Should you integrate finance. human resources and payroll?

21st March 2011

Finance. Human resources. Payroll. Should you opt for an integrated system or take the best of breed approach? Should you stick with on-premise solutions or explore the Software as a Service (SaaS) options? What about shared services? Should you keep some or all of these systems in house, or outsource them? Making this sort of decision has never been easy, but it’s never been as challenging as it is today. Because as FSN contributing editor, Lesley Meall discovers, what was best practice yesterday isn’t best practice today, and what is best practice today will not necessarily be best practice tomorrow.

The recent economic climate has led many organisations to put their business systems under the microscope and try to identify ways to increase efficiency and productivity, and reduce costs and waste, so the systems used for payroll and human resources (HR), payroll and finance, payroll and HR and finance, have all come in for closer inspection. According to specialist providers of related software and services, this has been particularly noticeable among the vast swath of organisations that are generally banded together with all encompassing terms of reference such as ‘medium sized enterprises’ and users of ‘mid-tier’ or ‘mid-range’ systems. 

Both Sage and Pegasus are reporting increased sales of their mid-range systems, which offer integrated HR and payroll (albeit with different levels of functionality and integration and between these systems and other business applications in their ranges). ‘This is an area where new business sales are going up quarter on quarter, with a 30 per cent rise during the last quarter of 2010,’ says Stuart Andersen, sales and marketing director, Pegasus Software, where the Opera 3 suite offers integrated systems for finance, payroll, customer relationship management, the supply chain and HR (though he describes the latter as ‘doing the basics’).  

‘Last year, 70 per cent of our HR and payroll clients took on an integrated system,’ says Adam Reynolds, client account sales manager Sage HR and payroll, where the SnowdropKCS system integrates HR software, payroll software and payroll outsourcing services.  According to figures from Sage, introducing a system that integrates payroll and HR can cut admin and reduce input errors so effectively that it can save up to 40 hours a week, freeing up the equivalent of one whole person, which could equate to between £17,000 and £25,000 in salary alone. 

Not that the streamlining of processes and better integration of data are the only reason why some organisations are rationalising their technology stack. Some are keen to ‘synergise’ their contracts, rather than have two or three contracts with two or three different suppliers, as doing this can reduce costs, when the promise of more business is used to haggle for better deals. ‘We are being much more flexible about contracts,’ says Jon Casey, sales director for financial systems at Infor, the Best of breed provider. ‘Total cost of ownership is very much an issue,’ he says, ‘so we are doing more fixed price arrangements.’ 

According to Toby Davidson, director of professional services with NetSuite, leverage to get a better deal is not the only cost-related reason why organisations are trying to reduce the number of suppliers they deal with. ‘If you have separate HR, payroll and finance systems, trying to integrate them represents a significant annual burden,’ he says, citing the time, cost and complexity of data transfer, maintenance, and upgrade as just a few examples, ‘and we have seen an increasing requirement for a single point of contact.’ 

Some organisations prefer the best of breed approach, not least because they are keen to maximise their investment in existing systems. So it is fortunate that it is getting easier to overcome problems with the associated data silos: where there is a will there is a way. Integrators, resellers and in-house technology staff can create links between apps, so that when the same data is held in multiple locations, it can be duplicated automatically in near real time; putting a layer of workflow on top of your systems is another approach; while new SaaS data management tools can enable even non-tech staff to improve data integration between applications (of both the on-demand and on-premise varieties). 

But with technology developments providing so many new options, how can an organisation choose the approach that best meets their payroll and HR needs not just today, but in the future too? As Tony Chauhan, an analyst with the Hackett Group, a global consulting and finance strategy firm, observes ‘this is a very big question’, and there are lots of possible answers to it (as FSN has previously highlighted, here and  here). ‘Where you go as a company will depend on your history,’ he says. ‘It’s all about finding the best way to manage your assets, and the keys to success are how well your processes are controlled and how well you use the software you have in place.’ So is there a best practice approach?

Does best practice make perfect?

Chauhan suggests that the business should drive any choices you make and the technology you choose should underpin this, by supporting the streamlining and standardisation of processes – which can be achieved with a number of different approaches. ‘There is an inherent standardisation built into an integrated system, with a single database, that doesn’t exist when you start trying to get systems to talk to each other, so this can seem like the most direct route,’ says Chauhan, ‘but best of breed has the advantage of allowing you to more easily take advantage of cloud computing,’ so there are advantages and disadvantages to both approaches. 

He also points out, that for an integrated system to deliver maximum benefit, it has to be accompanied by the standardisation of processes, not simply used to try to enforce them – as many of the earliest users of integrated systems discovered when they introduced Enterprise Resource Planning (ERP) systems. ‘What we see often is organisations where an ERP has been installed, but parts of the organisation continue to use individual applications,’ reports Chauhan. ‘Unless the business is driving the standardisation you get spreadsheet terrorism,’ he adds, ‘which is a problem if you want your data to reflect a single version of the truth.’ 

But even if you can get a single version of the truth in the case of corporate data, things are no longer so straightforward when you are looking for the best practice approach to managing your business systems assets. ‘For the past ten years or so there has been something of a consensus about what was desirable, with most people driving towards integrated architectures’, says Chauhan, with broad agreement among analysts, vendors, and end-user organisations that this was best practice, but then along came cloud computing and reversed the trend,’ he adds, ‘and now this is creating two different breeds of animal.’ 

On of these, is the integrated end-to-end architecture with the ultimate in data integration [a single database] and one consolidated global [organisation-wide] version of the truth, so beloved in the past. The other is an architecture that exploits cloud computing to ‘best manage’ assets, and addresses the associated data control and integration challenges with, variously, APIs and connectors, smart data management and integration tools, external integration specialists and consultants (as FSN has detailed in a recent article here . 

‘With the cloud you no longer need to own or manage the assets that you may have struggled to own and manage in the past,’ says Chauhan, talking not just about software applications (SaaS) but the boxes and communications infrastructure they demand (Platform as a Service, or PaaS) too. ‘There are no up front costs and if demand is variable or you have peaks of supply, you can accommodate this more easily using the cloud,’ he observes, and you can benefit from the expertise of third party providers who have ‘the necessary competencies’ in areas such as disaster recovery and virus protection. 

‘If you have high growth and you are expanding, a cloud based architecture can grow with you very easily, and at a relatively low cost,’ says Chauhan, particularly in people-oriented areas. ‘When you are a growing company it’s not your finance systems that struggle to grow with you. They need to grow to reflect product diversity, new markets, extra cost centres, and so on, and finance systems tend to be fairly flexible and scalable in these areas,’ he observes, while the systems that can struggle to grow along with the business tend to relate to collaboration and people-based processes. 

‘The more people you have the more they need to communicate,’ says Chauhan, ‘and it’s the things that need to grow rapidly, people wise, where we are seeing most market growth in the use of the cloud,’ with areas that can very effectively be ‘ring fenced’, such as email, HR and payroll. All of which makes the integrated approach look a lot less like best practice in the future, even in areas where it has been best practice in the past. ‘For many organisations now the driver is agility. How fast can you grow and at what cost,’ says Chauhan, so even organisations that already have an integrated architecture are reassessing how they can best exploit it. 

‘They’re now saying: “I’ll use this as a backbone for services, such as finance and stock, and I’ll hang everything else off it,”’ reports the Hackett analyst. So this should give pause for thought to at least some of the many organisations that are still driving towards integrated systems, particularly in the areas that relate to people and people-based processes. ‘If you already have a standardised ERP or an integrated business system, or you are thinking of taking this approach today, it could put you at a disadvantage in the future,’ cautions Chauhan, adding: ‘It could damage your competitiveness.’