ERP cloud migration can be boosted by HCM integration

ERP cloud migrations present opportunities to streamline processes and improve efficiencies. But, despite the promised improvements, benefits of the migration are often not realized, and failures are common.

One reason for failure is the lack of ERP integration with human capital management systems, according to Pritam Dutta, principal at ArcLight Consulting, an Oracle HCM and ERP implementation provider in Burlington, Mass.

ERP and HCM systems serve different purposes in the enterprise. ERP underpins business-critical processes such as finance, accounting, procurement and supply chain; and HCM systems automate and simplify HR processes such as payroll and career development. Joining these systems under a common data architecture in the cloud enables organizations to improve processes, Dutta said.

In this Q&A, Dutta explains why ERP cloud migrations may run into trouble, and why integrating cloud ERP and HCM systems could be the key to a migration's success.

What are the biggest failure points of an ERP cloud migration?

Pritam Dutta: The No. 1 area where legacy customers fail is that they try and bring too much of their old legacy customizations into the cloud. They don't adopt one clear cloud principle, which is standardization. When you choose a cloud product, you're inherently accepting that your business can run on an 80-20 or even 90-10 rule [for customizations]. When we talk to clients, we ask how they're so different from their other industry competitors in the cloud that they need to move 100, 200 or 1,000 customizations over.

Pritam Dutta

A cloud migration should result in simpler processes, which should lead to better adoption from users, but that's not always the case, why?

Dutta: Standardizations should drive easier adoption, and it usually does on the employee side. We usually see adoption issues on the administrator side because they're used to customizations overcoming data or process deficiencies. Many legacy deployments have these customizations that act, essentially, like a nanny, and they have hundreds of those. So, they're used to the 'nanny' telling them [what to do or not do]. But when they get to a standardized process, there's nothing there.

So, there's nothing telling them what to do next. How do you train staff on such a big change?

Dutta: You have to walk them through the process changes and the approval flow that goes with it, and show all the things that were done to speed up the efficiency but also maintain the data quality that they're used to. That's where they usually run into roadblocks, and legacy customers say they want to pump the breaks. That happens both geographically and with silos within divisions. Division A says that they have to do it this way, but Division B says we're different, so we have to do it this way. This creates two different versions of the truth. That's where you run into data quality issues and you get into a siloed environment where you buy the cloud, but you build two different systems. Then they say, 'I'm not getting any efficiencies. I thought cloud was supposed to be much easier and more efficient. How come I have two administrators?' It's because you've really implemented two products.

A unified system architecture starts and ends with an HR record, that employee base, and everything you do is an offshoot of that.

How does having ERP integrated with HCM help?

Dutta: In the early 2000s, we saw a bunch of HCM-specific cloud niche products like Kenexa BrassRing [now IBM] and the first version of SuccessFactors [now SAP]. Those were all cloud methodologies, and users had to work the tool exactly the way the tool worked. A whole generation of HR structures and processes were built and trained around process standardization, and people got used to the standardized way they did processes like changing their account settings, resetting passwords or only being allowed to do certain transactions. When they go into the ERP world, they're used to using those ERP cloud products because they've done it on the HCM side, and they're used to maintaining their data on the HCM side.

What are some of the ways where ERP and HCM integration can improve processes?

Dutta: A unified system architecture starts and ends with an HR record, that employee base, and everything you do is an offshoot of that. … The biggest integration place, especially financially, is between payroll and GL [general ledger]. Your payroll module knows everything cost-related to an employee -- benefits, overtime, bonuses, base salary, taxes -- and your GL knows everything expense-related about the employee. When those two are linked, it uses the same data, which is why that integration yields big benefits, especially with the largest-scaled customers.

Take a hospital chain that has 50,000 employees. When they run payroll on a weekly basis, they are doing millions of transactions. Having HCM as part of the equation saves [time] on the ERP side -- the subledger accounting, the controller team, the financial reconciliation team, the cost accounting team. All of these ERP-focused teams can get huge benefits from an HR payroll group because they're keeping the data up to date and unified for them.

When should this type of HCM-ERP integration be brought into the digital transformation discussion?

Dutta: When you have a siloed organization and HR decides to buy a platform but doesn't bring in any alternate stakeholders, you're already putting yourself at risk. …. It's important to bring in all the stakeholders and show them the end-to-end business process impact to their particular area so that they can see this and understand how HR's decision affects ERP, supply chain, CRM and sales systems. The earlier you do this, the better quality [request for proposal] you get, because they're going to ask the right questions during the selection process.

Editor's note: This interview was edited for clarity and brevity.

Jim O'Donnell is a TechTarget news writer who covers ERP and other enterprise applications for SearchSAP and SearchERP.