TRENDS

Trends 2005: HR Management Systems

By Paul Hamerman with Jessica Harrington November 4, 2004

EXECUT I V E S U M MA RY
Companies are deploying comprehensive HR systems not just to automate administrative tasks but also to leverage the value of their investments in human capital. Large companies are increasingly moving to centralized, global installations of these systems and employee portals while midmarket companies move to hosted HR systems. Looking forward, we will see increased use of employee-facing online services, workforce scheduling, and bolt-on components to supplement the core system functionality. HR SYSTEMS GO WAY BEYOND ADMINSTRATION A human resources management system (HRMS) is a comprehensive suite of applications for managing the workforce. Organizations deploy this essential application to manage personnel costs, operate ecient human resources business processes, comply with employment laws and regulations, and optimize the value of human capital. The scope of these systems has expanded beyond core functions like personnel records, benets and payroll to employee development, recruitment, performance management, and workforce analytics. Some Key Drivers Are Changing The Landscape Forrester has identied these key drivers of trends in human resources management technology.

The recognition of employee value is leading to better HR business alignment. The growing
awareness of the notion of human capital is an acknowledgement that employees represent a critical investment (asset) rather than an administrative expense. Leading HR executives have learned to speak the language of the CFO and the CEO. This is allowing for better communication about the value of HR strategies, enabling increased investment in employee development and better alignment of employee objectives and business objectives. As a result, deployment of HR solutions to recruit, optimize, and reward talent is growing.

Deployment strategies focus on centralization and globalization. Global companies are

moving toward consolidating and centralizing HR applications and data to achieve greater control and visibility over their workforces. Centralizing employee administrative functions is also leading to higher levels of outsourcing, including comprehensive HR BPO.

HRMS core functionality is reaching parity. Forresters research on HR systems indicates that
core HRMS functionality, including personnel, payroll, and benets, has reached a substantial level of parity among the leading vendors.1 One impact of this is that medium-sized to large
Headquarters Forrester Research, Inc., 400 Technology Square, Cambridge, MA 02139 USA Tel: +1 617/613-6000 Fax: +1 617/613-5000 www.forrester.com

Trends | Trends 2005: HR Management Systems

companies increasingly view HRMS as a component of an integrated ERP system rather than a standalone application. Another result is that core HRMS functionality is becoming relatively commoditized to the extent that outsourcing it is a viable option. 2005 IT Trends To Watch In Human Resources Management Forrester oers ve signicant trends to follow:

Hosted HR systems will grow in the midmarket. HR and payroll transactional

systems will move increasingly to a hosted deployment model, especially among small to medium-sized businesses (SMBs). In addition to providing applications functionality, solution providers will oer a variety of complementary outsourced business process services, including compliance and administrative services. The move to hosted HR systems will be driven by market-leading outsourcers, including ADP, Ceridian, Fidelity, and Hewitt.

Large companies will expand portal-based online employee services. By now the

majority of companies with more than 5,000 employees have implemented employee and manager self-service applications to automate routine business-to-employee interactions. Going forward, sophisticated companies will evolve to a comprehensive online employee experience (OEE). The OEE combines employee-facing content, transactions, and services through a portal, addressing employee needs that are well beyond the scope of HR. The OEE moves the value proposition up the food chain from eciency to productivity and loyalty/retention.

Best-of-breed HR solutions will expand as snap-on components. The market-leading

enterprise applications vendors will evolve to service-oriented architectures by the end of this decade. These open, standards-based architectures will create opportunities for specialized vendors to develop complementary HR solutions components. These components integrate easily with the leading ERP HR management systems in areas like recruitment, employee development, compliance, and benets administration.

Large companies will globalize their HR systems. Growth through acquisition

and decentralized HR systems deployments over the past decade has left many multinationals with multiple HR systems. In addition to being costly and inecient from an IT perspective, these companies have a limited ability to manage global HR data and processes. The majority of multinational and large domestic organizations (including governments) will consolidate their HR management systems to a single global instance to leverage IT eciencies and gain visibility and control over their human capital.

November 4, 2004

2004, Forrester Research, Inc. Reproduction Prohibited

Trends | Trends 2005: HR Management Systems

The HR vendor landscape will continue to consolidate. The large enterprise

applications vendors and major HR and payroll outsourcers already control the lions share of the HR management systems market. Going forward, most remaining independent HRMS software vendors will be acquired by ERP software vendors and outsourcing providers. This trend indicates that HR systems are viewed as a core enterprise application as part of an integrated ERP strategy or, alternatively, as an administrative support function that can be outsourced.

Companies will invest in workforce scheduling and optimization. Some industries,

such as retail, are investing in sophisticated workforce scheduling solutions to match stang with customer and operational demands, reduce costs, and increase service levels. Scheduling applications will take hold in other industries that deploy large numbers of hourly workers, including manufacturing, healthcare, and transportation.

R E C O M M E N D AT I O N S

SOLIDIFY YOUR HR SYSTEMS STRATEGY

Use a single HRMS for your entire organization. A single, enterprise HRMS will
potentially reduce IT support costs and provide enhanced business value by allowing companies to centrally manage headcounts, people-related costs, and global HR processes. The core HRMS may be supplemented with selective best-of-breed applications and outsourced services where appropriate.

Consider a hosted HRMS deployment model. If your headcount is less than 1,000
employees and there is a minimal need to integrate core HR systems with operational systems, seriously consider a hosted deployment model. This model is less likely to be eective from a cost and exibility standpoint in larger organizations.

ENDNOTES
1

With respect to HR management systems, the top three vendors (PeopleSoft, SAP, and Oracle) have reached comparable levels of functionality overall, especially with regard to core transactional capabilities like personnel administration, benets, payroll, and employee selfservice. See the June 25, 2004, Tech Choices Forrester Wave: HR Management Systems.

2004, Forrester Research, Inc. All rights reserved. Forrester, Forrester Oval Program, Forrester Wave, WholeView 2, Technographics, and TechRankings are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. Forrester clients may make one attributed copy or slide of each gure contained herein. Additional reproduction is strictly prohibited. For additional reproduction rights and usage information, go to www.forrester. com. Information is based on best available resources. Opinions reect judgment at the time and are subject to change. To purchase reprints of this document, please email resourcecenter@forrester.com. 35335