Question: Do you Lease or Buy a HR IT platform?
Answer: Depends on your HR IT Strategy.
Firm executives and HR professionals are faced with this dilemma on a regular basis, whether it is more cost effective to lease or buy an HR information technology platform. This is akin to buying or leasing a new vehicle. Leasing the car may cost you more in the short run, but at the end of the lease you hand it back to the dealer for a shiny new car with all of the latest bells & whistles. With leasing, you are always a short wait to the latest release. Owning a car might cost less over-time than leasing - yet, after a while, the car can begin to breakdown and become costly to maintain. However, driving the car becomes like second nature and very comfortable, your radio settings are to your likening, you know how much is left when the empty light comes on and it is "your" car. HR IT operates in a similar fashion. Leasing HR IT means that your HR processes such as payroll, time & attendance tracking, HRIS, recruiting, and benefits administration are delivered online in Software-As-A-Service ("SAAS") model. Buying an HR system means you purchase a license from the vendor and run the program(s) from your own network. Having an HR IT strategy will help guide you make the right decision for your company and select the best vendor for your HR IT needs.
Development of an HR IT strategy requires a strong understanding of your Institution's current, short, and long-term business objectives. It requires that HR truly has a seat at the boardroom table as this will have an impact on the future direction of the Institution as an investment of the its financial & human capital. Without strong support from senior executives and/or board, your HR IT strategy will fail. There are 14 steps that an institution should take to determine their HR IT strategy and help manage the vendor selection process:
1. Create a team to review your current and future needs. Someone from the IT staff should be included on the team. It is important to have all key stakeholders involved as this will increase buy-in across the firm.
2. Set clearly defined goals of what you are trying to achieve. To establish goals ask yourself the following: How will this initiative support overall business needs? How does HR's proposed investments support/amend/replace current HR systems and processes?
3. Look at the big picture of your Institution's needs. Where is the business heading? Is an acquisition or downsizing on the horizon? What are the processes we are trying to improve? Answers to these types of questions will have a major impact on the HR IT strategy.
4. As you decide what the HR IT strategy will be, it is critical to look at your current IT department to ensure they have the KSAs (knowledge, skills, and ability) to implement and maintain your HR IT platform. For example, if you have a very small IT staff, then a web-based solution might be better then purchasing a vendor license to manage the software on your network.
5. As with every project, you need to establish your budget. The project budget should be set before you meet with any prospective vendors.
6. Before you meet with any vendors, clearly define the specs and scope of the project. What are you needs vs. wants? Should we buy or lease? Having this sorted before meeting with vendors will help define the scope of the vendor relationship and help you choose which vendors to select.
7. Do your homework and research what service providers and solutions are in the marketplace that meet your clearly defined specs and budget. Doing your homework before hand will help guide with vendor selection, to refine your specs as needed and ensure that you have an adequate budget allocated to the project before the firm has invested time and effort. Make sure that you check not only the vendor's website but look for whitepapers and other literature that will add value to process.
Steps eight through fourteen will guide you with vendor selection. Proceed to these steps once you have gone through steps one through seven and you have decided the lease vs. buy question, more on that below.
8. After you have done all of your homework, developed the specs, looked at your IT department, and set a budget you are ready to reach out to prospective vendors. At this initial contact, it is important to clearly outline the projects objectives, your specs, and anticipated budget. The goal at this point is to ascertain if the vendor can meet YOUR requirements. If they cannot, move on to another vendor.
9. Once you have selected three to four vendors that meet your requirements, invite them to your facility for a demonstration of their services. They should be able to walk you through their products so you can see if they fit your processes, your Institution's culture, and even if you like the software. The software might fit all of your needs but is cumbersome to use. The only way to know that is with a demo.
10. After the team has viewed the demos and selected the top two, now it is time to get down to brass tacks. This is where the proverbial rubber meets the road. Once you have narrowed the selection down to the top 2 providers, it is time to get detailed contracts. This is the opportunity for the Institution to review how the vendor handles the core processing. For example if you are looking at a payroll provider the contract should stipulate how they process ACH direct deposits, payroll taxes, 401K files, payroll funding timelines, penalties, and break-up clauses. This is your chance to look at the vendor's engine.
11. Once you have taken a peek under the hood, where possible, visit the vendor's offices. This is will give you a chance to see how they operate, meet your implementation manager, view their software, and get a sense of the professionalism of the vendor's entire operation and not just the salesperson.
12. Get another demo. As you start to move toward a finalist, it is a good idea to see the system again. Take the time to ensure that it meets your original specs. This added step will mitigate buyer's remorse.
13. Check references. It is important to learn about other institution's experiences. Was the implementation smooth? Are/were there major issues? What went well or wrong? What looks good on paper may not perform so well in reality and learning for other's experiences will help guide your decision.
14. Make a decision. Select the vendor that best fits your specs, budget, IT capabilities, culture, and processes. Notify the runner-up of why they were not selected so that you can maintain a relationship with them. The HR IT community is pretty small and you never know when you might need your runners-up product.
Back to the original question, does your Institution lease or buy an HR IT platform? The answer to the question is: it depends. Choosing the right option depends on a few factors, such as complexity, technical requirements, the firm's culture toward IT, and size of the firm all play a part. In the most basic sense, the larger the firm the more sense it might be a purchase a software license and manage the program in-house. Larger institutions tend to have larger IT departments, hardware capacity and the IT expertise to support the software, including updates and new versions. Smaller institutions, with less IT expertise, might find a web-base, or Software-As-A-Service (SAAS) the preferred method. However, internal cultural norms concerning data security and perceived loss of control over processes might turn executives away from the SAAS model. In my opinion, this is a weak argument. Many SAAS providers have stricter data security measures than some institutions might have in place. Before you select a SAAS provider, conduct a data security analysis or ask to see their data security audits and business continuity plans. If your institution has concerns over a SAAS provider's security ask this question: Is our data security any better?
As you can see, there is no easy or best answer to the lease vs. buy of an HR IT platform. A lot depends on you HR IT strategy, institution size, and culture. Best part of the process, as with buying a car, is that you can test drive all of the latest technology!
The OnCourse writing staff work to keep you informed about the most pertinent financial industry news of the moment