Episode Transcript
Speaker 1 00:00:08 Hey everybody today, I want to talk about a slightly complicated, but really important topic. And that is the reordering of the HR technology stack. And it goes back to the whole idea of what is the core HR system and where do you put different levels of technology to solve different problems in HR and the employee experience? And if you go back in time, the idea of a core HR system really goes back to the 1980s when E R P was created E R P, which is called enterprise research or planning, which sort of feels like a weird phrase. It was actually a very innovative idea in the days of manufacturing economy to stitch together the financial systems with inventory manufacturing, and then later sales, marketing, and distribution. And as most of you know, if you work in a company there's a financial supply chain that connects all that together, there's a certain amount of money that's spent to purchase raw materials.
Speaker 1 00:01:07 And then there's a certain amount of value add provided to those raw materials. And then, then you sell them and you have a cost of sales and a cost of marketing. And you really do need to know how the financials line up across that customer value supply chain. And that's really what you R P does. And, you know, the early companies in that space, many of them were acquired included SAP, which really did the most magnificent job of this. And then SAP was successful enough to build E R P systems by industry. So you can buy an SAP system for oil and gas and SAP system for telecommunications, for a manufacturing for retail L and it's designed to manage that entire process end to end give you financial, uh, insights into where it's strong and weak allow you to do cost accounting balance inventory, all sorts of really, really important things.
Speaker 1 00:01:56 And HR was really not part of that. But in the 1990s, a company by the name of PeopleSoft found a by the same people that really founded Workday decided that they would do that. So they built an entire E R P like system for HR. And of course, HR has its own complexities. It's requires global payroll and compliance processing and organizational structure and job titles and job descriptions and job competencies and career planning and all sorts of we yeared things like performance management and succession management that had nothing to do with E R P, but the E R P vendors thought that the HCM market, which is the HR version of this would be a really good space to be in. So they all added HR to their E R P. And in fact, PeopleSoft did the reverse PeopleSoft, started with an ACM system and then bought and built a bunch of E RPS around it.
Speaker 1 00:02:45 And then of course, Workday and success factors came along and tried to re-engineer that again for the cloud, but it hasn't gone extremely well in some sense. Let me talk about the reason, and then I'll explain what's going on. The reason is human beings are not static assets like raw materials, human beings grow over time. They get smarter, they develop new skills, they move from role to role. So if you treat a human being like a physical asset in the software and the system, you're really not getting that valuable piece of information. And that's why most companies that have large E R P systems have all sorts of problems in their HR environments. They don't even know how many employees they have sometimes because a very high percentage of their employees are part-time or contingent or outsourced. And they aren't reflected in the E R P employees are moving from role to role.
Speaker 1 00:03:34 The organizational hierarchy is only really a theory. It's not really way the company works. So all the E R P structure is getting in the way. And so you have to keep redoing it. And over the years, this has become a bigger problem because virtually every company now is transforming into something else. People are constantly working in cross-functional teams and the pandemic just accelerated all these digital transformations of our workforce, forcing the E R P to be a much more flexible system than it was ever designed for. So what's happened that core system while it's still urgently needed, you really can't run a company without a payroll system. And a core HR system is no longer the center of the universe for HR. We've layered two families of products on top of that, the first of course, on the very top are the employee experience systems, chatbots, journeys, learning programs, portals, communication systems, wellbeing programs, all these things that we've really been focused on during the pandemic really didn't have a home in the E R P by the way, the other problem with the E R P is whenever you do a merger and acquisition or structuring or spinoff, you've gotta decide what are you gonna do with that system?
Speaker 1 00:04:44 Because now you have multiple systems from multiple vendors with different job architectures that don't necessarily fit together. So there's all sorts of it. Effort involved in making the E R P continuously relevant anyway. So there's the employee experience software. And then there's this other layer which I call the talent inte layer, the skills engine, the talent mobility, or internal marketplace system, the recruiting system that uses AI or inference to determine who should get what job, all of the job candidate data that comes from candidates, which could be millions of people who might be candidates or silver metal candidates for different jobs. The contingent workforce system, the of scheduling the workforce management system, which is a little more E R P like all of these other applications are needed. And they're actually among the most important ones that companies want right now. And so what I would suggest is happening is that the E R P as important as it is, is really playing a lesser role.
Speaker 1 00:05:40 Now, I am not at all all saying that Oracle or SAP or Workday or ultimate or any of those companies are not very important companies. They are. And they're very well run companies by the way, but the systems that they've built, the architectures and the investments they have to make to keep those systems up to date are not competing effectively with the talent intelligence platforms, the learning platforms, the employee experience platforms and the productivity systems that are coming from the rest of the market. So what you end up is a layer cake, which I will show in the article on publishing, which many of you've seen before. And the reason a layer cake is interesting is it allows you to decide where to focus your energies. And in today's day and age, it is common to replace your E R P every eight to 10 to 12 years, because eventually those technologies are obsolete.
Speaker 1 00:06:34 The vendors sometimes change technologies. Like for example, this company Darwin box in India has a really, really different architected E R P, which does sing that the other ones don't do. And eventually companies say, okay, that old piece of infrastructure in the basement, it's kind of not doing what we want it to do anymore. It's too expensive to maintain. Let's replace it. But that doesn't mean you should replace it because you have an employee experience problem, or because you need better data, or because you want a talent marketplace, or because you want a better learning infrastructure. If those are the issues you're trying to address, the stack is really flipped. The core of the HCM application area really is the employee experience systems. Those are the systems that make your company work. Those are the systems that empower employees to do their jobs better, to change roles, to restructure, to learn what other people do to find the projects and the teams and the resource they need to be successful.
Speaker 1 00:07:33 The E R P system, the HCM system really was never designed to do that. It was never even designed to be an employee facing system. If you go back to the roots of E R P E R P was really there for it and finance, and originally, and then for other business leaders, to give you an example of this, you know, the Workday folks have organized their products around this concept of the office of the C H R O. They're trying to reinforce in their product teams that they're building software for the C H O well, interestingly enough, there's an office of the C H O. There's an office of the CFO at Workday. There is no office of the employee. So even Workday who's one of the most forward thinking companies in the market is adding on employee journeys on top of something that they've already built.
Speaker 1 00:08:19 Uh, so what do we find in most of the big companies? We talk to the number one reason they want to replace or compliment their tech is because they wanna build an internal mobility system. They wanna improve employee engagement. They want to give desk list workers or remote workers, an integrated employee experience. They wanna do better surveys in employee listening, et cetera. And so they're buying products at the top of the stack, leaving the products at the bottom of the stack. And that's really in many ways, the most valuable way to spend your money in most companies replacing the core E R P, which you might do once a decade or even less often is a massive multiyear project. And if you've done it over the last 10 years, you probably need to leave it, obviously upgrade the software as needed and really focus at the top.
Speaker 1 00:09:07 And what happens is all of a sudden, you have a whole different way of thinking about HR software. I've had many calls over the last few weeks with companies that have a heterogeneous backend system infrastructure, and they ask us, well, should we replace all this with Workday? Should we replace all this with success factors or, or Oracle or whatever it may be? And our answer is, well, maybe it depends on what problem you're trying to solve. If the problem you're trying to solve is remote work policies hybrid work back to work, employee engagement and employee mobility, career development wellbeing. I'd say probably not. It's probably not worth the money and it probably won't get you where you want to go. And so, in a sense, the new core is the employee experience and the talent intelligence applications. Now, let me give you a couple quick examples.
Speaker 1 00:09:51 One of the companies we talked to the last couple weeks is the large food service and retail restaurant type of company. And they have, uh, 14 or 15 or more payroll systems around the world. Most of them are on Oracle. I think some of them are probably on other systems and they have a lot of employees that are part-time. Most of them don't have computers, and they want an integrated employee experience system for all sorts of important things like communications pay, uh, overtime policies, compliance back to work, remote work career, et cetera, as well as lots and lots and lots of training. Well, those backend systems are not really participating too much in that. So they came to us and said, well, maybe it's time for us to replace all our core systems. And if we got a new ER, P we could do all this new stuff.
Speaker 1 00:10:36 And, and we basically said, no, we don't think that's the right answer. You could buy an employee experience platform. You probably already have one and build from the top down. And then if you need integrated data, there's lots of ways to integrate data from heterogeneous systems that don't require to you to replace them all. If the job architectures in the different countries are different, and if they are out of date and you wanna standardize them, that is a great project, but that doesn't require that you replace the technology to do that, by the way, modernizing a job. Architecture is a very, very big deal right now. And I think something you have to put on the list as part of this employee centric world, we now live in another example is DHL, you know, is on the phone with a bunch of H are execs from DHL.
Speaker 1 00:11:19 DHL has I think 700,000 employees. They do business in 200 countries. I can't imagine what the payroll and compliance infrastructure looks like underneath all that, but they're desperate to create a single platform for employee communications and various other journeys, onboarding and other things. And these are people that don't have access to also. So they need a front end on top of that. So they're using something called staff base, and they're building a whole set of E ex applications on top of it, not touching the back end. And that alone is very, very complicated. A third example is a large tech company that has been building their own HR technology. For many years. They have built a myriad of systems for recruiting and training and performance management and compensation and other things, and it hasn't kept up. They happen to use Workday on the back end.
Speaker 1 00:12:05 They are going through a project of refreshing, and re-engineering a lot of these tools. And what they're finding is that really most of the action as they go through the applications, one by one are in the ex in talent intelligence area. And they're looking at different tools to do this. Now, one of the symptoms, or rather indications that this is happening is the product space. If you look at the products that are selling the hottest in HR, they are learning platforms. They are play experience platforms, their platforms, and tools for wellbeing platforms and tools for employee listening and feedback and surveys. These are really hot. They're much less expensive to buy than replacing the E R P ServiceNow. For example is twice the market cap of Workday, which is sort of astounding. If you think about at it, Workday ServiceNow are both very well run, very successful software companies with very good engineering and product management teams.
Speaker 1 00:13:02 The reason ServiceNow is so much bigger is it's in a faster growing market. So going back to my history of working at IBM in the old days, what we used to say back then, and when I was in the database industry, legacy systems are systems that work. So if the core systems you have are delivering the mail in a sense, don't expect them to do something they weren't designed to do and focus on the systems on top. Now, you know, of course, there's lots of discussions about what will happen next to the core systems. And I kind of feel like we're at a point in time where Workday was founded in 2008, success factors is I think a little bit older than that. Oracle has refreshed this technology multiple times in Oracles is probably the most up to date. At this point. EKG is built on a foundation that's relatively old, we're probably due for a new architecture HCM platform built on a graph database, built on network architecture, built on agile.
Speaker 1 00:14:02 Uh, I don't think one of those is out there yet. So if you're expecting an E R P replacement to radically change the way, uh, your system's environment works, that's probably not gonna happen. So if you really are in a world of replacing the E R P and moving to the cloud, that's fine. And obviously a good thing to do, but a couple things to remember, not only will it likely not directly impact the E ex, but it will force you to spend your money. In other places. Cloud based systems are very expensive, the fastest growing tech companies in terms of revenues, our cloud companies. And why is that they are taking revenue from your it department. So instead of you spending money on staff and technology and systems, you're paying them to do it. So in a sense, you're renting software instead of buying it.
Speaker 1 00:14:49 And, you know, renting is more expensive than buying over a long period of time. So there is a lot of investment in those core systems. And I think you need to sort of think about them as legacy in a sense so that you can focus your energies at the top of the stack. Now, one more piece of information I wanna highlight. We have been doing research on HR tech forever and over the last two years with support from TCS, but really separate from TCS. We have been doing a whole series of case studies on HR tech projects, and they're called the HCM excellence series. One of the reports is available at no charge. The other ones are for members only. And what we did is we interviewed 30 or 40 companies, and we went through great detail on what they've been doing in their HR tech and how successful they perceive.
Speaker 1 00:15:36 They have been meeting their business objectives with these projects. And interestingly enough, what we found and you can look at the maturity model is that the ones that were most successful had two characteristics, the first is they were part of a business transformation. There was a reason and a goal and an objective to the system change. So they were emerging or reorganizing or growing or whatever. So all of the decisions about how to implement the system were made in the context of this business change, as opposed to just a systems replacement, because there's a millions decisions that have to be made, how these things are it up, and you need some context for that. The second thing we found is that successful implementations were focused on employee experience, first technology and data. Second, in other words, they did a very careful analysis, not necessarily the features of each technology, but the user experience and the flexibility and the ability to, and customize the user experience as part of the decision.
Speaker 1 00:16:36 Because ultimately now in this world, HR tech is not for HR. HR tech is for employees, for managers, for business partners and HR. If it's easy to use for HR, that's great, but if it's not easy to use for employees, it doesn't really matter. So anyway, I think a lot of you understand these principles, but I really wanna highlight it because at this point in time, the E ex and talent intelligence market is growing so fast. I want you to be able to spend your time on that. And if you're having a big meeting to talk about replacing the E R P, make sure you have a really significant business case as to why you want to do that. And if the problem is ease of use, or the problem is communications, or the problem is journeys, or the problem is internal mobility, you probably don't need to replace the systems you have. And it's perfectly okay to buy one of these fantastic new vendor solutions and connect it up and you'll end up with a fantastic PR platform moving forward. Okay. Thanks a lot, please contact if you'd like any help. We we're very savvy about most of these issues and look forward to helping you with your own personal technology roadmap.
