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The Cloud and the Bottom Line

The Cloud and the Bottom Line
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Professionals who deal in human capital are enamored with the cloud. Their fascination partially stems, it seems, from the imagery that the name itself for cloud computing conjures, as well as the implicit equation of cloud computing with social media. Some of this fascination is misplaced or the result of misunderstandings of what the cloud in fact is. But HR leaders are sending their human resource management systems (HRMS) to the clouds, and their interest supposedly extends beyond mere fascination: The assumption is that they understand how the cloud's underpinnings actually work, and a salient question, therefore, is this: Armed with that knowledge, are they making unforced errors in emigrating to the cloud?

Plenty of assumptions drive HR leaders to move their HRMS to the cloud. As indicated by recent Towers Watson research, which looks into nearly 400 organizations' decisions to opt for a software-as-a-service (SaaS)–based or hosted-ERP–HRMS, among these are the expectations of quicker implementation (55 percent); better functionality (46 percent); lower (37 percent) or predictable (23 percent) ongoing costs; and lower up-front costs (27 percent). As well, 42 percent of the organizations surveyed expect SaaS to be "easier to manage on an ongoing basis," and 25 percent expect "no need to upgrade" ("we are always on the current version").

Of these expectations and assumptions, the ones regarding cost appear to carry truth, but that truth depends on the scenario. In March of this year, for instance, ERP Cloud News looked at the cost scenarios of cloud computing—e.g. deploying software on the premise (traditional ERP) vs. using SaaS or turning to the hosted ERP model. For deployments at very small businesses, the difference was significant, with traditional ERP costing considerably more, even after seven years post deployment; at mid-sized businesses, however, SaaS ends up costing more than traditional ERP around year five, whereas these businesses see hosted ERP easily beating the cost of traditional ERP.

As for quicker implementation, easier management, and always having the current version, these assumptions are probably more reliably true, with few caveats. But when organizations expect a cloud-based HRMS to provide better functionality by default, they might be falling prey to some of the hype that surrounds cloud computing. By virtue of the delivery system—online, via the Web—functionality clearly has a hurdle to clear that traditional ERP doesn't.

Missing from Towers Watson's findings, suspiciously, are the expectations of better sales and higher revenues and profits. That may be because HR leaders are focused mostly on benefits that extend to the department vs. the entire organization. And that explanation would explain findings from the "CedarCrestone 2010-2011: HR Systems Survey," which compiles data found exploring the behavior of nearly 1,300 organizations, whose combined number of employees equals more than 20 million: where HR departments operate off traditional ERPs, net income and sales come most easily to organizations. These companies show highest sales per employee, the best sales growth organization-wide, and the greatest net income growth, according to CedarCrestone's research.

Where there's correlation, is there causation? In this case, it's unclear, but small companies' HR departments that find themselves in need of a bona fide HRMS have little to lose, and much to gain, by trying the cloud. Mid-size organizations' HR leaders, however, ought to approach the cloud with healthy skepticism. Furthermore, just about any other HR department with an ERP-based HRMS already in place would do well to consider the possible impact a decision to move to the cloud might exact on organization's overall financial performance.