If you asked me a few quarters ago - I would not thought I may be writing a post on payroll soon... but the recent events of SAP acquiring SuccessFactors, Oracle buying Taleo, Workday and Ultimate both working hard on their payrolls - got some thought cycles started...
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| Sample Paycheck -from themint.org |
Payroll - a negative business
I remember a payroll industry veteran CEO saying once in a meeting, that payroll business is the most ungrateful business you can be in. You get a company's pay checks right for 20 years, screw up once for a handful of employees -- and they hate you. There seems to be little value of getting payroll right for many, many pay cycles, it only matters when you make a mistake. A very negative business. Or maybe the payroll providers do a too good of a job, so that they are being taken for granted - until something goes wrong.
So the new guys versus dinosaurs play does not work anymore and you can see how 'leftover' TalentManagement vendors of Workday and Ultimate are pushing payroll more. Workday has embraced payroll earlier than the Talent Management Vendors, but is now marketing their payroll offering more aggressively And Ultimate just reflected the push for payroll with their recently announced payroll partnership with Celergo.
As a sidenote - isn't it interesting that the acquired vendors (SuccessFactors, Taleo and Kenexa) did not have a payroll offering or any ambition in the area? Certainly they were more complimentary to their acquirers but it also shows the stickiness that results from payroll products.
On the general perspective ConstellationRG's Yvette Cameron postulates 6 very valid principles for a cloud payroll, so no need to go there again. But the inherent elastic nature is something future payroll offerings should exploit more and better. It will be interesting to see if the new payroll offerings - e.g. SAP's new Hana / Cloud payroll - will take advantage of the cloud.
But lets try anyway:
Market Shifts
The interesting dynamic, that we can see in the overall HCM market is, that the old dichotomy of the old ERP vendors (some call them the dinosaurs) versus the new Talent Management vendor does not work anymore. For the simple reason that the ERP vendors have bulked up with the Talent Manager acquisitions and now have to figure out how to integrate them... with their HRMS and payroll products.So the new guys versus dinosaurs play does not work anymore and you can see how 'leftover' TalentManagement vendors of Workday and Ultimate are pushing payroll more. Workday has embraced payroll earlier than the Talent Management Vendors, but is now marketing their payroll offering more aggressively And Ultimate just reflected the push for payroll with their recently announced payroll partnership with Celergo.
As a sidenote - isn't it interesting that the acquired vendors (SuccessFactors, Taleo and Kenexa) did not have a payroll offering or any ambition in the area? Certainly they were more complimentary to their acquirers but it also shows the stickiness that results from payroll products.
Payroll and Cloud
Payroll is inherently a cloud application. In the (long distant) past you had to size your hardware to the size of your payroll run. Even today many payroll vendors make a very good living by running payroll for clients as an ASP, which shares hardware and runs the payrolls at slightly different times. These are not cloud solutions, but the conventional product with their conventional architectures, run in a shared, abstracted way to save hardware resources.On the general perspective ConstellationRG's Yvette Cameron postulates 6 very valid principles for a cloud payroll, so no need to go there again. But the inherent elastic nature is something future payroll offerings should exploit more and better. It will be interesting to see if the new payroll offerings - e.g. SAP's new Hana / Cloud payroll - will take advantage of the cloud.
Payroll 2.0 - in the cloud
As with all new technologies, the risk, that the same business functionality will be re-implemented on the new platform is significant. The pressure to have the same functionality on a new platform, with lower cost, faster response time and other benefits is huge. It's also risky to rethink the business functionality in a new way - as it may not become the new business best practice.But lets try anyway:
- A Payroll 2.0 product should put away with the traditional pay-run While a sacrosanct ceremony for most payroll managers, there is no reason to keep this practice. Why not let business managers start, run and simulate a payroll? Or push it further and let the employee initiate it and see what his next paycheck will look like.
- A next generation payroll system should also allow micro payments and payouts. Why not allow an employee to be paid weekly vs bi-weekly vs monthly - or even more employee oriented -on demand? It will certainly make the compliance side more complex - but the architecture of a next generation payroll system should not be the limitation.
- And while there has been made a lot of noise around Total Compensation Management, it has only happened on a very high level for employee benefits - both monetary and non monetary. We are far away for an employee to e.g. determine when his take home pay will achieve a certain amount.
- Equally next generation payroll systems should support managers in process of scheduling workers. It will certainly help a shift manager to call in employees for extra weekend work if he can tell them how that extra work will affect the take home pay at the end of the month. Likewise payroll data is seldom used in shift planning and workforce planning applications, it usually stops with basic pay and over time pay
- And when moving payroll to the cloud, the whole electronic banking process should be enabled. The employees should be able to determine bank transfers, split paychecks if needed (think of legal reasons like alimony) and pool paychecks from multiple employers. Or just be able to send or produce the latest payslip for a credit event.
- Finally we should see 21st century compliance integrations, why move data to paper if you can communicate with a government cloud, e-file returns etc. Features like this will reduce compliance costs and with that make the new products more attractive to enterprises.
Architecture will matter - as always
It will be key that the next generation payroll products will not only be able to take full advantage of the cloud but will also need a very granular, atomic design. And while this may sound like a general good design principle for any complex piece of software, from the current payroll engines out there, very few if not none have been designed that way.
If you take the support of a global company in a single payroll engine as an example, then most enterprise software vendors have failed. As example, both Oracle and Peoplesoft started out with a US design and then tried to bolt on more country support - but their payroll engines became quickly unmanageable once you add more than 10 countries. SAP took a much better approach, if not for the luck that the grand daddy of SAP HCM, Klaus Tschira was a huge Smalltalk fan and insisted on a more object oriented approach to design the SAP HCM system, resulting in the famous infotype. And it's the flexibility of the infotype concept that allows SAP to theretically build a payroll for any country of the world - and merely mundane business reasons (no enough customers) restrict SAP from doing so. But it's not the design and underlying architecture that limits the business - software how it should be.
This is why I expect future, true cloud payrolls to be more like the design of the SAP payroll and beyond. They should not be embedded in the rigid understanding of an ERP style view of employee and employment - but a more LinkdedIn style model of professionals and a project based employment view.
Deep vertical aspects
But let's not forget that every company runs in an industry, with deep functional requirements and often legal compliance needs. When you consider this - it's not a surprise that the system of the US Veterans Administration is ... 50 years old. And you bet it started with a payroll / benefits payment solution. And got bolted on and added on for over 4 decades. To replace such a system, you need deep vertical capabilities and confidence you can run that payroll / payment process. So not surprisingly it's falling to a not so young system anymore, to Peoplesoft / Oracle trying to replace the legacy system on the system side (IBM provides the services).
Along the same lines works the recent decision of the Washington State to use a Peoplesoft system to run all of its Higher Education system HR processes - should not surprise. The public sector in academia is riddled with rules and regulations which mostly find themselves in some way or shape affecting the payroll.
So a next generation, cloud based payroll system needs to be able to model vertical aspects very, very well. As well as the probably necessary customization needed to take any of the above mentioned, very large scale, very complex systems live.
Anyone building it?
Ironically, I am not aware of anyone building the next generation payroll (yet). SAP seems to be content with taking the status quo - which isn't bad - to the cloud and will miss a re-design chance equally like Oracle did, that elected to make more or less the old Oracle e-Business Suite payroll as the future Fusion payroll. Only Workday built its own payroll processing recently, but limits it to North America (and UK?). My concern would be similar design errors have occurred like with the Peoplesoft payroll - hence Workday is partnering for outside North America for payroll. Smaller vendors like Ultimate can only partner with the payroll service bureaus, who do not have a common platform and are too thin pocketed to build a platform beyond manual labor, Microsoft Excel and existing local payroll platforms.
[Update May 8th:] A lot of readers point me to ZenPayroll as a new investment into a payroll systems - and indeed the company has impressive backing and seems to make payroll easy and fun (!). I don't know more about the architecture, but it looks like the self services aspect of a next generation system was very well achieved. Potential concerns are on US only focus (the future of payroll is global) and around using Ruby as programming language - but that's another full blog post.
[Update May 8th:] A lot of readers point me to ZenPayroll as a new investment into a payroll systems - and indeed the company has impressive backing and seems to make payroll easy and fun (!). I don't know more about the architecture, but it looks like the self services aspect of a next generation system was very well achieved. Potential concerns are on US only focus (the future of payroll is global) and around using Ruby as programming language - but that's another full blog post.
MyPOV
We are witnessing a renaissance of the importance of payroll. It creates a significant stickiness factor to stay with your vendor and employer. And with Oracle and SAP picking up talent management vendors, the combination of existing payroll and new talent management functionality forces the other market players to a payroll strategy, which ultimately will lead to payroll product creation. Do not entirely discard SAP building next generation payroll on top of Hana. Equally don't be surprised to see some well funded payroll professionals to build a next generation platform.