With all the buzz concerning the relative merits of cloud-based vs. on-premises systems, it's easy to forget that in reality, the IT environment of the future will often be a mix of cloud and on-premises tools. This scenario begs the question: Can these two types of systems "play nice"?
According to Constellation Research, more than 70% of organizations will rely upon cloud-based human capital management (HCM) systems by 2016, up 67% from those using or implementing Software as a Service (SaaS) HCM software today. Legacy enterprise resource planning (ERP) and other systems are not experiencing a similar rate of replacement, resulting in the emergence of "hybrid IT": computing models comprised of both on-premises and cloud-based deployments. The success or failure of this hybrid model will depend on agility and collaboration between HR and IT.
SaaS HCM is now mainstream
Approximately 30% of today's spending in HCM technology is in the cloud, with an increase to 70% expected by 2016, according to our latest findings. This increase is due not only to investments in SaaS-based learning, recruiting and other talent management technologies, but also to the movement of core applications such as HR, payroll, time and labor, and workforce scheduling from on-premises to the cloud. The growth experienced by SaaS vendors such as Workday, Ultimate Software, Ceridian Dayforce and others is a testament to the inexorable shift of HCM to the cloud.
With such phenomenal growth, it may feel like HCM "nirvana" has finally arrived: HCM products are at the center of technology-funding initiatives, innovation in the market is high, and HCM is among the top priorities of CEOs as they consider effective talent strategies and those strategies' impact on business outcomes.
However, HR's core system is just one of many upon which businesses run, and a large number of those will remain largely on-premises for the near future. With HR data central to many of these other core systems, the interoperability of cloud and on-premises software looms like a thunderhead, and it will become a critical business consideration.
Hybrid IT to emerge as the new norm
Gone are the days when IT ruled with an iron fist and controlled all technology spending. Today's IT budgets continue to drop while technology spending is on the rise. So who are the new buyers?
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Consumer technology and niche SaaS applications have out-innovated traditional enterprise technologies, and their availability in the cloud is shifting technology-buying decisions to business leaders within the sales, marketing and HR departments, among other areas. The ease of technology procurement in the cloud makes any business leader able to select and deploy software to meet business-critical initiatives, with or without the consent of IT. Whether by default or by plan, the resulting technology landscape of most organizations today is characterized as hybrid IT: a combination of on-premises deployments and (often multiple) cloud environments.
While challenges may arise from this new hybrid environment, consider the fact that roughly 75% of IT budgets are devoted to ongoing infrastructure support. This infrastructure burden to IT is such that HR and other business functions are often left waiting for process and technical innovation. The untethering effect of hybrid IT reduces support demands on IT while increasing the speed with which the business can adopt new innovations such as mobile, social and analytics.
Four imperatives for success with hybrid IT
Success in today's hybrid computing environment requires a rebalancing of investments. Optimizing and reducing resources spent on infrastructure will allow increased strategic investments in integration, intelligence and innovation.
- Infrastructure. Infrastructure optimization generally requires consolidation, standardization and upgrades at the server, data center and application levels, as well as across IT processes. Efficiencies across all these levels free up resources to invest in other areas. However, business leaders often cannot wait for IT to reach optimization goals, often demanding new capabilities and supporting systems. Cloud products bridge the gap, accelerating adoption of new systems while freeing resources to facilitate optimization efforts and other strategic initiatives. The benefits of hybrid IT are clear in HCM, where legacy applications have failed to keep pace with the latest innovations in process and user experience. It is now commonplace to integrate on-premises core HR and payroll systems with cloud-based talent management applications, and in this way, HR has been effectively untethered from the constraints of legacy IT. Embracing a hybrid computing model enables organizations to balance the need for business-level agility and speed with the need to maintain data control and continue to leverage investments in core enterprise systems.
- Integration. Quality and sustainability of integrations continue to be a top concern for CIOs. Historically, integrations required myriad tools and processes, lacked standardization, and were largely managed and supported by users. Frequent updates of SaaS applications meant frequent maintenance of complex and often tenuous system touch points. But integration concerns need not slow down HR processes in the cloud. In fact, a hybrid IT approach can accelerate the success of cloud HR systems by freeing up IT resources to focus on improved integrations spanning data, metadata, business processes and, ideally, even the user experience. Other initiatives, such as managing integration libraries, ensuring master data management and improving access to "big data" stored in both internal and external systems, all contribute to the sustainability and efficacy of cloud systems integrated with core, on-premises applications.
- Intelligence. Today's IT department typically spends less than 15% of its overall technology budget on business intelligence (BI) initiatives. Infrastructure optimization via hybrid IT unencumbers resources that can instead be applied to BI initiatives that in turn can improve business outcomes. For example, liberating data from core transactional systems, such as finance and manufacturing systems, and then connecting it with workforce data from cloud and/or on-premises HR systems will vastly improve business insight, scenario planning and decision support. Further investments in improving data quality, increasing mobile accessibility and the establishment of key performance indicators (KPIs) will set the stage for even greater advances in business insight and forecasting through big data analytics.
- Innovation. For HR and IT managers to remain relevant in the future, they need to collaborate with business leaders when introducing innovative new technology. Social, mobile and cloud approaches are just a few of the disruptive technologies enabling new innovations across the enterprise. In addition, HR cloud deployments are challenging the constraints of legacy infrastructure as they introduce innovations in mobile accessibility, user experience and new social workflow processes. IT organizations can either constrain the reach of these innovations or embrace them and propel their success through a well-crafted hybrid technology infrastructure that supports experimentation with disruptive technologies and ensures enterprise-wise flexibility.
As the lines of engagement between employees, customers and partners -- and the boundaries between the systems through which they interact -- blur and converge, best-in-class hybrid infrastructures will emerge to support the resulting heterogeneous composition of technology platforms. SaaS HCM is at the forefront of this transformation, serving as a template for how organizations can optimize their technology infrastructure without putting off critical investments in integration, intelligence and innovation.
Going forward, business technology environments will be collections of on-premises, private and public cloud systems. Hybrid IT is not just a step along the journey to cloud -- it is the destination.
This was first published in January 2013