How do you know what the future of Human Resources Management Systems (HRMS) and Outsourcing will be?
Can any of us in our industry predict what is going to happen in the next five to ten years? We would to try by exploring the past and also by making some future common-sense predictions.
There is a saying that "past performance is indicative of future performance". So first let me share some of my past predictions with you. I need to clarify that some of these predictions are non-outsourcing related but are all Human Resources and Benefits related. Anyway, lets see if any of these predictions were valid.
Past Predictions by HR Consulting Group 1987-2003
- 1987"A Personal Computer is far less expensive to operate than a mainframe. In the next few years it will be so inexpensive to just add more hard disk storage onto a PC that minicomputers may become obsolete." 80% correct.
- 1991"Issues regarding age discrimination, sexual harassment, management development…. will all pale in comparison with the cost of health care. Attempts at utilization review and managed care will have little impact on costs". This prediction came true and even 12 years later is still valid today.
- 1994"Medical IRAs allow that the money that's been set aside isn't used by the end of the year in which it's been earned, it can be carried forward… and provide strong financial incentives for employees to be wise health consumers.." HRA s were passed into law on 8/2002 so this became true.
- "The Health Card, similar to an ATM card would be issued to every employee…..and payment for services could be made via…the employee's checking, debit or credit card account, accessed like an ATM transaction… if the employee has a medical FSA ." This became true since Debit cards have been popular since 1998.
- "Any HRIS and medical system will need components of Debit and Credit card processing, EDI for online eligibility and plan information, electronic funds transfer for transfer of funds, and interactive voice response units." 100% correct.
- 1995"We are seeing a lot of interest in … Internet access. Enrollments, e-mail, training and even telecommunications are applications for the Internet". Everyone knows this happened.
- "HR departments are now being run as profit centers and each additional staff person or equipment purchase must be justified." 100% correct
- "The use of outsourcing is growing". This is still true even today
- "Those employers that do cost-justify the purchase of new technology systems and decide to not outsource are moving to client-server applications." 100% correct for 1995.
- "Within 3 years most computer literate employers will be doing training, employee communications, and updating of HRIS and benefits by the Internet." 80% correct
- "In the immediate future most jobs, job postings, sample of work product… will occur using advanced technology… using Internet delivery systems." Everyone knows this is true.
- "In the next 5 years any employer still using/accepting paper applications and resumes will be in the "dark ages". 80% correct
- "Most firms should first explore voice response, then move to networked systems… and finally to electronic data interchange (EDI) processes that might incorporate the Internet." All of these things happened.
- 1996"By 1997, more than 80% of employers will outsource all or part of their communications and enrollment processes for benefits. Other areas of outsourcing are training, retirement services, and even the entire HR function…. Computer based training will be used in every aspect of HR." About 70% has happened.
- 2000"ASPs (Administration Solution Providers) will end up with only a few, major players and many of these ASPS will be out of business in the next one to four years. The Gartner Group has this to say about ASPs …there are 480 retail ASPs, but 60% of them will be bankrupt." This is happening right now.
- "The Internet will continue to expand….and this trend will continue until a more efficient method is found." 100% correct
- "Telecommuting will be the norm and within 10 years 40% of employees will telecommute". I am about half right but I still have 7 more years to reach my prediction of 40%.
- "Technology will level the playing field … We predict that it really will be profitable to use limited HR staff to handle self service technology." This has come true.
So has my past performance made me an expert in predicting the future? Over the last 16+ years I have made some predictions that have come true. (Naturally I did not mention the predictions I have made that did not come true!)
I could make some easy predictions like HR will need to focus on Return on Investment (ROI). I could predict that more and more services will be done using the Internet. There have already been many articles on these subjects and I can recommend several to you.
Gazing into my Crystal Ball I see some trends, which might be worth considering.
1- Mainframe back-end systems will become the "workhorse" of HRMS in the next 5 years.
I believe that technology and systems come and go in cycles. Kind of like fashion. And if it was good once, it means it could be good again. Maybe better. In October 2001 Mary Kohler, President of Tesseract HRMS Software and I agreed that: "What goes around, comes around."
Since 2000 many employers have implemented Web-based systems. However, many applications in HRMS that are data intensive need more speed. In fact, Payroll is a business function that is still faster and more cost effective using a mainframe back-end. So if you are using a Web front end for Payroll; then usually you will have more speed with a mainframe backend. In fact, many payroll systems are moving back to larger servers (i.e.-mainframes) to get it done and done efficiently.
15 years ago a lot of time and attention at IBM was focused on Personal Computers and mini computers.
Today, the majority of IBM's revenues again come from mainframes. More and more IT people are recommending IBM and mainframes for heavy processing. Again. And the cost of these mainframe servers is falling dramatically.
So why are HRMS professionals still reluctant to come full circle and look at mainframes, again?
2- For the next five years, using only online Internet technology might not be the best solution for your company. In fact, state-of-the-art technology has become a constantly moving target, and just when you think you have the latest and greatest, it's devastating to realize you don't have it at all. Obsolescence is a fact of life, and it will usually occur right after you have implemented a new system.
Vince Ceriello, noted HRMS expert and President of VRC Consulting and I have noted:
"A lot of HRMS vendors have developed very complex and exciting applications. They appear to do everything but "slice bread". The problem is that you might not need to have your bread sliced. Remember to segregate the functions and features offered and then focus on needs vs. wants."
Example: many of the new Web-enabled HRMS solutions require a high-speed connection well beyond what conventional modems provide and the very latest versions of Microsoft Explorer or Netscape Navigator to work properly. But recent studies show that fewer than 14% of employees have T1, ISDN, DSL, or cable modems available to them outside of their work place. But over 30% have the latest version of Explorer or Netscape. That leaves a majority, or about 56%, that does not have even the basic capacity to access HRMS applications over the Internet. The latest technology can't be the "best" technology if the majority can't use it.
Even though it is popular to focus on the Internet as the main system for outsourcing, customer service, and Human Resources- should it be? I think that the Internet should not be the main focus until the following is available:
- Wireless Internet connections at low cost
- Universal connections to the Internet at DSL speeds or better
- Cheaper and easier access to employees while traveling, commuting or from home
In fact the Internet might even be replaced by some new and cheaper technology in the near future.
3- Careful Selection of an Outsourcer will be based on value- not just price
Dave Ulrich, national expert in HR, has stated that Human Resources creates value in three areas:
- For employees- which should create more committed employees, longevity, less turnover, more loyalty
- For customers- which should create more revenue and repeat sales
- For investors- which should create more market value
If the outsourcing of HR functions and the HRMS decisions you are making are not creating this value in all three areas; you need to refocus and reload. Why? Because the experts agree that price is not the only issue in outsourcing and HRMS decisions.
Watson Wyatt reported that the primary reasons that companies outsource are:
- 36% want to maintain or improve service to employees
- 29% want to reduce workload to existing staff
- 14% want to reduce costs
- 12% want to free up resources in order to focus on other company business
So in 1994 only 14% of employers were focusing on price as their reason to outsource. In fact, recent surveys show that costs, workload, and resources actually increased internally at the company after outsourcing. Also a 2003 survey on "Reasons for Outsourcing" shows new reasons and new functions to outsource.
Alan Eilles, Vice President of BP Downstream, has listed some items to consider in selecting an Outsourcer. None of these reasons listed is price:
- Good cultural fit
- Shared values such as respect for the individual, diversity, etc..
- Ability to team with other suppliers
- Alignment of business strategies
- World class processes, expertise, advanced technology and innovation
- Commitment to collaboration and continuous improvement
- Clear expectations and accountability of both parties
- Clear but flexible contract with a view to mutual benefit of both parties with the right incentives to drive the right motivation
- Performance and cost transparency (i.e., metrics monitored and clearly visible to all business units)
- Relationship management
So focus on value and you will not be disappointed in your Outsourcer and in your HRMS system.
4- Speed will be "risky" in making decisions about HRMS and Outsourcing.
In the movie Top Gun, Maverick and Goose are trying to win the Top Gun Tournament for being the best fighter pilots. The competition is almost over, and the pressure is really mounting. When faced with hopelessness and overwhelming odds, Maverick exclaims, "I feel the need... the need for speed." They exchange "high fives" and all seems well with the world. "Seems" is the operative word here, as nothing in the movies is ever as it "seems." You know the story. They end up crashing their plane.
The lesson here, of course, is that often when the pressure is on, instead of pulling back and rethinking our strategy, we feel instead the need for even more speed. HRMS professionals should remember that speed could be a dangerous thing.
HRMS professionals need to pull back, slow down a little bit and plan. Yet the need for speed keeps many professionals from really planning for the next few years. And I believe that includes evaluating all your options, not just the new, greatest technology and the newest Outsourcing option.
We can learn from the hardware and software industry that making a decision quickly might not be the right thing to do:
"Remember in the 1970-80s no one was ever fired for recommending IBM. But that changed. In the 1990s, it became Microsoft and PeopleSoft that replaced IBM. Everyone was talking about PCs and software. In the early 1990s, no one was ever fired for recommending Microsoft or PeopleSoft.
But recommending Microsoft or PeopleSoft in the 2000s is no longer a "sure thing." Now it could be Oracle or Linux, and it changes literally everyday. Don't let the "need for speed" keep you from taking the time to consider all the possibilities and keep you from making the right recommendation in the 2000s."
With regards to outsourcing and HRMS systems- it makes sense to wait until you see if Oracle acquires
PeopleSoft. It might be less risky to wait and not change to the "latest and greatest" software or
Outsourcing provider. Do your homework. Check the financial backing of the providers you are going to work with, and most of all- take your time. The "need for speed" could be risky indeed.
5- the fastest growth area and greatest value for HRMS will be in Employee Self Service
I believe that the goal of most employers is to increase value. Employers would love to hear that their employees feel that the employer:
- repects them
- provides them with more autonomy
- gives them better information
- offers them more "real" incentives to work smarter
- is willing to share more of a financial stake and cost savings with them
Could that even be possible? It is if you continue to focus on Employee Self Service. Surveys show that employees value and want more information via Self Service. Employees of all ages want information quickly and accurately via Self Service.
Mercer Human Resources Consulting in 2003 surveyed many medium and large sized firms and found that more than two-thirds of those employees who responded want even more varied information via the Internet. Interestingly- the web sites least preferred as a source of information were those sponsored solely by the employers or by health plans. Linking many website together and allowing in-depth self-service were requested most by employees.
Employees want the information to make better decision about all areas of HR that affect them; especially in benefits costs and decisions. One answer to the looming health care crisis is to give employees better information via Employee Self -Service..
Soon employees will be making the majority of all decisions about health care. Eastbridge Consulting did a study in September 2003 and concluded:" Employee-consumers will still receive the majority of their benefits through their employer, but "the majority of decisionmaking will shift from employer to employee, [including] allocating the dollars contributed by their employer as well as their own contributions, selecting the types and amounts of products and manufacturers." In addition, "the old concepts of 'group,' 'individual' and 'voluntary' [insurance products]" will no longer have meaning by 2020, Eastbridge believes. Rather, products will be seen "as one business and sold by the same intermediaries and on single platforms."
6- HRMS decisions in the next five to ten years will focus on the Law of Sunk Costs
Many vendors who sell HRMS systems and outsourcing services seem to work on the theory that if they build something, it will answer the question and everyone will make a decision to buy it. What they fail to realize that often they are creating an answer where there isn't a question.
How can you be sure that the decision you are making today will still work tomorrow? You can't.
With HRMS, the pressure is on to be faster, newer, more efficient, and on the "cutting edge." But at what cost? The best thing you can do is to manage by the Law of Sunk Costs.
Let's suppose in the last few years you bought a new and exciting payroll system that is the envy of the HR community. By now, the payroll system is bug free, has been running for a couple of years, doing what you want and doing payroll processing in three hours. Let's suppose you have invested more than $1 million dollars in software, hardware and implementation costs alone. In addition, you personally have invested years of blood, sweat and tears into making this payroll system perform for your company. Then let's suppose that someone approaches you with a system that does payroll in 30 minutes - and it's an old technology. Should you explore switching payroll systems?
Remember, you've just spent years of work and $1 million dollars for this new and exciting payroll system that everyone in the HR community covets. But just how much is it really worth?
It is worth nothing.
All that time and effort is what we call a "sunk cost." It is irrelevant to the situation at hand. The real issue is whether reducing payroll time from three hours to 30 minutes is worth it.
You have to look at the economics of the situation as it stands right now. The law of "sunk costs" says that it doesn't matter what you have spent in time, resources and even capital/money in the past. You must base all future decisions on their potential return on investment (ROI). You need to ask yourself from this point forward what are the benefits and costs.
Starting today, which option would be more profitable and risk-free for your company? For years, we have been advising our clients that the best business management decisions for evaluating HRMS options are obviously those that bring the highest rate of ROI to the organization. If management can buy a new machine costing $100,000 that saves the company $100,000 in cost of production, there is not a manager alive that would object to having that equipment. Why? Because it generates a 100 percent return on invested capital.
So where do we go from here?
I suggest that we should all be aware of these future predictions and trends. But don't keep so focused on the future that you miss what happened in the past. Remember that: "what goes around comes around".
In 2002 I proposed that HRMS professionals must: "Think not only Outside the Box, but Think Outside the Industry." However, I admit that there is evidence that a return to old-fashioned values and methods has some merit.
There is even a new bestseller from Kirk Cheyfitz that seems to be support that position. Its entitled: "Thinking Inside the Box: The 12 Timeless Rules for Managing a Successful Business". Free Press, 2003.
So, it might not hurt to consider and even return to the core values and basic management principles that have worked in the past. We should all learn from the example of what happened at Enron, Arthur Anderson, et al.
After all; who could argue with Cheyfitz's very first of his 12 Timeless Rules: "Don't do anything stupid"?
Sound advice to live by.
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