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When it comes to human resources and finance, organizations often find it difficult to integrate data from multiple sources and give users access to relevant data. The problem is that the HR and finance systems can't interact, and the data is trapped in silos, unavailable to business decision makers.
But organizations of all sizes are discovering that to be competitive, they have to break down the long-standing barriers between the finance and HR departments. Accomplishing this goal means automating and integrating HR and financial systems. The benefits of integration are huge: lower costs, streamlined operations, increased productivity and major improvements in managing the talent within the organization.
But how exactly do you get the job done?
Typically, the integration between HR and finance happens because of a cross-departmental process an organization is trying to handle, like trying to bring in timesheets to connect to payroll -- something that affects both departments, said Hyoun Park, principal consultant at Boston-based DataHive Consulting.
"When you're doing something simple like that, it's often easier to simply create direct linkage of data or to create a simple dashboard that just shows both sides," Park said. However, as HR and finance integration becomes more complicated, additional use cases come into play, he said.
"If you start looking at the employee as part of a cost center, you can think about the employee as being assigned to certain assets within the company, as well as being part of the procurement unit, as well as being a manager of other financial activity," he said.
With that level of complexity, companies often need additional integration between HR and finance, which means creating more detailed data integration between the two applications.
How Boston University consolidated HR and finance
In 2009, after two years of research and discussion, Boston University selected SAP's ERP software to power BUworks, an IT implementation aimed at simplifying and streamlining many of the university's legacy business processes. The goal was to provide administrators and faculty with more efficient financial management, human capital management and procurement capabilities, according to BU CIO Tracy Schroeder, who said the implementation took 18 months.
"We needed to enhance our controls capabilities, and we had two very old, unsustainable, long-term legacy systems, " she said. "There was a vendor-provided, but very old, code-based and fairly extensively modified application for finance and no real HR system -- it was sort of a combination of cobbled-together things. There was a lot of room for improvement. It was largely a risk-mitigation project."
After evaluating software vendors, the university selected SAP because of its functionality right out of the box. The SAP ERP implementation has modernized BU's finance, budget, payroll, procurement and HR systems.
By consolidating multiple legacy systems onto SAP's ERP system, BU now has a better level of transparency and control across core business functions, Schroeder said.
"We have closed our books faster, in new record times, the last two years, and we're able to provide the types of controls and visibility to the financials and into HR, into payroll, that are required, " she said. "That's the biggest win. And from a technology standpoint, we got off unsustainable platforms."
The key to using an integrated application is in understanding that it's not just a connection between HR and finance but also a connection between those departments and procurement and operations and the rest of the organization.
"There may be a data table that goes in between HR and finance, especially if you're using two different and unrelated applications for those functions," Park said. "Or you can talk about bringing in a new application that handles both HR and finance, such as Workday or SAP."
"It really becomes a commitment to start running your organization on that platform," Park said. "But there are strengths and weaknesses to that. The biggest strength is that fundamentally companies need to have governance over the employee data, not just understanding when they are working and handling their payroll, but even simple tasks like their start dates and end dates, which control a lot of different organizational capabilities."
If companies have disparate data sources coming from different vendors, they need some kind of integration glue layer -- and dashboards and portals are good ways to bring that together for employees, according to Holger Mueller, principal analyst and VP at Constellation Research Inc. in Cupertino, Calif.
"That's the consequence if you run separate systems from separate vendors because if you run them from the same vendor, the clear expectation is that with what they provide, you don't have to build these portals because you get them out of the box from the vendor," Mueller said.
To determine which method of integrating HR and finance is best, organizations need to think about how they're handling their operational capabilities outside of HR, Park said, by asking questions such as: How does finance actually work? Is it being managed as a cost center or a profit center? What level of governance has to go into each purchasing decision?
"Depending on the complexities of these processes, companies need to think about whether a simple break-fix or dashboard view is good enough, or whether actual workflows and data management need to be controlled, which brings in the need for a more complex platform or dedicated application, " he said.
At a beginning level, a company just seeking basic visibility into employee behavior can probably get by with dashboards, and an intermediate data table -- the little break-fixes that can come into play to bring HR and finance together.
Companies that are just looking to link timesheets and payroll together can probably find some data connection or application programming interface that will be sufficient to handle that, Park said.
However, as companies start to manage cross-functional or cross-departmental functions that require coordination and governance, these break-fixes can be broken easily by a number of different means, leading to the need for dedicated applications. From a practical perspective, this starts happening when organizations grow to 200 or 250 employees, Park said.
"And they start scaling to the point where dedicated departments and dedicated functions start really becoming implemented throughout the organization, which requires the need for more dedicated solutions rather than the break-fix data management, spreadsheet and dashboard fixes that are typically first used for these functions and workflows, " he said.
In general, though, companies should look at replacing their enterprise information systems only if there are better opportunities and better solutions available or if their existing systems are no longer maintained, Constellation's Mueller said.
"It comes back to capabilities -- there are lots of specifics in financials that are not 100% mainframe," he said. "But if you find a mainframe solution, then look for the benefits of running it in the cloud versus on-premises. Then you run both HR and finance together in the cloud."
The whole portal/dashboard integration story is only a compromise when companies have multiple vendors or when they have part of the solution in the cloud and part of the solution on-premises, he added.
"Enterprises want to run as much as possible together as long as it's good enough," Mueller said. "By having cloud as a different delivery platform for enterprise software, the fundamental value proposition that has won the market in the past -- the on-premises integrated business suite -- will not win again. The cloud as a technology delivery [platform] will change the value proposition so that you don't [have] to integrate the different pieces."
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