Middle Kingdom: Musings on Chinese HR, technology and the country

SHANGHAI

The Oriental Pearl Tower  seen from the Bund.
As spectacular as un-Chinese since, unlike Muslim
minarets and Gothic cathedrals, Chinese palaces, pagodas
and pavilions have traditionally been low-rise affairs

Surprising as it may seem for the globe-trotter I am, until this week I had never set foot in China. Although I had worked on many global projects which involved rolling out an HR system for a Chinese workforce the opportunity never arose for me to visit the ancient land known to Marco Polo as Cathay* (the name is still used by one of the most successful airlines in the world, based out of Hong Kong.)

It was therefore with great trepidation that I boarded the world's largest aircraft, the Airbus A380, for the longest trip east that I had ever taken in order to spend most of the week in Shanghai with the local subsidiary of a multinational client. This was a unique opportunity to gather business requirements face to face with HR users in their local environment, something only imperfectly done in virtual meetings, on the phone or by email.

You soon realize that if in China rules and laws may not be voted on by a democratically elected parliament, but rather handed down by the omnipotent Communist Party, they are adhered to ferociously, as I was reminded when, during one of the workshops I led, I suggested we shorten the lunch break from one hour to 45 minutes. The reaction was a categorical NO. Labor laws are labor laws: one hour's break for lunch is one hour. Can't say I was shocked since that is exactly the same rule as in France (but outside the rest period, the Chinese workforce is a hard working one and I was impressed by the quality and dedication they bring to the task.) Actually, many other aspects of China's labor laws seem to be directly inspired from France's: such as the 1-2% of a company's payroll which must be set aside for the worker union to spend on employee benefits. But then French laws are at times very socialistic, if not outright Communist (ever wondered why the Labor Code in France is a little red book?)

Replica of Xi'an Terracotta Army
soldier, gifted to the blogger
by the Chinese delegation to the
UN World Tourism Organization where
he worked in the 1990s

A rapidly changing country
As everybody knows, China has managed to bring hundreds of millions of people into middle-class wealth faster than any other country on earth: in the past 25 years income per person has risen 13 times, whereas in the rest of the world the figure is barely 3 times. I see on Shanghai overcrowded roads more SUVs  than anywhere else but the US. Beijing has more billionaires than New York.  If there ever was a national success story it is China. And yet serious problems are looming: it is still an autocratic country, unemployment is rising, especially in the poorer rural areas in the country's western half, inflation is high (Shanghai home prices rose by 20% last year), the population is greying fast as a result of the one-child policy aiming at reining in demographic pressure, pollution shows its ugly face in many places with foul air a constant irritant. Some un-Chinese traits such as individualism and Western-style consumerism are on the rise in this increasingly unequal People's Republic. (I always marvel at Chinese tourists who buy designer bags at Paris upscale department stores for a price that is higher than many workers back home make in a year)

Now, to the topic at hand, requirements to manage a Chinese workforce as part of a global HRIS. In some aspects HR law and  practice in China may be complex, even cumbersome (but is there a place  where that is not the case?) However, in many other aspects it is quite simple and even free-market based, reminiscent of the practice in the (income-tax free) Persian Gulf states. For instance, in Europe and America, there is a quite clear-cut distinction between permanent employees and contractors, HR processes apply fully to the first, not to the second. In China, there are no contractors: everybody is a permanent employee. There are also no part-time workers. In other countries, some employees may work only 30% of the normal schedule, and in some cases be paid differently, all depending on labor agreements and regulations. In China, if you're going to work for a company, you work full time. Otherwise, go somewhere else. And no labor agreements either, which makes it much easier to set up compensation plans and eligibility rules

Art Deco glory.
East meets West at the spendid
waterfront neighborhood known
as the Bund

Over lunch, when the Head of HR asked me why there were so many strikes in France (yes, that national trait has made it to the other end of the world) I replied, "For the usual reason: to get more money." She looked very surprised: "Really? But if they want more money and they are not getting it from their current employer, why don't they just move to another better-paying company?" Admirable logic, which makes sense in a fast-growing, emerging market like China, but, alas, does not apply in sclerotic European countries like France.

Language-wise (you may want to brush up on my 5 pillars of "glocalization") if you're going to roll out a global HRIS in China, make sure all self service features are available in Mandarin. Otherwise, the system won't be used. Many HR power users, even if working for a multinational company, will struggle with English, so having the whole system in Mandarin is a must.

Workflows with different levels of approvals is also a must-have in a country where deference to senior management is part and parcel of the culture. Electronic notifications have made great progress in the Middle Kingdom but some document still need to be printed out for signature and be handed out to the relevant recipient. If you ever wondered why China is referred to as the Middle Kingdom it's simply the name in Chinese: The first character for the name is a horizontal rectangle cut in half by a vertical stroke, meaning, you've guessed, Middle. Like all great societies, China sees itself as the center of the universe. Can't blame them; after all, they are the most populous nation on earth, soon to be the richest, and the one with the longest continuous civilization in the world.

It's all about Human Resources

HR rules and HR Departments are nothing new in this country. The US only got its Civil Service with its grades and steps and examinations at the end of the 19th century, but the Chinese Ming dynasty, which ruled the country until 1644, already had a Department of Personnel with a nine-grade bureaucracy and legendary examinations one had to sit for and pass before being entitled to a position. Modern China is simply the heir to a long, centuries-old  tradition.

Among the various HR domains and processes, time recording can be quite complex in many Chinese companies, especially manufacturing now that China has become the world's factory. However, soaring taxes, transportation and energy costs means that China's labor force is no longer as cheap as it was. China will increasingly have to move up the value chain, which explains the strong emphasis on training, competencies, learning and development, and executive assessment. Again, nothing surprising in this ancient Confucian culture where learning values  are rated very high.

The blogger ready to board the Shanghai
MagLev Train. At an average speed of 300 km/186 m
per hour, with a peak speed of 430 km/237 m per hour,
it is the world's fastest train.  It is also the only one that runs on
magnetic-levitation technology.  Whether it is profitable
remains to be seen as it is pricey and covers a short distance
(in a highly congested area, though)

Payroll, is of course, highly regulated like everywhere else, but China is far from being the worst offenders. And there are limits to nannying employees: for instance, salary advances, which in some countries are mandatory if requested by the employee, simply don't exist in China You are paid for the work done, not the promise of it. For any help, go to your family, is the message in a culture where family bonds are stronger than in the West, but weaker than in Mao's times (In China people don't resort to banks for their savings needs but rather to the family or peer-to-peer networks.)

Absence management is also complex, and China is rather unique in that it distinguishes between absence types mandated by law and  those awarded by a company as a benefit for a differentiated treatment. The former  have to be taken during the take period, and if the employee leaves before its end they are compensated; whereas the latter, if not taken, are lost and are not compensated. And just as part-time employees are unusual, taking an unpaid leave or a sabbatical is unheard of for most people. Note the existence of many recruiting and training agencies (such as Zhaopin or 51job.)

Benefits involve many players: government, worker union and employer. Noteworthy that if some benefits (such as birthday allowance) are not provided by the worker union then the employer will play the substitute role and provide them.

In a  country where education has long been seen as a passport  to success, small wonder that competency frameworks, training agencies and learning models are all the rage. Many companies would finance employee degrees in exchange for a guaranteed stay with the company (similar to tuition reimbursement by US companies.) For some useful training (such as languages), private enrollment would also be refunded by the employer if the employee brings evidence of the certification thus earned.


China's HRIS vendors hold their own
To meet the HRIS needs of Chinese companies, whether domestic or subsidiaries of multinationals, the array of providers is quite large. SAP's market share is largely around its on-premise offering, and Oracle's is based on PeopleSoft. Cloud vendors are represented by Workday, a distant third but growing fastest. Kronos is well-entrenched when it comes to time management. Unsurprisingly for such a highly patriotic, even nationalistic, country, Chinese vendors have, together, a majority market share. They include household names in China such as Beisen, the undisputed talent company, and other vendors such as Neusoft (or even micro-blogging firm Weibo) covering various HR processes, when not the whole gamut of functions.

The biggest challenge facing homegrown vendors is how to go global, not an easy task when some tools which we take for granted are not available in China. First-come visitors to China may be surprised, even shocked, to find that social media and internet tools like Facebook and Google are banned (unless you, or your company, are lucky to have your own VPN.) In the West, and even the rest of the world, so much HR work, actually so much business work, involves using these platforms that you may be thrown offbalance when you realize you cannot keep up with your friends (on Facebook), get your email (on Gmail), check a video on YouTube, or plan an itinerary on Google Maps. Surprisingly and erratically WhatsApp, despite being a Facebook product, is allowed to operate in China. The Chinese make do with local variants such as Baidu, Weibo or WeChat (which is integrated with LinkedIn.).

The Chinese are a justifiably proud nation, but also a pragmatic one. They will find ways to live up to their full potential and be a full member of the global business community, something they've longed for and craved for a long time.Needless to say that this post only covers the People's Republic of China (PRC) aka Mainland China. Taiwan, Hong Kong and Macao are completely different in terms of context, HR maturity and vendor landscape. In due course they will warrant their own blog post.

(The blogger is currently crisscrossing the globe gathering requirements for a multinational company. Next stop: Detroit, USA.)

(This is the latest in a series of wide-ranging articles focusing on a single country. Previous posts:

August 2011: Brazil Rising: Thoughts on HR, technology and an emerging giant 
December 2012: My 20-Year Affair with Spain  - with more than 9,000 views it is one of my most popular blog posts
June 2013: Thoughts on India, its HR/technology space
Nov. 2014: Of Switzerland, the country, its HR practice and technology landscape)

NOTE: All photos are the work of the blogger and copyright applies

From the blogger's library

*I strongly recommend Gary Jennings' superb novel, The Journeyer, about the great man's 13th- century travels throughout a China few  people had ever seen then. 1,000 pages which you can't put down until you reach the end. For anybody wanting to understand China's wrenching changes in a historical perspective, Jonathan Spence's In Search of Modern China is a must-read. Nobel-Prize winner Pearl Buck's novels, set in pre-Communist post-Imperial China,  have a lot to say about the Chinese soul and experience. The movie buff I am relishes Zhang Yimou's movies (especially when the incomparable Gong Li is in them): Raise the Red Lantern, Ju Dou, Red Sorghum and Flying Daggers are favorites. He is also the man behind the highly acclaimed opening and closing ceremonies at Beijing's 2008 Olympics. 

FOR SALE: Software firm HR Access going on the block

PARIS

You will not see the following ad in the Financial Times or Wall Street Journal, or any IT trade publication, but you might as well. After almost 10 years trying to shape HR Access into an outfit to serve its changing purposes, investment firm Fidelity is throwing in the towel. The software company it bought in 2003 from IBM is up for sale.

I discussed in an April 2010 post ("Is Fidelity Still in the HR Services Business?") some of the recurring problems faced by HR Access and I predicted that Fidelity would sell off the company. Two years on the problems haven't been solved and Fidelity is now actively looking for a buyer to divest itself of what has turned into a failed venture. Its dream of ever recovering the staggering amounts it has plowed into the French company are unlikely to ever materialize.

So, who is the likely buyer?

- Payroll outsourcing giant ADP could be interested (rumor has it that it did express some interest.) It has experience buying European payroll providers: as recently as 2010 it bought Logica's payroll business in the Netherlands and Italy's payroll leader, Byte. HR Access will help it expand its market share in countries where it is already a leader. But being a leader in the markets where HR Access is strong may not constitute a big incentive for them, unless the price is particularly attractive.

- SAP is also a leader in France and Italy, but less so in the payroll business. And since PeopleSoft is still strong in France, the acquisition could strengthen its hand. The fact that both SAP and HR Access have one of the largest employers in Europe as a customer (the French government - SAP for HR and HR Access for Payroll), this could be a good opportunity to consolidate both into one single project and offering. And as a European company, the cultural fit may be closer than ADP (or Fidelity for that matter.)

- Meta4 could do well with HR Access's customer base especially since they operate in the same geographies. However, Meta4 (whose business has been as stagnant as HR Access) is going through a bad patch now, so any merger would be a case of the broke leading the broke. Or Sopra, one of the top French IT services company with a well-known HR product, Pléiades.

- One cannot rule out Oracle, the serial acquirer if there ever was one. But with Oracle's focus on the cloud/SaaS business, HR Access may be too small to feature on its radar. 

- What about the various private-equity firms that have invested hundreds of millions of dollars recently acquiring HR companies? Maybe legendary KKR, owner of fellow European Northgate Arinso, could see the opportunity to increase its  market share in key European countries. Sure, that means adding  one more product (and many versions of it, to boot) but NGA's portfolio is already so large that managing a couple of additional products should not change much.

Hopefully HRA 9 is better localized than their season's greetings
(as seen on  their website on Jan. 3, 2013)

- Anybody else?

Whoever makes the move better have a good strategy in place AND ensure execution follows through, otherwise it will be yet another case in the software industry of throwing good investment money after bad.  

Brazil Rising: Thoughts on HR, technology and an emerging giant

SAO PAULO
This sprawling city of concrete and steel, the largest in all the Americas as well as the southern hemisphere, not to mention being Brazil's business center, is also home to one of the most congested roads in the world. In comparison, Los Angeles residents live in traffic heaven. The situation is such that many senior executives are whisked to work by helicopter (many skyscraper rooftops in São Paulo double up as helipads.) Attending CONARH, Latin America's largest HR event where I moderated a workshop on HR system usage, since my expenses policy did not include helicopter commuting, I decided to stay near the Transamérica Expo convention center where the conference took place thus allowing me to spend more time with Latin America's HR movers and shakers.

And what a difference it makes to be talking with Brazilian heads of HR versus their Northern Hemisphere counterparts. Whereas in the "rich" world (I wonder how much longer we'll be able to call ourselves such a thing)  the talk is depressingly about crisis, uncertainty and layoffs with European and American HR directors behaving like rabbits caught in the headlights, here you would think you are on a different planet.

Last month Brazil created 144,000 jobs, higher than the 114,000 jobs created in the US whose population is 30%  bigger than Brazil. And, even bigger difference, those Brazilian jobs were net hires, whereas the US had job losses of 60,000.  Small wonder that whereas the unemployment rate in Europe and the US has been hovering  around 9-10%, in Brazil it is down to a historically low 6%. And when you realize that in the US only less than 30% of companies are planning on hiring, in Brazil the figure is an astonishing 80%.

 On most economic indicators the United States has been trailing Brazil
for the past few years and will be doing so in the foreseeable future

These figures were borne out by all the HR leaders I met. I do not recall a single one of them saying that they would keep their workforce at the same level this year and next, let alone downsize: every one was busy adding capacity. And that is the unofficial theme at the conference: labor shortages. Retail, manufacturing, services, banking (HSBC is laying offs tens of thousands of  employees in the "rich" world but hiring several thousand in Brazil), hotels (Rio de Janeiro is trying to squeeze thousands of new hotel rooms in the narrow strips between mountain and sea before the 2014 Soccer World Cup and 2016 Olympics), oil and gas. Every head of HR in every industry is wringing their hands that they cannot find all the people they need, and when they do they lose them to the competition. This Brazilian War for Talent inevitably creates other issues: turnover with its attendant salary rises.

Traditionally, salary rises in Brazil have been dictated by government and unions through across-the-board rises to take inflation into account. While this still exists, it has been dwarfed by market realities: with demand outpacing supply, many employees go the highest bidder with Brazilian CEOs drawing now the highest salaries in all the Americas. At the lower end of the spectrum, the strong growth of he economy as well as cash transfers by the government (Bolsa Familia program) and major infrastructure projects has meant that for several years now, every month has seen tens of thousands of Brazilian employees joining the formal workforce.

The upshot of this virtuous circle is that payroll vendors are having a boon. And when I say payroll vendors that is what the Brazilian HR market has traditionally been largely about: Payroll and HR admin, functions whose complexities local vendors have learned to manage for decades when it was a reserved market. And God knows what a complex domain Brazilian labor laws are.  In my experience, Brazilian payroll is among the most complex in the world (in the same league as Italy for instance); the list of standard reports and documents to produce or track is huge: employee contract, medical document, signing and stamping several others such as an alphabet soup of CTPS, CPF (for tax purposes), the national ID card (RG), voter's card, a social program called PIS. Some can be validated via an algorithm in the software, others cannot. In a recent World Bank report it was calculated that on average Brazilian companies spend 2,600 hours per month just to comply with regulatory requirements.

The potential for HR electronic filing is huge since many processes such as CTPS registering for new hires are still manual ones (Brazilians have an amazing love for paper; whether it is settling your hotel account or pay a restaurant bill, you will be flabbergasted by the number of forms and receipts that change hands, are signed, checked, calculated on before the process is over.) Things are changing, though, as there are currently discussions to automate many processes ("click contracts" for e-labor contracts.)  Time tracking, known in Portuguese as ponto eletrônico, was mandated by law meaning that almost 400,000 Brazilian companies will have to change this year both the hardware and software used to track when employees clock in and out (even for lunch) and create the relevant interfaces with HR systems of record.

When it comes to benefits, Brazilian companies are in a league of their own, with some benefits departments managed as full-fledged businesses. Mining giant Vale, for instance, has marketing executives in its benefits department whose role is to sell benefits and other plans to employee dependents. (In case you are curious, Vale uses PeopleSoft as its HR system of record.) Another interesting feature of the employee-employer relationship is that Brazilian companies oblige their employees to open an account in the bank of the employer's choice where their salaries are paid via direct deposit. This has the advantage of securing more decent banking fees for the employee, but it is obvious that when a company with tens of thousands of employees comes knocking on the door of, say, HSBC Brazil, they get good benefits themselves. (This cozy situation reminds me of Belgium where payroll services providers make a big part of their money by leveraging the time - and therefore interest paid- between the date when they receive funds from employers and the date when they pay salaries into employee accounts.)

As in Spain, health and safety is a big issue in Brazil with a higher rate of  workplace accidents than in the US. An HR manager for Petrobras, the Brazilian oil giant (whose IPO last year became, at $67bn,  the world's largest) told me an anecdote about the accident rate on their platforms (2 or 3 major accidents per week!) He had a hard time when visiting one of their oil rigs to talk employees out of organizing a churrasco or barbecue, knowing Brazilians' love for grilled meat. Having accurate statistics and providing training are key to bringing the accident rate down to more manageable levels. (Another issue they have in the oil and gas industry is, of course, labor shortages, especially of technical staff.)

Faced with such complexities, but also due to the fact that for a long time  Brazil operated as a closed economy and to a certain extent this continent-sized country still feels quite unique (it is the only country in the Americas to have its own language)  it is small wonder that the HR software market has traditionally been the preserve of local vendors. The major ones are:

• Totus: Brazil's answer to SAP, it has more revenues than many US software companies (should hit US$1 billion this year) and is even expanding abroad (Mexico and Portugal);
• LG Sistemas (the largest HR vendor with a customer list which is a roll call of the best-known Brazilian companies, many global multinationals interfacing SAP HR to LG's flagship FPW payroll); 
• Senior (Vetorh product line) with a strong loyal customer base.

As mentioned earlier, the booming nature of the Brazilian economy is making recruiting an HR leader's daily headache. You might think that this is par for the course for emerging economies. Actually labor shortages are more acute in Brazil with 64% of employees reporting difficulty in filling vacancies versus only 40% in China and 16% in India, according to a Manpower survey. This situation is compounded by the fact that, because Brazilian employees tend to be loyal to their companies, luring them away can only be done by offering them higher salaries, which some are happy to take because companies are happy to offer them.

These developments have led the traditional payroll-cum-HR admin market to give way to an emerging talent management market segment. Salary cost escalation means that if you cannot continue to compete on salary alone, you will have to offer your employees something else to base their loyalty on. Enter career-development plans to give Brazilian employees a stake in both their company and their own professional life.  Many HR managers who have been working on competency models have embraced whole-heartedly the various aspects of talent management, launching career-management and competency programs in their companies. Brazilians, who are among the most social and communicative people on earth, have taken to social media enthusiastically (with Orkut rivaling Facebook) showing that it is just a matter of time before tens of millions of consumers of social, mobile HR appear on the map.

The issue is that HR vendors are still slow in providing the relevant tools for that. (For Portuguese readers, I wrote an article on this issue last January and it was published by a Brazilian HR portal) Brazilian vendors, although beefing up their talent management functionality, are still caught in a payroll-HR admin time warp. Strong web-based vendors  are yet to emerge. What about global vendors? you might wonder.

Global vendors SAP, Oracle, PeopleSoft, and ADP tend to be used by subsidiaries of  (mainly US) multinationals, although the burgeoning number of Brazilian multinationals is also going with these vendors (note that they still tend to favor LG or Totus for their payroll, in spite of SAP having a Brazilian payroll.) Talent vendors such as Taleo or  SuccessFactors have a token presence, usually through a local partner, and, like their ERP competitors, are happy to just work on extending the contract to local subsidiaries. At the conference I did not see a single representative from the global vendors, which makes you wonder about their business expansion plans. Considering the current economic climate in the the US and Europe, how can HR technology vendors ignore such a large, growing market as Brazil? With the Brazilian currency, the real,  relentlessly appreciating versus the dollar (when I first came to Brazil seven years ago US$1 was worth over R$3, now it has come down to R$1.5, having lost half its value) this means that every customer in Brazil can now add significantly to a global vendor's bottom line.  And starting in October,  payroll taxes on certain industries such as software, will come down 20% (a move our deficit-ridden "rich" countries can only dream of.)

Every light is blinking green, an inviting green. The land of the four S's (samba, soccer, sun and sex) has every potential to add a four S (software) to its suit. What are global vendors waiting for? For a long time Brazil was known as the country of the future. It has finally become the country of the present, and it is a global vendor's market to lose.

(Ahmed Limam keeps a second home in Rio de Janeiro from where he monitors the Latin American market and provides consulting/advisory services in the region. When the blogger is not in residence, his penthouse can be rented. Check out the Airbnb listing, also available on TripAdvisor/Flipkey and Homeaway. You can also rent it straight from the blogger))

A five-tier approach to a multi-country payroll project

PARIS
Although the bulk of the upcoming HR-technology projects deal with the various components of what goes by the name of talent management, by far the largest number of current HR systems still deal with good old payroll. Such a focus makes sense since you may decide to eschew compensating adequately your workforce, or recruiting them effectively, or training them in line with your company's objectives but there is no way you can avoid paying them.

With the pace of globalization showing no sign of abating most companies find themselves operating across several countries which brings to the fore the need to manage their workforce as part of a single HR system. Most multinationals have been doing just this for a good decade now: two thirds of them have a global HR system of record for all their employees from which they send the relevant data to other HR systems such as learning, time management, benefits and, primus inter pares, payroll.

Traditionally payroll has been managed via a local vendor, either outsourced or in-house, but in the last few years the proportion of large, global companies deciding to use a single, global payroll system (even if not necessarily on a single instance) has grown quite substantially. New vendors, purporting to deliver the Holy Grail of a true global payroll system, have appeared on the landscape muddying the waters of what can be done, what can only be dreamed of and what is pure fantasy.

I have spent a good portion of the past 15 years either implementing payrolls, helping end-user organizations select a new payroll system or, as part of the vendor community (especially now-defunct PeopleSoft and pre-Fusion Oracle) developing a global payroll. In my book, "High-Tech Planet", I describe the fun associated with making a business case for a global payroll.

Assuming you have decided to run your own payroll inhouse (versus outsourcing it in full or in some countries-but I will discuss this as well further below) and regardless of whether you want to do so with an on-premise system or a hosted (SaaS) one, there are basically five ways to go about it based on:

- Funding: Who will pay for it? Sure, ultimately you the customer will end up paying for it, but there are ways to go about it. The vendor can fund this out of its general licensing revenue or you the customer can pick the tab directly.

- Build: Usually he who pays for it builds it, but this is not necessarily always the case as a player (say, a subsidiary) can contract out to the development organization to do it.

- Support/maintenance: This is a key issue and again it is not always an easy decision, the builder is not always the maintainer.

-Ownership: Some of the prior issues will determine, and be determined by, who actually owns the localized payroll.

Having defined some of the key criteria and remembering what it means to have a localized payroll (if you have not done so, please read my post on the five pillars of a "glocal" HR system: http://bit.ly/eRqx5J) here are the five ways you can run your global payroll system. (And, yes, I know, my mind seems to work in fives, probably the remnant of a childhood spent using my fingers to count.)

Tier 1: The truly global payroll 

SAP is the undisputed leader covering more countries
than several vendors put together. Vendors like ADP
whose offering is made up of disparate payrolls are not
included. The figure for Oracle, PeopleSoft refers
logically to each separate product line. Although
Workday currently has the same number of country
 payrolls (two) than other vendors not mentioned here,
I am including them as I believe they will increase
 that number in the coming years

This is the ideal situation. Your payroll vendor offers a localized offering for all of the countries you operate in, meaning they have built all the different aspects required to run a payroll in, say, the US, China, Argentina and South Africa (check that they comply with my five golden rules described in the above post). They built it from their Corporate Development organization, they support and maintain it (every time a rule changes you get a patch), they pay for it themselves out of the hefty license/support/usage fee you are paying. All you have to do is "just" implement the required software and you are in business. Perfect? Trouble-free? Not really. First of all, you have to remember that every vendor will have their own definition of the law and, surprise, surprise, that definition tends to be more limited than yours. So make sure you do your due diligence on that part when comparing the offering of different vendors, you may be comparing apples and oranges (I would recommend checking if they have product managers or development engineers in the various countries you want to cover.) Second, there are few, very few vendors that cover several geographies in this Tier-1 solution in a systematic way*, meaning that you will most probably have to resort to other solutions to complete the global model you need.

Tier 2: The half-baked payroll

HR software vendors are anything if not resourceful. If the Corporate Development organization for reasons I explained at length in my book, does not want to fund a localized payroll for some countries that are key to you, chances are that your vendor's country manager of, say, Nigeria  or Thailand or Tunisia (assuming you are in contact with them), will tell you that they would fund it themselves and contract out to Development to build the required features. You can thus end up with a product developed by your vendor following their development guidelines, on their codeline, with their own people responsible for developing other parts of the standard product. For all intents and purposes, it sounds and feels like the Tier 1 solution, except that it ain't. First of all, once they've built and delivered it, Development won't touch it with a ten-foot pole. The subsidiary, sometimes under constant prodding from you, will have to finance it and if the local market does not warrant it (you were a one-off case) you may wait a long time for that statutory report on overtime pay required by the government of Brazil. And, of course, there is no guarantee that any new off-the-shelf release of the core HR system and payroll (Tier 1) delivered by the vendor will be compatible with this Tier-2 product.

Tier 3:  The partner-built payroll

This is a variant of Tier 2 whereby, since Corporate Development doesn't want to have anything to do with the local payroll (either directly or indirectly, "hey, we don't even have time to build what we committed to"), a local partner is enlisted to replace Development. The great advantage here is that the partner, usually a local payroll vendor, knows the country requirements quite well since they have been developing their own system for  a long time: they therefore have the knowledge, people and resources to develop the localized layer of rules, processes and reports that you need for countries X, Y or Z.

All they need to do is get trained on the core payroll engine, understand the global vendor's development guidelines and they can get you the country extension you wanted in a faster turnaround your global vendor could never dream of. Who will pay for this? you may ask. Well, it all depends on the relationship between the global vendor's  subsidiary and the local vendor: sometimes there is a true partnership whereby they split the licensing revenue or the local payroll vendor gets royalties. (You will not believe how much frequent-flyer mileage I accrued traveling across several time zones and meeting countless payroll vendors to fix these issues) As a customer you need to understand the intricacies of such deals to ensure proper and speedy maintenance. Also, what happens if the local vendor bows out of the agreement? Will the global vendor's subsidiary pick it up as a Tier 2 solution? Will the global vendor accept to productize it and bring this local payroll into the standard product (make it a Tier 1 solution)? What about the compatibility issue with new releases of the global system? Since the global and local products will be on separate release schedules (and sometimes technology stacks) serious issues might arise.

Tier 4: The project payroll

If neither of the previous works, usually because as a customer you represent too small a market share for the vendor to get involved even at the local level through a partnership with a local vendor or by having the product financed by the subsidiary, you can still build the local extension as part of your implementation. Your own people can do it, especially if they have experience working with the vendor, know the tools well, especially the core payroll engine. Or your system integrator (SI) could do it for you, especially if, as is likely, they have experience implementing that payroll or even building out localized versions: and like all SI's they would love to do it for you, in exchange for fat, cascading consulting fees. A third option would be to use the consulting arm of your vendor to build it for you, on a T&M basis. The advantage of the latter is that it may minimize risks associated with such a project, if only because you can assume that as part of the vendor's organization they would know the product better than your own folks or an SI. Whatever the option of this solution, you the customer as the owner and funder of this solution will still be responsible for  its support and maintenance. Tough decision to make, but well worth it if the country under consideration is a key one with many employees and user experience, analytics and integration issues demand a similar payroll be used for that country as for the other ones.

Tier 5: The third-party payroll

When all else fails, then you are left with only one solution: create an interface between (a) either your HR system of record or your global payroll (there are pros and cons to do either, I will discuss that in another post) and (b) either a local legacy payroll or, more likely, an established local payroll vendor's solutions for the countries where you do business. It could be either an ADP-like outsourced payroll or the myriad third-party payroll systems which, in spite of the global vendors' growing market share, still rule the roost all over the world and which your local team will have to install and use. If you're lucky, maybe that such an interface has already been built by your vendor. For instance, most of the ERP vendors (SAP, Oracle and PeopleSoft or "SOP") have built such an interface (goes by various names, Payroll Interface or ADP Connector) where, in a nutshell, they already map HR data (employee details, compensation, organization, contract, absence data etc.) to selected payroll systems. Just make sure you understand what is really covered and who will maintain such an interface. In some cases where the interface is too light (what I call a marketing interface rather than a true product one) you might as well build your interface yourself.  Especially when the number of local payroll vendors is huge and there is little chance of your global vendor to have built standard interfaces to all of them.

It is noteworthy to keep in mind that when "SOP" vendors start localizing their offering they do it on a module-by-module basis, meaning that they first release a localized  HR Administration system (contract types, national identifier, address format etc.) and only then (there can be a lag of several years between the two) the payroll rules (earnings, deductions, gross-to-net calculation etc.) In order to optimize a Tier-5 solution, you may want to check which of the vendors has the most localized HR Admin modules as this will help lessen the need to build such features prior to their use by a payroll interface.

One tantalizing thought is the extent to which a pure SaaS vendor (such as Workday) can meet the needs of large multinational companies since in a SaaS model the payroll sits on a vendor's data center and is accessed remotely by users. It is therefore hard to envisage how Tiers 2-4 solutions can be done with such a system. Could it be that a global payroll system will be hampered by SaaS? So far the jury is still out as there is no   vendor that has yet come up with a SaaS-based multi-country payroll. This probably explains why Workday has been quite slow at expanding its country footprint and few members, if any, of its growing customer base are using its payroll outside North America. But if a true SaaS vendor manages to enhance its configuration options to the level needed to quickly build local payrolls and/or add new payrolls quickly to its standard offering, then it will truly revolutionize the oldest of HR functions.

*A list of how various global vendors fare in terms of HR and payroll localization is available from www.AhmedLimam.com\ Vendor Localization Footprint (excerpt -Google Docs sign-on may be required.) Please note that the Tier-4 description therein is somewhat different from the five-pronged approach presented here since the Vendor Localization Footprint report does not by definition cover the Tier-5 solution presented in this post.

How in-memory technology could affect HR applications

FRANFURT
Returning from my first Sapphire in years (working for several vendors such as PeopleSoft, Oracle and Fidelity in a row wasn't the best way to get me an invitation to the world's largest business-software event) I feel like sharing some thoughts about what could be a game-changer  for HR technology. My deepest apologies if I use a cliché (I positively hate those pompous and vacuous "paradign shifts" and "game-changing" when not "disruptive technologies") but for the first time since Workday introduced its object-oriented architecture here's a technology that could truly enhance HR systems.

Sure, Workday (a direct competitor to SAP's Business ByDesign whose latest version also premiered at the event) already uses in-memory technology (IMT) but the fact that SAP has a much larger installed base of HR customers has the potential to bring this new technology to the masses more effectively.

First, if you wonder what IMT is, here how it goes: until now you saved your data (salaries, employee details, list of positions to be filled etc.) into separate disks in a database (such as Oracle, IBM DB2, Sybase just bought by SAP, Microsoft SQL Server or Informix -also an IBM platform-  to name the best-known ones) where they were safe and secure. Of course, such data were useless unless you could retrieve them as part of your transactional work (processing a payroll, hiring an employee) or analyzing them for better informed decisions (getting a report on training costs, for instance.) The problem was that retrieving, transacting and analyzing data in this architecture took time: days, sometimes weeks, which was an improvement on a a paper-based manual process but still frustrating. Enterprise systems in general, and HCM suites in particular, have struggled with the issue for so long, especially in the analytics space, that they had to resort to acquiring best-of-breed systems to plug what was an embarassing gap in their offering: SAP bought BusinessObjects in 2007 followed shortly by Oracle's acquisition of Hyperion. Oracle's move came after the failure of its business intelligence offering. Human Resource Intelligence (HRI), Oracle's BI application for its HR product, was not exactly a blockbuster and for good reasons: it was not real-time, had to be refreshed daily and the pre-delivered graphs could not be customized. As for SAP and its myriad offerings, datawarehousing this and dashboarding that, the addition of BusinessObjects didn't make their offering any more real-time.

Now, with memory chips becoming cheaper, faster and more powerful, a greater number of them can be put in servers' short-term memory, rather than databases, where they can be retrieved and manipulated faster and more easily.   Real-time HR is just around the corner. Some practical applications in the HR space could include the following:

1. Payroll: after all is said and done about strategic HR/Talent Management/People Management and other vocables to describe the nobler aspects of HRM, payroll is still the cornestone of any HR system, probably more so in tough economic times. Most companies when selecting a payroll, especially in an on-premise mode, spend a lot of the evaluation time on response times and benchmarking the shortlisted vendors. For a company with, say, 10,000 employees running a payroll (process run, prepayments, check writing, costing, archiving) can take several hours depending on configuration and complexity of payroll (special elements, retro-pay just to name a few). Cut that in half and suddenly the dreariest of HR jobs becomes, well, not exactly the most glamorous one, but definitely less taxing. And imagine what you can do with payroll simulation, a key requirement when negotiating wage raises with unions. Having literally at your fingertips the actual cost of, say, 1% increase gives you not only great leverage but undisputed hard facts on which to base your decision. Here speed is of the essence.

2. What-if analysis and modeling (and not only for payrolls) have long been one of the weak links of HR applications requiring the use of non-live systems which added to the length and complexity of the decision-making   process: how can you make up your mind on the size of the bonus to award your highest performers if you have only a vague idea of what the impact on the bottom line is?

3. Intelligence and analytics: taking the former issue further, why should one have to run specific reports and simulations on what are humdrums issues? Wouldn't it be much more efficient to have configurable queries on several HR aspects (see above diagram with HR KPI's) in a push mode where you see the result at best every time you refresh your analyrics page (or dashboard), at worse at no more than a click? You can't do that when every query means  having to query the database, and I'm not even talking here of the highly technical skills needed.

4. Reporting: after payroll,  much of HR's dullest work is putting together the innumerable (and constantly increasing) list of reports required by business and demanded by government. With ITM, why bother about putting them together and storing them when they can be pieced together on the fly? Your report on mid-managerial employees in the northern region making $100,000 a year is not available or was never pre-built? No problem.  You can now have it faster than an ad hoc tool could ever have helped you, even faster than some already configured, standard reports delivered by your vendor. If this is not a revolution, I don't know what is.

The practical applications of IMT in the HR space are such that IMT is bound to deliver solid enhancements once the vendors get around how to market it. At Sapphire SAP was unsurprsingly mum on whether it would packaged with applications and/or the database and how it will be charged. But it is already clear that with this SAP has an edge over Oracle whose Larry Ellison ridiculed its nemesis and unsurprisngly so as he realizes that should IMT live up to its expectations his flagship database business could start declining, maybe even go the way of the dinosaurs. Small wonder that at the same time as Oracle is dismissing IMT it has quietly beefed up its offering  with what it calls IMT but is just a glorified cache applied to the database to speed up processing it time. Also important (but it wasn't mentioned by SAP at the conference - somebody clearly didn't do their research thoroughly, I surmise) is that from a competitive viewpoint IMT could damage Oracle who makes large use throughout its HRMS suite of so-called FastFormulas which are stored in the database. With IMT (or rather without since FastFormulas can't use it), the Oracle product (on whose code the next-generation Fusion HCM is being developed) will look decidedly dusty.

Whatever the respective competitive strengths of every vendor and their marketing tactics, and expect a deluge of hype as everybody jumps on the IMT bandwagon regardless of what they can really offer, one thing is clear: real-time HR is now for the first time about to become ...real.