Rob Thurston, Human Resources Consulting Group

Vince Ceriello, HR Consulting/VRC Consulting Group

An expression we hear all too frequently these days from the mouths of HRMS vendors, consultants, trainers, and other service providers: " We need to think outside the box" is, quite frankly, getting a little old and in many cases, just pure rhetoric. An entire cottage industry of HRMS product and service providers exists that do nothing more than try to get companies to think creatively … at optional extra cost … to think outside their technical expertise; to look at things in other ways; to change their viewpoint.

There is nothing inherently wrong with thinking creatively but it is too simplistic to merely think outside the box. The thinking literally has to be "bigger than the box". It needs to be bigger than our office, bigger than our department; bigger than the enterprise itself.

All of us in HRMS need to think outside our industry. You might take great pride in your work product, knowledge, and expertise, but that is not enough. You cannot survive in the HRMS arena if you don't understand what is going on outside it.

Need to Know versus Information Overload

HRMS professionals are consistently asked to evaluate and recommend technology and software solutions … often without being able to see the big picture. Advances in HRMS technology that were thought to be 5 -10 years into the future are now readily available today. Change has become the only constant in the HRMS industry. So how do you make the right decisions now and have confidence that these decisions will withstand intense scrutiny 3 - 4 years from now?

One solution might be to have HR and HRMS be part of the overall company strategic planning process. We've heard that one before, haven't we? The problem is that, while we insist on being involved in the strategic planning and future directions of the enterprise/region/division/office, we are often told that we don't need this level of information to do our jobs. In essence, enterprise/region/ division/office management withholds or otherwise refuses to share strategic information. Information is shared on what they perceive is a "need to know" basis. And management doesn't think we need to know.

But here's the catch! How can you reach the best solutions if you don't have all the information needed to make the best, most informed decisions?

It's a paradox!

At the same time we are jockeying for position, HRMS practitioners are experiencing information overload. Clearly, the need for speed parallels new advances in HRMS technology, software, and implementation time frames and in the tools we use to make it happen. But do these new methods really provide the best solutions?

Let's summarize:

  • The rate of change in information is increasing
  • HRMS needs strategic information in order to make the best decisions
  • Management does not readily share strategic information with HR/HRMS
  • The HRMS function is also experiencing information overload

A New Way to Look at the Problem

Obviously, there are no easy answers. But isn't it frustrating when someone points out that the solution to the problem is just "staring you right in the face"? or "why can't you see the forest instead of just the trees"?

Over the next few years newer trends will cause HRMS professionals to reinvent the tactics they employ with regards to technology. Although 2004 - 5 - 6 sounds far off, companies must prepare now to effectively implement new technology. Management will demand that HRMS evaluate the need, timing and costs of new technology.

Focusing on what the HRMS industry is doing and doing well will, alas, not get the job done. The recent major fluctuations in the financial and stock markets provide a good model from which to learn.

Let's take a 30,000' look at Wall Street. For the last few years more and more brokers with little industry experience were selling the "latest and greatest". The current price of the stock didn't matter because it would definitely be going up. What the company did, the promises for specific industries, realistic Price/ Earnings Ratios, or profitability was irrelevant. What was being sold was the promise of growth, the speed by which one could generate fantastic returns, and that the stock had broad appeal.

The result? The bubble burst. Even with progressively lower interest rates, a favorable business environment and decreasing governmental regulation, financial and stock markets have declined. We saw the NASDAQ drop almost 60% in the last six months, though it has recovered somewhat since. The lessons to be learned are that fundamentals like profitability, solid financials, and past performance are critical. There must be a historical profitability or Return on Investment (ROI). In short, a track record.

Managing by ROI

Why can we not manage our decisions like management does. We should be able to manage by profitability and by ROI. One problem is that we are constantly bombarded by this need for speed -- by what is in vogue; by the "flavor of the month". The latest and greatest flavor as applied to HR technology solutions will probably not taste good in the near term future. Over the past few years, some of us have been preaching the same general sermon: to succeed in HRMS, there has to be a Return on Investment

Paraphrasing what we said in Employee Benefit News last November: "The best business management decisions for evaluating HR and employee benefit self-service options are obviously those that bring the highest rate of return 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 acquiring that equipment. Why? Because it generates an almost immediate100% return on invested capital. We must look at the investment cost of new technology/software acquisition/system implementation with its return on investment (ROI) before we look at any other option. If a change to your HRMS strategy increases ROI, minimizes current and future risk and guarantees delivery on time, then the time and money invested in the past becomes irrelevant."

For a moment, let's assume that a new and exciting HR technology solution is presented to you.

First- it must pass the "sniff test". Does it smell right to you? Does your gut feeling tell you it will increase ROI? That the decision to acquire an HRMS has an ROI component? If it doesn't smell right to you, then you probably should not evaluate that solution further.

Second- if it smells right, can we develop a Cost/Benefit/Value Analysis as part of the Feasibility and Cost Justification Stage? This should address the following issues … and more. For example, can you:

  • Identify and separate needs versus wants?
  • Eliminate from immediate consideration the wants and focus on the needs?
  • Determine what is being done now that must also be done in the future?
  • Identify what is not being done now that needs to be done?
  • Determine the ROI for each of these needs?
  • Develop a Cost/Benefit/Value Analysis to justify each need?
  • Identify the pertinent Change Agents and determine how to manage them?
  • Evaluate the ' wants' in the same manner

Third- if the presented need is still a priority, has an ROI component, and can be cost justified, then we should proceed to the Cost/Benefit/Value Analysis. If we cannot, obviously we should go not further in evaluating that solution.

Fourth- execute the Cost/Benefit/Value Analysis. Identify the value-added for each significant change or need. Then review each potential implementation option and assess its optimal value. Consider:

  • Internal development and hosting
  • External application development, licensing, and implementation
  • Partial internal / partial external development
  • External hosting
  • ASP / Outsourcing

When you have a handle on these, calculate the ROI. While you are at it, calculate the cost of not proceeding (current costs plus lost opportunity costs)

Fifth- If the ROI is less than the cost of not proceeding, then save your energy. Do not invest any effort to evaluate that solution further. You have just saved yourself a lot of aggravation to say nothing of time and money.

Sixth- If the ROI is greater, then run, do not walk, to management to gain their support. This can be accomplished in a variety of ways. Nothing spells success like ROI.

By using these basic, financially oriented tactics and techniques, HR and HRMS will be thinking outside itself.

Future Trends and What they mean

There are some trends being discussed in the HRMS arena that also require thinking outside the Industry. Some are valid, some are not. Here are a few of these facts and myths. You determine their applicability to your environment:

"The Latest Technology Must be the Best. Therefore, We should Adopt it."  Not necessarily. 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 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 the Internet. The latest technology can't be the "best" technology if the majority can't use it.

Many vendors seem to work on the theory that if they build something it will answer the question. What they fail to realize that often they are creating an answer where there isn't a question.

"The Internet will Continue to Expand and all New Technology Solutions Must be Web Based."  Not true. A 1999 study, "Nothing But Net: American Workers and the Information Economy," showed that 68% of employees have a computer at work but only 23% use[ or are permitted to use ] the Internet regularly. In some parts of the country, these percentages are considerably higher but then we have all heard of the abuses of Internet access by employees left unsupervised.

Of course, use of the Internet will continue to expand but it will still be several years before all employees can use or have access to the Internet at work, at home, and while traveling.

"Company Data and Security is Assured under the ASP Model."  Not necessarily. People data is arguably the most valuable asset of a company. We live in the Information Age and your internal data is a measure of your competitive advantage. What is your tolerance for risk?

Keeping data secure and safe from competitors - particularly that which identifies your talent pool -- is critical. Doing business with an ASP who has been in business fewer than five years, has no track record, has questionable financial backing to be able to stay in business, and cannot sell or lease the software they host is a risky business. If they claim that they act solely as the host/administrator and you have limited access to the software, you may be putting your firm and your data [ and your job ] at great risk.

According to some of the HRMS industry market-watchers, many ASPs will fail or be forced to merge in the next few years. Is that a good and safe Return on your Investment (ROI)? Maybe, maybe not. Plan for the worst and hope for the best if you choose to use an ASP. Get the lawyers involved. Your contract should include release of Source Code and working software for internal use, free transfer of your data to another source upon demand, access to the vendor's technical staff, and other safeguards, such as a clause for consequential damages if the failure of the ASP leads to a disruption of your business operations.

"Outsourcing is Always the Best Answer and is an Idea whose Time has Come"  Not always. Except in the largest of companies, employers will ultimately return to offering internal, in-house self-service to employees. Why?

Because an employee's ability to deal with people they know and trust, to be able to interact with the system, possibly through an intranet approach, and to have access to information that will enable them to better understand their own benefits will promote the level of participation by the employee. The higher the participation level and involvement, the greater the potential for employee satisfaction. The benefits of this approach, possibly reducing turnover, are obvious.

Chances are your HR staff knows the benefits plans as well as or perhaps better than anybody. An ASP, on the other hand, would have to build a team around a few experienced people and hire the balance needed off the street or from its competition, possibly with little or no prior experience. Generally, they will not know your business.

If you do choose to outsource get a Service Guarantee stipulation in the contract with the ASP. Require in your contract performance benchmarks, speed and reliability of service, and customer satisfaction survey minimums. Stipulate penalties for poor performance. Finally, get general liability insurance and/or require the ASP to get Professional Liability [ errors and omissions ] insurance to cover loss of data, computer viruses, transfer costs, etc. if they go out of business or, more likely, if they are merged into another operation.

"HRMS is Just the System, Right?  You haven't been listening. An HRMS certainly includes software, hardware, and a database, but also includes policies and procedures, users needs and experience, documentation and help screens, management decision support, and even manual processes. If you think that an HRMS is just a matter of acquiring the latest software and the bigger computer you can afford, you are in for a rude surprise. The software will be less than 25% of the overall cost of implementing the HRMS and less than 10% of the cost of the system over its useful life cycle.


Being open to ideas and techniques that come from outside the HRMS industry can really make a difference in the success or failure of the HRMS function and therefore HR itself. To be part of the strategic planning process, we must manage the HRMS like a business and use financial tools like Cost/Benefit/ Value Analysis and ROI. Just because everyone is excited about the flavor of the month now doesn't mean it will taste as good in two to three years.

Many HRMS professionals are now realizing that the latest and greatest technology might not be the best solution. Hopefully many of the HRMS vendors and consultants will realize that they are building an answer where there may not be a question.

About the Authors- Vince Ceriello is a Partner with HR Consulting Group and Rob Thurston is President and can be contacted for further information atwww.hrconsultinggroup.comThis email address is being protected from spambots. You need JavaScript enabled to view it. , or  (801) 765 4417 . (published in the HRLink magazine in January 2002)

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