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By Popular Demand

Why buy HR applications when you can rent them?

Leading, Not Lagging

The model, which isn’t new, wasn’t always such a hit. Known during the dot-com boom as the application-service-provider model, it got a black eye after many providers collapsed with the technology bust. The perception of risk that followed, while perhaps unfair, is just beginning to abate as pioneering vendors, including Salesforce.com, prove that the concept has staying power.

HR, for once, leads rather than lags a technological advancement. “It’s not accidental that HR has emerged as a hotbed for this model,” says Tod Loofbourrow, CEO of Authoria Inc., a talent-management firm in Waltham, Massachusetts. “HR has always had a hard time getting money for systems or ongoing IT support.” Often last in line for IT projects, the on-demand model enables HR departments to pay for new systems out of their own operating budgets, rather than waiting for a capital budget allocation.

While the degree of on-demand adoption by HR departments is hard to quantify, the level of activity in the vendor community suggests a vigorous market. In a 2005 IDC survey of more than 500 IT professionals, three of the top areas for implementing on-demand software were payroll, workforce management, and general HR administration. “The number of on-demand providers is increasing, as is the level of M&A activity in the HR software space,” says Erin Traudt, a research analyst in the software-as-a-service practice at IDC, a market research firm in Framingham, Massachusetts. Traditional HR vendors, led by Oracle/PeopleSoft, are moving into the software-as-a-service arena as well. Across the market, vendors, such as Ultimate, are shifting their model away from traditional premise-based software to the on-demand model.

Jason Corsello, program manager of the business and IT services practice at Yankee Group Research Inc., a consulting company based in Boston, says that on-demand appeals particularly to two areas within the HR space. “Basic functions such as payroll and benefits administration can be done more efficiently with on-demand software,” he says. “Then there are the talent-management-type applications such as recruiting, performance management, and compensation analysis that can also benefit.” The latter may provide an affordable way for HR departments to transcend their traditional administrative status and become more strategic, Corsello says. In an informal survey among Yankee Group clients, 75 percent said they plan to deploy on-demand talent-management software, up from 60 percent last year.

Getting a handle on administrative tasks can lead to strategic gains as well. Mike Metivier, HR director at athletic apparel maker Puma North America in Westford, Massachusetts, embraced the on-demand model to do more with less. At the start of 2004, with a corporate HR staff of four, the rapidly growing company wanted to provide its then 800 employees with Web-based benefits-administration systems so they could perform a variety of self-service functions such as changing their deductions, checking leave balances, and requesting vacation time. “It sounds minor, but it was really huge for us as a department to automate those things,” Metivier says. The company turned to on-demand software from Employease, in part because it could implement the system in only four months.

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