Is HR Tech Overshooting HR Capabilities?

Human resources management is a hot area for new technology, at least based on the number of new vendor offerings. But why isn’t there greater adoption of among HR practitioners? In this post, I outline three reasons that interest is high but actual adoption is slow, and what business leaders should do about it.

But first, a quick summary about the leading conference on HR technology. 

HR Tech Conference, a Must-Attend Event

At the urging of several associates, I attended my first HR Technology® Conference (HR Tech) earlier this month in Las Vegas. If you are interested at all in HR technology, this annual event belongs on your calendar. Here's why:

• Thought leadership. Anyone and everyone associated with HR technology  is at this conference--vendors, service providers, and HR professionals. This allows the conference organizers to select the best speakers and hold them to topics of high interest to attendees. Speakers go beyond traditional themes such as HR administration and compliance. Even cloud computing is old news to this crowd, as nearly all the leading HCM solutions these days are delivered as a service. This year, analytics was a hot topic, including predictive analytics, big data, machine learning, and employee sentiment analysis. Social business was another focus, as HR applications have turned out to be an excellent use case for social tools in recruiting, learning, and collaboration. The latest thinking around talent management was also on display.
   
• Peer networking. HR Tech is an HR vendor expo as well as a conference for HR professionals, so of course there is a large exhibit hall and plenty of sponsor logos plastered everywhere. But end users form a high percentage of the attendees. This creates excellent opportunities for peer networking, more so than I see in most single vendor conferences. At many events, I have to work hard to arrange customer interviews. But at HR Tech, they came to me unsolicited, while queued up for receptions, sitting at meals, or before sessions.
  
  
• Customer stories. Although vendors pay to exhibit, it doesn't buy them speaker slots, unlike many conferences. And, when they do speak, it has to be with a customer, never alone. As a result, many sessions are devoted to case studies, and there are lots of customer panels. This year there were presentations and panel discussions by HR practitioners from a diverse collection of organizations, from traditional companies such as ConAgra, Monsanto, Bristol-Myers Squibb, Unilever, Siemens, Lockheed Martin, and HP, to digital businesses such as Facebook, Google, LinkedIn, and Hootsuite. 

HR is fertile ground for new technologies, from social recruiting to sentiment analysis to wearables. But can HR organizations even begin to consume it all? This is where there is a gap between what is possible  and what is currently realized in practice. 

Workforce Analytics Illustrates the Problem

The adoption rate for workforce analytics is a good example. In one session, Brian Kelly, a former practice leader at Mercer, gave a presentation on strategic workforce planning. It is a hot topic, as it enables organizations to address the critical gaps between the current workforce characteristics and future workforce needs. In some industries, this is a critical process, as future workforce needs are changing with evolving business models and new products and services. High tech and healthcare are two sectors that come to mind. The good news, according to Kelly, is that most organizations already have the raw data needed to do strategic workforce planning, such as basic employee census data, high level job families and critical jobs, reporting hierarchy, rewards data, and employee demographics.

But as Bill Kutik, as the former HR Tech co-chair, points out in his excellent post-conference wrap up,  HR consultants, analysts, and marketers have been saying as far back as 2001 that workforce analytics will be the next big thing. “Certainly interest is very high now in workforce analytics, but still without widespread adoption,” Bill writes. “So I find it ironic (but typical) that vendors are so focused on predicting the future when their customers don’t yet have a firm handle on measuring the past.”

So, we have to ask, if technologies such as workforce analytics are critical to the mission of HR organizations, why is there not greater adoption?

From my consulting work with clients over 20 years, I see three basic problems.

• HR viewed as a support role. Despite claims that “our people are our strategic advantage,” most companies do not view HR as a strategic function. In practice, it is a support role, focused around the basic day-to-day activities of hiring and on-boarding new employees, paying them, administering their benefits, maintaining accurate records, and keeping the organization in compliance with labor law and myriad other regulations. If the senior HR leader is in the room for strategic planning sessions, it is often as a token gesture, to keep him or her informed of corporate strategy, not as a co-equal partner with functions such as product development, marketing, operations, finance, or sales. In doing strategic planning over the past 15 years I've seen notable exceptions. But too often, HR in many organizations is like the typical IT function—it’s there to support the strategy, not to help formulate it.
   
• Inadequate staff levels. Second, if HR is viewed as a support function, it is a ripe target for staff reductions. With the thinning of management ranks over the past twenty years, and especially since the 2008 recession, HR professional are spread thin. When there are not enough hours in the day to deliver both the strategic and the tactical, the tactical always win. Failing to think strategically is seldom a career-ending move, but falling out of compliance with labor law can give you a quick escort out the door. 
   
• Lacking necessary skills. Finally, most HR professionals do not have the quantitative skills to make use of new technologies such as workforce analytics. As Kelly points out, simple tools such as Excel may be sufficient for planning headcount by job function and geography. But more sophisticated analytical tools are needed to correlate projections of workforce skills, attrition rates, pay growth, diversity analytics, and external labor market data. Unfortunately,  most HR professionals lack the skills to make use of these tools. HR has always been a career that is more attractive to liberal arts graduates, such as those majoring in psychology, sociology, and communications, rather than those with science and math degrees where they develop the quantitative analytical skills needed to make use of these tools.

I had a hallway conversion with my colleague Brian Sommer on this point, and Brian has now put his thoughts into a blog post, The Problem is HR, Not HR Technology. He writes, “

HR departments are chock full of great HR transaction folks. Likewise, they have great recruiters, compliance people and more in these groups. However, is there anyone who understands data analysis, external/Big Data, etc.?

Where are the quants in HR? Where are the statistics and math majors? Where are the social scientists who understand human behavior? Seriously, giving powerful analytic tools to many HR folks today (who lack awareness or skills in these technologies and disciplines) is like giving a chainsaw to a 4-year old. If they ever got it running, you’d have a bloody mess on your hands. If you don’t know the difference between causality and correlation, you have no business playing with analytics.

A rebalancing of the talent within HR organizations is needed today. New skills, capabilities and insights are needed to make HR more relevant and able to exploit today’s new HR technologies.

Ironically, then, HR has its own talent management problem.

HR Organizational Readiness Is the Key Need

If an organization’s people are indeed its strategic advantage, then HR technology should have a prominent position in any organization’s IT strategy. But, as we discussed, most HR groups are not ready to adopt the latest HR technologies. Business leaders, therefore, should focus on developing their HR organizations as well as implementing HR technology.

For some organizations, this means changing their view of HR, from a support function to a co-equal role in business strategy. It also means reversing some of the staff cutbacks that were put in place during the last recession. Finally, it means doing something about the skills gap in HR. In many cases this will mean reaching outside of the traditional candidate pool to find new talent with the quantitative skills needed to effectively use emerging solutions for workforce analytics and other new HR technologies.

Workday’s Goal: Tier I Cloud ERP

Aneel Bushri, Co-Founder, Workday

Mention Workday to anyone involved with enterprise applications, and the first response will probably be something about cloud-based HR systems. A few might also mention accounting systems.

It is becoming increasingly apparent, however, that Workday’s ambitions go beyond human capital management (HCM) and financial management systems. From briefings at a recent Workday analyst summit, I conclude that Workday intends to become the first Tier I cloud ERP provider.

What is Tier I ERP?

The term “Tier I ERP” has been bandied about for many years. It is generally understood to refer to the largest ERP vendors that are able to serve the largest and most complex global businesses. Fifteen years ago, there were several players that could arguably be members of that club. But because of industry consolidation only two vendors remain that fit that definition: SAP and Oracle.

I am convinced that Workday wants to join that club, and it wants to join it as a cloud-only provider. SAP and Oracle may be moving as fast as they can to cloud ERP, but they will forever be, at the most, hybrid providers—offering both on-premises and cloud versions of their systems. Workday, in contrast, intends to be the first Tier I cloud-only provider.

Evidence of Workday’s Ambition

There are several things that point to Workday's objective.

• Tier I customers. Unlike NetSuite, which leads the cloud ERP market in terms of number of customers, Workday from its very beginning has been targeting large companies. I noted this way back in 2008 with Workday's wins at Flextronics and Chiquita. Since then, it hasn't stopped, signing one Fortune 500 customer after another. For example, in 2013, it won HP, with 300,000 employees in 111 countries. This year it closed Bank of America, which is now Workday's largest customer. Moreover, its big company wins are not limited the US. For example, Workday recently sold Nissan and Sony in Japan and Philips in the Netherlands. Our most recent research at Computer Economics shows that Workday's typical customer is so large that it stands head and shoulders above all other cloud ERP providers.
   
• Tier I functionality. The functionality of Workday's HCM is now approaching that of Oracle and SAP, as it builds out its global footprint. It currently claims customers live in 177 countries, with 27 offices worldwide. Translations are provided for 25 languages. Outside of the US, it still relies on payroll partners, but it is building out its own payroll for the UK and France. Its Financial Management product has now reached 100 customers. It just announced a new embedded financial reporting capability (Composite Reporting) that promises to do away with a whole host of spreadsheets and data warehouse reports that large companies typically rely upon. 
   
• Tier I cloud platform. Workday has also been building out its cloud platform into one that can handle the demands of the world's largest enterprises. It is moving its infrastructure to OpenStack, a set of open source components and architecture for software-defined data centers. This makes Workday's platform less proprietary than it has been in the past. Moreover, large companies need assurances of system availability and reliability. Therefore, like leading consumer Internet services, Workday is building its platform to quickly detect and recover from failure in any infrastructure component. Taking a page from Netflix, it will soon be randomly turning off components in the production environment as a way of ensuring its ability to recover. Phil Wainewright has more on the latest developments with Workday's infrastructure. 

Some observers view Workday as less than an ERP provider, as it only provides HCM and financial management systems. But they ignore the fact that Workday has already moved beyond these functions. It already provides purchasing, expense management, and project management functionality. It also includes embedded business intelligence capabilities that embrace data inside and outside of Workday. In one sector in particular--Higher Education--it has already pushed into operational systems, with its launch of Workday Student.

Can other functional areas be far behind? Workday's CEO Aneel Bushri made a telling comment at the end of the analyst summit, "Financials are the door to everything else," he said. "After you see us land large financial deals, you will see us moving into other areas: maybe healthcare, which is mostly workflow, plus patient accounting and billing. Layer on top of that strong analytics. It might be a year or two from now, but not five years out. But right now, we can't spread ourselves too thin."

This mimics the evolution of most other ERP providers over the past two to three decades. SAP, Oracle, and many others started as accounting systems. Once they were in the door, they then became the natural choice for expanding into operational systems in other functional areas.

Avoiding Side Streets

At this point, Workday has no lack of opportunities. In fact, one of the problems it faces is that there are simply too many good ideas that it could pursue. But if I am right that Workday's goal is to be the first Tier I cloud ERP provider, it cannot afford to take its eye off the ball.

Here are some of the ideas where Workday is saying no:

• Platform as a service (PaaS). Most of the leading enterprise SaaS vendors also offer a platform for their customers to extend the vendor's system or to build their own complete standalone systems. Salesforce.com with its Salesforce1 platform is the prime example. In its recent user conference, Oracle CTO Larry Ellison criticized Workday for its lack of a PaaS.
  
  But Workday is taking another path. First, most user development is for reporting, and Workday excels in its embedded business intelligence capabilities. Second, its applications are highly configurable, which diminish the need for customizations. Finally, where customers truly need to do new development, Workday offers an "integration cloud" to allow customers to build applications on other platforms, such as Salesforce1, and have them interoperate with Workday.  With a number of other good platforms offered by other providers, it is difficult to see the drawbacks to Workday's approach here.
   
• Commercializing Workday's cloud platform. As noted earlier, the capabilities of Workday's cloud platform are approaching those of large consumer cloud platforms, such as Google's or Amazon's. It is robust, scalable, and fault-tolerant. It is difficult to think of another enterprise software provider that can accommodate the number of simultaneous users in a multi-tenant environment and a single application code line. After Workday's briefing update on its technical architecture, I asked, "At what point do you commercialize this platform?" By this I mean, either to allow other SaaS providers to build on a separate instance of Workday's platform, or to license the platform for them to build upon and operate themselves. The short answer was, never say never, but Workday would rather focus on building applications.
   
• Manufacturing industry functionality. Manufacturing companies represent the largest industry sector worldwide. Nevertheless, Workday executives are adamant that--at least at this time--they do not plan to develop manufacturing business systems. In part, this may reflect the founders' experience at PeopleSoft, where their attempt to gain market share in manufacturing never gained traction. Way back in 2003, I wrote a post, PeopleSoft Is Tired of Being the Best Kept Secret in Supply Chain Management, which highlighted just how good PeopleSoft was in manufacturing and supply chain. But PeopleSoft never broke through in a big way.
  
  The other reason, I believe, is that manufacturing is simply a bridge too far from where Workday is today. Most of Workday's target markets today have one thing in common: they are sectors where people are the dominant costs--Financial Services; Professional and Business Services; Higher Education, Software and Internet Services; Government and Non-Profit; Healthcare; and Hospitality. These industries are best for leveraging Workday's roots as an HCM system provider. Workday could change course at any time, but right now, the leadership team feels that chasing product-based businesses would be a distraction.

Strategy is all about choices: deciding what not to do is as important as choosing a goal. Workday has no lack of those offering free advice--worth every penny!--and I've given my share in the past. Its leadership team is to be commended for keeping its focus.

What's Next?

If Workday's goal is to become the first Tier I cloud ERP provider, expect to see Workday begin to build out functionality to more fully serve its target industries, like it is doing with Workday Student in the higher education vertical. I'm speculating here, but it might mean merchandising systems for retail or revenue cycle management for healthcare.

Will Workday make major acquisitions to fill out its industry solutions? I don't think so. Its  acquisitions to date have mostly been for technology (e.g. Cape Clear) or what I would call capabilities (e.g. Identified). Any acquisition of business applications would need to be rewritten for Workday's platform, and I sense that Workday would rather start with a clean slate in developing new functionality. Workday's approach also allows it to build upon a single object model for each key entity, such as "person," rather than interfacing entities between acquired software. Workday's approach is another point of contrast with SAP and Oracle, which have built up their cloud portfolios largely through acquisition of disparate vendors and are now facing the challenge of integration.

There is another contrast with SAP and Oracle. Workday has a tremendous advantage in that all its customers are on the latest version. Its architecture with a single code base ensures it will never have legacy customers to support--another demand on a vendor's resources.

The Tier I ERP club today only has two members. But a third member may be joining sooner than we think.

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