SAP : The Consequences of Not Migrating Your HR System to the Cloud

Cloud has dominated the technology news cycle for the past decade. Thinking back 10 years, if you asked me to rank software-as-a-service (SaaS) cloud offerings on a product life-cycle stages diagram, I would have placed it somewhere near the introductory stage. There was a plethora of newcomers in the product development stage that had to overcome barriers to entry.

The cloud was a novel approach, so the producers of SaaS offerings had to educate consumers on the benefits of the cloud, gain their confidence, prove the technology worked, and, above all, provide ample evidence that the benefits outweighed the risks. After all, the success of the business depends on these critical human resources (HR) systems.

Many SaaS producers developed business cases for their cloud offering to show the value proposition to prospects and clients. These business cases focused on metrics such as the total cost of ownership and internal rate of return. The approach worked, and as the technology progressed into the latter part of the past decade there has been tremendous growth and maturity of the cloud.

It's interesting to look at the investments made in global, cloud-based HR technology. The investment dollars have increased year-on-year, based on a report from Laroque Inc. : 'Q3 [2018] surpassed all expectations for global HR technology venture capital investment, itself exceeding all of the VC we tracked in 2017 and bringing the year-to-date (YTD) 2018 dollar volume to nearly triple what was invested last year.'

What Are the Consequences of Not Moving to the Cloud?

While business cases do provide solid financial evidence of the value of the cloud, many do not include the opportunity cost, or the value of the action that you do not choose when deciding between two possible options. There is additional value that may not always be captured in the business case:

• Advanced features: Newer technologies are born in the cloud using software frameworks or platforms developed for the cloud. If the investment dollars are going to the cloud, then the legacy, on-premise systems are not getting the development budget.
• Core competencies: In some cases, a business uses its software development factories to develop homegrown HR systems. Rather than building data centers and acquiring software developers to support a homegrown HR information system, the business can focus on what it does best.
• Automation: Everyone in the organization can benefit from the automation of common tasks being performed manually.

According to a SHRM article that looked at the top 2019 HR tech trends, the features predicted to provide value to business include tools to measure engagement and artificial intelligence-based 'nudges,' or recommended actions delivered to employees like 'take a break.' Access to these features can benefit a company's brand as well, which is difficult to put financial value on.

While is it possible to develop these features in-house or wait for a legacy system to be updated with these features, it is not likely there will be significant investment in on-premise applications. Cloud technology is in investment mode, and older, legacy technology is in maintenance mode.

Companies relying on legacy systems and manual processes are not as efficient and are likely spending more money while getting fewer features than if they went to a cloud offering. Technology is a means, not the end. A smart business focuses on its core competency and leverages technology to amplify its business.

What Approach Should a Business Take If They Want To Go To the Cloud?

Many businesses can go directly to the cloud, but for those large enterprises with legacy technology a hybrid cloud model is a great option. No matter what, the path to the cloud requires an analysis of the current business situation, a vision for a future state, and a plan to accomplish the vision. For a large, complex business, the path to the cloud is not always a direct lift and shift. There should be diligence to determine the functions that should go to the cloud first, second, third, and so forth. Many organizations will move core HR to the cloud first, then run in a hybrid cloud model, and incrementally move other HR functions to the cloud.

Conclusion

The move to cloud all boils down to the business case or opportunity that is opened through a new business model. Businesses are measured and judged based on financial performance. Investors want to see efficient use of capital and low operational expense. With the cloud, businesses are seeking to take cost out of the equation by maximizing on-premise data centers, discontinuing investment in homegrown solutions, automating common tasks, and focusing on core competencies.

Each business will have to look at its current situation, perform due diligence, and then make an educated decision on the optimal path to the cloud, hopefully thinking twice about the opportunity cost of not moving to the cloud.

John M. Hawkins is a senior director at SAP SuccessFactors. Find him on Twitter at @hawkinsjohn.