Human capital management is still a relatively new term and is often used to refer to both a company’s processes and the technology behind those processes. From a process perspective, HCM encompasses the activities associated with acquiring, developing, managing, and retaining a company’s most valuable asset—its people. It covers a broad range of activities, including identifying and recruiting the best available talent (people) and partnering with managers to develop and motivate their employees to realize their full potential. The quality and performance of an organization’s workforce will differentiate successful organizations from the others in an intensely competitive market.
From a software perspective, HCM systems are solutions that encompass functionality for recruiting, learning, training and development, performance and compensation management, succession planning, and reporting and analytics. Unlike the traditional HR systems of the past, these solutions address the full spectrum of talent management (from hire to retire, and everything in between). HCM software includes modules for recruiting, onboarding, managing talent, tracking performance, and analyzing data—among other things. By consolidating these various modules, vendors are now developing suites of products that are often available at a considerably lower cost than stand-alone solutions.
The Changing HR Landscape
The HR department has been traditionally viewed as serving an administrative—i.e., low-priority—function. HR personnel were responsible for receiving résumés, creating employee records, filing, and handling employee complaints. The HR landscape has changed dramatically, as HR has gained prominence and emerged as a strategic and vital part of a company’s business. Part of this change is due to HR’s growing role in strategic HR planning (identifying the right people with the right skills within the organization for future positions). HR personnel now take part in the decision-making processes of the company—rather than merely implementing those decisions, as in the past. Company executives are thus taking a greater interest in their people—and how employees can affect the future of the business.
HR and talent management professionals face many challenges: the workforce is rapidly changing, career paths are no longer linear, and employees are more geographically dispersed. Corporate leaders who can react quickly to market trends will be in a better position to hire the most qualified talent. Organizations must ensure they have the right people in place, with the right skills in the right positions at the right time, to support business growth.
While having the right strategy in mind is the first step in transitioning from an organization with basic HR needs to one that looks at HCM as an end-to-end process, companies must ensure they have the right system in place to handle all employee information. An organization unfortunately has to invest a substantial amount of time and effort in selecting the right system to meet their needs. So before embarking on a long-term relationship with a vendor or provider, companies need to do their homework.This overview will steer organizations in the right direction by providing crucial information about the types of systems available on the market.
Tier 1 and Tier 2 ERP Vendors: Adding HCM to Their Mix
As Tier 1 and Tier 2 vendors add HR and related functionalities to their ERP mix, it’s easier for vendors to subsume extensive ERP expertise and HCM functionality under one roof (so to speak). Tier 1 vendors are the largest and most well known in their field, and generally have clients with at least $1 billion (USD) in annual revenues. These vendors include Oracle, SAP, and Microsoft (AX). Tier 2 vendors are generally smaller and more limited in their offerings, and cater to clients whose annual revenues range from $100 million to $1 billion (USD). Some of the better-known Tier 2 vendors include Epicor, Infor, and Syspro.
Organizations that are likely to consider a Tier 1 or 2 type vendor solution are those that have already implemented an ERP solution within their organization and have made a big investment in technologies. They may be using HR tools (e.g., Payroll and Benefits management), but are looking to expand the capabilities of their HR system to align with their strategic human capital objectives. These organizations often choose a Tier 1 or Tier 2 ERP vendor with HCM capabilities in order to establish a relationship with an ERP vendor, possibly reduce pricing for the vendor’s HCM module, gain simplicity of integration with the existing ERP system, etc.
SaaS-specific HCM Solutions
ERP applications were originally designed for industrial companies seeking to integrate manufacturing resources, planning, and accounting. Some of the early vendors included Baan Co. (now Infor) and Oracle. But then PeopleSoft came along and added HR to the Oracle mix—forever expanding the definition of ERP.
While ERP vendors provide a wealth of applications for the enterprise and each vendor touts integrated system as the superior solution, every module may not be best-of-breed. After all, it’s difficult to excel in every niche. However, ERP vendors are increasingly honing their HR or HCM functionalities to include—among other things—recruitment, performance management, compensation management, learning management, and succession planning. The close integration between an HCM solution and an ERP application means strategic data sharing and thus increased workforce efficiency. And, access to information that resides in one location can provide the big picture (e.g., metrics and key performance indicators for reporting) to those who need to make informed decisions.
HR has always been told to do more with less, and since the recession of the late 2000s, this directive has become more imperative. While some organizations already had a relatively small staff, the recession tightened the spending of companies even further—i.e., fewer resources and a whole lot more work. This meant further automating HR tasks and streamlining HR functions in order to channel more energy into attracting, developing, and training.