HR Software – Build vs. Buy Dilemma

This blog is brought to you by Matt Lafata, at Hrchitect

HRchitect is brought in to many of today’s most successful organizations to assist in the area of HR Systems, or HCM (Human Capital Management) Systems Strategic Planning. An element of this is building out a 3-5 year HR technology roadmap and inevitably the question of “build vs. buy” comes up.

Before we tackle some of the pros and cons of each, let me say that investing in HCM technology of any kind, build or buy, without a strategy on how each component system will support the other often results in the implementation of systems that are not best suited to meet a company’s business objectives, wasted time and money, and staff inefficiencies.

Build – Primary Drivers

  1. Perceived lower cost – In house systems have a perceived lower cost, but if you add in all the additional staff time which could have been spent working on other business initiatives, the cost may be actually higher than a purchase.
  2. Unique features – In house allows for easier customization and including unique features to match the current process; however, these may not always be the best practice.
  3. Scalability and Flexibility – Can be flexible and scalable as they match the current IT process and workings
  4. Integration to HR System – May be easier to customize; however, oftentimes, In House systems are more difficult to interface as the necessary keys are not always available.  This will require in-depth planning which will increase the costs
  5. System Adoption and Cultural Fit – May be easier to have the end-users adopt as the system matches the current process.

Buy – Primary Drivers

  1. Implementation Speed – System is ready to implement with minimal development required.
  2. Lower Total Cost of Ownership (TCO) – Development cost paid for by multiple clients and not just one.
  3. Includes Best Practices – System has been validated and proven with other clients.  It includes best practices from multiple clients
  4. Vendor R&D/Technology and Support – Vendor is responsible to develop and maintain the system.  It does not rely on the company to keep the system updated.
  5. Internal Staff Time – Internal staff will be used less during the implementation as the vendor provides much of the needed resources in its cost.

Build – Hidden Price Tag

  1. Cumbersome applications results in inconsistent system use.
  2. Takes management away from revenue generating projects.
  3. Cost of internal resources to develop and maintain.
  4. Cost/inconsistent of system adoption

Build – High Maintenance Cost

  1. When building you will need to create all the system documentation and user training.  This oftentimes is not included in the cost analysis, which was done to convince the company that Build was the best decision.
  2. To keep your system current to all new laws and trends, you will need to provide on-going R&D for the Built System.  This may include legal and/or consultant time.  Once the system goes live the real work begins.
  3. IT resources will need to be assigned to the system for it lifetime.  This will include programmers for development, testing and general maintenance.
  4. Unlike a vendor system, a Built System will not include any industry best practices as it is customized to the company’s way of talent management.  This may include any inefficiency or redundancy; therefore, resulting in the system not saving time and money, but merely transferring the manual process to a computer screen.

Buy – Advantages

Cutting Edge Technology

  1. Vendor will assure that your system will remain on the cutting edge of talent management systems.  This is due to vendor’s need to compete and that the member company will have input into any system enhancements.
  2. R&D dollars are being spent over a wider company base.  Instead of one company supporting the system (as in a Build System), all vendor users share in the R&D costs which lowers the cost per employee.

Best Practices

  1. Are integrated into the system.  These are gleaned from the various companies that the vendor has as a client as well as the vendor’s research and knowledge of the talent management systems Industry
  2. Each vendor has user groups and some have user group conferences.  The User Group allows you to network with other clients to ascertain better ways of conducting talent management and using the system to its full advantage.

Lower TCO

  1. Vendor has methodologies which makes the implementation of the system quicker and more efficient.
  2. Vendor can use their internal knowledge of emerging technology and incorporate it into the product.  Again, as the R&D costs are shared by all the system users, the cost to change the technology is minimal on each company.
  3. Vendor provides support for both system knowledge and implementation. This frees up internal IT resources to focus on business applications and providing decision support for the company.
  4. Vendor spreads the maintenance cost between all clients.  Most support is used during an implementation.  Vendor will provide newer versions of your system to upgrade.

Adoption

  1. Training is developed by the vendor.  The consistency of the training allows for additional implementation of best practices along with internal system knowledge on how to get the most out of the software.
  2. As training has been standardized, the adoption rate is higher.  Use of user networking also aids with adoption as the company can research better methods to get the system used from other users of the product.

Compliance

Vendor includes all governmental requirements in their software to assure that you will be compliant during any audits.  This does not cover any business practices which may be outside of the system and could be suspect during an audit.

Delivered Integration

  1. Vendor systems usually come with many “pre-programmed” interfaces to the other system vendors.  This does not mean the integrations are plug-and-play, but the basic design is established and some configuration to the programs will be needed to match your exact set-up of both systems.  This delivered integration provides you with the ability to share your data between vendor systems and increase your analytical options.
  2. Shown are some options of the type of system which can have an interface.

Flexible and Scalable

  1. Vendor provided systems can be scaled both in activity and price should you increase your employee dramatically during a merger or acquisition.  The systems can be reconfigured relatively easy to accommodate the change in the organizational structure and reporting relationships.
  2. While most vendors will limit customization, the systems have been developed to allow for configuration which will accommodate most, if not all, of the unique needs of the company.  The delivered systems also provide systems which are rich in features which should provide system functionality which exceeds the client needs.
  3. The highest cost of most Built Systems revolve around the cost of the hardware – particularly the servers required to accommodate the systems.  The server costs is included with the vendor monthly fee thus eliminating the need for costly servers which need to be capitalized by finance.

Proven Functionality

  1. Purchased systems come equipped with pre-programmed analysis and reporting.  These reports have been developed over years of working with clients on what type of analysis Senior Management has been requesting.
  2. Due to vendor competition, each vendor is fiercely attempting to be the “best of Breed” vendor by providing excellent functionality and features which exceed the competition.  This continued R&D to the product, provides you with a system which will grow with your expectations.

Build – Summary of Positives and Negatives

Positives

  1. In house systems have a perceived lower cost, but if you add in all the additional staff time which could have been spent working on other business initiatives, the cost may be actually higher than a purchase.
  2. In house allows for easier customization and including unique features to match the current process; however, these may not always be the best practice.
  3. Can be flexible and scalable as they match the current IT process and workings
  4. May be easier to customize; however, oftentimes, in house systems are more difficult to interface as the necessary keys are not always available.  This will require in-depth planning which will increase the costs
  5. May be easier to have the end-users adopt as the system matches the current process.

Negatives

  1. System does not include the best practices which you will get from a vendor system which accommodates many processes.
  2. Cost to develop and maintain an In House system may be prohibitive over the years.  Particularly if compliance issues begin to require legal and outside assistance to keep the system current.
  3. Staff time is oftentimes not included in the calculations as “they’d get paid anyway” mentality takes over.  However, these employees are pulled off of other initiatives which may be more beneficial to the running of the company.
  4. When dealing with an In House system you will need to communicate accurately with your IT department.  This does not always produce the desired results.

Buy – Summary of Positives and Negatives

Positives

  1. System is ready to implement with minimal development required.
  2. Development cost paid for by multiple clients and not just one.
  3. System has been validated and proven with other clients.  It includes best practices from multiple clients
  4. Vendor is responsible to develop and maintain the system.  It does not rely on the company to keep the system updated.
  5. Internal staff will be used less during the implementation as the vendor provides much of the needed resources in its cost.

Negatives

  1. Look at other system options and buy only those components which will be useful to the company.  This will improve the TCO
  2. Implementation cost can become excessive if you try to include too many things into the system.  Use the system to help you to streamline your process and take advantage of the best practices included in the system.
  3. May require you to change your process.
  4. You need to know exactly what you need.  To do this you must have a complete and thorough list of requirements to choose the best system for you.

This blog is courtesy of Matt Lafata, at HRchitect.  HRchitect is a consulting firm with tremendous experience in assisting businesses select HR software.  For assistance in selecting HR software, please go HRchitect.com.

4 thoughts on “HR Software – Build vs. Buy Dilemma

  1. With an HR management software, a business can achieve many new heights with less effort. The HR management system assists in capitalizing employee performance. Develop an authoritative database of all the significant HR-related information, such as organizational charts, employee directories, compensation, time off, and recruitment using an HR management software.

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