Software as a Service. what is it and why is it offering an exciting alternative to the traditional choices of HCM solutions?

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1 Software as a Service what is it and why is it offering an exciting alternative to the traditional choices of HCM solutions? David Woodward Chief Product & Innovation Officer Ceridian UK

2 summary In the past, when it came to selecting appropriate solutions to meet your HR, Human Capital Management (HCM), payroll, workforce management and pension auto-enrolment needs there were really only two major paths to follow multiple, stand-alone solutions from different suppliers or one Enterprise Resource Planning (ERP) solution from a single supplier. Stitching together different systems can be costly, inefficient and problematic. Monolithic, often quite dated Enterprise Resource Planning (ERP) systems are large, complex and expensive. This paper explores these two traditional choices and introduces the exciting new alternative Software as a Service (SaaS). We will describe in some detail what SaaS is and why it can be advantageous compared to the older alternatives.

3 What were the choices? In the recent past there were really two choices when it came to the selection of payroll, HR, HCM and workforce management technologies. These were to either go to multiple specialist vendors for each specific solution being sought, for example a payroll supplier, an HR package, a workforce management system, maybe a performance management solution, etc. or go to one of the major Enterprise Resource Planning (ERP) solution providers. In the ERP space, there has been a significant amount of consolidation, where there are really only two major remaining players, namely SAP and Oracle. Let us examine these two choices in more detail. Multiple solutions This approach has been common and widely adopted. Its outstanding advantage is that specific business functions are able to procure a solution for their needs with little compromise or consideration of other areas of the business. Smaller, agile vendors have been able to enter these markets and offer innovative and often very niche solutions. Sometimes resulting in vertical solutions meeting specific requirements of industry types with specific ways of working. Another related aspect that supports this model is where businesses have HR and payroll functions separated, with say payroll reporting into finance and HR as a separate and distinct directorate. This is a fairly common arrangement in business and one that often results in disparate solutions for pay and HR. This might be crudely to do with two different decision makers operating independently of one another coming to market to find solutions to meet their own specific needs but in a disjointed and unco-ordinated way. Another reason we see this buying behaviour can be rationalised by the need to segregate duties. In the past, simple systems may not have supported advanced security capabilities to prevent, say, someone in HR from accessing and paying people from within the payroll part of the solution. Nowadays this is a weak reason to buy separate systems, as any integrated solution should support strong security capabilities to still afford segregation without the need for buying separate solutions. The major problem with the approach of buying separate solutions is that while individual solutions may well be ideal for their specific needs they are, by their very nature, different from one another resulting in a patchwork quilt of solutions that all have differing ways of working. While such systems sit in the business functions and only users within those functions use them, this may not be a major disadvantage, but with solutions centred around people there is a much greater need for these systems to be used widely by manager and employees themselves in self-service orientated transactions. This is where the multiple separate systems approach starts to fall apart, the differing user interfaces, multiple login and passwords and the need for the data to be interfaced starts to become a major challenge. In addition there are multiple suppliers, so multiple contracts to manage with multiple KPIs to measure and, if managed in-house, multiple systems for IT to support.

4 Some businesses were able to mask these downsides through the use of system integration expertise either in-house or acquired by working with specialised System Integration (SI) companies who make a living stitching systems together. Such approaches helped with covering up the weakness of having different systems with duplicate information in and may go further to simplifying the multiple sign-on challenges, though in Ceridian s experience this is rarely resolved by system integrators. However, the challenge of different user interfaces is very rarely resolved and leaves a poor user experience. In summary, there has been a general trend away from this approach due to the escalating cost of systems integration, and very poor end-user experience having to use many varying disparate systems. The reality is normally one of poorly interfaced solutions, all with a different sign-on and password, each with their own unique and different user interfaces. Of all of these downsides, the one that really damages this approach is the duplicate data sources held in each system. The interfaces are rarely robust enough nor sufficiently sophisticated to give companies the confidence that they can rely on all the data across the differing systems. There is no single version of the truth. So answering basic questions like how many people do I employ becomes painful in the extreme, where the payroll system will tell you one number, the HR system a different one and so on. This starts destroying confidence and eventually is often the downfall of this approach. ERP While often the preserve of the largest employers, ERP represented the main alternative to buying disparate solutions. ERP solutions purport to solve many of the problems of different systems from separate suppliers. Coming from a single software company and being mainly built on a single toolkit, they can remove the need for multiple sign-ins, offering a single user interface and remove many of the integration challenges due to storing all the data in a single database. On the face of it, this approach seems to solve many of the issues raised with the previously discussed alternative. However, this approach has, perhaps unsurprisingly, its own problems. ERPs have become very big and complex and therefore very expensive to purchase, implement, maintain and host. ERP systems have become monolithic in their design, lacking in agility. While their importance and relevance is unquestionable, their appropriateness is more questionable especially for businesses who cannot justify the heavy costs associated with these systems. It is perhaps from a payroll perspective where the ERP approach comes under most stress. With payroll, more so than any other business application, regular updates are needed to accommodate legislative change. In a fully integrated environment with a monolithic ERP in use, the ability to apply legislative updates becomes very challenging, resulting in a major project every year to affect these changes and sometimes forcing businesses to carry out major multi-million pound upgrades to enable compliance! It is not uncommon to split off the payroll part of the ERP into a separate instance and build an interface to it from the remaining part of the ERP system to work around this issue. In so doing, the majority of the benefits of the ERP approach are lost.

5 Also, while ERPs are large, covering wide areas of functionality from finance, manufacturing, to supply chain, logistics, and HR/payroll they do not cover everything in the areas of pay and people. So in reality additional modules are either acquired by the ERP vendor to flesh out their offering or the customer has to go to market to add on missing functionality to their ERP and therefore ends up with a hybrid of ERP and multiple solutions, arguably the worst of both worlds. Areas often poorly handled by ERPs are aspects seen as peripheral to their core coverage of financials, manufacturing or logistics. So recent aspects that are very important in the world of payroll and HR such as RTI and pension auto-enrolment might be much lower in priority to an ERP vendor who has to worry about many other aspects of business software across the enterprise and across the globe. In summary, there has been a trend away from ERP systems due to the combination of excessive cost, problems with enforced upgrades and lack of specialism that has led many large organisations to question their ERP strategy. Such a strategy was often founded ahead of the year 2000 when many businesses implemented their first ERP system to solve their year 2000 problems with their legacy systems. Now the ERP is legacy and the prospect of massive reinvestment on the same platform is causing many businesses to question the sense of continuing down that path. a third way What is needed is an alternative to these two traditional approaches. Thankfully there is a new generation of solutions that is transforming a number of different business application areas including payroll, HR, HCM, etc. This new way is generally referred to as Software as a Service (SaaS) and represents a new paradigm in business software. With big changes in technology comes a whole array of new terminology. The two most prevalent are Cloud computing and Software as a Service (SaaS). These two terms are often interchanged and may confuse more than inform. However, they are at the centre of a massive change in how businesses and individuals buy, implement and use software. So before continuing let us look at these two specific terms in more detail. Cloud computing Cloud computing is a general term used very widely in the area of many internet-based software and computing developments. Wikipedia defines Cloud computing as: Cloud computing is a colloquial expression used to describe a variety of different types of computing concepts that involve a large number of computers that are connected through a real-time communication network (typically the Internet). Cloud computing is a jargon term without a commonly accepted non-ambiguous scientific or technical definition. In science, cloud computing is a synonym for distributed computing over a network and means the ability to run a program on many connected computers at the same time. The popularity of the term can be attributed to its use in marketing to sell hosted services in the sense of application service provisioning that run client server software on a remote location. So we can see why many are confused with these terms! Things get more confusing when introducing qualifiers such as Private Cloud, Public Cloud, Hybrid Cloud, Community Cloud, etc. Sadly, as these terms have become so fashionable, they are also jumped on by marketing departments, and therefore trying to get to the so what s and sort out the marketing hyperbole from the real value behind cloud computing becomes very difficult.

6 A simpler description of what is meant by Cloud computing is that it is the concept of using someone else s computer equipment instead of your own via the internet. It allows a person or a business to forget about technical details like whether a hard drive is big enough and puts that responsibility on another trusted party. Sometimes those third parties charge for the use of the equipment or computer programs, which they are making available for you to use. Other times, the service is available as a public service often funded via online advertising, for example Hotmail and Gmail. Ceridian UK uses a Private Cloud arrangement, whereby two top quality major data centres in the UK house all of its software. These operate in an active-active arrangement, thereby offering disaster recovery to each other, while both also being live and providing computing power to Ceridian s customers. It is a Private Cloud, in that the servers are dedicated to Ceridian s customers and there is no risk or concern that any other customer could affect the smooth running or data controls that are in place. However, the cloud arrangement does enable Ceridian to provision new services for customers quickly and load balance the services it offers to its thousands of customers in a highly secure and robust way. Not all cloud provision is the same. Software as a Service Software as a Service sometimes referred to as on-demand software, is a software delivery model in which software and associated data are centrally hosted by the vendor in a data centre that makes the software available via internet based technology. Often a SaaS platform will be hosted in a Private Cloud. SaaS is typically accessed by users using a web browser. The software may be purely HTML based or might use extensions to a pure HTML to provide richer user interface elements through the use of technologies like Flash, Silverlight or Clickonce. There is no formal set of definitions or accreditation for systems that claim to be SaaS. However, the following are generally accepted as the main characteristics and advantages of SaaS platforms: Multi-tenant architecture The vast majority of SaaS solutions are based on a multi-tenant architecture. With this model, a single version of the application, with a single configuration (hardware, network, operating system), is used for all customers ( tenants ). To support scalability, the application is installed on multiple machines. This is contrasted with traditional software, where multiple physical copies of the software, each potentially of a different version with a potentially different configuration, and often customised, are installed across various customer sites. Better access Because SaaS platforms are internet facing, they offer improved access to data from any networked device. This also invariably makes it easier to manage privileges, user accounts and the like without highly complex administrative tools. These controls ensure everyone sees the information they are allowed to see from any access point. Easier customisation SaaS applications similarly support what is known as application configuration or parameterisation. They sometimes also support bespoke or customisation changes. In other words, like traditional enterprise software, a single customer can alter the set of

7 configuration options or parameters that affects how the software works for your particular business needs. Each customer may have its own settings and/or parameter values for the configuration options. The application can therefore be configured to the degree it was designed for based on the set of predefined configuration options. Customisation or Bespoke is usually where the vendor starts to change the way the software works with code changes specific to a customer. This service may not be an option with a SaaS platform approach, although this varies from vendor to vendor. The main characteristic here is that modern SaaS vendors tend to concentrate their efforts in making the parameters very flexible to increase the likelihood that a customer can fit within its predefined flexibility and reduce the need to either bespoke the solution or leave the customer in a compromised position of a poor solution fit. If however you do customise, with a SaaS solution it should be easier to support and upgrade. High adoption SaaS applications are available from any computer and increasingly other mobile internet enabled devices, anytime, anywhere. Because most people are familiar with using the internet to find what they need, SaaS applications tend to have high adoption rates, with lower learning curves than traditional software. For HR systems, in particular, the ease of use and widely available access drives up adoption for its diverse and large employee audiences. Accelerated feature delivery/painless upgrades Because the SaaS provider manages all updates and upgrades, there are no patches for customers to download or install. SaaS applications are often updated more frequently than traditional software. A word of caution though. There are instances where organisations may want more control over when an update or change is applied to their system, to manage change, communication and retraining. Therefore it is advisable that the mechanics of such updates are fully understood and consistent with your desired ways of operating. Collaborative & social Inspired by the success of online social networks and other so-called web 2.0 functionality, many SaaS applications offer features that let its users collaborate and share information. While some collaboration-related functionality is also integrated into on-premises software, (implicit or explicit) collaboration between users or different customers is only possible with centrally hosted software. Lower initial costs SaaS applications are usually subscription-based, meaning there are no upfront license fees. This means lower initial costs which can help with businesses concerned with cash flow. Having the SaaS provider manage the IT infrastructure means lower IT costs for hardware, software, and the people needed to manage it. What is, however, difficult to do is an apples for apples comparison of what is referred to as the Total Cost of Ownership (TCO), because to do this properly, the true cost of managing these IT related aspects of a complex system are often deep down inside IT budgets and are difficult to extract out as part of a comprehensive comparison with SaaS-based subscription pricing. SaaS-based solutions have been available for a few years now, and come in all shapes and sizes. Many in the HR/HCM space came from specialist niche providers filling in gaps in the more traditional ERP type solutions. So we have seen a number of solutions that provide SaaS recruitment or performance management facilities, these HCM functions play very

8 strongly to some of the strengths of SaaS, specifically in the areas of ease of use and broad deployment to managers and employees. However, they really only represent a new way of deploying stand-alone point solutions, and therefore suffer many of the problems described earlier associated with managing multiple systems, such as getting to a single version of the truth, needing lots of wiring to get any form of integration, providing consistent easy to use interfaces and having a single sign-on. However, there are now solutions like HRevolution from Ceridian that offer a comprehensive suite of HR/HCM/payroll/workforce management and pension autoenrolment capabilities all from one platform, with one sign-on, consistent user interface and a lower cost of ownership than either of the previous alternatives. Why are integrated HCM SaaS based solutions challenging the traditional two-horse race? The key advantages of an integrated HCM SaaS platform when compared to the previous two main alternatives are: Lower cost; Lower risk; Increased value through better end-user experience and adoption. The key factors that drive these three main advantages are: The integration and interfacing challenges faced with a SaaS offering is reduced significantly when compared to the piece meal approach of acquiring different solutions from multiple vendors. A comprehensive suite of SaaS-based software from a single vendor may not offer a complete homogeneous set of solutions, much in the same way it is rare to find all of the modules in an ERP solution to have been built in one technology stack. It is more common for the SaaS suite to have been formed through a combination of internally built software, some acquisition and some partnerships with other software vendors. What such a platform should offer, however, over the multiple solution approach is that the job of wiring these solutions together and the task of hosting the collection is with the vendor not you and has been productised, as opposed to a one-off exercise that you would have to go through. Problems such as having a single sign-on, having consistency of user interface, merging data, having a single version of the truth, so that there is a common reporting platform can be realised through this approach, whereas having to achieve this yourself with multiple vendors is challenging, time consuming, very expensive and rarely achieved. Few businesses then assess and value the cost to their company of poorly integrated solutions, what costs are sunk in dual keying, loss of data integrity and, because there is no single version of the truth, the resulting lack of faith and trust in the reporting and analysis from such broken solutions. Modern SaaS packages have the potential to offer quicker implementation and therefore lower cost than either of the two alternative traditional options. The time and cost associated with IT having to provision a suitable environment to run the solution is no longer a factor. The time to do this varies from organisation to organisation, but it is not unheard of for this phase to run into many months and for it to be on the critical path of the overall implementation of the programme.

9 Disadvantages of multiple solutions and ERP The licence costs of separate systems may look initially attractive, but when the true cost of multiple procurement exercises, multiple hosting requests to IT, systems integration or even basic flat file interface provisioning and project management to get multiple vendors to co-operate in such interfacing is factored into this approach, the costs soon escalate. ERP software is notoriously expensive to purchase, with dizzying one-off licence fees and terrifyingly expensive implementation costs that often run into many millions. Only the largest organisations dare enter these types of arrangements, few have positive experiences on the financial side of the equation and more and more such enterprises are questioning the suitability, viability and affordability of such arrangements when they come to consider a renewal or are forced to upgrade. The increasing trend toward parameterisation and reduction of bespoke changes is very significant in driving overall implementation times down and keeping the projects costs under control. ERP systems have failed to achieve this with their architecture and heavyweight design. More agile, flexible modern solutions are proving more successful at solving this problem. However, exercise caution here, just because a vendor labels their solution as SaaS does not necessarily mean it will be easier to implement, nor necessarily a good fit to your requirements through parameterisation alone. While checking to see how good a fit you can find though parameterisation, if there are gaps that emerge that are deemed critical, it is vital to determine what the SaaS vendor s stance is in this regard. Is there provision for a customisation, or does it go on a roadmap for some promised future standard release or are you left figuring out how to change your business process? Reduced risk can be realised through a number of key aspects, fewer one-off interfaces to manage. Complex interfaces are a common area of project overrun, and their on-going maintenances are often a cause of problems usually due to few people knowing how they work. Complex ERP scale bespoke is equally notorious for introducing high risk into both the implementation and on-going up-keep and maintenance of ERP solutions. Internally managed and supported IT infrastructure is rarely as robust and scalable as those systems found in a SaaS/Cloud arrangement. Few companies set up true disaster recovery/failover systems and among those that do, even fewer test them to ensure they work. Access is usually restricted to within the company s networks which both effects accessibility, adoption but also from a risk perspective can increase problems surrounding business continuity. Simple sounding problems such as a heavy snowfall preventing employees from getting to their place of work might prevent companies reliant on being on the company network from closing a payroll, while a system accessible from home PCs if needed avoids these challenges. Additional SaaS benefits Where you use one vendor to supply you with one integrated solution, you only need to worry about one contract, one set of SLAs and one support model.

10 SaaS applications are, by their very nature, newer than the previous alternatives. They have been designed using web technology and now offer user interfaces and capabilities that are familiar to people used to using the internet for home use, social media, shopping, etc. The available anywhere and intuitive use afforded on the best SaaS platforms reduces the need for in-depth training, increasing user acceptance. Combine this with single sign-on facilities and the outcome is better employee engagement with the system. This is particularly prevalent in HR and payroll where employees need to log-on to view their payslips and book their holiday (they have a very compelling reason to use it). This high adoption and broader appeal results in organisations realising the value they hoped to realise in the original investment. Failed legacy systems sometimes get referred to as shelfware, indicating the sad but true reflection on the lack of use, and failed nature often attributed to low adoption, difficult learning curves and the complex nature of these failed systems. Little or no value is recovered from such investments. HR and workforce management systems especially depend on high levels of employee and manager use through self-service. They are therefore more suited than any other line of business application to the advantages offered through simple, clean, easy to use and follow processes and screens available in the best of the new breed SaaS suites. This trend and need can also be thought of as a consumerisation of HR systems, the current generation Y cohort who are more tech savvy with social and mobile digital systems demand more access, more involvement while also expecting things to be simple and fun. Self-service capability needs to enable employees to be active participants in managing their own careers, by both accessing and maintaining their own personnel information. One of the most disappointing aspects of HR systems in particular in the past was the complexity of getting meaningful timely insight from the data locked away within the HR systems vault. In the case of separate systems the challenge was where to go to get the data, what systems had to be harnessed to retrieve it and what to do if the analysis called for a composite view across the disparate systems. With the ERP approach the reporting was hugely complex, involving specialist experts who knew the complex data dictionaries and database schemes sitting behind these huge monolithic systems. Some SaaS platforms are now offering truly integrated analytics that can see all your data and provide ways of looking and analysing this data with an ease of use level unthought-of in the past. More so than ever before, it is vital for HR to be able to correctly interpret their HR data, to draw conclusions from the trends they can see and quantify key themes to the business. Putting this power not just in the hands of the HR function but also providing business performance related dashboards in the hands of managers and employees is equally important. There is also a democratisation of technology occurring. No longer can the IT department determine and control the pace and decision making around what technology gets used by whom. This is evidenced by the demand from tech savvy employees who sometimes know more than the IT team driving the agenda, whether it be in the use of mobile technologies, bringing their own devices to work to perform work related duties or in the ability with cloud to switch on a new system or capabilities without long protracted IT

11 involvement and oversight. IT functions are having to change. They cannot be the blocker to this innovation, yet they need to be at the table and support the needs and pressure elsewhere in the business. Organisations are evolving with this change, and cloud-based technologies and SaaS solutions are spearheading much of this change. IT is no longer the only owner of technology within companies: the business lines (HR, marketing, finance) are claiming their place at the table. Key call outs Buyer beware, not all SaaS platforms are what they seem are they really software packages shoehorned onto a hosted platform? Understand the SaaS vendor s stance regarding enforced updates decide if their strategy fits yours. When comparing costs try to do true apples for apples assessment, include renewal of hardware and software licences in your 5-year analysis. Pre-integrated systems with single sign-on remove major headaches of best-in-class piece meal acquisition. Modern browser-based solutions can massively improve self-service use and engagement. Understand what track record the SaaS vendor has, ensure they have scale and investments in the cloud hosting of their solutions. Conclusions For reasons set out in this paper, the old options offered to potential buyers of HR, pay, workforce management and pensions solutions has changed. Compelling reasons now exist to move to modern integrated solutions that are available in the cloud in the form of SaaS solutions. There are areas to consider of course, but as can be seen with the massive rise in cloud and SaaS services and solutions, it is clear this is the way business and the individuals alike will work with software in the foreseeable future.

12 About the Author David Woodward, Chief Product & Innovation Officer, Ceridian UK David joined Ceridian as Chief Information Officer in In 2011 he took on the exciting role of Chief Product and Innovation officer, enabling him to focus solely on all product strategy and innovation within the UK. Before joining Ceridian, David held a number of leadership positions, including Director of Software at RebusHR, and Midland HR where he was responsible for a new product development and launch. David is hugely passionate about all things technology; leading a dedicated team to ensure Ceridian deliver exciting, innovative and compelling solutions to its Ceridian Corporation. All rights reserved.

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