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Cloud HR software: Time to rip out that legacy system?

Adopting cloud HR software requires identifying where the cloud offers advantages, according to Liz Garnand, and making sure cloud HR providers have the right privacy and security controls.

Cloud computing and Software as a Service (SaaS) are increasingly popular with consumers, small and medium-sized businesses (SMBs) and large companies alike. According to Morgan Stanley and other research companies, IT decision makers are expected to increase their use of cloud applications and workloads over the next few years. For human resources, if the pressure is not yet there for deciding whether to move in-house HR systems to cloud HR software, expect to know these answers soon.   

According to Forrester Research Inc., the leading categories for SaaS migration this year will be customer relationship management (CRM), procurement, collaboration and human capital management (HCM) applications. With other companies touting HCM applications’ relatively high cloud appeal, there’s little doubt that HR is in the queue for change. 

Pressure to outsource to the cloud just to cut IT costs is still present in many organizations. But migrating anything new can be overwhelming and risky, especially if the current environment is complex. If an HCM, HRM or ERP application has multiple connections to databases, supports many organizations or is dependent on legacy systems, the cloud migration project will be substantial. Organizations that fail to establish clear requirements and processes for cloud migration, especially for more complex HR environments, may find outsourcing very costly, especially if employee or financial data is not secured.  

But the silver lining in this cloud opportunity could be very bright indeed for HR departments.  Not only does cloud HR software hold potential cost savings but -- even better -- it can be the key to creating that strategic and cultural change that helps organizations become more effective and competitive.

I recommend developing a request for proposals (RFP) before buying cloud HR software. An RFP can elicit very specific responses from cloud vendors and help the organization decide whether to go to the cloud at all. Identifying RFP criteria can help distinguish the merits of the in-house HR software and a new cloud HR alternative.

General RFP components

  • Service Level Agreements (SLAs):  Cloud HR software can often outperform a strained, internally supported IT system in terms of speed, downtime, backup and disaster recovery. But it’s important to examine cloud HR software SLAs to know what to expect.   
  • Certification: Find out the degree to which they are certified with SAS-70/SSAE 16 Statement on Auditing Standards for performance, quality processes and security.
  • Security: Verify that the cloud HR provider has adequate security measures, such as encryption, intrusion detection and data separation between multi-tenant SaaS customers. Ask for objective third-party assessments.  
  • Longevity: Identify migration options in the event of a vendor’s demise or at end-of-contract.     
  • Single sign-on (SS0): Many companies are challenged with implementing SSO capability, where users enter their identity and password only once and the authentication server connects them to the appropriate applications and information. Cloud HR applications can add IDs and passwords, thereby increasing the risk of information leaks and security breaches. Knowing a vendor’s ability to connect with authentication servers is important for supporting current or future SSO capability.
  • Cost:  Analyze a cloud HR software provider’s cost model with care. Although economies of scale from a provider’s shared infrastructure can reduce costs, variable fees can add up over time. 

HR-specific requirements

  • HR applications extending to external partners: Give priority to applications that are best suited for cloud computing. SaaS HR software that supports the “gray edges” of an organization may be the best fit; employees, contractors and partners often need to access similar information. For example, a SaaS training certification application may be better than an in-house training system at incorporating partner trainee information.  
  • Company legal responsibilities: Due diligence on the cloud HR software provider’s contract is a must. With cloud deployment, the customer is still responsible for legal issues such as employee privacy and who has access to what information. For example, companies with employees in Europe face much stricter protections for data than U.S.-only companies. Employee information must be placed with cloud HR software providers who create a U.S. “safe harbor” and can comply with specific laws of the European Economic Area. 
  • Data maintenance and integration drain: Check to see what functions come off the shelf and which require customization for data connections to existing HR systems. This can help minimize maintenance and upkeep costs of both incumbent and SaaS HR vendors.

Cloud HR as organizational change agent
Cloud computing presents new opportunities for organizational change, and cloud HR software in particular can take organizations beyond traditional HR functions like payroll, performance and benefits management. HR managers should take the lead in identifying new SaaS applications that can develop the communications, cooperation, coordination and collaboration necessary to make their companies more effective and competitive.   

I spoke to Shadrach White, CEO of cloudPWR, a Seattle-based vendor that helps companies make investments in cloud systems. White said, "Adopting a social business solution is an effective way to incorporate cultural shift and gain IT familiarity with cloud.” Said another IT professional: “New HR-related SaaS solutions are giving better and quicker access to resource and contact information within my company and also information on our partners.”

What are the HR applications that could create organizational change? The list is long, and includes online collaboration on recruitment, training certification, organizational management and charts, distant learning, time and attendance, repository and workflow of company forms and -- perhaps most especially -- leading change by using social media for employee communications and collaboration. Perhaps a new application that’s not so intertwined with existing -- and complex -- HR systems is the best place to start making the shift to the cloud.

About the author:
Liz Garnand is a principal at Newport Consulting Group (Clarkston, Mich.). She works in the strategy and operations practice, focusing on marketing and business growth. Email her at or follow her on Twitter (LizGarnand).

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