Companies worldwide are using more cloud-based software for recruiting, payroll, time and attendance, benefits and other aspects of people management, or are planning to in the near future. In talent management, where software-as-a-service—commonly referred to as SaaS—or cloud-based software is more mature, 46 percent of 5,753 HR professionals in a recent SilkRoad technology Inc. survey reported using pure SaaS, or some combination of SaaS and in-house software, compared with 25 percent who use only in-house software.

The number of companies switching to cloud software for core HR management systems is expected to grow 35 percent in 2013, up from 23 percent last year, according to CedarCrestone’s 2012-13 HR Systems Survey. In addition to needing a smaller tech staff for support, cloud software takes about half the time to deploy, is easier to use, and users like it better, according to the CedarCrestone survey.

“Vendors who are cloud vendors, this is their year,” says Jason Averbook, chief business innovation officer at HR analyst firm Knowledge Infusion.

Yet, concerns remain. Of companies considering a switch, more than half (56 percent) fear they’ll have problems integrating cloud-based services with existing software, according to the CedarCrestone HR tech survey. They also worry about not being able to customize software (53 percent), data security (51 percent), and losing control over systems and data (43 percent), among other concerns, according to the survey.

And while close to 60 percent of HR professionals in a 2012 Knowledge Infusion-Workforce survey “like” or “love” SaaS, about 7 percent say they’ve had too many problems with it, or consider it too risky to use.

Advance Work Key

As with any major transition, the more advance work a company does and the more departments involved, the better the chances of success. That doesn’t always happen. Ask Casey Halloran, co-founder and chief marketing officer at Costa Rican Vacations. The Web-based travel agency, with offices in the United States, Costa Rica and Panama, was adding staff so quickly, it had outgrown existing systems for tracking employee’s time and attendance. About two years ago, management decided to switch to cloud-based HR software called OrangeHRM, starting with time and attendance functions.

But changing the company’s policies to fit the software was hard, and getting resources for HR technology wasn’t a priority. Then the travel agency’s HR manager quit, leaving the project without a leader. “It’s been a brutal implementation process,” Halloran says.

Costa Rican Vacations recently hired a new HR manager, and is holding regular meetings to finish getting the software up and running. Halloran estimates the company has spent $10,000 on the program, including the cost of software, installation and consultants. “People underestimate the intellectual effort that’s required” to make a switch, he says. “They want the software to do it for them, and if it doesn’t, it’s easy” to get frustrated.

As Costa Rican Vacations’ situation shows, switching to cloud-based software doesn’t happen overnight, and can rival the challenges of implementing on-premises software. Sometimes, the biggest delays happen during the switch. Other times they come even earlier when the parties involved can’t agree on the right course of action.

Joyce Taylor, a billing manager in Pitney Bowes Inc.’s global accounting operations, figures she worked up 17 or 18 business cases over several years to move the company’s employees from filling out expense reimbursement forms on Microsoft Excel spreadsheets to cloud-based software before hitting on a strategy that met all her executive committee’s requirements.

Part of the problem: The mailing-equipment-maker uses enterprise resource planning systems from SAP and JD Edwards, and any cloud expense management service the company chose had to interact with both. That knocked out a number of contenders. Meanwhile, new vendors kept popping up. “It was an ever-changing target,” Taylor says.

In fall 2011, Pitney Bowes selected cloud-based expense reporting software from Certify LLC, which lets employees snap pictures of their receipts with their smartphones or input the information into a Web-based form. Taylor chose the software because it worked with both enterprise resource planning systems, didn’t need a lot of additional IT support, and was cost effective and user friendly.

But there was still a lot of work to be done. Taylor spent three and a half months mapping out expense-reporting policies, loading spending caps for different expenses and different cities in the Certify system, and to the extent that it was possible, getting the words and phrases Pitney Bowes used to describe expenses into the software.

Taylor’s department phased in the software through most of the company during the first half of 2012 and the remainder in the third quarter after translating some materials for French-speaking employees in Canada.

The early results of the switch have been overwhelmingly positive, Taylor says. Expense reports are getting processed faster. And when reports sit in a manager’s queue for days, “We know where it’s stuck,” she says. Still, old habits die hard; some employees complain about not being able to submit paper forms for expenses. “We’re working people through that,” she says.

Too Much of a Good Thing

One of cloud-based HR software’s selling points is that upgrades are constant. But if upgrades come too often, companies can have trouble keeping up.

Dan McConnell, a Mercer talent management product manager, recalls working with one major financial services company that was excited to move to cloud-based software because it meant getting more frequent software updates, sometimes called a “rapid release strategy.”

However, the company did quality and assurance testing on every update, and quickly fell behind. “They found themselves in a cycle of nonstop testing, and it was overwhelming,” McConnell says. “They started getting releases and leaving them off. They went a quarter and two quarters without upgrading. Users were complaining that they were hearing about new functionalities, but they weren’t getting them.”

The HR organization had to bring in additional resources to manage the rapid releases. “What they first thought was a huge advantage was a huge disadvantage,” he says.

For the most part, the data breaches that some feared would happen when companies stored sensitive personnel records in the cloud haven’t materialized. It has become common for companies to include requirements for encryption, 24/7 surveillance of cloud vendors’ hosting facilities and other security measures into requests for proposals, according to McConnell and other experts.

Still, because some companies are new to cloud software, and some HR functions have been later to migrate to the cloud than others, doubters remain. When McConnell gets questions, “It’s questions about disaster recovery. It’s more about where do you have your data centers and how do you react to potential natural disasters?” he says.

To protect against identity theft or other security breaches, Pitney Bowes uses a six-digit code to identify employees instead of a Social Security number or birth date when transmitting expense data to and from the cloud. To ensure expense reports would be reimbursed in a timely manner, the company built payment turnaround times into its service-level agreement with its vendor.

Finally, if an HR department picks the wrong software, or locks the company into a three- or five-year contract only to see technological innovation leapfrog what they’re using, they have to be prepared to live with the fallout, McConnell says.

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