn't Always Quick and Painless
Installation time is often cited as a benefit of the SaaS model, but the duration of the rollout varies according to the size and experience of the customer and the scope of the project, industry executives say. The VA's phased-deployment will span a couple of years-but the system will support more than 300,000 employees.
In contrast, Stelmasczuk says the core SaaS human resources deployment at Rico Manufacturing, which employs about 100 people, took about a month and a half.
Bob DelPonte, senior product line director at Kronos, says that, while SaaS removes the infrastructure component, the approach doesn't save time in configuration or other aspects of a rollout. SaaS providers must hold discussions with customers on how the application should be set up, he says: "Those conversations still need to be happening with the business folks."
Averbook concurs that the technical aspects of SaaS deployment go much faster compared with on-premises solutions. The people and process side, however, takes time. "What isn't necessarily faster is the cultural change that goes into deploying these new tools," he says.
Averbook says SaaS vendors can get a customer live in six to 12 weeks, "but that doesn't mean people are going to use it [the cloud app] or understand why you did it." A six- to 12-month initiative is a more reasonable expectation for an organization's human resources SaaS deployment, he adds.
Channel Partners Can Play HR SaaS Consultant Role
Averbook says a human resources cloud project slants 90-10 towards people and process vs. technology. That's in contrast to enterprise resource planning (EPR) projects, where Averbrook spends perhaps 70% of his time on technology and 30% on process and cultural change.
Process-oriented installations provide an opening for channel partners with a consultative focus. Averbook says Appirio aims to help customers "reimagine" how workforce-facing tools can be used. Human resources software doesn't have a good reputation among workers, who may resist using it. But the consumer technology-inspired interfaces of the newer cloud solutions provide an opportunity to make human resources software an everyday tool that employees want to use.
"Let's not try to figure out how to get it adopted," Averbook said of SaaS human resources. "Let's try to figure out how [employees] get addicted to it."
SaaS human resources vendors recruit partners to extend their market reach. Workday's partner ecosystem includes 29 service providers, for example, with Accenture, Appirio, Deloitte, IBM and PwC among the companies on the roster.
Leighanne Levensaler, a Workday vice president who oversees the company's human capital management product strategy, says those partners can provide implementation help as well as business transformation and change management services.
Since Workday does all the infrastructure set up, Levensaler says, "The systems integrators are doing far more than they-had been able to do on legacy providers' implementations. They can focus on some very strategic engagements as well as configure the system for production."
DelPonte says Kronos works with about 120 channel partners, who offer the company's small and medium business products. He says that channel generates about 45% of the company's SMB revenue.
Channel partners hope to secure work easing customers' human resources cloud transition. But the buyer'' own experience with SaaS in workforce-related areas can also help pave the way.
Jelic notes that the VA had been using a SaaS-based learning system prior to the full-scale human resources engagement and adds that other public sector clients use SaaS-base recruitment systems. "It gives them an example of how certain components of human resources can be handled through SaaS and encourages them to expand," he says.
John Moore has written on business and technology topics for more than 20 years. His areas of focus include mobile app development, health IT, cloud computing, government IT and distribution channels. Follow everything from CIO.com on Twitter @CIOonline, Facebook, Google + and LinkedIn.
Read more about software as a service (saas) in CIO's Software as a Service (SaaS) Drilldown.