The following post comes from Jacqueline Kuhn, Executive Vice President HCM Consulting Services at HRchitect. Jacqueline will present “HR Technology as a Strategic Investment” at the Maine HR Convention on Tuesday, May 8, 2018.
Building the Business Case for your New HCM System – It’s All About the Business
In the 30 years I have been an HR Technology professional, I have been asked thousands of times “How do I build a business case?” My answer, while it may be perceived as flippant, is “find a business problem and solve it.” While this sounds simple and straightforward, unfortunately the execution of this concept is anything but simple.
First and foremost, it needs to be about the business, not HR. The very nature of a business case is something that helps the business operate better. To do this, one needs to fundamentally understand how the business works. There is a saying “follow the money” and that is exactly what needs to happen to build your HCM business case. Since every business has a unique set of problems and different business make money in different ways, there is a uniqueness to each. However, there is a formula that if used properly can be successful.
That formula uses 3 pillars to build the business case: Productivity, Risk and Cost. Every case is built on one or more of these pillars. The more pillars used, the stronger and more viable the case. However, it only takes one very well crafted pillar to build a solid case for new technology
This is all about being able to be more productive in day to day business operations and increasing employee engagement. This is NOT necessarily about HR headcount reduction or process improvement. The technology investment that may result in an increase to the HR Operating budget. The best example of productivity is the time and effort of people who generate revenue for the organization. First identify the leaders, managers or individual contributors who directly impact the organization’s top and bottom line. Next, evaluate all of the people processes they are involved with and decisions that require people information. Determine which are most time consuming, those which take them away from their jobs, and how can you improve the process and support them with the new technology.
When people have the right tools to get the job done, employee engagement is increased. There are many studies that have proved that a highly-engaged workforce drives higher profitability, higher productivity, and lower absenteeism.
This is multifaceted; there is compliance risk, decision making risk and application health risk.
Compliance risk includes those things that are regulated and violating them comes with a fine. This is not necessarily internal policy compliance, while important, is not nearly as important as knowing you are legally compliant and reducing the cost of that compliance. This is particularly beneficial to your business case when moving from an on-premise system to the cloud. Moving to the cloud means internal resources are no longer needed to ensure the systems have the most up to date releases. Whether this is for domestic payroll or global HR information gathering, not having to apply and test these releases in a timely manner decreases risk while also contributing to increased productivity.
Decision making risk is reduced with accurate, timely and available information. How can having better reporting improve decision making? Improving accuracy is achieved by not having to manually compile information from multiple systems, improving timeliness by having near real-time information, and improving availability by tracking KPI’s and “pushing” them out to decision makers via dashboards or mobile devices. This can also be a productivity gain if the decisions are being made by people who directly impact top or bottom line or if the decisions being made can directly impact top or bottom line growth.
Application health risk includes three elements. First, the health of the vendor supporting the application and their ability to continue to improve the application. Second, the health of newer technology in relation to what is in place today. Last, with cloud, having a single set of code, you are not alone in the quest for flawless systems. The health of the application will impact the 2 other pillars as an unhealthy system will lower productivity and increase cost
The business case is based primarily on better management of cost through the reduction of staff to support the technology and predictable costs. However, this is potentially the most difficult pillar in building the business case, particularly if you are not spending a lot of money on your HCM technology today and need to make an investment. Spending more money on technology tomorrow than today will require a solid productivity or risk-driven business case. However, if any on-premise, web-based or outsourced technology is used today, there is potential for cost savings.
The replacement of an on-premise applications must include all hardware or software components that will be retired along with the cost of maintaining those appliances. Upgrades to the operating systems, as well as the software, are costs that will no longer be needed and must be quantified. Staff used to maintain the hardware and software, unless re-deployed, should also be counted. Lastly, the on-premise replacement cost should include the future cost of upgrades, which will no longer be needed.
Predictability of cost should not be overlooked, but there may be hidden costs in the new model that need to be included. Predictability is gained via the Per Employee Per Month (PEPM) fee that is charged for using cloud software. Based on contract terms and employee headcount, an annual fee can be calculated including all software, upgrades, support and sometimes training. However, there are some vendors, particularly in the payroll services space, that have additional “rate cards” on top of the PEPM. These “rate cards” contain one time charges for support of activities that are not normally re-occurring. Careful examination of these rate cards to determine what charges may be levied against you must be considered when building your business case.
Staff Investments may also be needed when purchasing new HCM Technology. This includes not only training on the products, but also the hiring of new talent with skillsets not in the organization.
The 3 pillars, Productivity, Risk, and Cost when used together will build a strong business case. However, even the best of business cases may not get approved. Often, HR is in competition with other initiatives for funding and those have greater pay backs. However, if your case is truly based on improving overall business operations, your chances of approval are greater.