Top five benefits of HCM and ERP integration
The growing interest in HCM and ERP integration makes perfect sense when you consider the speed at which the HR landscape is changing. Just a few years ago, terms like COVID, hybrid workforce, and Great Resignation would not have meant much to the average HR manager. But today, those words are part of new business lexicon – one shaped by rapid change, new expectations, and a growing need for resilience and agility.
Today, the most successful companies know that data and digital solutions are at the core of their business transformation – and that their people are the most essential component of that transformation – so a robust HCM system is critical to a changing workforce. And a modern AI-powered ERP is essential to the strategic management and analysis of data, providing a single source of truth and visibility across the entire business.
So what happens when these two powerhouse systems are integrated in the cloud? You get the best of both worlds, that’s what.
ERP vs HCM
Enterprise resource management (ERP) software got its start in the manufacturing sector. In the not-so-distant past, ERP solutions were primarily used to support manufacturing operations, supply chain management, and financial and accounting functions. But today, the best ERPs have evolved into fully integrated business management systems that use AI, machine learning, and advanced analytics to connect every department and all aspects of a business – in one system. A powerful database at the heart of a modern ERP system gives it immense scalability and speed. It can be tailored with operational modules beyond accounting and manufacturing – to serve the entire business – from supply chain to sales and marketing, R&D, procurement and, of course, human resources.
In fact, HR was among the first ever “modules” to be added to an ERP when it was included in SAP’s R/4 ERP system way back in 1979. As technologies advanced, ERP HR modules continued to improve and develop, and with that advancement, there also grew increased pressure from HR teams to have their own built-for-purpose HR management system. And thus, the HCM was born and has grown into its current role: helping businesses manage their teams from hire to retire – with tools to support recruitment and onboarding, training, benefits and payroll, performance, employee experience management, people analytics, and more.
When HCM and ERP are integrated, businesses can leverage the combined power of both systems to help them understand, manage, and optimize their workforce.
HCM and ERP: Better together
So…if HCM systems originally existed as ERP modules, then why didn’t they just develop over time within the ERP? Why did the best companies feel the need to acquire HCM systems, distinct from their ERPs? To answer that question, we must look at the practice of HR itself, and how it is different and more complex than many other business operations.
The “human” in human resources means that – at its core – it has to do with relationships, engagement, and personal development. In addition to “hard” administrative and accounting demands, HR leaders must also have the right tools and systems to help them manage the “soft” more human components of their workloads. In other words, they must be able to manage and analyze both structured and unstructured data.
Structured data refers to quantifiable chunks of information that can be organized and formatted into a relational database – like a spreadsheet. This hard data includes things like payroll, benefits, and scheduling. Unstructured data consists of more qualitative, softer information such as aptitudes and skills, performance management, and employee engagement.
Old-school ERP systems first came into their own as tools for unifying and managing large amounts of disparate structured datasets from across the organization. And while that functionality was immensely valuable to HR teams, they still felt the need for more specialized business management tools, and systems tailored to address their more unstructured data and information.
This is where discrete HCM systems first came on the scene as highly specialized HR business management tools that were entirely dedicated to the unique and complex operational and qual/quant data management needs of HR teams.
Decades later, modern ERPs have evolved light years past their early iterations. In fact, today’s best ERPs are powered with AI and machine learning so they not only seamlessly manage both structured unstructured data together, they actually thrive on it and use it to learn and grow more intelligent and precise – the more of it they are fed.
And modern HCMs have also experienced enormous advancements in speed, functionality, and sophistication.
So, what does all that mean? Essentially, many companies are now in a position where they have these two highly efficient systems (HCM and ERP), both operating at peak levels – but neither of them talking to each other. Imagine if the technical wizardry of Wozniak had never met the business savvy of Jobs. They’d probably both have been quite successful on their own, but it was only when they worked together that their true potential emerged.
HCM/ERP integration improves business-wide visibility
When HCM and ERP are integrated, businesses can leverage the combined power of both systems to help them understand, manage, and optimize their workforce in synchronized alignment with overall business objectives and priorities. The old saying “knowledge is power” has never been more apt and, after all, what is knowledge but information? And what is information but data? By integrating the unique strengths of HCM and ERP, companies are breaking down data silos in real time, to connect HR with other core departments, including:
- Supply chain: With access to supply chain data held in the ERP, HR professionals are better equipped to quickly optimize staff schedules in areas like manufacturing and logistics, and scale up or down as needed.
- Service: With a big-picture view of upcoming service needs or sudden shifts in demand, HR managers can rapidly identify skills gaps and either train existing employees or hire new ones to meet the need.
- R&D: Product lifecycles are shorter than ever and collaborative software solutions make it increasingly feasibly for global teams to work together virtually. When HR teams get a real-time heads-up on R&D commitments, they can better source and vet the necessary skill sets.
- Sales: Real-time access to daily or weekly lead acquisition and conversion helps HR teams have up-to-the-minute intel on sales team performance – and can use that data to spot when team members might need additional support or training.
- Procurement: Contractors and vendors are often hired outside the purview of the HR team. As the gig economy explodes, this puts companies at risk due to a lack of compliance and consistency. HCM/ERP integration helps HR teams work with project planning teams, to ensure that contractors and external services are hired and managed within established standards.
Top five overarching benefits of HCM and ERP integration
With real-time visibility and connectivity across their businesses, HR teams are adding value and profitability to the entire organization.
- Use people analytics and insights to inform cross-business decision-making
Increasingly, C-suite leaders and other decision-makers are turning to data and evidence-based HR insights to help them inform profitable decision-making and practices across the entire business.
- View real-time, AI-powered workforce insights and financial forecasts from across the business – to drive more confident decision-making
- Measure the impact of various HR activities (recruitment, retention, experience, performance, absenteeism, training and development, compensation) against business objectives (profitability, sales, productivity, customer success, safety)
- Align HR’s operational and workforce costs in real-time with business priorities and objectives
- Optimize your total workforce
Hybrid workforces are adding additional complexity to workforce optimization. ERP and HCM integration helps you throw back the curtain and get a full picture of the global workforce.
- Get a handle on who’s who in your company with business-wide access to a single, searchable talent pool of all employees, external workers, and candidates (including profiles, skills, training and certifications, etc. – all in a globally consistent format).
- Disseminate consistent HR practices, and extend talent management and growth opportunities to external workers
- Reduce “time to hire” with direct access to recruitment and onboarding forms and compliance protocol
- Quickly respond to short-term needs and reallocate staff with accurate assessments and what-if? simulations
- Increase engagement and efficiency with seamless experiences
Reduce the red tape, opacity, and fiddly processes that are frustrating your employees.
- Give employees a single, device-friendly access point to all their HR-related records and information
- A single employee interface that integrates HR activities with other related areas across the business such as onboarding with asset management, or employee-initiated travel and expense management
- Minimize error prone and frustrating manual tasks and reporting with automated smart technologies and processes that are easy (and even fun) to work with
- Gather and analyze data from your people across all their work experiences, to get meaningful insights and help to improve employee satisfaction and sentiment
- Reduce financial, compliance and security risk
Remote and hybrid work has led to a geographically spread-out workforce that spans states, provinces, regions, and even countries. And gig and freelance workers are playing a greater role in many companies, further adding to an already complex web of administrative and financial compliance needs.
- Ensure adherence to compliance with regulations and requirements by getting accurate and complete reporting of your total workforce in real-time
- Reduce risk and operational costs with global end-to-end payroll processing and auditing controls
- Eliminate manual data sharing and get a more robust picture of payroll and benefits expenses across the business
- Protect your people and company by standardizing data governance policies and access protocols across all your business processes
- Break down silos and fuel innovation with HCM and ERP operating from the same platform
- Leverage a foundational “people data model” to share across other operational areas of the business
- Align data models, embed cross-system analytics, boost confidence with cloud security and identity management, and provide end-to-end process blueprints that help to create unified workflows and a seamless user experience
- Harmonize on-premise, cloud, and third-party application landscapes in a single accessible place.
By integrating the unique strengths of HCM and ERP, companies are breaking down data silos in real time, to connect HR with other core departments.
Next steps to HCM/ERP integration
As with any operational change, it can be challenging and stressful to implement new ways of doing things. The most successful ERP and HCM integrations happen when there is a strong commitment to communication and good change management. When you take the time to show all your teams the full extent of benefits and the surprising ease of use of cloud integratedion solutions, they will not only be ready for digital transformation – they’ll be excited about it.
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