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Thursday, April 27 Business

Report: Cloud-based HR systems continue to grow

STAMFORD — Clouds are in the forecast for a rising number of human-resources systems.

Some 53 percent of enterprises will rely on cloud-based or hybrid platforms for their HR networks by 2020 — more than double the number that do today — according to a new report from Stamford technology research and consulting firm Information Services Group. Evolving strategies by major enterprise-technology firms and increasing accessibility to cloud systems, which are also known as “software as a service” or SaaS, are spurring the changes. But firms are moving at different speeds in adopting new models.

“The functionality and capability of SaaS is so much better than older ‘on-premise’ solutions, so companies have a strong desire to move in that direction,” Debora Card, ISG’s Detroit-based partner of HR technology and delivery strategies and one of the report’s authors, said in an interview.

Companies are updating their HR systems in large part because providers have shifted their focus to SaaS frameworks, according to ISG analysts.

“The major … vendors have all moved their investment to the SaaS models,” the ISG report said. “While many of these vendors still have and support non-SaaS models, they are increasingly phasing them out.”

Companies would lose a competitive edge if they balked at moving to such systems, Card said. While licensed on-premise platforms still effectively handle “core” HR data-management tasks such as payroll, Card said they lag their cloud counterparts in managing “talent” functions, including professional development, performance management and recruiting.

“If they don’t change, they’ll fall behind in their ability to access and analyze data on their employees,” Card said. “In today’s talent-focused economy, it is more difficult to attract, retain and develop talent with the old technology.”

Gretchen Alarcon, enterprise-technology giant Oracle’s group vice president of human capital management product strategy, cited the ease of updating SaaS systems.

“In an on-premise world, when you’re making an upgrade that’s a multimillion investment, that means extra levels of approval and extra scrutiny,” said Alarcon, who is based at Oracle’s Redwood City, Calif., headquarters. “If you’re in the cloud model, you don’t have to pay for that upgrade because it’s built into your subscription, so you’re getting the new technology twice a year.”

Companies between 1,000 and 5,000 employees stand out as the fastest adopters of SaaS systems, mostly because of their lack of investment in licensed systems and their need to quickly scale up their platforms as they grow, according to ISG.

Firms with fewer than 1,000 employees are also keen to adopt cloud solutions, according to other HR experts.

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“That market has opened up, and we’ve now brought the data-management piece all the way down to the 10-person business and anywhere larger, and we’ve now made it cost effective,” said David Lewis, founder and CEO of Norwalk HR outsourcing firm Operations Inc. “Compared with a system that cost $1 million for the big companies, you can get 60,70, 80 percent of that functionality and capability in a system that can cost you $10,000 today.”

pschott@scni.com; 203-964-2236; twitter: @paulschott

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