Does the future of HR technology reside in the cloud?
Judging by recent events, the answer would appear to be "yes." Oracle Corp. and SAP both signaled they believe that is where the trend is going by their recent high-profile -- and expensive -- acquisitions of, respectively, Taleo and SuccessFactors, both of which provide cloud-based talent-management platforms.
Oracle and SAP are dealing with a relatively new contender -- Workday, started by PeopleSoft founder Dave Duffield -- that delivers its HR- and financial-systems software to its approximately 280 large and mid-sized customers exclusively via the cloud.
Cloud vendors say their services free organizations from the trouble of installing, maintaining and upgrading on-premise systems. And a recent study by MeriTalk Cloud Computing Exchange, based on interviews with 108 federal chief information officers and IT managers, estimates that the U.S. government has saved $5 billion annually by moving from on-premise software to cloud-based services.
Even so, cloud skeptics remain. Clinton Wingrove, executive vice president of Whitehouse Station, N.J.-based Pilat HR Solutions, is one of them.
Wingrove, who recently co-presented a webinar (with Ryan Tweedie of HCM vendor Sapien), titled "Flying Through the HCM Cloud is not Risk-Free!", says the potential downside of cloud-based software isn't getting enough attention.
"I'm concerned that there is little in the way of balance regarding cloud vs. on-premise software, and that's largely driven by the nature of the media these days -- he who shouts the loudest gets all the attention," he says.
Wingrove says those risks include cloud-based vendors that lack financial stability (potentially leaving clients stranded should they go under or be acquired) and the potential security risks involved with having sensitive company data residing on outside servers.
Another risk is that cloud-based solutions -- when used synonymously to describe Software-as-a-Service, in which all clients are hosted by the vendor on the same version of software that is updated regularly -- may not "evolve" along with the company, he says.
"If you take software that may appear to do what you want it to do today, if it truly works, then your needs will inevitably evolve, because as peoples' usage becomes more sophisticated, they'll want to do more," says Wingrove.
Companies can tinker with on-premise software to fit their ongoing needs, he says. Cloud-based software can be configured to individual clients' needs, but it cannot be customized, he says.
While cloud proponents say that's a good thing -- less needless complexity -- Wingrove believes it can limit a company's ability to differentiate itself from the competition.
"There are tools out there now that allow programmers to create functionality that never existed before with on-premise solutions," he says. "Cloud software is a commodity solution, and we believe the market is not best-served by commodity solutions that force you to adapt your processes to the software."
Large, sophisticated companies may be less likely to move all of their HR functions to the cloud, agrees Steve Bogner, managing partner at Cincinnati-based Insight Consulting Partners.
"Nearly every large company I work with has at least some of their talent-management functionality residing in the cloud, but larger companies will most likely continue using on-premise software for their core HR processes," says Bogner, whose firm consults with large companies on technology purchases and deployments.
"With the exception of Workday, I don't think there is a cloud/SaaS platform that really gives large companies the sophistication they need for that functionality," he says.
With the cloud, Bogner says, "you get what the vendor gives you."
And many companies won't have a problem with that, he adds. "Companies that are open and willing to changing their business processes to get the same end-result are more likely to go into cloud-based platforms because, they say, 'As long as we get the expected results, we don't care how the process gets done.' "
Bogner is also skeptical that cloud-based software, which companies typically pay for on a subscription basis, saves companies money -- in the long term, at least.
"The cloud shifts money from capital expenditures to operating expenses," he says. "With a cloud-based solution, the costs are more predictable, but in the end I don't think it's going to save companies a lot more money."
Cloud proponents, meanwhile, say the cloud does save companies money -- and will continue to do so.
"The cloud can save companies anywhere from 20 percent to 50 percent on their technology expenses," says Deepak Bharathan, IT strategy specialist at the New York-based PA Consulting Group, citing reduced costs for infrastructure, upgrades and maintenance. "With the cloud, the cost factor is the most important factor."
Competition among vendors will also keep costs low, he says.
"The market is so dynamic right now -- there are going to be many cloud vendors popping up, large and small, and there will be competition to keep prices down," says Bharathan.
Cloud skeptics are on firmer ground when they cite concerns about data privacy, he says.
"I think what the vendors have to do is figure out how to provide cloud-based services in a way that those concerns are properly addressed," says Bharathan.
Chris Lennon, director of product management at Chicago-based SilkRoad technology, a cloud-based talent-management vendor, says many prospective customers do ask about data security and privacy.
"We respond by presenting them with the results of regular audits we get from [professional-services firm] Grant Thornton, which demonstrate that we meet the [Internet Application Security Environment] standards," he says. "Clients should be asking those questions, to ensure that we're taking proper care of their data."