In-House or SaaS – Which HR Solution is Best for You?

This article is first published in HRM Singapore – Issue 9.10: Annual guide to HR Technology and Outsourcing

HR technology is a niche area that is often best left to the experts. HRM considers the costs and benefits of having your software and data applications delivered through outsourcing

The world may be in a downturn and Singapore itself is certainly still recovering from this year’s economic recession, but not every business sector is suffering. Spending on HR technology, for example, has been maintained through the year – and is now expected to grow significantly as the wider economy lurches back into the black.

According to Towers Perrin’s annual survey on HR service delivery trends and practices, only 36% of companies expected to decrease their spending on HR technology during the 2009 calendar year. Moreover, 21% of companies actually budgeted for an increase in spending.

Ari Kopoulos, Sales and Marketing Manager, EmployeeConnect, says he is not surprised by the apparent market stability. While the economic downturn has placed a primary focus on costs for many businesses and decision-makers, they have not taken a “cut at all costs” philosophy. “Instead we are seeing behaviour changes on project definition and implementation,” he says.

Specifically it means more emphasis on expanding reporting capabilities, tighter approval criteria in business process and reworked approval maps to reflect policy changes.”

As the cover feature shows, there has also been a shift toward wider, more holistic HR information systems. “The emphasis is on the role all HR modules play in the overall HR process, to address gaps in the management of data and processes.”

The downturn has also inspired HR to re-look at where its technology comes from and how it is managed. Many organisations are turning away from hosting such systems themselves, instead turning to third parties to outsource their technology needs. Depending on how this is done, there are some significant cost savings to be had. But HR also needs to be aware of issues like data privacy and the reputation and reliability of its outsourcing partner.

Types of providers

There are several types of providers in Asia’s HR technology marketplace. There are third party players that will specialise in just one type of function (making payroll more manageable and efficient for example), while other will offer all-encompassing services, playing the role of external Information Technology (IT) manager for their client organisations.

Choosing which one will depend on the exact circumstances an organisation finds itself in. Either way, it can often be a hot debate topic at the top of any leadership chain. HR information systems contain viral data and perform processes that are essential to the overall wellbeing of an organisation. Putting that into third party hands can be a nervous prospect; but then so can leaving it with the less-specialist safe-keeping of internal IT sources.

Software-as-a-service

One outsourcing model currently gaining more and more favour in the market is known as “Software-as-a-service” (SaaS). Like the name suggests, this involves third party technology developers creating software applications that client organisation access through the internet. The developer provides all maintenance, support and regular updates, while the client pays a “rental” charge for use, avoiding the heavier (but one-off) establishment fees that come with actually owing the software it uses.

Karen Paterson, CEO of Patersons says this is her company’s favoured distribution method for its global payroll solutions. “SaaS is hosted by the vendor so clients can pay as they go,” she says.

“All clients are on one multination platform, and there are updates for every client and every jurisdiction.”

This is particularly useful for large companies with employees spread across several countries in wide ranging numbers. “We see this a lot in Asia,” Peterson says. “The key is the ability to scale both down and up.

“A company might have 10,000 people in China, but only two in Japan. The ability to cater for all that is an important part of SaaS.”

SaaS software applications are hosted by the vendor, with no internal resources or bandwidth required to store or analyse data. The customer organisation need only install a “client” application to access the system.

Kopoulos says SaaS brings a number of advantages to the outsourcing table. “If your company does not possess the necessary technical expertise in-house to support and configure, then the SaaS model may be your best choice,” he says. However, there are considerations to make before diving right in. Chief among these is the security of data that is being stored outside of the in-house computer network.

“As this concern is common to all clients you can safely say that most vendors have invested heavily in the security of their platforms and applications,” Kopoulos says. “The consideration here is, does the alternative to the in-house solution offer an equivalent level of security, and does it meet the standard we set as an organisation?”

He advises potential customers to think carefully about the security impact of outsourcing vital HR processes. “It is important that your security specialist discuss their requirements with any vendor when assessing an appropriate implementation model.”

HR also needs to know it can access its data, and the technology, as and when it requires. There’s nothing more frustrating than having an urgent analysis to make and the software is not available for some reason.

Kopoulos says this is less of a problem with the latest SaaS offerings. Because they take responsibility for all maintenance, any problems can be quickly overcome without the need for technicians to access the worksite.

“Without doubt, an in-house model should be able to provide a higher level of accessibility than a SaaS model,” Kopoulos says but balances that against the possibility of longer downturn. “When it’s hosted within the vendor’s control, they have sole control and responsibility for the environment and are able to access the components to resolve any issues. In the in-house scenario, a vendor may have limited access and the diagnosis and resolution process for issues can take longer.”

Keeping costs down

SaaS is gaining popularity in part because it is seen as a low-cost solution to technology issues. Thomas Keebler, Leader of Tower Perrin’s global HR Function Effectiveness practice, says businesses are aware of the need to upgrade and enhance their HR functions, but are still keen to deliver this within tight budgets. “Our study shows more and more companies view HR technologies and system budgets as ‘must-have’ expenses that support both long-term objectives and short-term needs,” he said.

Still every dollar spend means another dollar cut somewhere else, and employers are only too aware of the need to get the most out of every budget line. It’s for this reason that most companies identify costs as the most important issue when considering their HR technology investments.

“HR technology budgets have been fortunate in avoiding the more dramatic budget cuts we’re seeing across most other areas of business in 2009, including the broader HR function itself,” Keebler says. “When cost is an issue, it’s critical that HR and HR information technology leaders work together to streamline processes and maximise resources.”