More than half of all enterprises will rely on cloud-based or hybrid solutions for their human resources systems by 2020 – more than double the number that do today – with a complete move to the cloud slowed only by the complexity of unwinding legacy HR platforms, a new survey report from Information Services Group (ISG) (NASDAQ: III), a leading global technology research and advisory firm, has found.
The ISG Insights™ 2017 Trends in HR Technology and Service Delivery report shows that nearly one-quarter of enterprises will rely on hybridized, on-premises-plus-SaaS systems by 2020, but ISG believes this only is a transitional period on an accelerated journey toward fully cloud-based solutions. Those firms eventually will join the nearly one-third (32 percent) of all enterprises that will rely solely on SaaS subscription-based HR technologies by 2020.
“We see the move to SaaS as likely the single biggest opportunity to transform HR service delivery, from improved talent targeting and employee engagement to increased HR administrative efficiency, compliance and data insight,” said Debora Card, partner of HR Technology and Delivery Strategies at ISG. “Companies that lag in deploying and integrating SaaS-based capabilities risk falling significantly behind in their ability to attract, engage and retain the talent necessary to compete in a rapidly evolving market.”
The leading on-premises HR software vendors have shifted nearly all their development efforts to the cloud and increasingly will phase out support of legacy on-premises systems, the report notes. This leaves customers of these solutions with little choice but to plan for a relatively short-term shift to cloud-based HR/HCM platforms. However, the report notes the intertwined complexities of most enterprise HR systems and operations will prevent firms from going “all in” on SaaS/Cloud HR in the near term. Many companies will need time to phase out legacy and custom solutions.
By 2020, more than 75 percent of companies expect to have migrated at least one HR system to the cloud, the report finds.
When selecting cloud-based HR/HCM systems, data security, ease of use, functionality and price are the top criteria, according to the ISG Research survey. Functionality and price have moved up the list, displacing configurability among the top criteria, suggesting that the SaaS market is maturing and enterprises increasingly are looking for highly functional SaaS systems to replace core HR systems, rather than augmenting existing on-premises functions.
The ISG Research survey finds 46 percent of enterprises expect to devote more than half of their HR technology spending on cloud-based systems over the next two years, up from only 28 percent in the 2015-2016 period. Those expecting to spend less than 25 percent of their budgets on cloud-based systems shrank from 47 percent over the last two years to only 30 percent in the next two years.
The smallest companies (1,000-4,999 employees) continue to be the fastest adopters of SaaS-based HR solutions, the ISG Research survey finds, primarily due to the lack of investment in legacy systems and the need to scale quickly as they grow.
“The strategic shift to cloud-based HR systems requires strategic planning and an enterprise-wide willingness and ability to execute,” said Card. “Organizations need to develop and staff three- to five-year transition strategies as soon as possible. And they need to keep in mind that migration to SaaS/cloud is not a one-and-done activity; rather, it is a series of ongoing transformations. Enterprises need to plan for continuous change in providers, solutions and how those solutions are used in house. Alignment with enterprise business requirements will demand ongoing, dedicated resources.”
The ISG Insights™ 2017 Trends in HR Technology and Service Delivery report also explores the adoption of SaaS-based platforms by HR function and geographic region, the perceived benefits of moving to the cloud, and current HR delivery models by function, including the use of shared services and HR process outsourcing.
The report is based on analysis of data derived from a survey of more than 200 senior Human Resources, Operations and IT leaders conducted in the fourth quarter of 2016, and on previously published ISG research.
To read the complete report, visit this webpage.