Last week I was at a housewarming party. A friend (ex-neighbour) had just bought a house that was a 45-minute train journey into London. Prior to this, like me, he was renting in our apartment block. I was intrigued at what had prompted him to make the move – from renting to buying.
His description of the various ‘factors’ that led to his decision – notion of stability and ownership, not throwing money away on rent, uncertainty on rise in rent – sounded so very similar to what an HRD would describe while deciding to invest in HR Software-as-a-Service (SaaS) solutions.
Stability and Ownership: Buying a house means you own the place, said my friend. It’s true. If you are renting, you can’t even put a nail on the wall without asking the owner first. Similarly, the HRD needs to ask the provider everytime there is a need to change process, reporting, configuration, anything. Yes, there was the high upfront cost of buying a house (££s million for an on-premise ERP solution) and uncertainties about future maintenance expenses (read, service support fees). Not so with renting, and I also retain my option to move into a new apartment at the end of the current 12-month contract – possibly a bigger apartment or a more secure aprtment. Similarly, HRDs have the option to change SaaS providers at the end of the contract – based on their current needs (and the fine print in their negotiated contracts!). Some people prefer to make this trade-off between control and flexibility.
Throwing money away on rent: For my friend, renting was a running expense and not an investment that was creating an asset. This notion was intriguing. Large ERP contracts are typically funded through a revenue expenditure involving the COO, CIO, CFO, Procurement and HR. SaaS contracts are typically funded out of annual operating budgets, often within the remit of the HRD. Another friend (an investment banker) joined the discussion and pointed out that the rental yield for an apartment in London is around 4.5 – 5%. Which means that my annual rent is 4.5 – 5% of the value of the apartment. Mortgage costs are not significantly lower, especially if you add the one-off legal and sundries costs. This also leads us to consider the opportunity cost of tied up capital if you were to make a heavy upfront investment in buying a house. So renting is not necessarily like throwing money away – instead it was a price I was willing to pay for the service I was receiving.
Uncertainty on rise in rent – It’s never an easy conversation to have with your landlord towards the end of a rental contract. Do I want to continue in this place? Will the rent go up (again)? Is there an escalation clause in my contract? What other options can I explore? What about buying a house this time? Is it worth taking the trouble to move for better rates or terms? Not very different from what an HRD has to consider while renewing the subscription for a cloud-based HR system. Clauses relating to escalation and price caps are slowly gaining attention. Rent doesn’t always have to go up!
So, while I was not entirely lured into buying an apartment I was currently renting, I could see why it made sense for some (like my friend who was throwing the party).
Before making the rent or buy decision in cloud-based HR systems, run it against this CLOUD checklist:
C: Cost – What is the upfront cost? What is the opportunity cost of tied up capital? What is the present value of future (ongoing) payments? What are the maintenance and service support costs? We explore these further through Capgemini’s SAFER approach to business case and benefits management.
L: Location – How will the service be delivered? Internet, intranet? What are the regulatory requirements of providing a cloud-based service in your region? Is the company’s IT landscape ready for delivering this service? We explore these further through Capgemini’s Cloud Readiness Assessment method.
O: Ownership – How important is it for the HRD to have control over the infrastructure? With control comes responsibility – is the company equipped to take responsibility for timely upgrades and customisation? Will the new SaaS-based service be reliable? Who will own the data? We explore some of these in Capgemini’s Vendor Selection approach.
U: Uncertainties – Will the SaaS-based service have any interruptions? How will backup be provided? What if I decide not to continue – is there an ext clause? What if my volume requirement comes down – when can I reduce contracted volumes? How do I change business processes to reflect changes in business demand? We explore some of these in Capgemini’s Vendor Selection approach and Capgemini’s Change Management framework.
D: Data – How secure is data stored in the cloud? What if I need immediate access to data? What are the information security guidelines for a global rollout? How will data be extracted, transformed and loaded in the new system? We explore some of these in Capgemini’s Vendor Selection approach and Capgemini’s Change Management framework.
Cloud-based HR solutions provide an alternative to traditional technology investments in HR systems. But it’s not a ‘one-size-fits-all’ scenario. So, how will you decide where and how much to spend your investment on HR systems? Will you be renting sometime soon?