Human Resource Management Systems Industry Overview. Introduction
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Human Resource Management Systems (HRMS) refer to a combination of human resource management and information technology (IT). Embedded within HRMS are the synthesis of HR functions and processes with IT software to streamline the administrative and operational infrastructure of an organization. HRMS applications consist of a broad set of business processes and analytical capabilities spanning the employee lifecycle. This includes, hiring and on-boarding, personnel and benefits administration, compensation, payroll, compliance, performance management, succession planning, and career development. HRMS allow for the optimization of human capital through the use of IT. According to the Centre of Human Resources Information Systems, despite the widely acknowledged importance of human capital for a firm’s success, HR processes often fail to recognize the strategic potential of Human Resource Management (HRM).
HRMS Provide Essential Process And Information Support
HRMS are a foundational application suite used by companies of all sizes and in all industries. The need for HRMS is driven by several fundamental and potentially mission-critical business needs, including:
Managing personnel costs – The cost of labor is among the largest operating cost categories, accounting for approximately 26% of US companies’ total revenues. Organizations use HRMS to plan and budget salaries and positions, maintain consistent compensation and promotion practices, control hiring, and manage layoffs.
Operating efficient business processes – HRMS support a myriad of HR business processes, including personnel actions, employee record maintenance, employee pay, and benefits management. These activities have traditionally been labor-intensive and paper-based. Efficiency gains come from making these transactions directly accessible to employees and managers via web-based functions within the HRMS, eliminating the need for paper and clerical intermediaries.
Complying with regulations and managing legal exposure – Another important reason to invest in an HRMS is compliance and risk management. Numerous compliance laws and risks exist that are related to equitable pay, overtime, time off, hiring practices, employee conduct, and working conditions. HRMS, as the system of record for employees, help to meet compliance obligations and manage risks.
Increasing the value of human capital – Organizations with a strong HR function will focus on performance, employee development, and reward programs to achieve better retention and higher workforce productivity. Comprehensive HRMS, often supplemented by best-of-breed talent management solutions like learning management systems and recruiting systems, support these human capital initiatives.
HRMS Footprints Gain In-Depth Talent, Analytics, And Global Capabilities
Although the overall breadth of HRMS application suites has not evolved significantly over the past several years, their depth of functionality has improved in several areas (see Figure 1):
Talent management – Comprehensive HRMS applications continue to add more functionality to their process functionality in talent management. Progress can be seen in several talent areas, especially performance management, goals and competency frameworks, performance-based compensation, and, most recently, succession planning. We find that most companies prefer to use best-of-breed talent solutions to supplement HRMS, but the increasing quality of talent management components within HRMS suites will make it more difficult to justify separate, specialized vendor solutions for these processes. Recruitment and learning capabilities within HRMS suites, however, continue to lag further behind best-of-breed solutions.
Global and localized capabilities – Enterprise resource planning (ERP) titans Oracle and SAP continue to lead in supporting the most languages, local compliance requirements, and global capabilities (e.g., data and currency formats), but this is a significant area of investment for other vendors. Customers are increasingly calling upon HRMS vendors to support a multinational workforce. The global and localized capabilities also support vendors effort to expand sales and distribution beyond their home markets.
Embedded analytics – The lack of user-friendly reporting and analytical capabilities has been a crippling shortcoming of HRMS solutions over the years. However, improvements are evident in several solutions, where the best capabilities provide embedded analytical information displayed within the context of the application rather than having to use specialized reporting tools to extract the information. Embedded analytic content is evident in most of the solutions evaluated and is more prominent in the newer products, including Oracle Fusion, Workday, and ADP Vantage HCM’s new talent management component.
Organizational charting – Hierarchical reporting structures are important in the HR context to define organizational reporting relationships and approval processes, as well as for succession planning. Historically, HRMS vendors have typically relied upon third-party plug-ins for graphical organizational charting. Most of the HRMS suites evaluated now include graphical organizational charting within their core solutions; some, like Oracle Fusion and Workday, use it extensively as a navigation paradigm for accessing process functions and employee profiles.
The HRMS Market Has A Moderate Growth Rate, But Software-as-a-Service (SaaS) Is Growing Faster
HRMS application suites are the largest segment of the nearly $10billion market for HRM software and account for half of its total revenue. The growth rate in this segment is more than 8%, which is healthy but is substantially less than the faster-growing best-of-breed talent management segment, which has a 22% growth rate. The human capital management segment grew at a rate of 5% per year over the period of 2010 to 2014. The global HR software market is forecast to grow at a relatively low compound annual growth rate (CAGR) of 2% from 2013 to 2018, but this low growth is not indicative of the profound market shifts and inner market dynamics of the industry.
Although on-premises, licensed software is the traditional deployment model for HRMS applications, SaaS revenue is growing at a 15% rate, nearly twice as fast as the HRM application market as a whole. Key drivers of SaaS HRMS adoption include faster implementation times and automatic software upgrades and updates. Improvements in software configuration flexibility in newer products make this deployment model attractive to organizations of all sizes.
The HRMS Vendor Landscape Consists Of Four Types Of Solution Providers
The vendors providing HRMS solutions fit into four main categories:
Enterprise Resource Planning (ERP) vendors – Many of the leading ERP software vendors offer an HRMS as an application component of their overall suites. According to the Forrester Wave evaluation, Infor-Lawson, Oracle, SAP, and Workday fall into this category. ERP HRMS solutions not evaluated in this Wave include Epicor Software, IFS, Microsoft Dynamics (AX and GP), Oracle’s JD Edwards, and Sage Software.
Pure-play HRMS vendors – Several software vendors specialize in HRMS applications as their core competency. Of the vendors in this evaluation, Ultimate Software falls into this category. Pure-play HRMS vendors not evaluated in this Wave include High Line, HR Access, Meta4, and NuView Systems.
HR/payroll outsourced service providers – Several providers of HRMS solutions offer outsourcing services related to payroll, benefits, and HR as their core business. Two of the leading payroll service providers, ADP and Ceridian, are included in this evaluation. NorthgateArinso is another HR service provider that offers its own HRMS solution functionality but was not evaluated in this Wave.
Learning and talent management vendors. A few vendors historically associated with the realm of learning and talent management have recently begun to offer HRMS functionality (excluding payroll). These vendors, none of which was evaluated in this Wave, include SilkRoad Technology, SuccessFactors, and SumTotal Systems.
Organizations are beginning to understand the potential of human capital and to optomize the strategic potential of HR. According to the Centre of Human Resources Information Systems, a key move towards realizing this potential is to take traditional HRM and transform it into e-HRM through SaaS and Human Resource Information Systems (HRIS). Despite the higher success of the talent management segment of the market, this does not reflect a decline of HRMS usage. Rather, the broader human capital management industry has experienced significant consolidation of HR system solutions. Despite moderate growth rates within the industry, the increase in SaaS HRMS adoption foreshadows a technological shift within the HRMS industry. Streamlining the operations of HRMS through SaaS will alleviate the industry of its relatively stagnant growth rates in the future.