The increasing digitalization of HR systems in the past decade has given birth to various HR terms. The most used HR terms of them all include Human Resource Integrated Systems (HRIS), Human Capital Management (HCM), and Talent Management (TM).
As a non-HR professional, you may be thinking: What do these generic terminologies specifically mean?
A quick search on Wikipedia does not resolve any confusion either. In fact, it even conflates these terms together:
A human resources management system (HRMS) or human resources information system (HRIS) or human capital management (HCM) is a form of human resources (HR) software that combines a number of systems and processes to ensure the easy management of human resources, business processes and data.
My own confusion
Even as an industry professional with an educational background in HR, these terminologies have often been used interchangeably, without much distinction.
I remember explaining the background of TalearnX to my previous colleague in the Recruitment field.
“I am working with an HCM Software.”
“HC- What?”
“Human Capital Management Software”
“A competitor of SuccessFactors. We supply HCM Solutions.”
“Oh, SuccessFactors. That kind of software.”
Yes, the above example is slightly exaggerated. However, this confusion is a common occurrence I face when mentioning these terminologies.
You probably share the same experience as well.
Objective
It is understandable that HR professionals not within the Software field might be confused at these terminologies.
Therefore, the objective of this article would be to differentiate these following terms in the simplest way possible. I will start by briefly describing the evolution of Digital HR systems, before sharing an infographic to visualize this distinction.
My goal is: to support the HR field in Asia by helping them perceive a clearer picture of their HR needs.
Who is this article for?
1. Current or future HR Professionals in all HR fields
With the digitalization of HR needs, and the focus on HR Analytics, HR professionals will increasingly be more exposed to HR Digital solutions.
2. HR Managers/Directors who are looking to procure a digital or cloud solution
Understanding these terminologies will strongly aid the start of your process in choosing and onboarding a new digital HR system.
3. Senior Management Executives who manage HR Teams
HR terminologies can often be confusing even to HR professionals. Having a good overview of the industry will aid your decision process. Just as it is important for everyone to have a good grasp of business knowledge, so should senior business leaders have a solid understanding of HR needs.
With that established, let us dive right in!
The Evolution of HR Systems
The world’s first digital HR System started with SAP’s HR module system in the 1970s. Companies then felt the growing need to centralize their employee data to facilitate data recording and complex regulatory needs. This coincided with the popularity of Enterprise Resource Systems (ERP).
These systems evolved to enable enterprises to record and store more complex employee data. From personal identification numbers to personal information like addresses and contact details. These HR needs are traditionally known as Core HR Human Resource Integrated Systems (HRIS) is the digitalization of these needs. Because of the basic and foundational HR needs that HRIS solves, HRIS processes are also commonly known as “Transactional HR”.
Soon after, performance management software came into the industry. This was coupled with learning management systems (LMS) , recruitment Applicant Tracking Systems (ATS), and Succession planning systems. These additional systems are typically known as Talent Management Systems.
These systems were based on the understanding that the best way to grow a business was to fulfil employee’s individual potential, based on Maslow’s Hierarchy of Needs and Herzberg’s Two Factor Theory. Therefore, Talent Management Systems effectively seek to realise an employee’s potential, creating business growth and future success. These processes are known as “Transformational HR”, due to their value-adding ability. In a separate article, we discuss how Talent Management Systems support business objectives.
The emergence of AI and Big Data brought these digital systems to the enterprise forefront. HR Analytics enabled better decision-making by aggregating and analyzing the employee data that was stored and collected in these digital systems. HR professionals can now look at human resources in a more complex and vulnerable environment, allowing them to respond strategically. By gathering insights and visualising data, HR Management gets to make more accurate workforce planning and predictions.
Global HR software vendors that are currently dominating the market include Workday, SAP SuccessFactors, Oracle and Cornerstone OnDemand. They supply the entire digital suite of both Core HR systems, and Talent Management Systems. This entire suite is known as Human Capital Management (HCM) software.
The Difference between HCM, HRIS and TM
As illustrated from the table above, HCM encompasses the entire HR process. From basic HR needs to Talent Management, to HR Analytics.
Enterprises usually do not have a single HCM software solution that encompasses all these HR processes. Some enterprises pick-and-choose certain modules from different vendors depending on their more pertinent needs.
For example, an organisation could identify Learning & Development and Payroll Management as their urgent need for a remote workforce. Therefore, they could purchase a Learning & Development Suite and Payroll Management system from different software vendors who are market leaders in those areas.
Do all HCM providers have all the HRIS processes?
While we have established above that HCM encompasses the entire HR process, not all HCM vendors have the full functional range of HRIS systems.
Some HCM vendors do not provide payroll management systems due to the complexity and variety of payroll regulations in each country. Therefore, they partner with local Payroll Management vendors instead to meet the customer’s full needs.
TalearnX has done implementation projects throughout SEA. For example:
In Vietnam, payroll requirements are complex. Vietnamese HR requirements have additional payroll components that current global vendors do not feature (taxes, minimum wage, social insurance etc.). Additionally, payroll regulations are also frequently changing, sometimes on a yearly basis.
This poses a huge headache to global vendors who would constantly need to reconfigure their software just to cater to a single market. This issue is multiplied by the fact that most countries in APAC have different payroll regulations that are constantly being revised. As a result, global software vendors are unable to provide the level of flexibility and customizability, distinct to the market.
It is recognized in Vietnam that global vendors like SAP SuccessFactors, Oracle or Cornerstone cannot meet the distinct payroll requirements of the local market. Therefore, vendors will have multiple integrations with software partners and other local vendors to cater to an enterprise’s complete HR need.
Why is this differentiation important to establish?
I have come across many customers who are interested in automating and digitizing certain or entire parts of their HR processes.
Some immediately know what they are looking for. Others are first time buyers who spend more time trying to evaluate what exactly they are buying.
Finding the best digital HR solution for an organisation is a complex process. Analyzing the HR need of the user and matching that with the competencies of each HR Software vendor can be complicated and time-consuming.
Therefore, knowing these basic terminologies (HRIS, HCM, TM) will greatly aid:
- The initial buying process of establishing what software is really needed for the user
- Understanding how the HR Software vendor market is segmented
- Learning which segment of software is needed, and who the market leaders are for each component
Point 3 is particularly important. For example, Cornerstone OnDemand is the No.1 leader in Talent Management Suites (Nucleus Research Value Matrix Talent Management 2019, Gartner Magic Quadrant Talent Management 2018). On the other hand, SuccessFactors and Workday are recognized market leaders in HCM suites. Being able to understand these terms will aid the process in finding out the best vendors available for your needs.
Conclusion
I hope that this article has offered clarity regarding key terminologies within the digital HR field.
For companies looking to digitalize their HR process, it is imperative to understand these definitions and the product lines that they encompass. Only then could purchasing considerations be made.
We at TalearnX support enterprises by providing them Human Capital Solutions throughout Asia. Our experience in implementing these solutions across 11 countries have enabled us to understand customers key HR needs within different industries and locations.
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